EVANS & LUPTAK PLC V JOHN B LIZZA
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STATE OF MICHIGAN
COURT OF APPEALS
EVANS & LUPTAK, PLC,
Plaintiff-Appellant/Cross-Appellee,
v
FOR PUBLICATION
May 3, 2002
9:05 a.m.
No. 223927
Wayne Circuit Court
LC No. 98-840447-CK
JOHN B. LIZZA and DENNIS A. DETTMER,
jointly and severally,
Defendants-Appellees/CrossAppellants.
Updated Copy
August 16, 2002
Before: Cooper, P.J., and Griffin and Saad, JJ.
GRIFFIN, J.
This case involves an attorney conflict of interest. Plaintiff requests this Court to enforce
an unethical referral fee contract.1 Like the circuit court, we refuse to do so and, accordingly,
affirm the summary disposition granted in favor of defendants. We hold that the alleged contract
is unethical because it violates the Michigan Rules of Professional Conduct (MPRC).
Furthermore, we hold that unethical contracts violate our public policy and therefore are
unenforceable.
I
The genesis of the present action is a December 9, 1994, automobile accident. On that
date, Robert P. Stephenson was the operator of an automobile2 in which his son, Robert Brett
Stephenson (Brett), and his mother-in-law, Florence Budge, were passengers. All three
occupants were killed when the automobile suddenly crossed the centerline of the highway and
collided with another vehicle.
1
Defendants dispute the existence of a contract. However, in addressing defendants' motion for
summary disposition, we do not resolve factual disputes but rather consider the affidavits,
depositions, and other substantively admissible evidence in a light most favorable to the
nonmoving party. MCR 2.116(C)(10). Maiden v Rozwood, 461 Mich 109, 119-121; 597 NW2d
817 (1999); Bullock v Auto Club of Michigan, 432 Mich 472, 474, 475; 444 NW2d 114 (1989).
2
Robert P. Stephenson's employer, Martiz, Inc., was the owner of the vehicle.
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Estates were opened for Robert P. Stephenson and Brett Stephenson in the Oakland
County Probate Court, while an estate was opened in Ontario for Canadian citizen Florence
Budge. Catherine Stephenson Topolsky (Robert's wife, Brett's mother, and Florence's daughter)
was initially appointed personal representative of the estates of both Robert P. Stephenson and
Brett Stephenson. She retained plaintiff Evans & Luptak, PLC, as the attorney at law for both
estates.
Although plaintiff represented the estate of Robert P. Stephenson, on August 19, 1996,
Evans & Luptak attorney Marilyn H. Mitchell wrote a demand letter to General Accident
Insurance asserting wrongful death claims against her own client. Plaintiff admits in its appellate
brief that it advocated the filing of wrongful death lawsuits against its client:
Plaintiff determined and advised that the estates of the Brett Stephenson
and Florence Budge had causes of actions for wrongful death against the Estate of
Robert P. Stephenson, but plaintiff also determined that the estates would have to
sue the Estate of Robert P. Shephenson as a nominal defendant if the insurance
company declined to negotiate a settlement. Plaintiff advised Mrs. Topolsky, as
personal representative of Brett Stephenson's Estate and as a beneficiary of the
Budge Estate, that such causes of action existed as a potential asset of her son's
estate (as well as her mother's estate).
In the lower court, Evans & Luptak "senior member" Michael J. Mehr filed an affidavit in which
he swore:
I consulted with my client, Mrs. Catherine Stephenson (now Topolsky) as
Personal Representative of the Estate of Robert P. Stephenson (Mrs. Stephenson's
deceased husband) and as Personal Representative of the Estate of Robert Brett
Stephenson (her deceased son) in or about November 1996 with respect to my
previous recommendation that the Estate of Robert Brett Stephenson and the
Estate of Florence Budge (Mrs. Stephenson's mother) should pursue wrongful
death lawsuits against the Estate of Robert P. Stephenson and Mr. Stephenson's
employer, Maritz, Inc., to obtain insurance proceeds under Maritz's policy with
General Accident Insurance.
Before the filing of the lawsuit Estate of Robert Brett Stephenson v Estate of Robert P.
Stephenson, Oakland Circuit Court, Docket No. 96-534994-NI, Mrs. Topolsky withdrew as
personal representative of the Robert P. Stephenson estate and her friend Maurice J. Beznos was
substituted as its personal representative. Also, plaintiff referred the wrongful death claims
against its own client (estate of Robert P. Stephenson) to defendants pursuant to an alleged
referral contract in which defendants agreed to pay plaintiff a one-third contingent fee of all
recoveries obtained against plaintiff 's client.
Following service of the complaint, attorney Marilyn H. Mitchell of plaintiff Evans &
Luptak, (who six months earlier wrote a demand letter against her client) filed an answer on
behalf of the Robert P. Stephenson estate. Thereafter, an attorney retained by General Accident
Insurance to represent the Robert P. Stephenson estate and vehicle owner, Martiz, Inc., promptly
demanded that attorney Mitchell withdraw from the litigation, citing her conflict of interest:
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As you know, I was a bit chagrinned when you advised me that your law
firm had filed an answer on behalf of defendant, Maurice J. Beznos, Personal
Representative of the Estate of Robert P. Stephenson. As I advised you, my
review of the file provided to me by General Accident Insurance Company, who
has retained me to represent both defendants, disclosed that your law firm, and
more particularly yourself, were making claim against the estate of decedent
defendant Robert P. Stephenson, this being the very entity you supposedly filed
an answer for. As I advised you, yes, I believe it is a conflict of interest to
represent one party against another and then turn around and represent the
interests of the party against whom you had already made a claim. [Emphasis
added.]
In response to the letter, Evans and Luptak withdrew as attorneys for the estate of Robert P.
Stephenson in the wrongful death action.
The wrongful death lawsuits proceeded and were eventually settled with the automobile
insurance company paying all settlement proceeds.3 In the present lawsuit, plaintiff seeks to
enforce its alleged referral agreement with defendants and claims one-third of the attorney fees
realized in the wrongful death suits against its own client.
The lower court granted summary disposition in favor of defendants. The court ruled that
the alleged referral agreement violated the MRPC and therefore was unenforceable. The lower
court also rejected plaintiff 's argument that the insurance company was the real party in interest
and the personal representatives of the estates could waive plaintiff 's conflict of interest.
Finally, the lower court denied defendants' motion for sanctions that asserted the complaint was
without a reasonable basis in law or in fact (MCR 2.114[D]) and was devoid of legal merit (MCL
600.2591[3][a]). Plaintiff appeals as of right the order granting summary disposition in favor of
defendants; defendants cross appeal the order denying an award of sanctions. We affirm.
II
As its first issue on appeal, plaintiff argues that the MRPC may not be used as a defense
to plaintiff 's breach of contract action because the rules expressly provide that they do not give
rise to a cause of action for enforcement of a rule or for damages caused by a failure to comply
with an ethical obligation. Specifically, plaintiff relies on MRPC 1.0(b):
Failure to comply with an obligation or prohibition imposed by a rule is a
basis for invoking the disciplinary process. The rules do not however, give rise to
a cause of action for enforcement of a rule or for damages caused by failure to
comply with an obligation or prohibition imposed by a rule. In a civil or criminal
action, the admissibility of the Rules of Professional Conduct is governed by the
Michigan Rules of Evidence and other provisions of law.
3
Plaintiff alleges that representations were made by the wrongful death plaintiffs that they would
limit their recoveries against the estate of Robert P. Stephenson to available insurance proceeds.
However, the complaints filed in the wrongful death actions were not so limited.
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Defendants argue that MRPC 1.0(b) is inapplicable because defendants have not filed a
cause of action for enforcement of a disciplinary rule or for damages arising out of a violation of
a disciplinary rule. Rather, defendants have simply defended a cause of action brought by
plaintiff raising as a defense that the alleged contract is unethical because it violates our public
policy as expressed in the Michigan Rules of Professional Conduct. We agree with defendants.
Plaintiff 's reliance on the lead opinion in People v Green, 405 Mich 273; 274 NW2d 448
(1979), is misguided. Green was a criminal case in which the issue was whether the
extraordinary remedy of the exclusionary rule would be invoked to suppress evidence obtained
in violation of our former Code of Professional Responsibility. The lead opinion by Chief
Justice Coleman was joined by only one other justice and therefore is not precedentially binding.
People v Anderson, 389 Mich 155, 170; 205 NW2d 461 (1973); also see Dean v Chrysler Corp,
434 Mich 655, 660-661, n 7; 455 NW2d 699 (1990). Further, because the issue involved the
scope of the criminal exclusionary rule, Green is readily distinguishable from the present issue
whether the court should enforce an unethical contract in a civil action.
Plaintiff also argues that "the Michigan Rules of Professional Conduct are not rules of
substantive law" and therefore are inapplicable in court proceedings. Plaintiff 's argument
appears to be that judges have no ethical oversight regarding their court officers and that the
Attorney Grievance Commission is the exclusive authority regulating the ethical obligations of
attorneys.
In this regard, plaintiff fails to understand the proper role of the court regarding the
ethical conduct of its officers. Starting with In re Mills, 1 Mich 392 (1850), Michigan has a long
tradition of judicial oversight of the ethical conduct of its court officers. See Pasman, The
conflict of "conflict of interest": The Michigan example, 1995 Det Col L R 133. Our ethics rules
were originally based on statute and common law. However, in 1971, the Michigan Supreme
Court adopted a version of the American Bar Association Code of Professional Conduct.
Thereafter in 1988, the Code of Professional Conduct was superseded by the Supreme Court's
adoption of a version of the ABA's Model Rules of Professional Conduct.
The more recent cases in which our courts have taken affirmative action to enforce our
ethical standards and rules regarding counsel are In re Schlossberg, 388 Mich 389; 200 NW2d
219 (1972), Attorney General v Public Service Comm, 243 Mich App 487; 625 NW2d 16 (2000),
In re Norris Estate, 151 Mich App 502; 391 NW2d 391 (1986), GAC Commercial Corp v
Mahoney Typographers, Inc, 66 Mich App 186; 238 NW2d 575 (1975), and Auseon v Reading
Brass Co, 22 Mich App 505; 177 NW2d 662 (1970). Such a practice is consistent with the
Michigan Code of Judicial Conduct Canon 3(B)(3), which provides in part: "A judge should
take or initiate appropriate disciplinary measures against a judge or lawyer for unprofessional
conduct of which the judge may become aware."
Recently, in Abrams v Susan Feldstein, PC, 456 Mich 867 (1997), our Supreme Court
reversed a two-to-one opinion of the Court of Appeals, holding "[t]he Supreme Court agrees with
the Court of Appeals dissent's discussion of principles pertaining to former DR 2-107" (former
Code of Professional Conduct). That portion of the dissenting opinion states in pertinent part as
follows:
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The lower court enforced an unethical fee splitting contract between two
attorneys that directly violates the letter of DR 2-107 of Michigan's Code of
Professional Responsibility. I would reverse and hold that contracts that violate
Michigan's Code of Professional Responsibility contravene public policy and are,
therefore, unenforceable.
. . . [B]ecause conduct that violates attorney discipline rules offends
Michigan public policy, see In re Karabatian's Estate, 17 Mich App 541, 546547; 170 NW2d 166 (1969), and Michigan courts have traditionally refused to
enforce contracts that contravene public policy, see Weller v Weller, 344 Mich
614; 75 NW2d 34 (1956); Cook v Wolverine Stockyards Co, 344 Mich 207; 73
NW2d 902 (1955); Cudnick v William Beaumont Hosp, 207 Mich App 378, 383384; 525 NW2d 891 (1994), I would join the weight of authority and hold that
courts should not enforce unethical fee agreements. See Scolinos v Kolts, 37 Cal
App 4th 635, 639-640; 44 Cal Rptr 2d 31 (1995); O'Hara v Ahlgren, Blumenfeld
and Kempster, 158 Ill App 3d 562, 564-566; 511 NE2d 879 (1987); Gorman v
Grodensky, 130 Misc 2d 837, 840-841; 498 NYS2d 249 (1985); Fleming v
Campbell, 537 SW2d 118 (Ct App Tex, 1976); see also Leoris v Dicks, 150 Ill
App 3d 350, 353-354; 501 NE2d 901 (1986).
I am not persuaded by plaintiff 's reliance on a provision in the
subsequently adopted Michigan Rules of Professional Conduct which states that
disciplinary rules are to be used only for disciplinary purposes and not to support
or shield against civil liability. See MCPC 1.0(b) and comment. The question of
civil liability for an ethics violation is distinguishable from the present issue
whether the courts of this state should enforce, and thereby sanction unethical
contracts. In my view, this Court should refuse to aid either party to an unjust
contract where, as here, enforcing the agreement would further a purpose that
violates public policy. See O'Hara, supra at 565; Gorman, supra at 840; see also
Leoris, supra at 354. As stated by the California Court of Appeals in Scolinos,
supra at 640: "It would be absurd if an attorney were allowed to enforce an
unethical fee agreement through court action, even though the attorney potentially
is subject to professional discipline for entering into the agreement." [Abrams v
Feldstein, unpublished opinion per curiam of the Court of Appeals (Griffin, P.J.,
dissenting) issued September 24, 1996 (Docket No. 170288).]
Although the Supreme Court in Abrams also remanded for further proceedings to
determine whether the plaintiff could establish compliance with the disciplinary rule, it is clear
the Supreme Court agreed with the fundamental principle that contracts that violate our ethical
rules violate our public policy and therefore are unenforceable. Because the Supreme Court's
order can be so understood, it is binding precedent. Brooks v Engine Power Components, Inc,
241 Mich App 56, 62-63; 613 NW2d 733 (2000); People v Phillips (After Second Remand), 227
Mich App 28, 38, n 11; 575 NW2d 784 (1997). Further, although Abrams construed our former
Code of Professional Conduct rather than our current Rules of Professional Conduct, the logic
remains that "[i]t would be absurd if an attorney were allowed to enforce an unethical fee
agreement through court action, even though the attorney potentially is subject to professional
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discipline for entering into the agreement." Abrams, supra. As stated by the Nebraska Court of
Appeals in In re Estate of Watson, 5 Neb App 184, 191; 557 NW2d 38 (1996):
We do not accept the contention that an attorney can receive fees for
representation which from the outset gives the appearance of impropriety and is
violative of established rules of professional conduct. An attorney may not
recover for services rendered if those service are rendered in contradiction to the
requirements of professional responsibility and inconsistent with the character of
the profession.
See also Moses v McGarvey, 614 P2d 1363, 1372 (Alas, 1980) ("It is well established that an
attorney, disqualified on conflict-of-interest grounds, generally is barred as a matter of public
policy from receiving any fee from either of the opposed interests."), and Bloomenthal v
Halstrom, 1999 WL 1318980 (Mass Super, 1999).
III
Next, plaintiff argues that even if the Michigan Rules of Professional Conduct are
judicially enforceable, the lower court committed error requiring reversal in ruling that a conflict
of interest exists under the facts of the present case. Again, we disagree.
It is a well-established ethical principle that "an attorney owes undivided allegiance to a
client and usually may not represent parties on both sides of a dispute." Barkley v Detroit, 204
Mich App 194, 203; 514 NW2d 242 (1994). Further, "under no circumstances could a lawyer
properly represent both the plaintiff and the defendant in contested litigation." Friedman v
Dozorc, 412 Mich 1, 24, n 10; 312 NW2d 585 (1981). As the Court recognized in Barkley,
supra at 202-203:
[T]he conflict of interest rules are " 'a frank recognition that, human nature
being what it is, a dual relationship involving adverse or conflicting interests,
constitutes enormous temptation to take advantage of one or both parties to such
relationship'" and that "'[t]he purpose of [the conflict of interest rules] is to
condemn the creation and existence of the dual relationship instead of merely
scrutinizing the results that may flow therefrom.'" [State Bar of Michigan Ethics
Committee] Formal Opinion 160 (November 1954), quoting [State Bar of
Michigan Ethics Committee] Formal Opinion 132 (January 1950). [Emphasis in
original.]
Plaintiff argues that there was no conflict of interest in the wrongful death actions
because the estate of Robert P. Stephenson was a mere "nominal" defendant. We conclude that
this argument is without merit. In the wrongful death actions, it was asserted that Robert P.
Stephenson was the tortfeasor whose negligence was a proximate cause of the plaintiffs'
wrongful death damages. The complaints requested a judgment against the estate of Robert P.
Stephenson. While the automobile insurance carrier for Robert P. Stephenson may have a duty
(subject to certain terms and conditions) to defend and indemnify the Robert P. Stephenson estate
up to the monetary limit of the insurance policy, the estate of Robert P. Stephenson was the party
defendant, not the insurance carrier. See MCL 500.3030; MRE 411. Further, the automobile
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insurance policy contained a cooperation clause that excludes coverage on the basis of
noncooperation or collusion.
Finally, although plaintiff contends that its client waived any conflict, unreasonable
conflicts of interest are not waivable. Specifically, MRPC 1.7(a)(1) provides:
(a) A lawyer shall not represent a client if the representation of that client
will be directly adverse to another client, unless:
(1) the lawyer reasonably believes the representation will not adversely
affect the relationship with the other client . . . .
Here, plaintiff 's alleged belief that no conflict of interest existed was not reasonable. In this
regard, the Comment to MRPC 1.7 states in pertinent part:
Loyalty to a Client. Loyalty is an essential element in the lawyer's
relationship to a client. An impermissible conflict of interest may exist before
representation is undertaken, in which event the representation should be
declined.
* * *
Consultation and Consent. A client may consent to representation
notwithstanding a conflict. However, as indicated in paragraph (a)(1) with
respect to representation directly adverse to a client, and paragraph (b)(1) with
respect to material limitations on representation of a client, when a disinterested
lawyer would conclude that the client should not agree to the representation
under the circumstances, the lawyer involved cannot properly ask for such
agreement or provide representation on the basis of the client's consent.
* * *
Conflicts in Litigation. Paragraph (a) prohibits representation of
opposing parties in litigation. Simultaneous representation of parties whose
interests in litigation may conflict, such as co-plaintiffs or co-defendants, is
governed by paragraph (b). [Emphasis added.]
As the Indiana Court of Appeals explained in Robertson v Wittenmyer, 736 NE2d 804,
807 (Ind App, 2000):
Further, Prof Cond R 1.7 also requires that the attorney have a reasonable
belief that the representation will not affect the lawyer-client relationship. Here,
we conclude that such a standard cannot be met. Thus, even a properly procured
consent would not have complied with the rule. One commentator has explained:
"A lawyer should not be allowed to sue an individual client on behalf of
another present client, even if the lawyer represents the first client in a wholly
unrelated matter, such as drafting his will. This follows, because the focus of
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Rule 1.7(a) is on impairment of the client-lawyer relationship, and it is
unreasonable to postulate trusting relationships under those conditions."
. . . Since a lawyer involved in such a case normally will not reasonably be
able to entertain a belief that none of the client-lawyer relationships will be
adversely affected. The lawyer should not even ask for consent. Rule 1.7(a)(1)
alone would bar the representation even if consents were obtained from each of
the clients.
Geoffrey C. Hazard, Jr. & W. William Hodes, The law of Lawyering, §
1.7:203, at 233, § 1.7:207 240-41 (1998). [Emphasis in original.]
Also see In re Anonymous Member of the South Carolina Bar, 315 SC 141, 143; 432 SE2d 467
(1993) ("Furthermore, Rule 1.7 clarifies the standard as an objective test."); Kelley's Case, 137
NH 314; 627 A2d 597 (1993); In re Bentley, 141 Ariz 593; 688 P2d 601 (1984).
The present issue was addressed by the State Bar of Michigan Ethics Opinion RI-116
(February 19, 1992):
Syllabus
After discovering a conflict of interest, which prevents a lawyer from
taking a case, the lawyer may not refer a potential client to another lawyer and
accept a referral fee.
References: MRPC 1.5(e), 1.7, 1.9.
Text
A lawyer has been consulted by a client regarding the client's legal
problem. During the course of the consultation, it becomes apparent that the
lawyer has a conflict of interest and may not represent the client in this matter.
May the lawyer refer the client to another law firm and collect a referral fee?
MRPC 1.7 states:
"(a) A lawyer shall not represent a client if the representation of that
client will be directly adverse to another client, unless:
"(1) the lawyer reasonably believes the representation will not adversely
affect the relationship with the other client; and
"(2) each client consents after consultation."
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"(b) A lawyer shall not represent a client if the representation of that
client may be materially limited by the lawyer's responsibilities to another client
or to a third person, or by the lawyer's own interests, unless:
"(1) the lawyer reasonably believes the representation will not be
adversely affected; and
"(2) the client consents after consultation. When representation of
multiple clients in a single matter is undertaken, the consultation shall include
explanation of the implications of the common representation and the advantages
and risks involved."
If the referring lawyer has a conflict, then any advice might smack of a
conflict, even if the advice is to go to a specific lawyer. If the conflict arises
because the lawyer has a current client with interests directly adverse to those of
the prospective client, MRPC 1.7(a), any advice regarding choice of counsel
would be inappropriate, and akin to selecting one's adversary. If the conflict
arises because the lawyer's duties to the lawyer's own interests or to a third party
would materially limit the representation of the prospective client, MRPC 1.7(b),
it is conceivable that the referring lawyer might be tempted to ill-advise the client
as to a choice of counsel. Under MRPC 1.9, the propriety of the mere
recommendation to the client would depend upon how apparent or how remote
the conflict is to the subject matter. See MRPC 1.5(e).
When one couples the above facts with the existence of a proposed referral
fee, then the referring lawyer has residual pecuniary interest in the outcome. See
MRPC 1.5(e). The lawyer is "walking on both sides of the street," exacerbating
the conflict. If what the lawyer loses from one side the lawyer has the ability to
gain from the other side, clearly a conflict is present.
When lawyers split fees, both remain in a fiduciary relationship with the
client. A fiduciary relationship and a conflict of interest are inconsistent with
each other. [Emphasis in original.]
Although State Bar Ethics Opinions are not binding on this Court, they are instructive. Barkley,
supra at 202. Here, we find Opinion RI-116 to be persuasive.
Furthermore, the alleged business transaction in which plaintiff seeks a financial interest
in the wrongful death lawsuits against its own client is barred by MRPC 1.8(a). This ethical rule
regarding prohibited business transactions provides in pertinent part:
(a) A lawyer shall not enter into a business transaction with a client or
knowingly acquire an ownership, possessory, security, or other pecuniary interest
adverse to a client unless:
(1) the transaction and terms on which the lawyer acquires the interest are
fair and reasonable to the client and are fully disclosed and transmitted in writing
to the client in a manner that can be reasonably understood by the client;
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(2) the client is given a reasonable opportunity to seek the advice of
independent counsel in the transaction; and
(3) the client consents in writing thereto.
Again, the conflict of interest is waivable only if "the transaction and terms on which the
lawyer acquires the interest are fair and reasonable to the client." After applying an objectively
reasonable standard, we hold that the alleged contract in which plaintiff would financially benefit
from suing its own client is not an interest that is objectively fair and reasonable to the estate of
Robert P. Stephenson. See, generally, Bloomenthal, supra; Robert A Shupack, P A v Marcus,
606 So 2d 466 (Fla App, 1992). Accordingly, plaintiff 's waiver argument is without merit.
IV
On cross appeal, defendants appeal the refusal of the trial court to award sanctions
against plaintiff pursuant to MCR 2.114 and MCL 600.2591(3)(a). A trial court's decision that a
claim is not frivolous is reviewed for clear error. Szymanski v Brown, 221 Mich App 423, 436;
562 NW2d 212 (1997). A decision is "clearly erroneous" if the reviewing court is left "with a
definite and firm conviction that a mistake has been made." Jackson Co Hog Producers v
Consumers Power Co, 234 Mich App 72, 91; 592 NW2d 112 (1999). While we may have ruled
differently, we are unable to conclude that the trial court's ruling in this regard was clear error.
As stated by the trial court, this case presented a matter of first impression because no
published opinion had ruled on the issue whether a fee agreement that violates the Michigan
Rules of Professional Conduct is unenforceable. While the conduct of plaintiff was clearly
unethical, the effect of such an ethical violation on an action to enforce a contract had been
addressed only in the unpublished opinion Abrams, supra. For this reason, we hold that the trial
court did not clearly err in failing to award sanctions.
Affirmed.
/s/ Richard Allen Griffin
/s/ Henry William Saad
Cooper, P.J. I concur in the result only.
/s/ Jessica R. Cooper
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