ALPHA CAPITAL MGT INC V PAUL ROBERT RENTENBACH
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STATE OF MICHIGAN
COURT OF APPEALS
ALPHA CAPITAL MANAGEMENT, INC.,
FOR PUBLICATION
March 23, 2010
9:05 a.m.
Plaintiff-Appellant,
v
PAUL ROBERT RENTENBACH and DYKEMA
GOSSETT, P.L.L.C.,
Defendants-Appellees,
No. 287280
Wayne Circuit Court
LC No. 06-612418-NO
Advance Sheets Version
and
MARK E. HAUCK,
Defendant.
Before: GLEICHER, P.J., and FITZGERALD and WILDER, JJ.
GLEICHER, P.J.
This action against a law firm and one of its attorneys arises from events that transpired
during a separation of business partners and their joint ownership interests in a company they
had owned. Plaintiff, Alpha Capital Management, Inc. (ACM), contended that its counsel,
defendants Dykema Gossett PLLC and Dykema attorney Paul Rentenbach, breached fiduciary
duties and committed other actionable wrongs by representing a former ACM shareholder in a
dispute concerning his buyout agreement. A jury found in favor of defendants on all counts
alleged in ACM’s complaint. ACM appeals as of right the trial court’s entry of a judgment of no
cause of action effectuating the jury verdict. We affirm.
I. UNDERLYING FACTS AND PROCEEDINGS
In 1991, Ralph Burrell founded ACM to provide financial consulting services to
businesses, pension funds, and nonprofit institutions. Initially, Burrell owned 55 percent of
ACM’s shares and Robert Warfield owned 45 percent. Within a year, Burrell and Warfield each
owned 50 percent of ACM’s shares. Soon after ACM’s formation, the company hired Dawna
Edwards as its portfolio manager. In 1996, ACM hired Napolean Rodgers as managing director
of its fixed income portfolio.
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Before starting ACM, Burrell had established a successful information systems and
management consulting business called SymCon. Dykema served as SymCon’s general counsel.
Burrell and Warfield retained Dykema in 1991 to supply the legal services necessary to form
ACM. After other Dykema lawyers completed ACM’s corporate formation, Rentenbach
provided ACM ongoing legal services. 1
Problems developed over time between Burrell and Warfield. They disagreed about
Warfield’s compensation, Edwards’s equity share in the firm, and fees received by Munder
Capital Management 2 (35 percent of ACM’s client revenues). Because ACM “didn’t grow as
quickly” as Burrell thought it would, it accrued long-term debt payable to Munder Capital.3
Warfield’s compensation also created a debt. In 1998, Burrell entered into negotiations with
Munder Capital seeking adjustments to the ACM-Munder Capital subadvisory agreement, and
eventually achieved a lower cost structure. Warfield and Edwards wanted ACM “to move away
from Munder” Capital, while Burrell hoped to expand ACM’s relationship with Munder Capital.
In 1999, Burrell and Warfield began negotiating a buyout agreement contemplating that
Burrell would buy Warfield’s shares or vice versa. Rentenbach served as a “facilitator” during
the negotiation sessions. Burrell recalled that at a meeting in mid-April 1999, Rentenbach turned
to Warfield to “get approval” to answer one of Burrell’s questions. Burrell felt “shocked”
because “Rentenbach is the corporate attorney representing Alpha.” After the meeting,
Rentenbach informed Burrell that Warfield and Edwards had asked him to represent them. On
April 15, 1999, Rentenbach wrote a letter to Burrell’s personal counsel, former Michigan
Supreme Court Justice CONRAD MALLETT, JR., advising that Rentenbach and Dykema sought to
represent Warfield and Edwards “with respect to the negotiations that will take place regarding
[Burrell’s] proposed disengagement.” Rentenbach requested that Burrell waive any conflict of
interest that might arise from “our firm’s representation of [Burrell] and his other business
interest (Symcon, Inc.).” Burrell declined to waive the conflict, but Rentenbach continued to
represent Warfield and Edwards. Rentenbach’s billing records reveal that he proceeded to
prepare draft agreements in contemplation of a buyout by one shareholder or the other, while
Dykema sent ACM invoices for Rentenbach’s time.
In July 2000, Burrell and Warfield signed a document entitled “Alpha Capital
Management, Inc. Process for Separation/Buy-Out,” which contemplated a three-phased stock
purchase process. In phase I, Burrell would present an offer to Warfield, which Warfield could
1
Rentenbach’s billing records reflect that he worked the following hours on behalf of ACM from
1993 through 2001: 1993, 27.6; 1994, 8.6; 1995, 31.95; 1996, 8.3; 1997, 5.1; 1998, 34.3; 1999,
35; 2000, 13; 2001, 2.
2
From ACM’s inception, it had a “sub-advisory relationship” with Munder Capital. Munder
Capital operates as “an independent investment advisor” that manages assets for nonprofits or
governmental units. Burrell explained that ACM’s “business model and business strategy was to
align with a firm that was in the industry, specifically, Munder, because it’s very difficult to start
an investment management firm.”
3
By October 2003, the debt to Munder Capital approximated $340,000.
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accept or counter. If Warfield did neither, phase II would commence, during which a facilitator
would assist the parties in crafting a transaction. If that failed, in phase III Burrell would
“make[] a final written offer to sell his shares to Mr. Warfield or to purchase Mr. Warfield’s
shares,” and Warfield would “decide[] whether to buy Mr. Burrell’s shares or to sell his shares to
Mr. Burrell.”
Phases I and II did not result in ACM’s sale. On April 20, 2001, the parties embarked on
phase III. In a document drafted by Burrell’s counsel, entitled “Offer to Purchase and Stock
Purchase Agreement,” Burrell offered either to sell his ACM shares to Warfield or to purchase
Warfield’s shares. 4 In May 2001, Warfield elected to sell his shares to Burrell, and in June 2001
Burrell assigned to ACM his right to purchase Warfield’s shares. The deal closed on October 24,
2001, and Burrell then terminated Dykema’s services on behalf of ACM. Warfield, Edwards,
and Rodgers continued to work for ACM.
Section 2 of the stock purchase agreement governed the “purchase price and payment”
applicable to the seller’s shares. Section 2.1 required an initial payment of $75,000 at the closing
and § 2.2 mandated execution of a promissory note in the amount of $1,425,000, to be paid in 20
equal quarterly installments. Section 2.8 addressed what would happen if the buyer became
“unwilling or unable to pay any remaining amounts owing to Seller[.]” In that event, the seller
had 30 days in which to exercise an option “to obtain all ownership interests in” ACM for $1.00
“in full satisfaction of the Unpaid Amounts[.]” If the seller failed to exercise that option, “any
claims of Seller to the Unpaid Amounts will be deemed to be waived and released as of the end
of such 30 day period.” The stock purchase agreement also contained mutual covenants not to
compete effective for three years after the closing date.
In July 2003, Burrell notified Warfield that he could not make the quarterly payment
required under the buyout agreement unless Warfield approved a secured loan “of up to
$150,000 from SymCon to Alpha.” Warfield did not respond to this letter, and Burrell did not
make the July payment. On August 1, 2003, Burrell wrote to Warfield and again sought
approval for a loan. Warfield replied on August 4, 2003, declining to approve the loan on the
basis that “I am not required to consent to this type of a transaction under the stock buy-out
agreement . . . and this arrangement is unfair to the other creditors of Alpha Capital (principally
me and Munder Capital) because no other creditor has a lien on Alpha’s assets.” Warfield’s
letter continued, “Since I have not received the payment due on July 31, I hereby declare Alpha
Capital in default under the Note.” On August 29, 2003, Warfield sent Burrell another letter
stating in part, “Further, I am notifying Alpha and you that due to Alpha’s non-payment of its
obligations, my covenant not to compete with Alpha is no longer applicable, pursuant to the
provisions of Section 6.1(i) of the Offer to Purchase and Stock Purchase Agreement dated
April 20, 2001.”
4
At this point, Honigman Miller Schwartz and Cohn represented Burrell and Rentenbach
represented Warfield.
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Burrell responded on September 24, 2003, informing Warfield that “by receipt of this
letter . . . I am issuing a Refusal Notice pursuant to Paragraph 2.8 of our agreement.” The
pertinent portion of ¶ 2.8 sets forth:
If, at any point prior to or on the date which is 45 days following the end
of the 20th full fiscal quarter of the Company following the Closing Date (the
“Last Payment Date”), Buyer notifies Seller, in writing (the “Refusal Notice”),
that Buyer is unwilling or unable to pay any remaining amounts owing to Seller
pursuant to the Promissory Note or Sections 2.4, 2.5 or 2.6 of the Offer (the
“Unpaid Amounts”), Seller will have the right, upon giving written notice to
Buyer within 30 days of either Seller’s receipt of the Refusal, to obtain all
ownership interests in the Company then owned by the Buyer (and the Guarantor,
if applicable) for $1.00 paid to Buyer or Guarantor, as applicable, in full
satisfaction of the Unpaid Amounts, and the parties will cooperate to effectuate a
transfer of such ownership interests to Seller.
On October 10, 2003, Warfield declined to exercise his right to purchase ownership of ACM.
Rentenbach supplied legal services to Warfield, Rodgers, and Edwards both before and
after Burrell notified Warfield of his inability to make the July 31, 2003, payment. Rentenbach’s
billing records reflect that on August 4, 2003, Rentenbach spent time drafting a default letter to
Burrell. In August 2003, Rentenbach received a call from Warfield inquiring whether Burrell’s
missed quarterly payment rendered unenforceable the stock purchase agreement’s noncompete
clause. Rentenbach read the stock purchase agreement and advised Warfield that Burrell’s
breach negated the noncompete clause. On August 25, 2003, Rentenbach met with Warfield,
Rodgers, and Edwards and reviewed Warfield’s letter of that date to Burrell. Two days later,
Rentenbach drafted an operating agreement for Alpha Partners, L.L.C. On October 9, 2003, the
day before Warfield declined to purchase ACM, Rentenbach faxed to Rodgers a schedule
describing the backgrounds of Alpha Partners’s three founding partners: Warfield, Edwards, and
Rodgers. Rodgers and Edwards resigned from ACM on October 15, 2003. By the end of
October 2003, most of ACM’s clients had withdrawn their funds from ACM and invested them
with Alpha Partners.
On November 4, 2003, ACM and Burrell sued Alpha Partners, Warfield, Edwards, and
Rodgers in the Oakland Circuit Court seeking injunctive relief and damages. Honigman Miller
Schwartz and Cohn represented the plaintiffs in the Oakland Circuit Court action and Dykema
represented the defendants. The plaintiffs alleged that the defendants had violated the
noncompete clauses in their contracts and the stock purchase agreement, misappropriated
confidential information, breached their fiduciary duties to ACM, and tortiously interfered with
ACM business relationships. The Oakland Circuit Court denied injunctive relief, and the parties
ultimately settled the damages claims for a relatively small amount—a $60,000 payment to ACM
and Burrell. 5
5
Burrell testified in this case that he had invested approximately $300,000 in the Oakland Circuit
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On April 28, 2006, ACM filed the instant case in the Wayne Circuit Court against
Dykema and Rentenbach, alleging breach of fiduciary duty (count I), tortious interference with
contractual relations and with prospective economic and business advantage (count II), and
aiding and abetting Warfield in violating his covenant not to compete (count III). In June 2006,
defendants moved for summary disposition pursuant to MCR 2.116(C)(7) and (8). They
contended that the allegations in ACM’s complaint arose solely from their prior attorney-client
relationship with ACM, and that the statute of limitations barred this malpractice claim. In the
alternative, defendants argued that the plaintiffs’ release of the Oakland Circuit Court defendants
in the prior litigation, Alpha Partners, Warfield, Edwards, and Rodgers, barred an “aiding and
abetting” theory against defendants as a matter of law. They also averred that the covenant not
to compete had dissolved before the formation of Alpha Partners.
ACM answered that the breach of fiduciary duty claim did not sound in legal malpractice,
but rather was properly pleaded as a separate cause of action subject to a three-year period of
limitations. ACM denied that the release barred its claims for aiding and abetting, and contended
that the covenant not to compete remained in effect when defendants formed Alpha Partners.
The trial court denied defendants’ motion, and this Court denied their application for leave to
appeal. Alpha Capital Mgt[,] Inc v Rentenbach, unpublished order of the Court of Appeals,
entered October 27, 2006 (Docket No. 272819). The Supreme Court also denied leave to appeal.
477 Mich 1059 (2007).
On May 19, 2008, a jury trial commenced. The trial concluded on June 3, 2008, when
the jury returned a special verdict finding that: (1) defendants had not breached a fiduciary duty
to ACM; (2) former employees of ACM tortiously interfered with contracts or business
relationships of ACM; (3) defendants did not aid or abet the tortious interference; and (4)
Warfield did not breach the covenant not to compete.
II. SUMMARY DISPOSITION RULINGS
A. STANDARD OF REVIEW
ACM initially contests the propriety of the trial court’s denial of ACM’s motion for
partial summary disposition concerning its breach of fiduciary duty claim. Because the trial
court considered documentation beyond the pleadings in reaching its ruling and denied the
motion on the basis of the existence of conflicting questions of fact, we review the court’s ruling
under MCR 2.116(C)(10). Walsh v Taylor, 263 Mich App 618, 621; 689 NW2d 506 (2004).
This Court reviews de novo a trial court’s summary disposition ruling. Id. “Summary
disposition is appropriate under MCR 2.116(C)(10) if there is no genuine issue regarding any
material fact and the moving party is entitled to judgment as a matter of law.” West v Gen
Motors Corp, 469 Mich 177, 183; 665 NW2d 468 (2003).
ACM additionally asserts that the trial court should have granted a directed verdict or
judgment notwithstanding the verdict (JNOV) regarding its breach of fiduciary duty count. We
also review de novo a trial court’s rulings on motions for a directed verdict and JNOV.
Sniecinski v Blue Cross & Blue Shield of Michigan, 469 Mich 124, 131; 666 NW2d 186 (2003).
Court litigation.
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“A motion for directed verdict or JNOV should be granted only if the evidence viewed in th[e]
light [most favorable to the nonmoving party] fails to establish a claim as a matter of law.” Id.
B. BREACH OF FIDUCIARY DUTY CLAIM
Defendants do not dispute that they owed ACM a fiduciary duty premised on ACM’s
status as their former client. See Rippey v Wilson, 280 Mich 233, 243; 273 NW 552 (1937)
(observing that “[t]he relationship between client and attorney is a fiduciary one, not measured
by the rule of dealing at arm’s length”); Meyer & Anna Prentis Family Foundation, Inc v
Barbara Ann Karmanos Cancer Institute, 266 Mich App 39, 47; 698 NW2d 900 (2005)
(“Damages may be obtained for a breach of fiduciary duty when a position of influence has been
acquired and abused, or when confidence has been reposed and betrayed.”) (quotation marks and
citation omitted). Defendants insist that material questions of fact precluded a grant of summary
disposition, a directed verdict, or JNOV with respect to whether they breached their fiduciary
duty by working on behalf of Alpha Partners, Warfield, Edwards, and Rodgers in 2003.
Few Michigan cases elaborate concerning the substantive elements of a former client’s
breach of fiduciary duty claim against an attorney. ACM relies on the seminal Michigan case
addressing an attorney’s liability for breach of fiduciary duty, Fassihi v Sommers, Schwartz,
Silver, Schwartz & Tyler, PC, 107 Mich App 509; 309 NW2d 645 (1981). 6 However, Fassihi
does not resolve the question whether, as a matter of law, defendants’ conduct violated their
fiduciary duties.
The plaintiff in Fassihi, a radiologist, owned 50 percent of Livonia Physicians X-Ray,
P.C., a closely held corporation. The defendant law firm represented Livonia Physicians and had
drafted “all the agreements pertaining to membership in the professional corporation.” Id. at
513. Dr. Rudolfo Lopez owned the other half of the corporation’s shares. Id. at 511-512. Lopez
had a prior agreement with St. Mary’s Hospital that invested him with “personal and sole
responsibility for staffing [its] radiology department.” Id. at 513. Lopez and Fassihi practiced
together for about 18 months before Lopez reached the decision that he no longer wished to
associate with Fassihi. Id. at 512. Lopez asked the defendant, Livonia Physicians’s lawyer, to
ascertain how Fassihi “could be ousted from Livonia Physicians . . . .” Id. In June 1975, an
employee of the defendant delivered Fassihi a letter advising that Livonia Physicians’s board of
directors had met in Fassihi’s absence and voted to terminate his employment. Id. at 513.
Fassihi then learned that due to his “termination” from Livonia Physicians, he could no longer
6
Fassihi has been described as “the preeminent case recognizing a stakeholder’s claim of breach
of fiduciary duty against an attorney who represents only the business.” Rossman, The
descendants of Fassihi: A comparative analysis of recent cases addressing the fiduciary claims
of disgruntled stakeholders against attorneys representing closely-held entities, 38 Ind L R 177
(2005). The Massachusetts Supreme Court singled out Fassihi as “a well-reasoned opinion
supporting” the view that “even though counsel for a closely held corporation does not by virtue
of that relationship alone have an attorney-client relationship with the individual shareholders,
counsel nevertheless owes each shareholder a fiduciary duty.” Schaeffer v Cohen, Rosenthal,
Price, Mirkin, Jennings & Berg, PC, 405 Mass 506, 513; 541 NE2d 997 (1989).
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practice at St. Mary’s Hospital. Id. Fassihi filed a complaint asserting that the defendant had
“represented both Lopez individually and the professional corporation without disclosing to him
this dual representation.” Id.
This Court identified the “difficult question” of first impression presented in the case as
“what duties, if any, an attorney representing a closely held corporation has to a 50% owner of
the entity, individually.” Id. at 514. The Court began its analysis by adopting the proposition
that “the attorney’s client is the corporation and not the shareholders.” Id. Notwithstanding that
no attorney-client relationship existed between Fassihi and the defendant law firm, the Court
cautioned that this fact did not categorically preclude a fiduciary duty from arising between the
law firm and Fassihi. Id. The Court explained:
A fiduciary relationship arises when one reposes faith, confidence, and
trust in another’s judgment and advice. Where a confidence has been betrayed by
the party in the position of influence, this betrayal is actionable, and the origin of
the confidence is immaterial. Furthermore, whether there exists a confidential
relationship apart from a well defined fiduciary category is a question of fact. [Id.
at 515 (citation omitted).]
The Court further noted the “difficulties” inherent in “treating a closely held corporation with
few shareholders as an entity distinct from the shareholders.” Id. at 516. “Instances in which the
corporation attorneys stand in a fiduciary relationship to individual shareholders are obviously
more likely to arise where the number of shareholders is small.” Id. In these situations, “the
corporate attorneys, because of their close interaction with a shareholder or shareholders, simply
stand in confidential relationships in respect to both the corporation and individual
shareholders.” Id.
This Court in Fassihi examined whether, by virtue of “close” attorney-shareholder
interaction giving rise to “confidential relationships,” a distinct fiduciary relationship existed
between an attorney for a closely held corporation and a shareholder. Id. at 516. Because
Fassihi and the defendant law firm lacked an attorney-client relationship, any liability on the part
of the law firm arose on the basis of a cause of action—breach of fiduciary duty—separate and
apart from the defendant’s breach of a traditional duty of care. Here, the parties do not dispute
that defendants and ACM had a fiduciary relationship through October 2001. Consequently,
Fassihi does not resolve the issue at the core of the parties’ dispute, whether defendants violated
the fiduciary duty they owed to ACM by providing legal services to Warfield, Rodgers, and
Edwards in 2003.
The common law has long recognized that an attorney’s fiduciary duties extend to both
current and former clients. For example, in T C Theatre Corp v Warner Bros Pictures, Inc, 113
F Supp 265, 268 (SD NY, 1953), the district court explained:
A lawyer’s duty of absolute loyalty to his client’s interests does not end
with his retainer. He is enjoined for all time, except as he may be released by law,
from disclosing matters revealed to him by reason of the confidential relationship.
Related to this principle is the rule that where any substantial relationship can be
shown between the subject matter of a former representation and that of a
subsequent adverse representation, the latter will be prohibited.
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The United States Court of Appeals for the Sixth Circuit has declared it “well settled that an
attorney who has acted for one party cannot render professional services in the same matters to
the other party, and it makes no difference in this respect whether the relation itself has
terminated, for the obligation of fidelity still continues.” United States v Bishop, 90 F2d 65, 66
(CA 6, 1937). In Consol Theatres, Inc v Warner Bros Circuit Mgt Corp, 216 F2d 920, 927 (CA
2, 1954), the United States Court of Appeals for the Second Circuit held that Canon 6 of the
American Bar Association Canons of Professional Ethics “is devised to protect the secrets and
confidences reposed in the attorney by his clients,” and required the disqualification of an
attorney representing the plaintiff in an antitrust action “substantially similar” to matters on
which the attorney had worked on behalf of the defendants. 7 Id. at 927.
These descriptions of an attorney’s obligation to a former client derive from the principle
that the attorney’s duties of loyalty and confidentiality continue even after an attorney-client
relationship concludes. But under the common law and pursuant to the rules of professional
responsibility, the continuing duties of loyalty and confidentiality apply only to matters in which
the new client’s interests qualify as both adverse to those of the former client and substantially
related to the subjects of the attorney’s former representation. Michigan Rule of Professional
Conduct 1.9(a) embodies these concepts as follows: “A lawyer who has formerly represented a
client in a matter shall not thereafter represent another person in the same or a substantially
related matter in which that person’s interests are materially adverse to the interests of the former
client unless the former client consents after consultation.” An attorney does not necessarily
breach his or her duty of loyalty and confidentiality to a former client by representing a new
client whose interests are merely adverse to those of the former client. The attorney breaches his
or her fiduciary duty to a former client only by undertaking representation of a client who has
interests both adverse and substantially related to work the attorney performed for the former
client. 8
A number of courts around the country have examined the circumstances under which an
adverse subsequent representation may be deemed substantially related to legal services done for
7
The Second Circuit in Consol Theatres, id. at 926, described the American Bar Association
Canons of Professional Ethics as “a codification of the more important limitations on legal
practice broadly deemed necessary for the protection of clients.” At that time, Canon 6 read, in
pertinent part:
The obligation to represent the client with undivided fidelity and not to
divulge his secrets or confidences forbids also the subsequent acceptance of
retainers or employment from others in matters adversely affecting any interest of
the client with respect to which confidence has been reposed.
8
The comments to MRPC 1.7, which sets forth the “General Rule” regarding conflicts of
interest, include the following observation: “[S]imultaneous representation in unrelated matters
of clients whose interests are only generally adverse, such as competing economic enterprises,
does not require consent of the respective clients.”
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a former client. Most commonly, courts have adopted a three-part test set forth in INA
Underwriters Ins Co v Nalibotsky, 594 F Supp 1199, 1206 (ED Pa, 1984):
1. What is the nature and scope of the prior representation at issue?
2. What is the nature of the present lawsuit against the former client?
3. In the course of the prior representation, might the client have disclosed
to his attorney confidences which could be relevant to the present action? In
particular, could any such confidences be detrimental to the former client in the
current litigation?
The district court in INA Underwriters further elaborated,
In answering the first question, the court should consider both the
purposes for which the attorney was employed and the facts underlying the matter
for which the attorney was responsible. However, the focus should be upon the
reasons for the retention of counsel and the tasks which the attorney was
employed to perform. Once the purposes for which the attorney was employed
are clear, it is then possible to consider the type of information which a client
would impart to an attorney performing such services for him.
The second question is relatively simple to answer. All that is necessary is
an evaluation of the issues raised in the present litigation and the general facts
upon which the legal claims asserted in the present action are based.
In resolving the third question—whether confidential information “might”
have been received in the course of the prior representation which would be
substantially related to the present representation—the court should not allow its
imagination to run free with a view to hypothesizing conceivable but unlikely
situations in which confidential information “might” have been disclosed which
would be relevant to the present suit. “The lawyer ‘might have acquired’ the
[substantially related] information in issue if (a) the lawyer and the client ought to
have talked about particular facts during the course of the representation, or (b)
the information is of such a character that it would not have been unusual for it to
have been discussed between lawyer and client during their relationship.” [Id.,
quoting Realco Servs, Inc v Holt, 479 F Supp 867, 871-872 (ED Pa, 1979).]
Application of the INA Underwriters analysis to the instant facts yields a conclusion that
material questions of fact precluded summary determination whether defendants breached their
fiduciary duties to ACM. At trial, three witnesses testified about whether Rentenbach breached
his fiduciary duties to ACM: Mallett, John Beckerman, and Charles Borgsdorf. These witnesses
offered differing views regarding whether Rentenbach’s work on behalf of Alpha Partners
qualified as “substantially related” to the work he had done for ACM.
Mallett described the “continuing ethical responsibility” to a former client as follows:
You have an ongoing relationship with this client. It isn’t that you simply
get to pick a new side at the end of the day just because you say I no longer
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represent you; therefore, I can represent someone whose interests are adverse to
yours. It doesn’t work that way.
You can end your relationship with a client and many times lawyers do
because the relationship is broken down. That doesn’t mean that you can then
switch sides, it just means that you can leave the field.
He opined that “the establishment of a competing firm against [ACM] would have been directly
adverse to Alpha Capital,” and “I don’t think the conflict gets any more direct than that.” Mallett
added that “if . . . two corporations are competing in the same field, competing for the same
client base and delivering the same product,” a corporate counsel for one company could not
ethically represent the other without a waiver. During his direct examination, Mallett did not
specifically address whether Rentenbach’s representation of Alpha Partners and its principals
had a substantial relationship to defendants’ representation of ACM. On recross-examination,
Mallett acknowledged his awareness of MRPC 1.7 regarding conflicts of interest and a relevant
comment to the rule:
[A] lawyer ordinarily may not act as advocate against a person the lawyer
represents in some other matter, even if it is wholly unrelated. On the other hand,
simultaneous representation in unrelated matters of clients whose interests are
only generally adverse, such as competing economic enterprises, does not require
consent of the respective clients. [Emphasis added.]
Beckerman testified as ACM’s primary liability expert. 9 Beckerman opined that a lawyer
can represent two clients whose interests conflict only “when they consent.” After an attorneyclient relationship has ended, Beckerman believed that “two duties remain; one is the duty of
confidentiality[,]” and the other is “the duty of loyalty to the client[.]” Beckerman summarized
the duty of loyalty as follows: “[A] lawyer may not represent a client adversely to a former
client in a matter that is the same or substantially the same in which he has represented the
former client unless the former client consents.”
In Beckerman’s view, during the 2001 discussions about how to separate the interests of
Burrell and Warfield, Rentenbach still had an attorney-client relationship with ACM.
Beckerman concluded that in 2003, Rentenbach could not advise Warfield concerning whether to
purchase ACM’s stock for a dollar “because it involved a direct conflict with a former client.”
Beckerman explained that this conflict arose because
Mr. Rentenbach knew every detail of [the Munder Capital] debt; how it was
structured, was it secured, or unsecured. He did that work for Alpha Capital, and
he could not have advised . . . Mr. Warfield. It’s inconceivable th[at] he could
have advised Mr. Warfield whether or not to purchase the company for a dollar
9
At the time of trial, Beckerman was an associate dean at Rutgers University School of Law, and
had served as a visiting professor at the University of Michigan Law School between 1997 and
2000.
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without some consideration of Alpha Capital Management’s liabilities including
the Munder [Capital] debt.[10]
Beckerman also expressed that defendants’ assistance of Warfield, Edwards, and Rodgers
in 2003 constituted “a grotesque breach of their own fiduciary duties.” He explained that
defendants established Alpha Partners while Warfield and “Warfield’s confederates” remained
employed at ACM:
[Rentenbach] did all of these things knowing that they [Warfield,
Edwards, and Rodgers] were still employees of Alpha Capital Management, and
knowing . . . that these people were breaching their fiduciary duties. They were
starting their new company on company time, while they were still employed by
Alpha. So, he was assisting them in breaching their fiduciary duties, and not only
does the law prohibit a lawyer from assisting someone else in breaching their
fiduciary duties, but it is clear that if a lawyer does assist someone in breaching
their fiduciary duties, the lawyer will be held responsible for all losses that are
caused by that breach.
Finally, Beckerman opined that defendants breached their duty of loyalty to ACM by
representing Alpha Partners and the individual defendants in the Oakland Circuit Court
litigation.
Borgsdorf, defendants’ expert witness,11 agreed with Beckerman that “to the extent that”
defendants’ work for Alpha Partners might be adverse to ACM, defendants were precluded from
performing legal services on matters “substantially related” to the work defendants had done for
ACM. He continued, “There is [sic] lots of ways to describe this, but you cannot attack on
behalf of another client, what you did for your former client. And, I saw no evidence that Mr.
Rentenbach of Dykema ever did anything like that.” Borgsdorf pointed out that lawyers who
specialize often work for competing entities:
There are lawyers that specialize in helping dentists set up their dental
practices, and there are lawyers that might have over the course of five years set
up 50 different dental practices, all in southeast Michigan, and there is no rule that
requires that each and every one of those dental practices consent to this lawyer
who specializes in putting the paperwork together. It would dismantle the ability
of lawyers specializing from ever acting for more than one client . . . .
10
The record lacks any evidence suggesting that Rentenbach possessed confidential information
about the Munder Capital debt that Warfield did not also possess.
11
At the time of trial, Borgsdorf was a shareholder with Hooper & Hathaway, an Ann Arbor
firm, and had taught legal ethics at the University of Michigan Law School from 1989 through
1997.
-11-
According to Borgsdorf, Rentenbach’s legal services for Alpha Partners did not substantially
relate to the work he had done for ACM. Borgsdorf described as follows defendants’ work on
behalf of ACM:
[A]ll that Dykema did was do the paperwork to help get another business
started. It filed articles of incorporation, lawyers did that all the time. It helped
fill out and perhaps file the documents by which employees of Alpha Partners
could become registered with the Securities Exchange Commission. This is the
kind of bureaucratic stuff that lawyers help investment management firms do all
the time. There is nothing improper about that.
Given that the expert testimony diverged with respect to whether defendants’
representation of ACM had a substantial relationship to the work they performed for Alpha
Partners and its employees, the trial court properly denied ACM’s motions for partial summary
disposition, a directed verdict, and JNOV. Furthermore, applying the INA Underwriters factors
to the evidence introduced at trial, substantial evidence supports the jury’s conclusion that ACM
failed to prove a breach of defendants’ fiduciary duties. Neither Beckerman’s trial testimony nor
ACM’s appellate brief identifies any confidential information in defendants’ possession that
somehow advantaged Alpha Partners. Even assuming that Rentenbach possessed confidential
information concerning the Munder Capital debt, ACM neglected to explain how this
confidential information advantaged Warfield. Without question, ACM and Alpha Partners had
adverse interests. But Borgsdorf correctly noted that defendants apparently performed only the
most routine, “bureaucratic” work on behalf of ACM, and that aside from sharing the same
general nature, these legal services lack any substantial relationship to Rentenbach’s activities on
behalf of Alpha Partners. Accordingly, we reject ACM’s position that as a matter of law
defendants breached their fiduciary duties.
C. BREACH OF COVENANT NOT TO COMPETE CLAIM
ACM next characterizes as erroneous the trial court’s denial of summary disposition in its
favor with respect to the complaint count asserting that Rentenbach “aided and abetted Warfield
in violating” the stock purchase agreement’s covenant not to compete. The trial court found that
the contractual sections at issue, §§ 2.8 and 6.1(i), gave rise to “reasonable but conflicting
interpretations,” and continued, “Hence, the Court further finds that they are ambiguous. It
further follows that summary disposition is inappropriate since further factual development is
necessary to determine the intent of the parties.” We again consider de novo this portion of the
trial court’s summary disposition ruling. Walsh, 263 Mich App at 621. We also review de novo
questions involving the proper interpretation of a contract or the legal effect of a contractual
clause. McDonald v Farm Bureau Ins Co, 480 Mich 191, 197; 747 NW2d 811 (2008).
A contract must be interpreted according to its plain and ordinary meaning. St Paul Fire
& Marine Ins Co v Ingall, 228 Mich App 101, 107; 577 NW2d 188 (1998). Our interpretation of
contractual language is further guided by the following precepts:
Under ordinary contract principles, if contractual language is clear,
construction of the contract is a question of law for the court. If the contract is
subject to two reasonable interpretations, factual development is necessary to
determine the intent of the parties and summary disposition is therefore
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inappropriate. If the contract, although inartfully worded or clumsily arranged,
fairly admits of but one interpretation, it is not ambiguous. The language of a
contract should be given its ordinary and plain meaning. [Meagher v Wayne State
Univ, 222 Mich App 700, 721-722; 565 NW2d 401 (1997) (citations omitted).]
“A contract is said to be ambiguous when its words may reasonably be understood in different
ways.” Raska v Farm Bureau Mut Ins Co of Mich, 412 Mich 355, 362; 314 NW2d 440 (1982).
The trier of fact must determine the meaning of an ambiguous contract. Badiee v Brighton Area
Sch, 265 Mich App 343, 351; 695 NW2d 521 (2005). However, if contractual language is
unambiguous and no reasonable person could differ concerning application of the term or phrase
to undisputed material facts, summary disposition should be awarded to the proper party.
Rossow v Brentwood Farms Dev, Inc, 251 Mich App 652, 658; 651 NW2d 458 (2002).
According to § 6.1(i) of the stock purchase agreement:
Notwithstanding anything herein to the contrary, the covenants of Seller
contained in this Section 6.1 shall not apply, and Seller shall not be held liable for
any breach thereof, if Buyer or Guarantor has breached the Buyer’s and
Guarantor’s Representations and Warranties or any covenant or obligation
contained in this Offer or any of the Related Agreements, including, without
limitation, the obligation to pay and perform the Obligations.
Section 2.8 identifies the buyer’s obligations if it is “unwilling or unable to pay”:
If . . . Buyer notifies Seller, in writing (the “Refusal Notice”), that Buyer is
unwilling or unable to pay any remaining amounts owing to Seller pursuant to the
Promissory Note or Sections 2.4, 2.5 or 2.6 of the Offer (the “Unpaid Amounts”),
Seller will have the right, upon giving written notice to Buyer . . . to obtain all
ownership interests in the Company then owned by the Buyer . . . for $1.00 paid
to Buyer or Guarantor, as applicable, in full satisfaction of the Unpaid Amounts,
and the parties will cooperate to effectuate a transfer of such ownership interests
to Seller. In the event Seller fails to make such election within such 30-day
period, such ownership interests in the Company shall not be transferred but any
claims of Seller to the Unpaid Amounts will be deemed to be waived and released
as of the end of such 30 day period.
ACM insists that it did not breach its “obligation to pay” under the contract because the
agreement contemplated an alternative form of performance, written notice of an inability to pay,
that triggered the seller’s right to buy the company for $1. However, the plain language of the
contract refutes ACM’s interpretation. Under § 6.1(i), the covenant not to compete “shall not
apply, and Seller shall not be held liable for any breach thereof,” if the buyer, ACM, breaches
“any covenant or obligation contained in this Offer or any of the Related Agreements, including,
without limitation, the obligation to pay and perform the Obligations.” This language is not
reasonably susceptible to more than one interpretation, and thus is not ambiguous. Because
ACM indisputably breached its obligation to pay Warfield, the unambiguous contractual term
precluded its enforcement of the seller’s covenant not to compete. This result comports with
Michigan law, specifically the principle that “one who first breaches a contract cannot maintain
an action against the other contracting party for his subsequent breach or failure to perform.”
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Michaels v Amway Corp, 206 Mich App 644, 650; 522 NW2d 703 (1994), quoting Flamm v
Scherer, 40 Mich App 1, 8-9; 198 NW2d 702 (1972). Consequently, Rentenbach correctly
informed Warfield that Burrell’s missed July 2003 payment justified Warfield’s breach or
disregard of the covenant not to compete.
In support of ACM’s position, it proffers an “alternative performance contract” theory,
which we reject for multiple reasons. First, the case on which ACM principally relies does not
support its argument. In McBain v Pratt, 514 P2d 823, 824-825 (Alas, 1973), an attorney
executed a marital separation agreement in which he agreed to bequeath to a trust for the benefit
of his children either his law practice or $42,000, representing the current worth of the law
practice. In his final will, the attorney left the law practice to his new wife. Id. at 825. The
Alaska Supreme Court determined that the measure of damages for the breach of the separation
agreement was $42,000, holding that “the trust is entitled to damages measured according to the
least onerous alternative[.]” Id. at 827. The Alaska Supreme Court explained that “‘[a]n
alternative contract is one in which a party promises to render some of two or more alternative
performances either one of which is mutually agreed upon as the bargained-for equivalent given
in exchange for the return performance by the other party[.]’” Id., quoting 5A Corbin on
Contracts, § 1079, pp 453-454 (1964). As described in McBain and by Professor Corbin, the
alternative contract doctrine creates two or more mechanisms for performance of contractual
obligations, but does not serve to excuse a contractual breach or to eliminate other contractual
obligations.
Second, the contractual language here does not support ACM’s contention that the parties
entered into or intended an “alternative performance contract.” Section 2.8 envisioned that if the
buyer, ACM, was “unwilling or unable to pay any remaining amounts owing to Seller pursuant
to the Promissory Note,” the seller had the right to purchase ACM for $1, “in full satisfaction of
the Unpaid Amounts[.]” If the seller elected not to purchase the company, “any claims of Seller
to the Unpaid Amounts will be deemed to be waived and released . . . .” The plain language of
this clause reflects that if ACM breached its agreement to pay Warfield, he could either elect to
buy the company or simply forego further payment. These elections describe alternative
remedies for ACM’s breach; they do not create alternative methods for Warfield’s performance.
In summary, the trial court improperly submitted to the jury the special question, “Do you
find that Robert Warfield breached the covenant not to compete?” On the basis of the analysis
described above, ACM’s failure to pay under the promissory note breached the stock purchase
agreement and excused Warfield from abiding by the covenant not to compete. The trial court
should have decided this issue as a matter of law in defendants’ favor. But the court’s error
affords ACM no basis for relief because as a matter of law Warfield legally competed with
ACM.
III. LIMITATION OF CROSS-EXAMINATION
ACM additionally complains that the trial court improperly limited the total time for
examinations of key witnesses Warfield and Rentenbach to 1.5 hours, allowing each side only 45
minutes, an “arbitrary and unreasonable” period given that (1) the relevant facts occurred over
the course of 10 years, and (2) the limitation prevented ACM’s counsel from adequately crossexamining Rentenbach regarding several critical documents and impeaching him with deposition
testimony. ACM further argues that the trial court erred in a related fashion by denying it an
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opportunity to make an offer of proof documenting the information that counsel would have
elicited had the court permitted more time. We review for an abuse of discretion a trial court’s
exercise of its power to control the interrogation of witnesses. People v Marji, 180 Mich App
525, 532-533; 447 NW2d 835 (1989). “To the extent that [the court’s] inquiry requires
examination of the meaning of the Michigan Rules of Evidence, we address such a question . . .
de novo.” Waknin v Chamberlain, 467 Mich 329, 332; 653 NW2d 176 (2002).
Pursuant to MRE 611(a), “[t]he court shall exercise reasonable control over the mode and
order of interrogating witnesses and presenting evidence so as to (1) make the interrogation and
presentation effective for the ascertainment of the truth, (2) avoid needless consumption of time,
and (3) protect witnesses from harassment or undue embarrassment.” In Hartland Twp v
Kucykowicz, 189 Mich App 591, 595; 474 NW2d 306 (1991), this Court emphasized that “[t]he
mode and order of admitting proofs and interrogating witnesses rests within the discretion of the
trial court.” The trial court in Hartland, on the fifth day of a trial, limited witness examinations
to one hour each for direct and cross-examination, but later amended its ruling to permit defense
counsel more time with one expert witness. Id. at 596. On appeal, this Court held, “The record
shows that the trial court properly exercised its discretion in limiting the time for examination of
witnesses.” Id.
Here, when ACM called Burrell, its first witness, the trial court announced that it would
limit Burrell’s examination to “[a]n hour a side.” The following colloquy ensued between the
trial court and ACM’s counsel:
[ACM’s Counsel]: I can’t get it done in an hour, your Honor. There’s
way too much information. I want to lay in the predicate, and everybody else
becomes a half hour. You know, that’s—
The Court: Okay.
[ACM’s Counsel]: I need to tell the story with him so the jury gets the
overall picture. Otherwise—and the rest of these witnesses shouldn’t take long.
[Emphasis added.]
The trial court did not enforce its one-hour ruling for the examinations of Burrell.
ACM’s counsel questioned Burrell for approximately 4-1/2 hours. Burrell’s direct examination
and cross-examination extended for three days of trial, in part because the examinations were
interrupted for the testimony of another witness. The parties agree that after Burrell’s testimony
concluded, the trial court limited the entire time for additional witness examinations to 1.5 hours,
45 minutes for each side.
During ACM’s counsel’s cross-examination of Warfield, counsel inquired of the trial
court about the time remaining and the trial court responded, “Fifteen minutes.” When ACM’s
counsel objected that “this is not adequate considering the serious nature—,” the trial court
interjected, “I know, but we’re moving on. We’re moving on. We’ve wasted a lot of time in this
trial, and the next witness is gonna be an hour. We’ll move quickly through these witnesses.”
Counsel for ACM again objected to the time limitation the next day. After citing Hartland, the
trial court responded, “I’ve been appealed on this issue many times, and I’ve always been
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affirmed. I pick the amount of time for each witness. Mr. Rentenbach will be an hour and a half
witness. Mr. Eaton will be an [sic] one hour witness, that’s half hour [sic] for each side.”
Counsel for ACM apparently examined Rentenbach for 45 minutes, and did not reserve
any time for recross-examination. At the conclusion of defense counsel’s examination of
Rentenbach, ACM’s counsel objected to the time limitation and asked if he could make an offer
of proof concerning “what I intend to prove when I’m being precluded from having the
opportunity to make evidence in this case by the Court’s rulings.” The trial court did not permit
ACM’s counsel to describe the testimony and exhibits he intended to offer through Rentenbach,
responding, “One minute. We can’t go through all that. We’ve got to go on back to the next
witness, okay?” The following exchange ensued:
[ACM’s Counsel]: Your Honor, you’re not gonna let me make a record?
The Court: No, no, because I’ve already made—we’ve discussed this ad
nauseum. You had 45 minutes, you have 45 minutes to ask whatever you wanted.
You could have saved five minutes to come back and ask about that document
about the billing.
We’re going on to the next witness.
[ACM’s Counsel]: Your Honor, case law is very clear, I have the right to
make a record.
The Court: You’ve made a record, I’ve made a ruling.
After trial concluded, ACM filed an “offer of proof” with the court. This offer does not appear
in the lower court record. However, the parties have referred to it extensively in their appellate
briefs.
Under the specific circumstances presented here, the trial court did not abuse its
discretion by limiting to 1.5 hours the parties’ examinations of Rentenbach and Warfield. The
record reveals that counsel had adequate time to develop the facts and issues at the center of the
parties’ dispute. Moreover, the trial court permitted ACM more than three hours for its
examination of Burrell on the basis of counsel’s pledge that he could complete the rest of the
witness examinations in a half hour. 12
12
We emphasize our disapproval of utterly arbitrary time limitations unrelated to the nature and
complexity of a case or the length of time consumed by other witnesses. Here, however, because
the trial court selected a time limitation suggested by ACM’s counsel, the period permitted did
not qualify as arbitrary. And even if the time period selected could be fairly characterized as
arbitrary, by proposing .5 hours for all witnesses other than Burrell, plaintiff’s counsel waived
any possible error.
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With respect to the trial court’s offer of proof ruling, MRE 103(a) provides, in relevant
part, as follows:
Error may not be predicated upon a ruling which admits or excludes
evidence unless a substantial right the of the party is affected, and
* * *
(2) Offer of proof. In case the ruling is one excluding evidence, the
substance of the evidence was made known to the court by offer or was apparent
from the context within which questions were asked.
Because the trial court’s refusal to permit ACM to make an offer of proof may have prevented
ACM from fully exercising its right to challenge on appeal the trial court’s time limitations, the
trial court abused its discretion by ignoring or misapplying MRE 103(a)(2) and precluding ACM
from presenting its offer of proof in a manner permitted by the court rules. The trial court’s need
to complete witness testimony, however urgent, does not absolve it from its obligation to permit
an offer of proof in accordance with MRE 103(a)(2). Here, ACM later fully preserved its claim
of appeal by filing a separate offer of proof in the trial court, rendering harmless the court’s
ruling transcribed above.
ACM avers that the limited examinations prevented questioning of Rentenbach about
several documents that Alpha Partners filed with the Securities and Exchange Commission,
deposition testimony inconsistent with Rentenbach’s trial testimony, and Rentenbach’s
involvement in drafting the covenant not to compete and a 2001 amendment to ACM’s articles
of incorporation. But because ACM has not explained the importance of these areas of inquiry
or the manner in which their foreclosure prejudiced its case, we conclude that ACM has failed to
prove that the trial court’s time limitation affected its substantial rights. MCR 2.613(A).
IV. REFERENCES TO PRIOR LITIGATION
ACM avers that the trial court improperly allowed defendants to repeatedly elicit
testimony regarding the settlement of the prior Oakland Circuit Court litigation, in violation of
MRE 408, and to make other prejudicial references to the merits of the Oakland Circuit Court
litigation. “A trial court’s decision whether to admit or exclude evidence will not be disturbed
on appeal absent an abuse of discretion. The trial court abuses its discretion if its decision is
outside the range of principled outcomes.” Morales v State Farm Mut Auto Ins Co, 279 Mich
App 720, 729; 761 NW2d 454 (2008) (citation omitted). To the extent that this issue involves
the meaning of a Michigan Rule of Evidence, we consider this legal issue de novo. Waknin, 467
Mich at 332.
ACM moved in limine to exclude at trial evidence or references to “case evaluation
settlements, judicial opinions or rulings issued in . . . the Oakland County Circuit Court.” ACM
maintained that the settlement-related references fell within the precluded category of evidence
in MRE 408 and that the settlement-related remarks and other references to the Oakland Circuit
Court litigation had no relevance to this case. MRE 401. The trial court denied ACM’s motion
in limine, explaining that “that other suit has [been] pled, so I believe it can be brought out,” and
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that MRE 408 did not apply because “[t]hat rule refers to settlements in this case, not in another
case[.]”
Pursuant to MRE 408:
Evidence of (1) furnishing or offering or promising to furnish, or (2)
accepting or offering or promising to accept, a valuable consideration in
compromising or attempting to compromise a claim which was disputed as to
either validity or amount, is not admissible to prove liability for or invalidity of
the claim or its amount. Evidence of conduct or statements made in compromise
negotiations is likewise not admissible. This rule does not require the exclusion
of any evidence otherwise discoverable merely because it is presented in the
course of compromise negotiations. This rule also does not require exclusion
when the evidence is offered for another purpose, such as proving bias or
prejudice of a witness, negativing a contention of undue delay, or proving an
effort to obstruct a criminal investigation or prosecution.
The rationale of this rule “is that settlement discussions are best encouraged when parties can
freely discuss their dispute and offer to compromise their litigation positions without fear that
their settlement discussions might be used against them as evidence of the strength or weakness
of their cases.” 1 Robinson & Longhofer, Michigan Court Rules Practice, Evidence, § 408.1, p
587.
Here, defendants sought to introduce evidence regarding plaintiff’s resolution of its prior
suit against Alpha Partners, Warfield, Rodgers, and Edwards. Although MRE 408 does not
directly address the admissibility of settlements with third parties, in Windemuller Electric Co v
Blodgett Mem Med Ctr, 130 Mich App 17, 23; 343 NW2d 223 (1983), this Court held that
“under MRE 408, evidence of a settlement made by a party to the present litigation with a third
person is not admissible to prove liability.” Accordingly, the trial court incorrectly determined
that MRE 408 lacks applicability to settlements “in another case,” because the rule plainly does
not take into account a “prior action” exception. However, the trial court correctly observed that
ACM first raised the topic of the prior litigation, including the relief sought and the ultimate case
evaluation award, in eight detailed paragraphs of the complaint in this case, including the
following:
44. On November 4, 2003, Alpha Capital and Burrell, represented by
Honigman Miller, filed a lawsuit (denominated herein as “Alpha Capital I”) in the
Oakland County Circuit Court, Case No. 03-053915-CK, naming Alpha Partners,
Warfield, Edwards and Rodgers as defendants. The Complaint sought injunctive
relief to preclude Alpha Partners from providing services to Alpha Capital’s
former clients and included claims against the defendants for the misappropriation
of Alpha Capital’s confidential information and clients, breach of fiduciary duties,
tortious interference with advantageous business relations and unfair competition.
45. The defendants in Alpha Capital I were represented in the lawsuit by
Defendants [Mark] Hauck and Dykema Gossett. . . .
* * *
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48. The lawsuit proceeded to mediation on November 22, 2004. The
mediators recommended an award in favor of the plaintiffs in the amount of
$70,000, and in favor of Warfield on his counter-claim against Alpha Capital in
the amount of $10,000.
49. Honigman Miller had been billing Alpha Capital and Burrell for legal
representation in connection with the lawsuit on an hourly basis of $390 per hour.
As of December 14, 2004, Honigman Miller had billed the plaintiffs $85,628.86,
which exceeded the plaintiffs’ net mediation award. During the months of
November and December, 2004, alone, Honigman Miller billed Alpha Capital an
additional $93,606.10.
50. The expense of the litigation was depleting Alpha Capital’s resources
and had become unaffordable, with the prospect of substantial additional legal
fees yet to come. Even though Burrell believed that the mediation award was
inadequate and did not reflect the plaintiffs’ actual damages, he concluded that the
plaintiffs could not afford to continue the litigation and had no choice but to
accept the recommended mediation award. The defendants also accepted the
mediation award.
ACM’s complaint further averred that defendants’ breaches of fiduciary duty “were a proximate
cause of Alpha Capital’s damages arising from Alpha Partner’s theft of its business and of the
litigation costs arising therefrom.” In other words, ACM sought compensatory damages for the
amounts it had expended in the prior lawsuit against Alpha Partners, Warfield, Rodgers, and
Edwards.
In conclusion, because ACM’s theory of the case placed the Oakland Circuit Court
settlement and its attendant legal fees at issue in the instant case, the trial court did not abuse its
discretion by allowing defense counsel to refer to the prior litigation on several occasions. See
Lewis v LeGrow, 258 Mich App 175, 210; 670 NW2d 675 (2003) (“It is settled that error
requiring reversal may only be predicated on the trial court’s actions and not upon alleged error
to which the aggrieved party contributed by plan or negligence.”). Id. To the extent that defense
counsel’s comments may have violated the letter or the spirit of MRE 408, we conclude that any
error was harmless and does not warrant a new trial. MCR 2.613(A).
V. EXPERT’S TESTIMONY AS TO MATTERS OF LAW
ACM also submits that contrary to law the trial court allowed defense expert Borgsdorf to
testify regarding legal opinions, including about contract interpretation. We again review for an
abuse of discretion the trial court’s decision whether to admit or exclude evidence. Morales, 279
Mich App at 729.
Neither side challenged at trial the legal ethics expertise of Beckerman, ACM’s expert, or
Borgsdorf, defendants’ expert. A review of Beckerman’s and Borgsdorf’s testimony reveals that
the experts did not disagree with respect to the ethical standards guiding lawyers’ behavior and
conduct toward clients and former clients, just that the experts disputed the extent to which the
relevant ethical principles applied to the facts of this case. In conformity with MRE 702 and
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MRE 703, the experts properly brought their specialized legal expertise to bear on the instant
facts.
Concerning ACM’s position that the trial court improperly allowed Borgsdorf to render
legal opinions involving contract interpretation, ACM has waived appellate review of this
assertion. In the course of Beckerman’s testimony, which ACM introduced before Borgsdorf
testified, ACM elicited over defendants’ objection Beckerman’s opinions about the
interrelationship between §§ 2.8 and 6.1 of the parties’ stock purchase agreement. As noted
above, “error requiring reversal may only be predicated on the trial court’s actions and not upon
alleged error to which the aggrieved party contributed by plan or negligence.” Lewis, 258 Mich
App at 210.
VI. JUROR DISMISSAL
According to ACM, notwithstanding that its counsel observed the court reporter motion
to a juror and gesture “in a manner adverse to [ACM],” the trial court inexcusably refused to
investigate the full extent of the improper communication or give the jury a curative instruction.
However, after reviewing the record, we detect no substantiation by ACM that (1) the court
reporter engaged in misconduct, (2) the reporter engaged in any conduct that affected the
impartiality of a juror, (3) the trial court should have granted ACM an evidentiary hearing to
further investigate any potential misconduct, or (4) the trial court’s decision not to investigate
further can be characterized as “inconsistent with substantial justice.” MCR 2.613(A).
The entirety of the trial record devoted to ACM’s counsel’s allegation of impropriety by
the court reporter consists of the following:
[ACM’s Counsel]: The Court will recall that the Court gave me the ok to
move around, and during the course of the trial, the Court’s court reporter—
* * *
The problem, though, and this is what I want to address. In the course of
this, Mary [the court reporter] has become very upset with me a number of times,
made faces and acted disdained, corrected me in an inappropriate way and an
unprofessional way, and . . . [defense counsel] had a little of that also, and I
understand that.
But, now what I’m concerned about, on Friday, as one of the jurors was
leaving, Mary waived [sic] to him and kind of spoke to him a little bit, made some
mouth movement, and I—
The Court: I don’t recall that, and I was here.
[ACM’s Counsel]: Well, you didn’t see it. I saw it, and I’m very
concerned about the direct impact on this trial as a result of that conduct. And,
what I’m asking is that the Court dismiss Juror No. 4 as a result of that, and if we
need to make a separate record on this, I want to do that.
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The Court: Any comment?
[Defense Counsel]: I didn’t see it, your Honor, and I haven’t seen any
inappropriate conduct by the court reporter.
The Court: I was here and don’t recall seeing any [sic] of that nature, so,
that request is denied.
Even accepting ACM’s counsel’s perception that the court reporter occasionally had
“made faces and acted disdained, corrected me in an inappropriate way,” we perceive no
potential substantial prejudice to ACM arising from the court reporter’s conduct, especially in
light of ACM’s counsel’s belief that the reporter had at some points apparently done the same
things toward defense counsel. MCR 2.613(A). Regarding the reporter’s perceived wave and
mouth motion directed at a juror, given that (1) neither the trial court nor defense counsel
detected the same behavior, and (2) ACM’s counsel’s failed to suggest any manner in which the
reporter’s wave, even assuming it occurred, may have threatened the juror’s fairness and
impartiality, the trial court did not abuse its discretion when it declined to remove the juror.
People v Unger, 278 Mich App 210, 259; 749 NW2d 272 (2008). Moreover, ACM presents no
authority on appeal in support of its contention that the trial court should have investigated
further the court reporter and potential juror bias. 13 Hughes v Almena Twp, 284 Mich App 50,
72; 771 NW2d 453 (2009) (noting that “[t]he failure to cite sufficient authority results in the
abandonment of an issue on appeal”).
VII. JURY INSTRUCTIONS
Lastly, ACM submits that the trial court erred in multiple respects by rejecting several of
its proposed jury instructions. We review de novo properly preserved instructional errors, Cox v
Flint Bd of Hosp Managers, 467 Mich 1, 8; 651 NW2d 356 (2002), and consider the jury
instructions as a whole to determine whether they adequately present the theories of the parties
and the applicable law. Mull v Equitable Life Assurance Society of the United States, 196 Mich
App 411, 423; 493 NW2d 447 (1992), aff’d 444 Mich 508 (1994). “[A] verdict should not be set
aside unless failure to do so would be inconsistent with substantial justice. Reversal is not
warranted when an instructional error does not affect the outcome of the trial.” Jimkoski v
Shupe, 282 Mich App 1, 9; 763 NW2d 1 (2008).
13
ACM cites only People v Johnson, 46 Mich App 212, 217; 207 NW2d 914 (1973), in which
this Court rejected the defendant’s complaint that “a detective’s silent laughter during the crossexamination of a defense witness denied him a fair trial.” Although the parties in Johnson
agreed that a detective had a bout of silent laughter during a witness’s cross-examination, the
trial court “found no prejudice resulting from this conduct and denied [the] defendant’s motion
for mistrial.” Id. This Court affirmed, observing that the defendant had demonstrated no
prejudice, and saying nothing about the trial court’s responsibility to conduct an evidentiary
hearing. Id.
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After reviewing the record, we find that although somewhat incomplete and imperfect,
the trial court’s instructions fairly and accurately presented the theories of the parties and the
applicable law. Any minor omissions or other deficiencies did not substantially prejudice
ACM’s case. MCR 2.613(A).
A. COUNT I: BREACH OF FIDUCIARY DUTY
The trial court instructed the jury as follows regarding ACM’s breach of fiduciary duty
claim:
In this lawsuit, Plaintiff has three claims against the Defendants. In the
first claim, Plaintiff maintains that the Defendants breached their fiduciary duty to
Alpha Capital Management as a former client.
Plaintiff has the burden of proof on this claim and must prove that (1)
Defendants at some time had an attorney/client relationship with Alpha Capital
Management; (2) Defendants violated their fiduciary duty arising out of the
attorney/client relationship with their former client Alpha Capital Management;
and (3) that the breach of fiduciary duty by the Defendant was a proximate cause
of injury or harm to Alpha Capital Management.
An attorney’s breach of fiduciary duty to a former client is a proximate
cause of the former client’s injury or harm if the attorney’s breach of fiduciary
duty was a substantial factor in causing that injury or harm.
Your verdict will be for the Plaintiff if you find that Plaintiff has proved
all of these elements.
Your verdict will be for the Defendant if you find that Plaintiff has failed
to prove any of these elements.
ACM requested the following additional instructions:
Plaintiff’s Special Instruction—Attorney’s Fiduciary Duty
An attorney has a fiduciary duty to his client. This means that he must
conduct himself in a spirit of loyalty to his client, assuming a position of the
highest trust and confidence. The attorney’s fiduciary duty to the client does not
end after the attorney-client relationship has terminated. The attorney’s fiduciary
duty continues to apply to a former client and encompasses two main aspects: (1)
a continuing duty of loyalty to the former client and also, (2) a duty not to use
confidential information that the attorney obtained during the representation of the
former client to the disadvantage of the former client.
Plaintiff’s Special Instruction—Breach of Fiduciary Duty by Attorney
With Respect to Former Client.
An attorney breaches his fiduciary duty to a former client if he provides
legal representation or legal advice to a new client with respect to matters which
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are the same as, or substantially related to, matters with respect to which the
attorney provided legal representation or legal advice to the former client, the
interests of the new client with respect to the matters in question are materially
adverse to the interests of the former client, and the attorney has not requested and
obtained the permission of the former client to represent the new client with
respect to the matters in question.
Plaintiff’s Special Instruction—Substantially Related Matters.
The legal matters involved in an attorney’s representation of two different
clients are “substantially related” if the factual contexts of the two representations
are similar or related, or if the attorney may have obtained confidential
information during the legal representation of the first client that could be relevant
or useful with respect to his legal representation of the current client.
Plaintiff’s Special Instruction—Billing of Attorney’s Services
In determining when the attorney-client relationship between the Plaintiff,
Alpha Capital Management, and the Defendants, Paul Rentenbach and Dykema
Gossett, ended—you are instructed that an attorney’s act of sending a bill
constitutes an acknowledgment that the attorney was performing legal services for
the client.
“Generally, a trial court may give an instruction not covered by the standard instructions
as long as the instruction accurately states the law and is understandable, concise, conversational,
and nonargumentative.” Central Cartage Co v Fewless, 232 Mich App 517, 528; 591 NW2d
422 (1998); see also MCR 2.516(D)(4). But a trial court need not give a supplemental
instruction if doing so would not “enhance the ability of the jury to decide the case intelligently,
fairly, and impartially.” Central Cartage, 232 Mich App at 528. Even if a requested
supplemental instruction accurately states the law, a trial court does not abuse its discretion in
rejecting it if the supplemental instruction adds nothing to an otherwise balanced and fair jury
charge. Beadle v Allis, 165 Mich App 516, 527; 418 NW2d 906 (1987).
With the exception of the instruction regarding “Substantially Related Matters,” ACM’s
proposed jury instructions accurately state the law relating to an attorney’s fiduciary duty and the
circumstances under which it may be breached. However, neither the existence of a fiduciary
duty nor the last date that defendants performed legal services was the subject of dispute at trial.
The experts for both sides testified extensively that attorneys owe their current and former clients
a fiduciary duty, and that the duty prohibits the use of confidential information obtained from
one client in a manner adverse to another. The experts spent considerable time discussing
whether Rentenbach’s representation of ACM qualified as “substantially related” to the legal
work he performed for Alpha Partners. And the parties agreed that defendants continued to
provide legal services to ACM until Burrell terminated the attorney-client relationship in 2001.
Because the parties never disputed the legal principles described in ACM’s requested
supplemental jury instructions, the instructions would not have enhanced the jury’s ability to
intelligently and fairly decide the case. Accordingly, the trial court did not abuse its discretion
by refusing to read ACM’s proposed supplemental fiduciary duty instructions.
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B. MRPC INSTRUCTION
The trial court instructed the jury as follows with regard to Michigan’s Rules of
Professional Conduct:
You have heard . . . some testimony regarding the Michigan Rules
of Professional Conduct, or “MRPC.”
When deciding whether
Defendants are liable for the claims in this lawsuit, you must keep in mind
that a violation of the Michigan Rules of Professional Conduct do not
create the basis for a claim, nor does it create any presumption that a legal
duty has been breached. The Michigan Rules of Professional Conduct are
not designed to be a basis for civil liability.
This instruction applies to the facts of the case and accurately states the law. ACM
correctly observes that “to the extent that any valid common law claim may happen to find a
corollary” in the MRPC, the rules of professional conduct do not eliminate or render invalid a
fiduciary duty claim. But we do not view the instruction given as objectionable simply because
it neglected to include this additional qualification. “Even if somewhat imperfect, instructions
do not create error requiring reversal if, on balance, the theories of the parties and the applicable
law are adequately and fairly presented to the jury.” Case v Consumers Power Co, 463 Mich 1,
6; 615 NW2d 17 (2000). The trial court’s reading of its MRPC instruction cannot be
characterized as inconsistent with substantial justice.
C. AIDING AND ABETTING INSTRUCTIONS
Count II of ACM’s complaint alleged that defendants aided and abetted Warfield’s,
Edwards’s, and Rodgers’s breaches of their fiduciary duties to ACM, and that Rentenbach’s
actions made him “a joint tortfeasor with Warfield, Edwards and Rodgers.” The trial court
instructed the jury as follows regarding this claim:
As part of Plaintiff’s second claim against the Defendants, Plaintiff also
claims that Defendant[s] aided and abetted Warfield, Rogers [sic], and/or
Edwards, who intentionally and improperly interfered with Plaintiff’s business
relationship and expectancy with existing and potential clients of Alpha Capital
Management, in breach of their fiduciary duties to the company. In order to
establish the underlying wrong, Plaintiff has the burden of proving each of the
following:
1. Plaintiff had a business relationship or expectancy with existing clients
at the time of the claimed interference.
2. The business relationships or expectancies had a reasonable likelihood
of future economic benefit for Plaintiff;
3. Warfield, Rogers [sic], and/or Edwards knew of the business
relationship or expectancy at the time of the claims interference.
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4. Warfield, Rogers [sic], and/or Edwards intentionally interfered with the
business relationship or expectancy.
5. The conduct of Warfield, Rogers [sic], and/or Edwards caused clients
of the Plaintiff to terminate the business relationship or to disrupt the expectancy.
6. Plaintiff was damaged as a result of the conduct of Warfield, Rogers
[sic], and/or Edwards.
Your verdict will be for the Plaintiff if you find that Plaintiff has proved
all of these elements and has also proved that Defendant Rentenbach gave
substantial assistance to Warfield, Rogers [sic], and/or Edwards in effecting the
tortuous [sic] interference and either (1) knew that either Warfield, Rogers [sic],
and/or Edwards were engaging in the wrong or (2) Rentenbach’s own conduct,
separately considered, constituted a breach of duty to Plaintiff.
ACM contends that the trial court should have supplied additional instructions describing
in detail the nature of the fiduciary relationships between ACM and Warfield, Rodgers, and
Edwards. However, ACM’s lengthy proposed supplemental instructions are neither concise nor
conversational. Moreover, even if they qualified as proper supplemental instructions, the trial
court’s failure to read them was harmless given the jury’s finding that Warfield, Rodgers, and
Edwards tortiously interfered with ACM’s contractual and business relationships.
D. DEFENDANTS’ CONDUCT BEFORE SEPTEMBER 2003
In the instructions concerning counts II and III of ACM’s complaint, the trial court
limited the jury’s consideration of the facts to the time period “during or after September, 2003.”
Although ACM correctly asserts that the evidence demonstrated that Rentenbach had conferred
with Warfield, Rodgers, and Edwards in August 2003, ACM averred in at least one trial court
filing that “Defendants’ actions upon which the breach of fiduciary duty claim is based began in
September, 2003 . . . .” “A party may not take a position in the trial court and subsequently seek
redress in an appellate court that is based on a position contrary to that taken in the trial court.”
Czymbor’s Timber, Inc v Saginaw, 269 Mich App 551, 556; 711 NW2d 442 (2006) (quotation
marks and citations omitted), aff’d 478 Mich 348 (2007).
E. COUNT III: AIDING AND ABETTING WARFIELD’S VIOLATION OF THE
COVENANT NOT TO COMPETE
ACM insists that the trial court erred by failing to instruct the jury about alternative
performance contracts and other “basic legal principles of contract interpretation.” However,
because Burrell’s breach of the stock purchase agreement precluded his enforcement of the
covenant not to compete, as discussed supra at 12-14, ACM’s argument on this ground lacks
merit.
F. INTERVENING CONDUCT OF NONPARTIES AND SETTLEMENT
ACM further suggests that the trial court committed error requiring reversal when it
“failed to give . . . requested instructions regarding the legal effect of any intervening conduct of
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persons not a party to the action, and . . . regarding the jury’s consideration of evidence of a
settlement.” In 2003, the Committee on Model Civil Jury Instructions deleted M Civ JI 15.05, an
instruction addressing the intervening conduct of a person not a party to the action. The
committee explained, “The instruction was deleted because the effect of nonparty fault is
addressed in M Civ JI 15.03 . . . .” ACM did not request that the trial court give M Civ JI 15.03.
Accordingly, the trial court committed no error substantially prejudicing ACM to the extent that
it neglected to read the jury an intervening conduct instruction.
ACM urged the trial court to instruct the jury that it “must not consider the fact that there
was a settlement in the prior case as having any bearing” on the jury’s determination of ACM’s
claims in the instant case. Although this proposed instruction accurately stated the law, the trial
court’s refusal to give it was not inconsistent with substantial justice. ACM presented abundant
evidence about the Oakland Circuit Court litigation, but virtually no information regarding the
small settlement achieved. After reviewing the trial court’s instructions as a whole in light of the
evidence introduced at trial, we simply cannot conclude that the trial court’s refusal to give a
supplemental settlement instruction substantially prejudiced ACM.
G. ACM’S THEORY OF THE CASE
The trial court refused to read the case theories submitted by the parties. According to
MCR 2.516(A)(5), “The court need not give the statements of issues or theories of the case in the
form submitted if the court presents to the jury the material substance of the issues and theories
of each party.” The trial court did not abuse its discretion by refusing to read ACM’s lengthy
and argumentative case theory because the balance of the instructions adequately explained the
material substance of the disputed issues in this case. Furthermore, the parties aggressively
advocated their theories of the case during their closing arguments.
Affirmed.
/s/ Elizabeth L. Gleicher
/s/ E. Thomas Fitzgerald
/s/ Kurtis T. Wilder
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