Davis v. Boyce Trust 2350

• Decision Date: 06 February 2014
• Docket Number: 305149,307002.,Docket Nos. 302835
• Citation: 850 N.W.2d 537,304 Mich.App. 174
• Parties: FRASER TREBILCOCK DAVIS & DUNLAP, PC v. BOYCE TRUST 2350.
• Court: Court of Appeal of Michigan — District of US

304 Mich.App. 174

850 N.W.2d 537

FRASER TREBILCOCK DAVIS & DUNLAP, PC

v.BOYCE TRUST 2350.

Docket Nos. 302835, 305149, 307002.

Court of Appeals of Michigan.

Submitted Dec. 4, 2013, at Lansing.

Decided Feb. 6, 2014, at 9:05 a.m.

Fraser Trebilcock Davis & Dunlap, PC, Lansing, (by Michael H. Perry), for plaintiff.

W. Jay Brown PLC, Midland, (by W. Jay Brown) for defendants.

Before: MURPHY, C.J., and FITZGERALD and BORRELLO, JJ.

FITZGERALD, J.

Plaintiff law firm brought this action to collect unpaid attorney fees from defendants. After a jury trial, the trial court entered a judgment in favor of plaintiff in the amount of $73,501.90, inclusive of damages, taxable costs, and prejudgment interest. Defendants appeal as of right from that judgment in Docket No. 302835. The trial court subsequently granted plaintiff's motion for case-evaluation sanctions pursuant to MCR 2.403( O ). Defendants appeal as of right from the attorney fees orders in Docket Nos. 305149 and 307002. We consolidated the appeals. We affirm in part, reverse in part, and remand.

DEFENDANTS' TRANSACTIONS TO PURCHASE HYDROELECTRIC DAMS

Plaintiff's claims for unpaid attorney fees arise from plaintiff's representation of defendants in transactions to purchase and redevelop four hydroelectric dams in the Midland County area. The dams were owned by Synex–Wolverine. Defendants' cotrustee, Lee Mueller, believed the dams could be redeveloped for a profitable operation producing electrical power for Consumer's Energy. The transactions involved defendants' purchasing the entities that operated the dams and also purchasing more than 200 related real estate parcels from Synex–Wolverine. Synex–Wolverine's 51% shareholder, Scott Goodwin, would also own a 51% interest in the new business, Synex–Michigan, but Goodwin would not have an ownership interest in the real estate. Defendants had sufficient resources to pay for the real estate, but they required financing to purchase the equipment and other business assets. Defendants and their Chicago counsel sought financing from a bank, but defendants obtained a bridge loan from Goodwin's associate, Richard Milsner, to enable the transaction to close before defendants received permanent financing. Milsner advanced the loan on the condition that Goodwin retain a 51% interest in the newly formed business enterprise.

Defendants retained plaintiff to conduct the transactions, which involved complex tax-planning issues. The transactions were subject to an advantageous tax benefit under the Internal Revenue Code, but only if the transactions were completed within a 180–day period. The transactions closed on March 17 and 23, 2006, enabling defendants to realize the tax benefit. Mueller was satisfied with the transactions and plaintiff's work up to the time of the closing, but afterward Mueller came to believe that Goodwin breached his duties to defendants, effectively depriving defendants of the benefit of the bargain. Goodwin made bridge-loan payments directly to Milsner instead of complying with Mueller's instructions to route the payments to defendants. Mueller alleged at trial that Goodwin “locked out” defendants from the dam and thwarted defendants' receipt of payments. Defendants alleged that Goodwin wrongfully failed to disclose to defendants that he had a history of noncompliance with federal energy regulators. Defendants requested plaintiff's services in handling these legal disputes with Goodwin, but they were disappointed with the results. In December 2006, defendants ceased paying plaintiff's attorney fees, leaving an outstanding balance of approximately $74,358.94.

Plaintiff filed a complaint alleging that defendants had paid $161,098.22 in legal fees, but had failed to pay the outstanding balance of $74,358.94. Plaintiff brought claims of breach of contract, account stated, and quantum meruit, and sought damages of $87,632.40, consisting of the unpaid balance, $1,098.22 for costs, and $12,175.24 for a time-price differential. Defendants denied that plaintiff was entitled to the requested damages. In their affirmative defenses, defendants asserted that plaintiff committed the first material breach of contract, that defendants were dissatisfied with the quality of plaintiff's representation, and that plaintiff improperly billed defendants for more hours than were actually spent on the matter, charged defendants for services that were not reasonably necessary, and raised their rates in violation of an agreement to only raise rates with defendants' written approval. Defendants argued that plaintiff had the burden of proving “that each time entry was actually incurred, was accurately recorded in terms of its length, and represented services reasonably necessary for representation of the defendants.”

TRIAL

At trial, plaintiff's former associate attorney, John Miller, testified regarding the time he spent on legal matters for defendants. Miller testified that he assisted plaintiff's principal, Edward Castellani, an attorney and certified public accountant, with legal research and other tasks related to business and tax transactions. Miller testified about his hourly rate and the process by which associates submitted their billable hours to partners for review and approval before plaintiff billed clients. He denied overstating his billable hours. Castellani testified that he assigned research and writing tasks to Miller because Miller could perform the work at a lower billing rate. Castellani testified that Miller's work was satisfactory and that Miller's time records were accurate. Castellani explained that Douglas Austin, also one of plaintiff's shareholders, was involved in the project because of his expertise in real estate law.

Castellani believed that plaintiff's work for defendants was completed after the closing, but defendants contacted Castellani about continuing problems with Goodwin. Castellani described “phase two” of plaintiff's work for defendants as “a lot of negotiations, discussion, and legal maneuvering about how to get [Goodwin] out of the business.” Additionally, defendants needed a source of financing to pay off the bridge loan advanced by Milsner before the closing.

Castellani testified regarding an e-mail that Mueller sent to Castellani in response to Castellani's e-mail to the trustees on September 27, 2006. Mueller stated that defendants paid $12,000 toward their account that month, but they would not make additional payments until Goodwin resumed payments to defendants. The e-mail did not contain anything critical of plaintiff's work. Castellani's response stated that defendants' payment of $12,000 left an $8,000 amount that was more than 90 days overdue. Castellani warned defendants that plaintiff would terminate their services when the account became 120 days past due. Castellani rejected defendants' plan to delay paying plaintiff until Goodwin made payments to defendants. Castellani testified that defendants made no payments after November 2006.

Plaintiff questioned Castellani about defense Exhibit 35, an e-mail that Mueller sent to Castellani the first week of December 2006. In the e-mail, Mueller explained that defendants had problems with their ownership of the hydroelectric facilities. Defendants requested that plaintiff cosign a loan in the amount of $3,400,000 to enable defendants to secure the financing needed to continue to operate the dams. In exchange, Mueller offered to pay plaintiff $60,000, plus $75,000 to “pre-fund a Michigan litigation” against Goodwin. On December 18, 2006, Castellani wrote defendants a letter stating that plaintiff was suspending performance of legal services for defendants until defendants made arrangements to pay the balance due. Castellani testified that Mueller responded with an e-mail stating “there are numerous schedules that are apparently not actually part of the purchase agreement.” Mueller complained that he could not determine from the transactional record which assets were owned by which entities, other than a list of personal property owned by Synex–Wolverine.

Castellani stated that Mike Perry was the billing attorney who reviewed billings to ensure that they were for reasonably necessary services. Castellani agreed that plaintiff was contractually bound to only bill the client for time actually spent on services that were reasonably necessary. Castellani acknowledged that the contract listed his hourly rate as $230, but he believed that the hourly rate actually charged was $240. Castellani stated that he did not know the reason for the differential because Perry handled billing for the firm. Castellani stated that he billed for activities such as drafting documents, reviewing documents, reviewing laws and rules, conferring with other attorneys regarding the file, and interactions with the client. Castellani admitted that all the work done by Miller was work that Castellani could have done himself.

On cross-examination, defendants' counsel reviewed testimony that there were two closings, one on March 17 and one on March 23, 2006. When asked whether Mueller was “then happy that it got closed,” Castellani answered affirmatively. Defendants asked Castellani if plaintiff resolved defendants' problem relating to their loss of physical control of the dams. Castellani replied that it did not. Castellani stated that Mueller asked for plaintiff's assistance in obtaining permanent financing to resolve this problem. Defendants asked if “Mr. Mueller was unhappy with the failure to solve this problem?” Castellani replied, “I would say he was unhappy with the way his partner was interpreting those documents.”

Defendants questioned Castellani extensively regarding items on plaintiff's invoices, suggesting that the tasks listed could not really have required as much time as shown in the billings. Defendants also questioned Castellani regarding the prebilling process in which senior attorneys reviewed associates' time reports and adjusted them...