Pransky v. Falcon Grp., Inc.

• Citation: 311 Mich.App. 164,874 N.W.2d 367
• Decision Date: 18 June 2015
• Docket Number: Docket Nos. 319266,319613.
• Parties: PRANSKY v. FALCON GROUP, INC.
• Court: Court of Appeal of Michigan (US)

311 Mich.App. 164

874 N.W.2d 367

PRANSKY

v.FALCON GROUP, INC.

Docket Nos. 319266

319613.

Court of Appeals of Michigan.

Submitted May 13, 2015, at Detroit.

Decided June 18, 2015, at 9:05 a.m.

Conlin, McKenney & Philbrick, Ann Arbor (by Douglas G. McClure ), for plaintiff.

Jaffe, Raitt, Heuer & Weiss, Southfield (by James W. Rose ), for defendant.

Before: WILDER, P.J., and OWENS and M.J. KELLY, JJ.

M.J. KELLY, J.

In this dispute over the validity of a consulting agreement, plaintiff, Jaime Pransky, appeals by right the trial court's opinion and order dismissing her claims against defendant, Falcon Group, Inc., under MCR 2.116(C)(8) and (10).¹ She argues the trial court erred when it determined that the consulting agreement did not require Falcon Group to provide any services that would require it to be registered under Michigan's Uniform Securities Act (2002), MCL 451.2101 et seq. (the Securities Act). Contrary to the trial court's determination, Pransky maintains, the consulting agreement required Falcon Group to provide services that could only be provided by someone registered under the Securities Act and, because Falcon Group was not registered under the act, the agreement was illegal and could be rescinded. For similar reasons, she contends the trial court erred when it determined that her remaining claims were invalid. Pransky also argues that the trial court did not have the authority to order her to pay Falcon Group's attorney fees as damages under the agreement because Falcon Group did not file a counterclaim for damages. For the reasons more fully explained below, we conclude that the trial court did not err when it dismissed Pransky's claims against Falcon Group. However, we agree that the trial court did not have the authority to award Falcon Group damages under the consulting agreement because Falcon Group did not sue Pransky for breach of contract. Accordingly, we affirm the trial court's opinion and order dismissing Pransky's claims, but vacate the trial court's order compelling her to pay Falcon Group's attorney fees.

I. BASIC FACTS

Pransky averred that she intended to open and operate a health and wellness spa in her home state of Vermont. She claimed that Falcon Group's principal, David Maciejewski, promised to find investors for her spa. She said Maciejewski introduced her to a potential investor, who told her that he wanted to invest $20 million in a franchised version of her spa. She felt pressured to sign a consulting agreement in order to obtain the financing.

Pransky executed the consulting agreement with Falcon Group in August 2012. As part of the agreement, Falcon Group represented that it was "in the business of providing non-legal advice and consulting services to individuals and to business entities concerning, among other matters: mergers and acquisitions, marketing techniques and ideas, business opportunities, business operations, business management, financial issues and concerns, and business assets and liabilities[.]" Falcon Group recited that it would provide consulting services to Pransky in an effort to help her "build a publicly traded franchised company...." Although Falcon Group stated that it was in the business of providing advice and consultation, the agreement primarily involved compensating Falcon Group for its efforts to obtain investments or financing for Pransky's business.

As a preliminary matter, Pransky agreed to pay Falcon Group a $50,000 retainer, which was not refundable. The first $20,000 was due upon signing the agreement, and the remaining $30,000 was due upon receipt of the first investment. Pransky apparently added a handwritten provision that made the $30,000 payment contingent on the first investment being at least $30,000. Pransky also agreed to pay Falcon Group a "Success Fee" if she was able to sell her business through Falcon Group's efforts under the agreement. She agreed to pay a fee equal to 10% of "any monies [Falcon Group] raises or causes to be raised by [Falcon Group] or through [Falcon Group's] connections...." She similarly agreed to pay Falcon Group a fee equal to 3% of any financing that Pransky might obtain through Falcon Group's "efforts or connections," which included any "line of credit or mortgage through a bank or financial institution introduced by [Falcon Group]." These fees were to be paid out of the escrowed funds at the closing of the funding or financing. Finally, according to Pransky, she hand wrote a paragraph into the agreement that specifically required Falcon Group to provide its consulting services in connection with "identifying and procuring investors and financing" for Pransky's business.

Pransky alleged that she notified Falcon Group in April 2013 that she had discovered that it was not registered as a broker-dealer under the Securities Act and, for that reason, believed it could not legally perform the services required by the consulting agreement. Pransky informed Falcon Group that she was rescinding the consulting agreement and demanded the return of her $20,000 retainer.

In June 2013, Pransky sued Falcon Group to recover the $20,000 retainer. She alleged that Falcon Group acted as a "finder" under the Securities Act and, as such, had to be registered as a "broker-dealer." Because Falcon Group was not registered under the act, the consulting agreement was illegal and void. Accordingly, she asked the trial court to rescind the agreement and order Falcon Group to return her $20,000 retainer. Pransky also alleged that Falcon Group's failure to disclose that it was not registered as a broker-dealer, as required by the Securities Act, amounted to silent fraud or misrepresentation and a breach of the Securities Act. Finally, she alleged that Falcon Group's refusal to return the $20,000 retainer that it took under the illegal agreement amounted to conversion.

In October 2013, Falcon Group moved for summary disposition under MCR 2.116(C)(8) and (10). Falcon Group stated that it was a business intermediary and that Pransky hired it to provide advice and consultation "to get her to the point where she, as an officer or manager of an entity (i.e. an ‘issuer’ under securities jargon) would be in a position to sell her own securities." It also asserted that it was undisputed that Falcon Group had provided Pransky with valuable advice on the development of her business, but she refused to follow the advice. It then argued that each of her claims must be dismissed.

Falcon Group argued that the consulting agreement did not involve any services for which it had to be registered under the Securities Act. It stated that the evidence showed that Pransky did not own a business entity that had or could issue securities and, therefore, there were no securities that Falcon Group could sell on Pransky's behalf as a broker-dealer. Falcon Group further argued that even if the "success fee" provision of the consulting agreement violated the Securities Act, the severability clause would preserve the remainder of the agreement. Because the only provisions that might arguably be invalid under the Securities Act could be severed, and Pransky did not allege that Falcon Group failed to provide her with consulting and advising services, Falcon Group argued that the trial court should dismiss Pransky's claims under MCR 2.116(C)(8).

Pransky argued in response to Falcon Group's motion that she was entitled to summary disposition under MCR 2.116(I)(2) because the consulting agreement on its face demonstrated that Falcon Group had to be registered under the Securities Act in order to provide the services identified in the agreement. Pransky notes in particular that the agreement included compensation for "monies" that Falcon Group "raises or causes to be raised" or raised through its "connections," which, she maintained, involved performing as a broker-dealer, agent, or investment advisor under the Securities Act. She also argued that Falcon Group agreed to connect her with investors, which made it a finder under the Securities Act. Because finders must be registered as broker-dealers and it was undisputed that Falcon Group was not registered as a broker-dealer, she maintained that the consulting agreement was void as against public policy. Because the agreement was void in its entirety, the severability clause could not save the agreement and her remaining claims also remained viable.

The trial court held a hearing on Falcon Group's motion in November 2013. The trial court noted that Pransky's claims were each premised on the belief that Falcon Group had to be registered under the Securities Act in order to perform the services required by the consulting agreement. The trial court stated that the agreement unambiguously required Falcon Group to perform services that fell within the definition of a finder under the Securities Act, but determined that the Securities Act did not require finders to be registered. Moreover, because the consulting agreement did not require Falcon Group to "have any meaningful role in effecting the actual transaction," the court determined that the agreement did not require Falcon Group to act as an agent or broker-dealer. Finally, the agreement did not require Falcon Group to advise anyone to invest, purchase, or sell a security. The consulting agreement, the trial court concluded, did not on its face require Falcon Group to engage in any activity for which it would have to be registered under the Securities Act. Having determined that Falcon Group did not have to be registered under the Securities Act in order to perform the services required under the act, the trial court concluded that Pransky's claims premised on Falcon Group's failure to register necessarily failed. For that reason, it granted Falcon Group's motion for summary disposition.

In November 2013, Falcon Group moved for its costs and attorney fees, as permitted under the consulting agreement. Later that same month, the trial court granted the motion and ordered Pransky to pay...