John Thomas Miller v. Dennis J Duchene II ( 2017 )

STATE OF MICHIGAN
COURT OF APPEALS
JOHN THOMAS MILLER and BG&M, INC., UNPUBLISHED
December 21, 2017
Plaintiffs-Appellants,
v No. 334731
Clinton Circuit Court
DENNIS J. DUCHENE, II, ANN DUCHENE, LC No. 16-011533-CK
JOHN DOES-BOARD OF ADVISORS
MEMBERS, CATALYST HOLDINGS, LLC,
INSPIRED MARKETING, LLC, and INSPIRED
BUSINESS DEVELOPMENT, LLC,
Defendants-Appellees.
Before: MURPHY, P.J., and M. J. KELLY and SWARTZLE, JJ.
PER CURIAM.
Plaintiffs appeal as of right the trial court’s order granting summary disposition in favor
of defendants under MCR 2.116(C)(7) in this suit involving claims arising out of certain loans, a
home energy-efficiency franchise, a licensing agreement, and fairly complex business
operations. The trial court concluded that an agreement to arbitrate governed the dispute,
rejecting plaintiffs’ contentions that defendants waived any defense predicated on the arbitration
agreement and that the arbitration agreement did not encompass some defendants. We reverse
and remand for further proceedings.
Resolution of this appeal does not require us, for the most part, to delve into the
complicated details and business arrangements underlying this case. Pertinent here, defendant
Inspired Business Development, LLC, and Inspired Green Columbus, LLC, entered into a
licensing agreement, with defendant Dennis Duchene, II, signing on behalf of the former
company and plaintiff John Thomas Miller signing on behalf of the latter company. The
licensing agreement provided, in relevant part, as follows:
The Parties agree that any claim or dispute between them or against any
agent, employee, successor, or assignee of the other, whether related to this
Agreement or otherwise, and any claim or dispute related to this Agreement shall
be first taken to binding arbitration. Any award of the arbitrator may be entered as
a judgment in any court of competent jurisdiction.
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In May 2015, plaintiffs filed suit in district court against defendants Dennis Duchene, II,
Inspired Marketing, LLC, and Inspired Business Development, LLC (collectively “initial
defendants”), alleging claims of fraud, violation of the Michigan Franchise Investment Law
(MFIL), MCL 445.1501 et seq., and rescission. Initial defendants filed an answer to the
complaint and affirmative defenses, absent any mention of an agreement to arbitrate. In July
2015, the district court issued a scheduling order that allowed for 60 days of discovery. In
August 2015, a stipulated order was entered extending discovery for an additional 45 days. In a
September 2015 letter from counsel for initial defendants to plaintiffs’ attorney, defense counsel
asked for extra time to answer interrogatories and document-production requests, which request
was apparently granted. In October 2015, plaintiffs filed a motion to compel compliance with
discovery requests. Around that time, initial defendants issued a notice of deposition, scheduling
a deposition of plaintiff Miller. The district court issued an order in late October 2015, which
provided that “mediation and open discovery will be extended for 90 days until January 19,
2016.” Also in October 2015, initial defendants filed a pretrial statement, served plaintiffs with
interrogatories and document-production requests, and stipulated to a protective order regarding
some discovery matters. The record contains emails from November 2015 showing settlement
discussions.
In January 2016, initial defendants filed their own motion to compel compliance with
discovery requests. In mid-January 2016, the district court again extended mediation and open
discovery; this time for 90 days until April 11, 2016. Also in January 2016, plaintiffs and initial
defendants litigated plaintiffs’ motion that sought, in part, to amend their complaint and to
remove the case to the circuit court. The district court entered an order allowing plaintiffs to file
an amended complaint, with the order also providing that the case would be transferred to the
circuit court after the amended complaint was filed. In April 2016, plaintiffs filed an amended
complaint, naming as defendants, in addition to initial defendants, Ann Duchene, John Does –
Board of Advisors Members, and Catalyst Holdings, LLC (these new defendants will be
collectively referred to as “subsequent defendants”). Plaintiffs retained the old claims alleging
fraud, rescission, and violation of the MFIL, while adding fresh claims of civil conspiracy and
violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 USC 1962(c)
and (d).
In July 2016, all defendants filed a joint motion for summary disposition under MCR
2.116(C)(7), arguing that they were entitled to summary disposition on the basis of the
agreement to arbitrate. Plaintiffs argued that defendants had waived enforcement of the
arbitration agreement, given that more than a year of litigation had elapsed without defendants
raising the issue of arbitration. Plaintiffs also contended that subsequent defendants were not
covered by the arbitration agreement. The trial court ruled that defendants did not waive the
arbitration defense and that all of the claims in the amended complaint were subject to arbitration
given the broad language of the arbitration agreement. Plaintiffs appeal as of right.
We review de novo a trial court’s decision on a motion for summary disposition.
Altobelli v Hartmann, 499 Mich. 284, 294-295; 884 NW2d 537 (2016). The question whether a
claim is subject to arbitration is also reviewed de novo, as is the construction of contractual
language. Id. at 295. This Court likewise reviews “de novo the question of law whether the
relevant circumstances establish a waiver of the right to arbitration, and we review for clear error
the trial court's factual determinations regarding the applicable circumstances.” Madison Dist
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Pub Sch v Myers, 247 Mich. App. 583, 588; 637 NW2d 526 (2001). Pursuant to MCR
2.116(C)(7), summary disposition is proper when a claim is barred because of “an agreement to
arbitrate[.]”1
The Michigan arbitration act (MAA), MCL 600.5001 et seq., was repealed by our
Legislature pursuant to 2012 PA 370 and replaced by the uniform arbitration act (UAA), MCL
691.1681 et seq., which was enacted pursuant to 2012 PA 371. The repeal of the MAA and the
enactment of the UAA became effective July 1, 2013. See 2012 PA 370 and 371. The UAA
provides that “[o]n or after July 1, 2013, this act governs an agreement to arbitrate whenever
made.” MCL 691.1683(1). Given the timing of the instant lawsuit, which was commenced in
May 2015, the UAA applies in this case. MCL 691.1686 provides, in pertinent part:
(1) An agreement contained in a record to submit to arbitration any
existing or subsequent controversy arising between the parties to the agreement is
valid, enforceable, and irrevocable except on a ground that exists at law or in
equity for the revocation of a contract.
(2) The court shall decide whether an agreement to arbitrate exists or a
controversy is subject to an agreement to arbitrate.
In Altobelli, 499 Mich. at 295-296, our Supreme Court discussed the nature of arbitration,
observing:
Arbitration is a matter of contract. Accordingly, when interpreting an
arbitration agreement, we apply the same legal principles that govern contract
interpretation. Our primary task is to ascertain the intent of the parties at the time
they entered into the agreement, which we determine by examining the language
of the agreement according to its plain and ordinary meaning. In considering the
scope of an arbitration agreement, we note that a party cannot be required to
arbitrate an issue which it has not agreed to submit to arbitration. The general
1
In RDM Holdings, Ltd v Continental Plastics Co, 281 Mich. App. 678, 687; 762 NW2d 529
(2008), this Court noted the general principles applicable to motions brought under MCR
2.116(C)(7):
Under MCR 2.116(C)(7) . . ., this Court must consider not only the
pleadings, but also any affidavits, depositions, admissions, or other documentary
evidence filed or submitted by the parties. The contents of the complaint must be
accepted as true unless contradicted by the documentary evidence. This Court
must consider the documentary evidence in a light most favorable to the
nonmoving party. If there is no factual dispute, whether a plaintiff's claim is
barred under a principle set forth in MCR 2.116(C)(7) is a question of law for the
court to decide. If a factual dispute exists, however, summary disposition is not
appropriate. [Citations omitted.]
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policy of this State is favorable to arbitration. The burden is on the party seeking
to avoid the agreement, not the party seeking to enforce the agreement. In
deciding the threshold question of whether a dispute is arbitrable, a reviewing
court must avoid analyzing the substantive merits of the dispute. If the dispute is
arbitrable, the merits of the dispute are for the arbitrator. [Citations, quotation
marks, and alteration brackets omitted.]
“A defense not asserted in [a] responsive pleading or by motion as provided by these
rules is waived, except for the defenses of lack of jurisdiction over the subject matter of the
action, and failure to state a claim on which relief can be granted.” MCR 2.111(F)(2).
“Affirmative defenses must be stated in a party's responsive pleading[.]” MCR 2.111(F)(3).
“[T]he existence of an agreement to arbitrate” is an affirmative defense. MCR 2.111(F)(3)(a).
And MCR 2.116(D)(2) provides that “[t]he grounds listed in subrule (C)(5), (6), and (7)
[agreement to arbitrate] must be raised in a party's responsive pleading, unless the grounds are
stated in a motion filed under this rule prior to the party's first responsive pleading.” Here, under
a plain application of the court rules, initial defendants waived a defense based on the agreement
to arbitrate, where they failed to raise the defense in their answer or affirmative defenses, nor in a
motion filed prior to their answer. Furthermore, outside the context of the court rules, this Court
has stated:
Waiver of a contractual right to arbitrate is disfavored. The party arguing
there has been a waiver of this right bears a heavy burden of proof and must
demonstrate knowledge of an existing right to compel arbitration, acts
inconsistent with the right to arbitrate, and prejudice resulting from the
inconsistent acts. [Madison Dist, 247 Mich. App. at 588 (quotation marks and
citation omitted).]
Initial defendants do not claim, nor would they have any basis to assert, that they lacked
knowledge of an arbitration defense when plaintiffs’ complaint was filed in May 2015; the
defense was clearly available to them from the start of the suit. Moreover, initial defendants’
participation in the litigation throughout much of 2015 and several months in 2016, including
fully engaging in discovery and agreeing to the extension of discovery deadlines as outlined
above, clearly constituted action that was inconsistent with the right to arbitrate. Madison Dist,
247 Mich. App. at 596-597; Salesin v State Farm Fire & Cas Co, 229 Mich. App. 346, 356-357;
581 NW2d 781 (1998). Finally, plaintiffs would be prejudiced by application of the arbitration
agreement so deep into the court litigation, having expended time and resources on litigation that
would have to be expended all over again from the ground up if the case were sent to arbitration.
Madison Dist, 247 Mich. App. at 599-600; Salesin, 229 Mich. App. at 356-357.
With respect to initial defendants, the question becomes whether their waiver can be
forgiven or set aside on the basis that plaintiffs subsequently filed an amended complaint. We
conclude that the waiver survived the amended complaint and that the amended complaint did
not revive initial defendants’ ability to raise the arbitration agreement as a defense. The
amended complaint did not significantly alter the scope or thrust of plaintiffs’ allegations or the
general nature of the case. First, three of the claims in the amended complaint – fraud,
rescission, and violation of the MFIL – were set forth previously in the original complaint. And
the addition of the civil conspiracy and RICO claims relied on the same general course of
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conduct alleged in the original complaint, which the amended complaint repeated and described
in more detail. There is no argument or basis to conclude that the civil conspiracy and RICO
claims gave rise to an arbitration defense that did not previously exist relative to the original
complaint. In sum, initial defendants waived the defense of an agreement to arbitrate.2
However, the same conclusion simply cannot be reached with respect to subsequent
defendants. They were not and could not be bound by a waiver made by other parties. The
defense of an agreement to arbitrate was raised in timely fashion by subsequent defendants,
where they raised it in a motion for summary disposition that was filed before their first
responsive pleading. MCR 2.111(F)(2) and (3); MCR 2.116(D)(2). And subsequent defendants
did not engage in any litigation, other than merely filing the motion for summary disposition.
Subsequent defendants did not participate in acts inconsistent with the right to arbitrate. Though
there might exist some close connections and relationships between initial and subsequent
defendants, they are ultimately separate and distinct persons and entities.
Although subsequent defendants did not waive an arbitration defense, it is not clear that
subsequent defendants are parties actually encompassed by the arbitration agreement. “[A] party
cannot be required to arbitrate an issue which it has not agreed to submit to arbitration.”
Altobelli, 499 Mich. at 295; see also MCL 691.1686(1). The arbitration agreement plainly
indicated that plaintiffs agreed to arbitration with regard to disputes with initial defendants, or at
least Dennis Duchene, II, and Inspired Business Development, LLC, and the issue is whether
plaintiffs so agreed as to subsequent defendants; the question being whether each of the
subsequent defendants can properly be characterized as being an “agent, employee, successor, or
assignee” of Dennis Duchene, II, or Inspired Business Development, LLC. Plaintiffs argue that
they did not agree to arbitrate matters with respect to subsequent defendants, and the trial court
misconstrued their argument below, believing that plaintiffs were arguing that certain claims
were not covered by the arbitration agreement. Plaintiffs concede that all of the claims in the
amended complaint generally fall within the parameters of the arbitration agreement. Plaintiffs’
argument goes to whether subsequent defendants are protected by the arbitration agreement,
regardless of the nature of the claims. We remand this case to the trial court to address this
particular issue in the first instance.
Reversed and remanded for further proceedings consistent with this opinion. We do not
retain jurisdiction. We decline to award taxable costs under MCR 7.219.
/s/ William B. Murphy
/s/ Michael J. Kelly
/s/ Brock A. Swartzle
2
We do note that, as to defendant Dennis Duchene, II, this Court has closed the case without
prejudice due to his pending bankruptcy proceedings. Miller v Duchene, II, unpublished order of
the Court of Appeals, entered October 12, 2017 (Docket No. 334731). Thus, our ruling does not
encompass Mr. Duchene at this time.
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