Phares a Noel II v. Scholastic Solutions LLC

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to

revision until final publication in the Michigan Appeals Reports.

STATE OF MICHIGAN

COURT OF APPEALS

PHARES A. NOEL II, UNPUBLISHED

October 10, 2019

Plaintiff-Appellant,

v No. 343580

Oakland Circuit Court

SCHOLASTIC SOLUTIONS, LLC, DIANE LC No. 2017-157859-CB

FISHER, and TERRENCE L. CURRY,

Defendants-Appellees,

and

JOHN BOWERS and BOWERS AND

COMPANY,

Defendants.

PHARES A. NOEL II and SCHOLASTIC

SOLUTIONS, LLC,

Plaintiffs-Appellants,

v No. 347056

Oakland Circuit Court

DIANE FISHER, LC No. 2018-165116-CB

Defendant-Appellee.

Before: RIORDAN, P.J., and K. F. KELLY and CAMERON, JJ.

PER CURIAM.

These consolidated appeals arise out of two lawsuits involving a business dispute

between plaintiff Phares A. Noel II, and defendant Diane Fisher, who were the two founding

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members of a closely held limited liability company (LLC), Scholastic Solutions, LLC

(“Scholastic”). In the appeal arising out of the first action (Docket No. 343580), Noel appeals

three opinions and orders, which in concert granted summary disposition in favor of defendants

Scholastic, Fisher, and Terrence L. Curry. 1 In the appeal arising out of the second action

(Docket No. 347056), Noel and Scholastic appeal the trial court’s opinion and order, granting

summary disposition in favor of Fisher, in part, on grounds of res judicata. In both appeals, we

affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

In November 2011, Noel and Fisher entered into an operating agreement concerning

Scholastic (“the operating agreement”), which afforded Fisher a majority (51%) membership

interest and provided a minority (49%) interest to Noel. The “sharing ratios,” which were used

to determine capital contributions and distributions, were commensurate with Fisher and Noel’s

respective ownership interests. In pertinent part, the operating agreement provided as follows:

1.3. Purposes. The purposes of the Company are to engage in any

activity for which limited liability companies may be formed . . . , including but

not limited to the development, creation, management, operation and maintenance

of educational institutions, . . . as well as charter schools and academies.

* * *

2.1. Books and Records. The Company will maintain complete and

accurate books and records of the Company’s business and affairs as required by

the Act [i.e., the Michigan Limited Liability Company Act, MCL 450.4101 et

seq.]. These books and records will be kept at the Company’s Registered Office

and shall be available to all members during regular business hours.

2.2. Fiscal Year. Accounting. The Company’s fiscal year will be the

calendar year. The particular accounting methods and principles to be followed

by the Company will be selected by the Managers from time to time.

2.3. Reports. The Managers will provide reports concerning the financial

condition and results of operation of the Company and the Capital Accounts of

the Members to the Members in the time, manner and form as the Managers

determine. These reports must be provided at least annually as soon as

practicable after the end of each calendar year and will include a statement of

1

At all relevant times, John Bowers was the Certified Public Accountant for Scholastic, and

Bowers and Company was the Certified Public Accountant Firm for Scholastic. Noel does not

contest the trial court’s decision to grant summary disposition in favor of defendants Bowers and

Bowers and Company in Docket No. 343580. Therefore, we need not address the claims that

were filed by Noel in relation to Bowers and Bowers and Company and the trial court’s decision

to grant summary disposition on those claims.

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each Member’s share of profits and other items of income, gain, loss, deduction

and credit.

* * *

4.2. Distributions. The Managers may make distributions to the

Members from time to time. Distributions may be made only after the Managers

determine in their reasonable judgment, that the Company has cash on hand

exceeding the [Company’s] current and anticipated needs (including operating

expenses, debt service, acquisitions, reserves and mandatory distributions, if any).

All distributions will be made to the Members in accordance with each Member’s

Sharing Ratio. . . .

* * *

6.3. Meetings. An annual meeting of Members for the transaction of

business as may properly come before the Meeting will be held at a place, date,

and time that the Managers determine. Special meetings of Members for any

proper purpose or purposes (including for informational purposes) may be called

at any time by the Managers or the holders of at least 10 percent of the Sharing

Ratios of all Members. The Company must deliver or mail written notice stating

the date, time, place and purpose(s) of any meeting to each Member entitled to

vote at the meeting. The notice must be given not less than 10 no more [sic] than

60 days before the meeting date. All meetings of Members will be presided over

by a Chairperson, designated by the Managers from amongst themselves. The

annual meeting of members shall be held on the 1st Monday in December of

each calendar year.

* * *

7.1. Management of Business. The Company will be managed by

persons (“Managers”), with the exact number to be determined from time to time

by resolution of the Members. The Managers will be designated by vote of the

Members voting in accordance with their Sharing Ratios, at a meeting of

Members called for that purpose. The Members will determine the Managers’

term, duties, compensation and benefits, if any. The Managers will serve at the

will and direction of the Members.

7.2. General Powers of Managers. Except as may otherwise be

provided in this Operating Agreement, the ordinary and usual decisions

concerning the business and affairs of the Company will be made by the

Managers. Action of the Managers will be taken by approval of a majority of the

Managers then in office . . . . The Managers may not take, or cause the Company

to take, any action requiring the approval of the Members under this Operating

Agreement, the Articles or applicable law unless the Members have duly

approved the action. Subject to the foregoing, each Manager has the power, on

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behalf of the Company, to do all things necessary or convenient to carry out the

business and affair of the Company[.]

* * *

7.4. Removal. Managers may be removed for cause on approval of the

Members entitled to vote or consent on the matter owning a majority in interest of

the Sharing Ratios. . . .

* * *

10.4. Entire Agreement. This Operating Agreement, together with the

Company’s Articles of Organization, constitutes the entire agreement among the

parties and contains all of the understandings between the parties with respect to

the subject matter. This Operating Agreement together with the Company’s

Articles of Organization supersede any and all other prior or contemporaneous

agreements, either oral or written, between the parties with respect to this subject

matter.

Fisher initially served as Scholastic’s chief executive officer and as Scholastic’s sole

“manager.” Noel initially served as the chief operating officer (“COO”).

In 2015, Scholastic entered into a management agreement with Chandler Park Academy

(“the charter school”), which is a public school academy formed under Part 6a of Article 1 of the

Revised School Code, MCL 380.1 et seq. For the instant purposes, it suffices to note that under

the management agreement, Scholastic agreed to provide certain managerial services for the

charter school, including the provision of a school principal employed by Scholastic, in return for

certain compensation. The management agreement’s effective date was July 1, 2015; and, unless

terminated earlier pursuant to the agreement’s terms, Scholastic and the charter school decided

that the agreement would continue to be in effect until June 30, 2018.

Over the next year, the working relationship between Fisher and Noel deteriorated. On

July 6, 2016, Fisher sent Noel correspondence accusing him of engaging in ongoing

unprofessional behavior and of demonstrating an unwillingness to change. Fisher informed Noel

that she was immediately removing him from his position as COO, that Fisher planned to hire an

employee to replace Noel, and that Noel would nonetheless “continue to receive the benefits” of

his ownership interest in Scholastic. Curry ultimately replaced Noel as Scholastic’s COO.

On March 17, 2017, Noel initiated the first lawsuit by filing a complaint, which he later

amended. His first amended complaint set forth nine counts, as follows: (1) breach of the

operating agreement against Fisher; (2) negligence against Fisher, Curry, and Bowers; (3)

implied, innocent, negligent, or intentional misrepresentation (at the time the operating

agreement was executed) against Fisher; (4) silent fraud and bad-faith promises (at the time the

operating agreement was executed) against Fisher; (5) implied, innocent, negligent, or intentional

misrepresentation (in July 2016 and thereafter) against Fisher, Curry, and Bowers; (6) silent

fraud and bad-faith promises (in July 2016 and thereafter) against Fisher, Curry, and Bowers; (7)

minority suppression against Fisher; (8) an accounting of Scholastic’s finances; and (9)

injunctive relief in the form of the appointment of a receiver.

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On September 15, 2017, Noel and his certified public accountant, Harold Montgomery

(“Montgomery”), appeared at Scholastic’s offices to review Scholastic’s financial documents.

An affidavit executed by Curry provides the following:

[Curry] placed Noel and Montgomery in a room with a laptop computer which

contained electronic copies of the following Scholastic files accessible for

viewing:

(a) Monthly bank statements and reconciliations from January 1, 2016 to

June 30, 2016 and from May 1, 2017 to those most currently available.

(b) Cancelled checks dated from January 1, 2016 to those most currently

available.

(c) Credit card statements from September 1, 2016 to those most currently

available with portions of the credit card account numbers blacked out.

(d) Current electronic copy of QuickBooks data file.[2]

(e) Payroll records of Scholastic employees from January 2013 to present

with social security numbers blacked out.

Curry also offered to permit Noel and Montgomery to copy those documents if they would sign a

nondisclosure agreement, but Noel and Montgomery declined to do so. After reviewing the

provided documentation for approximately an hour, Noel and Montgomery left Scholastic’s

office.

When Montgomery was deposed on November 8, 2017, he indicated that he had

discovered nothing that he considered to be fraudulent, inaccurate, or incomplete in his

cumulative review of all of the Scholastic financial documentation, including Scholastic’s 2016

federal tax return. However, Montgomery later indicated that, under the “cash” method of

accounting that Scholastic utilized, which fundamentally differs from the generally accepted

accounting principles (GAAP) method, there were inaccuracies or mistakes in the preparation of

two Scholastic balance sheets covering different periods in 2017. More specifically, one balance

sheet listed “accounts receivable” and “liabilities,” neither of which should have been included

on a balance sheet under the “cash” method. The other balance sheet incorrectly labeled capital

distributions as “liabilities.” Montgomery opined that in order to confirm whether the financial

documentation was accurate and proper on the whole, an independent audit utilizing “Generally

Accepted Auditing Standards” and GAAP—which Montgomery had not performed—would be

necessary.

2

At the April 18, 2018 motion hearing concerning summary disposition, Noel’s counsel

indicated that Montgomery was unable to competently audit Scholastic’s financial records based

on the information that had been provided by defendants and that all Montgomery needed was

“access to QuickBooks[.]”

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Under the trial court’s scheduling orders, the cutoff date for discovery was November 14,

2017, and the cutoff date for dispositive motions was January 16, 2018. No motions to compel

discovery were ever filed by any of the parties during the first lawsuit. However, Noel moved

the trial court to order an accounting and to appoint a receiver. The trial court denied both

motions, specifying that the court’s denial of the motion to appoint a receiver was without

prejudice. Additionally, after the close of discovery, Noel moved the trial court for leave to

amend his complaint for a second time. The proposed second amended complaint was almost

identical to the first amended complaint, and the proposed second amended complaint did not

contain any new claims. According to Noel, filing a second amended complaint was necessary

to “conform to the facts and discovery.” The trial court ultimately denied Noel’s motion for

leave to file a second amended complaint.

In January 2018, defendants all filed motions seeking summary disposition in the first

lawsuit. While the motions for summary disposition were pending, an April 9, 2018 special

meeting of Scholastic’s members was held, with Fisher appearing in person with her attorneys,

while Noel was represented, by proxy, by his attorney. According to the meeting’s minutes, by

the unanimous votes of Fisher and Noel (by way of his attorney’s proxy), it was resolved that

Scholastic would (1) accept Fisher’s resignation as a manager “effective immediately”; (2) retain

Curry, whom Fisher had already hired, as Scholastic’s COO, chief financial officer, and

treasurer; (3) appoint Curry as a manager; and (4) direct “the Manager and any officer, or

employee of” Scholastic “not to assert any claims against Diane Fisher which [Scholastic] may

have with respect to or arising out of the submission, award and negotiation of any educational

services contract on behalf of [Scholastic] with [the charter school] effective on and after July 1,

2018.” On the other hand, with Fisher’s majority vote overriding Noel’s contrary votes, it was

resolved that (1) Scholastic would acknowledge “receipt of notice from Fisher of her withdrawal

as a member . . . effective as of July 1, 2018”; (2) if Noel submitted a proposed bid for

submission in response to the charter school’s “2018 RFP,”3 then it would be submitted by

Scholastic, and Noel would be free to negotiate any necessary contracts on Scholastic’s behalf;

(3) both Fisher and Noel, in their “individual capacit[ies] or through an entity controlled by

[either of them], and not on behalf of or as agent of” Scholastic, would also “be free to submit a

response to the 2018 RFP”; and (4) Scholastic “waive[d] any claim against any Member for

bidding in his or her individual capacity in response to the 2018 RFP.”

On April 16, 2018, Noel and Scholastic4 filed the second lawsuit against Fisher that

alleged one count of breach of fiduciary duty. Noel and Scholastic alleged that the manner of

Fisher’s resignation and withdrawal from Scholastic and her plan to compete against Scholastic

with regard to the 2018 RFP constituted breach of her fiduciary duties. At a subsequent motion

hearing, counsel for Noel and Scholastic admitted that he filed the second action without moving

to amend Noel’s complaint in the first action to assert the breach of fiduciary duty claims against

Fisher.

3

“RFP” is an acronym for “request for proposal.”

4

Noel filed the complaint “as a member on behalf” of Scholastic.

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On April 18, 2018 and April 20, 2018, the trial court issued opinions and orders granting

summary disposition to defendants Fisher, Curry, and Scholastic with regard to all claims against

them in the first action. Noel and Scholastic subsequently amended the complaint in the second

action, asserting four counts against Fisher: (1) breach of fiduciary duty, (2) tortious interference

with Scholastic’s business relationship or expectancy with the charter school, (3) unjust

enrichment, and (4) “conversion” of Scholastic’s contract with the charter school. In lieu of

answering, Fisher moved for summary disposition of all claims under MCR 2.116(C)(7) (claim

barred by res judicata) and (C)(8) (failure to state a claim for relief). Among other things, Fisher

argued that all of the claims in the second action were barred by res judicata because they could

have been asserted in the first action.

On October 31, 2018—approximately one week before the scheduled hearing regarding

summary disposition in the second action—Noel and Scholastic filed a motion seeking leave to

file a supplemental brief in opposition to Fisher’s motion for summary disposition, arguing that

this was necessary because Noel and Scholastic had uncovered new factual support for their

claims during Fisher’s October 29, 2018 deposition. At the ensuing motion hearing, the trial

court denied the motion to file a supplemental brief, reasoning that it was unnecessary for the

court to consider the factual record—including any new evidence uncovered during Fisher’s

October 29, 2018 deposition—to decide whether summary disposition was appropriate under

MCR 2.116(C)(7) and (C)(8).

Ultimately, the trial court granted Fisher summary disposition on all claims in the second

lawsuit, holding that the claims were all barred by res judicata. The trial court further ruled that,

as set forth in Noel and Scholastic’s amended complaint, all of the claims were derivative in

nature and because it was undisputed that Noel had “failed to comply with MCL []450.4510(b)’s

written demand requirement,” Noel was not entitled to pursue those derivative claims on

Scholastic’s behalf. Finally, the trial court held that because the court had decided that Fisher

was entitled to summary disposition of all claims on two independent grounds, it would not

consider or decide the other potential grounds Fisher had asserted to support summary

disposition. In response to this ruling, Noel filed a motion for reconsideration, which was denied

by the trial court. These appeals followed.

II. ANALYSIS

A. DOCKET NO. 343580

1. MOTIONS FOR AN ACCOUNTING AND RECEIVERSHIP

Noel argues that the trial court improperly denied his motion to appoint a receiver to take

charge of Scholastic in the first action. This Court reviews a trial court’s decision concerning the

appointment of a receiver for an abuse of discretion. Shouneyia v Shouneyia, 291 Mich App

318, 325; 807 NW2d 48 (2011).

It has long been settled that “[a] court of equity has inherent power to appoint a receiver”

and that “[t]he appointment of a receiver is a harsh proceeding and should only be resorted to in

extreme cases.” Mich Minerals v Williams, 306 Mich 515, 525; 11 NW2d 224 (1943). Among

other things, “[a] receiver may be appointed where necessary to prevent fraud or to protect

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property against imminent danger of loss.” Weathervane Window, Inc v White Lake Constr Co,

192 Mich App 316, 322; 480 NW2d 337 (1991). “The primary purpose of a receiver is to

preserve property and to dispose of it under order of the court.” See id.

Here, after the trial court’s November 2017 ruling denying the requested receivership,

Fisher—who was the only member of Scholastic other than Noel—“withdrew from [Scholastic]

effective June 30, 2018,” leaving Noel as Scholastic’s sole member. Hence, pursuant to the

terms of the operational agreement, Noel had complete operational control of Scholastic and its

assets, and there was no continued need to appoint a receiver to protect Noel’s interest in

Scholastic from alleged mismanagement or malfeasance. Therefore, even if we were to conclude

that the trial court abused its discretion by refusing to appoint a receiver, we would nevertheless

be unable to fashion a remedy that would now redress that alleged error. The receivership issue

is consequently moot, and we decline to consider it further. See Garrett v Washington, 314 Mich

App 436, 449-450; 886 NW2d 762 (2016) (observing that “[a]n issue becomes moot when a

subsequent event renders it impossible for the appellate court to fashion a remedy” or “this

Court’s ruling cannot for any reason have a practical legal effect on the existing controversy”)

(quotation marks and citations omitted); B P 7 v Bureau of State Lottery, 231 Mich App 356,

359; 586 NW2d 117 (1998) (“As a general rule, an appellate court will not decide moot issues.”).

Noel also argues that the trial court erred by denying his motion for an accounting. We

are unpersuaded. An action for an accounting is equitable in nature, Crooker v Crooker, 340

Mich 250, 251; 65 NW2d 767 (1954), and “we review equitable issues de novo,” Sys Soft

Technologies, LLC v Artemis Technologies, Inc, 301 Mich App 642, 650; 837 NW2d 449 (2013).

Noel cites MCL 450.4503(5) to support his argument that the trial court improperly

denied his request for an accounting. 5 MCL 450.4503(5) provides the following:

5

Noel also cites MCL 600.3605, which is a provision of the Revised Judicature Act that invests

circuit courts with power to entertain certain actions, including accountings, against certain

corporate agents. MCL 600.3605(2) (“This jurisdiction extends over all directors, managers,

trustees, and other officers of corporations, and over any person who has held any of these

offices in any corporation against whom proceedings are commenced within 1 year after he has

ceased to be a director, manager, trustee, or other officer.”) (emphasis added). Because LLCs are

governed by the Michigan Limited Liability Company Act, MCL 450.4101 et seq., see Duray

Dev, LLC v Perrin, 288 Mich App 143, 150-152; 792 NW2d 749 (2010), and Scholastic is an

LLC, not a corporation, Noel’s reliance on MCL 600.3605 is misplaced. Indeed, Noel has

provided no authority indicating that MCL 600.3605 applies to LLCs, we are unaware of any

such authority, and it would seem that the Legislature could not have intended such an

application. MCL 600.3605 was enacted by 1961 PA 236—more than 30 years before the

effective date of the Michigan Limited Liability Company Act, see 1993 PA 23—and MCL

600.3605 has not since been amended. We fail to see how our 1961 Legislature could have

intended, when enacting MCL 600.3605, for it to apply to LLCs—a form of business

organization that did not yet exist. See Ale, An Introduction to Limited Liability Companies, 38

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A member may have a formal accounting of a limited liability company’s affairs,

as provided in an operating agreement or whenever circumstances render it just

and reasonable.

However, in relying on MCL 450.4503(5), Noel conflates an “accounting” with civil

discovery when case law makes it clear that they are different. More specifically, case law

establishes that “[a]n accounting is unnecessary where discovery is sufficient to determine the

amounts at issue.” Boyd v Nelson Credit Ctrs, Inc, 132 Mich App 774, 779; 348 NW2d 25

(1984), citing Cyril J Burke, Inc v Eddy & Co, 332 Mich 300, 303; 51 NW2d 238 (1952)

(holding that recourse to discovery and the subpoena power was an adequate remedy at law that

precluded equitable relief in the form of an accounting).

On appeal, Noel fails to coherently explain why discovery was an insufficient remedy at

law in this case, and he cites no authority in support of that proposition. Indeed, the record

reveals that Noel ultimately retained Montgomery (a CPA), who reviewed Scholastic’s books at

the home office. Tellingly, Noel did not file a motion to compel discovery in the trial court.

Thus, the record reveals that Noel successfully used discovery to obtain relevant financial

documents, and we perceive no error in the trial court’s denial of the requested accounting. See

Sys Soft Technologies, LLC, 301 Mich App at 650.

2. MOTION TO AMEND

Noel argues that the trial court improperly denied his motion for leave to file a second

amended complaint in the first action. “We review a trial court’s decision regarding a plaintiff’s

motion to amend the pleadings for an abuse of discretion.” Sanders v Perfecting Church, 303

Mich App 1, 8-9; 840 NW2d 401 (2013).

As explained in Lane v KinderCare Learning Ctrs, Inc, 231 Mich App 689, 696-697; 588

NW2d 715 (1998):

A court should freely grant leave to amend a complaint when justice so requires.

The rules governing the amendment of pleadings are intended to facilitate

amendment except when prejudice to the opposing party would result. Thus,

amendment is generally a matter of right, rather than grace. Ordinarily, a motion

to amend a complaint should be granted, and should be denied only for the

following particularized reasons: (1) undue delay, (2) bad faith or dilatory motive

on the part of the movant, (3) repeated failure to cure deficiencies by amendments

previously allowed, (4) undue prejudice to the opposing party by virtue of

allowance of the amendment, or (5) futility of the amendment. [Citations

omitted.]

No 8 Prac Law 35 (1992) (“In 1977 Wyoming became the first state to enact a statute

authorizing limited liability companies.”).

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“An amendment is futile if it merely restates the allegations already made or adds allegations that

still fail to state a claim.” Id. at 697.

In this instance, Noel’s motion for leave to file a second amended complaint was properly

denied because the proposed amendments were futile. A comparison of Noel’s first amended

complaint to his proposed second amended complaint reveals that they are nearly identical, with

each stating nine counts that are titled identically in both pleadings and each purportedly

including 139 numbered paragraphs.6 The few minor substantive changes, which updated the

factual allegations to include more recent actions by Fisher and Curry, are immaterial because,

for the reasons set forth below, none of them would have been sufficient to save Noel’s claims

from summary disposition. Thus, the trial court’s decision to deny Noel’s motion for leave to

file a second amended complaint did not fall outside the range of reasonable and principled

outcomes. See Ronnisch Constr Group, Inc v Lofts on the Nine, LLC, 499 Mich 544, 552; 886

NW2d 113 (2016).

3. SUMMARY DISPOSITION

Noel argues that the trial court erred by granting defendants Fisher, Curry, and Scholastic

summary disposition of all claims against them in the first action pursuant to MCR 2.116(C)(8)

and (C)(10). We find no error warranting reversal. 7

This Court reviews a trial court’s decision to grant or deny summary disposition de novo.

Rory v Continental Ins Co, 473 Mich 457, 464; 703 NW2d 23 (2005). “A motion under MCR

2.116(C)(10) tests the factual sufficiency of the complaint.” Maiden v Rozwood, 461 Mich 109,

120; 597 NW2d 817 (1999). “[T]he circuit court must consider the affidavits, pleadings,

depositions, admissions, and other evidence submitted by the parties, MCR 2.116(G)(5), in the

light most favorable to the party opposing the motion.” Joseph v Auto Club Ins Ass’n, 491 Mich

200, 206; 815 NW2d 412 (2012). “A motion for summary disposition under MCR 2.116(C)(10)

shall be granted if there is no genuine issue regarding any material fact and the movant is entitled

to judgment as a matter of law.” Bazzi v Sentinel Ins Co, 502 Mich 390, 398; 919 NW2d 20

(2018). “A genuine issue of material fact exists when the record, giving the benefit of reasonable

doubt to the opposing party, leaves open an issue upon which reasonable minds might differ.”

Zaher v Miotke, 300 Mich App 132, 139-140; 832 NW2d 266 (2013) (quotations marks and

citations omitted).

6

The paragraphs in the proposed second amended complaint are incorrectly numbered. Because

the proposed second amended complaint includes two paragraphs numbered 84 and two

numbered 85, it actually contains 141 numbered paragraphs, along with several others that are

not numbered.

7

We also reject Noel’s contention that the trial court erred by failing to consider his

supplemental briefing regarding summary disposition. The trial court’s opinion and order

explicitly states that the court “considered the factual allegations in [Noel’s] supplemental brief

and conclude[d] that they d[id] not change the outcome” with regard to summary disposition.

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In El-Khalil v Oakwood Healthcare, Inc, ___ Mich ___, ___; ___ NW2d ___ (2019)

(Docket No. 157846); slip op at 6, our Supreme Court articulated the standard of review for a

trial court’s decision on a motion for summary disposition brought under MCR 2.116(C)(8):

A motion under MCR 2.116(C)(8) tests the legal sufficiency of a claim

based on the factual allegations in the complaint. When considering such a

motion, a trial court must accept all factual allegations as true, deciding the

motion on the pleadings alone. A motion under MCR 2.116(C)(8) may only be

granted when a claim is so clearly unenforceable that no factual development

could possibly justify recovery.

For purposes of MCR 2.116(C)(8), the “pleadings” include any written instrument on

which a claim or defense is based—such as the operating agreement in this case—that is attached

to a pleading. See MCR 2.113(C); Laurel Woods Apartments v Roumayah, 274 Mich App 631,

635; 734 NW2d 217 (2007).

a. BREACH OF THE OPERATING AGREEMENT

Noel argues that the trial court erred by granting Fisher summary disposition of the claim

against her for breach of the operating agreement. However, Noel’s argument on this issue fails

to cite to any legal authority, fails to cite any particular section of the operating agreement in

support, and (excluding one parenthetical citation to record evidence) consists of only three

meager sentences. “An appellant may not merely announce a position then leave it to this Court

to discover and rationalize the basis for the appellant’s claims; nor may an appellant give an

issue only cursory treatment with little or no citation of authority.” Cheesman v Williams, 311

Mich App 147, 161; 874 NW2d 385 (2015). Thus, Noel has abandoned this argument, and we

need not consider it. See id.

b. NEGLIGENCE

Noel next argues that the trial court erred by granting defendants Fisher and Curry

summary disposition of Noel’s claim for negligence. “The threshold question in a negligence

action is whether the defendant owed a duty to the plaintiff. It is axiomatic that there can be no

tort liability unless defendants owed a duty to plaintiff.” Fultz v Union-Commerce Assoc, 470

Mich 460, 463; 683 NW2d 587 (2004) (quotation marks and citation omitted). However, “a tort

action will not lie when based solely on the nonperformance of a contractual duty.” See id. at

466. Here, in alleging that Fisher and Curry owed him a legal duty, Noel’s amended complaint

merely quoted terms that were set forth in the operating agreement. The amended complaint

contains no allegations that Fisher and Curry owed Noel a duty outside of the terms of the

contract. Thus, because Noel’s amended complaint merely alleged the existence and breach of

contractual legal duties, he failed to plead a claim of negligence. See id. Hence, because Noel’s

negligence claim was fatally deficient on the face of the pleadings, summary disposition was

proper under MCR 2.116(C)(8).

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c. MISREPRESENTATION AND FRAUD

Noel argues that the trial court erred by granting summary disposition on his claim of

fraudulent misrepresentation. We disagree.

In Lucas v Awaad, 299 Mich App 345, 363; 830 NW2d 141 (2013), this Court outlined

the requirements of establishing a claim of fraudulent misrepresentation:

A plaintiff asserting a claim of fraud must demonstrate these six elements: (1) that

the defendant made a material representation; (2) that it was false; (3) that the

defendant made the representation knowing that it was false or made it recklessly

without knowledge of its truth; (4) that the defendant intended that the plaintiff

would act on the representation; (5) that the plaintiff relied on the representation;

and (6) that the plaintiff suffered injury as a result of having relied on the

representation.

As a general rule, “an action for fraudulent misrepresentation must be predicated upon a

statement relating to a past or an existing fact. Future promises are contractual and do not

constitute fraud.” Hi-Way Motor Co v Int’l Harvester Co, 398 Mich 330, 336; 247 NW2d 813

(1976). Under the “bad faith” exception to that general rule, a future promise can represent an

actionable misrepresentation if it is “made in bad faith without intention of performance.” Id. at

337-338. However, “evidence of fraudulent intent, to come within the exception, must relate to

conduct of the actor at the very time of making the representations, or almost immediately

thereafter.” Id. at 338-339 (quotation marks and citation omitted).

As stated in Noel’s amended complaint, all of the claims alleging misrepresentation—

including the claims that are captioned as if they regard conduct occurring in July 2016 and

thereafter—are premised on representations in the operating agreement. Those representations

were clearly future promises of a contractual nature.8 Moreover, as the trial court noted, Noel

failed to allege or present evidence demonstrating that when Fisher executed the operating

agreement in November 2011, her conduct at that time, or almost immediately afterward,

indicated a bad-faith intention not to abide by the agreed-upon terms. On the contrary, it is

undisputed that Fisher retained Noel in his position as Scholastic’s COO until July 2015—nearly

four years after the operating agreement was executed. Indeed, Fisher’s earliest alleged breaches

of the operating agreement occurred several years after its execution. As a matter of law, such

breaches are “too remote in time” to constitute evidence of bad faith on Fisher’s behalf at the

time she entered the operating agreement. See Hi-Way Motor Co, 398 Mich at 338-339 (holding

that a letter dated three years after a future promise was made constituted “evidence too remote

in time to indicate that when the [defendants’] agents made the promise they had no intention of

fulfilling it”). Therefore, under both MCR 2.116(C)(8) and (C)(10), the trial court correctly

granted summary disposition to defendants Fisher and Curry on the misrepresentation claims.

8

The representations were also not attributable to defendant Curry, inasmuch as there is no

substantively admissible evidence that Curry ever executed the operating agreement or

affirmatively represented that he would abide by the agreement’s terms.

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d. SILENT FRAUD

With respect to the trial court’s dismissal of the silent fraud claim, to prove silent fraud

“the plaintiff must show that the defendant suppressed the truth with the intent to defraud the

plaintiff and that the defendant had a legal or equitable duty of disclosure.” Lucas v Awaad, 299

Mich App at 363-364. Noel’s amended complaint alleges that Fisher had a duty to “maintain

complete and accurate books and records of the Company’s business and affairs as required by

the Act” (emphasis omitted). However, the amended complaint does not identify which “Act”

imposed a duty of disclosure on Fisher, and the amended complaint does not contain any other

allegations to support that Fisher owed a duty of disclosure to Noel. Consequently, Noel failed

to adequately plead a claim of silent fraud, and summary disposition was therefore proper on that

claim pursuant to MCR 2.116(C)(8).

e. “MINORITY SUPPRESSION”

Noel argues that the trial court erred by summarily dismissing his claim for “minority

suppression.” His argument of this issue in his brief on appeal consists of one sentence, which is

devoid of citation to legal authority. Any attempt to meaningfully analyze this claim would

require this Court to advocate on Noel’s behalf and search for authority that might sustain his

position. Because that is not our proper role, we deem this claim of error abandoned, and will

not consider it. See Cheesman, 311 Mich App at 161.9

B. DOCKET NO. 347056

Noel and Scholastic argue that the trial court erred by granting Fisher summary

disposition of all claims in the second action pursuant to MCR 2.116(C)(7). We disagree.

A party is entitled to judgment as a matter of law under MCR 2.116(C)(7) if the opposing

party’s claims are barred because of res judicata. Beyer v Verizon North, Inc, 270 Mich App

424, 435; 715 NW2d 328 (2006). “A party may support a motion under MCR 2.116(C)(7) by

affidavits, depositions, admissions, or other documentary evidence.” Maiden v Rozwood, 461

Mich at 119. “The contents of the complaint are accepted as true unless contradicted by

documentation submitted by the movant.” Id. “If there is no relevant factual dispute, whether a

plaintiff’s claim is barred under a principle set forth in MCR 2.116(C)(7) is a question of law for

the court to decide.” Snead v John Carlo, Inc, 294 Mich App 343, 354; 813 NW2d 294 (2011).

“If, however, a pertinent factual dispute exists, summary disposition is not appropriate.” Id.

9

Noel also abandoned his “minority suppression” claim in the trial court. More specifically,

Noel’s argument in the trial court was identical to the one-sentence argument he raises on appeal,

except that in the trial court he referred to Scholastic as “the Defendant Corporation,” while on

appeal he uses the phrase “the Appellee Corporation.” Like this Court, “[t]rial courts are not the

research assistants of the litigants,” Walters v Nadell, 481 Mich 377, 388; 751 NW2d 431

(2008), and the trial court was under no obligation to seek out authority to support Noel’s claim

on his behalf.

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“The doctrine of res judicata is intended to relieve parties of the cost and vexation of

multiple lawsuits, conserve judicial resources, and encourage reliance on adjudication, that is, to

foster the finality of litigation.” In re Bibi Guardianship, 315 Mich App 323, 333; 890 NW2d

387 (2016) (quotation marks and citation omitted). There are four essential elements for res

judicata: (1) the prior action was decided on the merits, (2) the prior decision was final, (3) both

actions involve the same parties or their privies, and (4) the claims to be precluded either were or

could have been decided in the prior action. Duncan v Michigan, 300 Mich App 176, 194; 832

NW2d 761 (2013).10

With regard to the first and second elements, the trial court’s grant of summary

disposition to all of the defendants in the first action constituted a final decision on the merits.

MCR 2.504(B)(3) provides:

Unless the court otherwise specifies in its order for dismissal, a dismissal

under this subrule or a dismissal not provided for in this rule, other than a

dismissal for lack of jurisdiction or for failure to join a party under MCR 2.205,

operates as an adjudication on the merits. [Emphasis added.]

In this instance, one of the trial court’s opinions and orders granting summary disposition against

Noel in the first action explicitly stated: “This order resolves the last pending claim and closes

the case.” The trial court’s other grants of summary disposition to the various defendants were

not premised on lack of jurisdiction or failure to join a party under MCR 2.205. Hence, under

MCR 2.504(B)(3), the grants of summary disposition qualify as final adjudications on the merits

for purposes of res judicata. See Washington v Sinai Hosp of Greater Detroit, 478 Mich 412,

419; 733 NW2d 755 (2007) (holding that “[i]n the absence of any language in an order of

dismissal limiting the scope of the merits decided, [MCR 2.504(B)(3)] plainly provides that the

order operates as an adjudication of the entire merits of a plaintiff’s claim” for purposes of res

judicata). The first and second elements are therefore satisfied. See Duncan, 300 Mich App at

194.

Res judicata’s third element is also satisfied because all of the named parties in the

second action (i.e., Noel, Scholastic, and Fisher) were also named parties in the first action.

Accordingly, the parties’ arguments on appeal regarding privity of interest are misplaced and

need not be considered by this Court. See Adair v Michigan, 470 Mich 105, 121; 680 NW2d 386

(2004) (noting that, for purposes of this element, both actions must involve “the same parties or

their privies”) (emphasis added); see also Fast Air, Inc v Knight, 235 Mich App 541, 544; 599

10

By merging the first and second elements stated in Duncan, other decisions sometimes list

three elements for res judicata. See, e.g., Dart v Dart, 460 Mich 573, 586; 597 NW2d 82 (1999);

Old Kent Bank of Holland v Chaddock, Winter & Alberts, 197 Mich App 372, 379; 495 NW2d

808 (1992).

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NW2d 489 (1999), quoting Black’s Law Dictionary (5th ed), (“A ‘party’ to an action is a person

whose name is designated on record as plaintiff or defendant.”).11

In the end, the dispositive element here is the fourth and final one (i.e., the claims to be

precluded were or could have been decided in the prior action). Our Supreme Court “has taken a

broad approach” to this element, embracing the “transactional” test, under which res judicata

“bars not only claims already litigated, but also every claim arising from the same transaction

that the parties, exercising reasonable diligence, could have raised but did not.” Adair, 470 Mich

at 121, 124. “[T]he determinative question is whether the claims in the instant case arose as part

of the same transaction as did the claims in” the first action. See id. at 125. “Whether a factual

grouping constitutes a transaction for purposes of res judicata is to be determined pragmatically,

by considering whether the facts are related in time, space, origin or motivation, [and] whether

they form a convenient trial unit. . . .” Id. (citation omitted).

We conclude that the claims in the second action arose out of the same “transaction” as

those in the first. In both actions, all of the claims regard events that occurred during the same

general timeframe, and the claims in the second action all regard an essential subject matter that

was also at issue in the first action: a dispute concerning the alleged actions and inactions of

Fisher in regard to Scholastic. Indeed, Noel and Scholastic admit that the claims in the second

action accrued before the first action had concluded and that they nevertheless instituted the

second action without ever attempting to amend the complaint in the first action to add the new

claims against Fisher. In light of the practical similarities of the claims and the fact that they

involved the same parties, they certainly would have formed a convenient trial unit. Thus, we

conclude that the fourth element of res judicata is satisfied here. Consequently, Fisher was

entitled to judgment as a matter of law on the basis of res judicata. See Duncan, 300 Mich App

at 194. As such, the trial court did not commit error requiring reversal—as Noel and Scholastic

argue on appeal—by refusing to permit Noel and Scholastic to file a proposed supplemental brief

regarding summary disposition, which contained no argument or information that was relevant to

Fisher’s res judicata arguments. See MCR 2.116(I)(1) (“If the pleadings show that a party is

entitled to judgment as a matter of law, . . . the court shall render judgment without delay.”)

(emphasis added).

Finally, Noel and Scholastic argue that the trial court abused its discretion by denying

their motion for reconsideration of the trial court’s order granting summary disposition in the

second action. A trial court’s decision to grant or deny a motion for reconsideration is reviewed

for an abuse of discretion. Woods v SLB Prop Mgt, 277 Mich App 622, 629; 750 NW2d 228

(2008). The sole argument regarding res judicata that Noel and Scholastic included in the

motion for reconsideration was the misplaced argument about privity which they now raise on

appeal. Moreover, because Noel and Scholastic could have raised that argument before the trial

court initially ruled on the motion for summary disposition, the trial court did not abuse its

11

Compare 46 Am Jur 2d, Judgments § 560, pp 922-923 (“A party to an action has been defined

as a person who is named as a party to the action and subjected to the jurisdiction of the court,

that is, is properly served with process or enters his or her appearance.”).

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discretion by denying the motion for reconsideration. See id. at 630 (holding that a trial court

cannot abuse its discretion by denying a motion for reconsideration “resting on a legal theory and

facts which could have been pled or argued prior to the trial court’s original order”) (quotation

marks and citation omitted).

Affirmed in both dockets.

/s/ Michael J. Riordan

/s/ Kirsten Frank Kelly

/s/ Thomas C. Cameron

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