Order Michigan Supreme Court
Lansing, Michigan
December 12, 2008 Clifford W. Taylor,
Chief Justice
135117 Michael F. Cavanagh
Elizabeth A. Weaver
Marilyn Kelly
Maura D. Corrigan
GENERAL MOTORS CORPORATION, Robert P. Young, Jr.
Plaintiff-Appellee, Stephen J. Markman,
Justices
v SC: 135117
COA: 270430
Wayne CC: 04-422587-CB
ALUMI-BUNK, INC., and ERIC JAIN,
Defendants-Appellants.
_________________________________________/
On order of the Court, leave to appeal having been granted, and the briefs and oral
arguments of the parties having been considered by the Court, we hereby REVERSE in
part the July 24, 2007 judgment of the Court of Appeals, for the reasons stated in the
Court of Appeals dissenting opinion. The trial court did not err in granting the
defendants’ motion for summary disposition on the plaintiff’s claim of fraudulent
inducement. Therefore, the ruling of the Wayne Circuit court is AFFIRMED in all
respects.
YOUNG, J. (concurring).
I concur with the Court’s order to reverse the Court of Appeals resolution of the
fraudulent inducement claim. I write separately to indicate that, contrary to Justice
Kelly’s dissenting statement, the tort claim raised in this case is clearly barred by the
economic loss doctrine because it is inextricably interwoven with plaintiff’s claim of
breach of contract.
The alleged basis for the contract was defendant’s promise to “upfit” (modify) the
vehicles it purchased from plaintiff in exchange for a discounted price. Contrary to
Justice Kelly’s analysis, this singular “promise” is the sole reason for the dispute between
the parties. Indeed, a reader will be hard-pressed to find a distinction between the two
complaint averments that Justice Kelly quotes in support of her dissenting statement.
Plaintiff claims that defendant made this upfit promise during the negotiation
phase, but it was never made a part of the contract. Nevertheless, plaintiff contends that
2
defendant breached its promise to upfit the vehicles it purchased and that defendant never
intended to upfit when it promised to do so. Thus, this promise to upfit is both the basis
for the breach of contract claim and the fraudulent inducement claim.
The trial court and the Court of Appeals correctly determined that plaintiff’s
breach of contract claim, based on the violation of this promise, must be dismissed given
that plaintiff failed to include this central term in the written contract. Moreover, there is
no way to characterize these identical allegations as separate claims for breach of contract
and fraudulent inducement. Accordingly, the trial court was required, as it did, to dismiss
the fraud claim to prevent contract law from “drown[ing] in a sea of tort.” Neibarger v
Universal Coop, Inc, 439 Mich 512, 531 (1992). The Court of Appeals erred in reversing
that decision.
KELLY, J. (dissenting).
I respectfully dissent from the Court’s order reversing in part the judgment of the
Court of Appeals. I believe that the Court of Appeals majority correctly held that
defendants are not entitled to summary disposition on the fraudulent inducement of
plaintiff, General Motors Company. Accordingly, I would affirm.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
In 2003, defendants sought to purchase hundreds of pickup trucks from a General
Motors Corporation (GMC) dealer. Defendants ultimately purchased 148 trucks and
obtained from plaintiff a Competitive Assistance Program (CAP) discount of $7,200 for
each vehicle. Plaintiff contends that it granted the discount only because defendants
agreed, both orally and in writing, to modify or “upfit” the vehicles before selling them.
In this way, the vehicles would not compete with other, unmodified, GMC vehicles
already on the market. However, the written contract contained no such requirement
and defendants later sold the vehicles without modifications.
Plaintiff filed a complaint setting forth counts of negligent, innocent, and/or
intentional misrepresentation, fraud, and breach of contract, among others. Defendants
moved for summary disposition under MCR 2.116(C)(8) and (10), arguing that
plaintiff’s claims were untenable because the written contract memorializing the CAP
discount did not contain a requirement that the vehicles be “upfitted.” Defendants also
argued that the economic loss doctrine1 applied to this case and barred plaintiff’s tort
1
The economic loss doctrine provides that “[w]here a purchaser’s expectations in a sale
are frustrated because the product he bought is not working properly, his remedy is said
to be in contract alone, for he has suffered only economic losses.” Neibarger v Universal
Cooperatives, Inc, 439 Mich 512, 520 (1992) (internal citations and quotation marks
omitted).
3
claims. Also, it asserted, plaintiff was limited to the remedies available under the
Uniform Commercial Code2 (UCC). Plaintiff responded that the economic loss doctrine
was inapplicable to plaintiff’s fraudulent inducement claim, and, even if applicable, the
claim remained viable because the fraud occurred before the contract existed.
The trial court granted defendants’ motion for summary disposition, ruling that
the fraud claim was not independent of the contract claim and was thus barred by the
economic loss doctrine. The Court of Appeals majority affirmed in part and reversed in
part, finding no error in the trial court’s conclusion that the economic loss doctrine
governed because “the contract regarding the CAP discount involved the conducting of
business concerning trucks, which are ‘goods’ under the UCC.”3 However, the Court
held that the trial court erred in concluding that the alleged fraud was so interwoven with
the breach of contract claim that it could not be considered separately.4 The Court
concluded that outstanding questions of fact existed regarding the fraud claim. It
referred to credible evidence that defendants had improperly induced plaintiff to enter
into the contract by agreeing to “upfit” the vehicles without having a present intent to do
so.5
We granted leave to appeal to determine (1) whether an exception to the
economic loss doctrine exists for claims of fraudulent inducement, and (2) whether the
fraud claims in this case are sufficiently distinguishable from the contract claims for
purposes of applying the fraudulent inducement exception.6
II. ANALYSIS
This Court officially recognized the economic loss doctrine in Neibarger v
Universal Cooperatives, Inc.7 Neibarger involved a plaintiff seeking economic loss
damages as the result of a defective product. Commenting on the differences between an
individual consumer’s tort remedy for product liability compared with a commercial
party suffering economic losses, the Court stated:
[I]n a commercial transaction, the parties to a sale of
goods have the opportunity to negotiate the terms and
2
MCL 440.1101 et seq.
3
Gen Motors Corp v Alumi-Bunk, Inc, unpublished opinion per curiam of the Court of
Appeals, issued July 24, 2007 (Docket No. 270430), at 4.
4
Id. at 7.
5
Id. at 7-8.
6
Gen Motors Corp v Alumi-Bunk, Inc, 480 Mich 1193 (2008).
7
439 Mich 512 (1992).
4
specifications, including warranties, disclaimers and limitations
of remedies. Where a product proves to be faulty after the
parties have contracted for sale and the only losses are
economic, the policy considerations supporting products
liability in tort fail to serve the purpose of encouraging the
design and production of safer products.[8]
The Court went on to hold that “where a plaintiff seeks to recover for economic loss
caused by a defective product purchased for commercial purposes, the exclusive remedy
is provided by the UCC . . . .9
The Neibarger Court also noted the policy rationale behind the economic loss
doctrine:
The purpose of a tort duty of care is to protect society’s
interest in freedom from harm, i.e. the duty arises from policy
considerations formed without reference to any agreement
between the parties. A contractual duty, by comparison, arises
from society’s interest in the performance of promises.
Generally speaking, tort principles . . . are better suited for
resolving claims involving unanticipated physical injury . . . .
Contract principles, on the other hand, are generally more
appropriate for determining claims for consequential damages
that the parties have, or could have, addressed in their
agreement.[10]
MCL 440.1103 provides the basis for plaintiff’s assertion that there is an
exception to the economic loss doctrine for claims of fraud:
Unless displaced by the particular provisions of [the
UCC], the principles of law and equity, including the law
merchant and the law relative to capacity to contract, principal
and agent, estoppel, fraud, misrepresentation, duress, coercion,
mistake, bankruptcy, or other validating or invalidating cause
shall supplement its provisions.[11]
8
Id. at 523.
9
Id. at 527-528.
10
Id. at 521 (internal quotation marks and citation omitted).
11
Emphasis added.
5
Huron Tool & Engineering Co v Precision Consulting Services, Inc12 is the
leading case discussing the fraudulent inducement exception to the economic loss
doctrine.13 Huron Tool involved the defendant manufacturer’s claims for breach of
contract, breach of warranty, fraud and misrepresentation arising out of defective
software purchased by the plaintiff. After determining that the plaintiff’s breach of
contract claim was barred by the UCC’s statute of limitations, the Court of Appeals
addressed the viability of the plaintiff’s fraudulent inducement claim:
With regard to the specific intentional tort of fraud,
courts generally have distinguished fraud in the inducement as
the only kind of fraud claim not barred by the economic loss
doctrine. We believe this distinction is warranted in light of
the rationale of the economic loss doctrine.
***
In light of this rationale, we decline to adopt defendants’
position that the economic loss doctrine precludes any fraud
claim. Fraud in the inducement presents a special situation
where parties to a contract appear to negotiate freely—which
normally would constitute grounds for invoking the economic
loss doctrine—but where in fact the ability of one party to
negotiate fair terms and make an informed decision is
undermined by the other party’s fraudulent behavior.14
The Court of Appeals limited its holding, however, stating that “a plaintiff may only
pursue a claim for fraud in the inducement extraneous to the alleged breach of contract.15
12
Huron Tool & Engineering Co v Precision Consulting Services, Inc, 209 Mich App
365 (1995).
13
Numerous jurisdictions have relied on Huron Tool for the proposition that an exception
to the economic loss doctrine exists for claims of fraudulent inducement. See, e.g.,
Werwinski v Ford Motor Co, 286 F3d 661, 676 (CA 3, 2002); Marvin Lumber & Cedar
Co v PPG Industries, Inc, 223 F3d 873, 885 (CA 8, 2000); Giles v Gen Motors
Acceptance Corp, 494 F3d 865, 875 (CA 9, 2007); Dinsmore Instrument Co v
Bombardier, Inc, 999 F Supp 968, 970 (ED Mich 1998); Kaloti Enterprises, Inc v
Kellogg Sales Co, 283 Wis 2d 555, 581 (2005); Valleyside Dairy Farms, Inc v AO Smith
Corp, 944 F Supp 612, 616 (WD Mich 1995).
14
Huron Tool, supra at 371-373 (emphasis in original).
15
Id. at 374.
6
Applying the principles expounded in Neibarger, MCL 440.1103, and Huron Tool
to this case, it is clear that the majority’s decision to reverse the Court of Appeals and
grant summary disposition to defendants is unwarranted. This case involves a
“transaction in goods.” The UCC thus provides the relevant governing law,16 and the
economic loss doctrine would generally bar claims for economic loss related to the
transaction, including breach of contract claims.17 However, MCL 440.1103 explicitly
recognizes that certain categories of claims are exempt from the economic loss doctrine.
Specifically, claims for fraud are authorized by statute as a supplement to the remedies
normally available under the UCC.18 This is the premise that governs this dispute.
Moreover, as recognized in Huron Tool, fraudulent inducement claims are proper
despite the limitations of the economic loss doctrine “where parties to a contract appear
to negotiate freely . . . but where in fact the ability of one party to negotiate fair terms and
make an informed decision is undermined by the other party’s fraudulent behavior.”19
Huron Tool addressed claims of fraud interwoven with claims of breach of contract. It
held that, in such claims, the alleged misrepresentations relate to the breaching party’s
performance of the contract and do not give rise to an independent cause of action in
tort.20 This type of fraud is not extraneous to the contractual dispute between the parties.
It is another thread in the fabric of plaintiff’s contract claim, supported by factual
allegations identical to those supporting its breach of contract counts.21 Such fraud does
not induce a plaintiff to enter into a contract nor does it cause harm to a plaintiff distinct
from that caused by the breach of contract.22
As determined by the Court of Appeals majority in the instant case, the fraud
alleged by plaintiff was not interwoven with its breach of contract claim. Rather, the
alleged fraud induced plaintiff to enter into the contract; it did not relate to the breach of
contract itself. In fact, plaintiff’s complaint specifically alleges, in pertinent part:
FRAUD
32. Defendants . . . knowingly misrepresented that any fleet
vehicles purchased under the Competitive Assistance
16
MCL 440.2102.
17
Neibarger, supra at 520. The issue whether the trial court properly dismissed
plaintiff’s breach of contract claims is not the subject of this appeal.
18
MCL 440.1103.
19
Huron Tool, supra at 372.
20
Id. at 373.
21
Id.
22
Id.
7
Program would be upfitted before the resale of those
vehicles to the general public. . . .
***
NEGLIGENT, INNOCENT AND/OR INTENTIONAL MISREPRESENTATION
39. Defendants . . . represented to [plaintiff] on several
occasions that any fleet vehicles purchased under the
Competitive Assistance Program would be upfitted
before the resale of those vehicles to the public.[23]
Plaintiff’s complaint thus makes clear that its fraud and misrepresentation claims are not
based on a breach of the contract itself. They are based, instead, on defendants’
representations made before the contract was executed. Accordingly, the Court of
Appeals correctly distinguished the two intrinsically different allegations of misconduct
by defendant—fraudulent inducement and breach of contract—in holding that defendants
are not entitled to summary disposition.
This analysis is also consistent with the Court’s holding in Rutan v Straehly.24 In
Rutan, the Court held that fraud claims generally cannot be predicated on future actions.
However, the Court stated that “an unfilled promise to perform in the future is actionable
when there is evidence that it was made with a present undisclosed intent not to
perform.25 I agree with the Court of Appeals majority, which relied on Rutan. The Court
concluded that plaintiff presented ample evidence of an unfulfilled promise to perform on
the part of defendants. It presented ample evidence that, while defendants agreed to
“upfit” the vehicles, defendants had a present intent to sell the vehicles without doing so.
This situation fits squarely within Rutan, MCL 440.1103, the fraudulent inducement
exception to the economic loss doctrine, and Huron Tool.
The majority’s reliance on the Court of Appeals dissent is unfounded. The dissent
misapplies Huron Tool and ignores the import of MCL 440.1103 and Rutan.26 The
dissenting opinion correctly states that, pursuant to Huron Tool, a plaintiff must allege a
claim for fraudulent inducement separate from a claim of breach of contract. However, it
disregards documentary and testimonial evidence presented by plaintiff that during the
negotiating process, defendants made several misrepresentations, both written and oral,
23
Plaintiff’s complaint at 7, 9 (emphasis added).
24
Rutan v Straehly, 289 Mich 341 (1939).
25
Id. at 348-349.
26
In fact, Justice Young’s concurrence and the Court of Appeals dissent both fail to cite
MCL 440.1103 or Rutan. Justice Young also fails to recognize the significance of Huron
Tool whatsoever.
8
that the purchased vehicles would be “upfitted.” Therefore, the dissenting opinion’s
statement that “there is a glaring absence of any evidence at all that would even
inferentially support [plaintiff’s claim for fraudulent inducement]” is inaccurate.27
Similarly, Huron Tool evinces no intent to subvert the foundational rule of
Michigan jurisprudence, embodied in MCR 2.111(A)(2), that a party may plead in the
alternative even “where proof of one claim must defeat the existence of another.”28 A
plaintiff’s “antithetical pleadings” are not grounds for summary judgment.29 Thus, the
fact that plaintiff pleaded alternate theories of liability flowing from the same facts—
fraudulent inducement and breach of contract—does not support a rejection of its
fraudulent inducement claim. The proper scope of analysis under Huron Tool is the fraud
claim itself, as stated in plaintiff’s complaint. That claim should be analyzed to
determine if it relates to a contractual provision or to the separate breach of contractual
theory of liability alleged in the complaint. If it relates to a contractual provision, the
economic loss doctrine bars the fraud claim. If not, the claim survives on its own.
It is undisputed that the contract at issue has no provision for “upfitting.” Hence,
plaintiff’s fraudulent inducement claim does not relate to a contractual provision, and the
claim should proceed. Speculation about whether plaintiff should have included an
“upfit” provision in the contract is an issue involving the contract, wholly irrelevant to
the fraudulent inducement claim.
III. CONCLUSION
I believe that the Court of Appeals majority correctly held that defendants are not
entitled to summary disposition on plaintiff’s claims for fraudulent inducement.
27
Gen Motors Corp v Alumi-Bunk, Inc, unpublished Court of Appeals dissenting opinion
by Kelly, J., issued July 24, 2007 (Docket No. 270430), at 5.
28
Abel v Eli Lilly & Co, 418 Mich 311, 335 (1984).
29
Id.
9
Pursuant to MCL 440.1103, Huron Tool, and Rutan, claims of fraudulent inducement are
not barred by the economic loss doctrine. Plaintiff presented credible evidence of
defendant’s precontractual fraud and misrepresentations distinct from its claims of breach
of contract. Therefore, it is entitled to its day in court. Accordingly, because questions of
fact remain unanswered regarding plaintiff’s allegations, I would affirm the judgment of
the Court of Appeals.
CAVANAGH, J., joins the statement of KELLY, J.
I, Corbin R. Davis, Clerk of the Michigan Supreme Court, certify that the
foregoing is a true and complete copy of the order entered at the direction of the Court.
December 12, 2008 _________________________________________
1211 Clerk