Court Opinion

ID: 2978052
Source: CourtListenerOpinion
Date Created: 2015-09-22 18:18:37.354924+00
Date Added: 2024-06-11T13:16:40.278266
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                          File Name: 09a0473n.06

                                         No. 08-1942

                             UNITED STATES COURT OF APPEALS
                                  FOR THE SIXTH CIRCUIT

RICHARD ROGEL, Individually and as Trustee of          )
the Richard H. Rogel Revocable Living Trust, U/A/D     )                   FILED
March 21, 1990 as amended in part on March 19,         )                Jul 08, 2009
1992, as amended and restated on November 10, 1994,    )          LEONARD GREEN, Clerk
and as further amended on April 13, 1997,              )
                                                       )
       Plaintiff-Appellee,                             )
                                                       )
v.                                                     )       ON APPEAL FROM THE
                                                       )       UNITED STATES DISTRICT
MAX DUBRINSKY, in his capacity as the Personal         )       COURT FOR THE EASTERN
Representative of the Estate of Max Dubrinsky          )       DISTRICT OF MICHIGAN
(deceased) and as Trustee of the Max Dubrinsky         )
Living Trust, U/A/D August 10, 2003 as amended,        )                        OPINION
                                                       )
       Defendant,                                      )
                                                       )
and                                                    )
                                                       )
FREDERIC I. KEYWELL,                                   )
                                                       )
       Defendant-Appellant.                            )

BEFORE:       COLE and ROGERS, Circuit Judges; GRAHAM, District Judge.*

       COLE, Circuit Judge. Defendant-Appellant Frederic Keywell appeals a grant of summary

judgment in favor of Plaintiff-Appellee Richard Rogel. Rogel sued Keywell and Mark Dubrinsky

(who is now deceased and whose estate has not appealed) under Michigan common law for

       *
         The Honorable James L. Graham, United States District Judge for the Southern District
of Ohio, sitting by designation.
No. 08-1942
Rogel v. Dubrinsky

contribution of their pro rata shares of a debt that each of them had guaranteed but that Rogel repaid

on his own. The debt at issue was incurred by Executive Hotel Group, LLC (“Executive”), a

Michigan corporation the three men formed through their own intermediate business entities.

Executive was governed by an Operating Agreement (also referred to herein as the “Agreement”)

signed in the names of the three business entities. The Agreement contained a limitation on the

entities’ ability to sue one another for contributions of additional capital, and Keywell argues that

this limitation prohibits Rogel from bringing the instant suit. For the following reasons, we

AFFIRM the grant of summary judgment for Rogel.

                                       I. BACKGROUND

A.     Factual background

       In early 1997, Dubrinsky and Keywell, citizens of Michigan, and Rogel, a citizen of

Colorado, undertook a business venture developing economy hotels. To carry out the plan, each man

first formed his own business entity: Rogel formed a single-member LLC (the “Rogel Entity”), and

Dubrinsky and Keywell each formed a limited partnership (the “Dubrinsky Entity” and the “Keywell

Entity”) (collectively, the “entities” or “member entities”). The three entities then entered into an

Operating Agreement forming Executive and governing its operation. The three entities were the

members of Executive, and the Operating Agreement was signed in their names, not in the names

of Keywell, Dubrinsky, and Rogel as individuals.

       The funding for the project was to be a line of credit obtained from a bank, and the

Agreement was conditioned upon Executive’s ability to secure such funding. Executive succeeded

in securing a $15 million line of credit with Comerica Bank, and Keywell, Dubrinsky, and Rogel all

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No. 08-1942
Rogel v. Dubrinsky

signed personal guaranties on the line of credit, as required by Comerica.1 Only Rogel pledged

personal assets to secure the loan. Executive drew on the line of credit (in an amount not stated in

the record), and in 2004 Comerica began requiring annual payments of $2 million as a condition for

extending the loan. According to Rogel’s Complaint, when Executive failed or refused to pay the

amounts due within the time required, Comerica demanded repayment under the guaranties, and

Rogel paid the $2 million due each year. He requested reimbursement from Keywell and Dubrinsky

for their pro rata shares, but they refused. Rogel then filed this suit under Michigan common law,

which provides for an implied right of contribution among joint guarantors. As of the time of

briefing before this Court, Rogel had made $8 million in payments to Comerica.

B.     The Operating Agreement

       Keywell’s defense to Rogel’s suit rests on a particular provision of the Operating Agreement

in which the member entities agreed not to pursue legal action against one another for refusing to

contribute additional capital to Executive under certain circumstances. The provision is found in

Section 2 of the Operating Agreement, entitled “Capital Contributions, Company Percentages and

Related Matters.” Section 2.3 governs “Financing, Additional Capital Contributions and Related

Provisions.” Section 2.3(a) sets forth the requirement that a line of credit be obtained for the

Agreement to be deemed effective (it also contemplates the possibility that Keywell, Dubrinsky, and

Rogel would personally guarantee the line of credit). Section 2.3(b) is entitled “Additional Capital

Calls” and is divided into two sections, one dealing with capital calls “For New Economy Hotels,”

       1
       The parties refer to a $15 million line of credit, although the guaranty documents refer to
a $20 million line of credit.
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No. 08-1942
Rogel v. Dubrinsky

and one dealing with capital calls “For Development and Operating Deficiencies.” The latter

portion, section 2.3(b)(ii), allows a member, such as the Rogel Entity, to send a “Capital Call Notice”

when it believes that additional capital is needed for purposes such as to complete construction of

a hotel when costs are higher than expected, “to meet [Executive’s] obligations in a timely manner,”

or “for any other reasonable purpose whatsoever.” (ROA 49.) Section 2.3(c)(ii) deals with

“Defaults” by the members on capital calls. It states that the Company will only be allowed to sue

members for failing to provide capital in response to a capital call if the purpose of the call was to

raise money to cover unexpected cost overruns in certain specified situations. Otherwise, the

Agreement provides that legal redress is not available against a defaulting member; rather, a member

who issues a capital call that another member chooses not to honor has the option of loaning the

defaulting member’s share to the Company and receiving repayment of that amount, with interest,

over a five-year period. The Operating Agreement further states:

       Except to the extent expressly contemplated in this Section 2.3(c)(ii), no Defaulting
       Member shall be penalized in any way for failing to deliver all or any portion of its
       Share of the additional capital in question, and neither the Company nor any Member
       shall have the right to cause a Defaulting Member to deliver its Share of the
       additional capital in question or have any remedy against any Defaulting Member for
       any failure to deliver all or any portion of its Share of the additional capital in
       question . . . .

(ROA 50-51 (emphasis added).) Keywell argues that the language italicized above bars Rogel from

suing the other members to recover their pro rata shares of the money Rogel paid to Comerica under

his personal guaranty of the line of credit.

C.     The district court’s decision

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No. 08-1942
Rogel v. Dubrinsky

       Rogel, in his individual capacity, filed suit against Keywell and Dubrinsky in their individual

capacities seeking contribution of their respective shares of his payments to Comerica. In lieu of an

answer, Keywell and Dubrinsky filed a motion for summary judgment, arguing that the Operating

Agreement expressly prohibited any member of Executive from seeking contribution from the other

members for additional capital contributed to the company. Rogel opposed the motion and also

moved for summary judgment, arguing that the Agreement applied only to the three business entities

that were the parties to the Agreement. In reply, Keywell and Dubrinsky urged the district court to

disregard the fact that neither they nor Rogel, as individuals, were parties to the Operating

Agreement.

       The summary judgment motions were referred to a magistrate judge, who found that the

Operating Agreement applied only to the business entities. Seeing no reason to pierce the corporate

veil and apply the Agreement to the individual guarantors, the magistrate judge recommended that

Rogel’s motion for summary judgment be granted. The district court largely adopted the Report and

Recommendation and granted summary judgment to Rogel, finding that Keywell and Dubrinsky

could not meet the second and third prongs of Michigan’s veil-piercing test. The district court was

       convinced that there is no reason to disregard the legal distinctions purposely created
       between the Entities and the parties to this suit. Each of the parties to this suit signed
       the Comerica debt guaranty in [his] individual capacity . . . . There is no reference to
       the Entities in the guaranty. The Executive Hotel Operating Agreement clearly
       distinguishes between these individuals and the created Entities. Moreover, the
       detailed nature of the Executive Hotel Operating Agreement demonstrates that the
       documents were carefully drafted. These carefully drafted documents reflect a
       deliberate plan to have distinct legal bodies serve as guarantors of the Comerica debt
       and as members of the Executive Hotel Group.

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No. 08-1942
Rogel v. Dubrinsky

(ROA 347.) The district court ordered Keywell and Dubrinsky to reimburse Rogel for their shares

of his payments to Comerica. Dubrinsky died after the judgment was entered, and an amended

judgment named the representative of his estate. Only Keywell has appealed.

                                          II. ANALYSIS

       Keywell concedes that an action for an implied right of contribution would normally be

available to Rogel under Michigan law, but he asserts that the Operating Agreement overrides this

common law right. See Wilmarth v. Hartman, 213 N.W. 73, 74 (Mich. 1927) (recognizing that

guarantors can—amongst themselves—contract out of the common law default rule of contribution).

Keywell argues that we should pierce the corporate veil and hold that the restrictions on the Rogel

Entity’s ability to bring suit under the Agreement also bind Rogel himself and that the protections

from suit the Agreement provides to the Keywell Entity also protect Keywell as an individual.

A.     Standard of review

       We review a grant of summary judgment de novo. See Mazur v. Young, 507 F.3d 1013, 1016

(6th Cir. 2007). “Summary judgment is proper if the evidence, taken in the light most favorable to

the nonmoving party, shows that there are no genuine issues of material fact and that the moving

party is entitled to a judgment as a matter of law.” Id. (citing Matsushita Elec. Indus. Co. v. Zenith

Radio Corp., 475 U.S. 574 (1986) and Fed. R. Civ. P. 56(c)). “The movant has the burden of

showing that there is no genuine issue of fact, but . . . a party opposing a properly supported motion

for summary judgment may not rest upon mere allegation or denials of his pleading, but must set

forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 256 (1986).

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No. 08-1942
Rogel v. Dubrinsky

B.     Piercing the corporate veil

       We recently described Michigan’s corporate-veil-piercing jurisprudence as follows:

       Under Michigan law, there is a presumption that the corporate form will be respected.
       Seasword v. Hilti, [] 537 N.W.2d 221, 224 (Mich. 1995) (citing Herman v. Mobile
       Homes Corp., [] 26 N.W.2d 757, 761 (Mich. 1947)). “This presumption, often called
       the ‘corporate veil,’ may be pierced only where an otherwise separate corporate
       existence has been used to ‘subvert justice or cause a result that [is] contrary to some
       overriding public policy.’” Id. (alteration in original) (quoting Wells v. Firestone, []
       364 N.W.2d 670, 674 (Mich. 1984)). Michigan courts will not pierce the corporate
       veil unless (1) the corporate entity was a mere instrumentality of another entity or
       individual; (2) the corporate entity was used to commit a fraud or wrong; and (3) the
       plaintiff suffered an unjust loss. Foodland Distribs. v. Al-Naimi, [] 559 N.W.2d 379,
       381 (Mich. Ct. App. 1996) (citing SCD Chem. Distribs., Inc. v. Medley, [] 512
       N.W.2d 86, 90 (Mich. Ct. App. 1994)); see also Gledhill v. Fisher & Co., [] 262
       N.W. 371, 372 (Mich. 1935). The propriety of piercing the corporate veil is highly
       dependent on the equities of the situation, and the inquiry tends to be intensively
       fact-driven. Kline v. Kline, [] 305 N.W.2d 297, 299 (Mich. Ct. App. 1981) (per
       curiam); see Herman, 26 N.W.2d at 761 (“In determining whether the corporate
       entity should be disregarded and the parent company held liable on the contracts of
       its subsidiary because the latter served as a mere instrumentality or adjunct of the
       former, each case is sui generies [sic] and must be decided in accordance with its
       own underlying facts.”).

Servo Kinetics, Inc. v. Tokyo Precision Instruments Co. Ltd, 475 F.3d 783, 798-99 (6th Cir. 2007).

Although “[t]he traditional basis for piercing the corporate veil has been to protect a corporation’s

creditors where there is a unity of interest of the stockholders and the corporation and where the

stockholders have used the corporate structure in an attempt to avoid legal obligations,” Foodland

Distribs., 559 N.W.2d at 381, “Michigan courts have [also] recognized that it may be appropriate

to invoke the doctrine for the benefit of a shareholder where the equities are compelling.” Wells v.

Firestone, 364 N.W.2d at 674. In no instance, however, has a Michigan court invoked the doctrine

for both of these reasons in the same case; that is, no Michigan court has pierced the veil to hold one

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No. 08-1942
Rogel v. Dubrinsky

shareholder-party liable for the obligations of its corporate entity while piercing the veil of a separate

entity for the benefit of the opposing shareholder-party.

        1.      Mere instrumentalities

        The district court found it unnecessary to resolve this factor, noting that Keywell could not

meet the second and third prongs of the analysis. Because we agree with the district court, we also

need not resolve this prong. We note that doing so would require us to determine both whether the

Rogel Entity was a mere instrumentality of Rogel, and whether the Keywell Entity was a mere

instrumentality of Keywell.

        2.      Fraud or wrong; unjust loss

        Under the second and third prongs of the veil-piercing analysis, Keywell must show that

Rogel used the corporate form to perpetrate a fraud or wrong and that Keywell suffered an unjust

loss as a result. Keywell cannot satisfy these prongs.

        Keywell and Dubrinsky were sophisticated businessmen represented by counsel when they

entered into the Operating Agreement. They created distinct corporate entities with the intent that

those entities would be the parties to Executive’s Operating Agreement. When Keywell, Dubrinsky,

and Rogel guaranteed the line of credit with Comerica, they were well aware that they were acting

in their individual capacities. In fact, they were aware of the possible necessity of personally

guaranteeing the line of credit at the time they signed the Operating Agreement (on behalf of their

respective entities), as section 2.3(a) of the Agreement expressly contemplates that the guaranties

would be made by the three men as individuals. By their terms, both the obligations and the

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No. 08-1942
Rogel v. Dubrinsky

protections contained in the Operating Agreement apply to the member entities themselves, not the

individual owners of those entities.

        In seeking contribution from Keywell and Dubrinsky, Rogel did not commit a wrong of the

type that Michigan courts have found will justify corporate veil-piercing, if, indeed, he committed

a wrong at all. While a breach of contract can satisfy this prong of the test, see Servo Kinetics, 475

F.3d at 799-800, Rogel was not a party to the contract, so he cannot have breached it. Nor can

Keywell claim that a contract to which he was a party was breached. Keywell relies heavily on

Montgomery v. Central National Bank & Trust Co. of Battle Creek, 255 N.W. 274, 274 (Mich.

1934). In that case, the plaintiff was the owner of nearly all of the shares of a company that operated

a Tavern (the “Tavern Company”), and the Michigan Supreme Court allowed her, in her individual

capacity, to sue to enforce a contractual clause that would not have been enforceable absent veil-

piercing. The plaintiff had sold the lot across from the Tavern to the defendant using a sale-contract

that contained a promise not to open a competing establishment on the lot. The defendant promptly

breached the promise, arguing that a restriction on the use of land “may not be made in favor of one

not a party to the instrument.” Id. at 275. The Montgomery Court, while acknowledging this general

rule, was willing to “ignore the separate entity of [the] corporation, and to look to the sole owner of

its capital stock as the real party in interest” in order to prevent an obvious injustice and frustration

of the clear intent of the parties. Id. at 275-76 (internal quotation marks omitted).

        We are not persuaded that Montgomery supports disregarding the corporate distinctions in

this case. The Montgomery Court pierced only a single veil and might have reached a different

outcome if an additional veil-piercing had been required to not only make the contract enforceable

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No. 08-1942
Rogel v. Dubrinsky

by the plaintiff but also to make it enforceable against the defendant. Furthermore, the equities of

the Montgomery case clearly weighed in favor of piercing the veil, while here, it is uncertain that

Keywell would be entitled to the result he is seeking even if the veil were pierced: the Agreement’s

limitation on capital-call-collection-suits does not clearly or explicitly extend to suits for contribution

under the individuals’ line-of-credit guaranties.

        Other cases in which Michigan courts have pierced the corporate veil have uniformly

required the disregarding of only one corporate entity, and have also presented more compelling

equitable interests than those asserted here. See, e.g., Wells, 364 N.W.2d at 674 (disregarding

corporate distinction between employer and subsidiary where allowing suit would have contravened

public policy behind workers’ compensation statute); Cinderella Theatre Co., Inc. v. United Detroit

Theatres Corp., 116 N.W.2d 825, 826 (Mich. 1962) (piercing corporate veil to prevent lessor from

avoiding contractual obligations by assigning lease to undercapitalized subsidiary); Om-El Export

Co. Inc. v. NewCor, Inc., 398 N.W.2d 440, 444 (Mich. Ct. App. 1986) (not requiring individual to

mitigate damages by deducting his own wages from the corporation’s recovery for breach of contract

where contract clearly contemplated his personal services and he was the whole owner of the

corporation).

        Thus, even if Keywell and Dubrinsky intended to shield themselves from the obligation to

pay Rogel for their shares of the loss of his pledged assets in the event that Executive defaulted on

its line-of-credit debt—an intention that is not clearly set forth in the Agreement—they were not

parties to the Operating Agreement, and Michigan law does not support disregarding these carefully

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No. 08-1942
Rogel v. Dubrinsky

constructed corporate entities, as would be necessary to extend to Keywell any protections the

Keywell Entity enjoyed under the Agreement.

                                    III. CONCLUSION

       For the foregoing reasons, we AFFIRM the grant of summary judgment in favor of Rogel.

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