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Same-sex couple. Domestic partnership declared. Donor insemination contract. Two children born during the relationship. Domestic partnership terminated. Custody and parenting-time dispute.

All these statements apply to Sheardown v Guastella – a case the Michigan Supreme Court declined to hear in January 2018 (Docket No. 156931) after the Michigan Court of Appeals, in a 2-1 order, remanded the case for further briefing and analysis (Docket No. 338089).

Sheardown is intriguing not because Michigan’s highest court denied the appeal. Rather, it’s interesting because the Court of Appeals – on its own initiative – ordered the parties to brief, and the trial court to consider, whether MCL 722.22(i) is constitutional as applied to the facts of the case, in light of the U.S. Supreme Court’s decision in Obergefell v Hodges, 576 US___ (2015).  

Notably, Obergefell was decided after the plaintiff and the defendant in Sheardown had ended their domestic partnership. In addition, Obergefell was not offered by either party as an argument on appeal.

In fact, Court of Appeals Judge Christopher M. Murray pointed this out in his dissent to the appellate majority’s order. He criticized the majority’s decision to invoke an Obergefell analysis on its own, noting there may have been strategic reasons why the plaintiff did not raise the issues that the Court of Appeals was now sua sponte requiring the parties to address on remand.

‘Sheardown’

The plaintiff and the defendant in Sheardown were a same-sex couple. Although they were never married, they were in a legally recognized domestic partnership from 2010-2013, at which time the partnership was dissolved.

While they were together, the plaintiff gave birth to a child in 2010 through a sperm donor. Both the plaintiff and the defendant signed a donor insemination contract, which stated the parties’ intent to raise the child together and for the plaintiff to adopt the child after birth. However, the plaintiff never adopted the child. In 2011, the defendant gave birth to another child through the same sperm donor. The children were raised together as siblings.

After the plaintiff and the defendant ended their relationship, they enjoyed parenting time with each other’s biological children. However, disagreements and parenting-time disputes soon arose. In 2016, the plaintiff filed a complaint in the Oakland County Circuit Court for custody and parenting time with the defendant’s biological child.

Trial Court Ruling & Reasoning

In the trial court, both parties moved for summary disposition. Oakland County Circuit Judge Lisa Langton, after conducting a hearing, granted summary disposition for the defendant.

First, the judge granted summary disposition under MCR 2.116(C)(4), lack of subject matter jurisdiction. She emphasized that, based on established case law, a third party does not have standing to create a custody dispute “unless the third party is a guardian of the child or has a substantive right of entitlement to custody of the child” (Ruppel v Lesner, 421 Mich 559 (1984)). In addition, the Legislature “has not created a substantive right to custody of a child on the basis of the child’s residence with someone other than a parent, and this Court is not in a position to do so,” she said.

Judge Langton also granted summary disposition under MCR 2.116(C)(5), finding the plaintiff did not have standing. “Because Plaintiff never adopted Defendant’s child, the law does not consider her a parent for purposes of the Child Custody Act,” the judge wrote. “Essentially, … she has no legal rights and interests regarding the minor child in this case. Thus, the court finds that Plaintiff lacks the legal capacity to sue.”

The judge further held that summary disposition was appropriate under MCR 2.116(C)(8), failure to state a claim for relief. “[T]he court’s analysis begins and concludes with two facts,” she said. “First, … the parties were not in a legally protected marriage at the time Defendant (or Plaintiff) gave birth to her biological minor child. It may be true that the city of Ann Arbor granted them legal recognition, but Plaintiff cites no authority that a city’s recognition requires full faith and credit acknowledgment by the state. Second, Plaintiff never adopted Defendant’s minor child. Under these grounds, the court finds that no factual development could justify recovery under these circumstances.”

In addition, Judge Langton concluded the equitable parenting doctrine was inapplicable in the case. She noted that the plaintiff claimed the arguments presented were “shockingly archaic” and “contrary to the fundamental rights of the LGBT community” under Obergefell. The judge pointed out, however, that a critical factor of the equitable parenting doctrine was missing in the case: the child must be born in wedlock. Citing Lake v Putnam, 316 Mich App 247 (2016), the judge said: “[I]t is, in our view, improper for a court to impose, several years later, a marriage on a same-sex unmarried couple simply because one party desires that we do so.”

Court of Appeals Remand Order

The plaintiff appealed the trial court’s decision. In her appellate brief, the plaintiff mentioned Obergefell in two instances: 1) to explain that, prior to Obergefell, same-sex couples in Michigan could not marry and, therefore, step-parent adoption was unavailable, and 2) to assert that, prior to Obergefell, many same-sex couples relied on donor insemination agreements to confer upon an individual the status of legal parent.

Meanwhile, the defendant argued on appeal that the plaintiff was asking the Court of Appeals to hold that contracts like donor insemination agreements are legally enforceable because, before Obergefell, Michigan did not permit same-sex couples to marry or adopt each other’s children.

The defendant further maintained the plaintiff waived her claims because she did not explain why Obergefell applied, or why Obergefell should be grounds for private and uncontrolled transfers of parental rights to third parties.

On its own motion, a 2-1 Court of Appeals remanded Sheardown “for consideration of whether MCL 722.22(i) is constitutional as applied to the facts of this case, in light of Obergefell … We order the parties to file supplemental briefs addressing this question in the trial court.”

Courts Are Not Advocates

So why did the Court of Appeals majority instruct the parties to file supplemental briefs in light of Obergefell, when Obergefell was not the basis for the appellate arguments?

That is precisely the question that Judge Murray posed in his dissent to the Court of Appeals order.

First, Judge Murray emphasized that courts are not advocates. “[W]e are not in the business of raising issues for the parties,” he observed. And when it comes to constitutional issues, “our Court – and of course the Supreme Court – has emphasized that constitutional challenges to a statute may not be raised for the first time on appeal.”

Specifically, Judge Murray noted the plaintiff in Sheardown did not challenge the constitutionality of MCL 722.22(i) in her complaint, nor did she raise the issue in any pleadings before the trial court. Rather, he said the plaintiff’s argument in the trial court, and on appeal, was that a signed contract established her rights as a parent. As a result, the trial court did not decide any constitutional issue, he said.

Judge Murray also explained the plaintiff’s constitutional argument on appeal was that she had a contract establishing her as a parent and, thus, her constitutional rights as a parent under Troxel v Granville, 530 US 57 (2000), were violated because she was unable to pursue custody or parenting time. “That is not the challenge to the statute raised by the [Court of Appeals] majority,” he wrote. “And although plaintiff did cite to Obergefell, it was only for the proposition that when these parties were in a relationship they were not allowed by state law to be married or to adopt. True enough, but that does not raise a constitutional challenge to a state statute on due process or equal protection grounds.”

According to Judge Murray, there may have been “a very good reason” why the plaintiff did not bring up the issue that was raised sua sponte by the Court of Appeals majority. “Setting aside that her counsel could not identify where this issue was raised, her counsel explicitly disavowed needing Obergefell to be retroactive to succeed, and likewise seemed to agree with the proposition in Lake v Putnam, … that courts are ill-equipped to re-create what could have occurred between a couple had they had the opportunity to marry while they dated. So it could well be that plaintiff chose not to raise this issue, and hedged her bet that the contract based claim to standing would prevail.”

But even if that was indeed the case, the Court of Appeals majority “has not let the parties’ control their own case, and the resulting delay and cost to resolving this matter will only increase,” Judge Murray concluded. “It is wrong, and I dissent from the majority’s decision to advocate on plaintiff’s behalf.” 

In this termination case, In re Jones, Minors, No. 336271, the Department of Health and Human Services (DHHS) appealed the Oakland County Circuit Court’s order dismissing the petition to adjudicate and terminate the parental rights of the respondent-mother to her three minor children.

The Michigan Court of Appeals (MCOA) reversed and remanded the matter for further proceedings. The Michigan Supreme Court denied the request for leave to appeal by the mother.

FACTS: The facts are that three of the children live with their father who was granted sole legal and physical custody in 2014. The mother was not granted parenting time with those children. The fourth child, AM, lived with the mother until May 15, 2016 when AM was found dead in her home. The medical examiner performed an autopsy on the partially decomposed body and, although unable to determine the exact cause of death, ruled the death a homicide. The mother never reported the death. She was arrested, charged with felony murder, second-degree murder, first and second-degree child abuse and failure to report a dead body. As of September 14, 2017, she was awaiting trial in Wayne County.

DHHS filed a petition to terminate the mother’s parental rights to her three children in Oakland Circuit Court, which authorized the petition then ordered it transferred to Wayne County, which refused to accept the case. The mother didn’t admit to the allegations in the petition nor was a trial held, however, the trial court dismissed the petition.

Oakland Circuit court’s reasoning for dismissal was that it was impossible to establish jurisdiction since the children, placed with their father, were safe; and, since it was unlikely that the children would ever see their mother, assuming jurisdiction over them wasn’t in the interests of judicial economy.

Analysis:

DHHS, in challenging the dismissal, argued that the fact that the children are safely placed with their father didn’t detract from the danger the mother posed to the children if they were ever to be returned to her care and does not prevent the trial court from finding jurisdiction under MCL 712A.2(b).

The MCOA noted that the state may exercise its authority to protect children by seeking an adjudication over one or both parents as the circumstances warrant. And, the court noted, as found in prior opinions and once jurisdiction over the children is established, may also terminate the rights of one parent while the children are living safely with another.

The MCOA reversed and remanded the matter back to the trial court stating: “we find that the trial court clearly erred by concluding that the children’s safe placement with their” father barred its exercise of jurisdiction under MCL 712A.2(b). And, because the trial court didn’t conduct an adjudication trial, the court couldn’t determine whether jurisdiction would be appropriate.

The matter was appealed to the Michigan Supreme Court which was denied.

In a case out of Oakland County, Elkins v Benner, Nos 331701, 332664, 333114, the plaintiff Elkins argued the alter-ego rule to make the defendant Nancy Benner, spouse, responsible for her ex-husband/disbarred attorneys’ failure to pay the agreed upon referral fee. The defendant filed a motion for summary disposition. In addition to opposing defendant’s motion for summary disposition, plaintiff filed a motion to amend his complaint to add or clarify claims and

to impose a constructive trust on the proceeds of the sale of the defendant’s home. The Michigan Court of Appeals disagreed with the alter-ego argument but upheld the arguments on conversion and the Uniform Fraudulent Transfer Act.

Facts: Plaintiff-Elkins, an attorney, alleges that defendant-Nancy’s former husband, Brian Benner, failed to pay a referral fee ($169,000) for a client that Elkins referred to Benner. Elkins’ theory was that Benner misappropriated client funds, including funds for the attorney referral fee that Benner owed plaintiff, and that defendant-Nancy acted in concert with Benner to defraud Elkins through a sham divorce and property settlement, and that she was unjustly enriched by Benner’s misdeeds.

The Alter-Ego Rule

Elkin’s complaint alleges that defendant-Nancy acted as Benner’s alter ego to misappropriate client funds and shield those funds from creditors, and therefore, defendant could be held personally liable for the attorney referral fee that Benner agreed to pay plaintiff. The trial court agreed with her that Elkins failed to state a “claim for alter ego because there’s no corporate entity involved.”

The trial court refused to allow plaintiff to amend his complaint to further clarify this claim because “there is no such thing as alter ego, and you don’t plead any specificity as to that anyways, as to the fraud you allege.” We agree with the trial court that there is no basis in this situation for applying the alter-ego rule to allow the imposition of liability on defendant for Benner’s alleged misdeeds.

The alter-ego theory allows a court to disregard a corporate entity in order to impose liability on a person or a subservient corporation for the corporation’s misdeeds. The theory allows a defendant who is the victim of fraud, illegality or injustice to pierce the corporate veil to seek justice.

In this case, Elkins argues that the rule can be extended to individuals. The lower court disagreed saying a spousal relationship is not enough to hold one spouse liable for the illegal acts of the other. There must be evidence of some legal relationship besides the marriage for the rule to apply. The MCOA agreed and affirmed the lower court’s denial of the Alter-ego claim.

Conversion

Plaintiff Elkins argued that he had a claim for statutory conversion (MCL600.2919a) because he had an intangible property right to the referral fee, which Benner converted and defendant Nancy aided that conversion.

First, the court looked to the Rules of Professional Conduct for guidance, concluding the rules and case law support the reasoning that an action for conversion can be brought where one attorney fails to turn over another attorney’s referral fee. Second, although Benner can be held liable for converting the alleged referral fee, can Elkin’s show a legal basis for imposing liability on Nancy, Benner’s ex-wife?

The statute does allow liability be placed on a party who knowingly receives converted property. The MCOA stated that Elkins alleged enough facts to argue that Nancy knew and participated in a scheme to convert client funds for personal use, therefore the matter was remanded for further proceedings

The Uniform Fraudulent Transfer Act

The trial court also denied plaintiff’s motion to amend his complaint to add a claim under

the UFTA. Plaintiff’s proposed amended complaint alleged that defendant and Benner conspired

to use their divorce property settlement to facilitate the transfer of property from Benner to

defendant to shield the property from Benner’s creditors, including plaintiff. The trial court

erred in ruling that plaintiff was precluded from challenging the property settlement as an

improper transfer of marital assets under the UFTA because such a challenge amounted to an

improper collateral attack on the divorce judgment.

While defendant argues that the property transferred to her through the divorce is property held

as tenants by the entirety, and therefore, cannot be the subject of any claim under the UFTA, the status of the property was not addressed or decided below and cannot be ascertained on the basis of the current record. Thus, the MCOA reasoned that it was not apparent that any amendment to add a claim under the UFTA would be clearly futile. The trial court did not identify any basis other than futility to deny plaintiff’s motion to amend. Because the record fails to demonstrate that a claim under the UFTA would be futile, the MCOA reversed the trial court’s order denying plaintiff’s motion to amend his complaint to add a claim under the UFTA.

Conclusion:

The MCOA affirmed in part and reversed in part the trial court’s order granting defendant’s motion for summary disposition and denying plaintiff’s motion to amend his complaint, vacated the trial court’s orders granting defendant’s motion for sanctions and denied plaintiff’s motion for sanctions, and remanded for further proceedings. 

The US Court of Appeals for the Sixth Circuit reversed the Middle District of Tennessee’s denial of defendant Circle C’s motion for attorney fees and sent the case back for an award of legal fees and expenses related to the trial and appeal of the government’s “excessive” damages demand. The case is United States ex rel. Wall v Circle C Construction, LLC, No. 16-6169 and is before the court for the third time.

Facts: Defendant, Circle C Construction, a family-owned general contractor built 42 warehouses for the United States Army in Kentucky and Tennessee. During the seven years of construction, a subcontractor, Phase Tech, paid two of its electricians about $9,900 less than the wages mandated by the Davis-Bacon Act. As a result, Circle C submitted a number of false “compliance statements” to the government along with its invoices. The government thereafter pursued Circle C for nearly a decade of litigation, demanding not merely $9,900—Phase Tech paid $15,000 up front to settle that underpayment—but rather $1.66 million, of which $554,000 was purportedly “actual damages” for the $9,900 underpayment. The government's theory in support of that demand was that all of Phase Tech's electrical work, in all of the warehouses, was “tainted” by the $9,900 underpayment—and therefore worthless. “The problem with that theory,” wrote the Court in the last appeal, was that, “in all of these warehouses, the government turns on the lights every day.” United States ex rel. Wall v. Circle C Constr., LLC, 813 F.3d 616, 617 (6th Cir. 2016). We therefore reversed a $763,000 judgment in favor of the government and remanded for entry of an award of $14,748—less than 1% of the government's demand.”

Analysis: Following the reduction in damages, Circle C moved for attorneys’ fees under the Equal Access to Justice Act, which provides that if a court awards damages to the government but the government’s original demand for damages was both:

The court must award the defendant the fees and other expenses related to defending against the excessive demand.” 28 U.S.C. § 2412(d)(1)(D). 

The Lower Court rejected Circle C’s request leading to this appeal.

The Sixth Circuit was clear.

It observed that the actual damage to the government was $9,916 in underpayment to electricians and the government faced “strong headwinds—both legal and common-sense—in asserting that its demands” of roughly $554,000 in actual damages and $1.66 million overall, were reasonable. The court noted that the warehouses built were functional and that the government benefited from the work every minute of every day and, therefore, the only damage consisted of the under-payment of two electricians, which violated the minimum wage requirements of the Davis-Bacon Act.

Second, the government warned that a fee award in this case would have a “chilling effect” on its efforts “to vigorously enforce” the False Claims Act. Gov't Br. at 13-14, 37.

The Court’s response: “One should hope so. In this case the government made a demand for damages a hundredfold greater than what it was entitled to, and then pressed that demand over nearly a decade of litigation, all based on a theory that as applied here was nearly frivolous. The consequences for Circle C included nearly a half-million dollars in attorneys' fees. Section 2412(d)(1)(D) makes clear that the government must bear its share of those consequences as well.”

This ruling by the Sixth Circuit suggests that the Equal Access to Justice Act may be of help to deter unreasonable governmental damage requests in future False Claims Act cases.

Further, the defendant claimed the trial court had to make an independent factual determination on the statutory best interest factors despite the mediation agreement. In making this argument, the defendant cited Rivette v Rose-Molina, 278 Mich App 327 (2008), and Harvey v Harvey, 470 Mich 186 (2004). But the Court of Appeals found that neither Rivette nor Harvey applied because the issue in those cases was whether a trial court could “rubber stamp” a court referee’s decision when divorcing parents disagree on custody and parenting-time. Thus, Rivette and Harvey “involved the exact opposite of an agreement reached by the parties,” the Court of Appeals observed.The Court of Appeals continued by explaining that, while a trial court must reach an independent conclusion that the divorcing parties’ agreement is in the child’s best interests, the trial court is permitted to accept the parties’ agreement “where the dispute was resolved by the parents instead of a stranger.” Applying this principle to the present case, the Court of Appeals noted the trial court did not indicate it believed that it was bound by the agreement but, instead, “correctly expressed the belief that it was empowered to accept it.”Lastly, the Court of Appeals addressed the defendant’s contention that the trial court had to make a finding regarding the child’s established custodial environment, in order to determine whether entry of the divorce judgment would alter that environment. Calling the defendant’s argument in this respect “nonsensical,” the Court of Appeals noted the context of such a determination is one in which the trial court is making a custody determination for the parties. Accordingly, the requirement of making an express determination of whether there is an established custodial environment “is as inapposite to effectuating an agreement reached by the parties as is the requirement of conducting intensive fact finding,” the Court stated.In conclusion, the Court of Appeals said the trial court properly found that the parties’ mediation agreement was in the best interests of the child and correctly included it in its order. “[T]he trial court was not required to make a finding of an established custodial environment, although of note, defendant actually received increased parenting time from the prior arrangement as well as reduced support payments,” the Court of Appeals wrote. “The evidence shows that there was no clear legal error or abuse of discretion falling outside of the range of principled outcomes.”

Blogger’s Note:
It seems that this published decision is inconsistent with prior case law and practice. It has long been understood that, when faced with the parties’ settlement agreement on custody and parenting time, that the trial court has to do some abbreviated review to assure itself that the parties’ agreement is in the best interests of the child. Certainly, there is unpublished case law on that point, See, e.g., Vial v Flowers (Docket 332549, issued Sept 27, 2016), and Roguska v Roguska (Docket 291352, issued Sept 29, 2009).  In addition, the Child Custody Act allows parents to agree on joint custody, but even in that situation, the trial court can refuse to grant joint custody if it finds there is clear and convincing evidence that joint custody is not in the child’s best interests.  MCL 722.26a; see also Koron v Melendy, 207 Mich App 188, 191 (1994). Were the trial courts allowed to blindly accept the parties’ agreements on custody and parenting time, then certainly the Child Custody Act would so indicate.