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Deal Wireless, LLC v. Selective Way Insurance Co.

United States District Court, E.D. Michigan, Southern Division

August 23, 2017



          Denise Page Hood Chief, U.S. District Judge.

         I. BACKGROUND

         On December 8, 2015, Plaintiffs Deal Wireless, LLC (“Deal”) and All USA Wireless, LLC (“All USA”) filed a Complaint against Defendant Selective Way Insurance Company (“Selective”) for breach of contract related to an insurance claim arising out of a fire at Deal and All USA's cell phone store in Madison Heights, Michigan. (Doc # 1) This matter is now before the Court on Plaintiffs' Attorney's Motion to Withdraw as Counsel for Plaintiffs, Impose a Lien on any Recovery, and Stay Proceedings, filed on January 6, 2017. (Doc # 40) Defendant has submitted a Response concurring with the Motion. (Doc # 44) The Court held a motion hearing on January 25, 2017.

         Selective issued a policy insuring Deal, All USA, and their cell phone store, including their inventory. The policy voids coverage where an insured makes material misrepresentations in claims on the policy. On September 20, 2014, a fire occurred, causing damage to the cell phone store and inventory. Deal and All USA notified Selective of their losses.

         According to an Affidavit of James Pebble, Executive General Adjuster at Selective, Deal represented that it acquired nearly $500, 000.00 in inventory, primarily with cash. (Doc # 31-2, Pg ID 452) However, Deal's 2013 tax return reported only $3, 701 in purchases of inventory for the year, and Deal's bank statements showed withdrawals of only $39, 298.00 in 2013. Id. When Selective requested an explanation of how Deal obtained the cash to purchase the inventory, Deal for the first time produced eight promissory notes indicating that Deal acquired approximately $430, 000.00 in inventory on credit from four different creditors in the months preceding the fire. Id. The promissory notes required no payment for three and sometimes four years. Id. Selective asserts that all of the promissory notes are “highly irregular” because they are all nearly identical, they provide for no payment to be made by Deal for a period of three to four years even though cell phones and accessories become out of date in a year or two, and they designate individual business owners rather than the businesses as the payees on the notes. According to the deposition of Gerald Scott, Deal's inventory appeared to be old and outdated. (Doc # 31-3, Pg ID 456) According to the deposition of Mazen Maktari (“Maktari”), owner of Deal, Deal's financial records reflected only approximately $42, 000.00 in sales of product from January 1, 2014 to September 20, 2014. (Doc # 31-4, Pg ID 464-65)

         II. ANALYSIS

         A. Withdrawal of Attorney

         Counsel for Plaintiffs argues that he has just cause to withdraw as Counsel for Plaintiffs. Counsel asserts that Plaintiffs have breached their agreement with Counsel and refuse to cooperate with Counsel after executing an initial settlement agreement that resolved this matter for $185, 000. Counsel argues that he cannot continue representing Plaintiffs without possibly implicating Rule 11 given that Defendant will likely file a motion to enforce the agreement. Defendant in its Response concurs in the Motion and confirms that it intends to file a motion to enforce the settlement. Defendant asserts that any opposition to the motion to enforce the settlement would be groundless and should trigger sanctions under Rule 11.[1]

         On November 26, 2015, Plaintiffs executed a fee agreement with Counsel. (Doc # 40-3) The agreement required Plaintiffs to cooperate with Counsel, and the fee structure was contingent upon the outcome of the matter. Plaintiffs and Counsel agreed to apply the principles of quantum meruit to determine the fee if the agreement was terminated.

         On December 22, 2016, the parties went to mediation with the Honorable Fred Mester.[2] The parties reached an agreement, which provides as follows.

The parties do agree to full and complete settlement of the $185, 000 payable within 30 days. Respecting Attorneys will be responsible to work together and formulate the formal settlement agreement and final order of dismissal for the Court within 10 days of the Execution of the formal agreement.

         (Doc # 40-2)

         A formal settlement agreement has been prepared (Doc # 40-4), but Counsel asserts that Plaintiffs have refused to sign the document without any explanation or communication of any objection, despite multiple requests by Counsel.

         Counsel asserts that there has been a breakdown in the attorney-client relationship. He notes that on January 3, 2017, Plaintiffs hand delivered a letter to Counsel and demanded that Counsel sign a “Personal Proof of Service” (Doc # 40-5), which Counsel asserts he has never had happened in nine years of practice. Counsel notes that he provided ample notice of his intention to withdraw because of Plaintiffs' failure ...

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