Opinion
No. 5:98-cv-155
July 20, 1999
Eric A. Linden, Jaffe, Raitt, Heuer Weiss, PC, Detroit, MI, James David Wilson, Walter Haverfield, PLL, Cleveland, OH, Attorneys for AGA GAS INC., Plaintiff/Counter-Defendant
David J. Gass, Brent D. Rector, Miller, Johnson, Snell Cummiskey, Attorneys for WOHLERT CORPORATION, Defendant/Counter-Claimant/3rd-Party Plaintiff
Sandra L. Jasinski, Honigman, Miller, Schwartz Cohn, Lansing, MI, Jay E. Brant, Honigman, Miller, Schwartz Cohn, Detroit, MI, Attorneys for BOC GROUP, INC., Third-Party Defendant
OPINION AND ORDER ON MOTION OF PLAINTIFF AGA GAS, INC. TO DISMISS COUNTS ONE THROUGH FOUR, AND SIX, OF DEFENDANT WOHLERT CORPORATION'S COUNTERCLAIM
This is a diversity action arising out of an agreement by defendant/counter-plaintiff/third-party plaintiff Wohlert Corporation ("Wohlert") to purchase gas products from plaintiff/counter-defendant AGA Gas, Inc. ("AGA"). After executing the agreement, the parties disagreed on whether Wohlert had provided an acceptable storage site to which AGA could deliver the product, and Wohlert sought an alternate supplier for its needs. AGA filed this action against Wohlert seeking damages for Wohlert's alleged breach of the parties' written contract. Wohlert in turn asserted several counterclaims against AGA, essentially contending that AGA had deceived Wohlert during pre-contract discussions by representing that Wohlert's existing storage site was acceptable for the delivery of the product.
Wohlert has also asserted third-party claims against The BOC Group, Inc. ("BOC") which agreed to supply gas to Wohlert at its existing storage site and which, according to Wohlert, agreed to indemnify Wohlert should AGA sue for breach of contract. However, Wohlert's third-party claims are not placed in issue by the current motion.
AGA has moved for dismissal, pursuant to Fed.R.Civ.P. 12(b)(6), of all but one of Wohlert's counterclaims, contending that Wohlert's sole recourse against AGA is a claim for breach of contract. Wohlert has opposed the motion. For the reasons to follow, the court grants AGA's motion and dismisses Counts I, II, III, IV, and VI of the counterclaim.
I
AGA is an Ohio corporation with its principal place of business in Independence, Ohio. The company manufactures and sells industrial gas products. Wohlert is a Michigan corporation having its principal place of business in Lansing, Michigan.
In early 1997, representatives of AGA presented Wohlert with a proposal for delivery of liquid oxygen and argon for use in Wohlert's Lansing operations. Subsequently, in the spring of that year, representatives of AGA also viewed the site of the existing oxygen tank at Wohlert's Lansing facility. During the visit, according to Wohlert, the AGA representatives indicated that the site was acceptable to AGA for the delivery of oxygen. In June, 1997, the two companies entered into an agreement, known as the "Product Supply Agreement," under which Wohlert agreed to buy, exclusively from AGA, all of Wohlert's requirements of specified gas products for a five-year period beginning on July 1, 1997).
The Product Supply Agreement is attached as Exhibit A to AGA's complaint. The agreement is therefore considered a part of AGA's pleading for all purposes. Fed.R.Civ.P. 10(c).
After the Product Supply Agreement was executed, representatives of AGA again viewed the existing site of the oxygen tank at Wohlert's facility. However, this time they informed Wohlert that the site was unacceptable. Wohlert alleges that although it made diligent efforts to find an appropriate alternate site for storage of the oxygen, due to space and cost considerations no reasonable alternative location could be found. Wohlert also alleges that it ultimately concluded that the existing storage tank was in fact suitable, as AGA had earlier represented. Based on this disagreement with AGA over the site of the tank, Wohlert terminated the Product Supply Agreement on March 26, 1998.
AGA filed its complaint in this action on November 12, 1998, seeking damages — which it estimated to be approximately $300,000 — for Wohlert's alleged breach of the Product Supply Agreement. Wohlert answered the complaint and filed a counterclaim against AGA on December 28, 1998. In its answer, Wohlert admitted that it had found an alternate supplier for its gas requirements, but contended that it had done so only after it discovered AGA's alleged misrepresentations about the adequacy of the storage site. Wohlert's counterclaim contained the following claims: innocent misrepresentation (Count I); silent fraud (Count II); fraud based on false representations (Count III); fraud based on a bad faith promise (Count IV); breach of contract (Count V); and promissory estoppel (Count VI).
II
Under Fed.R.Civ.P. 12(b)(6), "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). "The complaint must be construed in the light most favorable to plaintiff, and its well-pleaded facts must be accepted as true." Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th, Cir. 1987) (citations omitted). In its motion, AGA argues that Counts I through IV and Count VI of Wohlert's counterclaim fail to state a claim upon which relief may be granted because Wohlert's cause of action against AGA, if any, is sustainable only under Count V, the breach of contract claim.
Choice of Law
At the outset, the court notes that the parties disagree on the law applicable to this dispute. In its motion, AGA relies on Ohio law, observing that the Product Supply Agreement contains a provision stating that it "shall be interpreted under the laws of the State of Ohio." Complaint, Exhibit A, ¶ 12(A). However, in its response Wohlert argues that because the agreement's choice of law clause only governs contract claims which arise out of the agreement, Michigan law, and not Ohio law, applies to Wohlert's "non-contractual" claims of fraud, misrepresentation, and promissory estoppel.
"[A] federal court in a diversity case applies the law of the state in which it sits, including that state's choice of law provisions." Davis v. Sears, Roebuck and Co., 873 F.2d 888, 892 (6th Cir. 1989). In responding to AGA's motion, Wohlert lumps its six counterclaims into two different categories: its contract or Uniform Commercial Code claim, to which the Product Supply Agreement's choice of law clause applies, and its "non-contractual" claims, which Wohlert has also characterized as "related tort claims."
Fraud and misrepresentation are indeed tort claims. "Under Michigan law, tort claims are determined according to the law of the forum, unless there is a `rational reason' to displace the forum's law." Allmand Assoc., Inc. v. Hercules Inc., 960 F. Supp. 1216, 1222 n. 3 (E.D. Mich. 1997) (quoting Olmstead v. Anderson, 428 Mich. 1, 29-30, 400 N.W.2d 292, 305 (1987)). Given the choice of law provision, a reason may exist in this case to displace Michigan law on Wohlert's contract claim. See Imaging Financial Services, Inc. v. Lettergraphics/Detroit, Inc., No. 97-1930, 1999 WL 115473, at *3 (6th Cir. Feb. 9, 1999) (choice of law provision in parties' contract "may be a reason to displace Michigan law on the contract claims"). However, no reason exists to displace Michigan law on Wohlert's claims of fraud and misrepresentation, because Wohlert's alleged injury occurred in Michigan to a Michigan company. Id. Therefore, Wohlert is correct in arguing that Michigan law, rather than Ohio law, applies to these claims.
Wohlert's claim of promissory estoppel is not a tort claim. Rather, Michigan's Supreme Court has characterized promissory estoppel as "grounded in the rule of contract law that a promise which the promisor should reasonably expect to induce forbearance by the promisee . . . and which does induce forbearance, `is binding if injustice can be avoided only by enforcement of the promise.'" Huhtala v. Travelers Ins. Co., 401 Mich. 118, 257 N.W.2d 640, 643 (1977) (citation omitted). Therefore, because Michigan law deems promissory estoppel to be a contractually based cause of action, this particular claim asserted by Wohlert falls within the purview of the parties' choice of law clause. See Long v. Chelsea Community Hosp., 219 Mich. App. 578, 557 N.W.2d 157, 162 (1996) ("a claim of promissory estoppel is akin to a contract claim") (citation omitted); see also Steinke v. Sungard Financial Sys., Inc., 121 F.3d 763, 775 (1st Cir. 1997) (Pennsylvania rather than Massachusetts law governed promissory estoppel claim because employment agreement contained choice of law provision specifying that Pennsylvania law governed contract-based claims arising therefrom). Wohlert, although arguing that Michigan law applies to its claim of promissory estoppel, has conceded that the parties' choice of law clause governs its breach of contract claim against AGA. Brief in Opposition, at 8 ("the choice of law clause only governs Wohlert's breach of contract claim against AGA, and does not apply to Wohlert's other claims"). As noted above, Wohlert's concession that the choice of law clause may displace Michigan law on the contract claim finds support in recent case law, see Imaging Financial, 1999 WL 115473, at *3, and therefore under the circumstances, the court concludes that Ohio law applies to Wohlert's claim of promissory estoppel.
Counts I — IV: The Fraud and Misrepresentation Claims
The outcome of AGA's motion may be the same no matter whether Michigan or Ohio law applies to these claims, for AGA's motion is based on Ohio case law which holds that the existence of a contract action excludes the opportunity to present the same case as a tort claim. Textron Fin. Corp. v. Nationwide Mut. Ins. Co., 115 Ohio App.3d 137, 151, 684 N.E.2d 1261, 1270 (1996). Michigan, however, has adopted a similar rule of law, known as the "economic loss doctrine." Under this doctrine, adopted by the Michigan Supreme Court in Neibarger v. Universal Cooperatives, Inc., 439 Mich. 512, 486 N.W.2d 612, 618 (1992),
[W]here a plaintiff seeks to recover for economic loss caused by a defective product purchased for commercial purposes, the exclusive remedy is provided by the UCC, including its statute of limitations. . . .
. . . [T]he UCC provides remedies sufficient to compensate the buyer of a defective product for direct, incidental, and consequential losses, including property damage. . . . Where damage to other property was caused by the failure of a product purchased for commercial purposes to perform as expected, and this damage was within the contemplation of the parties to the agreement, the occurrence of such damage could have been the subject of negotiations between the parties.486 N.W.2d at 618-20. More recently, in Imaging Financial, a Sixth Circuit panel held that Michigan's economic loss doctrine applied to bar the counterclaimant's claim of "fraud and misrepresentation" arising out of an agreement to lease a graphic arts system. 1999 WL 115473, at *3.
Wohlert, however, argues that the Michigan Court of Appeals has recognized that fraud in the inducement of a contract involves the breach of a duty that is independent of any contractual obligations. The case which Wohlert cites in support of this argument, Huron Tool Eng'g Co. v. Precision Consulting Servs., Inc., 209 Mich. App. 365, 532 N.W.2d 541 (1995), was also discussed in Imaging Financial. 1999 WL 115473, at * 3-4. However, the Sixth Circuit panel in the latter case concluded that even assuming that Michigan law recognizes an exception to the economic loss doctrine, the counterclaimant's tort claim of fraud and misrepresentation was still barred:
Assuming arguendo that this exception applies in Michigan, the district court addressed Lettergraphics's claim that it fit within the exception, and found it lacking. Like the plaintiff in Huron Tool, Lettergraphics has not alleged any fraudulent representations that are distinct from the breach of contract and/or warranty claims. . . . Thus, we affirm the district court's determination that Lettergraphics does not meet the exception, and we conclude that Lettergraphics's tort claim of fraud and misrepresentation is barred by the economic loss doctrine.
1999 WL 115473, at *4.
Here, Wohlert's claims of fraud and misrepresentation are based solely on its allegations that before it entered into the Product Supply Agreement, AGA had represented that Wohlert's current site was acceptable for the delivery of oxygen. Counterclaim at 2, ¶ 5. However, this very subject is addressed in the Product Supply Agreement, which expressly requires Wohlert to "furnish, maintain and repair at its own expense a site . . . on which storage and vaporization equipment will be located. The [site], which shall conform to all applicable laws and safety requirements, shall be acceptable to both [Wohlert] and AGA[.]" Complaint, Exhibit A, ¶ 4(B). Because the subject is addressed in the parties' agreement, the law of contracts, rather than tort law, should be applied to determine the parties' rights upon the failure of the contract provision. Under the circumstances, the court concludes that Wohlert's tort claims based on fraud and misrepresentation, like the counterclaims in Imaging Financial, are barred by Michigan's adoption of the economic loss doctrine.
Count VI — The Promissory Estoppel Claim
Unlike Wohlert's claims of fraud and misrepresentation, its claim of promissory estoppel is not grounded in tort law but in contract law. However, AGA is nonetheless correct to the extent that it argues that Wohlert's recourse, if any, is limited to pursuing a claim of breach of contract.
Under Ohio law, "a cause of action for promissory estoppel is barred where the contract in issue contains no ambiguities." Highway Equipment Co. v. Caterpillar, Inc., 707 F. Supp. 954, 959 (S.D.Ohio 1989); see Marion Prod. Credit Ass'n v. Cochran, 40 Ohio St.3d 265, 274, 533 N.E.2d 325, 334 ("an oral agreement cannot be enforced in preference to a signed writing which pertains to exactly the same subject matter, yet has different terms") (1988); Ed Schory Sons, Inc. v. Soc. Nat'l Bank, 75 Ohio St.3d 433, 440, 662 N.E.2d 1074, 1080 (1996) (parol evidence rule "prohibits a party who has entered into a written contract from contradicting the terms of the contract with evidence of alleged or actual agreements").
Moreover, even if Michigan law were applied to this dispute, the result would be no different for Michigan law also provides that "[w]here the parties have an enforceable contract and merely dispute its terms, scope, or effect, one party cannot recover for promissory estoppel[.]" Terry Barr Sales Agency, Inc. v. All-Lock Co., Inc., 96 F.3d 174, 181 (6th Cir. 1996) (applying Michigan law). The parties' contract clearly addresses the subject of the storage site, expressly providing that the site "shall be acceptable to both [Wohlert] and AGA." Complaint, Exhibit A. ¶ 4(B). Because the parties entered into an express contract. Wohlert cannot seek recovery from AGA based on a quasi-contractual theory. Cloverdale Equipment Co. v. Simon Aerials, Inc., 869 F.2d 934, 939 (6th Cir. 1989) (applying Michigan law); see Advanced Plastics Corp. v. White Consol. Indus., Inc., 828 F. Supp. 484, 491 (E.D. Mich. 1993) ("because promissory estoppel is an alternative theory of recovery where no contact exists[,]" an action based on an implied contract theory will not lie "[i]f the parties admit that a contract exists, but dispute its terms or effect"), aff'd, 47 F.3d 1167 (6th Cir. 1995) (Table).
Notably, in this case the representations on which Wohlert alleges it relied were made before the parties contracted. In addition, the Product Supply Agreement contains a provision stating that "[t]his instrument and its Rider(s) attached hereto supercede all previous agreements pertaining to the subject matter of this Agreement." Complaint, Exhibit A, ¶ 12(B). In Cloverdale Equipment Co. v. Simon Aerials, Inc., with respect to the plaintiff's attempt to rely on an estoppel theory where the parties had entered into an unambiguous written contract, the court observed that where the alleged oral representations pre-dated the contract, "[t]he parol evidence rule would have barred introduction of prior oral representations contradicting the express language of the written integrated contract." 869 F.2d at 940 (applying Michigan law).
Wohlert's counterclaim specifically alleges that it entered into the Product Supply Agreement with AGA. Counterclaim at 2, ¶ 6: Brief in Opposition, at 3. Wohlert's counterclaim further alleges that it "justifiably relied" on AGA's prior "promise" to deliver oxygen to Wohlert's existing storage site, in that Wohlert entered into the Product Supply Agreement. Counterclaim at 5, ¶ 45, 47. However, the Product Supply Agreement itself addresses the issue of the storage site. Wohlert's promissory estoppel claim as pled therefore fails as a matter of law regardless of which state's law applies to the dispute, and Wohlert is limited to proceeding under the parties' written contract.
CONCLUSION
For the foregoing reasons, the court grants AGA's motion to dismiss Counts I, II, III, IV, and VI of Wohlert's counterclaim. These counts are therefore dismissed, and Wohlert's counterclaim shall proceed only as to Count V. the breach of contract claim.