Saturn Electronics Corporation v. Ishvar Sutariya ( 2018 )

STATE OF MICHIGAN
COURT OF APPEALS
SATURN ELECTRONICS CORPORATION, UNPUBLISHED
June 21, 2018
Plaintiff/Counterdefendant-
Appellant,
v No. 335912
Wayne Circuit Court
ISHVAR SUTARIYA and PRAVIN SUTARIYA, LC No. 14-012535-CB
Defendants/Counterplaintiffs-
Appellees.
Before: SAWYER, P.J., and CAVANAGH and FORT HOOD, JJ.
PER CURIAM.
Plaintiff appeals as of right the stipulated order and judgment entered in favor of
defendants, Ishvar Sutariya and Pravin Sutariya, in the amount of $295,000 for attorney fees,
costs, and expenses awarded pursuant to the parties’ “Stock Purchase Redemption Agreement”
(the “Agreement”). The judgment was entered after the trial court ruled on the parties’ cross
motions for summary disposition. We affirm in part, reverse in part, and vacate the stipulated
judgment and order.
This case arises from allegations that defendants, who were officers, directors,
shareholders, and employees of plaintiff, sold scrap metal belonging to plaintiff for cash and
converted the cash for their own use. Plaintiff claims that defendants entered into the Agreement
without disclosing the scrap sales and that defendants subsequently interfered with plaintiff’s
business. The trial court ruled that (1) plaintiff’s pre-redemption claims were barred by a release
contained in the Agreement, (2) an indemnification provision of the Agreement required plaintiff
to indemnify defendants for their attorney fees incurred in the action, and (3) plaintiff failed to
establish a genuine issue of material fact regarding causation with regard to its claims alleging
interference.
I. RELEASE
Plaintiff first argues that the trial court erred by ruling that the release barred its claims in
Counts I through IV of its second amended complaint. Plaintiff argues that (1) the release was
invalid based on defendants’ failure to disclose the scrap theft in violation of their fiduciary
duties, (2) it was not obligated to tender back the consideration it received because the release
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was not binding, and (3) the release is ambiguous and extrinsic evidence demonstrates that the
parties did not intend the release to apply to defendants’ wrongful acts. We disagree that
summary disposition was improperly granted.
“Generally, an issue is not properly preserved if it is not raised before, and addressed and
decided by, the trial court.” Hines v Volkswagen of America, Inc, 265 Mich. App. 432, 443; 695
NW2d 84 (2005). With regard to plaintiff’s claim that the release was invalid because of
defendants’ breach of their fiduciary duty to disclose, this issue was not raised, addressed, or
decided below. Therefore, it is unpreserved. With regard to plaintiff’s claim that it was not
required to tender back the consideration received for the release, this argument also was not
raised, addressed, or decided below. Therefore, it also is unpreserved. “[T]his Court need not
review issues raised for the first time on appeal[.]” Smith v Foerster-Bolser Constr, Inc, 269
Mich. App. 424, 427; 711 NW2d 421 (2006). However, “this Court may overlook preservation
requirements if the failure to consider the issue would result in manifest injustice, if
consideration is necessary for a proper determination of the case, or if the issue involves a
question of law and the facts necessary for its resolution have been presented.” Id. Because
plaintiff’s unpreserved claims involve questions of law and the facts necessary for their
resolution have been presented, we may consider those issues. Finally, with regard to plaintiff’s
claim that the release was ambiguous, this issue is preserved because it was raised below and it
was addressed and decided by the trial court.
The trial court granted summary disposition on Counts I through IV pursuant to MCR
2.116(C)(7), which applies when “[e]ntry of judgment, dismissal of the action, or other relief is
appropriate because of release.” This Court reviews de novo a grant of summary disposition
under MCR 2.116(C)(7). Novak v Nationwide Mut Ins Co, 235 Mich. App. 675, 681; 599 NW2d
546 (1999). This Court “consider[s] all documentary evidence submitted by the parties and
accept[s] the plaintiff’s well-pleaded allegations, except those contradicted by documentary
evidence, as true.” Id. This Court also reviews “de novo questions regarding the proper
interpretation of a contract and whether the language of a contract is ambiguous.” Genesee
Foods Servs, Inc v Meadowbrook, Inc, 279 Mich. App. 649, 654; 760 NW2d 259 (2008).
In Wyrembelski v St Clair Shores, 218 Mich. App. 125, 127; 553 NW2d 651 (1996), this
Court stated:
The law relating to summary disposition on the basis of a release can be
summarized as follows:
Summary disposition of a plaintiff’s complaint is proper
where there exists a valid release of liability between the parties.
A release of liability is valid if it is fairly and knowingly made.
The scope of a release is governed by the intent of the parties as it
is expressed in the release.
If the text in the release is unambiguous, we must ascertain
the parties’ intentions from the plain, ordinary meaning of the
language of the release. The fact that the parties dispute the
meaning of a release does not, in itself, establish an ambiguity. A
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contract is ambiguous only if its language is reasonably susceptible
to more than one interpretation. If the terms of the release are
unambiguous, contradictory inferences become “subjective, and
irrelevant”, and the legal effect of the language is a question of law
to be resolved summarily. [Citations omitted.]
Further, in Xu v Gay, 257 Mich. App. 263, 272-273; 668 NW2d 166 (2003), this Court explained:
A release is knowingly made even if it is not labeled a “release,” or the
releasor fails to read its terms, or thought the terms were different, absent fraud or
intentional misrepresentation designed to induce the releasor to sign the release
through a strategy of trickery. A release is not fairly made if “(1) the releasor was
dazed, in shock, or under the influence of drugs, (2) the nature of the instrument
was misrepresented, or (3) there was other fraudulent or overreaching conduct.”
[Citations omitted.]
In Stefanac v Cranbrook Ed Community, 435 Mich. 155, 164-165; 458 NW2d 56 (1990),
the Michigan Supreme Court stated:
We start with the presumption that the plaintiff executed the release
knowingly and that the recited consideration was received. The plaintiff has the
burden of showing, by a preponderance of the evidence, that the release is unfair
or incorrect on its face. Even in light of these presumptions and the plaintiff’s
burden, the plaintiff must tender the recited consideration before there is a right to
repudiate the release. The only recognized exceptions in Michigan are a waiver
of the plaintiff’s duty by the defendant and fraud in the execution. [Citations
omitted.]
A. VALIDITY OF THE RELEASE
Plaintiff argues that the release was invalid because defendants failed to disclose their
scrap sales, which violated their fiduciary duty to disclose. Initially, we agree with defendants
that plaintiff waived any claim that the release was invalid. “[A] [w]aiver is the intentional
relinquishment of a known right that may be shown by express declarations or by declarations
that manifest the parties’ intent and purpose.” Reed Estate v Reed, 293 Mich. App. 168, 176; 810
NW2d 284 (2011) (citation and quotation marks omitted; second alteration in original). Not only
did plaintiff fail to raise this issue below, in its brief opposing defendants’ motion for summary
disposition, it expressly stated that “it was not seeking to have the Release set aside.” Thus,
plaintiff intentionally relinquished any claim that the release should be set aside as invalid.
Even if plaintiff’s challenge to the validity of the release was not waived, we would
nonetheless conclude that dismissal of plaintiff’s claims was proper based on the tender-back
rule, which, as indicated earlier, requires that a plaintiff tender back recited consideration before
there is a right to repudiate a release. Stefanac, 435 Mich. at 165. Plaintiff has not alleged either
exception to the rule. See id. There is no claim that defendants waived plaintiff’s duty to tender
back, nor has plaintiff alleged that it did not know that it was signing a release. See id.; Collucci
v Eklund, 240 Mich. App. 654, 659; 613 NW2d 402 (2000).
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We disagree with plaintiff’s contention that tender back is not required if it can establish
that the release is invalid. Plaintiff relies on Taylor Group v ANR Storage Co, 452 Mich. 561,
566; 550 NW2d 258 (1996), in which the Michigan Supreme Court concluded that the tender-
back rule was inapplicable because the parties “did not execute a binding release.” The Court
concluded that the parties simply executed a contract, but did not compromise liability. Id. The
Court concluded that “the nominal release was not in fact a release of all liability arising from
the original transaction,” but “at most, an acknowledgement that ANR had fulfilled its
contractual obligation to make the contingent payment.” Id. at 566-567. By contrast, there is no
dispute in this case that the Agreement contains a release of liability. Similarly, in Rott v
Goldman, 236 Mich. 261; 210 N.W. 335 (1926), there was no contract to rescind because it was
void based on violation of a statute. In this case, however, plaintiff merely claims that the
release was invalid because of fraud. “A plaintiff may challenge a release on the basis of fraud,
but not until he has tendered the consideration he received in exchange for the release.”
Collucci, 240 Mich. App. at 659. See also Rinke v Auto Moulding Co, 226 Mich. App. 432, 436-
438; 573 NW2d 344 (1997) (applying the tender-back rule to claims of breach of fiduciary duty
and fraud).
In its reply brief, plaintiff raises a new argument that the consideration it received
(defendants’ stock) was in exchange for the payment of cash, and there was no separate
consideration for the release; therefore, tender back was not required. However, as in Leahan v
Stroh Brewery Co, 420 Mich. 108, 113; 359 NW2d 524 (1984), the consideration received as part
of the Agreement supported the release. Therefore, tender back was required.
B. WHETHER THE RELEASE WAS AMBIGUOUS
Plaintiff also challenges the trial court’s ruling that the release was unambiguous. The
trial court found that the broad language of the release clearly applied to defendants’ conduct.
The release provides that defendants are released
from any and all past and present claims, demands, obligations, suits, damages,
liabilities, actions, or causes of action, at law or in equity, known or unknown,
whether arising by statute, law or otherwise, of any kind or nature whatsoever,
that Corporation may have and which in any manner relate to (i) the direct or
indirect ownership of shares of the Corporation, (ii) any other matter of any nature
whatsoever related to the Corporation. [Emphasis added.]
Plaintiff claims that the release is latently ambiguous with regard to whether it was
intended to cover defendants’ wrongful acts.
A latent ambiguity exists when the language in a contract appears to be
clear and intelligible and suggests a single meaning, but other facts create the
necessity for interpretation or a choice among two or more possible meanings. To
verify the existence of a latent ambiguity, a court must examine the extrinsic
evidence presented and determine if in fact that evidence supports an argument
that the contract language at issue, under the circumstances of its formation, is
susceptible to more than one interpretation. Then, if a latent ambiguity is found to
exist, a court must examine the extrinsic evidence again to ascertain the meaning
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of the contract language at issue. [Shay v Aldrich, 487 Mich. 648, 668; 790 NW2d
629 (2010) (citations and quotation marks omitted).]
Plaintiff relies on the deposition testimony of Rajan Sutaryia, who stated that the release
was not intended to cover theft, as well as the Agreement as a whole, to argue that a latent
ambiguity exists. This evidence, however, is insufficient to establish the existence of a latent
ambiguity. Unlike in Shay, the extrinsic evidence is not undisputed, and the release must be
strictly construed against plaintiff, the party that drafted it. Shay, 487 Mich. at 672-673. The
release clearly applies to “any and all past and present claims . . . known or unknown, . . . of any
kind or nature whatsoever,” and that related to “any other matter of any nature whatsoever
related to the Corporation.” As defendants observe, “Parol evidence under the guise of a claimed
latent ambiguity is not permissible to vary, add to, or contradict the plainly expressed terms of
this writing, or to substitute a different contract for it, to show an intention or purpose not therein
expressed.” Mich Chandelier Co v Morse, 297 Mich. 41, 48; 297 N.W. 64 (1941) (citation and
quotation marks omitted). Thus, the trial court did not err by concluding that the broad language
of the release unambiguously applied to plaintiff’s claims against defendants. Accordingly, the
trial court properly granted summary disposition in favor of defendants on Counts I through IV.
II. INDEMNIFICATION
Plaintiff next argues that the trial court erred by requiring it to indemnify defendants and
pay their attorney fees because (1) the indemnification provision did not expressly provide for
attorney fees, and (2) defendants could not be indemnified for their own illegal and intentional
conduct. We agree.
The trial court granted summary disposition on defendants’ indemnification claim
pursuant to MCR 2.116(C)(10).
This Court reviews decisions on motions for summary disposition de novo to
determine if the moving party was entitled to judgment as a matter of law. A
motion for summary disposition pursuant to MCR 2.116(C)(10) tests the factual
sufficiency of the complaint. In evaluating a motion for summary disposition
brought under this subsection, a trial court considers affidavits, pleadings,
depositions, admissions, and other evidence submitted by the parties in the light
most favorable to the party opposing the motion. Summary disposition under
MCR 2.116(C)(10) is proper when there is no genuine issue regarding any
material fact. [Stock Bldg Supply, LLC v Crosswinds Communities, Inc, 317 Mich
App 189, 198; 893 NW2d 165 (2016) (citations and quotation marks omitted).]
A. LANGUAGE OF THE INDEMNIFICATION PROVISION
Plaintiff first argues that the indemnification provision does not require it to indemnify
defendants for their attorney fees. In Miller-Davis Co v Ahrens Constr, Inc, 495 Mich. 161, 174;
848 NW2d 95 (2014), our Supreme Court stated:
As with any other contract, our primary task in construing a contract for
indemnification is to give effect to the parties’ intention at the time they entered
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into the contract. We determine the parties’ intent by examining the language of
the contract according to its plain and ordinary meaning. In doing so, we avoid an
interpretation that would render any portion of the contract nugatory. We assess
the threshold question whether a contract’s indemnity clause applies to a set of
facts by a straightforward analysis of the facts and the contract terms.
Where parties have expressly contracted for indemnification, the extent of
the duty must be determined from the language of the contract. . . . [Citations and
quotation marks omitted.]
The indemnification provision provides:
9.2 Indemnification and Hold Harmless. Corporation shall indemnify
and hold Seller Equityholder harmless from any claims or liabilities brought
againsts [sic] Seller Equityholder relating to Seller Equityholder’s direct or
indirect ownership of share in the corporation or any other mater [sic] of any
nature whatsoever related to the corporation.
In Beaudin v Mich Bell Tel Co, 157 Mich. App. 185, 189; 403 NW2d 76 (1986), this Court
concluded that the language “all other claims” did not expressly allow indemnification for
attorney fees, costs, or other expenses. This Court compared Redfern v RE Dailey & Co, 146
Mich. App. 8, 19; 379 NW2d 451 (1985), in which this Court held that attorney fees were covered
by an indemnity agreement that included “all claims, liabilities, losses, damages and expenses of
every character whatsoever.” In Hayes v Gen Motor Corp, 106 Mich. App. 188, 201-202; 308
NW2d 452 (1981), this Court upheld an award of attorney fees where the indemnification
provision provided that the “Contractor shall indemnify, hold harmless and defend the Owner.”
Although an express reference to attorney fees is not required, we conclude that the
language of the indemnification provision in this case is similar to the provision in Beaudin
because it merely refers to “any claims or liabilities.” Although there is broad language referring
to “any nature whatsoever,” the indemnification provision in this case does not expressly refer to
expenses as in Redfern, or a duty to defend as in Hayes. Accordingly, the trial court erred by
holding that the language requiring plaintiff to indemnify defendants for “any claims of
liabilities” brought against defendants also required plaintiff to indemnify defendants for their
attorney fees incurred in defending against any claims. The trial court improperly granted
summary disposition in favor of defendants on their counterclaim for indemnification.
B. INDEMNIFICATION FOR ILLEGAL AND INTENTIONAL CONDUCT
In an argument raised for the first time on appeal, plaintiff also argues that defendants
could not be indemnified for their illegal and intentional conduct. Because the scope of the
indemnification agreement does not apply to attorney fees, we need not decide this issue.
III. CAUSATION
Finally, plaintiff argues that the trial court erred by dismissing Counts V and VI of its
second amended complaint against Pravin pursuant to MCR 2.116(C)(10), on the ground that
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there was no genuine issue of material fact regarding whether Pravin’s alleged breach injured
plaintiff. See Stock Bldg Supply, LLC, 317 Mich. App. at 198.
The trial court found that plaintiff failed to establish causation and dismissed plaintiff’s
claims in Counts V and VI with regard to Acuity Brands, Inc. Count V alleged breach of the
Agreement and Count VI alleged tortious interference with a business relationship or
expectancy. Both of these claims require proof of causation. See Miller, 495 Mich. at 178
(stating the elements of breach of contract); PT Today, Inc v Comm’r of the Office of Fin & Ins
Servs, 270 Mich. App. 110, 148; 715 NW2d 398 (2006) (stating the element of tortious
interference with a business relationship). In Skinner v Square D Co, 445 Mich. 153, 164; 516
NW2d 475 (1994), overruled in part on other grounds Smith v Globe Life Ins Co, 460 Mich. 446,
455 n 2; 597 NW2d 28 (1999), our Supreme Court stated:
To be adequate, a plaintiff’s circumstantial proof must facilitate
reasonable inferences of causation, not mere speculation. In Kaminski v Grand
Trunk W R Co, 347 Mich. 417, 422; 79 NW2d 899 (1956), this Court highlighted
the basic legal distinction between a reasonable inference and impermissible
conjecture with regard to causal proof:
As a theory of causation, a conjecture is simply an
explanation consistent with known facts or conditions, but not
deducible from them as a reasonable inference. There may be 2 or
more plausible explanations as to how an event happened or what
produced it; yet, if the evidence is without selective application to
any 1 of them, they remain conjectures only. On the other hand, if
there is evidence which points to any 1 theory of causation,
indicating a logical sequence of cause and effect, then there is a
juridical basis for such a determination, notwithstanding the
existence of other plausible theories with or without support in the
evidence.
Plaintiff alleged that Pravin contacted several customers, disclosed misleading and
incorrect information, and intentionally interfered with plaintiff’s business. With regard to the
element of causation, plaintiff presented evidence that, after Pravin’s alleged solicitation in 2015,
plaintiff’s sales to Acuity dropped in 2016. Defendants presented the testimony of Jeffrey
Woolwine from Acuity, who stated that plaintiff was placed on restricted status in 2015 because
of “[q]uality and performance issues.” Woolwine, however, could not recall the specific issues.
Plaintiff claims that it countered Woolwine’s testimony with evidence that its quality had
increased.
Plaintiff’s theory that its sales to Acuity dropped because of Pravin’s conduct is mere
speculation. Given Woolwine’s testimony, another plausible explanation was quality issues.
Even if this explanation was not persuasive because Woolwine lacked personal knowledge and
given the evidence that plaintiff’s quality had increased, plaintiff’s theory was still speculative.
There was no evidence to permit a reasonable inference that Pravin’s conduct caused the
decrease in sales. Plaintiff merely relies on the correlation between the interference and the drop
in sales. “It is axiomatic in logic and in science that correlation is not causation. This adage
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counsels that it is error to infer that A causes B from the mere fact that A and B occur together.”
Craig v Oakwood Hosp, 471 Mich. 67, 93; 684 NW2d 296 (2004) (citation omitted). Given the
absence of evidence that Pravin’s conduct caused any reduction in sales, the trial court properly
granted summary disposition on plaintiff’s claims against Pravin in Counts V and VI.
We affirm the trial court’s order granting summary disposition in favor of defendants on
plaintiff’s Counts I through VI, reverse the trial court’s order granting summary disposition in
favor of defendants on their counterclaim for indemnification, and vacate the stipulated judgment
and order. No costs, no party having prevailed in full.
/s/ David H. Sawyer
/s/ Mark J. Cavanagh
/s/ Karen M. Fort Hood
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