In September 2000, several qualified electors petitioned the State Boundary Commission (the Commission) to consider the incorporation of Chelsea as a home rule city. Chelsea was a village at the time. The petitioners’ proposed boundaries for the city included all the territory of the village and some territory from Sylvan and Lima Townships. Beginning in March 2001, Sylvan opposed Chelsea’s petition to incorporate before the Commission and in Ingham Circuit Court.
In October 2001, representatives from Chelsea, Sylvan, Lima Township, and a representative of the petitioners for incorporation entered into a joint settlement agreement. As part of the settlement, Chelsea agreed that it would annex less territory from Sylvan and Sylvan agreed to no longer oppose the incorporation of Chelsea as a home rule city. Chelsea became a city in March, 2004.
In March 2014, Sylvan sued Chelsea for declaratory relief. It alleged that, under MCL 117.14, Chelsea assumed a proportionate share of Sylvan’s liabilities when it became a city, which included a share of Sylvan’s liability for the repayment of the bond debt incurred to construct improvements for the treatment of waste water. Sylvan asked the trial court to declare that Chelsea was liable for a proportionate share of Sylvan’s liabilities under the bond contracts, must reimburse Sylvan for Chelsea’s share of the debt already paid by Sylvan, and was obligated to pay its share of all future payments on the bonds as they came due.
Chelsea moved for summary disposition, arguing that Sylvan specifically waived any right to contribution that it might have had when it settled its dispute over Chelsea’s petition to incorporate. Chelsea further maintained that Sylvan’s claim was barred under the doctrine of res judicata because Sylvan raised the issue with the Commission and the Commission did not require Chelsea to assume any portion of Sylvan’s liabilities as part of its decision. Chelsea also argued that Sylvan had to assert its right to a division of liabilities under MCL 117.14 at the time of the city’s incorporation and failed to do so. For that reason, Chelsea asserted, Sylvan’s complaint for declaratory relief was untimely. Chelsea similarly argued that Sylvan unduly delayed asserting its claim, which prejudiced Chelsea, and engaged in inequitable conduct that warranted barring the claim under the doctrines of laches and equitable estoppel.
The trial court granted Chelsea’s motion and Sylvan appealed.
The Court of Appeals reversed, holding that:
- The Commission had no authority to make an equitable division of the assets or determine liabilities as provided under MCL 117.14 arising from Chelsea’s incorporation as a city.
- Sylvan did not affirmatively waive its rights under MCL 117.14 in the settlement agreement and, for that reason, the agreement could not have induced Chelsea to believe that Sylvan would not assert its rights.
- Because a new city assumes its share of the township’s liabilities by operation of law, the township has no obligation to take steps to formalize the assumption of liability by the newly formed city.
- The six-year period of limitations provided under MCL 600.5813 applies to an action to enforce MCL 117.14.
- Sylvan’s claim against Chelsea for an accounting of the debts and liabilities accrued when Chelsea first failed to pay its share of the assumed liability, without regard to whether Sylvan itself paid Chelsea’s share.
- Chelsea did not assume any liability related to the bonds incurred post-incorporation.
- Further development of the record was necessary in order to determine when it was practicable for Sylvan to assert its claim before the court could rule on Chelsea’s laches defense.
The Commission had no authority to make an equitable division of the assets or determine liabilities as provided under MCL 117.14 arising from Chelsea’s incorporation as a city. Because the parties could not have resolved the issues involved in this suit before the Commission or in the related litigation concerning the Commission’s actions, the trial court erred as a matter of law when it applied res judicata to bar Sylvan’s claim.
Sylvan did not affirmatively waive its rights under MCL 117.14 in the settlement agreement and, for that reason, the agreement could not have induced Chelsea to believe that Sylvan would not assert its rights. There was no evidence that Sylvan stood by and neglected its rights under MCL 117.14 while Chelsea changed its position in reliance on Sylvan’s silence. In the absence of such evidence, the trial court should have denied Chelsea’s motion to the extent that it argued that Sylvan’s claim was barred by equitable estoppel.
Sylvan did not waive its right to enforce MCL 117.14 in the settlement agreement, and thus the trial court should have granted Sylvan’s request for summary disposition on this defense.
The Legislature did not provide any specific procedure for effecting the assumption of liabilities under MCL 117.14. The statute merely provides that, for a new city, the liabilities “shall be … assumed” by the new city effective “as of the date of filing the certified copy of the charter” and using “the same ratio” provided for cases where a city annexes a portion of a township. MCL 117.14. Because the new city apparently assumes its share of the township’s liabilities by operation of law, the township has no obligation to take steps to formalize the assumption of liability by the newly formed city; the township may rely on MCL 117.14 and require the new city to meet its share of the township’s obligations as those obligations come due.
Because no specific period of limitations encompasses an action to enforce MCL 117.14, we conclude that the six-year period of limitations provided under MCL 600.5813 applies.
Any claim that Sylvan had against Chelsea for an accounting of the debts and liabilities accrued when Chelsea first failed to pay its share of the assumed liability, without regard to whether Sylvan itself paid Chelsea’s share. To the extent that Sylvan incurred new or additional liabilities related to the bonds after the date of Chelsea’s incorporation (such as by increasing the obligations through misconduct), Chelsea did not assume any portion of the new or additional debt.
In this case, the trial court did not grant Chelsea’s motion for summary disposition on the grounds that it was time-barred and the parties did not develop the record sufficiently to identify the applicable accrual date as a matter of law. It is unclear whether and when Chelsea might have become obligated to make a payment on the shared liability (assuming there to be a shared liability). For example, Sylvan’s agreement with the county provides that the township will pay principal and interest on the bonds without regard to the source of the funds used to make the payments. Stated another way, the obligation appears to be absolute—it does not apparently depend on whether there are special assessments. Thus, Chelsea might have been obligated to pay its share of the payments immediately after it incorporated, notwithstanding that there were special assessments available to Sylvan to make the payments. For that reason, Sylvan’s failure to assert its rights under MCL 117.14 might be time-barred as to the earlier payments. But see Dearborn Twp, 308 Mich. at 295–296 (noting that the right to have contribution does not arise until a contingent liability becomes a fixed liability). It is also unclear how the refunding of the bonds might have affected the nature and extent of the liability at issue. Because the parties did not adequately address these issues and did not have occasion to develop the record concerning the timing and nature of the required payments, we decline to further address whether and to what extent Sylvan’s claim might be barred under the applicable period of limitations.
For similar reasons, we decline to consider whether laches might properly apply to bar Sylvan’s claim in whole or in part; as we have explained, the primary inquiry when applying the doctrine of laches is whether the plaintiff’s failure to earlier assert his or her claim prejudiced the defendant.
In order to determine whether Chelsea suffered prejudice as a result of Sylvan’s delay, it is essential to determine when it was practicable for Sylvan to assert its claim. Sylvan argues that it was not practicable until it became necessary for Sylvan to refinance the bonds and raise taxes to cover the expenses. But that assertion may be incorrect. If Chelsea had an obligation to pay its share earlier—perhaps years earlier—and Sylvan failed to assert its rights, the trial court might reasonably conclude that Sylvan should be charged with laches if the delay prejudiced Chelsea’s rights. For example, had Sylvan earlier asserted its rights under MCL 117.14, Chelsea might have been able to intervene in a way that prevented Sylvan from jeopardizing the special assessments or might have been able to otherwise take actions to limit its exposure to liability. On this record, we cannot determine when it was practicable for Sylvan to assert its rights or determine whether Chelsea suffered prejudice warranting the application of laches.