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### STATE OF MICHIGAN

COURT OF APPEALS

TAIZHOU GOLDEN SUN ARTS & CRAFTS, CO. LTD.,

Plaintiff-Appellant/Cross-Appellee, UNPUBLISHED August 18, 2015

v No. 320129
Washtenaw Circuit Court COLORBÖK, LLC, BRUCE LAZEAR,
CHARLES MCGONIGLE, MARY JO MANLY, and GEARY PRIEHS, LC No. 12-001096-CK

Defendants-Appellees/CrossAppellants,

and

COLORBÖK, INC,

Defendant.

Before: B ORRELLO , P.J., and R ONAYNE K RAUSE and R IORDAN , JJ.

P ER C URIAM

.

This appeal arises out of a business arrangement under which a Chinese corporation, Taizhou Golden Sun (Taizhou), contracted with a Michigan corpor ation, Colorbök Inc, to manufacture toys for customers . Colorbök Inc failed and was fo reclosed on by a bank, which then resold Colorbök Inc’s assets to a successor, Colorbök LLC, leaving a substantial amount of money owed and unpaid to Taizhou, which had already shipped the contracted-for toys directly
to Colorbök Inc’s customers. T aizhou filed suit seeking to rec over the debt. The debt itself is not disputed, but Colorbök Inc has no assets, and Colorbök LLC denies any obligation to pay the assets of its predecessor. The trial court found in favor of C olorbök LLC and the former officers
of Colorbök Inc. We reverse and remand.

The relationship between Taiz hou and Colorbök Inc began in 200 6 under an agreement that entailed Taizhou sending th e plush toys it manufactured di rectly to Colorbök Inc’s customers, and Colorbök Inc would pay Taizhou for the toys when Colorbök Inc was itself paid by the customers. Colorbök Inc entered into a contract with Wa l-Mart in 2010. Wal-Mart was Colorbök Inc’s largest customer in 2011, amounting to 38.4% of its net sales, which generated in-2- excess of $15 million. From May to August of 2011, Colorbök In c ordered $2.5 million in plush toys, and Taizhou honored its end of the deal. However, Colorb ök Inc struggled financially for many years and had difficulty fulfilling its payments to Taizho u. For a time, Taizhou set up payment plans for Colorbök Inc, and Colorbök Inc sometimes paid interest on those plans. Nonetheless, in March of 2012, Colorbök’s secured creditor, Fif th Third Bank, foreclosed on its loan agreements. Colorbök Inc owed approximately $2,750,000 to its secured lenders, Fifth
Third Bank and FdG Associates , and possessed assets worth subst antially less than that.

By that time, Colorbök Inc and its officers had already been s eeking to sell Colorbök Inc. At the end of 2011, Colorbök Inc had hired Lazear Capital Partn ers Ltd (Lazear) as a consultant to help find a buyer, and in January of 2012 Colorbök Inc’s off icers began negotiating for the purchase of Colorbök Inc’s assets . In certain emails, it was e xpressed that they wished to continue to use the name “Colorbök” to have “some brand recogni tion” and “so our customers
never see the difference.”

On February 10, 2012, Colorbök Inc sent Wal-Mart a letter rega rding the corporate restructuring and organization of Colorbök Inc. The letter exp lained that Colorbök Inc intended to transfer all of its business assets to Colorbök LLC, which w ould be owned and operated by
current executives of Colorbök Inc. Colorbök Inc asked Wal-Mar t to consent to the assignment from Colorbök Inc to Colorbök LLC, provided that Colorbök LLC w ould assume any of Colorbök Inc’s obligations under the agreements between Wal-Mar t and Colorbök Inc. Notably, the agreement with Wal-Mart provided that Wal-Mart could cease its relationship with Colorbök Inc should purchase orders (presumably fulfilled by Taizhou) no t be received on time. Therefore, Taizhou’s reliability was arguably one of the most c rucial aspects to allow Colorbök Inc (then Colorbök LLC) to maint ain its relationship with Wal-M art.

Meanwhile, Taizhou continued to entreat Colorbök Inc regarding outstanding payments. Defendant Charles McGonigle (a f ormer officer) explained on Feb ruary 16, 2012, that Colorbök Inc could not pay because Fifth Third Bank was in control of th e company, but he “hop[ed] to get a new buyer for the business and then have them absorb the agreements I have made with all our vendors.” Later that month another defendant, Mary Jo Manl y/former officer, advised Lazear that she would prefer Colorbök LLC to use a different la w firm because “[w]hen people make successor in interest liability claims, the more distance we can have the better.” In early March of 2012, Colorbök LLC acqui red Colorbök Inc’s intellectua l property and announced itself as a new entity in partnership with Lazear. Later that month, McGonigle advised Taizhou
of the “situation” and asked “t o understand the situation not t o like it.” Manly transmitted a list of invoices worth almost $1.4 million that Colorbök Inc owed to Taizhou and explained that they would not be paid because Fifth Third Bank had sold the company ’s assets. Wal-Mart was the recipient of over $1 million of products sent by Taizhou on beh alf of Colorbök Inc.

Taizhou was not notified of the foreclosure sale or the creati on of Colorbök LLC until after they had occurred. Taizhou received this information whe n Colorbök Inc sent a letter on March 8, 2012, to its creditors explaining the foreclosure, inf orming them that Fifth Third Bank
sold assets for less than the a mount owed under the loans, and disclosing that it did not anticipate any payment to other creditors. The letter also included that Colorbök Inc would be dissolved, but it did not include any mention of the new partnership with Lazear or the formation of Colorbök LLC. Taizhou obtained a judgment against Colorbök Inc , but Colorbök Inc has not-3- paid the judgment, and as noted, Taizhou sent its products dire ctly to Colorbök Inc’s customers. Also as noted, Colorbök Inc’s de bt to Taizhou is undisputed.

A grant or denial of summary disposition is reviewed de novo o n the basis of the entire record to determine if the moving party is entitled to judgment as a matter of law. Maiden v
Rozwood , 461 Mich 109, 118; 597 NW2d 817 (1999). When reviewing a mot ion under MCR 2.116(C)(10), which tests the factual sufficiency of the compla int, this Court considers all evidence submitted by the parties in the light most favorable t o the non-moving party and grants summary disposition only where the evidence fails to establish a genuine issue regarding any
material fact. Id . at 120. A motion brought under MCR 2.116(C)(8) should be gra nted only where the complaint is so legally deficient that recovery wouldbe impossible even if all wellpleaded facts were true and construed in the light most favorab le to the non-moving party. Id . at 119. Only the pleadings may be considered when deciding a moti on under MCR 2.116(C)(8).

Id . at 119-120. “When reviewing a g rant of equitable relief, an appellate court will set aside a trial court’s factual findings only if they are clearly erroneo us, but whether equitable relief is proper under those facts is a question of law that an appellate court reviews de novo.”

McDonald v Farm Bureau Ins Co , 480 Mich 191, 197; 747 NW2d 811 (2008).

Taizhou argues first that Colorbök LLC is a mere continuation of Colorbök Inc and liable as a successor for Colorbök Inc’s debts. A successor company i s generally not liable for the obligations of the predecessor company. Turner v Bituminous Cas Co , 397 Mich 406, 426-431; 244 NW 2d (1976). However, “successor liability is derived fro m equitable pr inciples.” Lakeview Common Ltd Partnership v Empower Yourself

, LLC , 290 Mich App 503, 506; 802 NW2d 712 (2010). One of the recognized exceptions to the gener al rule of successor nonliability is “where the transfer ee corporation was a mere conti nuation or reincarnation of the old corporation.” Foster v Cone-Blanchard Machine Co , 460 Mich 696, 702; 597 NW2d 506 (1999) (internal quotation omitted); Turner , 397 Mich at 426-431. We believe that the evidence clearly shows that there is, at a minimum, a genuine factual dispute as to whether Colorbök LLC is a mere successor to Colorbök Inc. However, the relevant successo r liability rule is simply not
available here because this is not a products liability action. Starks v Michigan Welding Specialists

, Inc. , 477 Mich 922; 722 NW2d 888 (2006). 1

Taizhou raises other equitable claims of promissory estoppel a nd unjust enrichment. To prove a promissory estoppel, a plaintiff must prove: “(1) a pro mise, (2) that the promisor should reasonably have expected to indu ce action of a definite and sub stantial character on the part of the promise, and (3) that in fact produced reliance or forbeara nce of that nature in circumstances such that the promise must be enforced if injustice is to be av oided.” Novak v Nationwide Mut

Ins Co , 235 Mich App 675, 686-87; 599 NW2d 546, 552 (1999). Unjust e nrichment may be established by proving “(1) the receipt of a benefit by defenda nt from plaintiff, and (2) an inequity resulting to plaintiff because of the retention of the benefit by the defendant.” Sweet Air

Inv

, Inc v Kenney , 275 Mich App 492, 504; 739 NW2d 656 (2007) (internal quotatio n omitted).

1 We appreciate the concerns expressed by our concurring colleag ue, but we conclude that they would be preferable for them t o be addressed by our Supreme Cou rt.-4- Taizhou’s promissory estoppel claim must fail, for several rea sons. First, it would be technically impossible for Colorbök LLC to have “promised” anyt hing to anyone prior to actually coming into existence. Second, while communications m ade to Taizhou on behalf of one or the other Colorbök entities may have been misleading, an d likely intentionally so, strictly speaking those communications expressed hopes rather than true promises. Finally, Taizhou had already sent the plush toys to Colorbök Inc’s customers by the time th e alleged promises were made, so even if they were promises, they did not induce Taizho u to act.

In contrast, we are persuaded t hat summary disposition was ina ppropriate regarding Taizhou’s unjust enrichment clai m. The products Taizhou made w ere not shipped directly to either Colorbök entity and were never technically “assets” ther eof. Consequently, there is merit to Colorbök LLC’s argument that it paid fair value to Fifth Thi rd Bank for the assets it received; at the very least, it did not come into possession of any physi cal assets from Taizhou for which it did not pay. However, that is a disingenuously superficial arg ument under the circumstances. It
should be obvious that Colorbök LLC would have been functionall y worthless if it could not maintain or enter into further business relationships with any entity willing to pay it any money. Physical assets are not the only thing of value that can be acq uired. In this case, it is manifestly apparent that Colorbök LLC owes a significant part of its conti nued existence to Taizhou honoring its side of its contract s with Colorbök Inc. In other words, Colorbök LLC has indeed received and not paid for an e normous benefit at substantial co st to Taizhou, and we conclude that it would be clearly inequita ble to Taizhou for Colorbök LL C to retain that benefit without compensating Taizhou. The trial court erred in granting summar y disposition as to Taizhou’s unjust enrichment claim.

Regarding Taizhou’s claims again st the individual defendants, claims for silent fraud and fraudulent misrepresentation both require, inter alia , that a plaintiff reasona bly rely on an untruth produced, affirmatively or by omission, by a defendant. See Alfiere v Bertorelli , 295 Mich App 189, 193-194; 813 NW2d 772 (2012). The evidence does not suppo rt a conclusion that Taizhou reasonably relied on any misrepre sentation, either by affirmati ve statement or by omission, made by any of the individual defendants. The alleged misrepresenta tions concern Colorbök Inc’s impending insolvency. Irrespective of whether any of the named defendants should have told anyone at Taizhou that Colorbök Inc was about to become insolve nt, Taizhou had already shipped its products before the a lleged misrepresentations were made, and Taizhou was already aware that Colorbök Inc was suffering financial difficulties. To the extent Taizhou delayed the commencement of any legal action, we find no support for any co nclusion that Taizhou impaired its position or prejudiced its claims by doing so. Taizhou’s r emaining claims against the
individual defendants are all in some way derivative of the abo ve claims. The trial court properly granted summary dispos ition in the individual defendan ts’ favor.

Taizhou next argues that the trial court granted summary dispo sition prematurely instead of granting its request to compel discovery of certain document s. We review a motion to compel discovery for an abuse of discretion. Cabrera v Ekema , 265 Mich App 402, 406; 695 NW2d 78 (2005). The documents Taizhou seeks would allegedly contradict any assertion that Colorbök Inc ceased all business operations on March 8, 2012. In light of our discussions above, we simply do not perceive any benef it that Taizhou could derive fr om any such documents, if indeed they actually exist. We therefore likewise perceive no basis f or reversing the trial court’s denial of Taizhou’s motion to compel.-5- On cross-appeal, defendants ass ert that the trial court erred when it denied their motions for sanctions, alleging that Taizhou violated MCR 2.114(D)(2) b y filing an amended complaint without factual support. This Cour t reviews a trial court’s ru ling on a motion for sanctions for an
abuse of discretion. Edge v Edge , 299 Mich App 121, 127; 829 NW2d 276 (2012). We decline to reach the merits of whether sanctions are proper, however, b ecause we agree with defendants
that the trial court never actua lly decided that the court rule had been violated. While it might be possible to draw such an inference, the trial court merely rule d that it was denying sanctions. A trial court must indicate why it is granting or denying a motio n for sanctions whe n a pleading has been filed under MCR 2.114(D). In re Forfeiture of Cash and Gambling Paraphernalia , 203 Mich App 69, 73; 512 NW2d 49 (1993). On remand, the trial cour t shall make that determination and explain why it co ncludes that the court rule was or was not violated, and either impose or refuse sanctions accordingly. Finally, because we ar e remanding this matter, we decline to address whether any gr ants of summary disposition sh ould have been with or without prejudice.

In summary, we reverse the trial court’s grant of summary disp osition in favor of Colorbök LLC as to Taizhou’s unjust enrichment claim and remand this matter to the trial court accordingly; on remand, the trial court shall clarify and, if i t deems necessary, correct its ruling on defendants’ motion for sanctions. In all other respects, we affirm. We do not retain jurisdiction.

/s/ Stephen L. Borrello /s/ Amy Ronayne Krause