Court Opinion

ID: 2788277
Source: CourtListenerOpinion
Date Created: 2015-03-23 07:05:15.231261+00
Date Added: 2024-06-11T08:30:39.281542
License: Public Domain

STATE OF MICHIGAN

                           COURT OF APPEALS

PETER L. CONWAY, PC.,                                               UNPUBLISHED
                                                                    March 19, 2015
               Plaintiff/Counter-Defendant-
               Appellant,

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

               Defendant/Counter-Plaintiff/Third-
               Party 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: BOONSTRA, P.J., and SAWYER and O’CONNELL, JJ.

PER CURIAM.

      Plaintiff1 appeals by right the trial court’s order denying its motion for sanctions pursuant
to MCR 2.114 and MCL 600. 2591. We affirm.

1
 Attorney Peter L. Conway was not named, individually, as a plaintiff. Therefore, and for ease
of reference, we use the term “plaintiff” to refer to the law firm of “Peter L. Conway, P.C.” We

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                     I. PERTINENT FACTS AND PROCEDURAL HISTORY

        This action initiated with a claim by plaintiff for unpaid legal fees. The following is a
brief review of the underlying facts and litigation. In 2004, defendants2 retained plaintiff to
perform legal services concerning litigation involving the Yankee Air Force, Inc. (“YAF”) and a
certain parcel of property referred to as “the Farmhouse” property. Apparently, a breakdown in
the attorney-client relationship compelled plaintiff to withdraw as defendants’ counsel on
March 1, 2010. Plaintiff brought this 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 that they owed a “reasonable
value” to plaintiff in unpaid legal fees, but denied that the amount requested was reasonable.
Defendants alleged that plaintiff failed to credit them for payments 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-plaintiff/third-party plaintiff, Eastern Lakes Transport Museum, as “ELTM.”
The term “defendants,” in the plural, refers to ELTM and the individual defendants, collectively.
2
  Defendant ELTM is the successor in interest to the Ad Hoc Membership Group (“Group”), a
non-profit corporation. Individual defendant Ralph D. Gilpin was the resident agent of the
Group. The other individual defendants were involved with the Group in various capacities. All
individual defendants had provided written guarantees of costs and legal fees incurred by ELTM.
3
    Defendants pleaded the following affirmative defenses:
                 FIRST. Fraud in the Inducement. Beginning around 2007 Plaintiff led
         Defendant down the “primrose path” with assurances that the running billings
         need not be worried about. He gave the same assurance to Jan L. Herrick, Esq.
         Defendant relied on Plaintiff’s assurance that a sizeable recompense would be
         available from winning the Ad Hoc case. Plaintiff now demands payment in full
         of nearly one hundred thousand dollars knowing full well that Defendants, jointly
         or severally, cannot produce that sizeable a sum now or in the future without a
         bankruptcy protection. Further, Defendant demanded that Plaintiff rework his
         billings to reflect what Defendant asserts are un-necessary services, error billings
         and similar errata. Plaintiff has refused to entertain the requests.

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

                 THIRD. Tortious Interference with a Business Proposition. Plaintiff 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 necessary IRS
         classification. Plaintiff refused to do so offering several vague excuses. Whether
         the Court would have granted the Motion is immaterial for this matter. Plaintiff

                                                 -2-
defenses were signed by defendant Gilpin, as “attorney for defendants.”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 legal fees, ELTM filed a
separate legal malpractice action against plaintiff. The trial court declined to consolidate the two
actions and dismissed the separate legal malpractice action, and instead permitted ELTM to file a
counterclaim and third-party claim within the context of the instant action. In its counterclaim
against plaintiff and third-party complaint against Conway, ELTM alleged that during the YAF
litigation, the deed to the “Farmhouse” was transferred to ELTM and then placed in escrow.
ELTM alleged that plaintiff and Conway negligently failed to pursue a motion to have that deed
released from escrow. As a result, ELTM alleged that it lost the 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 plaintiff on both its primary claim and
on ELTM’s counterclaim for legal malpractice. Defendants satisfied the resulting judgment,
which totaled approximately $96,600, in favor of plaintiff.

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

       was duty bound to so Move the Court at ELTM’s request, such being 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 sufficient to pay off
       Plaintiff up to that moment in the AD Hoc case underling the present 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. Said Yankee AF objection evaporated in March,
       2010, when the removal was accomplished.] [Sic.]

               FOURTH. Wrongful Conversion. On more than one occasion Plaintiff
       discarded Defendant’s instructions in the Ad Hoc matter as to goals to be
       accomplished, instead substituting his own and issuing his own instructions to
       Defendant to gain the result he wanted. This tactic effectively converted the case
       in chief from Defendant’s control to that of Plaintiff. The result was that
       Plaintiff’s billings to Defendant escalated and Defendant is now demanded to pay
       for Plaintiff’s frolic and detour in the prosecution of Defendant’s underlying civil
       case. Attempts to discuss these objections with Plaintiff have brought rejection.
       Case in point: arranging a second “facilitation” over Defendant’s objection
       (which failed) then attempting to arrange a third one against Defendant’s specific
       refusal to participate further in a failed strategy.
4
 Indeed, defendant Gilpin is a licensed attorney in good standing in the State Bar of Michigan.
See http://www.michbar.org/memberdir/detail.cfm?PID=26373 (last accessed February 24,
2015).

                                                -3-
plaintiff after defendants rejected plaintiff’s January 19, 2011 counter-offer of judgment.
Plaintiff also sought sanctions under MCR 2.114 and MCL 600.2591, arguing that it was entitled
to an award of $80,607.50, representing the value of the attorney time spent (by plaintiff or
Conway) defending against defendants’ allegedly unsupportable affirmative defenses, as well as
the amount of attorney fees incurred by plaintiff having retained the services of an attorney to
defend against the allegedly frivolous counterclaim for legal malpractice.

        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; however, finding that defendants’
filings were not frivolous, it declined to assess sanctions pursuant to MCR 2.114 or
MCL 600.2591. The court stated specifically:

               Under statute and court rule, again, an attorney and the represented party
       have an affirmative duty to conduct a reasonable inquiry into the factual and legal
       viability of the alleged claim before signing any document. Whether an inquiry
       was reasonable is determined by an objective standard. Reasonableness is
       determined by the efforts taken in investigating a claim before filing suit, and the
       determination of reasonable inquiry depends on the facts in the case. Subjective
       good faith is irrelevant. However, alleged facts that are subsequently determined
       to be false do not invalidate a prior reasonable inquiry. Plaintiff appears to argue
       that the Defendants’ legal position is devoid of merit and therefore frivolous
       pursuant to MCL 600.2591.

               This Court disagrees. This Court determines that the Defendants’
       complaint for malpractice was not frivolous under sections of MCL 600.2591.
       Although Defendants’ theory was unsuccessful, this Court does not find it to be
       completely devoid of legal merit, and there is nothing in the record 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. This Court is well aware
       of the fact that the Defendants had a right to contest damages or contest the
       imposition of specific remedy. This Court specifically finds that the Defendants
       had no malicious or evil intent in filing their complaint. Absent the finding of
       wrongful intent, the Defendant shall not be penalized for having pursued their
       rights in judicial forums. Therefore, based upon this analysis Plaintiff’s motions
       for sanctions is considered and denied.

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

                                  II. STANDARD OF REVIEW

       We review a trial court’s findings regarding whether an action is frivolous for clear error.
Kitchen v Kitchen, 465 Mich. 654, 661; 641 NW2d 245 (2002). A decision is clearly 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

                                                -4-
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 asserted affirmative defenses, and the allegation that defendants had failed
to receive credit for payments made to plaintiff, each was wholly frivolous, and that plaintiff was
therefore entitled to sanctions pursuant to MCR 2.114 and MCL 600.2591. MCR 2.114(D)
provides that the signature of an attorney or party on a document, 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 belief 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, modification, or
       reversal of existing law; and

              (3) the document is not interposed for any improper purpose, such as to
       harass or to cause unnecessary delay or needless increase in the cost of litigation.

MCR 2.114(E) permits the court to fashion an appropriate sanction for filing a document in
violation of MCR 2.114. In addition to sanctions under MCR 2.114(E), MCR 2.114(F) provides
that a party pleading a frivolous claim or defense is subject to costs as provided in
MCR 2.625(A)(2). Pursuant to MCR 2.625(A)(2), if the court finds that an action or defense
was frivolous, costs shall be awarded as provided by MCL 600.2591. That statute states that “if
a court finds that a civil action . . . was frivolous, the court 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 nonprevailing 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 least one of the following is met: (1) the primary purpose in initiating
the action or asserting the defense was to harass, embarrass, or injure the prevailing party, (2) the
party had no reasonable basis to believe that the facts underling the party’s legal position were in
fact true, or (3) the party’s legal position was devoid of arguable 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.

                                                -5-
                     A. COUNTERCLAIM FOR LEGAL MALPRACTICE

        Applying these principles to the facts in this case, we conclude that the trial court did not
clearly err when it found that ELTM’s counterclaim for legal malpractice was not frivolous.5
Plaintiff argues vociferously that the counterclaim lacked legal merit; yet nowhere does plaintiff
articulate that the counterclaim was “interposed for [an] improper purpose, such as to harass or
cause unnecessary delay or needless increase in the cost of litigation,” MCR 2.114(D)(3), or that
“the primary purpose in initiating the [counterclaim] was to harass, embarrass, or injure”
plaintiff. MCL 600.2591(3)(a)(i). The testimony at the evidentiary hearing supports a finding
that the real purpose in pursuing the legal malpractice claim was to reduce the amount of
outstanding and unpaid legal fees owed to plaintiff, and the record reflects that defendants
believed that their asserted positions made such a reduction appropriate. While ELTM failed to
demonstrate that its positions made a reduction in legal fees appropriate, the trial 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,” and 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 concluded that the counterclaim for legal 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 was not filed, it was unable to
sell the Farmhouse in 2008, causing a loss in revenue. Plaintiff argued that the legal malpractice
claim was meritless because ELTM was unable to prove that had the motion been filed, it would
have been granted. Indeed, plaintiff notes that when the motion to release the deed from escrow
was pursued in 2010, it was unsuccessful and the trial court ruled 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 refers to both the counterclaim against 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, however, of whether plaintiff intends its
argument to also apply to the third-party complaint, it would not alter our analysis.
6
  Plaintiff thus has not demonstrated an “improper purpose as required by MCR 2.114(D)(3).
That element is the third of three required elements for a finding 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 elements required under that court
rule.
7
  Unlike MCR 2.114(D)(3), MCL 600.2591(3) describes “frivolousness” as meaning that “at
least 1” of the specified conditions is met.

                                                -6-
have been a proximate cause of any damages to ELTM. However, the 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), plaintiff withdrew its representation
of defendants. Following this withdrawal, ELTM moved in the YAF 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 disposition and granted title to the
farmhouse property to YAF, finding that ELTM had no right to the 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 had 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 to release the deed to the
farmhouse to ELTM in exchange for ELTM waiving its right to file an appeal of the final
judgment rendered on March 10, 2010. Thus, at the end of the day, ELTM, in 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 claim 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 party 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 analysis. 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 legal 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 reasonable basis to believe
that the facts underlying its claim for malpractice were in fact true. For example, it appears
undisputed that plaintiff did in fact fail to pursue a motion to release the deed from escrow, and
that ELTM did in fact lose an opportunity to sell the property to an interested purchaser.
Although again ELTM’s claim for legal malpractice was ultimately unsuccessful, the facts
underlying the claim were not proven to be demonstrably 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 it the same trial judge who
decided both the YAF litigation and the instant case, and who therefore was intimately familiar
with the facts of both) did not clearly err in declining to find ELTM’s counterclaim for
malpractice frivolous. Kitchen, 465 Mich. at 661.

8
    This motion was signed and filed by individual defendant Gilpin on behalf of defendants.

                                                 -7-
                                  B. AFFIRMATIVE DEFENSES

        For its next claim of error, plaintiff asserts that the trial court erred when it failed to find
that defendants’ affirmative defenses were frivolous or filed in 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 plaintiff’s argument regarding defendant’s affirmative defenses and
general defense. However, the order issued by the trial court denying plaintiff’s motion for
sanctions stated that it found that the “pleadings filed by Counsels for the Defendants were not
frivolous.” The trial court was presented with arguments by both plaintiff and defendants
regarding these issues, both in the context of plaintiff’s motion for sanctions and in the context of
the parties’ responses to the court’s post-hearing proposed findings of fact and conclusions of
law. We therefore conclude that these issues were raised before, 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 defendants’ first affirmative defense, entitled “fraud in the
inducement,” was frivolous because the alleged fraudulent conduct by plaintiff occurred in 2007
and thus could not have fraudulently induced defendants into entering into the engagement
agreement in 2005. However, examining the language of the affirmative defense, it is clear that
while defendants may have labeled the defense “fraud in the inducement,” they were simply
arguing that fraudulent representations made by plaintiff caused them to incur additional and
unnecessary legal fees. Specifically, defendants alleged that plaintiff repeatedly assured them
that they would not be responsible for his legal fees because someone else would have to pay
them after they were successful in the YAF litigation. The analysis of the affirmative defense
should be based on the nature of 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 the actual nature of the
affirmative defense, if proven it would serve to reduce the legal fees defendants owed to plaintiff
by demonstrating that certain legal fees were fraudulently or unreasonably incurred. Thus,
plaintiff’s assertions that defendant did not allege any conduct occurring before the execution of
the engagement agreement is not fatal to the affirmative defense actually pleaded. Plaintiff has
not established that the trial court clearly erred in failing to find this affirmative defense to be
frivolous.

        For its second affirmative defense, defendants alleged that plaintiff inflated its legal fees
(so as not to be entitled to all of the legal fees requested) because plaintiff failed to carry out the
wishes of its clients and, instead, pursued its own agenda. The third affirmative defense, labeled
“[t]ortious interference with a business proposition” appears essentially 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, although expressed under a different
title and using different explanatory language. We have previously addressed the efficacy of the
legal malpractice claim above. With respect to the remaining affirmative defenses, plaintiff
simply argues that they were frivolous based on the fact that when defendants were called upon
to support their pleadings, they came forward with nothing and, indeed, defendants agreed to
withdraw the affirmative defense of “conversion.”

                                                  -8-
        We conclude that plaintiff has failed to establish that the trial court clearly erred in failing
to find that these affirmative defenses were frivolous. The question 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’ instructions, defendants did not believe that
this assertion would be borne out by the facts. Indeed, defendants continue to assert that plaintiff
did not follow defendants’ instructions. Moreover, the fact that 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 does not necessarily imply that a
defendant never had any reasonable 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 should pursue their strongest
defenses, and therefore, that it was more advantageous to withdraw certain defenses. Id. Based
on the foregoing, we cannot conclude that the trial court’s denial of plaintiff’s motion for
sanctions with respect to defendants’ 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, defendants alleged that certain payments
had not been not accurately credited to their account. Plaintiff argues that this allegation was
frivolous because, had defendants simply reviewed their own check register and compared it to
the invoices, they would have known that all of their payments were in fact properly credited.
Again, whether a claim is frivolous is evaluated at the time the claim is raised. In re Costs &
Attorney Fees, 250 Mich. App. at 94. At the time of the evidentiary hearing, Conway admitted
that because of a corruption in his billing system software, there was a nine-month period where
plaintiff did not bill defendants. He further acknowledged that 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 plaintiff’s accounting were frivolous
when made. Because defendants advanced defenses sufficiently grounded in law and fact, the
trial court did not plainly err when it denied plaintiff’s motion 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

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