MITCHELL CORP OF OWOSSO V DEPT OF CONSUMER & INDUSTRY SERVICES
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STATE OF MICHIGAN
COURT OF APPEALS
MITCHELL CORPORATION OF OWOSSO,
FOR PUBLICATION
August 12, 2004
9:00 a.m.
Plaintiff-Appellant,
No. 248321
Court of Claims
LC No. 02-219-MZ
v
DEPARTMENT OF CONSUMER AND
INDUSTRY SERVICES, BUREAU OF
WORKERS AND UNEMPLOYMENT
COMPENSATION,
Defendant-Appellee.
Official Reported Version
Before: Zahra, P.J., and Talbot and Wilder, JJ.
WILDER, J.
In this action arising out of a memorandum of understanding between the parties, plaintiff
appeals by right the trial court's order granting defendant's motion for summary disposition. We
affirm.
I. Facts and Proceedings
In October 2002, Mitchell Corporation of Owosso (Mitchell) filed a complaint in the
Court of Claims against the Department of Consumer and Industry Services, Bureau of Worker's
and Unemployment Compensation, alleging breach of contract (count one), and "unlawful
taking" (count two). Plaintiff alleged that in July 1990, it entered into a memorandum of
understanding with defendant regarding plaintiff 's status as a self-insured employer for the
purpose of its worker's compensation liability. The memorandum of understanding detailed that
in exchange for granting plaintiff self-insured status, defendant required plaintiff to post a
$400,000 security, which plaintiff satisfied by obtaining a letter credit in that amount.
Plaintiff further alleged that in April 1998, it obtained worker's disability compensation
insurance with a private insurer, the Hartford Insurance Company. Subsequently, on October 4,
2000, plaintiff filed a petition for bankruptcy under chapter 11 of the Bankruptcy Code, 11 USC
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1101 et seq., rendering plaintiff insolvent for purposes of the Worker's Disability Compensation
Act.1 Plaintiff stated in its complaint that at the time of its insolvency, multiple worker's
disability compensation claims were pending against plaintiff, some of which accrued during the
period when plaintiff was self-insured. Plaintiff alleged that after it became insolvent, the SelfInsurers' Security Fund2 defended and settled the worker's compensation claims that arose during
the time that plaintiff was a self-insured employer, drawing on the proceeds of the letter of credit
that secured plaintiff 's self-insured status. After all pending claims were resolved, plaintiff
requested that defendant return the excess letter-of-credit funds to plaintiff. Defendant denied
plaintiff 's request.
On the basis of these facts, plaintiff alleged in count one of the complaint that defendant's
refusal to refund the excess letter-of-credit funds in the absence of a pending claim constituted a
breach of the memorandum of understanding. In count two, plaintiff alleged that defendant's
retention of the unused funds was not authorized by statute or other legislative authority and,
therefore, constituted a wrongful taking of plaintiff 's property.
In lieu of filing an answer, defendant moved for summary disposition pursuant to MCR
2.116(C)(8) and (C)(10). Defendant argued that plaintiff failed to state a claim upon which relief
could be granted because defendant did not have control over the disbursement of the excess
funds, which were held in the "Mitchell Corporation of Owosso Workers' Compensation Trust."
Because the director of the bureau is one of three trustees of the trust, defendant argued that
plaintiff had not sought recourse against the proper party.
Defendant also requested summary disposition of count one on the basis of MCR
2.116(C)(10) because it has authority, pursuant to administrative law and the memorandum of
understanding, to retain the excess funds in anticipation of future worker's compensation claims.
Additionally, defendant asserted that no statutory or contractual provision required it to return
the excess funds. Defendant also moved for summary disposition of count two on the basis of
MCR 2.116(C)(10), arguing that plaintiff 's claim was more properly characterized as a claim of
conversion and that plaintiff failed to demonstrate any right to the letter-of-credit funds, in light
of the fact that defendant is the only named payee.
Although plaintiff opposed defendant's motion, the trial court granted it, stating that
defendant's retention of the letter-of-credit funds did not violate the memorandum of
understanding. The trial court opined that because the funds may be needed in the future to pay
claims that accrued during the period of self-insurance, defendant has the authority to keep the
1
See MCL 418.502.
2
The Self-Insurers' Security Fund, legislatively created in MCL 418.501, can provide payments
to an entitled employee when the employee's self-insured employer becomes insolvent. MCL
418.537(1). After making such payments, the fund has "all of the rights of the injured employee
as a creditor of the insolvent employer to the extent of the benefits it paid." MCL 418.553. The
fund's trustees have the right and obligation to obtain reimbursement from the insolvent
employer for any funds paid on the employer's behalf. Id.
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excess funds for future use. The trial court did not specifically address on the record defendant's
arguments that plaintiff did not sue the proper party and failed to state a genuine issue of material
fact concerning count two, but nevertheless dismissed plaintiff 's suit in its entirety. Although
the trial court stated on the record that its decision was based on MCR 2.116(C)(8), its order
dismissing plaintiff 's claims cites MCR 2.116(C)(10) as the basis for dismissal.
This appeal followed.3
II. Standard of Review
This Court reviews de novo the trial court's grant of a motion for summary disposition,
Martin v Beldean, 469 Mich 541, 546; 677 NW2d 312 (2004), as well as the questions involved
in interpreting statutes and administrative rules, Romulus v Dep't of Environmental Quality, 260
Mich App 54, 64; 678 NW2d 444 (2003), and contracts, Wilkie v Auto Owners Ins Co, 469 Mich
41, 47; 664 NW2d 776 (2003).
Because the trial court considered facts outside the pleadings in deciding defendant's
motion, we treat the dismissal of plaintiff 's claim as having been based on MCR 2.116(C)(10).
Velmer v Baraga Area Schools, 430 Mich 385, 389; 424 NW2d 770 (1988).
III. Analysis
Plaintiff first contends that the trial court erred by granting defendant's motion for
summary disposition because the memorandum of understanding and relevant portions of the
Administrative Code do not provide defendant the discretion to retain the letter-of-credit funds
indefinitely. We disagree.
MCL 418.611(1)(a) provides that, upon granting an employer the authority to be selfinsured, the director of the Bureau of Worker's Disability Compensation may require the
employer to furnish a bond or other security in an amount determined by the director. A selfinsured employer may satisfy this requirement by obtaining an irrevocable letter of credit or one
of the other forms of security listed in the statute. Id.
If a self-insured employer chooses to secure its self-insured status with a letter of credit,
the employer, pursuant to 1999 AC, R 408.43q(3), must provide a memorandum of
understanding that affirms the employer's acceptance of certain requirements, including that
the irrevocable letter of credit . . . is being offered with the understanding that if
the bureau receives notice that the letter of credit will not be renewed, then the
bureau, in its discretion, may, after 30 days from the date of the receipt of the
notice, call the proceeds of the letter of credit and deposit the proceeds in the state
treasury. And further, if in the judgment of the bureau, the letter of credit is
3
On appeal, plaintiff does not address count two of its complaint, and we consider that claim
abandoned.
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needed to cover any worker's disability compensation claims, then the proceeds of
the letter of credit shall be called immediately and deposited in the state treasury
for such purpose. [Rule 408.43q(3)(d).]
Although the parties first executed a memorandum of understanding in 1990, the parties
state that they periodically executed updated memoranda of understanding, including the
memorandum of understanding on which plaintiff now relies, executed in October 1998. In the
1998 memorandum of understanding, the parties agree, among other things, that
4. If the Bureau is notified that the Letter of Credit will not be renewed and a new
Letter of Credit acceptable to the Bureau is not filed, the Bureau may, at its
discretion and thirty or more days after it received the notice, draw on the Letter
of Credit.
5. The Bureau may, at its discretion, draw on the Letter of Credit at any time if
needed to pay any Michigan workers' disability compensation liability which is
the Employer's responsibility.
6. All proceeds resulting from the Bureau drawing on the Letter of Credit shall be
deposited with the State Treasurer and shall only be used to pay Michigan
workers' disability compensation liability which is the Employer's responsibility.
In addition to requiring the memorandum of understanding, Rule 408.43q provides that
[i]f it is necessary for the director, under statute and bureau rules, to call the bond
or other security, then a trust shall be established with the funds, unless the
provider of the bond or other security elects to handle the claims directly and the
bureau approves. If a trust is established, the funds shall be deposited in the state
treasury and the state treasurer, as provided by section 551(7) of the act, shall be
the custodian of the trust. . . . [R 408.43q(5).]
Pursuant to this rule, after drawing on plaintiff 's letter of credit, defendant established the
"Mitchell Corporation of Owosso Workers' Disability Compensation Trust Agreement" to
govern use of the letter-of-credit funds. The trust agreement provides that the trust will terminate
when the trust funds have been expended "or upon an express determination by the Trustees that
no further claims remain to be paid, and that it is not probable that any remaining claims will be
filed against the Trust Fund, whichever occurs first."4
4
Plaintiff claims in its reply to defendant's brief that the trust does not serve only to pay
plaintiff 's worker's compensation claims because the trust provides that, after the trust is
terminated, any excess funds will be paid into the Self-Insurers' Security Fund and any future
claims that are plaintiff 's responsibility will be paid by re-funding the trust with funds from the
Self-Insurers' Security Fund. Plaintiff did not properly preserve this argument, and we decline to
(continued…)
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Plaintiff asserts that neither the memorandum of understanding nor Rule 408.43q(3)(d)
gives defendant the discretion to retain the presently unused letter-of-credit funds. Rather,
plaintiff claims, defendant has authority to determine only when the letter-of-credit funds are
needed. We disagree. Although the duration of defendant's retention of the funds is not
explicitly addressed in the memorandum of understanding or relevant administrative rules, we
conclude that inherent in defendant's authority to determine when the funds are needed is the
authority to determine how long the need exists. The memorandum of understanding and Rule
408.43q give defendant broad discretion to determine what constitutes a need, when the need
arises, and what portion of the letter-of-credit funds are needed.
As the trial court intimated, given the language of MCL 418.381, it is not possible to
determine a date certain after which plaintiff will no longer be liable for worker's compensation
claims. See Colbert v Conybeare Law Office, 239 Mich App 608, 614; 609 NW2d 208 (2000)
(stating that "a claim for worker's compensation is not valid unless made within two years of the
date of injury, the date disability manifests itself, or the last date of employment"); see also
Drouilliard v Stroh Brewery Co, 199 Mich App 67, 71-72; 501 NW2d 229 (1993) (stating that
MCL 418.381(2) acts as a bar on the payment of past benefits, but not as a statute of limitations).
Accordingly, defendant's need for funds to pay claims that accrued while plaintiff was selfinsured could extend well into the future. Notably, neither the memorandum of understanding
nor Rule 408.43q limits the existence of a need to the presence of a pending claim. Therefore,
defendant's retention of the funds does not constitute a breach of the memorandum of
understanding.
Because we conclude that the memorandum of understanding grants defendant authority
to retain the letter-of-credit funds for as long as it determines that a need exists, we need not
address plaintiff 's request that the Court insert terms in the memorandum of understanding
restricting defendant to retaining the funds for only a reasonable time and retaining only that
portion of the funds objectively determined to be sufficient to meet the risk of future claims.
Affirmed.
Talbot, J., concurred.
/s/ Kurtis T. Wilder
/s/ Michael J. Talbot
(…continued)
consider it on appeal. ISB Sales Co v Dave's Cakes, 258 Mich App 520, 532-533; 672 NW2d
181 (2003).
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