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Relying on Restatement (Second) Conflict of Laws § 122 that “ court usually applies its own local law rules prescribing how litigation shall be conducted even when it applies the local law rules of another state to resolve other issues in the case.”
Summary of this case from Russett v. NTVB Media Inc.Opinion
No. 353241
05-20-2021
MAGNA SEATING INC., doing business as INTEGRAM WINDSOR SEATING, Plaintiff-Appellee, v. ADIENT US LLC, Defendant-Appellant.
If this opinion indicates that it is "FOR PUBLICATION," it is subject to revision until final publication in the Michigan Appeals Reports. UNPUBLISHED Oakland Circuit Court
LC No. 2019-172290-CB Before: K. F. KELLY, P.J., and SERVITTO and LETICA, JJ. PER CURIAM.
Defendant, Adient US LLC (Adient), appeals as of right the trial court's order granting summary disposition in favor of plaintiff, Magna Seating Inc d/b/a Integram Windsor Seating (Magna), and entering judgment in favor of Magna. Finding no errors warranting reversal, we affirm.
I. BASIC FACTS AND PROCEDURAL HISTORY
This case arises from a dispute addressing the interpretation of an automotive supply contract. Specifically, the parties contest whether their contract should be interpreted as a requirements contract. Adient is a Michigan limited liability company with its principal place of business in Plymouth, Michigan. Magna is a Canadian corporation with its principal place of business in Newmarket, Ontario. Adient produces headrests and armrests ("parts" or "the parts") to be incorporated into car seating systems. From September 17, 2017 until December 10, 2018, Adient sold and shipped hundreds of thousands of these parts to Magna on a continuous basis. Whenever Magna needed more parts, it would request that Adient ship new parts by sending a "release" to Adient. In turn, Magna used the parts to build car seat assemblies. Magna then supplied the finished assemblies to Fiat Chrysler Automobiles (FCA). Magna was to supply these parts to FCA for the duration of FCA's "RT program." Since April 20, 2018, Adient and Magna's relationship as buyer and seller was governed by two documents: (1) Purchase Order (PO) 050088; and (2) Magna's Terms and Conditions (collectively "the contract").
A release is simply a request for more parts.
This contract was the result of months of negotiations following Adient's decision to relocate production of the parts from Milan, Tennessee to Saltillo, Mexico. Indeed, as the seller, Adient agreed to assume the risk of foreseen and unforeseen price increases and to commit to the manufacture of the parts for the production life of the vehicle program. After it was learned of price errors in PO 050088, the prices were corrected through a change notice. Additionally, the contract contained a choice-of-law clause, stating that any disputes arising from the parties' contract should be governed by Ontario law because of the location of the issued purchase order.
Additionally, Magna's Terms and Conditions states that if the face of PO 050088 either does not specify a quantity or specifies the quantity as "blanket order . . . . or in another similar fashion," then, throughout the life of the contract, Magna will specify the quantity of parts to be shipped by issuing "releases" to Adient. Specifically, paragraph 5(b) states:
(b) If the face of this Order does not specify the quantities, or specifies the quantities as "blanket order", "as released", "as scheduled", "as directed", "subject to Buyer's production releases" or in another similar fashion then, in consideration for ten U.S. dollars (U.S. $10.00), the payment of which shall be made by Buyer upon the termination or non-renewal of this Order, Seller grants to Buyer an irrevocable option during the term of this Order to purchase the Goods in such quantities and on such delivery dates and times as indicated in the firm delivery or shipping releases, authorizations, manifests, broadcasts or similar written instructions issued or transmitted by Buyer to Seller from time to time in reference to this Order (each a "Release"), and Seller shall deliver such quantities on such dates and times, at the price and on the other terms specified in this Order; provided that Buyer shall purchase no less than one piece or unit of each of the Goods or the Services and no more than one hundred percent (100%) of Buyer's requirements for the Goods or the Services, as applicable.
In accordance with this provision, PO 050088 states "add new parts to blanket purchase order." However, the number "1" also appears next to each part description in PO 050088's quantity column. Nonetheless, from April 2018 until December 2018, Adient shipped hundreds of thousands of parts to Magna. Consistent with the parties' contract, when Magna needed more parts, it sent a release specifying the quantity of parts to Adient. Magna requested a new shipment of parts every few days or so, in quantities ranging from the thousands to the tens of thousands.
An employee of Magna testified that the inclusion of the number "1" was necessitated by the purchasing software. Moreover, it is difficult to discern that Adient would move its production facility out of the country for purchase orders of "1" part.
However, in December 2018, Adient demanded that Magna agree to pay a higher price per part or Adient would refuse to fill any more of Magna's releases. Relying on PO 050088's quantity column, Adient opined that the agreement obligated Adient to supply only one of each part. Magna disagreed with Adient's interpretation and refused to pay a higher price. Consequently, Adient refused to supply Magna with any more parts.
In March 2019, Magna sued Adient for breach of contract in the Oakland County Circuit Court. Magna asserted that Adient had breached the contract by refusing to fill Magna's releases and by demanding a price increase. Simultaneously, Magna moved for a preliminary injunction ordering Adient to continue supplying it parts for which it would pay a temporary higher price than specified in the contract. The trial court granted Magna's motion.
Prior to suing in state court, Magna had sued in federal district court. Shortly after, the federal district court dismissed the lawsuit without prejudice for lack of subject matter jurisdiction. --------
Adient counterclaimed for breach of contract, quantum valebant, and unjust enrichment. Adient claimed that, by placing additional orders for parts after Adient demanded a higher price for those parts, a new contract between the parties was formed. By failing to pay the price that Adient had demanded, it asserted that Magna was in breach of the contract. Alternatively, Adient asserted that Magna had been unjustly enriched by receiving Adient's parts at half the price Adient had demanded. Both parties moved for summary disposition.
The trial court granted Magna's motion for summary disposition under MCR 2.116(C)(10) and denied Adient's motion for summary disposition under MCR 2.116(C)(8) and MCR 2.116(C)(10). The trial court enforced the contract's choice-of-law provision, ruling that it would apply Ontario law. Although Magna had cited Michigan law for the standard to obtain a preliminary injunction, at all times, Magna had maintained that Ontario law would apply to the merits of the dispute. Thus, the trial court held that Magna was not estopped from enforcement of the choice-of-law clause.
Next, the trial court determined that the parties' unambiguous contract was clearly a requirements contract—not for only one part. Specifically, the trial court concluded that the contract was for the duration of the RT program—thus Adient was bound by the contract for this period. Second, it addressed the phrase "add new parts to blanket purchase order" to conclude that it invoked paragraph 5(b) of Magna's Terms and Conditions. Consequently, Adient was bound to ship the quantity of parts listed in Magna's releases for the duration of the RT program. Third, the trial court found that Adient breached the agreement by demanding a price increase and refusing to ship anymore parts. Because Adient did not have a right to demand a price increase, it concluded that Adient's counterclaim for breach of contract and unjust enrichment necessarily failed. Following a damages determination, the trial court entered a final judgment in favor of Magna. From this decision, Adient appeals.
I. CHOICE OF LAW
First, Adient contends that the trial court improperly applied Ontario law to the merits of this dispute because Magna waived application of the choice of law provision by relying on Michigan law to obtain injunctive relief. We disagree.
Magna and Adient's agreement contained a choice-of-law clause. Paragraph 42(a) of Magna's Terms and Conditions states:
(a) If the location of Buyer from which this Order issued is in Canada, this Order shall be interpreted and enforced in accordance with the local, domestic laws of the Province of Ontario and of Canada, exclusive of the choice of law rules thereof.
Our review of issues addressing choice or conflict of law is de novo. Frederick v Federal-Mogul Corp, 273 Mich App 334, 336; 733 NW2d 57 (2006). Similarly, we address questions of contractual interpretation de novo. Turcheck v Amerifund Fin, Inc, 272 Mich App 341, 345; 725 NW2d 684 (2006). When examining the applicable law, the expectation of the parties is balanced against the interest of the states. Vanalstine v Land O'Lakes Purina Feeds, LLC, 326 Mich App 641, 648; 929 NW2d 789 (2018).
Michigan follows the Second Restatement of Conflict of Laws in determining whether to enforce a choice-of-law clause. Chrysler Corp v Skyline Indus Servs, Inc, 448 Mich 113, 126; 528 NW2d 698 (1995). Under the Second Restatement, a court should enforce a choice-of-law clause "if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue." Restatement Conflict of Laws, 2d, § 187(1); see also Chrysler Corp, 448 Mich at 126 (citation omitted); Vanalstine, 326 Mich App at 648-649 (Generally, the parties' choice of law should govern when the parties resolve the issue through an express contractual provision.). Even if the parties could not have resolved the particular issue through an explicit provision in their agreement, a court should still enforce the choice-of-law clause unless:
(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties choice, or
(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties. [Restatement Conflict of Laws, 2d, § 187(2)]
Applying these legal principles to the facts, the trial court was required to enforce the parties' choice-of-law clause. The key issue in this case is the interpretation of the contract, and parties to a contract are generally free to agree on how their contract should be interpreted. In both Michigan and in Ontario, a court's core prerogative is to enforce the parties' intent. Creston Moly Corp v Sattva Capital Corp, 2014 SCC 53; [2014] 2 SCR 633 (Can), ¶¶ 47-48; Turcheck, 272 Mich App at 345. Indeed, "Michigan's public policy favors the enforcement of contractual forum-selection clauses and choice-of-law provisions." Barshaw v Allegheny Performance Plastics, LLC, ___ Mich App ___, ___; ___ NW2d ___ (2020) (Docket No. 350279), slip op at 3 (citation omitted).
Adient submits that Magna should have been judicially estopped from seeking the trial court's enforcement of the parties' choice-of-law clause because Magna cited Michigan law for the standard to obtain a preliminary injunction and was successful in obtaining that injunction. However, we conclude that the doctrine is inapplicable under the circumstances.
"Under the doctrine of judicial estoppel, a party that has unequivocally and successfully set forth a position in a prior proceeding is estopped from setting forth an inconsistent position in a later proceeding." Detroit Int'l Bridge Co v Commodities Export Co, 279 Mich App 662, 672; 760 NW2d 565 (2008) (citation omitted). At no point did Magna contend that Michigan law would apply to the merits of the parties' dispute. Indeed, Magna encouraged the trial court to apply the International Sales Convention Act, RSO 1990, c.I.10 (ISCA)—not Michigan law—to determine whether Magna's claim bore a reasonable likelihood of success on the merits.
Magna did cite Michigan caselaw addressing how a party may obtain a preliminary injunction from a Michigan court—not whether a party's underlying claim has merit. And it is well settled that matters relating to procedure are generally governed by the law of the forum. See Yount v Nat'l Bank of Jackson, 327 Mich 342, 346; 42 NW2d 110 (1950) ("It is the general rule that matters relating to the right of action are governed by the laws of the State where the cause of action arose and all matters relating purely to the remedy are governed by the laws of the state where the action is instituted"); Restatement Conflict of Laws, 2d, § 122 ("A court usually applies its own local law rules prescribing how litigation shall be conducted even when it applies the local law rules of another state to resolve other issues in the case."). Adient has cited no authority that would require a Michigan court to apply the procedural rules of the jurisdiction listed in a party's choice-of-law clause. Accordingly, the trial court correctly applied Ontario substantive law to the merits of this dispute.
II. INTERPRETATION OF THE PARTIES' AGREEMENT
Adient contends that the trial court erred by granting summary disposition in favor of Magna because the contract pertained to only one part and the language of the contract supports summary disposition in Adient's favor. We disagree.
This Court reviews de novo whether contract language is ambiguous. Klapp v United Ins Group Agency, Inc, 468 Mich 459, 463; 663 NW2d 447 (2003). This Court also reviews de novo the proper interpretation of a contract. Id. Likewise, this Court reviews de novo a trial court's decision to grant summary disposition. Pontiac Police & Fire Retiree Prefunded Group Health & Ins Trust Bd of Trustees v City of Pontiac, 309 Mich App 611, 617; 873 NW2d 783 (2015).
"A motion under MCR 2.116(C)(8) tests the legal sufficiency of the complaint. All well-pleaded factual allegations are accepted as true and construed in a light most favorable to the nonmovant." Maiden v Rozwood, 461 Mich 109, 119; 597 NW2d 817 (1999). A motion under MCR 2.116(C)(10) examines the factual support for a plaintiff's cause of action. Zaher v Miotke, 300 Mich App 132, 139; 832 NW2d 266 (2013). "Summary disposition is appropriate under MCR 2.116(C)(10) if there is no genuine issue regarding any material fact and the moving party is entitled to judgment as a matter of law." West v Gen Motors Corp, 469 Mich 177, 183; 665 NW2d 468 (2003). In considering a motion under MCR 2.116(C)(10), this Court must examine the pleadings, admissions, affidavits, and other relevant documentary evidence of record in the light most favorable to the nonmoving party to determine whether any genuine issue of material fact exists to warrant a trial. Zaher, 300 Mich App at 139. "A genuine issue of material fact exists when the record, giving the benefit of reasonable doubt to the opposing party, leaves open an issue upon which reasonable minds might differ." West, 469 Mich at 183.
Consistent with Michigan law, under Ontario law, "the overriding concern is to determine the mutual objective intent of the parties and the scope of their understanding as expressed in the words of the contract." Creston Moly Corp, 2014 SCC at ¶ 47; Turcheck, 272 Mich App at 345. To do this, Ontario courts begin with the language the parties have used in their contract. Creston Moly Corp, 2014 SCC at ¶¶ 56-57. "[T]he contract must be read as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract." Id. at ¶ 47 If the text of the contract is unambiguous, a court should enforce the contract as written. Id. at ¶ ¶ 57-61. While circumstances external to the text of the contract "can be used to clarify the intention of the parties, it cannot be used to contradict that intention or create an ambiguity where one did not previously exist." Id. at ¶ 57.
The parties contest the plain and unambiguous meaning of the terms of the contract, the party that prevails as a matter of law, and whether a question of fact exists for determination by a jury. Nonetheless, we conclude that the terms of the contract coupled with the circumstances, including the parties' interpretation of the document and course of conduct, demonstrate that the trial court properly granted Magna's motion for summary disposition. That is, in Ontario, when a contract may be interpreted in alternative manners, extrinsic evidence may be considered. One may consider relevant evidence of the facts and circumstances surrounding the contract:
In Canada the rule with respect to subsequent conduct is that if, after considering the agreement itself, including the particular words used in their immediate context and in the context of the agreement as a whole, there remain two reasonable alternative interpretations, then certain additional evidence may be both admitted and taken to have legal relevance if that additional evidence will help to determine which of the two reasonable alternative interpretations is the correct one.
* * *
The types of extrinsic evidence that will be admitted, if they meet the test of relevance and are not excluded by other evidentiary tests, include evidence of the facts leading up to the making of the agreement, evidence of the circumstances as they exist at the time the agreement is made and, in Canada, evidence of subsequent conduct of the parties to the agreement. [Shewchuk v Blackmont Capital Inc, 2016 ONCA 912, ¶ 47 (emphasis added).]
A review of the evidence reveals that the parties unquestionably intended this contract to be a requirements contract. First, this is an automotive supply contract. As this Court recently recognized in Cadillac Rubber & Plastics, Inc v Tubular Metal Sys, LLC, 331 Mich App 416, 427; 952 NW2d 576 (2020), firms in the automotive supply chain commonly enter requirement contracts of the sort specified in paragraph 5(b) of Magna's Terms and Conditions. Moreover, Magna's representative indicated that the value of "1" did not reflect the quantity ordered, but was a purchasing software necessity. Indeed, although Adient conveniently alleged that the parties' contract was for a quantity of "1," it failed to present invoices to reflect any such limited order or rejection of orders that exceeded "1." Indeed, after the parties executed the contract, Adient shipped hundreds of thousands of parts to Magna. From April 18, 2018 until December 10, 2018, Adient shipped parts to Magna every few days in batches ranging from the hundreds to the tens of thousands.
Additionally, the evidence demonstrates that Adient's employees knew that the number "1" on PO 050088 was irrelevant. Brooke Bowers testified that she was unaware that a "1" was even on PO 050088 and testified that material was shipped "through a release, not through a quantity on a purchase order." Matthew Ballard testified that he had no idea why a "1" was in PO 050088's quantity column and that he never heard anyone at Adient mention anything about it. Ballard also testified that he understood that Adient would be shipping more than one of each part. Finally, Ronald Bedro testified in his deposition that he understood PO 050088 to be a blanket purchase order.
Lastly, Adient and Magna had entered other contracts together in which a purchase order designated a quantity of "1" for each part—yet Adient never once asserted that those were contracts for a quantity of only one part. Indeed, PO 041666—under which Adient supplied Magna before PO 050088—also has the number "1" in its quantity column next to each part. Nonetheless, Adient supplied Magna with thousands of parts under that purchase order as well.
Under the circumstances, it is apparent that the parties did not intend to contract for a quantity of only one part. Adient and Magna unquestionably intended their contract to be a requirements contract, and such a contract is valid under Ontario law. Although paragraph 5(b) of Magna's Terms and Conditions allows Magna to purchase anywhere from one part to 100% of its requirements from Adient, Ontario law does not mandate that a requirements contract include a definite quantity term. Allied Systems (Canada) Co v Honda Canada Inc, 2012 ONSC 3142 (Can), ¶ 17(citations omitted). As the Ontario Superior Court has held, "[r]equirements contracts are contracts in which the vendor of goods or services agrees to supply the goods or services that are required by the purchaser, but provided that the purchaser is acting in good faith, the purchaser can vary its requirements, including a reduction to no supplies." Id.
Accordingly, the trial court properly granted summary disposition in favor of Magna and denied Adient's dispositive motion. The parties' employees understood the contract to be a requirements contract and their course of conduct in shipping the parts reflected that understanding.
Affirmed. Magna, as the prevailing party, may tax costs.
/s/ Kirsten Frank Kelly
/s/ Deborah A. Servitto
/s/ Anica Letica