Authored By: Stephen McKenney and Kenneth Neuman
Many Michigan litigators have been met with this roadblock: “Not until the court decides by motion.” Discovery is ongoing, and your opposing counsel believes their pending motion for summary disposition – in which the court is permitted to consider evidence outside the pleadings – will dispose of the case. But where additional discovery by the non-moving party may yield evidence relevant to the disposition of that motion, may the trial court properly stay that discovery pending its decision on the motion? The Michigan Court of Appeal said no, in the unpublished per curiam opinion in Jacob v Absolute Motor Cars, Inc., (Mich. Ct. App. Sep. 9, 2021).
Jacob involved a dispute over the sale of a rare car. The plaintiffs contracted with Absolute Motor Cars, Inc. (“Absolute”) to sell the car in exchange for a 10% commission. An Absolute representative, Lazar, informed the plaintiffs that he had found an out-of-state buyer in Montana, but that the buyer “refused to divulge his name.” The same day, plaintiffs executed a Bill of Sale for $173,740 “in favor of Absolute” as the “Buyer.” It provided that plaintiffs, as seller, “hereby releases and holds Buyer (its shareholders, officers, directors, and employees) harmless from, and indemnifies Buyer with regard to, any and all claims, known or unknown, related to or arising out of” the Bill of Sale. A few days later, Absolute turned around and sold the car to a buyer in Montana for $300,000. Years later the plaintiffs learned of the subsequent sale to the Montana buyer.
Plaintiffs filed suit asserting a variety of claims including fraudulent misrepresentation. Absolute filed a counterclaim for breach of contract and indemnification. Absolute later moved for summary disposition of plaintiffs’ claims pursuant to MCR 2.116(C)(7) based on the release language in the Bill of Sale. At the same time, Absolute moved for a stay of discovery “on the basis that the accompanying motion for summary disposition would resolve all of plaintiffs’ claims, making discovery moot.” The trial court granted the motion to stay, “ruling that if the case was not resolved by defendant’s motion for summary disposition, then plaintiffs would be allowed discovery.” In their opposition to Absolute’s motion for summary disposition, plaintiffs argued the motion was premature because discovery was ongoing. In particular, “because there was a question of fact whether plaintiffs were fraudulently induced into signing the bill of sale, which would make the bill of sale containing the release void or voidable.” The trial court granted Absolute’s MCR 2.116(C)(7) motion based on the release, reasoning that “the alleged fraud was related to other matters, and not the release itself.” Plaintiffs appealed.
The Michigan Court of Appeals reversed the order staying discovery and dismissal of plaintiffs’ claims pursuant to MCR 2.116(C)(7), holding it was an abuse of discretion to deny plaintiffs discovery relevant to the release. It reasoned that “summary disposition is premature if discovery is not complete,” and that the “[c]ommon law has always permitted the avoidance of a contract procured by means of fraud.” To prove the alleged fraud, “plaintiffs were permitted to introduce extrinsic evidence,” and to use such evidence to oppose Absolute’s motion for summary disposition as mandated by MCR 2.116(G)(2) and (5). But plaintiffs “were not afforded the opportunity to conduct any discovery.” That included the deposition of Lazar, who the trial court should have at a minimum permitted to be deposed “because Lazar was the only person plaintiffs dealt with, so if there were any evidence of fraud, Lazar would have played a central role.” Consequently, the Court “agree[d] with plaintiffs that it was an abuse of discretion to not allow at least limited, tailored discovery prior to resolving the motion for summary disposition as it pertained to the release.”
The opinion in Jacob may prove itself useful for Michigan litigators, given the surprising lack of appellate-guidance in Michigan on the permissibility of a stay of discovery pending a decision on a motion brought pursuant to MCR 2.116(C)(1)-(7), and (10). And while Jacob specifically concerned a motion brought pursuant to MCR 2.116(C)(7), its reasoning should apply equally to motions brought under MCR 2.116(C)(1)-(6) and (10). This is because MCR 2.116(G)(2) and (5) likewise directs that in deciding such motions, evidence outside the pleadings “may be submitted” and “must be considered by the court.”