RICHARD W. STORY, District Judge.
This case is before the Court at summary judgment. The Court considers Plaintiff's Motion for Partial Summary Judgment
This case arises out of an import-export business arrangement between the parties. The parties have detailed the slew of complicated facts repeatedly in their various motions and statements of material facts. The Court does not need to do so again here. Instead, the Court will frame this Order with a brief overview of the case, using undisputed facts from the parties' statements of facts. Any specific facts necessary to the Court's findings will be addressed in the Analysis section of this Order.
The pertinent issues before the court at summary judgment concern the boundaries of the corporate form's limited liability. Defendant Michael R. Mulberry ("Mulberry") is the president and a director of all three corporations involved in this action, Sure Heat Manufacturing, Inc. ("Sure Heat US"), Sure Heat Manufacturing,(Suzhou) Co. Ltd. ("Sure Heat China"), and SHM International Corporation ("SHM"). (Pl.'s Statement of Material Facts ("Pl.'s SMF"), Dkt [189] ¶¶ 3, 10; Sure Heat Defs.' SMF, Dkt. [186-2] ¶ 9.) He is also the majority owner of all three companies as a 100% owner of SHM and 80% owner of Sure Heat US, which is the sole owner of Sure Heat China. (Pl.'s SMF, Dkt [189] ¶¶ 9, 17; Sure Heat Defs.' SMF, Dkt. [186-2] ¶ 8.) After forming Sure Heat US in 1982, Mulberry incorporated Sure Heat China in 2004 as a wholly owned subsidiary to manufacture and sell gas-powered products, including barbecue grills, heaters, and hearth products to retailers. (Pl.'s SMF, Dkt. [189] ¶¶ 3, 8, 26.) Mulberry later incorporated SHM in 2010 to execute a similar role as Sure Heat US, although the exact business is unclear.
The other individual Defendants, Michael Scott Mulberry ("MSM") and Harry Clifford Villers ("Villers"), similarly hold central roles in Sure Heat US and Sure Heat China. MSM is the corporate secretary and vice president of operations of Sure Heat US. (Pl.'s SMF, Dkt. [189] ¶4.) Further, the Michael Scott Mulberry Trust owns 10% of the shares of Sure Heat US. (
A bankruptcy proceeding under the Law of the People's Republic of China on Enterprise Bankruptcy was commenced by its creditors against Sure Heat China on January 8, 2014. (Pl.'s SMF, Dkt. [189] ¶136.) Plaintiff Suzhou Allpro Certified Public Accountants Co., Ltd. ("Plaintiff" or the "Administrator") was appointed as "Bankruptcy Administrator" to liquidate the bankruptcy estate. (
In its Third Amended Complaint [136], Plaintiff brings claims for Breach of Contract (Counts I and II); Unjust Enrichment (Count III); Money Had and Received (Count IV); Conversion (Count V); Alter Ego Liability (Counts VI and VII); Fraudulent Inducement (Count VIII); Negligent Misrepresentation (Count IX); Breach of Fiduciary Duty (Count X); and Civil Conspiracy (Count XI), against some or all of the Defendants. Defendants Sure Heat US, Mulberry, and MSM (collectively the "Sure Heat Defendants") now move for summary judgment [186], Defendant Villers similarly moves for summary judgment [184], and Plaintiff moves for partial summary judgment [188]. The Court will consider each in turn, but will begin with the various motions filed by parties in connection with their motions for summary judgment.
Defendants request that the Court reconsider its October 2, 2018 Order [175] addressing discovery disputes of the parties. Defendants argue that the Court did not follow the procedures outlined in the Standing Order Regarding Civil Litigation because the Court ruled on the dispute based upon the submissions of the parties and did not allow further briefing or a hearing or a telephone conversation. In fairness to Defendants, the Standing Order filed in this case would have led them to this conclusion. However, since this case has been pending, the Court entered a new Standing Order that appears on the Court's website, and the procedure in the new Standing Order was followed in this case.
Out of fairness, the Court still considers Defendants' motion for reconsideration on the merits. Under the Local Rules of this Court, "[m]otions for reconsideration shall not be filed as a matter of routine practice[,]" but rather, only when "absolutely necessary." LR 7.2(E), N.D. Ga. Such absolute necessity arises where there is "(1) newly discovered evidence; (2) an intervening development or change in controlling law; or (3) a need to correct a clear error of law or fact."
Defendants request that the Court strike Plaintiff's memorandum because it exceeds the page limit. Defendants reach this conclusion based on the Plaintiff having incorporated facts from its Statement of Undisputed Facts rather than including a full "Facts" section in its memorandum. Defendants argue that this violates the Court's Standing Order provision regarding Motions for Summary Judgment, section II(g)(I), which provides, "All citations to the record evidence should be contained in each party's brief, not just in the parties statement of undisputed (or disputed) facts." Defendants interpret this as requiring a party to actually state all of the facts in the brief, as well as in the statement of undisputed facts. That is not the intent of this provision. This provision addresses citations. The intent of the provision is to require a party to provide a citation to the record for facts stated in the brief. It is not a requirement that every fact be restated in the brief. While the Court appreciates Defendants' concern that a party might game the system and gain pages using this approach, under the circumstances of this case, the Court does not find there to be an abuse. And certainly, it is not a violation of the Order. Accordingly, Defendants' motion is
Plaintiff attached as an exhibit to its Statement of Additional Material Facts an email chain. Defendants moved to strike the exhibit as unauthenticated double hearsay. However, under Fed. R. Civ. P. 56(c)(2) a valid objection may be raised when the material "cannot be presented in a form that would be admissible in evidence." In its response [222] to the motion, Plaintiff makes the case that it will be able to present the evidence in an admissible form at trial. Therefore, the motion is
Defendants seek to strike Plaintiff's response to their motions for summary judgment because the response exceeds the applicable page limitation. Defendants point out that Plaintiff included 13 numbered paragraphs that were single-spaced. Local Rule 5.1C requires, with limited exceptions, that all documents be double-spaced. Defendants also complain about Plaintiff filing a six-page Statement of Additional Material Facts [198-1]. It appears that Plaintiff did not follow the rules by failing to double-space the numbered paragraphs. Rather than striking the response, the Court treats Plaintiffs response to this motion as a request for an extension of the page limitation and grants the request. As for the statement of additional facts, Local Rule 56.1(2)(b) authorizes a statement of additional facts. Therefore, the motion to strike the statement of additional facts is
Defendant Villers adopts the motion of the Sure Heat Defendants to strike the memorandum of law [191]. For the same reasons that the motion of the Sure Heat Defendants is denied, Defendant Villers' motion is
Defendant Villers has requested oral argument on his motion for summary judgment. A hearing on this issue is unnecessary. Therefore, this motion is
The Sure Heat Defendants move for summary judgement [186] on all claims because they are barred by a four-year statute of limitations, as well as Counts VI, VII, X, and XI on the merits. Defendant Villers similarly moves for summary judgment [184] due to the statute of limitations, as well as Counts III, IV, V, X, and XI on the merits. Plaintiff moves for summary judgment [188] on Counts I, II, X, and XI on the merits.
In sum, the Court finds the statute of limitations bars Plaintiff's Counts I, III, IV, V, VIII, IX, X, and XI. Plaintiff's Count VII alter ego claim is effectively barred too, absent an underlying claim. Plaintiff's Count II, as well as the accompanying alter ego claim in Count VI, remain unbarred. The Court will consider the parties' motions for summary judgment in the context of these outcome-determinative issues. Further, in light of the Court's holdings regarding the parties' preliminary motions, the Court will consider all briefs and statements of facts before the Court at summary judgment.
Federal Rule of Civil Procedure 56 requires that summary judgment be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." "The moving party bears `the initial responsibility of informing the . . . court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.'"
The applicable substantive law identifies which facts are material.
Finally, in resolving a motion for summary judgment, the court must view all evidence and draw all reasonable inferences in the light most favorable to the non-moving party.
Plaintiff's Count II ("the Note Claim") relies on a promissory intercompany note (the "Note") between Sure Heat China and Sure Heat US. The Note was submitted to the Court as Plaintiff's exhibit 3 with its Motion for Summary Judgment [188] and its authenticity is uncontested. While the electronic copy is grainy, the parties agree it provides in pertinent part:
(Pl.'s MSJ, Dkt. [188] ex. 3.) Mulberry and Jay Weeks ("Weeks"), Sure Heat US's chief financial officer, signed the Note on behalf of Sure Heat US. (
Plaintiff's Count II further alleges the existence of a Supplemental Note for $5 million. Written evidence of the Supplemental Note, however, has not been discovered. Instead, Plaintiff points to the audited and unaudited financial records of Sure Heat China and Sure Heat US evidencing a long-term note payable for around $15 million. (
Plaintiff, in its Response [198] to the Sure Heat Defendants' motion for summary judgment, argues its breach of contract claim (Count II) to recover the $10 million owed on the Note, as well as the $5 million owed on the supplemental promissory note, did not become due until November 30, 2017 and therefore is not barred by the statute of limitations. By extension, it argues the alter ego claim against Sure Heat US and SHM (Count VI) can move forward on the underlying breach of contract claim. What is more, Plaintiff contends it is entitled to summary judgment on Count II (Pl.'s MSJ, Dkt [188]), while the Sure Heat Defendants argue they are similarly entitled on Count IV. (Defs.' MSJ, Dkt. [186].) The Court will consider each issue in turn.
Plaintiff maintains the Note claim is within either a four or six year statute of limitations period because the Note became due on November 30, 2017 and the claim was added less than a year later, on May 8, 2018. The Sure Heat Defendants, in response, appear to ignore the written Note for $10 million and instead argue that Plaintiff seeks to recover a $15 million accounts receivable that was due along with the other accounts receivable on or before July 31, 2010. While the Court acknowledges that Plaintiff's allegations regarding the Supplemental Note's exact terms are weak, it is clear on the face of the Note that it was due on November 30, 2017. The Court already acknowledged this fact in two prior Orders [93, 134] and still does. Therefore, Plaintiff's Count II is not time-barred.
Further, Plainiff's alter ego claim against Sure Heat US and SHM is similarly permitted because the limitation period is coextensive with the underlying claims against Sure Heat US.
Under Georgia law, Plaintiff has established a prima facie right to judgment as a matter of law on a promissory note by producing the Note and showing that it was executed.
"A promissory note is an unconditional contract whereby the maker engages that he will pay the instrument according to its tenor."
While a bargained for exchange is required, the law will not inquire into the adequacy of consideration when the consideration is otherwise valid or sufficient to support a promise. RESTATEMENT (SECOND) OF CONTRACTS § 71 (1981). Put another way, courts do not closely examine the adequacy of such consideration.
Here, Plaintiff has submitted a written promissory note to the court. The Note was properly executed and included the material terms. Defendants contend that the note is incomplete because it is incomplete on its face and is ambiguous as it does not specify the consideration received in exchange for the note.
The Court disagrees for two reasons. First, bound by the terms of the unambiguous written document under the parole evidence rule, paragraph 6 does not distinguish between audited and unaudited accounts receivable. Therefore, it is sufficient that Sure Heat China's unaudited accounting records indicate it credited $10 million (later, $15 million) as a "Note Receivable." (Pl.'s SMF, Dkt. [189] ¶ 84.) Second, even if the Note did require an adjustment to the audited records, Sure Heat China's inadequate or partial failure of consideration would not void the Note.
Defendants' conditional argument similarly fails. "In the absence of fraud, accident or mistake an unconditional promissory note cannot be changed into a conditional obligation by parol evidence."
Throughout all of these arguments, Defendants rely on a series of explanations for the Note's execution, including that the Note was an internal accounting transaction, or that Sure Heat China might lose its business license without the note. Yet, any explanation for the Note's existence that is not a bargained for exchange between two separate business entities undercuts Defendants' narrative throughout the remaining issues in this case. Ultimately, the Note was either a legitimate loan or it was, at best, a shady abuse of the corporate form, at worst, a fraudulent transaction. Defendants cannot have it both ways.
Because Defendants have not presented a valid affirmative defense, and have not paid the $10 million owed
Plaintiff seeks to increase its recovery on the $10 million Note to match the $15 million recorded in Sure Heat China's audited and unaudited financial statements, as well as Sure Heat US's tax returns since 2008. The Court, however, is unsure of Plaintiff's legal theory on this issue. Defendant Villers testified he believed the extra $5 million came from a Supplemental Note executed in 2008 with the same terms as the Note. (Pl.'s MSJ, Dkt. [188] ex. 7 ex. 7 at 152:7-23.) Weeks, on the other hand, testified that the Note was amended to $15 million. (
In its Third Amended Complaint, Plaintiff brings a claim for alter ego liability against Sure Heat and SHM, alleging that "Sure Heat [US] and SHM are the alter egos of [Sure Heat China] and each other and are therefore jointly and severally liable for all of [Sure Heat China's] debts and liabilities owed to its creditors." (Third Am. Compl., Dkt. [136] ¶ 121.) This claim can be broken into three parts. First, Plaintiff alleges Sure Heat US is an alter ego for Sure Heat China; second, that SHM is an alter ego for Sure Heat China; and third that SHM is an alter ego for Sure Heat US.
In their Motion for Summary Judgment [186], the Sure Heat Defendants only appear to move for summary judgment on the first relationship, between Sure Heat US and Sure Heat China. Plaintiff does not Respond [198] to this argument, but instead argues that SHM assumed the liabilities of Sure Heat US as a successor. Defendants do not address the issue at all in their Reply [216]. Thus, because Defendants' Motion [186] regarding the alter ego relationship between Sure Heat US and Sure Heat China is unopposed it is
The Sure Heat Defendants argue Plaintiff's claims are barred by the applicable statute of limitations. The Court determined in its June 9, 2016 Order [40] that a four year statute of limitations applies to each claim and that the four years had expired before the Administrator filed this suit. (Order, Dkt. [40] at 9-11.) Since that Order, Plaintiff filed its Third Amended Complaint [136], breaking its breach of contract claim into Count I and Count II, and adding SHM as a defendant. As discussed above, Plaintiff's Count II is not subject to the same statue of limitations as are the remainder of Plaintiff's claims.
Otherwise, the Court affirms its prior finding that the four year statute of limitations has expired. Plaintiff does not challenge this finding, but instead contends the limitations were tolled until the bankruptcy administrator's appointment on April 25, 2014. The Sure Heat Defendants move for summary judgment on the issue, arguing Plaintiff has not alleged sufficient facts to toll the statute. At the motion to dismiss phase, the Court did not dismiss Plaintiff's claims because tolling would apply if fraud were present, and Plaintiff had alleged enough facts to support fraud. At this time, however, Plaintiff has not proven a viable theory to toll the statute.
Georgia law provides that "[i]f the defendant . . . [is] guilty of a fraud by which the plaintiff has been debarred or deterred from bringing an action, the period of limitation shall run only from the time of the plaintiff's discovery of the fraud." O.C.G.A. § 9-3-96. The Georgia Supreme Court delineated two circumstances in which actual fraud tolls the statute of limitations.
Here, the underlying cause of action is based upon breach of an obligation to pay money, not actual fraud. Therefore, the only conduct under Georgia law that will toll the running of the four year statute of limitation is a separate, independent act of actual fraud or intentional concealment that prevents the plaintiff from filing an action to collect the amounts owed.
As an initial matter, the Court agrees with Defendants that the statute of limitations is not automatically tolled on all claims between a wholly owned subsidiary and its parent company until a bankruptcy administrator is appointed. No authority exists in Georgia to support this argument, even in situations like this where it would have been unlikely for the subsidiary to sue its owner.
Thus, while the relationship of trust and confidence that existed amongst the parties can support tolling, Plaintiff must still allege an independent act of actual fraud that actually deterred Plaintiff from bringing suit earlier to succeed. Here, Plaintiff appears to advance two theories. First, Plaintiff contends that the Sure Heat Defendants breached their fiduciary duties and fraudulently concealed that breach. Second, Plaintiff argues Defendants fraudulently concealed the undercapitalization of Sure Heat China to continue to produce goods.
Like the Sure Heat Defendants' inconsistent arguments regarding the Note, the Court is frustrated by Plaintiff's arguments here. Either Defendants conducted business by the books or they didn't. In line with the Court's earlier holding, the Court finds that Plaintiff's allegations of fraudulent accounting are unsupported by evidence. Further, Plaintiff has not presented any evidence that Defendants had a duty under Chinese law to initiate insolvency proceedings.
In reviewing all of the evidence, Plaintiff's case falls short of establishing that any of the Defendants acted with actual fraud. There is evidence to indicate that some, especially Mulberry, were trying to use the corporate structure to avoid debts. Unfortunately for Plaintiff, that is largely the purpose of the limited liability corporate structure. While there is a fine line between crafty accounting and fraud, evidence such as Mulberry's contention that the Note was "fraudulent" or "misleading" does not push an otherwise legitimate exchange over the line.
Finally, while declining to toll the statute of limitations on these facts may seem unfair, the Court is bound to uphold the legislature's intent.
At bottom, Plaintiff has failed to evidence the existence of an independent act of actual fraud to toll the statute. As a result, Plaintiff's Counts I, III, IV, V, VIII, IX, X, and XI are time-barred. Further, absent remaining claims against the individual defendants, Plaintiff's alter ego claim (Count VII) against them also fails. Consequently, Defendant Villers' Motion for Summary Judgment [184] is
For the forgoing reasons, the parties' preliminary motions [187, 191, 192, 214, 215, 185] are
This case will proceed on Plaintiff's breach of contract claim (Count II) for the $5 million Supplemental Note and alter ego claim (Count VI) on the relationships between: 1) Sure Heat US and SHM; and 2)SHM and Sure Heat China.
The parties are
If the case is not settled in mediation, the parties shall submit a proposed consolidated pretrial order within 30 days of the conclusion of mediation. Trial will then be scheduled by later order.
