INSURANCE PROCESSING MGT INC V NORTHWEST HEALTH SUAnnotate this Case
STATE OF MICHIGAN
COURT OF APPEALS
INSURANCE PROCESSING MANAGEMENT,
July 7, 1998
NORTHWEST HEALTH SUPPLIES, INC., DIANA
J. DOUGE, AND GARY J. DOUGE,
Monroe Circuit Court
LC No. 93-101975 CK
Before: Whitbeck, P.J., and MacKenzie and Murphy, JJ.
Plaintiff appeals as of right from an order dismissing the individual defendants, Diana J. Douge
and Gary J. Douge. We vacate the order on jurisdictional grounds. However, pursuant to our authority
under MCR 7.216(A)(2), we delete Diana J. Douge and Gary J. Douge as individual defendants and
remand for further proceedings consistent with this opinion.
I. Basic Facts
A. The Parties
Plaintiff in this matter is Insurance Processing Management, Inc. (“IPM”), an Ohio corporation
that is in the business of providing medical and insurance billing services. There are three defendants:
(1) Northwest Health Supplies, Inc. (“NHS”), a Delaware corporation that, according to the evidence
of record below, was incorporated on May 3, 1991, and that sells diabetic testing equipment and
supplies and provides instructions to patients regarding the use of such equipment, (2) Diana J. Douge
(“Diana Douge”), who is the resident agent and a shareholder, director, and officer of NHS, and (3)
Gary J. Douge (“Gary Douge”), who is the husband of Diana Douge and apparently is, or has acted as,
an officer of NHS.
B. The Alleged Contract
According to IPM, another corporation, Patient Care Services, provided billing services to
NHS. However, when defendants terminated their relationship with Patient Care Services, Gary Douge
and/or Diana Douge orally requested IPM to provide the same or similar billing services to NHS.
When Patient Care Services thereafter sued defendants, IPM also provided defendants with litigation
assistance. According to the trial court, no written contract exists between the parties.
Again according to IPM, in July, 1991, Gary Douge and/or Diana Douge personally guaranteed
sums owed by NHS to IPM. IPM contends that this account was stated in writing but, according to the
trial court, this purported agreement does not appear attached to IPM’s pleadings or anywhere else in
the court file. IPM asserts that the defendants paid IPM from June, 1991 through July, 1992. IPM
further asserts that in July, 1992, however, the payments slowed and by June, 1993, the payments
C. IPM’s Suit
On November 23, 1993, IPM filed this suit for collection with the trial court, alleging damages
in the amount of $22,778.63. IPM filed a second amended complaint on January 17, 1995. IPM
ultimately asserted claims for breach of contract, fraud, and unjust enrichment.
II. Procedural History
A. The Stipulated Orders
On October 4, 1994, the trial court entered a stipulated order requiring defendants to provide
answers to interrogatories and to respond to a request for production of documents within twenty-one
days of September 28, 1994. On November 2, 1994, Diana Douge failed to appear at a pretrial
conference. On May 31, 1995, the trial court entered a stipulated order awarding IPM’s attorney the
sum of $565 in costs and attorney fees, apparently related to defendants’ failure to comply with an
order of the trial court of October 4, 1994.
B. Defendants’ Summary Disposition Motion
On March 3, 1995, defendants moved for partial summary disposition in favor of Diana Douge
and Gary Douge under MCR 2.116(C)(7), arguing that the statute of frauds, MCL 566.132; MSA
26.922, barred IPM’s claim against them. On July 27, 1995, the trial court agreed. The trial court
stated that the prevailing party (i.e., defendants) shall prepare and submit an order in accordance with
the trial court’s decision. Defendants submitted no such order.
C. IPM’s Motion for Entry of Default and Judgment
On December 7, 1995, IPM moved for entry of default and judgment against defendants for
failing to comply with both a September 27, 1994, discovery order and with the October 4, 1994,
stipulated order awarding $565 in costs and attorney fees. IPM purported to serve this motion on
defendants by mailing it to attorney James R. Sheehan. However, Sheehan was not an attorney of
record and had never filed an appearance on behalf of defendants. In addition, the trial court sent
Sheehan, rather than defendants’ attorney of record, a copy of a pretrial conference notice for
December 13, 1995.1
No one appeared on behalf of defendants at the pretrial hearing held on December 13, 1995.
IPM’s counsel indicated at the hearing that she had talked to Sheehan’s office and discovered that
Sheehan had not been retained by defendants, but that Sheehan had forwarded the pretrial notice to
defendants. IPM’s counsel further indicated that defendants had still not complied with the trial court’s
earlier discovery order nor had they paid the costs and fees awarded to IPM. The trial court received
testimony from IPM’s agent regarding damages. The trial court then entered a default judgment against
all the defendants in the amount of $24,000. IPM claims to have served this order on defendants (rather
than on their attorney) by depositing it in the U.S. mail.
D. Defendants’ Motion to Vacate the Default Judgment
On March 13, 1996, subpoenas were issued requiring Diana Douge and Gary Douge to testify
regarding their assets. On April 9, 1996, attorney Daniel S. White filed an appearance on behalf of
defendants. On April 15, 1996, defendants filed a motion to vacate the default judgment and to dismiss
the individual defendants (“Defendants’ Motion to Vacate the Default Judgment”). Defendants claimed
that their prior attorney, Jeffrey Dulany, had been ill and had failed to prepare an order to comply with
the trial court’s July 27, 1995, decision to dismiss the individual defendants on the basis of the statute of
frauds. Defendants argued that they did not receive notice of either the pretrial conference or of the
hearing on IPM’s motion for entry of default judgment, since those notices were sent, not to defendants,
but to attorney Sheehan. Therefore, defendants argued, the trial court should vacate the judgment
against them under MCR 2.612(C)(1)(a), (C)(1)(c), and (C)(1)(f), due to mistake, inadvertence,
surprise, fraud, attorney misconduct, or excusable neglect. Moreover, defendants argued, the trial court
should dismiss Diana Douge and Gary Douge in accordance with its earlier decision that IPM’s claims
against them were barred by the statute of frauds.
At the hearing on Defendants’ Motion to Vacate the Default Judgment, the trial court
acknowledged that there had been some irregularities, but decided that the default judgment would
stand because defendants had had many opportunities to comply with the various orders that had been
violated. On August 8, 1996, the trial court entered an order denying defendants’ motion to vacate the
default judgment and to dismiss the individual defendants.
E. Defendants’ Claim of Appeal
On August 12, 1996, defendants filed a claim of appeal (“Defendants’ Claim of Appeal”) from
the trial court’s August 8, 1996, order. This Court eventually dismissed Defendants’ Claim of Appeal
on October 30, 1996.
F. Defendants’ Motion To Stay
On August 9, 1996, defendants filed a motion in the trial court to stay the trial court
proceedings, including execution on the default judgment, pending appeal. The trial court held a hearing
on that motion on August 28, 1996. Defendants’ counsel acknowledged that defendants had already
filed Defendants’ Claim of Appeal with this Court. Although the hearing was noticed only as to
defendants’ motion for a stay, the trial court went beyond that motion:
Alright, the ruling of the court is as follows. If it is received by this court within 2 weeks
from today, an order dismissing the individuals, that is tardy, that is late and perhaps
there ought to be some costs and I’m not dealing with that, going to the plaintiff as a
result of that tardiness, but if I receive such an order I will sign an order pursuant to
what I said long ago and we should have had an order long ago, taking the individuals
out of the case.
On August 29, 1996, the trial court entered an order dismissing Diana Douge and Gary Douge as
defendants, reserving the issue of costs, and ordering a stay of execution of the judgment against NHS
upon the posting of a $24,000 bond.
G. IPM’s Appeal
On September 13, 1996, IPM filed this appeal as of right from the trial court’s August 29,
III. The Trial Court’s Jurisdiction To Set Aside the Default Judgment
And To Dismiss Diana Douge and Gary Douge
IPM argues that the trial court erred in setting aside the default judgment and dismissing Diana
Douge and Gary Douge, because it lost jurisdiction when defendants filed their Claim of Appeal on
August 12, 1996. We agree. We review this question of law de novo. In re Hamlet (After Remand),
225 Mich App 505, 521; 571 NW2d 750 (1997). After a party files a claim of appeal, the trial court
loses jurisdiction and may not amend or set aside the judgment or order being appealed except pursuant
to an order of this Court, by a stipulation of the parties, or as otherwise provided by law. MCR
7.208(A); Co-Jo, Inc v Strand, 226 Mich App 108, 118; 572 NW2d 251 (1997); see also Wilson v
General Motors Corp, 183 Mich App 21, 41; 454 NW2d 405 (1990).
Here, the trial court entered its order dismissing Diana Douge and Gary Douge on August 29,
1996, after defendants filed their Claim of Appeal on August 12, 1996. Therefore, the trial court no
longer had jurisdiction. Contrary to defendants’ assertion on appeal, the trial court was not merely
acting to correct the record. Rather, the trial court in essence changed its mind for the second time and
decided to dismiss Diana Douge and Gary Douge after it had previously decided not to do so. Because
the trial court lacked jurisdiction, we vacate the trial court’s August 29, 1996 order.
IV. Defendants’ Motion to Vacate The Default Judgment,
MCR 2.611(B), MCR 2.603(D)(3), and MCR 2.612(C)
IPM argues that the trial court erred in its August 29, 1996 order setting aside the default
judgment against the individual defendants. IPM contends that Defendants’ Motion to Vacate the
Default Judgment of April 15, 1996 was not filed within twenty-one days of entry of the judgment as
required by MCR 2.611(B). IPM asserts that, since Defendants’ Motion to Vacate the Default
Judgment was not timely, the trial court should not ultimately have granted it as it did through its August
29, 1996 order.
We first note that IPM has failed to cite any relevant authority in support of this argument. This
Court will not search for authority to support a party’s position. Winiemko v Valenti, 203 Mich App
411, 419; 513 NW2d 181 (1994). This issue is therefore abandoned.
We secondly note that defendants moved to set aside the default judgment under MCR
2.612(C) due to mistake, inadvertence, or attorney misconduct. The default judgment rule, MCR
2.603(D)(3), permits a party to move to set aside a default judgment under MCR 2.612(C), as
defendants did in this case. A motion to set aside a judgment under MCR 2.612(C) must be brought
within a reasonable time, and within one year from entry of judgment when brought under subrules
(C)(1)(a), (b), or (c). See MCR 2.612(C)(2), upon which defendants relied in part.2
IPM’s argument that Defendants’ Motion to Vacate The Default Judgment was not timely thus
does not address the court rule upon which defendants relied, MCR 2.612(C). Rather, IPM cites only
the twenty-one day time limit for filing a motion to alter or amend a judgment under MCR 2.611(B).
However, defendants did not file a motion under that court rule, and there is no indication that the trial
court relied upon that rule in setting aside the default judgment. IPM has cited no authority to establish
that the time limit set forth in MCR 2.611(B) applies to motions brought under MCR 2.612(C).
Therefore, IPM has failed to support its argument that Defendants’ Motion to Vacate the Default
Judgment, brought under MCR 2.612(C), was untimely. We conclude, however, that this issue is moot
in light of our decision, above, to vacate the trial court’s August 29, 1996 order.
V. Application of the Statute of Frauds
IPM argues that the statute of frauds did not bar its claim against Diana Douge and Gary Douge
because they assumed a direct and independent duty to pay IPM for the services provided to NHS.
IPM asserts that NHS was not even incorporated when the original “contract” was entered. Therefore,
IPM contends, Diana Douge and Gary Douge must have assumed an independent duty to pay for
IPM’s services. IPM concludes that the oral “contract” did not fall within the statute of frauds because
it did not involve a promise to pay the debt of another.
We first note that the statute of frauds argument is preserved for appellate review because it
was raised before and addressed by the trial court. Auto Club Ins Ass’n v Lozanis, 215 Mich App
415, 421; 546 NW2d 648 (1996).
We secondly note that the trial court decided to grant summary disposition in favor of the
individual defendants under MCR 2.116(C)(7). When we review an order granting a motion under
MCR 2.116(C)(7), this Court accepts as true the nonmoving party’s well-pleaded allegations and
construes them in the light most favorable to that party. In re Beglinger Trust, 221 Mich App 273,
275; 561 NW2d 130 (1997). A trial court should grant such a motion only when no factual
development could provide a basis for recovery. Id. at 275-276. “This Court reviews a summary
disposition determination de novo as a question of law.” Id. at 276.
As to substance of the matter, under the statute of frauds, MCL 566.132(1)(b); MSA
26.922(1)(b), a special promise to answer for the debt, default, or misdoings of another is void unless it
is in writing and signed by the party to be charged. See Crest the Uniform Co v Foley, 806 F Supp
164, 168-169 (ED Mich, 1992) (under Michigan law, an oral promise by a person to guarantee the
past debts of that person’s corporation is a collateral promise covered by the statute of frauds). On the
other hand, a promise to pay for goods or services to be rendered to a third party, when based on
sufficient consideration, is not covered by the statute of frauds because it is an original rather than a
collateral promise. Gillhespy v Bolema Lumber & Building Supplies, Inc, 5 Mich App 351, 355;
146 NW2d 666 (1966).
Here, the alleged oral promise by Diana Douge and Gary Douge to guarantee or answer for the
debts of their corporation, NHS, was a collateral promise covered by the statute of frauds. According
to IPM’s own allegations, Diana Douge and Gary Douge guaranteed payment to IPM only after NHS
began to fall behind in its payments. Therefore, the oral promise was a guarantee to pay for the past
debts incurred by NHS, and is not enforceable. Further, to the extent that IPM’s allegations suggest
that Diana Douge and Gary Douge promised to pay for any future services provided by IPM to NHS,
the statute of frauds is still applicable, because there is no allegation or evidence that sufficient
consideration was paid in return for such a promise. Gillhespy, supra at 355.
IPM asserts that Diana Douge and Gary Douge were not merely promising to answer for the
past debts of NHS, but rather were making an original promise to IPM because NHS was not a valid
corporation until after the alleged contract was formed. That assertion is flatly contradicted by the
evidence of record, that indicates that NHS was validly incorporated in Delaware on May 3, 1991,
before the date of the contract, if any, involving these parties. The alleged oral promise of Diana Douge
and Gary Douge was made in July, 1991, two months after NHS’s incorporation. Although IPM
asserts that NHS was not authorized to transact business in Michigan or Ohio, where some of the
transactions allegedly occurred, that fact would not alter the conclusion that NHS was a corporation
and is therefore a “person” whose debts Diana Douge and Gary Douge allegedly agreed to guarantee.
See Crest, supra, at 168-169. The fact that NHS may have violated Michigan or Ohio law by
transacting business in these states without permission does not change the fact that NHS was a
separate legal entity.
IPM has not disputed on appeal that the alleged guarantee was not in writing. Therefore, the
trial court’s determination that the statute of frauds barred IPM’s breach of contract claim against Diana
Douge and Gary Douge was substantively correct.
VI. Relief Under MCR 7.216(A)
As we noted above, we have vacated the trial court’s August 29, 1996 order on jurisdictional
grounds. Pursuant to our authority under MCR 7.216(A)(2), however, we delete Diana Douge and
Gary Douge as individual defendants in this matter on the ground that the statute of frauds substantively
bars any claim by IPM against them for their alleged guarantee of the past debts of NHS.3 We
therefore remand for further proceedings consistent with this opinion. No costs, no party having
prevailed in full. We do not retain jurisdiction.
/s/ William C. Whitbeck
/s/ Barbara B. MacKenzie
/s/ William B. Murphy
The hearing on IPM’s motion for default judgment was scheduled for the same date and time as the
It should be noted that the trial court did not identify under which court rule it was setting aside the
default judgment, and never specifically stated that it was setting it aside. Nevertheless, in dismissing
Diana Douge and Gary Douge, the trial court effectively set aside the default judgment and, therefore,
must be presumed to have set aside the default judgment on the grounds set forth in defendants’ motion,
i.e., under MCR 2.612(C).
We note that we have similar broad authority under MCR 7.216(A)(7).