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Docket Number

Docket No. 292781.

Attorney(S)

Lorrie J. Zahodnic, PC. (by Lorrie J. Zahodnic), for plaintiff. Samuel J. Behringer, Jr., for defendant.

Judges

Kurtis T. Wilder

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Smart Summary

Summary of Opinion: Keinz v. Keinz, Docket No. 292781

Factual and Procedural Background

The parties' 2005 divorce judgment granted plaintiff primary physical custody of two minor children and set defendant's child support obligations (initial amounts specified with adjustments when defendant returned to employment from disability). In 2008, plaintiff moved to increase defendant's support. At a July 2008 hearing, both parties proceeded pro se; defendant reported biweekly gross income of $1,594.56 (annualized $41,458.56) and produced an employer letter. The Friend of the Court referee recommended support of $734/month for two children ($481 for one). Plaintiff objected, asserting the referee failed to ask about 2007 income and defendant had not produced his 2007 W-2. The referee's recommendation was adopted; plaintiff moved to set aside the order. The circuit court granted the motion, reserved attorney-fee questions, and referred the matter back to the Friend of the Court to calculate support using true incomes.

A subsequent recommendation set support at $1,090/month for two children ($709 for one). At an evidentiary hearing the parties settled the support issue retroactive to April 29, 2008, with defendant to pay $1,175/month for two children ($800 for one). The hearing continued on sanctions: plaintiff argued defendant misrepresented his income at the initial hearing, causing unnecessary proceedings; defendant admitted that by July 2008 he had already earned $40,000 and ultimately earned $81,808.32 in 2008, and his counsel explained omissions were due to anticipated future loss of voluntary overtime and health/economic conditions. The circuit court denied plaintiff's request for attorney fees and costs, finding no intentional or deliberate misleading by defendant. Plaintiff appealed; the Court of Appeals reversed and remanded.

Legal Issues Presented

Whether plaintiff was a "prevailing party" for purposes of MCL 600.2591(1).
Whether defendant's position and conduct constituted a "frivolous" action or defense under MCL 600.2591(3)(a), warranting an award of attorney fees and costs.
Whether consideration of the parties' settlement to determine prevailing-party status is precluded by MRE 408.
Whether the circuit court abused its discretion in denying plaintiff's motion for attorney fees and costs.

Arguments of the Parties

Plaintiff's Arguments

She was the prevailing party because the settlement resulted in a higher child-support award.
Defendant misrepresented his income at the July 2008 hearing, causing unnecessary appearances and delay, and thus maintained a position without reasonable basis in fact or law.

Defendant's Arguments

Evidence of the settlement should be excluded under MRE 408 and not used to show prevailing-party status.
His omission of voluntary overtime was justified by anticipated future loss of overtime, a health condition limiting hours, and financial difficulty after the divorce.
A trial court has discretion to deviate from the child support formula when application would be unjust or inappropriate (citing MCL 552.605(2)).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Klinke v Mitsubishi Motors Corp, 219 Mich App 500, 518; 556 NW2d 528 (1996)	Standard of review: trial court's ruling on a motion for costs and attorney fees reviewed for abuse of discretion.	Used to identify the appropriate standard of appellate review for the fee motion.
In re Condemnation of Private Prop for Hwy Purposes, 221 Mich App 136, 139-140; 561 NW2d 459 (1997)	Standard of review: cited alongside Klinke for abuse of discretion review.	Reinforced the abuse-of-discretion standard applied to the denial of fees.
Radeljak v DaimlerChrysler Corp, 475 Mich 598, 603; 719 NW2d 40 (2006)	Definition of abuse of discretion: when decision results in outcome outside range of principled outcomes.	Applied to determine whether the circuit court's denial of fees constituted an abuse of discretion.
Kitchen v Kitchen, 465 Mich 654, 661; 641 NW2d 245 (2002)	Standard for reviewing trial-court factual findings: not to be set aside unless clearly erroneous.	Used to explain deference to trial-court factual findings when assessing frivolousness contentions.
Phinney v Perlmutter, 222 Mich App 513, 560; 564 NW2d 532 (1997)	Rule that awards of costs and attorney fees are recoverable only where authorized by statute, rule, or recognized exception.	Supported the statutory basis (MCL 600.2591) as the necessary authorization for awarding fees here.
Maldonado v Ford Motor Co, 476 Mich 372, 376; 719 NW2d 809 (2006)	Trial courts possess inherent authority to sanction litigants and attorneys to manage court affairs.	Noted by the Court to indicate an additional basis for sanctions apart from statutory authority.

Court's Reasoning and Analysis

The Court applied the abuse-of-discretion standard to the circuit court's denial of attorney fees and reviewed whether factual findings regarding frivolousness were clearly erroneous. It held that under MCL 600.2591(3)(b) a "prevailing party" is one who wins on the entire record and that the settlement producing a higher support award rendered plaintiff the prevailing party. The Court rejected defendant's MRE 408 argument because the settlement was offered to show prevailing-party status, not to prove liability for the support amount.

Regarding frivolousness, the Court relied on defendant's admissions that by the July 2008 hearing he had earned $40,000 and ultimately $81,808.32 in 2008, contrasting those figures with the biweekly gross income defendant reported (which annualized to $41,458.56). The Court concluded defendant had no reasonable basis to believe the reported biweekly gross was true and therefore his initial opposition to the support increase was frivolous. The Court addressed defendant's explanation about anticipated loss of voluntary overtime and the availability of judicial deviation under MCL 552.605(2), but concluded that even if future-deviation arguments could be relevant, defendant still lacked a reasonable basis to report the understated income and that deviation determinations were for the referee or court, not unilateral reporting by defendant. Because plaintiff prevailed and defendant asserted a frivolous defense, the circuit court's denial of fees and costs constituted an abuse of discretion.

Holding and Implications

REVERSED AND REMANDED.

Holding: The Court of Appeals concluded plaintiff was the prevailing party and that defendant's initial defense was frivolous under MCL 600.2591, so the circuit court abused its discretion by denying plaintiff's motion for attorney fees and costs.

Implications: The matter is remanded to the circuit court for further proceedings consistent with this opinion. The Court did not retain jurisdiction. As the prevailing party, plaintiff may tax costs pursuant to MCR 7.219. The opinion does not announce a new rule of law beyond its application of the cited statutes, rules, and precedents to these facts.

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DIANE MARIE KEINZ, Plaintiff-Appellant, v. KENNETH CARL KEINZ, Defendant-Appellee.

WILDER, PJ.

Plaintiff appeals as of right the circuit court's order denying her motion to shift her attorney fees and costs to defendant. We reverse and remand. This appeal has been decided without oral argument pursuant to MCR 7.214(E).

The parties' 2005 divorce judgment granted plaintiff primary physical custody of the parties' two minor children and required defendant to pay child support in the amount of $682.88 a month for two children and $449.51 a month for one child "until Defendant returns to his employment from Disability," after which the obligation would be $785.27 a month for two children and $516.67 a month for one child.

In 2008, plaintiff moved to increase defendant's support obligations. At the hearing in July 2008, both parties proceeded without assistance of counsel. Defendant stated that his biweekly gross income was $1,594.56 (which would generate an annual income of $41,458.56) and produced a letter from his employer that mirrored his representations. Defendant explained that his gross income was based on his "usual[]" work schedule of 36 hours in one week and 48 hours the next week at his hourly pay rate of $17.84. After inquiring about plaintiffs income and the parties' sundry expenses, the referee recommended that defendant's general care assessment be $734 a month for the two children and $481 a month for one child.

Plaintiff filed objections on the grounds that the referee did not ask defendant what his income was in 2007 and that defendant had not provided his W-2 Form for that year. Nonetheless, the referee's recommendation was adopted in a court order. Plaintiff moved to set aside that order. The circuit court granted the motion and reserved the question of attorney fees. The matter was referred to the Friend of the Court for the purpose of calculating child support for two minor children in accordance with the true incomes of the parties.

A new recommendation followed, this time for support in the amount of $1,090 a month for two children and $709 a month for one child. Plaintiff moved for entry of an order consistent with that recommendation and for sanctions.

The parties appeared for an evidentiary hearing and settled the support issue. Plaintiffs attorney reported that in addition to agreements concerning healthcare expenses, "[t]he parties have come to agreement regarding the Uniform Child Support Order by modifying it retroactive to April 29th, 2008 wherein [defendant] will pay to [plaintiff] child support for two children in the amount of $1,175, and for one child the amount of $800." The hearing continued on the issue of sanctions. Plaintiff argued that defendant had misrepresented his income at the initial hearing on the motion to increase his support obligations, thereby requiring numerous court appearances that would have otherwise been unnecessary.

Defendant admitted that, by the time of the first hearing in July 2008, at which he reported a biweekly gross income that would have totaled $41,458.56 for the year, he had already earned $40,000 and that he ultimately earned $81,808.32 in 2008. Defendant's attorney averred that defendant excluded voluntary overtime when reporting his usual work schedule because he had reduced expectations of similar future income as a result of the economy and a health condition that caused a doctor to recommend that he work 60 hours a week or less. Defendant's attorney also averred that expenses from the divorce had made it difficult for defendant to get back on his feet.

At the conclusion, the circuit court held as follows:

[t]here was not an intentional or deliberate act or motive on the part of the Defendant which could . . . give rise to a consideration that is lack of or intended . . . misleading information to the Friend of the Court, particularly in reviewing the transcript of the Friend of the Court hearing on July 7th, 2008, which would cause the Court to conclude that . . . there should be leveled . . . the reimbursement of an attorney fees or costs in this case and, therefore the request by the Plaintiff for . . . attorney fees and/or cost[s] is denied.

On appeal, plaintiff argues that she is entitled to costs and attorney fees on the grounds that she was the prevailing party and that defendant caused unnecessary court appearances and delayed resolution of the case by maintaining positions with no reasonable basis in law or fact.

This Court reviews a trial court's ruling on a motion for costs and attorney fees for an abuse of discretion. Klinke v Mitsubishi Motors Corp, 219 Mich App 500, 518; 556 NW2d 528 (1996); In re Condemnation of Private Prop for Hwy Purposes, 221 Mich App 136, 139-140; 561 NW2d 459 (1997). An abuse of discretion occurs when the decision results in an outcome falling outside the range of principled outcomes. Radeljak v DaimlerChrysler Corp, 475 Mich 598, 603; 719 NW2d 40 (2006). A trial court's findings of fact, such as whether a party's position was frivolous, may not be set aside unless they are clearly erroneous. MCR 2.613(C); see Kitchen v Kitchen, 465 Mich 654, 661; 641 NW2d 245 (2002).

"Awards of costs and attorney fees are recoverable only where specifically authorized by a statute, a court rule, or a recognized exception." Phinney v Perlmutter, 222 Mich App 513, 560; 564 NW2d 532 (1997). MCL 600.2591(1) grants a court the authority to award sanctions in the form of attorney fees and costs to a prevailing party if an action or defense is deemed "frivolous." For an action or defense to be considered "frivolous," at least one of the following conditions must be met:

( i) The party's primary purpose in initiating the action . . . was to harass, embarrass, or injure the prevailing party.

( ii) The party had no reasonable basis to believe that the facts underlying that party's legal position were in fact true.

( iii) The party's legal position was devoid of arguable legal merit. [MCL 600.2591(3)(a).]

Plaintiff first argues that she was a "prevailing party" for purposes of MCL 600.2591(1). The circuit court did not resolve this question, instead concluding that the defense was not frivolous. Nevertheless, according to MCL 600.2591(3)(b), a "prevailing party" is "a party who wins on the entire record." Because the parties' settlement resulted in a higher support award, we agree with plaintiff that she was the prevailing party on her motion.

Defendant relies on MRE 408 to argue that consideration of the parties' settlement should be precluded. MRE 408 provides:

Evidence of (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount. Evidence of conduct or statements made in compromise negotiations is likewise not admissible. . . . This rule also does not require exclusion when the evidence is offered for another purpose, such as proving bias or prejudice of a witness, negativing a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution.

Because the settlement is not offered to prove defendant's liability for the amount of child support to which the parties agreed, but is offered to prove whether plaintiff is a prevailing party, we reject defendant's argument.

We also note that trial courts possess the inherent authority to sanction litigants and their attorneys. "This power is not governed so much by rule or statute, but by the control necessarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases." Maldonado v Ford Motor Co, 476 Mich 372, 376; 719 NW2d 809 (2006).

Plaintiff next argues that defendant deceived the referee by offering evidence that his biweekly gross income was $1,594.56 when he knew that he actually earned more, thereby requiring additional proceedings, including those on the motion to set aside the order resulting from the referee's recommendation, and delaying resolution of the matter. We agree. In light of defendant's admission that he had already earned $40,000 by the time of the July 2008 hearing and that he ultimately earned $81,808.32 in 2008, defendant had no reasonable basis to believe that the biweekly gross income he reported to the referee, which would have totaled $41,458.56 annually, was true. Consequently, we agree with plaintiff that defendant's initial opposition to the motion to increase child support was frivolous.

Defendant explains that his self-serving omission of evidence regarding his voluntary overtime was made in light of an anticipated loss of that overtime in the future. Defendant then correctly argues that a trial court has discretion to deviate from the child support formula when application of the formula would be unjust or inappropriate. See MCL 552.605(2). However, even if the' anticipated loss of overtime would have made application of the formula using his actual income in July 2008 unjust, defendant had no reasonable basis to believe that the biweekly gross income he reported to the referee was true. Moreover, it would have been in the referee's discretion, not defendant's, to recommend a deviation from the formula after child support was calculated using accurate facts.

Because plaintiff was the prevailing party and defendant asserted a frivolous defense, we conclude that the circuit court abused its discretion by denying plaintiffs motion for attorney fees and costs pursuant to MCL 600.2591(1). We reverse and remand to the circuit court for further proceedings consistent with this opinion. We do not retain jurisdiction. As the prevailing party, plaintiff may tax costs pursuant to MCR 7.219.

KEINZ v. KEINZ