KATHRYN MEKLIR V J C PENNEY CO
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STATE OF MICHIGAN
COURT OF APPEALS
KATHRYN MEKLIR, Trustee of the KATHRYN
MEKLIR REVOCABLE LIVING TRUST,
JAMES GINZLER, HILLARY SHAW, Trustee of
the HILLARY SHAW REVOCABLE LIVING
TRUST, LINDA WINKELMAN, individually and
as parent and guardian of JACKLYN
WINKELMAN and JULIE WINKELMAN,
ROGER WINKELMAN, individually and as
parent and guardian of JACKLYN WINKELMAN
and JULIE WINKELMAN, BRENDA WORTH
PASSER, SANDFORD PASSER, NORMAN
HUBERT, ESTHER HUBERT, WENDY
HUBERT, IRA MONDRY, REX LANYI, and
KOLMAN VERONA,
UNPUBLISHED
July 5, 2005
Plaintiffs-Appellants,
v
J.C. PENNEY COMPANY, INC., STANLEY G.
FELDMAN, and STANLEY LTD, INC.,
No. 253089
Oakland Circuit Court
LC No. 2001-031248-NZ
Defendants-Appellees,
and
ROBERT J. BALL, individually and d/b/a RJB
SALES, INC.,
Defendants.
Before: Gage, P.J., and Cavanagh and Griffin, JJ.
PER CURIAM.
Plaintiffs appeal as of right from the trial court’s order granting summary disposition in
favor of defendants J.C. Penney Company, Inc., Stanley Feldman, and Stanley Ltd., Inc.
(Stanley). We affirm in part, reverse in part, and remand.
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Plaintiffs invested in the “J.C. Penney Investment Program,” which was organized by
defendants Feldman and Robert J. Ball, a retired J.C. Penney executive. Plaintiffs believed this
was a legitimate program that had been organized for temporarily financing the purchase of
merchandise pending its resale to defendant J.C. Penney Company, Inc. Ball and Feldman
allegedly advised investors that J.C. Penney orders its merchandise from manufacturers outside
the United States and that it had a strict cancellation policy whereby orders were automatically
cancelled if the merchandise did not arrive by the scheduled date. In that instance, the
manufacturers were left with the merchandise. According to plaintiffs, Ball and Feldman
explained to them that J.C. Penney would still accept the late merchandise if it could purchase it
at a discount from a third party, who first acquired it from the manufacturers. Ball acted as the
intermediary in these transactions and created defendant RJB Sales, Inc. to conduct the
transactions. Ball and Feldman informed plaintiffs that Thomas Hutchens, J.C. Penney’s
president and chief operating officer, was participating in this operation on behalf of J.C. Penney.
In their complaint, plaintiffs explained how their contributions were to be used to finance
these transactions:
K) Inasmuch as JC Penney would not pay for the merchandise for about
six or seven weeks after RJB's cash purchase from the vendors, RJB would
finance these transactions by getting investors. Accordingly, RJB needed
investors to finance the cash purchases for the initial six to seven week period.
L) The JC Penney Investment Program was created as a means to finance
these purchases until JC Penney would reimburse Ball/RJB for the transaction.
M) According to the JC Penney Investment Program, each investor would
receive a 4% return on their investment for each transaction or seven week cycle,
and an additional 1% would go to Feldman for administrative costs.
N) Depending on the availability of JC Penney merchandise purchase
transactions, the total amount of returns would be approximately 28% over a
period of one year.
O) Feldman would provide each investor a post-dated check for the profit,
dated approximately six to seven weeks after the investment. At any time, an
investor could either demand the return of their principal upon two weeks notice
or just roll the principal amount over into the next merchandise purchase
transaction.
P) Occasionally, JC Penney would demand a special quick turn around
purchase which would generate a 4% return within one month followed by
another 4% return the following month, totaling 8% return in an eight week
period. Such opportunities occurred rather infrequently and on short notice,
therefore, an investor would have to make an immediate decision to take
advantage of such a transaction if it was presented.
Plaintiffs alleged that Feldman assured them that in the event the investment program ended,
they would receive one hundred percent of their investment back without delay.
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Plaintiffs allege that the investment program was in reality a Ponzi scheme1 and that none
of their money was ever invested in the program. In May 2000, plaintiffs were advised that RJB
Sales had terminated operations. Although plaintiffs made formal demands for the return of their
investment monies in December 2000, they did not receive their money back.
In 1997, the FBI and IRS launched an investigation into the J.C. Penney Investment
Program. In approximately July 1998, the FBI and IRS informed J.C. Penney about Ball's and
Feldman's use of J.C. Penney's name and Hutchens' involvement, as an agent, in the investment
program. Plaintiffs allege that J.C. Penney had actual knowledge that Ball, Feldman, and
Hutchens were operating the investment program to perpetrate a fraud on unsuspecting investors,
and that J.C. Penney failed to warn the public about the fraudulent use of its corporate name.
Plaintiffs commenced this action against Ball and RJB Sales (the “Ball defendants”),
Feldman, J.C. Penney, and Stanley, requesting compensatory damages of $3,700,016 for
virtually every one of the claims asserted.
Plaintiffs moved for entry of a default judgment against the Ball defendants based on
discovery violations. The trial court granted plaintiffs' motion and entered a default judgment
against the Ball defendants in the requested amount of $11,737,908.72.2 Defendants J.C.
Penney, Feldman, and Stanley subsequently moved for summary disposition, arguing that
because plaintiffs had obtained a default judgment against the Ball defendants for the entire
amount of their damages, they were not entitled to pursue their tort claims against the remaining
defendants.3 Feldman and Stanley further argued that plaintiffs' contract claims should be
dismissed because the alleged contract was unenforceable, inasmuch as it contained a usurious
rate of interest. The trial court agreed and granted defendants’ motions.
Plaintiffs first argue that the trial court erred in granting defendants summary disposition
of their tort claims based on the prior default judgment against the Ball defendants. We review a
trial court’s decision on a motion for summary disposition de novo. Pierson Sand and Gravel
Inc v Keeler Brass Co, 460 Mich 372, 379; 596 NW2d 153 (1999). The trial court granted
defendants summary disposition on this issue, apparently under MCR 2.116(C)(7). Summary
disposition may be granted under MCR 2.116(C)(7) when an action is barred due to the entry of
a prior judgment. The standard for reviewing a motion under MCR 2.116(C)(7) is as follows.
1
A “Ponzi” or “Ponzi scheme” is defined as “a swindle in which a quick return on an initial
investment paid out of funds from new investors lures the victim into bigger risks.” Random
House Webster’s College Dictionary (1997). It is named after Charles Ponzi, who was the
organizer of such a scheme during 1919 and 1920. Id.
2
The court trebled plaintiffs’ damages of $3,700,016, for a total of $11,100,048, and awarded
$637,860.72 in prejudgment interest.
3
Because the Ball defendants are not parties to this appeal, the term “defendants” shall
collectively refer only to defendants J.C. Penney, Feldman, and Stanley.
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A defendant who files a motion for summary disposition under MCR
2.116(C)(7) may (but is not required to) file supportive material such as affidavits,
depositions, admissions, or other documentary evidence. MCR 2.116(G)(3);
Patterson v Kleiman, 447 Mich 429, 432; 526 NW2d 879 (1994). If such
documentation is submitted, the court must consider it. MCR 2.116(G)(5). If no
such documentation is submitted, the court must review the plaintiff's complaint,
accepting its well-pleaded allegations as true and construing them in a light most
favorable to the plaintiff. [Ostroth v Warren Regency, GP, LLC, 263 Mich App 1,
6; 687 NW2d 309 (2004), quoting Turner v Mercy Hospitals & Health Services of
Detroit, 210 Mich App 345, 348; 533 NW2d 365 (1995).]
If the pleadings or other documentary evidence reveal that there is no genuine issue of material
fact, the court must decide as a matter of law whether the claim is barred. Holmes v Michigan
Capital Medical Center, 242 Mich App 703, 706; 620 NW2d 319 (2000).
Relying on MCL 600.2956 and MCL 600.2957, the trial court reasoned that plaintiffs
could not apportion any of their damages to J.C. Penney, Feldman, or Stanley for the following
reasons: 1) the liability of each defendant in a tort action is no longer joint, but several only; 2)
liability among multiple defendants must be allocated in direct proportion to each defendant’s
fault; and 3) plaintiffs obtained a default judgment against the Ball defendants for the full
amount of their damages.
MCL 600.2956 provides that the liability of defendants in a tort action is several only, not
joint. MCL 600.2957 provides that the trier of fact "shall" allocate the fault of each party. The
term "shall" designates a mandatory provision. Salter v Patton, 261 Mich App 559, 565; 682
NW2d 537 (2004).
MCL 600.6304 provides that if there is no jury, the trial court is required to make
findings regarding the total amount of each plaintiff’s damages, and the percentage of total fault
of each responsible person. The statute provides, in relevant part:
(1) In an action based on tort or another legal theory seeking damages for
personal injury, property damage, or wrongful death involving fault of more than
1 person, including third-party defendants and nonparties, the court, unless
otherwise agreed by all parties to the action, shall instruct the jury to answer
special interrogatories or, if there is no jury, shall make findings indicating both
of the following:
(a) The total amount of each plaintiff's damages.
(b) The percentage of the total fault of all persons that contributed to the
death or injury, including each plaintiff and each person released from liability
under [MCL 600.2925d] regardless of whether the person was or could have been
named as a party to the action.
(2) In determining the percentages of fault under subsection (1)(b), the
trier of fact shall consider both the nature of the conduct of each person at fault
and the extent of the causal relation between the conduct and the damages
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claimed.
(3) The court shall determine the award of damages to each plaintiff in
accordance with the findings under subsection (1), subject to any reduction under
subsection (5) or [MCL 600.2955a] or [MCL 600.6303] and shall enter judgment
against each party, including a third-party defendant, except that judgment shall
not be entered against a person who has been released from liability as provided
in [MCL 600.2925d].
(4) Liability in an action to which this section applies is several only and
not joint. Except as otherwise provided in subsection (6), a person shall not be
required to pay damages in an amount greater than his or her percentage of fault
as found under subsection (1). . . .
***
(8) As used in this section, "fault" includes an act, an omission, conduct,
including intentional conduct, a breach of warranty, or a breach of a legal duty, or
any conduct that could give rise to the imposition of strict liability, that is a
proximate cause of damage sustained by a party.
In the instant case, plaintiffs requested and received a default judgment against the Ball
defendants in the total amount of their damages, but there was never any determination that the
Ball defendants were solely at fault. Indeed, Feldman’s attorney admitted that it was not clear to
what extent each party was at fault because discovery had not been completed. Although the
court may have determined the total amount of plaintiffs’ damages as required by subsection
MCL 600.6304(1)(a), it never made any findings concerning the percentage of the total fault of
all persons who contributed to plaintiffs’ damages as required by subsection (1)(b). Ultimately,
it was the trial court's duty to allocate fault. See also Holton v A+ Ins Associates, Inc, 255 Mich
App 318, 323-324; 661 NW2d 248 (2003). Because the trial court did not consider MCL
600.6304 when it entered the default judgment against the Ball defendants, that judgment did not
preclude plaintiffs from proceeding on their claims against the remaining defendants.
This conclusion is reinforced by the Michigan Supreme Court’s recent decision in
Gerling Konzern Allgemeine Versicherungs AG v Lawson, 472 Mich 44; 693 NW2d 149 (2005).
The Court in Gerling concluded that while the forgoing statutes, adopted as part of tort reform
legislation in 1995, eliminated joint and several liability in certain tort actions, they do not
preclude every type of contribution claim. The Court held that a party may still seek
contribution under MCL 600.2925a if "judgment has not been recovered against all or any of
them," and the party seeking contribution has “paid more than his pro rata share of the common
liability." Gerling, supra at 53. When the contribution statute is read in conjunction with MCL
600.6304(4), it requires that a party may not be compelled to pay damages in excess of the
percentage of his fault, as found by the trier of fact under MCL 600.6304(1).
In Gerling, supra at 56-57, the Court clarified that MCL 600.6304
applies specifically in those cases in which there is common liability among
multiple tortfeasors, and it is inaccurate to interpret it as meaning that there is no
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longer any common liability among responsible tortfeasors. Rather, the common
liability remains; what differ merely are the terms and conditions by which that
liability must be satisfied. That is, by virtue of § 6304, in cases in which there has
been a judgment, a tortfeasor need only pay a percentage of the common liability
that is proportionate to his fault. Previously, where there had been a judgment, a
tortfeasor could have been required to pay the entire amount of common liability
and then seek contribution from other tortfeasors according to their degrees of
fault.
The fact that this case involves a default judgment against some defendants does not
affect the application of MCL 600.6304. That statute requires that, where there is common
liability among multiple tortfeasors, each party is responsible only for his pro rata share of
liability.
For these reasons, we conclude that the trial court erred when it relied on MCL 600.2956
and MCL 600.2957 to conclude that plaintiffs, having obtained a default judgment against the
Ball defendants for the full amount of their requested damages, could not proceed with their
action against defendants J.C. Penney, Feldman, and Stanley, where the court never determined,
in accordance with MCL 600.6304, the percentage of fault of each party responsible for
plaintiffs’ damages.4
Defendant J.C. Penney argues, as an alternative ground for affirmance, that it was entitled
to summary disposition pursuant to MCR 2.116(C)(10). Middlebrooks v Wayne Co, 446 Mich
151, 166 n 41; 521 NW2d 774 (1994). Because the trial court did not address this issue, it is not
preserved. ISB Sales Co v Dave’s Cakes, 258 Mich App 520, 532-533; 672 NW2d 181 (2003).
We may, however, review it because it is a question of law, and the facts necessary for its
resolution have been presented. Village of Hickory Pointe Homeowners Ass’n v Smyk, 262 Mich
App 512, 516; 686 NW2d 506 (2004).
Plaintiffs brought claims for fraud, misrepresentation, securities fraud, innocent
misrepresentation, and negligent misrepresentation against J.C. Penney. Plaintiffs alleged that
J.C. Penney was liable because it failed to warn plaintiffs that Feldman and Ball were not
legitimately doing business with J.C. Penney, and that J.C. Penney had a duty to warn them of
the Ponzi scheme upon learning of it from the FBI and the IRS. J.C. Penney sought summary
disposition of plaintiffs’ claims under MCR 2.116(C)(10), arguing that there was no genuine
issue of material fact about whether: 1) it ever made any false statements to plaintiffs concerning
Feldman, Ball, or the investment program; and 2) it had a duty to notify plaintiffs of these
defendants’ activities.
4
Plaintiffs also argue that, even if summary disposition was properly granted with respect to
their tort claims, the trial court erred in dismissing their claim for unjust enrichment, because
such a claim does not sound in tort. Having concluded that the trial court erred in dismissing
plaintiffs’ tort claims, however, plaintiffs may proceed on their claim for unjust enrichment.
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A motion under MCR 2.116(C)(10) tests the factual support for a claim. Summary
disposition should be granted if there is no genuine issue of material fact and the moving party is
entitled to judgment as a matter of law. Rose v Nat’l Auction Group, Inc, 466 Mich 453, 461;
646 NW2d 455 (2002).
The first element plaintiffs must establish to succeed on their fraudulent
misrepresentation claim is that J.C. Penney was responsible for a material misrepresentation that
was false. Bergen v Baker, 264 Mich App 376, 382; 691 NW2d 770 (2004). Plaintiffs have not
identified any false statements made by J.C. Penney related to this investment scheme. Rather,
plaintiffs only submitted evidence of misrepresentations by Ball and Feldman.
Plaintiffs appear to rely on silent fraud, which requires a duty to make a disclosure. Mere
nondisclosure is insufficient. Hord v Environmental Research Institute of Michigan (After
Remand), 463 Mich 399, 412; 617 NW2d 543 (2000). A duty to disclose typically arises when
the plaintiff make inquiries, to which the defendant makes incomplete replies that are truthful but
omit material information. Id.
In the instant case, plaintiffs do not allege that they made any inquiries of J.C. Penney at
any time about the investment program. Furthermore, they have not established that J.C. Penney
had a duty to disclose the truth about Ball's and Feldman's activities after it became aware of the
investment scheme. Indeed, there is no indication in the record that J.C. Penney was aware that
plaintiffs were investors in the scheme. At most, J.C. Penney could have made a public
announcement disavowing its association with the scheme, but resorting to public notice has no
assurance of reaching all affected parties, and, absent any inquiries, we are not persuaded that it
had a legal obligation to do so. Therefore, under the circumstances, plaintiffs cannot prevail on a
claim of silent fraud.
For the same reasons, plaintiffs cannot establish negligent misrepresentation. Negligent
misrepresentation requires justifiable reliance to one’s “‘detriment on information prepared
without reasonable care by one who owed the relying party a duty of care.’” The Mable Cleary
Trust v The Edward-Marlah Muzyl Trust, 262 Mich App 485, 502; 686 NW2d 770 (2004),
quoting Law Offices of Lawrence J Stockler, PC v Rose, 174 Mich App 14, 30; 436 NW2d 70
(1989). Plaintiffs have not established that J.C. Penney made erroneous representations to them
or that J.C. Penney owed them a duty of care.
Plaintiffs' allegations involve misrepresentations made only by Ball and Feldman, not
J.C. Penney. Further, there is no basis for concluding that either Ball or Feldman were acting as
agents for J.C. Penney. Plaintiffs did not submit any evidence that would allow a trier of fact to
find that J.C. Penney performed any affirmative acts to lead plaintiffs to believe that Ball or
Feldman were acting as its agent, under either a theory of actual or apparent authority. Alar v
Mercy Memorial Hosp, 208 Mich App 518, 528; 529 NW2d 318 (1995); see also Meretta v
Peach, 195 Mich App 695, 699-700; 491 NW2d 278 (1992).
Accordingly, J.C. Penney is entitled to summary disposition of the claims against it.
Thus, while we reverse the trial court’s order granting summary disposition of plaintiffs’ tort
claims against defendants Feldman and Stanley, we affirm the order of summary disposition with
respect to defendant J.C. Penney, albeit for reasons different than the trial court. Spiek v Dep’t of
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Transportation, 456 Mich 331, 337; 572 NW2d 201 (1998); Gleason v Michigan Dep’t of
Transportation, 256 Mich App 1, 3; 662 NW2d 822 (2003).
Plaintiffs also alleged various contract-based claims against defendants Feldman and
Stanley. The trial court granted summary disposition of these claims because it concluded that
the underlying contract included a usurious rate of interest and, therefore, the entire contract was
unenforceable. We conclude that the trial court erred in dismissing these claims in their entirety.
Initially, we agree with the trial court that the parties' agreement should be characterized
as a loan because plaintiffs alleged that they were assured that their principal investment would
be returned. In People v Lee, 447 Mich 552, 558; 526 NW2d 882 (1994), the Court held that "a
loan only occurs when there is an obligation to repay." See also Lawsuit Financial, LLC v
Curry, 261 Mich App 579, 588; 683 NW2d 233 (2004)(a loan involves an absolute right to
repayment). The trial court also correctly concluded that the loans are subject to the criminal
usury statute, MCL 438.41, which prohibits charging a rate of interest in excess of twenty-five
percent.
Contrary to what the trial court concluded, however, a contract is not unenforceable
because it contains a usurious rate of interest. Where a loan violates the usury statutes, lenders
are only barred from recovering any interest, late fees, court costs, or attorney fees. MCL
438.32; Lawsuit Financial, supra at 590-591. Thus, plaintiffs are only barred from attempting to
collect interest at the alleged rate of twenty-eight percent.5 Because a usurious interest rate does
not make an instrument void, plaintiffs are not barred from enforcing other provisions of the
agreement, such as the alleged provision requiring the full return of their principal. Shaw
Investment Co v Rollert, 159 Mich App 575, 580; 407 NW2d 40 (1987).
The trial court also held that because any underlying contract was unenforceable,
plaintiffs could not prove privity to maintain their action for innocent misrepresentation. United
States Fidelity & Guaranty Co v Black, 412 Mich 99, 119; 313 NW2d 77 (1981). Because the
parties' underlying agreement was not void, however, the trial court erred in dismissing
plaintiffs’ innocent misrepresentation claim against defendants Feldman and Stanley. Shaw
Investment Co, supra at 580.
Affirmed in part, reversed in part, and remanded for further proceedings consistent with
this opinion. We do not retain jurisdiction.
/s/ Hilda R. Gage
/s/ Mark J. Cavanagh
/s/ Richard A. Griffin
5
We find no merit to plaintiffs’ claim that MCL 438.31 authorized the higher rate of interest.
Plaintiffs have failed to show that this statute is applicable to this case.
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