Recently, the Michigan Court of Appeals in Giba Yob v. Sid Smith and John Van Fossen et al, Docket No. 339607 (May 15, 2018) affirmed the trial court’s dismissal of Plaintiff’s lawsuit because of Plaintiff’s failure to adhere to Michigan’s “tender back” rule before filing suit against the Defendants. The “tender back” rule prohibits a party from filing a lawsuit asserting previously released claims or from repudiating a release agreement unless the party first repays all consideration received in exchange for the release. Stefanac v Cranbrook Ed Community, 435 Mich 155, 159 (1990).
https://law.justia.com/cases/michigan/court-of-appeals-unpublished/2018/339607.html
In Yob, the Plaintiff was terminated from her position as head of sales and marketing at 3S International, LLC and was eligible for a severance agreement. Plaintiff accepted the severance agreement, under which she would receive $72,000 in exchange for releasing all claims against 3S and signing a non-competition agreement for a year after employment. After receiving only $32,000 of the $70,000, 3S filed for bankruptcy and the bankruptcy court granted 3S’s motion to reject the severance agreement based on its inability to pay. Nonetheless, the Plaintiff complied with the terms of the non-competition agreement and claims it cost her $144,000 because she was unable to secure comparable work outside her industry.
The only recognized exceptions to the tender back rule involve “waiver of the plaintiff’s duty by the defendant” or “fraud in the execution” of the release. Stefanac at 165. The “seemingly harsh” tender back rule is “necessary in order to preserve the stability of the release agreements.” Id. at 177. The Plaintiff failed to provide any evidence that either of the exceptions were met in her case. The Court concluded that the Plaintiff must tender back the $30,000 before allowed to file any lawsuit, noting that there is no equity exception to the tender back rule.
The Plaintiff further asserted that a material breach in the contract allows her to circumvent the tender back rule. However, the Court stated that “settlement agreements remain binding until rescinded for cause,” and a party may not rescind a settlement agreement until the party returns the tendered consideration. Stefenac, 435 Mich at 159, 163. Therefore, unless the breach falls into the two exceptions, the Plaintiff cannot circumvent the tender back rule.
This article was written by Ryan Hansen, Law Clerk
