UNITED INVESTMENTS INC V CITY OF MOUNT PLEASANT
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STATE OF MICHIGAN
COURT OF APPEALS
UNITED INVESTMENTS, INC, successor in
interest to BROOMFIELD BLUFFS, LLC,
UNPUBLISHED
October 21, 2010
Plaintiff-Appellant,
v
No. 292279
Isabella Circuit Court
LC No. 06-005346-CK
CITY OF MOUNT PLEASANT,
Defendant-Appellee.
Before: BANDSTRA, P.J., and MARKEY and WHITBECK, JJ.
PER CURIAM.
Plaintiff appeals by right the trial court’s May 8, 2009 opinion and order, entered after a
five-day bench trial, that plaintiff had no cause of action for either breach of contract or
constitutional violations arising out plaintiff’s effort to modify a May 25, 2000 Planned
Residential Development (PRD) agreement that defendant entered into with plaintiff’s
predecessor in interest. In 2005, plaintiff requested the agreement, which permitted construction
of M-1 apartments (no more than 2 unrelated persons per dwelling), be amended to allow instead
for construction of M-2 apartments (more than 2 unrelated persons per dwelling). Plaintiff
sought the modification because changes in the state building code made constructing M-1
buildings much more expensive and because of “significant modifications” in the market.
Because we find no clear error in the trial court’s findings of fact or in its legal conclusions that
plaintiff failed to prove any of its claims at trial, and therefore had no cause of action against
defendant, we affirm.
I. FACTUAL BACKGROUND
The trial court’s findings of fact provide background for the issues on appeal:
This case concerns a parcel of property located on the comer of Crawfield
and Broomfield roads in the City of Mt. Pleasant, Michigan. This is the last large
undeveloped parcel of land in the City. On May 25, 2000, a Planned Residential
Development Agreement (PRD Agreement) was entered into between the City
and Crawfield LLC. At the time, Crawfield LLC owned the entire parcel of
property. Section 154.052 of the City Zoning Code governs the Planned
Residential Development Districts. Paragraph 1 of the PRD Agreement states
that:
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“The DEVELOPER is hereby granted approval to develop the Property
as set forth in the PRD Plans and pursuant to the requirements of
Sections 154.052 and 154.170 of the Code, subject to the remaining
conditions set forth in this Agreement.”
The parcel was also split into three separate pods and an area designated
as open space. Specific plans were not set forth for each pod, but density and
occupancy counts were assigned. Pod 1 was given a density count of 1,096
residents in 548 M-1 units. Pod 2 was assigned a density of 56 residents in 28
units. Pod 3 was assigned 950 occupants in 475 units. Development was not
permitted on the area designated as open space.
In August of 2000, Plaintiff acquired Pod 1 and the open space area,
approximately 97.6 acres. A site plan was approved for Pod 1 on April 10, 2003.
Plaintiff obtained a permit to develop West Point Village on April 28, 2003. West
Point Village was a residential development consisting of 548 M-1 units. In
October of 2003, Plaintiff acquired an additional 5 acres making the combined
acreage for Pod 1 and the open space area 102.6 acres. Plaintiff constructed 124
M-1units on Pod 1. A change in market conditions caused Plaintiff to stop
construction on the remaining 424 units. The State changed the building code for
M-1 units requiring developers to install fire suppression systems in all buildings
and monitor the systems. Developers were also required to install an additional,
separate water line to each building. An additional stairway and exit was required
on the opposite side of the building. Mr. McGuirk[1]testified that these additional
requirements made it more expensive to construct an M-1unit than an M-2.
On April 21, 2005, Plaintiff first approached Defendant with a proposal to
add 164 M-2 units rather than constructing the remaining 424 M-1units. The M-2
units are typically used for student housing because it allows for more than two
unrelated individuals to board together. Mr. McGuirk feels that M-2 units are
more desirable in this location. Plaintiff first appeared in front of the Planning
Commission on June 2, 2005. He was told to analyze the density and style of the
units and create a parallel plan. An open space community overlay project is the
only type of plan that would accommodate M-2 units.
On September 14, 2005, Plaintiff provided calculations to the City
Attorney based on its interpretation of Section 154.052A of the City Zoning Code.
This particular section applies to open space community overlay projects. A
formula is set forth to determine how many units can be constructed in an open
space community. Section 154.052A(D)(3)(c) states:
1
Rick McGuirk is plaintiff’s principal officer and owner.
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“The total occupancy for an M-2 component shall not exceed 85% of
two occupants multiplied by the number of dwelling units permitted.
The M-2 node shall not exceed 25% of the total open space community.”
There is no dispute over the interpretation of the 85% requirement. There
is a dispute over the interpretation of the 25% requirement. Plaintiff interprets the
25% requirement to mean that the M-2 node shall not exceed 25% of the total
land area of the total open space community. Defendant interprets the 25% to
mean that the M-2 node shall not exceed 25% of the total dwelling units of the
open space community.
Eric Williams, the City Attorney, drafted a legal opinion on January 25,
2006, addressing the various legal issues arising out of the PRD Agreement and
request to modify Pod 1. Mr. Williams pointed out the need for Plaintiff to
receive consent from all interested parties before the PRD Agreement could be
modified. Mr. Williams also addressed the interpretation of the 25% density
requirement. He stated that arguments can be made for both interpretations and
that another phrase must be inserted for clarification. Mr. Williams stated that
absent a strong basis for rejecting Mr. Kulick’s, the Director of Planning and
Community Development for the City of Mt. Pleasant, interpretation, the
Planning Commission should follow and apply it. It was recommended that the
ordinance be amended for the purposes of clarification as soon as possible. Mr.
Williams concluded by stating that there is no definitive provision in the
ordinance making either calculation correct or incorrect and that the Planning
Commission will have to make its own determination based on the different
calculations, the zoning ordinance, and the proposed amended PRD plans. Mr.
Williams did not state that Plaintiff’s interpretation was correct. He indicated that
the ordinance was vague and needed to be amended.
On June 1, 2006, the Planning Commission held a public hearing and
recommended an amendment to Section 154.052A of the City Zoning Code
pertaining to the density requirement for an open space community overlay
project. On June 22, 2006, Plaintiff requested that Defendant wait to amend the
ordinance until after a decision was made on their parallel plan. On June 26,
2006, the City Commission held a public hearing on the proposed text changes.
The language was ultimately approved on July 10, 2006. The language change is
referred to as Ordinance 920. Ordinance 920 states: “[i]n an open space
community of 30 or more acres, up to 25% of the total land area of the open space
community can be developed as multiple family units or multiple non-family
units.” Ordinance 920 further stated that no more than 25% of the total dwelling
units of the open space community could be developed as multiple family or
multiple non-family type dwelling units. Defendant’s interpretation was codified.
Ordinance 920 became effective on November 1, 2006.
Before the effective date of Ordinance 920, plaintiff initiated this action asserting claims
for (1) breach of contract, (2) declaratory or injunctive relief, (3) violation of substantive due
process, (4) violation of equal protection, (5) inverse condemnation, and (6) a writ of mandamus.
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The case was initially removed to federal court but remanded to state court on the basis of the
party’s agreement and plaintiff’s filing an amended complaint asserting its constitutional claims
were based only on Michigan’s Constitution.
Contemporaneous with plaintiff’s initiation of this litigation, defendant sought to
accommodate plaintiff’s desired modified development plans by amending its zoning ordinance
to permit conditional zoning. The trial court describes this effort:
In June of 2006, Plaintiff submitted a request for the Planning
Commission to consider conditional zoning. On September 2, 2006, the Planning
Commission considered a text amendment allowing for conditional zoning. On
October 5, 2006, the Planning Commission held a public hearing to consider an
amendment to allow conditional zoning. On October 23, 2006, all pod owners
joined in the request for conditional zoning. Conditional zoning would allow the
development of Broomfield Hills encompassing the entire 157 acre parcel of
property. After various meetings, on May 14, 2007, the City Commission voted
and accepted the Conditional Zoning Agreement. Ordinance 928 was also
approved by City Commission allowing for conditional zoning of the 157 acre
parcel and amending the zoning map.
The Conditional Zoning Agreement gave Plaintiff the ability to construct
M-2 units in addition to the already present M-1units. 1,602 occupants would
have resided in the M-2 units. The area designated as open space, 66.20 acres,
could have been developed under an R-1 classification. Plaintiff would have
constructed 26 duplexes and 72 single-family units on the open space area. A
referendum vote was held and the Conditional Zoning Agreement was rejected by
City voters on November 11, 2007.
As noted already, the trial court rejected all of plaintiff’s claims. Plaintiff now appeals
only the court’s ruling regarding its breach of contract claim, and the trial court’s rulings
regarding plaintiff’s constitutional substantive due process and takings claims. Plaintiff’s theory
regarding its contract claim is that the PRD agreement incorporated § 154.052A of the zoning
ordinance governing open space community overlay projects—and that § 154.052A as written
before Ordinance 920 permitted plaintiff’s proposed modified development plan that includes M2 dwelling units. It is undisputed that the plans originally approved by the PRD agreement did
not include an open space community overlay or M-2 units. Plaintiff asserts defendant breached
the PRD agreement by violating its implied covenant of good faith and fair dealing when it
adopted Ordinance 920 so as to preclude plaintiff’s proposed amendment to permit development
of the number of M-2 units it desired in its proposed open space community overlay project.
The trial court found that both parties acknowledged that the PRD agreement was valid
and that they each believed they were merely enforcing its terms. With respect to the M-2
density requirements of the zoning ordinance, the main impediment to approval of plaintiff’s
proposed amended PRD agreement, the trial court ruled in favor of defendant’s interpretation:
The court finds, as Mr. Williams stated, that the density requirement as
written before Ordinance 920 is ambiguous. The court’s goal now is to determine
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the drafters’ intent when the ordinance was created. Mr. Kulick was the Director
of Planning and Community Development for the City of Mt. Pleasant at the time
that the dispute arose and was present when Ordinance 830 which created open
space community overlay projects, was developed. Mr. Kulick testified that he
and the Planning Commission had always interpreted the 25% requirement to
mean 25% of dwelling units. The court finds Mr. Kulick’s testimony to be
credible and demonstrative of the legislative intent when the 25% requirement
was created. Mr. Kulick had been active with the Planning Commission when
Ordinance 830 was enacted creating open space community overlay projects. Mr.
Kulick was aware of what the intent behind the amendment was from the
beginning and always applied it in the same way. Plaintiff failed to demonstrate
by a preponderance of the evidence that it met the density requirements set forth
in Section 154.052A of the City Zoning Code. Plaintiff was not entitled to
approval of an open space community until the Planning Commission approved
the parallel plan with a valid number of dwelling units. Mr. Williams provided
Plaintiff with a copy of his legal opinion and Plaintiff was aware of the Planning
Commissions requirements for density. A revised parallel plan could have been
submitted. [2]
The trial court went on to rule that the PRD agreement required plaintiff to obtain the
consent of all owners in interest of property included within the original PRD agreement. In
sum, the trial court ruled that plaintiff had not proved defendant breached the PRD agreement:
The court finds that Plaintiff did not meet all of the requirements set forth
in the PRD Agreement that would allow them to develop an open space
community. The density requirements were not met by the terms of Plaintiffs
parallel plan and Plaintiff failed to obtain approval from all of the owners in
interest. Plaintiff did not have a vested right in the construction of the open space
community. Defendant did not breach the terms of the PRD Agreement by not
approving the parallel plan and enacting Ordinance 920. Ordinance 920 was
enacted upon suggestion of the City Attorney to clarify the legislative intent
behind the ordinance governing the development of open space community
overlay projects. Ordinance 920 was not passed to unilaterally attack Plaintiff
and deny them a more lucrative use of Pod 1. Plaintiff still has the opportunity to
develop M-l units on Pod 1 according to the terms of the original approved PRD
Plan. Plaintiff does not have a cause of action against Defendant for breach of
contract based on the PRD Agreement because Plaintiff failed to show that a
contract existed containing terms that granted the right to develop an open space
community.
2
Ordinance 830 added § 154.052A effective January 19, 2000, apparently to accommodate
plaintiff’s predecessor desire to construct M-2 units. But the developer decided to include only
M-1 units in the plans approved by the original May 25, 2000 PRD agreement.
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II. STANDARD OF REVIEW
This Court recently stated the proper standard of review in another zoning case
addressing a breach of contract claim involving a zoning planned unit development agreement.
In Chelsea Investment Group LLC v City of Chelsea, ___ Mich App ___; ___ NW2d ___ (April
27, 2010, Docket No. 288920), this Court stated:
. . . We review a trial court’s finding of fact in a bench trial for clear error
and its conclusions of law de novo. Ligon v Detroit, 276 Mich App 120, 124; 739
NW2d 900 (2007). A finding is clearly erroneous if there is no evidentiary
support for it or if this Court is left with a definite and firm conviction that a
mistake has been made. Hill v City of Warren, 276 Mich App 299, 308; 740
NW2d 706 (2007). The trial court’s findings are given great deference, as it is in
a better position to examine the facts. Id. Further, to the extent that this matter
requires us to interpret the meaning of the PUD Agreement, our review is also de
novo. McDonald v Farm Bureau Ins Co, 480 Mich 191, 197; 747 NW2d 811
(2008). [Chelsea Investment Group, slip op at 6.]
This Court reviews de novo the interpretation and application of a statute, as well as
constitutional issues. Hess v Cannon Twp, 265 Mich App 582, 589; 696 NW2d 742 (2005).
III. PLAINTIFF’S CONTRACT CLAIM
Granting the deference we must to the trial court’s findings of fact, we can find no clear
error. We also find no fault with the trial court’s interpretation of defendant’s zoning ordinance,
or its application of constitutional principles to the facts of this case. Moreover, we find
plaintiff’s breach of contract theory problematic under Michigan law.
Nothing defendant did precluded plaintiff from developing the property at issue in
accordance with the original PRD agreement. While the agreement contemplated that the
developer might seek an amendment of the agreement in the future, it also provides that a request
to make substantial changes in the agreement would return the parties to their positions before
adopting agreement. The amended agreement would need approval as if was a new agreement.
Paragraph 13 of the PRD agreement provides:
If the DEVELOPER requests that the CITY modify the PRD Plans, the
Additional Requirements or this Agreement, such request shall terminate approval
of the PRD Plans until such changes or amendments have been reviewed and
approved as in the first instance. In instances where modifications are necessary
to the PRD Plans, the Building Official may request that the PRD Plans be again
submitted for review if, in his or her judgment, a substantial change is being made
in the PRD Plans.
Similarly, § 154.170(K) of defendant’s zoning ordinance, which governs planned
residential development agreements, provides:
Any changes or amendments requested shall terminate approval of the
overall plan until such changes or amendments have been reviewed and approved
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as in the first instance. In instances where modifications are necessary to the plan,
the Building Official may bequest [sic] that the plan be again submitted for
review if, in his/her judgment, a substantial change is being made in the plan.
It cannot be seriously argued that plaintiff’s proposal to shift from building M-1 units to
building M-2 units as part of an open space community overlay project was not a substantial
change in the approved PRD plans. Consequently, plaintiff’s request to amend the PRD
agreement returned the parties to the negotiation stage of forming a new contract, and mutual
assent would be required to form a new contract. The contract and ordinance provisions quoted
above are consistent with general contract law.
“It is axiomatic that parties to a contract may contract to modify the contract by a later
agreement.” Adell Broadcasting Corp v Apex Media Sales, Inc, 269 Mich App 6, 11; 708 NW2d
78 (2005). “[M]utuality is the centerpiece to waiving or modifying a contract, just as mutuality
is the centerpiece to forming any contract.” Quality Products & Concepts Co v Nagel Precision,
Inc, 469 Mich 362, 364; 666 NW2d 251 (2003). When the parties mutually agree on a modified
contract, it becomes the parties’ new contract replacing the previous one. Id. at 372-373. Here,
whether the parties could agree on a new contract was not controlled by the PRD agreement but
by plaintiff’s compliance or not with defendant’s zoning ordinance, and in particular, the M-2
density requirements of § 154.052A. Indeed, plaintiff concedes no part of the PRD agreement
controlled the interpretation of § 154.052A. “[T]he meaning and clarity of the density provisions
are issues which must be evaluated through scrutiny of the allegedly ambiguous language of the
Ordinance in question. The PRD Agreement incorporates § 154.052A as part of the contract, but
sheds no light upon the meaning of its terms.” 3
In essence, defendant was enforcing its own ordinance in accordance with its
understanding of the intent expressed in § 154.052A. When the pertinent density provisions in
§ 154.052A were discovered to be ambiguous, defendant adopted an ordinance to clarify the
intent consistent with defendant’s preexisting understanding. Nothing in the PRD agreement
controlled the meaning defendant’s ordinance, so clarifying ambiguous terms in the ordinance
could not possibly breach the agreement. Further, what the parties were doing was not enforcing
or performing the PRD agreement, they were negotiating a new contract.
Finally, plaintiff cannot create a breach of contract action out of an implied covenant of
good faith and fair dealing. “Every contract imposes upon each party a duty of good faith and
fair dealing in its performance and its enforcement.” Flynn v Korneffel, 451 Mich 186, 213 n 8;
547 NW2d 249 (1996) (Levin, J., dissenting), quoting 2 Restatement Contracts, 2d, § 205, p 99
(emphasis in Flynn). But see Comment c of § 205, which states that section “does not deal with
good faith in the formation of a contract.” Here, by seeking modification of the PRD agreement,
plaintiff was negotiating with defendant to form a new contract that would permit construction of
M-2 dwelling units. Moreover, “Michigan does not recognize a claim for breach of an implied
3
See page 5 of plaintiff’s reply brief. Although, plaintiff contends the PRD agreement
incorporated § 154.052A, that section is not mentioned at all in the agreement.
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covenant of good faith and fair dealing . . . .” Belle Isle Grill Corp v Detroit, 256 Mich App 463,
476; 666 NW2d 271 (2003); see also Fodale v Waste Mgt of Michigan, Inc, 271 Mich App 11,
35; 718 NW2d 827 (2006), and In re Leix Estate, ___ Mich App ___; ___ NW2d___ (Docket
No. 291406; August 26, 2010), slip op 10.
In sum, we find no clear error in the trial court’s factual findings and agree with the
court’s legal conclusion that plaintiff failed to prove its breach of contract claim. In addition, we
find little support under Michigan law for plaintiff’s breach of contract theory on the facts of this
case. Consequently, we affirm the judgment of no cause of action.
IV. PLAINTIFF’S CONSTITUTIONAL CLAIMS
A. SUBSTANTIVE DUE PROCESS
Plaintiff argues that the “hurried” enactment of Ordinance 920 denied it substantive due
process guaranteed by Const 1963, art 1, 17. This constitutional provision guarantees more than
procedural fairness but has a substantive component that protects individual liberty and property
interests from the arbitrary exercise of governmental power. Cummins v Robinson Twp, 283
Mich App 677, 700-701; 770 NW2d 421 (2009). The general test to determine if a law or its
enforcement violates substantive due process is whether the law is rationally related to a
legitimate governmental purpose. Id. at 701. We conclude that the trial court correctly ruled that
plaintiff failed to prove its claim of a substantive due process violation.
Plaintiff cites Yankee Springs Twp v Fox, 264 Mich App 604, 609; 692 NW2d 728
(2004), quoting A & B Enterprises v Madison Twp, 197 Mich App 160, 162; 494 NW2d 761
(1992), for the burden it must meet to prove its constitutional claim:
“(1) the ordinance is presumed valid; (2) the challenger has the burden of proving
that the ordinance is an arbitrary and unreasonable restriction upon the owner’s
use of the property; that the provision in question is an arbitrary fiat, a whimsical
ipse dixit; and that there is not room for a legitimate difference of opinion
concerning its reasonableness; and (3) the reviewing court gives considerable
weight to the findings of the trial judge.” [Id.]
This Court has explained the foundation for the presumption of constitutional validity of
an ordinance “is our recognition that elected officials generally act in a constitutional manner
when regulating within their particular sphere of government.” Truckor v Erie Twp, 283 Mich
App 154, 162; 771 NW2d 1 (2009). To overcome the presumption and establish that the
ordinance violates substantive due process, plaintiff must show “‘(1) that there is no reasonable
governmental interest being advanced by the present zoning classification or (2) that an
ordinance is unreasonable because of the purely arbitrary, capricious, and unfounded exclusion
of other types of legitimate land use from the area in question.’” Dorman v Clinton Twp, 269
Mich App 638, 650-651; 714 NW2d 350 (2006), quoting Frericks v Highland Twp, 228 Mich
App 575, 594; 579 NW2d 441 (1998).
In this case, the trial court accepted testimony that Ordinance 920 addressed social
problems that result from high density M-2 developments and other public health, safety, and
welfare concerns such as fire safety and drainage, and concluded that the ordinance furthered
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these reasonable government interests. Furthermore, the trial court found that defendant did not
act arbitrarily by adopting Ordinance 920 because it was consistent with defendant’s
interpretation of § 154.052A before its amendment and was adopted on advice of counsel after
the ambiguity came to light. Consequently, the trial court found that defendant did not violate
plaintiff’s right to substantive due process rights by enacting Ordinance 920.
On appeal, in support of its substantive due process claim, plaintiff only argues the merits
of its proposed development. Specifically, that the proposed development was a “desirable,
beneficial, and economically viable use of the property,” that it preserved more open space than
the prior approved plan, and that, in sum, defendant should have approved its proposed amended
development plan. This argument simply does not overcome the presumption the ordinance is
valid, nor does it establish any clear error regarding the trial court’s factual findings that underlie
the trial court’s ruling that plaintiff failed to prove its substantive due process claim.
B. PLAINTIFF’S TAKINGS CLAIM
Plaintiff bases its takings claim on the false premise that it held a “vested right” to have
its proposed amended development plan “considered in good faith.” As discussed already, the
common-law implied covenant of good faith and fair dealing did not extend to plaintiff’s effort
to renegotiate the PRD agreement. Furthermore, a vested right is “an interest that the
government is compelled to recognize and protect of which the holder could not be deprived
without injustice.” Detroit v Walker, 445 Mich 682, 699; 520 NW2d 135 (1994). In particular, a
vested right “‘is something more than such a mere expectation as may be based upon an
anticipated continuance of the present general laws; it must have become a title, legal or
equitable, to the present or future enjoyment of property, or to the present or future enforcement
of a demand, or a legal exemption from a demand made by another.’” Cusick v Feldpausch, 259
Mich 349, 352; 243 NW 226 (1932), quoting 2 Cooley, Constitutional Limitations (8th ed), p
7492. Here, plaintiff held no more than a mere expectation it might satisfy defendant’s zoning
ordinance and other requirements to permit amending its development plans to allow
constructing M-2 units as part of an open space community overlay project. “One who asserts an
uncompensated taking claim must first establish that a vested property right is affected.” In re
Certified Question (Fun ’N Sun RV, Inc v Michigan), 447 Mich 765, 787-788; 527 NW2d 468
(1994); see also Attorney General v Michigan Public Serv Comm, 249 Mich App 424, 436; 642
NW2d 691 (2002).
Plaintiff’s remaining argument is that development of M-1 units as approved by the PRD
agreement is much more costly than development of M-2 units it proposed. We adopt the trial
court’s reasoned response to this argument and this issue:
A municipality is not obligated to zone any parcel of property for its most
profitable use. Dorman v Clinton Twp, 269 Mich App 638, 647-648; 714 NW2d
350 (2006). The only requirement is that the property to be zoned has some
economically viable use. Id. Plaintiff can still develop its property with M-1
units. The land is not unsuitable or unmarketable. The inability to obtain an
expected profit is irrelevant to the constitutionality of a zoning ordinance under a
takings analysis. Sun Oil Co v City of Madison Heights, 41 Mich App 47, 56; 199
NW2d 525 (1972). The court finds that Plaintiff did not have a vested right to
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develop an open space community overlay project on Pod 1 and the open space
area. Defendant did not engage in an uncompensated taking by enacting
Ordinance 920.
V. CONCLUSION
For the reasons discussed in this opinion, we find no clear error in the trial court’s
findings of fact and agree with the trial court’s legal conclusions that plaintiff failed to prove
both its contract claim and its constitutional claims. We affirm. Defendant may tax costs under
MCR 7.219 as the prevailing party.
/s/ Richard A. Bandstra
/s/ Jane E. Markey
/s/ William C. Whitbeck
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