LACY HARTER V GRAND AERIE FRATERNAL ORDER OF EAGLES
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STATE OF MICHIGAN
COURT OF APPEALS
LACY HARTER, and MIKE McCLELLAND,
individually and in their capacity as co-personal
representatives of the ESTATE OF KEGAN
McCLELLAND,
UNPUBLISHED
April 22, 2004
Plaintiffs-Appellees,
v
No. 244689
Livingston Circuit Court
LC No. 00-017892-NO
GRAND AERIE FRATERNAL ORDER OF
EAGLES,
Defendant-Appellant,
and
HOWELL AERIE #3607 FRATERNAL ORDER
OF EAGLES,
Defendant-Appellee,
and
MICHIGAN STATE AERIE FRATERNAL
ORDER OF EAGLES, INEZ D. BARTON
TRUST, HARRIS SEPTIC CLEANING AND
ALWAYS CLEAN PORTABLE TOILETS, INC.,
DALE HARRIS, D & J GRAVEL CO., INC., and
AMERICAN CONCRETE PRODUCTS, INC.,
Defendants.
Before: Cooper, P.J., and O’Connell and Fort Hood, JJ.
PER CURIAM.
Defendant Grand Aerie appeals as of right the judgment of $8,362,483.80, jointly and
severally with Howell Aerie #3607 (Local #3607). Defendant also appeals the trial court’s entry
of a default judgment under MCR 2.313(B)(2)(c) and the denial of its motion for summary
disposition under MCR 2.116(C)(10). We affirm. This case arose from the tragic drowning of a
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young child, Kegan McClelland, in a septic tank located on property used by the local Howell
chapter of the Fraternal Order of Eagles for its social functions. A trustee from Local #3607 had
replaced a concrete lid with a plastic lid, but neglected to fasten the lid down. At the time of the
drowning, the septic tank was uncovered. McClelland and his mother, an auxiliary member of
Local #3607, were attending a picnic hosted by the local chapter.
I. Default Judgment
Defendant contends that the trial court improperly ordered its default as a sanction for
errors caused by its insurance carrier. Defendant claims that it had no control over the carrier.
We disagree. We review a trial court’s decision to enter a default judgment for abuse of
discretion.1
Plaintiffs served interrogatories on defendant on February 15, 2001. Defendant promptly
responded, but provided false information regarding its liability insurance coverage2 and ignored
plaintiffs’ document request for policy declaration sheets. We note that, to date, defendant has
never produced these documents. On March 14, 2001, plaintiff deposed Richard Downer,
secretary of the State Order of Eagles. Plaintiffs requested insurance documents, which Mr.
Downer failed to bring to the deposition. Although copies of the insurance policies were one
block away in Mr. Downer’s office, defense counsel3 refused to allow Mr. Downer to retrieve the
requested documents.4 On May 7, 2001, defense counsel himself presented further false
information regarding defendant’s insurance coverage under the guise of correcting the earlier
information. Defense counsel now asserted that defendant had coverage of one million dollars
per incident.5 Defense counsel changed its story again some time before July 9, 2001, and
informed the mediation panel that defendant carried a two million dollar policy. As a result,
plaintiffs’ claim was evaluated at $2.3 million, reflecting the insurance coverage of defendant
and Local #3607. On August 3, 2001, the trial court granted plaintiffs’ motion to compel
discovery. Defendant was ordered to completely answer interrogatories and produce certified
copies of all declaration sheets for all insurance policies relating to the current incident.
Defendant never complied with the court’s order.
The parties subsequently received notice of the final pre-trial settlement conference and
were ordered to appear with representatives with full settlement authority from all insurance
carriers. Defendant revealed its six million dollars of excess insurance coverage for the first time
at the November 2, 2001 conference. Defendant asserted that both policies were carried by
Legion. However, defendant only appeared with an agent from an independent claims adjuster
1
Sturak v Ozomaro, 238 Mich App 549, 569; 606 NW2d 411 (1999).
2
Defendant originally claimed coverage under Local #3607’s policy with a $300,000 limit in a
letter dated February 22, 2001.
3
Defense counsel represented both defendant and the State Order.
4
[Deposition of Richard Downer, pp 63-64, 101-102.]
5
Defense counsel presented this information to plaintiff by letter dated May 7, 2001.
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purporting to have settlement authority for defendant’s primary policy. The trial court adjourned
the settlement conference until the following Monday, November 5, 2001, the day the trial was
scheduled to begin.
On November 5, 2001, a jury was impaneled in preparation for the trial. But defendant
again appeared at the conference with an independent claim adjuster falsely purporting to have
full settlement authority for both policies. When placed under oath, the adjuster admitted that
she had not spoken to the insurance company, and so, could not have been given authority to
settle the case. Defense counsel even claimed to have the power to waive the insurance carrier’s
defenses. Although, plaintiffs requested a default at that time, the trial court adjourned the
conference until the following day, ordering defendant to provide declaration sheets for both
policies and a certified letter from Legion granting the appearing agent full settlement authority
by 5:00 p.m.
At 6:30 that evening, defendant finally revealed that its primary and excess insurance
polices were not covered by the same carrier. Furthermore, Ohio Casualty, the actual excess
policy carrier, had not been notified of the pending lawsuit. Instead of immediately entering a
default, the trial court rescheduled the conference once more for November 7, 2001. Agents
from both insurance carriers appeared for the first time. Ohio Casualty refused to waive its lack
of notice defense and asserted that it would need to start negotiations anew. Legion refused to
settle for more than $250,000.
As a result of defendant’s failure to cooperate on any level the trail court finally entered
defendant’s default, striking defendant’s answer, and ordering a trial on the issue damages. It
was obvious from the record that the trial court was extremely patient and polite and repeatedly
tried to obtain defendant’s cooperation before resorting to this ultimate sanction. The trial judge
stated that he had taken extreme measures to make himself available around the clock to confer
with the parties in an attempt to quickly resolve the issue. The trial court further noted that
defendant’s false representations had frustrated the purpose of the settlement conference, which
could have been concluded with “minimal effort in compliance with standard practices.”6
Defendant’s complete failure to answer interrogatories and produce records regarding insurance
coverage amounted to serious and prejudicial discovery violations. The mediation award was
severely limited, the settlement offer was not conducted in good faith, and the jury had been
forced to wait idly for two days. The matter was tried before a jury to determine an appropriate
damages award. Defendant subsequently moved the trial court to set aside its order of default.7
The trial court refused, again noting the frustration of case evaluation and the settlement
conference due to defendant’s uncooperative behavior and defendant’s failure to comply with
court orders.
6
See Transcript of November 7, 2001, p 51.
7
Pursuant to MCR 2.603(D)(1), a trial court must set aside a default only upon a showing of
good cause, which we find lacking in this case, and a meritorious defense. Zaiter v Riverfront
Complex, LTD, 463 Mich 544, 551; 620 NW2d 646 (2001).
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A trial court may strike pleadings and enter a default judgment against a party as
sanctions for discovery violations.8 Default is a severe sanction and should only be granted
when the discovery violations constitute a “flagrant and wanton refusal to facilitate discovery
and not when failure to comply with a discovery request is accidental or involuntary.”9 Before
determining appropriate sanctions, the trial court should consider the following factors:
(1) Whether the violation was wilful or accidental; (2) the party's history of
refusing to comply with discovery requests (or refusal to disclose witnesses); (3)
the prejudice to the [other party]; (4) actual notice to the [other party] of the
witness and the length of time prior to trial that the [other party] received such
actual notice; (5) whether there exists a history of [the party's] engaging in
deliberate delay; (6) the degree of compliance by the [party] with other provisions
of the court's order; (7) an attempt by the [party] to timely cure the defect, and (8)
whether a lesser sanction would better serve the interests of justice.[10]
The record reflects that the trial court considered all of these factors and the available sanctions
before making its determination.11
We note from oral arguments before this panel that defense counsel candidly admitted the
conduct of the insurance companies was egregious, but never addressed trial defense counsel’s
own inappropriate conduct throughout the pretrial process.
We find that the trial court properly entered a default judgment against defendant for its
flagrant and wanton discovery violations. The record reflects that the trial court carefully
considered defendant’s actions and only opted to default defendant as a last resort. Defendant
repeatedly failed over a nine-month period to provide truthful and complete information
regarding its liability insurance, even upon court order. Defendant’s misinformation caused the
case to be severely under-evaluated. At the brink of trial, and under threat of default, defendant
continued its discovery antics. Plaintiffs were severely prejudiced by defendant’s dilatory tactics
as Ohio Casualty intended to reinstate negotiations and assert lack of notice as a defense.
Defendant’s motion to set-aside the default was properly denied.12
Defendant’s contention that it cannot be sanctioned for the conduct of its insurance
carrier is spurious. While case law does support defendant’s contention that a trial court may not
default a party for its insurance carrier’s failure to appear at a settlement conference pursuant to
8
MCR 2.313(B)(2)(c).
9
Mink v Masters, 204 Mich App 242, 244; 514 NW2d 235 (1994).
10
Bass v Combs, 238 Mich App 16, 26-27; 604 NW2d 727 (1999), quoting Dean v Tucker, 182
Mich App 27, 32-33; 451 NW2d 571 (1990).
11
Id. at 26.
12
See MCR 2.603(D)(1); Alken-Zeigler v Waterbury Headers Corp, 461 Mich 219, 229; 600
NW2d 638 (1999).
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MCR 2.401(F) through (G),13 it is clear that defendant was defaulted for its own egregious
behavior pursuant to MCR 2.313(B)(2)(c). In a case such as this, the attorney-client relationship
is with the insured, not the insurance company. Therefore, the attorney’s duty and loyalty is
solely to the insured.14 It is absurd to assert that defendant did not know to whom insurance
premiums were sent and the amount of coverage obtained. Defendant continually failed to
provide truthful information regarding its own insurance coverage, and therefore, certainly
played a role in this farce upon the court. The blame for discovery violations was properly
placed on defendant.15
II. Summary Disposition
Defendant also asserts that the trial court erred in denying its motion for summary
disposition. However, we are precluded from reviewing this issue.
A default judgment settles the issue of liability and the defaulted party is precluded from
relitigating that issue.16 When the trial court entered a default against defendant, it lost standing
to contest the factual allegations in plaintiffs’complaint, including defendant’s vicarious or direct
liability for McClelland’s death.17 Defendant argues that the trial court improperly denied its
motion for summary disposition as national fraternal organizations are not vicariously or directly
liable for the land-related torts of local chapters under Michigan law.18 However, the issue of
liability was settled against defendant in a properly entered default and defendant may not
attempt to relitigate that issue by seeking reversal of the trial court’s denial of its motion for
summary disposition.
13
Henry v Prusak, 229 Mich App 162, 169-171; 582 NW2d 193 (1998), citing McGee v
Macombo Lounge, Inc, 158 Mich App 282, 286-288; 404 NW2d 242 (1987).
14
Kirschner v Process Design Assocs, Inc, 459 Mich 587, 598; 592 NW2d 707 (1999), quoting
Michigan Millers Mut Ins Co v Bronson Plating Co, 197 Mich App 482, 492; 496 NW2d 373
(1992), overruled in part on other grounds Wilkie v Auto-Owners Ins Co, 469 Mich 41; 664
NW2d 776 (2003); Atlanta Internat’l Ins Co v Bell, 438 Mich 512, 516; 475 NW2d 294 (1992)
(BRICKLEY, J) (“something less than a plenary attorney-client relationship exists between a
defense counsel and an insurer”), 524 (BOYLE, J, concurring) (“The attorney-client relationship
is with the insured only.”).
15
See Kirschner, supra at 597-598 (finding it improper to sanction the insurance company for
misleading answers to interrogatories as the insured, as the client, was chargeable for those
answers.
16
Wood v DAIIE, 413 Mich 573, 578; 321 NW2d 653 (1982); Kalamazoo Oil Co v Boerman,
242 Mich App 75, 79; 618 NW2d 66 (2000).
17
See Ackron Co v Oakland Co, 108 Mich App 767, 775; 310 NW2d 874 (1981).
18
See Colangelo v Tau Kappa Epsilon, 205 Mich App 129, 134-136; 517 NW2d 289 (1994);
Kratze v Order of Oddfellows, 190 Mich App 38, 44-45; 475 NW2d 405 (1991), aff’d in part,
rev’d in part on other grounds 442 Mich 136 (1993).
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III. High-Low Agreement
Before trial, the local chapter entered into a settlement agreement with plaintiffs to pay
either $200,000 or $300,000 depending on the jury’s verdict. We reject defendant’s contention
that it was prejudiced by the court’s failure to reveal this agreement to the jury, as Local #3607’s
failure to present a defense increased defendant’s appearance of culpability.
This issue has been definitively determined by our Supreme Court as follows:
When there is no genuine dispute regarding either the existence of a
release or a settlement between plaintiff and a codefendant or the amount to be
deducted, the jury shall not be informed of the existence of a settlement or the
amount paid, unless the parties stipulate otherwise. Following the jury verdict,
upon motion of the defendant, the court shall make the necessary calculation and
find the amount by which the jury verdict will be reduced.[19]
Defendant knew of the settlement agreement before trial, but did not seek its admission until the
default had been entered. Defendant was not prejudiced by Local #3607’s failure to present a
defense as it had been defaulted on the issue of liability and could only present evidence
regarding damages. Therefore, the trial court did not err in denying defendant’s request to admit
evidence of the settlement agreement. Defendant forfeited any claimed error regarding the
apportionment of damages by failing to request an apportionment of fault pursuant to MCL
600.6304. Defendant also failed to request the trial court reduce the damages award by the
amount of the settlement.
We also reject defendant’s claim that the settlement agreement should limit its liability.
Defendant asserts that the settlement agreement released Local #3607, and therefore, limits
defendant’s liability, as the local chapter’s principal. Defendant’s assertion would have merit if
the only ground for relief was vicarious liability.20 As defendant was also defaulted on the issue
of direct liability, we find that the judgment against defendant was appropriate.
IV. Porter Poem
Defendant’s final contention is that plaintiffs’ counsel so tainted the jury by reciting a
poem about organ donation to “eulogize” McClelland in closing argument that this Court must
reverse the jury’s verdict.21 We disagree. We note that defendant failed to object on this ground
19
Brewer v Payless Stations, Inc, 412 Mich 673, 679; 316 NW2d 702 (1982).
20
Theophelis v Lansing General Hosp, 430 Mich 473, 480-491; 424 NW2d 478 (1988) (opinion
of Griffin, J); Larkin v Otsego Memorial Hosp Ass’n, 207 Mich App 391, 393; 525 NW2d 475
(1994).
21
See Porter v Northeast Guidance Ctr, Inc, unpublished opinion per curiam of the Court of
Appeals, issued October 5, 2001 (Docket No. 213190), slip op at 5-6, modified in part 467 Mich
900 (2002). In Porter, the same attorney read the same poem in a wrongful death case after
presenting evidence that the decedent’s organs had been donated. This Court reversed and
remanded for a new trial on damages alone. Id. at 7. The Supreme Court, however, remanded
for a new trial on the merits.
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at trial and failed to show that the poem caused error requiring reversal for a new trial for
damages. We find citation to Porter v Northeast Guidance Ctr, Inc, inapplicable in this case as
defendant was defaulted on the issue of liability.
Affirmed.
/s/ Jessica R. Cooper
/s/ Karen M. Fort Hood
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