The trial court in this post-judgment divorce case wrongly set aside the parties’ agreement to share the healthcare expenses of their adult children because no “extraordinary circumstances” existed to invalidate the agreement, the Michigan Court of Appeals had ruled.
In so finding, the Court of Appeals in Robach v Robach (Docket No. 375853) clarified the limits of a trial court’s authority to set aside a stipulated divorce agreement under the Michigan Court Rules (MCR), specifically under MCR 2.612(C)(1)(f). According to the appeals court, a trial court cannot invalidate an agreement simply because it believes that enforcement appears inequitable. Instead, a trial court must identify “extraordinary circumstances” that justify relief under the court rule.
“Under the less-than-extraordinary circumstances identified by the trial court, in which the parties’ contract operated exactly as written with no intervening events that undermined the purpose of the late-fee provision, MCR 2.612(C)(1)(f) did not provide a basis for setting aside the October 3, 2022 order,” the Court of Appeals wrote in Robach. “The trial court therefore abused its discretion when it granted plaintiff’s motion to set aside the order under MCR 2.612(C)(1)(f).”
Notably, the Court of Appeals did not determine whether the agreement’s late fees were unconscionable or unenforceable penalties. According to the panel, the trial court had to address these questions on remand.
Judge Mark T. Boonstra, Judge Adrienne N. Young and Judge Daniel S. Korobkin were on the appellate panel that issued the 9-page unpublished opinion.
Background
The parties divorced in 2014 and had three daughters together. Under the original Uniform Child Support Order, the defendant was required to maintain healthcare coverage for the children until they completed high school.
After their daughters graduated, the parties negotiated a new agreement under which the defendant would continue providing health insurance and they both would equally share the out-of-pocket healthcare expenses. The agreement required the requesting party to provide a copy of the relevant bill or invoice within 30 days. The other party then had 30 days to reimburse 50 percent of the expense, provided that the requesting party complied with reasonable requests for additional information. The agreement also imposed a late fee of $100 for each breach, followed by an additional $50 for every week the breach continued. The parties’ agreement was incorporated into a stipulated order on October 3, 2022.
In March 2024, the plaintiff notified the defendant that she would not renew the agreement. Therefore, the agreement terminated on December 31, 2024. That same month, the defendant sought an order to show cause, alleging the plaintiff failed to reimburse him for certain healthcare expenses and had made untimely payments. The defendant’s initial accounting claimed $83.69 in unpaid reimbursements and $37,200 in penalties. After discovering that he did not account for a $504 payment the plaintiff had made, the defendant reduced the claimed penalties to $15,950.
The plaintiff filed a motion to set aside the stipulated order, arguing the agreement was procedurally and substantively unconscionable. The plaintiff asserted that 1) the defendant had greater bargaining power because he was an attorney, 2) he pressured her during negotiations and 3) the late fees were excessive.
The Kent County Circuit Court relied on MCR 2.612(C)(1)(f), the doctrine of laches and its equitable authority to grant the plaintiff’s motion. It also continued the show-cause hearing “to permit the parties to put on proofs regarding outstanding reimbursements, previous penalties paid pursuant to the October 23, 2022 Order, and competing requests for attorney’s fees and costs.” Notably, the trial court criticized the late fees as being “grossly inequitable” and questioned the defendant’s accounting and delay in seeking enforcement.
The defendant appealed.
No ‘Extraordinary Circumstances’
On appeal, the Court of Appeals said the trial court did not establish a sufficient basis for setting aside the parties’ stipulated agreement.
The central issue, the Court of Appeals explained, was whether the trial court had determined that the requirements of MCR 2.612(C)(1)(f) were satisfied. This court rule permits relief from a final judgment or order for “[a]ny other reason justifying relief from the operation of the judgment.”
The Court of Appeals looked to Heugel v Heugel, 237 Mich App 471 (1999), to make its decision in this regard. The Heugel panel identified three requirements for relief under the court rule:
The reason for setting aside the judgment must not fall within the grounds listed in MCR 2.612(C)(1)(a)-(e).
Setting aside the judgment must not detrimentally affect the other party’s substantial rights.
Extraordinary circumstances must exist that mandate setting aside the judgment to achieve justice.
The Court of Appeals also emphasized that relief under MCR 2.612(C)(1)(f) is generally reserved for situations where a judgment was obtained through improper conduct by the party who benefited from it. “Defendant’s alleged ‘spurious accounting’ and delay in filing a motion to show cause did not constitute extraordinary circumstances because MCR 2.612(C)(1)(f) is typically reserved for scenarios in which ‘the judgment was obtained by the improper conduct of the party in whose favor it was rendered.’ … The alleged ‘spurious accounting’ and delay in enforcement occurred after the judgment was entered. A party’s alleged misconduct when enforcing a judgment may justify a motion for sanctions, but not relief from the judgment.”
As a result, the Court of Appeals said it was “unable to find that there are ‘extraordinary circumstances’ that mandate setting aside the order in order to achieve justice. On the current record, this appears simply to be a situation in which recurring late fees accrued over a long period of time because of payments that were allegedly never made, which is a potential scenario that the parties should have been aware of at the time that they agreed to the late-fee provision.”
Next, the Court of Appeals cited Rose v Rose, 289 Mich App 45 (2010), a divorce case where the defendant had filed a motion for relief from judgment. The appeals court in Rose held that although a radical change in the defendant’s financial circumstances made his support obligations inequitable, the contract “should be enforced as written because by making the obligation nonmodifiable, the parties had accepted that future circumstances could make the terms unfair to one party or the other. Th[e] Court described the business’s sudden failure as ‘tragic, but hardly extraordinary,’ explaining that a business failure was not ‘so unexpected and unusual’ that it would justify setting aside the consent judgment.”
The circumstances in the present case “appear even less extraordinary than in Rose,” the Court of Appeals pointed out. “The $15,950 in claimed late fees is substantially less than the amount at issue in Rose and, unlike in Rose, there is no evidence in the record that the claim would cause a financial hardship to the party seeking relief from judgment. Like in Rose, the contract was operating exactly as the parties contemplated at the time they entered into it. By agreeing to a weekly late fee with no limitations, the parties deliberately risked that a single missed payment potentially could snowball into thousands of dollars in late fees. The difference between the unpaid reimbursement and the total late fees may have shocked the trial court, and it may or may not be justifiable for other reasons, but it was not an unexpected or unusual circumstance that would mandate setting aside the order.”
Further, the Court of Appeals said that setting aside the order detrimentally affected the defendant’s substantial rights. “[E]ven though the agreement had already terminated pursuant to plaintiff’s notice of nonrenewal, the trial court indicated that it intended not only to deny defendant’s claim for the outstanding late fees, but also potentially to reverse previous payments of expenses and late fees. This clearly affected defendant’s substantial rights.”
Certain Issues Not Decided
The Court of Appeals continued by noting it was not deciding that the late-fee provision was necessarily enforceable.
“Plaintiff is generally correct that setting aside a stipulated order or consent judgment does not affect a party’s substantial rights if the agreement was unenforceable to begin with,” the Court of Appeals wrote. “But unlike in Heugel, the trial court in this case declined to address whether the agreement was unconscionable, so unconscionability was not an identified basis for its decision to set aside the order under MCR 2.612(C)(1)(f). Because we must reverse on the current record for a lack of extraordinary circumstances, we need not address whether the agreement was unconscionable. To the extent that unconscionability may be relevant for plaintiff’s defense in subsequent show-cause proceedings, either under MCR 2.612 or independently, we leave that for the trial court to address in the first instance on remand.”
In addition, “[w]e similarly do not address whether the late fees are unreasonable liquidated damages,” the Court of Appeals said. “The trial court found that the nearly $37,200 of late fees accrued after the alleged breach (which was nearly double what defendant actually claimed after correcting his accounting mistake) was ‘obscene,’ but it did not characterize the fees as unreasonable liquidated damages, nor did it address whether a one-time $100 penalty and $50 weekly fee was reasonable as of October 3, 2022. In fact, plaintiff only made a conclusory allegation that the late fees were unreasonable. She presented no evidence about the possible injury that defendant or her daughters could have suffered from her allegedly late or missing payments, so it was impossible for the trial court (or this Court, on appeal) to determine whether the late fees were reasonable in relation to that injury. Therefore, we cannot hold that the late-fee provision is unenforceable, and we leave that question to the trial court if it becomes relevant in subsequent proceedings.”
In a footnote to the opinion, the Court of Appeals also said that Michigan usury laws were not violated. “To the extent that the trial court held that the late-fee provision was unenforceable because it violated usury laws, that legal conclusion was erroneous. Michigan’s civil usury limit is 5%, although parties may stipulate to a maximum interest rate of 7%. MCL 438.31. ‘This statute applies to interest charged on a debt arising from the sale of goods or services,’ but ‘late payment charges ordinarily do not constitute interest.’ … Because the late fees were not interest, they did not violate any usury laws.”
Based on the foregoing, the Court of Appeals vacated the trial court’s order and remanded the case for further proceedings.
