In the

United States Court of Appeals

For the Seventh Circuit

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Nos. 04-1525 & 04-1526

BAKER O’NEAL HOLDINGS, INC., and

AMERICAN PUBLIC AUTOMOTIVE GROUP, INC.,

Plaintiffs-Appellees,

v.

DONALD E. MASSEY,

Defendant-Appellant.

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Appeals from the United States District Court for the

Southern District of Indiana, Indianapolis Division.

Nos. 1:02-cv-1628-DFH and 1:03-cv-0412-DFH—David F. Hamilton,

Judge.

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ARGUED NOVEMBER 3, 2004—DECIDED APRIL 5, 2005

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Before FLAUM, Chief Judge, and EASTERBROOK and

SYKES, Circuit Judges.

EASTERBROOK, Circuit Judge. Baker O’Neal Holdings and

its subsidiary American Public Automotive Group (collectively APAG) were formed to operate “auto malls” in which

dealers selling many different brands of automobiles would

congregate. These would be established near suburban shopping malls, so that customers could buy everything from

kitchen blenders to SUVs in one stop. The business did not

succeed, and a bankruptcy proceeding has been under way
2 Nos. 04-1525 & 04-1526

since 1998. One adversary proceeding against James O’Neal,

the subsidiary’s CEO, ended in a judgment for more than $5

million after the bankruptcy judge concluded that he had

embezzled funds from the venture. APAG has commenced

another adversary proceeding against its former auditor,

accusing it of booking “loans” to O’Neal as assets despite

knowing that they were uncollectible. See Ernst & Young

LLP v. Baker O’Neal Holdings, Inc., 304 F.3d 753 (7th Cir.

2002) (rejecting auditor’s contention that the dispute must

be arbitrated). That claim remains to be resolved.

A third adversary proceeding, against Donald Massey,

has produced a judgment for $2.5 million plus interest.

APAG paid that sum as a deposit toward the $300 million

purchase price of “the Don Massey Dealership Group.” When

APAG could not come up with the remaining $297.5 million,

Massey kept the deposit. APAG did sell about $4.5 million

in securities to outsiders on the spurious representation

that the Massey dealerships were in hand, but O’Neal appears to have made off with those funds. The rest of APAG’s

financing came from Baker and outside investors who purchased their interests before the transaction with Massey.

The bankruptcy judge held, and the district judge agreed,

that the $2.5 million is recoverable not only as a fraudulent

conveyance but also to avoid unjust enrichment. See 2004

U.S. Dist. LEXIS 2003 (S.D. Ind. Jan. 28, 2004). Massey, who

unlike O’Neal has the money to satisfy the judgment, has

appealed. Because the bankruptcy judge held a trial on unjust enrichment but not on the fraudulent-conveyance theory,

and because either conclusion supports the judgment, we

bypass the fraudulent-conveyance issues. That enables us

to avoid the difficult question whether the record presents

a disputed issue of material fact about APAG’s solvency at

the time it plunked down the $2.5 million. See 11 U.S.C.

§§ 544, 550; Mich. Comp. Laws §566.35. It was insolvent if,

as the bankruptcy judge held, the investments sold to outsiders are debt securities, but not if they are equity. They have
Nos. 04-1525 & 04-1526 3

the form of convertible notes, but Massey contends with

some support in the report of an accounting expert that they

should be treated as equity because conversion was the only

way for investors to obtain a return. We need not decide

whether a dispute about the characterization of investments

may be resolved on summary judgment if, as the bankruptcy judge concluded, Massey would be unjustly enriched

by keeping the money. That ground for restitution applies

whether or not APAG was solvent when the transfer occurred.

Non-refundable deposits are common when purchasing

auto dealerships and other assets, such as real estate. APAG

does not argue that deposits must be revocable because a

non-refund feature turns them into “penalties” for breach of

contract. See Woodbridge Place Apartments v. Washington

Square Capital, Inc., 965 F.2d 1429 (7th Cir. 1992). Instead

it contends that the parties never concluded an agreement,

and that retaining a payment made in anticipation of a contract is inequitable after the bargaining falls through. That

is a correct statement of Michigan law, which the parties agree

governs. See Michigan Educational Employees Mutual

Insurance Co. v. Morris, 460 Mich. 180, 197-99, 596 N.W.2d

142, 151-52 (1999). Massey might have responded that a

contract of sale is unnecessary if the payment is a fee for

the right to negotiate. An option for exclusive bargaining

rights is a kind of contract. Keeping an offer open, and

other bidders away, is a valuable asset for which potential

purchasers may agree to pay handsomely. But Massey does

not contend that the payment is best characterized as an

option premium. Instead, he disputes the bankruptcy judge’s

conclusion that the parties lacked a contract of sale. To

evaluate that argument, we start with the text of the handwritten document that Massey and O’Neal signed on May

24, 1997:
4 Nos. 04-1525 & 04-1526

AGREEMENT

This is an Agreement to Purchase stock and assets of

the Don Massey Dealership Group. The Seller is

Don Massey and the Buyer is James O’Neal, Jr. and

American Public Automotive Group, Inc. Seller and Buyer

acknowledge their knowledge of the property and stock

related to the Agreement. (Final Agreement to follow

this Agreement.)

Buyers agrees to purchase all the stock and all assets of

the Massey Group for the price of $300,000,000 00/100.

New car inventory for cost in addition to the purchase

price of all other assets.

1. The purchase price shall be payable as follows:

A.) Deposit with this Agreement $5,000,000 28

May 97.

B.) Additional cash of $245,000,000 on 31 July

1997.

C.) Seller to have option of $50,000,000 in cash

or “Selling Book” 50,000,000 on IPO.

2. Massey will continue as Dealer Operator until he

decides not to do so (at such time a replacement

acceptable to Massey, O’Neal and GM will be named).

Technical succession arrangements subject to final

document.

3. Massey will provide Buyer with a copy of required 94, 95, 96 financials on 28 May 97.

4. Massey may cancel this Agreement and retain

deposit if Buyer fails to perform as required in

paragraph (1) “the money” or if GM does not grant

approval of this transaction, funds will be returned.

5. Massey may elect to be paid in stock of the Buyer

at market value.
Nos. 04-1525 & 04-1526 5

On May 28, when the agreement called for APAG to pay

$5 million and Massey to supply the financial statements,

APAG handed over only $2.5 million, and Massey did

nothing other than accept the money. The contemplated

“Final Agreement” was never negotiated, and no stock or

assets changed hands.

Like the bankruptcy judge and the district judge, we conclude that this document—which acknowledges that a definitive agreement remained to be negotiated—is too sketchy.

Take the most basic questions: what did Massey agree to

sell, and how much did APAG agree to pay? Documents

omitting such vital information are not enforceable as contracts under Michigan law. See, e.g., Hansen v. Catsman,

371 Mich. 79, 123 N.W.2d 265 (1963); Heritage Broadcasting

Co. v. Wilson Communications, Inc., 170 Mich. App. 812,

818-20, 428 N.W.2d 784, 787 (1988).

This document says that “the Don Massey Dealership

Group” is the thing being sold, but there never has been any

such entity. Massey is the sole stockholder of some corporations that operate dealerships, and he is a joint investor

with Arnold Palmer and Mark McCormack in two other

dealership-owning corporations. Massey also owned, and

leased to the corporations, considerable real estate (including buildings and fixtures). Which of these interests was

included in the transaction? The answer cannot be found in

usages of trade or other means that courts sometimes use to

complete contracts; this was a one-off bargain. See Redding

v. Snyder, 352 Mich. 241, 246, 89 N.W.2d 471, 474 (1958).

Massey’s accounting expert, when valuing the transaction

for purposes of the fraudulent-conveyance claim, assumed

that Massey was selling everything he owned in the auto

business. But Massey himself has taken a different view. In

several affidavits Massey asserted that the agreement

covered only his Cadillac dealerships, and then only those

that he owned outright. His Buick, Pontiac, Chevrolet,
6 Nos. 04-1525 & 04-1526

Saturn, and Geo dealerships were outside the deal, Massey

asserted. When it became clear that this would demonstrate

that the price was impossibly high, creating insuperable

problems for Massey on the fraudulent-conveyance branch

of the case, he changed his tune and contended that the

agreement covered all dealerships except those owned jointly

with Palmer and McCormack. Massey never articulated the

third possibility—that he was selling all of his interests

in the auto business. What is more, Massey has contended

throughout that he sold only the dealerships (the franchises,

accounts, trademarks, good will, and so on) while retaining

the buildings and real estate. APAG, for its part, thought

that it was getting the whole business: all the franchises, all

the buildings, all the land, all the receivables. There was no

agreement, no “meeting of the minds” (let alone of the

words), on this subject. The “agreement” resolves none of the

central issues.

Then there’s the question of payment. What are we to

make of the sentence: “New car inventory for cost in addition to the purchase price of all other assets”? Massey contends that APAG agreed to pay for cars on hand on top of

the $300 million. His dealerships collectively held about $63

million in inventory in May 1997, so Massey submits that

the full selling price was $363 million. Yet Massey had

acquired this inventory on credit, and if APAG was buying

all of the stock in the corporations that operated the dealerships then it was acquiring as well the dealerships’ obligation to General Motors, which had financed the inventory. So

by Massey’s account APAG had agreed to pay twice for

vehicles on hand: once to Massey and again to General

Motors. Any document that admits of such commercial

insanity can’t be treated as definitive. There are lots of

other loose ends, but we have said enough to show that

APAG and Massey did not reach an enforceable contract.

This conclusion does not quite wrap up the proceeding.

Unjust enrichment is an equitable doctrine, and Massey may
Nos. 04-1525 & 04-1526 7

have equitable defenses. The most prominent of these would

be detrimental reliance on a belief that a contract existed.

That is to say, Massey might have acted as if this were an

exclusive option and turned down other suitors until it became clear that APAG would not perform. Massey made such

an argument in the bankruptcy court, which held otherwise

in findings that are not clearly erroneous. The bankruptcy

judge concluded that the other potential bidders to which

Massey referred either predated APAG or expressed their

interest after APAG departed, so that there was no reliance

and no detriment. The bankruptcy judge did, however, deduct

$32,000 from the amount of restitution to cover Massey’s

costs in preparing to perform (principally, his expense in

retaining a major accounting firm to start the process of creating properly audited financials, which would be essential

for APAG’s contemplated public offering of securities).

According to Massey, APAG should not receive equitable

relief because O’Neal and Baker have acted with unclean

hands. See Stachnik v. Winkel, 394 Mich. 375, 230 N.W.2d

529 (1975). But the facts to which he points—principally

O’Neal’s theft from APAG and Baker’s failure to learn that

his co-venturer had a prior conviction for fraud, and to monitor his conduct more closely—injured APAG’s outside

investors rather than Massey. Cf. McKeighan v. Citizens

Commercial & Savings Bank of Flint, 302 Mich. 666, 671-

72, 5 N.W.2d 524, 526-27 (1942). Massey recognized that

O’Neal had sticky fingers. He knew, as Baker did not, about

O’Neal’s prior conviction for fraud (which among other things

would have led GM to refuse to transfer the dealerships);

Massey also knew, as Baker did not, that O’Neal had borrowed about $1 million from Massey earlier in the 1990s

and failed to repay. It is easier to understand the events of

May 1997 as Massey’s attempt to turn the tables on O’Neal

(or as their joint attempt to use the investors’ capital to settle O’Neal’s personal debt to Massey) than as inequitable

conduct by APAG to Massey’s detriment. Allowing Massey
8 Nos. 04-1525 & 04-1526

to keep the deposit would harm only the innocent outside

investors, who are the chief victims of O’Neal’s misconduct.

The bankruptcy judge did not abuse his discretion or commit

clear error in concluding that the totality of circumstances

calls for restitution under Michigan law.

AFFIRMED

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—4-5-05