Santander Consumer USA Inc v. Superior Pontiac Buick GMC, Inc.
Filing
139
ORDER granting in part and denying in part 92 Motion for Summary Judgment; 109 Motion for Summary Judgment; and 120 Motion for Partial Summary Judgment. Signed by District Judge Nancy G. Edmunds. (CHem)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
Santander Consumer USA, Inc.,
Case No. 10-13181
Plaintiff,
Honorable Nancy G. Edmunds
v.
Superior Pontiac Buick GMC, Inc.,
Defendant.
/
OPINION AND ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF’S
AND DEFENDANT’S MOTIONS FOR SUMMARY JUDGMENT [92, 109, 120]
Before the Court are Plaintiff Santander Consumer USA, Inc.’s motion for partial
summary judgment and Defendant Superior Pontiac Buick GMC, Inc.’s motions for
summary judgment.1 (Dkt. 109, 92, 120.)
In its motion for summary judgment, Plaintiff requests judgment on its breach of
contract and fraud claims and against Defendant’s counterclaims of breach of contract,
fraud, negligent misrepresentation, money had and received, unjust enrichment, exemplary
damages, and attorneys’ fees and costs.
In its motion, Defendant seeks summary judgment on its breach of contract claim,
argues that Plaintiff’s fraud claims are barred, and even if they are not barred, that
Defendant cannot be held liable for the actions of its employee, and that Plaintiff is not
entitled to exemplary damages or attorneys’ fees.
1
Defendant has filed two motions for summary judgment that are essentially the same.
The motions rise and fall with each other. The Court only cites to the second motion.
For the reasons explained below, the Court holds that neither party is entitled to
summary judgment on the breach of contract claim, because the contract is ambiguous.
The Court further holds that the rule of Hart v. Ludwig forecloses the parties’ fraud, silent
fraud, and negligent misrepresentation claims. The Court also holds that Defendant has
not brought forth evidence to survive a motion for summary judgment on its fraud in the
inducement claim. And finally, the Court finds Plaintiff is entitled to summary judgment on
Defendant's unjust enrichment/money had and received counterclaim.
I.
Facts
A. Overview
Defendant is a car dealership located in Dearborn, Michigan. Plaintiff is in the
business of buying retail installment sales contracts. Put another way, Plaintiff provided
the financing that enabled customers to purchase cars from dealerships such as
Defendant. Here, Plaintiff provided financing for the car contracts between Defendant and
a customer. Plaintiff and Defendant’s relationship began in 2001, when they entered into
a retail installment sales agreement for automobile financing (the “Agreement”). (Def.’s
Mot. for Summ. J., Ex. A, Agreement.) The Agreement provided that Defendant could
submit proposals to sell/assign certain contracts (the “Contracts”) that it had made with
customers for cars (the “Vehicles”) to Plaintiff.
The deposition testimony shows that Plaintiff focused its retail installment sale
contract purchasing on credit-challenged applicants. (Def.’s Resp. to Pl.’s Mot. for Summ.
J., Ex. C., Bronson Dep. at 63-64.) For these contract purchases, Plaintiff charged interest
rates of 24.99%. (Def.’s Resp. to Pl.’s Mot. for Summ. J., Ex. G, Kleibrink Dep. at 102.)
Given the interest rate and the focus on credit-challenged applicants, Plaintiff anticipated
2
that the customer default rate was approximately 33%, or, one out of every three
customer/cars. (Def.’s Resp. to Pl.’s Mot. for Summ. J., Ex. B, Magri Dep. at 33.)
B. Financing overview2
When Plaintiff considers purchasing an automobile retail installment contract from
Defendant, Defendant sends Plaintiff a Bookout Sheet. This Bookout Sheet contains
information about the condition, equipment options, and identification of the automobile.
Plaintiff alleges that it relies on these Bookout Sheets in deciding whether to purchase the
contract. This lawsuit centers around 322 contracts on which the automobile owner
defaulted. After a default occurs, Plaintiff states that it repossesses the vehicle, sells the
vehicle at auction, and then applies the proceeds from the sale of the auction to the amount
owing on the vehicle. When the auction house takes possession of the vehicle, it inspects
the vehicle and enters the data into what is known as the AutoIMS database. Several
hours after entering the initial data in the AutoIMS database, Plaintiff states that an
inspector performs a more thorough manual inspection, the results of which are used to
create a Condition Report. This Condition Report details the vehicle’s condition and
equipment options. The auction house then enters the data into the AutoIMS database and
Plaintiff can access the information from that. Plaintiff then states that it routinely, and in
the normal course of its business, compares the Condition Reports to the initial Contracts,
Bookout Sheets, and other records to verify the condition and equipment of the vehicle
involved.
C. Facts giving rise to this lawsuit
2
The following overview is from the Court’s October 30, 2012 order denying Defendant’s
motions to strike. (Dkt. 137.)
3
For several years, the parties appeared to have no problems with their obligations
under the Agreement. But then customers started to default on their car payments and
Plaintiff had the cars repossessed and had the majority of the cars sold at auction.
Through this repossession and auctioning off, Plaintiff allegedly became aware that the
cars that were the subjects of the contracts that it purchased from Defendant did not have
the equipment that the Defendant allegedly represented the cars were originally equipped
with. Plaintiff states that it learned of these discrepancies when it compared the Bookout
Sheets with the Condition Reports. Plaintiff states that, because it paid for a contract that
was supposed to represent a car with more equipment options, it overpaid for the contract
and received a lower amount when the car was sold at auction than it should have
received.
Plaintiff alleges that it has direct proof that Defendant committed fraud–for one of
Defendant’s employees, Liliana Sinishtaj, admitted to “power booking,” the vehicles, that
is, representing that certain equipment was on the cars when that equipment in fact was
not, all to increase the value of the car.
In February, 2008, Sergeant Kenneth Muscat of the Dearborn Police Department
investigated alleged fraudulent activity at the Defendant’s dealership and specifically
investigation Sinishtaj’s actions.3 (Muscat Dep. at 7.) From June 28, 2004 to January 28,
2008, Sinishtaj worked at Defendant’s dealership. (Pl.’s Mot. for Summ. J., Ex. H, Police
Reports.) Sinishtaj was the finance manager who assisted customers in getting financing
3
At his deposition, Muscat testified that the Dearborn Police Department keeps such
investigative reports in the regular course of its business. (Muscat Dep. at 7.) He stated
that he used his notes, his memory, and his recollection of interviews to create his police
report. (Id. at 11.)
4
for car loans. (Id.) After interviewing Walter Schwartz, Defendant’s president, Muscat
wrote that the vehicles’ values were determined by the equipment and options on the
vehicles, and that Sinishtaj would include equipment and options that were not on the
vehicles, to increase the vehicles’ contract prices. (Id.) Muscat recounted that Schwartz
discovered Sinishtaj’s actions when the cars were repossessed due to the customers’
inability to pay the loans. (Id.) Muscat stated that the “financing banks conducted an
inspection of each vehicle and when the equipment didn’t match the dealership paper
altered by Sinistaj, [Defendant] was required to pay for the difference.” (Id.) Muscat
recounted that Schwartz stated that Defendant had to pay approximately $2,000.00 for
each of the 72 initially identified vehicles. (Id.)
Muscat also interviewed Defendant’s sales manager, Mike Cohn.
(Pl.’s Mot. for
Summ. J., Ex. H, Police Reports.) Muscat recounted that Cohn informed him that all the
customers with bad credit were sent to Sinishtaj for financing. (Id.) Cohn also told Muscat
that Sinishtaj “power booked most of her loans.” (Id.)
Muscat also interviewed Sinishtaj during the investigation. (Pl.’s Mot. for Summ. J.,
Ex. H, Police Reports.) Muscat related that Sinishtaj stated that she power booked loans
all the time. (Id.) Sinishtaj stated to Muscat that “power booking [was] a common practice
and everyone [did] it.” (Id.)
The police investigation reports show that Sinishtaj pleaded guilty to nine counts of
felony-unauthorized credit application.4 (Pl.’s Mot. for Summ. J., Ex. H, Police Reports.)
4
Defendant argues that the police reports are inadmissible. The Court disagrees.
Federal Rule of Evidence 803(8) excludes certain public records, including investigative
reports that set out “a matter observed while under the legal duty to report,” including
“factual findings from a legally authorized investigation.” Moore v. Bannon, 10-12801, 2012
5
After Plaintiff learned of the missing equipment, it alleges that it began seeking
remedies to which it believed it was entitled. Schwartz testified that Plaintiff requested
money from Defendant for the misrepresented equipment options, after the cars had been
sold at auction and the equipment discrepancies were discovered. (Def.’s Resp. to Pl.’s
Mot. for Summ. J., Ex. E, Schwartz Dep. at 176-77.) Plaintiff sent some of these demand
letters five years after Defendant had purchased the Contracts. Schwartz stated that
Defendant paid roughly $248,470.00 to Plaintiff for these demands. (Id.) Schwartz also
WL 2154274, at *8 (E.D.Mich. June 13, 2012) (Ludington, J.) (quoting Fed.R.Evid. 803(8).)
The Rule “is based upon the assumption that public officers will perform their duties, that
they lack motive to falsify, and that public inspection to which many such records are
subject will disclose inaccuracies.” Id. (citation omitted). The Rule “presumes the
admissibility of an investigator’s finding ‘unless the sources of information or other
circumstances indicate a lack of trustworthiness.’” Id. (citing Fed.R.Evid. 803(8)(C).). The
party opposing the admission of the report must prove that the report is not trustworthy.
Id. (citing Hickson Corp. v. Norfolk S. Ry. Co., 124 F. App’x 336, 344 (6th Cir. 2005)).
“The Court may use four factors in assessing whether an evaluative report is
trustworthy: (1) the timeliness of the investigation, (2) the special skill or experience of the
official, (3) whether a hearing was held and the level at which conducted, and (4) possible
motivation problems.) Bannon, 2012 WL 2154274, at *8 (citing Fed.R.Evid. 803(8)(C) and
the advisory committee notes). “This list of factors is not exclusive; any circumstance
which may affect the trustworthiness of the underlying information, and thus, the
trustworthiness of the findings, must be considered when ruling upon the admissibility of
factual findings under this rule.” Id. (quoting In re Complaint of Paducah Towing Co., Inc.,
692 F.2d 412, 420 (6th Cir. 1982).
The Sixth Circuit has also stated that courts should apply Rule 803(8)(C) “in a
common sense manner, subject to the district court’s sound discretion in determining
whether the hearsay document offered in evidence has sufficient independent indicia of
reliability to justify its admission.” Bannon, 2012 WL 2154274, at *8 (quoting Miller v.
Caterpillar Tractor Co., 697 F.2d 141, 144 (6th Cir. 1983). See also Weinstein v. Siemens,
07-15000, 2010 WL 4824952, at *4 (E.D.Mich. Nov. 22, 2010) (Borman, J.) (thoroughly
reviewing the Rule 803(8) and holding, ultimately, that “[e]xclusion of an official report is
warranted only if the court finds that ‘the sources of information or other circumstances
indicate lack of trustworthiness.’”) (citation omitted).
Here, there is no indication that the police investigation reports are not trustworthy.
Defendant points to no problems with the police reports and merely states that the reports
are inadmissible because of hearsay. The Court finds the reports admissible.
6
testified that Plaintiff did offer Defendant to repurchase some of the allegedly
misrepresented cars, roughly 20, which, Schwartz stated, Defendant did repurchase. (Id.
at 75.)
At some point in time, though, Schwartz testified that Defendant stopped paying the
amounts Plaintiff demanded because Defendant believed that Plaintiff had breached the
Agreement, and that the Agreement did not entitle Plaintiff to the recourse it sought.5
This lawsuit followed.
II.
Summary judgment standard
“The court shall grant summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
5
One of Defendant’s arguments is that Plaintiff had the means to and was contractually
required to verify the equipment options on the vehicles. In discovery, Plaintiff admitted to
conducting various interviews with various customers, but not all of the customers. ( Def.’s
Resp. to Pl.’s Mot. for Summ. J., Ex. K, Pl.’s Objections and Responses to Def.’s Second
Set of Req. for Admis.) Deposition testimony also reveals an issue of fact regarding the
customer interviews. One witness testified that he did not know if, during the customer
interview, Plaintiff asked about the equipment options on the vehicles. (Def.’s Resp. to Pl.’s
Mot. for Summ. J., Ex. B, Magri Dep. at 59.) But he did state that he “believed that”
Plaintiff’s funding department “[j]ust verified the equipment on the vehicle that was on the
bookout.” (Id.) Another witness also stated that Plaintiffs “Funding department verifies the
values of the vehicles.” (Def.’s Resp. to Pl.’s Mot. for Summ. J., Ex. C., Bronson Dep at
66.) This witness explained that the verification process included “customer interview[s]
to make sure [that Plaintiff] know[s] who [its] actually speaking with before [Plaintiff agree[s]
to actually purchase the contract.” (Id.) When questioned, Bronson agreed that one of the
subjects of the customer interview was car accessories. (Id. at 67.) A third witness stated
that the credit department “does not make any verification of the equipment.” (Def.’s Resp.
to Pl.’s Mot. for Summ. J., Ex. D, Chilton Dep. at 82.) But he stated that Plaintiff relied on
the “compliance office” and that the compliance office, “through a customer interview”
verified that “the equipment is on the vehicle.” (Id.) He stated that, to his knowledge,
Plaintiff conducted an “actual interview” that verified “each piece of equipment on the
vehicle.” (Id.) Chilton agreed when asked “[s]o, once the interview is conducted, there’s
a knowledge of the - - by Santander, through their Compliance department, of each and
every accessory on the vehicle that a loan is going to be funded on; is that a true
statement.” (Id. at 82-83.)
7
Fed. R. Civ. P. 56(a). A moving party may meet that burden “by ‘showing’ – that is,
pointing out to the district court -- that there is an absence of evidence to support the
nonmoving party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Revised
Rule 56 expressly provides that:
A party asserting that a fact cannot be or is genuinely disputed must support the
assertion by:
(A) citing to particular parts of materials in the record, including depositions,
documents, electronically stored information, affidavits or declarations, stipulations
(including those made for purposes of the motion only), admissions, interrogatory
answers, or other materials; or
(B) showing that the materials cited do not establish the absence or presence
of a genuine dispute, or that an adverse party cannot produce admissible
evidence to support the fact.
Fed. R. Civ. P. 56(c)(1). The revised Rule also provides the consequences of failing to
properly support or address a fact:
If a party fails to properly support an assertion of fact or fails to properly address
another party’s assertion of fact as required by Rule 56(c), the court may:
(1) give an opportunity to properly support or address the fact;
(2) consider the fact undisputed for purposes of the motion;
(3) grant summary judgment if the motion and supporting materials – including
the facts considered undisputed – show that the movant is entitled to it; or
(4) issue any other appropriate order.
Fed. R. Civ. P. 56(e). “The court need consider only the cited materials, but it may
consider other materials in the record.” Fed. R. Civ. P. 56(c)(3).
When the moving party has met its burden under Rule 56, “its opponent must do more
than simply show that there is some metaphysical doubt as to the material facts.”
8
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Ultimately
a district court must determine whether the record as a whole presents a genuine issue of
material fact, drawing “all justifiable inferences in the light most favorable to the non-moving
party.” Hager v. Pike Cnty. Bd. Of Educ., 286 F.3d 366, 370 (6th Cir. 2002).
III.
Analysis
The Court first addresses the parties’ breach of contract arguments. The Court then
addresses Plaintiff’s fraud claims against Defendant. The Court then addresses Plaintiff’s
arguments in support of its motion for summary judgment on Defendant’s counterclaims.
A. Breach of contract claim
In Michigan, a breach of contract claim requires: (1) the existence of a valid contract
between the parties, (2) the terms of the contract require performance of certain actions,
(3) a party breached the contract, and (4) the breach caused the other party injury. Keiper,
LLC v. Inteir Auto. Inc., 467 F. App’x 452, 459 (6th Cir. 2012) (citation omitted).
Here, the parties do not dispute that the Agreement governed their relationship. The
parties dispute what the Agreement’s terms required of them.
Plaintiff argues that
Defendant breached the Agreement when Defendant’s employee, Liliana Sinishtaj, power
booked the loans and misrepresented the Vehicles’ equipments. Defendant argues that
the Agreement’s terms are ambiguous and that Plaintiff had to offer the Vehicles to
Defendant for repurchase.
Defendant maintains that the failure to offer the Vehicles for
repurchase precludes Plaintiff from seeking the amounts owing on the Contracts.
1. Michigan contract interpretation
9
Because this case is before the Court on diversity jurisdiction, the Court applies
Michigan’s substantive law. Anton v. Nat'l Union Fire. Ins. Co. of Pittsburgh, PA, 634 F.3d
364, 367 (6th Cir. 2011).
In Michigan, the proper interpretation of a contract is a question of law . . . .
The goal of contract construction is to determine and enforce the parties’
intent on the basis of the plain language of the contract itself. Michigan
courts examine contractual language and give the words their plain and
ordinary meanings. If the language of the contract is unambiguous, the court
construes and enforces the contract as written. . . . Only when contract
language is ambiguous does its meaning become a question of fact.
A contract is ambiguous if its words may reasonably be understood in
different ways. In other words, a contract is ambiguous when its provisions
are capable of conflicting interpretations. Courts cannot simply ignore
portions of a contract in order to avoid a finding of ambiguity or in order to
declare ambiguity. Instead, contracts must be construed so as to give effect
to every word or phrase as far as practicable. However, courts may not
impose an ambiguity on clear contract language.
Chungag v. Wells Fargo Bank, N.A., 11-1353, 2012 WL 2301653, at *2 (6th Cir. June 19,
2012) (citations omitted). Additionally, "[a] specific contractual provision generally controls
over a related but more general provision." Loose v. City of Dearborn Heights, 296368,
300964, 299214, 2012 WL 6050562, at *5 (Mich.Ct.App. Nov. 29, 2012) (citation omitted).
2. Sections 9 and 14 conflict and render the Agreement ambiguous as to
whether Plaintiff had to deliver the vehicles to Defendant
Defendant alleges that at least two provisions conflict in the Agreement and render
it ambiguous. The Court agrees. Defendant maintains that Sections 9 and 14 of the
Agreement conflict.
Plaintiff maintains that Defendant violated Section 7 of the
10
Agreement.6
“Non-Recourse Dealer Retail Agreement.”
7. Dealer[Defendant]’s Representations and Warranties
So long as this Agreement is in effect, Dealer represents, warrants and
agrees that to the best of the dealer’s knowledge: . . . I. The Vehicle and all
options therein are accurately described in the Contract and Such Vehicle
was delivered by Dealer and accepted without condition or reservation by
Buyer(s).
9. Dealer[/Defendant] Liability
A. Repurchase.
If a Dealer representation, warranty or covenant made herein, or made in the
assignment of a Contract to DFS is breached, or is untrue, or if Dealer fails
to perform any of its obligations to DFS hereunder or otherwise, then Dealer
shall pay DFS immediately upon receipt of DFS’s demand, one or more of
the following amounts at the sole election of DFS: (1) the unpaid balance, as
determined by DFS, of the breached Contract purchased, less any unearned
finance charges and any discounts in connection with such Contract; (2) all
losses and expenses incurred by DFS as a result of such breach, or untruth,
or failure to perform, including attorneys fees; and (3) out-of-pocket expenses
paid or incurred by DFS in connection with the collection of any amount due
under any such Contract, including attorneys’ fees and costs of litigation,
whether by or against DFS, and expenses with respect to repossessing,
storing, repairing and selling the Vehicle. If Dealer fails to repurchase any
Contract as required by this Section 9, [Plaintiff] may, as its option; (I) allow
the Contracts to pay to maturity; or (ii) upon ten (10) days written notice to
Dealer, sell such Contracts purchased from Dealer at public or private sale.
In either event, [Plaintiff] may apply the proceeds after deducting expenses
and reasonable attorneys’ fees, to the payment of Dealer’s obligations
hereunder, and Dealer shall be responsible for any deficiency. [Plaintiff] will
make every reasonable attempt to recover collateral and deliver
collateral to dealer to complete repurchase.
C. Failure to Repurchase.
6
“DFS” or “Drive Financial Services” was Plaintiff’s former name.
11
If Dealer fails to repurchase a Contract as required by Section 9, [Plaintiff]
may, in mitigation of its damages, repossess the vehicle securing the
Contract as may be allowed by applicable law, in which event Dealer will pay
[Plaintiff], in case upon demand, in addition to any other sums provided for
herein, all costs of repossession, including court costs and attorneys’ fees,
and all costs of reconditioning, storing and reselling the Vehicle.
14. Waiver.
Dealer hereby waives any failure or delay on [Plaintiff]’s part in asserting or
enforcing any right which [Plaintiff] may have at any time hereunder. Dealer
hereby expressly waives notice of acceptance of this Agreement, notices of
non-payment and non-performance, notices of amount of indebtedness
outstanding at any time, protests, demands and prosecution of collection,
foreclosures and possessory remedies all as may be permitted by applicable
law.
Defendant argues that an ambiguity exists between Paragraph 9, Dealer Liability, and
Paragraph 14, Waiver. (Dkt. 109, Def.’s Am. Mot. for Summ. J. ¶ 19.) Defendant argues
that Paragraph 9's last sentence, which states that “[Plaintiff] will make every reasonable
attempt to recover collateral and deliver collateral to dealer to complete repurchase,” is a
precondition to compel and repurchase by the dealer. (Id. ¶ 20.) Defendant maintains that
Plaintiff did not satisfy the precondition in this case and therefore that Plaintiff cannot seek
the listed recourse available in Paragraph 9. (Id.) Defendant states that Plaintiff did offer
Defendant 20 or so of the initial vehicles for repurchase, which Defendant did, in fact,
repurchase. (Id.) Defendant discusses Paragraph 14. Defendant argues that “[t]he
concepts of waiving notice, and the concept that ‘[Plaintiff] will make every reasonable
attempt to . . . deliver collateral to dealer to complete repurchase’ conflict with one another.”
(Id. ¶ 22.) Defendant states that Plaintiff never offered any of the 322 vehicles for
repurchase, nor did, Defendant states, Plaintiff give Defendant notice of the sale of the
12
vehicles. (Id.)
Plaintiff argues that Section 9 required Defendant to repurchase the contract, and not
the vehicle, in the event that Defendant violates one more of the Section 7 representations.
(Dkt. 118, Pl.’s Resp. to Def.’s Mot. for Summ. J. ¶ 20.) Plaintiff further argues that it has
the contractual right to a remedy against Defendant for Defendant’s misrepresentations
even when the contract is not in default–arguing that the sentence “If Dealer fails to
repurchase any Contract as required by this Section 9, [Plaintiff] may, at its option, (I) allow
the Contract to pay to maturity; or (ii) . . . sell such Contracts purchased from Dealer at
public or private sale. In any event, . . . Dealer shall be responsible for any deficiency.”
supports such a position.
Plaintiff argues that the “reasonable attempt” language is “clear and unambiguous that
actual delivery of the vehicle is not required in order to ‘trigger’ [Defendant’s] obligation to
repurchase the Contract.” (Pl.’s Resp. ¶ 23.) Plaintiff further suggests that courts “do not
generally construe contract provisions as conditions precedent in the absence of express
language.” (Id.) (citing 6A Michigan Law & Practice, Contract, § 232, at 259.)
The Court finds that the “reasonable attempt” language conflicts with the Waiver
provision and creates an issue of fact whether the Waiver section supercedes and renders
the “reasonable attempt” language nugatory. Here, the “reasonable attempt to deliver
collateral and deliver collateral to dealer to complete repurchase” language contemplates
that repurchase would not be complete until delivery of the collateral took place. This
statement conflicts with the Waiver provision. The Waiver provision explicitly waives all of
Plaintiff’s failures, including possessory notification failures.
13
But, if Plaintiff sought
repurchase of the Contracts from Defendant, the “reasonable attempt” statement lends
support to the proposition that delivery of the collateral should have taken place. A conflict
of language exists and the Agreement is ambiguous.
While the Court will not go so far to hold that “reasonable attempt” language is a
condition precedent, the Court does find that summary judgment is not appropriate.7 See
BSI Land Co. v. Millpointe W. Ltd., 20968, 1999 WL 33441233, at*4 (Mich.Ct.App. June 18,
1999) (stating that, “courts generally do not construe contract provisions as conditions
precedent in the absence of express language, particularly where such construction results
in an injustice.”) (and further stating, “this [condition precedent] argument raises an issue
of contract construction dependent on the intent of the parties.”); and see Opdyke Inv. Co.
v. Norris Grain Co., 320 N.W.2d 836, 838 (Mich. 1982) (“Summary judgment is rarely
appropriate where ‘motive and intent play leading roles.’”).
Given that the Agreement contains an explicit “reasonableness” condition, the Court
finds that summary judgment is not appropriate. Plaintiff concedes that position. See
7
A condition precedent “is a fact or event that the parties intend must take place before
there is a right to performance.” Harbor Park Market, Inc. v. Gronda, 743 N.W.2d 585, 588
(Mich.Ct.App. 2007) (citation omitted). “If the condition is not satisfied, there is no cause
of action for a failure to perform the contract.” Id. “[W]hen a contract contains a condition
precedent, ‘there is an implied agreement that the promisor will place no obstacle in the
way of the happening of such an event[.]” Id. (citation omitted). “Where a party prevents
the occurrence of a condition, the party, in effect, waives the performance of the condition.”
Id. at 589. “Whether a provision in a contract is a condition the nonfulfillment of which
excuses performance depends upon the intent of the parties, to be ascertained from a fair
and reasonable construction of the language used in the light of all the surrounding
circumstances when they executed the contract.” MacDonald v. Perry, 70 N.W.2d 721, 725
(Mich. 1955) (citation omitted). The Court finds that the “reasonable attempt” language is
not expressly a condition precedent.
14
(Pl.’s Resp. ¶ 24.) (Plaintiff argues, that, even if the Court were to ‘entertain’ the condition
precedent argument, that whether Plaintiff made “every reasonable attempt” to recover and
deliver the collateral to the dealer would be a question of fact that was inappropriate for
summary judgment.8).
3. The Court rejects Defendant’s nonrecourse argument
Defendant argues that Plaintiff’s “recourse” was to repossess the vehicles once they
went into default.
(Def.’s Mot. for Summ. J. ¶ 17.)
Defendant maintains that the
Agreement gives Plaintiff no rights against Defendant. (Id.) While Defendant does offer
the Court the appropriate definition of nonrecourse, the Court finds that the Agreement
does not support Defendant’s argument.9
Here, the Agreement specifically provides that Plaintiff can seek from Defendant a
“deficiency” on the Contract. The Agreement therefore describes the recourse the parties
have if a breach occurs and entitles Plaintiff to seek deficiency amounts from Defendant.
The Court rejects Defendant’s nonrecourse argument.
8
Plaintiff further explains that it had a duty to its customers to sell the vehicles “as
quickly as possible to mitigate depreciation and prevent damage to the collateral.” (Pl.’s
Resp. ¶ 24.) Plaintiff argues that, given the nature of the cars and their repossession,
holding the cars at the auction until an inspection occurred would be impossible. (Id. ¶ 25.)
9
“Nonrecourse” normally indicates a “loan that is secured by a pledge of collateral, but
for which the borrower is not personally liable.” Gonzales v. U.S., 08-3189, 2011 WL
835554, at *2, n. 1 (N.D.Cal. Mar. 4, 2011) (and quoting, “[n]onrecourse simply means that
the lienor may look only to the property subject to his lien to satisfy his debt and cannot
look to the debtor personally for payment.”) (citation omitted).
Nonrecourse: “Of or relating to an obligation that can be satisfied only out of the collateral
securing the obligation and not out of the debtor’s other assets.” Black’s Law Dictionary
(9th ed. 2009).
15
4. Defendant has not supported its § 440.9611 argument
Defendant argues that Michigan Compiled Law § 440.9611 required Plaintiff to give
notice to Defendant before Plaintiff disposed of the collateral, here, the vehicles. (Def.’s
Mot. for Summ. J. ¶ 23.) Defendant suggests that that failure to give notice of the
disposition of the collateral “completely bars the creditor from recovering a deficiency
judgment.” (Id. ¶ 25.) Defendant argues, citing Asset Acceptance Corp. v. Robinson, 625
N.W.2d 804 (Mich.Ct.App. 2001), that failure to give notice before disposing of collateral
completely bars the creditor from recovering a deficiency judgment.
Michigan Compiled Law § 440.9611 does provide that a secured party must give an
interested party, such as debtor or any secondary obligor, “reasonable authenticated
notification” before the secured party disposes of any collateral.
Plaintiff counters that Defendant “failed to present any evidence that it is the ‘debtor’
or ‘secondary obligor’ on the contracts at issue, and therefore [§440.9611] on which
[Defendant] relies does not apply[.]” (Pl.’s Resp. to Def.’s Mot. for Summ. J. ¶27.)
The Court agrees. Defendant has not shown that the Michigan Uniform Commercial
Code Article 9 applies to it. The Court therefore finds this argument not well-supported and
rejects it.
5. The Court rejects Defendant’s damages argument
Defendant argues that Plaintiff is improperly seeking a windfall with its damages
claim. (Def.’s Mot. for Summ. J. ¶¶ 28-29.) Defendant maintains that Plaintiff cannot seek
the entire alleged “unpaid balance,” “(amount owed for the vehicles [Plaintiff] placed in
16
default for non-payment by the customers.)” (Id. ¶ 29.) The Court rejects this argument.
If Plaintiff is entitled to damages, the Agreement provides that, in the event that Defendant
breaches the Agreement, Plaintiff can seek :
(1) the unpaid balance, as determined by DFS, of the breached Contract
purchased, less any unearned finance charges and any discounts in
connection with such Contract; (2) all losses and expenses incurred by DFS
as a result of such breach, or untruth, or failure to perform, including
attorneys fees; and (3) out-of-pocket expenses paid or incurred by DFS in
connection with the collection of any amount due under any such Contract,
including attorneys’ fees and costs of litigation, whether by or against DFS,
and expenses with respect to repossessing, storing, repairing and selling the
Vehicle.
The “unpaid balance” is exactly what the Agreement provides to Plaintiff in the event of a
breach.
Defendant also argues that Plaintiff originally only demanded the amounts for the
alleged missing equipment and that Plaintiff cannot now seek the entire unpaid balance.
(Def.’s Mot. for Summ. J. ¶ 39.) Defendant maintains that Plaintiff is quasi-estopped from
asserted a different damages theory. (Id.) Plaintiff counters that the demand letters initially
were a compromise offer for the missing equipment only, and that the letters in no way
prevent it from seeking what it maintains it is entitled to under the Agreement. Plaintiff also
counters that Michigan courts have long-rejected the quasi-estoppel theory. The Court
agrees with Plaintiff. The demand letters do not bind Plaintiff to a damages claim and
Michigan has not sanctioned the quasi-estoppel theory. See Kung Chiu Chu v. Grange Ins.
Co., 304603, 2012 WL 5065313, at *5 (Mich.Ct.App. Oct. 18, 2012) (noting that Michigan
courts have never formally adopted quasi-estoppel.).
6. Breach of contract conclusion
17
For the above-stated reasons, the Court finds that neither party is entitled to summary
judgment on the breach of contract claim. Sections 9 and 14 conflict and the Court finds
that insufficient evidence has been presented for the Court to conclusively determine the
intent of the parties in drafting the conflicting sections. The jury will therefore be tasked
with determining the intent of the parties and the meaning of the Agreement’s conflicting
sections.
B. Plaintiff’s fraud claim10
Plaintiff argues that it is entitled to summary judgment on its fraud claim. Plaintiff
argues so, stating that an employee of Defendant, Liliana Sinishtaj, admitted to perpetrating
the fraud alleged in this case.
Defendant argues that the Court cannot consider police investigation reports, that an
employer is not liable for unforeseeable acts of an employee, that Plaintiff has not pleaded
fraud with particularity, and that Plaintiff cannot succeed on its fraud claims when it did not
reasonably rely on any misrepresentations.
1. The rule of Hart v. Ludwig bars Plaintiff’s fraud claim
10
To prove fraud, a plaintiff must show: (1) that the defendant made a material
representation; (2) that was false; (3) that the defendant knew that the representation was
false when it made the representation, or made the representation recklessly, without any
knowledge of its truth and as a positive assertion; (4) that the defendant made the
representation with the intention that the plaintiff would rely upon it; (5) that the plaintiff did,
in fact, rely upon the misrepresentation; and (6) that the plaintiff was injured by the reliance
on the misrepresentation. City of Novi v. Robert Adell Children’s Funded Trust, 701
N.W.2d 144, 152, n. 8 (Mich. 2005) (citation omitted). Fraud must be proved by clear and
convincing evidence. Cooper v. Auto Club Ins. Ass’n, 751 N.W.2d 443, 451 (Mich. 2008).
“[D]irect proof of fraud is not required, and fraud may be proven by inference from facts
and circumstances.” Foreman v. Foreman, 701 N.W.2d 167, 176 (Mich.Ct.App. 2005).
18
On November 13, 2012, the Court issued a text only order noticing the parties that it
thought the economic loss doctrine may play a role in the case’s disposition. (Dkt. 138.)
The Court pointed the parties to Rinaldo’s Construction Corp. v. Michigan Bell Telephone
Co., 559 N.W.2d 647 (Mich.1997). At the hearing, Defendant argued that the economic
loss doctrine only applied in sale of goods Uniform Commercial Code cases. Defendant
is correct that the phrase “the economic loss doctrine” applies solely in U.C.C. cases11. But
11
See Vincent A. Wellman, Assessing the Economic Loss Doctrine in Michigan: Making
Sense out of the Development of Law, 54 Wayne L. Rev. 791 (2008). In this article,
Professor Wellman discusses the differences between the rule enunciated in Hart v.
Ludwig, 79 N.W.2d 895 (Mich. 1956), and the economic loss doctrine formerly adopted by
the Michigan Supreme Court in Neibarger v. Universal Coop., Inc., 486 N.W.2d 612 (Mich.
1992). Professor Wellman also points out how courts have often confused and conflated
the two principles. He explains:
The economic loss doctrine has an obvious relation to, and affinity with,
another feature of Michigan common law which predated [Neibarger]. In
Michigan, as elsewhere, courts have struggled for some time with the task
of drawing the boundary between tort and contract. [Hart v. Ludwig] is still the
leading case in this state for drawing that boundary, which relegates claims
of injury to contract law unless there is a tort duty that would exist
independent of the duties created by the parties’ agreement. In application,
[Hart] is often cited as authority to dismiss tort claims if they assert the
breach of a duty that, on analysis, is shown to be no different from an
obligation that is part of the parties’ contract. The most vulnerable such
claims will obviously be suits for the “negligent” performance of duties that
were part of a contract.
Id. at 797-98. Professor Wellman continued,
There is one last observation to be made about the difference between [Hart]
and the economic loss doctrine. The rule of [Hart] requires an analysis of the
actual provisions of the contract at issue before a court can properly dismiss
the tort claims. For, one can determine that the alleged tort duty is
independent from the parties’ contract only by examining that contract’s
provisions: a duty of, say, disclosure might be subsumed by the
representations and warranties found in one contract but might be
independent of another agreement’s terms.
19
Defendant is incorrect in arguing that similar, related, Michigan principles do not bar its
fraud claims.
“The law in Michigan is well-settled that an action in tort requires a breach of duty
separate and distinct from a breach of contract.” Brock v. Consolidated Biomedical Lab.,
817 F.2d 24, 25 (6th Cir. 1987). The Brock court pointed to Hart v. Ludwig, 79 N.W.2d 895
(Mich. 1956) as the authority for this rule. In Hart, the plaintiffs filed suit against the
defendant for his failure to perform work on an orchard, as was required by a verbal
contract between the parties. 79 N.W.2d at 895. The plaintiffs sued the defendant for
negligence. Id.
The court framed the issue as whether the plaintiffs could maintain a negligence tort
action for the defendant’s failure to perform the contract. Hart, 79 N.W.2d at 895. The court
held that the plaintiff could not maintain the tort when the defendant's actions, the failure
to perform the contract, only breached the terms of the contract. Id. at 897.
The court quoted with approval, “[w]hen the cause of action arises merely from a
breach of promise, the action is in contract.” Hart, 79 N.W.2d at 897 (citation removed).
The court then stated, “[t]he action of tort has for its foundation the negligence of the
defendant, and this means more than a mere breach of a promise.” Id. (citation omitted).
The court then held:
We have simply the violation of a promise to perform the agreement. The
only duty, other than that voluntarily assumed in the contract to which the
Id. at 824. The Court has reviewed the article, cases, and arguments Professor Wellman
addresses and finds that his position is on point and relates to this case.
20
defendant was subject, was his duty to perform his promise in a careful and
skillful manner without risk of harm to others, the violation of which is not
alleged. What we are left with is defendant’s failure to complete his
contracted-for performance. This is not a duty imposed by the law upon all,
the violation of which gives rise to a tort action, but a duty arising out of the
intentions of the parties themselves and owed only to those specifics
individuals to whom the promise runs. A tort action will not lie.
Id. at 898-99.
Forty years later, the Michigan Supreme Court, in Rinaldo’s Construction Corp. v.
Michigan Bell Telephone Co., 559 N.W.2d 647 (Mich. 1997), discussed, explained, and
reaffirmed the Hart rule. The court noted that Michigan courts have recognized the
challenges in filtering out the contract-based fraud claims. Id. at 656 (Mich. 1997) (The
question whether an action in tort may arise out of a contractual promise has not been
without difficulty.”) (citation omitted).
“[T]he threshold inquiry is whether the plaintiff alleges a violation of a legal duty
separate and distinct from the contractual obligation.” Rinaldo’s, 559 N.W.2d at 658. If the
fraud claim is indistinguishable from the contract claim, a party cannot succeed on the fraud
claim. The court explained the distinction further by quoting:
Misfeasance or negligent affirmative conduct in the performance of a promise
generally subjects an actor to tort liability as well as contract liability for
physical harm to persons and tangible things. Generally speaking, there is
a duty to exercise reasonable care in how one acts to avoid physical harm
to persons and tangible things. Entering into a contract with another
pursuant to which one party promises to do something does not alter the fact
that there was a preexisting obligation or duty to avoid harm when one acts.
Id. (citation omitted). But the court held that, “[t]his duty, however, [did] not extend to
‘intangible economic losses.’” Id. (citation omitted).
21
For those types of losses, “the
manifested intent of the parties should ordinarily control the nature and extent of the
obligations of the parties[.]” Id. (citation omitted).
The court then stated that courts have made the distinction in various contexts,
including employment contracts. Rinaldo, 559 N.W.2d at 658 (citations omitted). The court
further pointed out that the U.C.C. had adopted a version of the distinction in sales
contracts under the U.C.C., “under the rubric of the ‘economic loss doctrine.’” Id. (citation
omitted).
The Sixth Circuit quoted the following with approval, from Prosser and Keeton on the
Law of Torts, § 92 at 656 (5th ed. 1984), to aid in a court’s determination of whether a party
is improperly framing a breach of contract claim as a tort:
Tort obligations are in general obligations that are imposed by law on policy
considerations to avoid some kind of loss to others. They are obligations
imposed apart from . . . any manifested intention of parties to a contract or
other bargaining transaction. Therefore, if the alleged obligation to do or not
to do something that was breached could not have existed but for a
manifested intent, then contract law should be the only theory upon which
liability would be imposed.
Brock, 817 F.2d at 25 (citation omitted, emphases removed) (holding that “in the absence
of this contract, the harm [the plaintiff] complains of would not exist” and therefore affirming
the district court’s dismissal of the fraud claim as it arose solely from the contract.) (And
stating, “Plaintiffs’ claim in tort cannot exist under Michigan law because plaintiffs do not
claim that the defendant has caused any harm in the realm beyond the contract.”)
Here, the alleged fraudulent conduct–the power booking of the Vehicles–arose solely
from the Agreement. The alleged power booking did not induce Plaintiff to enter the
22
Agreement nor did it induce it to enter into additional undertakings. The alleged power
booking and actions of Sinishtaj did not cause harm to Plaintiff distinct from those caused
by the breach of contract. In Article 7 of the Agreement, Defendant represents that "[t]he
Vehicles and all options therein are accurately described." Given that representation, the
Agreement contemplates the misrepresentation of the Vehicles and their options. The sole
recourse is the recourse provided in the Agreement. The fraud cause of action would not
have existed absent the Agreement. The Hart rule therefore bars Plaintiff’s fraud claim.
2. The Hart v. Ludwig rule also bars Plaintiff’s silent fraud claim
Silent fraud “holds that when there is a legal or equitable duty of disclosure, ‘[a] fraud
arising from the suppression of the truth is as prejudicial as that which springs from the
assertion of a falsehood, and courts have not hesitated to sustain recoveries where the
truth has been suppressed with the intent to defraud.’” Titan Ins. Co. v. Hyten, 817 N.W.2d
562, 577 (Mich. 2012) (insertion in Titan) (citation omitted). “Such a duty [to disclose] may
arise by law or by equity; an example of the latter is a buyer making a direct inquiry or
expressing a particularized concern.”
Alfieri v. Bertorelli, 813 N.W.2d 772, 775
(Mich.Ct.App. 2012).
Here, for the same reasons that the rule of Hart bars Plaintiff’s fraud claim, so does
it bar the silent fraud claim. See Woodland Harvesting, Inc. v. George Pacific Corp., 0910736, 2010 WL 2813339, at *10 (E.D.Mich. July 14, 2010) (Cohn, J.) (finding that the
economic loss doctrine barred a silent fraud claim that was interwoven with the contract
claim.). The Court notes that Woodland court applied the economic loss doctrine, but the
Court finds the rationale applies similarly with the Hart rule. Again, here, the silent fraud
23
claim would not exist save for the Agreement. The Court therefore finds that Hart bars this
claim.
C. Exemplary damages
Plaintiff has alleged a cause of action for exemplary damages. “Exemplary damages
are a class of compensatory damages that allow for compensation for injury to feelings.”
McPeak v. McPeak, 593 N.W.2d 180, 183 (Mich.Ct.App. 1999) (citation omitted). “In order
to justify an award of exemplary damages, the act or conduct complained of must be
voluntary and the act must inspire feelings of humiliation, outrage, and indignity.” Id.
(citation omitted). “The act or conduct must also be malicious or so wilful and wanton as
to demonstrate a reckless disregard of [a] plaintiff’s rights.” Id. (citation omitted). “[T]he
general rule is that exemplary damages are not recoverable absent allegation and proof
of tortious conduct that is ‘independent of the breach.’” Casey v. Auto Owners Ins. Co., 729
N.W.2d 277, 286 (Mich. Ct. App. 2006). See also Department of Agric. v. Appletree Mktg.,
LLC, 779 N.W.2d 237, 245 (Mich. 2010) (stating that “in a first-party no-fault action, the
insured may only recover no-fault benefits, but in a fraud action the insured may recover
attorney fees, emotional-distress damages, and exemplary damages.”).
See also
Lawrence v. Will Darrah & Assoc., Inc., 516 N.W.2d 43, 45, n. 6 (Mich. 1994) (citation
omitted) (Absent “allegation and proof of tortious conduct existing outside of the breach,
exemplary damages may not be awarded in common-law actions brought for breach of a
commercial contract.”). “[E]xemplary damages in a contract case properly can be regarded
as serving a compensatory purpose where they are given as compensation for kinds of
harm that cannot easily be estimated in terms of money.”
24
Mathis v. Controlled
Temperature, Inc., 275323, 2008 WL 782634, at * (Mich.Ct.App. Mar. 25, 2008) (citation,
quotation marks, and insertions omitted).
But “[b]ecause exemplary damages are a sanction and not an independent cause of
action, the [c]ourt will not analyze [the plaintiff’s] claim for exemplary damages as a
separate cause of action.” Woodland, 2010 WL 2813339, at *1, n.3 (quoting Sneyd v.
International Paper Co. Inc., 142 F.Supp.2d 819, 822 (E.D.Mich. 2001)). The Court
therefore dismisses this ‘cause of action.’ See ” Zora v. Bank of Amer., 2012 WL 3779169,
at *3 (E.D.Mich. Aug. 31, 2012) (Battain, J.) (dismissing the exemplary damages claim
because “[e]xemplary damages are a remedy, [not] an independent cause of action.).
C. Defendant’s counterclaims
Plaintiff argues that summary judgment is appropriate on Defendant’s counterclaims.
(Pl.’s Mot. for Summ. J. at 16.) Defendant has alleged counterclaims of breach of contract,
fraud/promissory fraud in the inducement, negligent misrepresentation, money had and
received, unjust enrichment, exemplary damages, and attorneys’ fees.12 (Dkt. 24, Am.
Countercl.)
1. Breach of contract
For the reasons discussed above, the Court finds that genuine issues of material fact
exist whether Plaintiff or Defendant breached the contract.
2. Fraud/promissory fraud in the inducement
12
The Court does not discuss the exemplary damages, as it is not a cause of action.
The Court further does not discuss the attorneys’ fees ‘cause of action,’given that issues
of fact exist for trial.
25
Defendant has alleged a fraud in the inducement claim. Fraud in the inducement is
pre-contractual, and therefore the that claim may escape the Hart rule. See e.g. Braun
Builders, Inc. v. Kancherlapalli, 09-11534, 2010 WL 846482, at *6 (E.D.Mich. Mar. 5, 2010)
(Ludington, J.) (citation omitted).13
A party commits fraud in the inducement when it “materially misrepresents its future
conduct, reasonably expects [the other party] to rely on the misrepresentation, and [the
other party] does rely on the misrepresentation by taking a detrimental action [it] would not
otherwise have taken.” IF Properties, LLC v. Macatawa Bank Corp., 307554, 2012 WL
4799310, at *2 (Mich.Ct.App. Oct. 9, 2012) (citation omitted).
“A fraudulent
misrepresentation requires a . . . false representation, not a . . . subjective
misunderstanding of information that is not objectively false or misleading.” Id. Put another
way, “[f]raud in the inducement . . . addresses a situation where the claim is that one party
was tricked into contracting. It is based on pre-contractual conduct which is, under the law,
a recognized tort.” Huron Tool and Engineering Co. v. Precision Consulting Services, Inc.,
532 N.W.2d 542, 544 (Mich.Ct.App. 1995) (citation omitted).
Plaintiff argues that the evidence does not show that Defendant relied on any
representations as alleged in the amended counterclaim, arguing therefore that summary
13
A “narrow exception to this rule recognizes that an actionable tort can be based upon
a promise made without a present intention of performance, when the promise is given for
the purpose of deceiving the promisee and influence his conduct.” Future Now Enterprises,
Inc. v. Foster, 860 F.Supp.2d 420, 428 (E.D.Mich. 2012). (Lawson, J.) “For a fraud claim
to be viable based on a promise of future conduct, the party must have ‘at the time of the
promise, a then-existing bad faith intent to break the promise.” Id. (citations omitted).
Again, the Court notes that the Braun court is discussing the economic loss doctrine, but
again, the Court finds that similar principles apply to the Hart rule.
26
judgment is appropriate. (Pl.’s Mot. for Summ. J. ¶ 38.) Plaintiff states that Schwartz’s
testimony proves that Defendant did not rely on any representation when Defendant
entered into the Agreement with Plaintiff. (Id. ¶ 39.) Plaintiff additionally argues the fraud
statute of limitations would bar any misrepresentation that it may have made in 2001. The
Court agrees with Plaintiff. Plaintiff has pointed to a lack of evidence from Defendant for
Defendant to support its fraud in the inducement claim.
Plaintiff argues the following,
•
Mr. Schwartz identified the employees of Santander to which he credited the
alleged misrepresentations and, in response to a question asking if he had ever
spoken to any of those persons prior to entering into the parties’ Dealer
Agreement in 2001, Ms. Schwartz answered “No.”
•
Mr. Schwartz then testified that he had spoken with one or two employees of
Santander at the time of entering into the [] Agreement in 2001, but that they
made no misrepresentations at that time, stating, “Well, they turned to
misrepresentations later, but not at the time it [the 2001 Dealer Agreement] was
signed.”
At Schwartz’s deposition, the following exchange occurred:
Q: Okay. Now, this contract alleges that misrepresentations were made prior
to . . . the 2001 contract was signed. Can you tell me what those
misrepresentations were?
[Schwartz]: Well, they turned to misrepresentations later, but not at the time
it was signed.
Q: Okay. What were the misrepresentations that were later made or turned
out to be misrepresentations later?
A: Well, the staff of Drive, who met with me often, and after these two young
ladies left, then it - - I think his name was Josh was the next guy, and I have
since learned after all these depositions . . . that they all got paid on a
27
commission basis and their own interests were being served. I don’t think
Drive’s interests were being served nor mine. And their meetings they had
with me didn’t - - didn’t do what they promised to do. We continually went
over how we were performing and what’s happening, and they told me there
was no problems. [sic]
(Schwartz Dep. at 146-47.)
A: Okay. They told me there were no problems, we were one of the top
performers, and now I learn their whole income was based upon buying
deals, and I believe they were complacent and they - - they actually did
things that were improper by not protecting Drive, not protecting me, but
actually promoting these people into automobiles, they - - Drive was receiving
high fees, high interest rates, and they were buying people that were buying
into transportation at the time and they were knowingly that the business
practices were poor.
(Id. at 147.)
A: The misrepresentations were that they told me always that we were
performing well and there were no problems[.]
A: . . . . They also sat down there and on these automobiles, they didn’t do
their due diligence or they’re not doing it because they held interviews with
these people and they talked to every buyer prior to funding me, that at that
point they had an obligation to communicate to me if there was any difficulty,
they said there was none. (Id. at 148.)
(Id. at 147-48.)
Defendant argues that summary judgment is not appropriate. Defendant states that
Plaintiff “represented that it: offered a consistent approach to structuring its automobile
financing; processed the applications by its own evaluation system and models, and
provided field representatives to automobile dealers to facilitate the financing process;
would have systems, procedures, and qualified personnel reviewing, supervising and
28
guiding the financing for the dealers’ customers; it had policies and procedures in place to
verify and would verify customer information and vehicle information; and would only look
to the collateral for recoupment of its losses.” (Dkt. 130, Def.’s Resp. to Pl.’s Mot. for
Summ. J. ¶ 68.) Defendant maintains that it relied upon Plaintiff’s representations and
promises when it entered into the agreement. (Id.) Defendant then states, that, beginning
in 2006, Plaintiff began to “ignore its own procedures and failed to supervise personnel to
review transactions for missing equipment, and looked to [Defendant] instead of only the
collateral for recoupment.”
Defendant summarily states that Plaintiff committed the
elements of fraud. (Id.) Defendant then maintains that it would not have entered the
Agreement, had it known “the truth.” (Id.)
Here, Defendant’s fraud in the inducement claim fails because it has neither alleged
nor brought forth evidence of Plaintiff’s intent to induce Defendant into making the
Agreement and Defendant has not shown that it relied on any misrepresentations or that
it was induced, or ‘tricked’ into the Agreement. Defendant argues that the statements
Plaintiff’s representatives made became misrepresentations in later years. That statement
is not sufficient, standing alone, to support Defendant’s fraud in the inducement claim.
The Court grants Plaintiff’s motion for summary judgment with respect to Defendant’s
fraud claims and dismisses those claims from this suit.
3. Statute of limitations
Plaintiff alternatively argues that dismissal is appropriate for the fraud claims. Fraud
has a six year statute of limitations. Mich. Comp. Law § 600.5813. A plaintiff must,
therefore, bring a fraud claim within six years from when the fraud claim accrued. A fraud
29
action arises when the fraud is perpetrated. Cooper v. Auto Club Ins. Ass’n, 751 N.W.2d
443, 448 (Mich. 2008).
Plaintiff argues that any misrepresentations made in the 2001 Agreement would be
barred by the statute of limitations. (Pl.’s Mot. for Summ. J. ¶ 40.) The Court agrees and
finds dismissal on this ground appropriate as well.
4. Negligent misrepresentation
“A claim for negligent misrepresentation requires [a] plaintiff to prove that a party
justifiably relied to his detriment on information prepared without reasonable care by one
who owed the relying party a duty of care.” Alfieri v. Bertorelli, 813 N.W.2d 772, 775
(Mich.Ct.App. 2012) (citation omitted).
“[N]egligent misrepresentation [] require[s] a
defendant to owe a duty to the plaintiff.” Id. “[A] duty of disclosure may be imposed on a
seller’s agent to disclose newly acquired information that is recognized by the agent as
rendering a prior affirmative statement untrue or misleading.” Id. (citation omitted). “This
is especially true when the agent knows that the buyer has a particular concern with the
subject matter of that statement.” Id. at 775-76 (citation omitted). “Indeed, a duty to
disclose may arise solely because ‘the buyers express a particularized concern or directly
inquire of the seller[.]” Id. at 776 (citation omitted).
Plaintiff argues that Defendant’s negligent misrepresentation claim fails as a matter
of law because Defendant cannot show that Plaintiff owed a special duty, a fiduciary
relationship, or any type of relationship that would give rise to the kind of “duty of care”
necessary to support a claim of negligent misrepresentation. (Pl.’s Mot. for Summ. J. ¶ 41.)
Plaintiff suggests that there is “no evidence” that Plaintiff made any “false statements,
30
negligent or otherwise, of verifiable facts as opposed to statements of opinion or promises
of future conduct.” (Id.)
In its response, Defendant conflates its fraud, fraud in the inducement, and negligent
misrepresentation claims. (Def.’s Resp. at 24.) Defendant states, in a conclusory fashion,
that it relied on misrepresentations in entering into and continuing the Agreement. (Id.)
Defendant then states that Plaintiff, in 2006, “began to ignore” the Agreement and the
representations made in it. (Id.) Defendant adds that it “would not have entered into the
[] Agreement, done business or [continued] to do business with [Plaintiff] had it known the
truth.” (Id.)
The Court finds that Defendant’s statements are not sufficient to support a fraud or
a negligent misrepresentation claim. But regardless of the parties’ arguments, the Court
finds that the rule of Hart prohibits the negligent misrepresentation claim. See Irwin Seating
Co. v. International Bus. Mach. Corp., 306 F. App’x 239 (6th Cir. 2009) (affirming the trial
court’s dismissal of a negligent misrepresentation claim on the basis that the economic loss
doctrine prohibited the claim.). Here, the negligent misrepresentation claim would not exist,
save for the Agreement. The only appropriate avenue of recourse, therefore, is the breach
of contract claim. And while the Court notes Defendant’s statement that it would have not
entered into the Agreement “had it known” the Court also notes that “[i]n virtually every
contract case involving allegations of fraud, the plaintiff asserts that it would have
demanded different terms or refused to sign the contract but for the defendant’s
misrepresentations. Such a showing is insufficient to avoid the economic loss doctrine.”
Woodland Harvesting, Inc. v. George Pac. Corp., 09-10736, 2010 WL 2813339, at *10
31
(E.D.Mich. July 14, 2010) (Cohn, J.).
The Court therefore dismisses the negligent
misrepresentation claim.14
3. Money had and received/unjust enrichment15
For Defendant to succeed on its unjust enrichment claim, it must prove: “(1) receipt
of a benefit by [Plaintiff] from [Defendant] and (2) an inequity resulting to [Defendant]
because of the retention of the benefit by [Plaintiff].” J&J Plumbing & Heating, LLC v. Tate,
277824, 279838, 2008 WL 4891807, at *4 (Mich. Ct. App. Nov. 13, 2008) (citation omitted).
With its fifth and sixth counterclaims, Defendant alleges that it “provided a series of
payments for alleged deficiencies in options and accessories for automobiles it
repossessed.” (Am. Countercl. ¶ 36.) Defendant states that Plaintiff did not provide
verification or authentication for the sums demanded. (Id.) Defendant then states that it
paid and Plaintiff received those payments “with the knowledge that said payments were
not called for or appropriate.” (Id.) Defendant continues, “Plaintiff took possession of the
funds knowing the monies were not rightfully [Plaintiff’s.]” (Id.) The unjust enrichment claim
does mirror the money had and received claim–Defendant alleges that Plaintiff received
the benefits of the monies paid and the failure to return the monies in unjust, to the
14
To the extent that Defendant asserts an ordinary fraud claim, the Court finds that the
rule of Hart bars that claim as well. Again, the Court finds the economic loss doctrine
cases applicable here. The Court has reviewed the Agreement and finds that the tort
claims alleged, save for the fraud in the inducement claim, would not exist save for the
Agreement. Hart bars the tort claims. Recovery is solely as provided for in the Agreement.
15
The Court has already addressed how the unjust enrichment and money had and
received claims mirror each other and how neither party has addressed whether money
had and received is a viable claim in Michigan. See Dkt. 22, March 29, 2011Order at 10,
n. 3.
32
detriment of Defendant. (Id. ¶ 39.)
Plaintiff alleges that Defendant’s fifth and sixth counterclaims are basically the same
claim–that Plaintiff made demand upon Defendant because of missing options on vehicles
and that Plaintiff settled those demands through settlement payments. (Pl.’s Mot. for
Summ. J. ¶ 42.) Plaintiff alleges that these accords and satisfactions cannot be undone,
and therefore that these two claims cannot survive summary judgment. (Id. ¶ 44.)
Defendant argues that it can prove these two claims. (Def.’s Resp. to Pl.’s Mot. for
Summ. J. ¶ 69.) Defendant maintains that Plaintiff demanded “approximately $248,470"
from Defendant through “extortion-type tactics.” (Id.) Defendant states that Plaintiff’s
“efforts to seek damages from [Defendant] for [Plaintiff’s] bad loans is improper and outside
of the agreement.” (Id.) Defendant ends with, “[Defendant] paid and [Plaintiff] received
payments from [Defendant] with the knowledge that said payments were not legitimate or
appropriate.” (Id.)
Schwartz stated that Defendant’s request for relief, the $248,470.00, represented
payments to Plaintiff for missing options or misrepresentations, is improper. (Id. at 176-77.)
Schwartz stated that he was asking for the money back because he believed it should not
have been paid. (Id. at 177.) He stated that he believed so because Defendant did not
have a chance to look at the cars and buy back the cars as he states the contract entitled
him to. (Id.) He said that he believed he was held hostage to make the demand payments.
(Id.) Schwartz added that Plaintiff told him that it had “interviewed customers before paying
[Plaintiff] for [the] contract, and [Plaintiff] held up [the] contract sometimes because
[Plaintiff] couldn’t get in touch with the customers[.]” (Id. at 181.)
33
The Court agrees with Plaintiff. As Plaintiff has pointed out:
An accord and satisfaction is a separate and new contract that operates to
discharge or terminate an existing debt. The prior debt is discharged by a
performance different from that which is claimed as due, and acceptance of
such substituted performance. Once tender has been made in 'accord' . . .
consideration has been exchanged and the agreement cannot be rescinded.
Larremore v. Metropolitan Life Ins. Co., 02-10153, 2003 WL 21488690, at *3 (E.D.Mich.
June 23, 2003) (Lawson, J.) (all quotation marks and citations omitted).
"Generally,
rescission of a contract will not lie except for mutual mistake or unilateral mistake induced
by fraud." Smart v. Nationwide Mut. Ins. Co., 2007 WL 1452029, at *3 (MIch.Ct.App. May
17, 2007) (citation omitted).
The Court finds that Plaintiff is entitled to summary judgment on this counter-claim.
Defendant has not brought forth evidence of mutual mistake or unilateral mistake induced
by fraud. Save for making the conclusory statement that Plaintiff demanded the payments
in an 'extortion-like' manner, Defendant has not brought forth any evidence to these
payments were not accords and satisfactions. Plaintiff is entitled to summary judgment on
this claim.
IV.
Conclusion
For the above-stated reasons, the Court grants Plaintiff and Defendant’s motions
for summary judgment with respect to all the fraud claims alleged and Defendant's
unjust enrichment/money had and received claim. The only claims that go forth are the
breach of contract claims against each other.
34
s/Nancy G. Edmunds
Nancy G. Edmunds
United States District Judge
Dated: January 2, 2013
I hereby certify that a copy of the foregoing document was served upon counsel of
record on January 2, 2013, by electronic and/or ordinary mail.
s/Carol A. Hemeyer
Case Manager
35
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