562 B.R. 144
Bankr. E.D. Mich.2016Background
- Plaintiff Ralph Roberts Realty, LLC ran an oral "Investor Program" (summer 2009) under which Realty located foreclosure properties; investors funded bids and paid Realty a $5,000 acquisition fee (two installments) and 30% of profits on resale.
- Defendants (individuals Jon Savoy and Arnold "Butch" Hassig, Adam Hassig, and four LLCs) purchased 16 properties through the program; some were flipped, some rented then resold, some resold via land contracts, and three were redeemed.
- Disputes centered on (a) which expenses could be deducted when computing profit subject to Realty's 30% split, (b) whether investors could set off losses on some properties against profits on others, and (c) amounts owing on several sold and unsold properties (including timing for land-contract payments).
- Credibility and evidentiary conflicts: Roberts gave three inconsistent prior statements about allowable deductions; the court found those inconsistencies fatal to Realty’s version and therefore used Defendants’ expense calculations except for specific disallowed items.
- Court found Savoy and Butch Hassig acted jointly and held them jointly and severally liable with particular LLCs for sums due; the court calculated specific amounts owed on six sold properties and one tax reimbursement, totaling $51,701.28 against Savoy and Butch Hassig (aggregated across identified LLCs for each property).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper method for calculating deductible expenses when computing profit subject to Realty's 30% split | Realty: different rules depending on flip vs. rent vs. land-contract; many claimed expenses disallowed (Version 1). | Defs: single method — all reasonable business expenses deductible regardless of resale method. | Court: Realty failed to prove its restrictive version due to Roberts’ inconsistent prior statements; generally adopt Defendants’ calculations but disallow specific itemized expenses (meals, office supplies, service charges, certain interest, some legal fees, etc.). |
| Right to set off losses on some properties against profits on others | Realty: no loss-sharing or setoff provision; even if existed, procedural and plan-bar reasons would preclude setoff. | Defs: oral agreement allowed setoff for losses ($65,194.17 asserted). | Court: No contractual right to setoff or recoup; Roberts credible that loss-sharing was not part of the agreement; setoff defense rejected. |
| Liability allocation among individuals and LLCs | Realty: seeks joint and several recovery from all defendants for estate's share of profits/fees. | Defs: various defenses including no meeting of the minds, breaches, right of first refusal, etc. | Court: Found Savoy and Butch Hassig acted jointly; held them jointly and severally liable with specific LLCs for property-specific amounts; rejected other defenses. |
| When payment is due for profits on land-contract resales | Realty: profit split payable when investor receives profit or assign contract; seeks turnover under § 542. | Defs: profit payable from final balloon payment only. | Court: Declared that Realty’s share for land-contract properties (Jimmy, Duncan) is due when the remaining land-contract balance is equal to or less than the profit-split amount; payment may be cash or assignment; some amounts (acquisition fees, advances) are presently due. |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (discusses constitutional limits on bankruptcy courts entering final judgments)
- Exec. Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165 (treatment of Stern-core claims and procedures under 28 U.S.C. § 157)
- Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (bankruptcy courts may enter final decisions on Stern claims with party consent)
- Wilton v. Seven Falls Co., 515 U.S. 277 (discretionary nature of declaratory judgment relief)