LAETHEM EQUIPMENT CO V CURRIE KENDALL PLC
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STATE OF MICHIGAN
COURT OF APPEALS
LAETHEM EQUIPMENT COMPANY,
LAETHEM FARM SERVICE COMPANY,
MICHAEL T. LAETHEM, and MARK E.
LAETHEM,
UNPUBLISHED
November 20, 2007
Plaintiffs-Appellants,
v
No. 272170
Saginaw Circuit Court
LC No. 05-055440-NM
CURRIE KENDALL, P.L.C.,
Defendant-Appellee.
Before: Talbot, P.J., and Fitzgerald and Kelly, JJ.
PER CURIAM.
Plaintiffs appeal by delayed application for leave the grant of summary disposition in
favor of defendant law firm for lack of subject-matter jurisdiction, pursuant to MCR 2.116(C)(4).
Plaintiffs assert the trial court erred in determining that their claims of legal malpractice and
breach of fiduciary duty arose out of the administration of their father’s trust and, therefore, were
within the exclusive jurisdiction of the probate court. We reverse and remand.
The factual background of this case is lengthy, encompasses multiple lawsuits1 and
involves a fairly complex dispute among family members regarding two John Deere farm
implement businesses, Laethem Equipment Company and Laethem Farm Service Company,
which were owned by the Laethem family through a family trust.2 Francis Laethem was the
1
Laethem Equip Co v Deere & Co, filed in the United States District Court, Eastern District of
Michigan (Case No. 1:05CV10113); Laethem v Laethem, filed in the Tuscola Circuit Court
(Case Nos. 03-21644-CZ and 93-27374-SE); Laethem Equip Co v J & D Implement, Inc, filed in
the Tuscola Circuit Court (Case No. 05-022863-CK); Laethem Equip Co v J & D Implement, Inc,
unpublished opinion per curiam of the Court of Appeals, issued July 19, 2007 (Docket No.
266648).
2
Laethem Equipment Company is a Michigan corporation with its principal place of business
located in Caro, Michigan. Until January 15, 2003, the Company was a John Deere dealer and
operated a retail farm implement and equipment business. Laethem Farm Service Company is
(continued…)
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father of plaintiffs, Michael and Mark Laethem, and Kathryn Laethem. Francis established the
Francis M. Laethem Trust and assigned all of his personal property, assets and interest in the two
plaintiff companies to the Trust.3 All three siblings were named as trustees, with Mark and
Michael operating the Laethem companies and Kathryn acting as the accountant. Anne
Laethem, the wife of Francis, was designated as the primary trust beneficiary and was to receive
the trust income during her lifetime.
Following the death of their father, Michael and Mark continued operating the Laethem
companies. Purportedly, concerns arose regarding their management of the companies and
wrongful attempts to transfer stock in the businesses to themselves for less than fair market
value. Anne also asserted that she was not being paid income from the trust in accordance with
the profits of the Laethem businesses. As a result, Kathryn retained defendant law firm on or
about July 26, 2001. Defendant contends, by way of an affidavit, that it was retained by Kathryn
solely to advise her in her capacity as a trustee of the Laethem Trust. Reportedly, defendant
assisted Kathryn in negotiations with her siblings in July of 2001, in an attempt to reach an
agreement regarding purchase of the Laethem businesses by Michael and Mark. However, an
agreement was never reached regarding the price to be paid to acquire the companies.4
Following defendant’s advice, on October 15, 2001, Anne removed Michael and Mark as
trustees of the trust. Defendant then became involved in the representation of the companies.
Shortly thereafter, defendant advised Kathryn to remove Michael and Mark as directors and
officers of the companies and to install herself as the sole officer and director, but the brothers
continued working for the companies. Plaintiffs contend that these actions led to the failure of
the companies. We would note, however, that during this time period John Deere conducted a
detailed audit of the companies, which revealed retail and warranty note irregularities and fraud
in the operation of the companies resulting in substantial chargebacks, totaling thousands of
dollars, being issued.
Through defendant, Kathryn engaged in negotiations with John Deere to identify a buyer
for the Laethem companies. Although defendant contends this work was done solely as a
representative of Kathryn, in her capacity as a trustee, in related litigation5 defendant
acknowledged under oath having an attorney/client relationship with Laethem Equipment
Company. In addition, defendant sought payment of fees incurred in its capacity as the attorney
for the legal representative of Laethem Equipment Company. On January 28, 2003, Michael and
Mark, through their attorney, presented a new offer to purchase the companies. Plaintiffs allege
that while conducting negotiations with defendant to purchase the company, defendant was
(…continued)
also a Michigan corporation with its principal place of business located in Fairgrove, Michigan.
Until January 15, 2003, this company operated as a satellite John Deere dealership in conjunction
with Laethem Equipment Company’s dealership agreement with John Deere.
3
Francis died on January 4, 1993.
4
Although Kathryn contended the companies had not been sold to Michael and Mark, as the
business accountant for the Trust, Kathryn allegedly filed tax returns reflecting the brothers’
ownership, on an equal basis, of Laethem Equipment Company.
5
Tuscola County Circuit Court Case Nos. 93-27374-SE and 03-21644-CZ.
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simultaneously negotiating for the sale of the companies and also represented competing John
Deere dealerships operated by another family. Plaintiffs assert defendant was aware that John
Deere was seeking to reduce the number of dealerships in their area and that defendant’s actions
resulted in the termination of the companies’ dealership agreement with John Deere.
On January 15, 2003, defendant reportedly instructed Kathryn to fire Michael and Mark.
In addition, arrangements were made to sell assets from the companies to J & D Implement, Inc.,
an Ohio corporation. Plaintiffs allege the Laethem companies’ assets were being sold “at fire
sale prices.” Michael and Mark initiated a lawsuit in the Tuscola County Circuit Court in an
attempt to secure a temporary restraining order (TRO) to prevent liquidation of the companies’
assets. Despite a TRO being in place, Kathryn proceeded with defendant to consummate the
deal to transfer assets to J & D Implement, Inc. A hearing was conducted on March 11, 2003, to
determine whether remaining company assets should be sold. Defendant appeared on behalf of
both companies and plaintiffs allege defendant elicited knowingly false testimony from Kathryn
to secure the lifting of the TRO. Plaintiffs contend the court lifted the TRO and permitted
additional assets to be sold at auction based on this allegedly false testimony. Plaintiffs further
assert that the auction was mishandled resulting in the sale of the companies’ assets at a
significant loss.
Concurrently, Michael and Mark initiated a lawsuit in the circuit court against both the
Trust and Kathryn, individually and as trustee and accountant for the Trust, alleging fraud,
tortuous interference with business relationships, defamation and business disparagement,
conversion, accountant malpractice, false light invasion of privacy and seeking specific
performance of an alleged agreement to purchase Trust assets and promissory estoppel.6 Despite
interim rulings that Michael and Mark only had an agreement to purchase the businesses at some
future point, but that the details regarding price had not been determined, the circuit court
entered an order on November 1, 2004, granting Michael and Mark a default judgment on their
request for specific performance. The trial court order stated, in relevant part:
This Court finds that Plaintiffs Mark and Michael Laethem are now and
have been since January 4, 1993, the 50-50 shareholders of Laethem Equipment
Company (LEC), Laethem Farm Service Co., (LFSC) and Canusa Equipment
Company (Canusa), and in connection therewith, have had the right to the profits
of, and the right to conduct the management of, and the right to hold themselves
as owners of LEC, LFSC and Canusa since that date.
This Court further finds since January 4,1993, Mark Laethem and Michael
Laethem have each held 50% equitable ownership interests in all of the
commercial property on which LEC operated in Caro, Michigan, and the real
property known as the Buck Farm, and all parcels on which LFSC operated that
were not titled to LFSC, and that pursuant to such interests, Mark Laethem and
Michael Laethem had the right to control and manage all operations thereon.
6
Verified Complaint and Jury Demand filed in the Tuscola County Circuit Court, lower court
case number 03-21644-CZ, Hon. Patrick R. Joslyn presiding.
-3-
Approximately one month later, a formal settlement agreement and release was executed, which
reflected the trial court’s ruling regarding ownership of the companies and memorialized
additional agreements between the siblings, the Trust and its beneficiaries.
This appeal arises from a subsequent complaint filed by plaintiffs in the Saginaw Circuit
Court against defendant alleging legal malpractice/professional negligence and breach of
fiduciary duties, asserting that defendant acted adversely to the interests of its clients – Laethem
Equipment Company and Laethem Farm Service Company. Defendant filed four separate, preanswer motions for summary disposition, alleging (a) lack of subject matter jurisdiction under
MCR 2.116(C)(4); (b) res judicata/release under MCR 2.116(C)(7); (c) absence of attorneyclient or fiduciary relationship under MCR 2.116(C)(10); and (d) wrongful conduct rule, also
under MCR 2.116(C)(10). Although expressing uncertainty regarding its ruling, the circuit court
granted summary disposition in favor of defendant based solely on its determination that
jurisdiction in this matter resided exclusively with the probate court in accordance with MCL
700.1302(b). Specifically, the trial court determined, citing MCL 700.1302(b) and (b)(v), that
“[t]he Complaint alleges facts, circumstances and events which concern the ‘internal affairs’ or
‘the administration’ of a trust; and this proceeding will require determination of one or more
questions ‘that arise[] in the administration or distribution of a trust.” Finding plaintiffs’
arguments unpersuasive and lacking a legal basis for denial of summary disposition, the trial
court ruled that a finding of concurrent jurisdiction under MCL 700.1303 was inapplicable.
On appeal, plaintiffs argue the trial court erred in granting summary disposition on the
basis of subject matter jurisdiction contending the alleged breaches of fiduciary duty and
malpractice did not arise from defendant’s responsibilities to the trust. Plaintiffs contend that a
fiduciary relationship can arise between an attorney and shareholders of a closely held
corporation, and that such a relationship arose independently of the trust. In the alternative,
plaintiffs suggest that MCL 700.1303 would give the probate court concurrent jurisdiction with
the circuit court. Defendant responds that the trial court properly granted summary disposition
because all of plaintiffs’ claims arise directly out of administration of the trust and its assets
placing jurisdiction exclusively in the probate court.
This Court reviews de novo the issue of whether subject-matter jurisdiction exists as a
question of law. Midwest Energy Coop v Michigan Pub Serv Comm, 268 Mich App 521, 523;
708 NW2d 147 (2005). Issues of statutory construction are also reviewed de novo. Id.
Circuit courts are deemed courts of general jurisdiction and “have original jurisdiction to
hear and determine all civil claims and remedies except where exclusive jurisdiction is given in
the constitution or by statute to some other court or where the circuit courts are denied
jurisdiction by the constitution or statutes of this state.” MCL 600.605. Probate courts are
vested with “exclusive legal and equitable jurisdiction” regarding “matter[s] that relate[] to the
settlement of a deceased individual’s estate,” MCL 700.1302(a), and “proceeding[s] that
concern[] the validity, internal affairs, or settlement of a trust; the administration, distribution,
modification, reformation, or termination of a trust; or the declaration of rights that involve a
trust, trustee, or trust beneficiary,” MCL 700.1302(b).
The trial court determined that exclusive jurisdiction in this matter was with the probate
court because plaintiffs’ claims arose from or were related to the administration of the Laethem
Trust with the alleged wrongdoing by defendant impacting the distribution or value of Trust
-4-
assets. The trial court and parties all cited to and relied on Manning v Amerman, 229 Mich App
608, 612; 582 NW2d 539 (1998) in support of their respective positions. Plaintiffs assert that
Manning is distinguishable and inapplicable because the malpractice claims against defendant
are unrelated to the settlement of the Laethem Trust.
In Manning, this Court addressed the exclusive jurisdiction of the probate court regarding
the adjudication of claims by beneficiaries of a trust against both the trustee and the attorney of
the trustee, for a variety of claims including allegations of infliction of emotional distress and
malpractice. Manning, supra at 609-610. Only the trial court’s determination that the emotional
distress and malpractice claims fell within the exclusive jurisdiction of the probate court were
appealed to this Court. Id. at 610. To resolve the issue, this Court examined the statutory
language granting exclusive jurisdiction to the probate court.7 The Court ruled that the statutory
language gave “the probate court . . . exclusive jurisdiction over proceedings concerning the
administration of trusts, including the determination of ‘any question arising in the
administration or distribution of any trust.’” Id. at 612, citing MCL 700.21(b)(v). Evaluating the
plaintiffs’ claims in the context of the statutory language, the Court determined “it is clear from
the face of the complaint that plaintiffs’ emotional distress and malpractice claims arose in the
administration of a trust.” Id. at 613. As a result, this Court concluded that the claims fell within
the exclusive jurisdiction of the probate court.
The facts of this case are readily distinguishable from those existing in Manning and
necessitate a determination that the circuit court has jurisdiction of this action. Plaintiffs and
various defendants have been involved in ongoing litigation since at least 2003 regarding the
ownership of the assets, which are the subject of this complaint. Notably, these prior actions
have all been adjudicated within various circuit courts and defendant, as the attorney of record
for Kathryn Laethem and the corporate entities has not previously objected to that jurisdiction.
Further, defendant and plaintiffs have consistently treated and viewed the Laethem businesses as
separate or independent entities from the Trust. By way of example, in the Tuscola Circuit Court
(Case No. 03-21644-CZ), Michael H. Allen, an attorney with defendant firm, acknowledged
while under oath in deposition when questioned about his professional relationship with Laethem
Equipment Company:
Q.
Did you or any other attorney in your firm ever have an attorney/client
relationship with Laethem Equipment Company?
A.
Yes.
Q.
Did you represent Laethem Equipment Company?
A.
Yes.
7
We note that at the time Manning was decided the relevant statutory provision was MCL
700.21, which was repealed by 1998 PA 386 and replaced by MCL 700.1302, which contains
substantially similar in language.
-5-
Q.
When was that relationship formed?
A.
Again, guessing, sometime in 2001 or 2002.
***
Q.
And are those bills on – well, tell me who you billed.
A.
I believe I billed Laethem Equipment Company.
***
Q.
And I take it that these bills are separate from the bills that you sent to
Kathryn Laethem in your attorney/client relationship with her as a trustee?
A.
That is correct.
Further, in this same litigation, when seeking the payment of attorney fees, an attorney appearing
on behalf of defendant firm implicitly acknowledged its representation of Laethem Equipment
Company as a separate entity, as distinguished from services provided to Kathryn Laethem as
either trustee or a director of the corporation, when asserting, “being an attorney for [sic]
shareholder is not the same as being an attorney of the officer of the corporation, or for the
corporation itself.” Nowhere in the motion filed by defendant for payment of attorney fees was
the Trust mentioned or indicated to be a client. Defendant’s firm acknowledged treating the
Trust and companies as disparate or separate entities when it indicated that attorneys from the
firm attended hearings “on behalf of Laethem Equipment Company, as well as the probate estate
to determine what the assets were.” In arguing entitlement to the payment of attorney fees,
defendant firm stated, in relevant part:
Whether or not the plaintiffs in this case believe that what took place was
correct should not be the standard in determining whether or not attorney fees are
paid as a result of services which were lawfully provided, and rightfully provided
to the authorized representative of Laethem Equipment Company in good faith,
and those proceedings were taking place to make a determination as to what
assets existed, how we could best benefit the corporation by preserving those
assets, and how we could best benefit the probate estate and Trust estate, and
preserving those assets, and make sure there was no additional waste to any of the
materials or assets that existed.
In fact, what we were trying to do was limit the loses [sic] that Laethem
Equipment Company would sustain. Laethem Equipment Company is currently
no longer a going concern as the Court is aware during the temporary restraining
order, we were trying to deal with very difficult issues of how to dispose of assets
in order to bring back top dollas [sic] to Laethem Equipment Company.
So the [sic] claim the issue in the matters that were undertaken by the law
firm of Currie Kendall for the benefit of Laethem Equipment Company Inc., is
specious.
-6-
More importantly, another circuit court had entered an order determining ownership of
Laethem Equipment Company and Laethem Farm Services Company several months before this
litigation was initiated. On November 1, 2004, the Tuscola Circuit Court (Case No. 03-21644CZ) ruled that Michael and Mark Laethem were the owners of the corporations and that their
ownership would be construed to have existed since 1993. The ruling appealed in this action
suggests that the basis for determining that exclusive jurisdiction was in the probate court is
because it was necessary to determine or administer ownership of the corporations as possible
Trust assets. This is patently incorrect, as a ruling regarding ownership of the relevant assets had
already been made months before this litigation initiated. For the current circuit court to indicate
at this late juncture that it did not have jurisdiction over the pending claim results in a ruling that
is inconsistent with the prior order of the Tuscola Circuit Court. For the trial court to suggest
that the probate court would need to revisit the issue of ownership of the disputed assets would
result in an unnecessary duplication of effort and a waste of judicial resources.
Finally, we would note that attributing exclusive jurisdiction of the subject matter of this
litigation to the probate court is inconsistent with the positions taken by the parties in related
litigation. Judicial estoppel is a doctrine “intended to protect the courts from being manipulated
by chameleonic litigants who seek to prevail, twice, on opposite theories.” Opland v Kiesgan,
234 Mich App 352, 364; 594 NW2d 505 (1999) (citation omitted). Although this doctrine must
be applied cautiously, id. at 363-364, Michigan has recognized the “prior success” model of
judicial estoppel, which precludes “a party who has successfully and unequivocally asserted a
position in a prior proceeding from asserting an inconsistent position in a subsequent
proceeding.” Paschke v Retool Industries, 445 Mich 502, 509; 519 NW2d 441 (1994). In this
instance, defendant has consistently permitted its various clients to be subject to the jurisdiction
of the circuit court in matters regarding these companies and has affirmatively and successfully
sought the intervention of the circuit court in obtaining payment of its attorney fees from
Laethem Equipment Company. In this litigation, defendant has asserted through affidavit that
the legal services performed were solely in its capacity as the counsel for the Trust and/or
Kathryn Laethem as a trustee. In addition to being self-serving, the averments contained in this
affidavit are directly in opposition to the representations previously made by members of
defendant firm to the Tuscola Circuit Court. It is, therefore, inconsistent for defendant to
contend that the circuit court lacks authority or jurisdiction regarding whether the legal services
provided to Laethem Equipment Company are subject to liability after petitioning a court of the
same jurisdiction to award attorney fees for representation provided to this same business entity.
In raising the applicability of judicial estoppel, this Court is not ruling on the merits of plaintiffs’
claims regarding malpractice or breach of fiduciary duty and does not offer an opinion regarding
the propriety of plaintiffs’ claims on behalf of both the corporations and as individuals as these
matters are beyond the scope of this appeal.
Reversed and remanded for further proceedings consistent with this opinion. We do not
retain jurisdiction.
/s/ Michael J. Talbot
/s/ E. Thomas Fitzgerald
/s/ Kirsten Frank Kelly
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