STATE OF MICHIGAN
COURT OF APPEALS
THOMAS W. ELKINS, UNPUBLISHED
October 10, 2017
Plaintiff/Counter-Defendant-
Appellant,
v Nos. 331701; 332664
Oakland Circuit Court
NANCY BENNER, LC No. 2015-147391-CZ
Defendant/Counter-Plaintiff-
Appellee.
THOMAS W. ELKINS,
Plaintiff/Counter-Defendant-
Appellant,
v No. 333114
Oakland Circuit Court
NANCY BENNER, LC No. 2015-147391-CZ
Defendant/Counter-Plaintiff-
Appellee,
and
C. WILLIAM GARRATT,
Appellant.
Before: SAAD, P.J., and CAVANAGH and CAMERON, JJ.
PER CURIAM.
Plaintiff appeals as of right several orders entered by the trial court in this action to hold
defendant liable for an attorney referral fee in the amount of $165,000 that plaintiff alleges is
owed by defendant’s former husband, Brian Benner (“Benner”), a now disbarred attorney. In
Docket No. 331701, plaintiff appeals the trial court’s order granting defendant’s motion for
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summary disposition and denying plaintiff’s motion to amend his complaint. In Docket Nos.
332664 and 333114, plaintiff appeals the trial court’s orders granting defendant’s motion for
sanctions based on the trial court’s determination that plaintiff’s complaint was frivolous, and
awarding defendant attorney fees of $18,344 and costs of $980.10. Plaintiff also appeals the trial
court’s order denying plaintiff’s motion for sanctions in connection with defendant’s dismissed
counterclaim for slander of title. We affirm in part and reverse in part in Docket No. 331701,
vacate the orders appealed in Docket Nos. 332664 and 333114, and remand for further
proceedings.
Plaintiff, an attorney, alleges that defendant’s former husband, Brian Benner, failed to
pay a referral fee for a client that plaintiff referred to Benner. Plaintiff filed this lawsuit seeking
to hold defendant liable for the referral fee under a theory that Benner misappropriated client
funds, including funds for the attorney referral fee that Benner owed plaintiff, and that defendant
acted in concert with Benner to defraud plaintiff and other creditors by transferring the
misappropriated property to defendant, in part through a sham divorce and property settlement,
and that defendant was unjustly enriched by Benner’s misdeeds. In Count I of his complaint,
plaintiff alleged that defendant was liable for the attorney referral fee that Benner agreed to pay
because she acted as Benner’s instrument or alter ego to commit fraud upon plaintiff. Plaintiff
asked the court to impose a constructive trust on a marital home owned by Benner and
defendant, which had been placed solely in defendant’s name. In Count II, plaintiff alleged that
Benner converted the client funds from which plaintiff was entitled to collect the attorney
referral fee and that defendant was liable because she aided or abetted Benner in the conversion
of plaintiff’s property.
In addition to answering the complaint, defendant filed a counterclaim for slander of title
based on plaintiff filing a notice of lis pendens for the marital home that defendant received from
Benner, which defendant had listed for sale. The trial court discharged that notice, but defendant
maintained that she was damaged by plaintiff’s malicious filing of the notice, alleging the notice
was intended to force her into negotiating the attorney referral fee claim with plaintiff.
Defendant filed a motion for summary disposition under MCR 2.116(C)(8) and (C)(10),
arguing that plaintiff failed to state a cognizable claim for liability under an alter-ego theory and
that plaintiff could not establish any claim for conversion because plaintiff could not establish
that Benner converted specific funds belonging to plaintiff. At most, defendant argued, plaintiff
had a claim for breach of contract against Benner only. Defendant also argued that there was no
evidence of a conspiracy between herself and Benner to defraud plaintiff or other creditors.
Plaintiff argued in response that defendant and Benner began to act in concert to defraud
creditors in 2009, when they transferred title to their marital home to defendant alone and Benner
began misappropriating client funds. Plaintiff submitted evidence showing that in September
2014, Benner was disbarred for misappropriating client funds, for which he was later criminally
charged. Defendant filed for divorce from Benner on December 5, 2014. On that same date, the
bank that held a mortgage on defendant and Benner’s marital home filed a notice indicating that
the 2004 mortgage on the home had been fully paid and discharged. A consent judgment of
divorce was entered in February 2015, and defendant and Benner agreed to a property settlement
that significantly favored defendant. Plaintiff argued that the divorce action was a sham, noting
that defendant and Benner continued to reside together in the marital home afterward. Under the
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property settlement agreement between defendant and Benner, the marital home was to be sold
and the net proceeds awarded to defendant, free of any claims by Benner. Until it was sold,
defendant and Benner each had the right to occupy the marital home. Defendant was also
awarded all furnishings in the marital home, her personal property, all bank and financial
accounts in her name, and a 21-foot boat and trailer. Benner received his personal property, a
2011 BMW, and any accounts in his name. The parties also agreed that defendant would receive
80 percent of proceeds due Benner for certain pending lawsuits in which Benner was the attorney
of record. Additional proceeds were to be divided, with 70 percent going to defendant and 30
percent to Benner. Defendant assumed liability for her credit and charge accounts, and Benner
was liable for all obligations in connection with B&B Properties, LLC, and his law practice, as
well as credit cards in his name. In April 2015, Benner filed for Chapter 11 bankruptcy
protection. Bankruptcy records show that several former clients pursued claims against Benner
for misappropriating funds. In his bankruptcy case, Benner listed plaintiff’s claim for the alleged
$165,000 referral fee as an unsecured debt.
In addition to opposing defendant’s motion for summary disposition under MCR
2.116(C)(8), plaintiff filed a motion to amend his complaint to add or clarify claims, including to
specify that he was proceeding on claims for civil conspiracy, concert of action, and violation of
the Uniform Fraudulent Transfer Act (UFTA), MCL 566.31 et seq. Because defendant had sold
her home, plaintiff also sought to impose a constructive trust on the proceeds of the sale.
The trial court granted defendant’s motion for summary disposition, ruling that plaintiff
could not establish a claim for conversion regarding the money owed to him by Benner. The
court also rejected plaintiff’s theory that defendant could be liable for Benner’s misdeeds as his
alter ego. Accordingly, the trial court dismissed plaintiff’s complaint in its entirety. In addition,
the trial court denied plaintiff’s motion to amend his complaint, ruling that any amendment
would be futile. The trial court also dismissed defendant’s counterclaim after defendant
voluntarily agreed to dismiss it.
Afterward, the trial court granted defendant’s motion for sanctions, agreeing that
defendant was entitled to sanctions under MCR 2.114, MCR 2.625(A)(2), and MCL 600.2591
because plaintiff’s complaint was frivolous. The trial court denied plaintiff’s motion for
sanctions in connection with defendant’s counterclaim. Following an evidentiary hearing, the
trial court awarded defendant sanctions of $18,344 for attorney fees and costs of $980.10.
I. DOCKET NO. 331701
In Docket No. 331701, plaintiff argues that the trial court erred by granting defendant’s
motion for summary disposition and denying his motion to amend his complaint. This Court
reviews a trial court’s summary disposition decision de novo. Spiek v Dep’t of Transp, 456 Mich
331, 337; 572 NW2d 201 (1998). The trial court granted defendant’s motion under MCR
2.116(C)(8), which tests the legal sufficiency of the plaintiff’s complaint by the pleadings alone.
Patterson v Kleiman, 447 Mich 429, 432; 526 NW2d 879 (1994). All well-pleaded factual
allegations in the complaint are accepted as true, as well as any reasonable inferences or
conclusions that can be drawn from the allegations. Peters v Dep’t of Corrections, 215 Mich
App 485, 486; 546 NW2d 668 (1996). Summary disposition should be granted only if the claims
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are “so clearly unenforceable as a matter of law that no factual development could possibly
justify a right of recovery.” Id. at 487.
A trial court’s decision to grant or deny leave to amend a complaint is reviewed for an
abuse of discretion. Ormsby v Capital Welding, Inc, 471 Mich 45, 53; 684 NW2d 320 (2004).
“An abuse of discretion occurs when the decision [of the trial court] results in an outcome falling
outside the principled range of outcomes.” Woods v SLB Prop Mgt, LLC, 277 Mich App 622,
625; 750 NW2d 228 (2008) (alteration in original).
A. THE ALTER-EGO RULE
Count I of plaintiff’s complaint alleged that defendant acted as Benner’s alter ego to
misappropriate client funds and shield those funds from creditors, and therefore, defendant could
be held personally liable for the attorney referral fee that Benner agreed to pay plaintiff. The
trial court agreed with defendant that plaintiff failed to state a “claim for alter ego because
there’s no corporate entity involved.” The court also refused to allow plaintiff to amend his
complaint to further clarify this claim because “there is no such thing as alter ego, and you don’t
plead any specificity as to that anyways, as to the fraud you allege.” We agree with the trial
court that there is no basis for applying the alter-ego rule to allow the imposition of liability on
defendant for Benner’s alleged misdeeds.
The alter-ego rule is not itself a cause of action. In re RCS Engineered Prod Co, Inc, 102
F3d 223, 226 (CA 6, 1996). Instead, the theory, which is based on equity, allows a court to
disregard a corporate entity in order to impose liability on a person for the corporation’s
misdeeds. Id.; Foodland Distrib v Al-Naimi, 220 Mich App 453, 456; 559 NW2d 379 (1996).
Black’s Law Dictionary (10th ed) defines “Alter ego” as “[a] corporation used by an individual
or a subservient corporation in conducting personal business, the result being that a court may
impose liability on the individual or subservient corporation by piercing the corporate veil when
someone dealing with the corporation is the victim of fraud, illegality, or injustice.” See also
RDM Holdings, LTD v Continental Plastics Co, 281 Mich App 678, 715; 762 NW2d 529 (2008).
Plaintiff is not seeking to pierce any corporate veil in this case.
Plaintiff, however, argues that the alter-ego rule may be extended to individuals under
circumstances similar to this case, relying on bankruptcy cases in which courts have held one
spouse liable for the other spouse’s debts. Bankruptcy courts have recognized that a spouse may
be liable for the other spouse’s debts, or be required to turn over assets, if the spouse had some
other relationship to the responsible spouse, apart from the spousal relationship. See In re
Ostling, 266 BR 661, 665 (Bankr ED Mich, 2001), aff’d 284 BR 614 (ED Mich, 2002) (a spousal
relationship alone is insufficient to impute one spouse’s fraud to the other spouse; in order to
hold a spouse liable for his or her spouse’s acts, there must be some legal relationship in addition
to the marriage); In re Smith, 98 BR 423 (Bankr CD Ill, 1989) (husband who ran car dealership
was wife’s agent for purposes of determining if the wife’s debts were excepted from discharge in
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bankruptcy).1 In this case, however, plaintiff was not seeking to hold defendant liable for
Benner’s alleged debt on the basis of a legal relationship between defendant and Benner apart
from their spousal relationship. Therefore, the alter-ego rule would not apply to the undisputed
facts of this case.
The trial court also did not err in denying plaintiff’s motion to amend his complaint to
further clarify his cause of action regarding the alter-ego rule. When a trial court grants
summary disposition to a defendant under MCR 2.116(C)(8), it must give the plaintiff an
opportunity to amend his complaint under MCR 2.118, unless amendment would not be justified
or if it would be futile. Yudashkin v Holden, 247 Mich App 642, 651; 637 NW2d 257 (2001);
MCR 2.116(I)(5). Under MCR 2.118(A)(2), a trial court should freely grant leave to amend
“when justice so requires” because
[a] motion to amend ordinarily should be granted in the absence of any apparent
or declared reason, such as undue delay, bad faith, or dilatory motive on the part
of the movant, repeated failure to cure deficiencies by amendments previously
allowed, undue prejudice to the opposing party by virtue of allowance of the
amendment, or futility of amendment. Ben P Fyke & Sons, Inc v Gunter Co, 390
Mich 649, 656; 213 NW2d 134 (1973). If a trial court denies a motion to amend,
it should specifically state on the record the reasons for its decision. Id. at 656-
657. [Cole v Ladbroke Racing Mich, Inc, 241 Mich App 1, 9-10; 614 NW2d 169
(2000).]
An amendment will be considered futile if it merely restates allegations already made or adds
new allegations that fail to state a claim. Yudashkin, 247 Mich App at 651.
In this case, plaintiff’s proposed amended complaint merely sought to restate his
allegations in support of applying the alter-ego rule, but without curing the deficiencies
associated with that theory of relief. Because plaintiff failed to establish a legal basis for
applying the alter-ego rule under the facts of this case, the trial court did not err by denying
plaintiff’s request to amend this claim.
B. CONVERSION
Plaintiff also argues that the trial court erred in ruling that he failed to state a claim for
conversion. Plaintiff argued that he stated a claim for statutory conversion, MCL 600.2919a,
because he had an intangible property right to the referral fee, which Benner converted, and
defendant aided or abetted in that conversion. Citing Garras v Bekiares, 315 Mich 141, 148-
149; 23 NW2d 239 (1946), the trial court ruled that defendant was entitled to summary
disposition under MCR 2.116(C)(8) “because there can be no conversion of money unless there
1
In In re Surls, 240 BR 899 (Bankr WD Mo, 1999), the court reviewed whether a wife was
liable for the debt of her husband and his corporation under an alter ego theory, but that case is
distinguishable because it involved a corporate entity. Plaintiff does not base his claim on
Benner's professional corporation.
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was an obligation on the part of the defendant to deliver specific money to the plaintiff.” The
court determined that plaintiff had not identified the conversion of any specific funds belonging
to plaintiff, and that under the facts alleged by plaintiff, plaintiff’s only remedy was a claim for
breach of contract against Benner. We disagree.
Although plaintiff cited MCL 600.2919a, the parties and the trial court relied on case law
involving common-law conversion. While MCL 600.2919a is rooted in the common-law form
of conversion, statutory conversion is not the same as common-law conversion. Aroma Wines &
Equip, Inc v Columbian Distrib Servs, Inc, 497 Mich 337, 361; 871 NW2d 136 (2015). “The tort
of conversion is ‘any distinct act of domain wrongfully exerted over another’s personal property
in denial of or inconsistent with the rights therein.’ ” Head v Phillips Camper Sales & Rental,
Inc, 234 Mich App 94, 111; 593 NW2d 595 (1999), quoting Foremost Ins Co v Allstate Ins Co,
439 Mich 378, 391; 486 NW2d 600 (1992). By contrast, statutory conversion under MCL
600.2919a(1)(a) provides that the tort is committed when another’s “property” is stolen,
embezzled, or converted for the converter’s own use.
This Court has held that “[t]o support an action for conversion of money, the defendant
must have an obligation to return the specific money entrusted to his care,” and “must have
obtained the money without the owner’s consent to the creation of a debtor and creditor
relationship.” Head, 234 Mich App at 111-112 (citations omitted); see also Lawsuit Fin, LLC v
Curry, 261 Mich App 579, 591; 683 NW2d 233 (2004). That rule evolved from common-law
conversion claims, Garras, 315 Mich at 148-149, and later applied to statutory conversion
claims, Head, 234 Mich App at 111-112.
Plaintiff alleged that Benner owed him money in the form of a referral fee for a client that
plaintiff referred to Benner. Plaintiff alleged that Benner represented that client and that plaintiff
continued to consult both Benner and the client while the litigation was in progress. After the
client settled her claim, Benner was paid the settlement funds, which he placed in his client trust
account, but only a portion of the referral fee that plaintiff was due was actually paid to plaintiff.
Based on the facts alleged in the complaint, there could indeed be a claim for conversion against
Benner because (1) Benner had an obligation to return money to plaintiff, (2) the money was
specific, i.e., it was an identifiable referral fee from settlement funds, and (3) there is nothing to
indicate that plaintiff consented to a creditor-debtor relationship. Id. As to the third requirement,
plaintiff alleged that there was an expectation that once Benner received the funds from the
settlement, Benner would transfer plaintiff’s portion; thus, there was no intended creditor-debtor
relationship. See MRPC 1.15(b) (obligating attorneys to “promptly pay or deliver funds” once
received to any third party entitled to those funds).
We further find persuasive the analysis in Francis J Bernhardt III, PC v Needleman, 705
A2d 875 (Pa Super, 1997), wherein the facts and law are almost identical. There, the plaintiff
attorney brought an action against the defendant attorney to recover an unpaid referral fee under
both breach-of-contract and conversion theories. Id. at 876. The Pennsylvania Superior Court
noted that Pennsylvania Rules of Professional Conduct, Rule 1.15, required that a lawyer notify
other individuals of the receipt of funds in which those individuals may have an interest and that
the funds should be kept separate. Id. at 878. The court held that the defendant could be liable
for conversion for not turning over a share of the settlement to the plaintiff for his referral fee,
explaining:
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The trial judge correctly stated that failure to pay a debt is not conversion.
Petroleum Marketing v. Metropolitan Petroleum Corp., 396 Pa. 48, 151 A.2d 616
(1959). Bernhardt, on the other hand, makes a persuasive argument that this was
not a debt. Bernhardt argues that the settlement proceeds were property in which
the client and both attorneys had an interest. Our research suggests that this is an
issue of first impression. Because there is no authority on this issue, Bernhardt
points to the Rules of Professional Conduct for the proposition that settlement
proceeds are property in which both attorneys have an interest. Although the
Rules are not designed to be a basis for civil liability, we find them instructive.
The comment to Rule 1.5 provides that “[a] division of fee is a single
billing to a client covering the fee of two or more lawyers who are not in the same
firm.” The comment further states that a fee division “most often is used when
the fee is contingent and the division is between a referring lawyer and a trial
specialist.” This language supports the contention that the referring attorney and
the trial specialist are splitting a fee to which both have a separate and distinct
property right. Indeed, the settlement proceeds or recovery is a res in which the
trial attorney and the client have an interest. There can be no doubt that an
attorney is liable to a client in conversion for failing to properly dispose of client
funds. Rubin Quinn Moss Heaney & Patterson, P.C. v. Kennel, 832 F.Supp. 922,
931-32 (E.D.Pa.1993). A client and a contingent fee attorney contract for
specified percentage interests in property—the proceeds of the lawsuit. Similarly,
the contract for the referral fee is a contract for a division of work in exchange for
a division of property—the attorneys’ interest in those proceeds. Accordingly,
this court holds that, once a fee has been received, the referral fee can be the
subject of a conversion. Furthermore, the attorney’s law firm can be vicariously
liable for conversion. Id. at 932. Therefore, Needleman’s failure to account to
Bernhardt for his share of the proceeds was a conversion and we reverse the trial
court’s holding on this issue. [Bernhardt, 705 A2d at 878-879.]
MRPC 1.15(b) similarly places a duty on lawyers in Michigan to notify those with an
interest in certain funds when a lawyer is in receipt of such funds. The rule states:
(b) A lawyer shall:
(1) promptly notify the client or third person when funds or property in
which a client or third person has an interest is received;
(2) preserve complete records of such account funds and other property for
a period of five years after termination of the representation; and
(3) promptly pay or deliver any funds or other property that the client or
third person is entitled to receive, except as stated in this rule or otherwise
permitted by law or by agreement with the client or third person, and, upon
request by the client or third person, promptly render a full accounting regarding
such property.
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(c) When two or more persons (one of whom may be the lawyer) claim
interest in the property, it shall be kept separate by the lawyer until the dispute is
resolved. The lawyer shall promptly distribute all portions of the property as to
which the interests are not in dispute.
(d) A lawyer shall hold property of clients or third persons in connection
with a representation separate from the lawyer’s own property. All client or third
person funds shall be deposited in an IOLTA or non-IOLTA account. Other
property shall be identified as such and appropriately safeguarded.
Because MRPC 1.15(b) requires an attorney to separately hold funds received as settlement for a
client’s claim, this would satisfy any requirement that conversion of money must involve
separately identified or distinct funds. Furthermore, MRPC 1.5(e) recognizes that attorneys may
collect on a referral by sharing in a contingency fee agreement.
Because Michigan’s rules of professional conduct mirror those relied on in Bernhardt,
and we agree with the reasoning in Bernhardt that an action for conversion can be brought where
one attorney fails to turn over another attorney’s referral fee, we hold that the trial court erred in
dismissing plaintiff’s count for conversion for the reason that plaintiff failed to establish an
obligation by Benner to deliver specific money to plaintiff. This conclusion is consistent with
this Court’s decision in Citizens Ins Co of America v Delcamp Truck Ctr, Inc, 178 Mich App
570, 576; 444 NW2d 210 (1989), in which this Court recognized that an action for conversion
can exist where an individual cashes a check and retains the full amount while only entitled to a
portion of it. Plaintiff here alleged that Benner received the settlement funds from the insurer
involved in the underlying litigation and kept the proceeds while only entitled to a portion of
them.
However, merely establishing that Benner can be liable for converting the alleged referral
fee does not end the inquiry. Because plaintiff brought this action against defendant, not Benner,
plaintiff must also show a legal basis for imposing liability on defendant for Benner’s alleged
conversion of the referral fee. MCL 600.2919a(1)(b) provides that one “receiving, possessing,
concealing, or aiding in the concealment of stolen, embezzled, or converted property” can be
liable “when the person . . . receiving, possessing, concealing, or aiding in the concealment of
stolen, embezzled, or converted property knew that the property was stolen, embezzled, or
converted.” This statute allows liability to be imposed on a party who knowingly receives
converted property, or knowingly aids in the concealment of converted property.
Plaintiff alleged that defendant conspired with Benner to participate in a scheme to hide
or transfer misappropriated assets beyond the reach of Benner’s creditors, like plaintiff. A civil
conspiracy theory is not actionable by itself, but must involve an underlying tort. Urbain v
Beierling, 301 Mich App 114, 132; 835 NW2d 455 (2013); Advocacy Org for Patients &
Providers v Auto Club Ins Ass’n, 257 Mich App 365, 384; 670 NW2d 569 (2003), aff’d 472
Mich 91 (2005). “A civil conspiracy is a combination of two or more persons, by some
concerted action, to accomplish a criminal or unlawful purpose, or to accomplish a lawful
purpose by criminal or unlawful means.” Advocacy Org for Patients & Providers, 257 Mich
App at 384. Plaintiff alleged sufficient facts that defendant knew and participated in a scheme to
convert client funds for personal use. Defendant received title to the marital home in 2009. She
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worked with Benner at his law firm, attorney disciplinary proceedings were initiated against
Benner, and he voluntarily resigned his membership with the State Bar of Michigan in
September 2014. In December 2014, the mortgage for the marital home was paid off, and
defendant filed for an uncontested divorce, which was settled shortly thereafter, with Benner
agreeing to allow the majority of assets to go to defendant, including the marital home and all of
its furnishings, as well as a boat. Defendant was also awarded a majority of the monies that was
owed to Benner for his work on other pending cases that he had handled. Benner then filed for
bankruptcy, claiming few assets.
In sum, plaintiff’s complaint sufficiently alleged a claim for conversion of plaintiff’s
referral fee by Benner, and defendant may be liable for that conversion if she knowingly received
converted property, or knowingly aided in the concealment of the converted property.
Considering plaintiff’s allegations of a conspiracy between defendant and Benner, and the
circumstances involving the transfer of assets from Benner to defendant, the challenged
legitimacy of defendant and Benner’s divorce, and the timing of the various transactions between
those parties, we cannot conclude that plaintiff’s claim of a conspiracy between defendant and
Benner to shield Benner’s assets from creditors, including plaintiff, is so clearly unenforceable as
a matter of law that no factual development could justify recovery. Accordingly, we reverse the
trial court’s decision granting defendant’s motion for summary disposition with respect to
plaintiff’s conversion claim.
C. THE UNIFORM FRAUDULENT TRANSFER ACT
The trial court also denied plaintiff’s motion to amend his complaint to add a claim under
the UFTA. Plaintiff’s proposed amended complaint alleged that defendant and Benner conspired
to use their divorce property settlement to facilitate the transfer of property from Benner to
defendant to shield the property from Benner’s creditors, including plaintiff. The trial court
erred in ruling that plaintiff was precluded from challenging the property settlement as an
improper transfer of marital assets under the UFTA because such a challenge amounted to an
improper collateral attack on the divorce judgment. In Estes v Titus, 481 Mich 573, 576; 751
NW2d 493 (2008), our Supreme Court held that the UFTA “applies to a transfer of property
made pursuant to a property settlement agreement incorporated in a divorce judgment” and that
such a claim is not an impermissible attack on a divorce judgment. The Court stated:
The UFTA specifically provides for avoiding a fraudulent transfer or
attaching a particular fraudulently transferred asset. Relief under the UFTA
determines only the creditor’s right to fraudulently transferred property. The
court in a UFTA action would transfer directly to the creditor any property
interest that would have been awarded to the debtor in the divorce action but for
the parties’ fraud. Hence, the relief granted would not affect the validity of the
divorce judgment or provisions of the judgment such as child custody. [Id. at
586-587 (footnotes omitted).]
Therefore, the trial court erred when it denied plaintiff’s motion based on this legal premise.
The Court in Estes, 481 Mich at 580-582, explained that property that is transferred
pursuant to a divorce judgment is considered to be held by the parties as tenants by the entirety,
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which is not property that can be reached under the UFTA. The UFTA allows creditors to reach
transfers of assets that are fraudulent and the term “asset” means “property of the debtor.” MCL
566.31(b). An “asset” does not include “[a]n interest in property held in tenancy by the entireties
to the extent it is not subject to process by a creditor holding a claim against only 1 tenant.”
MCL 566.31(b)(iii). Therefore, property held as tenants by the entirety is exempt from claims of
creditors of only one spouse and is not an “asset” that may be subject to the UFTA. See MCL
557.151.
Plaintiff’s theory was that defendant and Benner acted in concert to obtain a divorce in
order to transfer property to defendant and shield it from Benner’s creditors. While defendant
argues that the property transferred to her through the divorce is property held as tenants by the
entirety, and therefore, cannot be the subject of any claim under the UFTA, the status of the
property was not addressed or decided below and cannot be ascertained on the basis of the
current record. Accordingly, it is not apparent that any amendment to add a claim under the
UFTA would be clearly futile. The trial court did not identify any basis other than futility to
deny plaintiff’s motion to amend. Because the record fails to demonstrate that a claim under the
UFTA would be futile, the trial court abused its discretion in denying plaintiff’s motion to amend
to add a claim under the UFTA. Accordingly, we reverse the trial court’s order denying
plaintiff’s motion to amend his complaint to add a claim under the UFTA.
III. DOCKET NOS. 332664 AND 333114
In Docket Nos. 332664 and 333114, plaintiff challenges the trial court’s orders awarding
defendant sanctions under MCR 2.114, MCR 2.625(A)(2), and MCL 600.2591, and denying
plaintiff’s motion for sanctions in connection with the dismissal of defendant’s counterclaim.
In light of our decisions to reverse both the trial court’s dismissal of plaintiff’s conversion
claim and its denial of plaintiff’s motion to amend his complaint to add a claim under the UFTA,
we vacate the trial court’s award of sanctions to defendant because those claims cannot be
considered frivolous, and defendant is no longer a prevailing party entitled to sanctions. In re
Attorney Fees & Costs, 233 Mich App 694, 701-702; 593 NW2d 589 (1999); Davids v Davis,
179 Mich App 72, 89; 445 NW2d 460 (1989).
Plaintiff also argues that the trial court erred in denying his motion for sanctions in
connection with defendant’s counterclaim for slander of title, which was based on plaintiff’s
filing of a notice of lis pendens. Plaintiff argues that defendant’s counterclaim was frivolous
because defendant did not allege falsity or special damages, see Fed Nat’l Mtg Ass’n v Lagoons
Forest Condo Ass’n, 305 Mich App 258, 269-270; 852 NW2d 217 (2014), and because
defendant had no evidence to show that plaintiff filed the notice of lis pendens with malice. In
denying plaintiff’s motion, the trial court stated that it could not award sanctions to plaintiff
because there was never a determination of the merits of the counterclaim, and also that it “was
well grounded in fact and warranted by existing law.” The court also rejected plaintiff’s
arguments that the counterclaim “was invalid as a matter of law because Defendant could not
show falsity, malice or special damages,” reasoning that “these arguments go to the merits of the
claim, not the frivolous nature of the counterclaim.” The trial court erred in its analysis of
plaintiff’s motion. First, it was not inappropriate for plaintiff to address the merits of defendant’s
counterclaim in arguing that it was frivolous because a claim can be frivolous if the filing party
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“had no reasonable basis to believe that the facts underlying that party’s legal position were in
fact true,” or “[t]he party’s legal position was devoid of arguable legal merit.” MCL
600.2591(3)(a). Second, the trial court dismissed defendant’s counterclaim without prejudice
after dismissing all of plaintiff’s claims, and it is apparent that the trial court’s finding that
defendant’s counterclaim for slander of title was not frivolous was influenced by its
determination that plaintiff’s claims against defendant lacked factual and legal support. Thus,
our decisions to reverse both the trial court’s dismissal of plaintiff’s conversion claim and its
refusal to allow plaintiff to add a claim under the UFTA undermines the foundation for the trial
court’s decision denying plaintiff’s motion for sanctions. Moreover, because the counterclaim
was dismissed without prejudice, it is possible that defendant will seek reinstatement of her
counterclaim on remand. Under the circumstances, we also vacate the trial court’s order denying
plaintiff’s motion for sanctions, without prejudice to plaintiff raising this issue again in an
appropriate motion on remand, in which case the trial court shall reconsider its ruling under
proper legal standards.
We affirm in part and reverse in part the trial court’s order granting defendant’s motion
for summary disposition and denying plaintiff’s motion to amend her complaint, vacate the trial
court’s orders granting defendant’s motion for sanctions and denying plaintiff’s motion for
sanctions, and remand for further proceedings consistent with this opinion. We do not retain
jurisdiction.
/s/ Henry William Saad
/s/ Mark J. Cavanagh
/s/ Thomas C. Cameron
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