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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. 

           
             Defendant Jeffrey Titus, convicted in 2002 by jury trial of the first-degree premeditated murders of Doug Estes and James Bennett, likes to spend time in litigation. We first wrote about him in Estes v Titus (July 2008) where the wife of Estes was trying to collect a wrongful death judgment from Titus who had transferred all his assets to his wife when they divorced. The Supreme Court ruled - with a caveat - that a property division in a divorce could be the subject of a Uniform Fraudulent Transfer Act action. Speaker Law Firm wrote the amicus brief for the Family Law Section (the Supreme Court disagreed with our position, but the concurring opinion by Marilyn Kelly did agree with us).

            In People v Titus. No. 329770, posted May 4, 2017, defendant Titus filed the latest of his appeals. The MCOA affirmed his convictions in 2004 in People v Titus, (Docket No. 243642). In 2014, defendant filed a motion for relief from judgment in the trial court. Defendant appealed when his motion for relief was denied. People v Titus, unpublished order of the Court of Appeals, entered March 24, 2016 (Docket No. 329770).

            In this appeal, the defendant raised the issue of ineffective assistance of counsel. The court wrote that to prove ineffective assistance of counsel, the defendant must show that counsel’s performance fell below objective standards of reasonableness and that, but for counsel’s deficient performance, there is a reasonable probability that the result of the proceedings would have been different. Effective assistance of counsel is presumed and the defendant bears a heavy burden of proving otherwise.

            Since the defendant already filed a motion for relief from judgment which was denied, the court noted that it could not grant this motion if it alleged grounds for relief that could have been raised on direct appeal from the defendant’s conviction, unless the defendant demonstrates:

• “Good cause” for the failure to raise the grounds for relief on appeal, and 
• “Actual prejudice” from the alleged irregularities.

            Titus argued that he satisfied the good-cause requirement because appellate counsel was ineffective for failing to raise the issue of defense counsel’s ineffective assistance of counsel on direct appeal. The test, wrote the court, for ineffective assistance of appellate counsel is the same as that applicable to a claim of ineffective assistance of trial counsel. Thus, a defendant must show that appellate counsel’s decision not to raise an issue on appeal fell below an objective standard of reasonableness and prejudiced the appeal.

            The defendant raised several issues about the trial as examples of the ineffectiveness of the trial counsel and, by extension, appellate counsel. The court carefully reviewed each claim finding:

“Because defendant has failed to establish that defense counsel’s performance was deficient, appellate counsel was not ineffective for failing to raise the claims of ineffective assistance on direct appeal. Defendant has failed to establish good cause, MCR 6.508(D)(3)(a), and defendant is not entitled to relief on his claims of ineffective assistance of counsel.”

            Defendant also argued that the prosecution violated Brady v Maryland, 373 US 83, (1963) by failing to disclose that Det. Mattison had theorized that two shooters perpetrated the murders. To establish a Brady claim the defendant must show:

            The court found no Brady violation noting that not every stray thought of the detectives of the case need to be revealed by the prosecution. The court decided that two-shooter theory was not required to be disclosed.

            Defendant also argued that the trial court abused its discretion in concluding that the prosecution’s character evidence and [defendant’s] offhand remarks about the killings of his co-workers somehow outweighed the new evidence of innocence. Concluding that the defendant was trying to raise an argument regarding cumulative error, the court wrote that, since defendant failed to establish that he was denied the effective assistance of counsel or that there was a Brady violation, there are no irregularities that could be combined to determine a cumulative effect of errors.
Affirmed.

To understand these three inter-related appeals, Cassidy v Cassidy and Hansen, No. 328004, No. 328024 and Cassidy v Cassidy, No. 333319, we first must state the facts of this not-so-simple divorce matter. Joy and Robert Cassidy were married in 1997. Joy filed for divorce from Robert in 2012 after confirming that Robert had been having an affair with Mary Hansen. During the course of the affair, Robert gave Hansen over $300,000 to remodel her East Ellen Street house. By the time of the trial, Robert decided the money was a “loan.”

Much of the trial focused on whether Robert and Hansen, named as a defendant, conspired to defraud Joy of her share of the marital estate. While Robert agreed that the money should be considered part of the marital estate, he denied he and Hansen acted together to thwart Joy’s share of the family money. Joy claimed to be ignorant of the family’s financial situation.

After 15 days of trial, Genesee Circuit Court Judge F. Kay Behm found that Robert and Hansen conspired to defraud Joy of her right-full share of the marital estate. She ordered that a constructive trust existed over East Ellen Street home.

Three appeals resulted:

No. 328004—Hansen appealed the judgment of divorce claiming that the trial court erred in failing to grant Hansen a summary disposition on Joy’s claim under the Uniform Fraudulent Transfer Act (UFTA), arguing that:

1. UFTA doesn't apply because Joy was not a creditor at the time of the transfer and there was no active concealment of assets,
2. The court erred in denying jury request, and
3. The court erred in ordering Hansen to pay back more than the loan amount and in placing a lien in favor of ConRadical (Robert's business) who was a non-party to the divorce. 

No: 328024—Defendant Robert appealed challenging the division of property, which included holding him responsible for substantial tax liability for under-payment of taxes, $1000 a month spousal support and an award of over $150,000 in attorney fees.

No: 333319—Defendant Robert challenged a trial court contempt order requiring to spend 10 days in jail until he paid the attorney fees.

The COA upheld the trial court’s decisions on all three appeals.

NO. 328004: Hansen Appeal

According to the COA, Hansen’s attorney led the trial court into an “unnecessary dialogue regarding what ‘cause of action’ was raised against Hansen and, once plaintiff settled on the UFTA, whether Hansen was entitled to a jury trial. Those inquiries were unnecessary, given the trial court’s express equitable power in the divorce proceeding to determine and distribute the marital estate.

The court reasoned that Hansen was properly brought into the case because:

1. The jurisdiction of the divorce court is statutory and limited to determining the rights and obligations between the husband and wife, to the exclusion of third parties.
2. There is an exception (Estes v Titus, 481 Mich 573 (2008)) when fraud is raised, third parties can be added if they conspired with one of the parties to defraud the other spouse of a property interest.
3. Although Hansen was brought into the case involuntarily, the court, after reviewing Wiand v Wiand,178 Mich App 137 (1989), and Thames v Thames, 191 Mich App 299 (1991), found that the trial court may “adjudicate the rights of third parties even when they are not named as parties” due to the deliberate hiding of marital assets from one of the spouses.

The court also decided that Hansen had no right to a jury trial writing: “Given that a trial court may adjudicate the rights of third parties even when they are not named as parties, as in Donahue [v Donahue, 134 Mich App 696; 352 NW2d 705 (1984)] and Wiand [v Wiand,178 Mich App 137; 443 NW2d 464 (1989)], it follows that there is no right to a jury trial when the third party has been named as a party.”

And, finally, Hansen argued that the court erred in placing a lien on the East Ellen home that included the $364,000 she “borrowed” from Robert and the $70,000 she received from ConRadical. The trial court determined the funds were Robert’s wages and part of the “loan” received by Hansen and thus part of the marital estate.

In this well-reasoned opinion, the trial court decisions in both appeals NO: 333319 (contempt of court) and NO: 328024 (challenges to the distribution of the marital estate) were affirmed and plaintiff may tax costs.