Reserve at Heritage Village Assn v. Warren Financial Acquisition ( 2018 )

STATE OF MICHIGAN
COURT OF APPEALS
THE RESERVE AT HERITAGE VILLAGE UNPUBLISHED
CONDOMINIUM ASSOCIATION, December 18, 2018
Plaintiff,
v No. 339765
Macomb Circuit Court
WARREN FINANCIAL ACQUISITION, LLC, LC No. 2012-000133-CB
Defendant-Appellant,
and
HERITAGE VILLAGE SINGLE FAMILY, INC.,
HERITAGE VILLAGE MASTER COMMUNITY
ASSOCIATION, GRAND/SAKWA
PROPERTIES, LLC, GRAND/SAKWA OF
WARREN, LLC, GARY SAKWA, NICK
DONOFRIO, WHITEHALL PROPERTY
MANAGEMENT, INC., CHRISTINE METIVA,
STANLEY L. SCOTT, DAVID A. GANS,
WINNICK HERITAGE VILLAGE, LLC, and
RESERVE MORTGAGE HOLDING, LLC,
Defendants,
and
THE MEISNER LAW GROUP, PC, ROBERT M.
MEISNER, and DANIEL P. FEINBERG,
Appellees.
Before: M. J. KELLY, P.J., and METER and O’BRIEN, JJ.
PER CURIAM.
In this long-standing litigation involving allegations of unpaid condominium association
assessments, defendant-appellant Warren Financial Acquisition, LLC (Warren Financial) appeals
as of right the trial court’s order denying its motion for sanctions against appellees, Robert M.
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Meisner, Daniel P. Feinberg, and The Meisner Law Group, PC. Appellees served as counsel to
plaintiff, The Reserve at Heritage Village Condominium Association, in the underlying
litigation. We affirm in part, reverse in part, and remand for further proceedings.
I. BACKGROUND
We recited the facts of the underlying litigation at some length in a previous appeal to
this Court and will not repeat them here. See Reserve at Heritage Village Ass’n v Warren Fin
Acquisition, LLC, 305 Mich App 92, 96-103; 850 NW2d 649 (2014). In that appeal, this Court
affirmed the trial court’s determination that Counts IV through XXX of plaintiff’s second
amended complaint were properly dismissed as barred by the statute of limitations, reversed the
portion of the trial court’s decision concluding that Warren Financial could foreclose on the
mortgage, and remanded for additional proceedings without retaining jurisdiction. Id. at 126.
On remand, Warren Financial and plaintiff filed multiple motions for summary
disposition on Count I, which involved plaintiff’s request to foreclose on a lien it had placed on
Warren Financial’s 76 condominium units, and Count II, which involved plaintiff’s claim that it
was owed $205,884 in unpaid assessments, exclusive of interest, late charges, costs, and attorney
fees.1 There were numerous discovery matters, multiple hearings, and constant disputes between
the parties, including a dispute over what the holdings of this Court and the trial court meant.
Warren Financial believed that plaintiff was continuously attempting to relitigate the dismissed
counts, and plaintiff believed that Warren Financial was involved in a plot to defraud it of funds.
Almost every order issued by the trial court was followed by a motion for reconsideration from
one or both parties, which resulted in additional hearings where the trial court argued with
counsel over what it meant by its opinion and order. Mediation and case evaluation were,
unsurprisingly, unsuccessful.
Almost two years after this Court issued its opinion remanding this case, the parties
finally proceeded to a bench trial on Counts I and II. Trial lasted five days over three months
and consisted of testimony from the owner of the company currently managing the condominium
complex, three members of plaintiff’s board of directors, Nicholas Donofrio, and two attorney
fees experts (one for each side). Six months after trial, the trial court issued its decision and held
that Warren Financial was liable to “plaintiff for its pro rata share of expenses of administration,
consistent with Article II, § 8 of the Bylaws,” and had to pay $96,565.60. But the court also
ruled that Article II, § 8’s developer exemption was valid under the Condominium Act,
MCL 559.101 et seq., and that it exempted Warren Financial’s liability for assessments. Because
allegedly unpaid assessments formed the basis for plaintiff’s lien on Warren Financial’s
condominium units, and because the trial court ruled that Warren Financial was not liable to
plaintiff for any unpaid assessments, the trial court denied plaintiff’s request to foreclose its lien,
dissolved the lien, and denied plaintiff’s request for attorney fees. The trial court also explained:
While Warren Financial is . . . obligated to pay some money to plaintiff, plaintiff
has not actually succeeded on even a single count of its complaint. To wit, 28 of
1
By trial, this amount had increased to over $1 million.
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the 30 counts brought against Warren Financial were dismissed prior to the
commencement of this bench trial. Of the remaining two counts, plaintiff has not
prevailed on its count of lien foreclosure (count I), nor has plaintiff prevailed on
its count for unpaid assessments (count II). While this Court will enter judgment
in favor of plaintiff for the unpaid pro rata share of administrative expenses—
given the admission that such expenses are due and owing—there is not a single
count on plaintiff’s complaint on which plaintiff was “successful.” Accordingly,
plaintiff’s request for attorney fees is properly denied.[2] [Emphasis added.]
Following this ruling, Warren Financial filed a motion seeking attorney fees and costs for
filing a frivolous complaint under MCR 2.1143 and MCL 600.2591. Warren Financial’s motion
2
Plaintiff appealed this decision. At some point after that, Warren Financial satisfied the
judgment, and plaintiff’s appeal was dismissed by stipulation. Reserve at Heritage Village Ass’n
v Warren Fin Acquisition LLC, unpublished order of the Court of Appeals, entered August 1,
2017 (Docket No. 336932).
3
MCR 2.114 was repealed effective September 1, 2018; its provisions now appear in MCR
1.109(E)(5) through (7). Administrative Order No. 2002-37, 501 Mich ___ (2018). Relevant to
this appeal, MCR 2.114(D) through (F) provided:
(D) Effect of Signature. The signature of an attorney or party, whether or
not the party is represented by an attorney, constitutes a certification by the signer
that
(1) he or she has read the document;
(2) to the best of his or her knowledge, information, and belief formed
after reasonable inquiry, the document is well grounded in fact and is warranted
by existing law or a good faith argument for the extension, modification, or
reversal of existing law; and
(3) the document is not interposed for any improper purpose, such as to
harass or to cause unnecessary delay or needless increase in the cost of litigation.
(E) Sanctions for Violation. If a document is signed in violation of this
rule, the court, on the motion of a party or on its own initiative, shall impose upon
the person who signed it, a represented party, or both, an appropriate sanction,
which may include an order to pay to the other party or parties the amount of the
reasonable expenses incurred because of the filing of the document, including
reasonable attorney fees. The court may not assess punitive damages.
(F) Sanctions for Frivolous Claims and Defenses. In addition to
sanctions under this rule, a party pleading a frivolous claim or defense is subject
to costs as provided in MCR 2.625(A)(2). The court may not assess punitive
damages.
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sought sanctions against plaintiff’s counsel, appellees. The trial court scheduled an evidentiary
hearing on the motion.
At the hearing, Warren Financial argued that it was the prevailing party under
MCL 600.2591, but appellees’ asserted that Warren Financial could not be the prevailing party
because it had a judgment entered against it. Warren Financial countered that the trial court’s
opinion stated that plaintiff had not succeeded on a single count of its complaint and that the
judgment was based on Warren Financial’s admissions of its liability, not plaintiff’s claims.
Warren Financial then argued that various counts, positions, and defenses argued by appellees
lacked a factual basis, were devoid of arguable legal merit, or showed an intent to embarrass,
harass, or injure Warren Financial. Appellees countered that none of its positions lacked legal
merit, that there was a factual basis for every count, and that it was Warren Financial that
intended to embarrass, harass, or injure plaintiff.
In rendering its decision, the trial court addressed each of Warren Financial’s claims
individually, and rejected all of them. Having not found any of plaintiff’s positions frivolous, the
trial court refused to consider whether Warren Financial was the prevailing party. The court then
denied Warren Financial’s motion in its entirety.
Warren Financial sought reconsideration, which the trial court denied because it
“remain[ed] unpersuaded that Plaintiff’s positions were devoid of arguable legal merit.” Warren
Financial then filed this appeal against appellees.
II. STANDARD OF REVIEW
In Meisner Law Group, PC v Weston Downs Condo Ass’n, 321 Mich App 702, 730; 909
NW2d 890 (2017), this Court explained:
A trial court’s findings with regard to whether a claim or defense was frivolous,
and whether sanctions may be imposed, will not be disturbed unless it is clearly
erroneous. A decision is clearly erroneous where, although there is evidence to
support it, the reviewing court is left with a definite and firm conviction that a
mistake has been made. [Quotation marks and citations omitted.]
III. ANALYSIS
Warren Financial contends that the trial court clearly erred by determining that none of
plaintiff’s claims, defenses, or positions were frivolous. “ ‘Whether a claim is frivolous within
the meaning of MCR 2.114(F) and MCL 600.2591 depends on the facts of the case.’ ” Id. at
731, quoting Kitchen v Kitchen, 465 Mich 654, 662; 641 NW2d 245 (2002). Under
MCL 600.2591(3)(a),
“Frivolous” means that at least 1 of the following conditions is met:
(i) The party’s primary purpose in initiating the action or asserting the
defense was to harass, embarrass, or injure the prevailing party.
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(ii) The party had no reasonable basis to believe that the facts underlying
that party’s legal position were in fact true.
(iii) The party’s legal position was devoid of arguable legal merit.
The provisions about frivolous claims and defenses in the Michigan Court Rules and
MCL 600.2591 “ ‘impose an affirmative duty on each attorney to conduct a reasonable inquiry
into the factual and legal viability of a pleading before it is signed.’ ” Meisner, 321 Mich App at
731, quoting Attorney General v Harkins, 257 Mich App 564, 576; 669 NW2d 296 (2003).
The reasonableness of the attorney’s inquiry is determined by an objective
standard, not the attorney’s subjective good faith. The purpose of imposing
sanctions for asserting a frivolous action or defense is to deter parties and their
attorneys from filing documents or asserting claims or defenses that have not been
sufficiently investigated and researched or that are intended to serve an improper
purpose. A court must determine whether a claim or defense is frivolous on the
basis of the circumstances at the time it was asserted. [Meisner, 321 Mich App at
731-732 (citations omitted).]
A claim or defense is devoid of arguable legal merit when there clearly are no legal grounds to
support it, Taylor v Lenawee Co Bd of Rd Comm’rs, 216 Mich App 435, 444-446; 549 NW2d 80
(1996), “such as when it violates basic, longstanding, and unmistakably evident precedent,”
Bronson Health Care Group v Titan Ins Co, 314 Mich App 577, 585; 887 NW2d 205 (2016).
A. PREVAILING PARTY
Before Warren Financial can be entitled to sanctions for frivolous claims and defenses,
we must determine whether it was “the prevailing party.” MCL 600.2591(1). A “prevailing
party” is “a party who wins on the entire record.” MCL 600.2591(3)(b). In the underlying suit,
the trial court was clear that (1) plaintiff “[had] not prevailed on its count of lien foreclosure
(count I), nor [had] plaintiff prevailed on its count for unpaid assessments (count II),” (2) the
judgment was entered in plaintiff’s favor “given [Warren Financial’s] admission that such
expenses are due and owing,” and (3) “there is not a single count on plaintiff’s complaint on
which plaintiff was ‘successful.’ ” Not only did the trial court accept Warren Financial’s
calculation of its liability, but the amount awarded to plaintiff was less than the amount of the
lien that plaintiff filed in 2011. Even though the amount Warren Financial owed plaintiff
increased throughout the five-year litigation, it never reached the amount that plaintiff asserted it
was entitled to before the litigation began. In this light, plaintiff never improved its position and
its claims were “meritless,” while Warren Financial improved its position by obtaining the
removal of plaintiff’s lien from its units. We conclude that the dissolution of the lien and the
trial court’s award to plaintiff of only the amount that Warren Financial conceded it was liable
for rendered Warren Financial the prevailing party. See Keinz v Keinz, 290 Mich App 137, 141-
142; 799 NW2d 576 (2010) (holding that the plaintiff was the prevailing party even though
“[t]he circuit court did not resolve this question”).
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B. COUNTS IV THROUGH XXVII
Warren Financial first argues that the trial court erred in denying its motion for sanctions
for plaintiff’s Counts IV through XXVII in its amended complaint because those counts “were
undeniably time-barred and the relation-back doctrine did not apply.” We disagree.
In the previous appeal, the issue was whether the claims plaintiff added in its amended
complaints against Warren Financial and other defendants were barred by the statute of
limitations. We explained that “[a]ny causes of action that accrued from January 11, 2010, to
July 16, 2010, and are not contained in the original complaint, are . . . barred, unless the amended
complaints relate back to the original complaint.” Reserve, 305 Mich App at 120. In
determining whether the claims in the amended complaints related back to the original
complaint, we found a “close question” on “whether the amended complaints added wholly new
and different parties.” Id. at 121. We found no question, however, that “the claims in the
amended complaints do not arise out of the conduct, transaction, or occurrence set forth in the
original complaint.” Id. But that did not end our inquiry because plaintiff could nevertheless
have saved its claims “if the statute of limitations was tolled by fraudulent concealment.” Id. at
120. Both this Court and the trial court rejected plaintiff’s fraudulent-concealment argument.
Both courts concluded that for Counts IV through XI—which concerned physical defects—there
was no evidence that the defects were concealed. Id. at 123. As for “Counts XII through
XXVII, involving the fraudulent scheme,” this Court concluded that fraudulent concealment did
not toll the statute of limitations because “plaintiff was aware of a possible cause of action by
October 8, 2008, or March 3, 2009.” Id. at 124.
Warren Financial asserts that “[b]ased upon a clear reading of the MCR 2.118(D) there
was no arguable legal merit to justify the filing of Counts IV through XXVII.” But the record
shows that plaintiff was relying on alleged fraudulent concealment to toll the statute of
limitations. Based on this argument, until the trial court determined—and we affirmed—that the
date on which plaintiff had notice of a possible cause of action was March 3, 2009, plaintiff had
an arguable claim that Counts IV through XXVII were not time-barred. We also note that the
statute of limitations is a waivable affirmative defense; had Warren Financial not asserted the
defense, the counts could have remained viable. See Dell v Citizens Ins Co of America, 312
Mich App 734, 757-758; 880 NW2d 280 (2015). And, contrary to Warren Financial’s apparent
assertions, filing a claim that may be barred by the statute of limitations does not, as a matter of
law, render the claim or its filing frivolous. See Siecinski v First State Bank of E Detroit, 209
Mich App 459, 465-466; 531 NW2d 768 (1995) (holding that the plaintiff’s error about
application of the statute of limitations did not necessitate a finding that the action was
frivolous).4
4
Warren Financial raised other arguments at trial that it does not raise in its brief on appeal. We
deem Warren Financial’s decision to not include the arguments to be a waiver of those
arguments. See In re Subpoena Duces Tecum to Wayne Co Prosecutor, 205 Mich App 700, 704;
518 NW2d 522 (1994) (explaining that a party waives appellate review of an issue raised at trial
if that issue is not also raised in the party’s brief on appeal).
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C. COUNT I—THE BLANKET LIEN
As part of plaintiff’s attempt to foreclose on Warren Financial’s condominium units
(Count I), plaintiff imposed a blanket lien on all 76 of Warren Financial’s units. Warren
Financial contends that plaintiff’s imposition of a blanket lien was a blatant violation of the
relevant law, and that plaintiff’s argument to the contrary was devoid of legal merit. We
disagree.
When Warren Financial moved for summary disposition on Counts I and II in July 2015,
it argued—as it does on appeal—that plaintiff’s blanket lien violated MCL 559.208, which
provides that “[t]he lien upon each condominium unit owned by the co-owner shall be in the
amount assessed against the condominium unit.” Warren Financial also relied on Article II, § 4
of the Bylaws, which states that “all assessments levied against the co-owners to cover expenses
of administration shall be apportioned among and paid by the co-owners in accordance with the
percentage value allocated to each unit.”
In response, plaintiff asserted that Warren Financial ignored the beginning of
MCL 559.208(1), which provides that the unpaid amounts “constitute a lien upon the unit or
units in the project owned by the co-owner at the time of the assessment,” as well as the
requirement in MCL 559.208(3)(a)(i) that the notice of lien include “[t]he legal description of the
condominium unit or condominium units to which the lien attaches.” Plaintiff reasoned that
because the sums assessed constituted a lien against units—plural—owned by a single co-owner,
and the lien required a legal description of the condominium units—again, plural—to which it
attached, a blanket lien was “proper, if not absolutely mandatory.”
In ruling on the parties’ cross-motions for summary disposition, the trial court did not
address Warren Financial’s blanket-lien argument. Instead, it dissolved plaintiff’s lien because it
could only be imposed if Warren Financial owed assessments, and the trial court determined that
Warren Financial was not liable to plaintiff for assessments. When ruling on Warren Financial’s
motion for sanctions, the trial court refused to address whether plaintiff’s blanket-lien argument
In Warren Financial’s reply brief, it argues that appellees’ argument at trial that Article
XXIII of plaintiff’s Bylaws was unenforceable was a frivolous claim. Yet Warren Financial did
not raise this argument in its initial brief; Warren Financial’s initial brief referenced Article
XXIII in its statement of facts, but its argument section is devoid of any mention of that article,
and nowhere in Warren Financial’s initial brief does it explain why appellees’ Article-XXIII
argument was frivolous. We decline to address Warren Financial’s Article-XXIII argument
because it is not properly before this Court having been first raised in Warren Financial’s reply
brief. See Check Reporting Services, Inc v Michigan Nat Bank-Lansing, 191 Mich App 614,
628; 478 NW2d 893 (1991) (“[W]e decline to address the new issues raised in plaintiff’s reply
brief because they are not properly before us.”); Blazer Foods, Inc v Rest Properties, Inc, 259
Mich App 241, 252; 673 NW2d 805 (2003) (“Reply briefs may contain only rebuttal argument,
and raising an issue for the first time in a reply brief is not sufficient to present the issue for
appeal.”); MCR 7.212(G).
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was frivolous in part because the trial court did not decide the issue in its earlier opinion and
order.5 Assuming that the trial court should have addressed whether plaintiff’s blanket-lien
argument was frivolous, we conclude that the argument was not and so affirm the trial court’s
ruling. See Gleason v Mich Dep’t of Transp, 256 Mich App 1, 3; 662 NW2d 822 (2003)
(upholding a trial court’s ruling where the court reached the right result for the wrong reason).
Both parties relied on MCL 559.208 for their arguments. MCL 559.208(1) provides:
(1) Sums assessed to a co-owner by the association of co-owners that are
unpaid together with interest on such sums, collection and late charges, advances
made by the association of co-owners for taxes or other liens to protect its lien,
attorney fees, and fines in accordance with the condominium documents,
constitute a lien upon the unit or units in the project owned by the co-owner at the
time of the assessment before other liens except tax liens on the condominium unit
in favor of any state or federal taxing authority and sums unpaid on a first
mortgage of record, except that past due assessments that are evidenced by a
notice of lien recorded as set forth in subsection (3) have priority over a first
mortgage recorded subsequent to the recording of the notice of lien. The lien
upon each condominium unit owned by the co-owner shall be in the amount
assessed against the condominium unit, plus a proportionate share of the total of
all other unpaid assessments attributable to condominium units no longer owned
by the co-owner but which became due while the co-owner had title to the
condominium units. The lien may be foreclosed by an action or by advertisement
by the association of co-owners in the name of the condominium project on behalf
of the other co-owners. [Emphasis added.]
Plaintiff has always argued that a “blanket lien” was proper under MCL 559.208(1) based on the
statute’s use of the alternative plural “unit or units” in the phrase “constitute a lien upon the unit
or units in the project owned by the co-owner at the time of the assessment.” Plaintiff’s
argument was essentially that the statute speaks of a singular lien that is applicable to multiple
units. Although, as Warren Financial points out, the second sentence of MCL 559.208(1) likely
bars blanket liens, we do not find that plaintiff’s argument was devoid of legal merit. The
argument was reasonable and grounded in basic principles of statutory interpretation. See
Taylor, 216 Mich App at 444-446. And neither party was able to cite authority to support that
their interpretation was settled law, or that the other party’s position was contrary to settled
precedent. See Bronson Health Care Group, 314 Mich App at 585. This was a purely legal
question, and because Warren Financial has not established that plaintiff’s argument was devoid
5
The trial court also refused to find the argument frivolous because this Court refused to grant
Warren Financial’s motion to lift the stay on the proceedings in the first appeal, presumably
inferring that if the claim was frivolous, then this Court would have lifted the stay. But this
Court’s order does not reflect any such intent. See Reserve at Heritage Village Ass’n v Warren
Fin Acquisition, unpublished order of the Court of Appeals, entered November 20, 2013 (Docket
No. 317830).
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of legal merit, we are not left with a definite and firm conviction that the trial court erred by not
finding the argument frivolous.
D. COUNT II—UNPAID ASSESSMENTS
1. VALIDITY OF DEVELOPER EXEMPTION
At issue in this count was the proper interpretation of MCL 559.169(3), “at least as it
relates to a developer’s liability to pay condominium assessments,” which the parties agreed was
a matter of first impression in Michigan. To resolve this count, the trial court had to consider the
interplay of the Bylaws and the Condominium Act, and decide whether developer exemptions,
like the one contained in the Bylaws, were permitted under the Condominium Act. As part of its
ruling, the court had to determine what the term “expenses of administration”—used in both the
Bylaws and in the Condominium Act—meant. The trial court first ruled that “expenses of
administration” had different meanings in the Condominium Act and the Bylaws. The trial court
determined that, as used in the Condominium Act, “expenses of administration” included
assessments, but that the term was used much more narrowly in the Bylaws. The trial court then
referred to the rest of MCL 559.169(3), which permitted “expenses of administration”—and
therefore assessments—to be apportioned as “contained in the master deed.” The trial court
concluded that, because the Condominium Act allowed liability for assessments to be determined
by the Master Deed, the provision in the Bylaws exempting developers like Warren Financial
from paying assessments was permissible under the Condominium Act.
Warren Financial asserts that plaintiff pleaded several defenses and positions related to
Count II that were frivolous. We will address each of these in turn.
2. DEFENSES OF ESTOPPEL, WAIVER, AND COURSE OF CONDUCT
At trial, plaintiff argued that even if the Bylaws exempted Warren Financial from paying
assessments, Warren Financial was estopped or waived its right to not pay the assessments based
on its course of conduct. Warren Financial argues that plaintiff’s estoppel, waiver, and course of
conduct assertions were without legal merit because the Bylaws expressly provided that, even if
Warren Financial had paid the assessments in the past, it would not constitute a waiver of its
right to enforce the developer exemption in the future. The trial court held that the estoppel
argument was not frivolous because its resolution depended on a factual dispute that was decided
at trial.
During trial, the parties presented conflicting evidence about Warren Financial’s reasons
for why it paid—and then stopped paying—assessments. The trial court resolved the conflict in
evidence in Warren Financial’s favor, finding that Warren Financial’s witness, Donofrio,
“provide[d] a fully adequate rationale for Warren Financial’s decision to stop paying
assessments.” Based on this “adequate rationale,” the trial court concluded that Warren
Financial was not estopped from refusing to pay assessments.
In a footnote, the trial court referenced Article XIX, § 5 of the Bylaws, which provides,
“[t]he failure . . . of any Co-owner to enforce any right, provision, covenant, or condition which
may be granted by the Condominium Documents shall not constitute a waiver of the right . . . to
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enforce such right, provision, covenant or condition in the future.” In determining whether
plaintiff’s estoppel or waiver arguments were frivolous, the trial court erred by focusing on its
resolution of a factual dispute rather than on the application of Article XIX, § 5. Regardless of
Warren Financial’s reasons for paying or not paying assessments, if Warren Financial was
entitled to the developer exemption and therefore not liable to plaintiff for assessments, then,
based on Article XIX, § 5, its previous act of paying the assessments simply could not constitute
a waiver. On appeal, appellees do not explain why its estoppel or waiver arguments were
permissible in light of the plain language of Article XIX, § 5. Because Article XIX, § 5 clearly
precluded plaintiff’s estoppel or waiver arguments, we are definitely and firmly convinced that
the trial court erred by not finding those arguments frivolous.
3. DEFENSE THAT WARREN FINANCIAL WAS NOT A DEVELOPER
Warren Financial also argues that the Condominium Act and Bylaws are clear that
Warren Financial was a developer, and that plaintiff’s initial argument that Warren Financial was
not a developer was frivolous. We disagree.
Warren Financial contends that appellees “need only have looked at the [Condominium
Act] and the Master Deed to see that” Warren Financial was “a ‘successor developer’ and,
consequently, [was] a ‘Developer’ under” the Master Deed. Warren Financial supports this
argument by referencing the statutory definitions of “developer” and “successor developer” in
MCL 559.106(2) and MCL 559.235(1) respectively. But Warren Financial does not address
appellees’ argument why these statutory definitions do not control the Master Deed. Appellees
have always contended that, although Warren Financial met the statutory definition of “successor
developer,” this did not de facto make Warren Financial a “developer” as used in the Master
Deed. Notably, the trial court accepted a similar argument for the term “expenses of
administration”; it ruled that “expenses of administration” as used in the Condominium Act was
not the same as when that term was used in the Bylaws.
The parties’ dispute about whether Warren Financial was a developer centered around
Article III, § 11 of the Master Deed, which defines “Developer” as meaning “Heritage Village
Single Family, Inc. [HVSFI], a Michigan corporation, which has made and executed this Master
Deed, and its successors and assigns.” Appellees took the position that if the drafters of the
Master Deed wanted to incorporate the statutory definition of “successor developer” into this
section, they could have done so but did not. Appellees contended that this was evidence that the
drafters of the Master Deed intended for the definition of “developer” in the Master Deed to be
distinct from the statutory definition of a “successor developer.” Appellees asserted that, based
on this evidence, the section should be read as only applying to corporate successors of HVSFI,
meaning those who succeeded HVSFI by merger or acquisition. While appellees’ position was
ultimately rejected, it was nonetheless based on basic principles of contract interpretation.
Warren Financial has not explained why the trial court clearly erred by concluding that there
were no legal grounds that supported appellees’ position, see Taylor, 216 Mich App at 444-446,
or how appellees’ position violated longstanding and unmistakably evident precedent, see
Bronson Health Care Group, 314 Mich App at 585. As a result, we are not definitely and firmly
convinced that the trial court erred by concluding that appellees’ argument that Warren Financial
was not a “developer” as that term is used in the Master Deed was not frivolous.
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4. DEFENSE THAT ARTICLE II, § 8 VIOLATED CONDOMINIUM ACT
Warren Financial also takes issue with plaintiff’s assertion that Article II, § 8 was void as
violative of the Condominium Act, which plaintiff first asserted after this Court held in the
previous appeal that Warren Financial was a developer. As the trial court noted, parties’
positions during litigation are fluid and, so long as they are not inconsistent, there is nothing
inherently frivolous with pleading new or alternative arguments to support a client’s position.
Warren Financial claims that the law was clear and did not exclude or void a developer
exemption provision, but this ignores that the validity of the developer exemption under the
Condominium Act was an issue of first impression and that appellees asserted legally sound,
albeit ultimately unsuccessful, arguments in support of their position that the exemption was
invalid. The trial court did not clearly err in determining that plaintiff’s position was not
frivolous.
5. BUDGETS AND FINANCIAL STATEMENTS
Warren Financial next argues that the trial court erred in denying its motion for sanctions
because (1) plaintiff’s proffered budgets and financial statements were not true and accurate; (2)
plaintiff allegedly misrepresented that generally accepted accounting principles (GAAP) did not
apply to condominium financials; (3) plaintiff’s position that assessments and the developer’s
responsibility for administration expenses under Article II, § 8 were identical was frivolous; and
(4) plaintiff’s position that, regardless of a budget’s contents, its formulation was solely within
the discretion of the board of directors was contrary to the plain language of the Bylaws and
therefore was frivolous.
a. BUDGET ACCURACY
Although Warren Financial complains about the accuracy of plaintiff’s budgets, the
average of those budgets was what both Warren Financial and the trial court used to calculate
Warren Financial’s liability for its pro rata share of the expenses of administration. And because
both Warren Financial and the trial court determined the budgets to be accurate enough to use
their arithmetic mean to determine Warren Financial’s liability, we conclude that the trial court
did not clearly err in denying Warren Financial sanctions on this issue.
b. GAAP
Similarly, the trial court did not clearly err by not finding plaintiff’s assertion that GAAP
did not apply to condominium financials was frivolous. The statute governing this issue is
MCL 559.157(2), which states:
Except as provided in subsection (3), an association of co-owners with annual
revenues greater than $20,000.00 shall on an annual basis have its books, records,
and financial statements independently audited or reviewed by a certified public
accountant, as defined in section 720 of the occupational code, 1980 PA 299,
MCL 339.720. The audit or review shall be performed in accordance with the
statements on auditing standards or the statements on standards for accounting
and review services, respectively, of the American institute of certified public
accountants. [Emphasis added.]
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Without explanation, Warren Financial asserts that the italicized portion of the statute refers to
GAAP. This is a strictly legal issue of statutory interpretation, and Warren Financial provides no
support for its assertion that the statute necessarily refers to GAAP. By its plain terms, the
statute refers to standards set by “the American institute of certified public accountants,” not
GAAP. Warren Financial’s argument is cursory and wholly underdeveloped, and it presents no
basis for us to conclude that plaintiff’s claim that GAAP did not apply to condominium
financials was frivolous. See Blazer Foods, Inc v Rest Properties, Inc, 259 Mich App 241, 252;
673 NW2d 805 (2003) (“[P]laintiffs have waived the issue by giving it such cursory treatment.”).
c. ASSESSMENTS AND DEVELOPER’S RESPONSIBILITY ARE IDENTICAL
Warren Financial objects to plaintiff’s contention that the assessments it sought to impose
were identical to the expenses of administration that the Bylaws permitted. But this does not
accurately reflect plaintiff’s position; plaintiff contended that the definition of “expenses of
administration” was the same in both the Bylaws and the Condominium Act, and that the term
included assessments. The trial court agreed with plaintiff that, as used in the Condominium
Act, “expenses of administration” included assessments, but rejected plaintiff’s argument that the
term was used the same way in the Bylaws. So, although the trial court ultimately rejected
plaintiff’s position, plaintiff’s argument was not wholly without justification and, as noted
earlier, was an issue of first impression. Warren Financial argues that the Bylaws’ developer
exemption expressly differentiated between developers’ obligations for assessments and
expenses of administration, but the question before the trial court was whether the developer
exemption was valid in light of the Condominium Act. The trial court did not clearly err in
denying sanctions to Warren Financial for appellees’ position on this issue.
d. UNFETTERED BOARD DISCRETION TO CREATE BUDGET
Next, Warren Financial argues that plaintiff’s position that its board had unfettered
discretion to determine what was contained in the budget was frivolous. We disagree.
The board members testified that they believed they held complete authority to determine
the budget. Warren Financial’s financial expert testified to the contrary. The trial court did not
resolve this conflict. Although there is no question that the litigation expenses related to Counts
IV through XXX should have been assessed through a special litigation assessment and not in
the annual assessments, those attorney fees were removed from the attorney fees calculation at
trial. And, until the final verdict was issued, plaintiff’s board was working under the reasonable
position that the litigation fees being incurred were for an assessment-collection action.
Although there was testimony that the legal fees ought to have been separated out into their own
line item in the budget, there was no testimony that they were not properly assessed to the
remaining co-owners in the budget. Just because Warren Financial could not be charged for the
attorney fees—as will be discussed—did not render their inclusion in the budget inappropriate.
E. PLAINTIFF’S CLAIM FOR ATTORNEY FEES
Warren Financial argues that plaintiff’s entire claim for attorney fees related to Counts I
and II was frivolous based on a clear provision in the Bylaws that plaintiff never argued was
invalid. We disagree.
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Warren Financial’s argument centers on Article II, § 8 of the Bylaws, which provides in
relevant part:
Further, the Developer shall in no event be liable for any assessment levied in
whole or in part to purchase any Unit from the Developer or to finance any
litigation or other claims against the Developer, any cost of investigating and
preparing such litigation or claim or any similar or related costs.
Warren Financial argues that, based on this section, the Bylaws “expressly [exclude] the
recovery of attorney’s fees from the developer for the purpose of litigation,” “[n]o reasonable
reading of . . . the Bylaws supported a finding that a developer would be liable to pay attorney’s
fees related to litigation asserted against it arising under the Bylaws,” and any “arguments to the
contrary were frivolous.”
But this argument ignores that the Bylaws provide other ways to collect attorney fees.
Namely, Article II, § 6(d) provides that “[t]he expenses incurred in collecting unpaid
assessments, including . . . actual attorneys’ fees” are “chargeable to the Co-owner.” While
Article II, § 8 prohibits a developer from liability for “any assessment levied . . . to finance any
litigation . . . against the Developer,” attorney fees awarded under Article II, § 6(d) are not
assessed but are directly charged to the co-owner—which includes a developer—in default. In
other words, Article II, § 8 prohibits collecting attorney fees or other costs related to litigation
against a developer from the developer through assessments, but Article II, § 6(d) permits
charging a developer attorney fees related to collecting unpaid assessments against the developer
in default. For reasons already explained, plaintiff had a reasonable legal basis to argue that
Warren Financial, as a developer, owed assessments to plaintiff. Until the trial court ruled that
Warren Financial was not, in fact, liable for assessments based on Article II, § 8—which the trial
court upheld as valid under the Condominium Act—plaintiff reasonably sought attorney fees
under Article II, § 6(d) as part of an attempt, albeit an unsuccessful attempt, to collect unpaid
assessments. Because appellees’ position that plaintiff was entitled to attorney fees was not
devoid of legal merit, the trial court did not clearly err by ruling that the position was not
frivolous.
F. PURPOSE OF LITIGATION WAS TO EMBARRASS, HARASS, OR INJURE
Finally, Warren Financial argues that the trial court clearly erred when it determined that
plaintiff did not initiate the litigation to embarrass, harass, or injure Warren Financial and its
agents. We disagree.
In support of its contention, Warren Financial first relies on testimony of plaintiff’s
attorney-fees expert, who agreed with the proposition that some of the counts that plaintiff added
in the amended complaints “were asserted by the Plaintiff just to put pressure on the Defendant
to try to get them to pay the assessment.” The expert also testified:
I said it, and I’ll say it again. [The second amended complaint] relates to a
strategy that was in response to the defense strategy to put it all and any kind of
counts that they feel might have an effect on the Defendant to resolve the case in
the manner in which they wanted it to.
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The expert described Meisner as “overzealous” and “aggressive” in a case he had litigated
against Meisner, but maintained that Meisner’s actions in that case were not inappropriate. The
expert believed that, in this case, both sides were “aggressive” and “strong advocate[s].”
Warren Financial’s argument that plaintiff’s amended complaints, which added a number
of claims, establishes that appellees’ intent was to embarrass, harass, or injure Warren Financial
ignores that initiating litigation is almost always a strategic decision and an attempt to force the
other party into resolution of the matter. We will not conclude that asserting one’s legal rights
through litigation is, by itself, evidence of an intent to embarrass, harass, or injure. Similarly,
although advancing numerous claims may be evidence of an intent to embarrass, harass, or
injure, it does not per se establish that that was the party’s intent.
Relatedly, Warren Financial argues that Counts IV through XXVII are evidence of
appellees’ intent to embarrass, harass, or injure Warren Financial because the counts “were
premised upon allegations of a fraudulent scheme . . . and stealing and embezzlement on the part
of Warren Financial, its agents[,] and its representatives,” and, despite Counts IV through XXVII
being dismissed as barred by the statute of limitations, appellees referred to these allegations as
late as their July 2016 post-trial brief. But Warren Financial does not explain why this is
evidence of an intent to embarrass, harass, or injure. While it is possible that appellees were
seeing fraud where none existed, Counts IV through XXVII were dismissed on procedural
grounds and so were never developed. Appellees’ continued assertions about the dismissed
fraud allegations suggests that they believed in the validity of those allegations and that Warren
Financial and its agents only got away with the fraud based on the running of the statute of
limitations. In short, we cannot conclude that the mere existence of the fraud allegations and
appellees’ references to those allegations is evidence of an intent to embarrass, harass, or harm.
Warren Financial argues that appellees’ intent to injure Warren Financial was also
evidenced by plaintiff’s keeping the lien on Warren Financial’s lots and refusing to lift the stay
because appellees knew that the units could not be sold with the lien. Unlike Warren Financial,
we do not construe plaintiff’s and appellees’ refusal to lift the lien as evidence of an intent to
injure. The record suggests that plaintiff and appellees truly believed that plaintiff was entitled
to its lien, and that the lien was imperative to protecting plaintiff’s ability to obtain the unpaid
assessments that plaintiff argued were due. And Warren Financial is not without fault for the
amount of time that the lien remained pending; Warren Financial chose to focus not on getting
the lien vacated in court but on creating an end-run around the lien through two separate
foreclosure proceedings.
Warren Financial also takes issue with appellees’ actions during discovery, and contends
that those actions are evidence of appellees’ intent to embarrass, harass, or injure. But appellees’
actions in discovery are not concerning. Warren Financial claims appellees acknowledged
Warren Financial’s right to seek depositions, but then filed a motion for a protective order to
block the depositions on grounds that the depositions were being sought for purposes of
annoyance, oppression, or to cause undue burden or expense. We fail to see how this is evidence
of an intent to embarrass, harass, or injure; permitting a party to seek a deposition is not
equivalent to agreeing to the deposition. Indeed, if the parties cannot agree on whether a
deposition is proper, the entire point of telling the other party to seek the deposition may be to
contest the deposition and have a court resolve the parties’ disagreement.
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In short, this was a complex litigation with two very zealous law firms representing two
parties completely entrenched in their positions and unwilling to budge. This happens in
litigation, and it is not evidence of an intent to embarrass, harass, or injure. None of the evidence
that Warren Financial points to on appeal leaves us with a definite and firm conviction that the
trial court made a mistake when it ruled that appellees’ purpose for initiating the litigation was
not to embarrass, harass, or injure.
III. CONCLUSION
In light of the foregoing, we hold that Warren Financial was the prevailing party, and the
trial court clearly erred by concluding that none of plaintiff’s claims or defenses were frivolous.
We remand for a determination by the trial court of the appropriate sanction for appellees’
frivolous claim as identified in this opinion.
Affirmed in part, reversed in part, and remanded for further proceedings consistent with
this opinion. No taxable costs under MCR 7.219, neither party having prevailed in full. We do
not retain jurisdiction.
/s/ Michael J. Kelly
/s/ Patrick M. Meter
/s/ Colleen A. O’Brien
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