TURTLE LAKE CLUB V UPPER MULVANEY RESOURCES GROUP
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STATE OF MICHIGAN
COURT OF APPEALS
TURTLE LAKE CLUB,
UNPUBLISHED
December 1, 2009
Plaintiff/Counter-DefendantAppellant-Cross Appellee,
v
UPPER MULVANEY RESOURCES GROUP,
No. 285700
Montmorency Circuit Court
LC No. 06-001519-CZ
Defendant/Counter-PlaintiffAppellee-Cross-Appellant.
Before: Hoekstra, P.J., and Bandstra and Servitto, JJ.
PER CURIAM.
Plaintiff appeals as of right the trial court’s decision granting defendant’s motion for
summary disposition, dismissing plaintiff’s claims, and awarding attorneys fees as contract
damages. Defendant cross appeals the trial court’s decision to award less than the amount of
attorneys fees requested as damages. We affirm in part and reverse in part.
Plaintiff Turtle Lake Club (TLC) is a nonprofit corporation. In 1982, TLC transferred the
mineral rights of the property it owned in several counties to defendant Upper Mulvaney
Resources Group (UMRG), a partnership formed by the 20 members of TLC for the purposes of
receiving, managing and profiting from those mineral rights. Some time later, TLC questioned
the legality of the 1982 transfer and, in 1996, following extensive bargaining, TLC and UMRG
reached a settlement whereby UMRG returned roughly half of the mineral rights to TLC. The
settlement agreement also included a covenant not to sue on any issue related to the 1982 mineral
rights transfer.
Notwithstanding that, in August 2006, TLC filed the instant action, asserting that the
original transfer of mineral rights to UMRG in 1982 was void ab initio and that the subsequent
1996 settlement was also void because it was an agreement to ratify the initial, illegal transfer.
TLC sought to recover royalties paid to UMRG under mineral rights lease agreements. UMRG
filed a counter-complaint seeking damages on the basis that TLC’s act of filing suit constituted a
breach of the 1996 settlement agreement’s covenant not to sue.
UMRG moved for summary disposition seeking dismissal of TLC’s claims. The trial
court granted UMRG’s motion, concluding that the 1996 settlement between the parties was a
valid agreement and that TLC had breached that settlement agreement by filing the present
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action. The trial court explained that the settlement agreement was “long and thorough and
clearly was intended to be a final resolution of the issue whether the [1982] transfer of mineral
rights several years before was a valid transfer. Among other things the agreement forbade the
filing thereafter of any lawsuit concerning the issue.”
After the trial court dismissed TLC’s complaint, UMRG moved for partial summary
disposition on its cross claim for damages related to TLC’s breach of the 1996 settlement
agreement, requesting that the trial court conclude that it was entitled to recover attorneys fees.
UMRG submitted a billing for attorneys fees in the amount of $570,793.05. The trial court
concluded that this amount was unreasonable for several reasons, including the fact that the
billing included fees for work billed prior to the filing of the lawsuit, the relatively short duration
of the case, the fact that no discovery was taken, experts in gas law were retained when the
primary issue related to contract law, it was not necessary to go to trial or prepare for trial, and
the case did not necessitate extraordinary skill. The trial court awarded UMRG attorneys fees in
the amount of $255,000.
TLC argues that summary disposition of its claim against UMRG was improper because
genuine issues of fact remained related to the legality of the 1982 transfer. We disagree. We
review the decision of a trial court pertaining to a motion for summary disposition de novo.
Associated Builders & Contractors v Consumer & Industry Services Director, 472 Mich 117,
123; 693 NW2d 374 (2005). Summary disposition is proper under MCR 2.116(C)(10) if the
documentary evidence submitted by the parties, viewed in the light most favorable to the
nonmoving party, shows that there is no genuine issue regarding any material fact and the
moving party is entitled to judgment as a matter of law. Veenstra v Washtenaw Country Club,
466 Mich 155, 164; 645 NW2d 643 (2002). A question of material fact exists when the record
leaves open an issue upon which reasonable minds might differ. West v Gen Motors Corp, 469
Mich 177, 183; 665 NW2d 468 (2003).
Generally, a contract expressing the intent of the parties in clear and unambiguous
language must be enforced as written. In re Egbert R Smith Trust, 480 Mich 19, 24; 745 NW2d
754 (2008). However, an exception to this rule applies when the contract violates law or public
policy. Rory v Continental Ins Co, 473 Mich 457, 491; 703 NW2d 23 (2005).
TLC, as a nonprofit corporation, could not operate for the purpose of providing profit or
pecuniary gain for its members. MCL 450.117, repealed by 1982 PA 162, §1098, effective
January 1, 1983. The transfer at issue occurred in 1982. At that time, a nonprofit corporation
was prohibited from issuing payment to shareholders of dividends or “any portion of
earnings . . . derived through increment of value upon property or otherwise incidentally made.”
MCL 450.119, repealed by 1982 PA 162, §1098, effective January 1, 1983. The statute also
provided that upon dissolution of a nonprofit corporation, the shareholders would be entitled to
only the original subscription price of the stock, unless otherwise provided for in the articles of
incorporation. Id. TLC contends that the transfer of mineral rights from TLC to UMRG
constituted an illegal dividend payment because the members of TLC were also the members of
UMRG. However, this Court has previously defined the term “dividend” as a “distribution of
the net income of the corporation to the shareholders of that corporation.” Allied Supermarkets,
Inc v Grocer’s Dairy Co, 45 Mich App 310, 314; 206 NW2d 490 (1973), aff 391 Mich 729
(1974). The deed transferring mineral rights from TLC did not list the shareholders of TLC as
the grantees. Instead, UMRG was the designated grantee of the transfer. Even though the
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membership of the two entities was the same, the transfer in question was still a transfer between
two separate corporate entities with similar shareholders, rather than from one corporate entity to
its own shareholders. Therefore, the 1982 transfer was not an illegal dividend payment to TLC’s
members.1
Because TLC cannot demonstrate that the 1982 transfer of mineral rights violated law or
public policy, it must be enforced as written. Rory, supra at 491. Because the legality of the
1982 transfer was not an outstanding question of fact, the trial court did not err in granting
summary disposition in favor of UMRG. Veenstra, supra at 164.
Moreover, it is a long held policy of this Court that a party may not benefit from a claim
of error resulting from conduct that the aggrieved party contributed to by plan or negligence.
Lewis v LeGrow, 258 Mich App 175, 210; 670 NW2d 675 (2003). TLC seeks to place UMRG in
the position of wrongdoer. However, if wrongful conduct did in fact occur, TLC itself was an
active participant in such wrongdoing and should not now benefit from those actions.
We also reject TLC’s claim that the 1996 settlement agreement is unenforceable as a
matter of law because it constituted the ratification of prior unlawful conduct. A settlement
agreement is a contract and is governed by the legal principles applicable to interpretation and
construction of contracts. Columbia Assoc v Dep’t of Treasury, 250 Mich App 656, 668; 649
NW2d 760 (2002). The construction and interpretation of a contract is a question of law that we
review de novo. Bandit Industries, Inc v Hobbs Int’l Inc (After Remand), 463 Mich 504, 511;
620 NW2d 531 (2001).
Settlement agreements are contracts and are “governed by the legal rules applicable to the
construction and interpretation of other contracts.” Reicher v SET Enterprises, Inc, 283 Mich
App 657, 663; 770 NW2d 902 (2009); see also, MacInnes v MacInnes, 260 Mich App 280, 289290; 677 NW2d 889 (2004). Contracts, including settlement agreements, will be enforced as
written unless they violate law or public policy. Reicher, supra at 663; Bloomfield Estates
Improvement Ass’n Inc v City of Birmingham, 479 Mich 206, 212; 737 NW2d 670 (2007).
Because we have concluded that the 1982 transfer was valid and did not violate then existing
law, TLC’s argument that the settlement agreement is invalid lacks merit. Therefore the trial
1
TLC contends that our Supreme Court’s holding in German Corp of Negaunee v Negaunee
German Aid Society, 172 Mich 650; 138 NW 138 (1912) compels a different conclusion. In that
case, the Court held that a deed transferring mineral rights from a benevolent society directly to
its members, share and share alike, was void “because made upon inadequate consideration by
and for the benefit of those in control of the corporation, and also for want of the necessary
element of two parties to the contract.” Id. at 656. In German, however, it was only after the
initial transfer of the mineral rights to the members directly that the members formed a
corporation for mining purposes, to whom they then transferred the mineral rights. Id. at 653.
As noted above, the transfer at issue in the instant case was not a transfer from TLC directly to
its members, but rather was from TLC to another separate and distinct corporate entity, whose
shareholders were also members of TLC. That distinction renders German inapposite here.
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court did not abuse its discretion by enforcing the clear settlement agreement and granting
summary disposition in favor of UMRG. Veenstra, supra at 164.
TLC’s final issue on appeal challenges the trial court’s authority to award attorneys fees
in the instant case. We agree that the trial court erred in doing so. We review a trial court’s
decision to award attorneys fees for an abuse of discretion. Smith v Khouri, 481 Mich 519, 526;
751 NW2d 472 (2008).
The general rule in Michigan is that attorneys fees are not recoverable unless authorized
by statute, court rule, or contract. Dessart v Burak, 470 Mich 37, 42; 678 NW2d 615 (2004); In
re Temple Marital Trust (After Remand), 278 Mich App 122, 129; 748 NW2d 265 (2008).
Exceptions to the rule generally prohibiting an award of attorneys fees are narrowly construed.
Fleet Business Credit v Kraphol Ford Lincoln Mercury Co, 274 Mich App 584, 589; 735 NW2d
644 (2007).
The settlement agreement between the parties did not include a provision specifically
authorizing the payment of attorneys fees in the event of a breach. However, UMRG argues that
the settlement agreement nonetheless provides a contractual basis for the award of attorneys fees
because, by filing this lawsuit, TLC breached its contractual commitment not to sue and, as a
reasonably foreseeable result, UMRG incurred attorneys fees which should be recoverable as
actual damages. UMRG thus distinguishes this case, where it argues that attorneys fees were
awarded as a measure of the actual damages resulting from TLC’s violation of the contract, from
cases where a prevailing party seeks to tax attorneys fees as costs, i.e., “as an incidental matter to
its being the successful litigant in [a] case.” UMRG admits that the approach it advocates has
not been adopted (or even considered) by any Michigan authority, but points to cases from
foreign jurisdictions where it has been used. See e.g., Anchor Motor Freight, Inc v Int’l Bd of
Teamsters, 700 F2d 1067 (CA 6, 1983).
We recognize the logic of UMRG’s argument and acknowledge that it has not been
specifically rejected by any Michigan precedent. Nonetheless, we feel constrained to reject it on
the basis of the Michigan authority that is available.
As noted earlier, the rule as applied in our state is that attorneys fees are not recoverable,
and the exception for cases where a contract authorizes the recovery of attorneys fees must be
narrowly construed. And, contrary to UMRG’s argument, our precedents have stated the rule as
prohibiting “an award of attorneys fees as an element of costs or damages.” Newport West
Condo v Venier, 134 Mich App 1, 17; 350 NW2d 818 (1984) (emphasis added).2 “Generally,
2
We further note that our Supreme Court has adopted the “American rule” against the general
recovery of attorneys fees as that rule has been handed down by US Supreme Court precedents.
In the matter of Kelman v Lauria, 406 Mich 497, 503; 280 NW2d 457 (1979). In Alyeska
Pipeline Services v Wilderness Society, 421 US 240, 249-250; 95 S Ct 1612; 44 L Ed 2d 141
(1975), the Supreme Court extensively reviewed the development of the American rule and
noted, significantly for our purposes here, that it stemmed initially from a case involving “the
inclusion of attorneys fees as damages.” (Emphasis added).
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attorneys fees are not recoverable as an element of costs or damages unless expressly allowed by
statute, court rule, or common law exception, or where provided by contract of the parties.”
Grace v Grace, 253 Mich App 357, 370-371; 655 NW2d 595 (2002). (Emphasis added). In
cases where the contract of the parties “expressly allowed” for the imposition of attorneys fees,
our court has approved the award of those fees as damages. Sentry Ins v Lardner Elevator, 153
Mich App 317, 326; 395 NW2d 31 (1986). Central Transport, Inc v Fruehauf Corp, 139 Mich
App 536, 548; 362 NW2d 823 (1984). Thus, “a contractual clause providing that in the event of
a dispute the prevailing party is entitled to recover attorneys fees is valid.” Fleet Business
Credit, supra.
In contrast to these cases, UMRG would have us impose attorneys fees against TLC in
the absence of any express authorization in the parties’ contract. Because we are bound by
precedents requiring that we narrowly construe the contract exception to the American rule, we
must reject this argument.
As we have concluded that the trial court erred in awarding attorneys fees, we need not
address UMRG’s cross-appeal challenging the amount of attorneys fees awarded. We affirm in
part and reverse in part. Neither party having fully prevailed, no costs may be taxed pursuant to
MCR 7.219.
/s/ Joel P. Hoekstra
/s/ Richard A. Bandstra
/s/ Deborah A. Servitto
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