Court Opinion

ID: 9697275
Source: CourtListenerOpinion
Date Created: 2023-08-25 19:10:50.861417+00
Date Added: 2024-06-11T18:20:30.624860
License: Public Domain

Marilyn Kelly, J.
Defendant Cottman Transmission Systems, Inc. appeals from grants of partial summary disposition for plaintiffs in two cases, consolidated on appeal. Cottman asserts that plaintiff Leonardo Martino’s action for rescission is barred by res judicata, because a prior Pennsylvania judgment should be given full faith and credit by Michigan courts. It argues that plaintiffs Martino and Trans One II, Inc., failed to state a cause of action for rescission under MCL 445.1531; MSA 19.854(31), because Pennsylvania rather than Michigan law controls the franchise agreement. Cottman asserts that plaintiffs have unclean hands which bar their claim for rescission. Finally, it alleges that issues of material fact remain unresolved, precluding summary disposition. We affirm in part and remand for further findings.
i
Cottman is a Pennsylvania corporation which licenses automotive transmission service centers in various states. Due to financial problems, Cottman and A-l Transmissions entered into an agreement where Cottman would offer existing A-l franchisees the opportunity to convert to Cottman Transmission franchises. The converted franchises would operate as A-l/Cottman Transmission Centers. Cottman also agreed to manage all franchise services on behalf of A-l for franchisees who opted not to convert. Upon signing the agreement with A-l Transmissions, Cottman held meetings with the A-l franchisees. Cottman *57provided plaintiffs with a modified Uniform Transmission Offering Circular, but did not give them a separate Michigan Circular. Plaintiffs converted to an A-1/Cottman franchise.
In December, 1991, Cottman allegedly discovered that Martino was underreporting his gross sales and defrauding Cottman of licensing and advertising fees. On March 3, 1992, Cottman filed a lawsuit against Martino in Pennsylvania for breach of the franchise contract. Instead of responding to the complaint, Martino filed this action for rescission. He claimed that Cottman failed to provide proper notice that certain of its contract’s provisions are void and unenforceable under Michigan law, as required by MCL 445.1508(3); MSA 19.854(8)(3). Meanwhile, a default judgment was entered against Martino in the Pennsylvania action.
In this case, the trial court granted Martino’s motion for summary disposition, holding Cottman failed to comply with MCL 445.1508(3); MSA 19.854(8)(3) and MCL 445.1531(2); MSA 19.854(31)(2). It granted plaintiffs’ request for a rescission.
n
We review a trial court’s grant of summary disposition de novo examining the record to determine whether the prevailing party was entitled to judgment as a matter of law. G&A Inc v Nahra, 204 Mich App 329, 330; 514 NW2d 255 (1994).
Defendant argues that res judicata bars Martino’s action for rescission. The doctrine of res judicata is applied broadly. It includes issues which the parties sought to have adjudicated as well as “every point which properly belonged to the subject of litigation, *58and which the parties, exercising reasonable diligence, might have brought forward at that time.” Van Pembrook v Zero Mfg Co, 146 Mich App 87, 100-101; 380 NW2d 60 (1985).
Cottman instituted the Pennsylvania action for breach of the franchise contract. It alleged that Martino was systematically underreporting his gross sales and defrauding Cottman. The cause of action in Michigan seeks rescission of the franchise agreement for Cottman’s failure to provide proper notice as required by the Michigan Franchise Investment Law (MFIL), MCL 445.1501 et seq.) MSA 19.854(1) et seq. A different set of proofs is required for each of the two causes. Moreover, the subject matter is different. As a consequence, res judicata does not bar plaintiffs’ claim for rescission. Van Pembrook, supra at 101.
Nor does plaintiffs’ failure to raise rescission as a counterclaim to the Pennsylvania complaint bar this action. The full faith and credit clause of the federal Constitution requires that judgments be given the same full faith and credit in every court within the United States as they have by law or usage in the courts of such State from which they are taken. US Const, art IV, § 1. Its purpose is to prevent the litigation of issues in one state that have already been decided in another. Van Pembrook, supra at 104.
Were the issue before us the enforcement of the Pennsylvania judgment, we would conclude that the judgment must be enforced. Int’l Recovery Systems, Inc v Gabler (On Rehearing'), 210 Mich App 422, 424; 527 NW2d 20 (1995). However, the issue before us today, notwithstanding the Pennsylvania judgment, is whether plaintiffs are nevertheless entitled to rescission.
*59We find that the full faith and credit clause in conjunction with res judicata does not preclude plaintiffs’ action for rescission. Plaintiffs’ rescission claim is grounded in Michigan’s franchise statute. Pennsylvania’s laws contain no analogous right. Therefore, because the Pennsylvania court did not apply Michigan law in deciding the breach of contract action, plaintiffs could not have raised Michigan’s statutory remedy of rescission. In effect, plaintiffs would have to forfeit the claim. The full faith and credit clause does not compel such a result. See Van Pembrook, supra at 104-105.
The dissent argues that plaintiffs could have brought a fraud claim in Pennsylvania or attempted to change venue to Michigan. However, the issue before us today is not what could have been done differently in Pennsylvania, but rather, whether plaintiffs’ rescission claim is barred. The hypotheticals posed by the dissent are irrelevant to the issue before us.
Finally, we must determine whether Pennsylvania’s, rather than Michigan’s, franchise laws should be given effect out of comity.
We are hesitant to overrule Michigan law where the laws of another state would contravene Michigan’s public policy. The public policy of this state is fixed by its constitution, its statutes and the decisions of its courts. Van Pembrook, supra at 105.
The mfil has deemed that certain contractual provisions are void and unenforceable as between franchisors and franchisees. MCL 445.1508(1) and (3); MSA 19.854(8)(1) and (3). The provisions are found in MCL 445.1527; MSA 19.854(27). Included is the requirement that, at least ten business days before executing a franchise agreement, the franchisor must *60notify the prospective franchisee of contractual provisions which the statute renders unenforceable.
Pennsylvania law contains no such requirement. If we were to apply Pennsylvania’s law in ruling on this Michigan case, we would effectively override Michigan’s law. The effect would be to abrogate plaintiffs’ right to rescind. We find that Pennsylvania law should not be given preclusive effect where it would nullify the law of this state as expressed in the MFU.
m
Alternatively, defendant argues that Pennsylvania law must be followed, because the franchise agreement stated that Pennsylvania law controlled the franchise agreement.
In a similar situation, the Michigan Supreme Court ruled that, when determining the applicable law, we are required to balance the expectations of the parties with the interests of the States. Chrysler Corp v Skyline Industrial Services, Inc, 448 Mich 113, 125; 528 NW2d 698 (1995). In doing so, the Court adopted, as guidelines, §§ 187 and 188 of the Second Restatement of Conflicts.
Section 187(1) permits the application of the parties’ choice of law if the issue is one the parties could have resolved by an express contractual provision. However, there are two exceptions. The parties’ choice of law will not be followed if (1) the chosen state has no substantial relationship to the parties or the transaction, or (2) there is no reasonable basis for choosing that state’s law. Section 187(2)(a). Also, § 187(2)(b) bars the application of the chosen state’s law when it “would be contrary to the fundamental policy of a state which has a materially greater inter*61est than the chosen state in the determination of the particular issue, and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.”
Here, we find compelling evidence that, in this state, Michigan has a materially greater interest than Pennsylvania in applying its franchise laws. A fundamental policy may be embodied in a statute which (1) makes one or more kinds of contracts illegal or (2) which is designed to protect a person against the oppressive use of superior bargaining power. Comment g to § 187 of the Restatement 2d, p 568. As gleaned from the mfil, Michigan’s notice requirements are designed to make certain contract provisions illegal and to protect potential franchisees from the superior bargaining power of franchisors.
Applying Pennsylvania, rather than Michigan, law would result in a substantial loss of protection provided by the mfil. As franchisors under Pennsylvania law do not have to provide the notice required by the MFIL, Pennsylvania’s franchise law violates the fundamental public policy of Michigan. Therefore, Michigan law, not Pennsylvania law, applies.
IV
Cottman asserts that, if Michigan law applies, plaintiffs’ claim for rescission is foreclosed by their own unclean hands and material breach of the franchise agreement. We find that no language in the statute suggests that the fact a franchisee’s hands are unclean is considered in deciding whether to allow rescission. Moreover, in Interstate Automatic Trans*62mission Co, Inc v Harvey1 this Court allowed rescission even though the franchisee was being sued for failure to pay royalties in violation of the franchise agreement. We did not require that the franchisee have clean hands before allowing rescission. We will not impose the requirement of clean hands on a franchisee where the mfil gives a franchisee an unqualified right to rescission upon a franchisor’s violation of the mfil.
The dissent relies on Stanton v Dachille2 for the proposition that “absent express legislative instruction to the contrary, a trial court should not grant rescission unless the party requesting it is blameless.” However, Stanton does not stand for that proposition. Stanton involves a generic contract case. It does not mention the absence of legislative instruction. It does not involve a situation, such as is present here, where rescission is a remedy afforded by statute.
v
Even so, Cottman argues that there are genuine issues of material fact as to whether plaintiffs have established a claim for rescission, precluding summary disposition. Cottman argues that a factual question exists concerning whether this was a sale or the voluntary transfer of a franchise. The mfil provides an exemption from its notice requirements where “(t)here is an extension or renewal of an existing franchise or the exchange or substitution of a modified or amended franchise agreement where there is no interruption in the operation of the franchise busi*63ness of the franchisee, and no material change in the franchise relationship.” MCL 445.1506(l)(e); MSA 19.854(6)(l)(e).
Here, the evidence showed that the A-l franchise was terminated, and a new agreement was negotiated and signed. The identity of the franchisor changed. We find that no reasonable person could conclude that a material change did not occur in the relationship.
VI
Next, defendant argues that a material question of fact existed as to whether plaintiffs waited unduly before seeking rescission. In Interstate, supra, we allowed rescission, even though two years had passed. We ruled that the franchisor was entitled to recover the fair value of benefits provided to the franchisee during the time the agreement was in place. In this case, we find that any delay on plaintiffs’ part in seeking rescission did not create a genuine issue of material fact.
vn
Finally, Cottman argues that a question of fact exists as to whether Cottman was returned to the status quo ante. Following the trial court’s grant of summary disposition for plaintiffs on the issue of rescission, it ordered that Cottman be returned to its existing state before the contract. At the August 14, 1992 hearing, the trial court directed the parties to submit proposed orders detailing the amounts owed to Cottman by plaintiffs, in order to properly effectuate the pre-contract status quo. Although orders were submitted, the final disposition of the issue is unclear. *64Therefore, we remand this matter to the trial court with the direction that it return Cottman to the status quo ante. Interstate Automatic Transmission Co, supra at 502-503.
Affirmed in part and remanded. We do not retain jurisdiction.
J. R. Cooper, J., concurred.

 134 Mich App 498; 350 NW2d 907 (1984).

 186 Mich App 247; 463 NW2d 479 (1990).