Opinion
Case No. 1:98-CV-45.
May 1, 2003
OPINION
Taco Bell has filed a motion for summary judgment on all of Plaintiffs' tort claims. Those claims include misappropriation, conversion, unfair competition under Michigan Law, and unfair competition under California law. Taco Bell asserts that Plaintiffs' tort claims should be dismissed because Plaintiffs' breach of implied contract claim and Plaintiffs' tort claims arise out of the same duty created by the alleged contractual relationship. Under Michigan law, a party's actions may give rise to an action for breach of contract as well as an action in tort.Hart v. Ludwig, 347 Mich. 559, 562, 79 N.W.2d 895, 806-97 (1956). Whether a tort action may be maintained when the claim is based upon a contractual obligation depends upon whether the defendant's conduct constituted a breach of duty separate and distinct from the breach of contract. Haas v. Montgomery Ward Co., 812 F.2d 1015, 1016 (6th Cir. 1987); Brewster v. Martin Marietta Aluminum Sales, Inc., 145 Mich. App. 641, 667-68, 378 N.W.2d 558, 568 (1985). In other words, if a legal duty could not be enforced in the absence of the contract, a tort action may not be maintained. Brewster, 145 Mich. App. at 667, 378 N.W.2d at 569. Thus, "[t]he question is whether the tort action would arise independent of the existence of the contract." Allendale Mut. Ins. Co. v. Triple-S Techs., Inc., 851 F. Supp. 277, 280 (W.D.Mich. 1993).
The facts of this case are fully set forth in the prior opinions of this Court and the prior opinion of the Sixth Circuit and will not be restated here.
Plaintiffs contend that Taco Bell's motion should be denied for several reasons. First, Plaintiffs argue that Taco Bell's motion is barred by prior rulings of this Court and the Sixth Circuit, which held that Plaintiffs have asserted viable property-based claims under Michigan law. Plaintiffs note that while Taco Bell's previous motions focused largely upon the issue of copyright preemption, Taco Bell also argued that Plaintiffs' tort claims must be rejected because ideas cannot constitute a legally protected property interest. It is true that this Court rejected Taco Bell's assertion that an idea cannot constitute a property interest which could be the subject of a tort claim. In fact, the Court held that Plaintiff's stated valid tort claims, which included the elements of novelty and a legal relationship. Wrench LLC v. Taco Bell Corp., No. 1:98-CV-45, 1998 WL 480871, at *8-9 (W.D.Mich. June 18, 1998). Likewise, it is true that the Sixth Circuit recognized a distinction between Plaintiffs' tort claims and their implied-in-fact contract claim, namely, that novelty is an element of the former but not the latter under Michigan law. Wrench LLC v. Taco Bell Corp., 256 F.3d 446, 460-61 (6th Cir. 2001). However, these rulings were made in connection with the determination of copyright preemption. Neither this Court nor the Sixth Circuit ruled on the precise issue presented here, namely, whether Plaintiffs' tort claims can coexist with their contract claim. Moreover, Plaintiffs concede that Taco Bell raised the instant argument in its 1999 summary judgment motion and that this Court did not address that argument. (Pls.' Br. Opp'n at 1 n. 1.)
Plaintiffs do not argue that the rule expressed in Hart is not applicable to implied contracts. Indeed, the only difference between an express contract and an implied contract is the mode of expressing assent. I Arthur L. Corbin Corbin on Contracts § 1.19 (1993).
In a footnote, the Sixth Circuit noted that Taco Bell did not challenge this Court's "ruling that insofar as preemption is concerned, [Plaintiffs'] tort claims stand or fall with their contract claims." Wrench LLC v. Taco Bell Corp., 256 F.3d 446, 452 n. 1 (6th Cir. 2001). In its Opinion denying Taco Bell's motion to recall the mandate, the Sixth Circuit questioned this Court's conclusion that Plaintiffs' implied-in-fact contract claim could save Plaintiffs' tort claims from preemption, reasoning that "the torts of misappropriation, conversion and unfair competition generally do not include the element of a legal relationship between the parties." Wrench LLC v. Taco Bell Corp., No. 99-1807, slip op. at 3 n. 3 (6th Cir. Jan. 23, 2003).
Plaintiffs next argue that Michigan courts have never applied the principles of Hart outside of the negligence context to property-based torts such as Plaintiffs' claims. Plaintiffs contend that the rule must be limited to negligence cases because the concept of duty, including the misfeasance/nonfeasance dichotomy employed in Hart and other Michigan cases, is a negligence concept not applicable to property-based torts. While Plaintiffs are correct that no Michigan case has applied the principle in Hart to property-based torts, Plaintiffs' assertion that the principle is limited to negligence cases is wrong. Hart and its progeny represent the application of a broader recognition that tort and contract obligations have different origins and the policy that the distinctions between those areas of law should be maintained. As one well-recognized authority has stated:
Tort obligations are in general obligations that are imposed by law — apart from and independent of promises made and therefore apart from the manifested intention of the parties — to avoid injury to others. By injury here is meant simply the interference with the individual's interest or some other legal entity that is deemed worthy of protection. The variety of interests that are protected through tort law in one way or another are divisible into three general categories: (1) interests of personalty; (2) interests in tangible things, real and personal; and (3) a large body of intangible interests, both economical and relational. . . .
. . .
Contract obligations are created to enforce promises which are manifestations not only of a present intention to do or not to do something, but also of a commitment to the future. They are, therefore, obligations based on a manifested intention of the parties to a bargaining transaction.
W. Keeton, et al., Prosser Keeton on the Law of Torts § 92 (5th ed. 1984).
Several courts have, in fact, recognized that the contract/tort distinction applies to property based torts, primarily with regard to conversion claims. For example, the court in Robotic Vision Systems, Inc. v. Cybro Systems, Inc., 833 F. Supp. 189 (E.D.N.Y. 1993), stated: "The plaintiff correctly states that under New York law, a claim of conversion cannot be predicated on a mere breach of contract. . . . Therefore, the breach of contract must result in a `wrong' that is separately actionable." Id. at 192 (internal citations omitted). Similarly, in Dator Corp. v. Rufus S. Lusk Son, Inc., Nos. 94-1365, 94-1401, 1995 WL 354931 (4th Cir. June 14, 1995) (per curiam), the court stated:
Under Virginia law, there is no separate cause of action in tort for breach of contract. Parties may not import tort claims into contract cases by reformulating a breach of contract claim in tort language. Rather, any tort claim appended to a contract action must be wholly independent of the breach of contract claim. In other words, "the duty tortiously or negligently breached must be a common law duty, not one existing between the parties solely by virtue of the contract."
The allegation of conversion in this case does not amount to an independent tort. If Dator Corp. had not breached the contract, there would be no grounds on which to allege conversion. Indeed, there is no basis for this claim outside the contract, as evinced by Lusk's reliance on specific contractual provisions in propounding its "conversion" claim. As Lusk notes, the contract allowed Dator to use Lusk's data for certain particular purposes outlined in the "license and use" provision. Dator's misuse, or "conversion," of the data for additional purposes is therefore merely a breach of contract, and Lusk cannot reallege it as a tort claim in order to obtain additional damages.Id. at *1-2 (internal citations omitted). See also Nat'l Union Fire Ins. Co. v. Care Flight Air Ambulance Serv., Inc., 18 F.3d 323, 325-27 (5th Cir. 1994) (examining conversion claim under Texas law to determine whether the conduct alleged as a breach of contract also constituted a separate tort); Fink v. Pohlman, 85 Md. App. 106, 114, 582 A.2d 539, 543 (1990) (stating "that a positive, tortious act is required to establish a conversion under a contract and a mere breach of contract is not sufficient"). Cases such as these demonstrate that the principle in Hart should be applied to all tort claims, rather than only to negligence claims, as Plaintiffs suggest.
The Court also notes that several courts have applied the economic loss doctrine to bar tort claims, such as conversion. See Am. Nat'l Bank Trust Co. of Chi. v. AXA Client Solutions, LLC, No. 00 C 6786, 2001 WL 43399, at *14 (N.D.Ill. June 29, 2001) (stating that the plaintiffs' conversion claim was barred because the success or failure of the claim turned upon an interpretation of the contract); Infinity Prods., Inc. v. Premier Plastics, LLC, No. CIV. 00-36(PAM/JGL), 2001 WL 1631469, at *4 (D.Minn. June 20, 2001) (holding that the plaintiff's conversion claims were barred by the economic loss doctrine because there were "mere restatements of [the plaintiff's] breach of contract claims"); Grynberg v. Questar Pipeline Co., No. 20010731, ___ P.3d ___, 2003 WL 1408204, at *11-13 (Utah Mar. 21, 2003) (concluding that the plaintiffs' conversion claims were barred because "failure to properly perform a duty assigned by the contract is a breach of that contract and nothing more"). The Michigan Supreme Court has observed that the economic loss doctrine is merely an extension of the basic principle set forth in Hart. Rinaldo's Constr. Corp. v. Mich. Bell Tel. Co., 454 Mich. 65, 84-85, 559 N.W.2d 647, 658 (1997) ("In addition to acknowledging th[e] distinction [between contract and tort] at least as far back as Hart, the distinction has more recently been applied to sales contracts under the UCC under the rubric of the `economic loss doctrine.'").
Finally, Plaintiffs contend that Taco Bell's argument must be rejected because this Court has already held that Michigan law recognizes a claim for conversion of an idea if the idea was furnished by the plaintiff pursuant to an express or implied-in-fact contract. Plaintiffs contend that it makes no sense to allow a claim for conversion of an idea which is dependant upon the existence of a contract as an element of the claim if the plaintiff cannot bring such a claim because it is not separate and distinct from the contract. This argument conflates the two separate issues presented to the Court. This Court's prior decisions hold that a contract, either express or implied-in-fact, is merely one means of proving a legal relationship, which is a necessary element of a tort claim based upon an idea. Thus, a tort claim based upon an idea may not be maintained without an allegation or proof of facts giving rise to a recognized legal relationship. The inquiry of whether a plaintiff may maintain a tort claim in addition to a breach of contract claim, however, is an inquiry which requires a court to compare the claims and determine whether they are based upon the same duty. If so, the tort claim may not be maintained. If not, the tort claim is not barred. That inquiry is not part of the preemption analysis. For example, suppose that a plaintiff and a defendant agree that the defendant may use the plaintiff's idea for a limited purpose and that the defendant will pay the plaintiff for use of that idea. If the defendant uses the idea for that purpose, but fails to pay the plaintiff, the plaintiff's claim is for breach of contract. If the defendant also uses the idea for a purpose not included in the agreement or allows a third party to use the idea, that conduct may also constitute conversion because the defendant's use of the property would be unauthorized.
As noted in footnote 2, the Sixth Circuit appeared to question the soundness of this reasoning in its Opinion and Order denying Taco Bell's motion to recall the mandate. In concluding that Plaintiffs' misappropriation and unfair competition claims were not preempted, this Court relied on cases applying New York law in holding that such claims may be maintained if they allege the existence of a legal relationship between the parties (such as a fiduciary or contractual relationship) and that the idea was novel or concrete. See, e.g., Hogan v. D.C. Comics, No. 96-CV-1749, 1997 WL 570871, at *5 (N.D.N.Y. Sept. 9, 1997). The Sixth Circuit's decision reversing this Court's grant of summary judgment to Taco Bell, as well as the Sixth Circuit's statements in its Opinion denying Taco Bell's motion to recall the mandate, suggest that in determining whether a particular claim is preempted, the Sixth Circuit would limit the "extra element" inquiry to only those elements generally required to prove such a claim.
As discussed above, in order to determine whether Plaintiffs may maintain their tort claims, the Court must determine whether those claims arise from the breach of a duty that is separate and distinct from the breach of contract. Based upon its review of the first amended complaint, the Court concludes that Plaintiffs' allegations of unlawful or wrongful acts with regard to their ideas simply restate their breach of contract claim. The overriding theme of both the implied contract and tort claims is that: (a) Taco Bell requested that Plaintiffs submit various ideas based upon Plaintiffs' Psycho Chihuahua character to be used in a joint advertising/licensing campaign by Taco Bell; (b) Plaintiffs created and submitted ideas to Taco Bell that were novel or original; (c) the parties understood that Taco Bell would pay Plaintiffs for their ideas if Taco Bell used them; and (d) Taco used Plaintiff's ideas without paying them. (1st Am. Compl. ¶¶ 23, 40-44, 46-50, 53-57, 63-65.) The allegations in Plaintiffs' first amended complaint make clear that Plaintiffs intended for Taco Bell to use their ideas and concepts and that Taco Bell used them. The only duty that Taco Bell allegedly breached was the duty to compensate Plaintiffs for the use of their ideas — a duty imposed by the parties' contract. In other words, if Taco Bell had not breached the contract by failing to pay Plaintiffs for the use of their ideas, there would be no grounds for Plaintiffs to sue Taco Bell in tort.See Elma RT v. Landesmann Int'l Mktg. Corp., No. 98 CIV. 3662 LMM, 2000 WL 297197, at *3-4 (S.D.N.Y. Mar. 22, 2000).
Plaintiffs argue that even if the Hart rule applies to their tort claims, it does not apply to their statutory unfair competition claim pursuant to Cal. Bus. Prof. Code § 17200, et seq. However, Plaintiffs have not cited any basis for allowing their unfair competition claim under either California common law or the California statute, and there is no indication that Michigan recognizes the practice known as depecage, i.e., deciding different issues in a case by applying the law of different states. See Olmstead v. Anderson, 428 Mich. 1, 4 n. 3, 400 N.W.2d 292, 293 n. 3 (1987).
Plaintiffs have conceded that their common law unfair competition claim is governed by Michigan law. Thus. there is no basis for a separate unfair competition claim under California law.
Even if Plaintiffs are entitled to rely on the California statute, their claim must still be dismissed. Recently, in Korea Supply Co. v. Lockheed Martin Corp., 131 Cal.Rptr.2d 29, 63 P.3d 937 (2003), the California Supreme Court held that California's unfair competition statute does not authorize the remedy of nonrestitutionary disgorgement. 131 Cal.Rptr.2d at 39-41. Based upon the legislative history, the court concluded that the general grant of equitable authority in the statute does not permit a disgorgement remedy. Id. at 40. The court stated:
Our previous cases discussing the UCL indicate our understanding that the Legislature did not intend to authorize courts to order monetary remedies other than restitution in an individual action. This court has never approved of nonrestitutionary disgorgement of profits as a remedy under the UCL. While prior cases discussing the UCL may have characterized some of the relief available as "disgorgement," we were referring to the restitutionary form of disgorgement, and not to the nonrestitutionary type sought here by plaintiff. The present case merely confirms what he have previously held: Under the UCL, an individual may recover profits unfairly obtained to the extent that these profits represent monies given to the defendant or benefits in which the plaintiff has an ownership interest.Id. at 41 (internal citations omitted). As Korea Supply Co. makes clear, Plaintiffs' claim that they may recover damages under the guise of restitution/disgorgement must be rejected in light of the fact that such relief is not authorized under the statute. Plaintiffs do not contend that they are seeking to recover monies they gave to Taco Bell or in which they have an ownership interest. In fact, the only possible claim Plaintiffs could make in this case is for the return of their ideas. However, ideas are not recognized as property under California law, Dallier v. Levi Strauss Co., No. 95-2551, 1996 WL 279003, at *3 (4th Cir. May 28, 1996) (per curiam), and even if they were, it would be impossible for the Court to order such a remedy.
The statute does not authorize a suit by a private party for damages. Cacique, Inc. v. Robert Reiser Co., 169 F.3d 619, 624 (9th Cir. 1999).
Accordingly, for the reasons set forth above, all claims except Plaintiffs' breach of implied in fact contract claim (Count I) will be dismissed.
An Order consistent with this Opinion will be entered.
ORDER
In accordance with the Memorandum Opinion filed this date,
IT IS HEREBY ORDERED that Defendant's Motion for Summary Judgment on Counts II Through V of Plaintiffs' First Amended Complaint (docket no. 236) is GRANTED.
The case will proceed on Plaintiffs' breach of implied in fact contract claim (Count I).