123.Net, Inc. v. Serra

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123.NET, INC., Plaintiff/Counterdefendant-Appellant/Cross-Appellee, v. DOMINIC SERRA, METRO WIRELESS INTERNATIONAL, INC., GENERAL TOWER SYSTEMS, INC., and DOMINIC SERRA & ASSOCIATES, INC., Defendants/Counterplaintiffs/Third-Party Plaintiffs-Appellees/Cross-Appellants, and DANIEL IRVIN, Third-Party Defendant, and VB DATACOM, LLC Defendant/Counterplaintiff/Third-Party Plaintiff/Cross-Appellant, and REESE SERRA, Defendant/Counterplaintiff/Third-Party Plaintiff.

No. 353075

Court of Appeals of Michigan

December 2, 2021

UNPUBLISHED

Oakland Circuit Court LC No. 2016-154850-CB Before: Cavanagh, P.J., and O'Brien and Redford, JJ.

PER CURIAM

Plaintiff 123.net, Inc., appeals as of right the January 15, 2020 order denying its request for attorney fees in the form of case-evaluation sanctions. Defendants Dominic Serra, Metro Wireless International, Inc., General Tower Systems, Inc. Dominic Serra & Associates, Inc. (DSA), and VB Datacom LLC, filed a cross-appeal as of right, challenging other, previously issued orders of the trial court. For the reasons provided below, we affirm in part, reverse in part, and remand for further proceedings.

This case arises out of the parties' past business relationships. Third-party defendant, Daniel Irvin, is the chief executive officer of plaintiff, which is a company that provides telecommunication services to businesses throughout Michigan. In 2009, plaintiff and Zing Networks, Inc., entered into an agreement in which plaintiff would acquire Zing in exchange for shares of Zing to be delivered within 30 days. When Zing did not timely produce the shares, plaintiff withdrew from the agreement. Despite this event, plaintiff retained defendant Dominic Serra, ^[1] though his company DSA, to act as the director of plaintiff s wireless services division. Serra reported directly to Irvin, and had broad responsibilities, including hiring and supervising vendors and sales agents, approving invoices, executing leases, supervising personnel, marketing, and making sales.

After the termination of the Zing agreement, plaintiff and Serra exchanged several drafts of a "profit sharing arrangement for the sale of wireless internet services . . . to [plaintiffs] current and future customers." The document was titled the "Wireless Internet Partnership Agreement" (WIPA). Drafts of the WIPA contemplated that Serra would receive 1/3 of the proceeds after the proceeds reached a gross amount of $500, 000 in annual sales. However, the WIPA was never executed by the parties.

In February 2012, plaintiff and VB Datacom entered into an Agent Agreement, in which plaintiff agreed to pay commissions for every customer secured by VB Datacom. The Agent Agreement also provided, in pertinent part, that plaintiff may terminate the agreement for cause for several reasons, including that VB Datacom "engage[d] in any fraudulent or criminal activities." Unbeknownst to plaintiff, VB Datacom and DSA entered into a partnership agreement, in which they would split the profits, including any sales commissions VB Datacom received from plaintiff. In November 2017, plaintiff terminated the Agent Agreement with VB Datacom, relying on VB Datacom's failure to disclose its relationship with Serra and citing the fraudulent-activities clause of the agreement.

In May 2012, Serra and plaintiff executed a Warrant Agreement. This agreement provided that in consideration for Serra's "efforts to create, maintain, and advance the wireless network of [plaintiff], both past, present, and future," Serra would receive, upon the sale of the company's "Wireless Assets, "^[2] the lower of:

A. Thirty (30%) Percent of the Gross Revenue received by the Corporation upon the sale of the Wireless Assets, or

B. Thirty (30%) Percent of the appraised value as contained in Article III, occurring at the time of the triggering event contained in Article III.

Article III of the Warrant Agreement provided that upon certain events, including Serra's termination from the company, the value of Serra's 30% share was to be appraised by Irvin or his successor. And if Serra did not agree with the appraisal, the services of "a reputable and disinterested third-party appraisal company" could be selected to perform the appraisal. The agreement also contained a merger clause: "This Agreement, including the schedules, contains the entire agreement between the Parties with respect to the matters described herein and is a complete and exclusive statement of the terms thereof and supersedes all previous Agreements."

After Serra and plaintiff separated, plaintiff sent Serra a letter advising him that Irvin had performed the evaluation as described in the Warrant Agreement and determined that Serra's 30% share was valued at $794, 651.28 at the time of the separation. Given some of Irvin's past comments to Serra, Serra thought this was very low.

Plaintiff brought suit in August 2016. In November 2017, plaintiff filed its first amended complaint alleging misappropriation of trade secrets (Count I), tortious interference with business relationships (Count II), breach of fiduciary duty (Count III), fraudulent inducement (Count IV), breach of the Warrant Agreement (Count V), civil conspiracy (Count VI), silent fraud (Count VII), fraud (Count VIII), conversion (Count IX), and aiding or abetting (Count X).

In October 2016, Serra, Metro Wireless, General Tower, and DSA (collectively, "the Serra Defendants") filed a counterclaim against plaintiff and a third-party complaint against Irvin. The pleading included counts of breach of fiduciary duty (Count I), breach of fiduciary duty among partners (Count II), breach of contract (Count III), fraud in the inducement (Count IV), tortious interference with a business relationship (Count V), promissory estoppel (Count VI), business defamation (Count VII), civil conspiracy (Count VIII), unjust enrichment (Count IX), and accounting (Count X).

In 2017, the parties moved for summary disposition. Plaintiff and Irvin moved for summary disposition under MCR 2.116(C)(8) on all the counts raised in the counterclaim and third-party complaint. Defendants moved for summary disposition under MCR 2.116(C)(8) and (10) on all of plaintiff's counts.^[3]

The trial court issued an opinion addressing both motions. The court dismissed plaintiff's claim for breach of fiduciary duty because it ruled that the count was an attempt to assert a trade-secrets claim, which was preempted by the Michigan Uniform Trade Secrets Act, MCL 445.901 et seq. The court denied defendants' motion regarding the other counts in plaintiff's complaint. Regarding plaintiff and Irvin's motion, the trial court dismissed defendants' claim for breach of the Warrant Agreement because it was not ripe, given that the sale of plaintiff's assets was the event that triggered payment to Serra and that had not occurred. The court dismissed the unjust-enrichment claim because an express agreement covered the same subject matter. Given the merger clause in the Warrant Agreement, the court dismissed defendants' claims for promissory estoppel and fraud in the inducement. The court ruled that defendants' claims for business defamation and civil conspiracy could not survive summary disposition based on the asserted facts. Finally, the court denied an accounting to defendants in light of the fact that the Warrant Agreement had a specific procedure for valuation. Thus, the only claims by defendants that survived were Count I (breach of fiduciary duty), Count II (breach of fiduciary duty among partners), and Count V (tortious interference with a business relationship).^[4]

While defendants' motion for reconsideration was pending, the parties went to case evaluation. Despite the trial court having dismissed seven of defendants' counterclaims, they still argued to the case-evaluation panel that their claims, in particular the claim for breach of the Warrant Agreement, would be reinstated through their motion for reconsideration.^[5]

On January 8, 2018, defendants filed an amended counterclaim and third-party complaint. Although the amended pleading added a few new general allegations, it presented the same 10 counts that were alleged in their original counterclaim and third-party complaint. VB Datacom also asserted its own counterclaim against plaintiff, alleging, in pertinent part, that plaintiff had breached the Agent Agreement by terminating it.^[6]

In September 2018, plaintiff moved for summary disposition under MCR 2.116(C)(10) on the Serra Defendants' three remaining counts, which included two counts of breach of fiduciary duty. The trial court granted the motion. The court ruled that defendants' two claims of breach of fiduciary duty necessarily failed because plaintiff and Irvin did not owe a fiduciary duty to any of the Serra Defendants.

The case proceeded to trial. As a result of the trial court's various decisions during the pendency of the case, for some surviving claims, the jury merely had to determine damages because liability had already been established by the trial court. The jury returned the following verdicts:

• It awarded plaintiff $0 for its misappropriation-of-trade-secrets claim against the Serra Defendants.

• It awarded plaintiff $39, 694.21 for its claims of breach of fiduciary duty pertaining to VB Datacom against Serra and DSA.

• Serra and DSA breached their fiduciary duty to plaintiff related to General Tower, causing $1 in damages.

• It awarded plaintiff $1 for its silent-fraud claim against Serra and DSA.

• VB Datacom committed silent fraud against plaintiff causing $1 in damages.

• The Serra Defendants did not commit fraud against plaintiff.

• It awarded plaintiff $1 on its claim of civil conspiracy, related to VB Datacom, against Serra and DSA.

• VB Datacom was liable

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