Court Opinion

ID: 9404499
Source: CourtListenerOpinion
Date Created: 2023-06-23 05:07:18.940515+00
Date Added: 2024-06-11T17:20:14.692231
License: Public Domain

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
                 revision until final publication in the Michigan Appeals Reports.

                          STATE OF MICHIGAN

                            COURT OF APPEALS

BANKRUPTCY ESTATE OF PATRICIA ANN                                    UNPUBLISHED
THOMPSON, by STUART A. GOLD, Trustee, and                            June 22, 2023
PATRICIA ANN THOMPSON,

               Plaintiffs-Appellants,
V                                                                    No. 360999
                                                                     Macomb Circuit Court
JAMES C. WARR, and JAMES C. WARR &                                   LC No. 2021-009641-NM
ASSOCIATES, PLC,

               Defendants-Appellees.

Before: REDFORD, P.J., and O’BRIEN and FEENEY, JJ.

PER CURIAM.

        In this legal-malpractice case, plaintiffs, Patricia Thompson, a bankruptcy debtor, and
Stuart A. Gold, the trustee of Thompson’s bankruptcy estate, appeal by right the trial court’s order
granting summary disposition in favor of Thompson’s bankruptcy counsel, defendants James C.
Warr and James C. Warr & Associates, PLC. We affirm.

                                        I. BACKGROUND

        The complaint stated that plaintiff Patricia Thompson owned a day-care business, and had
longstanding financial difficulties. Thompson reportedly had acquired a residence in 2013,
identified as “Bringard,” and one in 2014, identified as “Strathmoor,” which she used as rentals,
both of which she conveyed to her daughter, Yolanda Shelton, in 2018, for $500 and $100,
respectively, when those properties had a market value of $40,000 and $30,000, respectively.
Reportedly, Thompson also made 79 cash transfers totaling $48,094 to Shelton from 2018 through
August 10, 2020. The complaint stated that Thompson continued to rent the Strathmoor property
and receive the rent payments after she transferred it to Shelton.

       On August 11, 2020, defendants filed Thompson’s Chapter 7 bankruptcy petition, bank-
ruptcy schedule, and statement of financial affairs. Defendants had reportedly also filed a
bankruptcy petition for Shelton on April 13, 2020. Thompson’s complaint alleges that defendants

                                                -1-
were required to obtain her financial records including bank statements, check registers, copies of
leases, property tax statements, asset appraisals, business financial statements and proof of income.
According to the complaint, “[f]rom the records required to be obtained and reviewed, Defendants
knew or should have known about the Cash Transfers and transfers of real property from
Thompson to Shelton, as well as Thompson’s interest in earned but unpaid receivables” and the
rental income she received from the Strathmoor property. The complaint further alleged that during
her bankruptcy proceedings, defendants were required to inform Thompson that she was legally
obligated to completely and adequately disclose her assets and liabilities, to refrain from issuing
misleading statements, and to comply with a local rule requiring the disclosure of various financial
records. Defendants allegedly failed to disclose the cash and property transfers, or the continuing
rent proceeds, on Thompson’s behalf, and failed to advise Thompson regarding the consequences
of nondisclosure. Thompson’s single-count complaint asserted a claim for legal malpractice and
damages as a direct and proximate result of the malpractice.

        In the bankruptcy proceedings, on October 1, 2020, Gold filed an adversary proceeding
against Shelton on behalf of the estate seeking to void the cash and property transfers, and
defendants represented Shelton until Gold successfully moved to disqualify defendants from doing
so. Gold filed an objection to discharging Thompson’s debts, and he sought a money judgment in
the amount of Thompson’s undisclosed nonexempt receivables on the basis of Thompson’s and
defendants’ failure to properly disclose assets and financial records. Gold’s bankruptcy-court
complaint against Thompson alleged that she withheld information, failed to keep or preserve
financial records, made false oaths and accounts, intended to defraud or otherwise hinder creditors
and the trustee, and made the following factual allegations:

       The defendant [Thompson] is in possession, custody and control of the requested
       records but has knowingly and fraudulently failed to produce the records referenced
       in paragraph 11 in violation of his duties under 11 U.S.C. §§ 521 and 542(e).

       Defendant knowingly and fraudulently failed to disclose, on her original and
       amended schedules A/B, her interest in account receivables and refunds due her on
       the petition date which she collected and deposited into her personal JPMorgan
       Chase account xxxx4493 during the period August 17 2020 through August 20,
       2020 in the amount of $9,011.50. Defendant subsequently spent the funds without
       the knowledge or consent of the Trustee.

       Defendant knowingly and fraudulently failed to disclose her interest in various life
       insurance policies in response to question 31 on her original or amended schedules
       A/B.

       Defendant knowingly and fraudulently failed to disclose transfers to or for the
       benefit of insider Sheldon within one (1) year of the bankruptcy filing in response
       to question numbers 7, 8, 13 and or 18 on her Statement of Financial Affairs as
       follows:

                                              * * *

                                                -2-
       Defendant knowingly and fraudulently failed to disclose her ownership or leasehold
       interest in the 3393 Chope Place, Clinton Township property on her schedules A/B
       or G.

       Defendants failed to file a response to the objections and, on January 13, 2021, the
bankruptcy court entered an order denying Thompson’s discharge of debts and a judgment of
$9,011 against her. Thompson was subsequently required to pay $16,000 to the estate after Gold
discovered undisclosed life insurance policies along with the lease agreement for Strathmoor.

        At the request of the bankruptcy court,1 Gold and Thompson filed a complaint against
defendants alleging legal malpractice and seeking damages, fees, and costs. Defendants moved
for summary disposition under MCR 2.116(C)(8) (failure to state a claim), arguing that (1) Gold,
as the bankruptcy trustee, did not have standing because a claim by the bankruptcy estate did not
accrue until after the bankruptcy court denied the discharge of debts, and (2) Thompson’s claim
was barred by the wrongful-conduct rule which bars claims by those relying on their own illegal
conduct for recovery. In its motion for summary disposition, defendants alleged that Thompson
did not tell defendants about the transfers to her daughter or the business receivables or rental
income. The trial court granted defendants’ motion, and dismissed the complaint. This appeal
followed.

                                II. STANDARDS OF REVIEW

       A trial court’s decision on a motion for summary disposition is reviewed de novo. Kuznar
v Raksha Co, 481 Mich 169, 175; 750 NW2d 121 (2008). This Court also reviews de novo the
question of law regarding whether a party has legal standing to assert a claim. Mich Ed Ass’n v
Superintendent of Pub Instruction, 272 Mich App 1, 4; 724 NW2d 478 (2006).

       A motion under MCR 2.116(C)(8) tests the legal sufficiency of a claim based on
       the factual allegations in the complaint. Feyz v Mercy Mem Hosp, 475 Mich 663,
       672; 719 NW2d 1 (2006). When considering such a motion, a trial court must
       accept all factual allegations as true, deciding the motion on the pleadings alone.
       Bailey v Schaaf, 494 Mich 595, 603; 835 NW2d 413 (2013); MCR 2.116(G)(5). A
       motion under MCR 2.116(C)(8) may only be granted when a claim is so clearly
       unenforceable that no factual development could possibly justify recovery. Adair v
       Michigan, 470 Mich 105, 119; 680 NW2d 386 (2004). [El-Khalil v Oakwood
       Healthcare, 504 Mich 152, 159-160; 934 NW2d 665 (2019) (emphasis in original).]

                                   III. GOLD’S STANDING

1
 The Order Authorizing Compromise of Claims Against Debtor was entered on May 4, 2021 in
United States Bankruptcy Court, Eastern District of Michigan, Southern Division, Chapter 7 Case
No. 20-48647-MAR, In the Matter of Patricia Ann Thompson.
.

                                               -3-
        Under MCR 2.201(B), “[A]n action must be prosecuted in the name of the real party in
interest.” The purpose of requiring standing “is to assess whether a litigant’s interest in the issue
is sufficient to ensure sincere and vigorous advocacy.” Trademark Props of Mich, LLC v Fed
Nat’l Mtg Ass’n, 308 Mich App 132, 136; 863 NW2d 344 (2014) (quotation marks and citations
omitted). Standing concerns whether a party is properly before the court, not whether the issue is
justiciable or whether the claim has merit. Id.

       “A real party in interest is one who is vested with a right of action in a given claim although
the beneficial interest may be with another.” Moses, Inc v Southeastern Mich Council of Gov’ts,
270 Mich App 401, 416; 716 NW2d 278 (2006). In Lansing Schs Ed Ass’n v Lansing Bd of Ed,
487 Mich 349, 372; 792 NW2d 686 (2010), our Supreme Court stated that “a litigant has standing
whenever there is a legal cause of action.” The Court provided further guidance as follows:
                Where a cause of action is not provided at law, then a court should, in its
       discretion, determine whether a litigant has standing. A litigant may have standing
       in this context if the litigant has a special injury or right, or substantial interest, that
       will be detrimentally affected in a manner different from the citizenry at large or if
       the statutory scheme implies that the Legislature intended to confer standing on the
       litigant. [Id.]

       In this case, the complaint alleged legal malpractice before and after the bankruptcy filing
by defendants’ failing to obtain, review, and advise Thompson regarding her various financial
records, failing to inform her about what to disclose in the filing, improperly filing Thompson’s
bankruptcy, and inadequately working with Gold to have her debts discharged.

         A bankruptcy filing creates a separate estate. Schwab v Reilly, 560 US 770, 774; 130 S Ct
2652; 177 L Ed 2d 234 (2010). The debtor thus surrenders all rights to their property upon filing.
Young, 294 Mich App at 143, citing 11 USC 541. In a Chapter 7 bankruptcy, the trustee marshals
the assets of the debtor, liquidates the estate, and distributes the proceeds, if any, to the creditors.
RDM Holdings, LTD v Continental Plastics Co, 281 Mich App 678, 693; 762 NW2d 529 (2008)
(citations omitted). The bankruptcy debtor lists all assets on a bankruptcy schedule, including all
of the debtor’s legal or equitable interests in property, at the commencement of the case. 11 USC
541(a)(1); Young v Indep Bank, 294 Mich App 141, 143; 818 NW2d 406 (2011). An existing or
potential cause of action constitutes an asset that must be included in the schedule of assets and
liabilities. Spohn v Van Dyke Pub Sch, 296 Mich App 470, 481-482; 822 NW2d 239 (2012). The
debtor loses standing personally to litigate claims that had belonged to him or her that have become
vested in the bankruptcy estate trustee for the benefit of the estate. Young, 294 Mich App at 144.

        Whether Gold has standing depends on whether the instant lawsuit is a property interest
vested in the bankruptcy estate. Plaintiffs acknowledge that pre-bankruptcy claims are the
property of the bankruptcy estate, and that post-bankruptcy claims are Thompson’s property, but
assert that there is “potential ambiguity” regarding when the actions constituting malpractice
occurred as well as how to allocate the damages. Not in dispute, however, is that that the claims
of deficient representation against defendants stemmed from their execution of Thompson’s
bankruptcy.

                                                   -4-
         The trial court held that Gold did not have an actionable interest in the malpractice claim,
on the grounds that the bankruptcy estate did not have a property interest in that claim because it
accrued after the bankruptcy petition was filed; also, a bankruptcy court order that did not
specifically address standing while requiring plaintiffs to cooperate in the malpractice claim and
to split any judgments between Thompson and the estate did not provide Gold with standing. We
agree with the trial court.

        In In re Blasingame, 986 F3d 633, 638 (CA 6, 2021), the federal appellate court considered
whether a bankruptcy estate, or its individual debtors, “owned” a legal malpractice claim. The
court stated that, even though federal bankruptcy law, particularly 11 USC 541, determined the
property rights of a bankruptcy estate, the “ ‘nature and extent of [the] property rights . . . are
determined by the underlying [state] substantive law.’ ” Id., quoting Raleigh v Illinois Dep’t of
Revenue, 530 US 15, 20; 120 S Ct 1951; 147 L Ed2d 13 (2000) (alterations in original). The court
thus applied Tennessee law that stated a legal malpractice claim accrued “after the plaintiffs
discovered or could have reasonably discovered the malpractice and until after the judgment . . .
had become final.” The Blasingame court concluded that the malpractice claim at issue was not
property of the bankruptcy estate because the claim, including activities by the defendant attorney
before filing, was “not a legal interest under Tennessee law” when the bankruptcy was filed. In re
Blasingame, 986 F3d at 641-642.

        This Court has also acknowledged that a cause of action that “belong[s] to the debtor prior
to bankruptcy” is estate property that the bankruptcy estate is authorized to pursue, and stated that
state law is applied to determine whether a particular cause of action was “property of the estate
under 11 USC 704(a)(1) and 11 USC 541(a)(1).” RDM Holdings, 281 Mich App at 703.

       MCL 600.5838(1) provides the following guidance:
               Except as otherwise provided in section 5838a or 5838b, a claim based on
       the malpractice of a person who is, or holds himself or herself out to be, a member
       of a state licensed profession accrues at the time that person discontinues serving
       the plaintiff in a professional or pseudoprofessional capacity as to the matters out
       of which the claim for malpractice arose, regardless of the time the plaintiff
       discovers or otherwise has knowledge of the claim.

In Michigan, a legal malpractice claim accrues on “the attorney’s last day of professional service
in the matter out of which the claim for malpractice arose.” Kloian v Schwartz, 272 Mich App
232, 238; 725 NW2d 671 (2006) (quotation marks and citation omitted).

        Applying these principles, the bankruptcy estate, as administered by Gold, was not
authorized to pursue a legal malpractice claim concerning Thompson’s bankruptcy filing.
Defendants continued to represent Thompson during the course of the bankruptcy proceedings.
Therefore, the malpractice claim did not accrue until after her filing, which means that the claim
did not exist at the time of the filing and thus could not become the property of the estate. Because
the instant malpractice claim was not the property of the bankruptcy estate, the estate’s trustee,
Gold, was not a party in interest in connection with the malpractice claim, and therefore lacked
standing to pursue it.

                                                -5-
       Plaintiffs also argue that the bankruptcy estate was granted standing in this malpractice
claim because an order of the bankruptcy court included the following:
               The Trustee and Patricia Thompson shall cooperate with respect to the
       pursuit and/or prosecution of any legal malpractice claims for damages arising from
       legal services performed by [defendants] and others on behalf of Patricia Thompson
       in connection with this bankruptcy case, both pre-petition and post-petition, the net
       proceeds of which shall be split equally between the bankruptcy estate of Patricia
       Thompson and Patricia Thompson.

There was no basis in the record for concluding that the bankruptcy court order decided the issue
of Gold’s standing for this legal malpractice claim. The order did not mention standing, and was
not specific to any claim that had been filed. Further, the order addressed cooperation and how to
apportion any damages awarded, but it did not state who would file any such claim. Thus, the
order did not militate in favor of recognizing Gold’s standing here.

                                   IV. LEGAL MALPRACTICE

         Plaintiffs’ one-count complaint alleged that defendants committed legal malpractice by
failing to disclose cash and property transfers to the bankruptcy court, failing to advise Thompson
regarding the consequences of nondisclosure and failing to respond to the trustee’s complaint
against Thompson that resulted in an order denying Thompson’s discharge of debts and a judgment
of $9,011 against her. With respect to defendants’ motion for summary disposition under MCR
2.116(C)(8), the trial court held:

       Defendants next argue that Thompson’s malpractice claim is barred by the
       wrongful conduct rule because she engaged in criminal conduct during the
       bankruptcy proceedings. In response, Thompson argues Defendants’ argument is
       premature because it involves factual disputes related to Warr’s conduct that cannot
       be resolved until discovery has been completed.

         Under the “wrongful-conduct rule,” “Michigan courts have long recognized” that a claim
is generally barred to the extent that it is based on the plaintiff’s own illegal conduct. Soaring Pine
Capital Real Estate & Debt Fund II, LLC v Park St Group Realty Servs, LLC, 337 Mich App 529,
552; 976 NW2d 674 (2021). To successfully assert the wrongful conduct defense, the plaintiff’s
conduct “must be prohibited or almost entirely prohibited under a penal or criminal statute.” Orzel
v Scott Drug Co, 449 Mich 550, 561; 537 NW2d 208 (1995). Moreover, “a sufficient causal nexus
must exist between the plaintiff’s illegal conduct and the plaintiff’s asserted damages.” Id. at 564.
The wrongful conduct rule is an affirmative defense; it precludes or forecloses a plaintiff from
proceeding for reasons unrelated to their prima facie case, but it does not rebut the prima facie
case. Campbell v St John Hosp., 434 Mich 608, 615-616; 455 NW2d 695 (1990). When a
complaint contains allegations that establish the affirmative defense, the trial court can dismiss for
failure to state a claim upon which relief can be granted. Glazier v Lee, 171 Mich App 216, 219-
220; 429 NW2d 857 (1988).

        The public policy contends that courts should not “condone and encourage illegal conduct,”
that parties should not “receive a profit or compensation as a result of their illegal acts,” and that

                                                 -6-
rewarding wrongdoers would encourage the public to “view the legal system as a mockery of
justice” while enabling “wrongdoers . . . to shift much of the responsibility for their illegal acts to
other parties.” Orzel, 449 Mich at 559-560. The wrongful-conduct bar applies both when the
action is based wholly on the plaintiff’s own illegal conduct, and when the action is based only
partly on the plaintiff’s and “the defendant has participated equally in the illegal activity.” Soaring
Pine, 337 Mich App at 552-553. “ ‘[A]s between parties in pari delicto, that is equally in the wrong,
the law will not lend itself to afford relief to one as against the other, but will leave them as it finds
them.’ ” Orzel, 449 Mich at 558 (alteration in original), quoting 1A CJS, Actions, § 29, p 388.

        Notably, Orzel involved a jury trial where the plaintiff sued the defendant drug store for
negligently supplying the drug Desoxyn, also known as methamphetamine, to which the plaintiff
became addicted and caused him to suffer hallucinations, amphetamine psychosis, and paranoid
schizophrenia. The plaintiff claimed that the defendant breached common-law and statutory duties
owed to him by filling prescriptions written for people other than himself but giving the
prescription to the plaintiff and filling the prescriptions more than once a month when they were
written for one month’s supply. The plaintiff was also obtaining Desoxyn through other illegal
transactions, was hospitalized repeatedly for his abuse of the drug, and was deemed legally insane
as a result of his drug abuse. The trial court denied several summary disposition motions and the
case went to trial where the jury awarded the plaintiff $3.8 million in damages but reduced the
verdict to $1.9 million because the plaintiff was comparatively negligent. The trial court granted
the defendant’s motion for judgment notwithstanding the verdict based on the plaintiff’s illegal
conduct barring his claim. Id. at 555-557.

         The Orzel Court found that the plaintiff’s acts constituted illegal conduct, so application of
the wrongful-conduct rule was appropriate. The Supreme Court affirmed the grant of judgment
notwithstanding the verdict “[b]ecause none of the limitations or exceptions to the wrongful-
conduct rule apply” and the plaintiff’s illegal conduct barred his claims against the defendant. This
conclusion was reached after extensive factual analysis because the “standard of review for
judgments notwithstanding the verdict requires review of the evidence and all legitimate inferences
in the light most favorable to the nonmoving party. Orzel, 449 Mich at 557. “Only if the evidence
so viewed fails to establish a claim as a matter of law, should a motion for judgment
notwithstanding the verdict be granted.” Id. at 558 (citations omitted).

       On its face, Thompson’s complaint states a claim for legal malpractice, but the complaint
also acknowledges the that the bankruptcy court entered a January 13, 2021 judgment denying
Thompson’s discharge of debts and for a money judgment due to undisclosed non-exempt
property. The bankruptcy court’s January 13, 2021 Default Judgment2 stated that a default
judgment is entered against Thompson “based upon her failure to timely answer Plaintiff’s
[Gold’s] complaint; it also ordered “that defendant Patricia Ann Thompson’s discharge is hereby
denied pursuant to 11 USC §§727(a)(4)(A), 727(a)(3), 727(a)(4)(D) and 727(a)(2)(B).”3 Thus, it

2
 United States Bankruptcy Court, Eastern District of Michigan, Southern Division, Chapter 7 Case
No. 20-48647-MAR.
3
    11 USC 727(a)(2) provides as follows:

                                                   -7-
appears that the bankruptcy court found Thompson intentionally transferred property of the estate
and knowingly and fraudulently made a false oath and withheld recorded information.

“[W]here the plaintiff has engaged in illegal conduct, it should be the plaintiff’s own criminal
responsibility which is determinative.” Orzel, 449 Mich at 560 (quotation marks and citation
omitted). Applicability of the wrongful-conduct rule requires that the plaintiff’s conduct was
“prohibited or almost entirely prohibited under a penal or criminal statute,” and “a sufficient causal
nexus must exist between the plaintiff’s illegal conduct and the plaintiff’s asserted damages.” Id.
at 561, 564.

               (a) The court shall grant the debtor a discharge, unless--

               (2) [T]he debtor, with intent to hinder, delay, or defraud a creditor or an
       officer of the estate charged with custody of property under this title, has
       transferred, removed, destroyed, mutilated, or concealed, or has permitted to be
       transferred, removed, destroyed, mutilated, or concealed–

               (A) property of the debtor, within one year before the date of the filing of
       the petition; or

               (B) property of the estate, after the date of the filing of the petition . . . .

11 USC 727(a) provides as follows:

               (a) The court shall grant the debtor a discharge, unless--

              (3) the debtor has concealed, destroyed, mutilated, falsified, or failed to
       keep or preserve any recorded information, including books, documents, records,
       and papers, from which the debtor’s financial condition or business transactions
       might be ascertained, unless such act or failure to act was justified under all of the
       circumstances of the case;

               (4) the debtor knowingly and fraudulently, in or in connection with the
       case–

               (A) made a false oath or account;

                                                * * *

                (D) withheld from an officer of the estate entitled to possession under this
       title, any recorded information, including books, documents, records, and papers,
       relating to the debtor’s property or financial affairs . . . .

                                                   -8-
        In this case, the trial court stated that Thompson’s bankruptcy filing violated 18 USC
152(1)-(3), 18 USC 157, and 26 USC 7201, although the bankruptcy court made no factual findings
and did not reference these bankruptcy provisions in its January 13 or May 4, 2021 orders.
Thompson argues that she did not knowingly and fraudulently conceal her assets, as required to
violate 18 USC 152(1)-(3), did not intend to commit fraud under 18 USC 157, and did not willfully
attempt to evade taxes under 26 USC 7201. She argues that the facts alleged in the complaint did
not support the conclusion that Thompson acted “knowingly and fraudulently” when she signed
the bankruptcy filing documents. But, in her complaint, Thompson detailed how she was indebted
to multiple commercial lenders, as well as the Internal Revenue Service, had defaulted on her
student loans, and had transferred assets to her daughter “in an effort” to “protect her assets from
her creditors.” She then detailed the asset transfers, and revealed that she rented a transferred
property shortly before filing bankruptcy, and received rent from it after filing. Thus, Thompson’s
statements in her complaint revealed a willing and knowing obfuscation of her assets.

        The complaint also stated that certain documentation should have alerted defendants to the
transfers of cash and other property to her daughter. Thompson further stated that she continued
to collect “receivables and rental income,” and transferred more cash to her daughter, after her
bankruptcy filing, which were not disclosed in her filings. Thus, Thompson admitted that she
endeavored to protect her assets from creditors by alienating them after her bankruptcy filing
without disclosing the transfers.

        The complaint further reported that, after the bankruptcy trustee filed a complaint asserting
that Thompson had improperly failed to disclose, or transferred, assets, and had not provided
records as requested, Thompson and defendants failed to respond resulting in the bankruptcy court
denying Thompson’s discharge of debts, and issued two money judgments against her. Further,
Thompson did not argue below, even after defendants raised the wrongful-conduct defense, that
she had not committed a crime. Thus, there was no genuine dispute that Thompson’s conduct was
“prohibited or almost entirely prohibited” according to the criminal statutes the trial court cited.
So the first prong of the wrongful conduct rule has been established.

        Thompson next argues that her conduct was not the proximate cause of her failure to obtain
discharge of her debts, or the monetary judgments against her, in the bankruptcy court. We
disagree and conclude that “a sufficient causal nexus [] exist[s] between the plaintiff’s illegal
conduct and the plaintiff’s asserted damages.” Orzel, 449 Mich at 564. The wrongful-conduct rule
applies “only where the illegality or immorality with which plaintiff is chargeable has a causative
connection with the particular transaction out of which the alleged cause of action asserted arose.”
Orzel, 449 Mich at 564. The plaintiff’s wrongful conduct must have been a proximate cause of
her damages. Shelton v Auto-Owners Ins Co, 318 Mich App 648, 660-661; 899 NW2d 744 (2017).
“The injury must be traceable to [the plaintiff’s] own breach of the law and such breach must be
an integral and essential part of [the plaintiff’s] case.” Cervantes v Farm Bureau Gen Ins Co, 272
Mich App 410, 417; 726 NW2d 73 (2006).

       Thompson specifies that defendants prepared her bankruptcy documents and asserts that
they were aware of her transfers of assets to Shelton because they had recently represented Shelton
in her own bankruptcy proceedings. Thompson further states that defendants’ negligent
representation resulted in the deficiencies in Thompson’s bankruptcy filings, such as the failure to
disclose cash transfers, report receivables from Thompson’s business, or to disclose a leasehold in

                                                -9-
her primary residence. As noted, according to Thompson’s complaint, the bankruptcy court denied
Thompson’s discharge of debts and ordered her to pay two money judgments. . Thus, there was
no genuine dispute that Thompson’s own failure to disclose assets and transfers was a proximate
cause of her damages.4

        Thompson argued below, and argues on appeal, that the deficient filings and disclosures
were attributable to defendants’ actions as they had a duty to properly administer her filing.
Thompson cites federal “advice of counsel law” that has not been applied to Michigan legal-
malpractice cases.5 In Pantely v Garris, Garris & Garris, PC, 180 Mich App 768, 770-771; 447
NW2d 864 (1989), the legal-malpractice plaintiff made a fraudulent representation in her divorce
proceeding regarding her residency before filing her divorce complaint, which eventually resulted
in our Supreme Court’s setting aside the divorce judgment. The plaintiff admitted her perjury but
argued that “there exists a genuine issue of fact as to the relative wrongdoing of herself and her
lawyers,” and asserted that “she lied at the direction of her attorneys.” Id. at 775-776. This Court
determined that plaintiff’s claim against her counsel was barred because, even assuming that
counsel advised her to lie, the plaintiff admittedly perjured herself which was not a matter of
complex legality. Id. at 773-774, 776, 778. Likewise, in this case, Thompson acknowledged that
she surreptitiously transferred assets, and concealed financial transactions, for the purpose of
protecting them from creditors. And her complaint admitted that the bankruptcy court assessed
money judgments against her and denied her request for discharge of debts on the basis of those
deceptions. Like the perjury in Pantely, the fraudulent or incomplete filings in this case were a
fundamental failure of honesty, rather than an error attributable to legal complexity.

         Thompson argues that defendants’ culpability was greater than hers, thus barring
application of the wrongful-conduct rule. “An exception to the wrongful-conduct rule may apply
where both the plaintiff and defendant have engaged in illegal conduct, but the parties do not stand
in pari delicto.” Orzel, 449 Mich at 569. The plaintiff, whose illegal acts caused the injury, “may
still seek recovery against the defendant if the defendant’s culpability is greater than the plaintiff’s
culpability for the injuries, such as where the plaintiff has acted under circumstances of oppression,
imposition, hardship, undue influence, or great inequality of condition or age.” Id. (quotation
marks and citations omitted). Thompson asserted that defendants prepared the bankruptcy filings
with full knowledge of the facts, and failed to correct the documents when discharge of her debts
was in jeopardy, despite “common law and federal statutory duties to review the debtor’s
information before filing Thompson’s bankruptcy petition, schedules, and statement of financial
affairs.”

        Under the wrongful-conduct rule, a claim “is barred not because the defendant is right, but
rather because the plaintiff, being equally wrong, has forfeited any claim to the aid of the court.”

4
 We note that defendants needed to show that plaintiff’s conduct was only “a” proximate cause,
not necessarily “the” proximate cause, of her injuries. Orzel, 449 Mich at 566-567.
5
 The advice-of-counsel defense requires a finding that there was “(1) full disclosure of all pertinent
facts to counsel, and (2) good faith reliance on counsel’s advice.” United States v Lindo, 18 F3d
353, 356 (CA 6, 1994). “The advice of counsel defense is only applicable where it may negate
willful violation of the law.” United States v Ragsdale, 426 F3d 765, 778 (CA 5, 2005).

                                                 -10-
Orzel, 449 Mich at 560. In Soaring Pine, 337 Mich App at 556, this Court held that the greater-
culpability-by-defendant exception to the wrongful-conduct rule was inapplicable when it was not
alleged that the defendant had committed an illegal act. In that case, as in this case, “[p]laintiff
has not . . . alleged that defendants acted in a criminal manner, but only tortiously.” Id.
Accordingly, the greater culpability exception does not apply here.

        Thompson additionally argues that the trial court erred by applying the wrongful-conduct
rule to her legal malpractice claim in light of defendants’ having represented both Thompson and
her daughter in adversarial proceedings. Again, we disagree.

        “ ‘[I]f a complete cause of action can be shown without the necessity of proving the
plaintiff’s illegal act, the plaintiff will be permitted to recover notwithstanding that the illegal act
may appear incidentally and may be important to the explanation of other facts in the case.’ ” Poch
v Anderson, 229 Mich App 40, 49; 580 NW2d 456 (1998), quoting 1 Am Jur 2d, Actions, § 45, p
753. Here, Thompson’s illegal conduct was independent of any conflict of interest resulting from
defendants’ representation of both Thompson and her daughter in adversarial proceedings. Indeed,
Thompson could set forth a complete legal-malpractice claim based on dual representation without
implicating any of her illegal acts relating to her bankruptcy filing.

        But, as pleaded, Thompson’s allegation of malpractice did not relate to defendants’
potentially conflicted representation of both herself and her daughter. The complaint asserted that
defendants represented Shelton in an adversarial proceeding filed by Gold, and that Gold
successfully moved the bankruptcy court to disqualify defendants from representing Shelton
because of the dual representation. As discussed, the complaint reported that the bankruptcy court
denied Thompson’s discharge of debts, and issued money judgments against her on the bankruptcy
trustee’s complaint alleging Thompson improperly concealed or transferred assets and failed to
provide requested records. The malpractice allegations did not include a conflict of interest or
other breach of the duty of loyalty. The damages alleged in the complaint were entirely attributable
to the bankruptcy court’s rulings resulting from Gold’s unaddressed complaints about Thompson’s
nondisclosures and disposal of assets, and incomplete records. And because Thompson did not
argue below that a valid conflict-of-interest claim existed, the trial court did not address any such
claim in its opinion and order. The record thus does not indicate that Thompson claimed legal
malpractice, or sought damages, on the basis of defendants’ conflict of interest. See Simko v Blake,
448 Mich 648, 655; 532 NW2d 842 (1995) (a claim for legal malpractice must allege negligence
in legal representation that was the proximate cause of an injury, along with “the fact and extent
of the injury alleged”).
        For these reasons, we hold that the wrongful conduct rule barred Thompson’s claim for
legal malpractice based on Thompson’s own illegal conduct demonstrated on the face of
Thompson’s complaint, Glazier, 171 Mich App at 219-220, , and we thus conclude that the trial
court properly dismissed Thompson’s complaint because it failed to state a claim upon which relief
could be granted.

       Affirmed.

                                                                /s/ James Robert Redford
                                                                /s/ Colleen A. O’Brien
                                                                /s/ Kathleen A. Feeney

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