Visteon Corporation v. Varroc Engineering Private Limited et al

Filing 43

ORDER granting in part 29 Motion to Dismiss Counterclaims; granting in part 34 Motion to Dismiss First Amended Counterclaim; granting 40 Motion to Supplement; granting 18 Motion for Partial Dismissal. Signed by District Judge John Corbett O'Meara. (WBar)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
VISTEON CORPORATION,
Plaintiff,

Case No. 14-12418
Hon. John Corbett O’Meara

v.
VARROCCORP HOLDING B.V. and
VARROC ENGINEERING PRIVATE LTD.,
Defendants.
and
VARROCCORP HOLDING B.V. and
VARROC ENGINEERING PRIVATE LTD.
Counter-Plaintiffs,
v.
VISTEON CORPORATION, VIHI, LLC,
VEHC, LLC, and VISTEON HOLDINGS
ESPANA, S.L.,
Counter-Defendants.
__________________________________________/
ORDER GRANTING
VISTEON’S MOTIONS TO DISMISS
Before the court are Visteon’s motions for partial dismissal of VarrocCorp
Holding B.V. and Varroc Engineering Private Limited’s counterclaims and
amended counterclaims. The court heard oral argument on March 19, 2015, and

took the matter under advisement. For the reasons discussed below, Visteon’s
motions are granted.
BACKGROUND FACTS
This is a breach of contract action involving an Asset Purchase Agreement
(“APA”) between Visteon, VarrocCorp, and related entities. Through the APA,
Visteon sold its automotive lighting systems business to Varroc. Visteon alleges
that Varroc breached the agreement and filed its complaint in this court on June 20,
2014. The Defendants are VarrocCorp Holding B.V. and Varroc Engineering
Private Limited. VarrocCorp Holding was served first and filed an answer and
counterclaim on November 12, 2014. Visteon filed a motion for partial dismissal
of the counterclaims on December 12, 2014. Varroc Engineering was served later
and filed its answer and counterclaims (which are the same as those asserted by
VarroCorp Holding) on December 17, 2014. Visteon filed a second motion for
partial dismissal of Varroc Engineering’s counterclaims on January 16, 2015.
Varroc Engineering then filed an amended counterclaim as of right on
January 23, 2015. (VarrocCorp Holding sought permission from Visteon to
amend, which Visteon refused.)1 Visteon filed a motion to dismiss Varroc

1

In ruling on the motions to dismiss, the court will consider the allegations
in the first amended complaint as to both Varroc entities.
-2-

Engineering’s amended counterclaim on February 9, 2015. Because their claims
are identical, the court will refer to VarrocCorp and Varroc Engineering together as
“Varroc.”
In the APA, the parties defined Visteon’s “Material Contracts” (Article 5.9)
to be purchased by Varroc. With respect to these Material Contracts, Visteon made
the following representations:
Each Material Contract is in full force and effect and is valid, binding
and enforceable in accordance with its terms as to the respective
Visteon Operating Company that is a party to the Agreement, and to
Seller’s Knowledge, the other parties to the Material Contract.
(i)

(ii)

(iii)

(iv)

Each Visteon Operating Company has in all
material respects performed and is performing all
its obligations under the Material Contracts to
which it is a party.
No Visteon Operating Company, nor, to Seller’s
Knowledge, any other party is in default of any
material obligation under any of the Material
Contracts to which such Visteon Operating
Company is a party;
No Visteon Operating Company has received any
written notice of default under any of the Material
Contracts, nor to Seller’s Knowledge has any event
occurred that with notice or lapse of time or both
would constitute a material default by any Visteon
Operating Company under any Material Contract
to which such Visteon Operating Company is a
party; and
To Seller’s Knowledge, no Visteon Operating
Company has received any written notice of intent
to terminate any Material Contract to which such
Visteon Operating Company is a party.
-3-

APA at § 5.9.
Varroc’s claims of fraud are based upon representations Visteon made
regarding its customer, Fisker Automotive. According to Varroc, Visteon claimed
that it had long-term programs with Fisker with a combined revenue of $14.3
million annually. Prior to the closing of the APA on August 1, 2012, however,
Visteon learned that the Fisker business would decline substantially in the future.
Visteon did not provide this updated information to Varroc. Additionally, the
decline in Fisker business was causing problems for Visteon’s suppliers, who had
contracted to provide parts to Visteon for the Fisker project. Varroc contends that
it relied upon the information supplied by Visteon regarding Fisker in evaluating
the business acquisition and purchase price.
In its amended countercomplaint, Varroc alleges that Visteon knew that
Fisker was in breach of its agreement with Visteon and that, as a result, Visteon
was in default of certain Material Contracts with its suppliers. Countercomplaint at
¶¶ 24-28, 38-42. According to Varroc, Visteon breached Article 5 of the APA. Id.
at 46. Varroc alleges the following counterclaims against Visteon in the first
amended countercomplaint: Count I, breach of contract; Count II, fraudulent
misrepresentation; Count III, constructive fraud; Count IV, fraud in the
inducement; and Count V, silent fraud. Visteon seeks dismissal of all of Varroc’s
-4-

claims of fraud as well as Varroc’s contract and fraud claims against VIHI, LLC,
and VEHC, LLC.
LAW AND ANALYSIS
I.

Fraud Claims against Visteon
Visteon argues that Varroc’s fraud claims should be dismissed for various

reasons, including that the claims are barred by the economic loss doctrine. The
economic loss doctrine precludes a party to a contract from bringing tort claims
that are factually indistinguishable from breach of contract claims. See Detroit
Edison Co. v. NABCO, Inc., 35 F.3d 236, 240 (6th Cir. 1994). “[T]he essence of
the ‘economic loss’ rule is that contract law and tort law are separate and distinct,
and the courts should maintain that separation in the allowable remedies. There is
a danger that tort remedies could simply engulf the contractual remedies and
thereby undermine the reliability of commercial transactions. Once the contract
has been made, the parties should be governed by it.” Huron Tool & Engin. Co. v.
Precision Consulting Serv., Inc., 209 Mich. App. 365, 371 (1995) (citation
omitted).
There has been some confusion in Michigan law on this point, but the term
“economic loss doctrine” only applies to cases arising under the Uniform
Commercial Code. See Santander Consumer USA, Inc., v. Superior Pontiac Buick
-5-

GMC, Inc., 2013 WL 27921 (E.D. Mich. Jan. 2, 2013) (Edmunds, J.). A similar
concept, enunciated in Hart v. Ludwig, 347 Mich. 559 (1956), applies to non-UCC
cases such as this. See id. Essentially, the rule is 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).
Visteon argues that Varroc’s fraud claims are based upon express
representations contained in the Asset Purchase Agreement and that, therefore,
Varroc’s remedy lies in a breach of contract claim, not tort. In determining
whether a party may pursue a tort action, when the parties’ relationship is governed
by a contract, the court must focus on whether the duty breached arises from tort or
contract. “[T]he threshold inquiry is whether the plaintiff alleges a violation of a
legal duty separate and distinct from the contractual obligation.” Rinaldo’s Constr.
Corp. v. Michigan Bell Tel. Co., 454 Mich. 65, 84 (1997).
Here, Varroc’s claims of misrepresentation, constructive fraud, and silent
fraud are indistinguishable from its breach of contract claim. In Section 5.9(b) of
the APA, Visteon makes various representations regarding “Material Contracts” to
be assumed by Varroc, i.e., that all such contracts are being performed and that
there have been no defaults or “material adverse change.” See also APA at § 5.16.
Varroc claims that these representations were untrue. Varroc admits in its brief
-6-

that its “fraud claims are based on the Material Contracts that are also the subject
of representations and warranties.” Resp. at 21. Varroc has not identified
representations distinct from those made in the APA that provide the basis for its
fraud claims. Varroc’s fraud claims are “interwoven” with its breach of contract
claims; they relate to Visteon’s “performance of the contract and do not give rise to
an independent cause of action in tort.” Huron Tool, 209 Mich. App. at 373.
Varroc contends, however, that its fraud claims are not barred by the Hart
rule because it is alleging fraud in the inducement, which is an exception to that
rule. However, “fraud in the inducement is not available for a breach of a
contract’s terms, lest fraud in the inducement swallow all breach-of-contract
claims.” Uhl v. Komatsu Forklift Co., 512 F.3d 294, 304 (6th Cir. 2008).
“[A] claim of fraud in the inducement, by definition, redresses misrepresentations
that induce the buyer to enter into a contract but that do not in themselves
constitute contract or warranty terms subsequently breached by the seller.” Huron
Tool, 209 Mich. App. at 375 (emphasis added). Here, Varroc’s fraud claims are
indistinguishable from its breach of contract claims. Essentially, Varroc contends
that Visteon has not lived up to the representations and warranties regarding its
assets, including the Fisker account, that are set forth in Section 5 of the APA.
Varroc’s remedy is in breach of contract, not fraud.
-7-

For these reasons, the court finds that Varroc cannot maintain its fraud
claims and will grant Visteon’s motions to dismiss on this issue.
II.

Claims against VIHI and VEHC
VIHI and VEHC are wholly owned subsidiaries of Visteon.2 Varroc’s fraud

claims against VIHI and VEHC are indistinguishable from those against Visteon
and must fail for the same reasons.
Visteon also seeks dismissal of Varroc’s breach of contract claims against
VIHI and VEHC. In its countercomplaint, which does not differentiate between
Visteon, VIHI, and VEHC, Varroc contends that Visteon breached the APA by
failing to indemnify it under Article 16.1(b) and by breaching its representations
and warranties under Article 5. The representations and warranties set forth in
Article 5 begin with the statement that “Seller [Visteon] represents to Buyer, as to
itself [and] the Stock Selling Subsidiaries [VEHC, VIHI, and Visteon Holdings
Espana]” and goes on to list the warranties. In other words, Visteon made the
Article 5 representations and warranties on behalf of VEHC and VIHI.
Visteon argues that only it, as the “Seller,” made the representations set forth
in Article 5 and that VEHC and VIHI did not make any representations. Visteon

2

Visteon Holdings Espana, S.L., is identified as a counter-defendant, but has
apparently not yet been served.
-8-

contends that Varroc has not alleged that VEHC and VIHI breached any
obligations that they owed under the APA.
Varroc contends that VEHC and VIHI are liable for any breach of Article 5
because in making those representations, Visteon was acting as the agent of VEHC
and VIHI. Visteon has not responded to this argument. At this stage of the
proceedings, the record has not developed sufficiently so that the court may
determine as a matter of law whether VEHC and VIHI may be liable under the
APA. The court will deny Visteon’s motion on this issue.
III.

Motion to Supplement
After the hearing, Varroc filed a motion to supplement the record with an

exhibit. The court grants Varroc’s motion.
ORDER
IT IS HEREBY ORDERED that Visteon’s December 12, 2014 motion for
partial dismissal [Docket No. 18] is GRANTED.
IT IS FURTHER ORDERED that Visteon’s January 16, 2015 motion to
dismiss counterclaims [Docket No. 29] is GRANTED IN PART, consistent with
this opinion and order.
IT IS FURTHER ORDERED that Visteon’s February 9, 2015 motion to
dismiss first amended counterclaim [Docket No. 34] is GRANTED IN PART,
-9-

consistent with this opinion and order.
IT IS FURTHER ORDERED that Varroc’s motion to supplement [Docket
No. 40] is GRANTED.
s/John Corbett O’Meara
United States District Judge
Date: March 31, 2015

I hereby certify that a copy of the foregoing document was served upon
counsel of record on this date, March 31, 2015, using the ECF system.

s/William Barkholz
Case Manager

-10-