Bruce Klaasen v. Dennis Jonker

STATE OF MICHIGAN

COURT OF APPEALS

BRUCE KLAASEN, UNPUBLISHED

July 31, 2018

Plaintiff-Appellee,

v No. 338257

Kent Circuit Court

DENNIS JONKER, LC No. 15-010895-CZ

Defendant,

and

ROBERT SWEEZIE,

Defendant-Appellant.

BRUCE KLAASEN,

Plaintiff-Appellee,

v No. 338336

Kent Circuit Court

DENNIS JONKER and ROBERT SWEEZIE, LC No. 15-010895-CZ

Defendants,

and

VARNUM LLP,

Appellant.

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BRUCE KLAASEN,

Plaintiff-Appellee,

v No. 339167

Kent Circuit Court

DENNIS JONKER, LC No. 15-010895-CZ

Defendant,

and

ROBERT SWEEZIE,

Defendant-Appellant.

Before: HOEKSTRA, P.J., and MURPHY and MARKEY, JJ.

PER CURIAM.

Plaintiff sued defendants, Dennis Jonker and Robert Sweezie, for breach of contract

arising out of the sale of two condominium units to plaintiff, which were part of a beleaguered

condominium development in Costa Rica that was marked by construction problems, funding

issues, incompetence, and fraud and involved suspicious or dubious practices and dealings and

questionable or nonexistent entities. The purchase agreement for the condominium units at issue

was in the name of plaintiff, as buyer, and BreakWater Point SA, as seller, which entity did not

exist. After years of patience and the expenditure of hundreds of thousands of dollars paid for

the units by plaintiff, the condominium units were not delivered to plaintiff per the contract and

he commenced this suit, alleging that defendants were partners in the development and subject to

individual liability on the contract even though BreakWater Point SA was the vendor identified

in the purchase agreement. The record revealed that one of the condominium units designated

for plaintiff was sold to another individual and the second unit was encumbered by a $150,000

lien. This case hinged on whether defendants could be held personally liable for breach of

contract. The trial court granted summary disposition under MCR 2.116(C)(10) in favor of

plaintiff, later awarding him $683,563 in damages, and it denied Sweezie’s competing motion for

summary disposition. 1 The court later granted plaintiff’s motion for sanctions under MCR 2.114,

MCR 2.625, and MCL 600.2591, imposing them in the amount of $75,000 against both Sweezie

and Sweezie’s counsel, Varnum LLP. In Docket No. 339167, Sweezie appeals the trial court’s

ruling granting plaintiff’s motion for summary disposition and the judgment awarding plaintiff

1

Jonker did not challenge plaintiff’s motion for summary disposition. Subsequently, plaintiff

and Jonker reached a settlement after judgment was entered against defendants.

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$683,563 in damages. In Docket No. 338257, Sweezie appeals the order awarding plaintiff

$75,000 in attorney fees and costs as sanctions, while in Docket No. 338336, Varnum appeals

this same order imposing sanctions. We affirm in all three of these consolidated appeals.

I. DOCKET NO. 339167 – SUMMARY DISPOSITION IN FAVOR OF PLAINTIFF

With respect to the order granting summary disposition in favor of plaintiff and denying

Sweezie’s motion for summary disposition, the trial court found that Sweezie, Jonker, and

Patrick Hundley entered into a joint venture to build the condominium complex, develop the

project, and to sell condominium units to individuals. The court determined that the contract in

dispute was signed by plaintiff, that Jonker signed the agreement on behalf of BreakWater Point

SA, that BreakWater Point SA did not exist, and that plaintiff made payments under the contract

totaling $516,666, yet one of his condominium units was sold to another person and the other

unit was subject to a $150,000 lien, not of plaintiff’s making. The trial court further ruled that

two other companies purportedly associated with the development, BreakWater Point

Condominium Corporation SRI and BW Point Condominium Trust SRL, were not parties to the

purchase agreement, so plaintiff had no contract with either company and no basis to sue them.

Additionally, the court indicated that individual contractual liability generally attaches to

stockholders or members of a bogus legal entity if they authorized a contract and that, here,

Sweezie negotiated the purchase agreement with plaintiff on behalf of the developers; therefore,

he implicitly authorized and became personally liable on the contract. The court rejected

Sweezie’s argument that plaintiff’s claim was barred by the doctrines of corporation by estoppel

and misnomer of a corporate entity, where the defenses constituted affirmative defenses that

were waived when Sweezie failed to raise either one in his first responsive pleading.

Subsequently, judgment was entered in favor of plaintiff in the amount of $683,563, which

included damages plus common-law and statutory interest. The judgment was joint and several

against Sweezie and Jonker, but plaintiff then reached a settlement with Jonker for $50,000.

On appeal, Sweezie argues that the trial court erred in granting summary disposition in

favor of plaintiff because Sweezie was not a party to the purchase agreement, because plaintiff

failed to allege or establish facts allowing the court to pierce the corporate veil, because the

doctrines of misnomer of a corporate entity and corporation by estoppel foreclosed plaintiff’s

argument that Sweezie could be held liable, and because the two doctrines are not affirmative

defenses that had to be pleaded in Sweezie’s first responsive pleading, so they were not waived.

Sweezie contends that he rather than plaintiff was entitled to summary disposition.

This Court reviews de novo a trial court’s ruling on a motion for summary disposition.

Hoffner v Lanctoe, 492 Mich 450, 459; 821 NW2d 88 (2012). Additionally, this Court reviews

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de novo issues concerning the proper interpretation of a contract and the legal effect or

application of a contract. Rory v Continental Ins Co, 473 Mich 457, 464; 703 NW2d 23 (2005).2

“The cardinal rule in the interpretation of contracts is to ascertain the intention of the

parties[;] [t]o this rule all others are subordinate.” McIntosh v Groomes, 227 Mich 215, 218; 198

NW 954 (1924). In light of this rule, “[i]f the language of the contract is clear and unambiguous,

it is to be construed according to its plain sense and meaning; but if it is ambiguous, testimony

may be taken to explain the ambiguity.” New Amsterdam Cas Co v Sokolowski, 374 Mich 340,

342; 132 NW2d 66 (1965); see also Frankenmuth Mut Ins Co v Masters, 460 Mich 105, 111; 595

NW2d 832 (1999).

“A party asserting a breach of contract must establish by a preponderance of the evidence

that (1) there was a contract (2) which the other party breached (3) thereby resulting in damages

to the party claiming breach.” Miller-Davis Co v Ahrens Constr, Inc, 495 Mich 161, 178; 848

NW2d 95 (2014). “A valid contract requires five elements: (1) parties competent to contract, (2)

a proper subject matter, (3) legal consideration, (4) mutuality of agreement, and (5) mutuality of

2

In Pioneer State Mut Ins Co v Dells, 301 Mich App 368, 377; 836 NW2d 257 (2013), this

Court set forth the governing principles applicable to motions for summary disposition brought

pursuant to MCR 2.116(C)(10):

In general, MCR 2.116(C)(10) provides for summary disposition when

there is no genuine issue regarding any material fact and the moving party is

entitled to judgment or partial judgment as a matter of law. A motion brought

under MCR 2.116(C)(10) tests the factual support for a party's claim. A trial court

may grant a motion for summary disposition under MCR 2.116(C)(10) if the

pleadings, affidavits, and other documentary evidence, when viewed in a light

most favorable to the nonmovant, show that there is no genuine issue with respect

to any material fact. A genuine issue of material fact exists when the record,

giving the benefit of reasonable doubt to the opposing party, leaves open an issue

upon which reasonable minds might differ. The trial court is not permitted to

assess credibility, weigh the evidence, or resolve factual disputes, and if material

evidence conflicts, it is not appropriate to grant a motion for summary disposition

under MCR 2.116(C)(10). A court may only consider substantively admissible

evidence actually proffered relative to a motion for summary disposition under

MCR 2.116(C)(10). [Citations and quotation marks omitted.]

“Like the trial court’s inquiry, when an appellate court reviews a motion for summary

disposition, it makes all legitimate inferences in favor of the nonmoving party.” Skinner v

Square D Co, 445 Mich 153, 162; 516 NW2d 475 (1994); see also Dextrom v Wexford Co, 287

Mich App 406, 415; 789 NW2d 211 (2010) (a court must draw all reasonable inferences in favor

of the nonmoving party).

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obligation.” AFT Mich v Michigan, 497 Mich 197, 235; 866 NW2d 782 (2015). “The party

seeking to enforce a contract bears the burden of proving that the contract exists.” Id.

Sweezie contends that there could be no breach of contract action against him because he

was not a party to the contract. We note that BreakWater Point SA was not a party competent to

contract, as it was a nonexistent entity, and thus, on its face, the contract would appear to be

invalid. However, for the reasons set forth below, we hold that by operation of law, Sweezie was

properly treated as a party to the contract under the circumstances presented, as well as Jonker,

making them liable for the breach that indisputably occurred and the resulting damages that

indisputably were sustained by plaintiff.

The documentary evidence established that Hundley relocated to Costa Rica to oversee

the development of the project and the construction of the condominiums, while defendants

remained in Michigan to sell individual condominium units, with the proceeds of the sales being

used to finance the construction and project.3 The three men operated under an informal

agreement, and any profits from the venture were to be shared between them. It appears to us

that defendants and Hundley engaged in a “joint venture,” which is defined as “an association to

carry out a single business enterprise for a profit.” Kay Investment Co, LLC v Brody Realty No

1, LLC, 273 Mich App 432, 437; 731 NW2d 777 (2006) (quotation marks omitted). A joint

venture differs from a partnership, in that a partnership is “an association of persons to carry on

as coowners a business for profit.” Id. at 436-437, citing MCL 449.6. Defendants and Hundley

were not operating an ongoing business; rather, they joined forces for a specific condominium

project.4 The Kay Investment panel explained that a joint venture has the following elements: an

3

There were two condominium projects, the Palms and BreakWater Point, the latter of which is

the subject of this case, as plaintiff’s two units were part of the BreakWater Point project.

Plaintiff had earlier purchased a unit in the Palms.

4

In Kay Investment, 273 Mich App at 436, this Court ruled:

The parties dispute whether Robert Brody, George Brody, Joseph

Kaufman, and Harold Kaufman intended to create a partnership or a joint venture.

We hold that the record evidence compels the conclusion that the original parties

to the agreement intended to and did in fact create a joint venture, with the sole

purpose of developing and renting out a retail shopping center in Southgate.

The BreakWater Point condominium project was akin to the development of the retail

shopping center at issue in Kay Investment. Similarly, in Summers v Hoffman, 341 Mich 686,

693; 69 NW2d 198 (1955), the Michigan Supreme Court observed:

A consideration of the salient facts in the instant case shows that the

contract embodied characteristics of a joint venture. A single project was

involved, namely, the development and sale of two large parcels of real estate.

The profits, after expenses, were to be divided 50 per cent to plaintiff and 50 per

cent to defendants. Both made a contribution: plaintiff contributed his time, skill

and supervision, while defendants contributed the capital.

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agreement indicating an intention to undertake a joint venture; a joint undertaking of a single

project for profit; a sharing of profits as well as losses; contribution of skills or property by the

parties; and community interest and control over the subject matter of the enterprise. Id. at 437.

But even if the association between defendants and Hundley was a partnership, it would

not alter our ultimate ruling. 5 In Keiswetter v Rubenstein, 235 Mich 36, 45-46; 209 NW 154

(1926), our Supreme Court explained:

A “joint adventure” is defined as an association of two or more persons to

carry out a single business enterprise for profit. While under the present state of

the law courts do not treat a joint adventure as in all respects identical with a

partnership, the contractual relations of the parties and nature of their association

are so similar and closely akin to a partnership that it is commonly held their

rights and liabilities are to be tested by the same rules that govern partnerships.

By the same token it is claimed Rubenstein was in sole control of

construction, Hammel was in sole control of their accounts and the money

essential to finance the enterprise, of which he never let Rubenstein handle a

dollar, except his weekly stipend; but, whatever either was exclusively authorized

to do under their agreement, or did, each was acting for both in furtherance of

their joint adventure, or enterprise for their mutual profit. . . . .

“When two persons are engaged in the prosecution of a joint enterprise,

each has authority to act for both in respect to the means or agencies employed to

execute the common purpose, and the negligence of one in the management

thereof will be imputed to both.” [Citations and quotation marks omitted.]

And under partnership law, subject to some exceptions, all partners are jointly liable “for all . . .

debts and obligations of the partnership.” MCL 449.15(b).

Whether as a joint venture or a partnership, the question is whether Sweezie, working

within the context of that business relationship, could be held liable on the purchase agreement,

even though he was not named as the seller in the contract. In Campbell v Rukamp, 260 Mich

5

“A partnership is an association of 2 or more persons . . . to carry on as co-owners a business

for profit . . . .” MCL 449.6(1). “[T]he intent to create a partnership is not required if the acts

and conduct of the parties otherwise evidence that the parties carried on as co-owners a business

for profit.” Byker v Mannes, 465 Mich 637, 653; 641 NW2d 210 (2012). “Stated more plainly,

the statute does not require partners to be aware of their status as ‘partners’ in order to have a

legal partnership.” Id. at 646. “[I]n ascertaining the existence of a partnership, the proper focus

is on whether the parties intended to, and in fact did, carry on as co-owners a business for profit

and not on whether the parties subjectively intended to form a partnership.” Id. at 653 (quotation

marks). Assuming that defendants’ and Hundley’s relationship related to carrying on a business

enterprise, perhaps the ongoing construction and sale of condominiums given the Palms

development, their association would qualify as a partnership.

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43; 244 NW 222 (1932), a proposed corporation was never organized, articles of incorporation

were not executed, and stockholder meetings were not held; there was neither a de jure nor a de

facto corporation. As such, the proposed corporation could not exercise any corporate rights,

assert corporate powers, or assume corporate liabilities. Id. at 44-46. The Supreme Court stated

that where an individual assumes to act as a corporation and contracts as a corporation, but the

corporation is nonexistent, the individual will be held personally liable on the contract. Id. at 46.

And individual liability similarly attaches to ostensible members or stockholders of a pretended

corporation on contracts entered into in the name of the nonexistent corporation if the members

or stockholders authorized the contract, expressly or impliedly. Id. The Campbell Court further

indicated that if promoters of a proposed corporation conduct business with creditors in the name

of the corporation absent its existence, the promoters are generally liable to the creditors as

partners. Id.

We conclude that the Campbell decision supports the proposition that if a contract is

executed in the name of a nonexistent corporation and there is a breach of that contract, the

damaged contracting party can file suit for breach of contract against individual promoters,

subscribers, purported members and stockholders, and, by analogy, joint venturers and partners

involved in authorizing or procuring the contract in furtherance of the joint venture or

partnership, even though those individuals were not signatories to the contract. Here, Jonker

signed the purchase agreement on behalf of BreakWater Point SA, and thus he was properly held

liable for breach of contract for authorizing the sale, perhaps explaining why Jonker wisely did

not challenge plaintiff’s motion for summary disposition. Sweezie was in no better position,

considering that he implicitly authorized and minimally procured the contract in the name of the

nonexistent corporation and in furtherance of the joint venture or partnership, where he stood to

profit had the development been a success. Plaintiff met with Sweezie in Sweezie’s West

Michigan office, and plaintiff was shown artist renditions of BreakWater Point, with Sweezie

representing himself as being involved in the development of the project. Sweezie made the

sales pitch to plaintiff, and after plaintiff later decided to purchase the two condominium units,

Sweezie’s agent presented plaintiff with the purchase agreement, which plaintiff executed.

Plaintiff wired an initial payment to a Costa Rican attorney involved in the development, and

Sweezie or his agent accepted a subsequent payment from plaintiff. Under all of the surrounding

circumstances and Campbell, 260 Mich 43, Sweezie, while not signing or being named as a party

to the contract, was subject to liability for breach of contract, just as if he had been an express

party to the purchase agreement.6

6

There was no evidence indicating that Sweezie was involved in any fraud related to the project,

and it appears that he was an innocent party caught up in a grander scheme perpetrated by

Hundley and others in Costa Rica. But that does not absolve him from liability for breach of

contract. The evidence revealed, including Sweezie’s own testimony, that his role in the

development was to use his skills to generate sales for the project and that he stood to share in

the profits had they been realized. As such, he was a joint venturer or partner and liable on the

contract, given that the corporate entity identified in the contract was nonexistent. And

Sweezie’s assumption that BreakWater Point SA existed or his belief that others would form any

necessary corporate entities also does not absolve him from liability under the contract.

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Sweezie next argues that plaintiff failed to allege or establish facts allowing the court to

pierce the corporate veil. This contention is a nonstarter – BreakWater Point SA was not an

existing corporation; therefore, there was no corporate veil to pierce. And we have already

explained the legal basis for holding Sweezie liable for breach of contract.

Sweezie additionally maintains that the doctrines of misnomer of a corporate entity and

corporation by estoppel foreclosed plaintiff’s argument that Sweezie should be held liable, where

BreakWater Point SA was never properly formed. Sweezie further argues that the two doctrines

are not affirmative defenses that had to be pleaded in Sweezie’s first responsive pleading, so they

were not waived.

The misnomer doctrine provides that “[t]he misnomer of a person or corporation in a

written instrument will not defeat a recovery thereon if the identity sufficiently appears from the

name employed in the writing or is satisfactorily established by proof.” PIM, Inc v Steinbichler

Optical Techs USA, Inc, 468 Mich 896; 660 NW2d 73 (2003). With respect to corporation by

estoppel, in Duray Dev, LLC v Perrin, 288 Mich App 143, 152-153; 792 NW2d 749 (2010), this

Court explained:

Corporation by estoppel . . . is an equitable remedy and does not concern

legal status. The general rule is: Where a body assumes to be a corporation and

acts under a particular name, a third party dealing with it under such assumed

name is estopped to deny its corporate existence. Like the de facto corporation

doctrine, corporation by estoppel often arises in the context of assessing

individual versus corporate liability. The purpose of the doctrine is so that one

who contracts with an association as a corporation is estopped to deny its

corporate existence so as to prevent one from maintaining an action on the

contract against the associates, or against the officers making the contract, as

individuals or partners.

In sum, . . . [t]he corporation by estoppel doctrine prevents a party who

dealt with an association as though it were a corporation from denying its

existence. . . . .

Under MCR 2.111(F)(2), “[a] party against whom a cause of action has been asserted by

complaint . . . must assert in a responsive pleading the defenses the party has against the

claim[,]” and except for lack of subject-matter jurisdiction and failure to state a claim, “[a]

defense not asserted in the responsive pleading or by motion as provided by these rules is

waived[.]”7 Interestingly, this provision does not indicate that it pertains solely to affirmative

7

MCR 2.111(F)(2)(a) and (b) allow a party to raise a defense outside a responsive pleading,

where, respectively, a party asserts the defense in a motion for summary disposition filed under

MCR 2.116 before filing a responsive pleading, or where a responsive pleading is not required,

in which case the defense can first be raised at trial, subject to any pretrial order limiting the

issues to be tried.

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defenses. Indeed, failure to state a claim is plainly not an affirmative defense, yet our Supreme

Court in crafting the court rule felt the need to expressly exclude that defense from being

encompassed by the waiver rule. See Stanke v State Farm Mut Auto Ins Co, 200 Mich App 307,

312; 503 NW2d 758 (1993) (“An affirmative defense is a defense that does not controvert the

plaintiff’s establishing a prima facie case, but that otherwise denies relief to the plaintiff.”).

MCR 2.111(F)(3) goes on to provide:

Affirmative defenses must be stated in a party's responsive pleading, either

as originally filed or as amended in accordance with MCR 2.118. Under a

separate and distinct heading, a party must state the facts constituting

(a) an affirmative defense, such as contributory negligence; the existence

of an agreement to arbitrate; assumption of risk; payment; release; satisfaction;

discharge; license; fraud; duress; estoppel; statute of frauds; statute of limitations;

immunity granted by law; want or failure of consideration; or that an instrument

or transaction is void, voidable, or cannot be recovered on by reason of statute or

nondelivery;

(b) a defense that by reason of other affirmative matter seeks to avoid the

legal effect of or defeat the claim of the opposing party, in whole or in part;

(c) a ground of defense that, if not raised in the pleading, would be likely

to take the adverse party by surprise. [Emphasis added.]

MCR 2.111(F)(3)(c) says nothing about the defense having to be affirmative in nature,

which attribute appears to be fully covered by subrules (F)(3)(a) and (b). Instead, MCR

2.111(F)(3)(c) is concerned with defenses that would likely take an adverse party by surprise.

When MCR 2.111(F)(2) is read in conjunction with MCR 2.111(F)(3)(c), it becomes clear that

some defenses, even if not affirmative in nature, are subject to waiver if not timely pled.8 And

plaintiff specifically argues that “even if a defense is not ‘affirmative,’ it must still be pled if [it]

is ‘likely to take the adverse party by surprise.’ ” (Quoting MCR 2.111[F][3][c]; emphasis

omitted.) Sweezie makes no attempt to counter this argument in his reply brief, ignoring it

completely.

We find implicit support for our position in Campbell v St John Hosp, 434 Mich 608,

616; 455 NW2d 695 (1990), wherein our Supreme Court, after determining that an agreement to

arbitrate constitutes an affirmative defense, further stated:

8

In fact, it is arguable that MCR 2.111(F)(2) stands completely on its own in regard to waiver,

capturing all defenses, aside from the two exceptions, with MCR 2.111(F)(3), which makes no

mention of waiver but mandates that an affirmative defense be raised in a responsive pleading,

setting forth the rules that affirmative defenses must be listed under a separate and distinct

heading and that the facts constituting any affirmative defense must be provided.

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Even if we were to interpret subsection MCR 2.111(F)(3)(a) restrictively,

other language in MCR 2.111(F)(3) suggests that it was incumbent upon the

defendants to assert the arbitration agreement in their responsive pleadings. MCR

2.111(F)(3)(c) requires the inclusion of a ground of defense which would be

likely to surprise the adverse party. While the instant plaintiff may or may not

have been surprised in fact by the existence of the arbitration agreement, personal

representatives of patients who die following the signing of an agreement

generally may be quite likely to be taken by surprise by the existence of such a

document. [Quotation marks omitted.9]

This passage indicates that even if the arbitration agreement did not qualify as an

affirmative defense, our Supreme Court was still prepared to employ waiver on the basis of the

“surprise” provision in MCR 2.111(F)(3)(c). Here, although the trial court did not frame its

decision in terms of plaintiff being surprised by the doctrines or defenses of misnomer of a

corporate entity and corporation by estoppel, it did state that plaintiff would be prejudiced if

Sweezie was permitted to assert those defenses at such a late date, given that discovery had

closed two months earlier, that Sweezie first raised the defenses at the time of summary

disposition, and that plaintiff indicated that further discovery would be necessary to properly

address and confront those defenses. The element or concept of surprise was certainly

encapsulated by the trial court’s ruling. And we hold that, assuming the two doctrines do not

constitute affirmative defenses, they were nonetheless waived by Sweezie’s failure to raise them

in his answer, considering that the defenses were likely to and did take plaintiff by surprise.

Although it was no surprise that Sweezie denied liability under the purchase agreement because

he was not named as a party in the contract, the decision by Sweezie to place reliance on two

doctrines that have produced scant caselaw over the last 100+ years and are not often seen by the

courts would qualify as a surprise. Reversal is unwarranted.

Furthermore, MCR 2.111(F)(3)(a), which provides a list of examples of affirmative

defenses, specifically identifies “estoppel” as an affirmative defense. Although we agree with

Sweezie that there are many forms of estoppel, some of which are not affirmative defenses, e.g.,

promissory estoppel, Sweezie has not provided us with a persuasive argument that corporation

by estoppel is not an affirmative defense. An affirmative defense “accepts the plaintiff's

allegation as true and even admits the establishment of the plaintiff's prima facie case, but . . .

denies that the plaintiff is entitled to recover on the claim for some reason not disclosed in the

plaintiff's pleadings.” Stanke, 200 Mich App at 312. “An affirmative defense is a defense that

does not controvert the plaintiff's establishing a prima facie case, but that otherwise denies relief

to the plaintiff.” Id.

As indicated earlier, corporation by estoppel is often invoked “to prevent one from

maintaining an action on the contract against the associates, or against the officers making the

9

We note that MCR 2.111(F)(3)(a) was subsequently amended and now expressly lists “an

agreement to arbitrate” as an affirmative defense.

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contract, as individuals or partners.” Duray Dev, 288 Mich App at 153. Contrary to Sweezie’s

argument, we conclude that corporation by estoppel does not controvert plaintiff’s establishing a

prima facie case for breach of contract. Rather, the doctrine accepts that a prima facie contract

action against an individual associated with a nonexistent corporation has been made because

there is in fact no legally recognizable corporate entity, but then precludes relief against the

individual on an equitable basis, where it is affirmatively shown that the plaintiff had entered

into the contract on the belief and expectation that he or she was dealing with a valid corporation.

As such, corporation by estoppel operates like any other affirmative defense, e.g., a statute of

limitations defense. Sweezie’s analytical mistake is that he presumes that a prima facie case for

breach of contract can only be made where the defendant was an actual party to the contract. In

examining plaintiff’s complaint, he alleged that the seller was BreakWater Point SA, that there

was no such legal entity, that Sweezie acted as a partner in the development venture, that

Sweezie negotiated the sale with plaintiff, and that Sweezie was thus individually liable for

breach of contract as a partner under the circumstances. Considering the principles from

Campbell, 260 Mich 43, regarding individual liability on a contract when the corporation named

as a party in the contract does not exist, plaintiff had made a prima facie case for breach of

contract. And Sweezie attempted to bar recovery by way of the affirmative defense of

corporation by estoppel.

Additionally, the same can be said for the manner in which Sweezie sought to employ the

doctrine of misnomer of a corporate entity, wielding it not as a means of recovery, see PIM, Inc,

468 Mich at 896, but essentially as an affirmative defense, in that it accepts the existence of a

prima facie case for breach of contract, but then seeks to defeat that case by demanding that

plaintiff sue BreakWater Point Condominium Corporation SRI or BW Point Condominium Trust

SRL, as the doctrine would allegedly have permitted such a suit.

Moreover, in the context of Sweezie’s proffered application of the doctrine of misnomer

of a corporate entity, it is incumbent to find that a valid BreakWater Point-related corporation or

entity did indeed exist and that it had the legal capacity to sell the condominiums; we know that

it was not BreakWater Point SA. There is reference in the record to BreakWater Point

Condominium Corporation SRI, which was apparently established in 2006, and BW Point

Condominium Trust SRL, which, according to a Costa Rican attorney, was a valid entity

established in Costa Rica. The record, however, is unclear with respect to the intent behind these

entities and the role that they served in the condominium development. The record is devoid of

information sufficient to show the nature of these entities. 10 There is no evidence that either one

of these entities could lawfully have conveyed the condominium units to plaintiff under the

contract. It is plain from the record that none of the individuals involved in the various Costa

Rican endeavors were aware of whether the corporate entities existed or the purpose of each

entity. The doctrine of misnomer of a corporate entity presupposes that a valid corporation does

in fact exist but there are issues in how it was identified in the underlying contract. Therefore,

10

This is further proof that the two corporate doctrines raised by Sweezie after discovery had

closed were a surprise.

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you cannot have misnomer of a corporate entity if there is no evidence of any valid corporation

that could have sold the condominium units to plaintiff. On the existing record, there was no

corporation or entity, whatever its moniker, for plaintiff to sue for the wrong done to him.

Finally, as to the substantive merit of corporation by estoppel, we have not been directed

to, nor are we aware of, any cases where the doctrine has been invoked and applied where the

entity at issue never became a valid, legally-recognized corporation or company after the

contract, never had been a valid, legally-recognized corporation or company before the contract,

and had never attempted to take steps to incorporate. Yet, on the existing record, that is the

status of BreakWater Point SA. In Duray Dev, 288 Mich App at 148, the company at issue

obtained “filed” status as a legitimate limited liability company after the contract in dispute was

executed. There is no evidence that BreakWater Point SA ever became, ever was, or ever tried

to be a valid corporation. We envision the doctrine being implicated where an entity failed to

satisfy all of the technical formalities of incorporation, but there is no evidence that BreakWater

Point SA fell into that category. Amongst the very few Michigan cases addressing the doctrine

of corporation by estoppel is the very early case of Doyle v Mizner, 42 Mich 332, 336-337; 3

NW 968 (1879), where our Supreme Court made clear that the doctrine does not automatically

apply simply because a nonexistent corporation was named as a party in a contract:

There are certainly many cases in which a recognition of corporate

existence, by dealing with the corporation, will estop from questioning it. But this

doctrine rests on the ground that such action creates relations and encourages

conduct which there may be difficulty in undoing. In ordinary cases such

recognitions have been considered as binding.

But this rule is one originating in equitable principles and cannot be

applied universally. There would be no sense in applying it where no new rights

have intervened, and where such recognition has itself been brought about by

fraudulent dealings carried on for the very purpose of entrapping a party into the

action on which such recognition is rested. If there was no corporation in fact, and

if there are no facts which make it legally unjust to forbid its denial, it is difficult

to understand what room there is for an estoppel[.]

We conclude that under the circumstances in the instant case, Sweezie was not entitled to

rely on corporation by estoppel, even had he not waived the defense.

II. DOCKET NOS. 338257 AND 338336 – SANCTIONS

The trial court ruled that plaintiff was entitled to sanctions covering attorney fees and

costs under MCR 2.111 (waiver of affirmative defenses) and MCR 2.114(D), where Sweezie

made denials in the answer to plaintiff’s complaint that were not well-grounded in the facts and

were false. The court also determined that sanctions were appropriate under MCL 600.2591,

MCR 2.625(A)(2), and MCR 2.114(F), where Sweezie asserted frivolous defenses, i.e.,

misnomer of a corporate entity and corporation by estoppel, given that they were not timely

raised and were waived. The trial court imposed sanctions in the amount of $75,000 against

Sweezie and Varnum.

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On appeal, Varnum argues that sanctions were not warranted because Sweezie’s answer

and motion for summary disposition were well-grounded in fact and not frivolous. Sweezie

concurs in Varnum’s argument on the matter. Varnum additionally contends that the trial court

erred in awarding sanctions against Varnum, considering that the court did not make any

findings particular to Varnum in ordering sanctions, and because the court deprived Varnum of

due process by not giving it notice and an opportunity to be heard before entering sanctions

against Varnum. We disagree.

With respect to a request for attorney fees under MCL 600.2591 and MCR 2.114, we

review for an abuse of discretion the trial court’s ruling on the request. Edge v Edge, 299 Mich

App 121, 127; 829 NW2d 276 (2012). However, the court’s underlying factual findings,

including a finding of frivolousness, are reviewed for clear error. Kitchen v Kitchen, 465 Mich

654, 661; 641 NW2d 245 (2002); Edge, 299 Mich App at 127. Issues regarding the

interpretation of MCL 600.2591 and MCR 2.114 are reviewed de novo on appeal. Edge, 299

Mich App at 127. The question whether a claim or defense is frivolous is evaluated at the time

the claim or defense was raised. In re Costs & Attorney Fees, 250 Mich App 89, 94; 645 NW2d

697 (2002). The objective of sanctions “is to deter parties and attorneys from filing documents

or asserting claims and defenses that have not been sufficiently investigated and researched or

that are intended to serve an improper purpose.” FMB-First Mich Bank v Bailey, 232 Mich App

711, 723; 591 NW2d 676 (1998). Sanction provisions should not be construed in a manner that

has a chilling effect on advocacy, that prevents a party from bringing a difficult case, or that

penalizes a party whose claim initially appears viable but later becomes unpersuasive. Louya v

William Beaumont Hosp, 190 Mich App 151, 163; 475 NW2d 434 (1991). With respect to MCR

2.114 and MCL 600.2591, “[n]ot every error in legal analysis constitutes a frivolous position”

and “merely because this Court concludes that a legal position asserted by a party should be

rejected does not mean that the party was acting frivolously in advocating its position[,]”

especially in regard to legal issues that are complex and not easily resolved. Kitchen, 465 Mich

at 662-663.

“In an action filed on or after October 1, 1986, if the court finds on motion of a party that

an action or defense was frivolous, costs shall be awarded as provided by MCL 600.2591.”

MCR 2.625(A)(2).11 “Upon motion of any party, if a court finds that a . . . defense to a civil

action was frivolous, the court that conducts the civil action shall award to the prevailing party

the costs and fees incurred by that party in connection with the civil action by assessing the costs

and fees against the nonprevailing party and their attorney.” MCL 600.2591(1) (emphasis

added).12 The plain and unambiguous language of MCL 600.2591 mandates an award of

attorney fees and costs if a defense to a civil action was frivolous, and it requires assessment of

11

MCR 2.114(F) states that “a party pleading a frivolous . . . defense is subject to costs as

provided in MCR 2.625(A)(2).”

12

“The amount of costs and fees awarded under this section shall include all reasonable costs

actually incurred by the prevailing party and any costs allowed by law or by court rule, including

court costs and reasonable attorney fees.” MCL 600.2591(2).

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the fees and costs against both the party and the party's attorney. “Frivolous,” as used in the

statute, means, in part, that a “party had no reasonable basis to believe that the facts underlying

that party's legal position were in fact true” or that a “party's legal position was devoid of

arguable legal merit.” MCL 600.2591(3)(a)(ii) and (iii).

The trial court did not clearly err in finding that Sweezie asserted frivolous defenses –

misnomer of a corporate entity and corporation by estoppel. As explained above, these defenses

or doctrines had been waived, and not only were they waived, there was no factual support for

their application in the first place. Sweezie’s position was devoid of arguable legal merit. And

the trial court did not err in imposing sanctions under MCL 600.2591.

MCR 2.114 concerns the execution of court documents and applies to all pleadings,

motions, affidavits, and other papers mandated by the court rules. MCR 2.114(A). The court

rule provides in pertinent part:

(D) The signature of an attorney or party, whether or not the party is

represented by an attorney, constitutes a certification by the signer that

(1) he or she has read the document;

(2) to the best of his or her knowledge, information, and belief formed

after reasonable inquiry, 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

(3) 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.

(E) If a document is signed in violation of this rule, the court, on the

motion of a party or on its own initiative, shall impose upon the person who

signed it, a represented party, or both, an appropriate sanction, which may include

an order to pay to the other party or parties the amount of the reasonable expenses

incurred because of the filing of the document, including reasonable attorney fees.

. . . . [Emphasis added.]

In the instant case, the trial court held that sanctions were proper under MCR 2.114 on

basis that Sweezie made “false denials” in his answer when responding to ¶ 7 and ¶ 22 of the

complaint. The court indicated that there were more false denials, but found it unnecessary to

review all of them. With respect to ¶ 22, Sweezie denied that he “invested capital and/or

services in the BreakWater Point project and . . . stood to share in the profits generated by the

development project.” It is clear from the record that Sweezie invested services in BreakWater

Point, as he solicited buyers for condominium units, and his agent maintained records and

opened a bank account for the project. Additionally, in his deposition, Sweezie agreed that up

until 2013, long after the contract with plaintiff was executed, Sweezie was operating on the

belief and understanding that he was a one-third owner in the development and that any profits

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would be divided three ways. Accordingly, contrary to the response to ¶ 22 of plaintiff’s

complaint, Sweezie had invested services in the BreakWater Point project and he “stood to share

in the profits,” although none were ever generated. This answer was not well-grounded in fact.

Indeed, this false answer forced the litigation forward, demanding plaintiff to establish that

Sweezie was in fact a partner or joint venturer as revealed by his contribution of services to the

partnership or joint venture and the agreement to share in any profits; evidentiary demands that

could have been avoided by a truthful response to ¶ 22. We need not even proceed to examine

¶ 7, which concerned the Palms development. We do note that in responding to ¶ 9 of the

complaint, Sweezie denied that he was a partner or held any ownership interest in BreakWater

Point. Sweezie’s deposition testimony belied this answer.

Finally, we address Varnum’s arguments regarding the imposition of sanctions against

Varnum directly. We first reject the due process argument. “Due process in civil cases generally

requires notice of the nature of the proceedings, an opportunity to be heard in a meaningful time

and manner, and an impartial decisionmaker.” Cummings v Wayne Co, 210 Mich App 249, 253;

533 NW2d 13 (1995). Moreover, in regard to notice, “[d]ue process is satisfied when interested

parties are given notice through a method that is reasonably calculated under the circumstances

to apprise them of proceedings that may directly and adversely affect their legally protected

interests and afford them an opportunity to respond.” Wortelboer v Benzie Co, 212 Mich App

208, 218; 537 NW2d 603 (1995).

As noted earlier, MCL 600.2591(1) requires that any award of sanctions be imposed

“against the nonprevailing party and their attorney” (emphasis added), and MCR 2.114(E) allows

the court, on motion of a party “or on its own initiative,” to impose sanctions on the represented

party, counsel, “or both.” Accordingly, Varnum was aware from the start that it would be

sanctioned along with Sweezie if frivolousness was established under MCL 600.2591, regardless

of whom plaintiff requested sanctions against. And Varnum knew that it was potentially subject

to sanctions under MCR 2.114(E), even if plaintiff only sought sanctions against Sweezie,

considering that the court rule gives a trial judge sua sponte authority to impose sanctions against

a party, the party’s counsel, or both. Thus, Varnum necessarily had notice of a proceeding that

might directly and adversely affect its legally protected interests, i.e., notice that it could be

sanctioned, and, in responding to plaintiff’s motion for sanctions by brief and oral argument, it

had an opportunity to be heard on the matter.

Finally, with respect to Varnum’s contention that the trial court made no particular

findings as to Varnum itself and sanctionable conduct, MCL 600.2591 imposes a sanction on

counsel for asserting a frivolous defense, and all that need be found is that the defense was

frivolous. There is no requirement that it be shown that counsel, as opposed to his or her client,

is to blame for asserting the frivolous defense. Further, in the context of frivolous defenses, we

fail to see how Sweezie himself could be faulted for waiving the defenses of corporation by

estoppel and misnomer of a corporation or for not realizing that the record did not support those

defenses; these were plainly Varnum’s miscues. With respect to MCR 2.114, Varnum argues

that the trial court failed to inquire whether reasonable inquiry was made by Varnum in

preparing the answer on Sweezie’s behalf, faulting Sweezie for any falsehoods. The trial court

determined that upon reasonable inquiry, Varnum should have been able to ascertain the correct

responses to the allegations in the complaint. With respect to the response to ¶ 22 of the

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complaint, we certainly agree with the trial court. Sweezie’s involvement in the BreakWater

Point development by way of negotiating sales of condominium units and the prospect of reaping

the benefit of any profits were such elementary matters in this case and so plainly revealed in

discovery that they should have been easily discoverable through reasonable inquiry when

Varnum was drafting the answer. The admissions that were made in the answer, such that

Sweezie had in fact been involved in marketing condominium units, and the nature of the

allegations, including that a nonexistent corporation was the seller, which seemingly could have

been checked, should have enlightened counsel to more fully explore Sweezie’s true

participation in the development. Reversal is unwarranted.

Affirmed. Having fully prevailed on appeal, plaintiff is awarded taxable costs under

MCR 7.219.

/s/ Joel P. Hoekstra

/s/ William B. Murphy

/s/ Jane E. Markey

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