Pransky v. Falcon Group, Inc
311 Mich. App. 164
| Mich. Ct. App. | 2015Background
- Plaintiff Jaime Pransky hired Falcon Group, Inc. in Aug. 2012 under a consulting agreement; she paid a $50,000 non‑refundable retainer ($20,000 at signing) and agreed to success/financing fees (10% of monies Falcon "raises or causes to be raised"; 3% of financing obtained through Falcon).
- A handwritten clause required Falcon to provide consulting "in connection with identifying and procuring investors and financing."
- Pransky later learned Falcon was not registered under Michigan’s Securities Act as a broker‑dealer, rescinded the contract, and sued for return of the $20,000 retainer, alleging illegality, misrepresentation/silent fraud, breach of the Securities Act, and conversion.
- Falcon moved for summary disposition arguing the contract merely required finder/consulting services (not services requiring registration) and that any severable fee provisions wouldn’t void the whole agreement; the trial court granted summary disposition for Falcon and later ordered Pransky to pay Falcon’s attorney fees under the contract.
- On appeal the Court of Appeals affirmed dismissal, holding the contract could be performed by Falcon as a "finder" (a separate defined category that need not register so long as activities stay within the statutory finder definition), but vacated the attorney‑fee award because Falcon never brought a contract claim to recover fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the consulting agreement required registration under Michigan’s Securities Act (i.e., whether Falcon had to be a broker‑dealer, agent, or investment advisor) | Pransky: contract compensation language ("raises or causes to be raised"; introduces investors) required Falcon to act as a broker/agent/advisor and thus to be registered; contract is illegal and void. | Falcon: contract only required finder/consulting services and general business advice; Falcon could perform without registration; any problematic fee terms are severable. | Agreement did not facially require services that trigger registration; Falcon could perform as a finder; summary dismissal affirmed. |
| Whether "finders" under Michigan law must be registered as broker‑dealers | Pransky: statutory exclusions and agency regulations imply finders must register as broker‑dealers. | Falcon: Legislature separately defined "finder," omitted any registration requirement for finders, and imposed targeted rules when broker‑dealers/investment advisors act as finders. | Court: Legislature intended to differentiate finders from broker‑dealers; finders who limit activities to locating/introducing need not register. |
| Whether Pransky’s rescission, fraud, statutory breach, and conversion claims survive given the contract’s facial legality | Pransky: claims valid because the contract is illegal on its face for requiring unregistered securities activity. | Falcon: because the contract is not facially illegal, Pransky’s claims fail. | Because the contract is not facially illegal, all claims premised on its illegality fail; dismissal proper under MCR 2.116(C)(10). |
| Whether trial court could award attorney fees under the contract without a Falcon contract claim/counterclaim | Pransky: fee award constitutes contractual damages and must be sought in a contract claim; trial court had no authority to award fees absent Falcon’s separate claim. | Falcon: relied on contract fee‑shifting provision when moving for fees after prevailing. | Fee award vacated: contractual attorney fees are damages recoverable only in a suit on the contract; Falcon did not bring such a claim, so the court lacked authority to enter judgment for fees. |
Key Cases Cited
- Rory v. Continental Ins. Co., 473 Mich. 457 (2005) (de novo review and principles for contract interpretation)
- Johnson v. Recca, 492 Mich. 169 (2012) (statutory construction: give effect to each word/avoid surplusage)
- Michelson v. Voisin, 254 Mich. App. 691 (2003) (rescission available for agreements made in violation of Securities Act)
- Haliw v. Sterling Heights, 471 Mich. 700 (2005) (American Rule on attorney fees; fees awarded only when statute, rule, or contract permits)
- Fleet Business Credit v. Krapohl Ford Lincoln Mercury Co., 274 Mich. App. 584 (2007) (contractual attorney‑fee provisions enforceable; such fees are an element of damages)
- Heligman v. Otto, 161 Mich. App. 735 (1987) (interpretation of "broker‑dealer" as requiring being engaged in effecting securities transactions)