Appendix — Fishell v. Soltow

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95 30 wis ™%

No.

IN THE

SUPREME COURT OF THE UNITED STATES

October Term 1994

RICHARD L. FISHELL

and

DOROTHY M. FISHELL

Petitioners

vs

ROBERT SOLTOW

and

ROSALEE SOLTOW

and

JOHN A. PORTER, Trustee

Respondents

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

APPENDIX VOLUME II

Lester N. Turner

1005 Timber Pass

Harbor Springs, MI

49740

(616) 526-9222

Counsel for Petitioners

— rye - “pe a RG PUT OPE IF Ie EE Re OES ares ora

Release and Settlement Agreement

This Agreement is made this 12th

day of June 1992, by and between Robert

and Rosalee Soltow, Michigan residents,

whose address is 13665 Tallman Road,

Eagle; Michigan 48822 (the "Soltows"),

and John A. Porter, Trustee of the

Estate of Richard L. and Dorothy M.

Fishell, Debtors ("Fishells"), Bank-

ruptcy Court Case No 90-85144, whose

address is 622 Commerce Building, 5

Lyon Street, N.W., Grand Rapids, Michi-

gan 49503-3122 ("Trustee") ("Agreement")

Recitals

A. In 1986, the Fishells borrowed money

from the Soltows. The Fishells gave the

Soltows a promissory note and mortgage to

secure the loan made by the Soltows ("1986

loan"). The real estate described in Exhi-

bit A was given by the Fishells to the Sol-

tows as security for repayment of the loan

("the property").

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B. After defaulting on payment of the

1986 loan, the Fishells and the Soltows

entered into an amended promissory note,

mortgage modification agreement and escrow

holding agreement in August 1988 ("1988

loan documents"). The 1988 loan documents

superseded the 1986 loan. The loan docu-

ments provided that the Soltows would not

foreclose immediately but gave the Fishells

until February 15, 1989 in which to make

payment.

C. The 1988 loan documents required the

Fishells to execute and deliver a deed to

the property to an escrow agent, Lawyers

Title Insurance Corporation. The 1988 loan

documents further provided that if the

amount owed by the Fishells was not paid

on time then the cauren agent was required

to release to the Soltows the warranty deed

conveying the property to them.

D. The Fishells never paid the Soltows

and the escrow agent delivered the warranty

A170

a

deed in March 1989 to the Soltows, who then

recorded the deed to the property on March

16, 1989.

E. On April 27, 1989, the Fishells sued

the Soltows in Eaton County Circuit Court,

Case No 89-366-CH, seeking to cancel the

warranty deed and seeking other relief.

The Fishells also filed a lis pendens

against the property. The Soltows filed |

a counterclaim against the Fishells on

June 12, 1989 alleging slander of title.

This lawsuit is referred to as the "Eaton

County Lawsuit".

F. On November 16, 1990 the Fishells

filed bankruptcy seeking protection under

Chapter 11 of the United States Bankruptcy

Code. Initially the Fishells were permitted

to stay in possession of their property.

G. On December 12, 1990, the Fishells

made application to the Bankruptcy Court to

remove the Eaton County Lawsuit to the

Federal Bankruptcy Court as part of the —

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Chapter 11 proceedings. The Bankruptcy

Court authorized the removal and the Eaton

County Lawsuit became Adversary Proceeding

No 91-8015 (“Adversary Proceeding").

H. Upon motion of the United States

Trustee and certain creditors, on January

13, 1992, the bankruptcy court, following

a hearing on the motions for conversion

of the Chapter 11 to Chapter 7, ordered

the conversion of the Chapter 11 proceed-

ings to Chapter 7 liquidation. Thereaf-

ter, the Trustee was appointed to admini-

ster the Chapter 7 proceedings.

I. The Soltows and the Trustee have

agreed to settle all disputes arising

out of the Eaton County Lawsuit and the

Adversary Proceeding (collectively the

"Lawsuit™) on the terms and conditions

contained in this Agreement.

Now, therefore, in consideration of

the mutual promises and agreements made

in this Agreement and intending to be

A172

legally bound, the parties agree as

follows:

1. Approval of Bankruptcy Court. The

Trustee and the Soltows agree that this

Agreement (except for the provisions of

this paragraph 1) shall become effective

only if the Bankruptcy Court enters an

order approving it on or before the 10th

day of July 1992 (“Approval”). Trustee

and the Soltows agree to use their best

efforts to obtain the Approval as soon as

reasonably possible. The Soltows agree

not to sell, convey or transfer the Pro-

perty or any interest in the Property

until the entry of the Bankruptcy Court's

order approving this Agreement.

2. Dismissal of the Lawsuit. Trustee

shall cause the Lawsuit to be dismissed

with prejudice and without costs to either

party. At the Soltow's request, the Trus-

tee shall promptly cause any other docu-

ments they request to be executed in order

A173

to more fully effectuate the dismissal of

the Lawsuit and termination of the lis

pendens. The order of dismissal shall be

substantially in the form of attached Exhi-

bit 1. The Soltows shall cause their coun-

terclaim made in connection with the Law-

suit to be dismissed with prejudice and

without costs to either party. The order

of dismissal shall be substantially in the

form of attached Exhibit 2.

3. Mutual Release and Discharge of

Claims. For and in consideration of the

provisions of this Agreement, the Soltows

release and forever discharge the Trustee

and the Fishells, together with, to the

extent applicable, their agents, officers,

employees, attorneys, affiliated organiza-

tions and insurers, from any and all claims,

demands, equitable relief, damages, costs,

expenses, administrative actions and cause

of action of any kind or character which

now exists or may later arise which were

A174

known or should have been known by the

parties relating in any matter to or ari-

sing from or which could have arisen from

the Lawsuit, except as provided in the

terms of this Agreement. Anything in

this Agreement to the contrary notwith-

standing, the Soltows are not waving any

claim they may have against the Fishells

or the Trustee with respect to determina-

tion of the Soltows' interest in the real

estate legally described in attached Exhi-

bit B (the “Andre property") and in connec-

tion with the purchase at foreclosure sale,

or the alleged redemption of the Andre pro-

perty. The Trustee and the Soltows agree

that this Agreement shall not act as a bar

or waiver of the Soltow's claim of owner-

ship of the Andre property. All other claims

against the Trustee and the bankruptcy

estate shall be considered released by the

Soltows pursuant to this Agreement.

The Trustee forever discharges the Sol-

A175

tows, together with, to the extent appli- )

cable, their agents, assigns, officers,

employees, attorneys, affiliated organiza-

tions and insurers, from any and all claims

demands, equitable relief, damages, costs,

expenses, administrative actions and cause

of action of any kind or character which

now exists or may later arise which were

known or should have been known by the

Fishells or by Trustee, relating in any

matter to, or arising from, or which could

have arisen from the Lawsuit or related

occurrences pertaining to the Property,

except as provided in this Agreement.

4. Indemnification. Each party agrees to

indemnify the other against any and all

cost, loss and expense, including attorneys

fees, which may be incurred as a result of

defending any additional claim made by the

other party arising out of the Lawsuit or

any transaction involving the Property ex-

cept that this indemnification shall not :

A176

apply to expenses incurred in connection

with any appeal of the Approval of this

Agreement.

5. Payment by the Soltows. The Soltows

agree to pay the Trustee the sum of

$2,000 within 30 days of the date on

which the Approval is obtained.

6. Non-Admission of Liability. This

Agreement shall not be construed as an

admission nor is it an admission by either

party or any of their officers, employees,

agents or attorneys in any respect for any

claim or causes of action which arose out

of or could have arisen out of the Lawsuit

or out of transactions involving the Pro-

perty. Each party expressly denies any ad-

mission of liability to the other party.

This Agreement is being entered into solely

for the purpose of resolving and settling

any and all of the claims that arose out of

or could have arisen out of the Lawsuit or

out of any transaction involving the property

A177

in accordance with Paragraph 3.

7. Agreement as Defense. The parties fully

understand and agree that this Agreement may

be pled as a complete defense in any past,

present or future claim of entitlement which

has been released by this Agreement.

8. Attorney's Fees. The parties agree that

nothing in this Agreement shall be interpre-

ted to render any party liable for payment

of the attorney's fees of another party, ex-

cept as specifically provided in this Agree-

ment.

9. Notices. All notices and other communi-

cations required or permitted under this

Agreement shall be deemed to have been given

if mailed by registered or certified mail,

postage prepaid, or otherwise delivered by

hand or messenger, to the parties at their

addresses listed on page l, or to such

other changed address as such party may

have given notice.

10. Applicable Law. This Agreement has

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been executed, delivered and accepted at

and shall be deemed to have been made in

Lansing, Michigan and shall be interpreted

and the rights and liabilities of the par-

ties shall be determined in accordance

with the laws of the State of Michigan.

ll. Integration. This Agreement sets

forth the entire agreement and understanding

between the parties as to the subject matter

hereof, and supersedes a) prior discus-

sions, representations, amendments or under-

standings of every kind and nature between

them.

12. Amendments. Any amendment, alteration,

supplement, modification or Waiver shall be

invalid unless it is set forth in writing,

signed by the party intending to be bound

thereby.

13. Severability. If any provision of this

Agreement becomes or is declared by a court

of competent jurisdiction to be illegal, un-

enforceable or void, this Agreement sha]]

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continue in full force and effect without

the provisions.

14. Assignability. This Agreement may not

be assigned by any party without the prior

written consent of the other parties.

15. Benefit. This Agreement shall be bind-

ing upon and inure to the benefit of the

Soltows, the Fishells and the Trustee and

their respective personal representatives,

successors and assigns.

16. Captions. Captions contained in this

Agreement are inserted for reference and in

no way define, limit, extend or describe the

Agreement or the intent of any provision

herein.

17. Counterpart. This Agreement may be exe-

cuted in one or more counterparts, each of

which shall be enforeceable against the par-

ty actually executing such counterparts and

all of which together shall constitute one

instrument.

18. Pronouns. All pronouns and any vari-

A180

ation thereof shall be deemed to refer to

the masculine, feminine, neuter, singular

or plural as the identity of the parties

may require. |

19. Construction of Agreement. The

parties agree that this Agreement has been

jointly drafted and neither party may

assert an ambiguity in the construction of

this Agreement against the other party

because the other party allegedly drafted

the alleged ambiguous provision.

20. Representations, Warranties and Agree-

ments of the Soltows. For the Purposes of Bs

inducing the Trustee to enter into this

Agreement, they warrant that they have

authority to enter into the Agreement and,

once the Approval Le obtained, the Agree-

ment will be binding on them.

21. Representations, Warranties and Agree-

ments of Trustee. For the purpose of induc- '

ing the Soltows to enter into this Agreement

the Trustee represents that:

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a. He is the duly appointed and acting

trustee of the Fishells' Chapter 7 bankruptcy.

b. He has the power and sole authority to

enter into the Agreement and, once the Ap-

proval is obtained, the Agreement will be bin-

ding upon him and the Fishells.

c. The Lawsuit is property of the bank-

ruptcy estate and the Trustee, subject to

court approval, has exclusive control over

its disposition.

22. Voluntary Execution. The parties ack-

nowledge that they have read the Agreement,

that they understand its terms, and they

have entered into it voluntarily. Further,

the parties specifically acknowledge that

they have met and conferred with their res~

pective attorneys regarding the terms of the

settlement and that their respective attor- ;

neys have advised them that this Agreement

constitutes final resolution of any and all

claims which they may have against one

another.

A182

In Witness Whereof, the parties have exe-

cuted this Agreement on the date stated

above.

/s/ /s/

Robert Soltow John A. Porter,

Trustee of the Estate

of Richard L and Doro-

thy M. Fishell,

/s/ Debtors

Rosalee Soltow, by her

attorney in fact

(Omitted hereafter: Durable Power

of Attorney of Rosalee Soltow,

2 legal descriptions of real estate

noted in above Agreement, and pro-

posed form of orders referred to as

Ex 1 and 2 in above Agreement )

A183

UNITED STATES BANKRUPTCY COURT

WESTERN DISTRICT OF MICHIGAN

IN RE

RICHARD L. FISHELL and

DOROTHY M. FISHELL

Debtors Case No 90-85144

Hon Jo Ann C.

Stevenson

RICHARD L. FISHELL and

DOROTHY M. FISHELL Chapter 11

Plaintiffs

vs Adversary No

91-8015

ROBERT SOLTOW amd

ROSALEE SOLTOW

Defendants

FIRST AMENDED COMPLAINT

Plaintiffs, as debtors in possession,

allege:

JURISDICTION

Jurisdiction of this court over this

adversary proceeding is based upon 28 USC

1334 and 28 USC 157 in that this action

is otherwise related to the Chapter ll,

A184

Title 11 case of Richard L. Fishell and

Dorothy M. Fishell, debtors, filed 16

November 1990 and now pending before this

Court, Pile No 90-85144. This is a non-

core proceeding under 28 USC 157(c).

Plaintiffs do not consent to the entry

of final orders or judgments by the bank-

ruptcy court in this action. However,

Plaintiffs have filed a demand for jury

trial and Plaintiffs would consent to the

entry of final orders or judgments by

the bankruptcy judge on all matters sub-

mitted to a jury. Plaintiffs have been

duly appointed as debtors in possession,

are qualified to so serve and are pre-

sently acting as such.

COUNT I

1. This is an action to cancel or

rescind a deed to real property located

in Eaton County, Michigan and for other

relief.

2. That Plaintiffs are adults and

A185

the grantors pursuant to the Warranty

Deed which is the subject matter of this

action. Said Warranty Deed, recorded in

Liber 792 of Deeds, pages 198-199 on the

16th day of March 1989, is attached here-

to as Exhibit "A".

3. That the Defendant, Robert Soltow,

is an adult and the grantee under the

aforesaid Warranty Deed, Exhibit "A".

The Defendant, Rosalee Soltow, is, and

was, the wife of the said Robert Soltow,

and has, or may have, some interest in

the property.

4. That prior to the recordation of

the said Warranty Deed, Plaintiffs were

the record fee owners of the premises

described herein by virtue of a certain

warranty deed recorded on the 14th day

of July 1986 in Liber 707 of Deeds,

page 627. A copy of said warranty deed

is attached hereto as Exhibit "B".

5. That on or about the 7th day of

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July 1986, Plaintiffs were engaged in

the business of developing real property

and, as mortgagors, executed and deli-

vered to the Defendant, Robert Soltow,

as mortgagee, a mortgage on the above

premises, same having been recorded in

Liber 707, page 630, Eaton County

records.

6. That the amount of the loan from

Defendant to Plaintiffs on or about July

7, 1986, that gave rise to the mortage

mentioned in paragraph 5, was $350,000

at 15% interest per annum and a default

interest rate of 20% per annum.

7. That Defendant Robert Soltow

claims that Plaintiff Richard Fishel]

signed five additional notes, with Defen-

dant, Robert Soltow as payee, from on or

about April 23, 1982 through March 24,

1988. Defendant claims those notes were

as follows:

a) Noted dated 4/23/82 ($10,625 princi-

A187

pal amount) at 12 1/2 % interest per annum;

b) Note dated 1/29/86 ($6,250 princi-

pal amount) at 12 1/2 % interest pre annum;

c) Note date 7/16/87 ($25,000 princi-

pal amount) at 12% interest per annum;

d) Note dated 9/3/87 ($25,000 princi-

pal amount) at 12% interest per annum;

e) Note dated 3/24/88 ($55,000 princi-

pal amount) at 12% interest per annum.

8. That on or about August 25, 1988,

Defendant Robert Soltow caused to be pre-

pared the following:

a) an amended promissory note, alleged-

ly combining the principal and interest due

on the note of July 7, 1986 for $350,000

and the principal and interest due on the

notes set forth in paragraph 7, supra. The

total amount set forth in the amended note

was in the amount of $610,446.14.

b) a mortgage modification agreement

securing a larger principal sum.

c) an escrow holding agreement.

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d) a declaration of storm drain easement

over adjoining lands for the benefit of the

property described in the mortgage and war-

ranty deed at issue herein.

e) the warranty deed (attached hereto as

Exhibit "A"™).

9. In order to induce Plaintiffs to

execute the documents set forth in paragraph

8 a- e, Defendants made the following repre-

sentations to Plaintiffs:

a) On August 12, 1998, Defendants noti-

fied Plaintiffs that Plaintiffs were in

default on the $350,000 note to Defendant

Soltow and under mortgage foreclosure Plain-

tiffs’ redemption period would have expired

the end of December, 1988; therefore, Plain-

tiffs would benefit from signing said docu-

ments;

b) That the public or people that Plain-

tiffs were dealing with on selling or develop-

ing the property would not have any notice

of the dealings between Plaintiffs and Defen-

A189

dants, other than the mortgage from Plain-

tiffs to Defendant Robert Soltow which would

be recorded;

c) Defendant represented to Plaintiffs

that he just wanted his money repaid and

there were verbal agreements that Plaintiff,

Richard Fishell, would be allowed to treat

the property as his own and to sell same

without any hinderance from Defendant even

after the February 15, 1989 date set forth

in the escrow holding agreement.

10. Relying upon those representations,

Plaintiffs signed the documents on August

25, 1988, with the understanding said docu-

ments were security on the monies owed by

Plaintiffs to Defendant Robert Soltow.

ll. The representations made by Defen-

dants, as set forth in paragraph 9 a-c

were false.

12. That Plaintiffs relied upon said

representations in signing the documents

on August 25, 1988.

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13. That Plaintiffs were deceived by

said representations to their detriment in

that:

a) Plaintiffs believed that they were

gaining additional time to sell and/or

develop said property;

b) Plaintiffs believed Defendants

would do nothing to hinder Plaintiffs'

efforts;

c) Plaintiffs believed that Plaintiffs

would be able to continue their efforts

without hinderance even after February 15,

1989;

d) Plaintiffs believed Defendants were

just taking the deed in escrow as security

for the indebtedness;

14. That Plaintiffs were in privity with

Defendants in the transactions of August

25, 1988.

15. Purther, that the foregoing repre-

sentations made by Defendants were false

and known to be false when made.

A191

16. Defendants did not intend, at the

time of making the representations, and

do not now intend to perform as agreed,

as evidenced by:

a) The Defendant and his agent, from

and after 25 August 1988, represented to

others dealing with the property, includ-

ing local government officials, that Plain-

tiffs need no longer be dealt with respect-

ing same;

b) Defendants could not have foreclosed

on the mortgage and had the redemption

period expire by December 31, 1998;

c) Defendants caused to be filed on Febru-

ary 7, 1989, an affidavit prepared and

signed by Douglas Austin advising the world

that by February 15, 1989, Plaintiffs would

have no interest in said property;

d) Attempting in April and May of 1989

to have Plaintiffs sign off on any verbal

rights that Plaintiffs had to sell and/or

develop said property;

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e) Defendants took the position, in

April and May of 1989, that they owned the

property and did not wish to merely be

repaid the indebtedness.

17. That contrary to the agreement and

understanding of the parties, the afore-

said deed was recorded upon the public

records of Eaton County, Michigan on

March 15, 1989, and claimed to have vested

absolute fee ownership in Defendant, Robert

Soltow, at that time.

18. That the Defendant, Robert Soltow,

asserts fee ownership of the property and

has refused Plaintiffs' demands to either

cancel the deed or reconvey.

19. That if the Defendants are allowed to

assert title to said property, Plaintiffs

will suffer losses which would result in

unmerited benefits to Defendants due to

said representations by Defendants in that

Pl iuntiffs property was worth in excess of

$1,200,000 and Defendant only had a mort-

A193

P)

gage on said property for $350,000. Due

to the documents signed on August 25,

1988, Defendants are claiming ownership

of said property which results in an un-

earned benefit of excess of $850,000.

20. Plaintiffs were led to believe by

Defendants or their agents that attorney

Douglas Austin, a duly licensed attorney

(who prepared all documents relevant herein,

including the affidavit of 7 February 1989

and the warranty deed at issue, had repre-

sented Plaintiffs over a prolonged period

in matters related to the real property),

had a confidential or fiduciary relation-

ship with Plaintiffs throughout the course

of the foregoing events and circumstances.

21. The Plaintiffs’ interests, contrary

to their belief throughout, were not served

either by said attorney or by the documents

described herein but were, in fact, frus-

trated.

22. That, as a result of the foregoing,

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Plaintiffs were misled as to all material

matters concerning the Property and their

rights therein and have relied to their

detriment upon the conduct and represen-

tations of the Defendant and attorney

Austin.

23. That, by reason of the foregoing

and by reason of the recording of the

warranty deed described in Paragraph #2

above, Plaintiffs: have no effective means

of protecting their interests in the pro-

perty and the Defendant appears now to

possess the present ability to transfer

or otherwise encumber same.

24. The sole consideration running to

Plaintiffs was the agreement of Defendant

to allow Plaintiffs to effect a favorable

disposition of the Property without being

hindered in that effort by Defendant

through foreclosure or public notice,

either by recording or otherwise.

25. That the Purpose anc intent of the

A195

above agreement was to assure Plaintiffs

continued ability to market the property

and otherwise fully protect their interests

therein and, as a specific inducement to

Plaintiffs for the execution of the docu-

ments of 25 August 1988, the Defendant

had represented and agreed to do nothing

to frustrate Plaintiffs’ rights.

26. That contary to the foregoing agree-

ment, the Defendant recorded, without

cause, notice or necessity, the affidavit

of his agent regarding the state of Plain-

tiffs' interest in the property and the

impending forfeiture to the Defendant.

As a direct result thereof, Plaintiff

could not pursue prospective purchasers

who had shown an interest in the pro-

perty; or pursue others that may be

interested in the property. A copy of

the agent's affidavit, recorded 7 Febru-

ary 1989, is attached hereto as Exhibit"c”.

27. That due to the foregoing the

A196

Plaintiffs were deprived of the benefit

of their agreement of 25 August 1988 and

that agreement has entirely failed of its

consideration.

28. That the interest charged by Defen-

dant to Plaintiff on the six notes set

forth in paragraphs 6 and 7, supra, were

at illegal rates and were usurious.

29. That in combining the six notes

into one note by adding together the prin-

cipal due and the usurious interest a new

usurious note in the amount of $610,446.14

was created.

30. That the amounts claimed tobe owed

on said note of August 25, 1988, by Defen-

dant, from time to time to pay off said

indebtedness and have the warranty deed

and other documents of August 25, 1988

nullified, included usurious interest

demands.

31. That, even if the figure of

$610,446.14 had been a correct amount,

A197

it was inadequate consideration to allow

a transfer of the property in question

from Plaintiffs to Defendant, because

the property was worth in excess of one

million two hundred thousand ($1,200,000)

dollars.

32. That, as a result, Plaintiffs

suffer from immediate and irreparable harm

for which there is no adequate remedy at

law.

33. That Plaintiffs have offered to do

equity and have requested Defendant do the

same, however Defendant has refused.

34. That the execution and delivery of

the aforesaid documents executed by Plain-

tiffs on the 25th day of August, 1988,

were without lawful consideration as no

legal benefit flowed to Plaintiffs and

no legal detriment flowed to Defendants

as a result of such execution and delivery.

35. That, as a result, no enforceable

transaction was consumated between the

A198

parties and same is therefore void.

WHEREFORE, the Plaintiffs demand that

1. The defendant be immediately enjoined

and restrained from conveying or eneutnes--

ing the real property described in the

documents at issue herein;

2. The warranty deed described in para-

graph #2 above and attendant documents be

cancelled of record;

3. Cancel all interest because same was

usurious, Determine Plaintiffs' indebted-

ness on the mortgage to be $350,000, less

whatever damages this Court may assess

against Defendants under Count IV of this

complaint.

4. The Court grant such othe relief as

is appropriate.

COUNT ifr

36. That this is an action for the impo-

sition of a constructive trust upon real

property located in Eaton County, Michigan

and for other relief.

A199

37. Plaintiffs reallege paragraphs 2-35

of Count I.

38. That, in accordance with the above

agreement of the parties, the deed from

Plaintiffs to Defendant, Robert Soltow,

was intended to operate merely as security

for the indebtedness and not as an abso-

lute conveyance of Plaintiffs’ interest

in the property.

39. That Plaintiffs have not, at any

time, relinquished any right in the pro-

perty, whether it be the right to pos-

session, redemption or reconveyance and

Plaintiffs have not, at any time, recog-

nized the Defendant, Robert Soltow, as

owner of the property.

40. That the entire agreement of the

parties, as aforesaid, has never been

memorialized in writing contrary to the

agreement and expectation of the parties.

41. That Plaintiffs had, and still have,

substantial equity in the property and

A200

have never relinquished or transferred

same.

42. That, since the recording of the

deed on 16 March 1989, the Defendant has

made unauthorized entry upon the property

and purports to have the lawful right to

convey, improve or occupy the property

as his own, toon of which Plaintiffs

have objected.

43. That, the foregoing, whether the

product of fraud or mistake, has deprived

Plaintiffs of their rights in the pro-

perty and has unjustly enriched the Defen-

dant Robert Soltow.

WHEREFORE, Plaintiffs pray the Court:

1. To declare Plaintiffs' right in the

premises.

2. To declare that the Defendant holds

Same as trustee for Plaintiffs.

3. That the deed be construed as a mort-

gage.

4. That the court direct the Defendant,

A201

Robert Soltow, to reconvey to Plaintiffs or

in the alternative that the court enter

such judgment as will operate as the recon-

veyance.

5. That the court determine the amount

owed on said mortgage is $350,000.

6. That the court grant such other

relief as is appropriate.

COUNT III

44. That this is an action for a declara-

tory judgment.

45. That Plaintiffs reallege paragraphs

2-35 of count

46. That the execution and delivery of

the documents described herein had the

effect, and were intended by the parties

at the time to have the effect, of creat-

ing additional security for Defendant,

Robert Soltow, and were made and given,

and agreed to be made and given, and

accepted for no other or further purpose.

A202

47. That contrary to the intent and

agreement of the parties, the documents

now of record and writings attendant

thereto, without more, may tend to esta-

blish the deed, Exhibit A, as an abso-

lute conveyance of Plaintiffs’ interest

and the Defendant, Robert Soltow, now

appears to so assert.

ae That Plaintiffs allege that said

deed was intended to be treated and

should be treated and held to be in the

nature of a mortgage and not an absolute

conveyance of Plaintiffs' interest.

49. That Plaintiffs are in doubt as

to their rights in the property described

in the deed and Plaintiffs’ position in

this regard is presently controverted

by the Defendant, Robert Soltow, since

Defendant appears to assert ownership

of the fee without condition.

50. That the following facts would

support Plaintiffs’ contention as to

A203

the intent and effect of the above des-

cribed documents of the 25th day of

August 1988:

A. The Plaintiffs believed, and :

were led to believe by Defendant,

Robert Soltow, and attorney Douglas

J. Austin, that no acts or neglect on

the part of the Defendant, Robert Sol-

tow would interfere with or hinder

Plaintiffs in their continued efforts

to market the property; however same was

untrue as the Defendant, Robert Soltow,

by his apparent agent, has by specific

act(s) impaired Plaintiffs’ ability by,

among other things, recording the affi-

davit of 7th day of February 1989 upon

the public records.

B. The Plaintiffs believed, and were

led to believe by the Defendant, Robert

Soltow, and attorney, Douglas J. Austin,

that Plaintiffs retained the right to

redeem the property following the event

A204

of any recording of the deed, however,

same was untrue as Defendant, Robert Sol-

tow, now asserts in this context that he

is the owner of the property and that the

mortgage debt has been extinguished and

the Plaintiffs have no subsisting rights

with respect to the property.

C. That although Defendant, Robert

Soltow, asserts absolute ownership and ex-

tinguishment of the debt, the mortgage

has not been discharged nor has the note

or amended note been cancelled or returned

to Plaintiffs and some remain in Defendant

Robert Soltow's possession.

CD. There was no consideration for the

execution of the documents of 25th day of

August 1988, including the deed, and the

result of the execution of same has been

to deprive Plaintiffs of the protection

accorded by the prior mortgage, while

those same documents of 25th day of

August 1988, granted to the Defendant,

A205

} es Brae ee A ee eS

;

:

Robert Soltow, the advantage of a greater

secured debt, and earlier mortgage due

date, and rights in adjacent property,

not available under the original mortgage.

E. That, as all parties well knew, the

Defendant, Robert Soltow, had made an

attempt, prior to 25th day of August 1988,

to purchase the subject property from

Plaintiffs and had been denied, and the

Defendant, Robert Soltow, well knew of its

fair market value, and that the fair mar-

ket value greatly exceeded the sums due

under the mortgage and amended mortgage.

F. That the Defendant, Robert Soltow,

and attorney, Douglas J. Austin, had made,

on the 25th day of August 1988, an there-

after, verbal assurances to Plaintiffs

that the Defendant, Robert Soltow, no

longer desired to own the property, that

Defendant, Robert Soltow, could not obtain

title without observing Plaintiffs’ redemp-

tion rights, that such rights were pre-

A206

served, that no interference with Plain-

tiffs’ efforts to market the property

would be committed by Defendant, Robert

Soltow, that Defendant, Robert Soltow,

would cooperate whenever Plaintiffs could

arrange any sale or conveyance and that

no further written agreements, other than

as set forth in the documents of the 25th

day of August 1988 were necessary for any-

one’s protection.

G. That Defendant, Robert Soltow, knew

on the 25th day of August 1988, and at al]

times thereafter, that Plaintiffs had no

intention to execute an absolute convey-

ance of the property, and that Plaintiffs

did not believe, at any time, that they

had done so, but Plaintiffs merely sought

and intended some refinancing arrangement.

H. That attorney Douglas J. Austin had

prepared all of the documents of the 25th

day of August 1988, the exact form, con-

tent and extent of which had not been

A207

requested by Plaintiffs.

I. That attorney Douglas J. Austin super-

vised the execution of the documents of

the 25th day of August 1988 and site thee

only attorney present or participating in

same.

J. That the Defendant, Robert Soltow,

and attorney Douglas J. Austin, well knew

at the time of the execution of the docu-

ments on the 25th day of August 1988,

that Plaintiffs believed that attorney

Douglas J. Austin was acting as Plain- )

tiffs’ attorney, that their rights in the

property were being protected and obser-

ea a ae a a hee ee

ved by those documents, and by his con-

duct, yet the attorney, Douglas J. Austin

did not, at that time, or at any time

indicate or suggest to Plaintiffs that

other counsel should be obtained by them.

51. That Plaintiffs assert that the

documents operated only as further secu-

rity for Defendant, Robert Soltow, and

A208

that their right of redemption exists.

52. That the Defendant, Robert Soltow,

apparently asserts that the conveyance

was absolute and that Plaintiffs’ rights

in the property have terminated.

53. That the entire transaction is

without consideration and if sustained,

will result only in the unjust enrich-

ment of the Defendant, Robert Soltow,

at Plaintiffs’ expense.

54. That as a result of the foregoing

scheme or design, effectuated through

misrepresentation, Plaintiffs have been

damaged and suffer a forfeiture in the

absence of the relief herein requested.

55. That Plaintiffs have offered, and

hereby offer, to do equity.

WHEREFORE, Plaintiffs pray the Court:

a) to declare the rights of the parties

under the above transaction;

b) that the deed be declared and held to

be a mortgage;

A209

c) that the amount due and owing on the

note and mortgage be §350,000;

d) that Plaintiffs be permitted to have

six months before the said note and shane

are due;

e) if it becomes necessary for Defendant

to foreclose on said note and mortgage

that Plaintiff be permitted to redeem

according to law;

f) that the court grant Plaintiffs what-

ever additional relief equity demands.

COUNT IV

56. Plaintiffs reallege paragraphs 2-

PO Py a Oe a ee ee ee POL Oe oa oe

35 of Count I.

57. That the transaction of August 25,

1988, from Plaintiffs to Defendants was in

violation of Section 4 and/or Section 5 of

Michigan Public Acts of 1919, No 310, as '

amended, (MCL 566.14 and MCL 566.15) in

that said Plaintiffs were insolvent or

became insolvent due to said transaction

A210

and the transaction was made without fair

consideration; and/or the transaction,

which was without fair consideration, was

at a time when the Plaintiffs were engaged

in the business of selling and/or develop-

ing real estate and said transaction left

Plaintiffs with an unreasonably smal]

capital.

58. That the transaction or transfer of

August 25, 1988, is voidable and must be

set aside.

WHEREFORE, Plaintiffs pray the Court:

1. Declare the transfer to be null and

void;

2. Order the return of the Property to

Plaintiffs, subject to a mortgage to Defen-

dants in the amount of $350,000;

3. Grant such other relief as is just

and proper.

COUNT V

53. That this is an action for damages

which exceed $10,000.

A211

60. Plaintiffs reallege paragraphs 2-35

of Count I, paragraphs 38-43 of Count II

and paragraphs 46-50 of Count III.

61. That on or about the 7th day of

February 1989 and prior thereto Plaintiffs

were negotiating with various prospective

purchasers for the sale of all or various

portions of Plaintiffs above described pro-

perty, all of which was well known to the

Defendant, Robert foltow, and his agent at

the time.

62. That on or about the 7th day of

February 1989, and prior thereto, the Defen-

dant, Robert Soltow, and his agent, published

and declared to others, including Plain-

tiffs’ prospective purchasers, that Plain-

tiffs title was impaired, that they had no

right to convey or that the title was

otherwise defective.

63. That the aforesaid publications

were communicated to others, including

various prospective purchasers, and after

A212

7th of February 1989 to the public gener-

ally, all of whom understood the publica-

tions to mean that Plaintiffs did not own

or could not convey title to the property.

64. That Plaintiffs were unable to pur-

sue prospective purchasers after learning

of the recordation of the affidavit of

February 7, 1989.

65. That the above statements and pub-

lications made by Defendant, Robert Soltow,

and his agent, were false when made, known

by Defendant and his agent to have been

false when made and were specifically made

for the purpose of preventing Plaintiffs

from entering an agreement to convey to

the then existing Prospective purchasers

for the further purpose of preventing,

after 7 February 1989, Plaintiffs from

entering an agreement with any and all

Prospective purchasers.

66. That Plaintiffs have been unable to

secure any other prospective purchasers

A213

UMN i

for the property or any part thereof, and

such inability is solely attributable to

the wrongful conduct of the Defendant and

his agent.

67. The aforesaid conduct on the part of

the Defendant, Robert Soltow, and his agent,

was purposeful, willful and intentional,

and done specifically for the purpose of

defeating Plaintiffs" lawful rights and

constitutes a continuing invasion of their

rights sufficiently outrageous to support

an award of punitive damages.

68. That at the time of the aforesaid

wrongful conduct of the Defendant's emplo-

yee or agent, such employee or agent was

acting within the course and scope of his

employment or agency duties or, in the

alternative, was acting within the course

and scope of his apparent authority, or

in the alternative, was acting only in

accordance with the specific authority or

approval of the Defendant, given in ad-

A214

vance, or in the alternative, such con-

duct of the Defendant's employee or agent

was subsequently ratified by Defendant,

any or all of which is sufficient for

liability to be imputed to the Defendant,

Robert Soltow.

WHEREFORE, Plaintiffs demand judgment

against the Defendant Robert Soltow for

compensatory and punitive damages, al]

costs hereof and such other relief as is

appropriate.

/s/

Richard L. Fishell,

Plaintiff

Subscribed and sworn to before me this

22d day of February 1991.

/s/

Susan J. Oberlin,

Notary Public

Ingham County

My Commission Expires:

6/15/92

LESTER N. TURNER P.C.

By /s/

Lester N. Turner (P21632)

Attorney for Plaintiffs

Business Address

4970 Northwind Drive

Suite 200

East Lansing, MI 48823

Telephone No (517)332-790

(Omitted: Exhibit A Warranty Deed

Fishells to Soltow, 8/25/88

Exhibit B Warranty Deed

Wight to Fishell, 7/8/86

Exhibit C Affidavit of

Attorney Douglas Austin)

A216

11 USC 502 Allowance of claims or interests

(a) A claim or interest, proof of which is

filed under section 501 of this title, is

deemed allowed, unless a party in interest,

including a creditor of a general partner in

a partnership that is a debtor in a case under

chapter 7 of this title, objects.

(b) Except as provided in subsections (e)(2)

(f), (9g), (h) and (i) of this section, if such

objection to a claim is made, the court, after

notice and a hearing, shall determine the

amount of such claim inlawful currency of the

United States as of the date of the filing of

the petition, and shall allow such claim in

such amount, except to the extent that-

(1) such claim is unenforceable against

the debtor and Property of the debtor, under

any agreement or applicable law for a reason

other than because such claim is contingent

Or unmatured;

(2) such claim is for unmatured interest:

(3) if such claim is for a tax assessed

A217

against property of the estate, such claim

exceeds the value of the interest of the

estate in such property;

(4) if such claim is for services of an

insider or attorney of the debtor, such

claim exceeds the reasonable value of such

services;

(5) such claim is for a debt that is un-

matured on the date of the filing of the

petition and that is excepted from discharge

under section 523(a)(5) of this title;

(6) if such claim is the claim of a

lessor for damages resulting from the

termination of a lease of real property,

such claim exceeds-

(A) the rent reserved by such lease,

without acceleration, for the greater of

one year, or 15 percent, not to exceed

three years, of the remaining term of such

lease, following the earlier of-

(i) the date of the filing of the

petition; and

A218

(ii) the date on which such lessor

repossessed, or the lessee surrendered, the

leased property; plus

(B) any unpaid rent due under such

lease, without acceleration, on the earlier

of such dates;

(7) if such claim is the Claim of an em-

ployee for damages resulting from the termi-

nation of an employment contract, such claim

exceeds-

(A) the compensation Provided by such

contract, without acceleration, for one year

following the earlier of-

(i) the date of the filing of the

petition: or

(ii) the date on which the employer

directed the employee to terminate, or such

employee terminated, performance under such

contract; plus

(B) any unpaid compensation due under

such contract, without acceleration, on the

earlier of such dates; or

A219

(8) such claim results from a reduction, due

to late payment, in the amount of an otherwise

applicable credit available to the debtor in

connection with an employment tax on wages,

salaries, or commissions earned from the

debtor.

28 USC 158 Appeals

(a) The District Courts of the United States

shall have jurisdiction to hear appeals from

final judgments, orders and decrees, and, with

leave of the court, from interlocutory orders

and decrees, of bankruptcy judges entered in

cases and proceedings referred to the bankruptcy

judges under section 157 of this title. An

appeal under this subsection shall be taken only

to the district court for the judicial district

in which the bankruptcy judge is serving.

(d) The courts of appeals shall have juris-

diction of appeals from all final decisions,

judgments, orders and decrees entered under

subsections (a) and (b) of this section.

A220

28 USC 1254 Courts of appeals; certiorari;

certified questions

Cases in the courts of appeals may be re-

viewed by the Supreme Court by the following

methods:

(1) By writ of certiorari granted upon the

petition of any Party to any civil or crimina]

case, before or after rendition of judgment or

decree;

Rule 3007 Objections to Claims

An objection to the allowance of a claim

shall be in writing and filed. A copy of the

objection with notice of the hearing thereon

shall be mailed or otherwise delivered to the

claimant, the debtor or debtor in possession

and the trustee at least 30 days prior to the

hearing. If an objection to a claim is joined

with a demand for relief of the kind specified

in Rule 7001, it becomes an adversary proceeding

Rule 9019 Compromise and Arbitration

(a) Compromise. On motion by the trustee

and after notice and a hearing, the court may

approve a compromise or settlement. Notice

shall be given to creditors, the United States

trustee, the debtor, and indenture trustees as

provided in Rule 2002 and to any other entity

as the court may direct.

Rule 9023 New Trials; Amendment of Judgments

Rule 59 F R Civ P applies in cases under

the Code, except as provided in Rule 3008.

A222

[NOTICE LIS PENDENS ]

[Sec]27A.2701 Lis Pendens as constructive

notice; filing; contents; recording, evidence. ]

Sec. 2701. (1) To render the filing of a com-

plaint constructive notice to a purchaser of

any real estate, the Plaintiff shall file for

record, with the register of deeds of the

county in which the lands to be affected by

such constructive notice are Situated, a notice

of the pendency of such action, setting forth

the title of the cause, and tiie genera] object

thereof, together with a description of the

lands to be affected thereby.

(2) Such a notice may be filed with the

complaint before the Service of the summons;

but, in that case, personal or substituted

service of the smmons must be made upon a

defendant, within 60 days after the filing,

Or else, before the expiration of the same

time, publication must be commenced, or

*srvice thereof must be made without the

State, as prescribed by law. If the defen-

A223

dant dies within 60 days after the filing

of the notice and before commencement or

completion of service of the summons, the

summons may be served upon the person ‘eileen

stituted for the defendant within 60 days

after such substitution.

(3) The register of deeds shall record

such notice, in a book kept for that purpose,

upon the payment of the fee as is provided

by law. A copy of such record, authenticated

by the register of deeds, is evidence of

such notice, and the recording of the same,

in all courts and places. (MCL 600.2701)

Sec 27A.2711 Same; notice by defendant. ]

Sec. 2711. Where a defendant sets up in his

answer a counterclaim, upon which he demands

an affirmative judgment affecting the title

to, or the possession, use or enjoyment of

real property, he may file for record a like

notice at the time of filing his answer or

at any time afterwards before final judgment.

For these purposes, the defendant filing

A224

such a notice is regarded as a plaintiff and

the plaintiff is regarded as a defendant.

(MCL 600.2711).

Sec 27A.2715 Duration of notice; extension]

Sec. 2715. (1) A notice of pendency hereafter

filed for record shall be effective as notice

for a period of 3 years from the date of

filing. Before the expiration of the period,

the court upon application of the plaintiff

and upon such notice as may be directed or

approved by the court, and for good cause

shown, may from time to time grant additiona]

Orders each extending the period of duration

of the notice of pendency for a period of

not more than 3 years. If extended, a copy

of the notice stating the date of filing of

the immediately Preceding notice, and stamped

or marked "extended", shall be filed for

record, recorded and indexed prior to the

expiration of the notice of pendency then

in force in the manner prescribed in this

Chapter.

MR

(2) A notice of pendency heretofore filed

shall be effective for a period of 3 years

from the effective date of this act, and

shall be subject to extension as herein pre-

scribed. (MCL 600.2715)

Sec 27A.2721 Index] Sec. 2721. Each

register of deeds shall enter in an index

to be kept in his office, such references

to the said notices, as will enable all

persons interested to search his office

for such notices without inconvenience.

(MCL 600.2721).

Sec 27A.2725 Cancellation of notice;

liability of plaintiff for costs and ex- :

penses.] Sec. 2725 (1) If a plaintiff

filing the notice before the service of a

summons fails to serve the same within the

time prescribed in this chapter, or after

the action is settled, discontinued or

abated, or final judgment is rendered there-

in against the party filing the notice, and

the time to appeal therefrom has expired,

A226

the court, upon the application of any

person aggrieved and upon such notice as

may be directed or approved by it, shall

direct that a notice of the pendency of an

action be cancelled of record by a parti-

cular register of deeds, or by all the

registers of deeds, with whom it is filed.

(2) If a plaintiff filing the notice

unreasonably neglects to proceed in the

action, or does not commence or prosecute

the action in good faith, the court, in its

discretion, upon the application of any

person aggrieved and upon such notice as

may be directed or approved by it, may

direct that a notice of pendency of an

action be cancelled of record by a parti-

cular register of deeds, or by all the

registers of deeds, with whom it is filed.

(3) The cancellation shall be made by a

note to that effect, on the margin of the

record, referring to the order. A certified

copy of the order shall be filed for record

with the register of deeds before the notice

is cancelled.

(4) The court, in its discretion, upon

directing cancellation of the notice upon

termination of the action, or during the pen-

dency thereof if satisfied that the plaintiff

who filed the notice unreasonably neglected

to proceed in the action or did not commence

or prosecute the same in good faith, may

direct the plaintiff to pay all or any of

the costs and expenses occasioned by filing

the notice and the cancellation of the record,

aside from the costs of the action itself.

(MCL 600.2725)

Sec 27A.2731 Same; by bond; security if

not cancelled; recovery on bond.] Sec. 2731.

(1) In any pending or future action, other

than an action to foreclose a mortgage or

ELE NS eee ene ame ee See oe EN ES ee ee ae ae ee ——

for the partition of real property or for

dower, in which a notice of the pendency

thereof has been filed and in which it appears

to the court that adequate relief can be

A228

secured to the party who filed the same by

the giving of a bond, where the cancellation

of such notice is not otherwise expressly

provided for or regulated, any person having

an interest in the property affected by the

action may apply for the cancellation. thereof

upon notice to all the parties to the action

and to such other persons as the court may

direct.

(2) The court in which the action is pen-

ding may make an order for the bond upon

such terms as to costs or otherwise as may

seem just. The discretion vested in the

court by this section may be exercised in

any such action, notwithstanding the same

may have been brought to recover a judgment

affecting the title to, or the possession,

use or enjoyment, of specific real property.

(3) Upon an application as provided in

subdivision (1) for cancellation of the

notice of pendency, made in any pending or

future action for specific performance of

A229

a contract to convey real property, whether

or not the court determines that adequate

relief can be secured to the party filing

the notice of pendency by the giving of a

bond, the court may order that the notice

be cancelled, upon the giving of a bond by

the applicant upon terms fixed in the order,

as provided in subdivision (2), unless the

person filing the notice of pendency gives

a bond, upon terms to be fixed by the order.

(4) The bond shall be in an amount which

the court, upon consideration of the affi-

davits submitted upon the application, deems

sufficient to indemnify the applicant for

the damages he may incur if the notice of

pendency is not cancelled.

(5) The order shall provide that upon

failure of the person filing the notice of

pendency to give a bond in accordance with

the order, the notice of pendency shall be

cancelled upon the giving of a bond by the

applicant, as provided herein.

A230

(6) Where the person who filed the notice

of pendency has given a bond as provided in

the order, recovery may be had upon the bond

without further leave of the court, upon the

discontinuance or abatement of the action,

or the cancellation of the notice of pendency

because of the neglect of such person to

proceed in the action, or upon final judgment

against him. The recovery may be obtained

by a separate civil] action, or by motion

in the action as to which the notice was

filed. (MCL 600.2731)

Sec 27A.2735 Federal courts: application

of chapter.] Sec. 2735 (1) This chapter

applies to suits affecting title to real

property in the federal courts.

(2) The register of deeds shall file and

index notices of the pendency of actions in

the federal courts as prescribed herein.

(3) If a suit is removed to a federal

court, or remanded to a state court, no

additional notice need be filed: the notice

filed in the action prior to removal or

remand remains in effect. (MCL 600.2735)

ee Ty ane

A232

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

94-1109

IN RE

Richard L. Fishell and

Dorothy M. Fishel]

Debtors

Richard L. Fishell and

Dorothy M. Fishel]

Plaintiffs/Appellants

vs

Robert Soltow and

Rosalee Soltow

Defendants/Appellees

PETITION FOR REHEARING

AND SUGGESTION FOR REHEARING IN BANC

Roger L. Fishe]]

1900 Main St #210

Sarasota, Florida 34236

(813) 365-1930

Attorney for Petitioners

A233

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

94-1109

IN RE

Richard L. Fishell and

Dorothy M. Fishell

Debtors

Richard L. Fishell and

Dorothy M. Fishell

Plaintiffs/Appellants

vs

Robert Soltow and

Rosalee Soltow

Defendants/Appel lees

PETITION FOR REHEARING

AND SUGGESTION FOR REHEARING IN BANC

REQUIRED STATEMENTS FOR REHEARING

IN BANC

I express a belief, based on a reasoned

and studied professional judgment, that the

A234

I i

panel decision is contrary to the following

decision(s) of the United States Court of

Appeals for the Sixth Circuit or the Sup-

reme Court of the United States and that

consideration by the full Court is neces-

Sary to secure and maintain uniformity of

decisions:

Protective Committee for Independent

Stockholders of TMT Trailer Ferry, Inc.

v Anderson, 390 US 414, 88 S Ct 1157, 20

L Ed 2d 1 (1968) reh den 391 US 909, 88

S Ct 1649, 20 L Ed 2d 425 (1968).

And further,

I express a belief, based on reasoned

and studied professional judgment, that

this appeal involves one or more questions

of exceptional importance:

1. The above Supreme Court case was

cited by the parties to this appeal and by

this Court in the panel opinion and its

proper interpretation is signficant because

in the words of the above cited Supreme

Court decision, "We granted certiorari,

(cite omitted), because this case presents

A235

ee

important questions under the bankruptcy

laws." 390 US at 418.

2. Whether the panel decision in this

case announces a departure from prior pre-

cedent concerning the evidentiary standards

or burdens placed upon compromise propo-

nents in compromise proceedings in bank-

ruptcy court under Rule 9019 of the Bank-

ruptcy Rules.

3. Whether the panel decision in this

case announces a departure from prior pre-

cedent concerning the adequacy of the com-

promise hearing record which must be made

before the bankruptcy court so that an

appellate court may determine whether the

bankruptcy court has rendered "an informed

and independent judgment™ on the propriety

of a compromise which that court approves.

4. Whether the panel decision properly ,

determined that the Debtors lacked stand- |

ing to appeal an order of the bankruptcy 7

court, rendered pursuant to Rule 9019,

A236

entered over the Debtors" objection,

where no 6th Circuit authority is cited

in support of the panel decision and the

panel decision conflicts with the dactaion

of the lst Circuit, cited by the panel as

authority, and conflicts with 7th circuit

authority more directly and factually

relevant.

5. Whether Debtors in cases, such as

this,one, which are not "no-asset" cases

may be denied standing to appeal an order

rendered pursuant to Rule 9019, entered

over their objection where such order,

both, forecloses the Debtors from possible

recovery of property through an adversary

Proceeding and concurrently forecloses

consideration of the Debtors objection,

filed pursuant to Rule 3007, to a Proof

of Claim filed against their bankruptcy

estate.

6. Whether the panel decision results

in the creation of a conflict between the

A237

law of this circuit and the law of the 7th

and 9th circuits as well as that set forth

by the United States Supreme Court.

__/3/

Roger L. Fishell

Attorney for Petitioners

PETITION FOR REHEARING

Pursuant to Rule 40, Fed R App Pro, and

Sixth Circuit Rule 14, the appellants move

the court to grant rehearing or reconsider-

ation of the decision entered in the above

cause on 16 February 1995 and in support

of this motion submit the following.

THE FACTS

Appellants respectfully submit that the

court may have overlooked or misapprehended

the following matters of a factual nature.

The opinion contains factual errors which

may well bear upon the ruling of the Court.

These are set forth below.

1. The opinion states at p. 1 that

"Fishells used the money to purchase a

certain parcel of real estate and gave the

A238

Soltows promissory note and a mortgage on

the property.”

Fishells had purchased the property

prior to the time that any loan to them

was made by Soltow. See Appellants’ Brief,

p. 8, fn 23 & 24, [R1(14)][R1(G)}.

2. The opinion further states at p. 2?

that, as regards the amended agreement of

25 August 1988, “the Soltows agreed not to

start foreclosure proceedings and extended

the time for repayment of the loan."

This is misleading because there was no

extension of time provided, in practical

effect, since the cut off date provided

for in the amended agreement, to-wit, 15

February 1989, was less than six (6) months

from the date of that amended agreement,

to-wit, 25 August 1988. The deed in lieu

of foreclosure aspect of the amended agree-

ment of 25 August 1988 effectively cut off

Fishells redemption rights (without speci-

fically saying so). As a result, Fishells

A239

rights in the property were terminated

more fully at an earlier point than would

have been the case under the original

mortgage. See Appellants’ Brief, p. 10,

fs 32, pw. 12. 4m 434. 3<- 3h’ ae Ue See)

(14)]. These issues were relevant to the

allegations of fraud and lack of considera-

tion raised by Fishells as grounds for

setting aside the deed to Soltow. (R(6)).

3. The panel opinion concludes at p. 2

that the Fishells had defaulted under the

Original mortgage, and Soltow did so allege,

however, no court ruling ever concluded

this to be so and the Debtors contended

that no default had occurred because, under

the interest-only repayment provisions,

the admitted presence of usury rendered

no such interest due. See (R1(11)(14),

Appellants’ Brief, 9-11, & 12, fns 27-38

& 44, [Tr 7/10/92, p. 21-22]

4. The panel opinion also concludes

at p. 6 that the bankruptcy court had the

A240

a rrner =" ea ner os

record of the state court proceedings in

the case, however the state court never

ruled on the merits of the case as the

state court only determined that the Fra-

ser firm, as attorneys for Soltow, need

not be disqualified as his counsel] in that

case. See (R1(5))(Bankruptcy docket sheet

entries, #4-6), see also Appellee Soltow's

Brief, p. 6.

5. The record before the bankruptcy

court (the bankruptcy judge did not con-

clude that the Debtors lacked standing to

object to the compromise) and the District

Court contained the Debtors' asset and lia-

bility information, contrary to the opinion

of the District Court. See p. 4 of the 16

February 1995 opinion. This information was

provided in the Debtors schedules, in argu-

ment at the compromise hearing, in the exhi-

bits to submissions filed by Soltow in the

bankruptcy court and in District Court.

This information was included in the appea]

A241

ee

record in this court and was supplied in

the Joint Appendix filed with this court.

As such the record consistently reflected

that the Debtors’ assets significantly ex-

ceeded their liabilities at the commence-

ment of the bankruptcy proceedings. See

Appellants’ Brief, p. 35, fn 82, p. 40,

fn 91, p. 42, #n 93, [B1(8)(11)(14)]

[R1(P)(Q)], [Tr 7/10/92, p. 20-29].

6. The opinion at p. 7 addresses the

merits of the adversary proceeding. As to

the issue of fraud, lack of consideration

and equitable mortgage, the loss of Fis-

hells‘ redemption rights through the 1988

agreement is highly relevant. See Appel-

lants’ Brief, p12, fn 43 & p. 25, 71.

As to the issue of costs of litigation,

the validity of the usury claim is relevant

because its effect could deny Soltow both

interest and attorneys fees incurred rela-

tive to enforcement of the amended mort-

gage. See Appellants' Brief, p.12, fn 44,

A242

[R1(11)(14)]. This is doubly relevant

because of the substantial divergence of

debt to equity, i.e. approximately $450,000

as the principal amount of the debt, vs.

$1.38 million, as the appraised property

value. See Appellants’ Brief, p. 9, fn 25,

p. 10, fns 30-32 and p. 11, [R1(11)(14)].

The absence of merit to the Soltow slander

of title claim reduced any potential for

loss to the estate through litigation. See

Appellants’ Brief, p. 9, fn 25, [R1(8-11)

(13)(14)]. A finding by the bankruptcy

court that Soltow's slander of title claim

lacked merit, had it considered the issue,

could have led the Trustee to either go

forward with the trial of the adversary

proceeding in August 1992, see Appellants’

Brief, p. 4-5, 11, 20-21, & 40, or could

have led the Trustee to abandon the adver-

Sary proceeding to Appellants’ pursuant to

ll usc 554.

The Debtors possessed standing to appeal

A243

resolution of the Soltow Amended Proof of

Claim, also compromised as part of the set-

tlement orders appealed, since under ll

USC 502 and Rule 3007, they were “aggrieved

parties" who had properly filed an objection

to that proof of claim. See Appellants’

Brief, p. 37-39.

THE LAW

Appellants respectfully submit that the

court may have overlooked or misapprehended

the following points of law.

1. Standing. The Debtors possessed standing

to appeal under any analysis. In the 16

February 1995 decision, the court relies

on In Re El] San Juan Hotel, 809 F 2d 151 ;

(lst Cir 1987). Three bases for standing 7

are noted with approval in that case, one

of which is whether the order appealed "“im-

pairs his (appellant's) rights". 809 F 2d

at 154. The compromise of the adversary

proceeding diminished the prospect that

the Appellants in this case could emerge

A244

from liquidation proceedings with some

assets and thus “impaired their rights"

under the El San Juan analysis. In any

event, El San Juan did not involve the

appeal of an order of the nature involved

here because the order in that case did

not foreclose the right of the litigant to

protect his interest. The order sought to

be appealed in El] San Juan merely author-

ized another action wherein the allegedly

aggrieved party would have full opportunity

to protect its rights. See El San Juan 809

F 2d at p 155. In the present case, Appel-

lants were forever foreclosed from any

relief by the settlement or compromise

which is the subject of this appeal.

The equity involved in the disputed pro-

perty, and the possibility that this could

have been ultimately been restored to these

Debtors upon a successful appeal to this

court, gave the Debtors standing to appeal

an order which forever deprived them of

A245

this opportunity. A successful appeal

could have resulted, ultimately, in a trial

in bankruptcy court and a result favorable

to the Debtors. An order, such as the

order on appeal, which extinguishes the

Debtors' chance of obtaining a surplus suf-

ficiently adversely affects the “pecuniary

interest" to give standing. Matter of Andre-

uccetti, 975 F 2d at 417. Under the Andre-

uccetti analysis, these Debtors had standing

to appeal. See Appellants' Brief, p. 40, fn

91, p 43-44.

The Appellants possessed standing to

appeal disposition of the Soltow Amended

Proof of Claim under 11 USC 502 and Rule

3007. See Appellants' Brief, p. 37-39.

2. Standards for Approval of Compromise.

Each of the cases cited by the Court sup-

ports the position asserted by the Appel-

lants rather than the position taken by the

compromise proponents. The bankruptcy

court in the present case allotted 60

A246

minutes for consideration of the proposed

compromise, of which 40 minutes was allot-

ted to the compromise proponents and 20

minutes was allotted to the Debtors/Appel-

lants. See Appellants' Brief, p. 6 and p

14 fn 52 [R1(26)], [Tr 7/10/92, p 4-5].

No evidence was presented, in any form, by

the proponents of the compromise, see Appel-

lents* Srief, p. 37, [t¥ 7/10/82, ». 31},

and no findings, material to the issues

raised in the Fishells' adversary complaint

or Soltow's amended proof of claim, appear

in the bankruptcy court's opinion approving

the compromise. See Appellants’ Brief, Pp.

17 fn 58 & 61, [Tr 7/10/92, p. 5-15 and p.

32-37}.

This court notes, in its 16 February

1995 opinion, reliance upon Protective Com-

mittee for Independent Stockholders of TMT

Trailer Ferry, Inc., v Anderson, 390 US 414

(1968), In Re American Reserve Corporation,

841 F 2d 159 (7th Cir 1987) and In RE A&C

A247

Properties, 784 F 2d 1377 (9th Cir) cert den

479 US 854 (1986). In In Re A & C Proper-

ties the appellate court affirmed a compro-

mise approved by the bankruptcy court where

"the bankruptcy court held five days of

hearings on the Trustee's application for

compromise" 784 F 2d at 1381. In In Re

American Reserve Corp., the appellate court

reversed the lower court's approval of a

compromise on the basis that the record

contained inadequate findings despite the

fact that the bankruptcy court in that case

had heard “testimony"™ from the Trustee as

well as argument of the Trustee's attorneys,

appellants and others. In TMT Trailer Ferrv.

see Appellants’ Brief, p. 45-49, which sets

forth the current governing standard, the

United States Supreme Court reversed appro-

val of a compromise made after hearings and

evidentiary submissions had been made in

the lower court. At 390 US at 450, the

Supreme Court. though recognizing the neces-

A248

ei rn aie a ot

sity for avoiding protracted proceedings,

noted that

“The need for expedition, however,

is not a justification for abandon-

ing proper standards."

The bankruptcy court decision complained

of by the Debtors in this case was arrived

at without evidentiary’ submission in any

form and contained no findings or analysis

by the bankruptcy court on the issues set

forth in either of the two (2) matters

being compromised, to-wit, 1) the adver-

Sary complaint filed by Fishells or 2) in

the Amended Proof of Claim filed by Soltow.

See Appellants' Brief, p 22-28, [Tr 7/10/92

Pp. 37-42). This procedure does not comport

with any authority cited to the court in

the briefs and does not accord with any

authority cited by this court in its 16 Feb-

ruary 1995 opinion.

In the 16 February 1995 opinion, the

court authorizes a departure from the stan-

dards affirmed in each of the above cited

A249

cases and results in a decision which does

not accord with the standard adopted by the

Supreme Court, as noted above, nor with the

standard adopted in any circuit.

Wherefore, the Appellants respectfully

submit that this matter should be reconsi-

dered or reheard and respectfully pray that

this court grants such relief.

SUGGESTION FOR REHEARING IN BANC

Pursuant to Rule 35,. Fed R App Pro, and

6th Cir Rule 14, the Petitioners respect-

fully suggests to this Honorable Court that

the above entitled cause is appropriate for

consideration on rehearing by all the

Judges of this Court convened in banc. In

support hereof the Petitioners show: |

1. The panel opinion in the above cause ,

contains the factual misstatements and the |

erroneous legal conclusions noted in the

petition for rehearing. The deficiencies

alleged by Petitioners are of substantia]

significance in terms of the Petitioners’

A250

case and in terms of the development of

the law on these significant bankruptcy

within the Sixth Circuit. The elements of

the petition are hereby incorporated in

this suggestion for rehearing in banc as

if fully set forth herein verbatim.

2. The case involves the proper stan-

dard to be observed for proceedings in

bankruptcy courts relative to the settle-

ment of controversies pursuant to Federal]

Bankruptcy Rule 9019. This case also in-

volves the proper application of the man-

dutes outlined by the United States Supreme

Court in Protective Committee for Indepen-

dent Stockholders of TMT Trailer Ferry Inc.,

v Anderson, 390 US 414 (1968).

3. The panel opinion cites as authority

for its decision the above noted Supreme

Court decision as well as authorities from

the 7th and 9th circuits. These authorities

set forth certain requisites regarding the

evidentiary threshholds which must be met

A251

by settlement proponents and the bankruptcy

judge before the bankruptcy court may proper-

ly approve a settlement of a controversy

under Rule 9019. The cited authorities also

outline certain standards for bankruptcy

court analyses and findings of fact which

must be met for the creation of a bankruptcy

court record which would be sufficient to

enable meaningful appellate review of the

adequacy of the bankruptcy court's consider-

ation and analyses of the settlement propo-

sal.

4. The panel opinion does not cite any

6th Circuit authority on these issues. A

review of the panel opinion and the bank-

ruptcy court record reveals that the authori-

ties upon which the panel opinion purports

to rely can not be reconciled with the opi-

nion of the panel in this case. A review

of the bankruptcy court record of the compro-

Pi a eer eo

mise proceedings and the panel opinion would

support the conclusion that the 6th Circuit

A252

has now permitted bankruptcy court settle-

ments based upon an evidentiary showing that

is markedly less rigorous than the showing

that is required by TMT Trailer Ferry or by

the 7th and 9th circuits.

5. A review of the authorities cited by

the panel opinion demonstrates that those

authorities consistently employed, and envi-

Sioned, some evidentiary submission before

the bankruptcy court, in some testimonial]

or other evidentiary form, by the settlement

proponents, in support of a proposed settle-

ment under Rule 9019 so that the record of

the bankruptcy court proceedings would ade-

quately reveal, to a reviewing court, that

the compromise ultimately approved by the

bankruptcy judge 1) was the product of "an

informed and independent judgment", at 390

US p. 424, 2) which had considered "al]

other factors relevant to a full and fair

assessment of the wisdom of the proposed

compromise”, at 390 US p. 424, and 3) repre-

A253

sented a decision that was “fair and equit-

able”. at 390 US p. 434. The reviewing

court must be given, as noted in TMT Trailer

Ferry, at 390 US p 434,

" ..some basis for distinguishing

between well reasoned conclusions

arrived at after a comprehensive

consideration of all relevant fac-

tors, and mere boiler plate appro-

val phrased in appropriate language

but unsupported by evaluation of

the facts or analysis of the law.”

Appellants’ Brief, p 48-49.

6. The facts of the particular case at

issue reveal that 1) there were no eviden-

tiary submissions, whether written or tes-

timonial, or in any form, offered by the

proponents of the compromise on any issue

material to consideration of that compromise

and 2) no findings of fact or other specific

analysis of the merits of the two (2) con- F

troversies being settled were recited or

made by the bankruptcy judge. Despite the

panel's admitted dissatisfaction with the

record made in the bankruptcy court, see

Panel Opinion, p. 6, it nonetheless sus-

A254

tained approval of the compromise. In so

doing, the panel has established a diminished

threshhold for Rule 9019 compliance which

is markedly at odds with the requirements

set out in TMT Trailer Ferry and the other

authorities noted. It necessarily follows

that the panel decision is in conflict with

the standards adopted in the 7th and 9th

circuits and it further follows that the

panel decision is in conflict with the stan-

dards adopted by the Supreme Court in TMT

Trailer Ferry.

Wherefore, the Petitioners respectfully

request that a rehearing of the appeal in

the above case be granted and Petitioners

respectfully request that the members of

this Honorable Court order that the above

case be reheard in banc.

As counsel for Petitioners herein I

certify that the foregoing Petitions are

advanced upon good grounds and in complete

A255

ee

good faith and not for the purpose of delay.

eee SF

Roger L. Fishell

1900 Main St #210

Sarasota, Florida 34236

(813) 365-1930

Attorney for Petitioners/

Appellants

(Certificate of Service omitted)

A256

UNITED STATES BANKRUPTCY COURT

WESTERN DISTRICT OF MICHIGAN

In Re:

RICHARD L. FISHELL and

DOROTHY M. FISHELL, |

Case No. 90-85144

HON. DAVID E. NIMS, JR.

Debtors. Chapter 1]

RICHARD L. FISHELL and

DOROTHY M. FISHELL,

Plaintiffs,

Vv Adversary No.

ROBERT SOLTOW and

ROSALEE SOLTOw,

Defendants.

/

Lester N. Turner (P21632)

LESTER N. TURNER, P.C.

Attorney for Plaintiffs

4970 Northwind Drive, Ste. 200

East Lansing, MI 48823

(517) 332-7900

Mark A. Bush (P35775)

Fraser, Trebilcock, Davis &

Foster, P.C.

Attorney for Defendants

1000 Michigan National Tower

Lansing, MI 48933

(517) 482-5800

A257

91-8015

PLAINTIFFS' BRIEF IN OPPOSITION TO

DEFENDANTS' MOTION FOR SUMMARY JUDGEMENT

AND IN SUPPORT OF PLAINTIFFS' MOTION FOR

SUMMARY JUDGEMENT

TABLE OF CONTENTS

INTRODUCTION ...cccccccccccccccces 1

STATEMENT OF FACTS RE: LOANS PRIOR

TO AUGUST 25, 1988.........2-4e. 3

ARGUMENT ON USURY........-2eeeeee- 7

FACTUAL STATEMENT LEADING TO

DOCUMENTS OF AUGUST 25, 1988... 20

AUGUST 25, 1988 TRANSACTION...... 26

DID DRAFTING A RENEWAL NOTE ON

AUGUST 25, 1988 AFFECT THE USURIOUS

INTEREST CHARGED ON THE SIX (6)

LOANS . cc ccccccccccccscsccscseese 29

CLAIMS... cccccccccccscscccscces 31

RELIEF... ccccccccccccvccccccccs 35

FACTUAL STATEMENT CONCERNING

AUGUST 25, 1988 DOCUMENTS AND

A258

eer ee eee eee ee ae eee 4

EVENTS SUBSEQUENT THERETO..... 36

RESPONSE TO TESTIMONY RELIED UPON

BY DEFENDANTS IN THEIR BRIEF IN

SUPPORT OF MOTION FOR SUMMARY

JUDGEMENT. ....... £856. SS okhs 47

THE DEFENDANT R. SOLTOW'S AND

ATTORNEY AUSTIN'S MISREPRESENTA-

TIONS, CONDUCT AND FAILURE TO

DISCLOSE CERTAIN FACTS CONSTITUTED

ACTUAL FRAUD, INNOCENT MISREPRE-

SENTATION, AND SILENT FRAUD... 51

et! bit PPP reee ret SEL Ie TIE 56

BBE © ib ows WOH 05650 0 SES TA 59

THE WARRANTY DEED PLACED IN ESCROW

ON AUGUST 25, 1988 IS CONSTRUED AS

es PP ee ee eee re 60

THE PAROL EV’ DENCE RULE IS NOT

APPLICAB).E IN THIS CASE....... 69

DEFENDANTS' MOTION AND MEMORANDUM

OF FACTS AND LAW IN SUPPORT OF

MOTION FOR SUMMARY JUDGMENT IS

A259

DEFICIENT UNDER FR CIV P 56... 71

INTRODUCTION

On April 23, 1982, Defendant R. Soltow

loaned Plaintiffs the sum of $10,000 and

made additional loans through March 24,

POEL ET IES STI NN TT

1988, wherein Defendant R. Soltow had

loaned either to Richard Fishell or to

Sneetincepaea coatiacta es meme aee

Richard Fishell and Dorothy Fishell six

separate loans totaling in principal

amount the sum of $456,250. Defendant

Soltow made the last loan to Plaintiff

Richard Fishell on March 24, 1988, in the

amount of $55,000. There were six of

these transactions and $106,250 of the

total principal sum owed was made up of

five notes with no security. The sixth

note was for $350,000 and took the subject

property as security. Defendant R. Soltow

charged Plaintiffs a usurious rate of

interest on all six loans. These loans :

A260

were consolidated into one amended promis-

sory note on August 25, 1988. That note

carried forward and included all the

usurious interest charged on all six loans

prior to August 25,°'1988. Also on August

25, 1988, Defendant Soltow received from

Plaintiffs a mortgage on the subject

property included the indebtedness of all

six loans together with all the usurious

interest charged on all six loans.

Plaintiffs discuss three issues or

three remedies concerning these transac-

tions between the Plaintiffs and Defendant

Robert Soltow. The first claim is that

Defendants charged usurious interest rates

on all six loans which were carried over

and included in the amended note on

August 25, 1988. The second claim is

fraud, which includes actual fraud,

innocent misrepresentation and silent

fraud committed on the Plaintiffs by

Defendant Robert Soltow individually and

A261

through Attorney Douglas J. Austin, and

said fraud gave rise to the documents ex-

ecuted August 25, 1988. The third claim

is that Defendants have an equitable

mortgage against Plaintiffs' property.

Defendant Robert Soltow is claiming that

the documents signed on August 25, 1988,

gave him title to the property rather than

security. Defendant Robert Soltow is

therefore claiming ownership of property

valued in excess of $1,380,000 based on

making a loan of $350,000, secured by said

property.

Obviously, this is a very brief intro-

duction to a very voluminous and detailed

factual situation. However, Plaintiffs

will very carefully and thoroughly take

this Court through the duress, fraud and

overreaching practiced by Defendant Robert

Soltow on Plaintiffs. Plaintiffs will

demonstrate to the Court that Plaintiffs

are entitled to summary judgment on all

A262

three issues.

Plaintiffs will interweave statements

of facts with legal argument because

Plaintiffs believe that the approach will

make it easier to follow Defendant Robert

Soltow's and Attorney Austin's paper

trail. Plaintiffs will present the

matters in a chronological fashion to the

Court. (3)

STATEMENT OF FACTS RE: LOANS

PRIOR TO AUGUST 25, 1988 TRANSACTION

The Plaintiffs and Defendants have been

neighbors for at least twenty years.

Plaintiff Richard Fishell and Defendant

Robert Soltow have had a personal rela-

tionship, which Plaintiff Richard Fishell,

assumed to be a friendship, for the last

twelve to fourteen years. Plaintiff

Richard Fishell and Defendant Robert

Soltow would get together socially on a

fairly regular basis from the last twelve

to fourteen years up until the time this

A263

present dispute arose. Due to this neigh-

borly and personal relationship, Plaintiff

Richard Fishell asked Defendant Robert

Soltow, on or about April 23, 1982, if

Defendant Robert Soltow would make a

$10,000 loan to Plaintiff R. Fishell for

personal use, i.e. to buy fertilizer for

the farm on which Plaintiffs Fishells re-

side. Defendant Robert Soltow agreed to

same, and on April 23, 1982, Defendant

Robert Soltow loaned to Plaintiff Richard

Fishell the sum of $10,000 at O% per annum

interest. The promissory note required

payment in 160 days (October 1, 1982).

Defendant Soltow had both Plaintiffs sign

said note and named the payees as Robert

Soltow or Rosalee M. Soltow.

Plaintiff Richard Fishell and Defendant

Robert Soltow continued their neighborly

personal relationship and also became in-

volved in many additional situations

wherein Defendant Robert Soltow loaned

A264 |

money to Plaintiff Richard Fishell. A

summary of those transactions is as

follows: (4)

1. Loan to Fishells from Soltows dated

April 23, 1982, in the amount of $10,000,

due and payable in 160 days (October :

This was the personal loan for fertilizer

for Fishells' farm, where Plaintiffs re-

Side. The note provides for no interest.

However, Defendant Robert Soltow prepared

the note that called for repayment of

$10,625 on October 1, 1982 (Plaintiffs'

Exhibit 1 and Soltow Deposition, P. 28).

According to documents prepared by De-

fendants (Plaintiffs' Exhibits 2, 3 & 7),

Defendants claim they charged Plaintiffs

12 1/2% interest on the no interest note.

However, on November 13, 1983, Plaintiffs

made a payment on this note of $6,000 (13

1/2 months after the whole note was due).

Defendant Robert Soltow's records indicate

that after receipt of this payment,

A265

a aaa a iain

Plaintiffs still owed $6,221 on this

$10,000 loan. Defendants reach this con-

clusion by purporting to have charged

Plaintiffs 12 1/2% interest. However,

Plaintiffs' Exhibit 2 shows that Defen-

dants charged interest of $2,221 from

4/23/82 to 11/13/83. This is 538 days and

works out to be $3.81 a day or $1,390.65 a

year, which is really 13.9% interest. So

not only was 12 1/2% usurious, but Defen-

dants then chared the Plaintiffs $2.14 a

day from 11/13/83 until the note of August

25, 1988 was signed (Plaintiffs' Exhibits

2, 3, 7 and Austin Deposition of 3/20/91,

Pp. 62 & 63), which is 12.55% interest.

2. Loan of January 29, 1986, in the

amount of $6,250 from Defendant R. Soltow

to Plaintiff R. Fishell for personal (5)

use for Mr. Fishell to pay off an in-

debtedness on a tractor for his farm so

that Mr. Fishell could pick up the tractor

for his farm use. No promissory note was

A266

executed; therefore, no interest rate was

provided. However, as will be discussed

later, Defendant charged Plaintiff 12%

interest on this loan (Plaintiffs' Exhibit

3, 4 and 7).

3. July 8, 1986, loan from Defendant

R. Soltow to Plaintiff R. Fishell in the

amount of $350,000 to pay off the purchase

of the property at issue herein. This

loan was evidenced by a promissory note

signed by both Plaintiffs, in the amount of

$350,000 at 15% per annum interest on the

unpaid balance until paid and 20% per

annum on the unpaid balance until paid

during the period of any default. The

principal sum of $350,000 was to be due

July 7, 1989. Interest payments were to

be made each January 7th and July 7th, be-

ginning January 7, 1987, and ending July

7, 1989, the amount of the payment to be

the interest accrued on the unpaid prin-

cipal balance during the immediately pre-

A267

ceding six months. The note was secured

by a mortgage given by Plaintiffs to

Defendant Robert Soltow on July 8, 1986,

and said mortgage covered the property

involved in this litigaton. The note and

mortgage were prepared by Douglas J.

Austin of the Fraser, Trebilcock, Davis &

Foster law firm (note, Plaintiffs' Exhibit

5). As will be discussed later, Defendant

charged Plaintiffs in excess of 20% in-

terest on this note (Plaintiffs' Exhibit

3). (6)

4. Loan in the amount of $10,000 on July

16, 1987, and evidenced by a promissory note

on same date, signed by both Plaintiffs with

Robert Soltow named as payee. The note was

payable on demand and provided for interest

at the rate of 12% per annum (Plaintiffs'

Exhibit 6). Soltow does not remember this

unsecured loan for $10,000 and believes it

was $25,000 on July 16, 1987; however there

is no note for $25,000 in July 1987. How-

A268

ever, as will be dicussed later, Soltow

charged Plaintiffs 12% interest on a

$10,000 loan of July 16, 1987 (Plaintiffs'

Exhibits 3 and 7; also see Robert Soltow's

deposition of March 20, 1991, Pp. 49-53).

5. Loan in the amount of $25,000 evi-

denced by a promissory note dated Septem-

ber 3, 1987. This note was Signed by both

Plaintiffs and named Robert Soltow as the

payee. It was a demand note and set forth

interest at the rate of 12% per annum

(Plaintiffs' Exhibit 8).

6. Loan in the amount of $55,000 evi-

denced by a promissory note dated March 24,

1988. This promissory note was Signed by

Plaintiff Richard Fishell and named Defen-

dant Robert Soltow as the payee. It was a

demand note and provided no interest.

(Plaintiffs' Exhibit 9).

Defendant Soltow received a bill of sale

on a Case tractor for loan #2 set forth

above (the loan in the amount of $6,250)

A269

(Plaintiffs' Exhibit 10). The only other

loan that was collateralized was loan #3,

being the $350,000 loan, which was secured

by a mortgage on the real estate involved

herein. There (7) were no sworn statements

from either Plaintiffs in writing indicat-

ing that any of the above loans wee for

business purposes, except for $70,000 of

the $350,000 loan made on July 8, 1986

(Plaintiffs' Exhibit 11). There were no

payments made on any of the loans, except

the $6,000 payment made on loan #1, supra.

As indicated above, three of the notes

required no interest payments and no

interest accrual. The first note in fact

had the space where the percentage of

interest is to be written in marked through.

All the exhibits referred to above are

exhibits from Defendants or their attorney.

ARGUMENT ON USURY

MCL 438.31; MSA 19.15(1) contains the

general provision as to the interest rate

A270

ans nee caer err eenema men

legally permissible in Michigan. It provides

in pertinent part:

"The interest of money shall be at the

rate of $5.00 upon $100.00 for a year,

and at the same rate for a greater or

lesser sum, and for a longer or shor-

ter time, except that in all cases it

shall be lawful for the parties to

stipulate in writing for the payment

of any rate of interest, not exceed-

ing 7% per annum."

MCL 438.31c; MSA 19.15(1c) sets forth excep-

tions to this general usury provision, in-

cluding exceptions with regard to indebted-

ness secured by a lien against real property.

Of the six loans listed above, the only

loan that was secured by real property was

loan #3, in the amount of $350,000. The

subsection pertinent to that loan is as

follows:

"(11) The parties to a note, bond or

other indebtedness of $100,000 or

more, the bona fide primary security

for which is a lien (8) against real

property other than a single family

residence, or the parties to a land

contract of such amount and nature,

may agree in writing for the payment

of any rate of interest."

MCL 438.61; MSA 19.15(71) sets forth a

A271

business entity exception. This exception

is applicable because the $350,000 loan of

July 8, 1986 included a business purpose

affidavit for at least $70,000 of the

$350,000 loan (Plaintiffs' Exhibit 11).

MCL 438.61; MSA 19.15(71) provides:

"438.61. Business entities, definition,

interest rate agreements.

Sec. 1(1) As used in this act 'business

entity' means:...

(b) A natural. person who furnishes to

the extender of the credit a sworn state-

ment in writing specifying the type of

business and business purpose for which

the proceeds of the loan or other exten-

sion of credit will be used, but the

exemption provided by this act does not

apply if the extender of credit has

notice that the person signing the

sworn statement was not engaged in the

business indicated.

(2) Notwithstanding the provisions of

Act No. 326 of the Public Acts of 1966

as amended, being sections 438.31 to

438.33 of the Michigan Compiled Laws,

but subject to any other applicable

law of this state or of the United

States which regulates the rate of

interest, it is lawful in connection

with an extension of credit to a

business entity by a state or national

chartered bank, insurance carrier, or

finance subsidiary of a manufacturing

corporation for the parties to agree

in writing to any rate of interest.

(Emphasis supplied)

A272

(3) Notwithstanding the provisions of

Act No. 326 of the Public Acts of 1966,

it is lawful in connection with an ex-

tension of credit to a business entity

by any person other than a state or

nationally chartered bank, insurance

carrier, or

finance subsidiary of a

manufacturing corporation for the par-

ties to agree in writing to any rate

of interest

not exceeding 15% per

year." (Emphasis supplied) (9)

MCL 438.32;

MSA 19.15(2) sets forth

the penal provision incurred by a viola-

tion of the interest limit established in

MCL 438.31; MSA

"Any seller

who enters

ment which

provisions

19.15(1), which provides:

or lender or his assigns

into any contract or agree-

does not comply with the

of this act or charges

interest in excess of that allowed by

this act is barred from the recovery

of any interest, any official fees,

delinquency or collection charge,

attorney fees or court costs and the

borrower or buyer shall be entitled

to recover

his attorney fees and

court costs from the seller, lender

or assigns."

As pointed out above, Defendant charged

Plaintiff 12 1/2% interest on note Gis 12%

interest on notes #2, #4, #5 and #6 and in

excess of 20% interest on note #3 (Plain-

tiffs' Exhibits

3 and 7, Soltow's Deposi-

A273

tion, Pp. 59-64).

Note #1 had a line through the space

that called for interest payments and

another line through the space that called

for interest after the note became due if

it was still unpaid. Therefore, there was

no written interest rate for note #1.

There was no note for loan #2. Note #6

had no interest rate provided. Therefore,

pursuant to MCL 438.31; MSA 19.15(1),

Defendant could not charge Plaintiff in

excess of 5% interest because there was no

stipulation or agreement in writing by the

parties for any rate in excess of 5%.

Therefore, the 12 1/2% charged on note #1

and the 12% charged on loan #2 and note #6

were usurious and the penal provisions of

MCL 438.32 are applicable. (10)

Notes #4 and #5, for which Defendant

charged Plaintiff 12% interest were likewise

usurious because MCL 438.31 only allows the

parties to charge an interest rate of 7%

A274

unless the agreement fits into one of the

exceptions of MCL 438.3l1c or the business

entity exception of MCL 438.61. Neither of

these notes fit into either of those excep-

tions, and the charging of 12% interest

brings into effect the penal provisions of

MCL 438.32.

Note #3, as set forth above, involved

loan of $350,000 and was secured by a first

mortgage on the real estate involved herein.

In addition, there was a business purpose

affidavit as to at least $70,000 of the

loan. The real estate was not a single

family dwelling and therefore under the

exception set forth above in MCL 438.31c(1l),

the parties could have agreed to any

interest rate on that portion of the loan

not covered by the business purpose affi-

davit. Plaintiffs will address this note

under both the real estate mortgage excep-

tion of MCL 438.3ic(11); and the business

purpose exception of MCL 438.61, because

A275

under either exception Defendants would be

guilty of charging Plaintiffs usurious

interest rates on this ioan too, bringing

into effect the penal provisions of MCL

438.32

Business Purpose Exception: The above

quoted language of MCL 438.61(3) sets forth

that since defendant is "any person" other

than an excepted bank, insurance company

or finance corporation of a manufacturer,

Defendant could not charge an interest rate

in excess of 15% per year. According to

Defen(1l)dants own record (Plaintiffs' Ex-

hibit 3) and Defendants' attorney's record

(Plaintiffs' Exhibit 7), Defendants charged

Plaintiffs in excess of 20% interest on

this note since the inception of the note,

July 8, 1986. Defendants claimed they

charged 20% because Defendants said since

Plaintiffs never made their first interest

payment on January 7, 1987, Plaintiffs were

in default and therefore the 20% default

A276

interest rate was applicable (Soltow Depo-

sition, 3/20/91, p. 62).

Real Estate Mortgage Exception:

$280,000 of the $350,000 loan of July 8,

i986, was not covered by the business pur-

pose affidavit and so we must look to the

real estate mortgage exception covered by

MCL 438.31c(11) (quoted on p. 7, supra).

That section provides that the parties may

agree in writing to any rate of interest if

the note is secured by a mortgage on real

estate. It is Plaintiffs' contention that

only $280,000 of the $350,000 loan is

covered by this section, since the parties

specifically provided that $70,000 of the

loan was covered by the business purpose

exception. However, for purposes of argu-

ment Plaintiffs are assuming in this dis-

cussion that the whole $350,000 loan of

July 6, 1986 is covered by the real estate

mortgage exception. Defendants' conduct,

assuming the whole $350,000 is within the

A277

real estate mortgage exception, creates

an usurious rate of interest on the

$350,000 loan. There are several ways in

which the interest demanded by Defendants

on this $350,000 loan are usurious. (12)

First, the court should look at the

pertinent language of the promissory note

of July 8, 1986 (Plaintiffs' Exhibit 5),

which provides:

"For value received, the undersigned,

jointly and severally, promise to

pay to the order of Robert Soltow

the principal sum of Three Hundred

Fifty Thousand Dollars ($350,000)

with interest from this date at the

rate of fifteen percent (15%) per

annum on the unpaid balance until

paid and twenty percent (20%) per

annum on the unpaid balance until

paid during the period of any

default herein....

The principal sum of $350,000

shall be due July 7, 1989. Interest

payments shall be made each January

7th and July 7th, beginning January

7, 1987 and ending July 7, 1989,

the amount of the payment to be the

interest accrued on the unpaid prin-

cipal balance during the immediately

preceding six (6) months. Notwith-

standing the foregoing, all interest

accrued to the date of the final

principal payment shall be paid with

the final principal payment. Princi-

A278

pal may be prepaid without penalty."

(Emphasis supplied)

From the date of the inception of the

note of July 8, 1986, until the time it was

replaced with an amended promissory note on

August 28, 1988, Plaintiffs never made any

payment of interest or principal on said

note. According to Defendants' calculations

and demands for interest on this note,

Plaintiffs were charged interest of

$119,232.67 to April 6, 1988 (Plaintiffs'

Exhibit 3; Plaintiffs' Exhibit 7 and Soltow

deposition, 3/20/91, Pp. 59 & 60). Further,

using the Defendants’ calculation of con-

tinuing interest at $206.17 per day, Attor-

ney Austin calculated the interest demanded

by Defendants of Plaintiffs from April 6,

1988 to August 25, 1988. Mr Austin brought

the (13) figures to date for the renewal

note of August 25, 1988 by multiplying the

number of days since April 6, 1988 to the

renewal on August 25, 1988 (Plaintiffs'

A279

Exhibit 7 and Austin Deposition of 3/20/91,

Pp. 62 & 63). Plaintiffs will now discuss

the various ways in which the interest

charged to Plaintiffs by Defendants on this

note was illegal.

1. Defendants factually charged Plain-

tiffs an interest rate in excess of the in-

terest rates set forth in the note.

The interest provided for in the note

of July 8, 1986, is usurious. The interest

charged to Plaintiffs by Defendants and

demanded by Defendants from Plaintiffs was

usurious and the renewal note of August 25,

1988 included these usurious interest

charges. First, let's examine the interest

actually charged to Plaintiffs by Defendants

for the note of July 8, 1986. For purposes

of this discussion, Plaintiffs assume argu-

endo that the interest rates set forth in

the note are legal. (Plaintiffs will dis-

cuss the legality of the interest rates set

forth in the note after this discussion on

A280

the actual interest demanded from and

charged to Plaintiffs by Defendants). An

interest rate demanded and charged which

is in excess of the amount set forth in the

note cannot be legally allowed and is

usurious.

Under MCL 438.31c(11), the parties can

agree to any interest rate in writing for

a real estate mortgage note. These parties

agreed to 15% interest when not in default

and 20% when the note was in default. No

principal payments were due (14) until July

7, 1989. Interest payments were due every

6 months commencing January 7, 1987.

Plaintiffs made no payments under this note.

For purposes of this argument, Plaintiffs

will assume that when Plaintiffs failed to

make the first interest payment on January

7, 1987, Plaintiffs were in default of the

note. With that assumption, Plaintiffs

owed 15% interest from July 8, 1986 to

January 7, 1987 and owed 20% from January

A281

7, 1987 to the renewal note of August 25,

1988. The calculations are simple.

A. Interest due under the note.

(1) $350,000 at 15% interest from

date of note, July 8, 1986, to when first

interest payment was due, January 7, 1987,

which is 183 days. $350,000 x 15% =

$52,500 per year (divided by) 365 days =

$143.84 per day X 183 days = $26,322.72.

(2) $350,000 at 20% interest from

January 8, 1987 (first date interest was

due and unpaid and assume for this argument

that Plaintiffs are then in default).

Since Defendants' calculations (Plain-

tiffs' Exhibits 3 & 7) calculate the

interest owed to April 6, 1988, Plaintiffs

will do same. January 8, 1987 to April 6,

1988 is 453 days. $350,000 at 20% per

year is $70,000 in interest per year (divi-

ded by) 365 is $191.78 per day x 453 days =

$86,876.34 in interest due January 8, 1987

to April 6, 1988. Amount that Defendants

A282

should have demanded and charged Plain-

tiffs as of April 6, 1988 should have been:

$350,000.00 Principal

26,322.72 15% interest to 1/7/87

86,876.34 20% interest from 1/7/87

to 4/6/88

$463,199.06 (14)

B. Amount Defendants actually demanded

and charged to Plaintiffs.

(1) According to Plaintiffs' Ex-

hibits 3 & 7, which were prepared by

Defendant Robert Soltow and Attorney

Douglas Austin, Defendants demanded and

charged to Plaintiffs as of April 6, 1988,

the sum of $469,232.67.

(2) According to Plaintiffs' Ex-

hibits 3 & 7, the Defendants were charging

Plaintiffs $206.17 per day on this

$350,000 loan. Even at 20%, the per day

interest rate on $350,000 is $191.78 (cal-

culations set out above). The $206.17

charge per day in interest is $21.5%

interest. ($350,000 x 21.5% = $75,250 per

year (divided by) 365 = $206.16 per day.)

A283

C. Conclusion.

Even if the note of July 8, 1986 is not

usurious, the demands and charges made by

Defendants, purportedly pursuant to that

note, are illegal and usurious.

D. Possible defenses that Defendants

may raise:

(1) Defendants mistakenly

compounded interest. Interest can-

not be compounded. MCL 438.31c(9) pro-

vides:

"(9) A mortgage loan or land

contract made under this act

shall not provide for a rate

of interest added or deducted

in advance and interest on the

mortgage or land contract

shall be computed from time to

time only on the basis of its

unpaid balances."

Further, under Michigan law, even

when interest on interest was allowed, in-

terest on interest could not be charged

(16) where not specifically provided ina

written agreement. Voight v Beller (1985)

56 Mich 40; 22 NW 270 and Hoyle v Page

A284

(1879) 41 Mich 533; 2 NW 665.

(2) Defendants conduct is due to

an innocent mistake and this usurious rate

of 21.5% was not done intentionally.

The law in Michigan clearly pro-

vides that an innocent mistake does not

excuse Defendants from their charging a

usurious interest rate. Even if the us-

urious interest rate had been at the

insistence of Plaintiffs, Defendants could

not charge a usurious rate. The law does

not recognize unintentional and innocent

usury charges; nor, can Defendants raise

the issue of estoppel to keep Plaintiffs

from asserting usury. Bebee v Gretten-

berger (1978) 82 Mich App 416; 266 Nw2d

829 and Osinski v Yowell (1984) 135 Mich

App 279; 354 Nw2d 318.

2. The note of July 8 did not

authorize an increase to 20% until July 8,

1989.

Even if Defendants had just charged

A285

Plaintiffs 15% interest on the whole

$350,000 from July 8, 1986 to January 7,

1987 (the date the first interest payment

was due) and then charged Plaintiffs 20%

from then until the note of August 25,

1988, the Defendants would still be guilty

of usury. The note of July 8, 1986 does

not provide for an increase in interest

from 15% to 20% unless there was default

by Plaintiffs in making the first prin-

cipal payment (a balloon payment of the

(17) entire principal amount), which was

due July 7, 1989. The note provides:

"., . . with interest at the

rate of fifteen percent (15%)

per annun on the unpaid bal-

ance until paid and twenty

percent (20%) per annum on

the unpaid balance until paid

during the period of any de-

fault herein.

The principal sum of $350,000

shall be due July 7, 1989. .."

There was no intent and the note does

not say that the interest rate will be

increased from 15% to 20/% due to nonpay-

A286

LSchsy Sylbhdb) deter auth Eten ok? eee ne A as

ment of just an interest payment. The

usury statute makes it very clear that 5%

is the maximum rate unless the agreement

is in writing and the writing must clearly

provide for additional interest rates

under proper exceptions or exemptions.

In addition, this note was prepared by

Defendants and any ambiguity must be re-

solved against said Defendants.

Alternatively, the most the language

could permit would be an increase from

15% to 20% on that portion of the note

which is in default, which is only the in-

terest payment. There was never a default

on the principal payment because no prin-

cipal payment was due until July 7, 1989.

However, the Defendants' document (Plain-

tiffs' Exhibits 3 & 7) show that Defen-

dants computed 20% interest on the prin-

cipal and 20% interest on the interest

payment that was due January 7, 1987.

3. The note of July 8 was usurious

A287

on its face. (18)

In argument 1, under this real estate

mortgage exception, Plaintiffs stated that

for purposes of that argument Plaintiffs

would assume the note as drafted was not

usurious. Under argument 2 of this excep-

tion, Plaintiffs pointed out that the note

aid not permit an increase in the interest

rate from 15% to 20% until and unless

there was a default on the principal pay-

ment. If the Court concludes that the

note as written permitted the Defendants

to increase the interest rate from 15% to

20% on both principal and unpaid interest

or just on principal, on January 1, 1987,

when the first interest payment was not

made, then it is Plaintiffs' position that

the language that would permit that is

usurious. MCL 438.101; MSA 19.21 pro-

vides:

"438.101 Interest on due and unpaid

interest; rate Sec. 1. That when any

installment of interest upon any

A288

note, bond, mortgage or other written

contract shall have become due and

the same shall remain unpaid, inter-

est may be computed and collected on

any such installment so due and un-

paid, from the time at which it became

due at the same rate as specified in

any such note, bond, mortgage or other

written contract, not exceeding 10

percent and if no rate of interest be

specified in such instrument, than at

the rate of 7 per centum per annum."

(Emphasis supplied)

According to the computations set

forth below, the Defendants calculated 15%

on the principal amount through January 7,

1987. The Defendants calculated at 20% on

the principal balance of $350,000 together

with the interest to January 7, 1987 (as

calculated by Defendants of $26,250) for a

total of $376,250. These are the calcula-

tions that must have been made by Defen-

dants: (19)

$350,000 x 15% = $52,500 x 1/2 year

July 8, 1986 to January 7, 1987) = $26,250.

$376,250 x 20% = $75,250 (divided by)

365 days = $206.1643836 per day, which

Defendants must have rounded up to $206.17

A289

per day.

Defendants then continued to charge

Plaintiffs 20% on that amount $376,250

($206.17 per day) until the note of August

25, 1988. Therefore, after January 7,

1987, Defendants were charging Plaintiffs

20% interest on the principal and on the

interest due on January 7, 1987.

a) The interest rate of 20% on the

interest due on January 7, 1987 is

usurious. MCL 438.101 makes it clear that

the maximum interest that could be charged

on interest is 10%. So assuming the

language in the note authorizes interest

on interest, the rate could not exceed 10%

and Defendants charged 20%.

b) The 20% charged by Defendants

against Plaintiffs on the principal would

be usurious. Visoneering v Belle River

(1986) 149 Mich App 327, 337, 286 NW2d 185,

provides:

"MCL 438.101; MSA 19.21 permits

A290

Pe FS ee EET al 2 BD ee. Ce

a oe

the computing of interest at a

rate not exceeding ten percent

(or the amount specified in the

mortgage) on any due and unpaid

installments of interest, but

not principal." Emphasis

supplied)

4. Business purpos portion of

$350,000 loan of July 8, 1986.

Further, as pointed out earlier,

$70,000 of the $350,000 loan was under the

business purpose exception and would be

limited to 15% interest. That being the

case, the daily rate (20) charged by Defen-

dants of 20% on $376,250 wuld be grossly

usurious.

FACTUAL STATEMENT LEADING TO DOCUMENTS

OF AUGUST 25, 1988

The only payment that Plaintiffs made

to Defendants, on any of the above loans,

was the $6,000 payment on loan #1 (Plain-

tiffs' Exhibit 2). The last loan was for

$55,000 made on March 24, 1988, a note from

Richard Fishe’l to R. Soltow (Plaintiffs'

Exhibit 9). According to Defendant R.

A291

Soltow this $55,000 loan was so Plaintiff

R. Fishell could have the contractor fin-

ish the work on a storm drain located on

the Andre property (Soltow Deposition, P.

65). In fact, the Andre property was

property Plaintiff R. Fishell was buying

that is adjacent to the property involved

herein and the storm drain constructed by

Plaintiff R. Fishell was really for the

benefit of the subject property. Once the

storm drain was completed all the utilities

would be supplied to the subject property.

The subject property has been appraised by

an MAI, SREA appraiser as having a fair

market value of $1,380,000 (Plaintiffs'

Exhibit 12). This appraisal was contracted

for by a potential purchaser dealing with

Plaintiff R. Fishell. It would appear that

Defendant R. Soltow placed a value on this

property in November of 1989 of $1,500,000

(Plaintiffs' Exhibit 24, Lowe Deposition

2/20/91, Pp. 8 & 9). During the time that

A292

Plaintiff R. Fishell was dealing with De-

fendant R. Soltow, Plaintiff R. Fishell had

installed a $198,000 sewer project to ex- i

tend the water and sewer along M-43 to the

site and had constructed the storm drain

mentioned above. Defendant R. Soltow was

aware of all of this progress. Defendant

R. Soltow never made any demand of Plain-

tiffs' default (21) on any of the notes #1

through #5, supra; and, on March 24, 1988

made the additional loan to Plaintiff R.

Fishell of $55,000.

March 24, 1988, Defendant R. Soltow

made the $55,000 loan to Richard Fishell.

Defendant Robert Soltow never made any de-

mand on Plaintiffs to cure any "defaults"

on any notes to Defendants. Just after

the $55,000 loan Plaintiff Richard Fishell

had 12 lots on the Andre property which ;

were just to the point where he could sell

them. Defendant R. Soltow came to see

Plaintiff R. Fishell and wanted to buy 5

A293

lots for $100,000. Defendant Soltow knew

Plaintiff was asking $28,000 for each of

the lots and Fishell told Defendant he

could not afford to take a $40,000 loss on

these lots. Thirteen (13) days after this

loan of $55,000 Defendant R. Soltow had

his office personnel calculate what Defen-

dant R. Soltow claims Plaintiffs owe him

on the now 6 notes (Plaintiffs' Exhibit 3,

showing calculations made as of 4/6/88).

Then 23 days after that, on April 29, 1988,

Defendant Soltow has attorney Douglas

Austin write Mr. Fishell a letter that sets

forth what Defendant Robert Soltow claims

is due on each of the six notes as of April

6, 1988. The letter also says:

"To the extent the obligations

are demand obligations, or ob-

ligations due by a date certain

which has passed, demand hereby

made for full payment. To the

extent they are installment

obligations in default, default

is hereby declared and accel-

eration elected." (Plaintiffs'

Exhibit 7)

Unbeknownst to Plaintiffs, the plot

A294

or scheme of Defendant R. Soltow is going

into high gear. Defendant Soltow has been

very friendly and very neighborly. ‘Plain-

tiff R. (22) Fishell and Defendant R.

Soltow had lunch together regularly,

visited with each other constantly. Defen-

dant Soltow loaned Plaintiff Fishell what-

ever money he needed to improve the prop-

erty without ever demanding repayment.

Defendant Soltow let Plaintiff Fishell get

Plaintiff Fishells' property all prepared

for sale or development. In February or

March of 1988, just before Defendant Soltow

loaned Plaintiff Fishell the $55,000, De-

fendant Soltow asked Plaintiff Fishell what

he would take to sell the subject property

to Defendant Soltow. Plaintiff Fishell

answered that he was not interested in

selling the property. Defendant Soltow

then offered Plaintiff Fishell One Million

Three Hundred Thousand to One Million Four

Hundred Thousand for the subject property

A295

and the Andre preperty. Further, Defendant

Soltow offered to put Plaintiff Fishell on

his payroll for two years. Plaintiff R.

Fishell said he didn't work for anyone. He

said he couldn't see himself being valuable

to anyone because he had never worked for

anyone. Plaintiff Fishell also told him he

did not wish to sell. He had been working

to development or sell the properties in

sections and he wasn't dead yet and wanted

to see it through.

At this time, Defendant Soltow had a

mortgage for $350,000 on property that was

worth at least $1,300,000. He wanted to

buy it and had been rejected. There were

no hard feelings expressed at that time.

March 24, 1988, he had just loaned Plain-

tiff Fishell $55,000 to complete some

utilities. Now without any mention to

Plaintiff Richard Fishell in their (23)

almost daily visits, Defendant r. Soltow

has Attorney Austin send the above letter

A296

demanding payment on all six notes.

It is significant to point out at

this juncture that attorney Douglas J.

Austin, a shareholder in the law firm of

Fraser, Trebilcock, Davis & Foster, P.C.

was Defendant Robert Soltow's attorney and

was also Plaintiffs' attorney when he wrote

his letter of April 29,1988. He had been

Plaintiffs exclusive attorney since July,

1986. He represented the Plaintiffs on

numerous matters and continued to bill

Plaintiffs for legal services through April

20, 1989 and for costs and expenses as late as

June 28, 1989. (See Plaintiffs' Exhibit 13, R.

Fishell's Affidavit, and Plaintiffs' Ex-

hibit 14, statements for services rendered

by Austin to Plaintiffs, which were sub-

mitted in Eaton County Circuit Court in

support of Plaintiffs' motion to disqualify

the Fraser law firm from representing

Defendants in this matter.)

Then on August 12, 1988, Attorney

Austin sent a letter to Plaintiffs (which

A297

salutation said: Dear Dick and Dorothy,

Plaintiffs' Exhibit 15). The letter in-

cluded the following:

(1) A proposed land contract cover-

ing the subject property. Defendant R.

Soltow was the vendor and Plaintiffs were

the vendees. The purchase price was

$613,683.64, which was suppose to be the

outstanding indebtedness on the six loans

owed from Plaintiffs to Defendants, with

the usurious interest calculated to 8/16/88

(the proposed land contract is Plaintiffs'

Exhibit 16); (24)

(2) The letter advised the Plaintiffs

that they would have to sign a warranty deed

to Soltow and Soltow would sign a discharge

of mortgage and would cancel the six notes.

The Plaintiffs would also have to sign a

business purpose affidavit;

(3) This transaction was suppose to be

in lieu of the mortgage note and other out-

standing obligations;

A298

(4) The land contract was to be at

15% interest and was due to be paid in

full September 30, 1988, which was only 45

days after the land contract was to be

signed on August 16, 1988;

(5) Austin also advises the Plain-

tiffs will gain more time to pay off Defen-

dant by this approach and them provides the

Plaintiffs with some very interesting, but

disturbing, legal advise. Of course, this

advise comes from Attorney Austin who, ac-

cording to his testimony, specializes in

real estate law, including foreclosures

(Austin Deposition 3/20/91, P. 47). The

letter states:

"As discussed, if the land con-

tract is not paid by the end of

September, Bob will, through

us, mail a 15-day notice of

forfeiture to you. If, within

the 15 days, the contract is

not paid, we will start a

forfeiture action in District

Court, which will have a 90-day

redemption period. This would

mean the property would become

Bob's at approximately the end

of January, 1988 unless re-

A299

deemed. This i lly a

month 1 er th u_ would

have h r r re-

closure, assuming we had

published in June, with a sale

in early July with six-month

redemption period." (Emphasis

supplied) (25)

When Plaintiffs received this infor-

mation, they relied on the accuracy of the

representations made in the letter and in

the proposed land contract (Eaton County

Transcript of 2/27/90, Pp. 59 & 60. There

were at least two very significant repre-

sentations that were made that were incor-

rect. The first was that the Plaintiffs

were indested to Defendants for

$613,683.54, without disclosing to Plain-

tiffs that the interest charges were

usurious; and (2) that if Austin had, on

behalf of Defendants, commenced foreclosure

by advertising back in June the Plaintiffs'

redemption period would have run prior to

the end of January, since there is only a 6

month redamption. Ignore that Austin is

representing that the redemption time would

A300

have run before the end of January if ad-

vertising had been in June, which it had

not been and this was August. Ignore that

if there was a six month redemption period

and if Attorney Austin commenced advertis-

ing by August 15, there could not have been

a sale held until at least Sextesbur 15

(MCL 600.3208; MSA 27A.3208) causing

Attorney Austin's six month redemption

period to expire March 15, 1989. The real

serious problem with Attorney Austin's

misrepresentations is the misrepresentation

that Plaintiffs only had a six month re-

demption in a foreclosure by advertising.

This is patently inaccurate. The subject

property is approximately 43 acres in

Oneida Township, Eaton County. In 1986

when the mortgage was given and in 1988

when this letter was written the property

was farm land. Plaintiff R. Fishell bought

the subject property in 1985 and it had a

crop of soy beans on it (26) when Plaintiff

A301

R. Fishell purchased it. The owner of the

land retained ownership of the crop of soy

beans. In 1986 Plaintiff Fishell had a

crop of oats planted on shares on said

property. In 1987 the farm land was idle

because Plaintiff R. Fishell had to con-

struct a drain on the subject property.

The farm was also idle in 1988. There was

a crop of white beans grown on it by farmer

Huhn in 1989 or 1990. MCL 600.3240; MSA

27A.3240 sets forth the redemption periods

for foreclosure by advertising and the ap-

plicable section is secton (8), which

provides:

"(8) In any other case, the

redemption period shall be 1

year from the date of sale."

Therefore, had Attorney Austin commenced

foreclosure by advertisement August 15,

1988, Plaintiffs would have had until

approximately September 15, 1989 to redeem.

Further, they could have challenged the

usurious interest had Attorney Austin ad-

A302

vised them that it was usurious.

The land contract that was proposed to

Plaintiffs by letter of August 12, 1988 was

never executed. Attorney Austin testified

that the land contract proposal was with-

drawn because he advised his client Defen-

dant R. Soltow that it would not work

(Austin's deposition of 3/20/91, P. 47).

AUGUST 25, 1988 TRANSACTION

The next thing that occurs is Attorney

Austin has Plaintiffs and Defendant R.

Soltow meet a Defendant R. Soltow's office

to sign the infamous documents of August

25, 1988. It should first be noted that

Attorney Austn did not tell the (27) Plain-

tiffs that he was not looking out for their

interests (Eaton County Circuit Court tran-

scriptof hearing, 2/27/90, R. Fishell - Pp.

45 & 46; Mrs. Fishell - Pp. 112-115; Defen-

dant R. Soltow deposition 3/20/91, Pp. 78 &

79). The documents that were prepared by

Attorney Austin and presented to the

A303

parties for signature, without any explana-

tion to Plaintiffs, which were signed on

August 25, 1988, were:

1. Amended Promissory Note,

$610,446.14 (Plaintiffs' Exhibit 17); This

note was at the interest rate of 15%. It

states "This note replaces the note dated

July 8, 1986 given by the undersigned to

Robert Soltow in the principal amount of

$350,000";

2. Mor e Modification Agreement

(Plaintiffs' Exhibit 18). It amends the

mortgage of July 8, 1986 from $350,000 to

$610,446.14 and provides:

"The mortgage shall continue

in full force and effect and

except as above specifically

modified and amended the

mortgage shall be unamended,

unchanged, and unmodified by

this agreement and shall

continue to secure to

mortgagee the repayment of

mortgagor's indebtedness or

other obligations to

mortgagee."

3. Escrow Holding Agreement (Plain-

tiffs' Exhibit 19). This sets forth the

A304

six loans from Defendant Soltow to Plain-

tiff Fishell, says they are all in default,

claims Defendant Soltow has accelerated all

of them and states the balance on all six

notes to be $610,446.14. It states the

current balance on the $350,000 note of

7/8/86 to be $498,302.64 and the balance

Owing on the other notes, as accelerated,

is $112,093.50. It also (28) covers the

other documents that are being executed at

that time. It provides that Plaintiffs

will provide a warranty deed to the subject

property to Defendant, which will be held

in escrow along with a discharge of mort-

gage from Defendant R. Soltow to Plain-

tiffs. If Soltow notifies the escrow agent

the note is paid, Plaintiffs will receive

the discharge of mortgage and get back

their warranty deed. If Soltow advises the

escrow agent the note is in default, the

discharge of mortgage and the warranty deed

will be delivered to defendant R. Soltow.

A305

4. Warranty Deed on the subject

property from Plaintiffs Fishells to Defen-

dant R. Soltow (Plaintiffs' Exhibit 20).

The deed signed by the Fishells provides:

"This deed is given in lieu of

foreclosure of the mortgage

recorded in Liber 707, Page

630, Eaton County Records.

This conveyance shall not

operate as a merger of Gran-

tee's interest as the mort-

gagee under the previously

described mortgage with Gran-

tee's title acquired under

this conveyance."

5. Declaration of Storm Drain (Plain-

tiffs' Exhibit 21). Plaintiffs Fishells

were purchasing property contiguous to the

subject proeprty over which Plaintiff R.

Fishell had constructed a storm drain

basically for the benefit of the subject

property. This document gave the subject

property a permanent easement over the con-

tiguous property. It also provides that

Fishells shall bear the cost of maintaining

the drain "until such time, if at all, that

Robert Soltow, his heirs, assigns or perso-

A306

\

nal representatives take title to parcel

one through fore-(29)closure or through

deed in lieu of foreclosure." (Emphasis

supplied).

6. Discharge of Mortgage - Signed

only by Defendant R. Soltow (Plaintiffs'

Exhibit 22). All these executed documents,

except the promissory note were mailed to

Plaintiffs by Attorney Austin on August 26,

1988 (Plaintiffs' Exhibit 23). Attorney

Austin testified that in arriving at the

$610,446.14 indebtedness placed on the

amended note of August 25, 1988, he made

the calculations. He referred to Plain-

tiffs' Exhibit 3 (Soltow Deposition Exhibit

10) and used the per diem interest rate for

each loan and brought current the balance

on each note (Austin Deposition 3/20/91,

P. 64). That means Austin continued to

apply the usurious rates of interest on

each of the six loans, as discussed in de-

tail above, including the per diem of

A307

$206.17 on the $350,000 loan. As shown

earlier $206.17 per day on $350,000 is

21.5% interest. Therefore when the

amended note was prepared and executed on

August 25, 1988 for $610,446.14, it in-

cluded all the usurious interest charges on

all six loans.

DID DRAFTING A RENEWAL NOTE ON

AUGUST 25,1988 AFFECT THE

USURIOUS INTEREST CHARGED ON

THE SIX (6) LOANS?

The law in Michigan is firmly estab-

lished that since the amended note of

August 25, 1988 includes usurious interest

charges, it continues to be usurious. It

isn't even necessary to examine or review

whether the interest rate charged in the

amended note of August 25, 1988, being 15%,

is usurious. The (30) Michigan law is set

forth in Mathews v Tripp (1938) 285 Mich

705, at 710; 281 NW 412, wherein the Court

in quoting the Restatement of the Law of

Contracts says as follows:

"In 2 Restatement of the Law

A308

of Contracts, S535, it is said:

‘Where a bargain is usurious,

an agreement in renewal thereof,

or in substitution therefor,

which provides for a payment that

includes the the usurious inter-

est is also illegal, although no

excessive interest is promised

from the date of the renewal or

subsititution.'"

Also, on Page 710 of the Mathews

case, supra, the court further elaborated

on the law in Michigan as follows:

"'It seems to be the rule that

the general principle deter-

mining when an indebtedness

infected with usury is to be

deemed disinfected that if

the tainted obligation is,

with full knowledge and

consent of the borrower

finally canceled or aban-

doned, and a new obligation,

containing no part of the

usury, is executed in legal

form, and supported solely

by the moral obligation

resting upon the borrower

to pay the money actually

received with legal in-

terest thereon, such new

obligation is valid and en-

forceable. * * * Carr v.

Taylor, 30 Misc. Rep. 617

(62 N.Y. Supp. 849); 30

Cyc. p. 1002; Gladwin State

Bank v Dow, 212 Mich. 521

(13 A.L.R. 1233).' Union

Guardian Trust Co. v Craw-

A309

ford, 270 Mich. 207.

‘If a transaction is usur-

ious in its inception, it

remains usurious until

purged by a new contract;

and all future transactions

connected with or growing

out of the original are

usurious and without valid

consideration. An original

taint of usury attaches to

the whole family of consecu-

tive obligations and secur-

ities growing out of the

original vicious transaction;

and none of the descendant

obligations, however remote,

can be free of the taint if

the descent can be fairly

traced.' Webb on Usury, S308.

See, also, Gladwin State Bank

v Dow, 212 Mich. (31) 521 (13

A.L.R. 1233).

As said in Continental Na-

tional Bank of Chicago, I1ll-

inois v Fleming, 170 Mich.

624, 643:

‘If the transactions on account

of which the indebtedness was

incurred were tainted with

usury, its effect cannot be

avoided by taking other paper

or security for the indebted-

ness, including the usurious

charge.'"

The case law in Michigan describes

the Fishell/Soltow transactions. Every one

of the six promissory notes entered into

between the parties was at a usurious in-

A310

terest rate. When the notes were con-

solidated into the amended promissory note

of August 25, 1988, the figure for the

amended note was arrived at by adding up

the principal amounts loaned by Defendant

Soltow to Plaintiff Richard Fishell and

adding to that all the interest at the

various usurious interest rates.

SUMMARY ON USURIOUS INTEREST CLAIMS

The facts set forth by Plaintiffs

concerning the usury issue are not

disputed. The interest rate charged by

Defendants on each of the six loans are

set forth in documents prepared by either

the Defendant or the Defendant's attorney.

Plaintiffs are entitled to summary

judgment on the usury issues. This has

several results, which are as follows:

1. Defendants are barred from the

recovery of any interest, any official

fees, delinquency or collection charge,

attorney's fees or court costs. MCL 438.32,

A311

supra; (32)

2. The documents signed on August

25, 1988, are of no effect or consequence.

Mathews v Tripp, supra, wherein the Court

said as follows:

"If a transaction is usurious

in its inception, it remains

usurious until purged by a

new contract; and all future

transactions connected with

or growing out of the original

are usurious and without valid

consideration.”

3. Plaintiffs are not and never

have been in default of the $350,000

promissory note dated July 8, 1986, or the

mortgage given as security for said note.

As was pointed out, supra, the note pro-

vided for no principal payments until July

7, 1989. Only interest payments were due

prior to July 7, 1989 and they were due

every six months commencing January 7,

1987 (Plaintiffs' Exhibit 5).

Therefore, when Attorney Austin

wrote the demand letter for Defendants

Soltow on April 29, 1988, the note and

A312

mortgate of July 8, 1986 were not in de-

fault. Likewise, when Attorney Austin

threatened forfeiture on behalf of Defen-

dant Robert Soltow against Plaintiffs, in

his letter of August 12, 1988 (Plaintiffs'

Exhibit 15) and enclosed a proposed land

contract, Plaintiffs, were not in default

of the promissory note and mortgage dated

July 8, 1986. Further, when Defendants and

Attorney Austin had Plaintiffs sign the

documents on August 25, 1988, Plaintiffs

were not in default of the note and mort-

gage of July 8, 1986. Plaintiffs were not

in default of the note and mortgage of July

8, 1986, because at all those times men-

tioned (33) the only payments that had been

due from Plaintiffs to Defendants on said

note were interest payments. The only de-

mand or charge the Defendants made against

Plaintiffs for interest on the $350,000

promissory note were usurious charges and

demands. Therefore, Defendants were not

A313

entitled to collect any interest on that

$350,000 promissory note and with no in-

terest payments collectible, there was no

default on the note or mortgage.

4. All of the documents signed by

Plaintiffs on August 25, 1988 are null and

void. Since no payments were due from

Plaintiffs to Defendant on the $350,000

note, there was no default on that note and

mortgage. Therefore, since there was no

default and in light of the language in

Mathews v Tripp, supra, there was no con-

sideration for these documents that were

Signed on August 25, 1988.

5. Defendant Robert Soltow's

remedies are as follows:

(a) Defendant Robert Soltow has an

unsecured claim against Plaintiffs for the

sum of $4,000 on note #1, dated April 23,

1982 (Plaintiffs' Exhibit 1), because under

the cases cited above, any payment made on

that note must be deducted as a principal

A314

payment and since the Plaintiffs paid

$6,000 on November 13, 1983, there is only

a $4,000 balance owing. $4,000 in

principal and no interest is collectible.

(b) Defendant Robert Soltow has an un-

secured claim against Plaintiff R. Fishell

for $6,250, on loan #2, being the (34)

principal amount of the loan of January 29,

1986 (Plaintiffs" Exhibit 4);

(c) Defendant Robert Soltow has a

Claim against Plaintiffs for $350,000,

being the principal amount of the loan of

July 8, 1986. This loan is collateralized

by a mortgage on the real estate which I

presume that Defendant Robert Soltow could

argue that he is entitled to commence fore-

closure of that mortgage.

(d) Defendant Robert Soltow has an

unsecured claim against Plaintiffs for

$10,000, being the principal amount of the

loan of July 16, 1987 (Plaintiffs' Exhibit

6).

A315

(e) Defendant Robert Soltow has an

unsecured claim against Plaintiffs in the

amount of $25,000, being the principal

amount of the loan of September 3, 1987

(Plaintiffs' Exhibit 8).

(f) Defendant Robert Soltow has an

unsecured claim against the Plaintiff

Richard Fishell for $55,000, being the

principal amount of the loan of March 24,

1988 (Plaintiffs' Exhibit 9).

To summarize, Defendant Robert Soltow

has an unsecured claim against Richard

Fishell only on loans 2, and 6 for an

amount that totals the principal amount of

each of those loans, being $61,250. That

Defendant R. Soltow has an unsecured claim

against both Plaintiffs on loans 1, 4 and

5 for an amount that (35) totals the

principal of those loans, less the $6,000

payment on the first loan, giving a total

unsecured claim against both Plaintiffs in

the amount of $39,000. Defendant Robert

A316

Soltow has a secured claim against both

Plaintiffs and against the subject property

for $350,000, being the principal amount of

that loan.

6. Plaintiffs shall recover their

attorney's fees and court costs from

Defendants. (MCL 438.32, supra.

RELIEF

Plaintiffs therefore, under the

usurious interest claims, respectfully re-

quest this Court to issue a summary judg-

ment for Plaintiffs and against Defendants

as set out in this summary. (36)

FACTUAL STATEMENT CONCERNING AUGUST

25, 1988 DOCUMENTS AND EVENTS SUB-

SEQUENT THERETO.

In order to induce the Plaintiffs to

execute the documents of August 25, 1988,

Defendant Robert Soltow and Attorney Austin

made certain representations to Plaintiff di

Richard Fishell, including but not limited

to:

1. The public as well as any people

A317

i

that Plaintiff would be dealing with on

selling or developing the property would

not receive any notice or be aware of the

dealings between Plaintiff and Defendant

concerning said documents, other than the

mortgage modification agreement which De-

fendant Robert Soltow would record;

2. That said transaction, other than

the recording of the mortgage modification

agreement, would be kept confidential at

least until February 15, 1989. That if the

indebtedness was not paid by Plaintiff to

Defendant by February 15, 1989, then the

deed that was being placed in escrow could

be recorded by Defendant Robert Soltow;

3. Ina letter dated August 12, 1988

(Plaintiffs' Exhibit 15), from Attorney

Austin to Plaintiffs, Attorney Austin

advised Plaintiffs they were in default on

the $350,000 note of July 8, 1986, as well

as the five other loans. Further that

under a mortgage foreclosure Plaintiffs'

A318

redemption period would expire prior to the

end of January, 1988 (sic). Therefore,

Plaintiffs would benefit from signing the

proposed land contract because it would

give Plaintiffs more time to develop or

sell (37) the property and Plaintiffs would

avoid any public knowledge that would be

brought about by advertising the fore-

closure. The land contract approach was

dropped by Austin;

4. Then Attorney Austin advised

Plaintiff Richard Fishell that if Fishells

signed the new set of documents on August

25, 1988, and did not pay off the loans by

February 15, 1989, that Defendant Soltow

could record the deed that Plaintiffs were

placing in escrow. However, Plaintiff R.

Fishell was advised by Attorney Austin and

understood that the deed was just addi-

tional protection for Defendant R. Soltow;

that what Defendant R. Soltow had was a

mortgage on the property for the increased

A319

amount; and, if Defendant Soltow wanted to

get title to the land he would have to

foreclose after February 15, 1989, and then

Fishell could redeem the property after

said foreclosure;

5. Attorney Austin advised Plaintiff

R. Fishell and Plaintiff R. Fishell under-

stood that if Plaintiffs did not pay De-

fendant R. Soltow by the end of any redemp-

tion period which would run after a mort-

gage foreclosure susequent to February 15,

1989, then Defendant R. Soltow would have

—— title to the property;

6. Defendant Robert Soltow repre-

sented to Plaintiff Richard Fishell that he

just wanted his money repaid and there was

a verbal representation made from Defendant

R. Soltow to Plaintiff R. Fishell that

Plaintiff, Richard Fishell, would be

allowed to treat the property as his own

and to sell same without any hinderance

from Defendant even after the February (38)

A320

m

15, 1989 date set forth in the escrow

holding agreement;

7. That if the indebtednesses were

not paid by February 15, 1989, and if De-

fendant Robert Soltow caused the deed that

was placed in escrow from Fishell to Soltow

to be recorded, that Plaintiff Richard

Fishell could continue to treat the

property as his own and to sell same with-

out any hinderance from Defendant. It

being represented to Plaintiff R. Fishell

by Defendant R. Soltow that he just wanted

Fishell to get a chance to either develop

or sell the property and pay him what was

owed.

The above representations made by

Defendant R. Soltow and Attorney Austin

were inaccurate and untrue.

That Plaintiffs believed and relied

upon said representations in signing the

documents on August 25, 1988. That Plain-

tiffs were deceived by said representations

A321

to their detriment in that:

(1) Plaintiffs believed that they

were getting really unlimited time to sell

and/or develop their property;

(2) Plaintiffs believed Defendants

would do nothing to hinder Plaintiffs '

efforts;

(3) Plaintiffs believed that Plain-

tiff Richard Fishell would be able to con-

tinue his efforts to either sell and/or

develop said property without hinderance

from Defendant even after February 15,

1989;

(4) Plaintiffs believed Defendants

were just taking the deed in escrow as

additional security for the indebtedness;

(39) (5) Plaintiffs believed that De-

fendant R. Soltow just wanted to consoli-

date the loans and be paid on same.

(6) Plaintiffs accepted Austin's

representations that the amount owed on all

six loans with legal interest was

A322

i ,

$610,446.14.

When the above representations were

made, Plaintiffs were in privy with the

Defendant Robert Soltow in the transactions

of August, 25, 1988. Plaintiff was de-

ceived by the representations into signing

the documents of August 25, 1988. De-

fendant R. Soltow has now taken the posi-

tion that he is the owner of the subject

property. Plaintiff has suffered injury

and damage due to said misrepresentations,

including but not limited to the following:

(1) Defendant Soltow claims to be

the owner of the property;

(2) The Property has a value of at

least $1,380,000;

(3) Defendant R. Soltow has filed a

deed and has informed Plaintiff R. Fishell

that Fishell no longer has an interest in

the property, except the same right to sell

the property as any real estate person

would have (R. Soltow's Deposition 3/20/91,

A323

P. 107);

(4) Prior to signing the documents

of August 25, 1988, all Plaintiffs owed

Defendant R. Soltow on the note and mort-

gage on said property (transaction of July

8, 1986) was $350,000;

(5) That after the August 25, 1988

transaction with the other five notes con-

solidated into th amended promissory (40)

note of August 25, 1988, together with all

the usurious interest on all six loans, the

indebtedness which was secured by the mort-

gage on the subject property rose to

$610,446.14. Further that Defendant R.

Soltow claimed that that indebtedness con-

tinued to increase by at least 15% per

year.

That the damages to Plaintiffs by

Defendant Soltow's and Attorney Austin's

misrepresentations have inured to the bene-

fit of Defendants because they are claiming

ownership of th subject property which is

A324

worth at least $1,380,000 by actually

loaning $350,000 to Plaintiff R. Fishell,

for which Defendant R. Soltow took the

subject property as security.

Not only were the. foregoing represen-

tations false when made by Defendant R.

Soltow and/or Attorney Austin, but they

were known to be false when made or were

made in a reckless manner, without any

knowledge of their truth and as a positive

assertion. That when the representations

were made by Defendant Soltow and Attorney

Austin they were made with the intention

that the representations would be acted

upon by the Plaintiffs. As above stated,

Plaintiffs in fact relied upon such repre-

sentations, did act upon said representa-

tions and Plaintiffs thereby suffered

injuries as set forth above.

Defendant Robert Soltow did not in-

tend, at the time of making the representa-

tions or at the time Attorney Austin made

A325

the representations, and does not now

intend to perform as agreed, as evidence

by: (41)

1. The Defendant and Attorney

Austin, from and after August 25, 1988,

represented to others dealing with the

property, including local governmental

officials, that Plaintiff Richard Fishell

need no longer be dealt with respecting

the subject property;

2. Defendant R. Soltow could not

have foreclosed on the mortgage and had the

redemption period expire prior to the end

of January, 1980;

3. Defendant R. Soltow and Attorney

Austin caused and Affidavit prepared and

signed by Attorney Douglas Austin to be

filed on February 7, 1980, with the

Register of Deeds. This Affidavit advised

the world that by February 15, 1980, Plain-

tiffs would have no interest in the subject

property (Plaintiffs' Exhibit 25);

A326

4. In April, 1989, Attorney Austin

prepared and Defendant R. Soltow delivered

to Plaintiffs at Plaintiffs' residence a

document entitled "Amendment to Note and

Escrow Holding Agreement." This document

was delivered by Defendant Soltow to Plain-

tiffs at their residence on April 20, 1989.

the document was prepared so that it was

purported to have been an agreement of Feb-

ruary 15, 1989. The document, among other

things, attempted to terminate the verbal

agreement that Defendant Soltow had with

Richard Fishell regarding the fact that the

documents of August 25, 1988 were really

security documents and that Fishell could

continue to treat the property as his own

(42) regarding the development and sale of

same. The document (Plaintiffs' Exhibit

26) basically provided as follows:

1. The maturity date of the amended

promissory note was extended from

February 15, 1989 to March 15, 1989;

2. If Soltow obtains title to the

A327

premises through delivery of the

warranty deed from the escrow agent

Soltow agrees to reconvey title to

Fishells at any time from March 16,

1989 to and through April 24, 1989,

in exchange for the payment by Fis-

hells of the $700,000 plus $300 per

day from March 16, 1989;

3. The reconveyance from Soltow to

Fishell shall be in the form of Exhi-

bit F which was attached to the letter;

4. At the time of reconveyance Soltow

shall also deliver to Fishells the

mortgage discharge;

5. Defendant Rosalee Soltow joins in

this agreement solely for the purpose |

of consenting to the release of her

dower interest in the premises by ex-

ecuting the warranty deed;

6. "This agreement constitutes and

merges all of the agreements between

the parties arising since August 25,

1988, relative to the escrow holding

agreement and the premises and no

agreements hereafter arising shall be

binding unless in writing and signed

by Soltow and Fishells."

7. |Except as otherwise amended by the

foregoing, this escrow holding agree-

ment shall remain in full force and

effect."

This document shows that Defendant R.

Soltow and Attorney Austin recognized that

all Defendant R. Soltow had was a security

agreement. It further recognized that

A328

Plaintiffs were owners of the property and

could dispose of same. It recognizes if

the documents on their face did not so pro-

vide, (43) that Defendant Soltow had ver-

bally agreed to same. Paragraph 6 of the

agreement was an attempt to terminate that

verbal understanding and eliminate Plain-

tiffs' continuing interest in the property

by April 24, 1989 (four days from the date

the document was delivered to the Plain-

tiffs). Not only was it obvious from this

document that there was at least a verbal

understanding that Plaintiffs were still

the owners of the property after February

15, 1989, it was also obvious there was

such a verbal understanding from other

documents (Plaintiffs' Exhibits 27, 28 and

29). Those documents are as follows:

1. Plaintiffs' Exhibit 27 is a letter

from Robert Soltow to Mr. Leroy D. Scott,

First Vice President of Manufacturers Bank

in Lansing. The letter is dated February

A329

14, 1989 (but not sent until 2/21/89-see #2

below), and says as follows:

"I am the holder of a mortgage on

44.319 acres, more or less, in

Oneida Township, Eaton County,

Michigan, title which is held by

Mr. and Mrs. Fishell. I under-

stand from a copy of the February

10, 1989 commitment letter which

the Fishells have provided to me,

that you will be making a loan

for the purpose of paying off this

mortgage.

The mortgage has a balance of

$652,341.14 as of February 7, 1989,

plus per diem interest thereafter

at the rate of $250.8682."

(Emphasis supplied)

2. Plaintiffs' Exhibit 28 is a letter

dated February 21, 1989, from Attorney

Austin to the same Mr. Scott, which en-

closed the above letter of February 14,

1989 from Defendant Soltow and also en-

closed a copy of a discharge of mortgage

(44) (Plaintiffs' Exhibit 28A) which Austin

would tender the original of at the closing.

Mr. Austin asked for a closing date.

3. Plaintiffs' Exhibit 29 is a letter

from Austin to Mr. Scott dated March 16,

A330

1989. Also on March 16, 1989, Defendant

R. Soltow had caused Austin to have the

deed from Plaintiffs to R. Soltow taken out

of escrow and recorded in Soltow's name

(Plaintiffs' Exhibits 30 & 31). However,

Defendant R. Soltow and Austin continued to

recognize that Defendant Soltow merely had

@ mortgage and Plaintiffs were able to sell

the property and pay off the mortgage.

This is demonstrated by Plaintiffs' Exhibit

29. This letter advises the bank that the

pay off figures set forth in Defendant R.

Soltow's letter to mr. Scott on February

14, 1989 (Plaintiffs' Exhibit 27) had ex-

Ppired as of March 15, 1989. The letter

requested that Mr. Scott contact Mr. Austin

should any closing be scheduled in the

future.

When Defendant R. Soltow delivered the

Proposed amendment to note and escrow hold-

ing agreement to the Fishells on April 20,

1989 (Plaintiffs' Exhibit 26), which

A331

attempted to terminate Plaintiffs' interest

in said property as of April 24, 1989,

Plaintiff R. Fishell became very concerned.

Plaintiff R. Fishell tried to talk to De-

fendant R. Soltow on that occasion and

Defendant R. Soltow was very evasive. De-

fendant R. Soltow would not sit down and

visit, Defendant R. Soltow was acting very

quiet and very unusual. Defendant R.

Soltow had never delivered any papers from

Austin before. Attorney Austin had called

and said Austin had some papers for

Plaintiffs to sign (45) and Defendant R.

Soltow was at Austin's and Austin would send

‘the papers out by Defendant R. Soltow.

Plaintiff Fishell walked Defendant Soltow

out to his car and asked Defendant Soltow

"can't you talk?" Defendant Soltow's re-

sponse was either "No, not much" or "No,

not very well." Plaintiff R. Fishell did

not sign the proposed document. However,

because of the language in the document;

A332

because of Defendant's actions or attitude

at Fishell's house on April 20, 1989; be-

cause now that Defendant Soltow had filed

the deed and could not convey back the

property without Defendant Rosalee Soltow's

signature; and, because of the other things

that had transpired (including the meeting

called for by Austin that had been held on

April 5, 1989, between Austin, his law

partner Lowe and Plaintiff R. Fishell),

seven (7) days later on April 27, 1989,

Plaintiff Richard Fishell filed this law-

suit.

If Defendant R. Soltow or Attorney

Austin had made proper representations to

Plaintiff R. Fishell, Plaintiff Richard

Fishell and Plaintiff Dorothy Fishell,

would never have signed the documents on

August 25, 1988. Plaintiff Richard i

Fishell just thought he was being fair in

giving Defendant Soltow additional col-

lateral and putting all the debts into the

A333

collateralized note and then Plaintiffs

could avoid any advertising for foreclosure

and be able to develop the property or sell

same without any time pressure. Plaintiff

Richard Fishell thought the real purpose of

the documents of August 25, 1988 was to

collateralize the other loans. If

Plaintiff Richard Fishell (46) had known

what Defendant Soltow and Attorney Austin

would end up doing, what they did; or, if

Plaintiff Richard Fishell had known about

the usurious interest rates, the documents

of August 25, 1988 would not have been

Signed. Plaintiff Richard Fishell had a

big hang up that the advertising of any

economic pressure on him would greatly ad-

versely affect any deal he might have then,

or in the future, regarding developing or

selling the subject land. Of course, all

of this has been defeated because of the

Affidavit filed by Austin on February 7,

1989, and the filing of the deed by De-

A334

EOE

fendant R. Soltow on March 16, 1989. What

has happened to the Plaintiffs as a result

of Defendant Soltow's misrepresentation,

Attorney Austin's misrepresentation and

both Austin's and Soltow's conduct is much

worse than the publicity of a foreclosure

advertisement. Soltow is claiming he owns

Plaintiffs' property; Plaintiffs have to

litigate to have their property and

Plaintiffs have been forced to file for re-

lief in the bankruptcy court, which has

been devastating to both Plaintiffs.

If Plaintiffs had only known, they

could have avoided all of this. Plaintiff

would have sold all or part of the subject

land for a price less than $1,300,000 and/

Or used other assets to pay off Defendant

Soltow. Plaintiffs would not lose property

worth at least $1,300,000 for a $350,000 '

loan. (47)

Response to Testimony Relied Upon by

Defendants in their Brief in Support of

A335

Motion for Summary Judgment

In response to Defendants' Brief in

support of their Motion for Summary

Judgment, it shold be noted that Defendants

rely primarily on the testimony taken be-

fore Circuit Judge Eveland on Plaintiffs'

Motion to Disqualify the Fraser firm from

representing Defendants. There has never

been a hearing on the merits of the case

before Judge Eveland and so the testimony

relied upon by Defendants from those hear-

ings is very limited. Further, what they

have presented to the Court is not accurate

from the whole transcript of the two hear-

ings.

Although Defendants spent a great deal

of time pointing out that Judge Eveland did

not think the Fraser firm should be dis-

qualified, Plaintiffs will not belabor

those conclusions by Judge Eveland, since

that is not the issue presently before this

Court. Plaintiffs will only point out to

A336

the Court that Plaintiffs' appeal to the

Michigan Court of Appeals and to the Mich-

igan Supreme Court were on an interlocutory

order and the appeals were by application

for leave and not as a matter of right.

The Courts merely declined to hear the

appeals at that time. However, the Court

of Appeals decision to decline hearing the

appeal was a 2-1 split with Judge Kelly

voting to grant leave to appeal, grant

motion for stay and take the motion for

peremptory reversal under advisement (De-

fendants' Exhibit I). It should also be

pointed out that Judge Eveland said: "The

Court also has searched the record for any

information that (48) Austin obtained with-

in his confidential relationship with

Soltow (sic) that would prejudice Soltow

(sic) in this case." The Court when on to

say:

"I find no basis to believe that

there was a reasonable probability

that confidences were disclosed

A337

which could be used against

Fishell. In order to find that

there was a probability the Court

would have to conclude that Fishell

believed that Austin represented

him and not Soltow on the mortgage

transaction. The evidence offered

is insufficient and non-credible."

(Defendants' Exhibit H).

The Court concluded that he could find no

breach of professional ethics by the Fraser

firm in representing the Defendants and

accordingly denied the motion. It is of

note that prior to Judge Eveland's decision

Eaton County Circuit Judge Shuster granted

a similar motion by Fishells to disqualify

the Fraser firm from representing Mr.

Soltow in another case pending in Eaton

County that involved Fishell and Soltow,

"In the Matter of the Complaint of the

Eaton County Drain Commissioner for the

Condemnation of Private Property for the

Reed Drainage District in Oneida Township,

Eaton County, Michigan," Docket No. 89-377-

Cc.

The first hearing date on Plaintiffs'

A338

Motion to Disqualify the Fraser firm was

October 4, 1989, and it was continued on

February 27, 1990. These were not hearings

on the merits and the Judge advised the

attorney for Plaintiffs to only deal with

the disqualification issue and not the

merits of the case (Tr. 10/4/89, Pp. 61,

78; Tr. 2/27/90 Pp. 84, 85, 93, 94). (49)

So when Defendants' counsel points out

testimony that was obtained from Plaintiff

Fishell that dealt with the merits, the

record is very limited. However, that

transcript does support Plaintiff Fishell's

position in numerous aspects, including

(Tr. 2/27/90):

1. Plaintiff Fishell was concerned

when he received the April 29,

1988 letter from Attorney Austin

demanding payment on the notes and

thratening mortgage foreclosure

(Plaintiffs' Exhibit 7, Tr. P.

61);

2. Plaintiff Fishell relied on

Attorney Austin as to what he

should do to avoid any advertising

of said foreclosure and followed

Attorney Austin's advice on sign-

ing the papers on August 25, 1988

A339

(Tr. Pp. 60 & 61);

Plaintiff Fishell relied on

Attorney Austin's advice set

forth in Austin's letter of August

12, 1988 (Plaintiffs' Exhibit 15),

that Plaintiffs would only have a

six month redemption period that

would expire prior to the end of

January (Tr. Pp. 59 & 60);

That Attorney Austin did not ex-

plain the pros and cons of signing

the "renewal" documents on August

25, 1988 (Tr. P. 589);

That Attorney Austin did explain

to Plainiff Fishell that if

Fishells signed the documents on

August 25, 1988 that the sole

benefit Fishells would receive is

that they would avoid advertising

(Pes PB. 238: F3)3

That Attorney Austin did not tell

Plaintiff Fishell what the

benefits of the August 25, 1988

documents were to Defendant Soltow

(Se. Ps Fass

That Attorney Austin represented

to Plaintiff Fishell that if

Fishells signed the documents on

August 25, 1988 that Defendant

Soltow would still have to fore-

close on the mortgage and Plain-

tiff Fishell would be able to buy

it back during the redemption

period (Tr. Pp. 62, 63); (50)

That Plaintiff Fishell undertood

when he signed the documents on

August 25, 1988 that if Plaintiff

Fishell did not pay Defendant

A340

10.

11.

Soltow would receive a deed to

the property (Tr. P. 68);

However, Plaintiff Fishell also

understood that the deed was just

additional protection and what

Defendant Soltow had was a mort-

gage on the property for the

increased amount; and, if Soltow

wanted to get title to the land

he would have to foreclose and

Fishell could redeem (Tr. Pp. 67,

68, & 63);

Plaintiff Fishell understood that

if Soltow did foreclose on the

deed and mortgage after February

18, 1989 and if Plaintiff Fishell

did not redeem during the redemp-

tion period, that at the end of

the redemption period Plaintiff

Fishell would lose the land (Tr.

P. 63);

That even after the deed was

taken out of escrow, given to

Defendant Soltow and recorded,

Defendant Soltow kept telling

Plaintiff Fishell to sell the

property and pay off Soltow's

loans, "All I want is my money"

(Ze. Fa. CE33

That Attorney Austin never told

either Plaintiff that he was not

looking out for their interest

when the documents of August 25,

1988 were signed and never sug-

gested to them that they should

have another attorney review the

documents or advise them (Tr. Mr.

Fishell, P. 46 60; Mrs. Fishell,

P. 114 & 115);

A341

12. Attorney Austin testified that he

knew Plaintiff R. Fishell felt he

had an attorney/client relation-

ship with Austin; and that Plain-

tiff R. Fishell had confidence

and trust in Attorney Austin

(Tr. 10/4/89, P. 106);

13. Attorney Austin nor Defendant

Soltow ever explained the usuri-

ous interest rates being charged

by Soltow to Fishell on all six

notes when they were consolidated

into one with the amended note of

August 25, 1988 (Tr. 10/4/89,

P. 106; also see Austin's Deposi-

tion of 3/20/91, P. 59). (51)

ARGUMENT

THE DEFENDANT R. SOLTOW'S AND

ATTORNEY AUSTIN'S MISREPRESENTA-

TION, CONDUCT AND FAILURE TO DIS-

CLOSE CERTAIN FACTS CONSTITUTED

ACTUAL FRAUD, INNOCENT MISREPRENTA-

TION, AND SILENT FRAUD.

United States Fidelity and Guaranty

Co v Black (1981) 412 Mich 99; 313 Nw2d 77

sets forth a very thorough discussion on

actual fraud (traditional fraud), innocent

misrepresentation (constructive fraud) and

Silent fraud. Under Michigan law the

misrepresentations made by Defendant R.

Soltow and Attorney D. Austin constitute

A342

both innocent misrepresentation and actual

fraud. The withholding of information,

including but not limited to, the usurious

interest rates charged on the six loans |

discussed previously and consolidated into

the note of Agusut 25, 1988, and the fail-

ure to disclose Defendants’ position on

the title passing to Defendant once the

deed was removed from escrow, without the

need of foreclosure, were nondisclosures

that constitute silent fraud.

Page 114 of the Black case, supra,

sets forth the general rule for actual or

traditional fraud, quoting from Candler v

Heigho, 208 Mich 115, 121; 175 NW 141

(1919) as follows:

"'The general rule is that to

constitute actionable fraud it

must appear: (1) That defendant

made a material representation;

(2) that it was false; (3) that

when he made it he knew that it

was false, or made it recklessly,

without any knwledge of its truth

and as a positive assertion; (4)

that he made it with the intention

that it should be acted upon (52)

A343

by plaintiff; (5) that plaintiff

acted in reliance upon it; and (6)

that he thereby suffered injury.

Each of these facts must be proved

with a reasonable degree of cer-

tainty, and all of them must be

found to exist; the absence of any

one of them is fatal to a recovery.'"

Then on Page 116 of Black case,

supra, the Court said as follows:

"The rule of ‘innocent misrepresenta-

tion' is well expressed in a passage

from Phillips, supra, p 20, quoting

23 Am Jur, Fraud and Deceit, Sec 120,

p. 908, reincorporated in 37 Am Jur

2d, Fraud and Deceit, Sec 195, p. 257:

‘The minority rule is followed in at

least one state in a slightly more

specific formulation; it is held that

where an action is brought to recover

for false and fraudulent misrepre-

sentations made by one party to

another [1] in a transaction between

them, [2] any representations which

are false in fact [3] and actually

deceive the other, and [4] are relied

on by him to his damage, are action-

able, irrespective of whether the

person making them acted in good faith

in making them, [5] where the loss of

the party deceived inures to the

benefit of the other.'"

Then on Page 117 of the Black case,

supra, the Court said as follows:

"In comparing the traditional common-

law rule as stated in the Court of

A344

Appeals opinion with the innocent

misrepresentation rule set forth

in American Jurisprudence, several

Significant differences appear.

1. The innocent misrepresenation rule

occurs [1] in a transaction between

the contracting parties, whereas no

such requirement appears in the tra-

ditional rule. The instant case of

course involves a contract of indemni-

ty.

2. The requirement of scienter, i.e.,

knowledge of the falsity of the misre-

presentation, is present in the tradi-

tional rule (3) but not present(53) in

the innocent misrepresentation rule

[3] and [4]. The Court of Appeals

correctly recognized this.

3. The traditional misrepresentation

rule requires (4) that the misrepre-

sentation be made with the intention

that it should be acted upon by the

victim. The innocent misrepresenta-

tion rule has no such requirement.

The quotation from American Jurispru-

dence states [4] ‘irrespective of

whether the person making them acted

in good faith in making them'. As

to this point, of course, the Court

of Appeals applied the traditional

instead of the 'innocent' misrepre-

sentation rule. We shall discuss this

further almost immediately.

4. Under the traditional misrepre-

sentation rule, it is sufficient that

the victim (6) suffer an injury.

Under the innocent misrepresentation

rule, the victim [5] must not only

suffer an injury but also the injury

must inure to the benefit of the

A345

" oe eee

other."

In dicussing silent fraud, Black,

supra, on Page 125 stated as follows:

"It is generally recognized that

'{f]raud may be consummated by

suppression of facts and of the

truth, as well as by open false

assertions’, Fred Macey Co v

Macey, 143 Mich 138, 153; 106

NW 722 (1906), since ‘a suppres-

sion of the truth may amount to

a suggestion of falsehood’.

Stewart v Wyoming Cattle Ranche

Co, 128 US 383, 388; 9 S Ct 101;

32 L Ed 439 (1888). In order for

the suppression of information to

constitute silent fraud there must

be a legal or equitable duty of

disclosure. See 37 Am Jur 2d,

Fraud and Deceit, Sec 146."

In Wolfe v A. E. Kusterer & Co (1934)

269 Mich 424, 427; 257 NW 729, the Court

made the following comments concerning

Silent fraud:

"'Fraud may be consummated by

suppression of facts and of the

truth, as well as by open false

assertions.' Fred Macey Co. v

Macey, 143 Mich 138, 153 (5 L.R.A.

([N.S.] 1036). (54) ‘In an action

of deceit, it is true that silence

as to a material fact is not neces-

sarily, as a matter of law, equiva-

lent to a false representation.

But mere silence is quite different

from concealment; aliud est tacere,

A346

aliud celare; a suppression of the

truth may amount to a suggestion of

falsehood; and if, wit

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