Madison Dist. Pub. Schools v. Myers

Decision Date12 December 2001
Docket NumberDocket No. 219872.
Citation637 N.W.2d 526,247 Mich. App. 583
PartiesMADISON DISTRICT PUBLIC SCHOOLS, Plaintiff/Counterdefendant-Appellee, v. Jack D. MYERS, Defendant/Counterplaintiff-Appellant.
CourtCourt of Appeal of Michigan — District of US

Pollard & Albertson, P.C. (by Dennis R. Pollard and William H. Hackel, III), Bloomfield Hills, for the plaintiff.

Robert Harrison & Associates (by Robert S. Harrison and Michael J. Rex), Bloomfield Hills, for the defendant.

Before: GAGE, P.J., and MARK J. CAVANAGH and WILDER, JJ.

GAGE, P.J.

Plaintiff brought this action claiming fraud, breach of fiduciary duty, and fraudulent concealment in connection with a severance agreement that provided defendant, plaintiff's former superintendent of schools, various retirement benefits. Defendant filed a counterclaim alleging breach of contract, mutual mistake, and promissory estoppel. Defendant now appeals as of right the trial court's order granting plaintiff's motion to compel arbitration of all contract issues, including defendant's counterclaim. We reverse and remand.

I

On January 31, 1996, defendant gave plaintiff's board of education a proposed agreement describing various terms and benefits that defendant hoped to receive on resigning as plaintiff's superintendent. The benefits included conversion of defendant's unused sick leave into vacation days, and monetary reimbursement for the unused vacation days. Defendant's proposal also contained mutual release and arbitration provisions. On February 1, 1996, the board of education accepted the terms of defendant's proposal.

In September 1996, plaintiff sued defendant, challenging his entitlement to the benefits contained in the severance agreement on the basis that during his employment defendant received and failed to reimburse plaintiff for cash advances exceeding $30,000. Defendant raised affirmative defenses, including the arbitration clause of the severance agreement, and filed his countercomplaint. In answering the countercomplaint, plaintiff neglected to mention the arbitration clause.

In January 1998, defendant moved for summary disposition of plaintiff's complaint under MCR 2.116(C)(7) on the basis that the release provision of the severance agreement barred plaintiff's claims. In May 1998, the trial court granted defendant's motion, finding that the broad language of the release provision encompassing "any and all claims, whether known or unknown" precluded any claim regarding the severance agreement "save actual enforcement of the terms of the agreement." The court further found that because (1) plaintiff's claim sought "to enforce rights contrary to the settlement and release" and (2) plaintiff failed to tender back to defendant the consideration he provided for the severance agreement, the release was valid and precluded plaintiff's claims.

In June 1998, plaintiff filed with the American Arbitration Association a demand for arbitration regarding "[r]eimbursement of benefits" contained within the severance agreement. Defendant moved in the trial court to stay any arbitration proceedings, arguing that plaintiff was seeking "to arbitrate the exact same claims that were dismissed by this Court's order of Summary Disposition," and that plaintiff waived any right to arbitration "by filing its cause of action in the Circuit Court and actively litigating the claims for over a year and a half." Plaintiff responded that it had not acted inconsistently with its right to arbitration by initially seeking judicial resolution of nonarbitrable claims regarding the validity of the severance agreement. According to plaintiff, it properly challenged the validity of the severance agreement in the circuit court before seeking arbitration to enforce the provision of the agreement. Plaintiff further averred that defendant had made no showing that plaintiff's allegedly untimely invocation of arbitration prejudiced him.

On May 7, 1999, the trial court denied defendant's motion to quash the arbitration proceedings and ordered arbitration regarding "all contract issues including those contained in the Counter-Complaint." The court explained merely that "Plaintiff's prior conduct of litigation was not inconsistent with the right to arbitrate," and that defendant would suffer no prejudice resulting from arbitration proceedings "because the grant of Summary Disposition [of plaintiff's complaint] pursuant to MCR 2.116(C)(7) was not a decision on the merits." The court subsequently granted defendant's motion to stay arbitration proceedings pending appeal.

II
A

Defendant contends that the trial court erred in concluding that plaintiff did not waive its right to demand arbitration. Whether one has waived his right to arbitration depends on the particular facts and circumstances of each case. Hendrickson v. Moghissi, 158 Mich.App. 290, 299-300, 404 N.W.2d 728 (1987). We review de novo the question of law whether the relevant circumstances establish a waiver of the right to arbitration, North West Michigan Const., Inc. v. Stroud, 185 Mich.App. 649, 650-652, 462 N.W.2d 804 (1990), and we review for clear error the trial court's factual determinations regarding the applicable circumstances. MCR 2.613(C).

Waiver of a contractual right to arbitrate is disfavored. Salesin v. State Farm Fire & Casualty Co., 229 Mich.App. 346, 356, 581 N.W.2d 781 (1998). The "party arguing there has been a waiver of this right bears a heavy burden of proof" and "must demonstrate knowledge of an existing right to compel arbitration, acts inconsistent with the right to arbitrate, and prejudice resulting from the inconsistent acts." Id., quoting Burns v. Olde Discount Corp., 212 Mich.App. 576, 582, 538 N.W.2d 686 (1995).1 This Court has noted the following guidance with respect to what actions tend to indicate a waiver of the right to arbitration.

In most jurisdictions, the right to arbitration may be waived by certain conduct, with each case decided on the basis of its particular facts and circumstances:

"Various forms of participation by a [party] in an action have been considered by the courts in determining whether there has been a waiver of the [party]'s right to compel arbitration or to rely on arbitration as a defense to the action. It has been generally held or recognized that by such conduct as defending the action or proceeding with the trial, a [party] waives the right to arbitration of the dispute involved. A waiver of the right to arbitrration [sic]... has also been found from particular acts of participation by a [party], each act being considered independently as constituting a waiver. Thus, a [party] has been held to have waived the right to arbitration of the dispute involved by filing an answer without properly demanding or asserting the right to arbitration, by filing an answer containing a counterclaim ... without demanding arbitration or by filing a counterclaim which was considered inconsistent with a previous demand for arbitration, by filing a third-party complaint or cross-claim, or by taking various other steps, including filing a notice of readiness for trial, filing a motion for summary judgment, or utilizing judicial discovery procedures." [Hendrickson, supra at 299-300, 404 N.W.2d 728, quoting anno.: Defendant's participation in action as waiver of right to arbitration of dispute involved therein, 98 A.L.R.3d 767, § 2, pp. 771-772.]

See also Salesin, supra (noting that defending an action without seeking to invoke a right to compel arbitration constitutes a waiver of the right to arbitration); North West Michigan Constr, supra at 651-652, 462 N.W.2d 804, quoting Hendrickson, supra at 300, 404 N.W.2d 728. A party does not waive the right to arbitrate, however, by litigating an issue that is not arbitrable. Auto Club Ins. Ass'n v. Lozanis, 215 Mich.App. 415, 421-422, 546 N.W.2d 648 (1996), overruled in part on other grounds in Perry v. Sied, 461 Mich. 680, 690, 611 N.W.2d 516 (2000).

B

With respect to the waiver issue, we first consider the disputed question whether plaintiff engaged in acts inconsistent with its right to arbitrate. The trial court found without specific explanation that plaintiff's "prior conduct of litigation was not inconsistent with the right to arbitrate." No dispute exists that for approximately twenty months before filing its demand for arbitration plaintiff pursued litigation against defendant, conducting discovery and generating two trial court files of documents. The parties vigorously dispute, however, the import or nature of plaintiff's litigation. Defendant submits that plaintiff's trial court complaint sought only damages for defendant's alleged receipt of benefits beyond those contemplated within the severance agreement, and that plaintiff's attempt to institute arbitration seeking the same relief constitutes "an attempt to take a second bite of the apple." Plaintiff explains that its trial court complaint alleged defendant's fraud in negotiating the severance agreement and tested the validity of the agreement. Plaintiff denies that litigating this preliminary issue before the trial court waived plaintiff's right to demand arbitration regarding the separate issue of enforcing the agreement according to its intended terms.

Plaintiff correctly states that it is proper for a trial court to consider questions concerning the existence or validity of an arbitration agreement. "The first inquiry into the arbitrability of a dispute is to determine whether an arbitration agreement has been reached by the parties." Horn v. Cooke, 118 Mich.App. 740, 744-745, 746, 325 N.W.2d 558 (1982) (noting that an arbitration agreement signed as a result of force or coercion or fraudulent misrepresentation does not bind the parties). "The determination of whether an arbitration contract exists is for the courts to decide, applying general contract principles." Id. See also MCR...

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