LAWSUIT FINANCING INC V ELIAS MUAWAD
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STATE OF MICHIGAN
COURT OF APPEALS
LAWSUIT FINANCING, INC., and
RAINMAKER USA, L.L.C.,
UNPUBLISHED
April 3, 2007
Plaintiffs-Appellants/CrossAppellees,
No. 272259
Macomb Circuit Court
LC No. 2005-004763-CK
v
ELIAS MUAWAD and LAW OFFICES OF
MUAWAD & MUAWAD, P.C.,
Defendants-Appellees/CrossAppellants.
Before: Jansen, P.J., and Neff and Hoekstra, JJ.
PER CURIAM.
Plaintiffs appeal as of right the trial court’s order granting summary disposition in favor
of defendants under MCR 2.116(C)(7) on the ground that plaintiffs’ claim was disposed of
before this lawsuit was filed, pursuant to a court order in an earlier action. Defendants cross
appeal from the trial court’s denial of their motion for summary disposition on the alternative
basis of res judicata. We reverse and remand.
I. Basic Facts and Procedural History
In connection with an earlier action, plaintiffs entered into a written purchase agreement
with defendants’ clients. Through this agreement plaintiffs acquired a $50,000 lien against the
clients’ anticipated recovery in the underlying lawsuit in exchange for $10,000. Defendant Elias
Muawad signed as the clients’ attorney under the following paragraph included at the end of the
purchase agreement:
I, Elias Muawad, Esq., the undersigned attorney (“Attorney”) for the Seller,
received and agree that the Purchase Agreement and Lien for the Seller are legal,
binding and enforceable. I agree to distribute any Proceeds of the Litigation in
accordance with the terms of the Purchase Agreement and Lien (merged
document). All proceeds recovered will be deposited into and distributed from
my clients Trust Account. . . . By execution hereof, I am only following the
instructions of Seller. . . . By the execution hereof, I assume no duties or
obligations to Buyer other than the ministerial duties of disbursement of proceeds
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to satisfy the lien, at the time that proceeds are received and of furnishing ongoing
requested information as specifically outlined herein, including a written “closing
statement” that shall have a worksheet of all proceeds received in connection with
this claim/settlement judgment and all payoffs to lien holders. [Emphasis in
original.]
After the underlying matter was resolved, defendants, citing a breakdown of the attorneyclient relationship arising from a dispute concerning attorney fees, moved to have the proceeds
of the litigation released to their client trust account for disbursement. The trial court granted
defendants’ motion and ordered that the litigation proceeds be distributed to defendants and the
clients. The proceeds were later distributed in accordance with the trial court’s order, which did
not make provision for satisfaction of plaintiffs’ lien.
Defendants’ clients subsequently filed suit seeking a judicial declaration that the purchase
agreement effectuated what amounted to a usurious loan and that plaintiffs were, therefore,
entitled only to recover the principal amount borrowed, i.e., $10,000. Plaintiffs counterclaimed
to enforce the purchase agreement, and later moved to amend their counterclaim to include a
claim that defendants breached their obligation to satisfy plaintiffs’ lien before distributing any
proceeds of the underlying litigation to the clients. Defendants opposed the motion, arguing,
among other things, that their authority to disburse funds in accordance with the purchase
agreement had been revoked by the clients and that, in any event, their duty in this regard was
“ministerial” in nature and did not substantively obligate them to honor plaintiffs’ lien. Noting
that case evaluation was only a few weeks away, defendants further asserted that amendment of
plaintiffs’ counterclaim would prejudice them because they had not materially participated in
discovery, which was now closed, because they were not substantively involved in the action
from its outset. The trial court denied plaintiffs’ motion, stating only that, “[b]ased on the law
and facts presented to this Court, the motion is denied.” The litigation concluded with entry of a
judgment upholding the purchase agreement and lien, and awarding plaintiffs “damages in the
amount of $50,000 (due under . . . the [a]greement).” Four days later, the clients initiated
bankruptcy proceedings.
Thereafter, plaintiffs filed this action alleging breach of defendants’ duty to honor
plaintiffs’ lien in the underlying lawsuit, and breach of defendants’ alleged obligations under the
purchase agreement to satisfy plaintiffs’ lien before disbursing any funds to the clients.
Defendants responded by moving for summary disposition, arguing that plaintiffs’ claims were
barred by res judicata and by disposition of the proceeds in the underlying lawsuit by order of the
court. Although concluding that res judicata did not apply to bar plaintiffs’ claims, the trial court
granted summary disposition in favor of defendants under MCR 2.116(C)(7) on the alternative
ground that the disputed funds were disposed of by the court’s disbursement order in the
underlying litigation. This appeal followed.
II. Analysis
This Court reviews de novo a trial court’s decision on a motion for summary disposition
under MCR 2.116(C)(7). DiPonio Constr Co, Inc v Rosati Masonry Co Inc, 246 Mich App 43,
46; 631 NW2d 59 (2001). Summary disposition is proper under MCR 2.116(C)(7) if “[t]he
claim is barred because of prior judgment . . . or assignment or other disposition of the claim
before commencement of the action.” “In analyzing a motion for summary disposition pursuant
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to MCR 2.116(C)(7), the contents of the complaint are accepted as true unless contradicted by
documentation submitted by the movant.” Pusakulich v Ironwood, 247 Mich App 80, 82; 635
NW2d 323 (2001). If there is no factual dispute, whether a plaintiff's claim is barred under a
principles set forth in MCR 2.116(C)(7) is a question of law for this Court to decide. Huron Tool
& Engineering Co v Precision Consulting Services, Inc, 209 Mich App 365, 377; 532 NW2d 541
(1995).
We first address defendants’ claim that the trial court erred in denying their motion for
summary disposition on the basis of res judicata. Defendants argue that the trial court’s denial of
plaintiffs’ motion to amend their countercomplaint in the declaratory judgment action was
impliedly based on a determination of futility and, therefore, was a determination on the merits,
such that the present action is barred by res judicata. We disagree.
Res judicata bars a subsequent action between the same parties when the facts or
evidence essential to the second action are identical to those essential to a prior action. Ozark v
Kais, 184 Mich App 302, 307; 457 NW2d 145 (1990). Among other things, application of the
doctrine requires a showing that the prior action was decided on the merits. Id. at 307-308. The
burden of establishing the applicability of res judicata is on the party asserting it. Baraga Co v
State Tax Comm, 466 Mich 264, 269; 645 NW2d 13 (2002).
“In most instances, the denial of a motion to amend will not be a decision on the merits.”
Martin v Michigan Consolidated Gas Co, 114 Mich App 380, 383; 319 NW2d 352 (1982). “For
example, when amendment is denied because of undue delay, bad faith, dilatory motive or undue
prejudice to the opposing party . . . the substance of the claims sought to be added will not likely
have been considered.” Id. “However, when . . . the denial is made on the basis of the futility of
the amendment, it is in effect a determination that the added claims are substantively without
merit; that is, that the claims are frivolous or legally insufficient on their face.” Id. at 384.
“Such a determination is entitled to res judicata impact.” Id.
On the facts of this case, we conclude that the trial court correctly found that defendants
failed to demonstrate that the court’s denial of plaintiffs’ motion to amend in the declaratory
judgment action was a determination on the merits entitled to res judicata effect. As indicated
above, defendants opposed the motion to amend on several grounds, including prejudice
resulting from plaintiffs’ undue delay in bringing the motion to amend, which is an argument
unrelated to the merits of the proposed amendment. The trial court found that the record did not
reflect the reasons for the denial and, therefore, it could not reasonably conclude that the denial
was based on a determination of futility. Id. Because the grounds on which the trial court relied
in denying plaintiffs’ motion to amend are not apparent from the record, the trial court did not err
in declining to grant summary disposition to defendants on the basis of res judicata. Baraga,
supra.
We further conclude, however, that the trial court erred in granting summary disposition
on the ground that the proceeds of the underlying litigation “were already disposed of pursuant to
a prior order.” In granting summary disposition on this ground, the trial court relied on
plaintiffs’ failure to dispute defendants’ assertion that their duties were “merely ministerial,” that
the clients were not precluded from revoking defendants’ authority, and that the clients did
revoke their authority. However, these facts do not support a grant of summary disposition
under MCR 2.116(C)(7). As previously noted, MCR 2.116(C)(7) permits summary disposition
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when a “claim is barred because of . . . assignment or other disposition of the claim before
commencement of the action.” (Emphasis added). Here, the “claims” raised by plaintiffs in their
complaint alleged breach by defendants of their duty to honor plaintiffs’ lien and to meet its
obligations under the purchase agreement. Although the funds that were the subject of these
claims were undisputedly disbursed by order of the court in a separate action before
commencement of this suit, that fact did nothing to resolve or otherwise dispose of the claims
raised by plaintiffs in their complaint. Summary disposition on that ground was, therefore,
improper.
Additionally, we note that the mere fact that defendants’ duty to disburse the proceeds in
order to satisfy plaintiffs’ lien was ministerial in nature does not, in itself, relieve defendant of
that obligation. Further, even assuming that the purchase agreement may have permitted the
clients to revoke defendants’ authority to disburse the proceeds to plaintiffs, defendants failed to
present any evidence that such authority had in fact been revoked. See MCR 2.116(G)(6). Thus,
we find the factual basis on which the trial court relied in granting summary disposition to be
improper regardless of the sufficiency of such facts to support summary disposition under MCR
2.116(C)(7).
Reversed and remanded for further proceedings consistent with this opinion.1 We do not
retain jurisdiction.
/s/ Kathleen Jansen
/s/ Janet T. Neff
/s/ Joel P. Hoekstra
1
We note that the remainder of the issues raised by plaintiffs, having been first raised on motion
for reconsideration below or now on appeal, have not been substantively addressed by the trial
court. Under these circumstances, we decline to address them in this appeal. See Charbeneau v
Wayne Co Gen Hosp, 158 Mich App 730, 733; 405 NW2d 151 (1987) (a trial court is not
obligated to consider legal arguments raised for the first time on motion for reconsideration); see
also Polkton Charter Twp v Pellegrom, 265 Mich App 88, 95; 693 NW2d 170 (2005) (this Court
“need not address issues first raised on appeal”).
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