Court Opinion

ID: 2817168
Source: CourtListenerOpinion
Date Created: 2015-07-15 12:17:04.414612+00
Date Added: 2024-06-11T11:30:42.851058
License: Public Domain

STATE OF MICHIGAN

                           COURT OF APPEALS

CANNON TOWNSHIP,                                                    FOR PUBLICATION
                                                                    July 14, 2015
               Plaintiff-Appellee,                                  9:15 a.m.

v                                                                   Nos. 320683; 320940
                                                                    Kent Circuit Court
ROCKFORD PUBLIC SCHOOLS,                                            LC No. 12-009768-CZ

               Defendant-Appellant.

Before: SERVITTO, P.J., and BECKERING and BOONSTRA, JJ.

BOONSTRA, J.

        This is a consolidated appeal involving a claim under the “sewage disposal system event”
exception to the Governmental Tort Liability Act (GTLA), MCL 691.1401 et seq. In Docket
No. 320683, defendant Rockford Public Schools (RPS) appeals by right the trial court’s order
denying RPS’s motion for summary disposition, in which RPS had argued that plaintiff Cannon
Township (“the township”) was not the real party in interest and had failed to plead its claims in
avoidance of governmental immunity. In Docket No. 320940, RPS appeals, by leave granted,1
that same order, seeking again a determination that the township is not the real party in interest.
This Court previously consolidated these appeals.2 For the reasons set forth below, we affirm the
trial court’s order denying RPS’s motion for summary disposition.

                   I. PERTINENT FACTS AND PROCEDURAL HISTORY

         Cannon Township, located in Kent County, Michigan, owns and operates a sewage water
collection and transportation system (i.e., sewer system), a portion of which is known as the
“Davies line.” The Davies line serves the East Rockford Middle School (part of RPS, a public
school system) as well as a number of residential customers, including Robert and Pamela Mack.
The middle school has a water filtration system that connects to the Davies sewer line. The
filtration system, which is located in the middle school’s boiler room, works by filtering water
through a series of tanks and pipes to remove iron and other sediments. The “backwash”—i.e.,

1
 Cannon Twp v Rockford Pub Sch, unpublished order of the Court of Appeals, entered August 8,
2014 (Docket No. 320940).
2
    Id.

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the wastewater containing the impurities—is ultimately discharged into the Davies line during a
“backwash cycle.”

         The parties agree that the filtration system was designed so that when the system is
filtering water, the pipes connecting the system to the sewer line, which are controlled by valves,
remain closed. However, during the backwash cycle, the valves are designed to automatically
open so that the wastewater can be discharged into the sewer line. The backwash cycle is
designed to last approximately 15 minutes, after which the valves are supposed to close.
However, if a power outage occurs during a backwash cycle, the valves remain in the open
position after the power is restored, resulting in a large amount of water being discharged into
the sewer line. The Davies line is not designed to handle a discharge of such an amount of
water. Accordingly, when such an event occurs, the Davies line is overwhelmed, which can lead
to sewage backups.

       This is exactly what happened on the weekend of August 20, 2011, when a power outage
occurred, causing a valve in East Rockford Middle School’s water filtration system to remain
open. This resulted in a prolonged backwash cycle that caused a large volume of water to be
discharged into the sewer line, which eventually led to a sewage backup in the Macks’ home.
The sewage backup allegedly caused in excess of $90,000 in damages.

         The Macks submitted a claim to their homeowner’s insurance company, which
immediately paid the $5,000 policy limit for the event. The Macks then sought further
compensation from the township and/or RPS. On November 1, 2011, the township and the
Macks reached a settlement whereby the township agreed to pay the Macks, through its insurer,
the Michigan Municipal League Liability and Property Pool (MMLLPP), the sum of $50,000 in
partial compensation for the damages they had incurred. In exchange, the Macks agreed to
release the township from any future liability and to “fully assign” to the township their claim “in
total, including but not limited to any and all damages in excess of the Settlement Sum and
including but not limited to any and all claims against [RPS] related to” the 2011 event. The
parties further agreed that the township would likely pursue a claim against RPS “as an assignee
or subrogee of the Macks’ rights,” that the Macks authorized such a lawsuit by the township, and
that if the township recovered more than $50,000 in damages from RPS, the excess would be
remitted to the Macks.

        In October 2012, the township filed suit against RPS “on its behalf and additionally as
assignee and subrogee of” the Macks, seeking $90,000 in damages. Subsequently, on
October 14, 2013—i.e., approximately one year after the complaint was filed—the township and
its insurer, the MMLLPP, entered into an “assignment agreement,” whereby the parties
stipulated that the MMLLPP had previously paid $50,000 to the Macks “on behalf of [the
township]” and was therefore subrogated to the Macks’ rights to recover against other entities.
The agreement provided that MMLLPP would “assign all of its subrogation rights and
obligations” to the township in exchange for consideration of $1 and the township’s agreement to
hold the MMLLPP harmless for any future liability arising from the loss suffered by the Macks.

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        Subsequently, RPS moved the trial court for summary disposition pursuant to
MCR 2.116(C)(4) (lack of subject matter jurisdiction),3 (C)(7) (claim barred by governmental
immunity), and (C)(8) (failure to state a claim on which relief can be granted). RPS argued that
the township was not the real party in interest to pursue a claim against RPS because it had paid
no money to the Macks and therefore had no basis to pursue an equitable subrogation claim, and
further because the Macks “could not, and did not, assign their cause of action for amounts in
excess of insurance proceeds.” RPS additionally argued that the township had failed to plead in
avoidance of RPS’s governmental immunity because it could not satisfy all of the elements of
the “sewage disposal system event” exception to the GTLA, as outlined in MCL 691.1417.
Specifically, RPS argued that the township had failed to show that (1) the water filtration system
was a “sewage disposal system,” as defined in MCL 691.1416(j); (2) there was a “defect” in that
“sewage disposal system,” as defined in MCL 691.1416(e); or (3) RPS had any previous
knowledge of such a “defect.” The township responded that it was the real party in interest by
virtue of the assignments it had received from the Macks and the MMLLPP, and that it had
sufficiently pleaded its claim in avoidance of governmental immunity.

         After a hearing, the trial court denied RPS’s motion for summary disposition. With
respect to the issue of whether the township was a real party in interest, the trial court concluded
that, although the township itself had not suffered any loss, it was the real party in interest by
virtue of the assignment agreements it had executed with the Macks and the MMLLPP,
respectively. With respect to governmental immunity, the trial court concluded, based upon the
evidence presented, that the school’s water filtration system “fits comfortably” within the
statutory definition of a “sewage disposal system,” that the township had satisfied its burden of
producing evidence of a defect in the water filtration system, and that RPS “most certainly
‘knew, or in the exercise of reasonable diligence should have known, about the defect’” before
the August 20, 2011 sewage event. RPS challenges on appeal each of these determinations.

                                II. REAL PARTY IN INTEREST

        RPS argues that the trial court erred in concluding that the township was the real party in
interest. We disagree. We review de novo a trial court’s decision on a motion for summary
disposition. BC Tile & Marble Co, Inc v Multi Bldg Co, Inc, 288 Mich App 576, 583; 794
NW2d 76 (2010). In this case, as it pertained to the real-party-in-interest argument, the trial
court viewed RPS’s motion as one brought pursuant to MCR 2.116(C)(5) (plaintiff lacks legal
capacity to sue). However, as our Supreme Court has previously held, “the real-party-in-interest
[defense] is not the same as the legal-capacity-to-sue defense.” Leite v Dow Chem Co, 439 Mich
920, 920; 478 Mich 892 (1992). Thus, a motion for summary disposition asserting the real-
party-in-interest defense more properly fits “within MCR 2.116(C)(8) or MCR 2.116(C)(10),
depending on the pleadings or other circumstances of the particular case.” Id. Because it is clear

3
  Although RPS made reference to MCR 2.116(C)(4) in its motion, it made no reference to that
subrule in its brief in support of its motion. Instead it made reference to MCR 2.116(C)(10) as a
basis for summary disposition. The issue of subject-matter jurisdiction was not raised before or
decided by the trial court, nor does RPS argue that issue on appeal.

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in this case that the trial court reviewed documents outside the pleadings in reaching its decision
as to whether the township was the real party in interest, we will treat the trial court’s decision as
made pursuant MCR 2.116(C)(10). See Maiden v Rozwood, 461 Mich 109, 119-120; 597 NW2d
817 (1999). MCR 2.116(C)(10) provides that summary disposition is proper when “there is no
genuine issue as to any material fact.” A motion under MCR 2.116(C)(10) tests the factual
sufficiency of the complaint. Id. at 120. When deciding a motion under MCR 2.116(C)(10), a
trial court may consider affidavits, pleadings, depositions, admissions, and other evidence
submitted by the parties, in the light most favorable to the nonmoving party. Id. “Where the
proffered evidence fails to establish a genuine issue regarding any material fact, the moving
party is entitled to judgment as a matter of law.” Id. A genuine issue of material fact exists
when, viewed in the light most favorable to the non-moving party, reasonable minds could differ
on an issue. Allison v AEW Capital Mgt, LLP, 481 Mich 419, 425; 751 NW2d 8 (2008).
Further, the issue of whether a plaintiff is the real party in interest is a question of law that we
review de novo. In re Beatrice Rottenberg Living Trust, 300 Mich App 339, 354; 833 NW2d
384 (2013).

     “An action must be prosecuted in the name of the real party in interest[.]”
MCR 2.201(B). As previously discussed by this Court,

       A real party in interest is the one who is vested with the right of action on a given
       claim, although the beneficial interest may be in another. This standing doctrine
       recognizes that litigation should be begun only by a party having an interest that
       will assure sincere and vigorous advocacy. In addition, the doctrine protects a
       defendant from multiple lawsuits for the same cause of action. A defendant is not
       harmed provided the final judgment is a full, final, and conclusive adjudication of
       the rights in controversy that may be pleaded to bar any further suit instituted by
       any other party. [Barclae v Zarb, 300 Mich App 455, 483; 834 NW2d 100 (2013)
       (quotations and citations omitted).]

        In this case, there is no dispute that the township did not suffer damages and did not itself
pay any money to the Macks. However, both the Macks and the MMLLPP, who each had a right
of action against RPS, assigned their respective rights to the township. As the trial court
correctly recognized, an assignee of a cause of action becomes the real party in interest with
respect to that cause of action, inasmuch as the assignment vests in the assignee all rights
previously held by the assignor. Kearns v Michigan Iron & Coke Co, 340 Mich 577; 66 NW2d
230 (1954); Burkhardt v Bailey, 260 Mich App 636, 653; 680 NW2d 453 (2004). Thus, by
virtue of the assignments, the township became the real party in interest.

        In reaching the above conclusion, we recognize that the MMLLPP did not assign its
rights to the township until after this lawsuit was filed. Thus, at the time the township initiated
the lawsuit, it was not the real party in interest as it pertained to the first $50,000 of damages
sought in the complaint. However, in denying RPS’s motion for summary disposition, the trial
court granted the township leave to amend its complaint to properly reflect that it was litigating
as the assignee of both the Macks and the MMLLPP. RPS does not assert, and we do not find,
any error in the trial court’s grant of leave to amend. See MCR 2.116(I)(5). Further, although
the township agreed to remit any damages awarded by the trial court above $50,000 to the

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Macks, to be a real party in interest, a plaintiff need only be vested with the right of action on the
claim; the beneficial interest may be with another. Barclae, 300 Mich App at 483.

        Relatedly, RPS argues that the township cannot be considered a “claimant” as that term is
defined by the “sewage disposal system event” exception to the GTLA. We disagree. As
discussed further below, to justify the application of the “sewage disposal system event”
exception to the GTLA, a “claimant” is required to meet several elements. See MCL 691.1417.
A “claimant,” for purposes of the “sewage disposal system event” exception, “means a property
owner that believes that a sewage disposal system event caused damage to the owner’s property .
. . or a person making a claim on behalf of a property owner . . . .” MCL 691.1416(c). The
definition specifically includes, as a claimant, “a person that is subrogated to a claim of a
property owner[.]” Here, there is no dispute that the Macks are property owners who suffered
damages from what is alleged to have been a sewage disposal system event. There is also no
dispute that the Macks were reimbursed $50,000 from the MMLLPP to cover some, but not all,
of those alleged damages. Thus, under the plain terms of the statute, both the Macks, as the
property owners, and the MMLLPP, as a subrogee, would have been entitled to bring a claim
under the “sewage disposal system event” exception to the GTLA. MCL 691.1416(c).
However, as discussed above, both the Macks and the MMLLPP assigned their rights to the
township. Thus, having been vested with all the rights previously owned by the Macks and the
MMLLPP, the township is bringing the instant lawsuit “on behalf of” those two claimants and is,
therefore, a claimant in its own right.

                              III. GOVERNMENTAL IMMUNITY

        RPS also argues that the trial court erred in denying its motion for summary disposition
based on governmental immunity. Again, we disagree. As stated above, we review a trial
court’s decision on a motion for summary disposition de novo. BC Tile, 288 Mich App at 583.
Likewise, claims of governmental immunity under MCR 2.116(C)(7) present a question of law,
which we review de novo. Willett v Charter Twp of Waterford, 271 Mich App 38, 45; 718
NW2d 386 (2006).

       Under MCR 2.116(C)(7), all well-pleaded allegations must be accepted as true
       and construed in favor of the nonmoving party, unless contradicted by any
       affidavits, depositions, admissions, or other documentary evidence submitted by
       the parties. But such materials shall only be considered to the extent that
       the[y] . . . would be admissible as evidence . . . . If no [material] facts are in
       dispute, or if reasonable minds could not differ regarding the legal effect of the
       facts, the question of whether the claim is barred by governmental immunity is an
       issue of law. [Id. (Internal quotations and citations omitted).]

We review issues of statutory interpretation de novo. Bronson Methodist Hosp v Mich Assigned
Claims Facility, 298 Mich App 192, 196; 826 NW2d 197 (2012).

         Subject to various exceptions, a governmental agency is generally immune from tort
liability when it is engaged in the exercise or discharge of a governmental function.
MCL 691.1407(1). The immunity from tort liability provided by MCL 691.1407 “is expressed
in the broadest possible language—it extends immunity to all governmental agencies for all tort

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liability whenever they are engaged in the exercise or discharge of a governmental function.”
Nawrocki v Macomb Co Rd Comm, 463 Mich 143, 156; 615 NW2d 702 (2000) (citation omitted,
emphasis in original). The statutory exceptions are to be narrowly construed. Id. at 158.

        Among the statutory exceptions to governmental immunity is the “sewage disposal
system event” exception, MCL 691.1416 through MCL 691.1419. MCL 691.1417(2) provides
that “[a] governmental agency is immune from tort liability for the overflow or backup of a
sewage disposal system unless the overflow or backup is a sewage disposal system event and the
governmental agency is an appropriate agency.” In Linton v Arenac Co Rd Comm, 273 Mich
App 107, 113-114; 729 NW2d 883 (2006), this Court set forth the elements a claimant must
show in order to avoid governmental immunity pursuant to this exception:

       (1) that the claimant suffered property damage or physical injuries caused by a
       sewage disposal system event [see MCL 691.1417(2) and (3)];

       (2) that the governmental agency against which the claim is made is “an
       appropriate governmental agency . . .” [see MCL 691.1417(2), (3)(a)];

       (3) that “[t]he sewage disposal system had a defect” [see MCL 691.1417(3)(b)];

       (4) that “[t]he governmental agency knew, or in the exercise of reasonable
       diligence should have known, about the defect” [see MCL 691.1417(3)(c)];

       (5) that “[t]he governmental agency, having the legal authority to do so, failed to
       take reasonable steps in a reasonable amount of time to repair, correct, or remedy
       the defect” [see MCL 691.1417(3)(d)];

       (6) that “[t]he defect was a substantial proximate cause of the event and the
       property damage or physical injury” [see MCL 691.1417(3)(e)];

       (7) “reasonable proof of ownership and the value of [any] damaged personal
       property” [see MCL 691.1417(4)(a)]; and

       (8) that the claimant provided notice [to the governmental agency of the claim] as
       set forth in MCL 691.1419 [see MCL 691.1417(4)(b)].

A plaintiff must satisfy all of these elements to survive a motion for summary disposition based
on governmental immunity. Willett, 271 Mich App at 50.

        RPS argues that the trial court erred in finding that the township could show that (1) the
water filtration system is a “sewage disposal system”; (2) the system had a “defect”; and (3) RPS
“knew, or in the exercise of reasonable diligence should have known, about the defect.” We
disagree.

       With respect to whether East Rockford Middle School’s filtration system is a “sewage
disposal system,” MCL 691.1416(j) defines a “sewage disposal system” as

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       [a]ll interceptor sewers, storm sewers, sanitary sewers, combined sanitary and
       storm sewers, sewage treatment plants, and all other plants, works,
       instrumentalities, and properties used or useful in connection with the collection,
       treatment, and disposal of sewage and industrial wastes, and includes a storm
       water drain system under the jurisdiction and control of a governmental agency.
       [Emphasis added.]

The statute does not itself define the terms “sewer” or “sewage,” and these terms thus should be
provided their plain and ordinary meaning. Polkton Charter Twp v Pellegrom, 265 Mich App
88, 102; 693 NW2d 170 (2005). The word “sewer” is commonly defined as “an artificial
conduit, usu. underground, for carrying off waste water and refuse, as in a town or city.” See
Random House Webster’s College Dictionary (2000), 1205. Consistent with this definition,
“sewage” is itself commonly understood to mean “the waste matter that passes through sewers.”
Id. Here, the school’s water filtration system is primarily used as a potable water delivery
system. However, as part of the process of delivering potable water, the system removes waste
matter, such as iron and other unwanted sediments. The water containing this waste matter is
ultimately discharged into the sewer line, a “conduit for carrying off waste water,” during a
backwash cycle. Id. Because the system collects and disposes of unwanted wastes, and because
those unwanted wastes are discharged directly into a sewer line, we hold that the filtration
system is properly considered an “instrumentality” “used or useful in connection with the
collection, treatment, and disposal of sewage and industrial wastes.” MCL 691.1416(j). Because
the township could show that the water filtration system is a “sewage disposal system” for
purposes of the “sewage disposal system event” exception to the GTLA, RPS was not entitled to
summary disposition on this ground.

        With respect to whether there was a “defect” in the water filtration system,
MCL 691.1416(3) defines a “defect” as “a construction, design, maintenance, operation, or
repair defect.” As we observed in Willett, “[a] ‘defect’ is defined as ‘a fault or shortcoming;
imperfection.’ ” Willett, 271 Mich App at 51, quoting Random House Webster’s College
Dictionary (1997).

         Here, as the trial court noted, the parties do not dispute the nature of the flaw in the water
filtration system at the time the sewage back occurred: if electrical power to the system was
interrupted during a backwash cycle, the valves remained in the open position after the power
was restored, resulting in a large amount of water being discharged into the sewer line, which
overwhelmed the Davies line and led to sewage backups. The trial court correctly held that
plaintiff had presented sufficient evidence of a “defect” of some kind, whether in design,
construction, or mere operation, in the sewage disposal system, sufficient to avoid governmental
immunity. See MCL 691.1416(3); Willet, 271 Mich App at 52. Thus, RPS was not entitled to
summary disposition based on this ground.

       Finally, with respect to whether RPS “knew, or in the exercise of reasonable diligence
should have known, about the defect,” RPS argues, as it did before the trial court, that it had no
prior knowledge of any defects in the water filtration system. However, the record reveals that
an almost identical sewage event occurred in September 2010, a year before the event that is the
subject of this lawsuit. Although RPS denied that its officials had any knowledge of this
previous event, there is evidence to indicate otherwise. Specifically, Gary Seger, a Kent County

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DPW employee, testified in his deposition that he spoke to Gerry VanCamp, the school’s head
custodian, in September 2010 following a power outage which resulted in an excessive flow of
water being discharged from the middle school into the Davies lift station. During this meeting,
which took place at the school, VanCamp accompanied Seger to the boiler room, showed him
the water filtration system, explained the problem with the valve system, and indicated that he
had manually closed the valves. According to Seger, VanCamp further noted that “they had
already talked about [the problem] and were going to do something about it.” Seger understood
VanCamp to mean that he had spoken to “school officials” about the issue. During his own
deposition, VanCamp acknowledged that he was notified about the problem with the school’s
water filtration system in September 2010, that he manually turned the valves off, and that he
subsequently notified someone from the maintenance department of his actions. Based on this
evidence, there is a genuine issue of material fact regarding the extent to which RPS was aware
of the defect in its water filtration system prior to August 20, 2011. The trial court thus
appropriately denied summary disposition on this ground.

       Affirmed. As the prevailing party, plaintiff may tax costs. MCR 7.219(A).

                                                           /s/ Mark T. Boonstra
                                                           /s/ Deborah A. Servitto
                                                           /s/ Jane M. Beckering

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