Alpha Capital Mgmt. Inc. v. Rentenbach.

• Decision Date: 23 March 2010
• Docket Number: Docket No. 287280.
• Parties: ALPHA CAPITAL MANAGEMENT, INC. v. RENTENBACH.
• Court: Court of Appeal of Michigan — District of US

287 Mich.App. 589

792 N.W.2d 344

ALPHA CAPITAL MANAGEMENT, INC.

v.RENTENBACH.

Docket No. 287280.

Court of Appeals of Michigan.

Submitted Dec. 7, 2009, at Detroit.

Decided March 23, 2010, at 9:05 a.m.

Edward G. Lennon, PLLC (by Edward G. Lennon), and Dennis A. Dettmer, PLLC (by Dennis A. Dettmer and Gary L. Hermanson), Detroit, for plaintiff.

Kerr, Russell and Weber, PLC (by William A. Sankbeil, Fred K. Herrmann, Detroit, and David R. Janis), for Paul Robert Rentenbach and Dykema Gossett, P.L.L.C.

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.

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

[792 N.W.2d 350, 287 Mich.App. 593]

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 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, Warfieldelected 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, andBurrell 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 defaultunder 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."

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 unenforceablethe 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...