NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 15a0496n.06
No. 14-1853
FILED
UNITED STATES COURT OF APPEALS Jul 10, 2015
FOR THE SIXTH CIRCUIT DEBORAH S. HUNT, Clerk
DAGS II, LLC and G2BK, LLC, )
)
Plaintiffs-Appellants, ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
v. ) COURT FOR THE WESTERN
) DISTRICT OF MICHIGAN
HUNTINGTON NATIONAL BANK and )
FOURTEEN CORP., ) OPINION
)
Defendants-Appellees. )
)
BEFORE: COLE, Chief Judge; MOORE and CLAY, Circuit Judges.
KAREN NELSON MOORE, Circuit Judge. Plaintiffs DAGS II, LLC and G2BK,
LLC brought this action against Defendants Huntington National Bank and its wholly-owned
subsidiary Fourteen Corp. seeking a declaratory judgment ordering that DAGS is not indebted to
the Defendants following a 2011 assignment of a mortgage and certain debt and the subsequent
foreclosure sale of the underlying property. The Plaintiffs also seek tort and statutory damages
for actions Huntington took against personal property that secured the debt at issue. The district
court granted partial summary judgment to the Defendants, and the parties entered a stipulation
resolving the remaining issues, pending appeal. On appeal, the Plaintiffs argue that the district
court improperly found that they lacked standing to challenge the terms of the 2011 assignment;
that Huntington and Fourteen are a single corporate entity and thus the foreclosure sale
discharged debt relating to a mortgage signed in 2004; and that questions of fact remain
No. 14-1853
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regarding the fair market value of the property at the time of the foreclosure sale. For the
following reasons, we VACATE the district court’s grant of summary judgment and REMAND
the case to the district court.
I. FACTS AND PROCEDURE
A. Factual Background
In 2004, Baker Lofts, LLC acquired an abandoned building in Holland, Michigan, for the
purpose of renovating it into a mixed-use, residential and commercial development. Defendant
Huntington Bank provided Baker Lofts capital for the development. As security for an existing
$800,000 promissory note and for any future indebtedness to Huntington, Baker Lofts granted
Huntington a mortgage on the real property underlying its proposed development (the “2004
Mortgage”). R. 29-2 (2004 Mortgage) (Page ID #428). In 2005, Baker Lofts granted
Huntington a second mortgage on the same property as security for a $5,000,000 promissory
note, the $800,000 promissory note subject to the 2004 Mortgage, and any future indebtedness to
Huntington (the “2005 Mortgage”). R. 29-3 (2005 Mortgage) (Page ID #450). Baker Lofts
further granted Huntington a security interest in personal property, including its liquor license
and its right to tax-increment financing (“TIF”) reimbursement payments from the City of
Holland. See R. 29-4 (TIF Security Agreement) (Page ID #469); R. 29-5 (Personal Property
Security Agreement) (Page ID #478). On December 14, 2007, Baker Lofts obtained a
$2,675,000 loan from Huntington, R. 26-2 (2007 Note) (Page ID # 291), and, on November 26,
2008, Baker Lofts obtained a $2,457,364 loan from Huntington, R. 26-3 (2008 Note) (Page ID
#299).
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Baker Lofts defaulted on its loans in early 2011. In May 2011, Huntington assigned to
Defendant Fourteen Corp. “all right, title and interest . . . in, to and under that certain [2005]
Mortgage and debt due thereunder.” R. 30-1 (2011 Assignment) (Page ID #491). Fourteen is a
Huntington wholly-owned subsidiary that is primarily dedicated to holding “real estate that was
pledged to secure mortgage loans by Huntington.” See R. 72-1 (Defs. Resp. to 2nd Disc. Req. at
5) (Page ID #1252). About a month after the assignment, Fourteen published a notice of intent
to foreclose on the 2005 mortgage. R. 30-2 (Foreclosure Notice at 2) (Page ID #496). The
Foreclosure Notice stated that “[t]he balance owing on the Mortgage is $5,254,435.04.” Id. at 3
(Page ID #497). Consistent with this notice, on July 21, 2011, Fourteen prepared a bid sheet
indicating that it was going to bid $5,254,435.04 for the property at a sheriff’s foreclosure sale.
R. 30-3 (Bid Sheet at 4) (Page ID #502).
A week later, Fourteen prepared a revised bid sheet, this time with a bid amount of
$1,856,250. R. 30-4 (Bid Sheet at 4) (Page ID #506). The Defendants claim that Fourteen
revised its bid amount based on a May 2, 2011 update of a November 15, 2010 appraisal of the
property, which concluded that there was a $2.2 million “Retrospective ‘As Is’ Restricted Market
Period Values” for the property, R. 70-14 (Appraisal Update) (Page ID #1204‒05), less two
condominium units, which were no longer owned by Baker Lofts. R. 70-15 (Wilk Dep. at 56‒
57) (Page ID #1216‒17); R. 36-5 (Bid Worksheet) (Page ID #700). On July 28, 2011, Fourteen
purchased the Baker Lofts property through the sheriff’s sale with a credit bid of $1,856,250. R.
76-6 (Sheriff’s Deed) (Page ID #1758‒59). No one else bid on the property. Three potential
buyers, Daniel Dykgraaf, Jeffrey Padnos, and Jon Rooks, submitted affidavits indicating that
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they were prepared to bid on the Baker Lofts property in July 2011, but did not because they
would have purchased the property subject to the senior-2004 Mortgage, which was still held by
Huntington. See R. 72-14 (Dykgraaf Aff.) (Page ID #1647); R. 72-15 (Padnos Aff.) (Page ID
#1650); R. 72-16 (Rooks Aff.) (Page ID #1654). Specifically, Dykgraaf and Padnos attested that
they were prepared to bid $5.3 million and $5.5 million, respectively. R. 72-14 (Dykgraaf Aff. at
3) (Page ID #1647); R. 72-15 (Padnos Aff. at 2) (Page ID #1650). According to Huntington,
following the sheriff’s sale Baker Lofts owed Huntington roughly $3,330,000. R. 70-8
(Commercial OREO Form) (Page ID #1156).
Baker Lofts filed for bankruptcy in January 2012. Before doing so, Baker Lofts
transferred its liquor license to Plaintiff G2BK. R. 12-7 (Liquor License Certification) (Page ID
#188). Huntington then obtained from G2BK a security interest in the liquor license on the
grounds that the license was covered by the Personal Property Security Agreement before Baker
Lofts transferred it to G2BK. R. 30-5 (Assignment of Liquor License) (Page ID #508).
Huntington also provided notice of its intent to exercise its security interest in the TIF rights and
to sell them at public auction on April 10, 2012. R. 2-4 (TIF Notice) (Page ID #91). In the
notice, Huntington recited Baker Lofts’ then-outstanding indebtedness as totaling $3,437,757.73.
Id. Huntington purchased the TIF rights with a credit bid of $1,107,000. R. 76-18 (Bill of Sale)
(Page ID #1887).
In February 2012, Huntington offered to release its 2004 Mortgage on the property if
Baker Lofts (or its designee) redeemed the property at the redemption price. R. 76-14 (2/22/12
Email) (Page ID #1860); R. 76-23 (Wilk Decl. at 3) (Page ID #1922). Huntington received three
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offers for the property. See R. 70-6 (New Co., LLC Offer) (Page ID #1146); R. 70-7
(SpaceSource Offer) (Page ID #1154); R. 76-13 (Padnos Offer) (Page ID #1858). But none were
accepted, and Baker Lofts failed to redeem the property during the redemption period. R. 76-8
(Schandevel Decl. ¶ 23‒24) (Page ID #1824‒25). On April 18, 2012, Fourteen sold the Baker
Lofts property to G.R. Developments, LLC for $2,355,000. R. 76-15 (Real Estate Purchase
Agreement) (Page ID #1863). Two months later, Huntington executed a “Partial Release” of the
2004 Mortgage. R. 72-1 (Defs. Resp. to 2nd Disc. Req. at 4) (Page ID #1251).
Plaintiff DAGS II, LLC purchased Baker Lofts’ remaining assets from the bankruptcy
estate in April 2013. R. 31-4 (Bill of Sale) (Page ID #521). DAGS and G2BK brought this
action shortly thereafter.
B. Procedural Background
DAGS and G2BK filed this action seeking: (1) a declaratory judgment that Baker Lofts
is not indebted to Huntington because it assigned all of Baker Lofts’ indebtedness to Fourteen in
2011 and, therefore, the remaining security agreements are invalid (Count I); (2) a declaratory
judgment that Fourteen held both the 2004 and 2005 mortgages and, therefore, the indebtedness
secured by the 2004 Mortgage was extinguished at the sheriff’s sale and the remaining security
agreements are invalid (Count II); (3) conversion damages against Huntington for asserting
control over the TIF rights and the rents for the Baker Lofts property following Huntington’s
alleged assignment of Baker Lofts’ indebtedness to Fourteen (Counts III and IV); (4) claim and
delivery as to Huntington for possessing and controlling the TIF rights (Count V); (5) tortious
interference damages against Huntington for allegedly interfering with Baker Lofts’ TIF
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agreement with the City of Holland (Count VI); and (6) damages for Huntington’s alleged
violation of Michigan’s secured transactions statute when it sold the TIF rights (Count VII). R. 1
(Compl.) (Page ID #1).
The parties filed cross motions for summary judgment. The heart of the Plaintiffs’
argument was that any remaining indebtedness owed to Huntington was extinguished upon
foreclosure of the junior-2005 Mortgage. In support, the Plaintiffs cited Board of Trustees of
General Retirement System of City of Detroit v. Ren-Cen Indoor Tennis & Racquet Club, 377
N.W.2d 432 (Mich. Ct. App. 1985), which held that when a plaintiff that held junior and senior
mortgages foreclosed on the junior mortgage, the two mortgages merged as a matter of law and
the debt due under the senior mortgage was extinguished. The Plaintiffs argued that following
the 2011 assignment from Huntington to Fourteen, Fourteen held both the senior-2004 Mortgage
and the junior-2005 Mortgage, and when Fourteen foreclosed on the junior mortgage, all debt
secured by the senior mortgage was extinguished pursuant to the “equitable merger doctrine” set
forth in Ren-Cen. To support this, the Plaintiffs pointed to the Defendants’ answer, which
admitted that Huntington assigned both the 2004 and 2005 mortgages to Fourteen. They also
pointed to the terms of the 2011 assignment, which, according to Plaintiffs, indicated that
Huntington assigned to Fourteen all of Baker Lofts’ debt. Conversely, the Defendants asserted
that Huntington did not assign all of Baker Lofts’ indebtedness to Fourteen—that Huntington’s
admission to the contrary was a mistake—and that the Plaintiffs lacked standing to challenge the
meaning of the 2011 assignment.
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The district court agreed with the Defendants. The court found that the Defendants’
admission in its answer was not binding, but instead was clearly a mistake, and thus granted the
Defendants leave to amend their answer. R. 50 (D. Ct. Am. Op. at 10) (Page ID #934). The
district court also rejected the Plaintiffs’ argument that the 2011 assignment transferred all of
Baker Lofts’ debt to Fourteen on the ground that the Plaintiffs did not have standing to challenge
the terms of the assignment because neither is a party, nor a third-party beneficiary, to the
assignment. Id. at 11‒12 (Page ID #935‒36). The court then granted the Plaintiffs summary
judgment on Count II with respect to Fourteen, because the 2005 Mortgage was foreclosed by
the July 2011 sheriff’s sale, and granted the Defendants summary judgment on Count I and
Count II as it relates to the security agreements because the Plaintiffs had not presented evidence
showing that they were no longer indebted to Huntington. Id. at 13 (Page ID #937). The district
court reserved judgment on the remaining counts.
In response to the district court’s opinion, the Plaintiffs asked for and received leave to
amend their complaint to allege that Fourteen is a mere instrumentality of Huntington under a
pierce-the-corporate-veil theory, and, as a result, Huntington essentially assigned the 2005
Mortgage to itself through the 2011 assignment. R. 56 (1st Am. Compl.) (Page ID #1000).
Based on this, the Plaintiffs alleged that the July 2011 sheriff’s sale extinguished all debt to
Huntington.
Following another round of cross motions for summary judgment, the district court again
sided with the Defendants. The district court found that Fourteen was not a mere instrumentality
of Huntington and that the Plaintiffs failed to offer evidence that Huntington used Fourteen to
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commit a fraud or wrong, essential to piercing Huntington’s corporate veil. R. 81 (D. Ct. Op. at
9‒10) (Page ID #2303‒04). Thus, because the Plaintiffs did not show that Huntington and
Fourteen were the same entity, the 2004 and 2005 Mortgages were not held by the same party,
and the equitable merger doctrine in Ren-Cen did not apply. Id. at 10 (Page ID #2304).
Although the court did find there was a genuine issue of fact as to the value of the property at the
time of foreclosure, the court did not resolve the factual dispute, presumably, because it found
that Huntington and Fourteen were separate corporate entities. See id.
The district court did grant the Plaintiffs some equitable relief, however. The court found
that Huntington assigned to Fourteen the 2005 Mortgage and $1,856,250 of Baker Lofts’ debt—
the price for which Fourteen later purchased the property at the sheriff’s sale—and Huntington
retained the 2004 Mortgage and the remainder of the debt. Id. at 11 (Page ID #2305). This left
approximately $3,000,000 in remaining Baker Lofts’ debt owed to Huntington, with no debt
owed to Fourteen. Id. Fourteen then sold the foreclosed property for $2,355,000, and the
proceeds were paid to Huntington as a dividend. Thus, the court reasoned, if Huntington is able
to collect the full $3,000,000 in outstanding debt, it will have recovered the difference between
$2,355,000 and $1,856,250—or $498,750—as excess. Thus, invoking its equitable powers, the
district court declared that $498,750 of the debt owed by Baker Lofts to Huntington was
discharged, less Defendants’ expenses in disposing of the property.
Shortly thereafter, the parties entered into a stipulation to resolve the issues not addressed
by the court’s summary judgment orders. R. 86 (Stip. and Prop. Or. of Final J.) (Page ID
#2323). In the stipulation, the parties agreed that the costs associated with the disposition of the
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Baker Property totaled $113,641.73, and, thus, Huntington would discharge $385,108.27 of
Baker Lofts’ current outstanding indebtedness to Huntington. Id. at 2 (Page ID #2324). The
parties further agreed that Huntington would be awarded the liquor license, with any credit for
the value of the liquor license applied to Baker Lofts’ indebtedness. Id. Huntington abandoned
its claim for possession of any remaining personal property that it previously sought. Id. The
parties then stated that they stipulated to these facts for purposes of entering a final appealable
judgment and none of the stipulations served as waiver of any argument on appeal. Id. at 2‒3
(Page ID #2324‒25). Based on these stipulations, the district court entered final judgment
consistent with the stipulations and its summary judgment orders. Id. at 4‒5 (Page ID #2326‒
27).
II. STANDARD OF REVIEW
The court reviews a district court’s order granting summary judgment de novo. Kleiber
v. Honda of Am. Mfg., Inc., 485 F.3d 862, 868 (6th Cir. 2007). Summary judgment is warranted
“if the movant shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a). In determining whether
summary judgment was proper, the court must “review the evidence and draw all inferences in
the light most favorable to the nonmoving party.” Dixon v. Univ. of Toledo, 702 F.3d 269, 273
(6th Cir. 2012). Sitting in diversity, we apply the State of Michigan’s substantive law and
federal procedural law. Saab Auto. AB v. Gen. Motors Co., 770 F.3d 436, 440 (6th Cir. 2014).
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III. ANALYSIS
The Plaintiffs raise two main issues on appeal. First, they argue that when Huntington
assigned the 2005 Mortgage to Fourteen in 2011, it assigned all of Baker Lofts’ debt and,
consequently, Huntington retained no interest in the debt at issue and all actions taken against
Baker Lofts’ property after the assignment were improper. The Plaintiffs claim that the district
court erred by finding that it could not address this argument on the ground that the Plaintiffs do
not have standing to raise the claim. Second, the Plaintiffs argue that Huntington and Fourteen
should be treated as a single corporate entity under a piercing-the-corporate-veil theory. Because
the Defendants constitute a single corporate entity holding two mortgages on the same property,
the Plaintiffs claim that Michigan’s “equitable merger” doctrine set forth in Ren-Cen prevents
the Defendants from manipulating the foreclosure process to acquire the property below the
property’s fair market value. The Plaintiffs further argue that the district court erred because it
recognized that there was a genuine issue of fact as to the property’s fair market value at the time
of the foreclosure sale, but nevertheless granted summary judgment to the Defendants rather than
resolve this factual dispute at trial. We address these arguments in turn.
A. The 2011 Assignment
The Plaintiffs first argue that, pursuant to the terms of the 2011 assignment, Huntington
assigned to Fourteen all debt that Baker Lofts owed to Huntington. As a result, following the
assignment, Baker Lofts’ obligations to Huntington were satisfied and the actions Huntington
took against Baker Lofts’ personal property were improper. The district court found that the
Plaintiffs do not have standing to challenge the terms of the 2011 assignment because neither
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Plaintiff is a party nor third-party beneficiary to the assignment. R. 50 (D. Ct. Am. Op. at 11‒12)
(Page ID #935‒36).
The cases cited by the district court support the general proposition that a third party may
not challenge the validity of an assignment. See id. (citing Woods v. Ayres, 39 Mich. 345 (1878);
Bowles v. Oakman, 225 N.W. 613 (Mich. 1929); Livonia Prop. Holdings, L.L.C. v. 12840–12976
Farmington Rd. Holdings, L.L.C., 717 F. Supp. 2d 724, 736 (E.D. Mich. 2010), aff’d, 399 F.
App’x 97 (6th Cir. 2010)). As the Michigan Supreme Court explained in Bowles, “[t]he maker
of a promissory note cannot, in an action brought against him by the indorsee or transferee
thereof, litigate questions that can properly arise only between the holder and his immediate
indorser.” Bowles, 225 N.W. at 614 (quoting Gamel v. Hynds, 125 P. 1115, 1116 (Okla. 1912));
see also Pashak v. Interstate Highway Const., Inc., No. 189886, 1998 WL 2001203, at *1 (Mich.
Ct. App. Mar. 20, 1998) (“Although IHC challenges the validity of the assignment as between
[assignor] and [assignees], we find that it lacks standing to do so where the parties to the
assignment . . . do not contest its validity.”).
This court has recently addressed the bounds of this rule in a series of cases applying
Michigan law. In Livonia, this court noted that “there is ample authority to support the
proposition that a litigant who is not a party to an assignment lacks standing to challenge that
assignment.” 399 F. App’x at 102 (internal quotation marks omitted). We have since cautioned,
however, “that Livonia’s statement on standing should not be read broadly to preclude all
borrowers from challenging the validity of mortgage assignments under Michigan law.”
Carmack v. Bank of New York Mellon, 534 F. App’x 508, 511‒12 (6th Cir. 2013). Rather, “[a]n
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obligor ‘may assert as a defense any matter which renders the assignment absolutely invalid or
ineffective, or void.’” Id. (quoting Livonia, 399 F. App’x at 102) (internal quotation marks
omitted). “These defenses include nonassignability of the instrument, assignee’s lack of title,
and a prior revocation of the assignment.” Livonia, 399 F. App’x at 102. “Obligors have
standing to raise these claims because they cannot otherwise protect themselves from having to
pay the same debt twice.” Id. Based on this, a borrower does not lack standing to challenge an
assignment “where the borrower has a valid claim that he will face double liability.” Carmack,
534 F. App’x at 512; Smith v. Litton Loan Servicing, LP, 517 F. App’x 395, 398 (6th Cir. 2013)
(“[A]s explained in Livonia, the purpose of an obligor’s defenses [to an assignment to which the
obligor is not a party] is to avoid the risk of paying the same debt twice.”).
Here, the Plaintiffs do not argue that they risk double liability based on the terms of the
2011 assignment. Instead, the Plaintiffs ask us to hold that Huntington assigned all of Baker
Lofts’ debts to Fourteen based on the Plaintiffs’ interpretation—rather than the interpretation of
the actual parties to the assignment—of the assignment’s terms. But, absent some claim that the
Plaintiffs may be on the hook for double payment, this is precisely what courts do not permit.
See Bowles, 225 N.W. at 614; Slorp v. Lerner, Sampson & Rothfuss, 587 F. App’x 249, 254 (6th
Cir. 2014) (“A person who is neither a party to the contract nor in privity with the parties, and
who is not a third-party beneficiary of the contract, is said to lack ‘standing’ to enforce the
contract’s terms and to challenge its validity.”); Smith, 517 F. App’x at 397 (“Smith was neither
a party nor a third-party beneficiary to the Pooling and Service Agreement, so even if its terms
were violated, Smith may not challenge compliance with the Pooling and Service Agreement.”);
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Livonia, 399 F. App’x at 102 (“Without a genuine claim that [the assignee] is not the rightful
owner of the loan and that [the borrower] might therefore be subject to double liability on its
debt, [the borrower] cannot credibly claim to have standing to challenge the First Assignment.”
(emphasis added)). Because the Plaintiffs do not attempt to make that argument here, they have
no standing to enforce the terms of the 2011 assignment.
B. Piercing the Corporate Veil
The Plaintiffs next argue that, under the “equitable merger” doctrine set forth in Board of
Trustees of General Retirement System of City of Detroit v. Ren-Cen Indoor Tennis & Racquet
Club, 377 N.W.2d 432 (Mich. Ct. App. 1985), the Baker Lofts’ debt secured by the 2004
Mortgage was extinguished when Fourteen acquired the property at the 2011 sheriff’s
foreclosure because Fourteen is a mere instrumentality of Huntington and the Defendants
manipulated the foreclosure process to prevent competitive bidding. Because Ren-Cen is central
to the Plaintiffs’ piercing-the-veil theory of liability, an analysis of this case at the outset is
instructive.
In Ren-Cen, the plaintiff loaned the defendant $1.1 million and received a promissory
note for that amount secured by a first mortgage. 377 N.W.2d at 433. Two years later, the
plaintiff loaned the defendant an additional $500,000 and received a promissory note for that
amount secured by a second mortgage on the same property. Id. When the defendant defaulted
on both loans, the plaintiff foreclosed on the second mortgage. Id. At the foreclosure sale, the
plaintiff bought the property for the amount owed on the second note, despite the undisputed
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evidence establishing that the property’s fair market value was more than $3 million. Id. The
plaintiff then filed suit to recover the amount owed on the first note, and the trial court granted
the plaintiff summary judgment as to that claim. Id. The Michigan Court of Appeals reversed.
The court began by noting that where there are two mortgages, “[a] purchaser at a foreclosure
sale of a second mortgage takes the property subject to the first mortgage.” Id. at 434 (citing
M.C.L. § 600.3236). Thus, “[t]he price at a foreclosure sale on a second mortgage is depressed
to reflect the outstanding first mortgage.” Id. at 436. This means that “[a] third party who
purchases the property at the foreclosure sale on the second mortgage would have to satisfy the
debt secured by the first mortgage in order to prevent the mortgagee of the first mortgage from
asserting a superior claim to the property.” Id. But where a party, like the plaintiff in Ren-Cen,
holds the first and second mortgage, it need not worry about the mortgagee on the first mortgage
asserting a superior claim. The party can thus “obtain the price advantage of purchasing at a
second mortgage sale without the disadvantage of having to satisfy the debt secured by the first
mortgage in order to obtain uninterrupted enjoyment of the property.” Id. The court held,
however, that equity does not permit this “double recovery.” Id. Consequently, the Ren-Cen
court held that because the plaintiff held both the first and second mortgage, “the debt secured by
the first mortgage was discharged when plaintiff acquired the mortgaged property at the
foreclosure sale on the second mortgage.” Id.
In this case, the Plaintiffs argue that Huntington improperly used its wholly owned
subsidiary, Fourteen, to do the very thing that the court in Ren-Cen held impermissible. To
succeed, this requires showing that Huntington and Fourteen were operating as a single corporate
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entity to wrongfully skirt the Ren-Cen holding. The district court dismissed this claim, finding
the Plaintiffs failed to offer sufficient evidence showing that Fourteen was a mere instrumentality
of Huntington or that Huntington used Fourteen to commit a fraud or wrong. R. 81 (D. Ct. Op.
at 9‒10) (Page ID #2303‒04). We disagree.
Under Michigan law, there exists a presumption that corporate form will be respected.
Seasword v. Hilti, Inc., 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 referred to as a ‘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 other clearly overriding public
policy.’” Id. (brackets in original) (quoting Wells v. Firestone, 364 N.W.2d 670, 674 (Mich.
1984)). Michigan courts will pierce the corporate veil only when (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 injury or unjust loss. Foodland Distribs. v. Al–
Naimi, 559 N.W.2d 379, 381 (Mich. Ct. App. 1996); see also Gledhill v. Fisher & Co., 262 N.W.
371, 372 (Mich. 1935). “In the parent-subsidiary context, the protections of the corporate form
are premised on the assumption that parent and subsidiary corporations operate as separate
entities.” Servo Kinetics, Inc. v. Tokyo Precision Instruments Co., 475 F.3d 783, 799 (6th Cir.
2007). “When a corporation exists as a device to evade legal obligations, the courts, without
regard to actual fraud, will disregard the entity theory.” People ex rel. Potter v. Michigan Bell
Tel. Co., 224 N.W. 438, 440 (Mich. 1929); Papo v. Aglo Restaurants of San Jose, Inc., 386
N.W.2d 177, 185 n.15 (Mich. Ct. App. 1986) (noting that the Michigan Supreme Court has
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“acknowledged that the corporate veil can be pierced in the absence of fraud” and upholding a
veil-piercing claim based on the breach of a lease). “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.” Servo, 475 F.3d at 798.
Here, reviewing the evidence and drawing all inferences in the Plaintiffs’ favor, a
genuine issue of fact exists as to whether Huntington’s corporate veil should be pierced. First,
Fourteen is a mere instrumentality of Huntington. Fourteen, a wholly owned subsidiary of
Huntington, shares the same office space and phones as Huntington, and employees working for
Fourteen have Huntington email addresses and business cards. R. 72-4 (Schandevel Dep. at 12,
41) (Page ID #1299, 1328); R. 72-1 (Defs. Resp. to 2nd Disc. Req. at 3) (Page ID #1250); R. 72-
5 (Hermann Dep. at 23) (Page ID #1370). All of Fourteen’s corporate expenses are paid by
Huntington. 72-4 (Schandevel Dep. at 33) (Page ID #1320). When Huntington employees work
on projects for Fourteen, they do not allocate their time differently or otherwise account for the
fact that they were working for Fourteen rather than Huntington. Id. at 34 (Page ID #1321); R.
27-1 (Wilk Dep. 9) (Page ID #345). Huntington appoints its officers as officers of Fourteen and
Fourteen’s officers and employees are paid by Huntington, receiving no compensation from
Fourteen. R. 72-1 (Defs. Resp. to 2nd Disc. Req. at 3) (Page ID #1250); 72-4 (Schandevel Dep.
at 12) (Page ID #1299). Funds paid to Fourteen are transferred directly to Huntington on a
quarterly basis as dividends. 72-4 (Schandevel Dep. at 14, 35) (Page ID #1301, 1322); Appellee
Br. at 30.
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Furthermore, the actions Huntington took regarding the Baker Lofts’ debt and property at
issue further indicate that Fourteen is a mere instrumentality of Huntington. Huntington assigned
the 2005 Mortgage and Baker Lofts’ debt to Fourteen without receiving any monetary
compensation in return. R. 72-1 (Defs. Resp. to 2nd Disc. Req. at 4) (Page ID #1251). And,
according to the Defendants, Huntington did not assign to Fourteen a specific amount of Baker
Lofts’ debt through the 2011 assignment. Instead, Huntington assigned some indefinite amount
of debt—“anywhere from zero to the total debt due under the loans,” R. 27-1 (Wilk Dep. at 12)
(Page ID #348)—just enough so that “Fourteen could make its credit bid at the sheriff’s sale,”
Appellee Br. at 37; see also R. 27-1 (Wilk Dep. at 10) (Page ID #346). This means that,
following the assignment, Huntington and Fourteen were working as a single entity to determine
how much Fourteen should bid on the property at the sheriff’s sale—and, correspondingly, how
much debt Huntington should assign to Fourteen—to help Fourteen purchase the property.
Then, when Fourteen sold the Baker Lofts property, the proceeds of that sale were paid directly
to Huntington as a dividend. Thus, for all intents and purposes, Fourteen’s bid at the sheriff’s
sale was also Huntington’s. Fourteen did not pay Huntington for the capital Fourteen used to
credit bid at the 2011 sheriff’s sale or for the partial release of the 2004 Mortgage. R. 72-1
(Defs. Resp. to 2nd Disc. Req. at 4) (Page ID #1251). Finally, in correspondence leading up to
Fourteen’s sale of the property, employees acting on behalf of Huntington treated the Baker
Lofts’ property as its own rather than Fourteen’s. R. 77-2 (Schendevel Email at 3) (Page ID
#1950). Taken together, these facts indicate that Fourteen was a mere instrumentality of
Huntington. See Dutton Partners, LLC v. CMS Energy Corp., 802 N.W.2d 717, 723 (Mich. Ct.
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App. 2010) (finding question of fact existed as to whether subsidiary was instrumentality of
parent where internal report identified subsidiary as an asset; companies had same address,
phone number, and webpage; entities shared same in-house counsel; subsidiary’s letterhead
identified it as the parent; and the subsidiary received accounting benefits through relationship);
Papo, 386 N.W.2d at 185 (“The trial court’s conclusion that Aglo-San Jose was a ‘mere
instrumentality’ of Olga is particularly justified in light of Olga’s act of taking possession of
Aglo-San Jose’s assets and treating them as its own without any consideration having been paid
to Aglo-San Jose.”).
Second, fact questions exist regarding whether Fourteen was used to commit a “fraud or
wrong” for the purpose of pierce-the-corporate-veil liability. Again, prior to foreclosure,
Huntington assigned to Fourteen the 2005 Mortgage and an undetermined amount of Baker
Lofts’ debt so that Fourteen could credit bid on the property at a later foreclosure sale—at no
cost to Fourteen. R. 27-1 (Wilk Dep. at 10) (Page ID #346). Indeed, the very purpose of the
assignment was to ensure that Fourteen was able to purchase the encumbered property as soon as
Fourteen foreclosed; Huntington wanted its subsidiary to own the property, while retaining the
remaining debt and the 2004 Mortgage. See id. at 12 (Page ID #348). Sure enough, immediately
following the assignment, Fourteen foreclosed on the property, and because Huntington held the
senior mortgage, Fourteen was able to bid on the property unchallenged at the sheriff’s sale.
And the senior mortgage discouraged potential buyers from bidding on the property and allowed
Fourteen to purchase the property at a depressed price. See R. 72-14 (Dykgraaf Aff. at 3) (Page
ID #1647); R. 72-15 (Padnos Aff. at 2) (Page ID #1650); see also Homeowners Inv. Co. v.
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Kasmikha, No. 282981, 2009 WL 2382680, at *2 (Mich. Ct. App. Aug. 4, 2009) (“It is presumed
that the price at the foreclosure sale on a junior mortgage is depressed to reflect the senior
mortgage.”) (citing Ren-Cen, 377 N.W.2d at 436). Indeed, just a week before the sheriff’s sale,
Fourteen lowered its bid from $5,254,435.04, R. 30-3 (Bid Sheet at 4) (Page ID #502), to its
revised bid of $1,856,250, R. 30-4 (Bid Sheet at 4) (Page ID #506). Although the Defendants
argue that Fourteen made this change based on a May 2011 update to a prior appraisal, this
makes little sense since Fourteen made its initial $5,254,435.04 bid in July 2011—two months
after the appraisal—and only lowered its bid shortly thereafter. Then, following the sheriff’s
sale, Huntington released the senior mortgage—again, at no cost to Fourteen. Fourteen sold the
foreclosed property for a profit and paid the proceeds of the sale to Huntington as a dividend.
All the while, Huntington maintained that it owned the remainder of Baker Lofts’ indebtedness.
Huntington could not have done this on its own—under Ren-Cen, as holder of both the
2004 and 2005 mortgages, it could not have foreclosed on the junior mortgage to depress the
price at the foreclosure sale because the two mortgages would have merged into one upon
purchase of the mortgaged property. Otherwise, Huntington would have “obtain[ed] the price
advantage of purchasing at a second mortgage sale without the disadvantage of having to satisfy
the debt secured by the first mortgage,” a result the court in Ren-Cen held was improper under
Michigan law. 377 N.W.2d at 436. So Huntington manipulated the process so that Fourteen
could do what Huntington could not. But because equity would not allow Huntington to take
these steps, equity should prevent Huntington from using its alter-ago from doing the same. See
Arevelo v. Arevalo, Nos. 285548, 286742, 2010 WL 1330636, at *16 (Mich. Ct. App. Apr. 6,
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2010) (“The remedy of piercing the corporate veil is equitable in nature.”) (citing Foodland,
559 N.W.2d at 380). Any other result would allow a parent company to “subvert justice”
through creative use of its subsidiary. Seasword, 537 N.W.2d at 224; see CMS Energy Corp. v.
Attorney Gen., 475 N.W.2d 451, 456 (Mich. Ct. App. 1991) (piercing the corporate veil where
company misused the corporate form by transferring assets to “avoid regulation of the proceeds
to be generated by those assets”); Servo, 475 F.3d at 799‒800 (breach of contract could
“constitute a ‘fraud or wrong’ for the purpose of veil-piercing liability.”).
The Defendants argue that Ren-Cen does not apply because, in that case, the creditor
would have received a windfall because the property was worth substantially more than the total
debt and yet the plaintiff still pursued the deficiency under a separate note; whereas here, the true
value of the property was lower than the total remaining debt, so there was no risk of the
Defendants receiving a “double recovery.” Appellee Br. at 38‒41. In support, the Defendants
cite Federal Deposit Insurance Co. v. Torres, in which the Michigan Court of Appeals held that
Ren-Cen did not apply because the undisputed market value of the property was significantly less
than the total debt. No. 311277, 2014 WL 309787, at *8 (Mich. Ct. App. Jan. 28, 2014). As the
Torres court noted, in Ren-Cen, the plaintiff purchased the property for $500,000 and then sued
the defendant for the remaining $1.1 million owed on the debt, despite the undisputed evidence
indicating that the property was worth over $3 million. Id. at *7. In Torres, by contrast, the
undisputed evidence indicated that the property at issue was worth $530,000 and the defendant
still owed over $1 million on the debt. As a result, in Torres, there was no concern that the
plaintiff would receive a “double recovery” like in Ren-Cen. Id. at *8.
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Here, unlike Torres, questions of fact remain as to whether the fair market value of the
property at the time of the foreclosure sale was less than the total remaining debt. Following the
sheriff’s sale, Baker Lofts owed Huntington roughly $3,330,000. R. 70-8 (Commercial OREO
Form) (Page ID #1156). The district court found that the parties submitted “copious amounts of
evidence” to support their positions that the value of the property ranged from $1.8 million to $8
million at the time of the sale, and “there is a genuine fact issue as to the value of the property on
the date of the foreclosure.” R. 81 (D. Ct. Or. at 10) (Page ID #2304). Included among this
evidence are affidavits from potential buyers who were prepared to bid $5.3 million and $5.5 for
the property but did not because they did not want to purchase subject to the 2004 Mortgage.
See R. 72-14 (Dykgraaf Aff. at 3) (Page ID #1647); R. 72-15 (Padnos Aff. at 2) (Page ID #1650);
see also R. 72-16 (Rooks Aff. at 2) (Page ID #1654). In addition, the parties point to various
appraisals to support their argument for the real fair market value, each relying on different
factors and contingencies. But, as the district court explained, weighing these is not proper at
summary judgment. R. 81 (D. Ct. Or. at 10) (Page ID #2304). Thus, a question of fact exists as
to whether Huntington used Fourteen to commit a wrong for purposes of piercing the corporate
veil.1 See Servo, 475 F.3d at 799‒800 (“[W]e hold that, assuming that a jury concluded that SKI
could recover for breach of contract, this breach would constitute a ‘fraud or wrong’ for the
purpose of veil-piercing liability.”).
1
None of this is to suggest that the district court’s equitable decision to credit the profits
that Fourteen paid back to Huntington will not eventually be the correct result; only that, given
the factual dispute, doing so at summary judgment was improper.
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Finally, the parties do not appear to contest that if Fourteen was able to purchase the
property below fair market value because of the Defendants’ wrongful maneuvering, the
Plaintiffs suffered an injury for the purpose of veil-piercing liability based on the Defendants’
actions. See R. 76 (Defs. Resp. to SJ at 17) (Page ID #1682); Appellant Reply Br. at 18.2
Accordingly, summary judgment was improper.
IV. CONCLUSION
For the foregoing reasons, we VACATE the district court’s judgment and REMAND the
case to the district court consistent with this opinion.
2
Though it is not entirely clear, the Plaintiffs appear to suggest in their briefing that they
should receive the difference between Fourteen’s bid amount and the true value of the property
even if Ren-Cen does not apply, as an alternative to their piercing-the-corporate-veil theory. But,
in support, the Plaintiffs simply note the fact dispute and cite the Defendants’ admission that a
credit would be appropriate “under the equitable principles of Ren-Cen,” Appellant Br. at 40‒41
(quoting R. 76 (Defs. Resp. to SJ at 17) (Page ID #1682))—the same analysis we address above.
The Plaintiffs do not develop any alternative basis for this relief, and thus we do not address this
issue further.
22