Background
Detroit Public Schools Community District (DPSCD) owned a former elementary school property that it leased to Power in the Praises Church. In November 2018, the parties executed a three-year lease with an option to purchase the property for $100,000 if exercised by October 31, 2019. The lease contained a merger clause integrating all prior agreements.
The Church delivered written notice of its intent to purchase in August 2019 and provided a $10,000 earnest money deposit. The parties negotiated terms and scheduled closing for November 5, 2021. However, DPSCD failed to appear, and the closing was rescheduled four additional times due to DPSCD’s repeated absences. When DPSCD eventually indicated a willingness to proceed, it unilaterally changed the material terms of the purchase agreement. The Church declined to sign the modified agreement.
In April 2022, the Church sued for breach of contract, fraud, and intentional infliction of emotional distress. DPSCD moved for summary disposition on the fraud and IIED claims. The trial court granted that motion, dismissed individual defendants, and left only the Church and DPSCD to litigate the breach-of-contract claim. DPSCD ultimately stipulated to breach for purposes of a motion in limine to limit remedies. The trial court granted specific performance and awarded attorney fees to the Church, citing DPSCD’s “continual refusal to go forward to close the sale.”
The Court’s Holding
The Court of Appeals addressed two issues on consolidated appeal. First, regarding the fraud claims (Docket 371359), the court affirmed the trial court’s grant of summary disposition. The plaintiffs argued that summary disposition was premature because discovery had not been completed. However, the court held that under Michigan precedent, a party challenging premature summary disposition must clearly identify the disputed issue requiring further discovery and support it with independent evidence. The Church offered only bare assertions and failed to make this required showing. Additionally, even if discovery had been completed, the merger clause in the 2018 lease barred parol evidence of fraud except for fraud relating to the merger clause itself. The Church’s evidence—primarily Henderson’s conclusory affidavit and Johnson’s speculation about DPSCD’s intentions—was insufficient to survive summary disposition under Michigan’s standards for evaluating self-serving, conclusory statements.
Second, regarding the attorney fees award (Docket 371983), the court vacated and remanded, holding that the trial court abused its discretion. The court clarified that Michigan follows the “American Rule,” under which a prevailing party cannot recover attorney fees unless explicitly authorized by statute, court rule, contract, or a narrow common-law exception. The trial court’s award was based neither on the statutory exception for frivolous claims (MCL 600.2591, since no frivolous-defense motion was brought and the trial court had not found the defense frivolous) nor on the court’s inherent sanctioning power (since DPSCD’s conduct did not constitute sanctionable misconduct—stipulating to breach as a settlement strategy is not an admission of frivolousness). The trial court impermissibly rested its award on general equitable principles and concerns about DPSCD’s prelitigation conduct in refusing to close, rather than on a legal basis authorized by rule or statute.
Key Takeaways
- Summary disposition is not premature based on incomplete discovery unless the party opposing it clearly identifies a specific disputed factual issue and presents independent evidence that further discovery could uncover support for that issue.
- A valid merger clause bars parol evidence of fraud except fraud relating to the merger clause itself; fraud-in-the-inducement claims may survive summary disposition only when supported by competent evidence beyond conclusory allegations.
- Attorney fees awards are governed strictly by the American Rule and its narrow exceptions; trial courts cannot award fees based on equitable principles alone, even when one party’s prelitigation conduct was unreasonable or inequitable.
- A defendant’s stipulation to breach for purposes of narrowing liability and remedy constitutes a settlement strategy rather than an admission of a frivolous defense.
Why It Matters
This decision reinforces two critical doctrines for Michigan contract litigation. First, it confirms that merger clauses provide strong protection against fraud claims based on alleged misrepresentations during contract negotiations, absent evidence that the merger clause itself was fraudulently induced. Plaintiffs alleging fraud must clear a demanding hurdle at summary disposition: their evidence must be specific, non-conclusory, and probative, not speculative. Second, the decision is a strong reaffirmation that Michigan courts cannot use their equitable powers to award attorney fees as compensation for a party’s unreasonable prelitigation conduct. That boundary is critical to the American Rule’s preservation in contract disputes.
For defendants facing breach-of-contract claims, the ruling provides useful guidance: a strategic stipulation to liability for purposes of limiting damages exposure is a legitimate litigation tactic and does not expose the defendant to sanctions or attorney-fee awards based on frivolousness. For plaintiffs, the decision underscores the importance of presenting particularized evidence in fraud claims and not relying on summary-disposition objections based on incomplete discovery unless they can point to specific, discoverable facts that might support their position.