Elia Cos. v. Univ. of Mich. Regents

• Decision Date: 21 January 2021
• Docket Number: No. 351064,351064
• Parties: ELIA COMPANIES, LLC, Plaintiff-Appellant, v. UNIVERSITY OF MICHIGAN REGENTS, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

335 Mich.App. 439

966 N.W.2d 755

ELIA COMPANIES, LLC, Plaintiff-Appellant,

v.UNIVERSITY OF MICHIGAN REGENTS, Defendant-Appellee.

No. 351064

Court of Appeals of Michigan.

Submitted January 8, 2021, at Lansing.

Decided January 21, 2021, 9:10 a.m.

Foley & Lardner LLP, Detroit (by Jason Conti ) for Elia Companies, LLC.

Brooks Wilkins Sharkey & Turco PLLC, Birmingham (by Keefe A. Brooks ) for the University of Michigan Regents.

Before: Swartzle, P.J., and Ronayne Krause and Rick, JJ.

Ronayne Krause, J. Plaintiff, Elia Companies, LLC, filed a lawsuit in the Washtenaw Circuit Court against defendant, the University of Michigan Regents, after defendant terminated an agreement in April 2018 that had allowed plaintiff to operate a coffee shop in one of defendant's student unions. Shortly after plaintiff filed its lawsuit, defendant filed a notice of transfer, moving the case to the Court of Claims. Ultimately, the Court of Claims granted summary disposition in favor of defendant under MCR 2.116(C)(7). It concluded that defendant was entitled to dismissal because plaintiff had not filed a written claim or a written notice of intention to file a claim in the Court of Claims, let alone a signed and verified notice or claim, by April 2019. Plaintiff appeals as of right. We affirm in part, reverse in part, and remand for further proceedings.

I. BACKGROUND

According to the complaint, plaintiff is the owner and operator of various restaurants and coffee shops through its entities Think Fresh Restaurant Holdings, LLC, and Perfect Cup-Ann Arbor, LLC, both of which plaintiff seems to treat interchangeably with itself. Defendant owns and operates a building or facility called the Michigan Union (the Union), which serves as a gathering place for University of Michigan students and features some commercial restaurant space. In 2013, the parties entered into a lease agreement; pursuant to that lease, plaintiff, apparently through Perfect Cup, constructed and operated a Starbucks coffee shop franchise in the Union.

Plaintiff found its coffee shop operation profitable. Meanwhile, defendant operated the Union at a consistent loss. In March 2017, defendant announced that it would be renovating the Union. On April 17, 2018, defendant sent plaintiff a letter terminating the lease, effective April 20, 2018, on the basis of a several-page-long enumerated list of alleged violations by plaintiff, including details and dates of the alleged violations, that occurred between April 2014 and December 2017. Defendant required plaintiff to vacate the premises. In the same year, defendant closed the Union for renovations.

In August 2018, plaintiff commenced the instant action in the Washtenaw Circuit Court. Defendant promptly filed a notice of transfer removing the case to the Court of Claims, pursuant to MCL 600.6404(3) and MCL 600.6419(1) of the Court of Claims Act (the COCA), MCL 600.6401 et seq. Plaintiff objected, contending that it had a right to a jury trial, but the Court of Claims rejected plaintiff's objection. Late in August 2018, defendant filed an answer and affirmative defenses asserting that "[m]any of the claims asserted in the Complaint are barred by governmental immunity" and that "[p]laintiff's Complaint is not verified as required by law." Defendant noted in a footnote on the first page of its answer that plaintiff's complaint was "not proper as to form as it is not verified as required by MCL 600.6434(2)."

The Court of Claims permitted plaintiff to file an amended complaint to plead in avoidance of governmental immunity. Plaintiff's amended complaint alleged breach of contract (Count I); violation of the anti-lockout statute, MCL 600.2918 (Count II); breach of covenant for quiet possession, use, and enjoyment (Count III); constructive eviction (Count IV); common-law and statutory conversion (Count V); unjust enrichment (Count VI); and inverse condemnation (Count VII). Defendant again filed an answer citing MCL 600.6434(2) in a footnote and asserting affirmative defenses including governmental immunity and a lack of verification "as required by law." Defendant eventually moved for summary disposition pursuant to MCR 2.116(C)(7), (C)(8), and (C)(10), arguing that plaintiff's entire action should be dismissed because plaintiff had failed to comply with the COCA's verification requirements, plaintiff lacked standing because Perfect Cup had actually operated the coffee shop even though only plaintiff was a party to the lease, several of plaintiff's claims were duplicative of or precluded by plaintiff's breach-of-contract claim, defendant never exercised any eminent-domain powers, and plaintiff's tort claims were barred by governmental immunity.

The Court of Claims ultimately dismissed plaintiff's case pursuant to MCR 2.116(C)(7) for failure to comply with the notice requirements of MCL 600.6431(1).¹ The Court of Claims also observed that most of plaintiff's claims would have been independently subject to dismissal as a matter of law in any event because they were torts barred by governmental immunity, duplicative, or controlled by the lease contract. This appeal followed.

II. STANDARD OF REVIEW

A grant or denial of summary disposition is reviewed de novo on the basis of the entire record to determine if the moving party is entitled to judgment as a matter of law. Maiden v. Rozwood , 461 Mich. 109, 118, 597 N.W.2d 817 (1999). Under MCR 2.116(C)(7), when the claim is allegedly barred, the trial court must accept as true the contents of the complaint unless they are contradicted by documentary evidence submitted by the moving party. Id. at 119, 597 N.W.2d 817. A motion brought under MCR 2.116(C)(8) should be granted only where the complaint is so legally deficient that recovery would be impossible even if all well-pleaded facts were true and construed in the light most favorable to the nonmoving party. Id. Only the pleadings may be considered when deciding a motion under MCR 2.116(C)(8). Id. at 119-120, 597 N.W.2d 817. Appellate courts will affirm a right result arrived at on the basis of wrong reasoning.

Kirl v. Zinner , 274 Mich. 331, 336, 264 N.W. 391 (1936). This is especially the case when review is de novo. See Mich. Gas & Electric Co. v. Dowagiac , 278 Mich. 522, 526, 270 N.W. 772 (1936).

III. GOVERNMENTAL IMMUNITY

As an initial matter, we agree with the alternative basis for dismissal cited by the Court of Claims for most of plaintiff's claims: they are barred by governmental immunity or because they are controlled by plaintiff's breach-of-contract claims. As to those claims, we need not consider whether plaintiff complied with the notice or verification requirements in the COCA.

"The University of Michigan (and its governing board, the Board of Regents) is one of the governmental units to which Michigan's governmental immunity statute applies." Harris v. Univ. of Mich. Bd. of Regents , 219 Mich. App. 679, 683, 558 N.W.2d 225 (1996). "Under the government tort liability act (GTLA), MCL 691.1401 et seq. , governmental agencies are broadly shielded from tort liability." Fairley v. Dep't of Corrections , 497 Mich. 290, 297, 871 N.W.2d 129 (2015). The state or its subdivisions cannot be sued without legislative consent, and the Legislature "may ... place conditions or limitations on the liability imposed." ADR Consultants, LLC v. Mich. Land Bank Fast Track Auth. , 327 Mich. App. 66, 74, 932 N.W.2d 226 (2019) (quotation marks and citation omitted).

A. PROPRIETARY-FUNCTION EXCEPTION

Plaintiff tacitly does not dispute that defendant would in general be immune to tort liability, but plaintiff argues that governmental immunity does not apply in this matter because defendant was engaging in a "proprietary function." The proprietary-function exception to governmental immunity permits tort liability arising out of "any activity which is conducted primarily for the purpose of producing a pecuniary profit for the governmental agency, excluding, however, any activity normally supported by taxes or fees." MCL 691.1413. To establish a proprietary function, "[t]wo tests must be satisfied: The activity (1) must be conducted primarily for the purpose of producing a pecuniary profit, and (2) it cannot be normally supported by taxes and fees."²

Coleman v. Kootsillas , 456 Mich. 615, 621, 575 N.W.2d 527 (1998). Whether the activity generates a profit or a loss is relevant, but not conclusive, evidence. Id. Similarly, it is probative but not dispositive whether revenues are placed into a general fund or used to pay for the activity itself. Id. at 621-622, 575 N.W.2d 527. Ultimately, liability is permitted "only where the primary purpose is to produce a pecuniary profit." Hyde v. Univ. of Mich. Bd. of Regents , 426 Mich. 223, 258-259, 393 N.W.2d 847 (1986) (emphasis in original).

Plaintiff states, without citing any evidence, that defendant leased commercial space in the Union "for a profit." In fact, the unrefuted evidence established that defendant operated the Union at a consistent loss. However, plaintiff also accurately observes that, as noted, operating at a loss is not dispositive. Coleman , 456 Mich. at 621, 575 N.W.2d 527. Plaintiff argues that the Union effectively competed with other restaurants in the vicinity, that defendant required plaintiff to pay defendant a percentage of its gross sales, and that defendant considered maximal revenue as a factor in leasing space to tenants. Nevertheless, plaintiff's focus is too narrow: courts "look to the general activity involved rather than the specific conduct engaged in" when considering the applicability of the proprietary-function exception to governmental immunity. Ward v. Mich. State Univ. (On Remand) , 287 Mich. App. 76, 84, 782 N.W.2d 514 (2010). The general activity at issue is the operation of the Union.

The evidence established that the Union was founded more than a century ago as "a center of campus life" for students at the University of Michigan, and it continues to be operated for the...