No Need to Reply to Affirmative Defenses

One of my pet peeves relate to demands for a reply to affirmative defenses. I've always considered this to be a  pointless and wasteful exercise. I'm annoyed when opposing counsel makes such a demand and causes my client to needlessly incur fees to do the obvious.

By a published opinion issued this week, the Michigan Court of Appeals has ruled that there is no need to file any reply to such a demand.  In McCracken v City of Detroit, #294218,  the Court definitively held "that affirmative defenses are not pleadings requiring a response" and that they "are to be taken as denied even if a demand for a response has been made."

Thank you Court of Appeals for the small gesture to simplify litigation.

Mid-Michigan Litigation Update is authored by W. Jay Brown, a Midland Michigan based civil litigation attorney. The foregoing is intended to be for general information purposes only and is not intended to be specific legal advice and does not create an attorney-client relationship between W. Jay Brown PLC and you. Individuals with legal issues are advised to consult an attorney of your own choosing for advice specific to your situation.

Limitations to the “Written Instrument” judgment interest rate in Michigan

The statutory money judgment interest rate in Michigan is at a new low - - 2.553% as of January 1, 2011. With this paltry statutory rate, the inquiry of the applicable judgment interest rate takes on added importance. If you are defending a judgment debtor, don’t assume that the higher written instrument interest rate applies just because there was a written contract.

The higher rate only applies if the written instrument evidences "indebtedness with a specified interest rate." MCLA 600.6013.  This qualifying language was specifically added the last time the statute was amended in 2001. Therefore, I believe the statute requires both a stated interest rate along with a specified amount. The typical open account statement with a monthly finance charge doesn't meet the definition and is not entitled to post-judgment enforcement.

This analysis is supported by the only case I've read that addresses the issue - Novi Promenade Associates v Target, 2006 WL 847118 (ED MI 2006). The court in that case found that the statute contemplated such things as land contracts or promissory notes.  The analysis has also been accepted by Judge Lauderbach of the 42nd circuit court.

Mid-Michigan Litigation Update is authored by W. Jay Brown, a Midland Michigan based civil litigation attorney. The foregoing is intended to be for general information purposes only and is not intended to be specific legal advice and does not create an attorney-client relationship between W. Jay Brown PLC and you. Individuals with legal issues are advised to consult an attorney of your own choosing for advice specific to your situation.

Environmentalist Victory Short Lived?

At the very end of the 2010 term of the lame duck Democratic majority, the Michigan Supreme Court issued its 4-3 decision in Anglers of the AuSable v DEQ and provided a significant victory for Michigan environmentalists.

The decision has huge implications. Much of Michigan's environmental law is contained in the Natural Resources and Environmental Protection Act (NREPA). Most of the statute concerns administrative regulation and permitting for protected activities (Wetlands, Inland Lakes & Streams, etc.)  The meat for litigators is the Michigan Environmental Protection Act (MEPA), part 17 of NREPA.  This is an overlay provision giving individuals a right to file suit to prohibit conduct which is polluting, impairing or destroying natural resources (or is likely to do so). 

The Court made two holdings to significantly empower environmental enforcement litigation. First, the Court held that the DEQ may be sued directly for its actions in issuing a permit.  Prior court decisions had restricted review of DEQ permitting decisions by holding that such decisions were not challengeable outside of the administrative permitting process.

Second, the Court held that the traditional tests of standing do not apply in a MEPA action. Rather, the statute is to be enforced as written and "any person" may file a MEPA action to seek a prohibition on alleged illegal conduct.

Given the very broad sweep of the holding and the Republican's new majority, I wouldn't bet on this decision being left intact for long.

Mid-Michigan Litigation Update is authored by W. Jay Brown, a Midland Michigan based civil litigation attorney. The foregoing is intended to be for general information purposes only and is not intended to be specific legal advice and does not create an attorney-client relationship between W. Jay Brown PLC and you. Individuals with legal issues are advised to consult an attorney of your own choosing for advice specific to your situation.

Disappointed Bidders on Public Projects

Recently, the Michigan Court of Appeals released its decision in Cedroni Associates, Inc. v Tombilson, Harburn Associates Architects & Planners, Inc. (docket # 287024, released 11/16/10) which provides new avenues for the disappointed low bidder to challenge the bid process on governmental projects.

The case involved a construction project within the Davison Community Schools. An architectural firm (Defendants “THA”) assisted the school by reviewing, evaluating, and investigating the bids and bidders. Based on THA’s advice, the school district bypassed the Plaintiff contractor’s low bid and instead awarded the contract to the second lowest bidder.

The disappointed contractor brought a tortuous interference claim against THA claiming that THA had been untruthful and inaccurate in its negative portrayal of the contractor’s capabilities to do the project. The key finding in the case was that the objective criteria within the school district’s policies and project manual could be sufficient to create a valid business expectancy on the part of the contractor. This was true even though the policies and manuals gave the school discretion to reject “any and all bids.”

I think the potential impact of this decision could be very significant. At minimum, governmental entities and those involved in the approval process will need to look very closely at bid awards and should have compelling reasons to reject low bids.

Duty of Reasonable Inquiry does not include Bankruptcy Search

Like many attorneys, I’ve experienced the uncomfortable feeling of being blindsided by a previously unknown fact that a client should have told me being raised in litigation. The recent opinion issued by the Michigan Court of Appeals in Food Solutions Inc v Haggard (docket # 294206 released 11/09/10) demonstrates how unknown facts can also be dangerous to an attorney’s bank account. In that case, the Defendant filed bankruptcy four days prior to his attorney filing an answer to a creditor’s complaint. After the bankruptcy filing was discovered, the defense attorney was sanctioned almost $2,500 pursuant to MCR 2.114(E) for not knowing about the bankruptcy.

Thankfully, the Court of Appeals reversed the sanction by holding that the duty of reasonable inquiry does not extend to a determination of a bankruptcy filing. However, it brings up a good point and one can be addressed in a “client obligations” paragraph within the retainer agreement. Clients need to be advised of their obligation to not hide unfavorable facts from their lawyer. I believe the retainer agreement provides the perfect opportunity to make sure this point is covered and documented.

Malpractice Alert – Pay close attention to expert interrogatories

In a case that is sure to trap the unwary, the Michigan Court of Appeals has upheld a trial court’s bar of expert witness testimony as a discovery sanction for failing to supplement answers to interrogatories. In the case of Lawton & Cates S.C. v International Brotherhood of Teamsters, (dckt. # 290479 rel. 9/21/10) the Plaintiff served expert interrogatories on the Defendant making the inquires authorized by MCR 2.302(B)(4). The Defendant answered very generally by naming an expert, listing a very broad area of testimony and indicating that the expert had not finished his review.

The case progressed and the Plaintiff never requested a deposition of the expert or otherwise addressed the previous interrogatory answers until trial was pending at which time a motion in limine was filed to bar the expert’s testimony. The trial court found that the Defendant’s failure to supplement meant that the Plaintiff was never provided with the expected expert testimony and was unable to prepare to address the evidence. Even if the Defendant did not ever receive an official written opinion, they were still obligated to provide the evidence that they expected would come from the expert witness. It was no excuse that the Plaintiff could have found out the opinions by taking the deposition of the witness.

The holding in this case brings Michigan more in line with the mandatory expert disclosures required in federal court. The lesson for practitioners is (1) always send out the expert interrogatories parroting the court rule when experts are involved in a case and (2) supplement, supplement, supplement.

Defending Collections against Spousal Guaranties

It’s becoming an all-too-familiar fact pattern: a former spouse loses his business and is uncollectable/bankrupt leaving the bank to look to the former spouse for collection pursuant to a guaranty taken out during the marriage. In those instances, lawyers need to closely evaluate whether the spousal guarantor has a defense under the Equal Credit Opportunity Act. (“ECOA”).

While a complete description of an ECOA claim is beyond the scope of this post, spousal guaranties often violate the ECOA when (1) the applicant spouse and/or business is independently credit worthy when the credit was extended, or (2) the spouse was required to provide a guaranty without an analysis of assets and how they are held. Essentially, while a creditor may require an additional guarantor, it may not require that the spouse provide it. See Regulation B, especially §§ 202.7 which can be found here

And while the statute of limitations on an ECOA claim is two years, courts are allowing debtors to assert an ECOA affirmative defense regardless of whether the claim would otherwise be barred. The most common rationale for the defense is one of recoupment or illegality. A great analysis of the state of the law was set forth by the Iowa Supreme Court this past summer in the case of Bank of the West v Kline, 782 NW2d 453 (2010). See also FDIC v Medmark, 897 FSupp 511 (D Kan 1995). An while no appellate court in Michigan has yet considered this question - - I believe the defense will be viable if and when it is challenged.

Michigan Contract Disputes – Rebirth of the Latent Ambiguity Doctrine

This week, the Michigan Supreme Court released its opinion in Shay v Aldrich, (# 138908 released August 23, 2010) and held that sometimes, “all” does not mean “all.” The facts in Shay were straight-forward – a plaintiff settled with two parties in a litigation and entered into a release that released “all other persons.” Despite this language, there was highly persuasive and unequivocal evidence that the parties did not intend to release the other defendants. These other defendants then sought to use the release language as an amended affirmative defense but were denied by the trial court. Upon appeal, the Court of Appeals turned a deaf ear to the facts and held firm that the contractual language must be enforced and that “all” means “all” no matter what the intentions of the parties may be. The court of appeals holding was based on the 1999 Court of Appeals opinion by Justice Markman in Romska v Opper, 234 Mich App 512; 594 NW2d 853 (1999).


The Supreme Court reversed. After first finding that the other defendants could be third-party beneficiaries of the release, it held that normal rules of contract interpretation must be applied to the attempt to obtain the benefit from the release. Citing back to cases from as early as 1849, the Court found:

A latent ambiguity exists when the language in a contract appears to be clear and intelligible and suggests a single meaning, but other facts create the “‘necessity for interpretation or a choice among two or more possible meanings.’” To verify the existence of a latent ambiguity, a court must examine the extrinsic evidence presented and determine if in fact that evidence supports an argument that the contract language at issue, under the circumstances of its formation, is susceptible to more than one interpretation. Then, if a latent ambiguity is found to exist, a court must examine the extrinsic evidence again to ascertain the meaning of the contract language at issue.

Thus, when allowed to consider the clear and overwhelming evidence of intent, Supreme Court found that the trial court properly denied the other Defendants’ attempt to use the release for their benefit.

While not addressed, this case also raises interesting questions about the application of a merger clause. While the case appears not to change the rule from UAW-GM Human Resource Center v. KSL Recreation Corp., 228 Mich.App. 486, 579 N.W.2d 411 (1998) (ie- that a merger clause prevents consideration of evidence outside of a contract to establish a latent ambiguity), I think it does establish that a stranger to the contract is not barred from presenting extrinsic evidence to show ambiguity even if there is a merger clause.

TREATING LIMITED LIABILITY COMPANIES AS CORPORATIONS

As Michigan law provides some effective remedies and developed common law to govern disputes involving corporations, it is often desirable to apply corporate law principles to limited liability companies. I’ve never seen any reason to treat the entities differently in regard to civil claims and would argue in virtually all respects that the well-developed corporate common law ought to be applied to LLCs

Michigan courts continue to inch closer to this reality. Just this week, the Michigan Court of Appeals released a decision indicating that the doctrines of “De Facto Corporation” and “Corporation by Estoppel” both apply to LLCs. This case, Duray Development, LLC v Perrin, (docket # 287722 released 04/13/10), is yet another step in the direction of common treatment of both types of entities. The decision provides plenty of good language to use when arguing for common treatment including comments regarding the common goal of both structures as limiting liability.

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.