Court Opinion

ID: 4367272
Source: CourtListenerOpinion
Date Created: 2019-02-13 10:08:03.991646+00
Date Added: 2024-06-11T14:48:22.649997
License: Public Domain

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
                 revision until final publication in the Michigan Appeals Reports.

                          STATE OF MICHIGAN

                           COURT OF APPEALS

CITY OF DEARBORN,                                                   UNPUBLISHED
                                                                    February 12, 2019
               Plaintiff/Counterdefendant-
               Appellee,

v                                                                   No. 339704
                                                                    Wayne Circuit Court
BANK OF AMERICA,                                                    LC No. 15-012788-CH

               Defendant/Cross-Defendant-
               Appellee,
and

WEST DEARBORN PARTNERS LLC,

               Defendant/Counterplaintiff/Cross-
               Plaintiff-Appellant.

Before: STEPHENS, P.J., and K. F. KELLY and TUKEL, JJ.

PER CURIAM.

        Defendant/Counterplaintiff/Cross-Plaintiff/Appellant, West Dearborn Partners, LLC
(“West Dearborn”), appeals an order quieting title to certain property (or “Parcel C”), in favor of
Plaintiff/Counterdefendant/Appellee City of Dearborn (“the City”) and against any interests of
West Dearborn and Defendant/Cross-Defendant/Appellee Bank of America (“BOA”).1

1
  Though listed as an appellee, BOA has not filed a notice of appearance and is not participating
in this appeal.
                                          I. BASIC FACTS

        On April 23, 2003, the City and an entity known as West Village Commons, LLC (“West
Village2“) entered into a development agreement whereby West Village would develop certain
property for residential and office use. In exchange, the City agreed to procure all the necessary
property for construction and construct parking garages. The City acquired the property and
constructed the parking structures and, on May 9, 2005, sold Parcel C, as well as nearby Parcel
A-3, to West Village by covenant deed, which included a declaration of covenants running with
the land and its development. On May 11, 2005, BOA’s predecessor, Standard Federal National
Association (“Standard Federal”), and West Village entered into a collateral assignment of
developer’s rights whereby Standard Federal loaned West Village $2,975,000 in exchange for a
mortgage on the property.

       West Village failed to fulfill its obligations, resulting in protracted litigation in City of
Dearborn v Burton-Katzman Dev Co, Inc, Wayne County Circuit Court Case No. 09-001342-
CK. 3 West Village filed for Chapter 7 bankruptcy in the United States District Court for the
Eastern District of Michigan, Case No. 10-66748-MBM. On October 5, 2011, the bankruptcy
court entered an order directing the Trustee to abandon the property via quitclaim deed to the
City. Bankruptcy Judge Marci B. McIvor’s order provided:

         The Trustee is directed to promptly abandon the Debtor’s real property . . .via
         quitclaim deed to the City of Dearborn, in form reasonably satisfactory to title
         City of Dearborn and consistent with this Order, pursuant to sections 105(a) and
         554(b) of the Bankruptcy Code. Such abandonment shall not impair, and the
         Property shall remain subject to, all claims, liens, interests, rights and obligations
         of record. [Emphasis added.]

Thereafter, in consideration of $1, the City received Parcel C via quitclaim deed on October 17,
2011. The deed was recorded on October 20, 2011.

         The City brought a quiet title action against BOA, arguing that BOA’s failure to complete
the development plans in accordance with the development agreement, covenant deed, and
restrictive covenants resulted in an abandonment of its interest. In response, BOA indicated that
it did not claim nor did it hold an interest in the subject property because it had assigned its
interest to West Dearborn on March 31, 2011. The assignment was signed by BOA Senior Vice
President Mark Mokelke.4

2
    Though similarly named, there is no connection between West Dearborn and West Village.
3
 See City of Dearborn v Burton-Katzman Dev Co Inc, unpublished opinion of the Court of
Appeals, issued December 18, 2014 (Docket Nos. 309758 and 313213).
4
  Although the assignment of mortgage is made in favor of “West Dearborn Partners, LLC” on
the cover page, the signature page shows the assignee as “West Village Partners, LLC.” Again,
West Dearborn and West Village are separate and unrelated entities.

                                                  -2-
        As a result of BOA’s answer, the City filed an amended complaint, adding West
Dearborn as a defendant. The City alleged that the March 31, 2011, assignment to West
Dearborn was never recorded and, therefore, West Dearborn failed to protect whatever interest it
had in the property. As to BOA, the City alleged that, regardless of the assignment, BOA had
relinquished its interest in Parcel C when it filed a discharge of mortgage with the Wayne County
Register of Deeds on August 14, 2015. The discharge was the result of a separate lawsuit
regarding the separate, but related, Parcel A-3. After a tax forfeiture in 2014, Parcel A-3’s new
property owner sued BOA for quiet title. Rather than cite to its lack of interest in the property,
BOA vigorously defended itself as mortgagee. The trial court in that case ordered that BOA
discharge its interest as to Parcel A-3. Ultimately BOA discharged its mortgage as to both Parcel
A-3 and Parcel C.

       West Dearborn filed an answer and counterclaim on December 28, 2015. West Dearborn
argued that recording the March 31st assignment was of no consequence where the City had
actual notice of West Dearborn’s interest. West Dearborn alleged that the bankruptcy
proceeding demonstrated that the City was well aware of West Dearborn’s interest. As such, the
City was not a bona fide purchaser and West Dearborn had superior rights to the property.5

       Believing that the bankruptcy order would be of significant interest, West Dearborn filed
a motion to confirm the scope of the bankruptcy court’s order in the bankruptcy court. On
December 21, 2016, Bankruptcy Judge McIvor denied West Dearborn’s motion to confirm the
scope of its previous order. Shortly thereafter, BOA, the City, and West Dearborn each filed
competing motions for summary disposition.

        BOA continued to maintain that it had no claim to the property. Still, BOA felt
compelled to respond to the City’s questioning of the veracity of the March 2011, assignment to
West Dearborn. Specifically, BOA indicated that its employee, Sara Allen, as a result of an
error, executed and caused to be recorded a discharge of construction mortgage as to Parcel C.
For that reason, BOA executed a Confirmation, Release, and Waiver of Claim of Right to Real
Property. Although BOA claimed no interest in Parcel C, it indicated that the parties were
nevertheless unable to agree to a consent judgment. BOA argued that the validity of the
assignment had no bearing on keeping BOA as a party.

       The City argued that any interest West Dearborn had in Parcel C was extinguished by the
bankruptcy court due to West Dearborn’s failure to record the assignment and any harm to West
Dearborn from the bankruptcy court’s order was due to its own negligence or deliberate decision
not to record the assignment. Although West Dearborn implied that it could not file earlier
because it was unable to locate Mokelke to obtain his acknowledgement on the assignment,
Mokelke’s contact information would have remained the same until his May 1, 2012 transfer to
California. Sara Allen was still with his group and had the ability to reach him. The City further
argued that, even if the bankruptcy court’s order did not extinguish West Dearborn’s interest,
BOA’s August 2015 discharge did. The City also argued that the acknowledgments in the
assignment were invalid. Finally, the City argued that equity demanded that West Dearborn’s

5
    West Dearborn recorded the assignment on December 17, 2015.

                                               -3-
interest be extinguished or rescinded based on West Dearborn’s unreasonable and unjustifiable
delay in recording the assignment over four years after it was signed.

        West Dearborn noted that its attorney, Scott Lites, testified that he had to track down
Mokelke to get his signature acknowledged in order to record the assignment and, because
Mokelke had been transferred, Lites was unable to get the requisite acknowledgement page until
July 2014. Lites didn’t feel any real urgency nor did he feel compelled to keep track of his
efforts because, as far as he was concerned, the City acknowledged West Dearborn’s interests
during the bankruptcy proceedings. When Lites recorded the assignment he knew that there was
an error in the assignment – West Village instead of West Dearborn as signatory – but made no
attempt to correct it because an assignee is not even required to sign the assignment; instead, it
was BOA’s form and BOA was the assignor.

       West Dearborn explained that it had decided to let certain condominium units (Parcel A-
3) “go down for unpaid property taxes.” BOA’s representative, Sara Allen, testified that, due to
a brain injury, she had forgotten about the March 31, 2011, assignment when she drafted the
discharge that was ordered in the separate quiet title action regarding Parcel A-3. Allen
acknowledged that there was nothing for BOA to discharge, given the transfer to West Dearborn
in 2011. An affidavit of scrivener’s error was filed on March 31, 2016, indicating that BOA
didn’t mean to include Parcel C in the mortgage discharge.

        West Dearborn argued that its interest had priority over the City’s fee interest because the
City was not a bona fide purchaser, having paid only $1 for Parcel C just months after West
Dearborn paid $150,000. More importantly, West Dearborn argued that the City had actual
notice of the assignment, as demonstrated by the bankruptcy court documents and transcripts.
West Dearborn argued that actual knowledge prevented the City from claiming that it is a good
faith purchaser under MCL 565.29.

        Even if the bankruptcy’s order was read as the City would like, West Dearborn
maintained the pre-existing BOA mortgage was a lien or interest of record. West Dearborn
argued: “the term ‘interest’ here as set forth both in the Order and Deed can clearly be construed
to relate to the Mortgage itself and not as to who happens to hold the interest at any particular
point in time.” The mortgage was given to the mortgagee and its assigns and “[s]ince the
Mortgage is joined at the hip with the Note, and since West Dearborn was the holder of the Note
during the Bankruptcy, it is also the holder of the Mortgage and survived the Bankruptcy.” West
Dearborn believed that the City took the property subject to the mortgage and assignment, of
which it had actual knowledge. Moreover, West Dearborn asserted that there was no law
requiring an assignment be recorded unless the property was to be foreclosed by advertisement.

       Finally, West Dearborn argued that BOA’s subsequent 2015 discharge had no effect on
Parcel C because BOA had nothing to discharge.

        The trial court granted the City’s motion for summary disposition and denied BOA’s and
West Dearborn’s motions for summary disposition, finding that any interest West Dearborn had
acquired was extinguished by the bankruptcy court’s order and West Dearborn’s failure to record
the assignment. The trial court declined to reach the alternative arguments that BOA’s 2015
discharge extinguished the assignment or that deficiencies in the assignment rendered the

                                                -4-
assignment invalid. The trial court denied West Dearborn’s motion for reconsideration and
West Dearborn now appeals as of right.

                                         II. ANALYSIS

        On appeal, West Dearborn argues that the trial court erred in granting the City summary
disposition.

        “This Court reviews de novo a circuit court’s decision whether to grant or deny summary
disposition.” Joseph v Auto Club Ins Ass’n, 491 Mich. 200, 205; 815 NW2d 412 (2012).

        West Dearborn argues that the bankruptcy court’s order did not extinguish its interest in
Parcel C because the original 2005 mortgage remained a lien “of record.” West Dearborn argues
that, as the assignee, it stood in the place of BOA, the assignor, and priority for the assignment
related back to date of the original mortgage. West Dearborn cites Coventry Park Homes Condo
Ass’n v Federal Nat’l Mtg Ass’n, 298 Mich. App. 252; 827 NW2d 379 (2012) and Wilson v
Campbell, 110 Mich. 580; 68 N.W. 278 (1896), for the principle that “an assignee stands in the
shoes of an assignor, acquiring the same rights and being subject to the same defenses as the
assignor” and “[w]hen a mortgage is assigned, the assignee, for all beneficial purposes claimed
under it by him, becomes a party to the mortgage, and stands in the place of the mortgagee.”
Coventry, 298 Mich. App. at 256-257, citing Wilson v Campbell, 110 Mich. at 588-589. West
Dearborn also cites Equitable Trust Co v Milton Realty Co, 263 Mich. 673, 676; 249 NW
30(1933), arguing that when the note was sold and transferred to West Dearborn, the mortgage
was automatically held by West Dearborn. “A transfer or assignment of the obligation operates
as an assignment of the mortgage . . .” Id., citing Jones v Titus, 208 Mich. 392; 175 N.W. 257
(1999).

        West Dearborn argues that nothing in the bankruptcy court’s order impacted its right as
an assignee of BOA. However, West Dearborn’s reliance on Coventry is misplaced in this case.
Coventry concerned the interpretation of the Condominium Act and the priority of mortgages,
not the interpretation, relevancy, and effect of a bankruptcy court’s order. And, while generally
an assignment of the note includes a transfer of obligation under the mortgage, the situation
before us is particularly unique. West Dearborn paid BOA roughly 10% of what was due on the
mortgage and did so while the property was subject to the bankruptcy proceedings. West
Dearborn took a significant risk in seeking the assignment when it did. While the 2005 mortgage
itself was still “of record” at the time of the bankruptcy proceeding, the assignment giving West
Dearborn any interest was not. West Dearborn acknowledged as much when, in response to the
Trustee’s request to sell the property, West Dearborn requested:

               West Dearborn Partners LLC wishes for any Order of Sale to specifically
       provide that such sale of property is subject to not only the claims, liens and
       interest of record described in paragraph 9 of the Motion [to sell], but also subject
       to the interest of Bank of America now held by West Dearborn Partners LLC as
       assignee of Bank of America, including but not limited to the waived right of
       redemption.

                                               -5-
West Dearborn knew its unrecorded interest was at risk when it asked that any sale of property
by the Trustee be subject not only to interests of record but also subject to West Dearborn’s
unrecorded interest. The bankruptcy court’s order effectively extinguished any unrecorded
interest when it later ordered the Trustee to abandon the property:

         The Trustee is directed to promptly abandon the Debtor’s real property . . .via
         quitclaim deed to the City of Dearborn, in form reasonably satisfactory to title
         City of Dearborn and consistent with this Order, pursuant to sections 105(a) and
         554(b) of the Bankruptcy Code. Such abandonment shall not impair, and the
         Property shall remain subject to, all claims, liens, interests, rights and obligations
         of record. [Emphasis added.]

The bankruptcy court’s order itself required the assignment be recorded in order to have
continued validity.

        Even if we accepted West Dearborn’s position that it stood in BOA’s shoes and had no
obligation to record the assignment to protect its interest, then West Dearborn stood in BOA’s
shoes when BOA later discharged the mortgage in 2015 as a result of a separate quiet title
proceeding regarding Parcel A-3. West Dearborn argues that the discharge was invalid because
BOA, having no interest in Parcel C, had nothing to discharge. West Dearborn wants to be
relieved of any obligation to notify the world of its interest in Parcel C and yet be protected when
chaos ensues. West Dearborn provides no satisfactory explanation for why it failed to record the
assignment for over 4 ½ years.

        West Dearborn also raises equitable arguments. First, it claims that the City should be
estopped from taking an inconsistent position from the position the City took in the bankruptcy
court. West Dearborn argues that the City had actual notice of the 2011 assignment and West
Dearborn’s interest in the property, as it indicated in the bankruptcy court, so it should not be
allowed to now argue that West Dearborn had to further perfect its already perfected interest. It
believes the City’s version of what was required by the bankruptcy court order is invalidated by
the City’s own admissions.

        West Dearborn cites Mertz v Mertz, 311 Mich. 46, 55; 18 NW2d 271 (1945), holding that
equitable estoppel rests in broad principles of justice. “One may not take contradictory positions
in asserting a right in court, if the assertion of plaintiff’s right in the first case involves a negation
of the right as claimed in the second case.” Id. at 56. Permitting a party to do so “would make a
mockery of legal proceedings, and be a travesty upon justice.” Id. at 58. “Judicial estoppel
prevents a party from taking a position in a later proceeding that is inconsistent with a position
that party took successfully in a prior proceeding.” Dykema Gossett, PLLC v Ajluni, 273 Mich
App 1, 16; 730 NW2d 29 (2006), aff’d in part, vacated in part on other grounds 480 Mich. 913
(2007). However, “the mere assertion of inconsistent positions is not sufficient to invoke
estoppel; rather, there must be some indication that the court in the earlier proceeding accepted
that party’s position as true.” Id., quoting Paschke v Retool Industries, 445 Mich. 502, 509–510;
519 NW2d 441 (1994).

         In its August 16, 2011 objections to the Trustee’s proposal to sell the property, the City
noted:

                                                   -6-
               18. The Sale Motion purports that the property will be sold subject to “all
       claims, liens, and interests of record without limitation,” including all terms and
       conditions of the Covenant Deed and the Development Agreement. Sale Motion
       at ¶ 9. However, if the proposed sale were approved, the property would be sold
       in contravention of section 3.0l(e) of the Development Agreement and
       paragraph I(B) of the Covenant Deed, since it would be sold prior to
       completion of the development of Area C by Developer.

              19. In the Sale Motion, [BOA] is identified as the holder of a mortgage on
       the Area C parcel. However, upon information and belief, [BOA] sold the note
       and mortgage associated with Area C to West Dearborn Partners, LLC (“West
       Dearborn Partners”) at the end of March 2011.

                                             * * *

               21. Notably, no explanation is provided by West Dearborn Partners as to
       why the documents effectuating the sale and transfer of the note and mortgage to
       West Dearborn Partners do not appear of record almost five months after the
       transaction.

Then, at the October 4, 2011 bankruptcy hearing, the City’s attorney indicated:

       The other thing I wanted to highlight, your Honor, is the proposed order here.
       Our proposed order states very clearly in paragraph 2, among other things, that
       the abandonment – first of all, it contemplates a quit claim deed, and it says that
       such abandonment shall not impair and the property shall remain subject to all
       claims, liens, interests, rights, and obligations of record. The West Dearborn
       Partners, the mortgagee -- the holder of the mortgage and the note on the property,
       has indicated it wants to make sure that the property is subject to its rights and
       interests. This order already does that. So the rights of the holder of the mortgage
       are not prejudiced in any way by the abandonment here, and no other party other
       than the trustee has objected to the abandonment. And the trustee has just
       indicated that there is no value to the property to the estate, so we would suggest
       that our motion is proper, and we would ask that it be granted.

West Dearborn’s position is problematic because (1) when considered in context, the City’s
current position is not inconsistent with its prior position; and (2) the bankruptcy court did not
rely on or accept any alleged statements as true before effectuating its order of abandonment.
The City certainly questioned why the assignment had not been recorded. And the bankruptcy
court’s order requiring that the property be abandoned had nothing to do with the validity of the
assignment; instead, the focus was on whether the property was a burden to the bankruptcy
estate. That was part of the reason the bankruptcy court declined to clarify its order and was
content to let the order stand on its own.

      Second, West Dearborn claims that the City’s position regarding the unrecorded
mortgage is inconsistent with the City’s position regarding an unrecorded development
agreement. The City had previously successfully argued that the unrecorded development

                                               -7-
agreement applied to all future assigns, which stood in stark contrast with the City’s position that
the assignment did not survive the bankruptcy court’s order. However, the mortgage documents
expressly referenced the development agreement whereas the mortgage could not specifically
mention and refer to an assignment that did not yet exist. More to the point, this case has
nothing to do with the validity of the development agreement and, therefore, West Dearborn’s
argument is wholly irrelevant.

     West Dearborn next argues that it had priority over the City’s fee interest because under
MCL 565.29, the City was not a good faith purchaser. MCL 565.29 provides:

       Every conveyance of real estate within the state hereafter made, which shall not
       be recorded as provided in this chapter, shall be void as against any subsequent
       purchaser in good faith and for a valuable consideration, of the same real estate or
       any portion thereof, whose conveyance shall be first duly recorded. The fact that
       such first recorded conveyance is in the form or contains the terms of a deed of
       quit-claim and release shall not affect the question of good faith of such
       subsequent purchaser, or be of itself notice to him of any unrecorded conveyance
       of the same real estate or any part thereof.

West Dearborn points to the fact that the city paid only $1 for Parcel C and MCL 565.34 defines
“purchaser” as one who pays valuable consideration. West Dearborn also indicates that the City
also had actual knowledge of the assignment prior to acquiring its interest. However, as
previously stated, this case is unique. It is not a matter of priority as between the City and West
Dearborn. Instead, the case is whether the bankruptcy court’s order extinguished West
Dearborn’s unrecorded interest in the property.

        West Dearborn further argues that the assignment was not fatally defective and that any
alleged defect did not serve to defeat West Dearborn’s interest. Although the City alleged that
the assignment was defective, this was not the basis of the trial court’s decision granting
summary disposition in the City’s favor. The trial court noted: “The deficiencies in the
assignment as noted by the City of Dearborn, are concerning. However, again, the Court need
not make a ruling on the validity of the assignment because any interest held by West Dearborn
Partners was extinguished by the bankruptcy court due to [West Dearborn’s] continued failure to
correct the deficiencies and promptly record this assignment, their assignment.” This Court’s
review should be limited to issues actually decided by the trial court. Heydon, 275 Mich. App. at
278; Love, 270 Mich. App. at 566 n 2.

        Finally, West Dearborn argues that equity compels reversal because allowing the City to
own the property in fee and free from West Dearborn’s interest would result in a windfall to the
City. However, West Dearborn fails to account for its own inexplicable failure to record the
assignment more than 4 ½ years, after receiving it March 2011. As the trial court noted: “[West
Dearborn] clearly had . . . actual notice of the bankruptcy proceeding. [West Dearborn] filed a
limited objection and Counsel for [West Dearborn] was present at the hearing. It is not the role
of the Court to protect sophisticated parties and their Counsel from their own mistakes or
deliberate actions taken to their detriment.”

                                                -8-
       Affirmed. As the prevailing party, plaintiff/counter-defendant may tax costs. MCR
7.219(A).

                                                      /s/ Cynthia Diane Stephens
                                                      /s/ Kirsten Frank Kelly
                                                      /s/ Jonathan Tukel

                                          -9-