Opinion
356416
09-22-2022
HEATHER MALONE, Plaintiff-Appellant, v. CONOR THOMPSON MCRELL and ZHETMAN BRIGHTON, LC, Defendants-Appellees, and FARMERS INSURANCE EXCHANGE, Defendant.
UNPUBLISHED
Livingston Circuit Court LC No. 19-030275-NI
Before: Swartzle, P.J., and Ronayne Krause and Garrett, JJ.
PER CURIAM
Conor McRell rear-ended Heather Malone while delivering a pizza. Malone sued McRell and his employer, Zhetman Brighton, LC, and she eventually settled with McRell and dismissed him from the case. The settlement agreement stated that Malone would sign "appropriate [r]eleases," but that it would not affect her claims against Zhetman. Zhetman moved for summary disposition after McRell was dismissed, reasoning that it could not be liable for McRell's actions due to the releases. Malone disagreed, arguing that the settlement agreement did not affect Zhetman; she also argued that the trial court should set aside the stipulated order dismissing her claims against McRell. The trial court granted summary disposition to Zhetman and denied Malone's motion to set aside the stipulated order dismissing McRell. We affirm.
Malone's injuries as a result of the car accident are not at issue in this case. Instead, the relevant facts are McRell's employment with Zhetman and the procedural history leading to the unusual case before us. It is undisputed that McRell rear-ended Malone during the course of his employment. Malone sued McRell and Zhetman among others (the other parties are not relevant to this appeal) and eventually entered into a settlement agreement with McRell after facilitation. Under the settlement agreement, McRell was to pay Malone $50,000 and in return she would dismiss with prejudice her claim against him and "appropriate Releases [would] be forwarded and signed." The settlement agreement also stated that it had no effect on Malone's lawsuit against Zhetman. Malone dismissed her claims against McRell with prejudice in a stipulated court order, but he has not paid her the $50,000 and she has not signed the releases mentioned in the agreement. Nevertheless, based on the settlement agreement, Zhetman moved to dismiss Malone's claims against it under MCR 2.116(C)(7) because it could only be vicariously liable based on McRell's actions. Malone argued that the settlement agreement did not affect Zhetman. The trial court disagreed and granted summary disposition to Zhetman.
After the trial court granted summary disposition to Zhetman, Malone moved under MCR 2.612(C)(1)(a), (c), and (f) to set aside the stipulated order that dismissed with prejudice her claims against McRell. The trial court denied that motion as well as Malone's motion for reconsideration, which argued for the first time that the settlement agreement was a covenant not to sue rather than a release. This appeal followed and this Court granted Malone's application for leave to appeal. Malone v Jet's Pizza New Hudson Payroll, LLC, unpublished order of the Court of Appeals, entered June 28, 2021 (Docket No. 356416).
"We review de novo a trial court's decision to grant or deny a motion for summary disposition." Sherman v City of St Joseph, 332 Mich.App. 626, 632; 957 N.W.2d 838 (2020) (citations omitted). In reviewing a trial court's decision under MCR 2.116(C)(7), we consider the record evidence to determine whether the defendant is entitled to immunity. Poppen v Tovey, 256 Mich.App. 351, 353-354; 664 N.W.2d 269 (2003). Relevant here, MCR 2.116(C)(7) authorizes the trial court to grant summary disposition if it is appropriate because of "release."
"At common law a valid release of an agent for tortious conduct operates to bar recovery against the principal on a theory of vicarious liability, even though the release specifically reserves claims against the principal." Theophelis v Lansing Gen Hosp, 430 Mich. 473, 480; 424 N.W.2d 478 (1988). To determine whether an instrument is a release or a covenant not to sue, "the designation of the instrument as 'release' or 'covenant not to sue' is immaterial." Id. at 497 (quotation marks and citation omitted). Rather, "it is necessary to look to its terms, the words used, the amount paid, the substance of the agreement, and the intention of the parties." Id. (quotation marks and citation omitted). McRell agreed to pay Malone $50,000 in return for her dismissing with prejudice her claims against him and promising to sign "appropriate releases." As a result, the agreement did not merely prohibit Malone from bringing a cause of action against McRell in this case; rather, it specifically stated that it settled her claim against McRell, and thereby functioned as a release instead of as a covenant not to sue. See Larkin v Otsego Mem Hosp Ass'n, 207 Mich.App. 391, 393-394; 525 N.W.2d 475 (1994); Felsner v McDonald Rent-A-Car, Inc, 193 Mich.App. 565, 569-570; 484 N.W.2d 408 (1992). That the parties did not in fact sign a release, as required by the settlement agreement, is inconsequential, because the substance of the agreement and its terms all establish that it was a release. See Theophelis, 430 Mich. at 497. Accordingly, the settlement agreement released Malone's claims against McRell. Because Zhetman could only be liable through McRell's actions, the release also released Malone's claims against Zhetman despite its attempt to do otherwise. Zhetman cannot be liable for McRell's actions because Malone contracted away the opportunity to seek further relief based on McRell's actions. Thus, the trial court did not err by granting summary disposition to Zhetman.
The trial court similarly did not err when it denied Malone's motion to set aside the stipulated order dismissing with prejudice her claim against McRell. We review a trial court's decision regarding whether to set aside a judgment under MCR 2.612 for an abuse of discretion. Adler v Dormio, 309 Mich.App. 702, 707; 872 N.W.2d 721 (2015).
Malone struck a bargain with McRell when they reached their settlement, but she now has buyer's remorse and argues that we should set aside the order dismissing McRell from the case under either MCR 2.612(C)(1)(a), (c), or (f). Subrule (a) does not apply because the mistake, if any, arose from Malone's misunderstanding of the settlement agreement's legal effect. See Limbach v Oakland Co Bd of Co Rd Comm'rs, 226 Mich.App. 389, 393; 573 N.W.2d 336 (1997). Subrule (c) similarly cannot save Malone because she has not directed this Court to any legal authority supporting her argument that relief is warranted under that subrule, thereby abandoning the argument. See Cheesman v Williams, 311 Mich.App. 147, 161; 874 N.W.2d 385 (2015). Finally, subrule (f) similarly does not apply because granting relief to Malone under that subrule would prejudice McRell and no extraordinary circumstances warrant setting aside the order dismissing McRell. See King v McPherson Hosp, 290 Mich.App. 299, 305, 308; 810 N.W.2d 594 (2010); Rose v Rose, 289 Mich.App. 45, 62; 795 N.W.2d 611 (2010).
Affirmed.
Ronayne Krause, J. (dissenting)
I respectfully dissent. I agree that the trial court properly denied plaintiff's motion to set aside the stipulated order dismissing McRell. However, because I find the parties' settlement agreement ambiguous on its face, and the parties' conduct is equally unclear, I would vacate the trial court's order granting summary disposition in favor of Zhetman and remand for an evidentiary hearing regarding the parties' intentions, consistent with Justice Boyle's proposed resolution in Theophelis v. Lansing Gen Hosp, 430 Mich. 473, 493-497; 424 N.W.2d 478 (1988) (Boyle, J). Furthermore, because a "covenant not to sue" and a "release" are functionally identical for the parties to the agreement, I also join Justice Levin in questioning whether there remains any value in retaining any distinction between the two, especially where the distinction mostly serves as a trap for the unwary. See id. at 499-505 (Levin, J).
Although a concurring opinion is not binding, it may be considered persuasive. See DeMaria v. Auto Club Ins Ass'n, 165 Mich.App. 251, 254; 418 N.W.2d 398 (1987).
I. FACTUAL BACKGROUND
Zhetman employed McRell to deliver pizzas. While McRell was driving his personal vehicle in the course and scope of that employment, he rear-ended plaintiff, causing her to suffer injuries. In relevant part, plaintiff sued McRell for negligently crashing into her vehicle, and plaintiff sued Zhetman for vicarious liability under the doctrine of respondeat superior. Plaintiff and McRell eventually entered into a settlement agreement, which stated as follows:
Although not clearly stated in the record, it appears that Zhetman is a Jet's Pizza franchisee.
The Plaintiff shall accept $50,000 in full settlement of her action against the Defendant Connor [sic] McRell only. The settlement will not affect the Plaintiff's cause of action against Defendant Zhetman Brighton LC, nor the action for PIP benefits against the Defendant Farmers.
The Defendant McRell shall be dismissed from the present action however his involvement as a potential witness will not be affected by this settlement.
The action is to be dismissed with prejudice and without costs as to Defendant McRell only, and appropriate Releases will be forwarded and signed.
Plaintiff's claims against Farmers Insurance Exchange are not at issue in this appeal.
The settlement agreement was signed by plaintiff's representative and by attorneys for plaintiff and for McRell. A stipulated order of dismissal was subsequently entered by the trial court, ordering that McRell "is hereby dismissed with prejudice and without costs," and further stating that the order did not resolve the last pending claim or close the case. Attorneys for plaintiff and for McRell signed the order approving it as to form and substance. However, the settlement agreement was apparently drafted by a facilitator, not by the parties.
After McRell was dismissed from the case, Zhetman filed a motion for summary disposition pursuant to MCR 2.116(C)(7), arguing that because McRell was dismissed from the case, plaintiff's respondeat superior claim against Zhetman must also be dismissed, because if an agent is released from a lawsuit, the principal must also be released from any claims of vicarious liability. The trial court granted Zhetman's motion for summary disposition pursuant to MCR 2.116(C)(7) regarding plaintiff's respondeat superior claim. Because the trial court also dismissed plaintiff's other claims against Zhetman, the trial court dismissed Zhetman with prejudice from the lawsuit. Plaintiff then moved, under MCR 2.612(C)(1)(a), (c), and (f), to set aside the stipulated order dismissing McRell, arguing that the settlement agreement was rendered void by the dismissal of her respondeat superior claim against Zhetman. Following the trial court's denial of that motion, plaintiff moved for reconsideration, arguing that the settlement agreement should be construed as a covenant not to sue rather than as a release. The trial court denied plaintiff's motion for reconsideration, and this appeal followed.
II. STANDARDS OF REVIEW
A grant or denial of summary disposition is reviewed de novo on the basis of the entire record to determine if the moving party is entitled to judgment as a matter of law. Maiden v. Rozwood, 461 Mich. 109, 118; 597 N.W.2d 817 (1999). Under MCR 2.116(C)(7), the trial court must accept as true the contents of the complaint, unless they are contradicted by documentary evidence submitted by the moving party. Id. at 119. Summary disposition under MCR 2.116(C)(7) is permissible "because of release, payment, prior judgment, [or] immunity granted by law." MCR 2.116(C)(7). The interpretation and application of statutes, rules, and legal doctrines is reviewed de novo. Estes v. Titus, 481 Mich. 573, 578-579; 751 N.W.2d 493 (2008). We also review de novo as a question of law the proper interpretation of a contract, including a trial court's determination whether contract language is ambiguous. Klapp v. United Ins Group Agency, Inc, 468 Mich. 459, 463; 663 N.W.2d 447 (2003). "When reviewing a grant of equitable relief, an appellate court will set aside a trial court's factual findings only if they are clearly erroneous, but whether equitable relief is proper under those facts is a question of law that an appellate court reviews de novo." McDonald v. Farm Bureau Ins Co, 480 Mich. 191, 197; 747 N.W.2d 811 (2008).
A trial court's decision on a motion for reconsideration is reviewed for an abuse of discretion. Jackson v. Bunk AG Innovations, LLC,___ Mich. App___,___;___ N.W.2d___ (2022) (Docket No. 356935); slip op at 3. A trial court's decision regarding whether to set aside a judgment under MCR 2.612 is also reviewed for an abuse of discretion. Adler v. Dormio, 309 Mich.App. 702, 707; 872 N.W.2d 721 (2015). A trial court abuses its discretion "when its decision falls outside the range of reasonable and principled outcomes." Jackson, Mich.App. at; slip op at 3 (quotation marks and citation omitted).
III. ANALYSIS
Vicarious liability is a theory of "indirect responsibility imposed by operation of law" under which a principal is deemed constructively responsible for the conduct of an agent. Cox v. Bd of Hosp Managers for City of Flint, 467 Mich. 1, 11; 651 N.W.2d 356 (2002) (quotation omitted). No judgment need be rendered against the agent; rather, "a plaintiff need only prove that an agent has acted negligently" for that negligence to be imputed to the principal. Al-Shimmari v. Detroit Med Ctr, 477 Mich. 280, 294-295; 731 N.W.2d 29 (2007). However, in Michigan, a valid release of the agent will also release the principal, irrespective of whether the release purports to reserve claims against the principal. Theophelis, 430 Mich. at 480 (Griffin, J.), 493 (Boyle, J.); 424 N.W.2d 478 (1988). Conversely, a covenant not to sue will not discharge the principal. Id. at 492 (Griffin, J.), 500, 503-505, 516 (Levin, J.).
No opinion in Theophelis was signed by more than three Justices. Justice Griffin's opinion was also signed by Justice Brickley and Chief Justice Riley, and Justice Boyle specifically agreed with Justice Griffin "that the release of the agent of a vicariously liable principal operates to discharge the principal." Theophelis, 430 Mich. at 493. This Court has therefore treated Theophelis as binding as to that particular point of law. See Larkin v. Otsego Mem Hosp Ass'n, 207 Mich.App. 391, 393 n 1; 525 N.W.2d 475 (1994). This Court is now bound to follow that determination. MCR 7.215(J)(1).
The courts are not bound by the labels parties might give to their documents; rather, we determine the nature of a particular instrument by examining its substance and what the document actually does. Hartford v. Holmes, 3 Mich. 460, 463 (1855); In re Traub Estate, 354 Mich. 263, 278-279; 92 N.W.2d 480 (1958); John Deere Co v. Wonderland Realty Corp, 38 Mich.App. 88, 91; 195 N.W.2d 871 (1972). It should therefore be expected that whether a particular agreement is a release or a covenant not to sue does not depend upon what the parties called the agreement, but rather upon "its terms, the words used, the amount paid, the substance of the agreement, and the intention of the parties." Theophelis, 430 Mich. at 497 (Boyle, J.) (quotation omitted). Our Supreme Court has explained the substantive distinction as follows:
A release immediately discharges an existing claim or right. In contrast, a covenant not to sue is merely an agreement not to sue on an existing claim. It does not extinguish a claim or cause of action. The difference primarily affects third parties, rather than the parties to the agreement. [J&J Farmer Leasing, Inc v. Citizens Ins Co of America, 472 Mich. 353, 357-358; 696 N.W.2d 681 (2005).]
In J&J Farmer Leasing, our Supreme Court found it significant that the agreement in that case was conditional upon one of the parties performing certain duties, rather than absolute, and therefore it was a covenant not to sue instead of a release. Id. at 358. Furthermore, the agreement explicitly stated that it might be rendered null and void if the other party did not cooperate. Id. at 356 n 4.
The nature of the settlement agreement here is not entirely clear. However, some clues in its language are suggestive. The settlement agreement is phrased entirely in the future tense, suggesting that it does not have immediate effect. The parties unambiguously expected that plaintiff's claims against Zhetman would continue, and McRell is impliedly obligated to be a witness in the proceedings. Most notably, the parties expressly specified that some kind of future release would be entered into at a later date, as a separate transaction. Contracts should be construed to avoid rendering any part surplusage or nugatory. See Lebenbom v. UBS Financial Svcs, Inc, 326 Mich.App. 200, 216; 926 N.W.2d 865 (2018). To construe the settlement agreement as itself being a release would impermissibly render its final clause surplusage. Nevertheless, although phrased in the future tense, the parties' language is seemingly absolute, and as noted, the parties' choice of labels is not dispositive. As observed by Justice Boyle, simply because the parties used the word "release" does not necessarily mean they intended to use that word as a specific term of art. See Theophilis, 430 Mich. at 496 (Boyle, J). This is especially concerning given that the settlement agreement was drafted by a facilitator. I conclude that when the settlement agreement is read as a whole, see Lebenbom, 326 Mich.App. at 216, the agreement is ambiguous on its face as to whether the parties intended it to be a release or a covenant not to sue.
At oral argument, it was represented that proposed releases were drafted but never actually signed, suggesting that the settlement agreement was not understood by plaintiff or McRell to be a release. It was also established that McRell's only concern is ensuring that he will not be brought back into the case. McRell has not paid the $50,000 specified in the settlement agreement because he believes he lacks that assurance. Nevertheless, the parties stipulated to a dismissal with prejudice, suggesting that they believed McRell was insulated from being brought back into the case. Importantly, as noted above, the distinction between a release and a covenant not to sue is essentially irrelevant as between the signatories to the instrument. J&J Farmer Leasing, 472 Mich. at 357-358. That the stipulated order was with prejudice, rather than without prejudice, is consistent with a belief that the parties did not intend to reinstate plaintiff's claims against McRell if her claims against Zhetman were dismissed for any reason other than construing the settlement as a release. The parties clearly expected plaintiff's claims against Zhetman to continue, and it can be presumed that plaintiff fully intended to execute an instrument preserving her claims against Zhetman. Although McRell has opposed such an interpretation, McRell's conduct calls that opposition into some question.
I note that McRell took the position that the settlement agreement was neither a release nor a covenant not to sue, but rather a contract to enter into a future release. I do not accept that interpretation, because the parties' stipulation to dismiss McRell with prejudice is incompatible with the fact that both parties have plainly refused to perform under such a hypothetical contract.
I think, under the circumstances, the proper resolution of this matter would be to follow Justice Boyle's concurrence in Theophelis and remand for an evidentiary hearing to take parol evidence to resolve the ambiguity of the parties' intentions. Theophelis, 430 Mich. at 493-497 (Boyle, J.). I recognize that plaintiff did not advance an argument referring to a "covenant not to sue" by name until late in the litigation. However, the dispositive question is what the parties intended, not whether they invoked the correct terminology. As discussed, further compounding the problem is that the settlement agreement was apparently drafted by a facilitator, not by the parties. It is probable that it simply never even occurred to anybody whether some hypertechnical turn of phrase would have such significant consequences. See id. at 499-505 (Levin, J).
As was discussed at oral argument, plaintiff's request to reform the parties' settlement agreement is not properly before us. Nevertheless, I briefly note that the trial court was correct in observing that a mutual mistake as to the legal effect of a contract generally is not grounds for reforming a contract, whereas a mutual mistake as to the legal meaning of the words used in a contract may entitle the parties to have the contract reformed to accurately express their intentions. Johnson Family Ltd Partnership v. White Pine Wireless LLC, 281 Mich.App. 364, 379- 380; 761 N.W.2d 353 (2008); Scott v. Grow, 301 Mich. 226, 236- 238; 2 N.W.2d 254 (1942). In other words, did the parties misunderstand the nature of what they signed because they incorrectly thought the words meant something else, or did they misunderstand the ramifications of what they signed? I think, under the circumstances, that there is sufficient ambiguity on the face of the settlement agreement that the issue is presently interpretation, not reformation. I would therefore decline to address whether the settlement agreement should be reformed at this stage of the proceedings, in any event.
For the above reasons, I cannot conclude that it was improper for the trial court to decline to set aside the stipulated order dismissing McRell with prejudice. If, after holding an evidentiary hearing, the trial court were to determine that the parties did intend to execute a "release" as a term of art, then the stipulated order of dismissal with prejudice was proper, summary dismissal of Zhetman was also proper, and plaintiff would be immediately entitled to her $50,000 from McRell. Conversely, if the trial court were to determine that the parties intended to execute a covenant not to sue (whether or not they were aware of the proper terminology), then summary dismissal of plaintiff's vicarious liability claim against Zhetman under MCR 2.116(C)(7) was erroneous, and that claim must be reinstated. However, the dismissal of McRell with prejudice would still be appropriate, because, as discussed above, the nature of the settlement agreement would only affect whether the vicarious liability claim against Zhetman could be dismissed on the specific grounds of release pursuant to MCR 2.116(C)(7). As discussed, there is no practical distinction between a release and a covenant not to sue as between the parties to the instrument, so McRell would remain insulated from being brought back into this case as to any claims by Malone, irrespective of whether the vicarious liability claim against Zhetman may proceed. However, if the settlement agreement is a covenant not to sue, then although McRell may be assured he will not be brought back into the suit, I am not persuaded that McRell is obligated to pay the $50,000 until such time as plaintiff does execute a formal release.
The settlement agreement does not specify any deadline.
I would affirm the trial court's denial of plaintiff's motion to set aside the stipulated order dismissing McRell. However, I would vacate the trial court's order granting summary disposition in favor of Zhetman, and I would remand this matter to the trial court for the unenviable task of resolving what the parties actually intended to accomplish when they signed the settlement agreement, or, at a minimum, to determine whether the parties understood the legal effect of the terminology used in the settlement agreement.