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### STATE OF MICHIGAN

COURT OF APPEALS

PETER L. CONWAY, PC.,

Plaintiff/Counter-DefendantAppellant, UNPUBLISHED March 19, 2015

v No. 319011 Lapeer Circuit Court EASTERN LAKES TRANSPORT MUSEUM, LC No. 10-042747-CK

Defendant/Counter-Plaintiff/ThirdParty Plaintiff-Appellee,

and

RALPH D. GILPIN, DENNIS GARNER, ANDREW ROBINSON, GERALD B. SMITH, GERALD L. FANTINI, LARRY L. HARTLEY, and ROBERT T. JONES,

Defendants-Appellees,

and

PETER L. CONWAY,

Third-Party Defendant.

Before: B OONSTRA , P.J., and S AWYER and O’C ONNELL , JJ.

P ER C URIAM

.
Plaintiff 1 appeals by right the trial court’s order denying its motion fo r sanctions pursuant to MCR 2.114 and MCL 600. 2591. We affirm.

1 Attorney Peter L. Conway was not named, individually, as a pla intiff. Therefore, and for ease of reference, we use the term “plaintiff” to refer to the law f irm of “Peter L. Conway, P.C.” We-2- I. PERTINENT FACTS AND PROCEDURAL HISTORY

This action initiated with a claim by plaintiff for unpaid leg al fees. The following is a brief review of the underlying facts and litigation. In 2004, defendants 2 retained plaintiff to perform legal services concerni ng litigation involving the Yank ee Air Force, Inc. (“YAF”) and a certain parcel of property referred to as “the Farmhouse” prope rty. Apparently, a breakdown in the attorney-client relationship compelled plaintiff to withdra w as defendants’ counsel on March 1, 2010. Plaintiff brought t his action on April 30, 2010 , to collect unpaid attorney fees from defendants in the approximate amount of $95,000.

In answering the complaint, defendants essentially admitted th at they owed a “reasonable value” to plaintiff in unpaid legal fees, but denied that the a mount requested was reasonable. Defendants alleged that plaintiff failed to credit them for pay ments made on their account. In addition, defendants pleaded four affirmative defenses. 3 Defendants’ answer and affirmative

refer to third-party defendant, Peter L. Conway, individually, as “Conway.” We refer to defendant/counter-plain tiff/third-party plaintiff, Eastern Lake s Transport Museum, as “ELTM.” The term “defendants,” in the pl ural, refers to ELTM and the in dividual defendant s, collectively.

2 Defendant ELTM is the successor in interest to the Ad Hoc Memb ership Group (“Group”), a non-profit corporation. Individua l defendant Ralph D. Gilpin w as the resident agent of the Group. The other individual defendants were involved with the Group in various capacities. All individual defendants had provi ded written guarantees of costs and legal fees incurred by ELTM.

3 Defendants pleaded the fo llowing affirmative defenses: FIRST. Fraud in the Inducement. Beginning around 2007 Plaint iff led Defendant down the “primrose path” with assurances that the run ning billings need not be worried about. He gave the same assurance to Jan L . Herrick, Esq. Defendant relied on Plaintiff’s a ssurance that a sizeable recom pense would be available from winning the Ad H oc case. Plaintiff now demands payment in full of nearly one hundred thousand dollars knowing full well that D efendants, jointly or severally, cannot produce that sizeable a sum now or in the future without a bankruptcy protection. Further, Defendant demanded that Plaint iff rework his billings to reflect what Defendant asserts are un-necessary ser vices, error billings and similar errata. Pla intiff has refused to entertain the req uests.

SECOND. Failure to accept Defendant’s instructions in more th an one instance. Plaintiff’s specific instructions as to goals to be accomplished were brushed aside thereby causing an inflation of the billing total s when Plaintiff chose different routes which sati sfied him but were inimical to Defendant’s interests.

THIRD. Tortious Interference with a Business Proposition. Pl aintiff was instructed to move the Court in the Ad Hoc matter to release a certain deed from escrow, the Ad Hoc Committee having since acquired the necessar y IRS classification. Plaintiff refused to do so offering several va gue excuses. Whether the Court would have granted the Motion is immaterial for this matter. Plaintiff-3- defenses were signed by defendant Gilpin, as “attorney for defe ndants.” 4 Gilpin testified that he came out of a 20-year retirement to prepare and file the answer to plaintiff’s complaint.

During the course of litigating plaintiff’s claim for unpaid l egal fees, ELTM filed a separate legal malpractice action against plaintiff. The trial court declined to consolidate the two actions and dismissed the separa te legal malpractice action, an d instead permitted ELTM to file a counterclaim and third-party claim within the context of the in stant action. In its counterclaim against plaintiff and third-part y complaint against Conway, ELT M alleged that during the YAF litigation, the deed to the “Far mhouse” was transferred to ELTM and then placed in escrow. ELTM alleged that plaintiff and Conway negligently failed to pu rsue a motion to have that deed released from escrow. As a result, ELTM alleged that it lost t he opportunity to sell that property to an interested purchaser.

Plaintiff filed several motions for summary disposition in the instant case, and the trial court ultimately granted summary disposition in favor of plaint iff on both its primary claim and on ELTM’s counterclaim for legal malpractice. Defendants satis fied the resulting judgment, which totaled approximatel y $96,600, in favor of plaintiff.

Following the entry of the final summary disposition order, pl aintiff filed a motion for sanctions. Plaintiff argued in part that under the offer of ju dgment rule, MCR 2.405, it was entitled to recoup costs in the amount of $21,860, which repres ented the costs incurred by

was duty bound to so Move the Court at ELTM’s request, such bei ng legal and necessary for a decision. Failure to so Move caused Defendant to lose a favorable property sale to an interested buyer for cash, an amount suffic ient to pay off Plaintiff up to that moment in the AD Hoc case underling the pr esent matter. [This Court was moved to do so in February, 2010, but deferred the question for trial, on the false assertion of then Defendant that the Yankee AF bylaws prohibited such a transaction. S aid Yankee AF objection evapor ated in March, 2010, when the removal was accomplished.] [Sic.]

FOURTH. Wrongful Conversion. On more than one occasion Plain tiff discarded Defendant’s instructions in the Ad Hoc matter as to g oals to be accomplished, instead substituting his own and issuing his own instructions to Defendant to gain the result he wanted. This tactic effectivel y converted the case in chief from Defendant’s control to that of Plaintiff. The re sult was that Plaintiff’s billings to Defendant escalated and Defendant is no w demanded to pay for Plaintiff’s frolic and detour in the prosecution of Defenda nt’s underlying civil case. Attempts to discuss these objections with Plaintiff have brought rejection. Case in point: arranging a seco nd “facilitation” over Defendan t’s objection (which failed) then attempting to arrange a third one against D efendant’s specific refusal to participate fur ther in a failed strategy.

4 Indeed, defendant Gilpin is a licensed attorney in good standi ng in the State Bar of Michigan. See http://www.michbar.org/memb erdir/detail.cfm?PID=26373 (last accessed February 24, 2015).-4- plaintiff after defendants re jected plaintiff’s January 19, 201 1 counter-offer of judgment. Plaintiff also sought sancti ons under MCR 2.114 and MCL 600.259 1, arguing that it was entitled to an award of $80,607.50, representing the value of the attorn ey time spent (by plaintiff or Conway) defending against defendants’ allegedly unsupportable a ffirmative defenses, as well as the amount of attorney fees incurred by plaintiff having retain ed the services of an attorney to defend against the allegedly fri volous counterclaim for legal m alpractice.

Following a two-day evidentiary hearing, the trial court found that plaintiff was entitled to costs pursuant to MCR 2.405 in the amount of $27,720; howeve r, finding that defendants’ filings were not frivolous, it declined to assess sanctions pur suant to MCR 2.114 or MCL 600.2591. The court stated specifically:

Under statute and court rule, again, an attorney and the repre sented party have an affirmative duty to conduct a reasonable inquiry into t he factual and legal viability of the alleged claim before signing any document. Wh ether an inquiry was reasonable is determined by an objective standard. Reasona bleness is determined by the efforts taken in investigating a claim before filing suit, and the determination of reasonable inqui ry depends on the facts in the case. Subjective good faith is irrelevant. However, alleged facts that are subs equently determined to be false do not invalidate a prior reasonable inquiry. Plai ntiff appears to argue that the Defendants’ legal position is devoid of merit and ther efore frivolous pursuant to MCL 600.2591.

This Court disagrees. This Cour t determines that the Defendan ts’ complaint for malpractice was not frivolous under sections of M CL 600.2591. Although Defendants’ theory was unsuccessful, this Court does n ot find it to be completely devoid of legal merit, and there is nothing in the r ecord to support a finding that Defendants’ primary purpose was to either harass, embarrass, or injure the Plaintiff, or that the Defendants had no reasonable basis to believe that the facts underlying its legal position were in fact true. Thi s Court is well aware of the fact that the Defendants had a right to contest damages or contest the imposition of specific remedy. T his Court specifically finds t hat the Defendants had no malicious or evil intent in filing their complaint. Abs ent the finding of wrongful intent, the Defendant s hall not be penalized for havin g pursued their rights in judicial forums. The refore, based upon this analysis Plaintiff’s motions for sanctions is considered and denied.

Plaintiff now appeals the trial court’s resulting order denyin g plaintiff’s motion for sanctions under MCR 2.114 and MCL 600.2591.

II. STANDARD OF REVIEW

We review a trial court’s findi ngs regarding whether an action is frivolous for clear error

. Kitchen v Kitchen , 465 Mich 654, 661; 641 NW2d 245 (2002). A decision is clearl y erroneous where, although there is evidence to support it, the reviewing court is left with a definite and firm conviction that a mistake has been made. Id

. The interpretation of statutes and court rules, such-5- as MCL 600.2591 and MCR 2.114, is reviewed de novo. Estes v Titus
, 481 Mich 573, 578-579; 751 NW2d 493 (2008).

III. SANCTIONS

Plaintiff argues that sanctions were warranted because ELTM’s counterclaim for legal malpractice, their four asserte d affirmative defenses, and the allegation that defe ndants had failed to receive credit for payments made to plaintiff, each was whol ly frivolous, and that plaintiff was therefore entitled to sanctions pursuant to MCR 2.114 and MCL 6 00.2591. MCR 2.114(D) provides that the signature of an attorney or party on a docume nt, constitutes a certification by the signer that:

(1) he or she has read the document;

(2) to the best of his or her knowledge, information, and beli ef formed after reasonable inquiry, the document is well grounded in fact and is warranted by existing law or a good-faith argument for the extension, mod ification, or reversal of existing law; and

(3) the document is not interposed for any improper purpose, s uch as to harass or to cause unnecessary dela y or needless increase in th e cost of litigation.

MCR 2.114(E) permits the court to fashion an appropriate sancti on for filing a document in violation of MCR 2.114. In addition to sanctions under MCR 2.1 14(E), MCR 2.114(F) provides that a party pleading a frivolous claim or defense is subject t o costs as provided in MCR 2.625(A)(2). Pursuant to MCR 2.625(A)(2), if the court fin ds that an action or defense was frivolous, costs shall be awarded as provided by MCL 600.25 91. That statute states that “if a court finds that a civil action . . . was frivolous, the cour t that conducts the civil action shall award the prevailing party the costs and fees incurred by that party in connection with the civil action by assessing the costs and fees against the nonprevailin g party and their attorney.” MCL 600.2591(1).

Whether a claim is frivolous within the meaning of MCR 2.114(F ) and MCL 600.2591 will depend upon the facts of the case. Kitchen

, 465 Mich at 663. MCL 600.2591(3) defines “frivolous” to mean that at leas t one of the following is met: (1) the primary purpose in initiating the action or asserting the defense was to harass, embarrass, o r injure the prevailing party, (2) the party had no reasonable basis to believe that the facts underli ng the party’s legal position were in fact true, or (3) the party’s legal position was devoid of argu able legal merit. MCL 600.2591(3). Finally, the mere fact that a party did not ultimately prevail does not render the legal position frivolous. Id

. at 662.-6- A. COUNTERCLAIM FOR LEGAL MALPRACTICE

Applying these principles to the facts in this case, we conclu de that the trial court did not clearly err when it found that ELTM’s counterclaim for legal ma lpractice was not frivolous. 5 Plaintiff argues vociferously th at the counterclaim lacked lega l merit; yet nowhere does plaintiff articulate that the counterclaim was “interposed for [an] impro per purpose, such as to harass or cause unnecessary delay or needless increase in the cost of lit igation,” MCR 2.114(D)(3), or that “the primary purpose in initiating the [counterclaim] was to ha rass, embarrass, or injure” plaintiff. MCL 600.2591(3)(a)( i ). The testimony at the evident iary hearing supports a finding that the real purpose in pursuing the legal malpractice claim w as to reduce the amount of outstanding and unpaid legal fees owed to plaintiff, and the re cord reflects that defendants believed that their asserted positions made such a reduction ap propriate. While ELTM failed to demonstrate that its positions made a reduction in legal fees a ppropriate, the tria l court did not clearly err in finding that ELTM did not violate the standards of MCR 2.114(D)(3) 6 or MCL 600.2591(3)(a)( i ).

Thus, the remaining issues are whether ELTM “had no reasonable basis to believe that the facts underling [its] legal position were in fact true,” an d whether ELTM’s “legal position was devoid of arguable legal merit.” MCL 600.2591(3). 7 We conclude that the trial court did not clearly err when it conclude d that the counterclaim for leg al malpractice claim did not violate these standards.

The legal malpractice claim was premised on the assertion that plaintiff committed malpractice when, in the YAF litigation, it failed to pursue a motion seeking release from escrow of the Farmhouse deed. ELTM alleged that because the motion wa s not filed, it was unable to sell the Farmhouse in 2008, causing a loss in revenue. Plainti ff argued that the legal malpractice claim was meritless because ELTM was unable to prove that had t he motion been filed, it would have been granted. Indeed, plaintiff notes that when the motio n to release the deed from escrow was pursued in 2010, it was unsuccessful and the trial court ru led that ELTM had no rights to the Farmhouse property. Plaintiff further argues that plaintiff’s failure to bring the motion could not

5 Although plaintiff at times refer s to both the counterclaim ag ainst it and the third-party complaint against Conway, its argument appears to apply only to the counterclaim, and Conway is not individually a party to this appeal. Regardless, howeve r, of whether plaintiff intends its argument to also apply to the th ird-party complaint, it would n ot alter our analysis.

6 Plaintiff thus has not demonstrated an “improper purpose as re quired by MCR 2.114(D)(3). That element is the third of three required elements for a find ing of frivolousness under MCR 2.114(D). Inasmuch as the court rule joins those elements by the word “and,” all three requirements must be shown, see Amerisure Ins Co v Plumb , 282 Mich App 417, 428; 766 NW2d 18 (2009), we therefore need not address the other element s required under that court rule.

7 Unlike MCR 2.114(D)(3), MCL 600.2591(3) describes “frivolousne ss” as meaning that “at least 1” of the specifi ed conditions is met.-7- have been a proximate cause of any damages to ELTM. However, t he actual events that transpired are more complex.

In the YAF case, the trial court, on January 17, 2006, entered an order transferring the deed to the farmhouse property to ELTM, to be held in escrow. In 2008, defendants requested that plaintiff pursue a motion to release the deed from escrow. Plaintiff allegedly refused and, eventually, on February 16, 2010 (effective March 1, 2010), pla intiff withdrew its representation of defendants. Following this w ithdrawal, ELTM moved in the YA F case to release the deed from escrow. 8 YAF also filed a motion for summary disposition. Before the hearing on the motion, ELTM and YAF reached a tentative settlement agreement, but the motions still went forward. The trial court granted the motion for summary dispos ition and granted title to the farmhouse property to YAF, finding that ELTM had no right to th e property. The court also denied ELTM’s motion to release the deed from escrow. Although plaintiff makes much of the trial court’s finding that ELTM h ad no rights to the property, plaintiff ignores events that transpired after the YAF matter was dismissed. On March 18, 2010, YAF and ELTM entered into a post-judgment settlement agreement in which YAF agreed t o release the deed to the farmhouse to ELTM in exchange for ELTM waiving its right to fil e an appeal of the final judgment rendered on March 10, 2010. Thus, at the end of the day, ELTM, i n 2010, acquired the farmhouse deed. Although the legal malpractice claim might not have been successful, this chain of events does suggest that ELTM’s legal malpractice clai m was not totally devoid of arguable legal merit, as an earlier motion to release the deed from escrow may have prompted an earlier settlement of the issue. “[M]erely because this Court concludes that a legal position asserted by a party should be rejected does not mean that the p arty was acting frivolously in advocating its position.” Kitchen

, 465 Mich at 663. Moreover, a claim or defense is not frivolous merely because it is based on an erroneous legal anal ysis. Jerico Constr, Inc v Quadrants, Inc

, 257 Mich App 22, 36; 666 NW2d 310 (2003). The claim or defense must be “completely groundless or ‘devoid of arguable legal merit.” Id

. We conclude that ELTM’s counterclaim for legal malpractice was sufficient in arguably l egal merit to avoid the imposition of sanctions for the filing of a frivolous claim.

Nor does the record compel the conclusion that ELTM had no rea sonable basis to believe that the facts underlying its claim for malpractice were in fac t true. For example, it appears undisputed that plaintiff did in fact fail to pursue a motion t o release the deed from escrow, and that ELTM did in fact lose an op portunity to sell the property to an interested purchaser. Although again ELTM’s claim for legal malpractice was ultimatel y unsuccessful, the facts underlying the claim were not pr oven to be demons trably false, nor was it shown that ELTM was aware of any falsity at the time of filing.

We therefore conclude that the trial court (and we note that i t the same trial judge who decided both the YAF litigation and the instant case, and who t herefore was intimately familiar with the facts of both) did not clearly err in declining to fin d ELTM’s counterclaim for malpractice frivolous. Kitchen , 465 Mich at 661.

8 This motion was signed and file d by individual d efendant Gilpi n on behalf of defendants.-8- B. AFFIRMATIVE DEFENSES

For its next claim of error, pl aintiff asserts that the trial court erred when it failed to find that defendants’ affirmative defe nses were frivolous or filed i n violation of MCR 2.114 and MCL 600.2591. We disagree. The trial court, in its statement following the evidentiary hearing, did not specifically address plai ntiff’s argument regarding def endant’s affirmative defenses and general defense. However, the or der issued by the trial court denying plaintiff’s motion for sanctions stated that it found th at the “pleadings filed by Cou nsels for the Defendants were not frivolous.” The trial court was presented with arguments by bo th plaintiff and defendants regarding these issues, both in t he context of plaintiff’s moti on for sanctions and in the context of the parties’ responses to the c ourt’s post-hearing proposed fin dings of fact and conclusions of law. We therefore conclude that these issues were raised befor e, and, at least implicitly addressed and decided by the trial court in favor of defendants . See Walters v Nadell , 481 Mich 377, 387; 751 NW2d 431 (2008).

Plaintiff argues that defendant s’ first affirmative defense, e ntitled “fraud in the inducement,” was frivolous because the alleged fraudulent condu ct by plaintiff occurred in 2007 and thus could not have fraudulen tly induced defendants into en tering into the engagement agreement in 2005. However, examining the language of the affi rmative defense, it is clear that while defendants may have labeled the defense “fraud in the ind ucement,” they were simply arguing that fraudulent representa tions made by plaintiff cause d them to incur additional and unnecessary legal fees. Specifica lly, defendants alleged that plaintiff repeatedly assured them that they would not be responsible for his legal fees because s omeone else would have to pay them after they were successful in the YAF litigation. The ana lysis of the affirmative defense should be based on the nature o f the allegations, not the label placed on them by defendants. This Court is not bound by a party’s choice of labels. Johnston v City of Livonia

, 177 Mich App 200, 208; 441 NW2d 41 (1989). Consequently, when considering t he actual nature of the affirmative defense, if proven it would serve to reduce the leg al fees defendants owed to plaintiff by demonstrating that certain legal fees were fraudulently or u nreasonably incurred. Thus, plaintiff’s assertions that de fendant did not allege any conduc t occurring before the execution of the engagement agreement is not fatal to the affirmative defens e actually pleaded. Plaintiff has not established that the trial court clearly erred in failing t o find this affirmative defense to be frivolous.

For its second affirmative defense, defendants alleged that pl aintiff inflated its legal fees (so as not to be entitled to all of the legal fees requested) b ecause plaintiff failed to carry out the wishes of its clients and, instead, pursued its own agenda. Th e third affirmative defense, labeled “[t]ortious interfere nce with a business proposition” appears e ssentially to be a restatement of the allegation of legal malpractice concerning plaintiff’s failure to file a motion to remove the deed from escrow. Finally, the fourth affirmative defense, labeled “[w]rongful conversion,” appears simply to be a reiteration of the second affirmative defense, a lthough expressed under a different title and using different explanatory language. We have previo usly addressed the efficacy of the legal malpractice claim above. With respect to the remaining a ffirmative defenses, plaintiff simply argues that they were frivolous based on the fact that w hen defendants were called upon to support their pleadings, they came forward with nothing and, indeed, defendants agreed to withdraw the affirmative defense of “conversion.”-9- We conclude that plai ntiff has failed to establish that the tr ial court clearly erred in failing to find that these affirmative defenses were frivolous. The qu estion whether a claim is frivolous is evaluated at the time the claim was raised. In re Costs & Attorney Fees , 250 Mich App 89, 94; 645 NW2d 697 (2002). There is nothing in the record to suggest that, at the time defendants alleged that plaintiff had refused to act on its clients’ instr uctions, defendants did not believe that this assertion would be borne out by the facts. Indeed, defend ants continue to assert that plaintiff did not follow defendants’ instr uctions. Moreover, the fact th at defendants did not fully support their affirmative defenses, and indeed withdrew the “conversion ”-labeled defense, is not dispositive. A decision to withdraw an affirmative defense doe s not necessarily imply that a defendant never had any reasonabl e basis for believing that the facts underlying the defense were true. See Szymanski v Brown , 221 Mich App 423, 437; 562 NW2d 212 (1997). Defendants may have decided, after discovery had been completed, that they sho uld pursue their strongest defenses, and therefore, that it was more advantageous to withd raw certain defenses. Id

. Based on the foregoing, we cannot conclude that the trial court’s den ial of plaintiff’s motion for sanctions with respect to defenda nts’ affirmative defenses was clearly erroneous.

C. GENERAL DEFENSE

Finally, plaintiff contends that a general defense pleaded in defendants’ answer to the complaint was not well grounded in fact. Specifically, defenda nts alleged that certain payments had not been not accurately credited to their account. Plainti ff argues that this allegation was frivolous because, had defendants simply reviewed their own che ck register and compared it to the invoices, they would have kno wn that all of their payments were in fact properly credited. Again, whether a claim is frivol ous is evaluated at the time th e claim is raised. In re Costs & Attorney Fees
, 250 Mich App at 94. At the time of the evidentiary hearing, Co nway admitted that because of a corruption in h is billing system software, th ere was a nine-month period where plaintiff did not bill defendants. He further acknowledged tha t there were charges on defendants’ bill for services rendered to other clients. Based on these admissions, we cannot conclude that defendants’ allegation of inaccuracies in plainti ff’s accounting were frivolous when made. Because defendants advanced defenses sufficiently g rounded in law and fact, the trial court did not plainly err when it denied plaintiff’s moti on for sanctions pursuant to MCR 2.114 and MCL 600.2591.

Affirmed.

/s/ Mark T. Boonstra /s/ David H. Sawyer /s/ Peter D. O’Connell