Court Opinion

ID: 4675905
Source: CourtListenerOpinion
Date Created: 2021-04-09 09:07:26.461325+00
Date Added: 2024-06-11T08:03:29.238727
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

FIFTH THIRD BANK,                                                UNPUBLISHED
                                                                 April 8, 2021
              Plaintiff-Appellee,

v                                                                No. 351608
                                                                 Oakland Circuit Court
EMC2, INC. and KENNETH C. DARGATZ,                               LC No. 2017-158718-CB

              Defendants,

and

CHARRINGTON ESTATES, LLC,

              Appellant,

and

MARK KASSAB, Receiver,

              Appellee,

and

OAKLAND COUNTY TREASURER and
MCNAUGHTON-MCKAY ELECTRIC
COMPANY,

              Other Parties.

Before: MURRAY, C.J., and JANSEN and STEPHENS, JJ.

PER CURIAM.

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       Appellant Charrington Estates, LLC (Charrington) appeals as of right the order for default
judgment against defendants EMC2, Inc. (EMC2) and Kenneth Dargatz, the order limiting
Charrington’s request for rent, and the order denying Charrington’s request for removal expenses.
We affirm.

                                       I. BACKGROUND

        The dispute in this case arises from a court-ordered receivership which was established
during litigation between plaintiff Fifth Third Bank and defendants, who were tenants in a building
owned by Charrington. In 2013, the defendants opened a credit card account with Fifth Third
Bank which went into default. Later that year, EMC2 entered into a lease with Charrington for
77,000 square feet inside an Auburn Hills building that Charrington owned. Also, in December
2015 and September 2016, EMC2 executed two notes to plaintiff totaling $1 million. As collateral,
EMC2 signed a security agreement pleading all of its assets as collateral, and Dargatz, EMC2’s
president and majority shareholder, provided an unconditional guaranty. Ultimately, EMC2
abandoned its property in the Charrington building. Later, court-appointed receiver Mark Kassab
used the space to secure and ultimately auction EMC2’s assets to settle certain debts.

        Plaintiff Fifth Third Bank initiated this case against defendants EMC2 and Dargatz on
May 11, 2017. Plaintiff alleged that defendants were in default by failing to provide required
financial information and information regarding entry of a judgment against EMC2, failing to
maintain a debt service ratio and to timely pay the credit card, and because of an adverse material
change in defendants’ financial conditions. Plaintiff sought $916,048.23 plus accrued but unpaid
interest, flat fees, late fees, and costs due under various agreements. However, the parties later
reached an extension and consolidation agreement, pursuant to which a stipulated order dismissing
plaintiff’s complaint without prejudice was entered. At the same time, defendants executed a
stipulated order reopening the case and for entry of a consent judgment, as well as an order to seize
property; they agreed that these orders could be entered with the trial court without a hearing in
the event they defaulted again. Accordingly, the stipulated order provided that the trial court
retained jurisdiction over the case “for purposes of enter[ing] a Stipulated Order Re-Opening Case
and for Consent Judgment if necessary”.

       An amended lease between appellant Charrington and defendant EMC2 was executed in
December 2018. It provided a lease term of March 31, 2019 through March 31, 2024. The monthly
base rent for the relevant time period was $37,927.50. However, EMC2 failed to pay rent as
required by the lease, so Charrington initiated suit in district court. Charrington eventually
obtained a default judgment against EMC2 on May 3, 2019, and obtained an order of eviction on
May 17, 2019. However, shortly after appellant Charrington obtained its order of eviction, on
May 24, 2019, plaintiff Fifth Third Bank moved to reopen this case and sought entry of the
previously executed consent judgment and the appointment of a receiver. By this time, EMC2 had
multiple tax liens, judgments, and garnishments entered against it. EMC2 was insolvent, had
terminated all of its employees, and had ceased operations. Also, Dargatz had resigned as

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president.1 Plaintiff sought the receiver to preserve, protect, inventory, sell, and liquidate all of
the collateral. On June 6, 2019, the trial court entered an order granting in part plaintiff’s motion
to reopen and granting plaintiff’s motion for appointment of a receiver. The court appointed
Kassab as the receiver and Kassab subsequently moved for an order authorizing him to enter into
an agreement for an auction sale of the receivership property.

       On July 10, 2019, appellant Charrington filed a motion seeking reimbursement for the
receiver’s continued use of the space in Charrington’s building that held EMC2’s property.
Charrington asserted that this use constituted a receivership expense and sought an order requiring
the receiver to pay $43,468.50 per month, beginning June 5, 2019 and until the receiver
surrendered the premises to Charrington. Charrington calculated the amount of rent it sought from
the contracted rent in its rental agreement with EMC2.

        Plaintiff Fifth Third Bank’s counsel responded that a receivership was an equitable
proceeding and suggested that “[t]he most reasonable and equitable way to deal with this issue is
on a pro rate basis. Plaintiff advised that the auctioneer had guaranteed that plaintiff would receive
$115,000 from the auction, but that plaintiff would be required to pay the receiver’s and
auctioneer’s costs and the costs to move the equipment, so plaintiff would not net $115,000.
Plaintiff noted that $115,000 was 24% of what plaintiff was owed, and suggested that Charrington
be granted 24% of what it was owed. Plaintiff argued that it “would not be equitable” for
Charrington to jump ahead of plaintiff, who was paying for the auction, and receive more than
plaintiff. Plaintiff further contended that, if asked, the receiver would likely state that $44,000 per
month was not a reasonable rate for storing equipment. Plaintiff agreed that Charrington was
entitled to some compensation, but reiterated that “it would be inequitable” for Charrington to
receive $88,000 when plaintiff was going to receive less than $115,000 and pay for all of the
expenses, and again requested that Charrington receive a pro-rated share.

        Charrington replied that it would be inequitable for those working for the receiver to be
left “holding the bag” just so that creditors could receive more. Charrington argued that priority
only applied after all of the receivership’s fees were paid, and that those fees should not be reduced
“because the bank wants a larger portion of the pie”. Charrington also argued that its premises
had a fair-market rental rate, as established by the arm’s-length rate in the lease with EMC2, and
that the fact that the receiver was not using the property in the same way that EMC2 had been
using it did not change the property’s fair-market rental rate. The trial court ultimately ordered
that the receiver would pay Charrington 24% of whatever was recovered by the receiver, after
costs were deducted, for the receiver’s use of Charrington’s premises.

        On July 31, 2019, plaintiff Fifth Third Bank filed a default against defendant EMC2. That
same day, appellant Charrington filed a motion seeking entry of an order consistent with its
interpretation of the trial court’s decision, and another motion seeking a stay; it sought to prevent
the receiver from disbursing any funds, other than those necessary for the auctioneer’s expenses,

1
  In early June 2019, the trial court received notice that Dargatz had filed for bankruptcy, and
entered an order administratively closing the case without prejudice as to Dargatz only, leaving
the case against EMC2 open.

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to preserve the remaining funds in the event this Court reversed the trial court’s ruling on
Charrington’s motion for payment of expenses.

         On August 7, 2019, the trial court held a hearing on both of Charrington’s motions. The
trial court stated that it was not sure there was really any meaningful distinction between
Charrington’s status as a creditor of EMC2 and its status as an alleged provider to the receiver, but
acknowledged that Charrington was not seeking a judgment against EMC2. It also thought a stay
would be an exercise in futility because there was unlikely to be enough money in the receivership
to pay anyone what they were owed. However, it also agreed with plaintiff that a stay was not
appropriate because the receiver was required to come before the trial court to request
disbursement and the trial court could decide at that time which debtors to pay first. Accordingly,
the trial court denied Charrington’s motion for a stay.

       Orders consistent with the trial court’s rulings were entered on August 12, 2019.
Charrington immediately sought leave to appeal the trial court’s order regarding payment by the
receiver. On October 10, 2019, this Court denied Charrington’s application for leave to appeal.
Fifth Third Bank v EMC2, Inc, unpublished order of the Court of Appeals, entered October 10,
2019 (Docket No. 350163).

        On October 16, 2019, Charrington filed a motion for payment of receivership expenses in
which Charrington sought over $40,000 from the receiver to pay for cleaning the premises and
safe disposal of chemicals left behind after the receiver relinquished control of the premises. On
October 18, 2019, a stipulated order disbursing funds to the receiver and discharging his bond was
entered. The trial court held a hearing on Charrington’s new request on October 23, 2019. The
trial court held that the receiver was not placed to take charge over the leasehold interest, but only
to take possession of EMC2’s assets and to liquidate those assets, and the receiver did not take
possession of or liquidate the leasehold interest. Moreover, the court noted that there was no
indication by Charrington regarding which items complained of had been left by EMC2 and what,
if anything, had not been there before the receiver ever entered the picture. Accordingly, the trial
court denied Charrington’s motion.

        On November 13. 2019, plaintiff moved for a default judgment against EMC2, sought an
order of possession, payment of attorney fees and costs, and sought entry of an order disbursing
the remaining proceeds. The trial court granted plaintiff’s motion in its entirety. The final order
disbursed the proceeds, with Charrington receiving $18,097.73 and plaintiff Fifth Third Bank
receiving $57,309.46, and closed the case against EMC2.

      On appeal, Charrington challenges the trial court’s orders for default judgment and for the
payment of the expenses of the receivership.

                                          II. STANDING

        Before we consider the issues raised by Charrington, we must first address plaintiff’s
assertion that Charrington lacks standing to bring this appeal.

                                  A. STANDARD OF REVIEW

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  THIS COURT REVIEWS DE NOVO “WHETHER A MATTER IS PROPERLY PLACED
       BEFORE A COURT BY A PERSON WITH STANDING,” AS WELL AS THE
     INTERPRETATION OF COURT RULES. MATTHEW R ABEL, PC V GROSSMAN
   INVESTMENTS CO, 302 MICH APP 232, 237; 838 NW2D 204 (2013). B. ANALYSIS

        This is not an issue of “standing.” “[T]he term ‘standing’ generally refers to the right of a
plaintiff to initially invoke the power of a trial court to adjudicate a claimed injury.” Olsen v Jude
& Reed LLC, 325 Mich App 170, 180; 924 NW2d 889 (2018). For an appeal, the issue is whether
the appellant is an “aggrieved party.” See id. at 181; MCR 7.203(A). See also Federated Ins Co
v Oakland Co Road Comm’n, 475 Mich 286, 291; 715 NW2d 846 (2006) (discussing similarities
between issues of standing and being an aggrieved party for purposes of appeal).

        Plaintiff argues that Charrington lacks standing to appeal the trial court’s order because it
never moved to intervene in the case. Plaintiff is correct that MCR 2.209 requires an interested
party to apply to intervene in a lower-court case to be heard. See also MCR 2.622(H) (applying
MCR 2.209 to receivership cases). However, neither intervention nor party status is required for
this Court to have jurisdiction over an appeal. MCR 7.203(A) provides this Court with jurisdiction
over an appeal as of right if an “aggrieved” party timely files a claim of right from the lower court’s
decision. “To be aggrieved, one must have some interest of a pecuniary nature in the outcome of
the case and not a mere possibility arising from some unknown future contingency.” Federated,
475 Mich at 291.

       [T]o have standing on appeal, a litigant must have suffered a concrete and
       particularized injury, as would a party plaintiff initially invoking the court’s power.
       The only difference is a litigant on appeal must demonstrate an injury arising from
       either the actions of the trial court or the appellate court judgment rather than an
       injury arising from the underlying facts of the case. [Id. at 291-292.]

        Furthermore, this Court has noted that the cases requiring intervention “are readily
distinguishable from cases involving claims for attorney or receivership fees.” Abel, 302 Mich
App at 242. Here, Charrington “had no interest in [plaintiff]’s claim until the [trial] court issued
an order denying part of the fees [it] had requested.” Id. The order the trial court entered limited
the amount Charrington could recover in rent. Thus, although Charrington “was not a named party
in the underlying action, [it] has a special, concrete, particularized interest” and can weigh in on
the amount to which it was entitled for the receiver’s use of its property. Id. at 244. Accordingly,
Charrington was an aggrieved party eligible to appeal the trial court’s final order.

                    III. MOTION FOR RENT AND REMOVAL EXPENSES

       On appeal, Charrington alleges that the trial court erred when it reduced the amount of
compensation it sought as rent from the receiver and by denying its request for payment of removal
and cleanup expenses. We disagree.

                                  A. STANDARD OF REVIEW

       Receivers are appointed pursuant to a trial court’s equitable powers, MCL 600.2926, and
“decisions regarding equitable claims, defenses, doctrines, and issues are reviewed de novo.”
Beach v Lima Twp, 283 Mich App 504, 508; 770 NW2d 386 (2009). This Court reviews for clear

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error the findings of fact supporting those decisions. Id. at 521. “A finding is clearly erroneous
where, after reviewing the entire record, this Court is left with a definite and firm conviction that
a mistake has been made.” Alan Custom Homes, Inc v Krol, 256 Mich App 505, 512; 667 NW2d
379 (2003). We review for an abuse of discretion a trial court’s “decision to approve or disapprove
the individual expenses incurred by the receiver.” Ypsilanti Charter Twp v Kircher, 281 Mich App
251, 275; 761 NW2d 761 (2008). An abuse of discretion occurs when the trial court’s decision is
outside the range of “reasonable and principled outcome[s].” Maldonado v Ford Motor Co, 476
Mich 372, 388; 719 NW2d 809 (2006). Questions of statutory interpretation are also reviewed de
novo. Ligons v Crittenton Hosp, 490 Mich 61, 70; 803 NW2d 271 (2011).

                                           B. ANALYSIS

        We note that there is no dispute that Charrington is owed compensation for the time the
receiver had possession of its premises to inventory and auction EMC2’s property. The dispute in
this case is solely about the amount Charrington received. The trial court adopted plaintiff’s
proposal to compensate Charrington with 24% of the recovery, after costs were paid, because that
was roughly the same percentage plaintiff was to receive on the debt it was owed as a result of the
receivership. Charrington argues that the trial court’s reduction of the rent it requested was
inequitable because it caused Charrington to subsidize plaintiff’s efforts to collect on its debt.
Plaintiff counters that it is Charrington’s position that is inequitable, because it seeks the entirety
of the recovery, causing plaintiff to have paid for a receivership that recovered nothing for it.

        In calculating the amount it sought to receive as rent from the receiver, Charrington used
the rental rate found in its lease with EMC2. Charrington contends that if the receiver wanted to
pay less rent, it ought to have located and rented other premises. This argument not only lacks any
legal support, but is illogical. Acceptance of Charrington’s position would require receivers to
waste precious time and resources attempting to determine the fair-market rental value of the
premises where property was abandoned and investigate whether it is cheaper to leave the property
where it is located or to move it to a different location. The costs, in both time and money, that
would have to be incurred in locating other buildings, calculating fair-market rent, contracting for
movers, and then securing and moving all of the property to an alternate location, not to mention
the risk of damage to the property during packing, moving, and unpacking, would constitute a
waste of the receiver’s resources. Receivers are not required to choose between potentially wasting
limited resources or becoming liable for nonnegotiable amounts of rent in the event a debtor merely
leases the premises where it keeps, stores, or abandons property. Although premises owners are
entitled to compensation for the time they are unable to access, clean, rent, or otherwise use their
premises while the premises are under the control of the receiver, no statute or caselaw requires a
trial court to order that a receiver pay fair-market rent for that time or provides that the rental rate
is established by a lease the premises owner may have had with the debtor.

        Charrington and plaintiff both rely on Vogt v Gen Necessities Corp, 260 Mich 349; 244
NW 499 (1932). We find Vogt to have little practical value for proper determination of this issue.
Although Vogt involved a dispute regarding the amount of rent to which a lessor was entitled for
the receiver’s use of the property, the trial court ultimately ruled that the lessor was entitled to
“reasonable rent” for the period of occupancy. Id. The lessor appealed, arguing that the receivers
had adopted the lease and, therefore, assumed liability for taxes and water charges. Id. It further
argued that, even if the receivers had not adopted the lease, their liability was measured by the

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lease’s terms and, therefore, they owed rent, taxes, and water charges for the period of occupancy.
Id. The receivers argued that they did not adopt the lease and that their liability was only “a
reasonable rental of the premises for the time they occupied them.” Id.

        Our Supreme Court determined that whether the lease had been adopted by the receivers
was “not a material question in this case because the lessor demanded and accepted a surrender of
the premises on October 1, 1930; and, because, in determining the amount of rent which the
receivers should pay, the trial court allowed it at the sum stipulated in the lease.” Id. at 350-351.
The Court noted that the trial court had ordered the receivers to pay $2,000 for “rent for the two
months the receivers were in arrears” and concluded that neither side had grounds to complain.
Id. at 351. That is, because the amount ordered by the trial court was the rental amount found in
the lease, the lessor was already receiving what it requested, and because “there was no evidence
of reasonable rental,” the receivers could not show that the $1,000 did not constitute a reasonable
rental rate. Id. at 351. Because our Supreme Court expressly declined to determine whether the
lease had been adopted by the receivers, it provides no guidance on that issue. Similarly, it
declined to consider the reasonability of the $1,000 per month rent. At best, the takeaway from
Vogt is that the lessor was entitled to a reasonable amount of rent.

        Charrington argues that it was entitled to the rent provided for in its lease with EMC2
because its lease with EMC2 was an arm’s-length transaction and, therefore, automatically
constituted the fair-market rental rate. Assuming, without deciding, that this is true, Charrington
has failed to establish that fair-market rate is the same as reasonable rent. Although that might
make a good starting point for establishing reasonable rent, legal determinations of reasonableness,
in any context, are always dependent on the specific circumstances. See, e.g., Smith v Khouri, 481
Mich 519, 529; 751 NW2d 472 (2008) (holding that trial courts should consider the totality of the
circumstances when determining a reasonable attorney fee); Riddle v McLouth Steel Prods Corp,
440 Mich 85, 97; 485 NW2d 676 (1992) (“What constitutes reasonable care under the
circumstances must be determined from the facts of the case.”); Loutts v Loutts, 309 Mich App
203, 215; 871 NW2d 298 (2015) (holding that the trial court “considered the equities of this case,
and what was just and reasonable under the circumstances,” when it “determined that the value of
the business would only be used for the purposes of property division”); Comerica v City of Adrian,
179 Mich App 712, 724; 446 NW2d 553 (1989) (probate courts have the discretion to determine
the weight any factor should have in determining reasonable compensation for a trustee, but must
consider the circumstances of the case to determine “which factors are to be given weight.”).

         Therefore, assuming the lease established fair-market rent for the premises, the trial court
still had to determine whether that amount was reasonable under the circumstances. In addition,
because it was an equitable proceeding, the trial court had to consider whether it would be equitable
to award Charrington fair-market rent. In making these determinations, the trial court had to
consider: 1) that the value of EMC2’s remaining property was too small for everyone to receive
full payment for what they were owed; 2) whether it would have been reasonable for the receiver
to locate and rent other premises and move the machinery before conducting an inventory and
auction; and 3) whether it was equitable to award Charrington rent in an amount greater than the
entire recovery by the receiver to the detriment of the secured creditor who was paying the costs
of the receivership. Considering the totality of the circumstances, Charrington has failed to
establish that an award of fair-market rent would have been reasonable or equitable in this case.

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         Plaintiff proposed what it believed to be an equitable way to determine how much
Charrington should be compensated by making it a percentage of the recovery. This method
incentivized maximization of recovery and minimization of receiver costs by tying both entities’
recovery to the amount recovered. Notably, Charrington never provided the trial court with an
alternative method for calculating equitable compensation. Instead, Charrington demanded, and
continues to demand, the entire recovery. Under the circumstances, plaintiff’s proposal had a logic
to it that rendered it a reasonable method for calculating an equitable amount of compensation to
Charrington. Charrington has failed to show clear error in the trial court’s factual determinations,
Beach, 283 Mich App at 521, or that its award of 24% of what the receiver recovered was an abuse
of discretion. Maldonado, 476 Mich at 388.

        We are also unpersuaded by Charrington’s argument that the trial court erred when it
denied Charrington’s request for removal or cleanup expenses. The question of whether any
specific charges incurred or requested by a receiver were reasonable is within the discretion of the
trial court. Kurrasch v Kunze Realty Co, 296 Mich 122, 123; 295 NW 583 (1941). “Like all
questions of costs in courts of equity, allowances of this kind are largely discretionary, and the
action of the court below is treated as presumptively correct, since it has far better means of
knowing what is just and reasonable than an appellate court can have.” Id. Likewise, a trial court
uses it discretion to determine which costs were necessary for the receiver to complete its
obligations. See Ypsilanti Fire Marshal v Kircher, 273 Mich App 496, 535-536; 730 NW2d 481
(2007).

        In denying Charrington’s request, the trial court noted that Charrington had not indicated
which items were left by EMC2 and what, if anything, was left that had not been there before the
receiver showed up. The record supports this finding. Charrington obtained an order of eviction
against EMC2 on May 17, 2019. One week later, plaintiff moved to reopen the instant case and
have a receiver appointed. Had plaintiff never obtained a receiver, Charrington would have been
responsible for the entire removal and cleanup of the premises, including equipment removal,
special chemical disposal, and general cleaning. Instead, because of plaintiff’s efforts, the receiver
took possession and sold off some of the property. Thus, the appointment of the receiver benefited
Charrington by removing some property without cost to Charrington. However, the receiver’s
possession of the premises in order to inventory and sell the property did not impose upon it the
obligation to leave the premises in better condition than it found them. Because Charrington has
failed to show that the removal and cleanup costs it sought were incurred as a result of the
receiver’s actions, rather than those of EMC2, the trial court did not abuse its discretion when it
determined that Charrington was not entitled to them.

       Affirmed.

                                                              /s/ Christopher M. Murray
                                                              /s/ Cynthia Diane Stephens

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