Zenmuse LLC v. Jamal John Hamood ( 2020 )

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
NATHAN ALEXANDER HAMOOD, UNPUBLISHED
September 24, 2020
Plaintiff-Appellee,
v No. 347834; 348138
Wayne Circuit Court
ZENMUSE, LLC, LC No. 17-013904-CZ
Defendant-Appellant.
ZENMUSE, LLC,
Plaintiff-Appellant,
v No. 348410
Wayne Circuit Court
JAMAL JOHN HAMOOD, LC No. 19-001530-CZ
Defendant-Appellee.
Before: LETICA, P.J., and FORT HOOD and GLEICHER, JJ.
PER CURIAM.
These appeals are the product of a contentious dispute between Nathan Alexander Hamood,
Jamal John Hamood, Anita Baker, and ZenMuse LLC (ZenMuse), a limited liability company that
was created by Baker, who is its president and sole shareholder. In Docket No. 347834, ZenMuse
appeals by leave granted, Hamood v ZenMuse LLC, unpublished order of the Court of Appeals,
entered June 20, 2019 (Docket No. 347834), a January 14, 2019 order denying its motion to set
aside a default judgment previously entered against it and in favor of Nathan. In Docket No.
348138, ZenMuse appeals by right a March 1, 2019 order setting up an escrow account for this
case, requiring ZenMuse to deposit $219,892.70 into that account, requiring that those funds
remain in that account pending the completion of the appellate proceedings in this matter and
further direction by the court, providing that the property would be removed from receivership and
immediately returned to ZenMuse if the funds were properly deposited, and denying ZenMuse’s
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motion to disqualify Jamal, Nathan’s uncle, as Nathan’s counsel. Finally, in Docket No. 348410,
ZenMuse appeals by right an order granting summary disposition in favor of Jamal in an
independent cause of action in which ZenMuse sought to set aside the default judgment entered
against it in favor of Nathan in the prior case. We reverse the order denying ZenMuse’s motion
to set aside the default judgment, reverse the trial court’s decision denying ZenMuse’s motion to
disqualify Jamal as Nathan’s counsel, affirm the trial court’s dismissal of the independent cause
of action, and remand this matter for further proceedings consistent with this opinion.
I. FACTUAL BACKGROUND
In 2014, MGM Restoration provided water-remediation services to Baker. MGM
Restoration filed a lawsuit against Baker to recover for the services provided, and Jamal
represented Baker in that lawsuit. MGM Restoration’s claim was eventually dismissed, and later,
MGM assigned the claim to Nathan. Meanwhile, Jamal filed an attorney-fee lawsuit against Baker.
On April 1, 2015, Baker created ZenMuse. On January 28, 2016, Baker conveyed a property
with an estimated value if $1.5 million (the Dodge Place property) to ZenMuse for zero
consideration. Baker then executed an application on ZenMuse’s behalf to conduct business in
Michigan. She filed the application on February 2, 2016. On August 31, 2016, however, she
executed an application on ZenMuse’s behalf to withdraw its authority to conduct business in
Michigan.
On September 20, 2016, a $40,000 judgment was entered in favor of Jamal, reflecting a
settlement in Jamal’s attorney-fee lawsuit against Baker relative to the MGM Restoration matter.
On September 27, 2016, Baker filed the application to withdraw the authority to conduct business
on ZenMuse’s behalf with the State of Michigan. On January 23, 2017, Jamal filed a lawsuit
against ZenMuse, not Baker, seeking recovery against it based on the settlement reached between
him and Baker in the attorney-fee matter. On June 27, 2017, a default judgment was entered in
Jamal’s favor against ZenMuse. Then, on July 27, 2017, a judgment for $200,595 was entered in
favor of Jamal and against ZenMuse.
On September 19, 2017, Nathan filed a lawsuit against ZenMuse. One count was for a
“fraudulent transfer” under the Michigan Uniform Fraudulent Transfer Act (MUFTA), MCL
566.31 et seq. Nathan asserted that the transfer of the Dodge Place property was fraudulent since
he had an outstanding claim against Baker for “services rendered” that she knew about. Nathan
asked the trial court to “enter a Judgment permitting Plaintiff an attachment against the property
at issue . . . .” Nathan also alleged an “aiding in the concealment” count, asserting that ZenMuse,
“knowing that the Property at issue was subject to execution or levy to satisfy one or more of the
pending or outstanding claims against Anita Baker, actively assisted Anita Baker to conceal the
Property by converting title to said Property to the name of the Defendant herein.” Relying on the
authorization of treble damages and attorney fees contained in MCL 600.2919(a) for cases
involving “stolen, embezzled, or converted” property, Nathan sought $123,648.00 ($41,216.00 x
3) in damages as well as $41,366.00 in attorney fees for a total of $165,014.00.
On November 1, 2017, the trial court clerk’s office entered a default against ZenMuse in
Nathan’s lawsuit. On November 15, 2017, Nathan filed a motion for entry of judgment in the
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amount of $165,014. On December 14, 2017, the trial court entered the default judgment. Shortly
thereafter, the judgment from Jamal’s attorney-fee case was assigned to Nathan.
The judgment was not satisfied and a receiver was appointed. In the spring of 2018, the
receiver served Baker with a document via first-class mail, suggesting that Baker was aware of
this lawsuit. Baker did not act on that awareness, and claims that she only later became aware of
the lawsuit in the fall of 2018. On December 13, 2018, ZenMuse appeared in this case for the first
time and filed a motion to set aside the $165,014 default judgment. The trial court entered an order
denying this motion, which is the order appealed in Docket No. 347834. Moreover, on March 1,
2019, the trial court issued an order denying ZenMuse’s motion to disqualify Jamal as Nathan’s
counsel, which is the order appealed in Docket No. 348138.
Meanwhile, on February 1, 2019, ZenMuse filed the independent action against Jamal,
seeking to set aside the default judgment entered by the trial court in Nathan’s lawsuit. On March
20, 2019, the trial court granted Jamal’s motion for summary disposition. This is the order
appealed in Docket No. 348410
II. ZENMUSE’S MOTION TO SET ASIDE THE DEFAULT JUDGMENT
ZenMuse first argues that the trial court erred in failing to set aside the $165,014 default
judgment. We agree.
In Michigan, courts prefer to resolve lawsuits “on their merits.” Rogers v JB Hunt Transp,
Inc, 466 Mich. 645, 654; 649 NW2d 23 (2002). It is “[f]or this reason” that “defaults and default
judgments are not favored in the law.” Id. Under Michigan law, “a trial court may grant relief
from a judgment if the defendant was not personally notified of an action pending against the
defendant and several additional requirements are satisfied.” Lawrence M Clarke, Inc v Richco
Constr, Inc, 489 Mich. 265, 272; 803 NW2d 151 (2011). Specifically, MCR 2.612(B) provides as
follows:
A defendant over whom personal jurisdiction was necessary and acquired, but who
did not in fact have knowledge of the pendency of the action, may enter an
appearance within 1 year after final judgment, and if the defendant shows reason
justifying relief from the judgment and innocent third persons will not be
prejudiced, the court may relieve the defendant from the judgment, order, or
proceedings for which personal jurisdiction was necessary, on payment of costs or
on conditions the court deems just.
Our Supreme Court has broken this court rule down into five separate elements:
(1) personal jurisdiction over defendants was necessary and acquired, (2)
defendants in fact had no knowledge of the action pending against them, (3)
defendants entered an appearance within one year after the final judgment, (4)
defendants show a reason justifying relief from the judgment, and (5) granting
defendants relief from the judgment will not prejudice innocent third persons.
[Lawrence, 489 Mich. at 273.]
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The first element is based on the undisputed rule of law that “[a] court ‘cannot adjudicate
[an in personam] controversy without first having obtained jurisdiction [over the] defendant by
service of process . . . .’ ” Id. at 274 (alterations in original), quoting Eisner v Williams, 298 Mich.
215, 220; 298 N.W. 507 (1941). “A court must obtain personal jurisdiction over a defendant in
order to ‘satisfy the due process requirement that a defendant be informed of an action by the best
means available under the circumstances.’ ” Lawrence, 489 Mich. at 274, quoting MCR
2.105(J)(1). To be clear, MCR 2.612(B) and the first element outlined in Lawrence requires that
personal jurisdiction was both necessary and acquired.
Here, personal jurisdiction was both necessary and acquired because Nathan properly
served ZenMuse pursuant to MCR 2.105(H)(1), which provides that “[s]ervice of process on a
defendant may be made by serving a summons and a copy of the complaint on an agent authorized
by written appointment or by law to receive service of process.” When ZenMuse filed its
application for certificate of withdrawal with the State of Michigan Department of Licensing and
Regulatory Affairs (LARA)’s Corporations, Securities, and Commercial Licensing Bureau, it
stated as follows with respect to service of process on ZenMuse in Michigan:
The limited liability company revokes the authority of its resident agent to receive
service of process in this state and consents that service of process in any action,
suit, or proceeding based upon any cause of action arising in this state during the
time the foreign limited liability company was authorized to transact business in
this state may thereafter be made on the company by service upon the administrator.
“Administrator” is defined by MCL 450.1402(a) as “the director of the department or his or her
designated representative,” and “department” is defined as LARA. See MCL 450.4102(f). The
next line of the application for certificate of withdrawal identified “[t]he address to which the
administrator is to mail a copy of any process against this limited liability company” as King
Holmes Paterno & Soriano LLP, Attn: Daniel K. Stuart, Esq., 1900 Avenue of the Stars, 25th
Floor, Los Angeles, CA 90067.” When he filed his complaint, Nathan filed a proof of service,
asserting that he served his complaint on September 21, 2017 by mailing it to ZenMuse, LLC, C/O
Administrator, State of Michigan LARA, P.O. Box 30004, Lansing, MI 48908. He additionally
included a photograph reflecting that he did, in fact, serve the complaint on that address by certified
mail. That is precisely what ZenMuse’s application for certificate of withdrawal instructed parties
to do. Accordingly, we conclude that “personal jurisdiction over defendants was necessary and
acquired.”
The second element requires that ZenMuse demonstrate that it “did not ‘in fact have
knowledge of the pendency of the action’ in order to be entitled to relief under MCR 2.612(B).”
Lawrence, 489 Mich. at 275. As the Supreme Court has explained, “the plain language of MCR
2.612(B) permits a defendant to seek relief from a default judgment as long as the defendant did
not have actual knowledge of the pending action.” Id. at 276. Importantly, constructive knowledge
is not enough. Id. at 280.
In her affidavit, Baker asserted that she did not become aware of this case until September
or October of 2018. This was long after the default judgment was entered in January of that year.
Baker’s assertion that she did not have “actual knowledge” of this lawsuit remains uncontradicted.
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We make no assessment of Baker’s credibility but conclude that the present record establishes that
ZenMuse had no knowledge of the action pending against it.
The third element requires that ZenMuse “must have entered an appearance within one
year after the final judgment.” Lawrence, 489 Mich. at 280. That element was met here.
The fourth element is more subjective. “[I]t is clear that a defendant seeking relief under
MCR 2.612(B) need not show mistake, inadvertence, surprise, excusable neglect, newly
discovered evidence, fraud, misrepresentation, or other misconduct of an adverse party because
MCR 2.612(C) provides for relief from a judgment on those grounds.” Lawrence, 489 Mich. at
281. Rather, “a defendant may satisfy the requirement of a ‘reason justifying relief from the
judgment’ by showing that he or she (1) did not have actual notice of the action and (2) has a
meritorious defense.” Id. at 282. Again, Baker’s assertion in her affidavit that she, as ZenMuse’s
president and sole shareholder, did not have actual knowledge of this suit remans uncontradicted.
Therefore, it comes down to whether ZenMuse has a meritorious defense.
ZenMuse claims it “has numerous meritorious defenses” and identifies two that we believe
merit discussion. First, ZenMuse contends that “ ‘aiding in the concealment’ is not a civil cause
of action” and, “[t]o the extent Nathan was attempting to allege a claim of statutory conversion
pursuant to MCL 600.2919(a), any such claim would also fail for the simple reason that ZenMuse
did not steal or embezzle any of Nathan’s property.” ZenMuse asserts that “[t]he lawsuit should
also be dismissed pursuant to the holding in Mather Investors, LLC v Larson, 271 Mich. App. 254;
720 NW2d 575 (2006),” because Baker, a necessary party, was not named as a party in this case.
The first defense pertains to Nathan’s conversion claim under MCL 600.2919a, which
provides:
(1) A person damaged as a result of either or both of the following may recover 3
times the amount of actual damages sustained, plus costs and reasonable attorney
fees:
(a) Another person’s stealing or embezzling property or converting property to the
other person’s own use.
(b) Another person’s buying, receiving, possessing, concealing, or aiding in the
concealment of stolen, embezzled, or converted property when the person buying,
receiving, possessing, concealing, or aiding in the concealment of stolen,
embezzled, or converted property knew that the property was stolen, embezzled, or
converted.
(2) The remedy provided by this section is in addition to any other right or remedy
the person may have at law or otherwise.
“Conversion, both at common law and under the statute, is defined as any distinct act of domain
wrongfully exerted over another’s personal property in denial of or inconsistent with the rights
therein.” Magley v M & W Inc, 325 Mich. App. 307, 314; 926 NW2d 1 (2018) (citation and internal
quotation marks omitted). “[I]n addition to the common law elements for conversion, a plaintiff
claiming statutory conversion must show that the conversion was for the defendant’s ‘own use.’ ”
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Id. at 306 n 3, quoting Aroma Wines & Equip, Inc v Columbian Dist Serv, Inc, 497 Mich. 337, 356;
871 NW2d 136 (2015).
In his complaint, Nathan’s “aiding in the concealment” claim, while otherwise labeled,
asserted a statutory-conversion claim pursuant to MCL 600.2919a. See Adams v Adams (On
Reconsideration), 276 Mich. App. 704, 710-711; 742 NW2d 399 (2007) (“It is well settled that the
gravamen of an action is determined by reading the complaint as a whole, and by looking beyond
mere procedural labels to determine the exact nature of the claim.”). Nathan alleged that ZenMuse
converted the Dodge Place property by “actively assist[ing] Anita Baker to conceal the Property
by converting title to said Property to” it and “further aided in the concealment of personal property
contained in the Property at issue which could have otherwise been subject to execution by Ms.
Baker’s creditors.” These allegations do not adequately allege a statutory-conversion claim.
Stated simply, Nathan did not allege, much less provide support for, the notion that he (or MGM
Restoration) had a property interest in the Dodge Place property at the time of the alleged
conversion. Lack of a property interest is fatal to a conversion claim. See, e.g., Lawsuit Financial,
LLC v Curry, 261 Mich. App. 579, 592; 683 NW2d 233 (2004) (affirming summary disposition on
conversion claims pursuant to common law and MCL 600.2919a).
The second defense pertains to Nathan’s MUFTA claim. “The MUFTA defines two
species of fraudulent transfers.” Dillard v Schlussel, 308 Mich. App. 429, 446; 865 NW2d 648
(2014). One “encompasses transfers made ‘[w]ith actual intent to hinder, delay, or defraud’ a
creditor and applies to transfers made either before or after the creditor’s claim arose.’ ” Id.,
quoting MCL 566.34(1)(a). The other, “commonly called ‘fraud in law’ or constructive fraud,
deems certain transactions fraudulent regardless of the creditor’s ability to prove the debtor’s
actual intent,” but “applies only to transfers made after the creditor’s claim arose.” Id. Ultimately,
“[t]hree elements of proof are required: (1) the creditor’s claim arose before the transfer, (2) the
debtor was insolvent or became insolvent as a result of the transfer, and (3) the debtor did not
receive ‘reasonably equivalent value in exchange for the transfer . . . .’ ” Id. at 446-447, quoting
MCL 566.35(1).
Rather than addressing these elements or the statutory language at issue, ZenMuse’s
argument with respect to Nathan’s MUFTA claim focuses entirely on the assertion that the claim
must “be dismissed pursuant to the holding in Mather Investors, LLC v Larson, 271 Mich. App.
254; 720 NW2d 575 (2006)” because Baker, a necessary party, was not named as a party in this
case. Mather supports ZenMuse’s position. In that case, although this Court began by recognizing
that “[t]he plain language of the [M]UFTA does not require the creditor to join the debtor alleged
to have made the fraudulent transfer,” id. at 256, its analysis did not stop there. That “case arose
out of Alice Maddock’s stay at a nursing center operated by the plaintiff, Mather Investors, LLC,
where she allegedly incurred approximately $53,000 in nursing home bills.” Id. at 255. Around
this same time, “Maddock allegedly transferred all her assets, amounting to more than $63,000 in
real estate and back account funds, to defendant William Larson.” Id. Mather Investors sued
Maddock and Larson, alleging a breach of contract based on Maddock’s failure to pay her nursing-
home bills and a fraudulent transfer under MUFTA. Id. Mathers Investors “failed to serve
Maddock before her death, and she was dismissed from the suit.” Id. Larson subsequently “moved
for summary disposition on the grounds that Maddock or her estate were necessary parties, and
defendant could not be liable under the [M]UFTA without a determination that Maddock or her
estate were liable to plaintiff on a debt.” Id. The trial court ultimately ruled in Larson’s favor,
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and, on appeal, Mathers Investors “argue[d] that a suit under the [M]UFTA to void an allegedly
fraudulent transfer does not require the transferor, here Maddock or her estate, to be joined.” Id.
at 255-256. However, “[b]ecause the [M]UFTA clearly does not contain any language requiring
joinder of the debtor transferor,” this Court made it clear that it would “not imply such a
requirement.” Id. at 259. Instead, consistent with “the venerable rule that joinder is required of
all parties ‘concerned in the controversy . . . to have their respective interests charged or protected,
and to end the controversy once and for all,’ ” id. at 257, quoting Brown v Kalamazoo Circuit
Judge, 75 Mich. 274, 280; 42 N.W. 827 (1889), this Court identified “[t]he dispositive inquiry” as
being “whether the circumstances of the individual case permit complete adjudication without
joining the debtor transferor.” Mather, 271 Mich. App. at 259. This Court analyzed that issue as
follows:
The circumstances of this case, as the trial court correctly found, clearly do
not. The [M]UFTA is analogous to the Bulk Sales Act [the legislation at issue in
one of the cases this Court relied on] in two significant ways. First, a “debtor”
under the [M]UFTA “means a person who is liable on a claim.” MCL 566.31(f).
A claim need not be reduced to judgment or undisputed. MCL 566.31(c).
However, the transferor must actually be liable for the claim to be a “debtor.”
Indeed, the remainder of the [M]UFTA appears to presume that liability has already
been established. A claim under [M]UFTA cannot proceed otherwise.
Furthermore, the [M]UFTA only permits voiding a transaction upon action by the
creditor, not by the transferee. See MCL 566.37(1)(a). As was the case in Paton[
v Langley, 50 Mich. 428; 15 N.W. 537 (1883)], the transferor here has ostensibly
parted with any interest in the assets. However, the transferor, or her estate, has
not parted with an interest in an adjudication of liability to another individual.
Therefore, unless the transferor’s liability has already been determined in a
proceeding that afforded the transferor a meaningful opportunity to defend, the
transferor’s “presence in the action is essential to permit the court to render
complete relief . . . . MCR 2.205(A).” [Id. at 259-260.]
Therefore, this Court held, Maddock was a necessary party. Id. at 260.
The same result is appropriate here. Again, “[a] ‘debtor’ under the [M]UFTA ‘means a
person who is liable on a claim.’ ” Id. at 259, quoting MCL 566.31(f). Baker, not ZenMuse, was
purportedly MGM Restoration’s—and, therefore, Nathan’s—debtor. As “the transferor,” Baker
“must actually be liable for the claim to be a ‘debtor.’ ” Mathers, 271 Mich. App. at 259. While
“[a] claim need not be reduced to judgment or undisputed,” id., citing MCL 566.31(c), “the
transferor must actually be liable for the claim to be a ‘debtor,’ ” id. In fact, “[M]UFTA appears
to presume that liability has already been established.” Mathers, 271 Mich. App. at 259. Here,
Baker’s liability on an independent claim regarding her purported failure to pay MGM Restoration
for the water-remediation services has never been established. In fact, the only case in which it
was substantively alleged was apparently in a case by MGM Restoration that was dismissed. The
only potential claim Nathan has alleged in addition to the one under MUFTA would be the
conversion claim, but that has nothing to do with Baker’s liability for the water-remediation
services at issue; rather, it focuses entirely on the transfer of title for the Dodge Place property.
Thus, here, like in Mathers, while Baker “has ostensibly parted with any interest in the assets,”
she “has not parted with an interest in an adjudication of liability to another individual.” Id.
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“[U]nless [Baker’s] liability has already been determined in a proceeding that afforded the
transferor a meaningful opportunity to defend, the transferor’s ‘presence in the action is essential
to permit the court to render complete relief . . . .’ ” Id. at 259-260, quoting MCR 2.205(A).
Nathan, as MGM Restoration’s assignee, has never brought a claim against Baker to determine
her liability in a proceeding during which she would be afforded a meaningful opportunity to
defend against her alleged failure to pay for the water-remediation services. Until Baker is
afforded a meaningful opportunity to defend her actions in that conflict, we conclude that Baker
was a necessary party in any MUFTA claim based on that conflict.
In response to his failure to name Baker as a party in this case, Nathan relies on the doctrine
of res judicata. He claims as follows:
Defendant asserts that Anita Baker is a necessary party to a MUFTA action.
But nothing in the statute supports the contention. And on the circumstances of this
action, because Anita Baker is the president and sole shareholder of Defendant
ZenMuse, and because, under res judicata, the outcome in ZenMuse would bind
Anita Baker, complete relief is available in this cause of action where ZenMuse is
named. . . .
“A subsequent suit between the same parties when the evidence or essential facts remain the same
is barred by the doctrine of res judicata.” Energy Reserves, Inc v Consumers Power Co, 221 Mich
App 210, 215; 561 NW2d 854 (1997). It applies if three elements are met: “(1) the former suit
must have been decided on the merits, (2) the issues in the second action were or could have been
resolved in the former one, and (3) both actions must involve the same parties or their privies.”
Id. at 215-216. If Nathan were to eventually prevail against ZenMuse on a MUFTA claim based
on Baker’s transfer of the Dodge Place property to ZenMuse, res judicata may well come into play.
But it is unclear how the doctrine would apply here. Baker’s “presence in the action” was
necessary because it was “essential to permit the court to render complete relief” because her
liability has not “already been determined in a proceeding that afforded the transferor a meaningful
opportunity to defend . . . .” Mathers, 271 Mich. App. at 259-260; see also MCR 2.205(A). In
essence, Nathan takes the position that a plaintiff can decline to name “essential” parties in a
lawsuit and then rely on the fact that they will be bound by the outcome as a reason for binding
them to the outcome. He does not cite legal authority endorsing such a peculiar understanding of
res judicata. “ ‘A party may not leave it to this Court to search for authority to sustain or reject its
position.’ ” Peterson Novelties, Inc v City of Berkley, 259 Mich. App. 1, 14; 672 NW2d 351 (2003),
quoting Magee v Magee, 218 Mich. App. 158, 161; 553 NW2d 363 (1996). Consequently, this
argument is abandoned. Id. Moreover, we expressly decline to endorse the notion that a plaintiff
can avoid naming a necessary defendant in a lawsuit where the defendant can be bound by that
lawsuit’s outcome.
Finally, the Supreme Court has analyzed the fifth element for relief from judgment—that
“granting defendants relief from the judgment will not prejudice innocent third persons”—as
follows:
Because this case involves a contract dispute and all the parties to the contract were
also parties to this action, it appears that no third parties would be prejudiced if the
default judgment were to be set aside. Also, there is no evidence in the record that
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any third parties have an interest in this case. Thus, we conclude that this
requirement is met. [Lawrence, 489 Mich. at 285.]
The same result is warranted here, perhaps even more so. The underlying dispute at issue is
between Nathan (as MGM Restoration’s assignee) and Baker. Nathan was involved in this case.
Although ZenMuse is the defendant in this case, Baker, too, was arguably involved in light of her
role as ZenMuse’s president and shareholder. Thus, all the parties to the contract were parties to
the action. The only third party who might be prejudiced is the receiver, who, by ZenMuse’s own
admission, incurred at least $38,377.30 in costs. However, it is our view that the receiver’s
presence, by itself, should not prevent this Court from setting aside the default judgment. Instead,
as discussed more below, the trial court should determine whether Nathan, ZenMuse, or both
should be responsible for reimbursing the receiver for its costs on remand.
Ultimately, because personal jurisdiction over ZenMuse was necessary and acquired,
because ZenMuse (via Baker) has asserted without contradiction that it had no knowledge of this
lawsuit, because ZenMuse entered an appearance within one year of the final judgment, because
ZenMuse has demonstrated meritorious defenses to both of Nathan’s claims as currently pleaded,
and because there has been no showing that setting aside the default judgment will prejudice any
innocent third parties, ZenMuse satisfied all five elements to be entitled to relief from judgment
pursuant to MCR 2.612(B). Id. at 273. The trial court did not, however, reach this result. Instead,
the trial court’s analysis was limited to whether ZenMuse was properly served. However, “actual
knowledge,” not adequate service or constructive knowledge, is what is required for purposes of
MCR 2.612(B). Id. at 275-276, 280. Given that all five elements set forth by our Supreme Court
in Lawrence were satisfied, we conclude that the trial court’s decision declining to set aside the
default judgment against ZenMuse pursuant to MCR 2.612(B) constituted an abuse of discretion.
Epps v 4 Quarters Restoration LLC, 498 Mich. 518, 528; 872 NW2d 412 (2015) (“A trial court’s
decision regarding a motion to set aside a default judgment is reviewed for an abuse of
discretion.”). Accordingly, we reverse the trial court’s order denying ZenMuse’s motion to set
aside the default judgment and remand this matter for further proceedings.
We feel compelled to emphasize that this decision was not reached lightly. Ultimately, as
the trial court concluded, it appears that ZenMuse was served in the precise manner that it agreed
to when it withdrew its authority to transact business in Michigan. This fact, when considered
within the context of Baker creating ZenMuse, transferring a $1.5 million home to it without
receiving any consideration in return, and then quickly withdrawing its authority to transact
business in Michigan, is troublesome. Moreover, it appears likely that Baker was personally aware
of this lawsuit as early as April 23, 2018, more than eight months before ZenMuse filed its motion
to set aside, because she was successfully served by the receiver via first-class mail. However, in
our view, nothing in MCR 2.612(B) or the caselaw interpreting and applying it seem to
contemplate the consideration of these outside factors. Nonetheless, these circumstances are not
completely irrelevant. To begin, even though Nathan’s claims as currently pleaded suffer from
fundamental flaws, Nathan is entitled to an opportunity to amend his pleadings. “If a trial court
grants summary disposition pursuant to MCR 2.116(C)(8), (C)(9), or (C)(10), the court must give
the parties an opportunity to amend their pleadings pursuant to MCR 2.118, unless the amendment
would be futile.” Yudashkin v Linzmeyer (On Remand), 247 Mich. App. 642, 651; 637 NW2d 257
(2001) (citation and internal quotation marks omitted). In addition, we anticipate that Baker’s and
ZenMuse’s actions as described above will play a role with respect to how the receiver’s costs are
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paid, as well as whether, in light of our decision that the default judgment should be set aside,
payment of costs or other conditions should be imposed. See MCR 2.612(B) (providing that a
court may set aside a default judgment “on payment of costs or on conditions the court deems
just”). It is our view that the trial court, not this Court, is in the best position to make these
decisions.
III. ZENMUSE’S MOTION TO DISQUALIFY NATHAN’S COUNSEL
In light of our above conclusion, many of the parties’ remaining arguments are no longer
necessary to address. One, however, is: ZenMuse’s argument that Jamal should be disqualified as
Nathan’s counsel based on an apparent conflict of interest. “The determination of the existence of
a conflict of interest that disqualifies counsel is a factual question that we review for clear error.
A trial court’s findings of fact are clearly erroneous only if [this Court is] left with a definite and
firm conviction that a mistake was made.” Avink v SMG, 282 Mich. App. 110, 116; 761 NW2d 826
(2009). However, this Court “review[s] de novo the application of ‘ethical norms’ to a decision
whether to disqualify counsel.” Id.
When a party moves for the disqualification of another party’s counsel, “ ‘[t]he party
seeking disqualification bears the burden of demonstrating specifically how and as to what issues
in the case the likelihood of prejudice will result.’ ” Rymal v Baergen, 262 Mich. App. 274, 319;
686 NW2d 241 (2004), quoting Kubiak v Hurr, 143 Mich. App. 465, 471; 372 NW2d 341 (1985).
In alleging that Jamal had a conflict of interest in representing Nathan after previously representing
Baker in MGM Restoration’s case against her, ZenMuse relies on MRPC 1.9, which provides:
(a) A lawyer who has formerly represented a client in a matter shall not thereafter
represent another person in the same or a substantially related matter in which that
person’s interests are materially adverse to the interests of the former client unless
the former client consents after consultation.
(b) Unless the former client consents after consultation, a lawyer shall not
knowingly represent a person in the same or a substantially related matter in which
a firm with which the lawyer formerly was associated has previously represented a
client
(1) whose interests are materially adverse to that person, and
(2) about whom the lawyer had acquired information protected by Rules 1.6 and
1.9(c) that is material to the matter.
(c) A lawyer who has formerly represented a client in a matter or whose present or
former firm has formerly represented a client in a matter shall not thereafter:
(1) use information relating to the representation to the disadvantage of the former
client except as Rule 1.6 or Rule 3.3 would permit or require with respect to a client,
or when the information has become generally known; or
(2) reveal information relating to the representation except as Rule 1.6 or Rule 3.3
would permit or require with respect to a client.
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It is undisputed that Jamal represented Baker in MGM Restoration’s claim against her
based on her failure to pay for the water-remediation services. It is likewise undisputed that Jamal
is now representing Nathan, who is standing in MGM Restoration’s shoes as its assignee, on that
same claim based on Baker’s failure to pay for the water-remediation services. Finally, it is
undisputed that Baker did not consent to Jamal’s representation of Nathan in this case. Because
Jamal, in the most literal sense, switched sides on that claim, Jamal’s representation of Nathan
after representing Baker provides a fairly straightforward example of the conflict of interest
prohibited by MRPC 1.9(a): “A lawyer [Jamal] who has formerly represented a client [Baker] in
a matter [the matter involving MGM Restoration’s water-remediation services] shall not thereafter
represent another person [Nathan] in the same or a substantially related matter [the matter
involving MGM Restoration’s water-remediation services] in which that person’s [Nathan’s, as
MGM Restoration’s assignee’s] interests are materially adverse to the interests of the former client
[Baker, ZenMuse’s president and sole shareholder] unless the former client consents after
consultation.”
Thus, Jamal had a conflict of interest. In fact, Jamal, as Nathan’s attorney, seemed to
concede as much when he acknowledged that he “would likely have information that would justify
a disqualification” and would, therefore, “agree that he should be disqualified” in the event the
default judgment was set aside. To the extent that concession is qualified by the claim that there
is no “conflict of interest with respect to the Parties in the case as it is currently postured,” such a
qualification is irrelevant for purposes of MRPC 1.9(a) as well as conflict-of-interest principles in
general. Jamal had a conflict of interest: The fact that this case did not reach the substance of
Nathan’s allegations—although it may on remand—does not impact whether an impermissible
conflict of interest existed. Likewise, that Jamal “never represented Zenmuse, and does not have
any ‘inside’ information with respect to” ZenMuse, is largely irrelevant because MGM
Restoration’s (or its assignee’s) claim based on Baker’s failure to pay for the water-remediation
services was (or at least should have been) against Baker, not ZenMuse. Moreover, MRPC 1.9(a)
prohibits the attorney from representing another individual when that person’s interests are
“materially adverse to the interests of the former client,” which adequately implicates both Baker
and ZenMuse.
As part of this issue, ZenMuse also challenges the trial court’s decision to require it to
deposit $219,892.70 in an escrow account while this appeal was pending. According to ZenMuse,
“given the impropriety of the underlying proceedings that [led] to the appointment of a receiver
sale, the Property never should have been subjected to receivership proceedings.” “Thus,” it
continues, “the appointment of a receiver to sell the Property—a harsh remedy—was unnecessary
and improper.” However, it was ZenMuse that requested this relief: “ZenMuse proposes to deposit
$219,892.70 in an escrow account with the Court.” ZenMuse cannot now complain that the trial
court did exactly what it asked the trial court to do. See, e.g., Dresselhouse v Chrysler Corp, 177
Mich. App. 470, 477; 442 NW2d 705 (1989) (“A party is not allowed to assign as error on appeal
something which his or her own counsel deemed proper at trial since to do so would permit the
party to harbor error as an appellate parachute.”).
IV. ZENMUSE’S INDEPENDENT CAUSE OF ACTION
In light of our decision with respect to Nathan’s motion to set aside the default judgment,
our analysis with respect to ZenMuse’s independent cause of action is relatively straightforward.
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Michigan’s appellate courts review a trial court’s decision to grant or deny a motion for summary
disposition de novo. Maiden v Rozwood, 461 Mich. 109, 118; 597 NW2d 817 (1999). “A motion
under MCR 2.116(C)(10) tests the factual sufficiency of the complaint.” Maiden, 461 Mich. at
120. When “evaluating a motion for summary disposition brought under this subsection, a trial
court considers affidavits, pleadings, depositions, admissions, and other evidence submitted by the
parties, in the light most favorable to the party opposing the motion.” Id., citing MCR 2.116(G)(5).
If “the proffered evidence fails to establish a genuine issue regarding any material fact, the moving
party is entitled to judgment as a matter of law.” Id., citing MCR 2.116(C)(10); MCR 2.116(G)(4);
Quinto v Cross & Peters Co, 451 Mich. 358; 547 NW2d 314 (1996).
“In Michigan, an independent action in chancery for relief from a judgment has been long
recognized.” Trost v Buckstop Lure Co, 249 Mich. App. 580, 585; 644 NW2d 54 (2002), citing
Michigan Court Rules Practice, Rule 2.612, § 2612.17, p 483. Specifically, MCR 2.612(C)(3)
provides that subrule (C) “does not limit the power of a court to entertain an independent action to
relieve a party from a judgment, order, or proceeding; to grant relief to a defendant not actually
personally notified as provided in subrule (B); or to set aside a judgment for fraud on the court.”
This Court has recognized that
five essential elements must be satisfied for a party to be entitled to independent
equitable relief: (1) the judgment is one that ought not, in equity and good
conscience, be enforced, (2) there is a valid defense to the alleged cause of action
on which the judgment is founded, (3) fraud, accident, or mistake prevented the
defendant from obtaining the benefit of the defense, (4) there was no negligence or
fault on the part of the defendant, and (5) there is no adequate remedy available at
law. [Trost, 249 Mich. App. at 589.]
Here, because there is an adequately remedy available at law, i.e., under MCR 2.612(B),
ZenMuse’s independent cause of action fails.
V. CONCLUSION
For all of these reasons, we reverse the trial court’s order denying ZenMuse’s motion to
set aside the default judgment, reverse the trial court’s decision denying ZenMuse’s motion to
disqualify Jamal as Nathan’s counsel, and remand this matter for further proceedings consistent
with this opinion.
Affirmed in part, reversed in part, and remanded for further proceedings. We do not retain
jurisdiction.
/s/ Anica Letica
/s/ Karen M. Fort Hood
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