Energy Reserves, Inc. v. Consumers Power Co., Docket Nos. 188362

Decision Date24 January 1997
Docket Number188769,Docket Nos. 188362
Citation561 N.W.2d 854,221 Mich.App. 210
PartiesENERGY RESERVES, INC., Plaintiff-Appellant, v. CONSUMERS POWER COMPANY, Defendant-Appellee. NORTH MICHIGAN LAND & OIL CORPORATION, Neilson Enterprises Corporation, Neilson Enterprises Limited Partnership, North Michigan Gas & Oil, David E. Neilson, Dale M. Neilson, Gerald J. Talbot, CMK Enterprises, Inc., Idonea T. Hersee Trust, Idonea Hersee, Hersee Corporation, Dennis Olson and Sandra Olson, Plaintiffs-Appellants, v. CONSUMERS POWER COMPANY, Defendant-Appellee.
CourtCourt of Appeal of Michigan — District of US

Jerome Colligan, Traverse City, for Energy Reserves, Inc.

Byron P. Gallagher, Mt. Pleasant, for Idonea Hersee and others.

J. Andrew Domagalski and Jeffrey D. Van Leuwen, Richland, for North Michigan Land & Oil Corporation and others.

Michael G. Wilson, Jackson, for Consumers Power Company.

Before HOOD, P.J., and NEFF and M.A. CHRZANOWSKI *, JJ.


In these consolidated appeals, plaintiffs brought separate actions against defendant for claims arising from a gas purchase contract (letter agreement) between the parties. Plaintiffs claimed that defendant breached the duty to pay the price as set forth in the contract and breached the duty of good faith and fair dealing imposed by the Uniform Commercial Code (UCC) when it failed to file a copy of the letter agreement with the Michigan Public Service Commission (PSC) as required by statute. Plaintiff Energy Reserves, Inc., also claimed that it was entitled to damages under the theory of promissory estoppel. The remaining plaintiffs (collectively referred to as North Michigan) included claims of equitable estoppel and that the PSC's action violated the constitutional requirement of separation of powers. The trial court in Docket No. 188362 granted defendant's motion for summary disposition against Energy Reserves pursuant to MCR 2.116(C)(7), on the basis of a finding that all Energy Reserves' claims had been resolved in prior litigation between the parties. In Docket No. 188769, defendant's motion for summary disposition pursuant to MCR 2.116(C)(10) was granted against North Michigan. Plaintiffs appeal as of right. We affirm.

These cases are the latest round in a legal battle that has spanned nearly ten years and has been addressed by this Court, the federal district court, and the Sixth Circuit Court of Appeals. 1 The factual background was set forth by this Court in North Michigan Land & Oil Corp. v. Public Service Comm., 211 Mich.App. 424, 427-430, 536 N.W.2d 259 (1995):

Under a July 1, 1977, gas purchase contract, Amoco Production Company agreed to sell to Consumers gas produced in Manistee, Benzie, Wexford, Grand Traverse, Kalkaska, Antrim, Crawford, Otsego, and Montmorency Counties. Appellants are Amoco's successors in interest. The contract was to remain in effect until at least November 1, 1991, and from year to year thereafter, subject to cancellation by either party.

The contract stated that, for periods after June 30, 1978, gas was priced at the lower of a base price and an alternate price. The base price was $1.995 per thousand cubic feet (Mcf) as of July 1, 1978, and escalated by five percent every six months. The alternate price was the reported market price for No. 2 fuel oil.

In Case No. U-8287, Consumers' 1986 gas cost recovery plan, the PSC held in a January 27, 1987, order that the intrastate component of Consumers' gas supply was too costly. That prompted Consumers to seek renegotiation of its intrastate gas purchase contracts, including the 1977 contract.

Eventually, a settlement was reached. Consumers, numerous producers, and other parties entered into a comprehensive settlement agreement, which was approved by the PSC on August 29, 1989, setting ceiling prices for Consumers' purchases of natural gas at $3.050/per Mcf for 1989, $3.924/per Mcf for 1990, and $3.558/per Mcf until November 1991.

In the meantime, Consumers and appellants entered into a separate letter agreement, dated August 7, 1989, which extended the original term of the 1977 gas contract from November 1, 1991, to November 1, 1995, among other things. This agreement superseded a previous agreement between the parties executed on January 1, 1988. That agreement had also provided for an extension of the original ceiling prices in 1989, 1990, and 1991 identical to those set forth in the U-8287 settlement agreement. However, it further provided for a return to the price formula of the original contract after December 1, 1991.

The existence of the private agreement between Consumers and the individual producers was recognized in the August 29, 1989, settlement agreement approved by the PSC in Case No. U-8287. The recognition took the form of a prohibition of recovery from ratepayers of any extra expense incurred due to variation from the terms of the settlement agreement and the letter agreement. However, neither the parties' August 7, 1989, individual agreement nor their previous agreement of January 1, 1988, was submitted to or approved by the PSC.

On November 27, 1991, a few days before the expiration of the period covered by the PSC-approved settlement agreement in Case No. U-8287, Consumers commenced the instant proceeding with the PSC.

Consumers' application, filed pursuant to 1929 PA 9, MCL 483.101 et seq.; MSA 22.1311 et seq., sought approval of a proposed price reduction and other modifications of its natural gas contracts with producers. Specifically, Consumers sought approval of a price of $2.80 per million British thermal units (MMBtu) as a just and reasonable price for purchases from December 1, 1991, to March 31, 1993. Also, it sought relief from contractual purchase obligations that had become uneconomical. It sought, also, a determination that gas it was obliged to purchase be recovered as part of its gas-cost recovery, pursuant to 1982 PA 304, MCL 460.6h et seq.; MSA 22.13(6h) et seq.

On February 8, 1993, the PSC issued a fifty-one-page opinion and order, reducing the contract price to $2.80 per MMBtu, inclusive of "add-on" charges, among other things. The PSC also held that the original November 1, 1991, cancellation date under the 1977 contract was still in effect. Thus, any party could exercise the right of cancellation on the next anniversary cancellation date, November 1, 1993, or November 1 of any subsequent year. The PSC rejected appellants' reliance upon their August 7, 1989, private agreement with Consumers. The agreement purported to extend the term of the contract until November 1, 1995. It also rejected appellants' argument that this amendment of the original contract had been approved when the PSC approved the settlement agreement in Case No. U-8287. The PSC found that because the amendment had never been approved by it, it was legally ineffective.

In that case, this Court affirmed the PSC's determination that the letter agreement upon which the present plaintiffs have brought their actions "never became effective, because it was not filed with or approved by the PSC." Id. at 435, 536 N.W.2d 259. Now, plaintiffs are again bringing actions regarding the letter agreement, claiming essentially that their contractual rights remain enforceable, independent of any determination by the PSC with regard to price. We conclude that summary disposition was properly granted in both cases, but in Docket No. 188769 it was more appropriately granted pursuant to MCR 2.116(C)(7) because plaintiffs' claims were barred by res judicata.

A subsequent suit between the same parties when the evidence or essential facts remain the same is barred by the doctrine of res judicata. Eaton Co. Bd. of Co. Rd. Comm'rs v. Schultz, 205 Mich.App. 371, 375, 521 N.W.2d 847 (1994). For the doctrine to apply (1) the former suit must have been decided on the merits, (2) the issues in the second action were or could have been resolved in the former one, and (3) both actions must involve the same parties or their privies. Id. The applicability of res judicata is a question of law, which we review de novo. Husted v. Auto-Owners Ins. Co., 213 Mich.App. 547, 555, 540 N.W.2d 743 (1995). The grant or denial of a motion for summary disposition is reviewed under the same standard. Borman v. State Farm Fire & Casualty Co., 198 Mich.App. 675, 678, 499 N.W.2d 419 (1993), aff'd 446 Mich. 482, 521 N.W.2d 266 (1994). An order granting summary disposition under the wrong subrule may be reviewed under the correct one. Ginther v. Zimmerman, 195 Mich.App. 647, 649, 491 N.W.2d 282 (1992). Plaintiffs contend that various factual issues remain unresolved. Virtually all these issues relate to defendant's failure to file the letter agreement and whether plaintiffs were entitled to rely on the provisions of that agreement. As the trial courts properly concluded, plaintiffs' claims with regard to the letter agreement were resolved, either expressly or by implication, by this Court in North Michigan, supra. Consequently, summary disposition pursuant to MCR 2.116(C)(7) was appropriate in both cases.

Plaintiffs first claim that the PSC lacked jurisdiction to hear breach of contract claims. This Court has repeatedly held that the PSC has primary jurisdiction over the interpretation of gas purchase contracts. Miller Bros. v. Public Service Comm., 180 Mich.App. 227, 233, 446 N.W.2d 640 (1989); Antrim Resources v. Public Service Comm., 179 Mich.App. 603, 611, 446 N.W.2d 515 (1989). Moreover, this Court expressly considered and rejected North Michigan's arguments regarding the PSC's authority to resolve contractual claims in North Michigan, supra at 437, 536 N.W.2d 259. Thus, plaintiffs' claim that the PSC lacked jurisdiction is barred by res judicata. See Gose v. Monroe Auto Equipment Co., 409 Mich. 147, 160, 294 N.W.2d 165 (1980); Howell v. Vito's Trucking & Excavating Co., 386 Mich. 37, 42, 191 N.W.2d 313 (1971...

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