Price Heneveld v. Annuity Investors

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 07a0542n.06
Filed: August 2, 2007
Nos. 06-1666/1667
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
PRICE, HENEVELD, COOPER, DEWITT & )
LITTON, )
)
Plaintiff-Appellant/Cross-Appellee, )
)
v. ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
ANNUITY INVESTORS LIFE INSURANCE ) COURT FOR THE WESTERN
COMPANY, ) DISTRICT OF MICHIGAN
)
Defendant-Appellee/Cross-Appellant. )
BEFORE: KEITH and COLE, Circuit Judges; and OLIVER, District Judge.*
PER CURIAM. Implicated in the present appeal and cross-appeal are three separate
decisions of the district court. Plaintiff-Appellant Price, Heneveld, Cooper, Dewitt & Litton (“Price
Heneveld”) appeals the district court’s denial of its motion to amend the complaint and subsequent
grant of summary judgment dismissing the complaint. Defendant-Appellee Annuity Investors Life
Insurance Company (“Annuity Investors”) cross-appeals the district court’s grant of partial summary
judgment limiting its counterclaim for legal malpractice. For the reasons set forth below, we
AFFIRM all three decisions of the district court.
I.
Price Heneveld, a Michigan law firm, provided legal services on intellectual property matters
to Annuity Investors for several years. In 1996, Annuity Investors sought the firm’s legal assistance
*
The Honorable Solomon Oliver, Jr., United States District Judge for the Northern
District of Ohio, sitting by designation.
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regarding the trademark implications of its proposed use of the names “Navigator” or “Commodore
Navigator” for an annuity product. In an opinion letter, Price Heneveld advised Annuity Investors
that it could use the name “Commodore Navigator.” However, Price Heneveld failed to disclose that
Clark Capital Management Group (“Clark Capital”) had repeatedly opposed and challenged the use
of the term “Navigator” in the financial services industry.
After receiving the advice of Price Heneveld, Annuity Investors marketed its “The
Commodore Navigator” variable annuity product. Clark Capital promptly brought both a challenge
before the Trademark Trial and Appeal Board and a trademark infringement action in the United
States District Court for the Eastern District of Pennsylvania against Annuity Investors. Annuity
Investors employed Price Heneveld, as well as legal counsel from Pennsylvania and Connecticut,
to defend it in these actions. Annuity Investors eventually settled the controversy with Clark Capital.
Ultimately, Annuity Investors incurred a total of $2,312,697.90 in attorney fees, costs, and other
defense and settlement-related expenditures.
Annuity Investors’ made its last payment for legal services to Price Heneveld in January
2002. Price Heneveld claims that an unpaid balance of $141,048.95 remains due. Annuity Investors
disagrees because it believes these fees are solely attributable to the legal malpractice of Price
Heneveld. On multiple occasions, Annuity Investors has refused to pay the remaining balance and
told Price Heneveld that it was dissatisfied with the amount charged and wanted to be refunded
because Price Heneveld had committed malpractice.
The parties entered into negotiations over the bill, which ended without resolution in March
2002. The understanding reached in these negotiations was summarized in an email memorandum
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by a Price Heneveld partner, Randal Litton, on March 22, 2002. The email stated in its entirety:
I have now talked with John Gruber [Vice President of Annuity Investors]. I
declined his last offer and advised him we had contacted our carrier. He repeated
again that he had hoped the matter could be settled short of litigation. I promised to
advise him prior to filing suit to collect the bill. He promised to advise us prior to
initiating any suit for malpractice. He was interested in Rhoda’s letter refusing to
phase out the mark over a 3 to 5 year period.
(J.A. at 195).
On July 7, 2004, Price Heneveld filed a “Complaint for Account Stated” against Annuity
Investors in the Kent County Circuit Court of Michigan seeking payment of the remaining fees.
Annuity Investors removed the action to the district court under diversity jurisdiction; and, on
September 21, 2004, Annuity Investors filed a counterclaim for legal malpractice. The counterclaim
alleged that Price Heneveld had been negligent when it failed to inform Annuity Investors of Clark
Capital’s propensity to challenge and litigate use of the term “Navigator,” and that, consequently,
Annuity Investors had incurred defense-related expenses in excess of two million dollars.
On April 1, 2005, Price Heneveld moved for partial summary judgment on Annuity
Investors’ counterclaim on the grounds that it was barred by the period of limitations, except to the
amount of Price Heneveld’s claim.2 In opposition, Annuity Investors invoked the defenses of
equitable estoppel and equitable tolling. In support of its equitable estoppel argument, Annuity
Investors argued that the parties’ negotiations were conducted in a manner to lead it to erroneously
understand that their disputes had been resolved or preserved. Specifically, Annuity Investors
2
See Mich. Comp. Laws § 600.5823 (“To the extent of the amount established as
plaintiff’s claim the periods of limitations prescribed in this chapter do not bar a claim made by
way of counterclaim unless the counterclaim was barred at the time the plaintiff’s claim
accrued.”).
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claimed that Price Heneveld—knowing that Annuity Investors was not represented by
counsel—failed to advise it to retain independent counsel or of the applicable limitations period and
consequently induced Annuity Investors into not filing a malpractice claim under a “standstill”
agreement.
On June 16, 2005, the district court granted Price Heneveld’s motion for partial summary
judgment, thereby limiting Annuity Investors’ legal malpractice counterclaim to the amount
established in Price Heneveld’s complaint, since the counterclaim was filed beyond the two-year
period of limitations. See Mich. Comp. Laws. §§ 600.5805(6), 600.5823. The district court rejected
Annuity Investors’ equitable estoppel defense on the grounds that: (1) Price Heneveld had no duty
to speak when its silence regarding the period of limitations and wisdom of retaining counsel
occurred after the fiduciary relationship had terminated and within the backdrop of adversarial
negotiations; and (2) no evidence was introduced indicating that Price Heneveld did anything to
forestall Annuity Investors from filing a malpractice claim. The district court rejected Annuity
Investors’ equitable tolling argument for the same reasons and because it found that Annuity
Investors had not exercised reasonable diligence in pursuing its rights. Annuity Investors moved for
a certificate of immediate appealability, pursuant to 28 U.S.C. § 1292(b), which was denied by the
district court.
On August 1, 2005, Price Heneveld filed a motion for summary judgment on its Complaint
for Account Stated. On October 31, 2005, Price Heneveld moved to amend the complaint to add a
breach of contract claim. On November 18, 2005, the district court denied the motion to amend the
complaint because it found that Price Heneveld had not been diligent in evaluating its claims since
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the motion had been filed over fifteen months after the original complaint and near the close of
discovery. On December 30, 2005, the district court denied Price Heneveld’s motion for summary
judgment on the grounds that issues of material fact remained as to whether an “account stated”
existed because a reasonable jury could find that Annuity Investors had objected to the account.
On December 14, 2005, Annuity Investors moved for summary judgment on the complaint
for account stated. On March 16, 2006, the district court granted summary judgment in favor of
Annuity Investors and dismissed the complaint. Specifically, the district court found that no account
stated existed because Annuity Investors had repeatedly objected to Price Heneveld’s demand for
payment. On March 17, 2006, final judgment on all issues was entered.
The present appeal and cross-appeal timely ensued.
II.
This Court reviews the district court’s grant of summary judgment de novo. Howard ex rel.
Howard v. Bayes, 457 F.3d 568, 571 (6th Cir. 2006). We review the district court’s denial of the
motion for leave to amend the complaint for abuse of discretion. Miller v. Admin. Office of the
Courts, 448 F.3d 887, 898 (6th Cir. 2006).
III.
As stated at the outset, Price Heneveld appeals the district court’s denial of its motion to
amend the complaint and grant of summary judgment in favor of Annuity Investors. Annuity
Investors cross-appeals the district court’s grant of partial summary judgment for Price Heneveld;
thereby, limiting Annuity Investors’ counterclaim. We consider the district court’s decisions in the
order they were decided by that court.
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A. Grant of Partial Summary Judgment Limiting Annuity Investors’ Counterclaim
Annuity Investors argues that the district court erred in granting partial summary judgment
for Price Heneveld on the ground that Annuity Investors’ counterclaim for legal malpractice was
filed outside the period of limitations. The gravamen of Annuity Investors’ argument is that the
doctrine of equitable estoppel precludes summary judgment because it was induced by Price
Heneveld to refrain from bringing a malpractice action when the parties entered into a standstill
agreement.
Under Michigan law:
Equitable estoppel arises where one party has knowingly concealed or falsely
represented a material fact, while inducing another’s reasonable reliance on that
misapprehension, under circumstances where the relying party would suffer prejudice
if the representing or concealing party were subsequently to assume a contrary
position. Although the doctrine can operate to bar use of the statute of limitations as
a defense . . . . [the Michigan Supreme Court] has been “reluctant to recognize an
estoppel in the absence of conduct clearly designed to induce the plaintiff to refrain
from bringing action within the period fixed by statute.”
Adams v. City of Detroit, 591 N.W.2d 67, 70 (Mich. App. 1998) (internal citations omitted) (quoting
Lothian v. City of Detroit, 324 N.W.2d 9, 18 (Mich. 1982)); see also Cincinnati Ins. Co. v. Citizens
Ins. Co., 562 N.W.2d 648, 651 (Mich. 1997).
Annuity Investors claims that the parties entered into a standstill agreement and that “[t]his
agreement induced Annuity Investors not to file a malpractice claim against Price Heneveld.”
(Appellee’s Br. 35). Specifically, Annuity Investors argues that:
Price Heneveld deviously waited until the expiration of the two year statute of
limitations, relying on the conclusion that it had effectively precluded Annuity
Investors from filing its [malpractice] claim and preserving [Price Heneveld’s] right
to pursue the claim for attorney fees. This was intentional. The agreement made was
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nothing more than an artifice knowingly employed by Price Heneveld in a deceitful
fashion to achieve its end. . . . The good faith and reasonable reliance of Annuity
Investors on its agreement with Price Heneveld caused Annuity Investors to, by the
letter of the law, lose a valid claim. Therefore, [under the doctrine of equitable
estoppel] Price Heneveld, as a matter of law, must be deemed to have waived the
protection of the limitation statute by virtue of its actions.
Id. at 35-36.
Annuity Investors’ argument fails because it is clear from the record that there was never a
standstill agreement between the parties. Annuity Investors claims that Randal Litton “worked out
a form of standstill agreement between the two parties[,]” and then sent his Price Heneveld partners
an email on March 22, 2002, setting out the terms of this agreement.3 (Appellee’s Br. 12). Annuity
Investors relies on the March 22, 2002 email as evidence of the standstill agreement. Contrary to
Annuity Investors’ contention, the March 22, 2002 email does not constitute an agreement that the
parties would not bring suit against each other or that Annuity Investors was precluded from filing
a malpractice claim. Reliance on this agreement for these propositions is entirely unreasonable. It
is clear from the email and the evidence on record that the parties were both considering litigation
and simply agreed to give each other notice before filing suit. Under the agreement, Annuity
Investors was free to file a malpractice lawsuit at any time, but had agreed to extend the courtesy of
informing Price Heneveld before filing an action. No other conclusion is permitted by the record.
3
As mentioned above, the email stated:
I have now talked with John Gruber. I declined his last offer and advised him
we had contacted our carrier. He repeated again that he had hoped the matter
could be settled short of litigation. I promised to advise him prior to filing
suit to collect the bill. He promised to advise us prior to initiating any suit for
malpractice. He was interested in Rhoda’s letter refusing to phase out the
mark over a 3 to 5 year period.
(J.A. at 195).
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In further support of its equitable estoppel argument, Annuity Investors contends that the
district court erred when it failed to consider the June 2005 affidavits of John Gruber and William
Gaynor (Senior Corporate Counsel for Annuity Investors) because these affidavits indicate that Price
Heneveld owed a duty to Annuity Investors to inform it of the advisability of obtaining independent
counsel and to apprise it of the period of limitations for a malpractice action. We find this argument
to be unavailing. Even assuming that the affidavits should have been considered and that the
evidence revealed that Price Heneveld had a duty to advise Annuity Investors of the period of
limitations and advisability of securing independent counsel, Annuity Investors would still not be
entitled to equitable estoppel because neither the inducement nor reasonable reliance elements of an
equitable estoppel defense have been met.
Annuity Investors’ equitable estoppel theory does not hinge on Price Heneveld’s alleged
breach of fiduciary duties; rather, its theory is predicated on Price Heneveld’s alleged employment
of a standstill agreement to intentionally induce Annuity Investors into not bringing a malpractice
action. In other words, Annuity Investors does not argue that Price Heneveld’s failure to advise it
of the period of limitations and to obtain counsel induced it to believe that the period of limitations
for a malpractice action would not elapse in two years. In fact, Annuity Investors has failed to argue,
much less demonstrate, that Price Heneveld’s concealment of the period of limitations and
advisability of procuring counsel induced its reasonable reliance on a belief that the period of
limitations for a malpractice action would not expire in two years. See Adams, 591 N.W.2d at 70.
Equitable estoppel would be inappropriate here because there is no evidence that Price Heneveld’s
conduct was “clearly designed to induce [Annuity Investors] to refrain from bringing action within
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the period fixed by statute.” Lothian, 324 N.W.2d at 18 (internal quotation marks and citation
omitted).
As Annuity Investors has failed to demonstrate that it is entitled to equitable estoppel, we
conclude that the district court did not err in granting partial summary judgment limiting Annuity
Investors’ legal malpractice counterclaim to the amount established as Price Heneveld’s claim,
pursuant to Mich. Comp. Laws §§ 600.5805(6) and 600.5823.
B. Denial of Price Heneveld’s Motion to Amend the Complaint
On October 31, 2005, Price Heneveld moved to amend its “Complaint for Account Stated”
to include a breach of contract claim. On November 18, 2005, the district court denied the motion
to amend the complaint on the grounds that: (1) the case was in its final stage of preparation for
trial; (2) Annuity Investors would be substantially prejudiced by an added claim with different
elements and defenses, which would require additional discovery and an extension of litigation; (3)
Price Heneveld had not been diligent in reviewing the status of its claim; and (4) Price Heneveld had
not provided any argument supporting an overriding need for the amendment. Price Heneveld argues
that the district court abused its discretion in denying its motion to amend the complaint.
This Court generally reviews a district court’s decision to deny a motion to amend a
complaint under the deferential abuse of discretion standard. Miller, 448 F.3d at 898. When
defendants to an action have already answered the original complaint, an amended complaint cannot
be filed without leave of court. Fed. R. Civ. P. 15(a). “[L]eave shall be freely given when justice
so requires.” Id. The appropriate factors to consider in determining whether to permit an
amendment include: “the delay in filing, the lack of notice to the opposing party, bad faith by the
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moving party, repeated failure to cure deficiencies by previous amendments, undue prejudice to the
opposing party, and futility of amendment.” Perkins v. Am. Elec. Power Fuel Supply, Inc., 246 F.3d
593, 605 (6th Cir. 2001).
Here, Price Heneveld’s proposed breach of contract claim was based on the same facts as the
original “account stated” claim. Notwithstanding, Price Heneveld filed its motion to amend the
complaint over fifteen months after submission of the original complaint; approximately two weeks
before the discovery deadline; and after it had already filed two summary judgment motions. In its
motion to amend, Price Heneveld offered no explanation for its failure to move to amend the
complaint earlier. Due to the advanced state of litigation and lack of prior notice, it is evident that
Annuity Investors would have been unduly prejudiced by the amendment and litigation would have
been unnecessarily delayed. Price Heneveld could have amended its complaint earlier, but (without
any apparent reason) chose not to do so. See Fed. R. Civ. P. 16(b) (requiring a showing of “good
cause” before a district court’s scheduling order is modified). The district court’s reasoning for
denying the motion to amend is sound and took into account the relevant factors. Accordingly, we
find no abuse of discretion.
C. Grant of Summary Judgment Dismissing Price Heneveld’s Complaint
1.
The central issue presented by Annuity Investors’ motion for summary judgment was whether
Annuity Investors had objected to the Price Heneveld bill, so as to prevent the bill from becoming
an “account stated.” The district court concluded that Annuity Investors had indeed objected to the
bill; thus, there was no account stated, and Annuity Investors was entitled to summary judgment.
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On appeal, Price Heneveld argues that the account had become “stated” because Annuity Investors
never objected to the computations (such as hours worked or rate charged) used to compile the
account, but only objected on the grounds that Price Heneveld had been overpaid and that the
outstanding fees were due solely to the firm’s legal malpractice.
It has long been established under Michigan law that “[a]n account stated means a balance
struck between the parties on a settlement; and where a plaintiff is able to show that the mutual
dealings which have occurred between two parties have been adjusted, settled, and a balance struck,
the law implies a promise to pay that balance.” Watkins v. Ford, 37 N.W. 300, 302 (Mich. 1888).
The Michigan Supreme Court has made clear that:
The conversion of an open account into an account stated, [sic] is an operation by
which the parties assent to a sum as the correct balance due from one to the other;
and whether this operation has been performed or not, in any instance, must depend
upon the facts. That it has taken place, [sic] may appear by evidence of an express
understanding, or of words and acts, and the necessary and proper inferences from
them. When accomplished, it does not necessarily exclude all inquiry into the
rectitude of the account.
Kaunitz v. Wheeler, 73 N.W.2d 263, 265 (Mich. 1955) (quoting White v. Campbell, 25 Mich. 463,
468 (1872) (internal quotation marks omitted)). Therefore, “[i]n order to demonstrate that its fees
for its services to [Annuity Investors] had become an account stated, [Price Heneveld] had to prove
that [Annuity Investors] either expressly accepted the bills by paying them or failed to object to them
within a reasonable time.” Keywell & Rosenfeld v. Bithell, 657 N.W.2d 759, 777 (Mich. App. 2002).
The undisputed facts demonstrate that Annuity Investors objected on numerous occasions
to the Price Heneveld bill, and that these repeated objections were made within a reasonable period
of time after notification of the bill. Annuity Investors’ objections included multiple instances of
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refusing payment on the grounds that the bill was the sole result of Price Heneveld’s legal
malpractice, requesting reimbursement of fees already paid, and threatening a suit for malpractice.
We are unpersuaded by Price Heneveld’s unprecedented argument that Annuity Investors’
objections were not sufficient because they were qualitative, rather than quantitative, in nature. Price
Heneveld has been unable to point to any case law, and we have found none, to support such a
proposition. Irrespective of the fact that Annuity Investors’ objections did not pertain to the
underlying computations of hours worked, rate charged, or the like, it is undeniable that there was
no assent, balance struck, or settlement between Annuity Investors and Price Heneveld. See Watkins,
37 N.W. at 302. As such, there can be no account stated under Michigan law. See Leonard
Refineries, Inc. v. Gregory, 295 N.W. 215, 217 (Mich. 1940); Keywell & Rosenfeld, 657 N.W.2d at
777.
Moreover, the practical consequence of accepting Price Heneveld’s distinction between
quantitative and qualitative objections would be the creation of an account stated whenever a
professional services provider bills its client for work it actually did computed at the contracted rate,
regardless of whether the work was unnecessary, unreasonable, substandard, or a result of the
provider’s own negligence. Such an outcome is impermissible, as it would be contrary to long-
standing judicial precedent that implies a promise to pay only where there has been mutual assent,
settlement, and a balance struck. See Watkins, 37 N.W. at 302.
Accordingly, the district court did not err in granting summary judgment dismissing Price
Heneveld’s account stated claim.
2.
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In the alternative, Price Heneveld argues that even if the district court did not err in
dismissing the account stated claim, it erred in dismissing the complaint in its entirety. Specifically,
Price Heneveld argues that an additional cause of action (for a claim “on account”) survives the
district court’s holding that no account stated existed. We reject this argument because it is clear that
Price Heneveld’s complaint contained only one count, a claim for account stated.
The complaint itself was entitled “Complaint for Account Stated.” A plain reading of the
sparse eight-sentence complaint reveals that it only alleges one legal theory, a claim for account
stated. This fact was explicitly recognized by the district court. For instance, in ruling on Price
Heneveld’s motion for partial summary judgment on Annuity Investors’ counterclaim, the district
court stated, “Plaintiff [Price Heneveld], a Grand Rapids law firm, commenced this action on July
7, 2004, by filing a one-count complaint[.]” (J.A. at 224) (emphasis added). There is no indication
in the record that Price Heneveld ever disputed this characterization. Rather, it appears that Price
Heneveld wholly agreed with the depiction. In its motion for leave to file an amended complaint,
Price Heneveld stated, “Plaintiff’s Complaint asserts a claim for account stated. Plaintiff requests
leave to add an alternate theory of recovery, namely breach of contract.” Id. at 307. Moreover, the
tendered amended complaint is separated into “Count I–Account Stated” and “Count II–Breach of
Contract[;]” there are no other claims listed. Id. at 309. Finally, contrary to Price Heneveld’s
contention, the district court was under no obligation to rehabilitate Price Heneveld’s deficient
pleadings. Cf. Baldwin County Welcome Center v. Brown, 466 U.S. 147, 149 (1984) (permitting
dismissal without requiring the district court to rehabilitate deficient pleadings). Indeed, “[d]istrict
courts are in the business of judging, not editing.” Bautista v. Los Angeles County, 216 F.3d 837, 845
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(9th Cir. 2000).
Accordingly, the district court did not err in entering final judgment dismissing the
complaint.
IV.
For the aforementioned reasons, we AFFIRM the district court’s decisions: (1) granting
partial summary judgment limiting Annuity Investors’ counterclaim for legal malpractice; (2)
denying Price Heneveld’s motion to amend the complaint; and (3) granting summary judgment in
favor of Annuity Investors and dismissing Price Heneveld’s complaint.