Matthew J Abraham v. Incorp Services Inc

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
MATTHEW J. ABRAHAM and MATTHEW J. UNPUBLISHED
ABRAHAM PC, March 28, 2019
Plaintiffs-Appellants/Cross-
Appellees,
No. 342296
Genesee Circuit Court
LC No. 17-109936-CK
v
INCORP SERVICES, INC.,
Defendant-Appellee/Cross-
Appellant,
and
MADDIN, HAUSER, ROTH & HELLER and
FOX ROTHSCHILD, LLP,
Defendants.
Before: MURRAY, C.J., and GADOLA and TUKEL, JJ.
PER CURIAM.
Plaintiffs, Matthew J. Abraham and Matthew J. Abraham, PC, appeal as of right the order
of the trial court granting summary disposition to defendant Incorp Services, Inc. (Incorp), and
also challenging the trial court’s denial of their motion to amend the complaint. Incorp appeals
as of right the same order, challenging the trial court’s denial of its motion for sanctions against
plaintiffs. We affirm.
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I. FACTS
This case arises from a previous collection action by Incorp against plaintiffs. Incorp is a
Nevada corporation that provides registered agent services to corporations and other entities
throughout the United States. In 2008, plaintiff Matthew J. Abraham, an attorney, acting through
his professional corporation, plaintiff Matthew J. Abraham, PC, formed 103 limited liability
companies (LLCs) on behalf of various clients. Abraham PC arranged for Incorp to provide
services as the registered agent for each LLC. According to plaintiffs, Incorp was to set up an
individual account for each LLC to be paid by each individual LLC, and not by plaintiffs.
According to Incorp, the fees largely went unpaid, and by 2014, it was owed over $70,000 in
unpaid registered agent fees that Incorp contended plaintiffs were contractually obligated to pay.
In 2014, Incorp, represented by defendant law firm Fox Rothschild, LLP (Fox), filed a
collection action against Abraham individually in Nevada, seeking to collect the disputed fees.
The Nevada court dismissed the lawsuit for lack of personal jurisdiction over Abraham. After
the Nevada case was dismissed, Incorp, through its Michigan counsel, defendant Maddin,
Hauser, Roth & Heller, PC (Maddin), filed a lawsuit against plaintiffs in Michigan (“the prior
action”), seeking approximately $83,000 in unpaid fees. Incorp’s complaint alleged counts of
account stated, breach of contract, unjust enrichment, and promissory estoppel.
Plaintiffs filed a counter-complaint against Incorp, alleging malicious prosecution and
violation of collection practices. The trial court granted Incorp summary disposition of the
counter-complaint, dismissing without prejudice the claims of malicious prosecution and
violation of collection practices. The trial court similarly dismissed plaintiffs’ second amended
counter-complaint without prejudice. This Court thereafter denied plaintiffs’ application for
interlocutory leave to appeal from the trial court’s dismissal of the counter-complaint. Incorp
Services Inc v Matthew J. Abraham, unpublished order of the Court of Appeals, entered August
17, 2016 (Docket No. 333763).
Meanwhile, the trial court permitted Incorp to substitute as defendant Abraham PC in
place of Abraham individually. The prior action proceeded to a jury trial, which concluded with
a verdict for Abraham PC. The jury verdict stated:
QUESTION NO. 1: Did Incorp Services, Inc. and Matthew J. Abraham, P.C.
enter into a binding contract (written or oral)?
Answer: Yes
QUESTION NO. 2: Did Incorp Services, Inc. perform all, or substantially all, of
the registered/resident agent services that it was required to provide under the
contract?
Answer: Yes
QUESTION NO. 3: Did Matthew J. Abraham, P.C. breach the contract with
Incorp Services, Inc. by failing to pay for the registered/resident agent services
that Incorp Services, Inc. provided?
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Answer: No
QUESTION NO. 4: Did Matthew J. Abraham, P.C. promise to pay Incorp
Services, Inc. for the registered/resident agent services that Incorp Services, Inc.
provided?
Answer: No
***
QUESTION NO. 6: Did you find that Matthew J. Abraham, P.C.’s account is
stated as set forth in Special Jury Instruction No. 1?
Answer: No
Thereafter, plaintiffs filed their complaint initiating this action against Incorp,1 alleging
breach of contract, fraud, and malicious prosecution. Incorp moved for summary disposition of
the complaint under MCR 2.116(C)(7), (8), and (10), and for sanctions against plaintiffs, while
plaintiffs requested leave to amend the complaint. The trial court granted Incorp’s motion for
summary disposition, denied Incorp’s motion for sanctions, and also denied plaintiffs’ request
for leave to amend the complaint. Plaintiffs now appeal the trial court’s order to this Court, and
Incorp cross-appeals from that same order.
II. DISCUSSION
A. SUMMARY DISPOSITION
Plaintiffs contend that the trial court erred in granting Incorp summary disposition of
their claims under either MCR 2.116(C)(7), (8), or (10), and argue that the trial court should have
instead granted summary disposition in favor of plaintiffs on their claims of breach of contract
and fraud. We disagree.
This Court reviews de novo a trial court’s decision to grant or deny summary disposition.
Graham v Foster, 500 Mich. 23, 28; 893 NW2d 319 (2017). In so doing, this Court reviews the
entire record to determine whether the moving party was entitled to summary disposition.
Maiden v Rozwood, 461 Mich. 109, 118; 597 NW2d 817 (1999). A motion for summary
disposition under MCR 2.116(C)(7) asserts that the claim is barred by “release, payment, prior
judgment, immunity granted by law, statute of limitations, statute of frauds, an agreement to
arbitrate or to litigate in a different forum, infancy or other disability of the moving party, or
assignment or other disposition of the claim before commencement of the action.” MCR
2.116(C)(7). In considering a motion under MCR 2.116(C)(7), this Court considers all
1
Plaintiffs also sued Fox and Maddin, alleging malicious prosecution. The trial court granted
Maddin’s motion for summary disposition, and thereafter, upon stipulation of the parties, the trial
court dismissed without prejudice the complaint against Fox.
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documentary evidence and accepts the complaint as factually accurate unless specifically
contradicted by the documentation. Frank v Linkner, 500 Mich. 133, 140; 894 NW2d 574
(2017). If no facts are in dispute, and if reasonable minds could not differ regarding the legal
effect of those facts, the question whether the claim is barred is an issue of law for the Court.
See RDM Holdings, Ltd v Continental Plastics Co, 281 Mich. App. 678, 687; 762 NW2d 529
(2008).
A motion for summary disposition under MCR 2.116(C)(8) “tests the legal sufficiency of
the complaint. All well-pleaded factual allegations are accepted as true and construed in a light
most favorable to the nonmovant.” Maiden, 461 Mich. at 119. A motion for summary
disposition under this section is properly granted when, considering only the pleadings, the
alleged claims are clearly unenforceable as a matter of law and no factual development could
justify recovery. Id. By contrast, when reviewing an order granting summary disposition under
MCR 2.116(C)(10), this Court considers all documentary evidence submitted by the parties in
the light most favorable to the nonmoving party. Dawoud v State Farm Mut Auto Ins Co, 317
Mich. App. 517, 520; 895 NW2d 188 (2016). Summary disposition under MCR 2.116(C)(10) is
warranted when there is no genuine issue as to any material fact and the moving party is entitled
to judgment as a matter of law. Id.
In this case, the trial court granted Incorp’s motion for summary disposition, but did not
state the section of MCR 2.116(C) that was the basis for the order. On the record, however, the
trial court reasoned that plaintiffs’ claims for breach of contract and fraud are barred, and that
plaintiffs failed to allege a special injury sufficient to establish malicious prosecution. We agree.
1. BREACH OF CONTRACT
Plaintiffs’ breach of contract claim is barred by res judicata, and summary disposition of
this claim was therefore warranted under MCR 2.116(C)(7). Res judicata and collateral estoppel
are preclusion doctrines that impose finality to litigation when the same parties have already had
a full and fair opportunity to litigate their claims. William Beaumont Hosp v Wass, 315 Mich
App 392, 398; 889 NW2d 745 (2016). The doctrine of res judicata was judicially created to
“relieve parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and, by
preventing inconsistent decisions, encourage reliance on adjudication.” Pierson Sand & Gravel,
Inc v Keeler Brass Co, 460 Mich. 372, 380; 596 NW2d 153 (1999) (quotation marks and citations
omitted). Res judicata precludes relitigation of a claim that is predicated on the same underlying
transaction as a claim litigated in a prior case. Duncan v Michigan, 300 Mich. App. 176, 194; 832
NW2d 761 (2013). By contrast, collateral estoppel bars relitigation of an issue in a subsequent,
different cause of action between the same parties, where the prior proceeding ended in a valid
judgment and the issue was actually and necessarily determined in the prior proceeding.
Johnston v Sterling Mtg & Investment Co, 315 Mich. App. 724, 756; 894 NW2d 121 (2016)
(citation omitted).
Res judicata operates to bar a second action when “(1) the first action was decided on the
merits, (2) the matter contested in the second action was or could have been resolved in the first,
and (3) both actions involve the same parties or their privies.” Dart v Dart, 460 Mich. 573, 586;
597 NW2d 82 (1999). Parties are in privity for purposes of res judicata when they are “so
identified in interest with another party that the first litigant represents the same legal right that
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the later litigant is trying to assert.” Adair v Michigan, 470 Mich. 105, 122; 680 NW2d 386
(2004). Res judicata is broadly applied in Michigan, barring not only claims already litigated,
but also every claim arising from the same transaction that could have been brought by
exercising reasonable diligence. Dart, 460 Mich. at 586.
In the prior action, Incorp sued Abraham PC, alleging that Abraham PC and Incorp
entered into an agreement in which Incorp was to provide resident agent services to the 103
LLCs, that Incorp substantially performed on the contract, that Incorp therefore became entitled
to collect resident agent fees from Abraham PC, and that Abraham PC breached the contract by
refusing to pay Incorp’s fees. Among the specific questions submitted to the jury was whether a
contract existed between Abraham PC and Incorp, to which the jury answered “yes,” and
whether Incorp substantially performed on that contract, to which the jury also answered “yes.”
In the current case, the complaint, this time filed by plaintiffs, again alleges that Abraham PC
and Incorp entered into an agreement in which Incorp was to provide resident agent services to
the 103 LLCs, and that Incorp thereafter breached the contract, questions specifically answered
by the jury in the prior litigation. Because of the identity of the parties2 and the identity of the
claim in this litigation and the prior action, the breach of contract claim in this case was properly
dismissed under MCR 2.116(C)(7) as precluded by res judicata.
2. FRAUD
Plaintiffs’ fraud claim was properly dismissed in part under MCR 2.116(C)(7) as barred
by the statute of limitations, but also is properly dismissed under MCR 2.116(C)(8) because
plaintiffs failed to allege facts sufficient to support a claim for fraud. To set forth a prima facie
claim of fraudulent misrepresentation, a plaintiff must establish that (1) the defendant made a
material representation, (2) that was false, (3) the defendant knew the representation was false, or
made it recklessly, (4) the representation was made intending that the plaintiff would act in
reliance upon it, (5) the plaintiff acted in reliance on the representation, and (6) the plaintiff
suffered damage. Derderian v Genesys Health Care Sys, 263 Mich. App. 364, 378; 689 NW2d
145 (2004). The element of reliance must be a reasonable reliance upon the false representation.
Nieves v Bell Indus, Inc, 204 Mich. App. 459, 464; 517 NW2d 235 (1994). In sum, a fraudulent
misrepresentation requires an affirmative false representation intended to deceive. See M & D,
Inc v W B McConkey, 231 Mich. App. 22, 27; 585 NW2d 33 (1998).
Plaintiffs allege that Incorp made fraudulent statements to them in 2008 and 2014. The
statute of limitations applicable to an allegation of fraud is six years. MCL 600.5813; Adams v
Adams, 276 Mich. App. 704, 710; 742 NW2d 399 (2007). The period of limitations begins to run
from the time the claim accrues, and the claim “accrues at the time the wrong upon which the
claim is based was done regardless of the time when damage results.” MCL 600.5827. Here,
plaintiffs’ allegations that Incorp made misrepresentations to them in 2008 was barred by the
time plaintiffs filed their complaint in this case in October 2017.
2
Abraham individually is a party here, but was not a party to the prior action after the trial court
permitted Incorp to substitute Abraham PC for Abraham individually. Plaintiffs, however, have
identity of interest with each other sufficient to establish privity. See Adair, 470 Mich. at 122.
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Summary disposition of the entire fraud claim was warranted, however, under MCR
2.116(C)(8) because plaintiffs’ complaint does not allege facts sufficient to demonstrate the
elements of fraudulent misrepresentation. Plaintiffs’ allegations of fraud against Incorp are more
akin to a claim of breach of contract. See M & D, Inc, 231 Mich. App. at 27. The facts suggest
that the parties contracted in 2008 with the intention that the individual LLCs would pay the fees,
but by 2014, when Incorp had not been paid, Incorp looked to plaintiffs for the fees, arguing that
the contract imposed that duty. Disagreeing over contractual liability, however, does not
establish that at the inception of the contract Incorp made false statements to induce plaintiffs to
rely on those statements. Similarly, plaintiffs’ allegations that in 2014, Incorp sought
information from them under the guise of billing the LLCs, but was actually acquiring the
information in preparation to sue Abraham individually in Nevada, does not establish fraudulent
misrepresentation. Rather, the facts suggest that plaintiffs were contractually obligated to
provide the LLCs’ contact information to Incorp, and did so to facilitate Incorp billing the LLCs.
The fact that Incorp then sued Abraham individually instead of billing the LLCs indicates a
contract dispute, but does not demonstrate fraud. In addition, although plaintiffs allege damages
resulting from defending the lawsuits, they do not establish that the alleged fraud was the basis
of those alleged damages. Because plaintiffs failed to allege facts sufficient to establish the
elements of fraud, Incorp was entitled to summary disposition of this count of plaintiffs’
complaint.
3. MALICIOUS PROSECUTION
Plaintiffs’ complaint also failed to state a claim for malicious prosecution, and summary
disposition of this claim was therefore warranted under MCR 2.116(C)(8). The tort of malicious
prosecution is disfavored in Michigan. See, e.g., Friedman v Dozorc, 412 Mich. 1, 46; 312
NW2d 585 (1981) (“The cure for an excess of litigation is not more litigation”). The elements of
malicious prosecution under Michigan law are (1) the prior proceedings terminated in favor of
the plaintiff in the present case, (2) the plaintiff in the prior proceeding lacked probable cause,
and (3) malice, meaning that the plaintiff in the prior proceeding had a purpose other than
obtaining adjudication of the claim asserted. Id. at 48. In addition, a plaintiff asserting malicious
prosecution must establish that he or she suffered a “special injury,” meaning an “injury to one’s
fame (as by a scandalous allegation), injury to one’s person or liberty, and injury to one’s
property.” Id. at 33-34. A special injury must be an injury that would not necessarily occur in
all lawsuits alleging similar causes of action. Barnard v Hartman, 130 Mich. App. 692, 694-695;
344 NW2d 53 (1984).
In this case, Incorp sued plaintiffs in Nevada and Michigan, and in each case plaintiffs
prevailed. Plaintiffs, however, have failed to establish that in bringing the lawsuits Incorp lacked
probable cause, or that they had a purpose other than obtaining adjudication of the claim
asserted. See Friedman, 412 Mich. at 48. Plaintiffs allege no facts that establish that defendants
acted with any other purpose than to obtain the fees that Incorp argued were owed to them by
plaintiffs by virtue of the contract. And, in fact, the jury in the prior action found that a contract
did exist between the parties and that Incorp had substantially performed on the contract; the jury
simply concluded that Abraham PC was not obligated under the contract to pay the fees.
In addition, plaintiffs do not allege facts to establish that they have suffered a special
injury. Plaintiffs’ complaint alleges as damages that Abraham individually “suffered emotional
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damages, a large loss of time and expended more than $10,000 in attorneys’ fees.” These
alleged injuries, however, are the type of injuries that likely would occur in all lawsuits in which
one party seeks to collect from another party under a contract, and therefore do not rise to the
level of a “special injury.” See Barnard, 130 Mich. App. at 694-695. Because plaintiffs did not
allege facts sufficient to set forth a claim of malicious prosecution, the trial court properly
granted summary disposition of this claim to Incorp under MCR 2.116(C)(8).
B. REQUEST TO AMEND
Plaintiffs next contend that the trial court erred in failing to permit them to amend the
complaint to allege abuse of process instead of malicious prosecution. We disagree. This Court
reviews a trial court’s decision to grant or deny leave to amend pleadings for an abuse of
discretion. Sanders v Perfecting Church, 303 Mich. App. 1, 8-9; 840 NW2d 401 (2013). The trial
court does not abuse its discretion unless its decision falls outside the range of reasonable and
principled outcomes. Saffian v Simmons, 477 Mich. 8, 12; 727 NW2d 132 (2007).
MCR 2.118(A)(2) provides that leave to amend a pleading “shall be freely given when
justice so requires.” Further, MCR 2.116(I)(5) provides:
If the grounds asserted [in support of summary disposition] are based in subrule
(C)(8), (9), or (10), the court shall give the parties an opportunity to amend their
pleadings as provided by MCR 2.118, unless the evidence then before the court
shows that amendment would not be justified.
Thus, under MCR 2.116(I)(5), a trial court granting summary disposition under MCR
2.116(C)(8),(9), or (10), must permit the parties to amend their pleadings unless such amendment
would be futile. Weymers v Khera, 454 Mich. 639, 658; 563 NW2d 647 (1997). And although a
trial court’s decision to permit or deny leave to amend is subject to reversal only upon an abuse
of the trial court’s discretion, this Court has also stated that “amendment is generally a matter of
right rather than of grace,” In re Kostin, 278 Mich. App. 47, 52; 748 NW2d 583 (2008), and leave
to amend “should ordinarily be denied only for particularized reasons such as undue delay, bad
faith or dilatory motive, repeated failures to cure by amendments previously allowed, or futility.”
Decker v Rochowiak, 287 Mich. App. 666, 681; 791 NW2d 507 (2010). “A determination of
futility must be based on the legal insufficiency of the claim on its face.” Liggett Restaurant
Group, Inc v City of Pontiac, 260 Mich. App. 127, 138; 676 NW2d 633 (2004).
Abuse of process is defined as the wrongful use of a court’s process, but not as the use of
process for the wrongful initiation of an action. Lawrence v Burdi, 314 Mich. App. 203, 211; 886
NW2d 748 (2016). To prove abuse of process, a plaintiff must demonstrate (1) an ulterior
purpose, and (2) an act in the use of process that is improper in the regular prosecution of a
proceeding. Friedman, 412 Mich. at 30. The act must be something more than simply initiating
a lawsuit, and the ulterior purpose must be something more than settling a lawsuit. Id. at 31.
“One way in which process is sometimes abused, is by making use of it to accomplish not the
ostensible purpose for which it is taken out, but some other purpose for which it is an illegitimate
and unlawful means.” Lawrence, 314 Mich. App. at 212 (citation omitted).
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In this case, plaintiffs’ complaint does not allege facts that would support a claim of
abuse of process. In Count III of the complaint alleging malicious prosecution, the gist of
plaintiffs’ allegations is that Incorp filed the lawsuits in Nevada and then in Michigan without
any legal basis to do so, for the purpose of having a court order Abraham to pay the fees incurred
under the contract. These allegations do not support an abuse of process claim. They involve
merely the filing of a lawsuit to attempt to enforce a contract, albeit one which plaintiffs did not
believe was enforceable against them. Because the facts alleged by plaintiffs do not support the
claim of abuse of process that plaintiffs sought to add by amending the complaint, the proposed
amendment was futile, and leave to amend was properly denied. See, e.g., Capitol Prop Group,
LLC v 1247 Ctr Street, LLC, 283 Mich. App. 422, 427; 770 NW2d 105 (2009).
C. SANCTIONS
On cross-appeal, Incorp contends that the trial court erred by denying its motion for
sanctions under former MCR 2.114(E) and (F). We disagree. We review a trial court’s decision
on a motion to impose sanctions under former MCR 2.114 for clear error. Bronson Health Care
Group, Inc v Titan Ins Co, 314 Mich. App. 577, 585; 887 NW2d 205 (2016). A finding is clearly
erroneous when, although there is evidence to support it, we are left with a definite and firm
conviction that the trial court has made a mistake. Kitchen v Kitchen, 465 Mich. 654, 661-662;
641 NW2d 245 (2002).
Under former MCR 2.114,3 a court was empowered to assess costs and attorney fees
against a party as a sanction for filing an unfounded pleading or for bringing a frivolous claim,
the purpose being to deter attorneys and parties from advancing frivolous claims. See FMB-First
Mich Bank v Bailey, 232 Mich. App. 711, 719; 591 NW2d 676 (1999). Before imposing sanctions
under MCR 2.114(E), however, a trial court was required to first find that an attorney or party
had signed a pleading in violation of MCR 2.114(A)-(D) based upon the facts of that case. In re
Stafford, 200 Mich. App. 41, 42; 503 NW2d 678 (1993). MCR 2.114(D) provides that the
signature of an attorney or a party is a certification by that person that 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 also, that 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.” MCR 2.114(D).
Similarly, whether a claim is frivolous under former MCR 2.114(F) depends on the facts
of the particular case. Kitchen, 465 Mich. at 662. A claim is frivolous if a party’s legal position
was devoid of arguable legal merit, if the party had no reasonable basis to believe the underlying
facts of its position were true, or if the party’s primary purpose in bringing the action or asserting
the defense was to harass, embarrass, or injure the other party. MCL 600.2591(3)(a); Edge v
Edge, 299 Mich. App. 121, 134-135; 829 NW2d 276 (2012).
3
MCR 2.114 was repealed, effective September 1, 2018, but was in effect at the times relevant
to this case. The language previously found in MCR 2.114(D) through (F) has been retained at
MCR 1.109(E).
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Here, Incorp argues that plaintiffs’ claims were frivolous and that the complaint was filed
for an improper purpose because the claims had been disposed of in the prior action. Plaintiffs’
claims of fraud and malicious prosecution, or similar allegations, however, were dismissed by
the trial court in the prior action without prejudice, and therefore were not litigated to conclusion.
A dismissal of a claim without prejudice is not a dismissal on the merits. Grimmer v Lee, 310
Mich. App. 95, 102; 872 NW2d 725 (2015). The use of the term “without prejudice” indicates the
“right or privilege to take further legal proceedings on the same subject, and show[s] that the
dismissal is not intended to be res ajudicata of the merits.” Id. (quotation marks and citation
omitted). Plaintiffs’ claims for fraud and malicious prosecution therefore were not barred by the
previous dismissals, and the dismissal without prejudice suggests the right to pursue further legal
proceedings.
Incorp also argues that it is entitled to reimbursement of its costs for defending this
appeal because the appeal is vexatious. MCR 7.216(C)(1) provides that an appeal is vexatious if
it was taken to hinder or delay or without a reasonable basis to believe that there was a
meritorious issue for determination on appeal, or if “a pleading, motion, argument, brief,
document, or record filed in the case or any testimony presented in the case was grossly lacking
in the requirements of propriety, violated court rules, or grossly disregarded the requirements of
a fair presentation of the issues to the court.” MCR 7.216(C)(1)(a) and (b). Edge, 299 Mich. App.
at 135. In this case, although plaintiffs’ claims were not sufficient to survive summary
disposition, Incorp has not demonstrated that the appeal was taken to hinder or delay or that
plaintiffs were without a reasonable basis to believe that there was a meritorious issue on appeal.
Affirmed.
/s/ Christopher M. Murray
/s/ Michael F. Gadola
/s/ Jonathan Tukel
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