Riversbend Rehabilitation Inc v. Jeffrey Enos ( 2018 )

STATE OF MICHIGAN
COURT OF APPEALS
RIVERSBEND REHABILITATION, INC., UNPUBLISHED
March 22, 2018
Plaintiff-Appellant,
v No. 335847
Midland Circuit Court
JEFFREY ENOS, LC No. 16-003593-CK
Defendant-Appellee.
Before: SAWYER, P.J., and BORRELLO and SERVITTO, JJ.
PER CURIAM.
In this breach of contract action, plaintiff appeals as of right the order granting summary
disposition in defendant’s favor and granting defendant’s motion for sanctions. We affirm.
On July 10, 2006, plaintiff and defendant entered into an agreement where plaintiff
would advance defendant a salary of $40,000 annually, reimburse defendant for his graduate
schooling tuition and costs, and provide defendant with health and dental insurance plans. In
exchange, defendant agreed to complete a doctoral level educational program in physical therapy
and work for plaintiff when needed, on an occasional basis. Upon completion of the program,
defendant promised to fully repay his advanced salary by either working for plaintiff (whereby a
portion of his salary would be retained) or seeking employment elsewhere and making payments
to plaintiff. In the event that defendant did not complete his educational program or if he did not
accept employment with plaintiff, defendant would have to repay all monies received for his
advanced salary and repay all tuition and other educational expenses covered by plaintiff.
Pursuant to the agreement, defendant attended Central Michigan University1 and plaintiff began
paying defendant an advanced salary and repaying his educational expenses.
In October 2011, plaintiff and defendant executed a written and signed confirmation of
the July 10, 2006 agreement. At the same time, defendant executed a promissory note in favor of
plaintiff. In the note, defendant promised to pay all salary advanced in the event he failed to: (1)
graduate from his physical therapy program; (2) choose to not work at plaintiff following
graduation from his physical therapy program; or (3) accepted employment with plaintiff
following graduation, but terminated that employment before full repayment of all advanced
1
Defendant received a doctoral degree in physical therapy in 2013.
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salary had occurred. Unlike the agreement, the promissory note did not require repayment of
advanced education expenses.
As defendant was nearing the completion of his educational program, defendant’s
personal relationship with the owner of plaintiff began to deteriorate. Following the breakdown,
defendant took certain actions that plaintiff believed was evidence of his probable intent to not
only refuse employment with plaintiff, but also to avoid repaying any of the funds forwarded as
advance salary and educational financial assistance. To purportedly protect its interests, plaintiff
brought suit against defendant in February 2013 to seek a determination that he had breached his
agreement with plaintiff.
In its complaint, plaintiff asserted claims of breach of contract, promissory estoppel, and
unjust enrichment. On stipulated facts, the trial court issued an opinion in that case. First, the
trial court dismissed the unjust enrichment and promissory estoppel claims because there was a
written contract covering the same subject matter. As to the breach of contract claim, the trial
court first stated the legal rule in Michigan that “one who first breaches a contract cannot
maintain an action against the other contracting party for his subsequent breach or failure to
perform.” Next, the trial court determined that plaintiff had first breached the parties’ agreement
by rescinding its offer to employ defendant after he graduated from college, by failing to pay
defendant’s tuition as required under the agreements, and by removing defendant from the
payroll of plaintiff in December 2012. The trial court found that these breaches were material
and that none of defendant’s actions amounted to anticipatory repudiation that would give
plaintiff the option of either 1) suing immediately for the breach of the contract or 2) suspending
its own performance and demanding a retraction of the repudiation. The trial court thus
ultimately ruled in favor of defendant.
Plaintiff timely appealed the decision issued by the trial court. On October 29, 2015, this
Court issued an opinion affirming the trial court’s decision. This Court held that:
[T]he trial court’s finding was not clearly erroneous. Enos’ correspondence
indicated that he promised to go to school and take on the debt at issue in
significant part—and perhaps exclusively—because Riversbend promised to
employ him after graduation. Moreover, the repeated references in the
agreements to Enos’ employment with Riversbend strongly showed that
Riversbend also considered this to be an essential part of the bargain. Indeed, the
contract terms require repayment on less favorable terms if Enos chooses not to
work for Riversbend. Enos—the nonbreaching party—did not obtain the central
benefit of the contract that he reasonably expected to receive: he did not receive
the promised employment at a level of compensation sufficient to meet his
obligations. Under these circumstances, we cannot conclude that the trial court
clearly erred when it found that Riversbend’s breach was substantial. [Riversbend
Rehab, Inc v Jeffrey Enos, unpublished per curiam opinion of the Court of
Appeals, issued October 29, 2015 (Docket No. 321631), p 6.]
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Additionally, this Court stated:
[a]s the trial court found, Enos was ready, willing, and able to work for
Riversbend; it was Riversbend who prevented Enos from performing under the
agreement. Despite having deprived Enos of his contemplated source of income
in violation of the parties’ agreement, Riversbend now demands that Enos repay
his debt under new terms and without any further obligations to him. But that is
not the agreement that Riversbend made with Enos. The agreement provided that
Riversbend would employ Enos and Enos would repay Riversbend through
reduced compensation. If—and only if—Enos took certain specified actions
would Enos have any obligation to repay other than by working for Riversbend.
The trial court did not clearly err when it found that Enos did not take any of
those actions. [Id. at 7.]
Thereafter, plaintiff acknowledged that it had a contractual obligation to offer defendant
employment. On February 8, 2016, plaintiff extended a written offer of employment to
defendant requesting that he respond within 21 days. Defendant did not respond, so plaintiff
deemed the offer declined. Because defendant declined, the promissory note required defendant
to repay the full amount of his advanced salary in equal installments over five years without
interest, starting within 30 days following the date he declined employment (thus March 30,
2016). Defendant failed to remit any payment to plaintiff by the due date. Following the default,
on April 7, 2016, plaintiff submitted to defendant written notice of the default and demanded
cure within 10 days. Defendant failed to cure; therefore, plaintiff declared the entire amount of
advanced salary ($256,932) immediately due and payable as authorized by the promissory note.
Defendant did not pay the amount that plaintiff claimed was owed.
On May 16, 2016, plaintiff filed the instant action alleging breach of contract of the
agreement between plaintiff and defendant and breach of contract of the promissory note. In lieu
of answering the complaint, defendant filed a motion for summary disposition pursuant to MCR
2.116(C)(7). Defendant argued that because the parties already litigated their dispute to a
binding final judgment upheld on appeal, plaintiff was barred from bringing the action and
claims pursuant to collateral estoppel and res judicata. Plaintiff responded that collateral
estoppel is inapplicable and that the facts it bases its breach of contract claim on in this suit are
different from, and arose after those it based its first suit on, thus defeating defendant’s res
judicata defense.
The trial court granted summary disposition in defendant’s favor, finding that that all
necessary criteria for res judicata and collateral estoppel were established. Immediately
thereafter, defendant filed a motion for sanctions based on his contention that the action filed by
plaintiff was frivolous. The trial court found that there was no basis for plaintiff’s allegations in
the new complaint and that plaintiff’s action was frivolous. It thus granted defendant’s motion
for sanctions. This appeal followed.
Plaintiff first argues that the trial court erred in granting defendant’s motion for summary
disposition because its claims are not barred by res judicata or collateral estoppel. We disagree.
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“This Court reviews the grant or denial of summary disposition de novo to determine if
the moving party is entitled to judgment as a matter of law. In making this determination, the
Court reviews the entire record to determine whether defendant was entitled to summary
disposition.” Maiden v Rozwood, 461 Mich. 109, 118; 597 NW2d 817 (1999). Summary
disposition is appropriate under MCR 2.116(C)(7) if a claim is barred by a prior judgment. RDM
Holdings, LTD v Continental Plastics Co, 281 Mich. App. 678, 687; 762 NW2d 529 (2008). A
motion pursuant to MCR 2.116(C)(7) may be supported by affidavits, depositions, admissions, or
other documentary evidence so long as the evidence would be admissible at trial. Maiden, 461
Mich. at 119. “[T]he trial court must accept the nonmoving party's well-pleaded allegations as
true and construe the allegations in the nonmovant's favor to determine whether any factual
development could provide a basis for recovery.” Hoffman v Boonsiri, 290 Mich. App. 34, 39;
801 NW2d 385 (2010).
“The determination whether res judicata will bar a subsequent suit is a question of law
that we review de novo.” Pierson Sand & Gravel, Inc v Keeler Brass Co, 460 Mich. 372, 379;
596 NW2d 153 (1999). Whether collateral estoppel prevents a party from raising an issue
addressed in a prior proceeding is also a question of law that is reviewed de novo. Horn v Dep’t
of Corrections, 216 Mich. App. 58, 62; 548 NW2d 660 (1996).
Res judicata is intended to prevent multiple suits litigating the same cause of action.
Adair v State, 470 Mich. 105, 121; 680 NW2d 386 (2004). The doctrine bars a second,
subsequent action when “(1) the prior action was decided on the merits, (2) both actions involve
the same parties or their privies, and (3) the matter in the second case was, or could have been,
resolved in the first.” Id (citation omitted). Res judicata bars a subsequent action between the
same parties when the facts or evidence essential to the maintenance of the two actions are
identical. Old Kent Bank of Holland v Chaddock, Winter & Alberts, 197 Mich. App. 372, 379;
495 NW2d 808 (1992). If, however, the facts change, or new facts develop, res judicata will not
apply. In re Pardee, 190 Mich. App. 243, 248; 475 NW2d 870 (1991).
Here, plaintiff argues that in the original litigation, defendant had not completed his
education and there was no offer of employment to defendant. While plaintiff is correct in
noting these circumstances, it is incorrect in assuming that these events qualify as new facts for
purposes of res judicata. Because plaintiff was found to have breached the agreement in the
original litigation, it cannot now cure the defect by offering employment to defendant and then
bring a new action against defendant. In fact, “[o]ne who first breaches a contract cannot
maintain an action against the other contracting party for his subsequent breach or failure to
perform.” Able Demolition v Pontiac, 275 Mich. App. 577, 585; 739 NW2d 696 (2007). The trial
court correctly cited the rationale underlying this principal, stating that “the Plaintiff does not
have the ability to resurrect the contract without agreement of the Defendant.” Defendant did not
agree to a new contract; therefore, the contract no longer exists.
Moreover, it is undisputed that both actions involved the same parties, the prior action
was decided on the merits, and the decree in the prior action was a final decision. Adair, 470
Mich. at 121. Therefore, the main element at issue is for purposes of res judicata whether the
matter contested in the second case was or could have been resolved in the first. Id. On this
element, our Supreme Court noted that res judicata bars a subsequent action between the same
parties when “the evidence or essential facts are identical.” Id. at 123-124 (citation omitted).
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The evidence for both actions in this matter is the same. Plaintiff’s first complaint and
second complaint attached identical exhibits. More importantly, both complaints claimed that
defendant breached his agreements and therefore must reimburse plaintiff for monies expended.
A trial court and the Court of Appeals previously decided these actions. Because there was
nothing new filed in the second complaint, res judicata bars plaintiff’s subsequent action.
Collateral estoppel also applies to this case. Collateral estoppel precludes the relitigation
of an issue in a subsequent action. Rental Props Owners Ass’n of Kent Co v Kent Co Treasurer,
308 Mich. App. 498, 528; 866 NW2d 817 (2014). Application of collateral estoppel generally
requires “(1) that a question of fact essential to the judgment was actually litigated and
determined by a valid and final judgment, (2) that the same parties had a full and fair opportunity
to litigate the issue, and (3) mutuality of estoppel.” Id. at 529 (citation omitted).
Concerning the first requirement, the ultimate issue to be determined must be identical
and not merely similar to that involved in the first action. Eaton Co Rd Comm’rs v Schultz, 205
Mich. App. 371, 376; 521 NW2d 847 (1994). And, to be actually litigated, a question must be put
into issue by the pleadings, submitted to the trier of fact, and determined by the trier of fact.
VanDeventer v Mich Nat’l Bank, 172 Mich. App. 456, 463; 432 NW2d 338 (1988). “A decision is
final when all appeals have been exhausted or the time available for an appeal has passed.”
Leahy v Orion Twp, 269 Mich. App. 527, 530; 711 NW2d 438 (2006).
In this case, the ultimate issue being litigated was whether defendant breached his
contract with plaintiff. Both the defenses of a material breach of contract and whether there was
a breach of contract by defendant were litigated in the trial court and both the trial court and this
Court delivered valid and final judgments in favor of defendant. The first element of collateral
estoppel was thus met. Rental Props Owners Ass’n of Kent Co, 308 Mich. App. at 529.
As to the second element of collateral estoppel, the parties in the second action must be
the same as or privy to the parties in the first action. Bryan v JPMorgan Chase Bank, 304 Mich
App 708, 715; 848 NW2d 482(2014). It is undisputed that the parties are the same in both
actions. In determining whether the parties in the first action had a full and fair opportunity to
litigate an issue, a court should consider numerous factors, including: whether the party against
whom estoppel is asserted had a legal right to appeal; whether the issue is one of law and the two
actions are substantially unrelated or an intervening change merits a new determination; whether
a new determination is merited by differences in the procedures; whether the party against whom
estoppel is asserted had a significantly heavier burden of persuasion as to the issue in the first
action; and, whether there is a clear and convincing need for a new determination because of the
effect on the interests of the public or nonparties, the unforeseeability that the issue would arise
in a later proceeding, or because the party against whom estoppel is asserted did not have
adequate opportunity or incentive to obtain a full and fair adjudication in the first action. Monat
v State Farm Ins Co, 469 Mich. 679, 683-684 n 2; 677 NW2d 843 (2004). In this case, plaintiff
and defendant were both represented by counsel and had a full and fair opportunity to litigate.
None of the above factors apply such that they would bar the use of the collateral estoppel
doctrine.
Finally, mutuality of estoppel is usually a necessary element of collateral estoppel.
Rental Props Owners Ass’n of Kent Co, 308 Mich. App. at 528. Mutuality of estoppel exists if
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both litigants in the second action are bound by the judgment rendered in the first action. Monat,
469 Mich. at 684-685. In other words, “[t]he estoppel is mutual if the one taking advantage of the
earlier adjudication would have been bound by it, had it gone against him.” Id. (quotation marks
and citations omitted, alterations in original). Here, both plaintiff and defendant are bound by
the valid and final judgments rendered by the first trial court and this Court in favor of
defendant; therefore, the mutuality element is satisfied.
Plaintiff next argues that the trial court erred in finding that its arguments were frivolous
and in granting sanctions against plaintiff and its counsel.
We review for clear error a trial court’s determinations whether a claim was frivolous and
whether sanctions are warranted. Bronson Health Care Group, Inc v Titan Ins Co, 314 Mich
App 577, 585; 887 NW2d 205 (2016). “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.” Kitchen v Kitchen, 465 Mich. 654, 661-62; 641 NW2d 245 (2002).
Additionally, this Court reviews for an abuse of discretion the trial court's award of attorney fees
under MCL 600.2591. Edge v Edge, 299 Mich. App. 121, 127; 829 NW2d 276 (2012).
MCL 600.2591 states,
(1) 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.
(2) The amount of costs and fees awarded under this section shall include
all reasonable costs actually incurred by the prevailing party and any costs
allowed by law or by court rule, including court costs and reasonable attorney
fees.
(3) As used in this section:
(a) “Frivolous” means that at least 1 of the following conditions is met:
(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.
(b) “Prevailing party” means a party who wins on the entire record.
“[A] claim is devoid of arguable legal merit if it is not sufficiently grounded in law or fact, such
as when it violates basic, longstanding, and unmistakably evident precedent.” Adamo
Demolition Co v Dep’t of Treasury, 303 Mich. App. 356, 369; 844 NW2d 143 (2013) (quotation
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marks and citation omitted). Furthermore, “[t]o determine whether sanctions are appropriate
under MCL 600.2591, it is necessary to evaluate the claims or defenses at issue at the time they
were made.” In re Costs & Attorney Fees, 250 Mich. App. 89, 94; 645 NW2d 697 (2002). “The
factual determination by the trial court depends on the particular facts and circumstances of the
claim involved.” Id. at 94-95.
In this case, the doctrines of collateral estoppel and res judicata are basic, longstanding,
and unmistakably precedent. In fact, a claim may be frivolous if barred by collateral estoppel
and res judicata. See Energy Reserves, Inc v Consumers Power Co, 221 Mich. App. 210, 221;
561 NW2d 854 (1997) (affirming the trial court’s decision that “specifically found that all the
claims presented in the complaint were barred by res judicata because they had been decided,
either expressly or by implication, in the prior litigation”). Plaintiff’s suit violated both of these
principles; therefore, plaintiff’s claim is devoid of arguable legal merit. Furthermore,
defendant’s counsel sent two letters to plaintiff and its counsel asking plaintiff to dismiss the
action or sanctions would be pursued. Thus, they were on notice that the matter may be
frivolous and sanctions would be pursued. While the first letter was sent on May 1, 2016, before
plaintiff filed its complaint, the second letter was sent on June 8, 2016, after plaintiff filed its
complaint. Despite being put on notice twice, plaintiff proceeded with its action against
defendant and caused defendant to incur attorney fees.
In sum, both res judicata and collateral estoppel bar plaintiff’s current action and claims
and the trial court properly granted summary disposition in favor of defendant. And, because
plaintiff’s claim is devoid of arguable legal merit, the trial court did not clearly erred in awarding
sanctions, including attorney fees, to defendant.
Affirmed.
/s/ David H. Sawyer
/s/ Stephen L. Borrello
/s/ Deborah A. Servitto
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