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Michigan Governmental Immunity Doctrine: Its Application to Contractual (Non-Tort) Liability

I. INTRODUCTION

Municipal attorneys are often asked whether a municipal client (e.g., county, city, township, etc.), or an arm of a municipal body (i.e., county board of commissioners, city employees’ retirement system board of trustees, etc.) may successfully assert governmental immunity as a defense to a contract-based claim brought by a private actor against the municipality for breach of a public-private agreement between the parties (i.e., an investment agreement, a municipal debt service obligation, a purchase agreement, etc.).

The answer, absent circumstances not considered in herein, is No. Under Michigan law, governmental immunity is not a valid defense to a sufficiently plead and established contract claim.

II. BACKGROUND

This Legal Guide addresses only the question of whether a defense of sovereign immunity or governmental immunity could be asserted successfully by a municipality in defense of a breach of contract claim brought against it in the courts of Michigan. This guide does not address immunity issues arising under the 11th Amendment to the U.S. Constitution that might be asserted in any action initiated in Federal court. Nor does it address whether any agreement or contract that may be the subject of such a breach of contract action is legal, valid and/or binding under state, federal or other applicable law. Additionally, this legal guide assumes (i) the existence of a valid, express contract between the parties, based upon mutual assent and valuable consideration, and (ii) compliance with all applicable venue and jurisdiction rules, with respect to my analysis of the hypothetical contract claim discussed herein.

A. Sovereign/Governmental Immunity

Sovereign immunity is an ancient common law concept that was received in Michigan’s common law at the creation of the State. Michigan State Bank v Hastings, 1 Doug 225, 236 (1844); Ross v Consumers Power Co., 420 Mich 567, 598 (1984). Under the doctrine, the State may not be sued in its own courts unless it consents to submit to their jurisdiction. The usual form of consent is by an act of the Legislature. As further elaborated by the Michigan Supreme Court, the doctrine distinguishes immunity from suit and immunity from liability. There is a distinction between sovereign immunity from suit and sovereign immunity from liability. The latter exists when the sovereign is engaged in a governmental function. The former may be waived without a waiver of the latter. Manion v State Highway Commissioner, 303 Mich 1, 19 (1942).

The common law immunity of the State from liability when engaged in a governmental function came to be referred to in some decisions as “governmental" immunity, and was applied in cases, like Manion, involving tort claims. See, Ross, 420 Mich at 601, n.15. The common law doctrine of sovereign immunity properly applies only to the State and the departments, commissions, boards, institutions, and instrumentalities of the State. Myers v Genesee County Auditor, 375 Mich 1, 6 (1965).

Generally recognized local units of government (i.e., cities, counties, townships, etc.) are not among the State instrumentalities to which common law sovereign immunity properly applies. Myers, 375 Mich at 6-7. In multiple judicial decisions, however, sovereign immunity was “transmogrified into ‘governmental’ immunity and made applicable to the ‘inferior’ divisions of government," including -- among others -- cities, townships and counties, when they were engaged in “governmental" as opposed to “proprietary" functions, but only with respect to tort claims. Myers, 375 Mich at 8-9. That common law governmental immunity of "inferior" government units from liability for tort claims was expressly abrogated by the Supreme Court in Myers. 375 Mich at 10-11.

With that background, we first consider immunity from suit. In 1939, the Legislature adopted the Court of Claims Act, thereby consenting on behalf of the State to suit before such Court as provided therein. Act 135, Michigan Public Acts of 1939. In its current form in the Revised Judicature Act (“RJA"), subject to limited exceptions not relevant to the current discussion, the statute confers exclusive jurisdiction on the Court of Claims “[t]o hear and determine all claims and demands, liquidated and unliquidated, ex contractu and ex delicto, against the state and any of its departments, commissions, boards, institutions, arms or agencies." MCL 600.6419(1)(a) (emphasis added). This statute waives sovereign immunity from suit in respect of, inter alia, contract claims.

By statute, each "inferior" governmental unit is declared to be a body politic and corporate. They have the power to sue and be sued. Rev. Stat. 1846, Ch. 13, MCL 45.3. As implemented by the RJA, if a “cause of action exists between any [local governmental unit] … , or between any [local unit] and any individual or individuals, such proceedings may be had for the purpose of trying and finally settling such controversy, and the same shall be conducted in like manner, and the judgment therein shall have the like effect, as in other suits or proceedings between individuals and corporations." MCL 600.2031. A local unit of government does not have governmental immunity from suit.

We may next consider immunity from liability. The Michigan Supreme Court has addressed the issue of common law sovereign or governmental immunity from liability with regard to contract claims. The Court concluded that it does not exist.

The assumption …, that unless the State is engaged in a proprietary function it may assert the defense of governmental immunity to a claim for contractual as well as for tort liability is incorrect. …[G]overnmental immunity is not a defense to a claim against the State for contractual liability arising out of either governmental or proprietary operations …. Zynda v Aeronautics Commission, 372 Mich 285, 287 (1964), citations omitted.

Pursuant to the absence of common law immunity from liability in contract of the State and its departments, commissions, boards, institutions, and instrumentalities, there is no cognizable justification for recognition of such immunity from contractual liability for the inferior units of government, such as a township, city or county. Although published decisional authority on the issue is limited in cases involving inferior units, courts considering the question have reached that conclusion. Meadows v City of Detroit, 164 Mich App. 418, 433 (1987).

Likewise, no Michigan statute provides general sovereign or governmental immunity from liability in contract to any of the State, its departments, commissions, boards, institutions, and instrumentalities, or any inferior units of government.

While not constituting immunity from liability in contract, it may be noted that contracts with the State, its instrumentalities, and inferior units of government remain subject, in the same manner as contracts between private parties, to the police and taxing powers of government. Robertson v Commissioner of State Lands, 44 Mich 274, 278, 280 (1880).

V. CONCLUSION

Local governmental units and their authorized administrators must frequently consider immunity from liability. The Michigan Supreme Court has addressed the issue of common law sovereign or governmental immunity from liability with regard to contract claims. The Court concluded that it does not exist, explaining that:

The assumption …, that unless the State is engaged in a proprietary function it may assert the defense of governmental immunity to a claim for contractual as well as for tort liability is incorrect. … [G]overnmental immunity is not a defense to a claim against the State for contractual liability arising out of either governmental or proprietary operations …. Zynda v Aeronautics Commission, 372 Mich 285, 287 (1964), citations omitted.

Accord, Ross, 420 Mich at 647; Davidson v State of Michigan, 42 Mich App 80, 83 (1972) (“The state never had and does not have immunity from suits in actions arising out of contracts to which it is a party.").

In view of the absence of common law immunity from liability in contract of the State and its departments, commissions, boards, institutions, and instrumentalities, there is no viable justification for recognition of such immunity from contractual liability for the inferior units of government, such as a township, city or county.

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