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### STATE OF MICHIGAN

COURT OF APPEALS

FELLOWSHIP INSTITUTIONAL CHURCH,

Plaintiff/Counter-DefendantAppellant, UNPUBLISHED December 10, 2015

v No. 323123 Wayne Circuit Court ACE ACADEMY, LC No. 13-002074-CK

Defendant/Counter-PlaintiffAppellee,
and

CENTRAL MICHIGAN UNIVERSITY, SPECTRUM JUVENILE JUSTICE SERVICES, and EDTEC CENTRAL LLC,

Defendants.

Before: M URRAY , P.J., and M ETER and R IORDAN , JJ.

P ER C URIAM

.
Plaintiff appeals as of right from a July 21, 2014, judgment g ranted in favor of defendant Ace Academy (hereinafter “defendant”) and stating that defendan t was entitled to summary disposition. We affirm.

Plaintiff and defendant entered i nto a lease through which def endant leased portions of a building owned by plaintiff for three years. Defendant intende d to operate a school from the leased premises. Defendant repre sents that it prepaid plaintif f 9 months’ rent and a one-month security deposit (at around $5000 a month), totaling $50,750. It also paid about $22,000 for architectural designs for the r enovation of the property. Howe ver, before renovations were completed and defendant began to occupy the property, defendant discovered flooding in the basement of the building. The b asement was not part of the lea sed premises. Issues arose regarding the detection of mol d in the basement, and defendant never moved in.-2- In February 2013, plaintiff brought this action for breach of the parties’ lease agreement. Plaintiff alleged that defendants breached the lease by failing to make rental payments and
claimed that defendants ow ed it $139,750 for unpaid rent.

On May 21, 2013, defendant filed an answer and affirmative def enses to plaintiff’s complaint, together with a counter-complaint. Defendant’s coun ter-complaint addressed the parties’ dealings regarding the mold issue and alleged claims f or damages based on a
constructive eviction and the cr eation of a nuisance. Defendan t asserted that despite assurances by plaintiff’s pastor that the mo ld problem would be properly a ddressed and remedi ated, plaintiff did not solve the problem. Defendant alleged that it could not use the property for the purposes for which it had been leased and that on July 13, 2012, it noti fied plaintiff of its position that it had been constructively evicted f rom the property. Defendant s ought damages of $73,101.16.

Plaintiff did not file an answe r to defendant’s counter-compla int within the required 21 days. On June 26, 2013, defendant requested entry of a default against plaintiff with regard to the counter-complaint and a judgment of $73,101.16 in damages a nd $500 in attorney fees. The court entered the default on June 26, 2013.

Plaintiff filed an answer to defendant’s counter-complaint on July 1, 2013. It obtained new counsel and moved to set aside the default on July 23, 2013 . On July 24, 2013, defendant moved for entry of a default judgment.

In its motion to set aside the default, plaintiff explained th at its former counsel inadvertently failed to file a response to the counterclaim bec ause the counterclaim addressed issues of setoff or the duty to mitigate, both of which defenda nt raised as affirmative defenses.
Plaintiff asserted that defenda nt’s counterclaim was inappropri ate because it reiterated the affirmative defenses. It argued that it was not required to an swer that counterclaim. It also asserted that it would be appropr iate to grant it relief from j udgment due to mistake, inadvertence and excusable neglect. Plaintiff asserted that it had an affir mative defense to defendant’s counter-complaint. It argued that it was entitled to a setoff of any deficiency owed. Plaintiff requested that the court set asid e the default and dismiss defe ndant’s counterclaim.

The court held a hearing on the parties’ motions on August 9, 2013. Plaintiff’s counsel explained plaintiff’s position tha t defendant’s counterclaim wa s for a setoff, and when asked why its former counsel did not answer the counter-complaint, she st ated that plaintiff’s former attorney viewed the answer as pr ocedurally irregular. She argu ed that the counter-complaint “pleads the same exact things duplicative to what is raised in the affirmative defenses.” She asserted that defendant used the counter-complaint as a tactic to unnecessarily enlarge the litigation. Plaintiff argued tha t defendant might be entitled to a setoff, but that the issue should be litigated.

Defendant pointed out that it a sserted one affirmative defense —mitigation of damages— and alleged a claim for constructive eviction. Defendant argue d that there was no procedural irregularity. It asserted that the failure of plaintiff’s form er counsel to answer the complaint constituted malpractice, not a ba sis for setting aside the defa ult.-3- The court agreed with defense c ounsel. It noted that defendan t was entitled to assert the counterclaim, that counsel failed to answer it and that the cou rt entered a default. It pointed out that plaintiff was required to establish good cause to set asid e the default and stated that plaintiff
had failed to meet that standard.

Plaintiff then requested that the court hold an evidentiary he aring on the issue of damages. It asserted that manife st injustice would occur throu gh the court’s entry of a default judgment in the amount pleaded by d efendant. The court rejecte d this request.

In an order entered September 6, 2013, the court denied plaint iff’s motion to set aside entry of the default. Plaintiff moved for reconsideration of t he September 6, 2013, order. It requested that the court set aside the default pursuant to MCR 2.612(C)(1)(f). Plaintiff’s counsel asserted that she was unaware that during the pertinent period, plaintiff’s former counsel, Andre Poplar, had been ill and was in and out of the hospital. She n oted that former counsel visited a hospital emergency room for chest pains and dizziness on April 19, May 11 and May 24, 2013. Plaintiff represented that Poplar was directed to slow down and rest so as to avoid a heart attack, and he began to do so. Plaintiff supported its motion with Pop lar’s medical records and an affidavit. The court denied plai ntiff’s motion for reconsidera tion.

In a second order, entered October 23, 2013, the court entered a default judgment for a total of $73,601.16, 1 against plaintiff a nd in defendant’s favor.

Defendant then moved for summary disposition of plaintiff’s co mplaint. The motion was based on plaintiff’s failure to answer defendant’s counterclaim . Defendant argued that, under Michigan law, this was an admission of all well-pleaded allegat ions. Defense counsel stated: “So therefore, the plaintiff has admitted that there was mold, that they did not remediate, and that it prevented [defendant] from using the facility for the purpos es for which” it was leased. Plaintiff replied, in part, that even if the default judgment d ealt with liability, the issue of damages remained open. The trial court indicated that it agree d with defendant’s argument and stated simply that “the [c]our t is going to grant the motion fo r summary disposition.”

On appeal, plaintiff argues that the trial court erred in fail ing to set aside the default and in granting the default judgment.

This Court reviews for an abuse of discretion the trial court’ s decision on a motion to set
aside a default. Huntington Nat’l Bank v Ristich , 292 Mich App 376, 389; 808 NW2d 511 (2011). “An abuse of discretion occurs when the trial court’s decision is outside the range of reasonable and principled outcomes.” Bronson Methodist Hosp v Home-Owners Ins Co , 295 Mich App 431, 442; 814 NW2d 670 (2012).

Generally, the law favors a determination of claims on the mer its. Huntington Nat’l
Bank , 292 Mich App at 389. However, there exists a policy against setting aside a properly

1 This amount included $500 for attorney fees; the lease provide d that attorney fees would be granted to the “prevaili ng party” in a dispute.-4- entered default. Id . at 389-390. Under MCR 2.603(D)(1), except in cases involving a lack of jurisdiction over the defendant, a court shall grant a motion t o set aside a default only if the moving party shows good cause and files an affidavit of facts t hat shows a meritorious defense. A party may demonstrate good cause by showing “a procedural irr egularity or defect or a reasonable excuse for failing to comply with the requirements t hat led to the default . . . .” Bullington v Corbell , 293 Mich App 549, 561; 809 NW2d 657 (2011) (citations and quo tation marks omitted).

The court found the default proper because plaintiff failed to file an answer to the counter-complaint within 21 days as required by MCR 2.108(A)(4) . Entry of the default was proper under MCR 2.603(A)(1).

Plaintiff’s assertion that def endant’s counter-complaint was a procedural irregularity is unconvincing. Defendant was permitted to state its own claim. See, e.g., MCL 600.2918 (dealing with, among other things, claims for constructive evic tion). It also asserted plaintiff’s failure to mitigate damages as an affirmative defense. The tri al court properly rej ected plaintiff’s suggestion that this affirmativ e defense encompassed a claim fo r constructive eviction.

Plaintiff also asserts that the default should have been set a side due to Poplar’s health problems, which it asserts provided an excuse for his failure t o timely file plaintiff’s answer to the counter-complaint. First, this issue was not raised until plaintiff’s motion for reconsideration. In addition, defendant filed its counter-complaint on May 21, 2 013, and Poplar’s last trip to the emergency room was on May 24, 2013. Poplar stated that he was focusing on his health and decided to wind up his private practice. However, he provided nothing to demonstrate that after his May 24, 2013, hospital visit, he was incapacitated to the p oint that he was unable to provide adequate representation to his c lients or at least to advise th em to seek a different attorney. In his
affidavit he stated that “I have always actively and zealously been involved in this case despite my recent illness.” In addition, in his affidavit he explicitl y stated that he had “deemed [the counterclaim] to be improper an d [concluded] that a response wa s not needed.” We cannot conclude that the trial court abused its discretion in rejectin g these reasons as justifying plaintiff’s failure to answer the counter-complaint.

Plaintiff failed to demonstrate good cause for its failure to answer the counter-complaint
and the trial court did not err in its rulings.

Plaintiff next argues that the trial court erred in failing to hold an evidentiary hearing on damages. We disagree.

MCR 2.603(B)(3)(b)(ii) provides that where a court finds that it is necessary to determine the amount of damages in order to enter a default judgment, “th e court may conduct hearings or order references it deems necessary and proper” and allow a jur y trial to the extent it is constitutionally required. Defendant’s allegations in its plea dings regarding damages were based on the amount of rent and security deposit it prepaid plaintiff ($50,750) and the amount it spent-5- on architectural drawings for the remodeling of plaintiff’s bui lding ($22,351.16). 2 Where plaintiff did not file a demand for trial by jury and where pla intiff has failed to explain the possible basis for any discrepancies in these amounts, it has s imply not demonstrated that an evidentiary hearing on damages was “necessary.” Id

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Plaintiff lastly argues that the trial court should not have g ranted summary disposition with regard to plaintiff’s complaint. This argument is patentl y without merit in light of the default and default judgment. Indeed, as noted in Wood v Detroit Auto Inter-Ins Exchange , 413 Mich 573, 578; 321 NW2d 653 (1982) mod on other grounds Smith v Khouri , 481 Mich 519; 751 NW2d 472 (2008), “It is an established principle of Michiga n law that a default settles the question of liability as to well-pleaded allegations and preclu des the defaulting party from litigating that issue.” As such, plaintiff admitted by default that there was mold, that it failed to remediate the mold issue, and that defendant had been construct ively evicted because it was unable to use the property for the purposes for which it had be en leased. This rendered plaintiff’s compla int non-viable.

Affirmed.

/s/ Christopher M. Murray
/s/ Patrick M. Meter
/s/ Michael J. Riordan

2 Defendant also filed a “default request & affidavit” setting f orth $500 as attorney fees.