the Caden Companies Inc v. Mj Steps ( 2017 )

STATE OF MICHIGAN
COURT OF APPEALS
THE CADEN COMPANIES, INC., and BELLY UNPUBLISHED
BANDIT, September 14, 2017
Plaintiff-Appellees,
v No. 332795
Oakland Circuit Court
MJ STEPS, LC No. 2015-148958-CB
Defendant-Appellant.
Before: O’BRIEN, P.J., and JANSEN and MURRAY, JJ.
PER CURIAM.
Defendant appeals as of right an order granting plaintiffs’ motion for reconsideration of
an earlier order granting summary disposition in favor of defendant under MCR 2.116(C)(1) for
lack of jurisdiction. Upon reconsideration, the trial court set aside its prior order and granted
plaintiffs’ motion for summary disposition under MCR 2.116(C)(7), before entering an order
compelling defendant’s participation in arbitration in Oakland County. We reverse.
Plaintiffs are Caden Companies, Inc., a California corporation “engaged in the business
of manufacturing, distributing, and selling various clothing items, specifically maternity and
post-maternity garments, under the trade name ‘Belly Bandit.’ ” Caden Companies, Inc. is the
parent company of Belly Bandit. Defendant, a Spanish limited liability company, is a private
distributor headquartered in Switzerland with a European office in Spain. On July 1, 2013, the
parties entered a three-year distribution agreement (the Contract), by which plaintiff agreed to
supply defendant “Belly Bandit” products and defendant obtained the exclusive right to market
plaintiffs’ “Belly Bandit” products in Europe. In exchange for the exclusive right to distribute
products in Europe, defendant agreed to the inclusion of a confidentiality provision, a non-
compete provision, and an intellectual property provision. The Contract also provided that it
would be “governed by, and construed in accordance with, the laws of the state of Michigan,”
that Oakland County, Michigan would be the exclusive venue for any legal proceedings arising
from the Contract, and that any controversy arising out of or relating to the Contract would be
settled by arbitration in Southfield, Michigan.
In September 2015, plaintiffs brought a complaint against defendant in the Oakland
Circuit Court, alleging breach of contract and tortious interference with a business relationship or
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expectancy. Plaintiffs requested a declaratory order compelling defendant to participate in
arbitration in Oakland County per the terms of the Contract.
Defendant moved for summary disposition under MCR 2.116(C)(1), arguing that the
Contract had never been fully executed or implemented and the trial court was therefore without
personal jurisdiction to compel defendant’s participation in arbitration. On order of the trial
court, plaintiffs filed a cross motion for summary disposition under MCR 2.116(C)(7), arguing
that defendant had consented to the trial court’s exercise of jurisdiction and the existence of the
arbitration clause in the Contract was sufficient to allow the trial court to order defendant to
arbitration in Oakland County.
Noting that plaintiffs had submitted a copy of the Contract including a signature for
defendant only, the trial court reasoned that plaintiffs had failed to prove that the Contract had
been fully executed. The trial court concluded that without a valid agreement, it lacked
jurisdiction to compel defendant’s participation in arbitration. The trial court therefore granted
defendant’s motion for summary disposition under MCR 2.116(C)(1) and dismissed plaintiffs’
complaint.
Plaintiffs timely moved for reconsideration of the trial court’s order, and submitted a
newly-discovered copy of the Contract signed by agents on behalf of all parties. Over
defendant’s objection, the trial court considered plaintiffs’ new copy of the Contract and
explained that it could not ignore the express agreement of the parties. The trial court concluded
that because “[b]oth Plaintiff’s claims and Defendant’s defenses implicate the Agreement’s
broad arbitration provision . . . the parties must submit this dispute to arbitration.” The trial court
granted plaintiffs’ motion for reconsideration, denied defendant’s motion for summary
disposition under MCR 2.116(C)(1), and granted plaintiffs’ motion for summary disposition
pursuant to MCR 2.116(C)(7).
On appeal, defendant argues that the trial court erred in exercising personal jurisdiction
over defendant, a foreign corporation with no ties to the state of Michigan, relying only on the
provisions of the Contract to grant plaintiffs’ motion for summary disposition under MCR
2.116(C)(7). We agree.
“We review de novo a trial court’s decision on a motion for summary disposition.”
Rooyakker & Sitz, PLLC v Plante & Moran PLLC, 276 Mich App 146, 152; 742 NW2d 409
(2007). MCR 2.116(C)(7) permits summary disposition where relief “is appropriate because of .
. . an agreement to arbitrate.” We also review de novo the legal questions of the proper
interpretation of a statute, McCormick v Carrier, 487 Mich 180, 188; 795 NW2d 517 (2010), the
proper interpretation of a contract, Klapp v United Ins Group Agency Inc, 468 Mich 459, 463;
663 NW2d 447 (2003), the existence and enforceability of an arbitration agreement, Nexteer
Auto Corp v Mando America Corp, 314 Mich App 391, 394; 886 NW2d 906 (2016), and
whether a court possesses personal jurisdiction over a party, Yoost v Caspari, 295 Mich App 209,
219; 813 NW2d 783 (2012).
Defendant suggests that the trial court lacked the authority to determine whether the
parties’ Contract was enforceable because under Michigan’s Uniform Arbitration Act (UAA),
MCL 691.1681 et seq., the arbitrator has the sole authority to make the determination of whether
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a matter is subject to arbitration. Defendant is partially correct. In a lawsuit to compel
arbitration, such as the one presently before this Court, a trial court’s inquiry is limited to the
gateway question of arbitrability. Bienenstock & Assoc, Inc v Lowry, 314 Mich App 508, 516;
887 NW2d 237 (2016). Under the UAA, an arbitrator holds the authority to determine the
validity and enforceability of a contract. MCL 691.1686(3) (“An arbitrator shall decide whether
a condition precedent to arbitrability has been fulfilled and whether a contract containing a valid
agreement to arbitrate is enforceable.”). The trial court is left with the authority to determine
whether an arbitration agreement exists, and whether the controversy at issue falls within the
arbitration agreement as presented. MCL 691.1686(2) (“The court shall decide whether an
agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate.”); Watts v
Polaczyk, 242 Mich App 600, 603; 619 NW2d 714 (2000) (“The existence of an arbitration
agreement and the enforceability of its terms are judicial questions for the court rather than for
the arbitrators.”). Thus, under the UAA, a trial court has authority to determine the existence of
an arbitration agreement and order the parties to arbitration. However, a trial court’s authority to
make any determination under the UAA arises only when the trial court “has jurisdiction over
the controversy and the parties.” MCL 691.1706; see also Lease Acceptance Corp v Adams, 272
Mich App 209, 219-220; 724 NW2d 724 (2006). Thus, jurisdiction is a threshold issue that a
trial court must consider before it may turn to the issue of arbitrability.
A trial court may exercise general personal jurisdiction over a foreign corporate
defendant when both prongs of a two-step analysis are satisfied. City of Fraser v Almeda
University, 314 Mich App 79, 87; 886 NW2d 730 (2016). First, jurisdiction must be authorized
by Michigan’s long-arm statute. Id. Second, the trial court’s exercise of personal jurisdiction
over the parties must be consistent with the requirements of the Due Process Clause of the
Fourteenth Amendment. Id. Defendant here challenges both prongs of the jurisdictional
analysis. However, we need not reach the issue of whether the trial court’s exercise of
jurisdiction comports with due process principles because the trial court failed to ensure that the
first prong of the analysis—that its exercise of personal jurisdiction over defendant was
authorized by MCL 600.711—was satisfied.
MCL 600.711 permits a trial court to exercise personal jurisdiction over a corporation
when that corporation has any one of the following three relationships with the state: (1) the
corporation is incorporated under the laws of the state, (2) the corporation carries on “a
continuous and systematic part of its general business within the state,” or (3) the corporation has
consented to the court’s jurisdiction, subject to the limitations on such consent prescribed in
MCL 600.745. “The plaintiff bears the burden of establishing jurisdiction over the defendant.”
Jeffrey v Rapid American Corp, 448 Mich 178, 184; 529 NW2d 644 (1995). Here, plaintiffs do
not allege, or offer evidence to support, defendant’s incorporation in Michigan or defendant’s
carrying on any portion of its business within the state. Plaintiffs argue only that the trial court’s
exercise of personal jurisdiction is supported by defendant’s consent, grounded in a forum
selection cause within the parties’ Contract.
“Michigan courts generally enforce contractual forum-selection clauses.” Turcheck v
Amerifund Financial, Inc, 272 Mich App 341, 348; 725 NW2d 684 (2006). However, as noted,
consent to personal jurisdiction satisfies the long-arm statute, MCL 600.711, only when the
requirements for granting consent under MCL 600.745 are also met. Id.; see also Lease
Acceptance Corp, 272 Mich App at 220 (explaining that unless the elements of MCL 600.745
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are satisfied, “the parties’ contractual agreement to jurisdiction in Michigan is unenforceable.”).
In other words, a trial court may not rely on a foreign defendant’s consent to support its exercise
of personal jurisdiction until it determines that the defendant’s consent was proper under that
statute.
This Court reviews a trial court’s decision whether Michigan is a reasonably convenient
forum such that it may exercise personal jurisdiction under MCL 600.745 for an abuse of
discretion, but the trial court’s ultimate determination of whether to exercise jurisdiction under
the statute is reviewed de novo. Lease Acceptance Corp, 272 Mich App at 223. “An abuse of
discretion occurs when the decision results in an outcome falling outside the principled range of
outcomes.” Radeljak v Daimler Chrysler Corp, 475 Mich 598, 603; 719 NW2d 40 (2006).
Further, “failure to exercise discretion when called on to do so constitutes an abdication and
hence an abuse of discretion.” Loutts v Loutts, 298 Mich App 21, 24; 826 NW2d 152 (2012)
(quotation marks and citation removed). In pertinent part, MCL 600.745 provides:
If the parties agreed in writing that an action on a controversy may be brought in
this state and the agreement provides the only basis for the exercise of
jurisdiction, a court of this state shall entertain the action if all the following
occur:
(a) The court has power under the law of this state to entertain the action.
(b) This state is a reasonably convenient place for the trial of the action.
(c) The agreement as to the place of the action is not obtained by
misrepresentation, duress, the abuse of economic power, or other unconscionable
means.
(d) The defendant is served with process as provided by court rules.
[MCL 600.745(2).]
All four elements of the statute must be satisfied to validate Michigan’s exercise of limited
personal jurisdiction. Lease Acceptance Corp, 272 Mich App at 220.
Here, again, defendant argues that none of the requirements for valid consent to limited
personal jurisdiction under MCL 600.745 are met. However, this Court need not engage in a
lengthy analysis of each element, because failure to meet even one element is sufficient to
invalidate a defendant’s consent for purposes of exercising jurisdiction under the long-arm
statute. In this case, the trial court failed to conduct any analysis under MCL 600.745, instead
relying only on defendant’s consent, contained within the parties’ Contract, to support its
exercise of limited personal jurisdiction. The trial court’s failure to consider whether an exercise
of personal jurisdiction over defendant was reasonably convenient, and therefore within the trial
court’s authority, constituted an abdication of the trial court’s duty and, necessarily, an abuse of
discretion. The trial court’s exercise of personal jurisdiction without ensuring that each factor of
MCL 600.745 had been satisfied was in error. We therefore reverse the trial court’s order
granting plaintiffs’ motion for summary disposition and compelling defendant’s participation in
arbitration, and remand the matter with instructions to the trial court to consider whether an
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exercise of personal jurisdiction over defendant is appropriate under MCL 600.711 and MCL
600.745.
Reversed and remanded for proceedings consistent with this opinion. We do not retain
jurisdiction.
/s/ Colleen A. O’Brien
/s/ Kathleen Jansen
/s/ Christopher M. Murray
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