Michigan Consumer Protection Act Does Not Provide Protection for Businesses that are Consumers

The Michigan Consumer Protection Act provides consumers with protection against many unfair business practices.  However, the Act only applies to “the conduct of a business providing goods, property or service primarily for personal, family or household purposes …”  The Michigan Court of Appeals has previously ruled that the protections of the Act do not apply to transactions intended primarily for business or commercial purposes.

In the recent case of Edwards v Cape to Cairo, LLC, the Court of Appeals decided that the key is not who entered into the transaction, but rather the true nature of the transaction.  In the Edwards case, the plaintiff was planning a trip for himself and several members of his church to Africa.  The trip was going to involve both leisure activities and charitable mission work. The plaintiff paid the deposits for the trip through his corporation, and used also the staff of his corporation to make arrangements for the trip.  The defendant argued that the case should be dismissed because it had dealt with a corporation.  The Court of Appeals disagreed, ruling that the true purpose of the planned trip to Africa was personal in nature.  The trip had nothing to do with the business of the plaintiff’s corporation.  Furthermore, the plaintiff’s corporation was reimbursed for the deposits.  The Court of Appeals ruled that the corporation’s role in planning the trip “was done merely for convenience, not for any purpose related to [the corporation], which is an automotive supplier with no ties to Africa. … [T]he trip was planned for members of plaintiff’s family and church, not employees of [the corporation].”

Click here to download a PDF copy of the Court of Appeals Opinion in Edwards v Cape to Cairo, LLC.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

Separate Appeal of Attorney’s Fees and Costs

The Michigan Court of Appeals decided an interesting procedural issue regarding the appeal of post-judgment orders awarding or denying attorney’s fees. In Mossing v. Demlow Products, Inc. (2010), the trial court denied an award of attorney’s fees and costs to the defendants.  This occurred after the plaintiff had already filed an appeal, and the defendants had already filed a cross-appeal, in the Court of Appeals. In their cross-appeal, the defendants seek to have that fee order reversed. The Court of Appeals ruled that a completely separate appeal must be taken from the post-judgment order. In other words, the appeal cannot be tacked on to the cross-appeal; it must stand alone as a separate appeal.

Click here to download a PDF of the Court of Appeals decision in Mossing v Demlow.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

Keeping Property Tax Values Capped Upon the Death of a Joint Tenant

Under Michigan law, a property’s taxable value is capped and may not increase by more than the rate of inflation until ownership of the property is transferred.

However, there are certain types of transfers of ownership that are exempt from this rule and will not cause an uncapping of the taxable value.  These no-transfer-of-ownership exemptions are listed in the General Property Tax Act, Section 211.27a(7).

One particular exemption that has been the subject of recent litigation in Michigan is set forth in Section 211.27a(7)(h). This exemption has to do with a transfer that creates or terminates a joint tenancy.  It has been widely assumed that the death of a joint tenant is considered a transfer that “uncaps” the taxable value of a property and is not exempt under Section 211.27a(7)(h).

However, in December 2009, the Michigan Court of Appeals reversed the decision of the the Michigan Tax Tribunal in the case of Klooster v City of Charlevoix, holding that the death of one joint tenant, even though it terminated the joint tenancy, was not a “conveyance” because there was no instrument that affected title.  In that case, husband and wife first acquired property, wife then quitclaimed to husband, husband then quitclaimed to himself and his son as joint tenants, and the husband/father subsequently died.  It is the death of the father as joint tenant that is the issue of the dispute.  The court disagreed with the City of Charlevoix and the Tax Tribunal’s contention that the death constituted a “transfer” under Michigan statutes.

Just this month, the Michigan Court of Appeals in Klevorn v. City of Boyne City, using Klooster as precedent and citing the similarity of the facts, held that the death of one joint tenant (mother) and the subsequent transfer the other joint tenant with rights of survivorship (son) was not a “conveyance”.  Therefore, the Court held that the property value upon transfer to the son should not have been uncapped and he was entitled to the no-transfer-of-ownership exemption in MCL 211.27a(7)(h).

The Klooster decision has been appealed to the Michigan Supreme Court.  In the meantime, there is precedent to argue that upon the death of a joint tenant, the remaining joint tenant with rights of survivorship is not subject to an uncapping of the property’s taxable value.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm.

Religion and Civil Rights Act Exception

The Elliott-Larsen Civil Rights Act (“CRA”), which prohibits discrimination on the basis of race, sex, religion, etc., does not apply to “ministerial” employees of religious organizations.  The Michigan Court of Appeals recently ruled that if an employee’s position can be characterized as ministerial, then this employee falls under the ministerial exception and cannot file a discrimination or retaliation claim under the CRA.  In Weishuhn v. Catholic Diocese of Lansing (2010), a teacher filed a claim under the CRA for retaliatory discharge. The plaintiff was a teacher at a Catholic school, and taught more mathematics classes than religious classes. However, because her duties at the school included religious activities, and because she admitted to incorporating religion into everything she taught, her position was found by the Court of Appeals to be ministerial in nature. As a result, a complaint could not be sustained under the CRA. The Court of Appeals affirmed the dismissal of her lawsuit.

Click here for a PDF copy of the Court’s Decision.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

Effective Cross Default Provisions

Many contracts have default provisions.  These provisions set forth what actions or inaction must occur for a party to default under the Agreement and for the non-defaulting party to be entitled to recover damages and/or terminate that particular Agreement.

In some circumstances, and often in the context of a loan, parties may enter into multiple agreements with one another. When there are multiple agreements between the same parties, one party may want to negotiate the inclusion of  “cross default” provisions in those agreements.  A cross default provision provides that a party’s default under one agreement triggers an automatic default of all of the other agreements between the parties. Banks or Lenders often include a cross default provision in their loan documents to protect their financial interests.  Once the cross default provision is invoked, the defaulting party is not likely to have many options for recourse.

In order to be effective, the cross default provision must be included in each of the agreements subject to the cross default. Eagle Ridge LLC v Albert Homes LLC, 2009 Mich App, LEXIS 2382 (November 17, 2009).  In the recent case of Eagle Ridge LLC v Albert Homes LLC, the Michigan Court of Appeals refused to enforce a cross default provision that was found in only one of two simultaneously signed agreements.

The Michigan Court of Appeals used basic contract principals to support its decision.  Quoting Randolph v Reisig, 272 Mich App 331 (2006), the Court found that “an unambiguous contractual provision is reflective of the parties’ intent as a matter of law, and if the language of the contract is unambiguous, we construe and enforce the contract as written.”  Therefore, because one of the agreements at issue did not contain a cross default provision, the Court concluded that the parties must not have intended that the agreement be subject to a cross default provision.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm.

A Contract Could Effect Damages in a Lawsuit

In a previous article we had examined the fact that the Michigan Court of Appeals affirmed the common law principle that contract provisions that shorten the statutory period for bringing a cause of action are allowable.   Recently, the Court applied similar reasoning in affirming the principle that a contract can even limit the amount of damages if the agreement is violated. The parties can agree in their contract to limit the damages to only those that occurred within a certain period of time before the date that the lawsuit was filed.

In the Michigan Court of Appeals case Bronco Oil v Citizens Bank (click here to download), the contract language, in essence, immunized the breaching party from having to pay the damages it allegedly caused because they occurred outside of a 12-month period before the lawsuit was filed. Even though the lawsuit was timely, the potential damages were lost because of when the lawsuit was filed.

This article was written by Michael R. Dorfman, Senior Associate at Demorest Law Firm.

Don’t Sign Away Unrelated Rights on Release Agreements

In all aspects of business and contracting, but especially after a lawsuit has been filed or threatened, one party may approach the other party with a comprehensive release agreement as part of a settlement of the dispute.     A release agreement is a form of contract wherein the party who has allegedly committed the wrong requests a written release of the claim from the aggrieved party in exchange for a settlement payment.    The release may be specific to the claims involved in the dispute, or it may be a “general release” of all claims of all types between the parties.  Once the claim is released, the agreement is binding on both parties, and the claim is rendered inactionable.   The terms of the release are negotiable.  Just because you didn’t author the document does it mean you do not have a say in what claims you are releasing.

Here is a scenario where a general release was used, which demonstrates the importance of reviewing the specific language used.   The example comes from the recent case of Levy v Ford Motor Company (Click here for a PDF of this decision).   Party A had a history of contracting with Party B for delivery of construction materials and services. In October 1998, an incident occurred involving a truck owned by Party A and a train owned by Party B. Each party maintained that the other was responsible. Party B issued a debit memorandum in 2001, and thereafter stopped paying invoices to offset its alleged losses from damage to its train.   In connection with other contracts, Party A sued Party B for payment for ready-mix concrete shipped after May 2004. The parties settled that case, and their agreement included a release that comprehensively waived any further claims Party A might have against Party B “from the beginning of time,” but “with the sole exception of any claim arising out of damage to the train equipment.

In 2007, Party A filed an action as a claim for payments due under invoices dating from “2001 and before” in connection with deliveries of materials to Party B.  Party A sought monetary contract damages plus an accounting.   However, the Court held that Party A had already released any and all claims it might have otherwise had against Party B arising from events prior to 2004, despite the fact that the claims were not related to the train accident. Because of the comprehensive language and nature of the release it had signed in the first settlement, Party A wound up releasing any and all claims it could have had against Party B, despite the fact the causes of action were completely different.

Always have an attorney review your settlement and release documents to ensure you are preserving valuable rights and not being taken advantage of in the settlement.

This article was written by Michael R. Dorfman, Senior Associate at Demorest Law Firm.

Statute of Limitations Set by Contract

Unless the parties agree otherwise, the Statute of Limitations for a breach of contract claim in Michigan is six years.   However, the parties may agree by contract to a shorter limitations period.   A court would not enforce a one day or one week limitations period, but a contractual limitations period as short as one year has been regularly enforced by the Michigan courts.

The Michigan Court of Appeals continued this trend on September 29, 2009, when it issued its decision in Siuda v Tobin. The contract for purchase of a modular home stated that any claim had to be filed no more than one year from the date of sale of the home, rather than the normal six years.  The purchasers claimed that the home was damaged during construction, but failed to bring suit until three years after construction began.  The Court of Appeals rejected all of the purchasers’ arguments against the enforcement of the shortened Statute of Limitations.

You should review the forms and contracts that your company uses, and decide whether to shorten the time period that your customers or suppliers have to bring a lawsuit.  On the flip side, if you have a potential lawsuit, you need to review the contracts to make sure how long you have to bring a claim.   Don’t simply assume that the Statute of Limitations has not been modified.

Click to Download Case from Michigan Court of Appeals in PDF Format

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm

Decision of Michigan Court of Appeals Expands Rights of Minority Shareholders

On September 24, 2009, the Michigan Court of Appeals issued an important decision on the rights of minority shareholders in Michigan corporations.  The Michigan Business Corporation Act allows a minority shareholder to bring a lawsuit in circuit court if “the acts of the directors or those in control of the corporation are illegal, fraudulent, or willfully unfair and oppressive to the corporation or the shareholder.”

In Schimke v Liquid Dustlayer, Inc., the plaintiff owned less than 1/3 of the stock of the corporation.  The two other shareholders, who were also in control of the board of directors, planned to have their own stock in the corporation redeemed (purchased by the corporation), but the minority shareholder’s stock would not be redeemed.  The plan was never completed.  The circuit court ordered that the corporation must redeem (purchase) the stock owned by the minority shareholder as a remedy for the actions of those in control of the corporation.

The defendant majority shareholders argued that the corporation should not be required to purchase the stock of the minority shareholder, because their plan was not actually carried out.  The Court of Appeals ruled that the circuit court may intervene before an action is finalized, and may order a corporation to purchase a plaintiff’s shares of stock as a result of the defendants attempt to take an unfair and oppressive action.

The defendants also argued that they did not violate the rights of the minority shareholder because there was not a “continuing pattern of oppressive conduct.”  The Court of Appeals ruled that a pattern of conduct was not necessary for the minority shareholder to bring a claim.  Rather, “a single ‘significant action’ is sufficient to show willful and oppressive conduct.”

This decision expands the rights of minority shareholders to make claims of minority shareholder oppression, and makes it easier for minority shareholders to force the corporation to purchase their shares of stock.

Click to Download Case from Michigan Court of Appeals in PDF Format

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.