DAVID NABIL BAZZI, UNPUBLISHED
September 10, 1999
Plaintiff-Appellee,
v No. 201420
Wayne Circuit Court
EMERALD CONSTRUCTION OF MICHIGAN, LC No. 94-412610 CK
BORIS BRODSKY, and DIMITRI BRODSKY,
Defendants-Appellants,
and
CITY SERVICES, INC., ACCURATE
ADJUSTMENT COMPANY, DAVID A.
NORRIS, KURT W. NORRIS, and COMERICA
BANK,
Defendants.
____________________________________________
DAVID NABIL BAZZI and FADWA B. FADEL,
Plaintiffs-Appellees,
v No. 201496
Wayne Circuit Court
COMERICA BANK, LC No. 94-412610 CK
Defendant-Appellant,
and
EMERALD CONSTRUCTION OF MICHIGAN,
INC., DAVID A. NORRIS, DIMITRI BRODSKY,
BORIS BRODSKY, CITY SERVICES, INC.,
ACCURATE ADJUSTMENT COMPANY, INC,
STATE FARM FIRE AND CASUALTY
COMPANY, WESTERN ADJUSTMENT &
APPRAISAL COMPANY, INC. and KURT W.
-1-
NORRIS,
Defendants.
____________________________________________
Before: Zahra, P.J., and Saad and Collins, JJ.
PER CURIAM.
In this consolidated appeal, defendants Emerald Construction, Inc.
("Emerald"), Boris Brodsky ("Boris"), Dimitri Brodsky ("Dimitri") and
Comerica Bank ("Comerica") appeal as of right from the trial court's orders
denying defendants' motions to vacate the arbitration award and judgment
entered in favor of plaintiff David Nabil Bazzi. We affirm.
I. Facts
Plaintiff's residence, which was insured by State Farm Fire & Casualty
Company ("State Farm"), was destroyed by a fire. Plaintiff was induced by
Dimitri and David Norris ("Norris") to forego retaining Western Adjustment
and instead retain City Services, Inc., a defunct corporation. After
convincing plaintiff to contract with them, Dimitri and Norris presented
plaintiff with a contract on behalf of defendant Emerald Construction.
Plaintiff contracted with defendant Emerald to restore the premises. He
also executed a power of attorney appointing his sister, Fadwa B. Fadel
("Fadel"), to settle the fire claim with State Farm. Plaintiff alleged that
Norris and Dimitri, employees of Emerald, wanted plaintiff to sign a proof
of loss agreement and endorse a check that State Farm had issued to
plaintiff, Standard Federal Bank ("Standard Federal"), Accurate Adjustment
Co, Western Adjustment and Appraisal Co, Inc, and Emerald. Plaintiff wanted
to speak to Fadel before endorsing the check, but Norris and Dimitri told
him that they had telephoned Fadel and she had approved the transaction. In
fact, Fadel was never contacted and never gave her approval. Plaintiff
signed the proof of loss agreement and endorsed the check. The check was
then presented to Standard Federal, which withheld the balance of
plaintiff's mortgage ($37,300) and issued a cashier's check payable to
Emerald and plaintiff in the amount of $67,700, which was deposited in a
bank account at Comerica belonging to Emerald. It is undisputed that
plaintiff's signature was forged on the cashier's check.
Plaintiff filed suit in April, 1994, against numerous corporate and
individual defendants alleging seven counts. In October, 1994, plaintiff
amended the complaint to add Comerica and Boris. A count was added to the
amended complaint which alleged that Boris was individually liable because
Emerald was a fictitious entity by virtue of the fact that it had failed to
file its annual corporate report with the State. In addition, the amended
complaint alleged in a conclusory fashion that Boris was individually
liable for his actions as an agent of Emerald. Also in October, 1994, the
parties agreed to submit to binding arbitration to settle the plaintiff’s
suit. Contrary to defendants' position, the agreement to arbitrate does not
limit the scope of plaintiff's claims to the pleadings and answers as they
stood subsequent to the filing of plaintiff’s amended complaint. Rather,
the litigants agreed as follows:
-2-
1. That the above matter shall be dismissed without prejudice for the
reason the court may entertain the entry of a Judgment, to allow the
enforcement of the Judgment or allow creditors proceedings.
2. That arbitration shall proceed with a single arbitrator, the former
Wayne County Circuit Court Judge, the Honorable Thomas Roumell.
3. That the decision of the arbitrator shall be binding and final upon
all parties to the litigation.
4. That the arbitrator may assess attorney fees, costs and interest as
he sees fit against any party.
5. That the costs of the arbitrator shall be borne equally by the
three parties hereto.
6. That testimony may be taken and witnesses presented at the hearing.
7. That the decision of the arbitrator may be entered at a subsequent
time in this court.
The arbitration award provided that defendants Emerald, Boris Brodsky,
Dimitri Brodsky, Kurt W. Norris and David Norris were individually and
jointly liable to plaintiff for special damages for the insult of fraud in
the amount of $40,000. The arbitration award further provided that all
defendants, including Comerica, were liable to plaintiff for $67,700 for
the forged check, plus costs and attorney fees totaling $21,517.56, of
which Comerica was responsible for $7,172.50, and the other defendants
$14,345.06.
The arbitration award also provided that Comerica was entitled to be
reimbursed by Emerald and the individual defendants for the amount Comerica
would pay to plaintiff ($74,872.50) plus $9,734.25 for costs incurred by
Comerica in defense of this suit.
A judgment was entered in the circuit court consistent with the
arbitration award. Defendants filed separate motions to vacate the
arbitration award and judgment, which the trial court denied. Defendants
appeal as of right.
II. Bazzi v Emerald, et al.
In Docket No. 201420, Emerald, Boris and Dimitri first argue that the
arbitrator committed an error of law by attaching liability to Boris when
there was no showing that Boris personally made any representations to
plaintiff or was otherwise personally liable to plaintiff. We disagree.
Our authority to vacate an arbitration award is governed by MCR
3.602(J), which states in pertinent part:
(1) On application of a party, the court shall vacate the award if:
-3-
***
(c) the arbitrator exceeded his or her powers.
An arbitrator exceeds his or her authority when: (1) an error of law
plainly appears from the face of the award or such documentation as the
parties agree will constitute the record; or (2) when the arbitrator acts
beyond the material terms of the contract from which he primarily draws his
authority. Dohanyos v Detrex Corp, 217 Mich App 171, 175-176; 550 NW2d 608
(1996).
General principles of arbitration preclude courts from upsetting
arbitration awards for reasons relating to the merits of a claim. Dohanyos,
supra at 177. In Gordon Sel-Way, Inc v Spence Bros, Inc, 438 Mich 488, 497;
475 NW2d 704 (1991), our Supreme Court held:
[A]n allegation that the arbitrators have exceeded their powers must
be carefully evaluated in order to assure that
this claim is not used as a ruse to induce the court to review the
merits of the arbitrators' decision. Stated otherwise, courts may not
substitute their judgment for that of the arbitrators and hence are
reluctant to vacate or modify an award when the arbitration agreement
does not expressly limit the arbitrators' power in some way. Callahan,
Bramble & Lurie, supra, p 191; CJS, Arbritration § 162, pp 428-429.
See also Gavin, supra, p 429; Kaleva-Norman-Dickson School Dist v
Kaleva-Norman-Disckson Teachers' Ass'n, 393 Mich 583, 594-595; 227
NW2d 500 (1975).
With these principles in mind, we conclude that the arbitrator's award
against Boris Brodsky should not be modified. Preliminarily, we note that
the arbitrator, former Circuit Judge Thomas Roumell, took proofs over seven
days and issued a thirty-nine page decision in which he found that
"credibility was the major, if not the sole, most important factor to be
decided in reaching the final decision herein." The arbitrator further
found that "defendants' arguments were without credibility and therefore
unbelievable in their sound and content .... [T]he plaintiff's account as
to what transpired is to be given full faith and acceptance."
Boris' claim that the arbitrator manifestly disregarded the law by
attaching personal liability to Boris is in fact an attack on the merits of
plaintiff's claim. Defendants' brief on appeal states in pertinent part:
The evidence has been fabricated by the plaintiff. The arbitrator was
informed by appellants that the annual reports were filed and the corporate
entity, Emerald Construction was reinstated under MCLA 450.1925 and the
rule in Bergy Bros v Zeeland Feeder Pig, 415 Mich 286 (1982), so that no
individual liability attaches to Boris Brodsky as a matter of law.
It is legally irrelevant whether Emerald was reinstated as a corporate
entity.1 The claim of reinstatement was made by appellants. However, the
appellants were found to be wholly lacking in credibility by the
arbitrator. Thus, we are bound pursuant to Gordon Sel-Way, supra, to
conclude that the arbitrator implicitly found that Emerald was not a legal
corporate entity. Id. at 486.
-4-
_______________________________
There being evidence to support a finding of a lack of corporate
existence, we cannot conclude that the arbitrator made a clear legal error
or exceeded his authority by finding Boris personally liable. While the law
treats a corporation as a separate entity from its stockholders, even where
one person owns all the corporation's stock, when this fiction is used to
subvert justice it may be ignored by the courts. Foodland Distributors v
Al-Naimi, 220 Mich App 453, 456; 559 NW2d 379 (1996). There is no single
rule delineating when a corporate entity may be disregarded. Courts review
actions to pierce the corporate veil on a case by case basis. The corporate
veil may be disregarded upon a showing that:
"[One,] the corporate entity must be a mere instrumentality of another
entity or individual, Second, the corporate entity must be used to
commit a fraud or wrong. Third, there must have been an unjust loss or
injury to the plaintiff." [Foodland Distributors, supra, at 457,
quoting SCD Chemical Distributors, Inc. v Medley, 203 Mich App 374,
381; 512 NW2d 86 (1994).]
Plaintiff specifically alleged in the first amended complaint that Emerald
and its agents committed fraud. Moreover, there was evidence presented from
which the arbitrator could find that: (1) Emerald was a mere instrument of
Boris, Boris being the president and sole shareholder of Emerald; (2)
Emerald was used to fraudulently receive insurance proceeds from the
insurance settlement for plaintiff's home; and (3) plaintiff was injured
when Emerald accepted proceeds from the insurance settlement and then
failed to rebuild the house or refund the money. Accordingly, we find no
error of law on the face of the arbitration award which would require that
the arbitration award be set aside.
Next, defendants argue that the arbitrator exceeded his authority by
awarding special damages and attorney fees to plaintiff. We disagree. An
arbitration agreement is a contract. Beattie v Autostyle Plastics, 217 Mich
App 572, 577; 552 NW2d 181 (1996). The scope of arbitration is determined
by the contract. Id. The Michigan Supreme Court has stated that "an award
will be presumed to be within the scope of the arbitrators' authority
absent express language to the contrary." Gordon Sel-Way, supra at 497.
The arbitration agreement in this case specifically provided that "the
arbitrator may assess attorney fees, costs and interest as he sees fit
against any party." Defendants' argument that the parties intended to
restrict the award of attorney fees to situations authorized by statute or
court rule contradicts the plain language of the arbitration agreement and
is unsupported by the lower court record. Accordingly, we cannot find that
the arbitrator acted beyond the material terms of the arbitration agreement
by awarding attorney fees to plaintiff.
We further find that the arbitrator did not exceed his authority by
awarding "special damages for the insult of fraud and for all the
sufferings, embarrassment and mistreatment [plaintiff] endured from the
defendants herein including Emerald Construction of Michigan." There was no
express language in the arbitration agreement precluding the arbitrator
from awarding special damages to plaintiff. Moreover, exemplary damages for
mental or emotional distress are recognized in Michigan where tortious
conduct independent of the breach of contract is alleged and proven.
Phillips v Butterball Farms Co, Inc (After Second Remand), 448 Mich 239,
251; 531 NW2d 144 (1995); Phinney v Perlmutter, 222 Mich App 513, 531; 564
NW2d 532
-5-
(1997). In this case, plaintiff alleged fraud as a distinct cause of
action, and the arbitrator found that fraud had been committed by
defendants (excluding Comerica). In light of the parties' broad arbitration
agreement we find that there was no substantial or material error evident
from the face of the arbitration award.
III. Bazzi v Comerica
In Docket 201496, Comerica argues that the arbitrator committed an
error of law in failing to apply the intended payee rule which would have
made Comerica exempt from liability to plaintiff for accepting the forged
check. We disagree. A bank may escape liability for honoring a check on a
faulty or improper endorsement, or even with no endorsement, if the bank
can prove that the intended payee received the proceeds of the check and
the drawer suffered no loss proximately caused by the drawee's improper
payment. Comerica Bank v Michigan Nat Bank, 211 Mich App 534, 538; 536 NW2d
298 (1995).
The arbitrator found that the intended payee theory did not apply in
this case because the agreement that would have made Emerald an intended
payee was void. Unlike in Comerica Bank, supra, where the intended payee
received the proceeds of the check and used the money, Emerald was not the
intended payee. Plaintiff was the intended payee, but plaintiff did not
receive the proceeds of the check or use the money from the check.
Plaintiff was deprived of his interest in the check as a result of the
forgery and Comerica's breach of presentment warranty. Therefore, we
conclude that the arbitrator's finding that the intended payee rule did not
apply was not a substantial or material error on the face of the
arbitration award.
We also find no merit in Comerica's argument that the arbitrator erred
in allowing plaintiff to maintain a claim against Comerica because
plaintiff did not receive actual delivery of the check. Pursuant to MCL
440.3420; MSA 19.3420, an action for conversion of an instrument may not be
brought by a payee who did not receive delivery of the instrument "either
directly or through an agent or a co-payee." In this case Emerald received
delivery of the check and deposited the check in its account. Because
plaintiff was Emerald's co-payee, plaintiff received delivery through
Emerald. Plaintiff's action against Comerica was not precluded by MCL
440.3420; MSA 19.3420; therefore, we find no error on the face of the
arbitration award.
Affirmed.
/s/ Brian K. Zahra
/s/ Henry William Saad
/s/ Jeffrey G. Collins
1 Appellants have failed to present any evidence to this Court to establish
that Emerald was in fact reinstated as a legal entity.
-6-
|