Joint enterprise theory of liability not viable where each attorney does not have an equal right to control the client’s legal representation and joint responsibility for decision-making


Originally printed in Michigan Defense Quarterly, July 2014 edition.

Souden v Attorney Defendant, unpublished opinion per curiam of the Court of Appeals, issued April 17, 2014 (Docket No. 314143)

The Facts: Plaintiff sued to divorce his wife in Berrien County. Plaintiff retained the attorney defendant and, against the attorney defendant’s advice, plaintiff voluntarily dismissed his complaint. Shortly after, plaintiff’s then-wife sued for divorce in Oakland County, seeking a judgment of divorce. The attorney defendant filed a special appearance, limited to contesting the issues of venue and jurisdiction in Oakland County, and filed an answer to the complaint as well as a motion contesting venue and jurisdiction.

The attorney defendant contacted an attorney located in Oakland County (“successor counsel”). The attorney defendant asked successor counsel to “enter [an] appearance as co-counsel and handle the motion and the case if it’s in Oakland County.” The attorney defendant also forwarded successor counsel a check in the amount of $500, which represented an unused portion of a retainer fee that plaintiff previously paid to the attorney defendant. Plaintiff contacted successor counsel, discussed the case, and agreed that successor counsel would argue the motion regarding venue and jurisdiction.

The attorney defendant subsequently sent plaintiff a letter, advising that successor counsel handle the case if it remained in Oakland County. Plaintiff and successor counsel discussed mediation or arbitration to settle the divorce. Plaintiff also contacted the attorney defendant via telephone, and asked his opinion regarding mediation and arbitration. According to plaintiff, the attorney defendant responded by stating that “there’s no downside at this point” to mediation. Plaintiff discussed possible mediators with successor counsel. Plaintiff never discussed the selection of a mediator with the attorney defendant.

Eventually, a retired judge was selected to mediate the dispute. Plaintiff and successor counsel prepared for the mediation, and when the mediation occurred, only successor counsel attended, as plaintiff expected. After mediation was unsuccessful, successor counsel advised plaintiff to agree to binding arbitration. Plaintiff did not consult with the attorney defendant regarding this decision, and agreed to go forward with arbitration. Plaintiff contacted the attorney defendant after the arbitration concluded and advised him of what had taken place.

The arbitration judgment was unfavorable to plaintiff. Plaintiff first consulted with successor counsel about what action could be taken. Plaintiff also met with the attorney defendant and showed him the arbitration award. The attorney defendant indicated his disagreement with the award and pointed out language in the arbitration agreement providing for a time limit on a motion for reconsideration of the judgment. According to plaintiff, “[the attorney defendant] told me [successor counsel] knew about this, and he handed it back to me.” It was plaintiff’s understanding that the attorney defendant had directed successor counsel to handle any subsequent action regarding the arbitration award.

Successor counsel never filed a motion to reconsider the award. A judgment of divorce incorporating the award was entered. Plaintiff and successor counsel later selected an appellate attorney who successfully appealed a portion of the arbitration agreement.

Plaintiff filed suit against the attorney defendant and successor counsel. Plaintiff’s complaint alleged that successor counsel’s conduct during the mediation and arbitration proceedings, as well as his failure to timely file a motion for reconsideration of the arbitration award, caused plaintiff significant financial and emotional injuries. Plaintiff alleged that the attorney defendant was liable for successor counsel’s acts and omissions under a theory of ostensible agency.

The attorney defendant moved for summary disposition. Plaintiff argued that defendant could be liable for successor counsel’s conduct under a joint enterprise theory. The trial court granted the attorney defendant’s summary disposition motion in regard to plaintiff’s ostensible agency claim, but denied summary disposition regarding plaintiff’s joint enterprise theory, finding that
“[p]laintiff has come forward with sufficient evidence to create an issue of fact regarding whether [the attorney defendant] and successor counsel were engaged in a joint enterprise such that both can be liable for the alleged malpractice.” The attorney defendant filed an application for leave to appeal and it was granted.

The Ruling: The Court of Appeals reversed the trial court and remanded the case for entry of an order granting summary disposition in the attorney defendant’s favor.

The court noted that the terms “joint enterprise” and “joint venture” are sometimes used interchangeably but are distinct concepts in the law. A joint venture is “an association to carry out a single business enterprise for a profit” and has six elements: (1) an agreement indicating an intention to undertake a joint venture; (2) a joint undertaking of; (3) a single project for profit; (4) a sharing of profits as well as losses; (5) contribution of skills or property by the parties; and (6) community interest and control over the subject matter of the enterprise.

A joint enterprise, on the other hand, is based on principal and agent laws, and “requires that every member have management and control of the enterprise, a right to be heard, and an equal right of control and joint responsibility for decision making and expenses.” There is no requirement that the parties share in profits and losses under a joint enterprise theory.

The court concluded that the attorney defendant could not be held vicariously liable for successor counsel’s conduct under a joint enterprise theory. Once successor counsel was involved, the attorney defendant no longer had an equal right to control plaintiff’s legal representation, nor did he share responsibility for any decision making. It was successor counsel who suggested mediation to plaintiff. While plaintiff sought the attorney defendant’s opinion on utilizing this option, plaintiff only consulted with successor counsel regarding the selection of a mediator, and to prepare for the mediation, plaintiff consulted only with successor counsel. Additionally, only successor counsel attended the mediation, only successor counsel was consulted about whether to proceed to arbitration, and plaintiff first discussed the award and what options were available with successor counsel. There was no evidence that the attorney defendant controlled the proceedings once successor counsel got involved and, accordingly, liability for successor counsel’s conduct could not be imputed to the attorney defendant under a joint enterprise theory.

Practice Note: While Michigan has not recognized a cause of action for negligent referral, it is important for an attorney referring a matter to another attorney to be cognizant of potential liability under a joint enterprise or joint venture theory, especially if he or she continues providing advice to the client. Explaining each attorney’s roles and responsibilities and clearly setting forth the scope of the representation is not only helpful toward establishing client expectations but also toward avoiding liability for another attorney’s acts or omissions.

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