Court Opinion

ID: 9697276
Source: CourtListenerOpinion
Date Created: 2023-08-25 19:10:50.866357+00
Date Added: 2024-06-11T18:20:30.627348
License: Public Domain

Taylor, RJ.
(dissenting). I respectfully dissent.
While the majority pays lip service to the fact that the Pennsylvania judgment is entitled to full faith and credit under the federal constitution, its holding deprives the Pennsylvania judgment of the full faith and credit to which it is entitled. Under the Full Faith and Credit Clause, Michigan courts are barred from considering matters previously determined in a court of another state. Jones v State Farm Mutual Automobile Ins Co, 202 Mich App 393, 406; 509 NW2d 829 (1993). This constitutional provision also requires Michigan courts to give res judicata effect to the judgments of the court of the other state. Id.
After correctly recognizing that Michigan applies the doctrine of res judicata broadly, the majority declines to do so and holds that the Pennsylvania judgment is not entitled to res judicata effect with respect to plaintiffs’ rescission actions. The reason advanced for this by the majority is that the Pennsylvania lawsuit and the Michigan lawsuits involve different subject matters and different sets of proof. I disagree.
With regard to this distinction between the Pennsylvania action and the Michigan actions that the majority urges, it is well to recall that defendant’s five-count Pennsylvania complaint alleged: (1) fraud; *65(2) breach of contract — failure to deal fairly and honestly; (3) breach of contract — unauthorized advertising; (4) breach of contract — license fees owed; and (5) entitlement to attorney fees and collection expenses under the franchise contract.
It is apparent these Pennsylvania claims are founded upon the validity, and alleged breach, of the parties’ franchise contract. Plaintiffs’ Michigan lawsuits were premised on a claim that the franchise contract was invalid for failure to include certain statutorily required warnings, and they sought rescission as allowed by the Michigan Franchise Investment Law (Mm) MCL 445.1501 et seq.; MSA 19.854(1) et seq. The Michigan lawsuits clearly also test the validity of the contract. The lawsuits filed in each state concern the same subject: the validity of the franchise contract and its enforceability. It would seem that even under a narrow application of the res judicata doctrine, to say nothing of a broad rule, that these would be considered the same subject matter. Under such circumstances, plaintiffs’ Michigan lawsuits constitute an improper attempt to collaterally attack the validity of the contract that the Pennsylvania judgment found to be valid. Northern Ohio Bank v Ket Associates, Inc, 74 Mich App 286, 290; 253 NW2d 734 (1977); Peters Productions, Inc v Desnick Broadcasting Co, 171 Mich App 283, 286; 429 NW2d 654 (1988).
Further, even if there were elements in the Michigan lawsuits that were not found in the Pennsylvania lawsuit’s pleadings, this would not prevent the finding of res judicata. The United States Supreme Court stated as follows in Federated Dep’t Stores, Inc v *66Moitie, 452 US 394, 398; 101 S Ct 2424; 69 L Ed 2d 103 (1981):
A final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action. Commissioner v Sunnen, 333 US 591, 597, 68 S Ct 715, 719, 92 L Ed 898 (1948); Cromwell v County of Sac, 94 US 351, 352-353, 24 L Ed 195 (1877). Nor are the res judicata consequences of a final, unappealed judgment on the merits altered by the fact that the judgment may have been wrong or rested on a legal principle subsequently overruled in another case. [Emphasis added.]
The question, then, becomes whether plaintiffs’ rescission claim could have been raised in the Pennsylvania action.1 The majority argues that plaintiffs could not have raised their rescission claim in the Pennsylvania action because the rescission claim is grounded in Michigan’s franchise statute and Pennsylvania has no analogous provision.
First, it must be noted that the parties’ contract contains a clause stating that Pennsylvania law would apply. While the MUL forbids forum selection clauses, it does not forbid choice of law clauses. Banek Inc v Yogurt Ventures USA, Inc, 6 F3d 357, 360 (CA 6, 1993). Thus, it is argued that plaintiffs forfeited their Michigan statutory remedy of rescission when they signed their franchise agreements. This is true, of course, unless application of the foreign state’s law will violate some fundamental Michigan public policy. Banek, supra; JRT, Inc v TCBY Systems, Inc, 52 F3d 734, 739 (CA 8, 1995). We need not, however, grapple *67with the issue whether application of Pennsylvania law would violate a specific Michigan public policy because application of Pennsylvania law would not change the outcome required by Michigan law. The reason is that plaintiff Martino admits he did not have a valid rescission claim in Pennsylvania and, as explained below, his unclean hands should preclude rescission under Michigan law.
Second, plaintiffs could have argued that defendant’s failure to provide notice that certain contract clauses were void and unenforceable under Michigan law constituted fraud or a fraudulent misrepresentation under Pennsylvania law. See Cottman Transmission Systems, Inc v Melody, 869 F Supp 1180 (ED Pa, 1994), where a judge compared a franchisee’s rights under the California franchise statutes and under Pennsylvania law and concluded application of Pennsylvania law did not cause a substantial erosion of the protections provided by the California franchise statutes because the protections and remedies provided under Pennsylvania law were substantially the same. Further, plaintiffs could have brought a motion to change venue to Michigan under the doctrine of forum non conveniens with relation to the Pennsylvania action. Such a motion is recognized in Pennsylvania. See 42 Pa Cons Stat Ann 5322(e). If the Pennsylvania court granted such a motion, plaintiffs could have asserted in a Michigan court (as they did below) their claim that they were entitled to rescission. As the disposition in the lower court and before this panel shows, they might well have been successful.
In sum, on the basis of the Full Faith and Credit Clause of the federal constitution considered in con*68junction with the doctrine of res judicata, I would reverse the trial court’s granting of rescission in plaintiffs’ favor and remand for entry of a judgment in defendant’s favor. I therefore believe it is not necessary to reach the other issues discussed by the majority. However, because the majority has discussed them, I offer the following additional comments.
The majority also states that the mfil gives a franchisee an unqualified right to rescission upon a franchisor’s violation of the mfil even if the franchisee has unclean hands or has materially breached the franchisee agreement. I disagree.
While the majority’s conclusion in this regard appears to be supported by some language in Interstate Automatic Transmission Co, Inc v Harvey, 134 Mich App 498; 350 NW2d 907 (1984), I would not follow this part of the Interstate Automatic case because it is not clear that the issue of equitable defenses was raised by the parties or focused upon by the Court. Further, even if I were to assume the case so held, I would not follow it because it would represent bad law that we are not bound to follow as precedent. Administrative Order No. 1996-4.
The idea that rescission can be awarded to those with unclean hands, which is what the majority has decided, is a novel and disturbing notion, and the fact one panel of this Court may have implied as much, should not cause us to reach the same misbegotten conclusion again. Indeed, the majority’s conclusion is directly contrary to Kundel v Portz, 301 Mich 195, 210; 3 NW2d 61 (1942), which unremarkably stated that “rescission, whether legal or equitable, is governed by equitable principles.”
*69Moreover, the majority’s conclusion is not mandated by the language of the mfil. At issue here is the portion of the MFIL that states that a person who sells a franchise in violation of certain sections of the mfil is liable to the person purchasing the franchise for damages or rescission. MCL 445.1531(1); MSA 19.854(31)(1). The majority states that it can find no language in the statute suggesting that a franchisee’s unclean hands are a factor in deciding whether to grant rescission. While the statute does not expressly mention defenses, this is not only not unusual, but the reverse would be. Repeatedly in our statutes equitable remedies are referred to without recitation of allowable defenses. It is assumed, and always has been, that the statutes will be applied in accord with common-law understandings and case law explanations that those familiar with these terms of art are held to understand. Indeed, the majority itself proves the pervasiveness of this understanding by utilizing this approach when it requires the return to the status quo ante notwithstanding the fact that the statute omits any reference to such an equitable requisite. Under the majority’s logic, the statute’s omission of the need to return the parties to the status quo ante should foreclose such a requirement.
There is no good reason why the venerable rules regarding rescission should not apply here. As a general matter, a party may seek to rescind a contract, on the basis of fraud, mistake, or innocent misrepresentation. 5A Callaghan’s Civil Jurisprudence, Contracts, § 255, Right to Renounce or Rescind, pp 348-349. In order to warrant rescission, there must be a material breach affecting a substantial or essential *70part of a contract. Holtzlander v Brownell, 182 Mich App 716, 721; 453 NW2d 295 (1990).
I would hold that the Legislature’s statement that rescission may be had if a franchisor violates certain sections of the MFIL was intended (1) to inform the courts that failure to have the required language would be a suitable new reason for granting rescission in addition to the previously recognized standards of fraud, mistake, and innocent misrepresentation and (2) to cut short any claim that omission of these terms was not a material breach affecting a substantial or essential part of the contract. In no event, however, did the Legislature mean to foreclose recognized defenses to a rescission request. Inclusion of the term “rescission” in the statute does not grant a franchisee an absolute right to rescission without consideration of the franchisee’s conduct. As in all equitable matters, a trial court should not grant rescission unless the party requesting it is blameless. Stanton v Dachille, 186 Mich App 247, 260; 463 NW2d 479 (1990). A party that has breached a contract (as the trial court found Martino had in the case at bar) is not entitled to rescission. Id. Further, to put an even finer point upon this issue in the context of this case, rescission is not available to a party that has failed to make payments required by a contract. Miller v Smith, 276 Mich 372, 375; 267 NW 862 (1936). If the Legislature wished to foreclose equitable defenses, it could have stated as much in the mfil.
Therefore, even if the Pennsylvania judgment was not entitled to full faith and credit and res judicata effect (which it is), I would find, on the basis of plaintiff’s unclean hands and material breach of the con*71tract, that the trial court erred in granting rescission to plaintiffs.
I would reverse the orders of the trial court and remand for entry of summary dispositions in defendant’s favor and for consideration of defendant’s request for injunctive relief enforcing the post-termination provisions of the franchise contract.

 Thus, the majority’s assertion that the issue is not what could have been done differently in Pennsylvania is patently erroneous.