Forja Y Macquinados, S.A. de C.V. et al v. Mectron Engineering Company, Inc.
Filing
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ORDER granting in part and denying in part 19 Motion for Summary Judgment - Signed by District Judge Nancy G. Edmunds. (LBar)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
FORJAS Y MACQUINADOS, S.A.
De C.V. and VIRTEL S.A. de C.V.,
foreign corporations,
Case No. 17-10415
Honorable Nancy G. Edmunds
Plaintiffs,
v.
MECTRON ENGINEERING
COMPANY, INC., a domestic
corporation
Defendant.
/
ORDER AND OPINION GRANTING IN PART AND DENYING IN PART
DEFENDANT’S MOTION FOR SUMMARY JUDGMENT [19]
Pending before the Court is Defendant Mectron Engineering Company’s motion
for summary judgment. (ECF No. 19.) Plaintiffs oppose the motion. On January 19, 2018,
the Court held a hearing in connection with Defendant’s motion. For the reasons set forth
below, the Court GRANTS IN PART and DENIES IN PART the motion.
I.
Background
Plaintiffs are members of a joint venture that manufacturers various knurled
products, such as nuts, used in the manufacturing of automobiles.
manufactures high speed inspection systems.
Defendant
This dispute arises out of Plaintiffs'
purchase of an HSN100 inspection machine from Defendant for the purpose of inspecting
the presence of “thread” or “no thread” in certain products manufactured by Plaintiffs.
In January 2015, Plaintiffs' representatives contacted Defendant about purchasing
an inspection machine for the purpose of inspecting and sorting a particular nut
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manufactured by Plaintiffs for sale to Nissan for use in Nissan’s vehicles. This product is
referred to by the parties as the “Nissan Nut.” Plaintiffs told Defendant that they were
having a problem with the Nissan Nut such that customers were receiving pieces without
thread and that a visual inspection was not able to remedy the situation.
Defendant told Plaintiffs that it could probably provide a solution for its Nissan Nut
inspection problem. In February 2015, Defendant presented Plaintiffs with a proposal
(referred to by the parties as “Proposal A”) which provided for the purchase of a HSN100
inspection machine capable of inspecting the Nissan Nut. The HSN100 described in
Proposal A included one nut feeding bowl and one camera. The cost of the HSN100
described in Proposal A was $76,420.
In August 2015, at Plaintiffs’ request, Defendant submitted a revised proposal
(“Proposal B”) to accommodate the manufacture and purchase of a HSN100 capable of
sorting and inspecting the Nissan Nut and several of Plaintiffs’ other products.1 Proposal
B included line items for an additional feeding bowl and two additional cameras which
were necessary to enable the HSN100 to inspect the Nissan Nut and Plaintiffs’ additional
products. The cost of the HSN100 described in Proposal B was $147,320, nearly
double the cost of Proposal A. While it is clear from the record that the HSN100
agreed to in Proposal B was supposed to be capable of inspecting up to eight of Plaintiffs’
other products, it is not clear which specific additional products were actually agreed to
be incorporated into the HSN100. This is because Proposal B does not expressly identify
the products that will be inspected by the HSN100. Instead Proposal B states that after
1
While Proposal B is not signed by Plaintiffs, the parties agree that Proposal B reflects the operative agreement
between them.
2
Plaintiffs delivered samples of its products to Defendant for testing, Defendant will tell
Plaintiffs which products will work on the HSN100.
From August 2015 through approximately March 2015, Defendant worked on
completing the HSN100 for Plaintiffs. In April 2016, the HSN100 arrived at Plaintiffs’
facility in Mexico.
Plaintiffs allege that they began experiencing problems with the
HSN100 from the time it arrived at their facility. According to Plaintiffs, the HSN100 never
fully performed as promised, and, in January 2017, completely stopped working. Plaintiffs
claim that because Defendant was unable or failed to repair or replace the HSN100, and
did not respond to Plaintiffs’ requests for a refund, Plaintiffs filed this lawsuit asserting
claims for breach of contract, breach of warranty, fraud, fraudulent inducement, and fraud
by omission. Plaintiffs allege that the HSN100 never actually performed as represented
by Defendant, and even when it did work, it was only capable of inspecting the Nissan
Nut and could not inspect any of Plaintiffs’ other products as required by Proposal B.
Plaintiffs seek to rescind their agreement and recover damages from Defendant, including
lost profit damages, consequential damages, and exemplary damages.
Defendant moves for summary judgment arguing that no genuine issues of
material fact exist as to Plaintiffs’ claims. Defendant contends the summary judgment
evidence conclusively demonstrates that it satisfied all of its contractual obligations, and
that any issues with the HSN100 were caused by Plaintiffs’ own failures—such as the
failure to properly clean the machine or the failure to adequately train its employees to
use the machine. Defendant further argues that Plaintiffs’ claims are barred by the limited
warranties, limited remedy of “repair or replace”, and limitations of damages provision
contained in the parties’ contract. Finally, Defendant argues that Plaintiffs’ fraud based
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claims, including its claim for fraudulent inducement, are barred by the economic loss
doctrine.2 Plaintiffs oppose the motion and argue there are several issues of fact that
preclude summary judgment.3
II.
Summary Judgment Standard
“Summary judgment is proper only if the moving party shows that the record does
not reveal a ‘genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.’” Benison v. Ross, 765 F.3d 649, 658 (6th Cir.2014) (quoting FED. R.
CIV. P. 56(a)). A genuine issue of material fact exists when there are “disputes over facts
that might affect the outcome of the suit under the governing law.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). But “[w]here the
record taken as a whole could not lead a rational trier of fact to find for the non-moving
party, there is no genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (internal quotation
marks omitted) (citing First Nat. Bank of Ariz. v. Cities Servs. Co., 391 U.S. 253, 289, 88
S.Ct. 1575, 20 L.Ed.2d 569 (1968)).
This Court has subject matter over this dispute on diversity grounds. (See ECF No.
1.) “[F]ederal courts sitting in diversity ‘apply state substantive law and federal procedural
law.’” Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393, 417, 130
S.Ct. 1431, 176 L.Ed.2d 311 (2010) (quoting Hanna v. Plumer, 380 U.S. 460, 465, 85
S.Ct. 1136, 14 L.Ed.2d 8 (1965)). When deciding issues of substantive law, this Court
2
Plaintiffs concede that their fraud based claims other than their fraudulent inducement claim (counts IV and V) are
barred by the economic loss rule. Summary judgment is therefore granted as to these claims.
3
In their response brief, Plaintiffs argue that the evidence actually establishes that they are entitled to summary
judgment as a matter of law on their breach of contract claim and request that the Court grant judgment in their
favor. Plaintiffs have not actually moved for summary judgment. But even if they had, as discussed below, genuine
issues of material fact preclude summary judgment in Plaintiffs’ favor on their breach of contract claim.
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must apply the law of the state's highest court. Saab Auto. AB v. Gen. Motors Co., 770
F.3d 436, 440 (6th Cir.2014). If the state's highest court has not decided the applicable
law, the state law must be ascertained “‘from all relevant data,’ which includes the state's
appellate court decisions.” Id. (quoting Garden City Osteopathic Hosp. v. HBE Corp., 55
F.3d 1126, 1130 (6th Cir.1995)).
III.
Analysis
A. Plaintiffs’ breach of contract and breach of warranty claims
“Under Michigan law, the elements of a breach of contract claim are: (1) the
existence of a 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.” Burton v. William Beaumont Hosp., 373 F.Supp.2d 707,
718 (E.D.Mich.2005) (citing Webster v. Edward D. Jones & Co., L.P., 197 F.3d 815, 819
(6th Cir.1999)). To prevail on summary judgment, Defendant must establish that there
are no genuine issues of material fact with respect to each of these elements. Here,
Defendant argues that no genuine issues of material facts exist with respect to Plaintiffs’
breach of contract and breach of warranty claims. Specifically, Defendant claims that
Plaintiffs fail to identify any actual breach of the parties’ agreement.
Defendant’s position is not supported by the record in this case. As the long,
detailed, and conflicting factual backgrounds provided in the parties’ briefing reflects,
there remain several disputed genuine issues of material fact as to whether Defendant
breached the parties’ agreement. Indeed, the parties submit differing accounts of almost
every stage of their relationship. For example, the parties produce conflicting evidence
concerning the HSN100’s actual and expected sorting speed, its capabilities and
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performance, and its failure rates. There is also conflicting evidence concerning the
training of Plaintiffs’ employees, the required maintenance for the HSN100, and
Defendant’s efforts to repair the HSN100. Despite Defendant’s assertion to the contrary,
the summary judgment evidence does not conclusively establish that the HSN100 could
sort and inspect the Nissan Nut in the manner agreed to by the parties.
Moreover, the record is clear that Defendant failed to deliver a machine capable of
inspecting Plaintiffs’ additional parts as required by the parties’ agreement. And while
Defendant argues that its performance was excused because Plaintiffs allegedly
instructed Defendant to only focus on the Nissan Nut, this issue, as well as many others,
presents genuine issues of material fact to be decided at trial. Summary judgment on
Plaintiffs’ breach of contract and breach warranty claims is therefore not proper.
B. Proposal B’s limited remedy and limitation of damages
Defendant argues that even if there are genuine issues of material fact as to the
alleged breach, Plaintiffs’ claims are barred by the limited remedy and limitation of
damages provisions in Proposal B. The Court agrees with Defendant that Proposal B
limits the damages available to Plaintiffs in this dispute. However, Defendant fails to
establish it is entitled to summary judgment on its limited remedy defense.
(1) Limited remedy
Proposal B provides that Plaintiffs’ only remedy in the event of an issue with the
HSN100 will be repair or replacement of the HSN100.
Defendant argues that this
provision expressly bars Plaintiffs’ breach of contract and warranty claims for damages in
this lawsuit.
In response, Plaintiffs argue that the limited remedy should not apply
because Defendant failed to honor the limited remedy. Plaintiffs contend that the limited
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remedy failed its essential purpose because Defendant failed and refused to repair or
replace the HSN100.
Under Michigan law, where a seller fails to perform or takes too long to complete
the repairs or replacement, a limited remedy fails of its essential purpose and the
plaintiff can seek general damages. See Computer Network, Inc. v. AM Gen. Corp., 265
Mich. App. 309, 314, 696 N.W.2d 49, 54 (2005); Fargo Mach. & Tool Co. v. Kearney &
Trecker Corp., 428 F. Supp. 364, 383 (E.D. Mich. 1977). In Fargo Mach. & Tool Co. the
contract for purchase of an industrial machine contained a limited remedy of repair or
replace, but repair or replacement of the machine would not cure the breach because the
defendant could not actually make the machine contracted for in the parties’ agreement.
428 F. Supp. at 383. The court found that the plaintiff was therefore entitled to recover
general damages because the remedy of repair or replace failed its purpose. Id.
Here, genuine issues of material fact exist as to whether the limited remedy of
repair or replace failed its essential purpose. The parties dispute, among other things,
whether Defendant honored its obligation to repair the HSN100. There are also questions
of fact as to whether Defendant was even capable of repairing or replacing the HSN100.
As discussed above, the summary judgment evidence does not conclusively establish
that Defendant ever completed manufacturing the HSN100 machine agreed to by the
parties. It strains credulity that a party would be bound by a limited remedy of repair or
replacement where the manufacturer fails to deliver the purchased product and there are
questions of fact as to whether it is even possible for the manufacturer to make the
product it promised to deliver.
Accordingly, Defendant is not entitled to summary
judgment on its limited remedy defense.
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(2) Limitation of Damages
Defendant argues that Proposal B bars Plaintiffs’ claims for consequential
damages and lost profits. Proposal B includes the following disclaimer of damages:
EXCEPT AS OTHER WISE SET FORTH HEREIN, THE LICENSED
SOFTWARE AND EQUIPMENT IS PROVIDED "AS IS" WITHOUT
WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED,
INCLUDING,
BUT
NOT
LIMITED
TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY OF FITNESS FOR A
PARTICULAR PURPOSE.
***
IN NO EVENT WILL MECTRON BE LIABLE FOR ANY
CLAIMS INCLUDING BUT NOT LIMITED TO TAXES, SPECIAL
ASSESMENTS, PENALTIES, FINES OR THE LIKE MADE OR
IMPOSED BY ANY THIRD PARTY INCUDING ANY
GOVERNMENTAL AUTHORITY
OR
ANY
DAMAGES
INCLUDING ANY LOST PROFITS, LOST SAVINGS OR OTHER
INCIDENTAL
OR
CONSEQUENTIAL
DAMAGES
OR
EXPENSES INCURRED BY LICENSEE, WHICH ARISE OUT OF
OR RELATED TO THIS AGREMENT OR ITS SUBJECT
MATTER, INCLUDING LICENSEE'S USE OF OR INABILITY TO
USE THE PURCHASED EQUIPMENT OR SOFTWARE, EVEN
OF MECTRON OR IT'S AGENT HAS BEEN ADVISED OF THE
POSSIBILITY [sic] OF SUCH CLAIMS, DAMAGES OR
EXPENSES
Plaintiffs respond that this provision should not apply because: (1) the limitation is not
conspicuous; (2) the provision only applies to issues with the software, not to the entire
HSN100 system; and (3) the limited remedy fails its essential purpose.4 The Court
disagrees.
Proposal B’s disclaimer of damages provision is conspicuous. The text is bolded,
4
Plaintiffs also argue that the provision should not apply because it was not actually included in the parties’ final
agreement. This argument has no merit and conflicts with Plaintiffs’ own brief. Plaintiffs’ Exhibit 2, which they
define as “Proposal B” and which they identify as being the contract between the parties, does in fact contain the
limitation of damages provision at issue.
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in all capitalized letters, and located on page four of a six page proposal. See Pidcock v.
Ewing, 371 F. Supp. 2d 870, 880 (E.D. Mich. 2005) (quoting M.C.L. § 440.1201(10)) (“A
term or clause is conspicuous ‘when it is so written that a reasonable person against
whom it is to operate ought to have noticed it.’ The section also states that a printed
heading in capital letters or larger or contrasting type or color is conspicuous.”).
The provision is also clear and unambiguous. There is no reasonable reading of
this provision that would restrict its application to only issues with the HSN100’s software
or hardware as opposed to the machine as a whole. The provision expressly limits
recovery of lost profits or consequential damages, “which arise out of or [sic] related to
this agreement or its subject matter.”
Finally, the provision is not related or connected to Proposal B’s limited remedy of
repair or replace. Plaintiffs do not identify any basis for the Court to disregard the parties’
agreement to limit the recovery of consequential or lost profit damages because the
separate and unrelated limited warranty may have failed its essential purpose.
Accordingly, while Plaintiffs may be entitled to recover their actual damages in connection
with their breach of contract claim, Defendant is entitled to summary judgment on
Plaintiffs’ claims for lost profits and consequential damages.
C. Plaintiffs’ fraudulent inducement claim
Plaintiffs claim they were fraudulently induced into entering the contract for the
purchase of the HSN100.
Fraudulent inducement occurs where a party materially
misrepresents future conduct under circumstances in which the assertions may
reasonably be expected to be relied upon and are relied upon. Ypsilanti Cmty. Utilities
Auth. v. Meadwestvaco Air Sys., LLC, 678 F. Supp. 2d 553, 566–67 (E.D. Mich. 2009).
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It is a tort claim that applies to a situation where one party was allegedly tricked into
contracting by another party. Llewellyn-Jones v. Metro Prop. Grp., LLC, 22 F. Supp. 3d
760, 778 (E.D. Mich. 2014) (citing Huron Tool & Eng'g Co. v. Precision Consulting Servs.,
Inc., 209 Mich.App. 365, 371, 532 N.W.2d 541, 544 (1995)). To establish fraud in the
inducement, a party must show that: (1) the defendant made a material representation;
(2) the representation was false; (3) when the defendant made the representation, the
defendant knew that it was false, or made it recklessly, without knowledge of its truth and
as a positive assertion; (4) the defendant made the representation with the intention that
the plaintiff would act upon it; (5) the plaintiff acted in reliance upon it; and (6) the plaintiff
suffered damage. Llewellyn-Jones, 22 F. Supp. 3d at 778–79.
Defendant argues that Plaintiffs’ fraudulent inducement claim is barred by the
economic loss doctrine. Defendant also contends that it is entitled to summary judgment
on Plaintiffs’ fraudulent inducement claim because Plaintiffs fail to identify any affirmative
misrepresentations of material fact that could form the basis of a fraudulent inducement
claim.
The economic loss doctrine is a judicially created doctrine that prohibits a party to
a contract from bringing tort claims that are factually indistinguishable from breach of
contract claims. Llewellyn-Jones, 22 F. Supp. 3d at 778 (citing Detroit Edison Co. v.
NABCO, Inc., 35 F.3d 236, 240 (6th Cir.1994)). The doctrine draws a line between breach
of contract claims arising from commercial transactions, where commercial and contract
law protect the parties' economic expectations, and tort actions intended to remedy
unanticipated injuries caused by conduct that violates a separate legal duty apart from
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the contract. Id. (citing Neibarger v. Universal Cooperatives, Inc., 439 Mich. 512, 521, 486
N.W.2d 612, 615 (1992)).
Although fraudulent inducement can be an exception to the economic loss
doctrine, the economic loss doctrine bars a fraudulent inducement claim that is not
"extraneous" to the contractual dispute. Orleans Int 'l, Inc. v. Mistica Foods, L.L. C.,
No. 15-13525, 2016 WL 2851349, at *5–6 (E.D. Mich. May 16, 2016) (discussing
Huron Tool & Eng'g Co., 209 Mich.App. at 374–75, which held that a plaintiff may only
pursue a claim for fraud in the inducement that is extraneous to the alleged breach of
contract). In order to determine whether a fraud in the inducement claim is barred by
the economic loss doctrine, the key inquiry is whether the defendant’s alleged
misrepresentation is "but another thread of fabric in the contract claim or an extraneous
misrepresentation that actually induced the party to execute the contract." Huber v.
Crop Prod. Servs., Inc., 2007 WL 2746625, *6 (E.D. Mich. 2007). If the true nature
of the plaintiff’s action is a claim for breach of contract, the economic loss doctrine
bars the fraud in the inducement claim. See Dinsmore Instrument Co. v.
Bombardier, Inc., 199 F.3d 318, 321 (6th Cir. 1999). As the Sixth Circuit has explained,
where the defendant's misrepresentations were alleged to have been "made in
connection with the making of the contract" between the parties and that the plaintiff
suffered substantial economic losses as a result of entering into the contract, the
economic loss doctrine bars the claim. Id.
For example, in Gen. Motors Corp. v. Acme Ref Co., this Court held that
the economic loss doctrine barred a plaintiff's fraud in the inducement claim
because the only misrepresentations at issue concerned the quality and character
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of the goods sold. 513 F. Supp. 2d 906, 912–13 (E.D. Mich. 2007). Similarly, in
Orleans Int 'l, Inc. v. Mistica Foods, L.L. C., the court dismissed a fraudulent inducement
claim based on an allegations that the defendants did not intend to keep the promise
to purchase specific products from the plaintiff, finding that such allegations were not
extraneous to the contract and therefore the economic loss rule applied. 2016 WL
2851349, at *5–6.
Here, Plaintiffs’ fraudulent inducement claim is not distinguishable from or
extraneous to its breach of contract claim. Plaintiffs’ fraudulent inducement claim is
based on alleged misrepresentations concerning the nature and quality of the
HSN100.
For example, Plaintiff alleges that it was fraudulently induced into
purchasing the HSN100 by Defendant because "Defendant represented to Plaintiffs
that the HSN 100 would be able to sort identified parts for specific defects within
industry acceptable failure rates." This type of representation does not fall within
Michigan’s narrow exception to the economic loss doctrine.
Plaintiffs’ reliance on Lewellyn-Jones v. Metro Prop. Group, LLC to support its
fraud in the inducement claim is misplaced. Llewellyn involved alleged fraud in the
inducement in connection with the sale of rental properties to investors. Llewellyn, 22
F. Supp. 3d at 777–80. Many of the investors were foreign, or at least not from Michigan,
and therefore were unable to view the properties prior to purchase. Id. at 771. The
defendants’ allegedly fraudulent conduct included mailing the plaintiffs fraudulent
photos of the insides of homes, supplying forged lease documents, lying about the
conditions of the properties, and supplying objectively false information regarding rental
payments and amounts. Id. at 779. The court found that the economic loss rule did not
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apply to bar the plaintiffs’ fraudulent inducement claim because the plaintiffs presented
sufficient allegations of affirmative m i s representations and fraudulent conduct to support
their fraud in the inducement claim. Id. at 780.
In contrast to Llewellyn-Jones, here, the representations identified by Plaintiffs’ as
fraudulent are really alleged misrepresentations about the nature, quality, and capabilities
of the HSN100. Plaintiffs do not allege any independently fraudulent or otherwise sinister
activity. Therefore Plaintiffs’ fraudulent inducement claim does not satisfy the limited
exception to the economic loss rule and cannot survive summary judgment.5
IV.
Conclusion
For the above-stated reasons, Defendant’s motion for summary judgment is
GRANTED as to Plaintiffs’ fraud-based claims (counts III, IV, and V of the complaint) and
as to Plaintiffs’ claim for lost profits and consequential damages. Defendant’s motion is
in all other respects DENIED.
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Because the Court finds that Plaintiffs’ fraudulent inducement claim is barred by the economic loss rule, the Court
will not address Defendant’s position that none of the alleged representations were actually false.
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SO ORDERED.
s/Nancy G. Edmunds
Nancy G. Edmunds
United States District Judge
Dated: February 8, 2019
I hereby certify that a copy of the foregoing document was served upon counsel of record
on February 8, 2019, by electronic and/or ordinary mail.
s/Lisa Bartlett
Case Manager
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