Opinion
No. 339607
05-15-2018
GINA YOB, Plaintiff-Appellant, v. SID SMITH and JOHN VAN FOSSEN, Defendants-Appellees.
UNPUBLISHED Isabella Circuit Court
LC No. 2017-013801-CZ Before: MURRAY, C.J., and SERVITTO and BOONSTRA, JJ. PER CURIAM.
Plaintiff appeals by right the trial court's order granting summary disposition in favor of defendants. We affirm.
I. PERTINENT FACTS AND PROCEDURAL HISTORY
Plaintiff worked for 3S International, LLC (3S) as the head of sales and marketing from October 2013 until April 2015. Defendant Sid Smith was the owner, chief executive officer, and chairman of the board of directors of 3S, while defendant John Van Fossen became chief operating officer and president of the company during plaintiff's employment. Plaintiff's employment agreement with 3S made her eligible to receive severance pay upon termination, on the condition that, as part of any severance agreement, she release any and all claims she might have against 3S. The employment agreement also contained non-competition restrictions that barred plaintiff from engaging directly or indirectly with any employment or business opportunity that was competitive with 3S for a period of one year following the termination of her employment.
Plaintiff's employment with 3S was terminated in 2015. She then negotiated a severance agreement with 3S that included a release of claims against the company and its current and former officers, directors, and board members. It also incorporated provisions from her employment agreement, including the non-competition clause. In exchange, 3S agreed to pay plaintiff six months' salary. However, before all the payments were made, 3S filed for bankruptcy. After plaintiff made a claim for the unpaid amounts due under the severance agreement, the bankruptcy court granted 3S's motion to reject the severance agreement based on 3S's inability to pay. In total, plaintiff received $30,000 of $72,000 owed to her. Plaintiff nonetheless complied with the terms of the non-competition agreement. Plaintiff claims that this cost her $144,000 because she was unable to secure comparable work outside her industry.
In 2016, plaintiff filed suit against defendants, alleging sex discrimination and retaliation in violation of the Elliot-Larsen Civil Rights Act, MCL 37.2101 et seq., and disability discrimination in violation of the Persons with Disabilities Civil Rights Act, MCL 37.1101 et seq. Defendants filed a motion for summary disposition under MCR 2.116(C)(7), arguing that plaintiff's claims were barred by prior release and that plaintiff would have to "tender back" all consideration she received under the severance agreement before her suit could continue. The trial court agreed and granted defendants' motion, rejecting plaintiff's assertion that the $30,000 she had received was primarily consideration for the non-competition agreement and holding that plaintiff was required to "tender back" any consideration before filing her claim.
This appeal followed.
II. STANDARD OF REVIEW
We review de novo a trial court's grant of summary disposition. Pierce v Lansing, 265 Mich App 174, 176; 694 NW2d 65 (2005). "When reviewing a motion for summary disposition under MCR 2.116(C)(7), all well-pleaded allegations must be accepted as true and construed in favor of the nonmoving party, unless contradicted by any affidavits, depositions, admissions, or other documentary evidence submitted by the parties." Id. at 177. Summary disposition is appropriate under MCR 2.116(C)(7) when claims are barred by prior release.
We review de novo the interpretation of contracts, including settlement agreements. Kloian v Domino's Pizza LLC, 273 Mich App 449, 452; 733 NW2d 766 (2006).
III. THE "TENDER BACK" RULE
Plaintiff argues that the trial court erred by finding that she was required to adhere to the "tender back" rule before filing suit against defendants. We disagree.
Settlement agreements remain binding until rescinded for cause. Stefanac v Cranbrook Ed Community, 435 Mich 155, 163; 458 NW2d 56 (1990). "The scope of a release is governed by the intent of the parties as it is expressed in the release." Rinke v Auto Moulding Co, 226 Mich App 432, 435; 573 NW2d 344 (1997). "If the text of the release is unambiguous, the parties' intentions must be ascertained from the plain, ordinary meaning of the language of the release." Collucci v Eklund, 240 Mich App 654, 658; 613 NW2d 402 (2000). The "tender back rule" requires that a party may not file a lawsuit asserting previously released claims or repudiate a release unless the party first repays all consideration received in exchange for the release. Stefanac, 435 Mich at 159. The only recognized exceptions to the tender back rule involve "waiver of the plaintiff's duty by the defendant" or "fraud in the execution" of the release. Id. at 165. The "seemingly harsh" tender back rule is "necessary in order to preserve the stability of release agreements." Id. at 177.
Plaintiff argues that the tender back rule does not apply to her because defendants failed to cite any authority directly addressing the application of the tender back rule to a complex severance agreement or to situations in which the opposing party fails to pay the full consideration. However, in Stefanac, our Supreme Court held that "a plaintiff must, in all cases where a legal claim is raised in contravention of an agreement, tender the consideration recited in the agreement prior to or simultaneously with the filing of the suit." Stefanac, 435 Mich at 176 (emphasis added). Plaintiff's lawsuit is undoubtedly a legal claim raised in contravention of an agreement, and our Supreme Court's holding is binding on this Court. Felsner v McDonald Rent-A-Car, Inc, 193 Mich App 565, 569; 484 NW2d 408 (1992) ("[A] decision of the majority of the justices of our Supreme Court is binding upon lower courts.").
Notwithstanding the above, plaintiff argues that it would be "patently inequitable" to apply the tender back rule in her case because she fully "paid" consideration by complying with the non-competition agreement, but received less than half of the consideration that 3S promised to pay her. However, there is no equity exception to the tender back rule. Stefanac, 435 Mich at 164-165. For example, in Stefanac, the plaintiff argued that the defendant had "misrepresented the terms of the agreement," "knew that plaintiff was legally entitled to the money she received," and was aware that "she needed the money to support her family." Id. at 164. Despite these equitable considerations, the Court rejected the plaintiff's arguments, holding to its pronouncement that only two exceptions—waiver and fraud in the execution—are applicable to the tender back rule. Id. at 165. This Court has rejected similar equity-based arguments. See Collucci, 240 Mich App at 660 ("Plaintiff's contentions that he signed the waiver out of 'desperation,' that the consideration paid was less than . . . owed [to] him, and that 'extreme inconvenience' prevented him from tendering back the consideration are not based on any recognized exceptions to the tender-back requirement in Michigan.").
Furthermore, plaintiff's assertion that paying back the consideration she received would put her in an "irreversibly worse position than she would have been had the agreement never been made" is not supported by the record. When plaintiff began employment with 3S in 2013, her employment agreement contained the following provision:
(b) Employee will not, during the term of Employee's employment with the Company and for one year thereafter, regardless of the reason(s) for Employee's termination, engage, directly or indirectly, or through any corporation or associates in any business, enterprise or employment which solicits business or investment opportunities or offers products or services that are competitive to those of the Company. [(Emphasis added).]The agreement contained another provision stating that 3S offered severance payments in certain circumstances in "exchange and consideration" for plaintiff's agreement to the non-competition clause. The agreement, however, also states that severance payments would only be made on the condition that the "Employee has executed and returned to the Company . . . a completed release . . . of any and all claims . . . ."
By signing the employment agreement, plaintiff agreed to the non-competition provision in exchange (in part) for the possibility of severance pay, which would be available to her so long as she executed a release of claims. In other words, if plaintiff had not signed the severance agreement, she still would have been bound by the terms of the original employment agreement, which prohibited her from working in the industry for a year following termination, regardless of why she was terminated. Therefore, plaintiff is in a better position financially now with $30,000 more than she would have had if she had chosen not to sign the release (and be terminated with no severance). Without the severance agreement, she would still be held to the terms of the non-competition agreement and would not have received any of the severance pay.
Plaintiff additionally argues that the severance agreement was a newly negotiated contract that included her non-competition obligations as one of the many forms of consideration agreed to in exchange for the severance payments. However, the severance agreement states that plaintiff "acknowledges and agrees that she continues to be bound by the Commercial Information and Restrictive Covenants" of the employment agreement, including the non-competition provisions. "[P]arties to a contract are not forever locked into its terms" and "may execute a substituted agreement which totally supersedes the terms of the original." Archambo v Lawyers Title Ins Corp, 466 Mich 402, 412; 646 NW2d 170 (2002) (quotation marks and citation omitted). But, because plaintiff remained bound by the non-competition clause regardless of her execution of the Severance Agreement, her agreement to non-competition terms in the severance agreement was not a form of new consideration for the severance payments. "[U]nder the preexisting duty rule, it is well settled that doing what one is legally bound to do is not consideration for a new promise." Yerkovich v AAA, 461 Mich 732, 740; 610 NW2d 542 (2000).
Further, even if the non-competition provision did not amount to a preexisting duty, there is no basis for plaintiff's claim that none of the funds paid or owing to her under the severance agreement were in payment for her release of claims. In Leahan v Stroh Brewing Co, 420 Mich 108, 113; 359 NW2d 524 (1984), our Supreme Court rejected a similar argument. As explained by the Stefanac Court:
Leahan did not claim that he did not receive anything in exchange for the release. Rather, he claimed that the money he received was not consideration, but instead was representative of some other benefit that he was entitled to under the agreement. Our holding in Leahan reflects our position in this case that the consideration recited in the release must be tendered before the plaintiff can maintain an action for claims arising out of the settlement agreement. [Stefanac, 435 Mich at 167.]The severance agreement provides that "[t]he Severance Payments will begin to be paid . . . , but only if Employee has executed and returned to 3S International . . . this Agreement signed without change." Accordingly, under the plain language of the contract, at least some, if not all, of the severance pay plaintiff received was attributable to her release. This Court need not determine what amount could be attributed to her adherence to the non-competition agreement as opposed to the release, because "all consideration paid by a defendant in exchange for a plaintiff's multiple promises must be viewed as consideration as to each promise." Yoches v Dearborn, 320 Mich App 461, 481; 904 NW2d 887 (2017). Consequently, the trial court did not err by concluding that plaintiff was required to tender back any consideration received in exchange for her release of claims before filing a lawsuit in contravention of that release.
IV. MATERIAL BREACH OF CONTRACT
Plaintiff also argues that 3S's material breach of the severance agreement excused her from future performance under the contract, including honoring her release of claims. We disagree.
A material breach of a contract is one that affects "a substantial or essential part of the contract." Holtzlander v Brownell, 182 Mich App 716, 721; 453 NW2d 295 (1990). "One consideration in determining whether a breach is material is whether the nonbreaching party obtained the benefit which he or she reasonably expected to receive." Id. Here, plaintiff expected to receive $72,000 and received only $30,000 under the severance agreement. Therefore, we will assume that 3S materially breached the contract. A material and substantial breach of a contract provides a basis for the non-breaching party to rescind the contract and excuses further performance. Rosenthal v Triangle Dev Co, 261 Mich 462, 463; 246 NW2d 182 (1933). But "settlement agreements remain binding until rescinded for cause," and a party may not rescind a settlement agreement until the party returns the tendered consideration. Stefanac, 435 Mich at 159, 163. Plaintiff fails to explain how 3S's breach allows her to circumvent the requirements of the tender back rule, which, as discussed above, has only two exceptions, neither of which is a material breach by the opposing party. Id. at 165.
Affirmed. As the prevailing party, defendants may tax costs. MCR 7.219(A)(1).
/s/ Christopher M. Murray
/s/ Deborah A. Servitto
/s/ Mark T. Boonstra