Summary
refusing to dismiss claims for breach of fiduciary duty where plaintiffs alleged a substantial imbalance of knowledge, power, and capability, and extraordinary trust in and reliance on defendant in their business dealings
Summary of this case from Cnty. of Monroe v. Purdue Pharma L.P. (In re Nat'l Prescription Opiate Litig.)Opinion
Case No. 2:03-CV-55.
March 30, 2004
Diane Marcella Barnes/Walter Douglas Moody, Jr./Timothy C. Quinnell/Richard N. Sox, for Plaintiff(s).
Terry F. Burkhart/David Michael Kroeger/John H. Mathias, Jr./Scott T. Schutte, for Defendant(s).
OPINION
Plaintiffs bring this action against Defendant, GE Capital Warranty Corporation ("GECWC"), alleging fraudulent and negligent misrepresentation in the inducement of contracts, breach of fiduciary duty, and breach of written and oral contracts. Now before the Court is GECWC's Motion to Dismiss. For the reasons stated below, the Court will grant the motion in part and deny it in part.
I. Background
This action involves three sets of Plaintiffs. The first set (the "Dealer Corporations") consists of six automobile dealerships incorporated in Michigan and operating in Michigan and Wisconsin: Riverside Auto Sales, Inc.; Riverside Auto Sales of Marquette, Inc.; Riverside Auto Truck Sales of Iron Mountain, Inc.; Riverside Auto Sales of Marinette, Inc.; M.P.T.D., Inc. d/b/a Riverside Town Country; and J.D.P.D., Inc. d/b/a Riverside Chevrolet. The second set (the "Dealer Principals") consists of four individuals who own the Dealer Corporations: Robert Dagenais, Matthew Dagenais, Timothy Dagenais, and Jeanine Dagenais. The third set is a Turks and Caicos Islands company called M.P.T.D. Reinsurance, Limited ("M.P.T.D. Reinsurance"). Defendant GECWC, a division of the GE Financial Network, is a financial services company incorporated in Delaware with offices in Colorado.
This case arises from an arrangement among the parties for the sale of and reinsurance for motor vehicle extended warranties ("Extended Warranties"). GECWC is in the business of marketing and administering Extended Warranties. In 1996, GECWC proposed a program whereby the Dealer Corporations would sell Extended Warranties to customers in conjunction with automobile sales. At the time, the Dealer Corporations were selling warranties for one of GECWC's competitors. Plaintiffs claim that GECWC also proposed a reinsurance program that would provide Plaintiffs with additional profit-making potential. In July 1996, Ann Troutman, a GECWC representative, made a sales presentation to the Dealer Principals to promote GECWC's proposals. Troutman provided a program brochure (Am. Compl. Ex. A.) and pro forma financial projections dated July 19, 1996 (Am. Compl. Ex. B.). The Dealer Corporations later entered into contracts (the "Dealer Agreements") with GECWC whereby the Dealer Corporations were to sell Extended Warranties to customers and to receive as compensation the difference between the retail price at which they chose to sell the Extended Warranties and a rate card amount set by GECWC. (Am. Compl. Exs. C, D.)
M.P.T.D. Reinsurance was incorporated in the Turks and Caicos Islands on February 17, 1998. The Dealer Principals are the company's shareholders. Through a reinsurance arrangement involving two entities that are not parties to this lawsuit, M.P.T.D. Reinsurance ultimately became responsible for the risk underwritten in the extended warranties and received a reinsurance premium in return. According to Plaintiffs, this reinsurance arrangement provided that M.P.T.D. Reinsurance would retain as profits any funds ceded to M.P.T.D. Reinsurance that were not required for funding repairs done pursuant to the Extended Warranties.
From the beginning of this case, Plaintiffs' core grievance has been that GECWC misrepresented the amount of money that would reach Plaintiffs through the reinsurance agreement. Plaintiffs assert that GECWC made oral representations that M.P.T.D. Reinsurance would receive the full rate card amount less a 10 percent ceding commission, but that GECWC removed other administrative fees beyond that amount. Plaintiffs' original Complaint filed on March 27, 2003, asserted claims of fraud in the inducement, negligent misrepresentation, and breach of oral contract. Following oral argument on GECWC's motion to dismiss the original Complaint, the Court ordered Plaintiffs to submit a redrafted complaint (the "Amended Complaint") with a clearer statement of the claims and parties. The Amended Complaint alters several claims, adds others, and adds the Dealer Principals as parties. The Court bases this Opinion on the Amended Complaint only and will not discuss the original Complaint.
The Amended Complaint describes three contracts upon which the claims are based. First, the "Dealer Agreements" mentioned above are the written contracts between the Dealer Corporations and GECWC that set forth the terms of the parties' arrangement for selling Extended Warranties. (Am. Compl. Exs. C, D.) Second is an alleged oral contract that Plaintiffs contend embodies the agreement by the Dealer Principals and GECWC to participate in the reinsurance arrangement and set up M.P.T.D. Reinsurance. Plaintiffs call this the "M.P.T.D. Reinsurance Agreement" and describe it as an additional contract separate and apart from the Dealer Agreements. Third, the "Quota Share Reinsurance Contract" is an agreement dated March 20, 1998, between M.P.T.D. Reinsurance and Westlake Insurance Company, Ltd. ("Westlake"), a Bermuda corporation that is not a party to this action. The Quota Share Reinsurance Contract sets forth certain risk transfer arrangements as part of the reinsurance arrangement.
What follows is a description of the nine counts listed in the Amended Complaint, the various combinations of Plaintiffs bringing each count, and the arguments GECWC makes for dismissal of each count in its filing titled "Memorandum in Opposition to Plaintiffs' Motion to File Amended Complaint," which the Court treats as a motion to dismiss.
Exhibit A to GECWC's Memorandum in Opposition to Plaintiffs' Motion to File Amended Complaint provides a helpful table summarizing the Amended Complaint's nine counts, the Plaintiff(s) bringing each count, and GECWC's arguments for dismissal of each count.
Count I alleges fraud in the inducement as to the Dealer Agreements on behalf of the Dealer Corporations and the Dealer Principals. GECWC's arguments for dismissal are: (a) statute of limitations; (b) Dealer Principals not a party; (c) J.D.P.D., Inc. and M.P.T.D., Inc. not incorporated when misrepresentations allegedly made; and (d) merger clause bars claim.
Count II alleges fraud in the inducement as to the M.P.T.D. Reinsurance Agreement on behalf of the Dealer Principals. GECWC's arguments for dismissal are: (a) statute of limitations; (b) statute of frauds; (c) M.P.T.D. Reinsurance not a proper party; and (d) failure to state claim with detail.
Count III alleges fraud in the inducement as to the Quota Share Reinsurance Agreement on behalf of the Dealer Principals and M.P.T.D. Reinsurance. GECWC's arguments for dismissal are: (a) statute of limitations; (b) Dealer Principals not a party; (c) misrepresentations allegedly made before M.P.T.D. Reinsurance existed; (d) no legal basis for claim based on statements by non-party; and (e) failure to join Westlake.
Count IV, pleaded in the alternative to Count I, alleges negligent misrepresentation as to the Dealer Agreements on behalf of the Dealer Principals and the Dealer Corporations. GECWC's arguments for dismissal are: (a) statute of limitations; (b) Dealer Principals not a party; and (c) merger clause bars claim.
Plaintiffs claim to have inadvertently failed to name the Dealer Corporations as damaged parties under Count IV. The Court reads Count IV as being brought on behalf of both the Dealer Principals and the Dealer Corporations.
Count V, pleaded in the alternative to Count II, alleges negligent misrepresentation as to the M.P.T.D. Reinsurance Agreement on behalf of the Dealer Principals and M.P.T.D. Reinsurance. GECWC's arguments for dismissal are: (a) statute of limitations; (b) statute of frauds; (c) M.P.T.D. Reinsurance not a proper party; and (d) failure to state claim with detail.
Count VI alleges breach of fiduciary duties owed to the Dealer Principals and is brought on behalf of the Dealer Principals and the Dealer Corporations. GECWC's argument for dismissal is failure to allege a fiduciary relationship.
Count VII alleges breach of fiduciary duties owed to M.P.T.D. Reinsurance and the shareholders of M.P.T.D. Reinsurance and is brought on behalf of the Dealer Principals and M.P.T.D. Reinsurance. GECWC's argument for dismissal is failure to allege a fiduciary relationship.
Count VIII alleges breach of contract as to the Dealer Agreements on behalf of the Dealer Principals, M.P.T.D. Reinsurance, and the Dealer Corporations. GECWC's arguments for dismissal are: (a) Dealer Principals and M.P.T.D. Reinsurance are not parties; and (b) conflicts with the terms of the Dealer Agreements.
Count IX alleges breach of oral contract as to the M.P.T.D. Reinsurance Agreement on behalf of the Dealer Principals and M.P.T.D. Reinsurance. GECWC's arguments for dismissal are: (a) statute of frauds; (b) M.P.T.D. Reinsurance not a proper party; and (c) failure to state claim with detail.
II. Motion to Dismiss Standard
An action may be dismissed if the complaint fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). The moving party has the burden of proving that no claim exists. Although a complaint is to be liberally construed, it is still necessary that the complaint contain more than bare assertions of legal conclusions. Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236, 1240 (6th Cir. 1993) (citing Schied v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988)). All factual allegations in the complaint must be presumed to be true, and reasonable inferences must be made in favor of the non-moving party. 2 Moore's Federal Practice, § 12.34[1][b] (Matthew Bender 3d ed. 2003). The Court need not, however, accept unwarranted factual inferences. Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987). Dismissal is proper "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 2232 (1984) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 101-02 (1957)).
III. Discussion
A. Counts I-V: Statute of Limitations
Counts I-V set forth fraudulent inducement and negligent misrepresentation claims which GECWC argues must be dismissed because they are time-barred by the applicable statute of limitations. Plaintiffs recognize that they filed the original Complaint after the limitations period typically governing these claims had expired. However, Plaintiffs contend that under the circumstances of this case, exceptions for fraudulent concealment and continuing wrongs work to toll the statute of limitations and preserve the timeliness of their claims. The Court concludes that neither exception applies and thus Counts I-V are time-barred.
Periods of limitation are established to extinguish rights, justifiable or not, that might otherwise be asserted. Kavanagh v. Noble, 332 U.S. 535, 539, 68 S. Ct. 235, 237 (1947). They are designed, among other things, to compel plaintiffs to exercise their rights of action within a reasonable time; protect potential defendants from the protracted fear of litigation; and promote judicial efficiency by preventing defendants and courts from having to litigate stale claims. Moll v. Abbott Labs., 444 Mich. 1, 14, 506 N.W.2d 816, 823 (1993); see also United States v. $515,060.42 in United States Currency, 152 F.3d 491, 503 (6th Cir. 1998). As such, these statutory restrictions are not simply technicalities, but rather are fundamental to a well-ordered judicial system. Bd. of Regents of the Univ. of the State of N.Y. v. Tomanio, 446 U.S. 478, 487, 100 S. Ct. 1790, 1796 (1980). In the absence of disputed facts, the question whether a cause of action is barred by the statute of limitations is a question of law to be determined by the trial judge. Moll, 444 Mich. at 26, 506 N.W. 2d at 828-29.
The parties agree that Michigan's statute of limitations for fraudulent inducement and negligent misrepresentation claims is 6 years. See M.C.L. § 600.5813 ("All other personal actions shall be commenced within the period of 6 years after the claims accrue and not afterwards unless a different period is stated in the statutes."). A claim accrues "at the time the wrong upon which the claim is based was done regardless of the time when damage results." M.C.L. § 600.5827. A claim does not accrue when it is or should have been discovered. See Boyle v. Gen. Motors Corp., 468 Mich. 226, 230-32, 661 N.W.2d 557, 559-60 (2003) (noting that the "discovery rule" has been rejected in Michigan). In this case, the alleged wrongs upon which Counts I-V are based occurred in 1996, but Plaintiffs did not file their original Complaint until March 27, 2003, more than 6 years later. Accordingly, the statute of limitations bars Counts I-V unless an exception applies.
(1) Fraudulent Concealment Exception
The fraudulent concealment exception replaces the standard 6-year limitations period with a 2-year period that runs from the time the claim was or should have been discovered. The Michigan statute embodying this exception states:
If a person who is or may be liable for any claim fraudulently conceals the existence of the claim or the identity of any person who is liable for the claim from the knowledge of the person entitled to sue on the claim, the action may be commenced at any time within 2 years after the person who is entitled to bring the action discovers, or should have discovered, the existence of the claim or the identity of the person who is liable for the claim, although the action would otherwise be barred by the period of limitations.
M.C.L. § 600.5855. See also Sills v. Oakland Gen. Hosp., 220 Mich. App. 303, 310, 559 N.W.2d 348, 352 (1996) ("Under M.C.L. § 600.5855 . . . the statute of limitation is tolled when a party conceals the fact that the plaintiff has a cause of action."). Courts are to strictly construe and narrowly apply the fraudulent concealment exception. See English v. Bousamra, 9 F. Supp. 2d 803, 808 (W.D. Mich. 1998) (citing Turner v. Mercy Hosp. Health Servs. of Detroit, 210 Mich. App. 345, 350, 533 N.W.2d 365, 367 (1995) and Hill v. United States Dep't of Labor, 65 F.3d 1331, 1335 (6th Cir. 1995)).
Fraudulent concealment occurs when a defendant "employ[s] . . . an artifice, planned to prevent inquiry or escape investigation and mislead or hinder the acquirement of information regarding a cause of action." Platsis v. E.F. Hutton Co, Inc., 642 F. Supp. 1277, 1306 (W.D. Mich. 1986) (citing Grebner v. Runyon, 132 Mich. App. 327, 339, 347 N.W.2d 741, 747 (1984)). The concealment generally must involve an affirmative act or misrepresentation. See Phinney v. Perlmutter, 222 Mich. App. 513, 562-63, 564 N.W.2d 532, 559 (1997) ("plaintiff must plead in the complaint the acts or misrepresentations that comprised the fraudulent concealment and must prove that the defendant committed affirmative acts of misrepresentations that were designed to prevent subsequent discovery."); Buszek v. Harper Hosp., 116 Mich. App. 650, 654, 323 N.W.2d 330, 334 (1982) (noting the affirmative acts or misrepresentations requirement). "Mere silence is insufficient." Sills, 220 Mich. App. at 310, 559 N.W.2d at 352.
However, an affirmative act or misrepresentation is not required in cases — such as the instant case — where the underlying cause of action is fraud. In fraud cases, a defendant's mere silence about the existence of the cause of action suffices. See Bufalino v. Mich. Bell. Tel. Co., 404 F.2d 1023, 1028 (6th Cir. 1968) (acknowledging Michigan's "affirmative acts or misrepresentations" requirement, but noting that if a "plaintiff's cause of action is based on fraud, a different rule would apply. The original fraud is regarded as a continuing affirmative act, and mere silence of the defendant is treated as concealment.") (internal quotation marks and citation omitted); Schram v. Dederick, 44 F. Supp. 366, 367 (E.D. Mich. 1942) ("It is the rule in Michigan that where the basis of an action is a fraud perpetrated by one liable to action therefore, the original fraud is regarded as a continuing affirmative act, and mere silence of the one liable to such action constitutes a concealment of the cause of action in the absence of anything putting the person who has such cause of action upon inquiry regarding the same.").
To successfully advance fraudulent concealment as a basis for avoiding the limitations bar, a plaintiff must prove that: (1) the defendant wrongfully concealed the existence of the cause of action; (2) the plaintiff failed to discover operative facts, within the limitations period, that are the basis of the cause of action; and (3) the plaintiff exercised due diligence to discover those facts. English v. Bousamra, 9 F. Supp. 2d 803, 810 (W.D. Mich. 1998) (citing Hill v. United States Dep't of Labor, 65 F.3d 1331, 1335 (6th Cir. 1995) and Kelley v. McDonald Dairy Co., 905 F. Supp. 447, 451 (W.D. Mich. 1995)). "It is not necessary that a party should know the details of the evidence by which to establish this cause of action. It is enough that he knows [or should know] that a cause of action exists in his favor." English, 9 F. Supp. 2d at 810 (quoting Gomez v. Great Lakes Steel Div., Nat'l Steel Corp., 803 F.2d 250, 254 (6th Cir. 1986)). The question of whether a plaintiff has sufficient knowledge to bring a claim is not based on "whether the plaintiff has knowledge of sufficient facts to prevail on a claim, but whether the plaintiff has knowledge of sufficient facts to cause a reasonable person to pursue an investigation that could uncover the evidence needed to lead to an ultimate victory." Moll v. Abbott Labs., 444 Mich. 1, 21 n. 25, 506 N.W.2d 816, 826 n. 25 (1993). When a plaintiff knows or should know that a cause of action exists, "it is his own fault if he does not avail himself of those means which the law provides for prosecuting or preserving his claim." Gomez, 803 F.2d at 254.
In this case, Plaintiffs cannot invoke the fraudulent concealment exception because their own evidence shows they knew of the nascent claims now set forth in Counts I-V before the 6-year statute of limitations ran out. Plaintiffs therefore are unable to prove, as the exception requires, that they failed to discover operative facts, within the limitations period, that are the basis of the cause of action. English, 9 F. Supp. 2d at 810. Counts I-V allege that during the sales presentation in July 1996, GECWC falsely represented the compensation Plaintiffs would receive and the amount of fees and costs they would have to pay to GECWC. The 6-year limitations clock began clicking at that time. Plaintiffs claim that at some later time they realized GECWC was deducting additional fees and thereby reducing Plaintiffs' compensation. The Dealer Principals contend that (but do not say when) they made "repeated requests [to GECWC] . . . for explanation." (Pl.'s Br. Resp. to Def.'s Mem. Opp'n. to Pl.'s Mot. to File Am. Compl. at 3) These inquiries apparently culminated with Dealer Principal Matt Dagenais' letter to GECWC on June 10, 2002, to which GECWC responded on June 28, 2002. (Id. Ex. A.) This correspondence evidences that Plaintiffs knew about and sought to address the brewing dispute over fees and compensation by June 10, 2002, at the very latest, and before the statute of limitations for a fraud action expired in July 2002. Therefore, the fraudulent concealment exception of M.C.L. § 600.5855 does not apply and Counts I-V are time-barred by the standard 6-year statute of limitations.
(2) Continuing Wrongful Acts Exception
Plaintiffs also seek to escape the 6-year limitations period by arguing for the application of the continuing wrongful acts exception. "Where a defendant's wrongful acts are of a continuing nature, the period of limitation will not run until the wrong is abated; therefore, a separate cause of action can accrue each day that the defendant's tortious conduct continues." Horvath v. Delida, 213 Mich. App. 620, 626, 540 N.W.2d 760, 763 (1995). In Plaintiffs' view, GECWC committed another wrongful act every month when, in contravention of its representations that induced the agreements at issue in Counts I-V, it removed additional administrative fees.
The problem with Plaintiffs' argument is that the allegedly continuing wrongful acts of removing fees do not relate to the fraudulent and negligent inducement claims for which Plaintiffs seek to toll the statute of limitations. Those claims, stated in Counts I-V of the Amended Complaint, assert that GECWC misrepresented and omitted information during its "sales pitch" in 1996, which induced Plaintiffs to enter into certain contracts. It is of the very nature of these claims that the alleged wrongdoing occurred before the contracts were entered into and could not have continued past that time. "[A] continuing wrong is established by continual . . . acts, not by continual harmful effects from an original, completed act. Horvath, 213 Mich. App. at 627, 540 N.W.2d at 763. Whether GECWC wrongfully removed fees each month may be an issue to consider with respect to Plaintiffs' breach of fiduciary duty or breach of contract claims in Counts VI-IX. But allegations supporting those counts cannot be imported to toll the statute of limitations for the fraud counts. Courts do not mix and match causes of action with statutes of limitation. Cf. Holland v. Modern Boats Motors, No. 185748, 1997 WL 33354500, at * 2 (Mich.Ct.App. Jan. 21, 1997) (addressing application of the continuing wrongful acts doctrine in the context of a negligence statute of limitations applied to a corresponding negligence cause of action);Horvath, 213 Mich. App. at 626, 540 N.W.2d at 763 (same). Accordingly, the continuing wrongful acts exception provides no basis for tolling the 6-year statute of limitations for Counts I-V.
B. Counts VI-VII: Fiduciary Relationship
GECWC seeks dismissal of the breach of fiduciary duty claims in Counts VI-VII for failure to allege a fiduciary relationship between Plaintiffs and GECWC. In the absence of a fiduciary relationship among the parties, there of course can be no fiduciary duty, and thus no breach claim. Whether a fiduciary relationship exists, other than in certain well-defined categories (e.g, trustee-beneficiary, attorney-client, etc.) that constitute fiduciary relationships per se, is a question of fact.See Fassihi v. Sommers, Schwartz, Silver, Schwartz Tyler, P.C., 107 Mich. App. 509, 515, 309 N.W.2d 645, 648 (1981) (citing In re Wood Estate, 374 Mich. 278, 132 N.W.2d 35 (1965)). Because the Court is unable to decide at this stage whether the relationship between Plaintiffs and GECWC took on a fiduciary character, GECWC's motion to dismiss will be denied with respect to Counts VI and VII.
According to Plaintiffs, GECWC became a fiduciary of M.P.T.D. Reinsurance and its shareholders (i.e., the Dealer Principals) because it acted in the capacity of promoter, director, and manager in setting up and facilitating the incorporation of M.P.T.D. Reinsurance and managing its relationship with Westlake. The Dealer Principals allege that as automobile dealers without any experience in the insurance business, they personally took on risks and committed their assets to the reinsurance program based on promises of a steady stream of profits that could be used to fund, for example, retirement or college education. The Dealer Principals say all they had to do, according GECWC's promises, was sit back and collect the profits from their investment. Meanwhile, GECWC allegedly handled all aspects of the formation and subsequent operations of M.P.T.D. Reinsurance, to include incorporating it in the Turks and Caicos Islands; making all necessary regulatory filings and communications; getting licenses; handling tax matters; and distributing shares of stock. Also, Plaintiffs contend that GECWC maintained a fiduciary relationship with the Dealer Corporations regarding the Extended Warranty arrangement by managing the sales business; providing all forms, brochures, and supplies; keeping records of all sales; administering the handling of claims; authorizing the performance of covered repairs; reimbursing the dealer for repairs; offering consulting services; and conducting training for dealer sales personnel. The Amended Complaint repeatedly emphasizes Plaintiffs' alleged reliance on GECWC's relatively greater knowledge, expertise, power, and control.
Black's Law Dictionary defines "fiduciary relationship" as:
A relationship in which one person is under a duty to act for the benefit of the other on matters within the scope of the relationship. Fiduciary relationships — such as trustee-beneficiary, guardian-ward, agent-principal, and attorney-client — require the highest duty of care. Fiduciary relationships usually arise in one of four situations: (1) when one person places trust in the faithful integrity of another, who as a result gains superiority or influence over the first, (2) when one person assumes control and responsibility over another, (3) when one person has a duty to act for or give advice to another on matters falling within the scope of the relationship, or (4) when there is a specific relationship that has traditionally been recognized as involving fiduciary duties, as with a lawyer and a client or a stockbroker and a customer. — Also termed fiduciary relation; confidential relationship.
Black's Law Dictionary 640 (7th ed. 1999).
Court opinions repeat the theme that fiduciary relationships entail one party reposing faith, confidence, and trust in another's judgment and advice. Fassihi, 107 Mich. App. at 515, 309 N.W.2d at 648. See also Ulrich v. Fed. Land Bank of St. Paul, 192 Mich. App. 194, 196, 480 N.W.2d 910, 911 (1991);Smith v. Saginaw Sav. Loan Ass'n, 94 Mich. App. 263, 274, 288 N.W.2d 613, 618 (1979). "A person in a fiduciary relation to another is under a duty to act for the benefit of the other as to matters within the scope of the relation." Bero Motors v. Gen. Motors Corp., No. 224190, 2001 WL 1167533, at *4 (Mich.Ct.App. Oct. 2, 2001) (citing 1 Restatement, Trusts, 2d § 2, cmt. b, p. 6 and Melynchenko v. Clay, 152 Mich. App. 193, 197, 393 N.W.2d 589, 591 (1986)).
In a recent case holding that marriage, while based on mutual trust and commitment, is not a fiduciary relationship, the Michigan Supreme Court explained that the fiduciary concept has to do with one party's inequality in the face of the other party's domination and superiority:
Although a broad term, "confidential or fiduciary relationship" has a focused view toward relationships of inequality. This Court recognized in In re Wood's Estate, 374 Mich. 278, 287, 132 N.W.2d 35 (1965), that the concept had its English origins in situations in which dominion may be exercised by one person over another. Quoting 3 Pomeroy, Equity Jurisprudence (5th ed., 1941), § 956a, this Court said a fiduciary relationship exists as fact when "'there is confidence reposed on one side, and the resulting superiority and influence on the other.'" 374 Mich. at 283, 132 N.W.2d 35. . . . In these situations, complete trust has been placed by one party in the hands of another who has the relevant knowledge, resources, power, or moral authority to control the subject matter at issue.In re Estate of Karmey, 468 Mich. 68, 74 n. 3, 658 N.W.2d 796, 799 n. 3 (2003). Still, a relationship may be non-fiduciary even if one party lacks experience and relies on the other. See Ulrich, 192 Mich. App. at 196, 480 N.W. at 911 ("Plaintiffs' allegations of their inexperience and reliance on FLB are insufficient to claim a fiduciary relationship."). In the end, broadly worded definitions of the fiduciary concept "are of value only in the factual context of a particular case." Bain v. Champlin Petroleum Co., 692 F.2d 43, 47 (8th Cir. 1982). See also Muglia v. Kaumagraph Corp., 64 F.3d 663, Nos. 93-1986 94-1156, 1995 WL 492933, at *5 (6th Cir. Aug. 16, 1995) (table opinion) ("Except for certain per se fiduciary relationships, such as that between an attorney and client, fiduciary relationships arise from the facts and circumstances surrounding the relationship between the parties."); Kearns v. Ford Motor Co., 203 U.S.P.Q. 884, 888 (E.D. Mich. 1978) (stating that assessing whether a relationship is fiduciary in character depends on "the personal attributes of the parties and the nature of their dealings").
Familiar examples of fiduciary relationships include "trustees to beneficiaries, guardians to wards, attorney to clients, and doctors to patients." Bero Motors, 2001 WL 1167533, at *4 (citing Portage Aluminum Co. v. Kentwood Nat'l Bank, 106 Mich. App. 290, 294, 307 N.W.2d 761, 763 (1981)). Michigan courts have expressed some reluctance to extend the cause of action for breach of fiduciary relationship beyond traditional contexts.Bero Motors, 2001 WL 1167533, at *5 (citing Teadt v. St. John Evangelical Lutheran Church, 237 Mich. App. 567, 580, 603 N.W.2d 816, 823 (1999) (finding no fiduciary duty arising from interpersonal relationships); Farm Credit Servs. of Michigan's Heartland, PCA v. Weldon, 232 Mich. App. 662, 680, 591 N.W.2d 438, 447 (1998) (holding that a fiduciary relationship does not generally arise in the bank lender and borrower relationship)). However, fiduciary relationships may exist outside of the traditional categories.
GECWC suggests that it merely shared a business relationship with Plaintiffs. A fiduciary relationship entails more than the generalized obligation of good faith and fair dealing characteristic of business relationships. In re Sallee, 286 F.3d 878, 891 (6th Cir. 2002). Sallee cited with approval the Texas Supreme Court's description of this distinction in Crim Truck Tractor Co. v. Navistar International Transportation Corp.:
The duty of good faith and fair dealing merely requires the parties to "deal fairly" with one another and does not encompass the often more onerous burden that requires a party to place the interest of the one party before his own, often attributed to a fiduciary duty.
. . . .
The fact that one businessman trusts another, and relies upon his promise to perform a contract, does not rise to a confidential relationship. Every contract includes an element of confidence and trust that each party will faithfully perform his obligation under the contract. Neither is the fact that the relationship has been a cordial one, of long duration, evidence of a confidential relationship.828 S.W.2d 591, 594-95 (Tex. 1992), superseded by Tex. Rev. Civ. Stat. Ann. art. 4413, § 6.06(e) (Vernon 2001) (establishing a duty of good faith and fair dealing between parties to a car dealership franchise agreement) (internal citations omitted). Similarly, in Bain v. Champlin Petroleum Co., 692 F.2d 43, 47 (8th Cir. 1992), the court reasoned that the presence of trust and confidence among parties doing business does not automatically give rise to a fiduciary relationship. Agency relationships as well may be non-fiduciary. Muglia, 1995 WL 492933, at *5.
Most interactions among business entities lack fiduciary characteristics. Courts are less likely to find a fiduciary relationship when the parties are experienced, for-profit entities acting in a commercial setting. Bero Motors, 2001 WL 1167533, at *5 (finding no fiduciary relationship where "the parties' existing and continued relationship is driven by profits" against "a commercial backdrop where sophisticated commercial entities . . . regulate the minutiae of their relationship through written contracts"). See also Goscicki v. Custom Brass Copper Specialties, Inc., 229 F. Supp. 2d 743, 758 (E.D. Mich. 2002) (finding no evidence of the existence of a fiduciary relationship between "two independent for-profit entities with no relationship aside from one contractually created"); Kearns, 203 U.S.P.Q. 884, 888 (contrasting sick, elderly plaintiffs in cases finding fiduciary relationships with a plaintiff who had "extensive education, experience, and presumed sophistication" and conducted short-term, arms-length dealings with "a mammoth, multi-national corporation"). Ordinarily, no fiduciary relationship exists between a manufacturer and a distributor of its products. Aerospace Am., Inc. v. Abatement Techs., Inc., 738 F. Supp. 1061, 1071 (E.D. Mich. 1990) (citing cases). Neither do fiduciary obligations automatically arise in the franchisor-franchisee relationship.See Devalk Lincoln Mercury, Inc., v. Ford Motor Co., No. 81 C 4072, 1986 WL 4097, at *14 (N.D. Ill. Mar. 19, 1986) (applying Michigan law and citing cases).
The underlying basis of a fiduciary relationship is "the preclusion of any nonmutual profit arising from the dealings of the parties." C. Pappas Co., Inc. v. E.J. Gallo Winery, 610 F. Supp. 662, 667 (E.D. Cal. 1985) (citing Rickel v. Schwinn Bicycle Co., 144 Cal. App. 3d 648, 654 (1983)). See also Aerospace Am., 738 F. Supp. at 1071 (citing Pappas and stating that the manufacturer-distributor relationship does not meet this test); Goscicki, 229 F. Supp. 2d at 757 (citingAerospace America and concluding that two companies failed to meet this test due to their "independent and autonomous posture . . . in correlation with each other."). Plaintiffs contend that the parties in this case profit mutually from their Extended Warranty sales and reinsurance arrangements. It is not clear to the Court whether the parties' dealings generate any nonmutual profit. Therefore, the Court cannot reject Plaintiffs' fiduciary relationship claim under the "preclusion of any nonmutual profit" maxim.
The authorities discussed above make clear that in most circumstances, business entities dealing with one another in a commercial setting do not incur fiduciary duties, even when their relationships involve a measure of trust or confidence. Courts will dismiss a breach of fiduciary case if a plaintiff presents no facts that would support a conclusion that the plaintiff reposed special confidence and trust in the defendant, relied upon the defendant's judgment and advice, and the defendant accepted the confidence and trust. See, e.g., Devalk, 1986 WL 4097, at *14. However, Plaintiffs in this case allege substantial imbalances of knowledge, power, and capability between themselves and GECWC. They say their extraordinary trust in and reliance on GECWC elevated their dealings beyond a mere business relationship. GECWC has not cited and the Court has not found any authority requiring a fact-finder to conclude from Plaintiffs' allegations that no fiduciary relationship existed. Accordingly, Plaintiffs' breach of fiduciary duty claims survive GECWC's motion to dismiss.
C. Count VIII
In Count VIII, the Dealer Principals, M.P.T.D. Reinsurance, and the Dealer Corporations assert claims for breach of contract as to the Dealer Agreements. GECWC argues that Count VIII should be dismissed for two reasons. First, GECWC contends that the Dealer Principals and M.P.T.D. Reinsurance cannot sue for breach of the Dealer Agreements because they were not parties to those agreements. The Court agrees, and also rejects Plaintiffs' arguments that the Dealer Principals and M.P.T.D. Reinsurance are third party beneficiaries of the Dealer Agreements and that the Dealer Agreements are sufficiently interrelated with the other contracts at issue in this case to give the Dealer Principals and M.P.T.D. Reinsurance standing to sue for breach of the Dealer Agreements. Second, GECWC argues that the Dealer Agreements expressly set forth the terms of the Dealer Corporations' "sole compensation." GECWC maintains that because Plaintiffs do not claim that they did not receive this compensation, Count VIII is really a claim for breach of commitments outside of the Dealer Agreements. With respect to this contention, the Court disagrees with GECWC and reads Count VIII to allege breach of the Dealer Agreements themselves. Accordingly, and for the reasons discussed below, Count VIII survives the motion to dismiss, but only as brought by the Dealer Corporations.
(1) Third Party Beneficiaries; Interrelated Contracts
"Generally, one who is not a party to an agreement cannot pursue a claim for breach of the agreement." First Sec. Sav. Bank v. Aitken, 226 Mich. App. 291, 305, 573 N.W.2d 307, 314 (1997), overruled on other grounds, Smith v. Globe Life Ins. Co., 460 Mich. 446, 597 N.W.2d 28 (1999). The Dealer Principals and M.P.T.D. Reinsurance acknowledge that they were not parties to the Dealer Agreements but they nevertheless assert standing to sue for breach of those agreements as third party beneficiaries. Third party beneficiaries may sue for breach of contract under Michigan law. M.C.L. § 600.1405 ("Any person for whose benefit a promise is made by way of contract, as hereinafter defined, has the same right to enforce said promise that he would have had if the promise had been made directly to him as the promisee."). Moreover, a third party beneficiary that comes into being after the contract for its benefit is entered into has standing to enforce the contract. M.C.L. § 600.1405(2)(b) ("If such person is not in being or ascertainable at the time the promise becomes legally binding on the promisor then his rights shall become vested the moment he comes into being or becomes ascertainable if the promise has not been discharged by agreement between the promisor and the promisee in the meantime.").
To determine whether a party is a third party beneficiary as defined in M.C.L. § 600.1405, the Court must objectively review "the form and meaning of the contract itself." Kammer Asphalt Paving Co., Inc. v. East China Township Schools, 443 Mich. 176, 189, 504 N.W.2d 635, 642 (1993) (citation omitted); see also Taggart v. United States, 880 F.2d 867, 869 (6th Cir. 1989) (applying an objective standard; "[t]he contract itself reveals the parties' intentions"). "[T]he parties' motives and subjective intentions are not relevant in determining whether [a] plaintiff is a third party beneficiary." Rieth-Riley Constr. Co., Inc. v. Dep't of Transp., 136 Mich. App. 425, 430, 357 N.W.2d 62, 65 (1984). Third party beneficiary status requires an express promise to act for the benefit of the third party; where no such promise exists, a third party cannot maintain a breach of contract action. Dynamic Constr. Co. v. Barton Malow Co., 214 Mich. App. 425, 428, 543 N.W.2d 31, 33 (1995). Not everyone who benefits in some way from a contract can be classified as a third party beneficiary so as to be able to stand in the promisee's shoes and recover under the contract. First Sec. Sav. Bank, 226 Mich. App. at 307, 573 N.W.2d at 315.
Third party beneficiaries, who have contract rights, differ from "incidental" beneficiaries, who do not. As Greenless v. Owen Ames Kimball Co. explains:
An incidental beneficiary has no rights under the contract. A third person cannot maintain an action upon a simple contract merely because he would receive a benefit from its performance or because he is injured by the breach thereof. Where the contract is primarily for the benefit of the parties thereto, the mere fact that a third person would be incidentally benefitted does not give him a right to sue for its breach.340 Mich. 670, 676, 66 N.W.2d 227, 229 (1954). Greenless found that the plaintiff in that case could not recover as a third party beneficiary because the contract did not contain promises for the benefit of the plaintiff.
An objective inspection of the written Dealer Agreements reveals nothing in their form or meaning contemplating third party beneficiaries. The Dealer Agreements make no explicit or implicit mention of the Dealer Principals or of M.P.T.D. Reinsurance aside from a clause designating the Dealer Principals as guarantors of the Dealer Corporations' payment obligations. Neither do the Dealer Agreements refer to outside contracts such as the alleged M.P.T.D. Reinsurance Agreement or the Quota Share Reinsurance Agreement. The Dealer Principals and M.P.T.D. Reinsurance are at best incidental beneficiaries of the Dealer Agreements who may have been adversely affected by the alleged breach of those contracts. But they are not third party beneficiaries. Accordingly, the Dealer Principals and M.P.T.D. Reinsurance lack standing with respect to Count VIII.
The fact that certain of the Dealer Principals acted as guarantors for the obligations undertaken by the Dealer Corporations in the Dealer Agreements does not give the Dealer Principals standing to bring claims for breach of the Dealer Agreements. See Quarles v. City of East Cleveland, 202 F.3d 269, No. 99-3050, 1999 WL 1336112, at *4 (6th Cir. Dec. 20, 1999) (holding that guarantors of a corporation's obligations may not sue for claims that the corporation may assert: "in order to obtain standing to assert a claim, a guarantor's injury must not stem from the harm done to the corporation").
The Court also rejects Plaintiffs' "interrelated contracts" argument. Plaintiffs posit that the Dealer Principals and M.P.T.D. Reinsurance have standing to pursue the Count VIII claims because the Dealer Agreements, the M.P.T.D. Reinsurance Agreement, and the Quota Share Reinsurance Contract were interrelated and dependent upon each other. According to Plaintiffs, interrelated contracts may be read together. In support of this proposition, Plaintiffs cite Kasler Electric Co. v. Insurance Co. of North America, 963 F.2d 374, No. 91-1533, 1992 WL 113371, at *3 (6th Cir. May 28, 1992). Kasler invoked language from Charles J. Roger, Inc. v. State of Michigan, 36 Mich. App. 620, 626, 194 N.W.2d 203, 207 (1971), which noted Michigan's rule that "where a written contract refers to another instrument and makes the terms of the other instrument a part of the written agreement, the separate instruments are construed together as the agreement of the parties." As the Court has already noted, the Dealer Agreements neither refer to nor incorporate a separate agreement. In fact, the Dealer Agreements' merger clauses expressly disclaim the existence of any related agreements. (Am. Compl. Ex. D ¶ 9(B) ("This Agreement constitutes the entire Agreement between the parties relating to the subject matter hereof and supersedes all prior agreements between the parties.")). Accordingly, the Dealer Corporations are the only proper plaintiffs under Count VIII.
(2) Conflict with Terms of Dealer Agreements
GECWC next argues for dismissal of Count VIII because GECWC believes that the breach of contract claim is inconsistent with the Dealer Agreements' terms. The Dealer Agreements provide that the Dealer Corporations' "sole compensation" is the "difference between the retail sales price collected by [the Dealer Corporations] on each Service Contract and the Net Dealer Cost payable to [GECWC]." (Dealer Agreements ¶ 3, Am. Compl. Ex. D.) GECWC maintains that Plaintiffs have not alleged that they did not receive this compensation, so therefore Plaintiffs have no claim for breach of the Dealer Agreements.
A careful reading of Count VIII, however, shows that Plaintiffs have alleged breach of the Dealer Agreements's "sole compensation" clause. The Dealers' compensation amounted to the spread between the price at which the Dealers sold extended warranties to customers and the Net Dealer Cost. Section 2 of the Dealer Agreements, titled "Reports and Remittances," explains that the Net Dealer Cost is "set forth in Schedule A hereto, as amended by [GECWC] from time to time," and that GECWC "shall be permitted to revise the Net Dealer Costs set forth in Schedule A, and any such revision shall become effective upon written notice to the Dealer unless otherwise required by law." (Id. ¶ 2.) Plaintiffs assert that GECWC altered the Net Dealer Cost without providing notification. (Am. Compl. ¶ 121 ("However, in contravention of the compensation provision of the Dealer Agreement, [GECWC] deducted an unauthorized fee from the Net Dealer Cost making the difference between the Total Retail Sales Price Paid by Consumer and the Net Dealer Cost to be paid to the Dealer Corporations effectively less by an amount equal to the unauthorized fee.")); id. ¶ 122 ("[GECWC] has breached the express provision of the Dealer Agreements by charging and withholding additional 'administrative' fees which raised the amount payable to [GECWC] as Net Dealer Cost and conversely reduced the commission which should have been received by the Dealer Corporations as 'front end' profits."); id. ¶ 123 ("[GECWC] at no time informed the Dealer Principals of its intention to collect said administrative fees."). Accordingly, the Amended Complaint adequately alleges Count VIII.
D. Count IX
Count IX asserts claims on behalf of the Dealer Principals and M.P.T.D. Reinsurance for breach of oral contract as to the M.P.T.D. Reinsurance Agreement. GECWC argues that this count should be dismissed for three reasons: (1) the statute of frauds bars claims related to this alleged oral agreement; (2) M.P.T.D. Reinsurance cannot recover damages based on a contract that allegedly relates to the formation of M.P.T.D. Reinsurance; and (3) the Amended Complaint fails to plead the breach of oral contract claim in adequate detail. As the following discussion demonstrates, none of these reasons provide grounds for dismissal and Count IX therefore survives.
(1) Statute of Frauds
GECWC disputes that the M.P.T.D. Reinsurance Agreement ever existed, but argues that even if it did, the statute of frauds renders the contract unenforceable because it was unwritten and could not be performed within one year. Pursuant to Michigan's statute of frauds, an agreement, contract, or promise is void in the absence of a signed writing if "by its terms, [it] is not to be performed within 1 year from the making of the agreement." M.C.L. § 566.132(1)(a). The statute of frauds does not bar an oral agreement that is capable, by any possibility, of performance within one year of the agreement. Dumas v. Auto Club Ins. Ass'n, 437 Mich. 521, 533, 473 N.W.2d 652, 657 (1991). Assuming the existence of the M.P.T.D. Reinsurance Agreement, the parties disagree about the time in which it could be performed. The disagreement over time frames reflects a larger dispute over terms of the alleged contract.
GECWC argues that the contract could not possibly have been performed within one year because the Extended Warranties were for more than one year. In GECWC's view, Plaintiffs are alleging that the M.P.T.D. Reinsurance Agreement consisted of an arrangement whereby M.P.T.D. Reinsurance was, on an ongoing basis after it was incorporated, to receive premiums and, in return, be responsible for claims submitted pursuant to the underlying extended warranties. Accordingly, GECWC contends, the M.P.T.D. Reinsurance Agreement necessarily could not be performed until the multi-year Extended Warranties expired.
The Court inclines toward Plaintiffs' characterization of the contract as essentially an agreement for setting up the reinsurance arrangement, not executing it. The Amended Complaint states that "[t]he subsequent agreement by the Dealer Principals with [GECWC] to participate in this reinsurance scheme formed an oral contract known as the M.P.T.D. Reinsurance Agreement." (Am. Compl. ¶ 33.) Also, Count IX alleges that the M.P.T.D. Reinsurance Agreement was an oral contract that arose whereby "[GECWC], by and through its representative, orally represented and agreed with the Dealer Principals that MPTD [Reinsurance] would be established such that it received the entirety of the funds obtained from its collection of the Net Dealer Cost proceeds minus a ten percent (10%) insurance and ceding fee." (Id. ¶ 126). Plaintiffs deny that the length of the Extended Warranties was a term of the M.P.T.D. Reinsurance Agreement, pointing out that the warranties were separate contracts between GECWC and consumers. Although the reinsurance arrangement ended up taking longer than one year to come to fruition, it conceivably could have been set up in less than one year. Plaintiffs allege that nothing in the agreement established a time frame for commencing each step of the reinsurance program. Based on the pleadings, the precise contours of the oral agreement remain nebulous. Taking Plaintiffs' allegations as true, the contract possibly was capable of performance in one year and thus escapes the statute of frauds' bar.
(2) M.P.T.D. Reinsurance as a Proper Party
Next, GECWC argues that M.P.T.D. Reinsurance cannot assert a claim for breach of the alleged oral M.P.T.D. Reinsurance Agreement because M.P.T.D. Reinsurance did not even exist prior to that agreement; indeed, the M.P.T.D. Reinsurance Agreement purportedly embodied promises to create M.P.T.D. Reinsurance. The Court disagrees with GECWC's contention and declines to dismiss M.P.T.D. Reinsurance as a party to Count IX because M.P.T.D. Reinsurance could be a third party beneficiary of the M.P.T.D. Reinsurance Agreement. As the Court has already discussed, third party beneficiary powers under a contract may flow to a person not in being at the time of the contract's creation. M.C.L. § 600.1405(2)(b). The facts alleged depict M.P.T.D. Reinsurance as an intended third party beneficiary. With the very existence, let alone the terms, of the M.P.T.D. Reinsurance Agreement remaining matters of factual dispute, the Court cannot resolve at the motion to dismiss stage the question of whether M.P.T.D. Reinsurance is a third party beneficiary and therefore a proper party to Count IX.
(3) Adequacy of Claim for Breach of Oral Contract
GECWC next argues the Count IX should be dismissed because Plaintiffs fail to plead the offer, acceptance, or consideration necessary to form a contract, and they have not stated the time and place of the alleged oral contract's making. GECWC maintains that Plaintiffs allegations, without such specifics, are merely conclusory and must be dismissed. The Court disagrees with GECWC and concludes instead that Plaintiffs have stated their Count IX claims with adequate detail to proceed.
The Federal Rules of Civil Procedure require notice pleading, whereby a plaintiff must provide "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a). To plead a breach of oral contract claim, a plaintiff must allege the essential contractual elements: competent parties, proper subject matter, legal consideration, mutuality of agreement, and mutuality of obligation. Downriver Maint. Corp. v. Decker, No. 232875, 2002 WL 31012608, at *3 (Mich.Ct.App. Aug. 30, 2002) (citing Mallory v. Detroit, 181 Mich. App. 121, 127, 449 N.W.2d 115, 118 (1989)). Under Rule 8(a)'s notice pleading standard, the allegations only must be sufficiently specific to enable a defendant to respond to the breach of contract claim. Sky Techs. Partners, LLC v. Midwest Research Inst., 125 F. Supp. 2d 286, 298 (S.D. Ohio 2000) (rejecting a motion for a more definite statement of a breach of contract claim and, in light of Fed.R.Civ.P. 8, criticizingReed v. General Implement Export Corp., 9 F.R.D. 182, 183 (N.D. Ohio 1949), a case on which GECWC relies for the proposition that an oral contract requires specific identification in pleading as to time, place and parties or agents).
Plaintiffs' Amended Complaint adequately pleads the elements of an oral contract. The alleged offer consists of GECWC's "sales pitch." (Am. Compl. ¶¶ 12-34.) The Dealer Principals' alleged agreement to commit their respective Dealer Corporations and themselves to the ownership of M.P.T.D. Reinsurance constitutes acceptance. (Id. ¶¶ 24-28, 33.) Plaintiffs further state that the mere existence of the Dealer Agreements and M.P.T.D. Reinsurance are evidence that the parties agreed to enter into the reinsurance arrangement and carried it out. The Amended Complaint pleads consideration by alleging GECWC's promise to the Dealer Principals that if they entered the Dealer Agreements and sold extended warranties, GECWC would enable the Dealer Principals to enjoy profits on the "front end" and "back end" of the reinsurance arrangement by creating and managing M.P.T.D. Reinsurance to be the ultimate insurer of the extended warranties. Accordingly, Plaintiffs have satisfied the notice pleading requirements for stating claims under Count IX.
IV. Conclusion
For the reasons stated above, GECWC's Memorandum in Opposition to Plaintiffs' Motion to File Amended Complaint, which the Court treats as GECWC's Motion to Dismiss, will be granted in part and denied in part. Counts I-V of Plaintiffs' Amended Complaint will be dismissed as untimely under the statute of limitations. Counts VI-VII survive because Plaintiffs have alleged a fiduciary relationship. Count VIII will be dismissed with respect to the Dealer Principals and M.P.T.D. Reinsurance because these Plaintiffs were not parties to the Dealer Agreements. However, Count VIII survives with respect to the Dealer Corporations because the breach of contract claim, as alleged, does not conflict with the Dealer Agreements. Count IX survives with respect to both the Dealer Principals and M.P.T.D. Reinsurance because it is not precluded by the statute of frauds, M.P.T.D. may be a proper party as a third party beneficiary, and the Amended Complaint alleges the elements of an oral contract in sufficient detail.
An Order consistent with this Opinion will be entered.