ITW Food Equipment Group LLC v. Walker
Filing
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OPINION ; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, kcb)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
ITW FOOD EQUIPMENT GROUP
LLC d/b/a HOBART,
Plaintiff,
File No. 1:12-CV-119
v.
HON. ROBERT HOLMES BELL
DONALD L. WALKER,
Defendant.
/
OPINION
This matter is before the Court on Plaintiff ITW Food Equipment Group’s (“Hobart”)
motion to dismiss Defendant Donald L. Walker’s first amended counterclaim. (Dkt. No. 16.)
On February 7, 2012, Hobart brought suit against Walker alleging breach of contract, tortious
interference with business relationships, and misappropriation of trade secrets. (Dkt. No. 1,
Compl.) On March 19, 2012, Walker answered the complaint and filed a counterclaim
against Hobart for violation of the Michigan Franchise Investment Law (“MFIL”). (Dkt. No.
6.) Hobart responded with a motion to dismiss this counterclaim. (Dkt. No. 8.) On May 1,
2012, Walker filed a first amended counterclaim (Dkt. No. 12), which Hobart moved to
dismiss on May 15, 2012 (Dkt. No. 16). For the reasons that follow, this motion will be
granted.
I.
Hobart is in the business of manufacturing, installing, repairing, and maintaining
equipment for food-service and food retail industries. (Dkt. No. 1, Compl. ¶ 3.) Hobart has
a network of entities around the country that it uses to sell parts and provide installation,
maintenance, and repair service to customers, although the parties disagree as to whether
these parties are independent contractors or franchisees. (Dkt. No. 1, ¶ 4; Dkt. No. 5, Answer
¶ 4.) In 2011, Hobart and Walker entered into a Service Contractor Agreement for certain
parts sales and services in the Michigan counties of Clinton, Eaton, Ingram, Jackson, and
Shiawassee. (Dkt. No. 1, ¶¶ 5-6; Dkt. No. 5, ¶¶ 5-6.) This contract states that Walker agreed
to act as an “independent contractor” of Hobart and not a franchisee. (Dkt. No. 1, Ex. A,
Contract § E.1.) In addition, the contract states in bold, capital letters that the agreement will
be governed solely by the law of Ohio. (Id. at § E.8.)
II.
Federal Rule of Civil Procedure 12(b)(6) provides that a party may assert “failure to
state a claim upon which relief can be granted” as an affirmative defense. “[T]o survive a
motion to dismiss [under 12(b)(6)], the complaint must contain either direct or inferential
allegations respecting all material elements to sustain a recovery under some viable legal
theory.” In re Travel Agent Comm’n Antitrust Litig., 583 F.3d 896, 903 (6th Cir. 2009)
(internal quotation marks omitted). In reviewing such a motion, the Court must “accept all
of plaintiff’s factual allegations as true.” G.M. Eng’rs and Assoc., Inc. v. W. Bloomfield
2
Twp., 922 F.2d 328, 330 (6th Cir. 1990). As a general rule, however, the Court “need not
accept as true legal conclusions or unwarranted factual inferences, and conclusory allegations
or legal conclusions masquerading as factual allegations will not suffice.” In re Travel Agent,
583 F.3d at 903.
According to the Supreme Court, “a plaintiff’s obligation to provide the grounds of
his entitle[ment] to relief requires more than labels and conclusions, and a formulaic
recitation of a cause of action’s elements will not do.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555, 545 (2007) (internal quotations omitted). While detailed factual allegations are not
required,
the
pleading
standard
“dem ands
m ore
than
an
unadorn ed ,
the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). “To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. (quoting
Twombly, 550 U.S. at 570).
III.
Walker’s first amended counterclaim alleges that Hobart violated numerous provisions
of the MFIL through its actions, including its failure to repurchase Walker’s inventory and
its alleged misrepresentations in the contract that the parties were only entering into an
independent contractor arrangement and that this arrangement would be governed by Ohio
law. (Dkt. No. 12, ¶ 21 (citing Mich. Comp. Laws §§ 445.1501-445.1546).) Walker has
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pleaded sufficient facts establishing a plausible violation of the MFIL. However, Hobart has
raised the issue of whether Michigan law even applies.
Choice of law is a “threshold issue” a district court must determine when analyzing
whether a cognizable claim is stated for the purposes of 12(b)(6). Southeast Tex. Inns, Inc.
v. Prime Hospitality Corp., 462 F.3d 666, 672 (6th Cir. 2006). Walker has pleaded facts
supporting the connection of the contract to Michigan. (See Dkt. No. 12, ¶¶ 7-8, 10.)
However, there is also a connection to Ohio. Hobart is a domiciliary of Ohio and the contract
has an explicit choice of law provision: “THIS AGREEMENT SHALL BE GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF OHIO AS A CONTRACT ENTERED INTO
AND PERFORMED IN THE STATE OF OHIO.” (Dkt. No. 1, Ex. A, § E.8.)
“It is a well-accepted principle that a federal court in a diversity case must apply the
conflict of law rules of the state in which it sits.” Banek Inc. v. Yogurt Ventures USA, Inc.,
6 F.3d 357, 361 (6th Cir. 1993) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487,
490 (1941)). Michigan has adopted the approach in 1 Restatement (Second) of Conflict of
Laws § 187 (1971), which provides that a contractual choice of law provision will govern
unless:
(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.
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Thus, it must be determined whether Ohio has a substantial relationship to the parties or
whether application of Ohio law would be contrary to the fundamental policy of Michigan.
Walker does not dispute that Ohio has a substantial relationship to the parties, and the
Court agrees with this assessment. Instead, Walker relies on the second alternative. First,
he asserts that under the terms of the MFIL, parties cannot contract away the statute’s
protection. This is incorrect:
The Michigan legislature was specific enough to include forum selection
provisions in the list of void provisions, but did not specify choice of law
provisions. . . . [L]itigating in Michigan does not require that Michigan law
must govern the dispute. The statute does not expressly void choice of law
provisions, and we decline to imply such a prohibition.
Banek, 6 F.3d at 360 (citing Mich. Comp. Laws § 445.1527). Alternatively, Walker argues
that application of Ohio law is contrary to Michigan’s public policy. However, even if true,
that alone is insufficient to resolve the choice of law issue. Banek, 6 F.3d at 362 (“While we
agree with plaintiff that the comprehensive and paternalistic franchise investment law
represents Michigan public policy, that does not end the inquiry.”) Instead, the key issue is
whether there is “a substantial erosion of the quality of protection that the MFIL would
otherwise provide.” Id. This erosion can be shown by “significant differences in the
application of the law of the two states.” Tele-Save Merch. Co. v. Consumers Distrib. Co.,
814 F.2d 1120, 1123 (6th Cir. 1987).
Walker has failed to argue that such significant differences exist. Ohio also has a
statute that governs franchises, the Business Opportunity Protection Act (“BOPA”). The
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only difference Walker points out is that under the MFIL, a contract provision is void if it
permits a franchisor, absent six month notice, to refuse to renew a franchise without fairly
compensating the franchisee through the repurchasing of inventory. Mich. Comp. Laws
§ 445.1527(d). In contrast, under the BOPA, a franchisor may decide the conditions under
which a franchise may be terminated or renewed. Ohio Rev. Code § 1334.02(B)(1)(h).
While these two provisions are different, Walker fails to show that this difference is
significant. He merely points out the difference and then concludes that the section of the
MFIL he cites must be the fundamental policy of Michigan: “[a]s such, applying Ohio law
rather than Michigan law violates Michigan’s fundamental public policy and results in a
substantial loss of protection provided by the MFIL to Walker.” (Dkt. No. 17, at 10.)
“The fact, however, that a different result might be achieved if the law of the chosen
forum is applied does not suffice to show that the foreign law is repugnant to a fundamental
policy of the forum state.” Johnson v. Ventra Group, Inc., 191 F.3d 732, 740 (6th Cir. 1999).
Analyzing the relevant case law, the Court does not find that applying Ohio law would be
contrary to Michigan’s fundamental public policy. The one case Walker relies upon for
support for his conclusion that this minor difference is significant is Martino v. Cottman
Transmission Sys., Inc., 554 N.W.2d 17, 20 (Mich. Ct. App. 1996), a state court decision
based on distinguishable facts.1
1
Walker does cite to a few other cases in his brief. However, he cites these cases only for
the proposition that some courts have chosen to apply the MFIL over a choice of law provision.
(Dkt. No. 17, at 9.) None of these cases establish that the MFIL should apply in this case. In
(continued...)
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Martino involved a much broader protection under the MFIL than the six month
notice of termination requirement Walker has noted as different. Martino regarded the
MFIL’s complete ban on any contract creating a franchise agreement that was not preceded
by a disclosure to the franchisee of every type of contract provision listed as unenforceable
and void in Mich. Comp. Laws § 445.1527:
A franchise shall not be sold in this state without first providing to the
prospective franchisee, at least 10 business days before the execution by the
prospective franchisee of any binding franchise or other agreement . . . the
notice described in subsection (3) . . . . “The state of Michigan prohibits certain
unfair provisions that are sometimes in franchise documents. If any of the
following provisions are in these franchise documents, the provisions are void
and cannot be enforced against you.”
Mich. Comp. Laws § 445.1508(1),(3). This provision goes to the very heart of the MFIL
because it “makes one or more contracts illegal” and “is designed to protect a person against
the oppressive use of superior bargaining power,” both of which the Restatement provides
as considerations as to whether a policy is fundamental. Martino, 554 N.W.2d at 61 (citing
1 Restatement (Second) of Conflict of Laws § 187, cmt. g (1971)).
In contrast, the section of the MFIL Walker points out as different under Ohio law is
one that makes a provision of a contract void, not the entire contract. Moreover, Walker has
1
(...continued)
Boeve v. Nationwide Mutual Insurance, No. 08-CV-12213, 2008 WL 3915011 (E.D. Mich. Aug.
20, 2008), there was no choice of law provision in the contractor’s agreement which gave rise to
the franchise claim. In Buist v. Digital Message Systems Corp., No. 229256, 2002 WL 31957703
(Mich. Ct. App. Dec. 27, 2002), the court found numerous examples illustrating that the
“minimal protections” of Florida’s franchise law did not approach the protection offered by the
MFIL.
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failed to show that the section he cited was designed to protect against the oppressive use of
superior bargaining power. Pointing out one small difference between the MFIL and the
BOPA and then relying on a state court decision involving a completely different section of
the MFIL, is insufficient to show that a contracted-for Ohio choice of law provision should
not be enforced. This is especially true because Walker alleges seven separate violations of
the MFIL, and the difference in law Walker has noted only affects one of them. (See Dkt.
No. 12, ¶ 21.) Considering the similarities between the two laws and the minor nature of the
one difference Walker has pointed out, the Court concludes that Ohio law is not contrary to
Michigan’s fundamental policy in this instance and thus applies.
IV.
To make out a claim upon which relief can be granted, a claimant must plead
sufficient facts, which accepted as true, establish a plausible claim to relief. While Walker
has pleaded sufficient facts to demonstrate a violation of the MFIL, Michigan law does not
apply. There was an explicit choice of law clause in the contract between the parties, and
the franchise laws in Ohio and Michigan lack significant differences.
Consequently,
Walker’s first amended counterclaim will be dismissed.
An order will be entered consistent with this opinion.
Dated: October 15, 2012
/s/ Robert Holmes Bell
ROBERT HOLMES BELL
UNITED STATES DISTRICT JUDGE
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