Neil Spizizen v. National City Corporation

NOT RECOMMENDED FOR PUBLICATION
File Name: 13a0202n.06

No. 11-2646

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

Neil Spizizen, Individually; Neil Spizizen ) FILED
Revocable Living Trust, U/A/D 7/3/86; ) Feb 25, 2013
Crescendo Homes, Inc., a Michigan ) DEBORAH S. HUNT, Clerk
Corporation, )
)
Plaintiffs-Appellants )
Counter-Defendants )
)
v. )
)
National City Corporation, a foreign profit )
corporation; PNC Financial Services Group, )
Inc., dba National City Bank, a foreign )
profit corporation; Stanley P. Szasna, an )
individual; Hope Landgraff, an individual; ) ON APPEAL FROM THE UNITED
Richard Landgraff, an individual; Norman ) STATES DISTRICT COURT FOR THE
Lining, an individual ) EASTERN DISTRICT OF MICHIGAN
)
Defendants-Appellees )
)
)
PNC Bank, N.A., fka National City Bank, )
)
Counter-Plaintiff )
Appellee. )

BEFORE: BATCHELDER, Chief Judge; MERRITT and KETHLEDGE, Circuit Judges.

MERRITT, Circuit Judge. This diversity case involves a real estate developer, a series of

loans, and a bank’s right to set-off a debt against unpaid loans. The plaintiffs-appellants erroneously

assert a long series of errors by the district court. We affirm the judgment below.
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Neil Spizizen, et al. v. National City Corporation, et. al

I. Facts

The district court in this case appropriately detailed all of the facts in this case. See Spizizen

v. Nat’l City Corp., 2011 WL 1429226 (E.D. Mich. Apr. 14, 2011). Thus, we will only provide a

brief summary of facts relevant to our analysis. Neil Spizizen and National City Bank (“Bank”) have

a long-standing relationship stemming from loan transactions used to purchase and develop

Michigan properties. Spizizen alleges that the Bank seized $3.1 million from his accounts without

the authority to do so. The Bank argues that after Spizizen did not pay on his obligations when due

and did not comply with the language of the loan documents and security agreements, it

appropriately set-off the debt with money from Spizizen’s accounts.

Spizizen then filed this suit in state court against the Bank and several of its employees. He

claimed conversion, breach of contract, and breach of the covenant of good faith and fair dealing.

The Bank successfully removed the case to federal court, citing diversity of citizenship and claiming

fraudulent joinder of the non-diverse employees. The district court found that Spizizen’s conversion

claim was not a colorable state-law cause of action, and thus, denied his motion to remand. The

Bank filed a counterclaim, alleging five counts of breach of contract for failure to make payments

on five loan obligations and one count seeking declaratory relief that the Bank had a right to hold

and foreclose on Spizizen’s trust account assets.

Each party moved for summary judgment. The district court denied Spizizen’s motion for

summary judgment and granted the Bank’s motion. In turn, the court entered an order in favor of

the Bank, awarded the Bank attorney fees, and denied Spizizen’s request for pre- and post-judgment

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Neil Spizizen, et al. v. National City Corporation, et. al

interest. In addition, during discovery, the district court granted Spizizen’s motion to compel certain

documents, but declined to levy sanctions on the Bank.

Spizizen timely appealed, contesting the refusal to remand to state court, the grant of

summary judgment on the breach of contract claims, the decision not to levy sanctions, the grant of

attorney fees, and the denial of pre- and post-judgment interest.

II. Analysis

A. The Conversion and Fraudulent Joinder Issue

After removing the case to federal court, the Bank claimed fraudulent joinder by plaintiffs

of the non-diverse employees because it argued that Spizizen’s conversion claim was not a colorable

cause of action under Michigan law. Spizizen had alleged that the Bank employees, acting under

the direction of the Bank, converted money from his account, entitling him to a remedy in tort. It’s

noteworthy that Spizizen did not allege that the employees pocketed the money for their own

personal gain or that they were acting outside of the scope of their employment. Spizizen maintains

that the employees, performing the orders of their superiors to set-off the account, converted his

money. The district court, finding that there was no colorable claim for conversion, refused to

remand the case to state court.

Where federal jurisdiction is based on diversity, diversity must be complete. Owen Equip.

& Erection Co. v. Kroger, 437 U.S. 365 (1978). A removing defendant may avoid remand only by

demonstrating that the non-diverse party was fraudulently joined. Jerome-Duncan, Inc. v. Auto-By-

Tel., LLC, 176 F.3d 904, 907 (6th Cir. 1999). To prove fraudulent joinder, the removing defendant

must show that the plaintiff did not have a colorable cause of action against the defendant in state

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Neil Spizizen, et al. v. National City Corporation, et. al

court. Coyne v. Am. Tobacco Co., 183 F.3d 488, 492-93 (6th Cir. 1999). Under Michigan law, a

breach of a contractual obligation cannot support an action in tort absent the “violation of a legal

duty separate and distinct from the contractual obligation.” Rinaldo’s Constr. Corp. v. Michigan Bell

Tel. Co., 559 N.W.2d 647, 658 (Mich. 1997). The relationship between a bank and its depositor is

one of a debtor-creditor. Citizens Ins. Co. of Am. v. Delcamp Truck Ctr., Inc., 444 N.W.2d 210, 213

(Mich. Ct. App. 1989). Accordingly, a claim of conversion is only sustainable if the defendant bank

obtained the money without the owner’s consent to the creation of that debtor-creditor relationship.

Comerica Bank v. Allied Commc’ns, Inc., 1997 WL 33353282, at *2 (Mich. Ct. App. Mar. 14, 1997)

(holding that a defendant bank could not be held liable for a claim of conversion arising from its

allegedly improper set-off of funds from the customer’s bank account to pay down a debt owed to

the bank where the customer had consented to the creation of a debtor-creditor relationship by

depositing money with the bank).

Here, Spizizen clearly consented to the creation of a debtor-creditor relationship with the

Bank when he deposited money into his checking account. He also plainly created a contractual

relationship with the Bank through a security agreement when he set up a trust account. Pls. Mot.

for Summ. J. Ex. 13, July 30, 2010, ECF No. 36. The agreement, in fact, stipulated that the assets

in the trust account could be used for any amount owed to the Bank. If Spizizen believed that the

Bank violated this express agreement or violated its duty to hold funds in trust, a breach-of-contract

claim would be the appropriate remedy. A claim for conversion is not the appropriate cause of

action because it does not state a “violation of a legal duty separate and distinct from the contractual

obligation.” Rinaldo’s Constr. Corp., 559 N.W.2d at 658. The fact that a trust account may have

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Neil Spizizen, et al. v. National City Corporation, et. al

specific or special funds does not alter the nature of the relationship—the security document is still

the controlling contract. Thus, the district court appropriately held that there was no colorable state-

law claim of conversion against either the Bank or its employees for implementing a set-off under

the contract. The case appropriately remained in federal court and the denial of a remand was

proper.

B. Summary Judgment on Breach of Contract Claims

On cross motions for summary judgment, the district court determined that there was no

genuine issue of material fact as to the Bank’s right to hold Spizizen’s collateral in excess of his

debts and to set-off the account. It concluded that Spizizen had breached the contracts on his loans

by defaulting. We agree.

Spizizen once again chooses to ignore the plain language of the loan and security documents.

The trust account security agreement states that the security interest extends to “any and all

replacements and substitutions therefor and . . . all cash and noncash proceeds of all or any part of

the property hereinbefore described.” Pls. Mot. For Summ. J. Ex. 13. The language of the

agreement grants a specific security interest in these account assets without any reference to the value

of the assets. Id. The agreement also provides that the Bank “shall have the right to sell or otherwise

dispose of the Collateral or any part thereof or any interest therein at any time or from time to time.”

Pls. Mot. For Summ. J. Ex. 17. Furthermore, the Bank is only required to return any unsold

[Armada] shares or surplus from the sale of shares to Spizizen “[u]pon the payment in full and

satisfaction . . .” of debt. Id. The business account agreement granted the Bank the right “to refuse

further deposits or withdrawals . . . decline to process any transaction, terminate electronic access

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Neil Spizizen, et al. v. National City Corporation, et. al

to the Account . . . with or without cause and without prior notice.” Defs.’ Mot. For Summ. J. Ex.

19, July 30, 2010, ECF No. 37. The deposit account agreement provides that the Bank has the right

to a set-off “whether such deposits are general or special” and the Crescendo Note, the specific note

in question, states that it may be enforced on demand. Id.

We recite in detail the language of the loan documents to show that Spizizen needed only to

look to this express language to understand that the Bank had a right to set-off and make the note

payable on demand if Spizizen fell behind on his obligations. When Spizizen failed to pay the

Private Portfolio Note in full, the Bank had the right to take possession of the secured assets in the

trust account. The district court, in its well-reasoned opinion, explained that the Bank had a right

to convert the shares in the trust account into cash to satisfy the debt and that the Bank had a right

to take possession of the secured assets in the trust account under Michigan’s adoption of the UCC.

Spizizen, 2011 WL 1429226 at *4. The UCC also grants the Bank the right to apply cash proceeds

from the sale of the collateral. Mich. Comp. Laws. § § 440.9607(1), .9610(1). As the district court

noted, “Plaintiffs fail to draw the Court’s attention to any language in the agreement, the UCC, or

any other authority which states that the value of collateral administratively held or seized by a

creditor cannot exceed the value of debt. Therefore, Defendants’ right to seize the collateral is not

affected in any way by the value of the collateral.” Spizizen, 2011 WL 1429226 at *4.

We hold that the grant of summary judgment was proper because these unambiguous contract

provisions make clear that the Bank had the right to hold the assets regardless of the value of the

shares, had a right to apply the proceeds of the shares to Spizizen’s debt, and had a right to set-off

the general checking account.

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Neil Spizizen, et al. v. National City Corporation, et. al

Furthermore, Spizizen does not dispute that he was in default on all of his loan obligations.

He only alleges that the grant of summary judgment as to the Bank’s breach-of- contract claims is

improper because the Bank materially breached the contract first by offsetting the assets in the trust

account. As explained above, we do not find that the Bank materially breached the contract. In fact,

it adhered to the contract. The language provided that the Bank had an unrestricted right to offset

against both general and specific accounts without regard to ownership and that the note was payable

on demand. Thus, the district court appropriately granted the Bank summary judgment on its breach-

of-contract claims.1

C. Sanctions

This Court reviews a district court’s denial of a motion for discovery sanctions for an abuse

of discretion. Turner v. Romanowski, 409 F. App’x. 922, 925-26 (6th Cir. 2011). We have said that

an abuse of discretion exists when the district court applies the wrong legal standard, misapplies the

correct legal standard, or relies on clearly erroneous findings of fact. First Tech. Safety Sys., Inc. v.

Depinet, 11 F.3d 641, 647 (6th Cir. 1993).

During discovery, the district court granted Spizizen’s motion to compel, but declined to levy

any sanctions against the Bank. Spizizen contends that Rule 37 of the Federal Rules of Civil

1
We need not discuss Spizizen’s additional claim that the amount awarded for the breach-
of-contract claims should be reduced because the parties had settled on a lesser amount for the
Oakland Pointe Note. As the district court noted, although settlement talks may have been
underway, the parties had not come to a “meeting of the minds” on a final settlement, and thus, a
contract had not been formed at the time of the granting of summary judgment. See Spizizen, 2011
WL 6434670, * 3 (E.D. Mich. Dec. 16, 2011). Thus, the district court’s judgment amount for the
breach-of-contract claims was appropriate.

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Neil Spizizen, et al. v. National City Corporation, et. al

Procedure mandates an award of sanctions. Under Rule 37, however, the judge retains discretion

in awarding sanctions, and it does not automatically require the awarding of sanctions when granting

a motion to compel if there are “circumstances [that] make an award of expenses unjust,” or if the

nondisclosure was “substantially justified,” or if there was no attempt to obtain the discovery in good

faith before court action. Fed. R. Civ. P. 37. There is nothing in the record that provides a

compelling reason why these exceptions are inapplicable or why the district court should have felt

compelled to levy sanctions in this case. Thus, we hold that the district court did not abuse its

discretion in refusing to levy sanctions on the Bank.

D. Attorney Fees

An abuse-of-discretion standard also applies to the award and amount of attorney fees. Geier

v. Sundquist, 372 F.3d 784, 789 (6th Cir. 2004). After a lengthy and detailed analysis, the district

court awarded the Bank $139,876.65 in attorney fees. Spizizen v. Nat’l City Corp., 2011 WL

6434670, at *6-8 (E.D. Mich. Dec. 16, 2011). Under our deferential standard of review, we find that

the district court did not abuse its discretion. Since this issue does not warrant extensive discussion,

we only address Spizizen’s main contentions.

First, Spizizen unreasonably contends that the district court should not have awarded attorney

fees in connection with already-settled claims. This contention is meritless because the district court

specifically stated in its order that the defendants “cannot recover attorney fees for efforts expended

on the two counterclaims that Defendants dismissed earlier” and accordingly deducted those fees

when calculating the fee award. Id. at *8.

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Next, Spizizen claims, again unreasonably, that the district court erred in awarding attorney

fees where contractual language did not provide for such an award. Indeed, Michigan follows the

American Rule, which dictates that attorney fees are not recoverable as an element of costs or

damages unless expressly allowed by statute, court rule, common-law exception, or contract. Reed

v. Reed, 693 N.W.2d 825, 845 (Mich. Ct. App. 2005). Further, indemnity provisions must express

the parties’ intent to include attorney fees. Comerica Bank v. Alkhafaji, 2007 WL 1855048, at *2

(Mich. Ct. App. June 28, 2007). Here, however, the express contractual language contemplates the

awarding of attorney fees. The indemnity clause on both notes states that the borrower will

reimburse the Bank “for any and all fees, costs and expenses (including, without limitation, the fees

and disbursements of outside legal counsel and the interdepartmental charges and/or salary of in-

house counsel) . . . .” (Pls. Mot. for Partial Summ. J. Ex. 7 at 3; Ex. 9 at 2). The language is not

ambiguous, as Spizizen argues, but rather clear in its directive that the parties contemplated attorney

fees in the drafting of this language. Nothing requires drafters to use the magic words “attorney

fees” as long as the intention is straightforward and clear. Spizizen provides no logical explanation

why fees for “legal counsel” is different from “attorney fees.”

Next, Spizizen contests the reasonableness of the fees. Here, the district court appropriately

looked to the proceedings of this case and calculated a figure in the range of applicable fees in the

Michigan market using the lodestar method. We find that the district court did not abuse its

discretion in fashioning such an award.

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E. Pre- and Post-Judgment Interest

When the district court granted the Bank’s motion for summary judgment and awarded its

money judgment, it further ordered the Bank to satisfy the judgment by liquidating the assets in the

trust account and to return any remaining surplus to Spizizen. Although the amount, if any, of the

“surplus” is unknown, and neither party was able to articulate the exact amount at oral argument,

Spizizen argues that he is entitled to pre- and post-judgment interest on that amount.

Federal law controls post-judgment interest for state-law claims and state law governs awards

of prejudgment interest. Estate of Riddle v. So. Farm Bur. Life Ins. Co., 421 F.3d 400, 409 (6th Cir.

2005). 28 U.S.C. § 1961(a) requires district courts to award post-judgment interest on all money

judgments. Hoover v. Provident Life & Accident Ins. Co., 290 F.3d 901, 910 (6th Cir. 2002). The

underlying purpose of § 1961 is “to compensate the successful plaintiff for being deprived of

compensation for the loss from the time between the ascertainment of the damage and the payment

by the defendant.” Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827, 835-36 (1990).

Here, although Spizizen may be entitled to any remaining surplus, he is not a “successful plaintiff.”

The district court appropriately applied 28 U.S.C. § 1961 to the Bank’s money judgment rather than

to the surplus—a sum of money that the Bank never claimed it was entitled to at all.

Michigan law dictates the award of prejudgment interest. We review the awarding of

prejudgment interest for an abuse of discretion. Gentek Bldg. Prods., Inc. v. Sherwin-Williams Co.,

491 F.3d 320, 333 (6th Cir. 2007). A district court may award prejudgment interest “at its discretion

in accordance with general equitable principles.” Ford v. Uniroyal Pension Plan, 154 F.3d 613, 616

(6th Cir. 1998).

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By statute, Michigan permits the awarding of prejudgment interest on a money judgment

recovered in a civil action. Mich. Comp. Laws. § 600.6013. Spizizen, although on the losing side

of this case, regards the “surplus” as a money judgment. This novel interpretation of “money

judgment” defies common sense because Spizizen received no judgment at all, but rather just the

right to money that was already his in the first place. The mathematics of determining the surplus

is like an accounting. As the district court observed, “Plaintiffs’ recoupment is simply the inevitable

consequence of the Court’s judgment, rather than a judgment unto itself. As such, no money

judgment in the Plaintiffs’ favor exists, and no interest is warranted.” Spizizen, 2011 WL 6434670

at *4. The district court did not abuse its discretion in not awarding Spizizen pre-judgment interest

on the unspecified surplus amount.

III. Conclusion

For the reasons set forth above, we affirm the judgment of the district court.

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