ALPHA TITLE AGENCY INC V PEOPLES STATE BANK
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STATE OF MICHIGAN
COURT OF APPEALS
ALPHA TITLE AGENCY, INC.,
UNPUBLISHED
March 23, 2004
Plaintiff-Appellant,
v
No. 243508
Wayne Circuit Court
LC No. 00-036705-CH
PEOPLES STATE BANK,
Defendant-Appellee.
and
WADI CHOLAK, INTSAR CHOLAK and
CHASE MANHATTAN BANK,
Defendants.
Before: Owens, P.J., and Talbot and Murray, JJ.
PER CURIAM.
Plaintiff appeals as of right from the order of no cause of action entered following a jury
trial, and from the post-judgment order granting case evaluation sanctions. We affirm but
remand for an evidentiary hearing.
I. Factual Background
Wadi Cholak and his wife Intsar1 were sued by defendant2 when Cholak’s supermarket
went out of business and Cholak failed to pay a debt owed to defendant that was secured by a
1
Intsar was sued because, as Wadi’s wife, her name was on the mortgage documents. The
allegations in this case deal almost exclusively with Wadi, however, so references in this opinion
to “Cholak” will generally refer only to Wadi Cholak.
2
Madison National Bank, defendant’s predecessor, sued the Cholaks. This opinion will refer
both Madison and defendant Pontiac State Bank collectively as “defendant.” The Cholaks were
dismissed from the lawsuit before trial and plaintiff further agreed to represent the interests of
Chase Manhattan, the mortgage holder, so it was not an active party at trial.
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second mortgage on the Cholaks’ home. In an effort to resolve the lawsuit, Cholak refinanced
his home; the refinancing provided $260,000 to pay off the amount owed on the original
mortgage of approximately $162,000 and left $95,000 available to pay toward his debt to
defendant of $227,000. In a July 14, 1997, letter to Cholak’s attorney, defendant agreed to
discharge its second mortgage in return for fulfillment of the following conditions: (1) Cholak
was to pay $95,000 to defendant on or before July 25, 1997; (2) Cholak was to sign a consent
judgment in the pending lawsuit; and (3) Cholak was to sign a settlement agreement. The
settlement agreement was signed the following day at the refinancing closing. The agreement
contained a requirement that Cholak pay $5,000 to defendant within thirty days. Failure to
timely make the $5,000 payment would permit defendant to declare Cholak’s entire indebtedness
in default and to foreclose on the Cholaks’ home.
Despite signing the settlement agreement, Cholak failed to sign the consent judgment,
despite repeated requests, and defendant then refused to discharge its mortgage. Subsequently,
when Cholak failed to timely pay the $5,000 as required by the settlement agreement, defendant
demanded payment of the full indebtedness that remained after the receipt of the $95,000 from
the refinancing. Defendant eventually foreclosed on the Cholaks’ home and they were evicted.
In the meantime, unaware defendant had refused to discharge its mortgage, the
refinancing mortgagor, Capstone Mortgage, had sold its mortgage to Chase Manhattan (Chase),
and plaintiff, who functioned as the closing agent, had issued a “first lien” letter and a policy of
title insurance to Chase assuring the bank that it now had first lien priority on the Cholaks’
house. After the foreclosure, plaintiff sued defendant alleging, among other claims, that
defendant had negligently misrepresented information that damaged plaintiff by failing to
disclose the existence of the $5,000 additional payment requirement and by failing to inform
plaintiff that defendant was not going to discharge its second mortgage. The jury found no cause
of action. The trial court subsequently denied plaintiff’s motion for a new trial and granted
defendant’s motion for a directed verdict, a motion regarding which it had previously reserved
ruling.
II. Trial court’s grant of directed verdict
Plaintiff raises claims regarding alleged instructional error, the improper granting of a
directed verdict, the use of an inappropriate curative instruction, and the presentation of
irrelevant evidence. With regard to the instructional and evidentiary issues, plaintiff contends
that the alleged errors presented by those issues influenced the jury’s verdict. Because we find
that the trial court properly granted defendant’s motion for a directed verdict, we deem it
unnecessary to discuss defendant’s other trial issues.
Plaintiff claims that the trial court committed error requiring reversal when, after the jury
returned a verdict of no cause of action and the court denied plaintiff’s motion for a new trial, the
court granted defendant’s motion for a directed verdict. Plaintiff argues on appeal that it alleged
both ordinary negligence3 and negligent misrepresentation and that the basis for both claims was
3
To the extent that plaintiff now attempts to claim that the trial court erred in granting
(continued…)
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(1) defendant’s failure to notify plaintiff of the Cholaks’ agreement to pay an additional $5,000
and (2) defendant’s failure to notify plaintiff that the Cholaks failed to sign the consent judgment
(along with its negotiation of the $95,000 check), which caused plaintiff to reasonably determine
that defendant intended to discharge the mortgage.
This Court reviews de novo the trial court’s decision on a motion for a directed verdict.
Tobin v Providence Hosp, 244 Mich App 626, 642; 624 NW2d 548 (2001). “The appellate court
is to review the evidence and all legitimate inferences in the light most favorable to the
nonmoving party. Only if the evidence so viewed fails to establish a claim as a matter of law,
should the motion be granted.” Wilkinson v Lee, 463 Mich 388, 391; 617 NW2d 305 (2000),
citing Orzel v Scott Drug Co, 449 Mich 550, 557-558; 537 NW2d 208 (1995).
To establish a claim of negligent misrepresentation, plaintiff was required to prove “that a
party justifiably relied to his detriment on information prepared without reasonable care by one
who owed the relying party a duty of care.” Law Offices of Lawrence J Stockler, PC v Rose, 174
Mich App 14, 30; 436 NW2d 70 (1989), citing Raritan River Steel Co v Cherry, Bekaert &
Holland, 322 NC 200; 367 SE2d 609 (1988). “[T]here can be no fraud where the means of
knowledge regarding the truthfulness of the representation are available to the plaintiff and the
degree of their utilization had not been prohibited by the defendant.” Webb v First of Michigan
Corp, 195 Mich App 470, 474; 491 NW2d 851 (1992).
Defendant insisted that plaintiff’s theory of negligent misrepresentation changed
throughout the trial.4 In granting the motion for a directed verdict, the trial court agreed that
plaintiff’s theory changed through the course of the case from complaint to trial and further
ruled:
(…continued)
defendant’s motion for a directed verdict because the court did not address plaintiff’s ordinary
negligence claim, that argument is not preserved because plaintiff did not raise it in the trial
court. Napier v Jacobs, 429 Mich 222, 227-228; 414 NW2d 862 (1987).
4
In its complaint, plaintiff alleged that defendant was negligent in failing to disclose its “private
agreement” with the Cholaks that required them to pay $5,000 “in order to receive and be
entitled to a discharge of [the] mortgage” and in failing to disclose “the true nature of the
contents of the settlement agreement.” Immediately before trial, plaintiff argued that although its
complaint did not use the term “negligent misrepresentation,” that fact was not fatal because the
actual allegations stated in the complaint under the negligence count actually pleaded a count of
negligent misrepresentation. Plaintiff then argued to the jury that defendant was negligent
because it cashed the $95,000 check but did not notify plaintiff that it was not discharging the
mortgage. At the conclusion of the trial, the trial court, without objection, instructed the jury
concerning only negligent misrepresentation. At the post-trial argument on the motion for a
directed verdict, defendant claimed that plaintiff had alleged ordinary negligence in its
complaint, but that plaintiff subsequently alleged that defendant committed negligent
misrepresentation. Plaintiff responded that the language contained in the complaint alleged a
claim of negligent misrepresentation, not ordinary negligence. Now, on appeal, plaintiff claims
that it alleged both negligence and negligent misrepresentation.
-3-
The Motion for Directed Verdict that was taken under advisement is in
fact granted. The plaintiff did not establish that there was any negligent
misrepresentation on the part of Peoples State Bank, failed to establish that there
was a duty of Peoples State Bank to advise Chase Manhattan or anybody else, for
that matter, of the so-called, the consent judgment [or] of the $5,000.00 so-called
side deal or any other obligation on the part of Peoples State Bank that plaintiff
claimed was owed Alpha Title . . . .
We agree with the trial court’s determination that plaintiff did not prove the elements of
the negligent misrepresentation claim. Defendant’s attorney, Tragge, prepared a letter that
disclosed that PSB would grant Cholak a discharge of the second mortgage if: he paid $95,000
by July 25, 1997, signed a consent judgment, and signed a settlement agreement. Defendant’s
attorney faxed a copy of this letter to Suzanne Cavanaugh of Capstone Mortgage and she
testified that she considered it a “payoff letter.” Therefore, Capstone and its agent, plaintiff,
were aware of the discharge condition that required Cholak to sign the consent judgment.
Knowing of this condition, plaintiff permitted the closing to occur. At the same time, plaintiff
took no steps to ensure that the Cholaks signed the consent judgment and settlement agreement
at the closing so that the conditions in the discharge/payoff letter would be accomplished. And
plaintiff took no steps to verify with defendant – or by inspecting the records of the county
register of deeds – that defendant had in fact discharged its second mortgage. Therefore,
plaintiff had “the means of knowledge regarding the truthfulness of the representation,” Webb,
supra at 474, by contacting defendant to verify that a discharge had been filed, requesting a copy
of the discharge, or inspecting the records of the register of deeds, but it chose not to utilize that
means of knowledge. Furthermore, defendant did nothing to prevent plaintiff from utilizing the
means of knowledge.5 Id.
Plaintiff also did not prove that, at the time it conducted the closing, any representation
made to it by defendant was false or was “prepared without reasonable care.” Stockler, supra at
30. At the time defendant prepared and provided the payoff letter, it truthfully informed the
Cholaks’ attorney and Capstone Mortgage what the terms of the discharge agreement were.
Defendant’s agreement to discharge was based on the fulfillment of these future conditions, only
one of which Capstone or plaintiff would have control over – the disbursement of the $95,000
5
Plaintiff sought to rely on the “established practices” of the title industry as testified to by
David Martyn, a lawyer and title company employee who testified as an expert witness, and
Sandra Olsen (plaintiff’s president). However, if the established practice of the title industry
lends itself to negligence and the conduct of business on the basis of assumptions rather than
facts because of the time delays inherent in conducting title searches – or because such searches
are actually never conducted – that sloppy practice should not form the basis for holding
defendant liable. Furthermore, plaintiff did not establish that defendant was familiar with these
supposed practices of the title industry, or that it sought to use its knowledge of those practices to
prevent plaintiff from discovering that the mortgage discharge had not been filed, yet it would
ask this Court to infer such knowledge on defendant’s part.
-4-
check. At the time plaintiff made its decision to go forward with the closing, defendant had not
made any negligently false representation.
Plaintiff knew – or should have known – that the discharge might not occur if the
Cholaks did not sign the consent judgment and the settlement agreement. Plaintiff nevertheless
went ahead with the refinancing closing, apparently presuming that the Cholaks would comply
with the terms of the payoff letter. Plaintiff did not contact either the Cholaks’ or defendant’s
attorneys before disbursing the checks to determine whether the Cholaks had complied with the
requirement that they sign the consent judgment. Instead, plaintiff claimed that it simply relied
on the payoff letter and the alleged industry practice that the title company could infer from the
subsequent cashing of the payoff check that a discharge of defendant’s second mortgage had
been entered. Therefore, plaintiff did not prove the element of justifiable reliance.
Finally, plaintiff has failed to provide any support for its contention that defendant owed
it a duty to inform it that it had refused to grant a discharge of the second mortgage because the
Cholaks had failed to perform the conditions required by the payoff letter. In Maiden v
Rozwood, 461 Mich 109, 131; 597 NW2d 817 (1999), our Supreme Court summarized as
follows:
Whether a duty exists to protect a person from a reasonably foreseeable
harm is a question of law for the court. Murdock v Higgins, 454 Mich 46, 53; 559
NW2d 639 (1997); Trayer v Thor, 445 Mich 95, 105; 516 NW2d 69 (1994). “A
negligence action may only be maintained if a legal duty exists which requires the
defendant to conform to a particular standard of conduct in order to protect others
against unreasonable risks of harm.” Riddle v McLouth Steel Products Corp, 440
Mich 85, 96; 485 NW2d 676 (1992).
In determining whether the relationship between the parties is sufficient to
establish a duty, the proper inquiry is “‘whether the defendant is under any
obligation for the benefit of the particular plaintiff . . . ’” Buczkowski v McKay,
441 Mich 96, 100; 490 NW2d 330 (1992), quoting Friedman v Dozorc, 412 Mich
1, 22; 312 NW2d 585 (1981). This analysis concerns whether the relationship of
the parties is of a sort that a legal obligation should be imposed on one for the
benefit of another. Id.
Defendant had no legal relationship with plaintiff or Capstone; defendant was not a party
to the refinancing or the closing. Its relation to the Cholaks was adversarial both because the
parties were engaged in litigation in Oakland County and also because the Cholaks owed a large
debt to defendant. The Cholaks had a relationship with plaintiff and Capstone because they had
entered into a refinancing agreement with them. To the extent that defendant had a duty to
provide truthful information to plaintiff when it drafted and sent the payoff letter, defendant
fulfilled that duty because it truthfully disclosed the conditions with which the Cholaks were
required to comply before a mortgage discharge would be granted. Plaintiff did not establish that
defendant had a continuing duty to keep plaintiff informed concerning whether the Cholaks had
complied with the discharge requirements. Defendant did not do anything to prevent plaintiff
from learning that the Cholaks had not complied with the discharge conditions and that a
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discharge had not been granted. Defendant was therefore not “under any obligation for the
benefit of the particular plaintiff.” Buczkowski, supra at 100, quoting Friedman, supra at 22.
For these reasons, we conclude that the trial court correctly determined that plaintiff
failed to establish any of the elements necessary to prove defendant’s liability for negligent
misrepresentation. We therefore affirm the trial court’s decision.
III. Attorney fees
Plaintiff also contends that the trial court erred by granting defendant’s motion for
attorney fees. The trial court ruled that the hourly rate was reasonable “given the nature of this
litigation, having competing financial institutions with [a] tremendous number of documents,
given the fact that this was a last-minute substitution of counsel, that a number of motions were
made during the course of trial that necessitated research, writing of briefs and so forth” and then
stated, without further elaboration, that the entire $90,370.206 amount requested by defendant
was reasonable. We agree with plaintiff that it is necessary to remand this case for an
evidentiary hearing on this claim. We review the trial court’s decision regarding the amount of a
sanction award for an abuse of discretion. Elia v Hazen, 242 Mich App 374, 376-377; 619
NW2d 1 (2000).
Plaintiff rejected the mediation award and the jury returned a verdict of no cause of
action. Because plaintiff did not improve its position at trial, it was subject to mediation
sanctions including actual costs. MCR 4.603(O)(1).7 “Actual costs” are defined by MCR
2.403(O)(6)(a) and (b) as “those costs taxable in any civil action, and . . . a reasonable attorney
fee based on a reasonable hourly or daily rate as determined by the trial judge for services
necessitated by the rejection of the mediation evaluation.” See also Elia, supra at 378-379. Our
Supreme Court in McAuley v General Motors Corp, 457 Mich 513, 524; 578 NW2d 282 (1998),
has emphasized that MCR 2.403(O)(6)(b) limits an award by the trial court to the rule’s
definition of “actual costs”; that is, to “a reasonable fee as determined by the trial court,
regardless of the fee amount a party may contractually agree to with his attorney or the total
amount he may have spent on litigation.”
In Miller v Meijer, Inc, 219 Mich App 476, 479-480; 556 NW2d 890 (1996), this Court
stated:
6
This figure was subsequently increased to $91,070.20 by including costs and attorney fees
associated with the post-judgment motions.
7
MCR 2.403(O)(1) provides:
If a party has rejected an evaluation and the action proceeds to verdict, that
party must pay the opposing party’s actual costs unless the verdict is more
favorable to the rejecting party than the case evaluation. However, if the
opposing party has also rejected the evaluation, a party is entitled to costs only if
the verdict is more favorable to that party than the case evaluation.
-6-
Where, as in this case, the party opposing the taxation of costs challenges
the reasonableness of the fee requested, the trial court should inquire into the
services actually rendered before approving the bill of costs. Wilson v General
Motors Corp, 183 Mich App 21, 42; 454 NW2d 405 (1990). “Although a fullblown hearing is not necessary, an evidentiary hearing regarding the
reasonableness of the fee request is.” Id. at 42-43; Petterman v Haverhill Farms,
Inc, 125 Mich App 30, 33; 335 NW2d 710 (1983). “[T]he trial court need not
detail its findings as to each specific factor considered” in its determination of
reasonableness. Wood v DAIIE, 413 Mich 573, 588; 321 NW2d 653 (1982).
However, the court is required to make findings of fact with regard to the attorney
fee issue. Howard v Canteen Corp, 192 Mich App 427, 439; 481 NW2d 718
(1992).
In subsequent cases, this Court has held that, while normally a trial court should conduct
an evidentiary hearing, “if the parties created a sufficient record to review the issue, an
evidentiary hearing is not required.” Jager v Nationwide Truck Brokers, Inc, 252 Mich App 464,
488-489; 652 NW2d 503 (2002) (affidavits of defense counsel, itemized billing statements, and
surveys of hourly rates sufficient to support trial court’s ruling awarding attorney fees “in an
amount less than requested”), citing Head v Phillips Camper Sales & Rental, Inc, 234 Mich App
94, 113; 593 NW2d 595 (1999) (trial court awarded $2,500 out of a requested $23,987 without
holding evidentiary hearing, but record was sufficient to permit review where “court fully
explained the reasons for its decision”)8 and Giannetti Bros Constr Co, Inc, v Pontiac, 175 Mich
App 442, 450; 438 NW2d 313 (1989) (trial court disallowed most of claimed expert witness fees
without holding evidentiary hearing, but “issue of costs had been before trial court off an on for
nearly three years” and was “extensively briefed by both parties”).
Plaintiff objected that defendant’s billing sheet attached to its motion contained several
listings for “trial preparation” without any accompanying detail concerning what was done.
Several of these listings were for substantial sums. Defendant claimed that the billings were
justified because of the “last-minute” need to substitute attorneys. But the billing records
indicate that the so-called substitute attorney was deeply involved in the preparation of the case
long before trial, and the transcripts demonstrate that the “substitute” consistently appeared as
defendant’s primary attorney well before the alleged “substitution” was necessitated by a “lastminute” motion. At each appearance, the “substitute” announced that he was representing
defendant and argued at length, and in depth, about the factual and legal background of the case.
On those occasions when the alleged “lead” attorney was present, that attorney made either
minimal or no comments at all. It therefore appears to this Court that defendant’s argument that
8
We particularly note that in Head v Phillips Camper Sales & Rental, Inc, 234 Mich App 94,
113; 593 NW2d 595 (1999), because this Court was granting a new trial, it ordered the trial court
to reconsider the award of attorney fees and advised the trial court to utilize the non-exclusive set
of factors listed in Crawley v Schick, 48 Mich App 728, 737; 211 NW2d 217 (1973). The trial
court in this case made some reference to some of these factors, but its ruling appears to have
considered those factors only with reference to the reasonableness of plaintiff’s hourly rate.
-7-
its fee request was justified largely by plaintiff’s “last-minute motion to disqualify” that
necessitated the expenditure of greatly increased amounts of time to familiarize the “substitute”
with the case simply does not derive support from the record.
We additionally note that in McAuley, supra at 525, our Supreme Court concluded that
the trial court had “appropriately deducted portions of plaintiff’s legal expenditures attributable
to . . . duplicative work made necessary by substitution of plaintiff’s counsel.” The Court stated
that such expenses as duplicative work “are properly excluded when determining what
constitutes a reasonable attorney fee.” Id. This suggests that, both factually and legally, it was
inappropriate to award such a substantial attorney fee based on the alleged “last-minute
substitution” of defendant’s counsel.
Nevertheless, it is not our function to make the ultimate determination on this question,
but rather to review the trial court’s exercise of discretion regarding the request for attorney fees.
We offer our observations simply as support for our conclusion that the existing record does not
appear to support the trial court’s decision. Part of the reason the legitimacy of these
observations cannot be tested is that the trial court did not resolve plaintiff’s objections other
than to make the conclusory judgment that the total sum requested by defendant was reasonable.
Furthermore, it appears that the trial court’s decision blurs two distinct concepts: the
reasonableness of the hourly rate claimed by defendant ($175 per hour – which was not
challenged) and the reasonableness of the entire amount requested ($90,370.20 – which was
challenged). Having determined that the per-hour rate was justified, the court then simply
pronounced the full amount of the requested attorney fee award “entirely reasonable” without
indicating why this was so.
The trial court’s pronouncement did not comport with the requirement announced in
Head, supra at 114, that the trial court “consider the factors set forth in Crowley v Schick, 48
Mich App 728, 737; 211 NW2d 217 (1973),” and it did not comport with the admonition in
Miller, supra at 479-480 that although the court “‘need not detail its findings as to each specific
factor considered’ in its determination of reasonableness . . . the court is required to make
findings of fact with regard to the attorney fee issue.” Citing Wood v DAIIE, 413 Mich 573, 588;
321 NW2d 653 (1982) and Howard v Canteen Corp, 192 Mich App 427, 439; 481 NW2d 718
(1992). Without a more detailed finding of fact considering the appropriate factors, it is
impossible for this Court to determine whether an abuse of discretion occurred.
Affirmed but remanded for an evidentiary hearing regarding attorney fees. We do not
retain jurisdiction.
/s/ Donald S. Owens
/s/ Michael J. Talbot
/s/ Christopher M. Murray
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