Court Opinion

ID: 4316387
Source: CourtListenerOpinion
Date Created: 2018-09-28 09:10:00.299454+00
Date Added: 2024-06-11T14:45:02.565415
License: Public Domain

STATE OF MICHIGAN

                           COURT OF APPEALS

DAYSTAR SELLER FINANCING, LLC,                                      FOR PUBLICATION
                                                                    September 27, 2018
               Plaintiff/Counterdefendant-                          9:05 a.m.
               Appellant,

v                                                                   No. 339467
                                                                    Ottawa Circuit Court
PATRICK HUNDLEY,                                                    LC No. 15-004120-CK

               Defendant/Counterplaintiff/Third-
               Party Plaintiff-Appellee,

and

DAVID BYKER,

               Counterdefendant/Third-Party
               Defendant-Appellant,

and

JACO RENTALS, LLC, LOST BEACH
PROPERTIES, LLC, and BYKER &
ASSOCIATES, INC.,

               Third-Party Defendants-Appellants.

Before: MURRAY, C.J., and CAMERON and LETICA, JJ.

PER CURIAM.

       Plaintiff/counterdefendant, Daystar Seller Financing, LLC (“Daystar”), appeals by right
an order granting summary disposition in favor of defendant/counterplaintiff/third-party plaintiff,

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Patrick Hundley, pursuant to MCR 2.116(C)(4) for lack of subject-matter jurisdiction.1 We
reverse and remand for further proceedings.

        This case arises out of a series of investments, loans, assignments, and transactions in
various development projects in Costa Rica. The precise details of the parties’ dealings
remained unproven when the trial court dismissed the case. For purposes of this appeal, it will
suffice to say that the disputes at issue involve the allegedly wrongful conduct of Hundley and
counterdefendant2/third-party defendant, David Byker, in connection with the Costa Rican
projects. The projects were developed, financed, and managed, directly or indirectly, through a
slew of entities that were owned or controlled by Hundley, Byker, or both men together. The
causes of action raised in Daystar’s3 17-count amended complaint and Hundley’s 12-count
amended counterclaim and third-party complaint assert various theories of liability against the
parties for alleged breaches of contract, misrepresentations, acts of conversion, and other
wrongful acts committed in the course of the parties’ dealings.

       Hundley filed a motion for leave to file a second amended counterclaim and third-party
complaint which, in pertinent part, sought to add eight additional third-party defendants, all of
which were business entities formed under the laws of foreign jurisdictions (Florida, Nevada,
and the Turks and Caicos Islands). At a hearing regarding the motion, Hundley raised the issue
of subject-matter jurisdiction. Specifically, Hundley noted that under Wojtczak v American
United Life Ins Co, 293 Mich. 449; 292 N.W. 364 (1940), the trial court did not have subject-
matter jurisdiction over the “internal affairs of foreign entities.” The trial court agreed and
denied the motion for leave to amend.

        Hundley then filed a motion for summary disposition pursuant to MCR 2.116(C)(4) and
(C)(8) as to all of the remaining claims. Hundley argued that pursuant to Wojtczak, 293 Mich.
449, the trial court lacked subject-matter jurisdiction over the claims because all of the claims
involved the internal affairs of foreign corporate entities. The trial court entered an opinion and
order granting Hundley’s motion for summary disposition pursuant to MCR 2.116(C)(4) and
dismissing all of the parties’ claims. The trial court held that all of the claims fell within the
internal affairs doctrine and, therefore, it lacked subject-matter jurisdiction. This appeal
followed.

1
 Counterdefendant/third-party defendant David Byker and third-party defendants Jaco Rentals,
LLC, Lost Beach Properties, LLC, and Byker & Associates, Inc., also appeal the order by right.
However, because the appellants collectively presented this appeal in terms of Daystar’s rights,
we will refer to Daystar only throughout this opinion unless otherwise required for context.
2
 Although Byker is identified as a counterdefendant/third-party defendant throughout the lower
court proceedings, he was not a plaintiff to the original complaint and is therefore more properly
designated as a third-party defendant only.
3
 Daystar alleges that each cause of action in its amended complaint was assigned to it by
Hundley’s respective creditors and the owners of the unlawfully converted properties and assets.

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       This Court reviews the grant or denial of summary disposition de novo. Harris v
Vernier, 242 Mich. App. 306, 309; 617 NW2d 764 (2000). Summary disposition is proper under
MCR 2.116(C)(4) when “[t]he court lacks jurisdiction of the subject matter.” MCR 2.116(C)(4).
“[W]hether a trial court had subject-matter jurisdiction over a claim is a question of law that is
reviewed de novo.” Harris, 242 Mich. App. at 309.

       “In general, subject-matter jurisdiction has been defined as a court’s power to hear and
determine a cause or matter.” In re Petition by Wayne Co Treasurer, 265 Mich. App. 285, 291;
698 NW2d 879 (2005). With respect to a circuit court’s general subject-matter jurisdiction,
MCL 600.605 provides:

               Circuit courts have original jurisdiction to hear and determine all civil
       claims and remedies, except where exclusive jurisdiction is given in the
       constitution or by statute to some other court or where the circuit courts are
       denied jurisdiction by the constitution or statutes of this state.

Moreover, circuit courts in Michigan have broad subject-matter jurisdiction over claims
involving corporations. See MCL 600.3605.

        The trial court in this case held that it lacked subject-matter jurisdiction pursuant to
Wojtczak, 293 Mich. 449. On appeal, Daystar argues that the claims involved in this case are
distinguishable from those in Wojtczak because the causes of action in its amended complaint do
not require the court to interfere with internal operations of a corporate entity. Daystar further
argues that the internal affairs doctrine implicates choice-of-law concerns and that Wojtczak
should not be construed as precluding the circuit court’s subject-matter jurisdiction in this case.
We agree that the trial court’s conclusion that it lacked subject-matter jurisdiction was incorrect.

        In Wojtczak, the defendant, a life insurance company organized under the laws of Indiana
and authorized to do business in Michigan, issued a life insurance policy to the plaintiff. Id. at
450. Subsequently, the defendant entered into a contract to reinsure and assume outstanding
policy obligations of the American Life Insurance Company, an insolvent Michigan corporation.
Id. at 450-451. The plaintiff, as a policy holder, filed suit to enjoin the defendant’s performance
of the contract. Id. The trial court dismissed the complaint, holding that the contract concerned
“an internal affair of the foreign corporation . . . .” Id. at 451.

       The Michigan Supreme Court affirmed the trial court, stating, “If the restraint sought
undertakes to exercise control or management of the internal affairs of defendant, a foreign
corporation, the courts of this State will not assume jurisdiction.” Id. While this statement may
suggest a jurisdictional bar at first glance, it is noteworthy that the Wojtczak opinion concluded
that Michigan courts “will not assume jurisdiction,” rather than stating that the courts of this state
cannot exercise jurisdiction under the circumstances described. See id. (emphasis added). Even
more significant is the caselaw upon which the Wojtczak Court relied upon, namely, Rogers v
Guaranty Trust Co, 288 U.S. 123; 53 S. Ct. 295; 77 L. Ed. 652 (1933).

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        The stockholder plaintiff in Rogers filed suit in a New York federal district court against
a New Jersey corporation and its directors and officers, challenging a share distribution scheme
as contrary to New Jersey law. Id. at 124-125, 128-129. The district court dismissed the action
without prejudice, and the United States Supreme Court affirmed the dismissal as an appropriate
exercise of the district court’s discretion. Id. at 132-133. Later, in Wojtczak, the Michigan
Supreme Court quoted the following language from Rogers as support for its conclusion that
Michigan courts “will not assume jurisdiction” over cases seeking restraint of internal affairs of
foreign corporations:

       It has long been settled doctrine that a court—state or federal—sitting in one state
       will, as a general rule, decline to interfere with, or control by injunction or
       otherwise, the management of the internal affairs of a corporation organized under
       the laws of another state but will leave controversies as to such matters to the
       courts of the state of the domicile. [Wojtczak, 293 Mich. at 452, quoting Rogers,
288 U.S. at 130.]

Importantly, though not cited by the Wojtczak Court, the opinion in Rogers went on to explain
the following after the above quoted passage:

       While the District Court had jurisdiction to adjudge the rights of the parties, it
       does not follow that it was bound to exert that power. It was free in the exercise
       of a sound discretion to decline to pass upon the merits of the controversy and to
       relegate plaintiff to an appropriate forum. Obviously no definite rule of general
       application can be formulated by which it may be determined under what
       circumstances a court will assume jurisdiction of stockholders’ suits relating to
       the conduct of internal affairs of foreign corporations. But it safely may be said
       that jurisdiction will be declined whenever considerations of convenience,
       efficiency, and justice point to the courts of the state of the domicile as
       appropriate tribunals for the determination of the particular case. [Rogers, 288
U.S. at 130-131 (citations omitted; emphasis added).]

        With this understanding of Rogers in mind, we agree with Daystar that Wojtczak should
not be read as negating the subject-matter jurisdiction the trial court otherwise holds under MCL
600.605. A court that has jurisdiction over the parties and subject matter may, as a matter of
discretion, decline to exercise its jurisdiction “when convenience of parties and ends of justice
would be better served if action were brought and tried in another forum.” Hernandez v Ford
Motor Co, 280 Mich. App. 545, 551-552; 760 NW2d 751 (2008) (quotation marks and citation
omitted). Wojtczak simply recognizes that the choice-of-law considerations implicated by the
internal affairs doctrine should guide a trial court’s discretion in determining whether it ought to
decline jurisdiction over certain actions involving foreign corporations that would be more

                                                -4-
appropriately adjudicated in another forum.4 See Stewart v Geostar Corp, 617 F Supp 2d 532,
538 (ED Mich, 2007) (recognizing internal affairs doctrine as a choice-of-law principle); Lapides
v Doner, 248 F Supp 883, 888 (ED Mich, 1965) (stating that Wojtczak did not establish a
jurisdictional bar).

       We further agree with Daystar’s contention that the context of the relief sought in
Wojtczak was significant in determining whether the trial court should decline jurisdiction. In
that case, the plaintiff requested that the trial court enjoin the defendant’s performance of a
contract it entered on the basis of a strategic business decision. Wojtczak, 293 Mich. at 451.
Thus, granting the requested relief would clearly require the trial court to interfere with, and
exercise control over, the ongoing internal operation and management of the defendant
corporation. The Wojtczak Court noted in particular that “[t]he suit at bar [was] not upon any
pecuniary obligation due plaintiff.” Id. at 453.

        Unlike in Wojtczak, the claims in this case do not require the trial court to become
involved in the management of the internal affairs of a foreign business entity. Daystar’s
numerous claims assert wrongful conduct by Hundley, resulting in losses suffered by Daystar’s
assignors for which Daystar seeks to recover money damages. Hundley’s claims likewise
concern Byker’s past conduct, undertaken directly or through various business entities, and
similarly seek monetary damages. Although Hundley, Byker, and their associated entities were
formerly business partners and the transactions underlying the complaint arose during the course
of that partnership, the parties do not ask the trial court to “interfere with, or control by
injunction or otherwise, the management of the internal affairs of a corporation organized under
the laws of another state . . . .” Wojtczak, 293 Mich. at 452, quoting Rogers, 288 U.S. at 130.
Rather, they merely ask that the trial court adjudicate the propriety of the parties’ conduct in
relation to the business venture and their respective rights to recover damages for allegedly
wrongful conduct.5

       In short, the trial court erred as a matter of law in dismissing this case for want of subject-
matter jurisdiction because neither Wojtczak nor the internal affairs doctrine deprived the court

4
  Viewing the internal affairs doctrine as a choice-of-law principal is also consistent with
relevant provision of the Business Corporation Act, MCL 450.1101 et seq., and the Limited
Liability Company Act, MCL 450.4101 et seq. See MCL 450.2002(2) (stating that the Business
Corporation Act does not “authorize this state to regulate the organization or internal affairs of a
foreign corporation”) (emphasis added) and MCL 450.5001 (“Subject to the constitution of this
state, the laws of the jurisdiction under which a foreign limited liability company is organized
shall govern its organization and internal affairs . . . .”).
5
  We also note that Daystar—a Florida limited liability company and the assignee of various
causes of action against Hundley—is the only foreign business entity named as a party in this
action at the present juncture. While the internal operations of other foreign entities may
establish or negate the factual basis for the parties’ claims, it is improbable that these
proceedings could work to interfere with the internal affairs of these nonparties.

                                                 -5-
of jurisdiction to adjudicate the parties’ claims. Reversed and remanded for further proceedings.
We do not retain jurisdiction.

                                                           /s/ Christopher M. Murray
                                                           /s/ Thomas C. Cameron
                                                           /s/ Anica Letica

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