Matthew J Abraham v. Incorp Services Inc

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to

revision until final publication in the Michigan Appeals Reports.

STATE OF MICHIGAN

COURT OF APPEALS

MATTHEW J. ABRAHAM and MATTHEW J. UNPUBLISHED

ABRAHAM PC, March 28, 2019

Plaintiffs-Appellants/Cross-

Appellees,

No. 342296

Genesee Circuit Court

LC No. 17-109936-CK

v

INCORP SERVICES, INC.,

Defendant-Appellee/Cross-

Appellant,

and

MADDIN, HAUSER, ROTH & HELLER and

FOX ROTHSCHILD, LLP,

Defendants.

Before: MURRAY, C.J., and GADOLA and TUKEL, JJ.

PER CURIAM.

Plaintiffs, Matthew J. Abraham and Matthew J. Abraham, PC, appeal as of right the order

of the trial court granting summary disposition to defendant Incorp Services, Inc. (Incorp), and

also challenging the trial court’s denial of their motion to amend the complaint. Incorp appeals

as of right the same order, challenging the trial court’s denial of its motion for sanctions against

plaintiffs. We affirm.

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I. FACTS

This case arises from a previous collection action by Incorp against plaintiffs. Incorp is a

Nevada corporation that provides registered agent services to corporations and other entities

throughout the United States. In 2008, plaintiff Matthew J. Abraham, an attorney, acting through

his professional corporation, plaintiff Matthew J. Abraham, PC, formed 103 limited liability

companies (LLCs) on behalf of various clients. Abraham PC arranged for Incorp to provide

services as the registered agent for each LLC. According to plaintiffs, Incorp was to set up an

individual account for each LLC to be paid by each individual LLC, and not by plaintiffs.

According to Incorp, the fees largely went unpaid, and by 2014, it was owed over $70,000 in

unpaid registered agent fees that Incorp contended plaintiffs were contractually obligated to pay.

In 2014, Incorp, represented by defendant law firm Fox Rothschild, LLP (Fox), filed a

collection action against Abraham individually in Nevada, seeking to collect the disputed fees.

The Nevada court dismissed the lawsuit for lack of personal jurisdiction over Abraham. After

the Nevada case was dismissed, Incorp, through its Michigan counsel, defendant Maddin,

Hauser, Roth & Heller, PC (Maddin), filed a lawsuit against plaintiffs in Michigan (“the prior

action”), seeking approximately $83,000 in unpaid fees. Incorp’s complaint alleged counts of

account stated, breach of contract, unjust enrichment, and promissory estoppel.

Plaintiffs filed a counter-complaint against Incorp, alleging malicious prosecution and

violation of collection practices. The trial court granted Incorp summary disposition of the

counter-complaint, dismissing without prejudice the claims of malicious prosecution and

violation of collection practices. The trial court similarly dismissed plaintiffs’ second amended

counter-complaint without prejudice. This Court thereafter denied plaintiffs’ application for

interlocutory leave to appeal from the trial court’s dismissal of the counter-complaint. Incorp

Services Inc v Matthew J. Abraham, unpublished order of the Court of Appeals, entered August

17, 2016 (Docket No. 333763).

Meanwhile, the trial court permitted Incorp to substitute as defendant Abraham PC in

place of Abraham individually. The prior action proceeded to a jury trial, which concluded with

a verdict for Abraham PC. The jury verdict stated:

QUESTION NO. 1: Did Incorp Services, Inc. and Matthew J. Abraham, P.C.

enter into a binding contract (written or oral)?

Answer: Yes

QUESTION NO. 2: Did Incorp Services, Inc. perform all, or substantially all, of

the registered/resident agent services that it was required to provide under the

contract?

Answer: Yes

QUESTION NO. 3: Did Matthew J. Abraham, P.C. breach the contract with

Incorp Services, Inc. by failing to pay for the registered/resident agent services

that Incorp Services, Inc. provided?

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Answer: No

QUESTION NO. 4: Did Matthew J. Abraham, P.C. promise to pay Incorp

Services, Inc. for the registered/resident agent services that Incorp Services, Inc.

provided?

Answer: No

***

QUESTION NO. 6: Did you find that Matthew J. Abraham, P.C.’s account is

stated as set forth in Special Jury Instruction No. 1?

Answer: No

Thereafter, plaintiffs filed their complaint initiating this action against Incorp,1 alleging

breach of contract, fraud, and malicious prosecution. Incorp moved for summary disposition of

the complaint under MCR 2.116(C)(7), (8), and (10), and for sanctions against plaintiffs, while

plaintiffs requested leave to amend the complaint. The trial court granted Incorp’s motion for

summary disposition, denied Incorp’s motion for sanctions, and also denied plaintiffs’ request

for leave to amend the complaint. Plaintiffs now appeal the trial court’s order to this Court, and

Incorp cross-appeals from that same order.

II. DISCUSSION

A. SUMMARY DISPOSITION

Plaintiffs contend that the trial court erred in granting Incorp summary disposition of

their claims under either MCR 2.116(C)(7), (8), or (10), and argue that the trial court should have

instead granted summary disposition in favor of plaintiffs on their claims of breach of contract

and fraud. We disagree.

This Court reviews de novo a trial court’s decision to grant or deny summary disposition.

Graham v Foster, 500 Mich 23, 28; 893 NW2d 319 (2017). In so doing, this Court reviews the

entire record to determine whether the moving party was entitled to summary disposition.

Maiden v Rozwood, 461 Mich 109, 118; 597 NW2d 817 (1999). A motion for summary

disposition under MCR 2.116(C)(7) asserts that the claim is barred by “release, payment, prior

judgment, immunity granted by law, statute of limitations, statute of frauds, an agreement to

arbitrate or to litigate in a different forum, infancy or other disability of the moving party, or

assignment or other disposition of the claim before commencement of the action.” MCR

2.116(C)(7). In considering a motion under MCR 2.116(C)(7), this Court considers all

1

Plaintiffs also sued Fox and Maddin, alleging malicious prosecution. The trial court granted

Maddin’s motion for summary disposition, and thereafter, upon stipulation of the parties, the trial

court dismissed without prejudice the complaint against Fox.

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documentary evidence and accepts the complaint as factually accurate unless specifically

contradicted by the documentation. Frank v Linkner, 500 Mich 133, 140; 894 NW2d 574

(2017). If no facts are in dispute, and if reasonable minds could not differ regarding the legal

effect of those facts, the question whether the claim is barred is an issue of law for the Court.

See RDM Holdings, Ltd v Continental Plastics Co, 281 Mich App 678, 687; 762 NW2d 529

(2008).

A motion for summary disposition under MCR 2.116(C)(8) “tests the legal sufficiency of

the complaint. All well-pleaded factual allegations are accepted as true and construed in a light

most favorable to the nonmovant.” Maiden, 461 Mich at 119. A motion for summary

disposition under this section is properly granted when, considering only the pleadings, the

alleged claims are clearly unenforceable as a matter of law and no factual development could

justify recovery. Id. By contrast, when reviewing an order granting summary disposition under

MCR 2.116(C)(10), this Court considers all documentary evidence submitted by the parties in

the light most favorable to the nonmoving party. Dawoud v State Farm Mut Auto Ins Co, 317

Mich App 517, 520; 895 NW2d 188 (2016). Summary disposition under MCR 2.116(C)(10) is

warranted when there is no genuine issue as to any material fact and the moving party is entitled

to judgment as a matter of law. Id.

In this case, the trial court granted Incorp’s motion for summary disposition, but did not

state the section of MCR 2.116(C) that was the basis for the order. On the record, however, the

trial court reasoned that plaintiffs’ claims for breach of contract and fraud are barred, and that

plaintiffs failed to allege a special injury sufficient to establish malicious prosecution. We agree.

1. BREACH OF CONTRACT

Plaintiffs’ breach of contract claim is barred by res judicata, and summary disposition of

this claim was therefore warranted under MCR 2.116(C)(7). Res judicata and collateral estoppel

are preclusion doctrines that impose finality to litigation when the same parties have already had

a full and fair opportunity to litigate their claims. William Beaumont Hosp v Wass, 315 Mich

App 392, 398; 889 NW2d 745 (2016). The doctrine of res judicata was judicially created to

“relieve parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and, by

preventing inconsistent decisions, encourage reliance on adjudication.” Pierson Sand & Gravel,

Inc v Keeler Brass Co, 460 Mich 372, 380; 596 NW2d 153 (1999) (quotation marks and citations

omitted). Res judicata precludes relitigation of a claim that is predicated on the same underlying

transaction as a claim litigated in a prior case. Duncan v Michigan, 300 Mich App 176, 194; 832

NW2d 761 (2013). By contrast, collateral estoppel bars relitigation of an issue in a subsequent,

different cause of action between the same parties, where the prior proceeding ended in a valid

judgment and the issue was actually and necessarily determined in the prior proceeding.

Johnston v Sterling Mtg & Investment Co, 315 Mich App 724, 756; 894 NW2d 121 (2016)

(citation omitted).

Res judicata operates to bar a second action when “(1) the first action was decided on the

merits, (2) the matter contested in the second action was or could have been resolved in the first,

and (3) both actions involve the same parties or their privies.” Dart v Dart, 460 Mich 573, 586;

597 NW2d 82 (1999). Parties are in privity for purposes of res judicata when they are “so

identified in interest with another party that the first litigant represents the same legal right that

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the later litigant is trying to assert.” Adair v Michigan, 470 Mich 105, 122; 680 NW2d 386

(2004). Res judicata is broadly applied in Michigan, barring not only claims already litigated,

but also every claim arising from the same transaction that could have been brought by

exercising reasonable diligence. Dart, 460 Mich at 586.

In the prior action, Incorp sued Abraham PC, alleging that Abraham PC and Incorp

entered into an agreement in which Incorp was to provide resident agent services to the 103

LLCs, that Incorp substantially performed on the contract, that Incorp therefore became entitled

to collect resident agent fees from Abraham PC, and that Abraham PC breached the contract by

refusing to pay Incorp’s fees. Among the specific questions submitted to the jury was whether a

contract existed between Abraham PC and Incorp, to which the jury answered “yes,” and

whether Incorp substantially performed on that contract, to which the jury also answered “yes.”

In the current case, the complaint, this time filed by plaintiffs, again alleges that Abraham PC

and Incorp entered into an agreement in which Incorp was to provide resident agent services to

the 103 LLCs, and that Incorp thereafter breached the contract, questions specifically answered

by the jury in the prior litigation. Because of the identity of the parties2 and the identity of the

claim in this litigation and the prior action, the breach of contract claim in this case was properly

dismissed under MCR 2.116(C)(7) as precluded by res judicata.

2. FRAUD

Plaintiffs’ fraud claim was properly dismissed in part under MCR 2.116(C)(7) as barred

by the statute of limitations, but also is properly dismissed under MCR 2.116(C)(8) because

plaintiffs failed to allege facts sufficient to support a claim for fraud. To set forth a prima facie

claim of fraudulent misrepresentation, a plaintiff must establish that (1) the defendant made a

material representation, (2) that was false, (3) the defendant knew the representation was false, or

made it recklessly, (4) the representation was made intending that the plaintiff would act in

reliance upon it, (5) the plaintiff acted in reliance on the representation, and (6) the plaintiff

suffered damage. Derderian v Genesys Health Care Sys, 263 Mich App 364, 378; 689 NW2d

145 (2004). The element of reliance must be a reasonable reliance upon the false representation.

Nieves v Bell Indus, Inc, 204 Mich App 459, 464; 517 NW2d 235 (1994). In sum, a fraudulent

misrepresentation requires an affirmative false representation intended to deceive. See M & D,

Inc v W B McConkey, 231 Mich App 22, 27; 585 NW2d 33 (1998).

Plaintiffs allege that Incorp made fraudulent statements to them in 2008 and 2014. The

statute of limitations applicable to an allegation of fraud is six years. MCL 600.5813; Adams v

Adams, 276 Mich App 704, 710; 742 NW2d 399 (2007). The period of limitations begins to run

from the time the claim accrues, and the claim “accrues at the time the wrong upon which the

claim is based was done regardless of the time when damage results.” MCL 600.5827. Here,

plaintiffs’ allegations that Incorp made misrepresentations to them in 2008 was barred by the

time plaintiffs filed their complaint in this case in October 2017.

2

Abraham individually is a party here, but was not a party to the prior action after the trial court

permitted Incorp to substitute Abraham PC for Abraham individually. Plaintiffs, however, have

identity of interest with each other sufficient to establish privity. See Adair, 470 Mich at 122.

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Summary disposition of the entire fraud claim was warranted, however, under MCR

2.116(C)(8) because plaintiffs’ complaint does not allege facts sufficient to demonstrate the

elements of fraudulent misrepresentation. Plaintiffs’ allegations of fraud against Incorp are more

akin to a claim of breach of contract. See M & D, Inc, 231 Mich App at 27. The facts suggest

that the parties contracted in 2008 with the intention that the individual LLCs would pay the fees,

but by 2014, when Incorp had not been paid, Incorp looked to plaintiffs for the fees, arguing that

the contract imposed that duty. Disagreeing over contractual liability, however, does not

establish that at the inception of the contract Incorp made false statements to induce plaintiffs to

rely on those statements. Similarly, plaintiffs’ allegations that in 2014, Incorp sought

information from them under the guise of billing the LLCs, but was actually acquiring the

information in preparation to sue Abraham individually in Nevada, does not establish fraudulent

misrepresentation. Rather, the facts suggest that plaintiffs were contractually obligated to

provide the LLCs’ contact information to Incorp, and did so to facilitate Incorp billing the LLCs.

The fact that Incorp then sued Abraham individually instead of billing the LLCs indicates a

contract dispute, but does not demonstrate fraud. In addition, although plaintiffs allege damages

resulting from defending the lawsuits, they do not establish that the alleged fraud was the basis

of those alleged damages. Because plaintiffs failed to allege facts sufficient to establish the

elements of fraud, Incorp was entitled to summary disposition of this count of plaintiffs’

complaint.

3. MALICIOUS PROSECUTION

Plaintiffs’ complaint also failed to state a claim for malicious prosecution, and summary

disposition of this claim was therefore warranted under MCR 2.116(C)(8). The tort of malicious

prosecution is disfavored in Michigan. See, e.g., Friedman v Dozorc, 412 Mich 1, 46; 312

NW2d 585 (1981) (“The cure for an excess of litigation is not more litigation”). The elements of

malicious prosecution under Michigan law are (1) the prior proceedings terminated in favor of

the plaintiff in the present case, (2) the plaintiff in the prior proceeding lacked probable cause,

and (3) malice, meaning that the plaintiff in the prior proceeding had a purpose other than

obtaining adjudication of the claim asserted. Id. at 48. In addition, a plaintiff asserting malicious

prosecution must establish that he or she suffered a “special injury,” meaning an “injury to one’s

fame (as by a scandalous allegation), injury to one’s person or liberty, and injury to one’s

property.” Id. at 33-34. A special injury must be an injury that would not necessarily occur in

all lawsuits alleging similar causes of action. Barnard v Hartman, 130 Mich App 692, 694-695;

344 NW2d 53 (1984).

In this case, Incorp sued plaintiffs in Nevada and Michigan, and in each case plaintiffs

prevailed. Plaintiffs, however, have failed to establish that in bringing the lawsuits Incorp lacked

probable cause, or that they had a purpose other than obtaining adjudication of the claim

asserted. See Friedman, 412 Mich at 48. Plaintiffs allege no facts that establish that defendants

acted with any other purpose than to obtain the fees that Incorp argued were owed to them by

plaintiffs by virtue of the contract. And, in fact, the jury in the prior action found that a contract

did exist between the parties and that Incorp had substantially performed on the contract; the jury

simply concluded that Abraham PC was not obligated under the contract to pay the fees.

In addition, plaintiffs do not allege facts to establish that they have suffered a special

injury. Plaintiffs’ complaint alleges as damages that Abraham individually “suffered emotional

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damages, a large loss of time and expended more than $10,000 in attorneys’ fees.” These

alleged injuries, however, are the type of injuries that likely would occur in all lawsuits in which

one party seeks to collect from another party under a contract, and therefore do not rise to the

level of a “special injury.” See Barnard, 130 Mich App at 694-695. Because plaintiffs did not

allege facts sufficient to set forth a claim of malicious prosecution, the trial court properly

granted summary disposition of this claim to Incorp under MCR 2.116(C)(8).

B. REQUEST TO AMEND

Plaintiffs next contend that the trial court erred in failing to permit them to amend the

complaint to allege abuse of process instead of malicious prosecution. We disagree. This Court

reviews a trial court’s decision to grant or deny leave to amend pleadings for an abuse of

discretion. Sanders v Perfecting Church, 303 Mich App 1, 8-9; 840 NW2d 401 (2013). The trial

court does not abuse its discretion unless its decision falls outside the range of reasonable and

principled outcomes. Saffian v Simmons, 477 Mich 8, 12; 727 NW2d 132 (2007).

MCR 2.118(A)(2) provides that leave to amend a pleading “shall be freely given when

justice so requires.” Further, MCR 2.116(I)(5) provides:

If the grounds asserted [in support of summary disposition] are based in subrule

(C)(8), (9), or (10), the court shall give the parties an opportunity to amend their

pleadings as provided by MCR 2.118, unless the evidence then before the court

shows that amendment would not be justified.

Thus, under MCR 2.116(I)(5), a trial court granting summary disposition under MCR

2.116(C)(8),(9), or (10), must permit the parties to amend their pleadings unless such amendment

would be futile. Weymers v Khera, 454 Mich 639, 658; 563 NW2d 647 (1997). And although a

trial court’s decision to permit or deny leave to amend is subject to reversal only upon an abuse

of the trial court’s discretion, this Court has also stated that “amendment is generally a matter of

right rather than of grace,” In re Kostin, 278 Mich App 47, 52; 748 NW2d 583 (2008), and leave

to amend “should ordinarily be denied only for particularized reasons such as undue delay, bad

faith or dilatory motive, repeated failures to cure by amendments previously allowed, or futility.”

Decker v Rochowiak, 287 Mich App 666, 681; 791 NW2d 507 (2010). “A determination of

futility must be based on the legal insufficiency of the claim on its face.” Liggett Restaurant

Group, Inc v City of Pontiac, 260 Mich App 127, 138; 676 NW2d 633 (2004).

Abuse of process is defined as the wrongful use of a court’s process, but not as the use of

process for the wrongful initiation of an action. Lawrence v Burdi, 314 Mich App 203, 211; 886

NW2d 748 (2016). To prove abuse of process, a plaintiff must demonstrate (1) an ulterior

purpose, and (2) an act in the use of process that is improper in the regular prosecution of a

proceeding. Friedman, 412 Mich at 30. The act must be something more than simply initiating

a lawsuit, and the ulterior purpose must be something more than settling a lawsuit. Id. at 31.

“One way in which process is sometimes abused, is by making use of it to accomplish not the

ostensible purpose for which it is taken out, but some other purpose for which it is an illegitimate

and unlawful means.” Lawrence, 314 Mich App at 212 (citation omitted).

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In this case, plaintiffs’ complaint does not allege facts that would support a claim of

abuse of process. In Count III of the complaint alleging malicious prosecution, the gist of

plaintiffs’ allegations is that Incorp filed the lawsuits in Nevada and then in Michigan without

any legal basis to do so, for the purpose of having a court order Abraham to pay the fees incurred

under the contract. These allegations do not support an abuse of process claim. They involve

merely the filing of a lawsuit to attempt to enforce a contract, albeit one which plaintiffs did not

believe was enforceable against them. Because the facts alleged by plaintiffs do not support the

claim of abuse of process that plaintiffs sought to add by amending the complaint, the proposed

amendment was futile, and leave to amend was properly denied. See, e.g., Capitol Prop Group,

LLC v 1247 Ctr Street, LLC, 283 Mich App 422, 427; 770 NW2d 105 (2009).

C. SANCTIONS

On cross-appeal, Incorp contends that the trial court erred by denying its motion for

sanctions under former MCR 2.114(E) and (F). We disagree. We review a trial court’s decision

on a motion to impose sanctions under former MCR 2.114 for clear error. Bronson Health Care

Group, Inc v Titan Ins Co, 314 Mich App 577, 585; 887 NW2d 205 (2016). A finding is clearly

erroneous when, although there is evidence to support it, we are left with a definite and firm

conviction that the trial court has made a mistake. Kitchen v Kitchen, 465 Mich 654, 661-662;

641 NW2d 245 (2002).

Under former MCR 2.114,3 a court was empowered to assess costs and attorney fees

against a party as a sanction for filing an unfounded pleading or for bringing a frivolous claim,

the purpose being to deter attorneys and parties from advancing frivolous claims. See FMB-First

Mich Bank v Bailey, 232 Mich App 711, 719; 591 NW2d 676 (1999). Before imposing sanctions

under MCR 2.114(E), however, a trial court was required to first find that an attorney or party

had signed a pleading in violation of MCR 2.114(A)-(D) based upon the facts of that case. In re

Stafford, 200 Mich App 41, 42; 503 NW2d 678 (1993). MCR 2.114(D) provides that the

signature of an attorney or a party is a certification by that person that the document is “well

grounded in fact and is warranted by existing law or a good-faith argument for the extension,

modification, or reversal of existing law,” and also, that the document is not “interposed for any

improper purpose, such as to harass or to cause unnecessary delay or needless increase in the

cost of litigation.” MCR 2.114(D).

Similarly, whether a claim is frivolous under former MCR 2.114(F) depends on the facts

of the particular case. Kitchen, 465 Mich at 662. A claim is frivolous if a party’s legal position

was devoid of arguable legal merit, if the party had no reasonable basis to believe the underlying

facts of its position were true, or if the party’s primary purpose in bringing the action or asserting

the defense was to harass, embarrass, or injure the other party. MCL 600.2591(3)(a); Edge v

Edge, 299 Mich App 121, 134-135; 829 NW2d 276 (2012).

3

MCR 2.114 was repealed, effective September 1, 2018, but was in effect at the times relevant

to this case. The language previously found in MCR 2.114(D) through (F) has been retained at

MCR 1.109(E).

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Here, Incorp argues that plaintiffs’ claims were frivolous and that the complaint was filed

for an improper purpose because the claims had been disposed of in the prior action. Plaintiffs’

claims of fraud and malicious prosecution, or similar allegations, however, were dismissed by

the trial court in the prior action without prejudice, and therefore were not litigated to conclusion.

A dismissal of a claim without prejudice is not a dismissal on the merits. Grimmer v Lee, 310

Mich App 95, 102; 872 NW2d 725 (2015). The use of the term “without prejudice” indicates the

“right or privilege to take further legal proceedings on the same subject, and show[s] that the

dismissal is not intended to be res ajudicata of the merits.” Id. (quotation marks and citation

omitted). Plaintiffs’ claims for fraud and malicious prosecution therefore were not barred by the

previous dismissals, and the dismissal without prejudice suggests the right to pursue further legal

proceedings.

Incorp also argues that it is entitled to reimbursement of its costs for defending this

appeal because the appeal is vexatious. MCR 7.216(C)(1) provides that an appeal is vexatious if

it was taken to hinder or delay or without a reasonable basis to believe that there was a

meritorious issue for determination on appeal, or if “a pleading, motion, argument, brief,

document, or record filed in the case or any testimony presented in the case was grossly lacking

in the requirements of propriety, violated court rules, or grossly disregarded the requirements of

a fair presentation of the issues to the court.” MCR 7.216(C)(1)(a) and (b). Edge, 299 Mich App

at 135. In this case, although plaintiffs’ claims were not sufficient to survive summary

disposition, Incorp has not demonstrated that the appeal was taken to hinder or delay or that

plaintiffs were without a reasonable basis to believe that there was a meritorious issue on appeal.

Affirmed.

/s/ Christopher M. Murray

/s/ Michael F. Gadola

/s/ Jonathan Tukel

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