Page 1 of 8Westlaw Delivery Summary Report for LANG,MICHAELDate/Time of Request:Client…

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Page 1 of 8Westlaw Delivery Summary Report for LANG,MICHAELDate/Time of Request:Client Identifier:Database:Citation Text:Lines:Documents:Images:Thursday, September 16, 2010 22:25 EasternBULMI-CS391 N.W.2d 41939210The material accompanying this summary is subject to copyright. Usage is governed by contract with Thomson Reuters,West and their affiliates.http://web2.westlaw.com/print/printstream.aspx?ifm=NotSet&destination=atp&prid=ia744… 9/16/2010Page 2 of 8391 N.W.2d 419151 Mich.App. 628, 391 N.W.2d 419(Cite as: 151 Mich.App. 628, 391 N.W.2d 419)Court of Appeals of Michigan.John GILROY, Plaintiff-Appellee,v.Robert CONWAY, d/b/a Conway Studios, Defendant-Appellant.Docket No. 79979.Submitted May 8, 1985.Decided May 19, 1986.Released for Publication Aug. 15, 1986.Photographer partner brought action against managing partner for conversion of partnership assetsand failure to pay or account for income from partnership. The Circuit Court, Kalamazoo County,Donald M. Goodwillie, Jr., J., entered judgment forphotographer partner. Managing partner appealed.The Court of Appeals, Peterson, J., held that: (1)managing partner’s fiduciary duty not to convertpartnership property arose out of partnership contract and did not entitle photographer partner toaward of exemplary damages upon breach; (2) Uniform Partnership Act did not entitle photographerpartner to award of exemplary damages; and (3) defendant whose denial of allegations in complaintwas unwarranted was liable for attorney fees andcosts necessary to prove truth of allegations.Affirmed as modified.West Headnotes[1] Evidence 157574157 Evidence157XII Opinion Evidence157XII(F) Effect of Opinion Evidence157k574 k. Conflict with Other Evidence.Most Cited CasesEvidence supported trial court’s resolution of conflict of expert testimony as to value of partnership,trial court’s findings as to value of business, andaward to photographer partner of interest in busi-Page 1ness after managing partner violated fiduciary relationship by converting partnership assets.[2] Evidence 157543(4)157 Evidence157XII Opinion Evidence157XII(C) Competency of Experts157k543 Value157k543(4) k. Personal Property. MostCited CasesTrial court’s exclusion of testimony of witness as toopinion on valuation of partnership was not abuseof discretion. MRE 104(a).[3] Partnership 289305289 Partnership289VII Dissolution, Settlement, and Accounting289VII(C) Distribution and SettlementBetween Partners and Their Representatives289k305 k. Division of Capital. MostCited CasesManaging partner upon dissolution of partnershipwith photographer partner was entitled to one halfof value of checks from customers deposited intrust account of photographer partner’s attorney andto one half of value of equipment left at place ofbusiness when managing partner converted assetsof partnership.[4] Damages 11587(1)115 Damages115V Exemplary Damages115k87 Nature and Theory of Damages Additional to Compensation115k87(1) k. In General. Most Cited CasesPurpose of exemplary damages is to compensate formental injury rather than to punish.[5] Damages 11557.42115 Damages© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.http://web2.westlaw.com/print/printstream.aspx?ifm=NotSet&destination=atp&prid=ia744… 9/16/2010Page 3 of 8391 N.W.2d 419151 Mich.App. 628, 391 N.W.2d 419(Cite as: 151 Mich.App. 628, 391 N.W.2d 419)115III Grounds and Subjects of CompensatoryDamages115III(A) Direct or Remote, Contingent, orProspective Consequences or Losses115III(A)2 Mental Suffering and Emotional Distress115k57.41 Breach of Contract or Warranty115k57.42 k. In General. MostCited Cases(Formerly 115k56)Damages for mental injury are not recoverable forbreach of commercial contracts having as purposeeconomic, rather than personal, interest.[6] Partnership 289122.5289 Partnership289III Mutual Rights, Duties, and Liabilities ofPartners289III(C) Actions Between Partners289k122.5 k. Damages. Most Cited Cases(Formerly 289k1221/2)Managing partner’s fiduciary duty not to convertpartnership property to his own use arose from partnership contract, did not arise from tort independentof breach of partnership contract, and, therefore,did not justify award of exemplary damages uponbreach. M.C.L.A. §§ 449.19-449.22.[7] Partnership 289122.5289 Partnership289III Mutual Rights, Duties, and Liabilities ofPartners289III(C) Actions Between Partners289k122.5 k. Damages. Most Cited Cases(Formerly 289k1221/2)Uniform Partnership Act did not entitle photographer partner whose right to partnership propertywas converted by managing partner to award of exemplary damages, but only required that photographer partner be made whole economically.M.C.L.A. §§ 449.19-449.22.[8] Partnership 289259.5Page 2289 Partnership289VII Dissolution, Settlement, and Accounting289VII(A) Causes of Dissolution289k259.5 k. Election of Partner to Dissolve. Most Cited Cases(Formerly 289k2591/2)Photographer partner had no right to compel continuation of partnership that was not for definiteterm. M.C.L.A. § 449.31.[9] Partnership 289346289 Partnership289VII Dissolution, Settlement, and Accounting289VII(D) Actions for Dissolution and Accounting289k346 k. Costs. Most Cited CasesManaging partner, whose answer denied each allegation of photographer partner’s complaint for conversion of partnership assets and failure to pay income from partnership or to account for income,who later admitted truth of many allegations, andwho was found to have done acts alleged, was liable to photographer partner for costs and attorneyfees necessary to prove allegations denied withoutjustification. GCR 1963, 111.6; MCR 1.101 et seq.,2.114(D, E).**420 *630 Alan H. Silverman, P.C. by Alan H.Silverman, Kalamazoo, for plaintiff-appellee.Vandervoort, Cooke, McFee, Christ, Carpenter &Fisher by Nelson Karre, Battle Creek, for defendant-appellant.Before SHEPHERD,PETERSON,FN* JJ.P.J.,andMAHERandFN* William R. Peterson, 28th JudicialCircuit Judge, sitting on Court of Appealsby assignment pursuant to Const.1963, Art.6, Sec. 23, as amended 1968.PETERSON, Judge.© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.http://web2.westlaw.com/print/printstream.aspx?ifm=NotSet&destination=atp&prid=ia744… 9/16/2010Page 4 of 8391 N.W.2d 419151 Mich.App. 628, 391 N.W.2d 419(Cite as: 151 Mich.App. 628, 391 N.W.2d 419)Defendant cheated his partner*631 and appealsfrom the trial court’s judgment granting that partnera remedy.Plaintiff was an established commercial photographer in Kalamazoo who also had a partnershipinterest in another photography business, ColonialStudios, in Coldwater. In 1974, defendant becameplaintiff’s partner in Colonial Studios, the name ofwhich was changed to Skylight Studios. Under thepartnership agreement, defendant was to be the operating manager of the partnership, in return forwhich he would have a guaranteed draw. Except forthe guaranteed draw, the partnership was equal inownership and the sharing of profits.Prior to defendant’s becoming a partner, the business had acquired a small contractual clientele ofschools for which the business provided studentportrait photographs. The partners agreed to concentrate on this type of business, and both partnerssolicited schools with success. Gross sales, whichwere $40,000 in 1974, increased every year andamounted to $209,085 in 1980.In the spring of 1981, defendant offered to buy outplaintiff and some negotiations followed. On June25, 1981, however, plaintiff was notified by the defendant that the partnership was dissolved as of July 1, 1981. Plaintiff discovered that defendant: hadclosed up the partnership’s place of business andopened up his own business; had purchased equipment and supplies in preparation for commencinghis own business and charged them to the partnership; and had taken with him the partnership employees and most of its equipment.Defendant had also stolen the partnership’s business. He had personally taken over the business ofsome customers by telling them that the partnershipwas being dissolved; in other cases he simply tookover partnership contracts without *632 telling thecustomers that he was then operating on his own.Plaintiff also learned that defendant’s deceit had included the withdrawal, without plaintiff’s knowledge, of partnership funds for defendant’s personalPage 3use in 1978 in an amount exceeding $11,000.The trial judge characterized the case as a classicstudy of greed and found that defendant had in effect appropriated the business enterprise, holdingthat defendant had knowingly and wilfully violated his fiduciary relationship as a partner by converting partnership assets to his use and, in doingso, literally destroying the partnership. He alsofound that the partnership could have been sold as agoing business on June 30, 1981, and that after afull accounting, it had a value on that date of$94,596 less accounts payable of $17,378.85, or anet value of $77,217.15. The division thereof afteradjustments for plaintiff’s positive equity or capital,resulted in an award to plaintiff for his interest inthe business of $53,779.46.FN1FN1. While other methods of computingdamages might have been argued, neitherparty quarrels with this method of determining plaintiff’s remedy for economic damages.[1] Defendant argues that the finding of the trialjudge as to the value of the **421 business as ofJune 30, 1981, was not supported by the proofs attrial. The gist of the argument, however, is not thatthere were no proofs to substantiate the finding asto value, but that the witness whose testimony wasthe basis for the finding was less credible than defendant’s accountant who gave the opinion that thebusiness had no value except for its cash on handand the value of equipment and fixtures. The expertupon whose testimony the trial judge relied hadsubstantial experience in the field of school portraitphotography and was in fact an expert *633 broughtto trial by the defendant whose valuation testimonywas brought out by cross-examination. The weightand credence to be given to the testimony of the experts was for the trial judge to determine, Sampsonv. Veenboer, 252 Mich. 660, 234 N.W. 170 (1931);Coats v. Bussard, 94 Mich.App. 558, 288 N.W.2d651 (1980), and a review of the record does not persuade us that his conclusions were clearly erroneous. GCR 1963, 517.1, now MCR 2.613(C); Pre-© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.http://web2.westlaw.com/print/printstream.aspx?ifm=NotSet&destination=atp&prid=ia744… 9/16/2010Page 5 of 8391 N.W.2d 419151 Mich.App. 628, 391 N.W.2d 419(Cite as: 151 Mich.App. 628, 391 N.W.2d 419)copio v. Detroit, 415 Mich. 457, 330 N.W.2d 802(1982).[2] Defendant also claims that the trial court committed error in excluding the testimony of one JackDehn as to his opinion on the valuation of the partnership. The qualification of a witness to testimonyis a preliminary question to be determined by thetrial judge, MRE 104(a). The trial court found thatthe witness was not qualified as an expert and wefind no abuse of discretion in his ruling. Elsasser v.American Motors Corp., 81 Mich.App. 379, 265N.W.2d 339 (1978).We do, however, acknowledge the accuracy of defendant’s claim that the findings of the trial judgefailed to take into account equipment left at theplace of business, which plaintiff took into his possession on July 1, 1981, and checks from customersdeposited in the trust account of plaintiff’s attorney.Since the trial judge’s award was based on the totalvalue of the partnership business on June 30, 1981,defendant claims that he is entitled to credit forone-half the value of such property and checks.Plaintiff makes no response to this claim.[3] There is no difficulty in ascertaining from therecord the amount of the checks which plaintiff’scounsel acknowledged. They total $2,851.33. Thereis more difficulty determining the value of theequipment left behind by defendant since the trial*634 judge made no finding pertaining thereto. Defendant had prepared a listing of those items ofequipment in which listing he placed a valuationthereon. That valuation is clearly highly inflatedand is unsubstantiated by any evidence. Plaintifftestified that he sold a phone system for $1,500, butthat many of the items listed by defendant were notfound, that others were obsolete or out of repair,and that the total value of those items was roughly$690. That testimony was not contradicted and wetake it as accurate. Defendant is thus entitled tocredit for one-half of the total value of such checksand equipment, $5,041.33, or $2,520.66, and thejudgment may be modified accordingly.Page 4Plaintiff also sought exemplary damages. Count IIof the complaint alleged that defendant’s conductconstituted a breach of defendant’s fiduciary duty tohis partner under §§ 19-22 of the Uniform Partnership Act,FN2 and Count III alleged conversion ofpartnership property. Each count contained allegations that defendant’s conduct was wilful, wantonand in reckless disregard of plaintiff’s rights andthat such conduct had caused injury to plaintiff’sfeelings, including humiliation, indignity and asense of moral outrage. The prayer for relief soughtexemplary damages therefor.FN2. M.C.L. §§ 449.19-449.22; M.S.A. §§20.19-20.22. Sections 19, 20 and 22provide for the keeping of books, the rightof partners to inspect same, the duty ofpartners to render information, and theright of partners to an accounting. Section21 makes a partner accountable to the partnership as a fiduciary.Plaintiff’s testimony on the point was brief. He said:The effect of really the whole situation, and Ithink it was most apparent when I walked into theempty building, was extreme**422 disappointment and really total outrage at the fact thatsomething that *635 I had given the utmost of mytalent and creativity, energy, and whatever timewas necessary to build, was totally destroyed andthere was just nothing of any value that was left ** *. My business had been stolen and there wasn’ta thing that I could do about it. And to me, thatwas very humiliating that one day I hadsomething that I had worked 10 years on, and thenext day I had absolutely nothing of any value ** *.As noted above, the trial judge found that defendanthad literally destroyed the partnership by knowingly and wilfully converting partnership assets inviolation of his fiduciary duty as a partner. He alsofound that plaintiff had suffered a sense of outrage,indignity and humiliation and awarded him $10,000as exemplary damages.© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.http://web2.westlaw.com/print/printstream.aspx?ifm=NotSet&destination=atp&prid=ia744… 9/16/2010Page 6 of 8391 N.W.2d 419151 Mich.App. 628, 391 N.W.2d 419(Cite as: 151 Mich.App. 628, 391 N.W.2d 419)Defendant appeals from that award, asserting thatplaintiff’s cause of action arises from a breach ofthe partnership contract and that exemplary damages may not be awarded for breach of that con- tract.[4] Plaintiff argues that the claim for exemplarydamages is not for breach of the partnership contract but rather that the breach of a fiduciary dutyand the conversion on partnership assets by a partner are torts independent of the partnership contract, for which torts exemplary damages may beawarded. Plaintiff cites no authority for that proposition, nor do we find any such precedent.FN3 It*636 is true that decisions may be found in otherstates allowing punitive damages for breach of a fiduciary duty, as in Jerman v. O’Leary, 145 Ariz.397, 701 P.2d 1205 (App.1985), a partnership case.Those decisions, however, are found in forums inwhich, unlike Michigan, punitive damages are recoverable as punishment for intentional wrongs.FN4 In Michigan, however, the purpose of exemplary damages has not been to punish the defendantbut to render the plaintiff whole by compensatingfor mental injury FN5 in a limited class of caseswhere such mental injury is the result of outrageousconduct. Wise v. Daniel, 221 Mich. 229, 190 N.W.746 (1922); Smith v. Jones, 382 Mich. 176, 169N.W.2d 308 (1969); Willett v. Ford Motor Co., 400Mich. 65, 253 N.W.2d 111 (1977); Bailey v.Graves, 411 Mich. 510, 309 N.W.2d 166 (1981).This is not such a case.FN3. In Hayes-Albion Corp. v. Kuberski,421 Mich. 170, 364 N.W.2d 609 (1984), aclaim was made by plaintiff corporationfor exemplary damages arising from defendant employee’s breach of a fiduciaryduty to preserve the employer’s tradesecrets. The Court, after noting that exemplary damages are not punitive but compensatory, merely said that the claimed injury (in addition to lost profits), loss oftime that defendant devoted to a competitor while being paid by plaintiff, might bePage 5compensable but not as exemplary damages. The Court did not discuss the question of whether a breach of fiduciary dutywould justify exemplary damages wherethere is consequential mental injury. And,quaere, how can a corporation suffer mental injury?FN4. For cases allowing exemplary damages for fraud or for malicious and intentional breach of a fiduciary duty, see annotations in 84 ALR 1345, 1351 and 67ALR2d 952, and International BankersLife Ins. Co. v. Holloway, 368 S.W.2d 567(Tex., 1963).FN5. The mental injury has been characterized in terms of feelings of anguish, distress, embarrassment, humiliation and indignity. See, e.g., Veselenak v. Smith, 414Mich. 567, 574-576, 327 N.W.2d 261 (1982).[5] Damages for mental injury are not recoverablefor breach of commercial contracts having as theirpurpose economic rather than personal interests.Valentine v. General American Credit, Inc., 420Mich. 256, 362 N.W.2d 628 (1984); Stewart v.Rudner, 349 Mich. 459, 84 N.W.2d 816 (1957);Kewin v. Massachusetts Mutual Life Ins. Co., 409Mich. 401, 295 N.W.2d 50 (1980). Moreover, asnote in Kewin, pp. 420-421, 295 N.W.2d 50:* * * absent allegation and proof of tortiousconduct existing independent of the breach(citation omitted) exemplary damages may not beawarded in common-law actions brought forbreach of a commercial contract. (Emphasis added.)**423 *637 [6] If it were to be assumed that a partner’s breach of his fiduciary duty or appropriationof partnership equipment and business contract tohis own use and profit are torts,FN6 it is clear thatthe duty breached arises from the partnership contract. One acquires the property interest of a co-© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.http://web2.westlaw.com/print/printstream.aspx?ifm=NotSet&destination=atp&prid=ia744… 9/16/2010Page 7 of 8391 N.W.2d 419151 Mich.App. 628, 391 N.W.2d 419(Cite as: 151 Mich.App. 628, 391 N.W.2d 419)Page 6tenant in partnership only by the contractual creation of a partnership; one becomes a fiduciary inpartnership only by the contractual undertaking tobecome a partner. There is no tortious conduct hereexisting independent of the breach of the partnership contract.damages for mental injury because of the breach ofa partnership contract, or the duties stemmingtherefrom, is shown by answering the questionasked in Veselenak v. Smith, 414 Mich. 567, 575,327 N.W.2d 261 (1982): [W]hat injury is sought tobe compensated?FN6. To the contrary, it does not appearthat a co-tenant in partnership can maintaina tort action for fraudulent conversion ofpartnership property against another cotenant in partnership. Reed v. Gould, 105Mich. 368, 63 N.W. 415 (1895). Neithercan a partner maintain an action in tortagainst a partner who by arbitrary or badfaith breach of the partnership contract hascaused the termination of the partnership.60 Am.Jur.2d, Partnership, § 364, p. 248.[8] The answer, from plaintiff’s testimony is thatthe mental injury stemmed from the termination ofthe business that he had worked hard to create.However disappointing that may have been toplaintiff, he had no right to compel the continuationof the partnership. No definite term having beenspecified for the duration of the partnership, it wasterminable at the will of either partner. M.C.L. §449.31; M.S.A. § 20.31. One who enters into such afragile relationship cannot claim damages for disappointment when it shatters.[7] Neither do we see anything in the Uniform Partnership Act to suggest that an aggrieved partner isentitled to any remedy other than to be made wholeeconomically. The act defines identically the partnership fiduciary duty and the remedy for itsbreach, i.e., to account:Sec. 21. (1) Every partner must account to thepartnership for any benefit, and hold as trusteefor it any profits derived by him without the consent of the other partners from any transactionconnected with the formation, conduct, or liquidation of the partnership or from any use by himof its property; M.C.L. § 449.21; M.S.A. § 20.21.So, the cases involving a partner’s breach of the fiduciary duty to their partners have been concernedsolely with placing the wronged partners in the economic position that they would have enjoyed butfor the breach. See, e.g., Lynn v. Arehart, 231Mich. 144, 203 N.W. 834 (1925); *638Penner v.DeNike, 288 Mich. 488, 285 N.W. 33 (1939); VanStee v. Ransford, 346 Mich. 116, 77 N.W.2d 346(1956).And finally, we think that the absurdity of allowingCOSTS[9] Defendant also argues that the trial court erredin assessing costs, including attorney fees, underGCR 1963, 111.6, which provides FN7 as follows:FN7. The Michigan Court Rules of 1985not only continue the substance of GCR1963, 111.6, but also authorize sanctionsagainst counsel.MCR 2.114(D) provides:Effect of Signature. The signature of anattorney or party, whether or not theparty is represented by an attorney, constitutes a certification by a singer that ** * (2) to the best of his or her knowledge, information, and belief formedafter reasonable inquiry, the pleading iswell grounded in fact * * *. (Emphasisadded.)MCR 2.114(E) provides:Sanctions for Violation. If a pleading issigned in violation of this rule, the court,© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.http://web2.westlaw.com/print/printstream.aspx?ifm=NotSet&destination=atp&prid=ia744… 9/16/2010Page 8 of 8391 N.W.2d 419151 Mich.App. 628, 391 N.W.2d 419(Cite as: 151 Mich.App. 628, 391 N.W.2d 419)Page 7on the motion of a party or on its owninitiative, shall impose upon the personwho signed it, a represented party, orboth, an appropriate sanction, which mayinclude an order to pay to the other partyor parties the amount of the reasonableexpenses incurred because of the filingof the pleading, including reasonable attorney fees.to pay plaintiff *640 the capital and income dueplaintiff; FN8 and that defendant took possessionof, and used as his own, partnership property including inventory, equipment, customer lists, contract rights and expectancies, and accounts. Each ofthe allegations, thus, were factual; indeed, theywere allegations of facts the truth or falsity ofwhich had to be within defendant’s personal knowledge.*639 Unwarranted Allegations and Denials. If itappears at the trial that any fact alleged or deniedby a pleading ought not to have been so allegedor denied and such fact if alleged is not proved orif denied is proved or admitted, the court **424may, if the allegation or denial is unreasonable,require the party making such allegation or denialto pay to the adverse party the reasonable expenses incurred in proving or preparing to proveor disprove such fact as the case may be, including reasonable attorney fees.FN8. Paragraph 20E also alleged that defendant failed to hold plaintiff harmlessfrom liability for partnership debts. Thetrial judge made no specific finding on thatpoint and the record does not establish thatthat was true, but neither does it indicatethat expenses and attorney fees were taxedas to that particular allegation.The trial judge’s findings were as follows:Plaintiff has further brought to this court’s attention the defendant’s blatant disregard of the provisions of GCR 1963, 111.6 in defendant’s answers to paragraphs 8, 20, and 25 of plaintiff’sfirst amended complaint, thereby requiringplaintiff to interview, subpoena, and present incourt, ten witnesses whose testimony could havebeen avoided by defendant’s adherence to thecourt rules. Accordingly, plaintiff may assess hisactual attorney fees and costs resulting therefrom.The factual allegations of paragraphs 8, 20 and 25of the first amended complaint referred to by thetrial judge asserted that defendant took for himselfthe benefits of the partnership contracts and failedto…

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