Wallace Sales & Consulting, LLC v. Tuopu North America, Limited
Filing
50
OPINION AND ORDER GRANTING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT 38 . Signed by District Judge Gershwin A. Drain. (TBan)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
WALLACE SALES & CONSULTING, LLC,
Case No. 15-cv-10748
Plaintiff/Counter Defendant,
UNITED STATES DISTRICT COURT JUDGE
GERSHWIN A. DRAIN
v.
TUOPU NORTH AMERICA, LIMITED,
UNITED STATES MAGISTRATE JUDGE
DAVID R. GRAND
Defendant/Counter Claimant.
/
OPINION AND ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY
JUDGMENT [38]
I. INTRODUCTION
On March 2, 2015, Wallace Sales & Consulting, LLC (“Plaintiff”) filed a
Complaint and Demand for Trial by Jury against Tuopu North America, Limited
(“Defendant”), alleging breach of contract and seeking a declaratory judgment. See
Dkt. No. 1. Plaintiff amended its Complaint on August 28, 2015 and added an
additional count, alleging violation of Michigan’s Sales Representatives
Commission Act (SRCA), MICH. COMP LAWS § 600.2961. See Dkt. No. 28, p. 5
(Pg. ID No. 547).
Presently before the Court is Defendant’s Motion for Partial Summary
Judgment [38], addressing Plaintiff’s SRCA claim. The matter is fully briefed and
a hearing was held on April 11, 2016.
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For the reasons discussed herein, the Court will GRANT Defendant’s
Motion for Partial Summary Judgment [38].
II. BACKGROUND
Plaintiff is a Michigan limited liability company with its principal place of
business located in Brownstown, Michigan. Plaintiff is a sales representative firm
in the automotive industry, whose sole member is James Wallace (“Wallace”).
Defendant is an Ontario, Canada corporation with its principal place of business
located Pickering, Ontario. Defendant is a subsidiary of Ningbo Tuopu Group Co.,
Ltd., a Chinese manufacturing conglomerate, and functions as the North American
supplier of Ningbo Tuopu’s automotive suspension parts.
Defendant first retained Plaintiff as its sales representative pursuant to a
written agreement in 2007. Plaintiff primarily called on Chrysler, LLC at its
headquarters in Auburn Hills, Michigan, soliciting orders for Defendant’s products
to be shipped to Chrysler plants and Chrysler’s tiered suppliers located in Mexico,
Canada, and the United States. Plaintiff alleges that its success in procuring
business for Defendant helped Defendant’s annual sales reach $35 million by
2011.
In December 2011, the Plaintiff and Defendant executed a new written
Manufacturer’s Representative Agreement (hereinafter “the Agreement”), under
which Plaintiff served as an independent manufacturer’s representative. The
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Agreement became effective on January 1, 2012. Wallace signed the Agreement on
December 30, 2011 and specifically initialed each page of the Agreement.
The Agreement included detailed provisions governing the sales
commissions that Defendant would be required to pay to Plaintiff in the event of
termination, which varied based upon whether Plaintiff’s termination was “without
cause” or “for cause.” If Defendant terminated Plaintiff “without cause,” it was
required to continue paying sales commissions to Plaintiff on all sales for which an
order or quotation was received prior to December 31, 2014. However, if
Defendant terminated Plaintiff “for cause,” it was only required to pay Plaintiff
commissions on parts shipped during the one-month period following the effective
termination date.
Additionally, the Agreement specified that any disputes related to the
Agreement may be brought in Ontario, Canada and shall be governed solely by
Ontario, Canada law:
17.2 Selection of Forum and Choice of Law. This Agreement shall
be interpreted solely in accordance with, and it shall in all respects be
governed by, the law of the Province of Ontario, including laws or
rules of court regarding the service of process. The parties expressly
consent to the jurisdiction of the courts of the Province of Ontario, in
any action to enforce or interpret the terms of this Agreement.
The parties’ allegations diverge as to the quality of Plaintiff’s work for
Defendant. Plaintiff asserts that by 2014, the orders it procured were resulting in
sales of approximately $39 million per year, with the expectation that sales would
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increase to over $50 million for 2016, 2017, and 2018. Conversely, Defendant
alleges that the parties’ working relationship was problematic, due to Plaintiff’s
failure to work well with Defendant’s staff. Defendant’s president made the
decision to terminate Plaintiff in October 2013, but waited until finding a
replacement to officially terminate Plaintiff.
On July 11, 2014, Defendant sent Plaintiff notice of termination, effective
immediately. The termination notice stated that the “termination is due to financial
reasons and is without cause.” Additionally, the letter provided that Defendant
would pay Plaintiff sales commissions through December 31, 2014.
Plaintiff filed the original Complaint in the present suit on March 2, 2015,
claiming breach of contract and seeking a declaratory judgment. See Dkt. No. 1.
On July 14, 2015, Plaintiff filed a motion for leave to amend its complaint, adding
a count alleging a violation of SRCA, to which Defendant objected. See Dkt. No.
16. On August 28, 2015 this Court granted Plaintiff’s motion for leave to amend its
complaint. Dkt. No. 27.
III. LEGAL STANDARD
Federal Rule of Civil Procedure 56(c) “directs that summary judgment shall
be granted if ‘there is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.’ ” Cehrs v. Ne. Ohio Alzheimer’s
Research Ctr., 155 F.3d 775, 779 (6th Cir. 1998). The court must view the facts,
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and draw reasonable inferences from those facts, in the light most favorable to the
non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). No
genuine dispute of material fact exists where the record “taken as a whole could
not lead a rational trier of fact to find for the non-moving party.” Matsushita Elec.
Indus., Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Ultimately, the court
evaluates “whether the evidence presents a sufficient disagreement to require
submission to a jury or whether it is so one-sided that one party must prevail as a
matter of law.” Anderson, 477 U.S. at 251–52.
IV. DISCUSSION
On August 28, 2015, the Court issued an Opinion and Order granting
Plaintiff’s Motion for Leave to File a First Amended Complaint. Dkt. No. 27. The
parties agreed that Ontario law applies to the contract as a whole, but maintained
opposing views as to whether Plaintiff should be allowed to add a third claim for a
violation of SRCA, which does not exist under the law of Ontario. At that time,
given the lenient standards for granting leave of court, the Court allowed the claim
to be added. See Foman v. Davis, 371 U.S. 178, 182 (1962) (“Rule 15(a) declares
that leave to amend ‘shall be freely given when justice so requires’; this mandate is
to be heeded.”). The question is now before the Court again, subject to the standard
governing summary judgment.
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A. Choice of Law Principles
The determination of whether Plaintiff’s SRCA claim may proceed past
summary judgment hinges on whether Ontario or Michigan law applies to this
specific claim. A federal court whose jurisdiction is based on diversity of
citizenship applies the choice-of-law rules of the forum state. Klaxon Co. v. Stentor
Elec. Mfg. Co., 313 U.S. 487, 496 (1941). In this case, the forum state is Michigan,
whose courts have adopted §§ 187 and 188 of the Restatement (Second) of
Conflict of Laws. Chrysler Corp. v. Skyline Indus. Servs., Inc., 448 Mich. 113,
120, 528 N.W.2d 698, 701 (1995).
The “[p]rime objectives of contract law are to protect the justified
expectations of the parties and to make it possible for them to foretell with
accuracy what will be their rights and liabilities under the contract.” Id. at 125, 703
(quoting RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187 comment e (1971)).
Nevertheless, “fulfillment of the parties’ expectations is not the only value in
contract law; regard must also be had for state interests and for state regulation.”
Id. (quoting RESTATEMENT (SECOND)
OF
CONFLICT
OF
LAWS § 187 comment g
(1971)).
Section 187(2) of the Restatement (Second) of Conflict of Laws provides:
The law of the state chosen by the parties to govern their contractual
rights and duties will be applied, even if the particular issue is one
which the parties could not have resolved by an explicit provision in
their agreement directed to that issue, unless either
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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 (SECOND)
OF
CONFLICT
OF
LAWS § 187(2) (1971). Courts are to
“move cautiously when asked to hold contract clauses unenforceable on public
policy grounds.” Banek Inc. v. Yogurt Ventures U.S.A., Inc., 6 F.3d 357, 362 (6th
Cir. 1993) (quoting Moses v. Business Card Express, Inc., 929 F.2d 1131, 1139
(6th Cir.), cert. denied, 502 U.S. 821 (1991)).
Where there has not been an effective choice of law, Michigan’s choice of
law rules “require a court to balance the expectations of the parties to a contract
with the interests of the states involved to determine which state’s law to apply.”
Mill’s Pride, Inc. v. Cont’l Ins. Co., 300 F.3d 701, 705 (6th Cir. 2002).
B. Count 3: Violation of Michigan Sales Representatives Act
The purpose of the SRCA is “to ensure that sales representatives in
Michigan are paid the full commissions to which they are entitled.” HowtingRobinson Assocs., Inc. v. Bryan Custom Plastics, 65 F.Supp.2d 610, 613 (E.D.
Mich. 1999) (citing Walters v. Bloomfield Hills Furniture, 228 Mich. App. 160,
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577 N.W.2d 206 (1998)). Defendant argues that this claim fails because Ontario
law applies to the parties’ contract, due to the agreement’s choice-of-law provision.
Plaintiff responds that Michigan law should apply to its SRCA claim, because
applying Ontario law would abrogate a fundamental policy of the State of
Michigan.
1. Divergent Precedent
Each party has cited cases in support of their arguments for which law
should apply to Plaintiff’s SRCA claim. Defendant relies on Johnson v. Ventra
Grp., Inc., 191 F.3d 732 (6th Cir. 1999), and Milne v. Accurcast, Inc., No. 0813643, 2010 WL 374176 (E.D. Mich. Jan. 25, 2010), in support of its argument
that the Court should not allow a claim for SRCA to proceed when all other
elements of the Agreement are governed by Ontario law. In Johnson, the Sixth
Circuit determined that a plaintiff could not bring a SRCA claim against his
employer’s successors because Ontario law governed the case and because SRCA
was not enacted until four years after the plaintiff was terminated. 191 F.3d at 749.
In Milne, Judge Battani found that Ontario had a substantial relationship to the
parties and transaction and that Michigan did not have a materially greater interest
than Ontario in the outcome of the suit, compared to Ontario. Id. at *6. See also
David Eng’g Co. v. Morbern Inc., No. 11-12615, 2012 WL 3109919, at *3 (E.D.
Mich. July 31, 2012) (noting that in a prior order, the court enforced the Ontario
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choice of law provision and dismissed the plaintiff’s SRCA claim under Ontario
law).
Plaintiff relies on Howting–Robinson Assocs., Inc. v. Bryan Custom Plastics,
65 F.Supp.2d 610 (E.D. Mich. 1999),1 in support of its argument that the Court
should allow Plaintiff to bring its SRCA claim, because to hold otherwise would be
against the fundamental policies of the State of Michigan. In Howting–Robinson,
the court allowed the SRCA claim to proceed, finding that “Ohio ha[d] a far less
substantial relationship to the contract” and that applying Ohio law would violate
“a specific legislatively expressed public policy of the State of Michigan and
therefore should not be enforced.” 65 F. Supp. 2d at 613 (noting that the place of
performance and location of the subject matter was Michigan, and that negotiation
and execution of the contract took place in Michigan).
Other recent cases have also analyzed Michigan’s interest and relationship to
the parties in SRCA choice-of-law disputes. See, e.g., Trilogy Mktg., Inc. v.
Memsic, Inc., No. 12-13967, 2014 WL 4265788 (E.D. Mich. Aug. 29, 2014)
(finding Michigan did not have a more substantial relationship to the parties than
their contractual choice of Massachusetts, due to reliance on Michigan’s “strong
1
Some have commented that Howting–Robinson may have misapplied the
language of Restatement § 187(2)(a). See Morrison v. Unum Life Ins. Co. of Am.,
730 F. Supp. 2d 699, 705 (E.D. Mich. 2010) (criticizing Howting–Robinson for
lowering the § 187(1) standard from “no substantial relationship” to a comparative
standard of “far less substantial relationship”).
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public policy preference for the enforcement of contractual choice-of-law
provisions,” and the plaintiff’s delay in raising the argument); Volunteer Energy
Servs., Inc. v. Option Energy, LLC, No. 1:11-CV-554, 2012 WL 3545283, at *9
(W.D. Mich. Aug. 16, 2012),2 aff’d sub nom. Volunteer Energy Servs., Inc. v.
Option Energy, LLC, 579 F. App’x 319 (6th Cir. 2014) (“The Court is satisfied that
the Michigan SRCA does embody Michigan public policy, and that in light of the
fact that the Agent Agreement was negotiated and made in Michigan and covered
services that a Michigan sales representative was to perform exclusively in
Michigan, failing to offer the protections of the SRCA would violate Michigan
public policy.”).
2. Application of Restatement Sections 187 and 188
Accordingly, the Court will evaluate whether Ontario or Michigan law
should be applied to Plaintiff’s SRCA claim based on the principles of §§ 187 and
188 of the Restatement (Second) of Conflict of Laws. In Michigan, “[t]he law of
the state chosen by the parties to govern their contractual rights and duties will be
applied,” unless either (a) “the chosen state has no substantial relationship to the
parties or the transaction and there is no other reasonable basis for the parties’
2
Despite determining that failing to offer the protections of the SRCA would
violate Michigan’s public policy, Volunteer Energy determined that applying Ohio
law would not be contrary to Michigan policy because Ohio had enacted a statute
similar to Michigan’s SRCA. 2012 WL 3545283, at *9.
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choice,” or (b) the application of the chosen state’s law would be contrary to a
fundamental policy of a state (i) with a materially greater interest than the chosen
state in the determination of the issue and (ii) whose law would be applicable in the
absence of an effective choice of law by the parties. RESTATEMENT (SECOND)
OF
CONFLICT OF LAWS § 187 (1971); Hudson v. Mathers, 283 Mich. App. 91, 96–97,
770 N.W.2d 883 (2009).
In the present case, it is clear that the law contracted to under the
Agreement—Ontario law—would apply under the “substantial relationship” prong
of § 187(2)(a). The Agreement explicitly states that the parties have agreed that
Ontario law applied to any disputes that arose under the agreement. Plaintiff
already agreed that “Ontario clearly has a substantial connection to the parties and
the transaction, as Defendant is an Ontario corporation with its principal place of
business located in Ontario.” Dkt. No. 9, p. 18 (Pg. ID No. 120). Since Ontario is
where Defendant is located and where all orders are placed and accepted, there is
more than a reasonable basis for the parties to have chosen Ontario law. See Dkt.
No. 38, p. 17 (Pg. ID No. 612).
Consequently, if Michigan law is to apply to Plaintiff’s SRCA claim, then
the exception under § 187(2)(b) must apply. This requires both (1) that Michigan
has a materially greater interest than Ontario in the determination of the issue; and
(2) that the application of Ontario’s law is contrary to a fundamental policy of
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Michigan, whose law would otherwise apply under the rule of § 188. See
RESTATEMENT (SECOND)
OF
CONFLICT
OF
LAWS § 187(2)(b) (1971). Section 188
directs the Court to look at the following factors: (a) the place of contracting,
(b) the place of negotiation of the contract, (c) the place of performance, (d) the
location of the subject matter of the contract, and (e) the domicile, residence,
nationality, place of incorporation and place of business of the parties. Id. at § 188.
Here, Plaintiff’s counsel noted at the hearing that the place of contracting is
a neutral factor, because the contracting occurred over email in both Michigan and
Ontario. See also Dkt. No. 38-5, pp. 2–4 (Pg. ID No. 637–39). The place of
negotiation would also be neutral, as the parties were reported to have negotiated
over email in Ontario and in Michigan.
Next, the Court looks to the place of performance3 and the location of the
subject matter of the contract. Although Plaintiff asserts it primarily called on
automotive customers in Southeast Michigan, Dkt. No. 44, p. 19 (Pg. ID No. 687),
the place of performance for Plaintiff’s duties under the contract is the entirety of
3
The Court will not place an undue focus on the place of performance, because
such a dominate focus on this factor has been viewed skeptically under Michigan
law when the parties previously agreed to a choice-of-law provision. See Chrysler,
448 Mich. at 127–28, 528 N.W.2d at 704 (“It is questionable whether Illinois has a
greater interest in reaching into the contractual arrangements of out-of-state
companies when those companies have negotiated an agreement in their own state
concerning the relative liability obligations between them.”); Performance
Contracting Inc. v. DynaSteel Corp., 750 F.3d 608, 619 (6th Cir. 2014) (White, J.,
concurring in part) (noting that Chrysler presented “a strong indication that
Michigan courts would honor the parties’ choice of . . . law.”).
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North America, which would include Mexico, the United States, and Canada. Dkt.
No. 38-2, p. 9 (Pg. ID No. 626). Defendant’s alleged breach of its duties under the
contract occurred in Ontario. Dkt. No. 38, pp. 17–18 (Pg. ID No. 612–13). Plaintiff
served as a sales agent for all of North America, with a primary focus on Michigan,
and all of the orders that gave rise to Plaintiff’s commissions were required to be
placed with and accepted by Defendant in Ontario. Id. Invoices and payments for
the orders were received by Defendant in Ontario, and orders for customers were
filled in Ontario. Id. Additionally, Defendant issued commission checks to Plaintiff
from Ontario. Id.
Finally, the Court looks to the location of the parties. Plaintiff is a Michigan
limited liability company with its principal place of business located in
Brownstown, Michigan. Defendant is an Ontario, Canada corporation with its
principal place of business located Pickering, Ontario. Thus, under the factors
listed in § 188, it does not appear that Michigan would be the “state of the
applicable law in the absence of an effective choice of law by the parties.” See
RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187(2)(b) (1971); Ventra Grp.,
191 F.3d at 741 (finding Ontario law governed under a § 188 analysis where the
employer and its successors were Ontario corporations, the contract was negotiated
and signed in Ontario, and the alleged breach occurred in Ontario, despite the
plaintiff’s residence and performance in Michigan).
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With regard to Michigan’s policy interest in this issue, the state has an
interest in “ensur[ing] that sales representatives in Michigan are paid the full
commissions to which they are entitled, especially when those commissions fall
due after the termination of the employment relationship.” Howting-Robinson, 65
F. Supp. 2d at 613. However, Michigan also has “a strong public policy preference
for the enforcement of contractual choice-of-law provisions.” Trilogy Mktg., 2014
WL 4265788, at *8 (citing Turcheck v. Amerifund Fin., Inc., 272 Mich. App. 341,
345, 725 N.W.2d 684, 688 (2006) (“It is undisputed that Michigan’s public policy
favors the enforcement of contractual forum-selection clauses and choice-of-law
provisions.”)).
As previously noted, the choice-of-law provision was individually
negotiated between the parties. Plaintiff wrote, in an email about the provision:
“The term of law is only an issues [sic] if a law suit [sic] is required and the person
bring [sic] the suit. Based on previous track record this does not matter anyway.”
Dkt. No. 38-5, p. 4 (Pg. ID No. 639). After receiving modifications to the contract,
including an increase in commission from 1% to 3%, Plaintiff stated “I can agree
to this contract.” Id. at 2. The Agreement was the result of bargaining between the
parties, and it is noted that Plaintiff successfully negotiated multiple changes in the
contract in its favor. The Court is hesitant to hold the choice-of-law provision
inapplicable to Plaintiff’s SRCA claim on public policy grounds, when it would
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mean providing Plaintiff with more than he bargained for. See Banek, 6 F.3d at 361
n.2 (“We are hesitant to void the choice of law provision because that would mean
Banek would be getting more than it bargained for.”); Trilogy Mktg, 2014 WL
4265788, at *8 (“Plaintiff agreed to the selection of Massachusetts law at its own
risk, and buyer’s remorse does not give it the ability to argue otherwise.”).
Based on the facts presented to the Court, it does not appear that Michigan
has a materially greater interest than Ontario in the determination of this issue.
Michigan’s strong preference for enforcing contractual choice-of-law provisions,
such as the one that was specifically negotiated here, must be balanced against
Michigan’s interest in ensuring its sales representatives are paid the full
commission to which they are entitled. In balancing those two interests with regard
to the present case, the Court finds that applying Ontario’s law, which would
otherwise apply under § 188, is the best way to “protect the justified expectations
of the parties and to make it possible for them to foretell with accuracy what will
be their rights and liabilities under the contract.” See RESTATEMENT (SECOND) OF
CONFLICT OF LAWS § 187 comment e (1971).
A finding that Michigan does not have a materially greater interest than
Ontario is in line with similar cases in the Eastern District of Michigan. For
instance, in Milne, the court did not find that Michigan had a materially greater
interest than Ontario, even though the plaintiff was a Michigan resident who
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performed the majority of his work from his office in Michigan. 2010 WL 374176,
at *6. The Milne court found that Ontario had the greater interest because the
defendant was located in Ontario, made the decision to terminate the plaintiff in
Ontario, all orders secured by the plaintiff were received and fulfilled in Ontario,
and payment for orders were directed to the defendant in Ontario. Id. Additionally,
the court considered that the plaintiff was not hired to solely do work within
Michigan. Id.
Restatement commentary counsels that a forum should “not refrain from
applying the chosen law merely because this would lead to a different result than
would be obtained under the local law of the state of the otherwise applicable law.”
RESTATEMENT (SECOND)
OF
CONFLICT
OF
LAWS § 187 comment g (1971). Thus,
although application of Ontario law abrogates a fundamental policy of Michigan
law, that alone is not enough to override the parties’ choice of law where
Michigan’s law would not otherwise apply under § 188 and Michigan does not
have a materially greater interest than that of Ontario. See id. at § 187(b)(2).
V. CONCLUSION
For the reasons stated herein, the Court will GRANT Defendant’s Motion
for Partial Summary Judgment [38]. Count III of Plaintiff’s Amended Complaint is
dismissed.
IT IS SO ORDERED.
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Dated:
April 12, 2016
/s/Gershwin A Drain
HON. GERSHWIN A. DRAIN
United States District Court Judge
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