John Michael Jones v. Westminster LLC ( 2018 )

STATE OF MICHIGAN
COURT OF APPEALS
JOHN MICHAEL JONES and OUTBACK UNPUBLISHED
PROPERTY MANAGEMENT, LLC, May 24, 2018
Plaintiffs-Appellants,
v No. 334447
Macomb Circuit Court
WESTMINSTER, LLC and LEONARDO LC No. 2015-001987-CB
ROBERTS,
Defendants-Appellees.
Before: CAMERON, P.J., and SERVITTO and GLEICHER, JJ.
CAMERON, P.J. (concurring in part and dissenting in part).
The parties to this litigation entered into a Global Release of Claims (GRC) after their
business relationship fell apart. A term of the release required defendants to refrain from filing a
complaint with any government agency regarding plaintiffs’ business practices. Defendants
breached the GRC in 2012 when they filed an administrative complaint with the Department of
Licensing and Regulatory Affairs (LARA) concerning plaintiffs’ alleged improper business
operations. Plaintiffs sued for breach of contract associated with the breach, obtained summary
disposition in their favor, and were awarded damages. Plaintiffs also obtained an order for
injunctive relief requiring defendants to withdraw their complaint in the hope that the state would
then not open an investigation. Although defendants withdrew the administrative complaint,
plaintiffs readily acknowledged to the trial court that the state was an independent entity and that
additional damages would inevitably accrue if the state decided to move forward with an
investigation. Despite this understanding, plaintiffs obtained a final judgment for the then
existing damages only and failed to preserve their right to recover future damages in the
judgment. To no one’s surprise, the state elected to move forward with an investigation,
resulting in additional attorney fees to plaintiffs. In 2015, plaintiffs filed a second lawsuit in
which they alleged, among other things, “ongoing damages” from the same breach of contract
claim adjudicated in 2013. The trial court dismissed plaintiffs’ breach of contract claim on res
judicata grounds. On appeal, plaintiffs now argue their second breach of contract lawsuit is not
barred on res judicata grounds because they “tacitly preserved” their right to recover future
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damages before the trial court.1 I agree with the majority opinion that res judicata does not bar
new breach of contract claims against defendant Leonardo Roberts because plaintiffs alleged
breaches of the GRC that were not decided in the first lawsuit. However, principles of res
judicata should bar the remainder of plaintiffs’ breach of contract claim because it was decided
in the previous lawsuit. Therefore, I respectfully concur in part and dissent in part.
“The doctrine of res judicata is employed to prevent multiple suits litigating the same
cause of action.” Adair v State, 470 Mich. 105, 121; 680 NW2d 386 (2004). To prove that a suit
is barred on res judicata grounds, the following is required: “(1) the prior action was decided on
the merits, (2) both actions involve the same parties or their privies, and (3) the matter in the
second case was, or could have been, resolved in the first.” Id., citing Sewell v Clean Cut Mgt,
Inc, 463 Mich. 569, 575; 621 NW2d 222 (2001). Michigan courts have “taken a broad approach
to the doctrine of res judicata, holding that it 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.
The majority offers two rationales to explain why plaintiffs’ second breach of contract
lawsuit is not extinguished under res judicata. To begin, the majority interprets paragraphs 17 to
25 of the 2015 complaint as alleging new breaches of the GRC that occurred after the first
lawsuit; thus entitling plaintiffs to file a second breach of contract lawsuit for that misconduct.
As an alternative approach, the majority cites to several Michigan cases and the Restatement as
its authority that subsequent breaches of contract are not necessary before successive breach of
contract lawsuits are permissible to “redress a continuing harm.”
I disagree with the majority’s analysis. As for the first rationale, the 2015 complaint
simply does not support the majority’s broad, unsupported assertion of subsequent contractual
breaches. As for the second basis, the majority fails to acknowledge that the Restatement and all
the case law it cites require more than a continuing harm; a subsequent breach of contract is
required before the same action may be refiled. To resolve these issues, I address each of the
allegations in the 2015 complaint that the majority relies on to render its decision.
I. PARAGRAPH 17
The majority correctly concludes that the doctrine of res judicata does not extinguish the
breach of contract claim in paragraph 17 of the complaint because the breach asserted was not,
and could not, have been litigated in the first lawsuit. Paragraph 17 alleges:
“Unknown to this Honorable Court or Plaintiffs at the time of the 2013 Case,
defendant Roberts held a Durable Power of Attorney over another company that
was party to the GRC, being Riek Holdings, LLC (“Riek”), which company also
1
Interestingly, plaintiffs claim to have tacitly preserved the ability to collect future damages
from their original breach of contract claim, yet they did not attempt to reopen the original case
in order to collect on those damages.
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filed . . . two (2) other separate LARA Complaints against Plaintiffs under case
numbers 65-12-000028 and 65-12-00028 [sic] . . . .”
Stated differently, plaintiffs alleged that defendant Roberts used his undisclosed interest in Riek
Holdings, LLC (Riek) to surreptitiously file LARA complaints against plaintiffs in violation of
the GRC. Roberts’ control over Riek was not discovered until much later, plaintiffs asserted,
otherwise these contemporaneous breaches of the GRC would have been included in the first
lawsuit. As previously stated, the third prong of res judicata requires that “the matter in the
second case was, or could have been, resolved in the first.” Id. Because the relationship
between Roberts and Riek was understandably unknown when the first complaint was filed, this
issue was neither raised by plaintiffs nor decided by the trial court. Accordingly, res judicata
does not bar this claim that was not, and could not, have been resolved in the first lawsuit.2
II. PARAGRAPHS 18 AND 19
Paragraphs 18 and 19 of plaintiffs’ amended complaint, on the other hand, do not allege a
new breach of the GRC or of the trial court’s injunction. Instead, plaintiffs assert, and the
majority readily accepts, that plaintiffs are entitled to file a second lawsuit to recover damages
that have accrued since the resolution of the same, previously adjudicated breach of contract
lawsuit. I disagree.
Paragraph 18 of plaintiffs’ amended complaint avers, “Following the entry of the Court’s
injunctive orders in the 2013 Case, Plaintiffs continued to accrue and incur ongoing damages
caused by Defendants’ established breach [of] the GRC . . . .” (First alteration in original;
emphasis added.) Plaintiffs’ assertion of the same breach of contract claim meets the elements of
res judicata and should be barred. It is clear that the first lawsuit was decided on the merits when
the trial court granted injunctive relief and awarded attorney fees and costs for defendants’
breach of the GRC. It is equally clear that both suits involve the same parties. Finally, the
breach and all damages arising from the breach were litigated and decided, at the plaintiffs’
2
Turning to the Restatement, the drafters provide that
[a] defendant cannot justly object to being sued on a part or phase of a claim that
the plaintiff failed to include in an earlier action because of the defendant’s own
fraud. Thus, when the defendant takes several articles at one time and on being
asked by the plaintiff fraudulently denies taking some of them and suit is brought
for the remainder, a judgment in that action does not bar the plaintiff from
subsequently maintaining an action for those articles not included in the first
action. [Restatement Judgments, 2d § 26, p 244.]
In a similar vein, defendants allegedly concealed the fact that they filed other complaints through
Riek. Plaintiffs should not be barred from bringing a breach of contract action based on this
alleged wrongful conduct.
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insistence, by the trial court in the first lawsuit.3 Thus, any claim based on these allegations
should be barred by the general principles of res judicata.
Plaintiffs could have avoided this issue if they had preserved their interest to recover
future damages in the first lawsuit, and we should not now broaden a narrow exception to
circumvent the doctrine of res judicata to accommodate plaintiffs’ failure to preserve their
interests. Plaintiffs knew before they secured their final judgment that attorney fees would soar
if LARA followed up on Jones’ complaint and investigated plaintiffs’ business practices. Their
attempt to mitigate this risk was limited to obtaining an ineffective injunction requiring Jones to
withdraw his complaint with LARA. But plaintiffs should have done much more. Plaintiffs
could have incorporated their interest in future damages into a settlement agreement that
provided them with the right to return to the trial court at a later time to recover additional
damages that accrued from defendants’ adjudicated breach of the GRC. This reasonable
approach would have avoided claim preclusion under the doctrine of res judicata. Further,
contrary to the majority’s opinion, it also would not violate “[a] fundamental principle governing
contract damages” that limits damages to “foreseeable, proven losses.” There is nothing
speculative about returning to the trial court and proving one’s damages after they are realized.
Rather than follow this approach, plaintiffs pursued a final judgment that limited damages to
those that had accrued at that time. Plaintiffs’ glaring omission is impossible to ignore when one
considers other options available to protect their interest, like requesting the trial court to
postpone entry of final judgment until the issue of future damages became clear, seek a
declaratory action, or elect to file its lawsuit later after the full extent of damages were known.
Plaintiff had ample opportunities to avoid the doctrine of res judicata. We should not now throw
plaintiffs a lifeline to avoid claim preclusion to excuse their failure to preserve their interest in
the first lawsuit.
Plaintiffs attempt to remedy their tactical error on appeal by alleging that they “tacitly
preserved” their right to recover future damages stemming from the adjudicated claim. This
argument is without merit and the majority is wise not to embrace it. Plaintiffs claim that the
trial court only entered a partial order, which preserved their right to seek future damages once
they were known. As evidence, plaintiffs cite to the injunctive order and the trial court’s
comments that additional damages could accrue in the future if an investigation commenced.
The trial court, however, never expressly preserved any such right, nor did plaintiffs ever request
orally or by motion that it be preserved. “[A] court speaks through its written orders and
judgments, not through its oral pronouncements.” In re Contempt of Henry, 282 Mich. App. 656,
678; 765 NW2d 44 (2009). Unless expressly preserved by the trial court, any claim for future
damages not obtained in the order would be barred on res judicata grounds. Thus, this argument
is without merit.
3
Plaintiffs admit as much in their brief on appeal when they claim that liability has already been
decided on the breach of contract claim because the trial court granted summary disposition,
finding a breach of the GRC.
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Additionally, Paragraph 19 of plaintiffs’ complaint similarly makes no new breach of
contract claim. Paragraph 19 partially alleges “[d]efendants never actively sought the dismissal
and/or discontinuation of any of these LARA complaints.” But compliance with the injunctive
order is wholly irrelevant as to whether plaintiffs have properly pleaded a separate breach of the
contract. The remainder of Paragraph 19, as quoted in the majority opinion, alleges defendants
“further engaged in conduct intended to instigate further investigative efforts by LARA with
regard to [p]laintiffs.” However, there is nothing in the record showing a breach of the GRC that
occurred after the original breach of contract claim. Because general principles of res judicata
should extinguish plaintiffs’ second claim, the issue turns on whether an exception applies.4
The majority concludes the claims in paragraphs 18 and 19 are viable due to an exception
to res judicata found in the Restatement, but then misapplies the exception. The Restatement
Judgments, 2d § 26(1)(e), p 234, provides:
For reasons of substantive policy in a case involving a continuing or recurrent
wrong, the plaintiff is given an option to sue once for the total harm, both past and
prospective, or to sue from time to time for the damages incurred to the date of
suit, and chooses the latter course[.] [Emphasis added.]
Application of the exception requires a “continuing or recurrent wrong.” However, paragraphs
18 and 19 do not allege a continuing or recurrent wrong. Plaintiffs allege only “ongoing
damages” stemming from one, previously “established breach” from 2013. That breach or
wrong occurred when defendants filed a complaint with LARA. The claim was litigated,
damages were paid, and a final order was entered. Plaintiffs do not allege here that a subsequent
breach of contract occurred after the 2013 judgment was entered that would permit the same
claim to obtain additional damages for the transaction or occurrence already decided. Because
paragraphs 18 and 19 do not allege a new breach of the agreement, let alone a continuing or
recurring one, the exception under § 26(1)(e) does not apply. 5 As to these allegations, our
analysis should end here.
4
In their second lawsuit, plaintiffs also sought to recover the $65,000 that defendants received
under the terms of the GRC based on the breach of contract claim the trial court already decided.
Plaintiffs did not attempt to recover these damages in the first lawsuit, and therefore, this claim
as alleged is clearly barred under the doctrine of res judicata. There was only one breach of the
contract, and plaintiffs should have attempted to recover these damages in the first action (this
does not preclude the possibility that these damages may be recoverable under the claim as
alleged in Paragraph 17).
5
In fact, the drafters of the Restatement indicate that “[a] judgment in an action for breach of
contract does not normally preclude the plaintiff from thereafter maintaining an action for
breaches of the same contract that consist of failure to render performance due after
commencement of the first action.” Restatement Judgments, 2d § 26, p 240. Further, it provides
that even if a breach is material, “the plaintiff may elect to treat it as being merely a partial
breach,” and he can elect “to maintain an action for damages sustained from breaches up to the
time of the institution of the action, and the judgment does not preclude a further action by him
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The majority, however, compares the circumstances here to three Court of Appeals cases
to bolster its conclusion that the second breach of contract claim is not precluded by res judicata.
Importantly, all three cases cited by the majority involve a continuing or recurrent wrong—
which is not present in this case. In Said v Rogue Steel Co, 209 Mich. App. 150, 158-160; 530
NW2d 765 (1995), this Court concluded that a seaman could bring a subsequent action for
maintenance and cure even after having filed a previous action. We held that “the duty to
provide maintenance and cure as needed to the point of maximum recovery is a continuing one.”
Id. at 159 (emphasis added). Thus, the plaintiff’s subsequent action for maintenance and cure
could be maintained if the plaintiff had not reached the point of maximum recovery, and the
defendant continued to breach its duty. Id. In Plaza Investment Co v Abel, 8 Mich. App. 19, 27;
153 NW2d 379 (1967), we explained in this landlord and tenant dispute that “[a] covenant to
keep in repair throughout the term of the lease is capable of constant or continuous breach and,
thus, the fact that damages have been recovered for a breach of such a covenant will not bar a
second suit seeking damages suffered from the continuing breach since the last recovery.”
(Emphasis added.) For that reason, we held that because “the disrepair continued well after the
date . . . of acquisition of the property by [the defendant],” the plaintiff could institute a second
action for a continuous breach of the contract. Id. at 27-28. Finally, in Burroughs v Lake
Arrowhead Prop Owners Ass’n, unpublished opinion per curiam of the Court of Appeals, issued
March 16, 2001 (Docket No. 221511), p 2, this Court simply held that the “plaintiffs’ subsequent
action seeking to recover further damages for [the] defendant’s alleged continuous breach of its
contractual duty is not barred by the doctrine of res judicata.” (Emphasis added.) Unlike the
allegations here, Said, Plaza Investment Co, and Burroughs involved subsequent breaches of
contract that provided a narrow path for a second lawsuit for the same claim. The facts alleged
here are clearly distinguishable.
While defendants certainly have a continuous contractual duty to refrain from filing
administrative complaints to governmental entities, plaintiffs do not claim in Paragraphs 18 and
19 that defendants breached any such continuous duty. Instead, plaintiffs contend that the harm
for a breach occurring after that date.” Id. at p 241. The drafters provided the following
illustration wherein this exception is applied to a breach of contract:
A and B make a contract under which A employs B. B commits a material breach
of the contract, but requests A to allow the employment to continue. A says that
he will do so, but that he must have damages for the breach already committed. A
accordingly brings an action against B for the breach. Judgment is given for A.
A is not precluded from thereafter maintaining an action against B for a breach of
the contract committed after the first action was commenced. [Id. (emphasis
added).]
Here, unlike in the example, there is no breach of contract alleged under Paragraphs 18 or 19 that
occurred after the first action was commenced. Because the contract was a release that remained
binding, plaintiffs very well have the right to maintain any actions for subsequent breaches of the
contract. However, that is not the basis for plaintiffs’ claims. Instead, the majority points only
to continuing damages—not continuing violations of the contract.
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from the initial breach has continued beyond the final judgment entered in the first case. In the
context of tort law, we held that “ ‘[a] continuing wrong is established by continuing tortious
acts, not by continual harmful effects from an original, completed act.’ ” Jackson Co Hog
Producers v Consumers Power Co, 234 Mich. App. 72, 83; 592 NW2d 112 (1999), quoting Forest
City Enterprises, Inc v Leemon Oil Co, 228 Mich. App. 57, 76 n 7; 577 N.W.2d 150 (1998)
(alteration in original). While the majority correctly emphasizes that this is an action in contract,
not tort, the fact remains that we have always required the breach of a continuous duty,
contractual or otherwise, to avoid the doctrine of res judicata. Such circumstances were present
in Said, Plaza Investment Co, and Burroughs. Today the majority expands the exception to
allow subsequent actions for breach of contract for future damages that arise from the original
breach. The doctrine of res judicata is to be applied broadly, Adair, 470 Mich. at 121, yet the
majority has chosen to broaden the exception and expose contracting parties to multiple lawsuits
to recover future damages that were foreseeable but not preserved.
III. PARAGRAPHS 20 TO 21 AND 23 TO 25
The majority cites to Paragraphs 20 and 21, which detail wrongful tortious conduct
occurring after the 2013 judgment, including defamation and tortious interference. Paragraphs
23 to 25 involve damages arising from alleged tortious conduct. However, these torts are
irrelevant to the breach of contract issue on appeal, and the majority’s reliance on these
allegations to circumvent the doctrine of res judicata is misplaced.
The trial court disposed of multiple claims below, all of which stem from allegations in
Paragraphs 20 and 21. Summary disposition was granted in favor of defendants and several
claims were dismissed, e.g., rescission of contract, unjust enrichment, fraud and
misrepresentation, silent fraud/innocent misrepresentation, business defamation, and injunctive
relief. The remaining claims of tortious interference with business relationships, tortious
interference with contractual relations, and injurious falsehood, survived summary disposition
and remain pending before the trial court. The only issue on appeal is whether the trial court
erred in its application of res judicata to extinguish plaintiffs’ breach of contract claim. The
majority, however, conflates the tort allegations in paragraphs 20 and 21 as “continuing wrongful
misconduct” to allow the pursuit of an unrelated breach of contract claim. The tortious conduct
is either the subject of litigation or has been found on summary disposition to have no basis in
law. The claims in paragraphs 20 and 21 of the amended complaint are irrelevant to the breach
of contract issue raised on appeal. Thus, these allegations should not be considered in the res
judicata analysis.
In concluding, I would find that Paragraphs 18 through 25 do not support any claim that
survives the doctrine of res judicata. However, Paragraph 17 does allege a separate, albeit
limited, claim that would not be barred on res judicata grounds. For these reasons, I respectfully
concur in part and dissent in part.
/s/ Thomas C. Cameron
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