ON REMAND
This case is before us on remand from our Supreme Court for reconsideration of our prior decision in this matter in light of the Legislature’s recent passage of the Nonrecourse Mortgage Loan Act,
I. FACTS AND PROCEDURAL HISTORY
The facts are set forth at length in our original opinion, Wells Fargo Bank, NA v Cherryland Mall Ltd Partnership,
In this case, plaintiff ultimately commenced foreclosure by advertisement when defendant Cherryland failed to make a payment or payments. Plaintiff successfully bid $6 million, leaving a roughly $2.1 million deficiency. It sued defendants seeking to recover the deficiency. Relative to the deficiency, defendants appealed the trial court’s holding that defendant Schostak, “as guarantor, was liable for the entire loan deficiency on the basis of the trial court’s conclusion that insolvency was a violation of Cherryland’s [single purpose entity] status . ...” Id. at 107.
This Court affirmed, concluding that Cherryland’s failure to remain solvent “breached the covenant to maintain its status as [a single purpose entity] and triggered the full recourse provision of the mortgage.” Id. at 126. Paragraph 13 of the note provides:
Notwithstanding anything to the contrary in this Note or any of the Loan Documents, . .. the Debt shall be fully recourse to Borrower in the event that.. . Borrower fails to maintain its status as a single purpose entity as required by, and in accordance with the terms and provisions of the Mortgage .... [Id. at 110.]
Paragraph 9 of the mortgage provides, in pertinent part:
Single Purpose Entitv/Separateness. Mortgagor covenants and agrees as follows:
*368 (f) Mortgagor is and will remain solvent and Mortgagor will pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same shall become due.
Defendant Schostak had signed a guaranty that included the following provision:
Notwithstanding anything to the contrary in the Note or any of the Loan Documents,... (B) Guarantor shall be liable for the full amount of the Debt and all obligations of Borrower to Lender under the Loan Documents in the event that: .. . (iii) Borrower fails to maintain its status as a single purpose entity as required by, and in accordance with the terms and provisions of the Mortgage ....
This Court concluded, consistent with the trial court, that ¶ 9(f) was a single purpose entity requirement and that insolvency was a violation of single purpose entity status. Wells Fargo Bank, NA,
This Court acknowledged the argument that its holding would “indicate economic disaster for the business community in Michigan,” but concluded that its job was not “to save litigants from their bad bargains or their failure to read and understand the terms of a contract.” Id. at 126. Moreover, in response to the argument that the contracts should not be enforced because they are against public policy, we noted that it was up to the Legislature tо address matters of public policy. Id. at 127.
Defendants sought leave to appeal in the Supreme Court. While the application was pending, the Legislature passed the NMLA.
II. THE NMLA
The NMLA applies “to the enforcement and interpretation of all nonrecourse loan documents in exist
The legislature recognizes that the use of a post closing solvency covenant as a nonrecourse carveout, or an interpretation of any provision in a loan document that results in a determination that a post closing solvency covenant is а nonrecourse carveout, is inconsistent with this act and the nature of a nonrecourse loan; is an unfair and deceptive business practice and against public policy; and should not be enforced.
MCL 445.1593, the operative provision at issue, provides:
(1) A post closing solvency covenant shall not be used, directly or indirectly, as a nonrecourse carveout or as the basis for any claim or action against a borrower or any guarantor or other surety on a nonrecourse loan.
(2) A provision in the documents for a nonrecourse loan that does not comply with subsection (1) is invalid and unenforceable.
“Post closing solvency covenant” is defined as
any provision of the loan documents for a nonrecourse loan, whether expressed as a covenant, representation, warranty, or default, that relates solely to the solvency of the borrower, including, without limitation, a provision requiring that the borrower maintain adequate capital or have the ability to pay its debts, with respect to any period of time after the date the loan is initially funded. The term does not include a covenant not to file a voluntary bankruptcy or other voluntary insolvency proceeding or not to collude in an involuntary proceeding. [MCL 445.1592(d).]
III. ANALYSIS
Plaintiff argues that the NMLA did not invalidate the guaranty because in the guaranty defendant Schostak
A. THE GUARANTY
Plaintiff argues that defendant Schostak agreed that his liabilities and obligations were “unconditional,” “irrevocable,” and “absolute” in §§ 1.1 and 1.3 of the guaranty. Further, Schostak relinquished his right to “any existing or future offset, claim or defense” in §§ 1.4 and 2.10 of the guaranty, including a defense based on any statutory right. In article II and § 2.4 of the guаrantee, Schostak waived any statutory rights regarding the “invalidity, illegality or unenforceability of. . . any document or agreement executed in connection with the Guaranteed Obligations,” agreeing that his obligations would not be “released, diminished, impaired, reduced or adversely affected” even if Cherryland had valid defenses. Assuming for purposes of analysis that these provisions would contractually bind defendant Schostak, we nonetheless conclude that they are invalid and unenforceable.
The guaranty is being invoked because, since it became insolvent, Cherryland “fail[ed] to maintain its status as a single purpose entity” as required by the mortgage. Again, MCL 445.1593(1) and (2) of the
B. CONTEACT CLAUSES
Preliminarily, we note that “ ‘[statutes arе presumed to be constitutional, and courts have a duty to construe a statute as constitutional unless its unconstitutionality is clearly apparent.’ ” In re Request for Advisory Opinion Regarding Constitutionality of
In arguing that the NMLA is an unconstitutional impairment of contract, plaintiff relies primarily on Sturges v Crowninshield, 17 US (4 Wheat) 122, 199-201;
Beginning with the landmark case of Home Building & Loan Ass’n v Blaisdell,290 US 398 ;54 S Ct 231 ;78 L Ed 413 (1934), the modern United States Supreme Court has construed the Contract Clause as not prohibiting a state from exercising its police power to abrogate private or public contracts if reasonably related to remedying a social or economic need of the community. Under modern Contract Clause analysis, a balancing approach has been adopted by the courts, weighing the degree of the impairment of the contractual rights and obligations of the parties against the justification for the impairment as an act of the state’s police power to implement legislation for a legitimate public purpose. Michigan courts have followed this lead. See Van Slooten u Larsen,410 Mich 21 ;299 NW2d 704 (1980) (see in particular Justice Levin’s dissenting opinion); Metropolitan Funeral System Ass’n v Ins Comm’r,331 Mich 185 , 194 ff.;49 NW2d 131 (1951), and federal cases cited therein.
Plaintiff maintains that the balancing test applies only to retroactive state laws that “impair contractual obligations not involving the impairment of debts,” and
1. SUBSTANTIAL IMPAIRMENT
Defendants assert that the original parties to the CMBS loan at issue understood and intended at the timе of contracting that the loan would be nonrecourse in the event of insolvency. In Energy Reserves Group, Inc,
2. SIGNIFICANT AND LEGITIMATE PUBLIC PURPOSE
On February 29, 2012, there was a meeting of the Senate Economic Development Committee at which Senate Bill 992, the precursor to the NMLA, was discussed.
Plaintiff characterizes this reaction and defendants’ representations as the “ ‘Sky is Falling’ Hyperbole.”
At the hearing before the Senate Economic Development Committee, there was no quantification of the actual number of CMBS loans that might have language making a loan recourse in the event of insolvency. However, the testimony suggested that the affected loans would by no means be limited to those currently involved in litigation. For example, developers testified that they would be unable to get necessary financing for continued development because, when applying for financing, they would have to list contingent liabilities based on potential deficiencies arising from postclosing solvency covenants. Transcript of Hearing on SB 992, Senate Economic Development Committee (February 29, 2012), pp 12, 14, 18. Moreover, Senator Arlan Meekhof, who sponsored the bill, testified:
Many of the loans that are existing, that have already been written, even if they change the language in the future in nonrecourse loans will make many of the borrowers unfinanceable because there will be a concern by the lenders that there would be a stringing liability that was never expected on their financial statement. [Id. at 10.]
Further, there was testimony indicating that loan documents for CMBS loans were standardized and routinely
Nonetheless, Energy Reserves Group, Inc, also indicates that “[t]he requirement of a legitimate public purpose guarantees that the State is exercising its police power, rather than providing a benefit to special interests.” Id. This legislation benefits defendant Schostak. Plaintiff suggests that defendant Schostak used political influence to get the legislation passed for his individual advantage.
We recognize that our interpretation seems inсongruent with the perceived nature of a nonrecourse debt and are cognizant of the amici curiae’s arguments and calculations that, if accurate, indicate economic disaster for the business community in Michigan .... Wells Fargo Bank, NA,295 Mich App at 126 .]
That developers benefited when the Legislature took action to stabilize the CMBS industry will not undermine the legislation because the purpose was not to benefit developers but to avert a broader economic problem of immense proportion in the interest of the public good. This was a legitimate public purpose that shows that the Legislature was properly exercising its police power.
3. REASONABLE AND APPROPRIATE CONDITIONS
In Energy Reserves Group, Inc, the Supreme Court held that “ ‘courts properly defer to legislative judgment as to the necessity and reasonableness of a particular measure’ ” when the contract is between private parties. Energy Reserves Group, Inc,
C. SUBSTANTIVE DUE PROCESS
The Fourteenth Amendment of the United States Constitution states that no “State [shall] deprive any person of life, liberty, or property, without due process of law .. . .” Similarly, Const 1963, art 1, § 17 provides that no person shall “be deprived of life, liberty or property, without due process of law.”
[A]lthough the text of the Due Process Clauses provides only procedural protections, due process also has a substantive component that protects individual liberty and property interests from arbitrary government actions regardless of the fairness of any implementing procedures. ... The right to substantive due process is violated when legislation is unreasonable and clearly arbitrary, having no substantial relationship to the health, safety,*380 morals, and general welfare of the public. [Bonner v City of Brighton,298 Mich App 693 , 705-706;828 NW2d 408 (2012).[5 ]
In Gen Motors Corp v Romein,
Because “legislative Acts adjusting the burdens and benefits of economic life come to the Court with a presumption of constitutionality,” Usery v. Turner Elkhorn Mining Co.,428 U.S. 1 , 15,49 L. Ed. 2d 752 ,96 S. Ct. 2882 (1976), “judgments about the wisdom of such legislation remain within the exclusive province of the legislative and executive branches,” Pension Benefit Guaranty Corp. [, 467 US*381 at 729], if the “statute is supported by a legitimate legislative purpose furthered by rational means.” Id. In fact, Congress has “absolutely no obligation to select the scheme that a court later would find to be the fairest, but simply one that was rational and not arbitrary.” National R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry.Co.,470 U.S. 451 , 477,84 L. Ed. 2d 432 ,105 S. Ct. 1441 (1985).
The party challenging the legislation on due process grounds bears the burden of rebutting the presumption that there was a rational basis. Qualls,
[T]he party challenging a legislative enactment subject to rational basis review must “ ‘negative every conceivable basis which might support it.’ ” See, e.g., Lehnhausen v. Lake Shore Auto Parts Co.,410 U.S. 356 , 364,93 S. Ct. 1001 ,35 L. Ed. 2d 351 (1973) (quoting Madden v. Kentucky,309 U.S. 83 , 88,60 S. Ct. 406 ,84 L. Ed. 590 (1940)). “Under rational basis review, it is ‘constitutionally irrelevant [what] reasoning in fact underlay the legislative decision.’ ” Craigmiles [ v Giles,312 F3d 220 ,224 (CA 6, 2002)] (alteration in original) (quoting R.R. Ret. Bd. v. Fritz,449 U.S. 166 , 179,101 S. Ct. 453 ,66 L. Ed. 2d 368 (1980)). “[W]e will be satisfied with the government’s ‘rational speculation’ linking the regulation to a legitimate purpose, even ‘unsupported by evidence or empirical data.’ ” Id. (quoting FCC v. Beach Commc’ns, Inc.,508 U.S. 307 , 313,113 S. Ct. 2096 ,124 L. Ed. 2d 211 (1993)). Thus, if a statute can be upheld under any plausible justification offered by the state, or even hypothesized by the court, it survives rational-basis scrutiny. See Berger [ v City of Mayfield Heights,154 F3d 621 , 624-626 (CA 6,1998)] (speculating as*382 to the City Council’s possible motivatiоns for passing the challenged ordinance). [American Express Travel Related Servs Co, Inc v Kentucky,641 F3d 685 , 690 (CA 6, 2011).]
Here, there were concerns that existing CMBS loans with postclosing solvency covenants would result in commercial developers not qualifying for financing to pursue continued economic development in Michigan, that tax revenues would be affected, and that foreclosures would increase, all during a period of economic recovery in this state. The means chosen to address these concerns, declaring the covenants invalid and unenforceable, were not arbitrary. Rather, they rationally addressed the identified problem. There was no substantive due process violation.
D. SEPARATION OF POWERS
Plaintiff argues that the NMLA violates thе Separation of Powers Clause, Const 1963, art 3, § 2, by depriving this Court of its exclusive power to interpret and enforce the contract in the case pending before it. Const 1963, art 3, § 2 states that “[t]he powers of government are divided into three branches: legislative, executive and judicial. No person exercising powers of one branch shall exercise powers properly belonging to another branch except as expressly provided in this constitution.” In Kyser v Kasson Twp,
“[t]he functions of government under our system are apportioned. To the legislative department has been committed the duty of mаking laws; to the executive the duty of executing them; and to the judiciary the duty of interpreting and applying them in cases properly brought before*383 the courts. The general rule is that neither department may invade the province of the other and neither may control, direct or restrain the action of the other.”
In Detroit Mayor v Arms Technology, Inc,
Subsections (9) through (11) are intended only to clarify the current status of the law in this state, are remedial in nature, and, therefore, apply to a civil action pending on the effective date of this act.
This Court held:
At its core, plaintiffs’ separation-of-powers challenge hinges on the fact that the enactment of MCL 28.435(9)-(13) effectively overrides the trial court’s finding that plaintiffs are not prohibited by MCL 123.1102 from bringing this action. Plaintiffs vigorously assert that this statutory enactment “overturns a judicial decision” or, alternatively, “seeks to compel a judicial deсision in favor of defendants.” We find plaintiffs’ arguments to be misplaced.
First, we note that the trial court’s ruling regarding MCL 123.1102 did not constitute a final judgment because it did not dispose of all claims and adjudicate all the rights and liabilities of the parties. MCR 7.202(7)(a)(i); Allied Electric Supply Co, Inc v Tenaglia,461 Mich 285 , 288;602 NW2d 572 (1999). Because the trial court’s order was not a final judgment that the statute required to be reopened,*384 the order was subject to revision by the Legislature^] [Detroit Mayor,258 Mich App at 65 .]
Quoting Plaut v Spendthrift Farm, Inc,
“Congress can always revise the judgments of Article III courts in one sense: When a new law makes clear that it is retroactive, an appellate court must apply that law in reviewing judgments still on appeal that were rendered before the law was enacted, and must alter the outcome accordingly. See United States v. Schooner Peggy,5 U.S. 103 ,1 Cranch 103 ,2 L. Ed. 49 (1801); Landgraf v. USI Film Products,511 U.S. 244 , 273-280,128 L. Ed. 2d 229 ,114 S. Ct. 1483 (1994).... [A] distinction between judgments from whiсh all appeals have been foregone or completed, and judgments that remain on appeal (or subject to being appealed), is implicit in what Article III creates: not a batch of unconnected courts, but a judicial department composed of‘inferior Courts’ and ‘one supreme Court.’ Within that hierarchy, the decision of an inferior court is not (unless the time for appeal has expired) the final word of the department as a whole. It is the obligation of the last court in the hierarchy that rules on the case to give effect to Congress’s latest enactment, even when that has the effect of overturning the judgment of an inferior court, since each court, at every level, must ‘decide according to existing laws.’ Schooner Peggy, supra, at 109.” [Detroit Mayor,258 Mich App at 65-66 .]
This Court concluded, id. at 66,
consistent with the principles articulated in Plaut, that plaintiffs cannot show that the enactment of MCL 28.435 violates the Michigan Constitution simply because it was enacted after the trial court ruled on the applicability of MCL 123.1102.
Plaintiff suggests that Plaut is inapplicable because it involved Article III federal courts. However, Detroit Mayor indicates that a state court would be required to
Plaintiff also argues that, to the extent that the Legislature can pass retroactive legislation clarifying a law it previously enacted, it cannot retroactively interpret a private contract it had no role in drafting. Plaintiff points out that defendants hаve cited no cases “in which a Michigan court blessed a statute directing the outcome of an appeal of a judgment enforcing a private contract right.” However, the legislation does not “interpret” the contract or direct this Court or any court to do anything. It declares that the postclosing solvency covenant is invalid, unenforceable, and against public policy. This may have the effect of invalidating plaintiffs entitlements based on the contract, but if so it will be because the courts apply the new law, not because the Legislature has directly dictated the outcome in this case.
IV ATTORNEY FEES AND COSTS
The parties reached a stipulation regarding the amount оf damages should defendants lose on appeal. The stipulation provided for a $260,000 award for costs and expenses, including attorney fees, but defendants claimed that they agreed to pay this amount only if plaintiff prevailed on the claim for the roughly $2.1 million deficiency. The trial court agreed with plaintiff that, pursuant to the stipulation, plaintiff was entitled to the award of $260,000 on the basis of the success with “Motion No. 4”; this motion dealt with an entitlement to $61,958 from defendant Schostak for a misapplication of rents. In the original opinion in this case, we determined that it was unnecessary to address this issue because we held that plaintiff was entitled to the deficiency. Because we have concluded on remand that
“A ‘stipulation,’... is an agreement, admission, or concession made in a judicial proceeding by the parties or their attorneys, respecting some matter incident thereto. Its purpose is generally stated to be the avoidance of delay, trouble, and expense.” [Eaton Co Bd of Co Rd Comm’rs v Schultz,205 Mich App 371 , 378-379;521 NW2d 847 (1994), quoting 73 Am Jur 2d, Stipulations, § 1, p 536.]
“Stipulated orders that are accepted by the trial court are generally construed under the same rules of construction as contracts.” Phillips v Jordan,
“Under ordinary contract principles, if contractual language is clear, construction of the contract is a question of law for the court. If the contract is subject to two reasonable interpretations, factual development is necessary to determine the intent of the parties and summary disposition is therefore inappropriate. If the contract, although inartfully worded or clumsily arranged, fairly admits of but one interpretation, it is not ambiguous. The language of a contract should be given its ordinary and plain meaning.” [Id. at 594, quoting Meagher v Wayne State Univ,222 Mich App 700 , 721-722;565 NW2d 401 (1997) (citations omitted).]
Considering the stipulation in its entirety, we conclude that the language is unambiguous. The parties agreed to an amount of $260,000 relative to the entire action and made no stipulation regarding the amount due for any of the individual counts. Indeed, the issue of costs, expenses, and attorney fees was addressed at the outset before any of the individual counts were mentioned. There is simply nothing in this stipulation that indicates an agreement to $260,000 in costs, expenses, аnd attorney fees for count IV Consequently, the trial court erred by providing for an award of $260,000 in costs, expenses, and attorney fees in the order granting summary disposition with regard to count IV Because there was no stipulation on that issue, we remand for a determination whether plaintiff is entitled to costs, expenses, and attorney fees with respect to count IV
Notes
See also In re Certified Question,
The minutes of the February 29, 2012, committee mеeting can be found at <http://www.senate.michigan.gov/committees/ Default.aspx?commid=50>. The minutes indicate that there was an audio recording of the meeting “available upon request for a minimum fee.” Defendants have provided an unofficial transcript of the meeting. Plaintiff has not raised any issue regarding the accuracy of this transcript.
Plaintiff represents that defendant David Schostak is cochief executive officer of defendant Schostak Brothers & Co., Inc., and that Robert Schostak is cochairman and cochief executive officer. Plaintiff further represents that Robert Schostak is “a high ranking Republican Party leader in Michigan, with many years of involvement in assisting the party’s candidates to gain election in the legislature.” We note that Robert Schostak has been chairman of the Michigan Republican Party since January 2011, was finance chairman through the 2010 election cycle, and has served on campaign fundraising teams for prominent Republicans. See <http://www.migop.org/index.php/about/parfy-leadership/>.
It is noteworthy that the legislation was opposed in the Senate by five senators: two (of 12) democrats and three (of 26) republicans. 2012 Journal of the Senate 23 (March 7, 2012), p 321. In the House, it was
When a state law is challenged on substantive due process grounds, the plaintiff need not demonstrate a deprivation of a liberty or property interest. See American Express Travel Related Servs Co, Inc v Kentucky,