Court Opinion

ID: 9894812
Source: CourtListenerOpinion
Date Created: 2023-11-03 05:09:08.996579+00
Date Added: 2024-06-11T09:10:47.768969
License: Public Domain

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
                   revision until final publication in the Michigan Appeals Reports.

                           STATE OF MICHIGAN

                              COURT OF APPEALS

KATHRYN L. KIRCHER,                                                 FOR PUBLICATION
                                                                    November 2, 2023
                Plaintiff-Appellee,                                 9:00 a.m.

v                                                                   No. 360821
                                                                    Emmet Circuit Court
BOYNE USA, INC., and STEPHEN KIRCHER,                               LC No. 20-107011-CK

                Defendants-Appellants,

and

JOHN E. KIRCHER and AMY KIRCHER
WRIGHT,

                Defendants.

Before: RICK, P.J., and SHAPIRO and YATES, JJ.

SHAPIRO, J.

        Defendants-appellants, Boyne USA, Inc., and Stephen Kircher,1 appeal by leave granted2
the trial court’s order denying defendants’ motion for summary disposition under MCR
2.116(C)(7) (release) and (C)(8) (failure to state a claim). We affirm.

1
  Defendants John Kircher and Amy Kircher Wright are not parties to this appeal. We will refer
to Boyne USA and Stephen Kircher collectively as “defendants.”
2
 Kircher v Boyne USA, Inc, unpublished order of the Court of Appeals, entered October 3, 2022
(Docket No. 360821).

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                                        I. BACKGROUND

       Plaintiff Kathryn Kircher is a shareholder in defendant Boyne USA, Inc., a family-run ski
business that was started by plaintiff’s late father, Everett Kircher. Currently, plaintiff’s brother,
defendant Stephen Kircher, is the majority shareholder and CEO of the company.

        Plaintiff worked for Boyne USA for many years, and the majority of her net worth came
from her stock shares in the company. The family operated the business without issue for many
years, but, beginning in 2010, disagreements arose. Defendants terminated plaintiff’s employment
in 2012, which led to a lawsuit and a May 7, 2014 settlement agreement (the 2014 settlement),
which is central to this appeal. The 2014 settlement contained a provision that gave plaintiff the
right to redeem her shares of stock in the company:

       Beginning in 2014 and through 2017, Plaintiff may redeem additional shares in
       each year, not to exceed $250,000 in value as determined in accordance with
       Paragraph 2(c) of this Agreement, unless otherwise agreed by the Parties.
       Beginning in 2018 and each year thereafter, Plaintiff may redeem Plaintiff’s shares
       not to exceed $150,000 in value as determined in accordance with Paragraph 2(c)
       unless otherwise agreed by the Parties and until such time as Plaintiff has redeemed
       all of her shares.

The valuation method set forth in Paragraph 2(c) of the 2014 settlement tied the value of plaintiff’s
shares to the company’s earnings before interest, taxes, depreciation and amortization (EBITDA),
with certain, specified adjustments. The redemption price was thus variable, depending on certain
factors, and could be significantly influenced by factors such as the company’s debt. The formula
states that plaintiff’s redemption price was to be calculated as follows:

       [(6.5 times an Average of EBITDA) minus the Total Company Debt] multiplied by
       80% and then divided by the total number of outstanding shares to obtain a price
       per share.

The “Total Company Debt” was to be “based on the immediately preceding calendar year-end
financial statements and shall include (i) Senior Debt and (ii) Subordinated Debt, but shall
exclude” other various expenses.

        Based on this formula, at the time of the 2014 settlement, plaintiff had several million
dollars’ worth of shares. This number grew in the subsequent years as Boyne USA’s performance
increased. Subsequent disputes about the redemption of plaintiff’s shares, among other matters,
resulted in additional litigation in 2016 and additional settlement agreements. In April 2019,
plaintiff and Boyne USA entered into a settlement agreement that established a redemption price
for plaintiff’s shares for 2015-2018 as follows: (1) for 2015, $360.23/share; (2) for 2016,
$324/share; (3) for 2017, $401.81/share; and (4) for 2018, $773/share. Plaintiff would continue to
own over 15,000 shares of company stock after making the 2015-2018 redemptions. For 2019,
the redemption price was listed as “TBD.” The reason for the “TBD” designation was, according

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to defendants’ attorney, that Boyne USA’s financial statements for 2018, which would determine
the redemption price for 2019, were not yet available.3

        As noted above, the redemption price for plaintiff’s shares was set according to a formula
that would result in a variable redemption price. According to plaintiff, Boyne USA had long run
an “operate leased assets” business model. In 2018, however, it changed this model by purchasing,
with borrowed funds, nearly $300 million in real estate and assets that it was previously leasing.
This transaction had the effect of greatly increasing the company’s “total debt” under the
redemption price formula. Because plaintiff’s redemption price was tied to Boyne USA’s debt,
this purchase had a profound effect on her redemption price. While the 2018 redemption price had
been $773 under the formula, the formula for the 2019 redemption price, as influenced by the new
debt, resulted in a negative number—negative $2,164.94 per share.

        In 2020, plaintiff brought the present action against defendants. Relevant to this appeal,
plaintiff alleged that defendants breached the 2014 settlement by entering into the 2018 real estate
transaction that significantly added to Boyne USA’s debt. Under the existing redemption price
formula, the new debt obligations effectively eliminated plaintiff’s right to redeem shares and
made her shares worthless. Further, plaintiff alleged that defendants refused to agree to an
alternative method to calculate the redemption price, as permitted by the 2014 settlement. Plaintiff
concluded that defendants acted in bad faith by destroying the value of her shares.

        Defendants moved for summary disposition of plaintiff’s breach-of-contract claim under
MCR 2.116(C)(8), arguing that the 2014 settlement did not limit Boyne USA’s ability to acquire
assets or incur debt. Although the trial court agreed with this contention, the trial court believed
there were questions of fact regarding whether plaintiff could succeed on a theory of the implied
covenant of good faith and fair dealing. Accordingly, it declined to grant summary disposition on
the basis of this argument. Defendants alternatively argued that an August 2019 settlement
agreement between the parties contained a release or waiver provision that barred plaintiff’s claims
under MCR 2.116(C)(7). The trial court disagreed with this position as well. On appeal,
defendants raise the same two positions raised in the trial court.

                                         II. ANALYSIS

             A. BREACH OF CONTRACT—IMPLIED DUTY OF GOOD FAITH

        Defendants argue that the trial court erred by not granting summary disposition of
plaintiff’s breach-of-contract claim. We disagree.4

3
  In a separate action, plaintiff is seeking relief from judgment in the 2016 case on the basis that
defendants and their attorneys misrepresented the availability of the 2018 financial information
that would be used to calculate the 2019 redemption price.
4
 We review de novo motions for summary disposition. Dextrom v Wexford Co, 287 Mich App
406, 416; 789 NW2d 211 (2010). A motion is properly granted pursuant to MCR 2.116(C)(8)
when the opposing party fails to state a claim upon which relief can be granted. Such a motion

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        “The covenant of good faith and fair dealing is an implied promise contained in every
contract that neither party shall do anything which will have the effect of destroying or injuring
the right of the other party to receive the fruits of the contract.”5 Hammond v United of Oakland,
Inc, 193 Mich App 152; 483 NW2d 652 (1992) (quotation marks and citation omitted). It is well
settled that, as a general rule, “Michigan does not recognize a cause of action for breach of the
implied covenant of good faith and fair dealing[.]” Belle Isle Grill Corp v Detroit, 256 Mich App
463, 476; 666 NW2d 271 (2003). However, we clarified in Gorman v American Honda Motor
Co, Inc, 302 Mich App 113, 133; 839 NW2d 223 (2013), that what Michigan does not recognize
is a separate or independent cause of action for breach of the obligation of good faith: “The
obligation of good faith is not an independent duty, but rather a modifier that requires a subject to
modify. It is a principle by which contractual obligations . . . are to be measured and judged.”
Accordingly, in order to maintain a breach-of-contract claim on the basis of the implied duty of
good faith and fair dealing, there must be some underlying contractual term to which the duty can
apply. See also id. at 134 (“The obligation of good faith has no application apart from some other
contractual obligation . . . .”).

        Gorman’s explanation is consistent with our caselaw recognizing a cause of action based
on the implied duty of good faith when a party exercises its discretionary powers under a contract.
See, e.g., Ferrell v Vic Tanny Int’l, Inc, 137 Mich App 238, 243; 357 NW2d 669 (1984) (“Where
a party to a contract makes the manner of its performance a matter of its own discretion, the law
does not hesitate to imply the proviso that such discretion be exercised honestly and in good faith.”)
(quotation marks and citation omitted). In these cases, the plaintiffs brought breach-of-contract
claims based on an alleged bad-faith exercise of discretionary authority conferred on the defendant
by the contract. See Ferrell, 137 Mich App at 243 (affirming dismissal of the breach-of-contract
claim where the undisputed facts showed that the defendant health club promulgated a dress code
in good faith); Sims v Buena Vista Sch Dist, 138 Mich App 426, 431; 360 NW2d 211 (1984)
(holding that the defendant school district breached the duty of good faith and the underlying
collective-bargaining agreement by failing to exercise its discretion to continue life insurance
coverage for a laid-off employee); Burkhardt v City Nat’l Bank of Detroit, 57 Mich App 649, 651-
652; 226 NW2d 678 (1975) (affirming dismissal of the breach-of-contract claim and holding that
the defendant bank exercised good faith in estimating amounts of the plaintiff mortgagors’ required
monthly contributions to pay insurance and taxes).6 Based on the above caselaw, we conclude that

“tests the legal sufficiency of the claim on the basis of the pleadings alone . . . .” Bailey v Schaaf,
494 Mich 595, 603; 835 NW2d 413 (2013). When reviewing the motion, the trial “court must
accept as true all factual allegations contained in the complaint.” Id. The trial court must grant
the motion “if no factual development could justify the plaintiff’s claim for relief.” Id. (quotation
marks and citation omitted). The 2014 settlement was attached to the complaint, thus making it
part of the pleadings. See Kloian v Domino’s Pizza, LLC, 273 Mich App 449, 452; 733 NW2d
766 (2006).
5
 “Every contract has an implied duty of good faith and fair dealing.” MSSC, Inc v Airboss Flexible
Prod Co, ___ Mich ___, ___; ___ NW2d ___ (2023) (Docket No. 163523); slip op at 17.
6
 While opinions issued by this Court before November 1, 1990, are not binding precedent, “they
are nevertheless considered to be precedent and entitled to significantly greater deference than are

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when a contract confers discretion on a party, a breach-of-contract action will lie for an alleged
bad-faith exercise of that discretion.

        Turning to the present case, we agree with plaintiff that she has sufficiently stated a breach-
of-contract claim on the basis of defendants’ alleged bad-faith decision to not utilize a different
formula to calculate her redemption price.7 The 2014 settlement permitted the parties to agree to
a different formula:

       Beginning in 2018 and each year thereafter, Plaintiff may redeem Plaintiff’s shares
       not to exceed $150,000 in value as determined in accordance with Paragraph 2(c)
       unless otherwise agreed by the Parties and until such time as Plaintiff has redeemed
       all of her shares. [Emphasis added.]

Thus, the 2014 settlement expressly conferred discretion on defendants to agree to an alternative
method to calculate plaintiff’s redemption price. This is a type of discretionary authority on which
a breach-of-contract action may be based.

        Further, plaintiff sufficiently alleges that defendants acted in bad faith. The 2014
settlement shows the parties contemplated that plaintiff would be able to “redeem all of her shares.”
But, even though the existing formula to determine the redemption price had been rendered
obsolete, defendant declined to adopt a different formula, thereby destroying the benefit to plaintiff
of the 2014 settlement. Again, the duty of good faith and fair dealing protects a party’s right to
receive the “fruits of the contract.” Hammond, 193 Mich App at 152 (quotation marks and citation
omitted). See also Restatement Contracts, 2d, § 205, comment a, p 100 (“Good faith
performance . . . emphasizes faithfulness to an agreed common purpose and consistency with the
justified expectations of the other party[.]”). Here, plaintiff’s reasonable expectation that she
would be able to redeem her shares had been frustrated, yet defendants refused to consider an
alternative method to calculate the redemption price, as expressly permitted by the 2014
settlement. Under the alleged circumstances, plaintiff has stated a cognizable breach-of-contract
claim.

       For these reasons, we affirm the trial court’s decision to deny summary disposition of the
breach-of-contract claim under MC 2.116(C)(8).

unpublished cases.” Woodring v Phoenix Ins Co, 325 Mich App 108, 114-115; 923 NW2d 607
(2018).
7
  We disagree with plaintiff that she has stated a cognizable breach-of-contract claim with respect
to defendants’ decision to acquire significant debt in 2018. The 2014 settlement does not contain
any specifications or restrictions on Boyne USA’s ability to take on debt. And, aside from the
authority to agree to use a different formula, the agreement does not leave anything to defendants’
discretion regarding the share price. Accordingly, as to the increased debt, there is no underlying
contractual term to which the implied duty of good faith and fair dealing applies.

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                                 B. AUGUST 2019 SETTLEMENT

     Defendants also argue that the trial court erred by denying summary disposition under
MCR 2.116(C)(7) because of release or waiver. We disagree.8

        “A release of liability is valid if it is fairly and knowingly made. The scope of a release is
governed by the intent of the parties as it is expressed in the release.” Xu v Gay, 257 Mich App
263, 272; 668 NW2d 166 (2003) (quotation marks and citation omitted). Although explicit words
such as “waiver” or “disclaim” are not needed “to create a release,” this Court has stated “that, at
a minimum, a release should explicitly inform the reader regarding the effect of the release.” Id.
at 275 (quotation marks omitted).

       As noted, in April 2019, plaintiff and Boyne USA entered into a settlement agreement (the
April 2019 settlement) that established a redemption price for plaintiff’s shares for 2015-2018.
However, for 2019, the share price was listed as “TBD,” i.e., to be determined. The parties entered
into an additional settlement in August 2019 (the August 2019 settlement); this additional
settlement arose from claims asserted by plaintiff’s mother, Lois Kircher, and the Lois Kircher
Trust. Plaintiff, as well as defendants, were listed as parties to the settlement agreement. The
August 2019 settlement referenced the April 2019 settlement and plaintiff’s claim for
compensation and stock redemptions. Paragraph 3 provided:

        By signing this agreement, [plaintiff] represents and acknowledges that she has
        received her compensation as set forth in the Supplemental Agreement dated April
        17, 2019 for the 2014 through 2019 redemptions, and that at the present time, she
        has no claims, causes of action, demands for arbitration, or disputes of any kind
        against Stephen Kircher, Amy Kircher Wright, and/or Boyne USA, Inc., and that
        up to the date of this document, Boyne USA, Inc., Stephen Kircher, and Amy
        Kircher Wright have fulfilled their obligations to her, including but not limited to
        the manner and form that the redemptions were made in the April 17, 2019
        Agreement. [Emphasis added.]

8
  A motion is properly granted pursuant to MCR 2.116(C)(7) when “[e]ntry of judgment, dismissal
of the action, or other relief is appropriate because of release . . . .” “The interpretation of a release
presents a question of law that this Court reviews de novo.” Radu v Herndon & Herndon
Investigations, Inc, 302 Mich App 363, 374; 838 NW2d 720 (2013). As previously explained by
this Court,

        [i]n reviewing a motion under MCR 2.116(C)(7), this Court accepts as true the
        plaintiff’s well-pleaded allegations, construing them in the plaintiff’s favor. We
        must consider affidavits, pleadings, depositions, admissions, and documentary
        evidence filed or submitted by the parties when determining whether a genuine
        issue of material fact exists. [Hanley v Mazda Motor Corp, 239 Mich App 596,
        600; 609 NW2d 203 (2000) (citations omitted).]

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        The trial court correctly concluded that this provision was not an unambiguous release or
waiver of the breach-of-contract claim pleaded in the instant case. The August 2019 settlement
provided that plaintiff had no current claims, causes of action, or disputes against defendants. But
there is no language explicitly using words such as “released,” “discharged,” or “waived,” nor is
there language discussing the full effects of the provision. See Xu, 257 Mich App at 275. In other
words, although there is an acknowledgment plaintiff had no current claims against defendants,
there is no language showing that plaintiff released, discharged, or waived all such future claims.
By contrast, the parties’ April 2019 settlement used such explicit language, noting that plaintiff
“expressly waives and releases any claims of appeal she might have . . . .” (Emphasis added).
Therefore, the parties were aware of such language but chose not to incorporate it in the later
settlement agreement.

        The August 2019 settlement references the April 2019 settlement and declares that
defendants fulfilled all of their obligations to plaintiff in the April 2019 settlement. The problem,
insofar as the instant case is concerned, is that the April 2019 settlement left the strike price for
2019 as “TBD.” It is not apparent from the face of the August 2019 settlement how defendants
could fulfill their obligation to pay plaintiff a “TBD” amount. The “TBD” designation clearly
indicated that additional documents and additional terms would be necessary. Where those terms
were unknown at the time of the August 2019 settlement, plaintiff cannot be said to have
knowingly waived her rights with respect to the unspecified, undefined terms.

        Defendants contend that, at the time of the August 2019 settlement, plaintiff was aware of
the 2018 transaction and its effect on the redemption price, which plaintiff denies. The parties’
dispute on this matter only highlights the questions of fact at play and the inappropriateness of
summary disposition under MCR 2.116(C)(7). Further, as clarified in this opinion, plaintiff has
asserted a breach-of-contract claim as to defendants’ refusal to use an alternative method for
calculating the redemption price. And there is simply no indication in the record that this had
occurred at the time of the August 2019 settlement. Accordingly, the specific claim on which
plaintiff’s complaint may proceed did not exist when the August 2019 settlement was executed.

        Affirmed and remanded for further proceedings consistent with this opinion. We do not
retain jurisdiction.

                                                              /s/ Douglas B. Shapiro
                                                              /s/ Michelle M. Rick
                                                              /s/ Christopher P. Yates

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