                            STATE OF MICHIGAN

                            COURT OF APPEALS



BEARING360 LLC,                                                      UNPUBLISHED
                                                                     August 31, 2017
               Plaintiff/Counter-Defendant-
               Appellee,

v                                                                    No. 330812
                                                                     Emmet Circuit Court
LARRY CAMERON,                                                       LC No. 14-104498-CZ

               Defendant,

and

BRAD THOR,

               Defendant/Counter-Plaintiff-
               Appellant,

and

STRATEGIS SYSTEMS LLC and THOR
ENTERTAINMENT GROUP, LLC,

               Defendant-Appellants.


Before: MARKEY, P.J., and RONAYNE KRAUSE and BOONSTRA, JJ.

PER CURIAM.

      Defendants appeal by right the trial court’s opinion and order denying their post-
judgment motion for sanctions. We affirm.

                                       I. BACKGROUND

        This civil action arises from an acrimonious relationship between Barrett H. Moore and
his former friend and client, defendant Brad Thor. Moore’s company, plaintiff Bearing360 LLC,
provided consulting services (referred to as “life continuity” services) to high net worth
individuals to assist them in preparing for possible catastrophic events, such as natural disasters,
war and terrorism, that might disrupt the product supply chain. Thor became an investor in

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plaintiff and other entities related to Moore. After the relationship between Moore and Thor
soured and ended, plaintiff brought suit against Thor and his companies, defendants Strategis
Systems, LLC and Thor Entertainment Group, LLC (TEG), as well as defendants Larry Cameron
and Rodney Cox. 1 The complaint contained five counts: Misappropriation of Trade Secrets,
Civil Conspiracy, Conversion, Tortious Interference, and Defamation. Plaintiff alleged in part
that defendants had worked together to steal plaintiff’s confidential information and trade secrets
related to life continuity and risk management, that Cox had abruptly discontinued his services
for plaintiff after taking “his laptop, cellular phone, [and] work product,” and after having
“downloaded onto his computer” plaintiff’s “propriety data/trade secrets,” and that defendants
were constructing a safe haven facility using plaintiff’s confidential information and trade
secrets.

        Defendants moved for summary disposition. Plaintiff amended its complaint twice,
adding factual allegations, removing the claims for tortious interference and defamation, and
adding other claims. After plaintiff removed the tortious interference and defamation claims,
defendants filed a February 5, 2015 Motion for Relief Pursuant to MCR 2.114(E) and (F), and
MCR 2.625(A) (motion for sanctions), asserting that plaintiff had failed to make a reasonable
inquiry into whether those claims were well grounded in fact and that it lacked a good faith basis
for asserting them. Ultimately, the trial court denied the motion for sanctions, “[b]ased on the
competing documents presented by both sides,” and denied defendants’ motion for summary
disposition on plaintiff’s claims for misappropriation of trade secrets, conversion, and civil
conspiracy.

       Defendants thereafter sought discovery regarding plaintiff’s alleged trade secrets.
Defendants filed multiple motions to compel or dismiss. Plaintiff, however, repeatedly refused
to produce the requested documents, even after the court ordered it to “provide full and complete
responses by” a certain date.

         The parties negotiated a proposed stipulated protective order and presented to the court,
for its resolution, defendants’ objection to the last two sentences of paragraph 14, as indicated in
strikethrough text:

       14. In the event any party intends to utilize documents or information subject
       hereto at any hearing or at trial in this action, that party shall notify counsel who
       has asserted confidentiality with respect to such materials of such intention, with
       specificity, at least ten (10) days in advance of the hearing or trial. Said
       documents are to be marked Confidential and the hearing, or portion of the trial,
       involving the documents or information shall be conducted “in camera”, and
       spectators shall be barred from the courtroom. Further, at trial if the validity of
       Bearing360, LLC’s Trade Secrets are at issue, that question shall be resolved by
       the Court “in camera”, out of the presence of the Jury, and the Court shall advice


1
  Cameron and Cox worked as independent contractors on behalf of plaintiff. Plaintiff alleged
that Thor had pressured him to engage Cox in that capacity. Plaintiff was unable to serve Cox
with process, and the clerk therefore entered an order dismissing him from the case.


                                                -2-
        the Jury as to the validity or invalidity of Bearing360, LLC’s Trade Secrets. This
        is to avoid Bearing360 LLC’s Trade Secrets becoming public on the record or to
        the jury.

        Relying on secondary authority, and in light of section 62 of the Michigan Uniform Trade
Secrets Act (MUTSA), MCL 445.1901, et seq., plaintiff argued that the protection of its trade
secrets through trial was necessary because once “documents find their way to the public record,
they are no longer trade secrets.” Plaintiff contended that no guarantee of protection existed if
the jury would be allowed to consider the trade secrets and that the court had the authority to
review the documents in camera. Defendants asserted that it was premature to extend such trial-
related protections in a discovery order and that plaintiff’s request that the jury never view the
documents would preclude a jury trial on the critical issue of whether trade secrets existed. They
also alleged that plaintiff had not identified the specific nature of the trade secrets, but rather, had
only given a broad description. The trial court concluded that “Plaintiff’s complaint [did] allege
the specific nature of the trade secrets, i.e., ‘research data, formulas, calculations, and processes’
dealing with plaintiff’s business of providing advice to individuals and corporations about how
to mitigate their risks from the occurrence of supply chain disruptions, etc. To the extent that
Defendants assert that the pleading requirements require pleading of the actual secret information
that constitutes the alleged trade secret, [they are] clearly incorrect.” However, the trial court
also rejected plaintiff’s position, stating:

        With respect to the language in paragraph 14, specifically the last two sentences
        of paragraph 14, the Court finds that language to be unnecessary in a
        confidentiality order pertaining to discovery. The Court will note for this record
        that Plaintiff has expressed and continues to express that there are trade secrets
        that are not to be disclosed, and that Plaintiff is even maintaining that
        notwithstanding a jury trial demand presented by Plaintiff that somehow the trial
        should be conducted without the jury viewing these trade secret materials. That is
        an issue that the Court will hear and decide if an appropriate motion is made, and
        there is support for that. [Emphasis added.]

        After entry of the stipulated protective order, as modified by the court, plaintiff remained
steadfast in its refusal to produce the information based on concerns that the trade secrets would
not be protected at trial. The trial court entered an order compelling production of the
documents, but on the date the responses were due plaintiff moved for reconsideration of that
order, again arguing that the failure to provide protection for the trade secrets at trial provided
plaintiff with no sense of security. The trial court denied reconsideration and entered another
order granting defendants’ motion to compel or to dismiss, holding that plaintiff’s complaint
would be dismissed with prejudice if plaintiff did not, within seven days, fully comply with all
outstanding discovery requests. Ultimately, plaintiff’s failure to produce discovery disclosing its
alleged trade secrets as required by MCL 445.1906 resulted in the dismissal of plaintiff’s




2
    MCL 445.1906.


                                                  -3-
complaint. Thus, despite 15 months of litigation, this matter never made it past the discovery
stage.

       Thereafter, defendants filed a post-judgment motion for sanctions under MCR 2.114,
MCR 2.625, MCL 600.2591, and MCL 445.1905, asserting that plaintiff had filed a frivolous
complaint, had not made a reasonable inquiry into the existence of trade secrets, and had
therefore acted in bad faith in filing suit. The trial court denied the motion.

                                II. STANDARD OF REVIEW

        We review for clear error a trial court’s determination regarding whether to impose
sanctions for failure to make a reasonable inquiry under MCR 2.114 and whether a claim was
frivolous under MCR 2.625 and MCL 600.2591. Guerrero v Smith, 280 Mich App 647, 677;
761 NW2d 723 (2008); Ladd v Motor City Plastics Co, 303 Mich App 83, 103; 842 NW2d 388
(2013). “A decision is clearly erroneous where, although there is evidence to support it, the
reviewing court is left with a definite and firm conviction that a mistake has been made.” 1300
LaFayette E Coop, Inc v Savoy, 284 Mich App 522, 534; 773 NW2d 57 (2009). Under the clear-
error standard, “a reviewing court should not substitute its judgment on questions of fact unless
the factual determination clearly preponderates in the opposite direction.” In re COH, 495 Mich
184, 204; 848 NW2d 107 (2014).

                                   III. APPLICABLE LAW

        Sanctions are mandatory under MCR 2.114 and MCR 2.625 if a court finds that a
violation of those provisions has occurred. Guerrero, 280 Mich App at 678; MCR 2.625(2).
MCR 2.114 provides in relevant part:

       (D) Effect of Signature. The signature of an attorney or party, whether or not the
       party is represented by an attorney, constitutes a certification by the signer that

         (1) he or she has read the document;

         (2) to the best of his or her knowledge, information, and belief formed after
       reasonable inquiry, the document is well grounded in fact and is warranted by
       existing law or a good faith argument for the extension, modification, or reversal
       of existing law; and

         (3) the document is not interposed for any improper purpose, such as to harass
       or to cause unnecessary delay or needless increase in the cost of litigation.

       (E) Sanctions for Violation. If a document is signed in violation of this rule, the
       court, on the motion of a party or on its own initiative, shall impose upon the
       person who signed it, a represented party, or both, an appropriate sanction, which
       may include an order to pay to the other party or parties the amount of the
       reasonable expenses incurred because of the filing of the document, including
       reasonable attorney fees. The court may not assess punitive damages.



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       (F) Sanctions for Frivolous Claims and Defenses. In addition to sanctions under
       this rule, a party pleading a frivolous claim or defense is subject to costs as
       provided in MCR 2.625(A)(2). The court may not assess punitive damages.
       [Emphasis added.]

       MCR 2.625(A)(2), which MCR 2.114 cross-references, provides that “if the court finds
on motion of a party that an action or defense was frivolous, costs shall be awarded as provided
by MCL 600.2591.” (Emphasis added). In turn, MCL 600.2591(1) entitles a party to recover
attorney fees and costs for a frivolous action:

       Upon motion of any party, if a court finds that a civil action or defense to a civil
       action was frivolous, the court that conducts the civil action shall award to the
       prevailing party the costs and fees incurred by that party in connection with the
       civil action by assessing the costs and fees against the nonprevailing party and
       their attorney.

Under MCL 600.2591(3)(a), a claim is frivolous if any of the following conditions are satisfied:

       (i) The party’s primary purpose in initiating the action or asserting the defense
       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.

        Under these provisions, “[a]n attorney has an affirmative duty to conduct a reasonable
inquiry into the factual and legal viability of a pleading before it is signed.” LaRose Mkt v
Sylvan Ctr, 209 Mich App 201, 210; 530 NW2d 505 (1995). “The reasonableness of the inquiry
is determined by an objective standard.” AG v Harkins, 257 Mich App 564, 576; 669 NW2d 296
(2003). Further,

       [t]he focus is on the efforts taken to investigate a claim before filing suit, and a
       determination of reasonable inquiry depends on the facts and circumstances of the
       case. Id. The attorney’s subjective good faith is irrelevant. Lloyd v Avadenka,
       158 Mich App 623, 630; 405 NW2d 141 (1987). That the alleged facts are later
       discovered to be untrue does not invalidate a prior reasonable inquiry. Lockhart v
       Lockhart, 149 Mich App 10, 14-15; 385 NW2d 709 (1986). [Harkins, 257 Mich
       App at 576.]

                    IV. FEBRUARY 5, 2015 MOTION FOR SANCTIONS

       Defendants first argue that the trial court erred by denying their February 5, 2015 motion
for sanctions (relating to defendants’ claim that plaintiff’s tortious interference and defamation
claims were frivolous). We disagree.

       By filing its second amended complaint early on in this litigation, plaintiff effectively
withdrew the tortious interference and defamation claims that it had earlier pled, and thus

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narrowed the triable issues in the case. In granting leave for plaintiff to file the second amended
complaint, the trial court expressly did not make any determination at that time regarding
whether the earlier filing of the withdrawn claims violated MCR 2.114. But the withdrawal of
the claims does not itself equate to an acknowledgement that those claims were filed in violation
of MCR 2.114, and we should not in any event discourage a voluntary narrowing of the issues.

       Defendants later filed the February 5, 2015 motion, thereby putting the issue once again
front and center, and the trial court held a hearing on the motion. At the hearing, plaintiff’s
counsel represented that the two counts were withdrawn “because we didn’t want to incur the
time and energy and expense of pursuing that when we had more important matters to pursue,
trade secret and theft of confidential information and conspiracy, so we dropped those and
proceeded with others.” After entertaining arguments from counsel and considering the written
materials that the parties had submitted, and having lived with this litigation over many months,
presided over numerous motion hearings, and being intimately familiar with the case, the parties,
their counsel, and counsel’s endless acrimony, the trial court denied the motion, ruling as
follows:

       In this case we have a complaint that was filed by the Plaintiff that
       contained two counts which the Defendants objected to. I believe the
       Defendants brought their initial summary disposition motion without any
       dialog[ue] with Plaintiff's Counsel about any complaints or concerns they
       had regarding the viability of those claims. In any event, before the
       necessity to hear and decide a motion for summary disposition, the
       Plaintiff withdrew those counts, of course over the objection of
       Defendants, his primary interest seemed to be in pursuing sanctions with
       respect to those counts.

             Based on the competing documents presented by both sides, this
       Court can't on this record make a finding that they are such to authorize
       the imposition of sanctions under 2.114, and therefore the motion is
       denied.

        Although sanctions are mandatory where the trial court finds that a document was signed
in violation of MCR 2.114, it is for the trial court to determine in the first instance whether such
a violation has occurred. That determination is subject to review for clear error. Ladd v Motor
City Plastics Co, 303 Mich App 83, 103; 842 NW2d 388 (2013).

        We discern no clear error in the trial court’s determination. The trial court was in the best
position to evaluate the facts and circumstances before it, and to ascertain whether there had been
a violation of MCR 2.114. Although MCR 2.114 obligates attorneys to make “reasonable
inquiry” before signing any document in court proceedings, we are aware of no authority
establishing that an attorney must independently verify all factual allegations before filing a
complaint. We therefore affirm the trial court’s denial of defendants’ February 5, 2015 motion
for sanctions.




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                     V. POST-JUDGMENT MOTION FOR SANCTIONS

        Defendants further argue that the trial court erred by denying their post-judgment motion
for sanctions because (1) plaintiff’s counsel failed to make a reasonable inquiry into whether any
trade secrets existed, (2) plaintiff relied on a position devoid of any legal merit, and (3) the
circumstances demonstrate that plaintiff’s claim was made for the improper purpose of harassing
defendants.

        In its opinion and order denying defendants’ request for post-judgment sanctions, the trial
court found that defendants had not “shown conduct so egregious as to warrant imposition of the
sanctions sought.” First, the court found that defendants had failed to produce any direct
evidence of an “improper purpose.” In this regard, the trial court rejected defendants’ argument
that the delay between the alleged theft and the date the suit was filed, as well as plaintiff’s
inclusion of defendants Strategis and TEG in the lawsuit, evinced an improper motive. The court
reasoned that plaintiff had presented a plausible explanation for the timing of the suit and the
inclusion of Thor’s companies, and that the latter did not increase litigation expenses. Next, the
court found that defendants had failed to prove that plaintiff’s claims were frivolous. The trial
court acknowledged that plaintiff’s counsel had admitted that he had not “looked” at the trade
secret documents. However, the court did not view this statement as discrediting counsel’s other
means of investigation—including touring plaintiff’s safe haven facility and both discussing and
reviewing the trade secrets licensed to plaintiff—which the trial court viewed as sufficient to
satisfy counsel’s duty of making a reasonable inquiry.

                    A. REASONABLE INQUIRY INTO TRADE SECRETS

         In response to defendants’ post-judgment motion for sanctions, plaintiff’s counsel
averred in his affidavit that he had reviewed the trade secrets before filing the complaint, stating
in part:

       At the onset of this litigation, I spent multiple hours discussing and reviewing the
       broad subject matter concerning this litigation, including the body of intellectual
       property, to include trade secrets, licensed to Bearing360 LLC. I also visited the
       facility operating in Northern Michigan. I toured the facility and became
       familiarized with many of the unique aspects of the facility and how it protects
       individuals from supply chain disruption. [Emphasis added.]

Based on counsel’s affidavit, we cannot conclude that the trial court clearly erred by concluding
that counsel had made a reasonable inquiry into the existence of trade secrets before filing the
complaint.3




3
  Defendants’ argument with respect to whether a reasonable inquiry was made, both before this
Court and the trial court, focuses on whether an inquiry was made into the existence of trade
secrets (because proving plaintiff’s claims for misappropriation of trade secrets, conversion, and
civil conspiracy requires the existence of such secrets). To the extent that defendants suggest,


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        On appeal, defendants point out that no trade secrets were ever produced and that
plaintiff’s attorney, at one point during the litigation, stated that he had not reviewed the trade
secret documents. With reference to counsel’s affidavit, defendants contend that counsel blindly
relied on Moore and merely toured a facility where he was shown reams of documents. A closer
reading of the affidavit reveals, however, that counsel did review the trade secrets and that
defendants have simply not characterized counsel’s statements accurately. Further, while we
acknowledge that a conflict exists between counsel’s statement at a motion hearing—that he had
not reviewed the trade secret documents—and his affidavit, the trial court was in the best
position to judge counsel’s credibility, and we will not displace the trial court’s judgment absent
evidence that preponderates in the opposite direction. See In re Noecker, 472 Mich 1, 9-10; 691
NW2d 440 (2005) (the trier of fact is in the best position to judge a witness’s credibility).
Accordingly, based on the present record, we lack the definite and firm conviction necessary to
conclude that the trial court clearly erred by finding that counsel made a reasonable inquiry.

                           B. POSITION DEVOID OF LEGAL MERIT

        Throughout discovery, it was plaintiff’s position that section 6 of the MUTSA should be
interpreted to require trial protections of trade secrets from the outset of discovery and function
to preclude review of such secrets by a jury, even when a jury trial is requested. On appeal,
defendants assert that the trial court erred by denying sanctions because this position is devoid of
legal merit, as the trial court recognized in the proceedings below.

        Section 6 of the MUTSA provides:

        In an action under this act, a court shall preserve the secrecy of an alleged trade
        secret by reasonable means, which may include granting protective orders in
        connection with discovery proceedings, holding in camera hearings, sealing the
        records of the action, and ordering any person involved in the litigation not to
        disclose an alleged trade secret without prior court approval. [MCL 445.1906.]

No Michigan court has construed the meaning of this provision, but its language is
straightforward: Section 6 requires a trial court to “preserve the secrecy of an alleged trade secret
by reasonable means,” which may be accomplished by any of the non-exhaustive ways
enumerated in the statute. The parties, however, disagreed over the meaning of what measures
of protection would be “reasonable” in a discovery order. The trial court sided with defendants,
concluding that the inclusion in a discovery order of protections applicable at trial would be
premature.

         That the trial court rejected plaintiff’s view of the statute, reasoning that it would address
the issue again before trial, does not render plaintiff’s argument totally devoid of legal merit.
Plaintiff presented a legitimate argument, indirectly supported by secondary authority and the
statute, that the protective order did not comply with section 6 of the MUTSA because the statute

for the first time on appeal, that plaintiff did not investigate the other elements of its claims, e.g.,
that its counsel failed to investigate the involvement of the defendant LLCs, this argument is not
preserved and is waived. See Walters v Nadell, 481 Mich 377, 387-388; 751 NW2d 431 (2008).


                                                  -8-
provides for in camera review, and the revelation of trade secrets to a jury would make the
information lose its secret character. See Thomas Indus v C & L Elec, 216 Mich App 603, 610-
611; 550 NW2d 558 (1996) (a claim is not devoid of legal merit if it is feasible). Therefore,
plaintiff’s argument was not without arguable legal merit and was sufficient to avoid a finding of
frivolousness. More significantly, and although plaintiff’s position did not prevail, it was
advanced under circumstances in which the law is undeveloped and unclear, and a state of
ambiguity does not warrant the imposition of sanctions. See Harkins, 257 Mich App at 669;
Kitchen v Kitchen, 465 Mich 654, 662; 641 NW2d 245 (2002) (declining an award of sanctions
where the law was unclear). Accordingly, we have no definite and firm conviction that the trial
court erred by concluding that plaintiff’s position was not devoid of legal merit.

                                    C. IMPROPER PURPOSE

         Finally, as defendants recognize, the record contains no direct evidence that plaintiff
commenced this suit for an improper purpose of harassing, embarrassing, or increasing plaintiff’s
litigation costs. While plaintiff’s counsel was dilatory in some of his filings, the record indicates
that plaintiff was genuinely concerned about the alleged theft of trade secrets and of any
possibility (reasonable or not) that they could be “leaked” during litigation. Defendants
nonetheless contend that the circumstances of this case, taken together, reveal an intent to harass
and that the trial court, therefore, erred by denying sanctions.

         Defendants suggest that certain circumstances support their position that plaintiff initiated
this litigation to harass defendants, including that (a) plaintiff waited nearly a year to file suit
after the alleged theft of the property; (b) defendant LLCs were named as defendants although no
evidence supported their inclusion; (c) plaintiff vacated its facility allegedly to thwart discovery;
and (d) plaintiff listed Thor’s children on its witness list.4 None of these facts, however, alone or
together, give rise to a reasonable inference of improper motivation. As the trial court noted,
other reasonable explanations exist on the record for these occurrences.5 In other words, it was
equally plausible under the factual circumstances presented that plaintiff’s initiation of the suit
was properly motivated. Speculative and conjectural musings are insufficient evidence to
support a finding of improper purpose. See Skinner v Square D Co, 445 Mich 153, 164; 516
NW2d 475 (1994) (describing conjectural evidence as that which is subject to more than one


4
  To the extent that defendants raise other circumstances not raised in the trial court to support
their position that plaintiff initiated this suit for an improper purpose, those claims are not
properly before the Court and we deem them waived. See Walters, 481 Mich at 387-388.
5
  For example, Moore explained in his affidavit that plaintiff did not immediately file suit upon
discovering the alleged theft of property because he first attempted to retrieve the property from
Thor and did not discover the conspiracy until approximately nine months after the theft
occurred. Further, the lease on plaintiff’s facility had allegedly ended during the pendency of the
litigation and plaintiff had moved its contents into storage. Plaintiff allegedly believed that the
LLCs were involved in the conspiracy due to their relation to defendant. And Thor’s children
appear to have been included on the witness list inadvertently, when counsel used a list from
another lawsuit between the parties.


                                                 -9-
equally plausible explanation). Finally, even if some of these events could be viewed as
supporting an improper purpose, this evidence, in light of evidence to the contrary, did not so
clearly preponderate in the opposite direction as to warrant displacing the trial court’s judgment.
In re COH, 495 Mich at 204. The trial court did not clearly err by finding that plaintiff did not
initiate this suit for an improper purpose.

       Affirmed. As the prevailing party, plaintiff may tax costs. MCR 7.219(A).



                                                            /s/ Jane E. Markey
                                                            /s/ Amy Ronayne Krause
                                                            /s/ Mark T. Boonstra




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