Cohen et al v Jaffe Raitt Heuer & Weiss, P.C., et al
OPINION AND ORDER denying defendants' Motion for Summary Judgment 30 and granting in part and denying in part plaintiffs' and third party defendant's Motion for Partial Summary Judgment 31 Signed by District Judge George Caram Steeh. (MBea)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
NEAL COHEN, DAREN CHAFFEE,
AND SSL ASSETS, LLC,
Case No. 16-CV-11484
HON. GEORGE CARAM STEEH
JAFFE, RAITT, HEUER & WEISS, P.C.,
JEFFREY M. WEISS, LEE B. KELLERT
AND DEBORAH L. BAUGHMAN,
JAFFE, RAITT, HEUER & WEISS, P.C.,
COBE CAPITAL, LLC,
OPINION AND ORDER DENYING DEFENDANTS’ MOTION FOR
SUMMARY JUDGMENT [DOC. 30] AND GRANTING IN PART AND
DENYING IN PART PLAINTIFFS’ AND THIRD-PARTY DEFENDANT’S
MOTION FOR PARTIAL SUMMARY JUDGMENT [DOC. 31]
This is a legal malpractice and breach of contract action. Plaintiffs
Neal Cohen, Darren Chaffee and one of their businesses, SSL Assets,
allege that they hired defendant law firm Jaffe, Raitt, Heuer & Weiss
(“Jaffe”), and partners Jeffrey Weiss, Lee Kellert and Deborah Baughman
to provide legal advice in connection with the possible purchase of LSI
Corporation of America (“LSI”). Plaintiffs allege that Jaffe and its partners
provided faulty legal advice which rose to the level of legal malpractice.
The matter is before the court on plaintiffs’ motion for partial summary
judgment, defendants’ motion for summary judgment, and third-party
defendant’s motion for summary judgment. The parties appeared for oral
argument on the motions on May 31, 2017. For the reasons stated below,
plaintiffs’ motion for partial summary judgment is DENIED, defendants’
motion for summary judgment is DENIED and third-party defendant’s
motion for summary judgment is GRANTED.
Neal Cohen and Darren Chaffee are in the business of buying and
turning around distressed businesses. They acquire underperforming
businesses from large multinational corporations through CoBe and CoBe
Management. Cohen is the owner of CoBe and CoBe Management, and
Chaffee is managing director of CoBe Management with no ownership
interest in either entity.
In December 2012, Chaffee began due diligence on the possible
purchase of LSI Corp. (“LSI”), which was a wholly owned subsidiary of HNI
Corp. In the course of his research, Chaffee learned that LSI sponsored a
multi-employer defined benefit pension plan for its union employees, and
that the pension fund was underfunded. Chaffee learned that companies
who participate in underfunded pension plans could face pension
withdrawal liability if the company stops contributing to the plan, such as by
ceasing operations and laying off its employees. Chaffee read articles
related to pension withdrawal liability, including one from Skadden Arps
that discussed a court opinion that decided the investment activities of a
private equity fund did not constitute a “trade or business” and therefore did
not subject the fund to joint and several liability as a controlled group.
Controlled group liability is an ERISA concept whereby other entities can
be responsible for the pension withdrawal liability of the sponsor of a
pension plan based on common ownership. Cohen and Chaffee learned
that the most recent estimate of LSI’s pension withdrawal liability was $3.9
million. Their primary concern was to ensure that this liability was confined
to LSI and would not spread to themselves or their other companies.
Chaffee emailed Jeffrey Weiss on April 4, 2013 regarding the pending
LSI deal. Weiss had rendered legal advice to Cohen and Chaffee in a prior
attempted business acquisition. Chaffee explained that LSI was exposed
to pension withdrawal liability of $3.9 million and he wanted advice
regarding how to avoid having that liability attach to their other companies.
One of the big issues in this deal is that the facility is
union and they sponsor a multi-employer pension plan.
The potential clawback on the withdrawal liability is a risk
that HNI [the seller] has. We also want to be sure that we
aren’t personally liable or put our other assets/companies
at risk. We’ll want to discuss this further. I understand
the risk around this pretty well because we’ve been
(Plaintiffs’ Ex. D) The subject line of the email was “CoBe Capital”.
Shortly after the April 4, 2013 email, Chaffee believes that he and
Weiss had an initial telephone call where they likely discussed the pension
withdrawal liability issue. (Chaffee dep. 68-69). Chaffee and Cohen
understood that Jaffe was protecting both their personal interests and their
other businesses, including SSL Assets. At his deposition, Weiss testified
that he understood that Cohen and Chaffee sought Jaffe’s legal advice to
be sure that they would not face liability associated with the pension
withdrawal liability issue, either personally or on behalf of their other assets.
(Weiss dep. 49-52). Jaffe did not provide an engagement letter for the
services provided in connection with the LSI deal. (Weiss dep. 29).
Controlled groups are determined by the ownership percentages in
the entities involved. In order to render an opinion on whether Cohen and
Chaffee’s other companies were part of a controlled group, Weiss asked
Chaffee if he and Cohen had common ownership in any entities. (Weiss
dep. 41). Weiss does not recall explaining to Chaffee what “common
ownership” meant for purposes of a controlled group liability analysis.
(Weiss dep. 78). According to Weiss, Chaffee said that he and Cohen did
not have common ownership in any entities. (Weiss dep. 41). Weiss did
not obtain any other information to evaluate the issue of controlled group
liability prior to the closing of the LSI purchase. (Weiss dep. 44).
Jaffe never asked Cohen or Chaffee prior to the close of the LSI
purchase for a written organizational chart listing the companies in which
Cohen and Chaffee had an ownership interest. No lawyer at Jaffe ever
asked Cohen or Chaffee for a list of the other companies they owned.
Weiss drafted an operating agreement for LSI Holdings of America
LLC (“LSI Holdings”), specifying that Cohen was to own 49% of LSI
Holdings, Chaffee 49%, and a third investor 2%. The LSI deal was closed
on June 18, 2013, at which time Weiss advised Chaffee, “I think we should
finalize and execute this agreement . . . the ownership of the holding
company avoids any controlled group issues.” (Doc. 1-2 at 5).
In September of 2014, Chaffee and Cohen formed Cocha Finance,
LLC (“Cocha”) to secure a $1.5 million asset-based working capital line of
credit that LSI had taken from Bell State Bank & Trust. Despite the
investment, by December of 2014, LSI had run out of money. On
December 4, 2014, Chaffee emailed Weiss and attorney Kellert to
reconfirm the controlled group liability issue: “Travis believe[s], and I think
he is wrong, that we ‘CoBe Capital’ is also on the hook for part of the
pension withdrawal liability. I know we went round and round on this very
topic when structuring the deal, but the question is to reconfirm this point
again – that we have no liability with the PWL.” (Doc. 1-2 at 36). On
December 5, 2014, Kellert replied to Chaffee, confirming “[Y]ou are correct
that we do not believe that Cobe has any direct (the plan administrator can
always make an alter ego claim) exposure for the pension withdrawal
liability . . . .” (Doc. 1-2 at 38).
At this time, LSI sought advice from the Stinson Leonard Street, LLP
(“Stinson”) law firm about the option of filing bankruptcy. From discussions
with the Stinson law firm in January 2015, Cohen and Chaffee learned that
because they shared ownership interests in SSL Assets through their
individual holding companies, SSL Assets was in a controlled group with
LSI and LSI Holdings.
Over the course of the next eight months, Cohen and Chaffee
invested an additional $3.25 million in LSI to sustain the company.
Nevertheless, in January 2016, LSI was forced to terminate its entire union
workforce, thereby constituting a complete withdrawal from the pension
fund. This triggered LSI’s pension withdrawal liability, and SSL’s
corresponding controlled group liability. LSI’s, and therefore SSL Assets’,
withdrawal liability is $3,259,960. (Ex. 16, Timothy Geddes Decl.) Chaffee
testified they would not have purchased LSI if Jaffe had advised them that
SSL Assets would be in a controlled group with LSI. (Chaffee dep. 151).
In his deposition, Weiss admitted that when he was representing
Cohen and Chaffee he did not have a “legally accurate” understanding of
the meaning of “controlled group liability.” (Weiss dep. 13). Because he
did not feel competent to assess controlled group liability, he relied on his
partner Baughman to perform the analysis. (Weiss dep. at 14, 59). Weiss
testified that Baughman told him what information she would need to
conduct the controlled group analysis. (Weiss dep. 59-60). Baughman
testified that she relied on Weiss to provide the necessary facts for her to
perform a controlled group analysis, but denies that she told Weiss what
questions to ask. (Baughman dep. 15-16, 19). Baughman recalled Weiss
orally informing her of the ownership structure of LSI Holdings, but not of
any other companies. (Baughman dep. 16). Baughman told Weiss there
was no LSI controlled group beyond LSI Holdings. (Baughman dep. 18).
In late 2014, Jaffe represented LSI in conducting negotiations with
LSI’s labor union. Weiss testified that LSI Holdings was Jaffe’s client for
services rendered in connection with the union negotiations. On January
23, 2015, Jaffe sent a bill to CoBe for legal services, in the amount of
$92,422.00, provided from September 5, 2014 through December 11,
2014. Jaffe billed the services to the “COBE-LSI” matter/file number to
which it had billed all previous services. (Ex. 8 at 34-42). In its third-party
complaint, Jaffe seeks to collect its legal fees from CoBe asserting breach
of contract and equitable theories.
STANDARD FOR SUMMARY JUDGMENT
Federal Rule of Civil Procedure 56(c) empowers the court to render
summary judgment "forthwith if the pleadings, depositions, answers to
interrogatories and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law." See Redding v. St.
Eward, 241 F.3d 530, 532 (6th Cir. 2001). The Supreme Court has
affirmed the court's use of summary judgment as an integral part of the fair
and efficient administration of justice. The procedure is not a disfavored
procedural shortcut. Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986);
see also Cox v. Kentucky Dept. of Transp., 53 F.3d 146, 149 (6th Cir.
The standard for determining whether summary judgment is
appropriate is "'whether the evidence presents a sufficient disagreement to
require submission to a jury or whether it is so one-sided that one party
must prevail as a matter of law.'" Amway Distributors Benefits Ass’n v.
Northfield Ins. Co., 323 F.3d 386, 390 (6th Cir. 2003) (quoting Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986)). The evidence and all
reasonable inferences must be construed in the light most favorable to the
non-moving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986); Redding, 241 F.3d at 532 (6th Cir. 2001). "[T]he
mere existence of some alleged factual dispute between the parties will not
defeat an otherwise properly supported motion for summary judgment; the
requirement is that there be no genuine issue of material fact." Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original); see
also National Satellite Sports, Inc. v. Eliadis, Inc., 253 F.3d 900, 907 (6th
If the movant establishes by use of the material specified in Rule
56(c) that there is no genuine issue of material fact and that it is entitled to
judgment as a matter of law, the opposing party must come forward with
"specific facts showing that there is a genuine issue for trial." First Nat'l
Bank v. Cities Serv. Co., 391 U.S. 253, 270 (1968); see also McLean v.
988011 Ontario, Ltd., 224 F.3d 797, 800 (6th Cir. 2000). Mere allegations
or denials in the non-movant's pleadings will not meet this burden, nor will a
mere scintilla of evidence supporting the non-moving party. Anderson, 477
U.S. at 248, 252. Rather, there must be evidence on which a jury could
reasonably find for the non-movant. McLean, 224 F.3d at 800 (citing
Anderson, 477 U.S. at 252).
Plaintiffs allege two counts in their complaint, breach of contract and
legal malpractice. Plaintiffs’ motion for partial summary judgment is
directed at their legal malpractice claim. Defendants’ motion for summary
judgment is also directed at plaintiffs’ legal malpractice claim. In addition,
defendants seek summary judgment on plaintiffs’ breach of contract claim
for the reason that it is a redundant claim. Finally, third-party defendant
CoBe Capital seeks summary judgment on Jaffe’s third-party complaint to
recover fees for legal work relating to union negotiations for LSI.
I. Legal malpractice
Legal malpractice requires “(1) the existence of an attorney-client
relationship; (2) negligence in the legal representation of the plaintiff; (3)
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that the negligence was a proximate cause of an injury; and (4) the fact and
extent of the injury alleged.” Charles Reinhart Co. v. Winiemko, 444 Mich.
579, 586 (1994).
The plaintiff must first establish the existence of an attorney-client
relationship. “The general rule of law . . . dictates that an attorney may be
held liable for . . . negligence only to his client, and cannot, in the absence
of special circumstances, be held liable to anyone else.” Atlanta Int’l Ins.
Co. v. Bell, 438 Mich. 512, 518 (1991).
The attorney-client relationship is governed by contract law and
cannot be created absent mutual agreement to create it. Scott v. Green,
140 Mich. App. 384, 400 (1985). Absent a written agreement such as an
engagement letter, the fact-finder must look to other evidence of the
parties’ mutual agreement, including “a client’s subjective belief that he or
she is consulting the attorney in his or her professional capacity and the
client’s intent to seek the attorney’s professional legal advice.” People v.
Crockran, 292 Mich. App. 253, 259 (2011). “The contract may be implied
from conduct of the parties. The employment is sufficiently established
when it is shown that the advice and assistance of the attorney are sought
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and received in matters pertinent to his profession.” Macomb County
Taxpayers Ass’n v. L’Anse Creuse Pub. Sch., 455 Mich. 1, 11 (1997).
Today, Jaffe’s firm policy is to issue written engagement letters for
every representation. However, Weiss testified that Jaffe’s policy regarding
engagement letters for new clients did not exist in 2013 when Chaffee first
emailed Weiss regarding the acquisition of LSI Corp.
Jaffe’s opinion of who it represented is not consistent. In written
discovery Jaffe claimed its only client was CoBe Capital. In his deposition,
Weiss testified that LSI and Cocha Finance were the firm’s clients. Weiss
also admitted he performed work for the benefit of Cohen and Chaffee and
owed them a duty of care, but denied representing them personally.
Jaffe argues that Chaffee and Cohen conducted due diligence to
understand the risks associated with pension withdrawal liability and
controlled group liability prior to retaining Jaffe for the acquisition of LSI
Corp. However, despite knowledge and understanding of controlled group
liability, neither Cohen nor Chaffee ever advised Jaffe about their
ownership of SSL Assets, nor did they have any communication with Jaffe
about SSL Assets. Given the complete lack of communication with Jaffe
regarding SSL Assets, Jaffe argues there is no issue of material fact that
SSL Assets was not a client and that any belief by plaintiffs that Jaffe
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represented SSL Assets is unreasonable. Obviously this is one of many
possible conclusions that could support a finding for Jaffe.
However, it is undisputed that Chaffee told Jaffe in his initial email
that he was seeking legal advice in order to protect his and Cohen’s other
companies from LSI’s withdrawal liability. The very reason Chaffee and
Cohen came to Jaffe was because they lacked the legal expertise to
assess their controlled group liability exposure. If Weiss or another Jaffe
attorney had explained how the controlled group tests work, and what
“common ownership” means for purposes of the tests, they could have
discovered that Cohen and Chaffee owned three other businesses through
their holding companies. One of these businesses was SSL Assets.
Regarding whether Cohen and Chaffee personally had an attorneyclient relationship with Jaffe, Jaffe argues that is a non-issue because the
services provided to Cohen and Chaffee as individuals are not the subject
of the claim for malpractice. The court disagrees with this argument
because if Cohen and Chaffee had an attorney-client relationship with
Jaffe, which clearly included their seeking and receiving advice on the
subject of controlled group liability, then that representation is at the very
core of the malpractice claim made in this case.
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The evidence shows that Weiss communicated directly with Chaffee
in Weiss’s role as an attorney. Chaffee advised Weiss that he was seeking
legal advice to protect himself and Cohen individually, as well as their other
assets and companies. The court finds that Chaffee and Cohen were
clients of defendants. There is an issue of fact whether Jaffe and the
individual defendants represented SSL Assets
2. Standard of Care
Controlled group liability is the product of two ERISA statutes. First,
an employer who participates in a multi-employer pension plan but
withdraws from the plan is liable for the employer’s share of any
underfunded benefits. This concept is known as “pension withdrawal
liability.” 29 U.S.C. 1381(a). Second, all businesses that are “under
common control” are treated as a single employer and share the pension
withdrawal liability jointly and severally. This concept is called “controlled
group liability.” 29 U.S.C. 1301(b)(1); 29 C.F.R. 4001.3(a)(1), (2).
Whether businesses are under common control depends on I.R.C.
regulations. 29 C.F.R. 4001.3(a)(1). There are two alternative tests for
common control: (1) the parent-subsidiary test and (2) the brother-sister
test. The parent-subsidiary test provides that if a parent directly or
indirectly owns at least an 80% controlling interest in a subsidiary, then all
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subsidiaries and the parent are under “common control.” 26 C.F.R.
1.414(c)-2(b). The brother-sister test, which analyzes ownership
percentages to determine if independent companies are deemed to be
under common control, is the test that plaintiff SSL Assets violated in this
case. SSL Assets violated the brother-sister test because of the attribution
rules controlling indirect ownership. Any ownership interest in a company
that is held by a partnership or corporation is deemed to be proportionally
owned by that partnership or corporation’s partners or owners (as long as
they have at least a 5% stake). 26 C.F.R. 1.414(c)-2(b), 1.414(c)-4(a),
Since 2011, SSL Assets has been owned 95% by Sendori
Acquisitions, LLC and 5% by Luz Place, LLC. Sendori is owned 100% by
Neal Cohen and Luz Place is owned 100% by Darren Chaffee. Under the
attribution rules, SSL Assets is deemed to be owned directly by Cohen
(95%) and Chaffee (5%). LSI is deemed to be owned directly by Cohen
(49%) and Chaffee (49%) because the LSI holding company is LSI
Holdings of America LLC, which is owned 49% by Cohen and 49% by
Under the brother-sister test and its attribution rules, LSI and SSL are
deemed to be in the same controlled group, and are considered a single
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employer for pension withdrawal liability purposes, because Cohen and
Chaffee owned 80% controlling interests in, and had 50% “effective control”
of, both companies. 26 C.F.R. 1.414(c)-2(c)(1). “Effective control”
requires identical ownership across LSI and SSL Assets that exceeds 50%.
Identical ownership means that each owner’s interest counts toward the
50% total only to the extent that owner’s interest is identical across all of
Both LSI & SSL
(must be ≥80%)
(must be ≥50%)
To properly advise on controlled group liability, Jaffe had to
understand the ownership structures of all entities in which Cohen or
Chaffee had an interest, either directly or through the Internal Revenue
Code attribution rules. Weiss claims he asked Chafee in a telephone call
whether he and Cohen had any common ownership in any entities and that
Chaffee answered that they did not. Weiss never explained to Chaffee
how “common ownership" was determined. Weiss admitted during his
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deposition that he did not have a “legally accurate” understanding of
controlled group liability, he did not feel competent to assess the issue, and
he did not know the specifics of the brother-sister test.
Cohen and Chaffee each owned separate companies (Sendori and
Luz Place) and those companies owned SSL Assets. Cohen and Chaffee
did not have individual ownership interests in any of the same companies.
Therefore, it may have been reasonable that Chaffee answered the
question he was asked by Weiss the way that he did. The only reason
Cohen and Chaffee are deemed to have common ownership in SSL is
because of the attribution rules, which Weiss never explained to them.
Weiss’ partner Baughman did understand the attribution rules, but
she did not have any contact with Cohen and Chaffee prior to the close of
the LSI deal. Baughman did not know what questions Weiss asked Cohen
and Chaffee to gather information for the controlled group analysis. She
also testified that she did not provide any guidance on what to ask because
she thought Weiss already knew what information she needed to do the
analysis. Baughman testified that she relied exclusively on Weiss to bring
her the relevant information. However, when Weiss was shown an
organizational chart for Cohen and some of plaintiffs’ companies at his
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deposition, he admitted he could not identify what information would be
important or relevant to a controlled group analysis.
Defendants argue that because Chaffee had performed extensive
due diligence on pension withdrawal liability and controlled group liability
issues before retaining Jaffe, and because Chaffee is a Certified Public
Accountant and a Chartered Financial Analyst, Chaffee cannot claim
ignorance as to the concept of attribution of ownership. Defendants argue
there is an issue of fact whether Jaffe breached the standard of care in this
case. Jaffe’s standard of care expert, Jordan Schreier, who was not
deposed, opined that Weiss’ question about common ownership was
sufficient to meet the standard of care for an attorney: “[I]t is my opinion
that Jeffrey M. Weiss met the standard of care for legal practice when he
asked whether Mr. Chaffee and Mr. Cohen had common ownership in any
entity, and that Mr. Chaffee had the information and sophistication he
needed to provide an accurate response but did not and it was reasonable
for Mr. Weiss to rely on Mr. Chaffee’s response.” (Ex. I, Schreier Aff. at 7;
Ex. 1 to Aff. at p. 9-10). Defendants also cite to Schreier’s opinion to
support a finding that Baughman’s reliance on Weiss to obtain the
information she needed to analyze whether there was potential for
controlled group liability is not a breach of the standard of care.
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Weiss admittedly did not explain the applicable attribution rules to
Chaffee, and Chaffee testified he did not know the attribution rules. Jordan
Schreier has no basis for assessing Chaffee’s knowledge. It is outside his
qualifications as a legal standard of care expert to offer an opinion on a lay
witness’s knowledge. Fed. R. Evid. 702. Schreier’s opinion that Weiss
was justified in assuming Chaffee understood the brother-sister test was
based on an internal email Chaffee sent to Cohen. However, Weiss did not
see this email until it was produced in discovery, so it cannot justify Weiss’s
conduct in advising Chaffee. In addition, the email is a copy of an article
Chaffee read and may be considered as evidence from which it can be
inferred that he understood the concepts discussed, but that is not a
Where there is an attorney-client relationship, an attorney has a “duty
to use and exercise reasonable skill, care discretion and judgment” and
plaintiffs argue that Weiss fell below this standard of care when he did not
explain the attribution rules to Cohen and Chaffee, yet assured them that
there would be no controlled group liability. Simko v. Blake, 448 Mich. 648,
The court finds there is an issue of fact whether defendants failed in
their duty of care in providing legal advice to plaintiffs.
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3. Proximate Cause and Damages
Plaintiffs argue that Jaffe’s negligence proximately caused SSL
Assets to incur $3,259,960 in damages, which is the amount SSL Assets
owes to the Pension Fund as a result of being in a controlled group with
LSI. LSI completely withdrew from the Pension Fund on January 15, 2016,
when it shut its operations and terminated its employees. On that date,
SSL Assets became liable by operation of law for LSI’s pension withdrawal
liability. But for Jaffe’s erroneous advice to plaintiffs on controlled group
liability, Chaffee and Cohen contend they would not have purchased LSI.
Jaffe responds that it is speculative whether Chaffee and Cohen
would have proceeded with the acquisition of LSI had they known that SSL
Assets was part of a controlled group. Jaffe points out that after being
advised that SSL Assets was in a controlled group with LSI, Cohen and
Chaffee made numerous investments of cash to support the loan to LSI.
Defendants allege that SSL Assets failed to take any effort to mitigate its
alleged damages arising from the withdrawal from the Pension Fund. Jaffe
therefore asks the court to prohibit SSL Assets from seeking any damages
related to any pension withdrawal liability.
Chaffee’s first communication with Weiss made it clear that as it
concerned the purchase of LSI, plaintiffs were primarily concerned with
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avoiding controlled group liability personally and on behalf of their other
companies. At various other times, including the day the LSI Holdings
operating agreement was finalized and later when CoBe questioned its
ability to successfully turn LSI around, Chaffee asked Weiss to confirm his
understanding that there was no controlled group liability. Each time,
Weiss responded that there was no controlled group and no exposure
beyond LSI for the pension withdrawal liability.
Cohen and Chaffee’s additional investments made after learning of
SSL Asset’s controlled group liability were allegedly made to prevent LSI
from failing and therefore causing SSL Assets to incur pension withdrawal
liability. Before learning about the controlled group liability of SSL Assets,
Cohen and Chaffee had already invested $1.4 million in LSI and were
ready to put LSI into bankruptcy and cut their losses. If LSI had not been in
a controlled group with SSL Assets, LSI’s failure would have cost Cohen
and Chaffee the $1.4 million already invested. But, when they realized that
SSL Assets would incur controlled group liability if LSI closed down, they
decided to invest additional money to attempt to save LSI. SSL would have
incurred significant harm if it had been required to incur controlled group
liability, at the time estimated to be approximately $4.62 million. Cohen
and Chaffee describe making a business decision which involved making
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additional investments in order to save LSI, and therefore SSL Assets. At
some point, however, it became more prudent to incur the controlled group
liability than to invest more money in LSI. For Cohen and Chaffee this
point was at $3.55 million in further investments.
Finally, plaintiffs point out that there was nothing that could be done
to extricate SSL Assets from the controlled group with LSI once it had been
created. Any after-the-fact attempts to avoid controlled group liability would
The damages sought by plaintiffs is their capital infusion of $4.95
million, the pension withdrawal liability of $3,259,960, and $480,000 in
receivership costs associated with terminating LSI’s operations.
Defendants maintain that they did not cause plaintiffs to make the
additional investments in LSI that they now claim as loss of investment
damages. Defendants further argue plaintiffs should be prohibited from
claiming that their investments made after learning of SSL Assets’ potential
controlled group liability was their attempt to mitigate their damages
because plaintiffs have objected to disclosing the advice they received from
counsel relative to their attempts to mitigate. At his deposition, SSL Assets’
corporate representative, Chaffee, was asked what advice he was given
with regard to mitigating damages by changing its ownership structure, but
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was instructed not to answer based upon the attorney-client privilege.
(Chaffee dep. 142).
Defendants contend that SSL Assets had a potential avenue for relief
available that included changing its ownership structure for good faith, nonwithdrawal liability reasons, after learning of Jaffe’s alleged negligent
advice in February 2015, but before LSI purportedly withdrew from the
Pension Fund on January 15, 2016. Defendants cite to Jordan Schreier’s
report, which states that in certain circumstances, pension plans will settle
withdrawal liability disputes for less than what was originally assessed.
(Schreier Report p. 12). The argument is that if the ownership structure of
SSL Assets had been changed, then the Pension Fund would have had the
burden to prove it was changed to “evade or avoid” the controlled group
liability. SSL Assets presumably could have used the change in ownership
as leverage to negotiate down the amount of pension withdrawal liability.
Plaintiffs respond that they did not rely on any communications with
counsel in deciding to make further investments in LSI, so what legal
advice plaintiffs received is irrelevant. Also, plaintiffs did mitigate their
damages. In addition to attempting to save LSI from closing, the
withdrawal liability amount declined over time, so plaintiffs’ actions had the
effect of reducing SSL Asset’s controlled group liability (and damages
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claim) from $4.62 million to $3.26 million. Plaintiffs further argue that they
had no legitimate business reason to reorganize the ownership interests of
LSI or SSL Assets, other than to avoid pension withdrawal liability, which is
a violation of ERISA.
The court finds there are issues of fact regarding causation,
mitigation of damages, and the amount of any damages suffered by
II. Breach of Contract
Plaintiffs’ breach of contract claim alleges that Jaffe provided
negligent advice about controlled group liability that the plaintiffs relied
upon to their detriment. This is the same allegation made by plaintiffs’ in
their legal malpractice claim.
Michigan recognizes breach of contract claims against lawyers who
contract “to perform a specific act” as opposed to a general agreement “to
exercise appropriate skill in providing representation.” Barnard v. Dilley,
134 Mich. App. 375, 378 (1984). To the extent Jaffe agreed to structure
the purchase of LSI to keep Cohen and Chaffee’s other companies out of
any controlled group with LSI, this was a contract to perform a specific act,
and can be the basis for a breach of contract action.
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The court finds there is an issue of fact whether defendants
undertook to perform a specific act and therefore denies defendants’
motion for summary judgment on plaintiffs’ breach of contract claim.
III. Third-Party Complaint
Jaffe brought a third-party claim against CoBe Capital for the balance
of unpaid invoices for work Jaffe performed in connection with LSI’s union
negotiations. In late 2014, Jaffe represented LSI in negotiations with LSI’s
labor union. CoBe argues it is entitled to judgment as to Jaffe’s third-party
complaint because the balance of the attorney fees owed to Jaffe relate to
services provided in connection with LSI’s union negotiations and CoBe
was not Jaffe’s client related to those services. Even Weiss testified that
Jaffe’s client was LSI Holdings with respect to the union negotiations.
(Weiss dep. p. 91)
In support of seeking payment for the legal fees from CoBe, Jaffe
points to the fact that CoBe Management was hired by LSI to provide
consulting services to better run LSI’s business, and promoted the
acquisition of LSI on its website. Defendants do not allege that CoBe was
its client for the work represented by the bills at issue. They have not
provided any legal justification or authority for seeking payment from a non-
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client. Therefore, summary judgment is GRANTED in favor of CoBe on
defendants’ third-party complaint.
For the reasons set forth in this opinion and order, plaintiffs’ motion
for partial summary judgment is DENIED, defendants’ motion for summary
judgment is DENIED and third-party defendant’s motion for summary
judgment is GRANTED.
Dated: June 30, 2017
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE
CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
June 30, 2017, by electronic and/or ordinary mail.
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