Summary
In Brooks, 191 Mich.App. at 569, two real estate partners had sought a judicial declaration that a third person was no longer a partner.
Summary of this case from Hark Orchids L.P. v. BuieOpinion
Docket Nos. 115963, 116745.
Decided October 21, 1991, at 9:20 A.M.
Bruce O. Wilson and Kerney Heldt (by Jeffrey A. Heldt), for the plaintiffs and counterdefendants.
Dykema Gossett (by Craig L. John), for the defendants and counterplaintiffs.
Following a bench trial, defendants, David Rose and Sydney Rose, were awarded $13,998.73 on their countercomplaint against plaintiffs, Marvin Brooks and Sanford Layne. Defendants appeal as of right, claiming they were entitled to additional damages. Plaintiffs cross appeal, claiming that defendants were improperly awarded attorney fees as an element of damages. We affirm in part and reverse in part.
I
In June 1983, David Rose met with Sanford Layne regarding the proposed development of a shopping center and office building complex on property in Kentwood, Michigan. Rose presented Layne with various informational materials that he had compiled regarding the feasibility of such a project and advised Layne that the real estate could be purchased at a favorable price. On August 15, 1983, Layne, along with his business associate, David Brooks, and Sydney Rose, who was David Rose's wife, executed a "letter of understanding" outlining the basis for a partnership to develop and manage a shopping and office complex on the Kentwood property. Pursuant to this letter, Brooks, Layne, and Sydney Rose agreed to form a partnership in which Brooks and Layne would each have a twenty-five percent interest and Sydney Rose a fifty percent interest. Brooks and Layne were to purchase the Kentwood property and serve as general contractors for the project. Sydney Rose was to receive a $125,000 "assembly fee," payable in three installments on the occurrence of certain contingencies. Further, Syndey Rose was given the exclusive right to serve as leasing agent for the retail space for a period of one hundred days commencing on the date an offer to purchase was accepted. If, after one hundred days, the retail space was not leased in a reasonable manner satisfactory to Brooks and Layne, then Brooks and Layne had the option of obtaining an outside broker to handle the remaining leasing, subject, however, to Rose's right to approve the compensation for the broker. Each of the three partners, along with David Rose, also executed a separate agreement in which it was specified that David Rose was to perform all the obligations required to be performed by Sydney Rose pursuant to the terms of the letter of understanding.
$15,000 upon acceptance of an offer to purchase; $10,000 upon satisfaction to Brooks and Layne that the soil and engineering tests were acceptable for construction and upon approval by the City of Kentwood of a site plan; and $100,000 upon receipt of the first construction draw.
In accordance with the letter of understanding, an offer to purchase the subject property for $1,300,000 was submitted by Brooks and Layne, in their individual names, and accepted by the seller on September 29, 1983. David Rose then began pursuing lessees for the proposed project. However, when the period of Sydney Rose's exclusive leasing rights ended on January 7, 1984, not a single tenant had been attracted. Consequently, on January 9, 1984, without the Roses' knowledge, Brooks and Layne met with real estate agents William Lakritz and Sanford Weber and made a verbal commitment to give them a thirty-five percent equity interest in the partnership in return for their services in locating tenants. Brooks and Layne then met with David Rose on January 11, 1984, informing him that they wanted Lakritz and Weber included in the partnership on a thirty-five percent equity basis, with twenty percent coming from Sydney Rose's interest. Rose insisted that any equity percentage come equally from the two sides. Brooks and Layne refused, and the parties were unable to resolve the issue regarding compensation.
As a result, on January 13 and 16, 1984, Brooks and Layne sent telegrams to the Roses, informing them that they were terminating their business relationship. The Roses responded with a telegram of their own on January 17, announcing that they were willing to consider alternative arrangements for the compensation of the leasing agents, but were not willing to change control of the partnership. Brooks and Layne then advised the Roses that they were going to proceed with the development of the property without them and, on January 19, 1983, executed an amendment to the purchase agreement without the Roses' knowledge or consent. The amendment extended the closing date for the purchase of the Kentwood property from February 11 to May 25, 1984, removed certain contingencies, and changed the refundable $75,000 deposit to a $50,000 nonrefundable one.
The January 16 telegram was the same as that sent on January 13, with the exception that it added certain language inadvertently omitted from the earlier telegram.
On February 14, 1984, Brooks and Layne commenced a declaratory judgment action, seeking a declaration that Sydney Rose was no longer a partner, as well as the court's guidance with respect to the rights of the parties. The Roses countersued for damages, claiming that Brooks and Layne wrongfully breached the partnership agreement.
As it turned out, Brooks and Layne did not consummate the purchase of the Kentwood property, and they lost their $50,000 deposit. The Roses, however, were able to form a new partnership, which successfully purchased the Kentwood property on December 13, 1984, for $1,350,000 dollars.
Following a bench trial in December 1988, the trial court determined that a valid partnership consisting of Brooks, Layne and Sydney Rose arose pursuant to the parties' actions and undertakings in accordance with the duties and obligations set forth in the August 15, 1983, letter of understanding. The trial court found that the sole asset of the partnership was the right to purchase the Kentwood property pursuant to the September 29, 1983, purchase agreement. The trial court further found that Brooks and Layne, before amending the purchase agreement to the exclusion of Sydney Rose, advised David Rose that they were going to proceed with the development of the Kentwood property without Sydney Rose, that they did not care what the Roses decided to do, and that if the Roses did not like what was happening, they could sue. The trial court determined that, through these actions, Brooks and Layne breached their fiduciary duty owed to Sydney Rose as a partner and improperly terminated the partnership. The trial court awarded the Roses damages in the amount of $37,081.25 for expenses incurred in protecting Sydney Rose's opportunity to purchase the Kentwood property. This appeal followed.
The trial court determined that Brooks and Layne were entitled to a return of $15,000, representing that portion of the assembly fee previously paid to Sydney Rose, and to reimbursement of $8,082.52 for Syndey Rose's share of the unpaid partnership expenses. This explains the net judgment amount of $13,998.73 in favor of the Roses.
II
The findings of fact in a bench trial will not be set aside by an appellate court unless they are clearly erroneous. MCR 2.613(C); Rellinger v Bremmeyr, 180 Mich. App. 661, 665; 448 N.W.2d 49 (1989). Appellate courts must give regard to the trial court's superior ability to judge the credibility of the witnesses who appeared before it. Id.
The plaintiffs contest the trial court's award of damages, claiming that damages are not recoverable in an action involving termination of a partnership. We find no merit to this claim.
The trial court found, and we agree, that the plaintiffs caused a dissolution of the partnership in contravention of the agreement between the partners. MCL 449.31(2); MSA 20.31(2). MCL 449.38(2) (a)(II); MSA 20.38(2)(a)(II), explicitly provides that when dissolution is caused in contravention of the partnership agreement, each partner who has not wrongfully caused dissolution has a right to damages for breach of the agreement against each partner who wrongfully caused the dissolution. Also see Gilroy v Conway, 151 Mich. App. 628, 637; 391 N.W.2d 419 (1986).
III
We now turn to consideration of the defendants' issues on appeal. First, defendants claim that the trial court erred when it found that Sydney Rose was not entitled to the $125,000 assembly fee. We disagree.
Defendants do not dispute the trial court's finding that Sydney Rose's entitlement to the $125,000 assembly fee was controlled by the terms of the letter of understanding. Although the assembly fee was to be paid in three installments, the plaintiffs' ultimate liability to pay the fee was conditioned upon their consummation of the purchase of the Kentwood property. Pursuant to the letter of understanding, if the plaintiffs failed to consummate the purchase "for any reason," they would be relieved of their liability to pay Sydney Rose the assembly fee, and those fee installments previously paid would have to be returned to the plaintiffs.
Here, the trial court announced it was not awarding Sydney Rose the assembly fee because she failed to prove by a preponderance of the evidence that the plaintiffs' wrongful conduct prevented her from "earning" the fee and because she failed to show any attempt to mitigate her damages by negotiating the same provisions in the second partnership agreement.
With regard to the trial court's finding relative to mitigation, it appears that the trial court erred in placing the burden of proving mitigation on Sydney Rose. Instead, the burden was on the plaintiffs, who were counterdefendants with respect to the claim involving the assembly fee, to prove that Sydney Rose failed to use reasonable efforts to mitigate her damages. McCullagh v Goodyear Tire Rubber Co, 342 Mich. 244, 255; 69 N.W.2d 731 (1955). Nevertheless, the error does not warrant reversal.
As noted above, consummation of the purchase of the Kentwood property by plaintiffs was a condition precedent to Sydney Rose's entitlement to the assembly fee, the failure of which, for any reason, would relieve plaintiffs from having to pay the fee. It is undisputed that this condition never occurred. Thus, the issue becomes whether the plaintiffs would have consummated the purchase but for the breach. The trial court found that such a showing had not been made.
The testimony at trial showed that the reason the plaintiffs did not consummate the purchase of the property was because of their concern over the tenant situation. It was this same situation, however, that sparked the disharmony between the parties in the first instance. While the plaintiffs' conduct in reaction to the situation may have been wrongful, they believed it was necessary if there was any chance to save the project. As things turned out, the wrongful conduct did not save the project. Given this situation, we are left with no reason to conclude that the end result, absent the breach, would have been any different.
Moreover, the record does not suggest, nor did the trial court find, that the plaintiffs' failure to consummate the purchase was due to a bad faith intention on their part to deny Sydney Rose her right to the assembly fee. We disagree with the defendants that bad faith was evidenced by the plaintiffs' removal of the contingencies from the purchase agreement. While some of the contingencies did dictate when the second assembly fee installment (of $10,000) was to be paid, the fact remains that the installment, had it been paid, would have been required to be returned to the plaintiffs if the purchase was not consummated. Indeed, we believe that the plaintiffs' amendment of the purchase agreement in order to extend the closing date, albeit without consulting Sydney Rose, is reflective of their continuing desire to effectuate a consummation of the purchase rather than a bad faith intention to deny Sydney Rose her right to the assembly fee.
Accordingly, we are unable to say that the trial court clearly erred in finding that Sydney Rose failed to prove that she would have "earned" the assembly fee absent the plaintiffs' breach.
Next, defendants claim they were entitled to damages in the amount of $50,000 for the difference between the price they paid for the Kentwood property and the original purchase price that had been accepted.
The trial court determined that had the Kentwood property been successfully purchased for $1,300,000 in February 1984, the interest paid on the land contract from February to December of 1984 would have approached $100,000. Accordingly, it found that the defendants, by paying only $50,000 more in December, were not damaged.
Defendants argue that the trial court's finding was erroneous because there was no evidence of the amount of interest that would have been paid. We disagree. The land contract was admitted into evidence, and the amount of interest that would have been paid could be readily ascertained by reference to the terms of the contract. In any event, we note that there was testimony at trial indicating that the additional $50,000 was in fact the amount the seller was willing to take in order to make up for the interest that would have been paid to the seller had the purchase been consummated earlier. Finally, although not specifically discussed by the trial court, we also note that in order for the defendants to establish that they were damaged by having to pay an increased purchase price, they would again have to show that the purchase of the property at the original price of $1,300,000 would have been consummated. As we noted in our discussion of the preceding issue, we believe the trial court correctly held that such a showing was not made. Accordingly, for the foregoing reasons, we conclude that the trial court did not clearly err in finding that defendants were not entitled to the $50,000 difference in price.
The next issue concerns the trial court's award of $37,081.25 to defendants for "expenses" incurred from January 19, 1984, when the plaintiffs amended the purchase agreement, until December 13, 1984, when they successfully purchased the Kentwood property. The parties do not dispute that the "expenses" referred to in the trial court's judgment were actually attorney fees incurred by defendants.
Plaintiffs argue that the award was improper because attorney fees are not recoverable as an element of damages. Although the specific services for which the attorney fees were incurred are not identified, defendants argue that the attorney fees were properly awarded as a necessary expense in protecting their interest in the Kentwood property. Additionally, defendants claim they are entitled to a similar award for the period December 13, 1984, to July 20, 1987, when, according to defendants, plaintiffs finally stopped asserting an interest in the Kentwood property.
Michigan adheres to the general rule that attorney fees are not recoverable, either as an element of costs or as an item of damages, unless expressly authorized by statute, court rule, or a recognized exception. State Farm Mutual Automobile Ins Co v Allen, 50 Mich. App. 71, 74; 212 N.W.2d 821 (1973). Exceptions to the prevailing doctrine that attorney fees are not recoverable must be narrowly construed. Scott v Hurd-Corrigan Moving Storage Co, Inc, 103 Mich. App. 322, 347; 302 N.W.2d 867 (1981).
Recovery has been allowed in limited situations where a party has incurred legal expenses as a result of another party's fraudulent or unlawful conduct. See Oppenhuizen v Wennersten, 2 Mich. App. 288; 139 N.W.2d 765 (1966) (fraud); Tutton v Olsen Ebann, 251 Mich. 642, 650; 232 N.W. 399 (1930) (malicious prosecution); Bates v Kitchel, 166 Mich. 695; 132 N.W. 459 (1911) (false imprisonment). Recovery has also been permitted where a defendant's wrongful conduct has forced a party to incur legal expenses in prior litigation with a third party. State Farm v Allen, supra at 78.
The present case involves attorney fees arising from the breach of a partnership contract. The facts do not support an award of attorney fees under any of the recognized exceptions to the general rule that such fees are not recoverable. Therefore, we reverse and vacate that portion of the trial court's judgment awarding defendants $37,081.25 for attorney fees.
Finally, defendants argue that the trial court erroneously failed to award them exemplary damages. We disagree. As this Court explained in Gilroy, supra at 636-638, exemplary damages are not recoverable for breach of a partnership contract or the duties stemming therefrom.
Affirmed in part and reversed in part.