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STATE OF MICHIGAN
COURT OF APPEALS


JACK A. Y. FAKHOURY and MOTOR CITY AUTO WASH, INC., Plaintiffs-Appellants/CrossAppellees, v LYNN L. LOWER, and CHEATHAM, ESTES & HOLLMAN, P.C., Defendants-Appellees/CrossAppellants.

UNPUBLISHED January 17, 2006

No. 256540 Oakland Circuit Court LC No. 2002-039939-NM

Before: Talbot, P.J., and White and Wilder, JJ. PER CURIAM. Plaintiffs appeal as of right the circuit court's dismissal of their legal malpractice claims. Defendants cross-appeal, raising a jurisdictional challenge. We affirm in the principal appeal. Defendants' jurisdictional challenge on cross-appeal fails. Jack A. Y. Fakhoury is the president and sole shareholder of Motor City Auto Wash, Inc. (MCAW), a service station/car wash/retail station. Defendant Lynn Lower is an attorney at defendant law firm, Cheatham, Estes & Hollman, P.C., and represented Fakhoury and MCAW in the underlying litigation, Allied Capital Corp v Motor City Auto Wash, Inc., et al., Wayne Circuit Court No. 98-832046. The underlying litigation In April 1997, MCAW borrowed $890,000.00 from Allied Capital, to improve the physical facility at its service station/car wash/retail store in Inkster, Michigan. Fakhoury personally guaranteed the loan. Defendants Lower and Cheatham, Estes & Hollman, P.C., represented MCAW and Fakhoury in their dealings with Allied Capital, beginning in 1997. MCAW failed to make payments under the $890,000.00 loan agreement. Allied Capital declared a default and demanded payment of the entire debt in August 1998. After MCAW failed to cure the default and Fakhoury failed to pay on the guaranty, Allied Capital commenced a foreclosure action in October 1998 against MCAW, which included a count against Fakhoury based on his guaranty of the corporate debt. -1-


Defendants represented Fakhoury and MCAW in the foreclosure action, and filed counterclaims for both Fakhoury and MCAW, alleging lender liability based on Allied Capital's failure to fund a $340,000 loan commitment Allied allegedly made in November 1998.1 MCAW and Fakhoury's counterclaims alleged that Allied had breached the covenant of good faith and fair dealing, and had damaged them in that they lost profits, lost goodwill in the business community, their credit standing was injured, and they incurred attorney fees and costs. In April 2000, defendants filed a motion to withdraw as counsel for Fakhoury and MCAW. An order granting the motion was entered on May 12, 2000. After defendants withdrew as counsel for Fakhoury and MCAW, Allied Capital's foreclosure action against MCAW proceeded. On Allied Capital's motion, the circuit court struck MCAW's affirmative defenses to Allied Capital's complaint, MCAW's supplemental answers to all interrogatories or request for production of documents, and all expert witnesses named by MCAW. In August 2000, Fakhoury's individual counterclaim against Allied was dismissed on the basis that he lacked standing to pursue the claim on MCAW's behalf and failed to state a cause of action. A foreclosure judgment in the amount of $887,711.40 was entered against MCAW. On the same date, the circuit court dismissed MCAW's counterclaim against Allied Capital. MCAW commenced a bankruptcy proceeding.2 After the bankruptcy stay was lifted, the circuit court in the Allied Capital case entered judgment against Fakhoury in the amount of $1,242,518.86 plus accrued interest from June 8, 2001, plus costs and fees as provided under Fakhoury's guaranty of the $890,000.00 loan. The instant action Fakhoury and MCAW filed the instant legal malpractice action against defendants in April 2002. The first amended complaint alleged that defendants committed legal malpractice and breached duties owed to Fakhoury and MCAW by: (a) failing to communicate in writing the contingent fee agreement between Attorneys and MCAW/Fakhoury; (b) conducting little or no discovery; (c) failing to timely forward Allied Capital's discovery requests to MCAW and Fakhoury;

In November 1998, MCAW signed a commitment letter with Allied Capital for an additional loan in the amount of $340,000.00, but that deal did not close. Plaintiff does not provide details regarding the bankruptcy proceeding. Defendants' motions below state that MCAW filed a voluntary petition for bankruptcy on July 20, 2000.
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(d) failing to timely respond to discovery requests from Allied Capital, resulting in the ordering of sanctions by the Court; (e) failing to timely consult with, retain or identify on a witness list any expert witnesses; (f) failing to timely communicate to MCAW and Fakhoury settlement offers from Allied Capital; (g) failing to timely respond to settlement offers received from Allied Capital; (h) failing to accurately advise MCAW and Fakhoury during the Underlying Litigation; (i) otherwise failing to prosecute the counterclaim; (j) attempting to renegotiate their fee agreement with MCAW and Fakhoury without fully advising MCAW and Fakhoury of their alternatives, rights and responsibilities with respect to the fee agreement; (l) [sic (k)] filing a motion to withdraw at a critical point in settlement negotiations that communicated inaccurate information to the Court and Allied Capital, prejudicing the position of MCAW and Fakhoury in settlement negotiations and with the Court; and (m) engaging in other acts of malpractice that may be ascertained during discovery in this matter. The first amended complaint also alleged that at the time defendants ceased representing MCAW and Fakhoury in the underlying litigation, discovery had closed, and because defendants had done no work to defend against the Allied Capital complaint or to prosecute the counterclaim, MCAW and Fakhoury were unable to obtain additional counsel to represent them in the underlying litigation. Finally, the amended complaint alleged that as a direct and proximate result of defendants' malpractice, an adverse judgment was rendered against MCAW and Fakhoury, and the counterclaim was dismissed. Defendants moved to dismiss MCAW due to its filing of bankruptcy, asserting that only the bankruptcy trustee, and not MCAW, had standing or legal capacity to sue. The circuit court granted the motion. After MCAW was dismissed as a party, defendants filed additional summary disposition motions. The circuit court partially dismissed Fakhoury's case, concluding that Fakhoury lacked standing to assert legal malpractice against defendants because of their representation of MCAW relating to the "lender liability" counterclaim in the Allied Capital foreclosure action, but allowed Fakhoury's case to proceed to the extent he alleged malpractice as to defendants' representation of him in defense of the Allied Capital complaint. The circuit court also granted defendants partial summary disposition as to Fakhoury's allegations of legal malpractice regarding defendants' withdrawal from representing Fakhoury in the Allied litigation, on the

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basis that Fakhoury had stipulated on the record in the underlying matter that he concurred with trial counsel's motion to withdraw. On defendants' motion, the circuit court also excluded certain of Fakhoury's damage claims: (1) for loss of wages as an employee of Motor City Auto Wash, Inc.; and (2) for loss of equity in Motor City Auto Wash, Inc. These three rulings are challenged on appeal. The circuit court denied defendants' motion in limine to preclude Fakhoury from seeking mental anguish and emotional distress damages.3 However, the circuit court granted defendants summary disposition as to Fakhoury's claims of professional negligence 1) regarding sanctions imposed against MCAW, 2) regarding failing to timely forward Allied's discovery requests to MCAW, 3) regarding the fee agreement and any claimed renegotiation of the fee agreement, and 4) allegations that defendants failed to properly communicate settlement offers in the underlying foreclosure action. The circuit court also granted defendants' motion in limine to exclude all expert testimony from Fakhoury's proposed expert, Stuart Schram, specifically testimony on Fakhoury's lost wages/earnings with MCAW, and loss of equity with MCAW. Defendants accepted the unanimous February 2004 case evaluation ($7,500 in defendants' favor), and Fakhoury and MCAW rejected it. On March 10, 2004, defendants filed a Motion for Security for Costs under MCR 2.109. The circuit court granted the motion, requiring Fakhoury to post a $20,000 bond in thirty days (the order required the bond be filed with the clerk by April 19, 2004 at 4:00 p.m.) The order further provided that failure to post the bond "will result in a dismissal of this action with prejudice." Fakhoury did not file the bond. The court entered an order of dismissal on April 20, 2004 dismissing Fakhoury's case with prejudice for failure "to comply with the 3/17/04 order". On May 11, 2004, Fakhoury filed a motion to set aside the April 20th order of dismissal, as well as the March 17 order requiring him to post a bond. The circuit court treated Fakhoury's motion as a motion for reconsideration of the April 20, 2004 dismissal, and entered an order on May 21, 2004, stating that plaintiff's motion to set aside the dismissal was "in fact, a disguised motion for reconsideration," and ordered Fakhoury to supplementally brief two issues: (1) under what circumstances the court could dispense with the 14-day time limit for filing of motions for reconsideration under MCR 2.119(F)(1), and (2) under what authority plaintiff based bringing his motion to set aside the April 20, 2004 order of dismissal, pursuant to MCR 2.612, when the relief requested effectively requests reconsideration of the initial order for security for costs dated March 17, 2004. Both plaintiffs and defendants submitted supplemental pleadings. On June 10, 2004 the circuit court entered its "opinion and order denying plaintiff's [Fakhoury's] motion for reconsideration entitled `motion to set aside April 20, 2004 Order of Dismissal," stating that Fakhoury's supplemental brief failed to address the first issue the court had requested briefing on, and simply reiterated arguments set forth in response to the underlying motion for security

Defendants filed an application for leave to appeal that ruling, which this Court denied by order dated June 25, 2004.

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for costs. Thus, the court declined to consider Fakhoury's motion for reconsideration "having failed to timely file said motion in compliance with MCR 2.119(F)(1). Plaintiffs Fakhoury and MCAW appeal and defendants cross-appeal. I We first address defendants' claim on cross-appeal that this Court has jurisdiction to review only the June 10, 2004 order of the circuit court, because plaintiffs filed a claim of appeal on July 1, 2004, and that claim was untimely insofar as plaintiffs seek review of orders the circuit court entered before June 10, 2004. "Where a party has claimed an appeal from a final order, the party is free to raise on appeal issues related to other orders in the case." Bonner v Chicago Title Ins Co, 194 Mich App 462, 472; 487 NW2d 807 (1992). MCR 7.204(A)(1) provides: (1) An appeal of right in a civil action must be taken within (1) 21 days after entry of the judgment or order appealed from; (2) 21 days after the entry of an order denying a motion for new trial, a motion for rehearing or reconsideration, or a motion for other postjudgment relief, if the motion was filed within the initial 21-day appeal period or within further time the trial court may have allowed during the 21-day period; * * * [Emphasis added.] The latter provision applies here. As defendants acknowledge, the circuit court treated plaintiffs' May 11, 2004 motion as a motion for reconsideration, not as a motion for relief from judgment. The court denied plaintiffs' May 11, 2004 motion by opinion and order entered on June 10, 2004, entitled "Opinion and Order Denying Plaintiff's Motion for Reconsideration Entitled `Motion to Set Aside April 20, 2004 Order of Dismissal.'" Emphasis added. May 11, 2004 was "within 21 days after" the circuit court entered the order of dismissal on April 20, 2004. Defendants' jurisdictional challenge on cross-appeal thus fails. II In the principal appeal, plaintiffs first challenge the dismissal of MCAW. This Court reviews the circuit court's grant of summary disposition de novo. Corley v Detroit Bd of Ed, 470 Mich 274, 278; 681 NW2d 342 (2004). The parties agree that the commencement of a bankruptcy case creates an estate that includes "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 USC

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