Court Opinion

ID: 3171708
Source: CourtListenerOpinion
Date Created: 2016-01-25 08:05:34.901067+00
Date Added: 2024-06-11T11:56:58.575018
License: Public Domain

STATE OF MICHIGAN

                           COURT OF APPEALS

INDIAN VILLAGE MARKET, L.L.C., and 8415                             UNPUBLISHED
EAST JEFFERSON, L.L.C.,                                             January 21, 2016

               Plaintiffs-Appellants,

v                                                                   No. 323649
                                                                    Wayne Circuit Court
JAMES MEREM and VARIOUS MARKETS,                                    LC No. 13-011413-CK
INC.,

               Defendants/Third-Party
               Plaintiffs/Third-Party Counter-
               Defendants-Appellees,

and

NORTH POINTE INSURANCE COMPANY,

               Third-Party Defendant/Third-Party
               Counter-Plaintiff.

Before: SAAD, P.J., and WILDER and MURRAY, JJ.

PER CURIAM.

        Plaintiffs appeal the order of the trial court that granted summary disposition in favor of
defendants in this negligence action. On appeal, plaintiffs argue that the trial court erred in
dismissing their claims against defendants on the basis of the legal principles of res judicata and
necessary joinder. Because res judicata and necessary joiner did not preclude plaintiffs’ instant
action, we agree and reverse.

                                        I. BASIC FACTS

        Plaintiff 8415 East Jefferson, LLC owned the building that housed plaintiff Indian
Village Market, LLC. Plaintiffs had asked defendant James Merem, a licensed insurance agent,
to secure insurance coverage for plaintiffs’ property. Due to a misunderstanding, Merem did not
renew the policy when it lapsed in August 2010. When Merem discovered the lapse in coverage,
unbeknownst to plaintiffs, he completed an insurance application and submitted it to North
Pointe Insurance Company. The application contained many inaccurate facts, such as plaintiffs’

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sales history, the age of the building, and whether any other entities occupied any part of the
building. A commercial insurance policy was issued effective October 19, 2010, and less than a
month later, a fire occurred in the building. Although it is not disputed that the fire occurred
during a period the insurance policy purported to cover, North Pointe refused to pay on
plaintiffs’ insurance claim. North Pointe asserted, inter alia, that the policy was void because of
the many misrepresentations in the application.

       Plaintiffs first filed a lawsuit against North Pointe in 2011 and asserted that North Pointe
breached the insurance contract by failing to pay on the loss. Plaintiffs settled the first lawsuit
with North Pointe for $2.2 million, which was less than its purported amount of loss of $3.87
million. Thereafter, a stipulated order of dismissal with prejudice was entered by the circuit
court. Plaintiffs also signed a release of all claims and a covenant not to sue.

        Plaintiffs then filed the instant action, which alleges that defendants’ negligence in
improperly filling out the application caused them to incur damages in the amount of the
difference between the amount of their actual losses and the amount they recovered from the
insurance company, which equals $1.67 million.

        Defendants moved for summary disposition under MCR 2.116(C)(10) and argued that
plaintiffs impermissibly split their cause by failing to join defendants in their prior suit, contrary
to MCR 2.205. The trial court also requested the parties to brief whether the doctrine of res
judicata barred plaintiffs’ suit. After hearing the parties’ arguments on the issues, the court
granted defendants’ motion for summary disposition based on res judicata and the failure to join
defendants in the prior suit.

                                 II. STANDARDS OF REVIEW

       We review a trial court’s decision on a motion for summary disposition brought under
MCR 2.116(C)(7) de novo.1 Roby v City of Mt Clemens, 274 Mich App 26, 28; 731 NW2d 494
(2006). When deciding a motion for summary disposition under MCR 2.116(C)(7), a court must
consider the pleadings, affidavits, depositions, admissions, and other documentary evidence
submitted in a light most favorable to the nonmoving party. MCR 2.116(G)(5); Herman v
Detroit, 261 Mich App 141, 143-144; 680 NW2d 71 (2004). “The contents of the complaint are
accepted as true unless contradicted by documentation submitted by the movant.” Maiden v
Rozwood, 461 Mich 109, 119; 597 NW2d 817 (1999).

       Further, the application of the doctrine of res judicata is a question of law that this Court
reviews de novo. Stoudemire v Stoudemire, 248 Mich App 325, 332; 639 NW2d 274 (2001). To
the extent that this appeal involves the interpretation of a court rule, this Court employs a de

1
  Although defendants moved for summary disposition under MCR 2.116(C)(10), because the
issue involves the effect of a prior judgment, the correct rule is MCR 2.116(C)(7), and we will
review the order under this rule. Spiek v Dep’t of Transp, 456 Mich 331, 338 n 9; 572 NW2d
201 (1998).

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novo standard. Fraser Trebilcock Davis & Dunlap PC v Boyce Trust 2350, 497 Mich 265, 271;
870 NW2d 494 (2015).

                                          III. ANALYSIS

                                        A. RES JUDICATA

        Res judicata is the doctrine of claim preclusion, which is not to be confused with
collateral estoppel, which pertains to issue preclusion. See People v Gates, 434 Mich 146, 154 n
7; 452 NW2d 627 (1990). “[R]es judicata is employed to prevent multiple suits litigating the
same cause of action.” Adair v Michigan, 470 Mich 105, 121; 680 NW2d 386 (2004). In order
to establish that a claim is barred from relitigation under res judicata, a defendant must prove that
“(1) the prior action was decided on the merits, (2) both actions involve the same parties or their
privies, and (3) the matter in the second case, was, or could have been, resolved in the first.” Id.
Further, Michigan has taken a broad approach and decided that not only are claims that have
already been litigated barred, “but also every claim arising from the same transaction that the
parties, exercising reasonable diligence, could have raised but did not.” Id., citing Dart v Dart,
460 Mich 573, 586; 597 NW2d 82 (1999). “The doctrine of res judicata is intended to relieve
parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and encourage
reliance on adjudication, that is, to foster the finality of litigation.” Bryan v JPMorgan Chase
Bank, 304 Mich App 708, 715; 848 NW2d 482 (2014) (quotation marks omitted).

         Regarding the first element, the parties do not dispute that the dismissal with prejudice of
the first suit against North Pointe acted as a decision on the merits. See Limbach v Oakland Co
Bd of Co Rd Comm’rs, 226 Mich App 389, 395; 573 NW2d 336 (1997) (“[A] voluntary
dismissal with prejudice acts as res judicata with respect to all claims that could have been raised
in the first action.”).

        Plaintiffs, however, disagree that the same parties were involved in the first suit and the
instant suit. Defendants were not named in the first suit, but that fact is not dispositive as long as
they were in privity with each other. “To be in privity is to be so identified in interest with
another party that the first litigant represents the same legal right that the later litigant is trying
to assert.” Adair, 470 Mich at 122 (emphasis added); see also Peterson Novelties, Inc v City of
Berkley, 259 Mich App 1, 13; 672 NW2d 351 (2003) (citation omitted) (“In order to find privity
between a party and a nonparty, Michigan courts require ‘both a substantial identify of interests
and a working or functioning relationship . . . in which the interests of the non-party are
presented and protected by the party in the litigation.’”).

        Here, defendants are not in privity with the defendant in the prior suit, North Pointe.
Namely, North Pointe in the first suit did not represent the same legal right that defendants assert
in the instant suit. In defending against plaintiffs’ breach of contract claim in the first suit, North
Pointe asserted that the insurance policy was void because of some material misrepresentations
in the application, which was created by the current defendants. In the present case, plaintiffs
allege that defendants negligently filled out the application, which caused them to settle their suit
with North Pointe for less than their actual losses. Defendants’ main defense is that any
misrepresentations in the application were not material and therefore could not be a basis for
North Pointe not paying out on plaintiffs’ insurance claim, i.e., in failing to pay, absent any

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arson, North Pointe breached the insurance contract. Thus, it is clear that the defendants in both
cases (North Pointe in the first case and defendants in the instant case) did not assert the same
legal right. In fact, they are on opposite sides of each claim, essentially siding with plaintiffs in
the suits they are not defending. Such differing positions clearly demonstrate that the interests
North Pointe represented in the first case were not the same as the rights and defenses that
defendants assert here. Accordingly, North Pointe and defendants are not in privity with each
other, and this element is not met.

         Further, the last element of res judicata—whether the current claim of negligence against
defendants could have been resolved in the first case—is not established. “[T]he determinative
question” for this element “is whether the claims in the instant case arose as part of the same
transaction” as the claims in the first case. Adair, 470 Mich at 125. Our Supreme Court has
recently reiterated that “[t]he proper test is ‘whether the facts are related in time, space, origin or
motivation, [and] whether they form a convenient trial unit.’” Marketplace of Rochester Hills,
LLC v Comerica Bank, ___ Mich ___ (Docket No. 151715, entered December 9, 2015), quoting
Adair, 470 Mich at 125. Here, the claims in the two suits did not arise as part of the same
“transaction,” per se. The “transaction” in the first suit was North Pointe’s failure to pay on
plaintiffs’ insurance claim. The “transaction” in the second suit was defendants’ alleged
misrepresentation of three different items in the application for insurance coverage for plaintiffs.
These transactions are different in time, space, origin, and motivation. Moreover, it would not
have been necessarily convenient to have tried both claims at the first trial. If the jury found that
North Pointe had breached the contract and awarded damages, then there would be no need to
litigate anything with defendants. The involvement of defendants would only be necessary when
and if the jury found that North Pointe did not breach the insurance contract because it was
entitled to rescind the entire policy (due to the misrepresentations in the application). In short,
because the two underlying transactions are different, plaintiffs were not compelled to bring both
claims in the first lawsuit.

        Therefore, because the elements of res judicata were not established, the trial court erred
in relying on this doctrine when it granted defendants’ motion for summary disposition.

                                    B. NECESSARY JOINDER

       MCR 2.205(A) provides, in pertinent part, as follows:

       (A) Necessary Joinder. Subject to the provisions of subrule (B) and MCR 3.501,
       persons having such interests in the subject matter of an action that their presence
       in the action is essential to permit the court to render complete relief must be
       made parties and aligned as plaintiffs or defendants in accordance with their
       respective interests. [Emphasis added.]

        MCR 2.205 has as its purpose “to prevent the splitting of causes of action and to ensure
that all parties having a real interest in the litigation are present.” Mason Co v Dep’t of
Community Health, 293 Mich App 462, 489; 820 NW2d 192 (2011). Recently, this Court
recognized that “a party is necessary to an action if that party ‘has an interest of such a nature
that a final decree cannot be made without affecting that interest, or leaving the controversy in
such a condition that its final determination may be wholly inconsistent with equity and good

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conscience.’” Graham v Foster, ___ Mich App ___; ___ NW2d ___ (2015) (Docket No.
318487, issued July 16, 2015), slip op, p 3, quoting Mather Investors, LLC v Larson, 271 Mich
App 254, 257-258; 720 NW2d 575 (2006) (citations and quotations marks omitted in original).
If a party’s presence in the case is not necessary to the court being able to render complete relief,
factors like “‘judicial economy or avoidance of multiple litigation are not enough to compel
joinder.’” PT Today, Inc v Comm’r of the Office of Fin & Ins Services, 270 Mich App 110, 135;
715 NW2d 398 (2006), quoting Hofmann v Auto Club Ins Ass’n, 211 Mich App 55, 96; 535
NW2d 529 (1995).

        Here, defendants’ presence in the first suit was not necessary for the court to have
rendered complete relief to plaintiffs. Plaintiffs sued North Pointe under a breach of contract
theory; defendants’ conduct was not at issue. Further, if the jury would have found that North
Pointe did breach the contract, plaintiff could have recovered all of its damages from it.
Defendants would only be implicated if the jury determined that North Pointe did not breach the
contract because of the material misrepresentations in the policy application. At that point,
defendants would potentially be exposed for liability of all of plaintiffs’ damages. But because
that aspect could be litigated separately, we hold that defendants were not necessary for the first
suit, which dealt specifically with whether the insurer breached the contract.

        We also question whether the failure to comply with MCR 2.205 in a prior case would
result in the dismissal of a later case. The court rule specifies the consequences of the failure to
join in MCR 2.205(B):

       (B) Effect of Failure to Join. When persons described in subrule (A) have not
       been made parties and are subject to the jurisdiction of the court, the court shall
       order them summoned to appear in the action, and may prescribe the time and
       order of pleading. If jurisdiction over those persons can be acquired only by their
       consent or voluntary appearance, the court may proceed with the action and grant
       appropriate relief to persons who are parties to prevent a failure of justice. . . .

        Notably, the above court rule does not provide for the dismissal of a present cause of
action because of the failure to join a party in a previous lawsuit. Instead, it only contemplates
dismissal of the pending case if the necessary parties cannot join the current or pending case.
Instead, the concept of dismissing the current case because of a failure to join in a prior case is
best analyzed under the concept of res judicata. See East Muskegon Roofing & Sheet Metal Co v
Holwerda, unpublished opinion per curiam of the Court of Appeals, issued February 16, 2006
(Docket No. 256591), slip op, p 1 (“We conclude that principles of res judicata govern whether
the failure to join a party in a prior action bars subsequent litigation, not the court rules
governing joinder.”).2 And, as we have already determined, res judicata does not require
dismissal.

2
  Although unpublished cases are not binding precedent, they can be considered for their
persuasive effect. Paris Meadows, LLC v City of Kentwood, 287 Mich App 136, 145 n 3; 783
NW2d 133 (2010).

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       Reversed.3 Plaintiffs, as the prevailing parties, may tax costs pursuant to MCR 7.219.

                                                           /s/ Henry William Saad
                                                           /s/ Kurtis T. Wilder
                                                           /s/ Christopher M. Murray

3
  Defendants also urge us to affirm the trial court on the alternate grounds of release and
speculative damages. However, because the trial court did not rule on these grounds, we decline
to address them first on appeal. See Autodie, LLC v City of Grand Rapids, 305 Mich App 423,
431; 852 NW2d 650 (2014); Fast Air, Inc v Knight, 235 Mich App 541, 549; 599 NW2d 489
(1999).

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