Court Opinion

ID: 4209870
Source: CourtListenerOpinion
Date Created: 2017-10-06 15:10:26.08522+00
Date Added: 2024-06-11T13:25:58.747931
License: Public Domain

STATE OF MICHIGAN

                            COURT OF APPEALS

MARK PISCIOTTA and DARK HORSE                                      UNPUBLISHED
DEVELOPMENT GROUP, LLC,                                            October 5, 2017

                Plaintiffs/Counter-Defendants-
                Appellants,

v                                                                  No. 332300
                                                                   Genesee Circuit Court
RONALD LAWRENCE KARDOS,                                            LC No. 14-103738-CB

                Defendant/Counter-Plaintiff-
                Appellee.

Before: GADOLA, P.J., and METER and FORT HOOD, JJ.

PER CURIAM.

        Plaintiffs appeal as of right an order “settling attorney fees [and] reinstatement amount
and for payment of received rents in lieu of judgment of foreclosure.” We affirm.

        After meeting at a crowdfunding seminar in April 2012, the individual parties1 became
business partners, with plaintiff Mark Pisciotta locating and managing properties in Flint, and
defendant Ronald Lawrence Kardos being the funding source for the venture. After a few
weeks, Kardos informed Pisciotta that he wanted out of the venture. Pisciotta requested that
Kardos lend the money in exchange for a 20% return, instead of pulling out of the venture.
Kardos agreed to lend money for homes under contract to avoid losing deposits, retained a
lawyer, and had mortgages and promissory notes prepared and executed. Some of the mortgages
applied to Pisciotta and others to Dark Horse Development Group, LLC. Each of the loans was
cross-collateralized with the others. Thereafter, Pisciotta implored Kardos to supply more
funding for additional homes. Kardos was initially reluctant, but eventually agreed when
Pisciotta offered Kardos an equity share in the event of sale of the properties. Later, Pisciotta
demanded a lower monthly payment, and Kardos accommodated this. Pisciotta then requested
that Kardos “over advance” him more money to make improvements to the properties. Kardos
agreed to this as well.

1
    Pisciotta is the sole owner of Dark Horse Development Group, LLC.

                                                 -1-
        Pisciotta paid his debt obligations for seven months, then defaulted. Pisciotta tried to
convince Kardos to restructure the loans, but Kardos refused. In response, Pisciotta threatened
Kardos with litigation, arguing that the loans were usurious. Kardos subsequently began
foreclosing on four of the properties, by advertisement. On October 28, 2014, plaintiffs filed a
complaint and moved for a preliminary injunction and restraining order to prevent Kardos from
foreclosing on the properties by advertisement, alleging that the loans were usurious. The trial
court granted a temporary restraining order, only to dissolve it and reschedule the foreclosure
sale after hearing plaintiffs’ motion on November 10, 2014. At the hearing, the parties argued
about the effect the equity-sharing agreements had on the usury claim and the harm of allowing
the foreclosures by advertisement to happen. The court found that defendant’s expert’s
testimony stating that the interest rates on the properties did not exceed 25% was unrefuted by
plaintiffs and that the equity-sharing agreements should not be considered when calculating the
effective interest rates of the loans. It denied the preliminary injunction.

        Subsequently, Kardos moved for summary disposition, and the court granted the motion.
The parties argued whether to follow Holland v Michigan National Bank-West, 166 Mich App
245; 420 NW2d 173 (1988), and Krause v Griffis, 178 Mich App 111; 443 NW2d 444 (1989).2
The court also considered whether the present case dealt with a business entity under MCL
438.61 and whether the notarized mortgages counted as sworn statements under this statute. The
court found that the loans to Dark Horse were “certainly” not usurious because they were made
to a limited liability company. The court also found that the loans made to Pisciotta were not
usurious under Krause, Holland, and the business-entity exception of MCL 438.61. Lastly, the
court found that because there were too many uncertainties about the value of the properties if
and when Pisciotta decided to sell them, the equity-sharing agreements could not be calculated
into the interest rates for the properties when determining whether the loans were usurious.3

        Kardos had filed a counter-complaint seeking judicial foreclosure on the remainder of the
properties. He filed a motion for summary disposition for judicial foreclosure pursuant to MCL
600.3115 on August 24, 2015. On September 11, 2015, the court granted Kardos’s motion for
summary disposition regarding judicial foreclosure. This order preserved plaintiffs’ right to
appeal the prior rulings of the lower court and any damages incurred based on the lower court’s
rulings in the event that the appeal was successful. Plaintiffs moved to settle attorney fees on

2
  In Holland, 166 Mich App at 258-261, this Court found that the Hollands’ loan fell within the
intent of the business-entity exception to usury laws—outlined in MCL 438.61—because it was
made for a business purpose, and that the Hollands were estopped from asserting the lack of
strict compliance with the “sworn statement” language of MCL 438.61(1)(a) because they did
not protest when they acquiesced to the procedures used in the making of the statement. In
Krause, 178 Mich App at 115-116, the Court applied the business-entity exception in MCL
438.61 to the loan at issue because it was made to purchase property to be operated as a business
and the signed, notarized land contract made reference to the property as “income potential”
property.
3
  An additional count of the complaint remained outstanding at the time of the court’s grant of
summary disposition, but the court later dismissed this remaining count as well.

                                               -2-
October 30, 2015, because the parties had not been able to resolve the amounts owed for attorney
fees. Plaintiffs requested that the court determine the reasonableness of Kardos’s attorney fees
and reduce the hourly rate to that customarily charged in the locality. During the November 16,
2015, hearing, the lower court ruled that plaintiffs should not receive a reduction for the attorney
fees paid by Kardos in the purchase of the four properties because the foreclosures by
advertisement were “done” and “taken care of.” The lower court also determined that Genesee
County was the appropriate county to use to determine reasonable attorney fees.

        Kardos also filed a motion to settle the differences in amounts to reinstate some of the
loans. The parties determined the remaining funds plaintiffs owed Kardos. On March 14, 2016,
the court issued an order “settling attorney fees [and] reinstatement amount and for payment of
received rents in lieu of judgment of foreclosure.” After the order was entered, the loans were
reinstated. Plaintiffs subsequently filed their claim of appeal.

       Plaintiffs first contend that the trial court erred in determining that the business-entity
exception to usury laws applied to the loans in this case because Kardos did not obtain a sworn
statement as required by MCL 438.61(1)(a).

        This issue requires us to interpret MCL 438.61. Statutory interpretation is reviewed de
novo. Czymbor’s Timber, Inc v City of Saginaw, 478 Mich 348, 354; 733 NW2d 1 (2007). We
also review de novo a trial court’s ruling on a motion for summary disposition. Id.

       The trial court indicated that the loans were not usurious because the business-entity
exception in MCL 438.61(1)(a) applied. MCL 438.61 states:

               (1) As used in this act:

               (a) “Business entity” means a corporation, trust, estate, partnership,
       cooperative, or association or a natural person who furnishes to the extender of
       the credit a sworn statement in writing specifying the type of business and
       business purpose for which the proceeds of the loan or other extension of credit
       will be used. An exemption under 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 in the sworn statement.

               (b) “Related entity” means a business entity other than a natural person
       whose members, owners, partners, or limited partners include a state or national
       chartered bank, a state or federal chartered savings bank, a state or federal
       chartered savings and loan association, a state or federal chartered credit union, an
       insurance carrier, or finance subsidiary of a manufacturing corporation.

               (2) Notwithstanding [MCL 438.31 through MCL 438.33] and [MCL
       438.41 through MCL 438.42], 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, a state or federal chartered savings bank, a state or federal
       chartered savings and loan association, a state or federal chartered credit union,

                                                -3-
         finance subsidiary of a manufacturing corporation, or a related entity for the
         parties to agree in writing to any rate of interest.

                 (3) Notwithstanding [MCL 438.31 through MCL 438.33], it is lawful in
         connection with an extension of credit to a business entity by any person other
         than a state or nationally chartered bank, a state or federal chartered savings bank,
         a state or federal chartered savings and loan association, a state or federal
         chartered credit union, insurance carrier, finance subsidiary of a manufacturing
         corporation, or a related entity for the parties to agree in writing to any rate of
         interest not exceeding the rate allowed under [MCL 438.41 through MCL
         438.42].

If plaintiffs are business entities under MCL 438.61, the loans in question are not usurious.4

        In Krause, 178 Mich App at 115, the applicability of the business-entity exception was
established by evidence that the property covered by the transaction was being operated as a
foster-care facility and that the land contract, which was signed by the purchasers and notarized,
made reference to the facility as “income potential” property. The present case is analogous to
Krause. The cross-collateralization provisions in the mortgage documents indicate that the
properties were to be leased as part of a large-scale leasing business managed by plaintiffs. Just
as the language of Krause’s signed, notarized land contract indicated that the land was being
used for a business purpose, the language of Pisciotta’s signed, notarized mortgages indicate that
the properties were being used for a business purpose.

        Plaintiffs rest their appellate argument on their contention that we should disregard the
holding of Krause; plaintiff notes that we are not required to follow it because it was issued
before November 1, 1990. See MCR 7.215(J)(1). We decline plaintiffs’ invitation to ignore the
rule of stare decisis. See MCR 7.215(C)(2) (“[a] published opinion of the Court of Appeals has
precedential effect under the rule of stare decisis”). The ruling of Krause, especially as applied
to the present case—involving clear, notarized, signed mortgage documents evidencing a
business purpose, analogous to the land contract in Krause—is not unworkable or badly reasoned
such that stare decisis should be disregarded. See, e.g., Robinson v Detroit, 462 Mich 439, 464;
613 NW2d 307 (2000).5

        Plaintiffs next argue that the trial court erred in using $250 an hour as the rate for
Kardos’s attorney fees. This Court reviews awards of attorney fees and costs for an abuse of
discretion. Smith v Khouri, 481 Mich 519, 526; 751 NW2d 472 (2008). An abuse of discretion

4
  We note that plaintiffs focus their arguments on loans to Pisciotta, arguing that a sworn
statement was necessary to avoid the usury laws for these loans because Pisciotta is a “natural
person.” However, Kardos also made loans to Dark Horse, and plaintiffs do not raise a sufficient
argument to challenge those loans.
5
    We note that MCL 438.61(1)(a) does not specify what form the sworn statement must take.

                                                 -4-
occurs when a court chooses an outcome outside the range of principled and reasonable
outcomes. Id.

         Under MRPC 1.5(a), factors to consider in determining proper attorney fees are: (1) the
skill, time, and labor involved in the litigation; (2) the likelihood, if apparent to the client, that
the acceptance of the employment will preclude other employment by the lawyer; (3) the fee
customarily charged in that locality for similar services; (4) the amount in question and the
results achieved; (5) the time limitations imposed by the client or the circumstances; (6) the
nature and length of the professional relationship with the client; (7) the professional standing
and experience of the attorney; and (8) whether the fee is fixed or contingent. See also Smith,
481 Mich at 529-530 (discussing various factors).

       Plaintiffs contend that once the trial court determined that the customary fee in Genesee
County was $217 an hour, it was obligated, when adjusting this base fee, to explicitly explain its
reasoning on applicable factors. It is true that in Smith, 481 Mich at 537, the Court stated that
when a court deviates from a fee customary in a particular locality, “[i]n order to aid appellate
review, the court should briefly indicate its view of each of the factors.” (Emphasis added.)

        While the trial court in this case may not have performed ideally by failing to explain its
adjustment on the record, it is a court’s failure to consider the factors, not its failure to discuss its
view of the factors, that constitutes an abuse of discretion, and because the court explicitly stated
that it was familiar with the applicable case law, there is no evidence to suggest that the court
completely failed to consider the factors. The court stated, “I know the case law, so we don’t
have to spend a lot of time arguing about [cases dealing with the factors].” The court appeared
to be making a compromise between the hourly rates the parties were arguing ($295 an hour and
$215 an hour), and $250 an hour is within the range of principled outcomes in light of the
circumstances surrounding Kardos’s counsel and his work.

        Plaintiffs lastly argue that the trial court should have reduced the attorney fees awarded to
Kardos to account for the four properties that were foreclosed by advertisement. Plaintiffs stated
that, before December 3, 2014, there were 22 properties involved in this litigation. On
December 3, 2014, four of the properties were sold at sheriff’s sales, and Kardos received all
necessary payment for the fees he incurred related to the four properties that were foreclosed by
advertisement. Plaintiffs argue that because these four properties represented 18% of the
properties in this litigation, the court should have reduced by 18% Kardos’s award for all
services rendered before December 3, 2014.6

         Under Michigan’s foreclosure laws, a mortgagee is not entitled to full attorney fees when
foreclosing by advertisement, as he would be in the case of judicial foreclosure. The mortgagee
is entitled to only the amounts specified in MCL 600.2431:

                  (2) Where an attorney is employed to foreclose a mortgage by
          advertisement, an attorney’s fee, not to exceed any amount which may be

6
    Plaintiffs cite no authorities to support their argument on this issue.

                                                    -5-
       provided for in the mortgage, may be included as part of the expenses in the
       amount bid upon such sale for principal and interest due thereon in the following
       amounts:

               (a) for all sums of $1,000.00 or less, $25.00.

               (b) for all sums over $1,000.00 but less than $5,000.00, $50.00

               (c) for all sums of $5,000.00 or more, $75.00.

        The trial court determined that plaintiffs were not entitled to an 18% reduction in attorney
fees to account for attorney fees related to the four properties foreclosed by advertisement.
Plaintiffs’ argument that the total attorney fees charged to Kardos’s litigation before the
December 2014 foreclosures should be reduced by 18% is mathematically erroneous. Reducing
the total amount of defense counsel’s fees before the foreclosures by 18% would be appropriate
if 18% of defense counsel’s time and transactions during that time were related to the
foreclosures by advertisement. It is not appropriate simply because four properties represent
18% of 22 properties.

        Plaintiffs would be entitled to a reduction if defense counsel charged Kardos the full
amount of attorney fees for the properties foreclosed by advertisement instead of the amounts
specified by MCL 600.2431(2). However, this is not the case. The parties do not dispute that
defendant was charged only $300 ($75 for each foreclosure by advertisement), and not his
attorney’s hourly rates, for the foreclosures by advertisement. As such, arguing that defense
counsel’s fees should be reduced to account for attorney fees related to the properties foreclosed
by advertisement is illogical, and the declination to reduce the attorney fees incurred before the
foreclosure sale of the four properties by 18% does not render the court’s determination of the
fee award an abuse of discretion.

       Affirmed.

                                                                /s/ Michael F. Gadola
                                                                /s/ Patrick M. Meter
                                                                /s/ Karen M. Fort Hood

                                                -6-