Mary Glenn v. Huron-Clinton Metropolitan Authority ( 2017 )

STATE OF MICHIGAN
COURT OF APPEALS
MARY GLENN, UNPUBLISHED
November 21, 2017
Plaintiff-Appellee,
v No. 333940
Wayne Circuit Court
HURON-CLINTON METROPOLITAN LC No. 15-008243-NO
AUTHORITY,
Defendant-Appellant.
Before: METER, P.J., and BORRELLO and RIORDAN, JJ.
PER CURIAM.
Defendant appeals as of right a July 8, 2016, order denying its motion for summary
disposition based on governmental immunity. We reverse.
On June 23, 2015, plaintiff filed a complaint for negligence against defendant, alleging
that she fractured her ankle exiting a waterslide at the Turtle Cove Family Aquatic Center (TC)
on July 18, 2014. Plaintiff claimed that TC was a “self-contained, self-functioning, for-profit
waterpark,” even though it was located within the boundaries of the Lower Huron Metropark
(LHM) and even though defendant operated LHM.
Shortly after defendant answered, the parties sought, and the trial court entered, a
stipulated order indicating that “the only possible exception to governmental immunity
applicable to this case is the proprietary function exception to governmental immunity (MCL
691.1413), and if that exception does not apply in this case, immunity bars [p]laintiff’s suit as a
matter of law.” MCL 691.1413 states:
[I]mmunity of [a] governmental agency shall not apply to actions to recover for
bodily injury or property damage arising out of the performance of a proprietary
function as defined in this section. Proprietary function shall mean any activity
which is conducted primarily for the purpose of producing a pecuniary profit for
the governmental agency, excluding, however, any activity normally supported by
taxes or fees. No action shall be brought against the governmental agency for
injury or property damage arising out of the operation of proprietary function,
except for injury or loss suffered on or after July 1, 1965.
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The parties agreed to limit discovery, initially, to facts or areas relating to the applicability of
MCL 691.1413.
On March 31, 2016, defendant filed a motion for summary disposition under MCR
2.116(C)(7), (8), and (10). Defendant stated that for the proprietary function exception to apply,
plaintiff needed to demonstrate that the activity in question (1) was conducted primarily for the
purpose of producing a pecuniary profit and (2) was not normally supported by taxes or fees.
Defendant alleged that TC is not operated primarily for the purpose of producing a pecuniary
profit and is supported by taxes and admission fees.
Defendant attached numerous documents to its motion, and we will provide a brief
overview of their contents. Rebecca Franchock, defendant’s controller, testified at her
deposition that property taxes from five counties accounted for approximately two-thirds of
defendant’s revenue and the remainder derived from fees and charges. Franchock stated, “We’re
governmental, so we’re non-profit. We don’t produce a profit.” She then acknowledged,
however, that if revenues exceeded expenditures, the excess “would drop into fund balance.”
In answers to interrogatories, Franchock stated that revenue for TC, specifically, for
fiscal years 2012, 2013, and 2014 was $802,266, $626,085, and $709,868, respectively. She
further stated that expenditures for those years were $581,727.70, $626,306.75, and $595,357.65,
respectively, and that depreciation for those years amounted to $260,232.92, $260,232.92, and
$261,550.64, respectively.
Franchock testified that there was not and had never been a requirement that the money
from defendant’s general fund that was used to construct TC be replenished through the
operation of TC. Franchock also testified that when TC sets its admission fees it does not take
depreciation into account. She stated that even though “direct operating revenue” exceeded
“direct operating expenditure” for some years, she would not characterize the excess as a “profit”
because the expenditures did not include depreciation, payroll processing costs (which were
incurred in a blended manner for employees of TC and other facilities), policing, maintenance of
access roads, or budgeting and accounting costs. Franchock stated that she had never calculated
the total of “indirect expenses” because “we’re not operating it for a profit.”
Franchock stated that defendant was anticipating having to take money from “fund
balance” for 2016 because of various facilities that had “been neglected due to the decrease in
tax revenues that the Metro Parks have received.”
Franchock testified that TC was fenced and had an entry fee, and Jeffrey Schuman, the
park operations manager for LHM, testified that it had different hours from LHM in general and
did some separate advertising, but that TC employees, aside from the lifeguards, wear the same
uniforms as other LHM employees. Franchock stated that “the fees and charges at all the [pool]
facilities support the general operations” because “[t]he tax revenue isn’t enough to build and
operate them.” She stated that revenues in excess of expenditures go “into fund balance and . . .
support[] the whole park[.]” Schuman testified that the financial goal in operating TC was “to
break even or not lose money on an annual basis.” He stated that “[f]rom year to year, a surplus
is hard to predict based on weather” and that a fee increase was proposed in 2013 because
general expenses had gone up and it was believed that a fee increase would not affect attendance.
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Schuman stated that another pool he oversees within defendant’s park system consistently loses
money. He stated that defendant’s general fund was in existence to operate all the parks.
On June 24, 2016, plaintiff filed a response brief. Plaintiff alleged that the reports of
TC’s revenue, as indicated by deposition testimony, did not include car entry fees for vehicles
entering LHM for the purpose of using TC, 1 food sales at TC, or revenue from locker rentals and
sales of “sundries.” Plaintiff claimed that the true revenue figures for 2012, 2013, and 2014 were
$1,378,574, $1,083,005, and $1,125,951, respectively, basing this on 15-day revenue summary
reports that she attached to her motion. Plaintiff also attached defendant’s annual report,
showing net revenue, for defendant as a whole, of approximately $2.3 million for 2015.
Plaintiff argued that depreciation should not be considered when considering the
profitability of TC because depreciation is not taken into account when setting admission fees
and because defendant does not “earmark the funds for replacement of [TC’s] equipment in a
separate fund . . . .”
Plaintiff argued that TC was being operated as a “cash cow” and therefore, defendant, in
operating TC, was engaged in a proprietary function. Plaintiff stated: “[Defendant] is patently
using its proprietary activity of operating a full-fledged waterpark to fund and underwrite the
remainder of its activities, [build up] its general fund or for other purposes not disclosed. It
certainly is not identifying the opportunity to decrease the admission charges to [TC].” Plaintiff
stated that defendant’s activity was “no different than Redford Township opening up a Starbucks
and using the revenue to fund its other activities, and then [asking] the court to cloak its liability
for the negligent operation of the Starbucks in governmental immunity.” Plaintiff argued that
TC is a licensed amusement park and differs in nature from governmental places like municipal
pools, campgrounds, and the like.
Defendant filed a reply brief on June 28, 2016. In addition to countering case law cited
by plaintiff, defendant attached an affidavit from Franchock in which she calculated revenues for
2012, 2013, and 2014 at $1,046,471.47, $820,004.02, and $894,533.61, respectively, taking into
account food services, lockers, front-gate tolls, and sundries. She calculated expenses at
$1,088,432.07, $1,119,771.15, and $1,074,250.07, respectively, taking into account expenses for
the food service and sundries, depreciation, front-gate toll expenses, administrative expenses,
and policing expenses.
Defendant argued that even though it has a $39.5 million dollar balance in its fund, the
fund balance is the result of defendant’s decision to defer certain capital expenditures and
maintenance costs for various parks. Franchock supported this argument in her affidavit.
1
This amount is not directly obtainable because patrons entering the park do not identify
whether they are entering the park in order to attend TC. The parties did attempt to estimate the
amount.
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The motion hearing took place on June 30, 2016. The trial court ruled:
When you look at the cases dealing with an effort to determine whether a
particular function is either governmental or proprietary, I find it extremely
difficult to reconcile them insofar as finding a consistency, a pattern or a path to
determine what is clearly a governmental function or propriety function. I think
there are two aspects these cases take. One is a function that is basically
conducted to generate a profit. That’s a clear case. It’s probably not a clear case
to prove, but the rule would be clear if it’s a function that is intended to be
operated for a profit and it’s proprietary. The other test, is, per the cases, you look
at the nature of the function. What it is, how it’s operated, where it’s located in
determining whether or not it’s a proprietary or governmental function. . . .
I think genuine fact issues do exist.
Was [TC] . . . specifically because of its configuration, the physical
aspects and the nature of the function, was it intended to be self sufficient and to
generate a profit? You go back to . . . when the original budget was formulated,
et cetera.
Secondly, using the other test that I glean from the cases and that is, you
look at the nature of the function and how the function is carried out to determine
whether it’s proprietary or governmental. And I think you have a question of fact
here considering how these things are done insofar as [TC] is concerned. By [its]
very nature and how it’s done, it is not a governmental function. It’s simply a
private -- a proprietary function, a function that is undertaken in the private world
....
And it’s for these reasons I believe that it would be improper for me to
grant the motion. I’m not very comfortable with this whole state of the law, but
as I view it, those are the genuine issues of fact that are necessary to resolve the
profitability issue and the function issue as to whether it’s proprietary or
governmental . . . .
The court stated that after an appeal, “it could be the other way and vice versa, so sometimes it’s
better not to have a decision. It’s better to take the road of reasonable settlement, so give it some
thought.” On July 8, 2016, the court entered an order denying defendant’s motion “for the
reasons stated on the record.”
We review de novo a trial court’s ruling regarding a motion for summary disposition.
Joseph v Auto Club Ins Ass’n, 491 Mich 200, 206; 815 NW2d 412 (2012). A defendant’s motion
for summary disposition pursuant to MCR 2.116(C)(10) tests the factual sufficiency of a
plaintiff’s complaint. Joseph, 491 Mich at 206. Summary disposition is appropriate under MCR
2.116(C)(10) if there is no genuine issue regarding any material fact and the moving party is
entitled to judgment as a matter of law. A genuine issue of material fact exists when the record,
giving the benefit of reasonable doubt to the opposing party, leaves open an issue upon which
reasonable minds might differ. See Smith v Globe Life Ins Co, 460 Mich 446, 455 n 2; 597
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NW2d 28 (1999), superseded in part on other grounds by statute as stated in Dell v Citizens Ins
Co of America, 312 Mich App 734, 742; 880 NW2d 280 (2015). The moving party “must
specify the issues for which it claims there is no genuine factual dispute. Provided the moving
party’s motion is properly supported, . . . the opposing party must then respond with affidavits or
other evidentiary materials that show the existence of a genuine issue for trial.” Skinner v
Square D Co, 445 Mich 153, 160; 516 NW2d 475 (1994), overruled in part on other grounds by
Smith, 460 Mich at 455 n 2. The court reviewing the motion
must consider the affidavits, pleadings, depositions, admissions, and other
evidence submitted by the parties in the light most favorable to the party opposing
the motion. If the proffered evidence fails to establish a genuine issue regarding
any material fact, the moving party is entitled to judgment as a matter of law.
[Joseph, 491 Mich at 206 (citations omitted).]
“A motion for summary disposition brought under MCR 2.116(C)(8) tests the legal
sufficiency of the complaint on the basis of the pleadings alone. The purpose of such a motion is
to determine whether the plaintiff has stated a claim upon which relief can be granted. The
motion should be granted if no factual development could possibly justify recovery.” Beaudrie v
Henderson, 465 Mich 124, 129-130; 631 NW2d 308 (2001).
Under MCR 2.116(C)(7), the court considers the “affidavits, pleadings, depositions,
admissions, and other documentary evidence,” and “[t]he contents of the complaint are accepted
as true unless contradicted by documentation submitted by the movant.” McLean v McElhaney,
289 Mich App 592, 597; 789 NW2d 29 (2010) (quotation marks and citations omitted). “If the
pleadings or documentary evidence reveal no genuine issues of material fact, the court must
decide as a matter of law whether the claim is statutorily barred” because of governmental
immunity. Id.The parties do not dispute that this case centers on the applicability of MCL 691.1413,
which states:
[I]mmunity of [a] governmental agency shall not apply to actions to recover for
bodily injury or property damage arising out of the performance of a proprietary
function as defined in this section. Proprietary function shall mean any activity
which is conducted primarily for the purpose of producing a pecuniary profit for
the governmental agency, excluding, however, any activity normally supported by
taxes or fees. No action shall be brought against the governmental agency for
injury or property damage arising out of the operation of proprietary function,
except for injury or loss suffered on or after July 1, 1965.
In Coleman v Kootsillas, 456 Mich 615, 621; 575 NW2d 527 (1998), the Michigan Supreme
Court stated that “the definition of a proprietary function is clear and unambiguous.” Two tests
must be satisfied for the exception to apply: “The activity (1) must be conducted primarily for
the purpose of producing a pecuniary profit, and (2) it cannot be normally supported by taxes and
fees.” Id.-5-
Two considerations should be taken into account “[i]n determining whether the agency’s
primary purpose is to produce a pecuniary profit . . . .” Id. The first is whether a profit is
actually generated; the Coleman Court noted that if an activity consistently generates a profit,
this may be evidence of an intent to produce a profit. Id. However, “whether an activity actually
generates a profit is not dispositive . . . .” Herman v Detroit, 261 Mich App 141, 145; 680
NW2d 71 (2004). The second consideration involves where any profit generated is deposited
and how it is spent. Coleman, 456 Mich at 621. The Coleman Court stated that “[if] the profit is
deposited in the government agency’s general fund or used to finance unrelated functions, this
could indicate that the activity at issue was intended to be a general revenue-raising device. If
the revenue is used only to pay current and long-range expenses involved in operating the
activity, this could indicate that the primary purpose of the activity was not to produce a
pecuniary profit.” Id. at 621-622 (quotation marks and citations omitted).
The proprietary-function exception “does not penalize a governmental agency’s
legitimate desire to conduct an activity on a self-sustaining basis.” Dextrom v Wexford Co, 287
Mich App 406, 422; 789 NW2d 211 (2010) (quotation marks and citation omitted). In other
words, the availability of immunity does not depend solely on accounting ledgers. Id.In analyzing whether defendant’s primary purpose in operating TC was to generate a
pecuniary profit, we find it helpful to review Coleman and Dextrom. In Coleman, 456 Mich at
622, the activity at issue was the operation of a landfill. In concluding that the primary purpose
of the operation was to produce a pecuniary profit,2 the Court noted that “from 1982 through
1990, the landfill consistently generated a substantial profit, ultimately exceeding seven million
dollars.” Id. The Court also noted that the profit was used to fund projects such as an expansion
of a fire hall and to fund the city library and city ski hill, among other things. Id. In addition, the
landfill revenue actually resulted in a drop in millage rates. Id. After ruling against the
governmental agency, the Coleman Court stated:
This opinion should not be read to change the way courts should interpret
the exceptions to governmental immunity. They are to be narrowly construed.
This is an unusual case, one in which the government has chosen to run a
commercial enterprise for the purpose of reaping a pecuniary profit. Because of
the breadth of the enterprise, this case is of the type that the proprietary function
statute intended to address, even when the exception is given a narrow
construction. [Id. at 624-625 n 11.]
Dextrom, 287 Mich App at 421, also involved the operation of a landfill. In concluding
that the trial court did not err in finding a question of material fact regarding the pecuniary
purpose of the landfill, the Court first noted that the landfill had been making a profit since 1984,
with assets increasing from $948,894 to $13,710,372 between 1989 and 2000. Id. at 423. The
Court also noted that, between 2000 and 2005, “substantial sums were transferred out of the
landfill fund to finance unrelated projects.” Id. at 424. Finally, the Court emphasized that the
2
The governmental agency had conceded this point but the Court nevertheless analyzed it.
Coleman, 456 Mich at 622 n 5.
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plaintiffs had “cite[d] numerous instances of county officials making statements that indicate a
profit-making motive.” Id. at 424.
As noted in Coleman, 456 Mich at 624-625 n 11, we must construe the propriety function
exception narrowly. Reading Coleman and Dextrom in conjunction with the documentary
evidence produced below in the present case, we conclude that there is no genuine issue of
material fact regarding whether defendant operates TC primarily for the purpose of producing a
pecuniary profit; it does not.
Plaintiff spends much time in her appellate brief discussing the inclusion of front-gate toll
expenses in the calculation of TC’s profits, but the more significant argument relates to the
depreciation expenses. Defendant’s controller, responsible for its financial records, testified that
to obtain an accurate value for TC’s profits, depreciation must be taken into account. Plaintiff
contends that because defendant does not use depreciation in calculating its fees, it is not proper
to include depreciation in the calculation of profit. It also contends that “[i]n order for
depreciation to be utilized for [TC], [defendant] would also have to earmark the funds for
replacement of [TC’s] equipment in a separate fund, which they do not.” Significantly, plaintiff
does not support these bald assertions, in contrast to the deposition testimony of a financial
specialist who testified that depreciation must be considered in calculating profits because,
otherwise, profit-and-loss statements would be skewed, with some years showing no expenses
for replacement or repair of an asset and some years showing large expenses. Plaintiff also
argues that depreciation cannot be considered because MCL 691.1413 uses the term “pecuniary
profit,” not “accounting or financial profit,” but Franchock identified depreciation as a “cost” of
operation.
Any “profit” of TC’s identified by plaintiff is reduced when depreciation is properly
accounted for. Any profit that did exist went into defendant’s general fund. It is true that in
Coleman, 456 Mich at 621, the Court stated that “[i]f the profit is deposited in the government
agency’s general fund or used to finance unrelated functions, this could indicate that the activity
at issue was intended to be a general revenue-raising device.” (Quotation marks and citation
omitted.) However, in Coleman, the profits were diverted from landfill activities to things such
as a fire hall and a library. Id. at 622. Here, any profits are put into a general park fund; this is
different, because the activities at issue (a waterpark versus parks in general) are similar. In
addition, revenue from TC did not result in a drop in millage rates. Cf. id.In Dextrom, like in Coleman, profits were transferred from the landfill fund to “unrelated
projects.” Dextrom, 287 Mich App at 424. Here, any profits that were transferred to defendant’s
general fund were used for related activities.
Franchock testified that she never had to calculate the total of indirect expenses for
operating TC because the government was not operating it for a profit, and Schuman testified
that the financial goal in operating TC was “to break even or not lose money on an annual basis.”
Plaintiff insists that the large balance in defendant’s account, combined with evidence that a rate
increase for TC was going to be sought, is evidence that TC was being operated for pecuniary
purposes. But Franchock averred that the balance was “the result of [defendant’s] decision to
defer capital expenditures and large maintenance costs.”
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In considering the facts of this case and comparing it to existing case law, we simply
cannot find that plaintiff has raised a genuine issue of material fact regarding whether defendant
operates TC primarily for the purpose of producing a pecuniary profit.3
With regard to the issue of whether the activity at issue is “normally supported by taxes
and fees,” MCL 691.1413, the Coleman Court stated:
When deciding whether an activity satisfies the second part of the proprietary
function test, it is important to consider the type of activity under examination. In
this case, it is more than the operation of a municipal landfill. It is the operation
of a commercial landfill that accepts garbage, not merely from the city of
Riverview, but from communities as distant as Ontario, Canada. An enterprise of
such vast and lucrative scope is simply not normally supported by a community
the size of the city of Riverview either through taxes or fees.
The fact that the city charges fees to garbage haulers unloading refuse into
its landfill does not alter this conclusion. Any governmental activity must exact a
fee if it is to produce a pecuniary profit. If imposition of a use fee like
Riverview’s would suffice to defeat the proprietary function exception to
governmental immunity, almost no city activity would subject a city to liability.
That could not have been the intention of the Legislature. [Coleman, 456 Mich at
622-623.]
The Court stated that “it does not matter if the landfill is actually supported by taxes or fees.” Id.at 622 n 8.
The operation of a city or county waterpark is not unusual and is something normally
supported by taxes and fees. In fact, TC is supported by taxes and fees. Thus, even though we
need not reach the second prong of the proprietary function analysis, we note that it, too,
supports defendant’s position.
Reversed and remanded for entry of judgment in favor of defendant. We do not retain
jurisdiction.
/s/ Patrick M. Meter
/s/ Stephen L. Borrello
/s/ Michael J. Riordan
3
We acknowledge that in Rohrabaugh v Huron-Clinton Metropolitan Authority Corp, 75 Mich
App 677, 687-688; 256 NW2d 240 (1977), the Court found the operation of a roller-skating rink
within a park to be a proprietary function. We decline to rely on Rohrabaugh because, in that
case, the Court relied solely on the nature of the facility, see id., whereas in Coleman the
Supreme Court laid out a much more comprehensive test for determining when the propriety-
function exception applies. We note that we are not bound by Rohrabaugh under MCR
7.215(J)(1).
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