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STATE OF MICHIGAN COURT OF APPEALS

TOOLING MANUFACTURING & TECHNOLOGIES ASSOCIATION and TMTA INSURANCE AGENCY L.L.C., Plaintiffs-Appellees, v MARK TYLER, TEAM MARKETING GROUP, INC., d/b/a TYLER CONSTRUCTION, INC., d/b/a TEAM BENEFITS GROUP, INC., d/b/a ALLIED RISK, INC., and MARK TYLER & ASSOCIATES, INC., Defendants-Appellants.

UNPUBLISHED December 28, 2010

No. 293987 Oakland Circuit Court LC No. 2007-081120-CZ

Before: M. J. KELLY, P.J., and K. F. KELLY and BORRELLO, JJ. PER CURIAM. In this employment dispute, defendants Mark Tyler, Team Marketing Group, Inc. (Team Marketing), which did business under various names, and Mark Tyler & Associates, Inc. (Tyler & Associates) appeal as of right the trial court's judgment in favor of plaintiffs Tooling Manufacturing & Technologies Association (the Association) and TMTA Insurance Agency, L.L.C. (the Agency) after a bench trial. On appeal, Tyler argues that the trial court committed several legal errors that warrant reversal of the judgment in favor of the Association and the Agency. He also argues that the trial court erred when it failed to enter judgment in his favor on his counterclaims for breach of contract and conversion. Because we conclude that there were no errors warranting relief, we affirm. I. BASIC FACTS AND PROCEDURAL HISTORY Richard Steinhelper testified that he worked for the Association from 1972 to his resignation in 2002. During that time it was known as the Michigan Tooling Association. From 1990 to 2002, he was the Association's managing director and was responsible for implementing the programs established by the Association's board of directors. Steinhelper stated that the Association previously had a contractual relationship with an insurance agent, Richard Moore, who was responsible for marketing and selling group insurance programs to the Association's

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member companies. Moore was not a salaried employee; he received compensation in the form of commissions from the insurers. Steinhelper said that, after it learned that Moore was going to retire in 2000, the Association's board of directors decided to establish the Agency to "capture [the] commissions" from its insurance programs and use them "to support the functions of the Association." The board also decided to hire a licensed insurance agent "for the purpose of running and managing the subsidiary." Gary Theuerkorn, who was a member of the board at the time of Tyler's hire, testified that the board wanted to replace Moore with an employee because it did not want "to be held hostage by someone who could quit and take his business elsewhere, the customers, and we wanted to capture some of the money that was coming to that individual and we wanted to have more control over the whole process." Steinhelper said that he heard about Tyler through word-of-mouth and called him to see if he was interested in running the Agency. He eventually hired Tyler. Tyler testified that he had worked in insurance for some time and that he incorporated his own agency in 1993. In 1995, he changed the name of this business to Team Marketing. He was Team Marketing's only shareholder. Tyler said that Steinhelper called him about a possible job opportunity with the Association. After several discussions, Tyler accepted employment with the Association in September 2000. According to a revised offer of employment, Steinhelper agreed to pay Tyler a base salary of $8,500 per month. In addition, to the base salary and some other benefits, Steinhelper agreed to pay Tyler bonuses equal to 30% of the commissions from new insurance sales and 25% of the commissions from renewals to the end of the year. He agreed that, beginning in 2001, the bonus on commissions would increase to 50% of new sales and to 35% of renewals. Steinhelper stated that it was his intent that the commissions would flow to the Agency and that Tyler would receive a base salary and then a bonus based on the total commissions: "the mechanism was for the money to flow into the agency and then . . . be distributed to him as an employee . . . ." Tyler testified that he did not bring clients of his own to the Association; rather, he worked and tried to expand the existing book of business with the Association's members and was responsible for seeing that the Agency got the commissions from those sales. Tyler was the only insurance agent at the Agency and was solely responsible for negotiating with the insurers on behalf of the Agency. Tyler also attended the Association's board member meetings and was responsible for informing the board about the Agency's insurance business. The Agency used Blue Cross Blue Shield of Michigan (Blue Cross) as its insurer for health insurance policies. The Association had also agreed that it would exclusively endorse Blue Cross in exchange for an annual fee. Tyler stated that it was his belief that the exclusive endorsement agreement with Blue Cross prevented the Agency from offering health insurance from any other provider. For that reason, he had the commissions that were earned on a health policy from another insurer assigned to him. He explained that, had he brought those commissions into the Agency, the Association would have placed its annual endorsement fee in jeopardy. -2-

In April 2001, Tyler moved the Agency's book of dental business to Assurant.1 He moved the Agency's book of life and disability insurance to Assurant in July of that same year. Tyler knew the sales manager at Assurant, Dave Brass, from before he began working for the Association. Tyler said the Association did not increase his bonus payments to 50% of the commissions on new business and 35% on renewal business, as it agreed to do beginning in 2001. He said that Steinhelper told him that the Association could not afford the increase, but assured him he would make it up to him. Steinhelper admitted that it was communicated to Tyler that the Association could not afford to pay the increased payments on the commissions for 2001. Jerry Morrow testified that he began to work for the Association in 2002 and served as the Association's controller. The controller was responsible for the Association's financial documents. Morrow stated that Tyler initially performed the calculations for his own bonuses. Morrow began to calculate Tyler's bonuses in January 2004 from the commissions sent to the Agency. However, he relied on Tyler to know what constituted new or renewal business. Tyler told him that new business was any new account or old account that had been modified or renewed. Morrow said that this system did not make sense to him: "I just didn't understand how a company that was . . . a participating company within the insurance program prior to Mr. Tyler's employment would be converted to new business just simply by a modification of an insurance policy or renewal, but I'm not an insurance person . . . ." As a result, Tyler took a 30% bonus on the majority of the commissions paid to the Agency. Tyler denied that he ever calculated his own bonuses. Tyler admitted that he told the controller whether the account was new or renewal business and stated that it was his understanding that new business was any new account or old account that had a significant change in coverage. And new business did not become renewal business through the passage of time. As such, the majority of his accounts were permanently deemed new business. Steinhelper testified that he understood that new business referred to new business brought to the Agency and renewal business to be from renewals of previously sold business. He said that he did not remember discussing any other definition with Tyler. The Association continued to pay Tyler a bonus calculated as 30% of the majority of the commissions received by the Agency throughout Tyler's employment. Based on this commission rate and including his base salary, the Association paid Tyler more than $250,000 per year from 2002 to 2006. Stella Kurpansky testified that she worked for the Association and was responsible for collecting the insurance premiums from the Association's members and paying the insurers. She also handled the additions, deletions, and other changes for the policies other than those with Blue Cross. She stated that she recorded the commission payments in a spreadsheet and took

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At the time, Assurant was called Fortis. However, for ease of reference we shall refer to this insurer as Assurant throughout this opinion.

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them to the bank. The spreadsheet with the commission payment information was available to anyone on the network drive and she gave a summary to Tyler monthly. In June 2002, Tyler executed a group producer contract with Assurant. However, he did not enter into the contract on behalf of the Agency; instead, he established Team Marketing as the group producer for the Agency's book of business with Assurant. Although the Agency received a producer bonus from Assurant in 2001, after Tyler executed the group producer contract, Team Marketing received the producer's bonuses from the Agency's book of business. From 2002 to 2007, Assurant paid Team Marketing more than $568,000 in producer bonuses. Tyler testified that the contract was--notwithstanding its label--really a general agency agreement. Accordingly, the producer bonuses were really general agent commissions. He also stated that the general agent commissions were for extra work performed by the general agent and that the commissions did not reduce the commission paid to the writing agent, which was the Agency. Molly Browne testified that she was the sales manager who replaced Brass at Assurant in 2005. She stated that she was familiar with Assurant's business and specifically with the Agency's book of business. Browne stated that Assurant did not have a general agency relationship with Team Marketing. The bonuses that Assurant paid out on the Agency's book of business were actually producer bonuses--not general agent commissions; and they were paid as a reward for maintaining a certain levels of business and for reaching certain benchmarks for new business. Moore said it would be unusual for the same person to be both a writing agent and a general agent. She also thought that the Agency should have and could have received all the compensation including the producer bonuses. Tyler also testified that the Association knew from memos and discussions that he provided general agent services through Team Marketing on the Agency's book of business. However, Steinhelper stated that he did not have a discussion with Tyler about Tyler taking commissions of his own on the Agency's book of business. Steinhelper said that Tyler told him that he had his own agency, but that he only used it to provide life insurance to family and friends. Steinhelper said he would not have agreed to hire Tyler had he disclosed that he would be selling insurance services on his own. Steinhelper clarified that he did not hire Tyler's agency--he hired Tyler as an employee to run the Agency. Kurpansky also testified that she was not aware that Tyler was receiving commissions on the Agency's business through Team Marketing. Had she known of this, she would have informed the controller. Kurpansky related that on one occasion she noticed that a communication from an insurer showed that Team Marketing had received a carbon copy of the communication. She said she asked Tyler about it and he stated that "it didn't mean anything" and asked her to black it out. Similarly, Morrow testified that he was not aware that Tyler was receiving commissions on the Agency's book of business through Team Marketing. In 2002, Steinhelper retired. Robert Dumont testified that he became the Association's managing director in March 2003. Dumont stated that it was his belief that Tyler owed 100% of his time and efforts to the Association. He also was not aware that Tyler was receiving commissions on the Agency's book of business through Team Marketing. He understood that -4-

Tyler provided some policies to family and friends, but he expected that all commercial work would go through the Agency. Tyler testified that he eventually proposed purchasing the Agency from the Association in exchange for the payment of future commissions. He stated that he wanted to take the Agency outside the Association in order to get around the Association's exclusive endorsement agreement with Blue Cross. He believed that his proposal would be beneficial to all parties because it would guarantee income to the Association while allowing the Agency to expand. In a proposal dated February 2005, Tyler offered to take over the Agency in exchange for remitting 17% of the commissions back to the Association. Tyler justified the rate by noting that the Association incurs considerable expenses in running the Agency--most of which were related to compensating or reimbursing Tyler--and he would assume those expenses when he took over. In later documents, Tyler increased the percentage of the commissions that he proposed to send back to the Association from 17% to 30%. In a letter dated December 2005, Tyler noted that the new agency would be called Mark Tyler & Associates. Tyler testified that the board rejected all his proposals and Theuerkorn even referred to his proposal as an attempt "to steal our agency." In January 2006, Tyler filled out applications for standard commissions and for a producer program with Reliance Standard Life Insurance Company (Reliance) on behalf of Team Marketing. He moved the life insurance and disability business from Assurant to Reliance in the middle of 2006. Reliance paid a total of more than $100,000 in commissions to Team Marketing for 2006 and 2007 based on policies sold to the Association's members. Browne testified that soon after Brass left Assurant for Reliance, Tyler asked for a copy of the demographics underlying the persons insured with the Agency. She was concerned about the request because such requests usually precede a move to another insurer. Browne said she had contacted Tyler and informed him that, because of changes to the demographics, the Association's members were overpaying for their coverage. She said she could have lowered the pricing by 25% and still maintained profitability on the group of business, but Tyler told her not to re-rate the group. She said that Tyler moved the group to Reliance in July 2006. Browne believed that Tyler was rewarding his friendship with Brass by moving the business and that it had nothing to do with Assurant's handling of the account. Tyler testified that, in February 2006, an acquaintance told him that someone was interviewing to replace him at the Agency. After having his proposals to purchase the Agency from the Association rejected, Tyler decided to move on. He said he secured office space and equipment for his new business. He incorporated Tyler & Associates in September 2006.

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In January 2007, Tyler filed a commission payment designation that instructed Blue Cross that his commissions should be paid to Tyler & Associates. In that same month, he sent a letter on the Agency's letterhead to Blue Cross wherein he stated that the Agency "releases all commissions to the current agent of record on all groups that have been assigned to [the Agency]." He signed the letter as the Agency's general manager. Tyler sent a similar letter, dated February 8, 2007, to Reliance. In that letter, he stated that the letter served as "official notification of all commissions and the commission assignment on all of the business written with [Reliance]" and directed that the current agent of record, who was Tyler, will remain the same. He indicated that the change in commission payments was effective March 1, 2007. Tyler also informed various members of the Association that they needed to confirm that he was going to continue as their agent of record for Blue Cross. In January 2007, many of the Association's member companies sent letters to Blue Cross confirming that their agent of record, Tyler, "will continue to service our business." Tyler indicated that he received a call from someone at Blue Cross who told him that he needed to have the members send these confirmations as a result of the Association's name change at the end of 2006. The Association's expert on insurance testified that these letters of confirmation were not necessary and effectively transferred the right to receive commissions from the Agency to Tyler as an individual. Tyler admitted that Blue Cross' general agents began to pay Tyler & Associates some of the straight commissions on the Agency's book of business in February 2008, but he did not recall if Tyler & Associates received all the commission checks. Documentary evidence showed that Blue Cross paid Tyler & Associates more than $24,000 in commissions in February. Tyler admitted that he was not entitled to the commissions earned prior to his resignation. He further stated that he intended to give them back, but was precluded from doing so by the Association's decision to sue him. Nevertheless, Tyler maintained that he was entitled to all the commissions after his resignation because he was the agent of record on the policies until the individual members designated a new agent of record. Dumont testified that Tyler came to his office on February 22 or 23 and informed him that he intended to quit and take all his business with him. Dumont said he replied, "we'll just see about that." On that same day, the carpet cleaners needed access to the Agency's offices and Dumont let them in. There he saw that the Agency's files had been packed into boxes that were stacked on the floor. Dumont went and asked Morrow to help him move the boxes to a secure location. Morrow testified that, when Tyler returned and saw that the boxes had been moved, he was visibly upset. Tyler testified that he removed the files from the filing cabinets because the cabinets belonged to him and he was moving them out of the office, but that he did not intend to take the Agency's insurance files. On February 27, 2007, the Association sued Tyler for misappropriating trade secrets, unfair competition, injunctive relief related to allegedly missing computer files, tortious interference with business relationships, unjust enrichment, and breach of fiduciary duty. Tyler filed counterclaims against the Association for breaching its contract to pay a bonus based on the higher percentage of the commissions after 2001, for converting a commission check, unjust enrichment, and tortious interference. After discovery, the Association amended its complaint to add Team Marketing, the aliases under which Team Marketing did business, and Tyler & -6-

Associates as defendants. The Association also amended the complaint to include the Agency as a plaintiff and added a claim of conversion based on Tyler's actions in diverting commissions to his entities. The parties' claims proceeded to trial in December 2008. At the conclusion of the proofs, the trial court dismissed the Association and Agency's claims for misappropriation of trade secrets, unfair competition, and injunctive relief. Thus, the Association and Agency's remaining claims were: conversion, unjust enrichment, fraud, breach of fiduciary duty, and tortious interference. Tyler's claims that the Association breached its contract by failing to pay him a bonus based on the higher percentages, breached its contract by failing to pay him his final paycheck and vacation pay, converted a commission check that was payable to Team Marketing, and that the Agency and Association were unjustly enriched by accepting the payment of commissions due to Tyler after he ceased working for the Association, also remained at the close of proofs. In a written opinion and order, the trial court found that the Association and Agency had proved each of its remaining claims; namely, the court found that Tyler, acting individually and through his businesses, had wrongfully taken $738,441.65 in commissions that were due to the Agency over the period at issue. The trial court also rejected the majority of Tyler's counterclaims, but did find that the Association had breached its employment contract with Tyler by failing to pay him his final paycheck and vacation pay. The trial court found that Tyler was entitled to $23,000 for his breach of contract claim. After offsetting the $23,000, the trial court entered a judgment for the Association and Agency against defendants for $715,441.65 in damages. This appeal followed. II. BENCH TRIAL A. STANDARDS OF REVIEW On appeal, Tyler raises several claims of error regarding the trial court's findings of fact and its application of the law to those facts. These errors, he maintains, warrants reversal of the judgment against him and entry of judgment in his favor. This Court reviews de novo, as a question of law, the proper scope and application of a legal doctrine. See Ghaffari v Turner Constr Co, 473 Mich 16, 19; 699 NW2d 687 (2005). This Court reviews a trial court's factual findings after a bench trial for clear error. Lignon v Detroit, 276 Mich App 120, 124; 739 NW2d 900 (2007). B. BREACH OF CONTRACT We shall first address Tyler's claim that the trial court erred when it concluded that Tyler was not entitled to recover the bonuses promised by the Association at the higher percentage rates because of his misconduct or because he acquiesced to the lower rate through his course of conduct. At trial, it was undisputed that the Association originally agreed to pay Tyler a bonus based on a higher percentage rate for new and renewal business beginning in 2001 and that it did not pay the higher rate. Tyler also presented evidence that, under the higher percentage rates, he -7-

should have been paid more than $577,000 in additional compensation. Despite this evidence, the trial court concluded that Tyler was not entitled to the additional compensation. The trial court reasoned that Tyler forfeited his right to the extra compensation through his misconduct in "directing commission payments to his companies." In the alternative, the trial court concluded that Tyler "waived his right to the additional commissions by accepting the lower amount." On appeal, Tyler argues that the trial court essentially applied the doctrine of unclean hands to preclude him from recovering the unpaid commissions. He maintains that the trial court erred in applying this equitable doctrine to preclude his contract claim, because the contract claim is legal, not equitable. He further argues that misconduct will only bar a legal claim, such as his breach of contract claim, where the contract is against public policy. Michigan courts have long recognized that an agent may forfeit his or her right to compensation under a contract for services when the agent engages in misconduct or grossly mismanages his principal's affairs. See Rippey v Wilson, 280 Mich 233, 245; 273 NW 552 (1937) (noting that an attorney may forfeit his or her right to collect fees through unprofessional conduct or abandonment of his or her client's case); Sweeney & Moore, Inc v Chapman, 295 Mich 360, 363; 294 NW 711 (1940) (stating that it is the general rule that a "broker may forfeit his right to compensation by misconduct, breach of duty, or wilful disregard, in a material respect, of an obligation imposed upon him by the law of agency."); Toy ex rel Ketchum v Lapeer Farmers Mut Fire Ins Ass'n, 297 Mich 188, 192-193; 297 NW 230 (1941) (stating that an officer, as an agent of a corporation, may forfeit all right to compensation through fraud, misconduct, or gross mismanagement); Burnham v Kelley, 299 Mich 452, 464-465; 300 NW 127 (1941) (holding that an executor of an estate forfeited his right to compensation through his mismanagement of the estate); Greater Bloomfield Real Estate Co v Braun, 64 Mich App 128, 136-137; 235 NW2d 168 (1975) (recognizing that a real estate broker may forfeit his or her right to compensation from the principal by engaging in misconduct). This rule is often referred to as the faithless agent or faithless servant rule. See GK Alan Assoc, Inc v Lazzari, 44 AD 3d 95, 100-105; 840 NYS 2d 378 (NY App Div, 2007) (discussing application of the faithless agent rule to a case where the agent had two related principals); Anno: Application of "Faithless Servant Doctrine", 24 ALR 6th 399. The faithless agent rule recognizes that--by being disloyal to his or her principal--the agent has not properly performed under his or her agreement with the principal and, for that reason, has no right to the compensation contemplated under the agreement. See Lydia E Pinkham Medicine Co v Gove, 303 Mass 1, 4; 20 NE 2d 482 (1939); see also Sweeney & Moore, 295 Mich at 364 (noting that the purpose of the rule is to ensure fidelity and undivided allegiance and it is the breach of this faith that bars recovery). Under the faithless agent rule, an agent who engages in misconduct will forfeit the compensation related to the service that was improperly performed. See, e.g., Harris v Specialties Distributing Co, 305 Mich 373, 379; 9 NW2d 645 (1943) (noting that the agent should derive no profit from the improperly conducted sales and his claim against the defendant should be reduced by the amount of fees or gratuities that he received); Rippey, 280 Mich 245-246 (noting that where the services are severable, misconduct as to one phase will not result in the forfeiture of the fees for another phase). However, an agent who engages in willful misconduct may forfeit all his or her right to compensation:

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An agent is entitled to no compensation for conduct which is disobedient or which is a breach of his duty of loyalty; if such conduct constitutes a wilful and deliberate breach of his contract of service, he is not entitled to compensation even for properly performed services for which no compensation is apportioned. [2 Restatement Agency, 2d,

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