Fannon Co. v. Fannon Products

• Decision Date: 06 December 2005
• Docket Number: Docket No. 255480.
• Citation: 712 N.W.2d 731,269 Mich. App. 162
• Parties: JOHN J. FANNON COMPANY, Plaintiff, and Ehrlich, Foley & Serwer, P.C., and Joseph H. Ehrlich, Appellants, v. FANNON PRODUCTS, LLC; John J. Fannon III; Constance M. Fannon; David Fannon; Keith Fannon; John J. Fannon, IV; and Daniel Fannon, Defendants-Appellees.
• Court: Court of Appeal of Michigan — District of US

712 N.W.2d 731

269 Mich. App. 162

JOHN J. FANNON COMPANY, Plaintiff, and Ehrlich, Foley & Serwer, P.C., and Joseph H. Ehrlich, Appellants, v. FANNON PRODUCTS, LLC; John J. Fannon III; Constance M. Fannon; David Fannon; Keith Fannon; John J. Fannon, IV; and Daniel Fannon, Defendants-Appellees.

Docket No. 255480.

Court of Appeals of Michigan.

Submitted October 18, 2005, at Detroit.

Decided December 6, 2005, at 9:05 a.m.

Released for Publication February 16, 2006.

COPYRIGHT MATERIAL OMITTED

Honigman Miller Schwartz and Cohn LLP (by Barry L. Howard and Jason Schian Conti), Bingham Farms, for Ehrlich, Foley & Serwer, P.C.; and Joseph H. Ehrlich.

Timmis & Inman PLLC (by John C. Louisell), Detroit, for Fannon Products, L.L.C.; John J. Fannon III; Constance M. Fannon; David Fannon; Keith Fannon; John J. Fannon IV; and Daniel Fannon.

Before: SAAD, P.J., and JANSEN and MARKEY, JJ.

SAAD, P.J.

This is an appeal by lawyers who were sanctioned $113,911.88 for pursuing frivolous litigation. The case arises out of a dispute over alleged misconduct regarding the assets of a family business, plaintiff John J. Fannon Company. The first lawyer for plaintiff in this suit, attorney Lawrence D. Heitsch, filed a complaint on behalf of plaintiff on August 15, 2000, and alleged that defendants breached their fiduciary duties to plaintiff and conspired to convert, transfer, or divert plaintiff's assets, including a policy that insured the life of company founder John J. Fannon, Jr. ("John Jr."). On March 11, 2002, appellants, Joseph H. Ehrlich and his law firm Ehrlich, Foley & Serwer, P.C., filed an appearance and represented plaintiff in conjunction with Heitsch. The trial court ultimately dismissed plaintiff's complaint, and the only question on appeal is whether, with respect to Ehrlich, Foley & Serwer, P.C., and Joseph Ehrlich,¹ the trial court erred when it awarded defendants attorney fees and costs as sanctions for plaintiff's maintaining a frivolous action. We affirm.

I. Finality of Order Imposing Sanctions

Defendants contend that this Court lacks jurisdiction to consider Ehrlich's appeal of the trial court's January 7, 2004, order that granted defendants' motion for sanctions because the order was a final order under the Michigan Court Rules and Ehrlich did not timely file his claim of appeal. The trial court denied Ehrlich's motion for reconsideration on February 13, 2004, and Ehrlich did not file his claim of appeal until May 11, 2004. Ehrlich asserts that the trial court's order that imposed sanctions was not final because the trial court did not determine the amount of attorney fees and costs until April 20, 2004.

We hold that the trial court's order that granted defendants' motion for sanctions was not a "final order" for purposes of filing a claim of appeal. MCR 7.202(6) and 7.204(A)(1)(b).² In In re Hemminger, 463 Mich. 941, 620 N.W.2d 852 (2000), our Supreme Court stated:

In lieu of granting leave to appeal, the April 6, 2000, order of the Court of Appeals is vacated, and that Court is directed to docket the appeal. MCR 7.302(F)(1). While the trial court entered an order on August 18, 1999, which directed appellants to pay attorney fees and costs of the prior guardian as sanctions, it was not a final order because the amount of attorney fees and costs had not been determined. The final order, specifying the amount to be paid, entered December 23, 1999. Therefore, the Court of Appeals is to consider both appellant's liability for sanctions and the amount of sanctions imposed. [Emphasis added.]

Our Court has held that "`Supreme Court peremptory orders are binding precedent when they can be understood.'" Brooks v. Engine Power Components, Inc., 241 Mich.App. 56, 61, 613 N.W.2d 733 (2000) (overruled on other grounds Kurtz v. Faygo Beverages, Inc., 466 Mich. 186, 193-194, 644 N.W.2d 710 (2002),) quoting People v. Phillips (After Second Remand), 227 Mich.App. 28, 38 n. 11, 575 N.W.2d 784 (1997). See also People v. Edgett, 220 Mich.App. 686, 693 n. 6, 560 N.W.2d 360 (1996). In the Hemminger order quoted, the Court's underlying rationale is easily discernible — under the Michigan Court Rules, as promulgated and interpreted by the Supreme Court, an order that merely grants the imposition of sanctions is not a "final order" if the amount of fees and costs remains to be determined.³ Because we read Hemminger to be binding precedent, we hold that the January 7, 2004, order that granted sanctions to defendants was not a final order and, therefore, we reject defendants' claim that this Court lacks jurisdiction to consider Ehrlich's appeal of the trial court's grant of sanctions.

II. Order Imposing Sanctions

The trial court ruled that plaintiff, Lawrence Heitsch, Ehrlich, and Ehrlich, Foley & Serwer, P.C., are jointly and severally liable for defendants' attorney fees and costs, yet the only parties to appeal the order are Ehrlich and his law firm. The trial court imposed sanctions against plaintiff and its first attorney, Lawrence Heitsch, under MCL 600.2591. The record reflects that, for many years before this case was filed, Heitsch acted as the company's attorney and also as John Jr.'s personal attorney. The complaint and subsequent pleadings focused on defendants' alleged improper transfer of the life insurance policy, their failure to abide by a split-dollar agreement made in connection with the policy, their opening of a new bank account, and their transfer of plaintiff's offices, mail, and telephone service to a new Grosse Pointe location. However, the evidence clearly established that Heitsch knew that these claims had no basis in fact because he and John Jr. were involved in or acquiesced to each transaction.

The trial court also imposed sanctions against Ehrlich pursuant to MCR 2.114.⁴ "A trial court's finding that an action is frivolous is reviewed for clear error." Kitchen v. Kitchen, 465 Mich. 654, 661, 641 N.W.2d 245 (2002). "Whether a claim is frivolous within the meaning of MCR 2.114(F) . . . depends on the facts of the case." Id. at 662, 641 N.W.2d 245. This Court recently explained in 46th Circuit Trial Court v. Crawford Co., 266 Mich.App. 150, 178-179, 702 N.W.2d 588 (2005):

Pursuant to MCR 2.114(D), an attorney or party that signs a pleading certifies that "to the best of his or her knowledge, information, and belief formed after reasonable inquiry, the document is well grounded in fact and is warranted by existing law or a good-faith argument for the extension, modification, or reversal of existing law[.]" Sanctions may be imposed on the attorney, client, or both for a violation of this rule.

Ehrlich began his representation of plaintiff 18 months after Heitsch filed the initial complaint. By that time, not only had the plaintiff company, for all intents and purposes, been dissolved by John Jr. and Heitsch,⁵ the only witness who could testify about the vast majority of plaintiff's claims, John Jr., was dead. Moreover, by the time Ehrlich entered the case, ample evidence existed that directly contradicted the allegations in plaintiff's complaint and indicated that Heitsch and John Jr. were involved in, and overtly or tacitly approved of, the very transactions about which they complained in this litigation.

Ehrlich contends that he believed he had factual support to continue the litigation (and to add more claims against defendants) on the basis of an affidavit John Jr. signed shortly before he died and letters drafted by John Jr.'s son, Mark Fannon. While John Jr.'s affidavit contains bare allegations that defendants breached a split-dollar agreement and wrongly changed the beneficiaries of a life insurance policy, unrebutted evidence showed that plaintiff breached the split-dollar agreement, that John Jr. entered a subsequent agreement to transfer the policy's premium payments and benefits to defendants, and that John Jr. instructed Heitsch to cancel all of plaintiff's interest in the policy. Regarding Mark Fannon's correspondence, plaintiff did not attach the letters to its numerous responses to defendants' motions for summary disposition, it never deposed Mark, and it never filed a witness list to indicate that Mark would be called to support any of its allegations.⁶ Notwithstanding this evidence, Ehrlich continued to file pleadings in the trial court with additional factually baseless claims.⁷

By the time he joined the case, Ehrlich had ample reason to believe that the case lacked legal merit and evidentiary support. Ehrlich did not conduct a reasonable inquiry into the factual and legal viability of plaintiff's claims before he signed pleadings that continued the litigation in the trial court for two more years. From the record evidence, Ehrlich "violated MCR 2.114(D) and (E) by submitting documents with [his] signature in furtherance of this frivolous, vexatious appeal." BJ's & Sons Constr. Co., Inc. v. Van Sickle, 266 Mich.App. 400, 413, 700 N.W.2d 432 (2005) (opinion of Saad, J.). Accordingly, and for the reasons stated above, the trial court did not clearly err when it ordered Ehrlich to pay sanctions.⁸

Ehrlich also contends that the trial court abused its discretion when it imposed $113,911.88 in attorney fees and costs. We disagree.

Though Ehrlich complains that the trial court should have conducted an evidentiary hearing to determine the reasonableness of the fees, the trial court did not abuse its discretion by failing to hold a hearing. If the trial court has sufficient evidence to determine the amount of attorney fees and costs, an evidentiary hearing is not required. 46th Circuit Trial Court, supra at 180-181, 702 N.W.2d 588. Defendants submitted billing reports for costs and fees incurred both before and after Ehrlich and his firm joined the litigation. The reports set forth in detail the work defense counsel performed on defendants' numerous motions for summary disposition to dispose of some or all of plaintiff's claims without the necessity of trial. The reports also...