Rainbow Construction Inc v. Township of Howell ( 2017 )

STATE OF MICHIGAN
COURT OF APPEALS
RAINBOW CONSTRUCTION, INC., UNPUBLISHED
November 14, 2017
Plaintiff/Counter-Defendant-
Appellant,
V Nos. 332621; 333336; 335140;
335142
Livingston Circuit Court
TOWNSHIP OF HOWELL, LC No. 12-026975-CK
Defendant/Counter-Plaintiff-
Appellee.
Before: M. J. KELLY, P.J., and RONAYNE KRAUSE and BOONSTRA, JJ.
PER CURIAM.
These consolidated appeals arise from a construction contract dispute between defendant,
the Township of Howell, and plaintiff, Rainbow Construction, Inc., who was awarded a contract
to extend sewer services and install drain culverts and related structures. Rainbow Construction
appeals by right, challenging a number of the trial court’s orders. For the reasons set forth in this
opinion, we affirm in part, reverse in part, and remand for further proceedings consistent with
this opinion.
I. MOTION FOR RECONSIDERATION
A. STANDARD OF REVIEW
Howell filed three motions for summary disposition. The second motion was denied in
an oral order, but no written order was entered. Thereafter, after the case was assigned to a
successor judge, the successor judge indicated that she would entertain a motion for
reconsideration on the issues raised in the second motion for summary disposition. On appeal,
Rainbow Construction raises a number of challenges to that decision. We review a trial court’s
decision on a motion for reconsideration for an abuse of discretion. Kokx v Bylenga, 241 Mich
App 655, 658-659; 617 NW2d 368 (2000). The interpretation of court rules is reviewed de novo.
Staff v Johnson, 242 Mich. App. 521, 527; 619 NW2d 57 (2000).
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B. ANALYSIS
Rainbow Construction first argues that under MCR 2.613(B) the successor judge was
prohibited from hearing the motion for reconsideration. MCR 2.613(B) provides:
A judgment or order may be set aside or vacated, and a proceeding under a
judgment or order may be stayed, only by the judge who entered the judgment or
order, unless that judge is absent or unable to act. If the judge who entered the
judgment or order is absent or unable to act, an order vacating or setting aside the
judgment or order or staying proceedings under the judgment or order may be
entered by a judge otherwise empowered to rule in the matter.
Here, as explained by the successor judge, the former judge no longer heard civil cases for
administrative reasons. On appeal, Rainbow Construction does not dispute the judge’s stated
reasons for why the former judge could not hear the motion for reconsideration, nor does it
suggest that there is any procedural irregularity with regard to the successor judge taking over
the case. Furthermore, a successor judge generally enjoys all the prerogatives of the original
judge. See Harry v Fairlane Club Props, Ltd, 126 Mich. App. 122, 124; 337 NW2d 2 (1983).
That is especially true in cases where the original judge did not enter a written order, which is
what happened here. See Mikedis Perfection Heat Treating Co, 180 Mich. App. 189, 204 n 4; 446
NW2d 648 (1989) (stating that because “[n]either final judgment nor an order of remand appears
to have ever been entered here, . . . [the successor judge] was empowered to reverse that
interlocutory order without regard to the time elapsed, simply on the basis of a preference for a
more correct adjudication of the rights and liabilities of the litigants”). Accordingly, we
conclude that MCR 2.613(B) did not prohibit the successor judge from ruling on the motion for
reconsideration.1
Next, Rainbow Construction argues that that the motion for reconsideration could not be
granted because the requirements of MCR 2.119(F)(3) were not satisfied. MCR 2.119(F)(3)
provides:
Generally, and without restricting the discretion of the court, a motion for
rehearing or reconsideration which merely presents the same issues ruled on by
the court, either expressly or by reasonable implication, will not be granted. The
moving party must demonstrate a palpable error by which the court and the
parties have been misled and show that a different disposition of the motion must
result from correction of the error.
Rainbow Construction suggests that in this case, because Howell’s motion for reconsideration
just presented the same issues ruled on by the original judge, the motion for reconsideration had
to be denied. However, MCR 2.119(F)(3) does not prohibit a trial court from granting a motion
1
We note that, contrary to Rainbow Construction’s assertions on appeal, there is no evidence
that Howell was judge shopping. Rather, the reassignment of judges was for administrative
reasons, which, presumably, are out of the control of the litigants in this case.
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that “merely presents the same issues ruled on by the court,” rather, “[a]s a general matter, courts
are permitted to revisit issues they previously decided, even if presented with a motion for
reconsideration that offers nothing new to the court.” Bank of America, NA v Fidelity Nat’l Title
Ins Co, 316 Mich. App. 480, 521; 892 NW2d 467 (2016) (quotation marks and citations omitted).
Therefore, the “denial of a motion for summary disposition does not preclude such a motion on
the same ground from being granted later in the same case.” Id. at 521-522.
Finally, Rainbow Construction argues that the motion for reconsideration was untimely,
so it should not have been considered. MRC 2.119(F)(1) provides that, generally, a motion for
reconsideration “must be served and filed not later than 21 days after entry of an order deciding
the motion.” Here, given that no order was entered denying the second motion for summary
disposition, the 21-day limit imposed by the court rule had not yet started to run. Rainbow
Construction asserts that even though a court generally “speaks through its written orders, not its
oral statements,” People v Turner, 181 Mich. App. 680, 683; 449 NW2d 680 (1989), under some
circumstances an “oral ruling has the same force and effect as a written order,” McClure v HK
Porter Co, 174 Mich. App. 499, 503; 436 NW2d 677 (1988). Nevertheless, given that the
language of the court rule requires that an order be entered, and given that no order was entered
in this case, we conclude that the motion for reconsideration was timely under MCR
2.119(F)(1).2
For the foregoing reasons, the trial court did not abuse its discretion—or exceed its
authority—by granting Howell’s motion for reconsideration.
II. SUMMARY DISPOSITION
A. STANDARD OF REVIEW
Rainbow Construction next argues that the trial court erred by granting Howell summary
disposition on reconsideration of Howell’s second summary disposition motion. This Court
reviews a trial court’s decision on a motion for summary disposition de novo. Ardt v Titan Ins
Co, 233 Mich. App. 685, 688; 593 NW2d 215 (1999). “A motion for summary disposition under
MCR 2.116(C)(8) tests the legal sufficiency of a claim by the pleadings alone.” Smith v
2
Rainbow Construction also asserts that, although MCR 2.116(E)(3) permits a party to file more
than one motion for summary disposition, MCR 2.116(F) requires that the motion be filed in
good faith. MCR 2.116(F) provides that “[a] party or an attorney found by the court to have filed
a motion or an affidavit in violation of the provisions of MCR 2.114 may, in addition to the
imposition of other penalties prescribed by that rule, be found guilty of contempt.” Here,
Rainbow Construction has not provided any facts or legal authority suggesting that Howell
violated the provisions in MCR 2.114, and we are at a loss for how the filing of an additional
motion for summary disposition could be considered to have been in bad faith. Further, given
that a fourth motion for summary disposition (repeating the issues of the second motion) was not
actually filed and that a motion for reconsideration of the second motion was what was decided
by the trial court, we are not even sure that MCR 2.116(E)(3) applies. We do recognize that
MCR 2.114 applies to all motions, which would include the motion for reconsideration;
however, again, Rainbow Construction does not assert that MCR 2.114 was violated.
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Stolberg, 231 Mich. App. 256, 258; 586 NW2d 103 (1998). This Court accepts as true all factual
allegations in the claim “to determine whether the claim is so clearly unenforceable as a matter
of law that no factual development could establish the claim and justify recovery.” Id. A motion
for summary disposition under MCR 2.116(C)(10) tests the evidentiary support for a claim.
When reviewing a decision under MCR 2.116(C)(10), this Court examines all documentary
evidence in the light most favorable to the nonmoving party to determine whether there exists a
genuine issue of material fact. Ardt, 233 Mich. App. at 688.
B. ANALYSIS
At issue is whether Howell failed in its duty to disclose information pertinent to the
construction project, and whether the exculpatory clauses in the contract wholly relieved Howell
of responsibility for any undisclosed information. “ ’[T]he direction to contractors to visit the
site and inform themselves of the actual conditions of a proposed undertaking, will not relieve
from defects in the plans and specifications . . . .’ ” Hersey Gravel Co v State Highway Dep’t,
305 Mich. 333, 341; 9 NW2d 567 (1943), quoting United States v Atlantic Dredging Co, 253 U.S.
1, 11; 40 S. Ct. 423; 64 L. Ed. 735 (1920). In Hersey, the contractor claimed that the Highway
Department failed to disclose information it had regarding soil conditions at the construction site
that was more detailed than the information provided in the blueprints that it released to those
bidding on a highway project. Hersey, 305 Mich. at 335-336. Our Supreme Court held that the
contractor was entitled to rely on the Highway Department’s representations in the blueprints
regarding the nature of the soil conditions, and that the Department had an obligation to make a
full disclosure of the results of tests of soil conditions at the site. Id. at 340-341.
Hersey, through its citation of Atlantic Dredging, referred to the seminal case, United
States v Spearin, 248 U.S. 132, 136; 39 S. Ct. 59; 63 L. Ed. 166 (1918), in which the United States
Supreme Court recited the general rule that “one who undertakes to erect a structure upon a
particular site, assumes ordinarily the risk of subsidence of the soil,” but also the exception that
“if the contractor is bound to build according to plans and specifications prepared by the owner,
the contractor will not be responsible for the consequences of defects in the plans and
specifications.” The Court further stated that the “responsibility of the owner is not overcome by
the usual clauses requiring builders to visit the site, to check the plans, and to inform themselves
of the requirements of the work . . . .” Id.
In W H Knapp Co v State Highway Dep’t, 311 Mich. 186; 18 NW2d 421 (1945), our
Supreme Court affirmed a judgment in favor of a contractor who claimed compensation for
additional work in the construction of highway grading and drainage structures occasioned by
the Highway Department’s engineers having understated the difficulties that the subsoil
conditions would impose, despite contract provisions requiring bidders to examine the
specifications and the worksite to determine for themselves what the conditions would be, and
disclaiming the bidders’ right to rely on the soil notations provided. Id. at 187-188, 202. In
Valentini v City of Adrian, 347 Mich. 530, 534; 79 NW2d 885 (1956), our Supreme Court
reiterated that “[t]he withholding by the city of its knowledge of the known conditions, resulting
in excessive cost of construction, forms an actionable basis for plaintiff’s claim for damages.” In
that case, the contractor for a sewer project claimed that the defendant municipality knew that
quicksand and excessive water were present in the construction areas, but failed to disclose that
information during the bidding process, causing the contractor to underbid the project then
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discover problematic soil conditions that caused delays and cost overruns. Id. at 531. The
Supreme Court held that because the municipality’s engineers had knowledge of unfavorable
subsoil conditions that were not disclosed to the contractor, the latter was entitled to recover
damages for delays and cost overruns even though the parties’ contract required the bidder to
conduct his own examination and to assume full responsibility for drawing conclusions from
subsoil samples the defendant offered. Id. at 533-534. Finally, in Earl L Reamer Co v Swartz
Creek, 76 Mich. App. 227, 235; 256 NW2d 447 (1977), this Court held that a sewer contractor
was entitled to judgment where employees of the contracting municipality “possessed material
information regarding underground structures, which information was not given to the plaintiff
before it bid on the project,” and thus that the municipality “failed in its duty to disclose
knowledge which it presently possessed through information known to its officials or agents.”
In sum, Hersey, Spearin, and related cases endeavor to prevent the cynical or
advantageously negligent municipalities from withholding of information relating to project
conditions for the purposes of securing a bid that does not take those conditions into account.
Those cases require that a party soliciting bids to disclose pertinent information in hand; they do
not, however, require the party to acquire additional information. The caselaw therefore allows
for the contractual allocation in construction projects of the risk of unexpected conditions in
general while preventing abuse of that prerogative. This comports with the general principles
recognizing the freedom to contract, see Port Huron Ed Ass’n v Port Huron Area Sch Dist, 452
Mich. 309, 319; 550 NW2d 228 (1996), and also the principal that contracts normally include the
expectation of good faith and fair dealing, see Hammond v United of Oakland, Inc, 193 Mich
App 146, 151-152; 483 NW2d 652 (1992).
In this case, the trial court repeatedly asked Rainbow Construction’s lawyer to specify
what information Howell actually had, but failed to disclose, and the lawyer repeatedly
responded by speaking of things Howell ostensibly should have known or taken it upon itself to
discover. When the court asked, “[I]f they didn’t know about it, what obligation did they have to
put it in?” Rainbow Construction’s lawyer did not assert that Howell had some actual knowledge
it failed to disclose, but instead replied as follows:
[T]he law is that their specifications are a representation that . . . the documents
that we have are adequate to the task of building the job. If when we start
working we find ourselves encountering conflicts under the ground that aren’t
shown on the plans, the plans are not adequate to the task. And so the . . . implied
warranty of plans and specifications has been breached.
The discussion between the court and Rainbow Construction’s lawyer continued as
follows:
THE COURT: Okay, then you tell me the thing that the Township . . .
knew and didn’t tell you.
[RAINBOW CONSTRUCTION’S LAWYER]: They knew that there were
. . . additional conflicts beneath the surface that they didn’t disclose.
THE COURT: Okay and which ones were those?
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[RAINBOW CONSTRUCTION’S LAWYER]: All the ones that we
encountered that weren’t shown on the map.
THE COURT: Okay. And how do you, what proof do you have that they
knew that? Give me the facts.
[RAINBOW CONSTRUCTION’S LAWYER]: The fact that we, well no.
I’m telling you that . . . their investigation was inadequate because they didn’t
find or didn’t disclose all things that were there to be found and disclosed.
THE COURT: But they did not know them.
[RAINBOW CONSTRUCTION’S LAWYER]: They know that . . . there’s
an investigation to be made that would—
THE COURT: Okay. What would their investigation have been, sir?
[RAINBOW CONSTRUCTION’S LAWYER]: Their investigation would
have been to go to each utility and to look at the plans and drawings at the utility
to determine where the utility said that was the location of all of the underground
utilities.
Rainbow Construction’s position, then, was not that Howell withheld any information it
actually had and was required to share. Instead, it argued that Howell knew, or should have
known, that the information it had and provided was not sufficient for bidders to rely on, and that
Howell was liable for failing to supplement the information it possessed to ensure that the plans
and specifications were a reliable measure of what the job would require. Rainbow Construction
thus was urging an extension of Spearin and related authority, which at present only disallows a
resort to exculpatory contract language to shield a municipality from responsibility for
withholding from bidders information about the costs and burdens of the project that it actually
has.
Rainbow Construction continues this reasoning on appeal, asserting that Howell was
under an “implied warranty of the adequacy of drawings and specifications,” which was “not
limited by what [Howell’s engineer] may not know and may not have included in the drawings
and text, if having knowledge of a subject is necessary to the adequacy of the plans and
specifications.” As such, Rainbow Construction charges Howell with responsibility for its
engineer’s failure to identify some of the underground utility structures that Rainbow
Construction would encounter. Rainbow Construction asserts that under this implied warranty,
“[t]he owner, and its engineer, must discover the information necessary to produce drawings and
specifications adequate to the task; lack of knowledge is not a defense.” However, the only
authority plaintiff cites for these assertions is Hersey, which is distinguishable because it
involved a misstatement of the conditions actually existing and did not involve the failure to
discover and disclose additional information.
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Rainbow Construction also charges Howell with responsibility for it encountering some
unexpected interference from the local road commission. Rainbow Construction complains that
disagreements or misunderstandings “between [Howell] and the road commission . . . had taken
an inordinate period of time to resolve, causing the schedule to be extended, as well as
increas[ing] the . . . cost,” but cites no authority for the proposition that Howell failed to
discharge a duty to discover and disclose the road commission’s policies as they would bear on
the progress of the construction project, or that the township otherwise had some contractual
duty greater than Rainbow Construction’s duty to make such inquiry or otherwise anticipate
changed policies.
Rainbow Construction also argues that by granting partial summary disposition, the trial
court “split the cause of action,” which improperly brings the preclusion doctrines to bear.
Rainbow Construction’s explains this argument as follows:
A judgment on a split claim less than all claims that is favorable to [Rainbow
Construction] will merge all remaining claims in the judgment. A judgment on a
split claim less than all claims that is unfavorable to [Rainbow Construction] will
bar all remaining claims. Thus, splitting the cause of action for trial will moot the
issues on appeal, and a motion to dismiss the appeal by [Howell] will be expected
as soon as a judgment is reached on the claim that it to be tried.
Rainbow Construction’s reasoning in this regard is difficult to follow. It is axiomatic that, on
occasion, several claims in a complaint may be dismissed by stipulation or summary disposition
whereas other claims raised in the same complaint may proceed to trial. Such routine procedure
does not result in distinct causes of action subject to preclusion under the doctrine of res judicata,
nor does it result in the remaining issues in the case being precluded by operation of collateral
estoppel. The trial court did not, therefore, err by granting summary disposition in Howell’s
favor on several of the claims raised in Rainbow Construction’s complaint.3
3
Rainbow Construction also argues that the trial court did not decide all of the issues in the
proceedings below. In particular, it contends that the trial court failed to resolve its claim for
liquidated damages and Howell’s counterclaim. We disagree. The order granting summary
disposition states the “motion for reconsideration and summary disposition is granted except for
the sole issue of [Rainbow Construction’s] claim for payment for excess sand backfill, which
will be reserved for trial.” At trial, that sole issue left for trial—the excess sand backfill issue—
was dismissed following a motion for directed verdict. Further, when Rainbow Construction
brought up the issue of allegedly unresolved claims, the trial court’s statements indicate that the
issues had, in fact, been resolved with the grant of partial summary disposition. Accordingly,
given that the court’s orders clearly resolve all claims, Rainbow Construction’s argument that
some claims were unresolved is without merit.
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III. JUDICIAL BIAS
A. STANDARD OF REVIEW
Rainbow Construction argues that the successor judge was biased against it, which
resulted in a denial of due process. Whether judicial misconduct denied a party a fair trial
presents a constitutional question subject to review de novo. People v Stevens, 498 Mich. 162,
168; 869 NW2d 233 (2015).
B. ANALYSIS
A trial judge must act as a neutral and detached judicial officer. See Cain v Dep’t of
Corrections, 451 Mich. 470, 509; 548 NW2d 210 (1996). When evaluating a claim of judicial
bias, the appellate court must consider the totality of the circumstances to determine whether
“the judge demonstrated the appearance of advocacy or partiality on the whole.” Stevens, 498
Mich. at 172.
[T]he reviewing court should inquire into a variety of factors, including the nature
of the judicial conduct, the tone and demeanor of the trial judge, the scope of the
judicial conduct in the context of the length and complexity of the trial and issues
therein, the extent to which the judge’s conduct was directed at one side more
than the other, and the presence of any curative instructions. . . . Reviewing
courts may consider additional factors if they are relevant to the determination of
partiality in a particular case. . . . The reviewing court must consider the
relevance and weigh the significance of each factor under the totality of the
circumstances of the case. [Id.]
“A trial judge is presumed to be impartial and the party who asserts partiality has a heavy burden
of overcoming that presumption.” In re MKK, 286 Mich. App. 546, 566; 781 NW2d 132 (2009).
“Opinions formed by a judge on the basis of facts introduced or events occurring during the
course of the current proceedings, or of prior proceedings, do not constitute bias or partiality
unless they display a deep-seated favoritism or antagonism that would make fair judgment
impossible.” Schellenberg v Rochester, Mich, Lodge No 2225, 228 Mich. App. 20, 39; 577 NW2d
163 (1998). Further, “[r]epeated rulings against a litigant, no matter how erroneous, and how
vigorously and consistently expressed, are not disqualifying.” Wayne Co Prosecutor v Parole
Bd, 210 Mich. App. 148, 155; 532 NW2d 899 (1995) (quotation marks and citation omitted).
Rainbow Construction alleges bias is evidence based on several instances in the
proceedings before the successor judge. We address each in turn. First, Rainbow Construction
points out that the judge spoke of her background in municipal law. In context, however, it
appears that the judge was being conversational. Next, Rainbow Construction contends that the
judge often interrupted its lawyer, and once demanded from its lawyer a “yes or no” answer to a
question. However, although the record reflects such interruptions, it is axiomatic that
interruptions of the sort evident in the record are often normal manifestations of the dynamics of
oral argument, not a display of bias. Rainbow Construction also asserts that the judge showed
some confusion concerning earlier rulings in the case, but does not explain how such confusion
is indicative of bias. Rainbow Construction next complains that the judge expressed some
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disapproval over Rainbow Construction’s decision to submit a reply brief without first seeking
the court’s permission to do so. However, adherence to procedural rules does not indicate bias.
See People v Kean, 204 Mich. App. 533, 537; 516 NW2d 128 (1994).
In addition, Rainbow Construction points out that the judge showed little deference to the
predecessor judge’s earlier comments in connection with Howell’s second motion for summary
disposition, but as discussed earlier, the successor judge was entitled to decide that motion on
reconsideration. We conclude that her expression of “dismay” at the challenge to her being
permitted to do what the court rules plainly allow her to do does not show that she was biased
against Rainbow Construction.
Rainbow Construction also states that the judge accused its lawyer of yelling at her in one
instance, but does not explain why this suggests bias. Nor are we prepared to discern bias from
the judge’s expressions of disagreement with Rainbow Construction concerning certain caselaw.
See Wayne Co Prosecutor, 210 Mich. App. at 154. Rainbow Construction points out that the
judge sua sponte declared its amended complaint frivolous, but such action is within a judge’s
broad discretion in the conduct of court proceedings. See MCR 2.114(E).
Finally, Rainbow Construction asserts that the judge sua sponte conducted an
“adversarial creditor’s examination” when she insisted that Rainbow Construction’s president
take the stand and answer questions concerning Rainbow Construction’s finances, but even
though that action was not a commendable procedure, we conclude that it reflects an overzealous
desire for progress in the case rather than judicial bias. Further, we see no bias in the judge’s
decision to “interfere” with Rainbow Construction’s efforts to post an appeal bond given that the
judge was apparently concerned that the amounts offered fell short of what was required.
For these reasons, we conclude that Rainbow Construction has failed to overcome the
strong presumption of judicial impartiality.
IV. FRIVOLOUS COMPLAINT
A. STANDARD OF REVIEW
Rainbow Construction argues that the trial court erred in declaring its amended complaint
frivolous and imposing sanctions in the matter. “A trial court’s finding that an action is frivolous
is reviewed for clear error.” Kitchen v Kitchen, 465 Mich. 654, 661; 641 NW2d 245 (2002).
B. ANALYSIS
A claim is frivolous if “(1) the party’s primary purpose was to harass, embarrass, or
injure the prevailing party, or (2) the party had no reasonable basis upon which to believe the
underlying facts were true, or (3) the party’s position was devoid of arguable legal merit.”
Cvengros v Farm Bureau Ins Co, 216 Mich. App. 261, 266-267; 548 NW2d 698 (1996). MCR
2.114(D)(2) states that the signature of an attorney or party on a document submitted to a court
certifies that, to the best of the signer’s understanding after reasonable inquiry, “the document is
well grounded in fact and is warranted by existing law or a good-faith argument of the extension,
modification, or reversal of existing law . . . .”
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After granting Howell’s motion for a directed verdict on the sole issue that proceeded to
trial, the trial court sua sponte suggested that Rainbow Construction’s claim against Howell was
frivolous. The court explained:
Well, there really is no conflicting evidence. I did have a motion for summary
disposition. And on all of the counts, claims, except this one, I didn’t grant a
motion for summary disposition. The argument then was in part that, the
[Rainbow Construction] was blaming everything on [Howell], the engineer for the
plans; the drawings; and, in part, on . . . not working with the Road Commission
and, . . . once I’ve heard everything, . . . there’s nothing in why the Road
Commission was even blamed for anything. The . . . entire case as put forth to me
in argument, I didn’t get any facts that supported that argument. . . . [I]f they
would have come back with a verdict for the [Rainbow Construction], I would
have done a judgment notwithstanding the verdict. I mean, after listening to
everything, I’m convinced this claim was frivolous. . . . [Howell]has identified
and presented carefully the relevant testimony and the evidence in support of their
position. And as [Rainbow Construction] explained and agreed, there were two
ways under which they could get paid. And they acknowledged that doing the
math as outlined in [the parties’ contract] they weren’t entitled to payment.
* * *
. . . It was sand. And . . . it was acknowledged that quantities can
change. . . . And the [Rainbow Construction] signed off. Testimony was really
clear. He signed off on all of them. . . . Now, there were times when the engineer
knew that more money was coming and it was paid. And so the contracts, it’s all,
it’s complete. The work was complete in 2006, I think. And no claims made,
signed off on everything. . . . I can only assume that [Rainbow Construction] or
somebody looked at the paperwork and thought hmm, we just didn’t make
enough; somehow, we . . . got to get some more money in. . . . It’s really a shame
that summary disposition wasn’t granted years ago. . . . There is no viable claim.
And on top of it, it was frivolous. . . . And . . . the thing is that the defendant are
the tax payers. Their money has been wasted. I can’t even imagine how much
has been wasted. I’m going to leave it up to the defense counsel if they want to
ask for attorney fees. I won’t do it sua sponte. Under frivolous, though, it goes
against both the attorney and the party. It’s mandatory. I can’t just pick one. . . .
Subsequently, following a motion hearing, the trial court found that Rainbow Construction’s
complaint was frivolous because it lacked legal merit.4
4
In addition to arguing that Rainbow Construction’s complaint was frivolous for lack of legal
merit, Howell argues that it was frivolous on the ground that Rainbow Construction failed
reasonably to investigate the factual bases for its claims. At the motion hearing, the trial court
asked Rainbow Construction’s lawyer, “how could you ever say that you made a reasonable . . .
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Rainbow Construction’s complaint, however, was not devoid of arguable legal merit.
Rainbow Construction maintained that Howell, as a municipality soliciting construction bids,
was operating under an “implied warranty of the adequacy of drawings and specifications,”
which was not limited by what Howell’s engineer may not know and may not have included in
the drawings and text, but instead extended to making further inquiry or otherwise discovering
additional information, despite contractually obligating bidders to take measures to satisfy
themselves concerning the actual conditions underlying the project. That position either required
a creative interpretation of Spearin and related caselaw or it called for the extension or
modification of the pertinent rules as they stood. Accordingly, Rainbow Construction’s
argument—although unsuccessful—was based on a good-faith argument in favor of extending
Spearin and its progeny to cover the present circumstances. The trial court clearly erred by
finding Rainbow Construction’s entire cause of action frivolous.
V. FRIVOLOUS OBJECTIONS TO GARNISHMENT
Rainbow Construction’s last issue arises from the trial court’s September 13, 2016 orders
(1) rejecting Rainbow Construction’s objections to garnishment and requiring the immediate
release of withheld funds and (2) awarding Howell $1,365 in additional sanctions on the ground
that the objections to garnishment were frivolous. Here, the sole question raised in connection
with this issue is “Did the lower court properly award sanctions in accord with accepted
standards.” This Court need not address issues not set forth in the statement of questions
presented. Marx v Dep’t of Commerce, 220 Mich. App. 66, 81; 558 NW2d 460 (1996); MCR
7.212(C)(5). The only award of sanctions embodied in the two September 13, 2016 orders
underlying the appeal presenting this issue was the one ordering plaintiff to pay $1,365 to
Howell for having filed frivolous objections to garnishment.
In objecting to garnishment, Rainbow Construction first argued that the trial court lacked
jurisdiction to conduct a “creditor’s examination.” The factual basis for this objection arises
from the trial court’s decision to swear in and question Rainbow Construction’s president during
a May 17, 2016 motion hearing. Rainbow Construction’s president was merely present in the
courtroom as a spectator. The court questioned him about Rainbow Construction’s financial
condition as a corporation that was winding down its operations. Thereafter, the court ordered
that Rainbow Construction’s corporate bank account be frozen in order to satisfy the payment of
sanctions that had yet to be ordered. Regardless of the appropriateness of the court’s actions,
MCR 3.101(K)(1) provides that objections to garnishment “may only be based on defects in or
the invalidity of the garnishment proceeding itself, and may not be used to challenge the validity
of the judgment previously entered.” Further, MCR 3.101(K)(2) states that objections to
garnishment “shall be based on one or more of the following,” and sets forth six criteria, which
implicate neither how the court obtained the debtor’s financial information, nor the timing of an
investigation into the facts?” However, the court noted that the facts were not really in dispute
and that the real issue was that Rainbow Construction was arguing inapplicable law. Given that
the court did not otherwise express concern over any failure to investigate the factual bases for
the claims, we conclude that trial court in fact declared the cause of action frivolous on the basis
of a lack of legal support for the claims.
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order limiting access to the fund in question. Therefore, the court’s “creditor’s examination” was
not a valid objection to the garnishment.
Nevertheless, MCR 3.101(K)(2)(f) sets forth as a basis for objecting to garnishment that
“the garnishment was not properly issued or is otherwise invalid.” Rainbow Construction
included with its objections to garnishment the following constitutional argument:
Because of the inflexible rules governing stays of proceedings pending
appeal, [Rainbow Construction] is liable for more than the value of its assets, and
what assets it has, although frozen and not available to [Rainbow Construction]
are subject to seizure through garnishment and exhaustion in the hands of the
judgment creditor. [Howell’s] legal grip on [Rainbow Construction’s] assets, its
rights in the asset fund, is tenuous at best. Reversal on appeal will restore
[Rainbow Construction’s] fortunes, subject to the additional burden of costs to
pursue [Howell] if the defendant has disbursed the fund. There is no rational
basis for a procedure such as this.
* * *
The statutes and rules simply order the judgment debtor to invest in bonds,
letters of credit, commissions, fees, and premiums and burden it with unnecessary
additional debt. Lacking resources for a stay bond, it is [Rainbow Construction’s]
privilege to observe [Howell] making off with its remaining assets. There are no
alternatives or options allowed, although alternatives surely exist. These added
financial burdens make [Rainbow Construction’s] right of appeal illusory.
Rainbow Construction additionally referred to “the rational relationship test of substantive due
process,” and stated that “Michigan has an interest in protecting both judgment creditors and
judgment debtors while judgment debtors prosecute their appeals.” With this argument,
Rainbow Construction attacked not the original sanctions award underlying the garnishment, but
rather the validity of the garnishment proceeding itself in broad constitutional terms. Without
deciding the merits of the constitutional argument—which has not been raised on appeal—we
nevertheless conclude that this argument is, at the least, “a legitimate plea for an “extension,
modification, or reversal of existing law.” Therefore, this objection to the garnishment was not
frivolous for purposes of MCR 2.114(D)(2). Because the trial court erred in finding Rainbow
Construction’s position frivolous, we again conclude that the court erred in awarding attendant
sanctions.5
5
Rainbow Construction also asserts that the trial court improperly interfered with its efforts to
post an appeal bond, and that Howell recovered the funds subject to garnishment in violation of
the 21-day automatic stay on execution of judgments, see MCR 2.614(A), but these arguments
concern enforcement of sanctions orders, not the propriety of the award of sanctions which is the
issue raised on appeal.
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VI. CONCLUSION
For the reasons stated, we reverse the trial court’s findings that Rainbow Construction
made frivolous filings and vacate the attendant awards of sanctions,6 but otherwise affirm the
results below.
Affirmed in part, reversed in part, and remanded for further proceedings. We do not
retain jurisdiction.
/s/ Michael J. Kelly
/s/ Amy Ronayne Krause
/s/ Mark T. Boonstra
6
The stipulated order awarding Howell attorney fees and costs included case evaluation
sanctions under MCR 2.403(O) of “$79,998.50 in attorney fees and $453.50 in costs.” Because
Rainbow Construction has not challenged that part of the award, our determination that no
sanctions should have been awarded over frivolous pleading does not render moot issues relating
to how Howell will collect fees and costs awarded as case evaluation sanctions.
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