Prime Financial Serv. LLC v. Vinton, 290735
| Decision Date | 06 January 2011 |
| Docket Number | No. 01-010952-CK,No. 290735,290735,01-010952-CK |
| Parties | PRIME FINANCIAL SERVICES, LLC, Plaintiff-Appellee, v CASEY VINTON, Defendant, and BANK ONE, N.A., f/k/a BANK ONE MICHIGAN, Defendant-Appellant. |
| Court | Court of Appeal of Michigan — District of US |
Before: Hoekstra, P.J., and Jansen and Beckering, JJ.
Defendant Bank One, N.A. (Bank One) appeals by right the trial court's order granting its motion for costs but denying its motion for attorney fees on the basis of MCR 2.405(D)(3). We reverse and remand for further proceedings consistent with this opinion.
This is the second time that this matter has been before this Court. See Prime Fin Services LLC v Vinton, 279 Mich App 245; 761 NW2d 694 (2008). In the first appeal, Bank One challenged the jury's verdict in favor of plaintiff Prime Financial Services, LLC (Prime Financial).1 This Court reversed and remanded, concluding that the trial court should have granted Bank One's motion for judgment notwithstanding the verdict (JNOV). Id. at 279.
This case initially arose out of the failure of Bedford Financial, Inc. (Bedford), which was in the business of making short-term subprime loans to consumers. Because Bedford lacked the cash reserves to fund all of its lending activities, it obtained funding through investor Arthur Bott. In the summer of 1997, Bott organized Prime Financial with Patrick Hundley, the owner of Bedford. Eventually, Bott became Prime Financial's sole officer. He began funding Bedford through Prime Financial, although he continued to provide some funding through his trust. In November 1997, Bank One agreed to provide a short-term construction loan facility to Prime Financial for $5 million. Bott gave his personal guaranty and that of his trust to Bank One. In January 1998, Prime Financial provided a $10 million credit facility to Bedford. Bedford granted Prime Financial a security interest in certain notes, which it was required to deliver to Prime Financial with the corresponding mortgage. Bedford was also required to assign the mortgage to Prime Financial. Despite this requirement, Prime Financial permitted Bedford to retain the notes in its possession. Thereafter, Prime Financial funded loans originated by Bedford with its own funds, as well as funds drawn on its facility with Bank One. But Prime Financial also funded other loans originated by Bedford without drawing on the credit facility with Bank One.
After Prime Financial provided the credit facility to Bedford, Bott became concerned with Bedford's loan practices. In March 1999, Bott told Hundley to find another lender. In June 1999, Bank One provided Bedford with a new $15 million credit facility under which Bank One would directly fund Bedford's lending. The facility was made possible in part by the personal guaranty of investor Richard Baidas. Bank One was required to pay off the amount currently owed by Prime Financial to Bank One under the prior $5 million credit facility, effectively transferring the debt from Prime Financial to Bedford and relieving Bott and his trust of liability under their guaranties. Bedford granted Bank One a security interest in property "now owned, or at any time hereafter acquired," including "all Mortgage Notes and Mortgages... which from time to time are delivered, or caused to be delivered, to the Bank... pursuant hereto or in respect of which an extension of credit has been made by the Bank under the Credit Agreement." At Bank One's request, Bedford brought all its notes and mortgages to the closing, including some notes funded solely by Prime Financial, and obtained Uniform Commercial Code (UCC) termination statements from several lenders, including Prime Financial.
In May 2000, Bank One informed Bedford that it considered Bedford to be in default on the $15 million credit facility. Bank One settled with Baidas, accepting a payment of approximately $5.5 million. Bank One agreed to transfer to Baidas the collateral it held under its agreement with Bedford, which included 23 notes originated by Bedford using funds provided by Prime Financial. Bedford also owed Prime Financial almost $1.7 million. Pursuant to a settlement agreement between Prime Financial, Bedford, and Hundley, Hundley was required to apply the $825,000 he had personally guaranteed to reduce debts owed to the Bott trust.
In October 2001, Prime Financial sued Vinton, an employee of Bedford, for conversion. Prime Financial subsequently amended its complaint, adding numerous claims against Bank One. The case proceeded to trial, and the trial court submitted five claims against Bank One to the jury. The first four claims—conversion, unjust enrichment, aiding and abetting conversion, and aiding and abetting breach of fiduciary duty—were all related to the 23 notes and mortgages originated by Bedford using funds from Prime Financial and given to Bank One as collateral forthe $15 million credit facility. The jury returned a verdict in favor of Prime Financial and against Bank One in the amount of $1,180, 358.16.
Bank One appealed the judgment. The primary issues before this Court were "whether prior Article 9 of the [UCC] governed the creation of a security interest in a note secured by a mortgage and, if it did, whether a properly recorded assignment of mortgage could give the assignee greater rights to the note than the assignee had under Article 9." Prime Fin Services LLC, 279 Mich App at 248. This Court issued a published opinion, concluding "that Article 9 governed the creation of the security interests at issue and that an assignment of mortgage can give no greater rights to the assignee than it has in the note underlying the mortgage." Id. It further concluded that "after applying Article 9 to the undisputed facts of this case, Bank One's interest in the notes was superior to that of Prime [Financial]." Id. Accordingly, this Court held that Bank One's "actions cannot—as a matter of law—constitute conversion, unjust enrichment, or aiding and abetting conversion or breach of fiduciary duty" because "Bank One's dispositions of the notes and mortgages were specifically authorized under Article 9." Id. It reversed "the trial court's decision to deny Bank One's motion for [JNOV] and remand[ed] for entry of judgment in favor of Bank One on all of Prime [Financial]'s claims." Id. This Court denied Prime Financial's motion for reconsideration, Prime Fin Services LLC v Vinton, unpublished order of the Court of Appeals, entered July 16, 2008 (Docket No. 273264), and our Supreme Court denied leave to appeal, Prime Fin Services LLC v Vinton, 482 Mich 1069 (2008).
The trial court subsequently entered a judgment of no cause of action in favor of Bank One and dismissed with prejudice all claims asserted by Prime Financial against Bank One. Thereafter, Bank One moved for costs and attorney fees pursuant to MCR 2.405, asserting that Prime Financial had rejected its counteroffer to settle the case. The trial court granted Bank One's motion for costs, but declined to award attorney fees under the interest-of-justice exception of MCR 2.405(D)(3). The trial court opined that this Court had addressed several issues of first impression in the first appeal, "and that the development of the law in this important and prevalent area was furthered by this case not settling." Bank One now appeals the trial court's decision in this regard.
Bank One argues that the trial court abused its discretion by refusing to award it attorney fees on the basis of the interest-of-justice exception of MCR 2.405(D)(3). We agree.
"Generally, attorney fees are not recoverable as an element of costs or damages unless expressly allowed by statute, court rule, common-law exception, or contract." Marilyn Froling Revocable Living Trust v Bloom field Hills Country Club, 283 Mich App 264, 297; 769 NW2d 234 (2009). Under the offer-of-judgment rule, MCR 2.405, parties may serve on their opponents a written offer to stipulate to the entry of a judgment. Marilyn Froling Revocable Living Trust, 283 Mich App at 297. The offer of judgment rule's purpose is "to avoid protracted litigation and encourage settlement." Id. Under MCR 2.405(D)(1), "[i]f the offeree rejects the offer and the adjusted verdict is more favorable to the offeror than the average offer, the offeror may recover actual costs from the offeree." Marilyn Froling Revocable Living Trust, 283 Mich App at 297. For purposes of MCR 2.405, "[a]ctual costs" include "reasonable attorney fee[s]." MCR 2.405(A)(6). However, the trial court "may, in the interest of justice, refuse to award attorneyfee[s.]" MCR 2.405(D)(3). Here, it is undisputed that Bank One was entitled to costs under MCR 2.405(D)(1).2 The trial court awarded Bank One costs, but refused to award it attorney fees on the basis of the interest-of-justice exception of MCR 2.405(D)(3).
In general, "[t]he decision to award sanctions under the offer of judgment rule is reviewed for an abuse of discretion." Pitsch v Blandford, 264 Mich App 28, 34; 690 NW2d 120 (2004), rev'd on other grounds 474 Mich 879 (2005). A trial court's application of the interest-of-justice exception to specific facts is also reviewed for an abuse of discretion. Derderian v Genesys Health Care Sys, 263 Mich App 364, 374; 689 NW2d 145 (2004). The Legislature's use of the term "may" rather than "shall" in MCR 2.405(D)(3) indicates a discretionary action. See Murphy v Ameritech, 221 Mich App 591, 600; 561 NW2d 875 (1997); see also Sanders v Monical Machinery Co, 163 Mich App 689, 692; 415 NW2d 276 (1987) (). We review de novo underlying questions of law, such as a trial court's interpretation of MCR 2.405(D). See Castillo v Exclusive Builders, Inc, 273 Mich App 489, 492; 733 NW2d 62 (2007); see also Marilyn Froling Revocable Living Trust, 283 Mich App at 296-297.
Michigan courts decide the applicability of the interest-of-justice exception on a case-by-case basis. Lamson v Martin (After Remand), 216 Mich App 452,...
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