One Court of Justice

In Wells Fargo v. Cherryland Mall Limited Partnership, the Court of Appeals rejected a constitutional challenge to the retroactive effect of the Nonrecourse Mortgage Loan Act (“NMLA”) which stated that post-closing solvency provisions in mortgage loan documents would not be enforced as a nonrecourse carve-out.  The NMLA applied to nonrecourse loans in existence at time of the act’s passage.  In this case a lender had a nonrecourse mortgage, but included a carve-out requiring the borrower to remain solvent and, if the borrower did not remain solvent, granting full recourse rights to the lender.  The borrower became insolvent and the lender both foreclosed on the collateral, and sought recourse against the borrower (and a guarantor) for the deficiency.  By the NMLA’s plain terms, this solvency-based recourse provision was unenforceable, however the lender argued that the NMLA, which was passed after this mortgage was executed, was unconstitutional.  The Court rejected those constitutional challenges, finding that the NMLA was not an unconstitutional impairment of contract because it served the significant and legitimate public purposes of maintaining the investment environment in Michigan, allowing developers to qualify for financing, and preventing an increase in foreclosures.   The Court also held that, for the same basic reasons, the NMLA satisfied the rational basis test under substantive due process. Additionally, the Court concluded that the NMLA did not improperly invade the separation of powers as it did not tell the Court how to interpret a contract, but instead that certain provisions were void as against public policy.

In Majestic Golf, L.L.C. v. Lake Walden Country Club, Inc., the Michigan Court of Appeals enforced the plain language of a contract’s material breach provision.  In this case, the plaintiff, an owner of golf course property, terminated its lease with the defendant, the golf course operator, before the defendant could exercise its option to purchase the property under the terms of the lease.  The plaintiff had repeatedly asked the defendant to grant an easement on the golf property, which the defendant ignored.  According to the terms of the lease, the plaintiff could terminate the lease if the defendant failed to comply with any obligation and the failure to comply continued for 30 days after the defendant was formally notified of the failure.  The Court of Appeals held that, while the trial court correctly found that the defendant breached the contract when it refused to grant the easement, the trial court erred when it held that the breach was immaterial, thereby refusing to let the plaintiff terminate the lease.  The Court reasoned that because the termination provision was unambiguous and was not contrary to public policy or unenforceable under traditional contract defenses, it must be enforced.  It went on to note that when the trial court required a material breach to terminate the lease (instead of any breach and failure to cure after 30 days with notice), the trial court “effectively rewrote or reformed the contract.”   The Court further held that the defendant’s claim that there was no breach because it was not given proper notice was without merit.  Accordingly, the Court affirmed the trial court’s holding that the failure to grant an easement was a breach of the lease but reversed the court’s holding that the breach was not enough to terminate the lease and remanded the case with an order to grant summary disposition in favor of the plaintiff.

In Calhoun County v. Blue Cross & Blue Shield of Michigan (“Blue Cross”), the Michigan Court of Appeals held that a contract is valid even if the price is indefinite as long as the cost could be objectively determined.  In Calhoun, the County had a contract with Blue Cross to administer its self-insured health care plan.  Under the contract, the County agreed to pay any charges “for provider network access, contingency, and other subsidies as appropriate.” Blue Cross began charging an Access Fee, which varied based upon its projected business costs.  The Court found that because the County had agreed to pay “other subsidies as appropriate” that the County had agreed to pay the Access Fee.  Additionally, the Court found that the Access Fee was not so indefinite as to require the contract to be void because it could be calculated using the formula provided in Blue Cross’s “standard operating procedures,” and could even have been ascertained by the County.  Accordingly, the Court of Appeals reversed the trial court and remanded for further proceedings.

The Michigan Supreme Court paved the way for MDOT takeover of the Gateway Project near the Ambassador Bridge with an order which summarily denies the emergency application for relief from the owners of the Bridge.  MDOT and the owners of the Ambassador Bridge have been locked in litigation in Wayne County Circuit Court involving construction obligations for the Gateway Project.  The trial court issued an order transferring control of the area to MDOT, after holding that DIBC was not in compliance with its summary disposition order granting MDOT’s specific performance claim.  See MDOT v. Detroit International Bridge Co. for the Court of Appeals’ order that was summarily upheld by the high court, and affirms the MDOT takeover of the area.

The trial court’s order permits MDOT to demolish structures near the Ambassador that MDOT claimed violated DIBC’s contractual obligations, as well as to construct other parts of the Gateway Project.

The Supreme Court also summarily denied relief in orders in two other cases.

On remand from the Michigan Supreme Court, in Miller-Davis Co v Ahrens Construction, Inc., No. 284037, the Court of Appeals was asked to consider whether the plaintiff’s breach-of-contract claim was barred by the six-year statute of limitations in MCL 600.5807.  The Court held that the statute of limitations barred the plaintiff’s claim.  Plaintiff Miller-Davis Co. (“Miller”) had hired Defendant Ahrens Construction, Inc. (“Ahrens”) to perform certain roofing work.  Ahrens finished its work in February, 2009.  Miller did not file its complaint until May 12, 2005, more than six years after Ahrens completed its work.  The Court rejected Miller’s arguments that the limitations period should run from the date Ahrens certified the work was completed or the date that certificate of occupancy was issued, emphasizing that a breach-of-contract claim accrues when the alleged breach occurs, here the noncompliant roofing work.   Thus, Millers’ claim was barred by the statute of limitations.  Read more »

In KBD & Associates, Inc. v. Great Lakes Foam Technologies, Inc., No. 303044, Plaintiff KBD & Associates, Inc. (“KBD”) was a sales representative for Defendant Great Lakes Foam Technologies (“Great Lakes”).  The parties orally agreed that KBD would receive five-percent commission on its sales.  KBD arranged for Great Lakes to sell its products to Findlay Industries.  Part of KBD’s responsibility regarding the Findlay account included certain account servicing functions, although the parties disputed the extent of those functions.  After several years, KBD’s principal, Roger Lyons, was banned from the premises of Findlay.  Findlay informed Great Lakes that it wished to continue their relationship, but that Findlay would not work with Lyons.  Great Lakes terminated its relationship with Lyons and KBD, and refused to pay further commissions.  KBD filed suit to collect its unpaid commissions.  Following a bench trial, the trial court found in favor of KBD, holding that KBD could not enforce the contract because KBD was the first party to materially breach the contract by being banned from Findlay.  The Court of Appeals affirmed. Read more »

In McCoig Materials, LLC v. Galui Constr., Inc., the plaintiff, a manufacturer of concrete materials, sued the defendant, a concrete construction company, for breach of contract.  The parties’ contract required the defendant to notify the plaintiff of any defects in materials within 15 days after receipt, and yield complaints were to be made within 48 hours.  In addition, the contract barred any claims arising under the contract if they were not initiated within one year of the date the claims arose.  The contract was an open account contract.  The plaintiff delivered concrete to the defendant in August and September 2008; the defendant provided no notice of defects or yield complaints concerning those deliveries.  The plaintiff made additional deliveries in November and December 2008, but defendant failed to pay for those goods.  In 2010, the plaintiff sued for nonpayment for the November/December deliveries, and the plaintiff countersued and raised the affirmative defense of recoupment for alleged defects in the August/September deliveries.  The trial court dismissed the counterclaim as barred by the limitations period in the contract, but allowed the recoupment defense to stand.  The Michigan Court of Appeals reversed, holding that the trial court erred by applying recoupment to an open account when the projects constituted discrete transactions.  The court explained that the defense of recoupment applies to claims arising out of the same contract or transaction.  And when the parties have an open account, only damages arising from the same transaction may be recouped.  Moreover, when “a defendant accepts goods or construction without timely objection or reservation, the defendant is barred from raising the recoupment defense.”  Slip Op. at 8.

On January 30, 2012, the Michigan Supreme Court denied 50 applications for leave to appeal and five motions for reconsideration. The Court vacated the September 2, 2010 judgment of the Court of Appeals and remanded Mitchell v. State Employees’ Retirement System, Case No. 141909, back to the State Employees’ Retirement Board for reconsideration of petitioner’s request for benefits in light of Nason v. State Employees’ Retirement System, 290 Mich App 416 (2010).  Additionally, the Court remanded the case of People v. Lackey, Case No. 143758, back to the Saginaw County Circuit Court, for a determination whether the defendant was properly awarded good-time and “trustee days” credit.  If necessary, the trial court was ordered to issue an amended Judgment of Sentence reflecting the proper sentencing credit and directed to forward a copy of the amended Judgment to the Michigan Department of Corrections.

The Court also vacated three Court of Appeals’ opinions and remanded the cases back to that court for further consideration.  Read more »

In lieu of granting leave to appeal in In re Estate of Rosa Louise Parks, Nos. 143419-22, the Michigan Supreme Court reversed the judgment of the Court of Appeals, concluding that counsel’s reference during oral argument to fees charged by the court-appointed fiduciaries did not constitute a breach of a settlement agreement’s confidentiality provision, and the Court of Appeals’ finding that it did was clearly erroneous.  The Court remanded to the Wayne County Probate Court and instructed the court to implement paragraph 1 of the settlement agreement within 30 days of the date of the order.

In lieu of granting leave to appeal in McMurtrie v. Eaton Corp., No. 143779, the Michigan Supreme Court reversed in part the decision of the Workers’ Compensation Appellate Commission (WCAC) and remanded the case to the Michigan Compensation Appellate Commission (MCAC), as successor to the WCAC, for the MCAC to determine whether the plaintiff’s wage loss is due to his injury.

The Court vacated its earlier order and denied the application for leave to appeal in Progressive Michigan Ins. Co. v. Smith, No. 141255, because the Court was no longer persuaded that the question presented should be reviewed by the Court.

In People v. Brown, No. 143733, the Court ordered the Clerk to schedule oral argument on whether to grant the application for leave to appeal.  The Court directed the parties to address whether the defendant was entitled to any relief when he was sentenced to a longer sentence than the maximum sentence that was disclosed in the plea proceeding.

The Court also denied 3 applications for leave to appeal and administratively closed another case due to bankruptcy.

In Wells Fargo Bank, NA v. Cherryland Mall Ltd. P’ship, No. 304682, the Michigan Court of Appeals affirmed the trial court’s judgment awarding plaintiff money damages on its mortgage deficiency claim and for attorney fees. 

This case arises out of a commercial mortgage-backed securities (CMBS) loan.  A CMBS loan has a unique structure: a non-recourse basis in exchange for the isolation of the assets to be financed.  Two components of asset isolation are separateness covenants and limited recourse provisions limiting the lender’s general agreement not to pursue recourse liability.  Accordingly, in a CMBS financing, in the event on “recourse triggers” on the part of the borrower, the lender’s agreement not to pursue recourse liability against the borrower or owner has limited application, allowing the lender to pursue recourse as part of its remedies. 

In this case, defendant partnership obtained a CMBS loan from plaintiff, using property it owned as collateral. When defendant partnership failed to make a mortgage payment, plaintiff commenced foreclosure by advertisement and a sheriff’s sale was conducted, leaving a deficiency of approximately $2.1 million on the loan.  Plaintiff then filed suit to enforce the loan documents for the deficiency against mortgagor and the guarantor of the loan.  Plaintiff filed multiple summary disposition motions, of which all but one were granted in favor of plaintiff.  Defendants appealed two motion grant rulings.  The first objection by defendants was to the grant of summary disposition for plaintiff on the finding that the guarantor was liable for the entire loan deficiency because the trial court had concluded that insolvency was a violation of defendant’s requirement that it remain its single purpose entity (SPE) status.  The second objection was as to the award of attorney fees to plaintiff.  Read more »