A Warning to Landlords

If landlords weren't already convinced about the dangers of self-help, the recently released case of Christie v Fick, (Mich Ct. App. docket # 285924, released March 2, 2010) should make the point very clear.  In that case, the plaintiffs were living in a cabin near Grayling that they rented for $300 per month and were slightly behind in rent. The landlord moved them out and put their personal property in storage where it was subsequently damaged.  The total judgment - - - $299,256.21.  That's a lot of stuff in a $300 per month cabin!!

How removing a tenant's belongings from  a $300 a month cabin led to a $300,000 judgment is another lesson in creative use of the conversion statute, MCLA 600.2919a. The jury's verdict included an emotional distress element to the "actual damages" recoverable under the statute.  These actual damages were trebled and an additional attorney fee was awarded.

Almost as concerning for the self-help landlord was the fact that the plaintiffs only needed to ask once for their stuff back.  The landlord's argument that the plaintiffs had numerous opportunities to retrieve their belongings did not matter as "once there has been a refusal of a right to possession, no further demand for the property is necessary by the plaintiff" in order to recover.

Non-Dischargeable Default Judgments - An Opportunity and a Trap

An issue is presently pending before Judge Opperman in the United States Bankruptcy Court regarding the collateral estoppel effect of a “true default judgment” (ie- one entered after a defendant fails to appear or defend). Judge Opperman is expected to issue an opinion that will provide substantial guidance to area state court litigators in thinking ahead as to the potential that a default judgment may be entitled to collateral estoppel effect in a subsequent non-dischargability adversary proceeding.


The pending case before Judge Opperman is First American Title Company v Chambers, Adversary Proceeding # 09-02044-dob. There, the defendant was sued in Midland County Circuit Court on a three count complaint which included a fraud count along with counts for breach of warranty and contract. The defendant did not answer and a default judgment was entered via the standard SCAO form. The question is whether this form judgment can be deemed a determination that fraud was both “actually litigated” and “necessarily determined” by the state court and thus be afforded collateral estoppel effect.


The best advice for creditor attorneys seeking non-dischargability (at least until an opinion is issued by Judge Opperman) is to take an extra step when seeking a state court default judgment and obtain a judgment that specifies that fraud is the basis for both the liability and the damages. I believe it is very likely that a creditor will meet the collateral estoppel test by filing a motion for entry of a default judgment specifying that the default judgment is requested on the fraud count. Taking this action is likely to satisfy both the “actually litigated” and “necessarily determined” aspects of collateral estoppel.


For debtors, there is a large potential for being unwarily trapped in a non-dischargeable judgment. A debtor may not contest a case as they know they owe money. However, it is one thing to owe money and quite another to have engaged in fraudulent conduct that would justify the denial of a bankruptcy discharge.

UCC 4-Year Statute of Limitations in Commercial Collections

Can a plaintiff use an “account stated” or “open account” cause of action to avoid the Uniform Commercial Code’s four-year statute of limitations in a collection action where the underlying debt involves the sale of goods? While there is no Michigan case law directly on point, it is pretty clear that the 4-year statute of limitations applies regardless of how the causes of action might be pled.

There is a fair amount of law from outside of Michigan directly addressing this question, including cases from Oregon (Moorman Manufacturing Co of Cal v Hall, 830 P2d 606 (1992)), New York (Troy Boiler Works v Sterile Technologies, Inc, 777 NYS 2d 574 (2003)), West Virginia (Greer Limestone v Nestor, 332 SE 589 (1985)), Oklahoma (Sesow v Swearigen, 552 P2d 705 (1976)), and California (H Russell Taylor’s Fire Prevention v Coca Cola, 160 Cal Reporter 411 (1979)). These cases all direct that the UCC statute of limitations applies despite the existence of an account stated or open account cause of action.

When given the opportunity, Michigan Courts have consistently upheld the breadth and preemptive effect of the UCC and its statute of limitations. In fact, the genesis of the modern economic loss rule in Michigan involved a case where a tort claim was used to try to avoid the UCC’s statute of limitations. (Neibarger v Universal Cooperatives, 439 Mich 512 (1992)). In 2006, the Michigan Supreme Court found that Article III of the UCC preempted common law claims for accord and satisfaction. (Hoerstman Contracting v Hahn, 474 Mich 66 (2006).

Thus, when a court considers the tenor of the Michigan cases together with the persuasive foreign law, the outcome should be clear.

Statutory Conversion Creativity

Michigan’s statutory conversion statute (MCLA 600.2919a) used to confine its enhanced remedy to those who were wrongfully in receipt of converted assets. However, as it didn’t make sense to treat the person receiving the assets more harshly than the converter, the Michigan Legislature expanded the statute in 2005 to also charge the converter with treble damages and attorney fees.

Since that time, I’ve seen more and more creativity used in trying to take advantage of the enhanced remedy. In my view, one of the more creative uses was set forth in the recent Michigan Court of Appeals case of Junge v Bartles and Burrell, (Docket No. 285035, released October 20, 2009). There, the plaintiff alleged that the defendants had converted his membership interest in a limited liability company by opening an identical competing company. The Court of Appeals impliedly accepted the theory based on the fact that a person’s membership interest in a LLC is personal property.

I previously raised the possibility of using MCLA 600.2919a in conjunction with the Builders Trust Fund Act (See 06/20/2009 blog post). I know that at least once Court has subsequently accepted this theory to provide the enhanced remedy to a BTFA claim.

Precluding Fraud Claims- The Winning Provision to put in your Contracts

For years, commercial litigators have used merger clauses within contracts as a defense to fraud claims. The merger clause can prevent evidence of fraud from being introduced via the parol evidence rule and can also make any alleged reliance “unreasonable.” This has been a good tool – but it lacked the ability to defeat “fraud in the inducement” claims as that type of fraud invalidates the entire contract, including the merger clause itself.


A recent decision out of the Western District of Michigan, Whitesell Corporation v Whirlpool Corp, Case 1:05-cv-00679-RHB (opinion released 10/05/09) provides an even stronger weapon that appears to reach and preclude claims of fraud in the inducement. These are “no reliance” clauses whereby the parties agree that neither is relying on any representations made by the other party. The Whitesell Court emphasized that courts are more willing to uphold these provisions if:

1. The no-reliance clause is its own separate clause rather than being embedded in another clause;

2. The clause expressly mentions and disclaims “reliance.”

3. The parties are sophisticated.


Transactional lawyers would be well advised to make sure a “no-reliance” clause becomes standard language in their documents

Deficiency Actions against Guarantors

Recently, the Michigan Court of Appeals in Dearborn Capital Corporation v Facundo Bravo, (Docket No. 284274 released 9/22/09) issued a decision that serves as a harsh reminder to creditors of the consequences of failing to observe the letter of the UCC when selling collateral.

Creditor DCC held a security interest in equipment that was subject to a bankruptcy sale and resulted in a pot of money to be held until a determination was made as to the extent of the secured claim. DCC then accepted a deeply discounted settlement amount and sought to collect additional funds from the defendant guarantor. However, by not notifying the guarantor prior to accepting the bankruptcy settlement, DCC forfeited its right to recover the deficiency against the guarantor. §9-611.

Whether representing creditors or defending against such collections, the following points from this case bear mentioning:

· The duty to notify is not altered by the fact that the collateral may change form into identifiable proceeds from a disposition;

· Whether a disposition of collateral is “commercially reasonable” is irrelevant if the requisite notice is not given - - the court doesn’t even get to this question if the notice was not provided;

· Provisions in guaranties providing a waiver of notice are unenforceable unless the agreement is made after a default. (UCC §9-602)

Summary Disposition Practice

In the recently released published opinion of Barnard Manufacturing v Gates Performance Engineering, (docket 286003 released August 18th), the Michigan Court of Appeals emphasized and clarified the non-moving party’s burden when responding to such motions.
In that case, the plaintiff sought summary disposition on the defendant’s counterclaims and, in what appears to be an afterthought, included a single paragraph without its own heading requesting summary disposition on its primary claim. The trial court granted the entire motion.

The Court of appeals held:

· While the trial court may only consider admissible evidence, the submission in connection with the motion does not have to be in admissible form - - ie, the court could consider evidence as long as there is a “plausible basis” for its admission.

· A trial court has no obligation to conduct an independent review of the record to determine whether there are genuine issues of fact. Facts must be identified in brief or oral argument before a court is obligated to consider such facts.

· It is proper for the trial court to consider a separate claim for summary disposition that is not set off in a separate heading as long as the language puts the other party on notice of the need to respond to the argument.

Actions Involving Corporations

Business litigation involving a corporation typically involves claims brought under the Michigan Business Corporations Act (“BCA”), MCLA 450.1101 et. seq. However, the BCA is not the only source of statutory claims involving corporations. Section 3605 of the Revised Judicature Act, MCLA 600.3605 provides Circuit Courts with wide-ranging powers to govern corporations and their officers. Moreover, creditors of the corporation can use this statute to recover funds that have been unlawfully transferred out of the corporation. Check out the statute here.

The Burden of Proof in Defending Adverse Possession Cases

The burden of proof in an adverse possession case is “clear and cogent.” There is a terrific legal citation to quote regarding this heightened burden when defending adverse possession claims. Take a look at footnote 2 from the case of McQueen v Black, 168 Mich App 641, n2; 425 NW2d 203 (1988). The court engages in a lengthy discussion of the standard and concludes that the burden approaches “ the level of proof beyond a reasonable doubt” and that “where there is any reasonable dispute, in light of the evidence, over the question of possession, the party has failed to meet his burden of proof.”

Bankruptcy Discharge of Litigation Debts

An understanding of whether a debt is dischargeable in bankruptcy is essential to a business and commercial litigator for at least three reasons - - (1) to structure the claims being brought in the complaint; (2) to evaluate the credibility and risk of a threat to file bankruptcy and (3) to evaluate and structure settlements. Fortunately, it is not hard for a non-bankruptcy litigation attorney to obtain a working knowledge of the dischargability of debts in bankruptcy.

Exceptions to discharge are laid out at 11 USC § 523. The exceptions that most commonly arise in the context of a commercial or business litigation are contained in the following subsections:

(a)(2) – obtaining money, property, services, or credit by false pretenses or fraud;

(a)(4) – for fraud or defalcation while acting as a fiduciary, embezzlement or larceny; and

(a)(6) - for willful and malicious injury.

The Bad Check Letter

Michigan law provides an enhanced civil remedy if a business or individual receives a bad check. MCLA 600.2952 allows the recovery of treble (triple) damages if a two-step process is followed. Upon receiving a bad check, the client must send a letter containing the specific language from the statute. A link to the statute is found in the Links section of my website, http://www.midlandmichiganlawyer.com/. If payment on the check is not made within 30 days, then the client is entitled to a judgment for (1) the full amount of the check, draft, (2) damages equal to 2 times the amount of the check or $100.00, whichever is greater, and (3) costs of $250. The statute provides this remedy unless the amount of the check plus costs up to $250 is paid in “cash” before trial of the matter.

The Powerful Remedies of the Builders Trust Fund Act

It’s a typical scenario- a subcontractor or supplier is owed money from a contractor but hasn’t perfected a right to a construction lien. The subcontractor or supplier think they are out of luck and are stuck with an uncollectable breach of contract claim against an empty corporation. However, the Builders Trust Fund Act (“BTFA”), MCLA 570.151 et. seq. can provide an extremely powerful remedy for the unpaid client.

In general, the BTFA makes it illegal for a contractor to take money from an owner of a project and use it for other purposes than first paying subcontractors, suppliers and laborers on the project. In addition to potential criminal liability, a civil claim under the BTFA can provide for:
1. Individual liability of participating corporate officers;

2. A debt that is non-dischargeable in bankruptcy; and

3. At least a decent argument for treble damages under Michigan’s conversion statute.
A very good discussion of individual liability and non-dischargeability is set forth in the recent case of In re Patel, 565 F3d 963 (CA 6 2009).