Master Beat, Inc. v. Skill

1

MASTER BEAT, INC. and WALTER PALAMARCHUK, Plaintiffs-Appellees, v. MICHAEL SKILL, Defendant-Appellant.

No. 363340

Court of Appeals of Michigan

February 29, 2024

UNPUBLISHED

Oakland Circuit Court LC No. 2021-189454-CB

Before: GADOLA, C.J., and BORRELLO and BOONSTRA, JJ.

PER CURIAM.

In this case arising from a business dispute, defendant appeals by right the trial court's orders granting summary disposition in favor of plaintiffs and granting to plaintiffs prejudgment interest, costs, and attorney fees. Defendant also challenges the order denying his motion for reconsideration or relief from judgment. For the reasons set forth in this opinion, we affirm.

I. BACKGROUND

Defendant and plaintiff Walter Palamarchuk (Palamarchuk) are two of the original four members of the band The Romantics. Plaintiff Master Beat, Inc. (Master Beat), a Michigan corporation, was formed in 1984 to manage business affairs for the band. By the time this action was initiated, defendant and Palamarchuk were the only remaining officers of Master Beat. They each owned a 50% share of the company and served as co-directors. Palamarchuk was president of Master Beat and took primary responsibility for business operations of Master Beat. Defendant was secretary-treasurer and had a lesser role in the operations of Master Beat. There was apparently an agreement that defendant and Palamarchuk were supposed to switch roles each year, although they seemingly abandoned that arrangement. Defendant described their division of responsibilities as somewhat "ambiguous."

As relevant to this litigation, Master Beat had contractual agreements with Sony Music Publishing, SoundExchange, and K-Tel International Ltd. (K-Tel) generally providing that royalties related to The Romantics would be paid to Master Beat. Master Beat, in turn, would distribute those royalties as appropriate according to various separate contractual agreements to various past and present band members, including defendant and Palamarchuk.^[1] Master Beat employed other individuals to calculate the royalties Master Beat was required to distribute to various other individuals from the royalties Master Beat received. In addition to its obligations to distribute royalties, Master Beat also had other bills and expenses that were paid from its revenue. Master Beat's revenue consisted of royalty payments and revenue generated from The Romantics' concert performances.

Beginning in late 2020, defendant took steps to change the above described distribution procedure by diverting royalties to himself that were being paid to Master Beat pursuant to the previously mentioned contracts. Defendant believed that he should be able to get his royalties directly from the companies paying them, without having the royalties first flow through Master Beat. He also testified that he believed he was authorized to act unilaterally on behalf of Master Beat to effectuate such changes. It is not entirely clear from the record, but it seems that defendant received approximately $26,700 in royalties from Sony after making his request and before Master Beat became aware of the change and took action to object, and there is also evidence suggesting that defendant received approximately $30,000 in royalty payments from K-Tel before Master Beat became aware of the issue and intervened. It appears that defendant's efforts were unsuccessful with respect to SoundExchange, and that he did not receive any payments from SoundExchange, because SoundExchange put a hold on the accounts related to The Romantics until the parties resolved their conflicting claims about the treatment of royalties.

Furthermore there is additional record evidence that defendant personally withdrew $20,000 from a bank account belonging to Master Beat in July 2021. Defendant, according to his deposition testimony, was seemingly disgruntled about the manner in which royalties were being distributed and apparently felt that the $20,000 represented royalties to which he was personally entitled. He believed he was actually entitled to more than this amount, but he left some money in the account "for bills."

On August 10, 2021, plaintiffs initiated this action, seeking to remove defendant as a director of Master Beat and alleging claims of breach of fiduciary duty, unjust enrichment, common-law conversion and embezzlement, and statutory conversion.

Plaintiffs moved for summary disposition under MCR 2.116(C)(10) on February 18, 2022, arguing that there was no question of material fact that defendant diverted royalties from Master Beat to himself and took $20,000 from the Master Beat bank account without authority. Plaintiffs argued that defendant's actions rendered him liable for common-law and statutory conversion,^[2]breach of fiduciary duty, and unjust enrichment, and, additionally, that defendant's removal as a director was warranted. The trial court entered a scheduling order directing defendant to respond to plaintiffs' motion for summary disposition by April 1, 2022. The trial court's scheduling order stated that the court would strictly enforce the scheduling order and that failure to timely file a responsive brief would result in the court assuming that the party did not have any authority to support its position.

On April 1, 2022, defendant filed a motion to file his brief in opposition and accompanying exhibits under seal. Defendant served his brief on the opposing parties and the court, but he did not file it so as to avoid making it public while waiting for the court's ruling on the motion to file under seal. Because defendant did not notice his motion for a hearing, confusion ensued. Nonetheless, the trial court ultimately entered orders on May 25, 2022, granting plaintiffs' motion to supplement their motion for summary disposition by May 27, 2022, and permitting defendant to file a response to plaintiffs' motion for summary disposition as supplemented pursuant to an updated scheduling order. Additionally, the trial court had granted defendant's counsel's motion to withdraw on April 18, 2022, which was predicated on defendant's consistent failure to pay his legal fees. Plaintiffs filed their supplemental motion for summary disposition on May 25, 2022.^[3]

On May 26, 2022, defendant's new counsel filed an appearance and the trial court entered an updated scheduling order. The scheduling order required defendant to file his response by June 29, 2022. The order further required any motion to file the response under seal to be filed and heard by June 22, 2022. As before, the scheduling order stated that it would be strictly enforced and that the failure to timely file a brief would result in the court assuming that the party did not have supporting authority for its position.

On June 29, 2022, defendant filed a purported brief in support of his opposition to plaintiffs' motion for summary disposition. However, as defendant admits on appeal, the brief actually contained a verbatim copy of plaintiffs' brief in support of summary disposition. The brief included a title designating it as defendant's opposing brief, included a conclusory prayer for relief in defendant's favor, and was signed by defendant's counsel. Having imported the entirety of plaintiffs' brief, defendant's filing also included a prayer for relief asking the court to grant summary disposition to plaintiffs on their claims. The next day, defendant attempted to file an amended brief, and the trial court apparently rejected the filing.^[4]

The trial court entered a written opinion and order granting summary disposition in favor of plaintiffs. The trial court noted that defendant was given two opportunities to respond to plaintiffs' motion for summary disposition, and the only timely filed response concurred in plaintiffs' requested relief. The trial court reasoned that it had the authority to enter and enforce its scheduling orders and that summary disposition in favor of plaintiffs was warranted based on the parties' timely filings that were before the court. The court additionally stated that plaintiffs' uncontroverted evidence established defendant's liability for conversion, breach of fiduciary duty, and unjust enrichment, as well as the propriety of removing defendant as a director of Master Beat. Accordingly, the trial court awarded treble damages,^[5] prejudgment interest, costs and fees pursuant to MCR 600.2919a; ordered defendant to withdraw his royalty claim from Sound Exchange, to not access any Master Beat account, and to cease acting on behalf of Master Beat; and removed defendant as a director of Master Beat. The trial court reserved the issues of prejudgment interest, costs, and attorney fees for postjudgment proceedings.

Defendant subsequently filed a motion for reconsideration, or to correct pleading, or for relief from judgment. In the motion, defendant's new counsel blamed the filing error on the short timeframe between when she took over the case and when the response was due, her own illness as the deadline approached, and the failure of her paralegal who, instead of filing the brief prepared by defendant's former counsel as instructed, filed a copy of plaintiffs' brief. Regarding the merits of plaintiffs' claims, defendant argued that he could not convert funds that belonged to him.

The trial court denied the motion for reconsideration because defendant had failed to demonstrate a palpable error by which the court was misled, and not established that a different disposition would result from the correction of any error had only raised arguments that could have been or were argued previously. The trial court ruled that defendant abandoned his request for leave to correct the pleadings because defendant failed to adequately brief the issue. The trial court deni...