Universal Academy v. Berkshire Development Inc
330707
| Mich. Ct. App. | Jun 20, 2017Background
- Universal Academy contracted Berkshire Development to perform demolition work; the contract contained a broad arbitration clause requiring AAA arbitration of disputes.
- Subcontractor truckers sued Berkshire, Universal, and HES to foreclose construction liens; Berkshire filed a cross-complaint against Universal asserting lien foreclosure, promissory estoppel, and fraudulent inducement.
- Berkshire moved to compel arbitration five months after filing its cross-complaint and later filed an AAA demand after the trial court dismissed Berkshire’s cross-complaint in the underlying case.
- Universal sued for declaratory relief and to permanently enjoin arbitration, alleging Berkshire waived arbitration and that res judicata and compulsory joinder barred arbitration; Berkshire failed to timely answer, and a default was entered but the court refused to enter default judgment.
- The trial court denied Universal’s requested default judgment and dismissed Universal’s complaint, holding Berkshire did not waive arbitration and that an arbitrator, not the court, should decide res judicata/compulsory joinder issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether trial court abused discretion by denying entry of default judgment | Universal: default entered; court had to enter default judgment unless MCR 2.603(D) good-cause/meritorious-defense findings justified setting aside default | Berkshire: default should not produce judgment because complaint fails as a matter of law and/or trial court properly considered defenses | Denied; court did not abuse discretion because Universal’s complaint failed to state a cause of action supporting relief and Berkshire’s affidavit did not show a meritorious defense |
| Whether Berkshire waived arbitration by litigating in court (filing cross-complaint) | Universal: Berkshire acted inconsistently with arbitration rights and caused prejudice, so waiver occurred | Berkshire: its cross-complaint asserted claims (e.g., lien foreclosure) that were not necessarily arbitrable; moved to compel arbitration soon after; no prejudice | No waiver as a matter of law: Universal failed to show actual prejudice and Berkshire acted promptly to seek arbitration |
| Whether res judicata and compulsory joinder bar arbitration | Universal: res judicata/compulsory joinder preclude Berkshire from arbitrating related claims | Berkshire: arbitrator should decide applicability; court should not block arbitration on these grounds | Court held these defenses are for the arbitrator to consider; Universal’s complaint failed to state a claim for injunctive/declaratory relief |
| Who decides arbitrability of procedural preconditions (res judicata/compulsory joinder) | Universal: court should preclude arbitration if res judicata/joinder apply | Berkshire: arbitrator should determine these procedural preconditions once arbitrability is established | Trial court correctly concluded arbitrator decides those procedural preconditions; court may decide existence of an arbitration agreement but not these procedural questions |
Key Cases Cited
- Huntington Nat’l Bank v. Ristich, 292 Mich. App. 376 (2011) (standard for abuse of discretion on motions to set aside defaults and default judgment)
- Shawl v. Spence Bros., Inc., 280 Mich. App. 213 (2008) (policy disfavors setting aside properly entered defaults)
- Alken-Ziegler, Inc. v. Waterbury Headers Corp., 461 Mich. 219 (1999) (good-cause/meritorious-defense framework for setting aside defaults)
- Madison Dist. Pub. Sch. v. Myers, 247 Mich. App. 583 (2001) (standards on waiver of arbitration and requirement to show prejudice)
- Wilson v. King, 298 Mich. App. 378 (2012) (treatment of denial of default entry as sua sponte summary disposition under MCR 2.116)
- Ronnisch Constr. Group, Inc. v. Lofts on the Nine, LLC, 306 Mich. App. 203 (2014) (arbitrator may decide validity/amount of a construction lien; affirmed in part by the Supreme Court)