Michigan Business Litigation Lawyer Blog

In a surprise announcement this morning, Michigan Supreme Court Justice Elizabeth Weaver resigned from the bench despite her previously stated intention to run as an independent for her seat in the upcoming election. Michigan's Governor Jennifer Granholm appointed former Court of Appeals Judge Alton Davis to take Justice Weaver's place on the Supreme Court. Weaver, though a Republican appointee, has frequently disagreed with the other Republican-appointed Justices during the past several years, and their relationship has become so tendentious that Justices Maura Corrigan, Robert Young, Jr., and Stephen Markman have filed an ethical complaint against Justice Weaver with the Michigan Judicial Tenure Commission relating to allegations that Justice Weaver may have had inappropriate communications with an attorney about a case pending before the Michigan Supreme Court. Many Michigan residents do not follow judicial politics closely, or at all, and it is widely believed that incumbent Justices enjoy a significant advantage over non-incumbents at the polls. With now-Justice Davis's appointment, Democrat appointees will outnumber Republican appointees on the Michigan Supreme Court for the first time in over a decade, and will have a very good chance of carrying that numerical advantage in the upcoming election. The effect on the Michigan Supreme Court's rulings will certainly be closely watched by Michigan trial attorneys during the near future.

Posted by Ian Williamson

The Michigan Supreme Court overturned a state ban on "insurance scoring" - the practice of using credit information to set consumers' rates for automobile and homeowner insurance. Insurance companies that use insurance scoring offer discounts to consumers with good credit. The Michigan Commissioner of Financial & Insurance Services promulgated rules prohibiting the practice, but the Supreme Court held the prohibition was illegal.

In striking down the regulation, the Court held that various parts of the Insurance Code allow insurance scoring. Chapter 21 of the Code allows insurers to establish and maintain a premium discount plan as long as it is consistent with the purpose of the act and "reflects reasonably anticipated reductions in losses or expenses" and is uniformly applied. MCL 500.2110a. The Court held that the evidence showed a direct correlation between insurance scores and risk and therefore, insurance scoring reflects reasonably anticipated reductions in losses on the part of the insurer. The Court also held that insurance scoring is allowed under Chapters 24 and 26 of the Code, which allow rating plans measuring differences among risks that "may have a probable effect upon losses or expenses."

The Court rejected arguments that insurance scoring is inconsistent with the Code because it will make insurance more expensive for some. The evidence, according to the Court, showed that insurance scoring reduces rates. Without insurance scoring, rates would rise and insurance would become less available.

Finally, the Court concluded that insurance scoring does not unfairly discriminate. The Court held that a rate is not unfairly discriminatory if there is a reasonable justification in the rate differentials. Because credit scores provide a reasonable justification for varying rates - the Court noted that the Commission itself relies on credit reports as reliable - the use of credit reports is not unfairly discriminatory.

Because the Insurance Code allows scoring, the Court concluded that the Commission exceeded its authority in banning the practice.

Undoubtedly, proponents of the ban will see the decision as a give-away to the special interests while opponents will see it as a victory for law over irresponsible regulation. The Detroit Free Press reports that a law banning insurance scoring has passed the state House "but faces dim prospects in the Senate."

The Court's decision is available here.

Posted by David Hansma

The Michigan Supreme Court has overruled a damages verdict of $14.9 million based on the presiding trial court judge's refusal to allow defense counsel to peremptorily strike an African-American woman from the jury. The Detroit News reported on Tuesday, June 29, 2010 that Wayne County Circuit Court Judge Michael Callahan denied the peremptory challenge in order to seek "proportional representation on the juries that hear cases in" his courtroom.

The case in question, Anthony Pellegrino v Ampco System Parking, involved a damages determination for the wrongful death of a woman who was killed while riding in an airport shuttle that crashed in icy conditions. The defendants had conceded liability, and the sole issue before the jury was the amount of damages that the defendant would be required to pay. After using two peremptory strikes to remove African-American jurors, defense counsel attempted to use a third peremptory strike against another African-American juror, arguing that the juror in question had recently lost her mother and could still be grieving the loss. After plaintiff's counsel argued that the third peremptory challenge was barred under Batson v Kentucky as impermissibly motivated by race, Judge Callahan refused the third peremptory challenge.

After the $14.9 million verdict was upheld in the Michigan Court of Appeals, the case was taken up by the Michigan Supreme Court, who reversed. In its Opinion, the Supreme Court held that "in denying defendant's peremptory challenge, the court expressly took [juror] Greene's race into account and expressly evaluated her race in light of the race of every other juror on the panel. It is hard to conceive of a more flagrant and unambiguous violation of [Michigan Court Rule 2.511(F)(2)]." The Supreme Court also suggested that a review by the Judicial Tenure Commission may be in order due to Judge Callahan's comments that he would continue to seek proportional representation on juries in his courtroom, which the majority viewed as an affront to established court rules and precedent.

The upshot of this Opinion is that, so long as a pretextual reason that is not racially motivated can be given for a peremptory strike, attorneys cannot be prevented from using peremptory challenges on the basis of maintaining a specific racial balance on a jury. As the Michigan Supreme Court re-emphasized in its Opinion, parties are entitled only to an impartial jury and not to a representative jury. In the eyes of the Michigan Supreme Court, race and partiality have no inherent connection, and any judicial suggestion to the contrary is inappropriate.

Posted by Ian M. Williamson

For the past several years, both national and local discussions on energy have increasingly focused on green alternatives to fossil fuels. Wind power in particular has in many ways become the primary focal point of those discussions, as the environmental impacts are arguably much reduced when compared to fossil fuels and growing worldwide acceptance has increased both the visibility and technological viability of wind-generated power. While typically still more expensive than power from existing coal-fired plants, it seems that the cost of wind power is decreasing, though infrastructure costs required for new large-scale power transmission lines continues to be an issue in many wind-rich areas.

In Michigan, interest in wind power has gown steadily, and the State of Michigan's projected growth for the next several years is substantial. Michigan is ranked 14th in wind resources among the states, and Governor Granholm has suggested that Michigan could jump-start its economic recovery by focusing its efforts on the manufacture and installation of wind turbines.

However, as Metro Times reporter Curt Guyette discusses in a recent article, many people view wind power as a great idea -- as long as it is installed somewhere far away from them. While some communities have embraced the local installation of wind turbines, many have and continue to actively oppose such efforts, even where a number of residents are generally mindful of environmental issues. If Michigan is to become a leader in this industry, such disputes are likely to increase along with local capacity, and many municipalities lack the necessary ordinances and permitting processes to facilitate installation. Given the momentum and visibility that wind power has gained, this is certain to become a growing area of legal dispute over the next decade.

Posted by Ian M. Williamson

Crain's Detroit Business reporter Bill Shea has compiled a useful and informative article about the Detroit River International Crossing, a proposed new bridge between Detroit and Windsor that would be jointly owned by the United States, Canada, Michigan, and Ontario. The proposed bridge would be an alternative to the privately-owned Ambassador Bridge, and would be located between the Southwestern Detroit neighborhood of Delray and Windsor's Brighton Beach area. As anyone who follows Detroit court battles knows, the Detroit International Bridge Company ("DIBC") and its owner, Manuel "Matty" Maroun, have been involved in litigation with the City of Detroit for some time concerning DIBC's alleged misuse of city property and failure to build a new Ambassador Bridge approach in accordance with agreed-upon plans and specifications. Unsurprisingly, Maroun is opposed to the DRIC, as are some residents on both sides of the river. In light of the still-fragile economic recovery and recently declining traffic between the U.S. and Canada, it is by no means clear that construction of the DRIC has the same level of immediacy as it did when proposed nearly a decade ago. However, the alternative for the region is to perpetuate private ownership and control of the largest international crossing in the area. In a situation riddled with questions, Bill Shea's information roundup is a good place to get some key facts.

Posted by Ian M. Williamson
Photograph by Ted Cabanes

Metro Detroit area attorneys should take note of a recent Michigan Court of Appeals opinion upholding an award of frivolous action sanctions against a Macomb County firm that sought a share of a former client's recovery after allegedly abandoning the client. In Hawk v Jewish Vocational Service, an unpublished opinion released on April 20, 2010, the Court of Appeals considered an appeal filed by the Macomb County firm, which had filed a one-count suit on behalf of its former client after she was allegedly injured due to Jewish Vocational Service's use of dangerous carpet cleaning products. After facilitation proceedings began, the Macomb County firm filed a motion to withdraw due to an alleged breakdown of the attorney-client relationship. Shortly thereafter, the trial court granted Jewish Vocational Service's motion to dismiss the complaint. The Macomb County firm never attended the hearing on its motion to withdraw, and informed its former client that it would not take any further steps on her behalf despite severe time constraints.

The former client retained new counsel who successfully reinstated the case, filed an amended complaint with new causes of action, and obtained a settlement. Thereafter, the Macomb County firm sought to enforce a lien claim of over $100,000, even though it had failed to perfect its withdrawal, had refused to assist the former client, and had failed to assert any successful claims in the litigation. The trial court awarded sanctions against the Macomb County firm and held that its lien claim was frivolous. On appeal, the Court of Appeals held that because the Macomb County firm had never properly withdrawn as counsel and had failed to protect the former client's legal rights, its argument that the lien claim was not frivolous was without merit.

This case emphasizes the importance of following proper protocol when withdrawing from representation, and illustrates the dangers of failing to protect a client's interests even when seeking to withdraw. In short, it is always best to obtain an order permitting withdrawal -- and courts are unlikely to have much sympathy for firms that seek a share of recoveries based on claims they did not initiate or pursue.

Posted by Ian M. Williamson

A Michigan Court of Appeals panel has taken another step towards normalizing legal treatment of corporations and limited liability companies. In a recent published Opinion, Duray Development, LLC v Perrin, the court dug in to the issue of whether longstanding legal doctrines affecting corporations should also apply to LLCs. The plaintiff development company had contracted with a newly formed limited liability company called Outlaw Excavating, LLC to provide excavation and grading work for a new residential development in Kent County, Michigan. After a dispute over the timeliness and quality of the excavation work, the plaintiff filed a lawsuit and, through discovery, learned that Outlaw Excavating, LLC had not obtained "filed status" until a month after execution of the contract. Under the Michigan Limited Liability Company Act, the existence of a company does not begin until the articles of organization have been endorsed with the word "filed" by the State.

Upon discovering that Outlaw Excavating had not been legally in existence, the plaintiff argued that defendant Perrin, a principal of Outlaw Excavating, was personally liable for Outlaw's allegedly inadequate performance. Perrin argued that he could not be personally liable because the doctrine of de facto corporation applied. The doctrine, which has existed in Michigan for over a century, is as follows:

When incorporators have [1] proceeded in good faith, [2] under a valid statute, [3] for an authorized purpose, and [4] executed and acknowledged the articles of association pursuant to that purpose, a corporation de facto instantly comes into being. A de facto corporation is an actual corporation. As to all the world except the State, it enjoys the status and powers of a de jure corporation. Tisch Auto Supply v Nelson, 222 Mich 196, 200 (1923).

Continue reading "Michigan Limited Liability Companies Subject to De Facto Corporation Doctrine" »

Individuals who collaborate and jointly form entities to pursue business opportunities often assume that they enjoy certain legal protections based on their relationship as co-fiduciaries. However, those duties may not necessarily exist, as a recent Court of Appeals decision demonstrates. In the unpublished Cooper v Dean, No. 283244 (Mich App March 30, 2010), the Court of Appeals held that a party's signature on Articles of Organization for a limited liability company is not evidence of the existence of a fiduciary relationship, even though the organizers had been jointly operating under the auspices of the new LLC.

According to the opinion, the parties had been jointly developing a product that combined Cooper's heavy-duty laptop technology with Dean's night vision technology. After Cooper allegedly poured over $115,000 into the project from various sources, it appears that the parties never obtained any contracts to produce anything, whereupon Cooper sued Dean for the return of some or all of the development funds.

The Court of Appeals held that no fiduciary duties existed between the parties, primarily because Dean had refused to sign any of the proposed operating agreements. After referring to MCL 450.4501, the court noted that "[t]he only manner MCL 450.4501 provides to become a member of a limited liability company 'in connection with the formation' is by 'signing the initial operating agreement.'" Further, under MCL 450.4502, "one or more persons, who may or may not become members, may be the organizers of a limited liability company by filing executed articles of organization." (Emphasis supplied). Since Dean never signed any operating agreement, the plaintiffs failed to present evidence that he had acquired any fiduciary duties as a member or manager of the LLC, and summary disposition was upheld in Dean's favor.

This opinion should serve as a reminder to anyone involved in a business startup that, before substantial funds change hands for any reason, the responsibilities of all parties involved should be clearly defined in an operating agreement, resolution, or a shareholder agreement that has been duly executed by all parties. Once the parties' roles have been agreed upon and acknowledged, it will be much easier to hold fiduciaries accountable for duties that they have demonstrably agreed to take on. This is yet another reason why people are well served by at least consulting with experienced business counsel before spending substantial time and money on a new business venture.

Posted by Ian M. Williamson

As a hall-of-fame NBA guard, Dave Bing successfully defied obstacles. As mayor, he faces a different set of obstacles in his effort to downsize Detroit. Among other things, the Michigan Constitution largely restricts the possibility of using eminent domain, the taking of private property for public use, as a tool for consolidating land.

The 5th Amendment of the United States Constitution provides that private property shall not be taken for public use without just compensation. For years, the Michigan Constitution contained a nearly identical provision. Legal disputes involving this limitation of government power have largely surrounded the definitions of "public use" and "just compensation."

Continue reading "Mayor Bing Faces Many Legal Obstacles in Effort to Downsize Detroit" »

As referenced in the previous post, the City of Detroit has been bleeding population for over 50 years. In recent years, the population loss that has plagued Detroit for decades has spread throughout all of Southeast Michigan. For decades, city leaders and suburban officials have taken turns placing the blame for Detroit's decline. Fortunately, most Metro-Detroit leaders now recognize that Detroit and the region will not recover without cooperation among the many cities in Southeast Michigan. As I discussed in a recent interview with MichiganNow.Org, city and suburban leaders are now cooperating on issues ranging from transportation to energy efficiency.

Among other efforts, several Metro-Detroit cities are coordinating through the Millennial Mayors Congress, a partnership of young leaders and city officials. City officials are hoping that giving young leaders a voice in the development of substantive policy will lead to the creation of a region that is more attractive to young talent. Educated young people have migrated from Michigan in large numbers in recent years. Coordinated, regional efforts like the Millennial Mayors Congress are necessary to develop a better physical, fiscal, social, and business environment that will attract and retain young talent; a demographic that is particularly important for the future of Southeast Michigan.

Posted by Brendan H. Frey

Detroit Mayor Dave Bing has publicly acknowledged what everyone has known for many years now -- Detroit's residential base is shrinking, despite substantial efforts over the past decade to create new and fashionable downtown neighborhoods. Mr. Bing will likely be criticized for being the first Mayor in recent history to focus on downsizing instead of renaissance, but there will certainly be Metro Detroit residents who are encouraged by the lack of posturing and the new focus on adapting to Detroit's new reality. In moves that have been predictably unpopular, Mr. Bing has taken unprecedented strides in cutting municipal services and laying off municipal employees as methods to attack Detroit's omnipresent budget difficulties. While Mr. Bing's strategies are painful in the short term and undoubtedly impact many of the area's poorest residents, they are almost certainly inevitable in light of drastic reductions in municipal revenues and an increasingly diminished residential base.

Of course, a decrease in residents does not come with a corresponding decrease in Detroit's physical size, which is a problem for the city. As residents are increasingly sparse, the cost to provide services over an unchanged area becomes more difficult to bear - or to justify. By accepting Detroit's shrinkage instead of ignoring it, Mr. Bing is following in the footsteps of one of Detroit's neighbors to the North, the City of Flint. Encouraged by Genesee County Treasurer and short-lived gubernatorial candidate Dan Kildee, Flint's municipal leadership has already embraced shrinkage and is using its land bank to pursue a new strategy of consolidating viable residents and businesses into a smaller area, while returning vacant areas to greenspace.

Continue reading "Detroit Mayor Dave Bing Accepts Shrinking City Population" »

In a recent article for the Boston Review, former New York Governor and Attorney General Elliot Spitzer takes a hard look at the mechanisms by which large, publicly traded companies are governed. After spending several paragraphs analyzing some of the systemic failures that contributed to the recent global economic turmoil, Spitzer asserts that the success of his proposed solutions "depends on corporate governance...I'll focus on where the problem is: fiduciary duty." Spitzer goes on to describe a system in which corporate executives and directors (and, notably, federal regulators) have become increasingly blatant in placing their own personal interests before those of the corporations they ostensibly manage for the benefit of shareholders.

The basic concept of fiduciary duty is that individuals who exercise control over money (corporate officers and directors) on behalf of others (here the shareholders) should not enrich themselves to the detriment of those shareholders. As an example, an executive who causes a corporation to enter into a damaging business deal in exchange for a lucrative new job at the benefiting company has placed his or her own personal interests before the interests of shareholders and has thereby breached his or her fiduciary duty.

Continue reading "Is meaningful corporate governance of publicly traded companies extinct?" »

In today's Detroit News, an article discusses the recent rise in divorce filings by unrepresented parties. When money is tight, it is understandable that divorcing couples may view hiring counsel as an unnecessary expense. Unfortunately, self-representation can easily result in a less than fair property division or custody outcome. Non-lawyers may not realize that they may have rights in spouses' retirement funds, for example, or that they may be entitled to assistance in repaying certain debts. Before finalizing a divorce, individuals can protect themselves by at least retaining counsel for a few hours to review and discuss proposed divisions of assets and other matters. For couples without significant assets, lawyers may not be necessary throughout divorce proceedings, but a few hundred dollars spent on legal advice before entry of a final judgment of divorce could result in thousands of dollars in savings over time.

As further evidence that jailhouse lawyers are not lacking in chutzpah, a Michigan inmate serving 30 to 110 years recently filed a breach of contract claim against his warden for over $19 Billion in damages. According to the claimant in Sharp v Dept of Corrections, his warden breached a contract to compensate the claimant $1 million per day for each day that he remained wrongfully imprisoned. Anticipating that the warden would probably not agree to such terms, the claimant had drafted a contract that was "self executing" upon the expiration of a five-day waiting period. Unfortunately for him, both the trial court and the Michigan Court of Appeals held that no contract was ever formed because there was no acceptance. The claimant had relied on Article 2 of the U.C.C., but that section only applies to transactions in goods.

The Court of Appeals wrapped up the claimant's breach of contract and account stated arguments in a crisp and succinct 2-page opinion. However, the Court doesn't mention how the claimant addressed what seems to be a clear condition precedent - demonstrating that he was, in fact, "wrongfully" incarcerated. Since the claimant was apparently convicted of crimes and remains incarcerated, it seems unlikely that he could ever cross that hurdle. The $1 Million per day agreement is a reminder that achieving a client's ultimate goal often requires looking beyond that goal. A more capable attorney would examine the client's overall positioning in order to assess whether contractual conditions or requirements would be problematic down the road. Here, the "self-executing" agreement was clever, albeit ineffective. However, by seeking payment for days on which he was "wrongfully" incarcerated, the claimant likely set himself up for failure even if his "self-executing" gambit had succeeded.