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rejecting claimant's argument that a contract's choice of law provision was binding where the parties disputed the existence of the contract
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CIVIL ACTION No. 01-2172-GTV
October 28, 2003
MEMORANDUM AND ORDER
General Electric Capital Corporation ("GECC") originally brought this action against Lear Corporation ("Lear") to recover money GECC alleged that Lear, as an account debtor, owed to GECC because GECC held a security interest in the accounts receivable of Excel Laminates, Inc. After that litigation commenced, Lear joined Excel Laminates, Inc. and David C. Seitter (collectively "Excel") as third party defendants. Excel subsequently filed several counterclaims against Lear. GECC and Lear have settled their claims and the court, in a previous order, has realigned the remaining parties as reflected in the above caption. This action is before the court on Lear's motion for summary judgment (Doc. 172) as to Excel's claims against Lear for breach of contract, fraud, and fraud based upon the issuance of false debits. Lear does not seek summary judgment on Excel's promissory estoppel claim. For the following reasons, Lear's motion for summary judgment is denied as to Excel's claims for breach of contract and fraud. The court will reserve decision on Excel's claim for fraud based on the issuance of false debits until trial.
I. FACTUALBACKGROUND
The court has reviewed the parties' briefs and the numerous documents submitted to support the parties' positions. For purposes of this order only, the court will provide a brief overview of the facts in a light most favorable to Excel.
Beginning in April 1998, Lear represented to Excel that it wanted to enter into one or more price-for-volume contracts whereby a single supplier would be awarded a large volume of automotive seating lamination business in return for pricing lower than a supplier would otherwise give on a program-by-program basis. Consequently, Excel provided Lear a price-for-volume proposal that met several of Lear's target pricing levels. By the end of September 1998, Lear issued a letter to Excel that stated "[i]t is the intent of Lear Corporation to source approximately 8,000,000 linear yards of lamination business to Excel laminates."
In February 1999, Lear representatives met with Excel representatives at one of Lear's offices in Mexico. Excel contends that at this time, one of Lear's representatives accepted Excel's offer to meet all of Lear's lamination requirements at a price of $.51 per linear yard of lamination. Over the next two months, Excel states that the two sides negotiated over a long term agreement. By March 23, 1999 Excel asserts that the two sides had reached a concurrence as to all the material terms of the long term agreement; the only remaining step was for Lear to sign the agreement.
Between March and August of 1999, both Lear and Excel exchanged several communications and participated in several meetings concerning the transition of business to Excel. Over this time period, Excel contends that Lear made representations that it would carry out a changeover of its lamination business to Excel and promised that the long term agreement would be signed.
In June of 1999, Lear issued purchase orders to Excel for approximately 7.5 million yards of lamination. By August 1999, however, the long term agreement still had not been signed and Excel's lenders were unsatisfied with the extent of Lear's commitment. A letter written by a Lear representative in August of 1999 stated that it was the intent of Lear to do business with Excel. The letter also stated that unless Excel demonstrated its financial ability to purchase raw materials, Lear would be forced to pursue other alternatives.
Excel maintains that it repeatedly requested that Lear give Excel purchase orders for the large volume of lamination business required by the alleged September 1998 and March 1999 agreements. Lear denies that any agreements were ever reached by the parties and maintains that Lear provided business to Excel exclusively on a program-by-program basis. By the end of 2000, the business relationship between Lear and Excel ended. Excel's business reached a state of financial ruin and in January 2001, Excel filed a voluntary Chapter 7 bankruptcy petition.
II STANDARD OF REVIEW
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). Lack of a genuine issue of material fact means that the evidence is such that no reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Essentially, the inquiry is "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." Id. at 251-52.
The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. This burden may be met by showing that there is a lack of evidence to support the nonmoving party's case.Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the moving party has properly supported its motion for summary judgment, the burden shifts to the nonmoving party to show that there is a genuine issue of material fact left for trial. Anderson, 477 U.S. at 256. "[A] party opposing a properly supported motion for summary judgment may not rest on mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Id. Therefore, the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. Id. The court must consider the record in the light most favorable to the nonmoving party. Bee v. Greaves, 744 F.2d 1387, 1396 (10th Cir. 1984).
III. DISCUSSION A. Breach of Contract
As previously stated, Excel claims that it agreed to provide to Lear, and Lear agreed to order from Excel, certain volumes of materials for Lear's use in the construction of interior finish components for Lear's automotive assembly plant customers. Excel claims that Lear breached contracts by failing to order the requisite volumes of materials from Excel and by failing to pay for materials that were delivered by Excel to Lear. Specifically, Excel claims that it entered into two price-for-volume contracts with Lear, the terms and conditions of which are reflected in the following writings: (1) a contract for 8 million yards of lamination annually for three years at a price of $.70 per yard as indicated by the September 30, 1998 letter sent to Excel by Lear with Lear's standard terms and conditions attached; and (2) a contract for 18 million yards of lamination at a price of $.51 per linear yard as indicated by the March 23, 1999 Long Term Supply Agreement.
In its motion for summary judgment, Lear argues: (1) that the requisite meeting of the minds necessary for contract formation never occurred between the two parties; and (2) that the contracts Excel alleges do not satisfy the Kansas statute of frauds. See K.S.A. § 84-2-201.
1. Choice of Law
As an initial matter, Excel argues that Michigan law applies to its breach of contract claims. First, Excel asserts that both the September 30, 1998 letter of intent and the March 23, 1999 Long Term Supply Agreement contain provisions incorporating Lear's then existing purchase orders. Excel argues that Lear's purchase orders contain a Michigan choice of law provision, and thus, Michigan law applies to its breach of contract claim. Second, Excel argues that even in the absence of a Michigan choice of law provision, Michigan law would still apply to its breach of contract claims. Excel supports this argument by stating that Kansas choice of law rules apply the law of the place where the last act necessary to form a contract occurs, that both alleged contracts were accepted by Lear in Michigan, and that such acceptance was the last act.
In response, Lear first argues that Michigan law cannot control Excel's breach of contract claims because a contract never existed between Lear and Excel. Lear thus asserts that it is impossible to have a choice of law provision control, or for there to be a last act necessary to form a contract when no contract existed in the first place. Second, Lear argues that Excel has not met its burden of proving that Michigan law applies to its breach of contract claims.
A district court must apply the choice of law rules of the state in which it sits. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Because this court sits in the state of Kansas, Kansas choice of law rules apply. Under Kansas choice of law rules, "[t]he law of the forum applies unless it is expressly shown that a different law governs, and in case of doubt, the law of the forum is preferred." Phillippine Am. Life Ins, v. Raytheon Aircraft Co., 252 F. Supp.2d 1138, 1142 (D. Kan. 2003) (citing Svs. Design Mgmt. Info. Inc. v. Kansas City Post Office Employees Credit Union, 788 P.2d 878, 881 (Kan.App. 2d 199O)). "Generally, the party seeking to apply the law of a jurisdiction other than the forum has the burden to present sufficient facts to show that other law should apply." Miller v. Dorr, 262 F. Supp.2d 1233, 1237 (D. Kan. 2003) (citing Lavne Christensen Co. v. Zurich Canada, 38 P.3d 757, 767 (Kan.App. 2d 2002)).
After considering the arguments by both parties, the court concludes that it is not expressly clear from the summary judgment record that Michigan law should apply. Excel maintains that both of the alleged contracts incorporated Michigan choice of law provisions and that Lear accepted both of the alleged contracts in Michigan. Excel incorrectly assumes the existence of a contract in its choice of law analysis. See Capital Assocs. Int'L. Inc., v. Knoll Int'l, Inc., No. 90-5518, 1991 WL 158959, at *1 n. 1 (E.D. Penn. Aug. 14, 1991) (rejecting claimant's argument that a contract's choice of law provision was binding where the parties disputed the existence of the contract). As will be discussed later in this order, genuine issues of fact remain in this case as to the existence of the alleged contracts, including any choice of law terms that may be contained in Lear's existing purchase orders. Also, Excel's brief fails to cite to the record in support of its claim that Lear accepted the alleged contracts from its offices in Michigan. It is Excel's burden to establish that Michigan law applies; the court determines that Excel has not met its burden.
The court concludes that Kansas law is the preferred law to apply to Excel's breach of contract claims. The fact that Excel is a Kansas Corporation undermines the argument that it would be unfair to apply Kansas law to Excel's breach of contract claims. See Sys. Design Mgmt. Info., Inc., 788 P.2d at 881 ("`As long as Kansas has `significant contact or significant aggregation of contacts' . . . to ensure that the choice of Kansas law is not arbitrary or unfair,' constitutional limits are not violated.") (citation omitted). Moreover, Excel has not shown that Michigan law is different from Kansas law in this area. Excel's brief admits that Kansas and Michigan have adopted the same Uniform Commercial Code ("U.C.C.") provisions that apply to contract formation. See Am. Web Press. Inc. v. Harris Corp., 596 F. Supp. 1089, 1091 n. 3 (D. Colo. 1983) (declining to decide the conflicts of law issue raised because both states had adopted the same controlling U.C.C. provisions). Based on the uncertainty contained in the record and Excel's failure to show material differences between Kansas and Michigan law, the court concludes that it will apply Kansas law to Excel's breach of contract claims.
The court assumes, without deciding, that the U.C.C. applies to this case. Excel's response to Lear's motion for summary judgment asserts that the alleged contracts are for the sale of goods. Lear's reply brief does not dispute that the alleged contracts are covered by the U.C.C. The court notes that Lear's motion for summary judgment cites several sections of the Kansas U.C.C. in support of its arguments.
2. Meeting of the Minds
Lear first claims that no binding contract exists because no meeting of the minds occurred between Excel and Lear as to the essential terms of the contract. Lear argues that the alleged contracts "are merely manifestations of the parties' intent to enter into a contract or contracts in the future and to negotiate further." The documents, correspondence, and oral statements that occurred over a period of time, Lear claims, do not establish the requisite meeting of the minds for contract formation. Thus, Lear asserts the alleged contracts were "part of an ongoing negotiation process" with the eventual goal of formalizing the relationship with a Long Term Supply Agreement.
In Steele v. Harrisoa the Kansas Supreme Court recited the basic rules regarding contract formation:
In order for parties to form a binding contract, there must be a meeting of the minds as to all essential terms. To constitute a meeting of the minds there must be a fair understanding between the parties which normally accompanies mutual consent and the evidence must show with reasonable definiteness that the minds of the partes met upon the same matter and agreed upon the terms of the contract.552 P.2d 957, 962 (Kan. 1976) (citations omitted). Furthermore, inAugusta Bank Trust v. Broomfield, the Kansas Supreme Court stated that "[w]here the evidence pertaining to the existence of a contract is conflicting a question is presented for the trier of fact. The controlling question as to whether a binding contract was entered into depends on the intention of the parties and is a question of fact." 643 P.2d 100, 106-07 (Kan. 1982).
After reviewing the summary judgment record, the court concludes that genuine issues remain as to whether a meeting of the minds occurred between Lear and Excel. Excel has met its burden at this stage by providing the court with affidavits, depositions, and other documents that sufficiently dispute Lear's contention that no meeting of the minds was reached between the parties. The court denies summary judgment with respect to this issue.
3. Statute of Frauds
Lear next argues that Excel's breach of contract claims are barred by the statute of frauds because "[n]o single document containing all the material terms as alleged by Excel and which is signed by Lear" exists. In response, Excel contends that the statute of frauds has been satisfied because: (1) Lear admitted in its pleadings, depositions and other documents that price-for-volume agreements existed between Lear and Excel; (2) a traditional signature is not always necessary under the U.C.C. because the definition of "signed" includes symbols and other present intentions to authenticate a writing; and (3) several exceptions to the statute of frauds are applicable, including the "merchants" exception, the partial performance exception, and the promissory estoppel exception.
At this time, the court will not discuss each argument raised by Excel to refute Lear's statute of fraud defense. The court concludes that genuine issues of material fact remain that preclude the court from granting Lear's motion for summary judgment on statute of frauds grounds. In particular, the court notes that the issues pertaining to whether Excel and Lear reached a meeting of the minds are closely intertwined with the statute of frauds issue. Also, the court determines that Excel has provided sufficient evidence to create genuine issues of fact as to the following: (1) whether a signed writing exists that meets the definition of "signed" under the U.C.C.; (2) whether the purchase orders Lear issued in June 1999 constitute partial performance of the alleged contracts; and (3) whether promissory estoppel applies as an exception to the statute of frauds. Accordingly, Lear's motion for summary judgment based on the statute of frauds is denied.
Lear's reply brief argues that it is inappropriate for Excel to assert promissory estoppel as an exception to its statute of fraud defense because Excel has already alleged a promissory estoppel claim in a separate count. The court is not persuaded by Lear's argument. The court sees no reason why Excel cannot assert promissory estoppel to refute Excel's statute of frauds defense and Lear cites no authority for its position.
B. Fraud
Excel claims that Lear made fraudulent representations concerning: (1) Lear's intention to fulfill its price for volume contracts; and (2) Lear's intention that all lamination suppliers would get only one opportunity to submit a proposal for Lear's business.
Lear maintains that it is entitled to summary judgment on Excel's fraudulent misrepresentation claim because: (1) Excel's claims of misrepresentation relate to future events, not pre-existing or present facts; (2) Excel's fraud claim merely restates its contract and promissory estoppel claims and does not allege the additional injury required by Kansas law; and (3) Excel did not reasonably rely on Lear's representations to its detriment. In response, Excel argues that: (1) it has presented sufficient evidence to sustain an action for fraudulent promise of a future event; (2) it may maintain an action for fraud independent of its breach of contract claim; and (3) Excel relied to its detriment by spending large sums of money to increase its capacity and to accommodate Lear's lamination requirements.
To state a claim for actionable fraud, the alleged misrepresentations "must relate to some material present or pre-existing fact, and cannot ordinarily be predicated on unfulfilled promises or statements as to future events." Edwards v. Phillips Petroleum Co., 360 P.2d 23, 26 (Kan. 1961). Kansas law, however, recognizes a cause of action for the fraudulent promise of future events. The elements required to sustain a such a claim are as follows:
(1) the promisor had no intention of performing his promise at the time he made it; (2) the promisor did not perform his promise as he represented he would; (3) the promisor made the promise with the intent to deceive and for the purpose of inducing the plaintiff to act upon the promise; (4) the plaintiff reasonably relied and acted upon the promise; and (5) plaintiff sustained damages relying on the promise.All West Pet Supply Co. v. Hill's Pet Products. Div., 840 F. Supp. 1426, 1430 n. 5 (D. Kan. 1993) (citation omitted). "The burden of proving fraud is by a preponderance of the evidence, but that evidence must be clear, convincing, and satisfactory." Id. (citation omitted).
The court concludes that the facts in the pleadings, affidavits, and deposition transcripts show that material issues of fact remain as to Excel's fraud claim. The court also concludes that the elements required to prove Excel's fraud claim are separate from the elements required to prove its breach of contract claim such that it qualifies as an independent tort. See Modern Air Conditioning, Inc. v. Cinderella Homes, Inc., 596 P.2d 816, 824 (Kan. 1979) (citation omitted) ("When alleged fraud relates to promises or statements concerning future events, the gravamen of such a claim is not the breach of the agreement to perform, but the fraudulent representation concerning a present, existing intention to perform, when such intention is in fact nonexistent."). Furthermore, Excel satisfies the additional injury requirement because it seeks damages that include amounts separate from those claimed under its breach of contract. Finally, Excel has presented sufficient evidence that it justifiably relied on Lear's misrepresentations to its detriment. Accordingly, the court denies Lear's motion for summary judgment as to Excel's fraud claim.
C. Fraudulent Debit Memo Scheme
Excel's fourth theory of recovery maintains that Lear issued false debit memos to Excel. Based on GECC's claims to Excel's accounts receivable, Lear argues that Excel is not the real party in interest to assert its claim under Fed.R.Civ.P. 17(a). Lear maintains that GECC is entitled to pursue its claims based upon its perfected security interest and the order issued by the United States Bankruptcy Court for the District of Kansas granting GECC relief from the automatic stay. In response, Excel claims genuine issues of fact remain as to whether any of Lear's underpayments are covered by the GECC assignment.
The court recognizes Lear's interest in being protected from multiple recoveries, as well Excel's interest in ensuring that its cause of action is prosecuted vigorously. At this time, the court reserves its ruling on Count IV of Excel's claim for fraud. At trial, Lear may renew its argument that Excel is not the real party in interest for its unauthorized debits claim. The court concludes that based on the present record, the extent of GECC's interest in Excel's accounts receivable is unclear. Specifically, after reviewing the loan agreement between GECC and Excel, whether Excel completely or partially assigned its interest to all claims arising out of its accounts receivable is uncertain.
IT IS, THEREFORE, BY THE COURT ORDERED that Lear's motion for summary judgment (Doc. 172) is denied. Specifically, the court makes the following rulings: (1) genuine issues of material fact remain as to Excel's breach of contract claim; (2) genuine issues of material fact remain as to Excel's fraud claim; and (3) the court will reserve its ruling on Excel's fraudulent debit memo claim until trial.
Copies of this order shall be transmitted to counsel of record.
IT IS SO ORDERED.