Agility Health LLC v. Fpcg LLC ( 2016 )

STATE OF MICHIGAN
COURT OF APPEALS
AGILITY HEALTH, L.L.C., UNPUBLISHED
July 28, 2016
Plaintiff/Counter-Defendant-
Appellee/Cross-Appellant,
v No. 324571
Kent Circuit Court
FPCG HEALTH, L.L.C., d/b/a FORBES LC No. 13-000830-CK
PRIVATE CAPITAL GROUP,
Defendant/Counter-Plaintiff-
Appellant/Cross-Appellee.
Before: METER, P.J., and BOONSTRA and RIORDAN, JJ.
PER CURIAM.
Defendant appeals as of right the trial court’s October 27, 2014 judgment. Plaintiff cross-
appeals. Three orders entered by the trial court are at issue: (1) the April 11, 2014 order, in
which the trial court granted summary disposition to defendant on all claims and counterclaims
except unjust enrichment; (2) the July 25, 2014 order, in which the trial court held that defendant
was not entitled to an award of attorney fees; and (3) the October 10, 2014 order, in which the
trial court held that Michigan law, rather than New York law, governed the award of
prejudgment interest. We affirm in part, reverse in part, and remand this case for further
proceedings.
I. BACKGROUND
Plaintiff Agility Health, L.L.C. (“Agility Health”), headquartered in Grand Rapids,
Michigan, provides physical therapy services to healthcare providers and employers. In 2010
and 2011, plaintiff began raising capital and sought to become a public company listed on a
Canadian stock exchange. Plaintiff initially engaged Bloom Burton & Company (“Bloom
Burton”), a Canadian investment bank, to assist in identifying potential investors. Ultimately,
this attempt was not as successful as plaintiff had hoped. In 2012, it broadened its efforts and
undertook a new search for capital by contacting investment bankers in the United States,
including defendant Forbes.
On April 2, 2012, plaintiff and defendant signed an engagement letter in which defendant
agreed to act as plaintiff’s “exclusive placement agent in the United States and non-exclusive
placement agent outside of the United States in connection with an offering of preferred,
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common stock, or subordinated debt . . . in a proposed private placement . . . (the ‘Transaction’),
on the terms and conditions set-forth below.” “The Transaction [would] not include any . . . (iii)
sales to Company Investors or sales to Canadian investors except that any sale to (a) OMERS
(Ontario Municipal Employees Retirement System) or (b) OTPP (Ontario Teachers Pension
Plan) shall be included in the definition of a Transaction.” The terms and conditions of the
engagement letter included a compensation provision. Plaintiff would, in part, pay defendant “a
placement fee” that was equal to “6.0% of the gross proceeds of any Transaction[.]” The
engagement letter also included a choice-of-law provision, under which the parties agreed that
the letter would be construed in accordance with the laws of New York, and it had an indemnity
provision.
At some point, Bloom Burton, the Canadian investment bank, contacted Alaris Royalty
Group (“Alaris Royalty”) about investing in plaintiff.1 Alaris Royalty is a public Canadian
corporation that provides financing to private businesses in North America. It worked with
Bloom Burton to conduct due diligence on plaintiff and never had any contact with defendant.
Alaris Royalty then sent a term sheet to plaintiff, in which it proposed an investment of $15
million in plaintiff. In July 2012, plaintiff forwarded the term sheet to defendant. Plaintiff
requested that defendant review and evaluate the investment terms offered by Alaris Royalty.
Defendant criticized the proposed Alaris Royalty investment, which was a debt financing rather
than an equity financing, as not being in plaintiff’s best interest.
In October 2011, before it considered investing in plaintiff, Alaris Royalty formed an
independent subsidiary, Alaris USA, Inc. (“Alaris USA”), a Delaware corporation. Alaris
Royalty wholly owns and controls Alaris USA. According to Steve King, the president and chief
executive officer of Alaris Royalty, the sole purpose for creating Alaris USA was to acquire and
hold interests in American entities that were to be financed directly or indirectly by Alaris
Royalty. In fact, all of Alaris USA’s financial activities are conducted by way of capital
contributions or loans from Alaris Royalty.
On December 12, 2012, Alaris USA closed on a transaction with plaintiff. Alaris USA
gave plaintiff $12.5 million for 1,250 class B membership units in plaintiff. It is undisputed that
the acquisition of membership units in plaintiff was the result of an indirect investment by Alaris
Royalty in its subsidiary Alaris USA. Since December 2012, plaintiff has paid more than $1.5
million to Alaris USA in distributions and interest. Distributions that Alaris USA receives from
plaintiff are eventually transmitted back to Alaris Royalty.
II. BREACH OF CONTRACT
On cross-appeal, plaintiff argues that the trial court erred in granting summary disposition
to defendant on its complaint for declaratory relief and on defendant’s counterclaim for breach of
1
Defendant acknowledges that it was not responsible for introducing Alaris Royalty to Agility
Health. Under New York law, a broker or investment banker can earn a fee without procuring
the underlying deal if the language of the contract so provides. CV Holdings, LLC v Artisan
Advisors, LLC, 9 AD3d 654, 656-657; 780 NY2d 425 (2004).
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contract. According to plaintiff, Alaris Royalty, not its subsidiary Alaris USA, was the actual
investor in plaintiff. Because in substance, plaintiff argues, a Canadian company financed the
investment in plaintiff, there was no “Transaction” as defined by its agreement with defendant,
and it is not liable to defendant for a placement fee. We disagree.
We review de novo a trial court’s decision on a motion for summary disposition. Moser v
Detroit, 284 Mich App 536, 538; 772 NW2d 823 (2009). Summary disposition is appropriate
under MCR 2.116(C)(10) if, “[e]xcept as to the amount of damages, there is no genuine issue as
to any material fact, and the moving party is entitled to judgment or partial judgment as a matter
of law.”
The parties agree that, pursuant to the choice-of-law provision, the laws of New York
govern whether plaintiff breached the engagement letter. Under New York law, the
“fundamental, neutral precept” of contract interpretation is that the contract must be construed in
accordance with the parties’ intent. Greenfield v Philles Records, Inc, 98 NY2d 562, 569; 780
NE2d 166 (2002). The best evidence of the parties’ intent is the language of the contract. Id.“[A] written agreement that is complete, clear and unambiguous on its face must be enforced
according to the plain meaning of its terms.” Id. Extrinsic evidence of the parties’ intent may be
considered only if the language is ambiguous. Id.; see also Brad H v City of New York, 17 NY3d
180, 186; 951 NE2d 743 (2011) (“Ambiguity is determined within the four corners of the
document; it cannot be created by extrinsic evidence that the parties intended a meaning different
than that expressed in the agreement and, therefore, extrinsic evidence may be considered only if
the agreement is ambiguous.”) (quotation omitted). “A contract is unambiguous if the language
it uses has a definite and precise meaning, unattended by danger of misconception in the purport
of the agreement itself, and concerning which there is no reasonable basis for a difference of
opinion.” Greenfield, 98 NY2d at 569. In other words, a contract is ambiguous if, on its face, it
is susceptible to more than one reasonable interpretation. Brad H, 17 NY3d at 186; Greenfield,
98 NY2d at 569-570. Words and phrases in a contract must be given their plain meaning.
Brooke Group Ltd v JCH Syndicate 488, 87 NY2d 531, 534; 663 NE2d 635 (1996). A dictionary
may be consulted to determine the plain meaning of a word. See Universal American Corp v
Nat’l Union Fire Ins Co of Pittsburgh, 25 NY3d 675, 681; 37 NE3d 78 (2015).
Under the engagement letter, plaintiff promised to pay defendant a placement fee equal to
six percent of the gross proceeds of “any Transaction.” A “Transaction” was defined as an
offering of plaintiff’s preferred, common stock or subordinated debt in a proposed private
placement for the purpose of raising capital, funding plaintiff’s operations, and making
distributions to the existing shareholders. Carved out from the definition of “Transaction” were
any “sales to Canadian investors,” except to OMERS and OTPP.
There is nothing ambiguous about the engagement letter. On its face, it is not reasonably
susceptible to more than one interpretation. Brad H, 17 NY3d at 186; Greenfield, 98 NY2d at
569-570. It states unequivocally that defendant is entitled to a placement fee equal to six percent
of the gross proceeds of any “Transaction” to any entity other than a Canadian investor, with the
exception of OMERS or OTPP. Because the engagement letter is unambiguous, it must be
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enforced according to the plain meaning of its terms. Greenfield, 98 NY2d at 569. As Alaris
USA is not a Canadian investor, reasonable minds could not disagree that defendant is entitled to
its fee from plaintiff under the terms of the parties’ engagement letter.2
Alaris USA and plaintiff were the two parties to the exchange of $12.5 million for 1,250
class B membership units in plaintiff. Because the business of a subsidiary is not the business of
the subsidiary’s parent, Alaris Royalty was not a party to the transaction. Connecticut Gen Life
Ins Co v Superintendent of Ins of New York, 10 NY2d 42, 50; 176 NE2d 63 (1961). A subsidiary
and its parent are separate corporations. JPMorgan Chase Bank NA v Malarkey, 65 AD3d 718,
721; 884 NYS2d 787 (2009). Separate corporate entities are generally respected even when one
corporation may wholly own another or when they share the same principals. Application of
Crespo, 123 Misc 2d 862, 865; 475 NYS2d 319 (1984). It is undisputed that Alaris USA was the
sole investor in plaintiff. Further, while there is no dispute that Alaris USA is a subsidiary of
Alaris Royalty, it also is undisputed that Alaris USA is a Delaware corporation and is not
domiciled in Canada.
Based on the applicable rules of contract interpretation, no reasonable person could
conclude that the investor was anything other than Alaris USA, a Delaware corporation. As the
trial court observed, even if the Alaris USA principals were Canadians and Canadian money
funded the Alarais USA transaction, it was not a Canadian company that entered into the
transaction with plaintiff; it was Alaris USA.
Plaintiff urges us not to use a “formalistic” approach and to recognize that contracts are
made by people and should be interpreted according to the “reasonable” expectations of those
people. Plaintiff fails to recognize that the very purpose of a written contract is to capture, in a
formalistic and binding form, the subjective expectations of the parties. It is not our role to glean
subjective intent when the document executed by the parties is unambiguous. It is the
unambiguous written agreement between the parties that captures the parties’ subjective intent,
and it is not proper for us to disturb the written document simply because one party later regrets
entering into the agreement, as appears to be the case with plaintiff here.
While the drafting of a contract or an agreement may sometimes be imperfect, it often
may be the case that the imperfection is the consequence of a compromise between the parties. It
is not the function of the Court to disregard the words adopted by the parties to the contract. If
the parties to the agreement at issue intended that defendant be precluded from receiving a
placement fee for sales to U.S. entities which have Canadian investors, that language should
2
As a matter of procedure, the Michigan Supreme Court has stated that it “is axiomatic that if a
word or phrase [in a contract] is unambiguous and no reasonable person could differ with respect
to application of the term or phrase to undisputed material facts, then the court should grant
summary disposition to the proper party pursuant to MCR 2.116(C)(10).” Henderson v State
Farm Fire & Cas Co, 460 Mich 348, 353; 596 NW2d 190 (1999). But, “if reasonable minds
could disagree about the conclusions to be drawn from the facts, a question for the factfinder
exists.” Id.-4-
have been included in the engagement letter. However, it was not. We cannot now re-draft the
engagement letter in plaintiff’s favor.
III. GOVERNING LAW – PREJUDGMENT INTEREST
Defendant argues that the trial court erred in holding in its October 10, 2014 order that
Michigan law, rather than New York law, governs an award of prejudgment interest.3 We
review de novo a trial court’s decision on a motion for summary disposition. Moser, 284 Mich
App at 538. We also review de novo the interpretation of a written contract, Reicher v SET
Enterprises, 283 Mich App 657, 664; 770 NW2d 902 (2009), and issues concerning conflicts of
law, Talmer Bank & Trust v Parikh, 304 Mich App 373, 383; 848 NW2d 408 (2014), vacated in
part on other grounds 497 Mich 857 (2014).
The choice-of-law provision in the engagement letter provided: “This agreement shall be
governed by and construed in accordance with the laws of the state of New York without regard
to the conflict of law principals [sic] thereof.” When interpreting a contract, this Court’s
obligation is to determine the intent of the contracting parties. Quality Prod & Concepts Co v
Nagel Precision, Inc, 469 Mich 362, 375; 666 NW2d 251 (2003). If the language of the contract
is unambiguous, the Court must construe and enforce the contract as written. Id. “Thus, an
unambiguous contractual provision is reflective of the parties’ intent as a matter of law. Once
discerned, the intent of the parties will be enforced unless it is contrary to public policy.” Id.The Court must give effect to every word, phrase, and clause in a contract, and avoid any
interpretation that would render any part of the contract surplusage or nugatory. Wells Fargo
Bank, NA v Cherryland Mall Ltd Partnership, 295 Mich App 99, 111; 812 NW2d 799 (2011).
Words in a contract must be given their plain and ordinary meaning. Holland v Trinity Health
Care Corp, 287 Mich App 524, 527; 791 NW2d 724 (2010). The Court may consult a dictionary
to determine the plain and ordinary meaning of words undefined by the contract. Id. at 527-528.
In an action in Michigan on a foreign contract, while the validity and construction of the
contract may be controlled and determined by the laws of another state, the law of Michigan
applies to issues of procedure and remedy. See McColl v Wardowski, 280 Mich 374, 377; 273
NW 736 (1937); Mitchell v Reolds Farms Co, 268 Mich 301, 311-312; 256 NW 445 (1934); Mt
Ida Sch for Girls v Rood, 253 Mich 482, 490; 235 NW 227 (1931). This rule applies even when
the contract contains a choice-of-law provision. See Rubin v Gallagher, 294 Mich 124, 128; 292
NW 584 (1940).
In OrbusNeich Med Co v Boston Scientific Group, 694 F Supp 2d 106, 114 (D Mass,
2010), the federal district court held that the choice-of-law provision, which stated that the
contract was “governed by the Laws of the Commonwealth of Massachusetts, USA, without
regard for the conflicts of law provisions,” indicated that the parties intended that all aspects of
3
New York law provides for a substantially higher rate of prejudgment interest than does
Michigan law. See MCL 600.6013(8); NY CPLR Law 5004. It also allows for prejudgment
interest to begin accruing at the earliest ascertainable date the cause of action existed, NY CPLR
Law 5001(b), rather than the date the complaint was filed, MCL 600.6013(8).
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Massachusetts law, whether substantive or procedural, governed the contract. It explained that,
had the parties only intended for the contract to be governed by Massachusetts substantive law,
the choice-of-law provision needed to state nothing more than the agreement was to be governed
by Massachusetts law. Id. But, the choice-of-law provision contained the additional phrase
“without regard for the conflicts of law provisions,” and this phrase could only be interpreted as
a statement of the parties’ intent that the court should disregard all conflicts-of-law provisions
that could apply. Id.Unlike the choice-of-law provision in OrbusNeich Med Co, the choice-of-law provision
in the engagement letter ended with the word “thereof.” Meaning must be given to this word.
Wells Fargo Bank, NA, 295 Mich App at 111. It is defined, in pertinent part, as “of that or it.”
Merriam-Webster’s Collegiate Dictionary (11th ed). Thus, the word “thereof” in the choice-of-
law provision must refer to something, and it can only refer to the laws of New York.
Consequently, the choice-of-law provision provides that the engagement letter shall be governed
by, and construed in accordance with, the laws of New York without regard to the conflict-of-
law principles of New York. By including the word “thereof” at the end of the choice-of-law
provision, the parties limited the choice-of-law principles that did not apply to those of New
York.
Michigan has its own conflicts-of-law jurisprudence, and Michigan courts apply that
jurisprudence in determining whether Michigan law or the law of another state applies to a cause
of action. See, e.g., Sutherland v Kennington Truck Serv, Ltd, 454 Mich 274, 278-290; 562
NW2d 466 (1997); Talmer Bank, 304 Mich App at 385-403. Because the present action was
filed in Michigan, Michigan’s conflicts-of-law principles apply to the determination of whether
Michigan law or New York law governs the award of prejudgment interest. Accordingly, the
clause in the choice-of-law provision that no regard should be given to New York’s conflicts-of-
law principles has no effect on the present case.
As previously stated, the Michigan Supreme Court has held that, even where a contract is
governed by the laws of another state, Michigan law applies to issues of procedure and remedy.
Rubin, 294 Mich at 128. Additionally, the Supreme Court has held that Michigan law applies to
an award of interest for a breach of a contract, even when the contract is governed by the laws of
another state. Mitchell, 268 Mich at 311-312. Based on Mitchell, the trial court did not err in
holding that the award of prejudgment interest was governed by Michigan law. We
acknowledge that our holding is inconsistent with the Restatement (Second) of Conflict of Laws.
However, the holding is based on the decisions of the Supreme Court, which we are bound to
follow. Paige v Sterling Heights, 476 Mich 496, 524; 720 NW2d 219 (2006). We affirm the
trial court’s October 10, 2014 order.
IV. ATTORNEY FEES
Defendant also argues that the trial court erred in holding in its July 25, 2014 order that it
was not entitled to an award of attorney fees. We review de novo a trial court’s decision on a
motion for summary disposition. Moser, 284 Mich App at 538.
The indemnity provision in the engagement letter provided:
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Each party shall indemnify and hold harmless the other party and its
respective affiliates, officers, directors, employees and agents (collectively, the
“Indemnified Parties”) from and against any and all losses, claims, damages and
liabilities (including reasonable attorney’s fees) arising out of or in connection
with this Agreement that are directly caused by that party’s breach of this
Agreement or violation of any applicable laws in connection with its performance
hereunder; provided that this indemnification shall not apply to any loss, claim,
damage or liability that is found to have resulted from bad faith, gross negligence,
willful misconduct, fraudulent misrepresentation or breach of this [sic] terms of
this Agreement by an Indemnified Party.
The parties agree that, pursuant to the choice-of-law provision in the engagement letter, New
York law governs whether defendant, prevailing on its breach of contract claim, is entitled to
attorney fees.
Under New York law, “attorney’s fees are incidents of litigation and a prevailing party
may not collect them from the [losing party] unless an award is authorized by agreement
between the parties, statute, or court rule[.]” Hooper Assoc, Ltd v AGS Computers, Inc, 74 NY2d
487, 491; 548 NE2d 903 (1989). In Hooper Assoc, the New York Court of Appeals stated,
Inasmuch as a promise by one party to a contract to indemnify the other for
attorney’s fees incurred in litigation between them is contrary to the well-
understood rule that parties are responsible for their own attorney’s fees, the court
should not infer a party’s intention to waive the benefit of the rule unless the
intention to do so is unmistakably clear from the language of the promise. [Id. at
492.]
In determining whether an indemnity provision allows attorney fees in a breach of contract
action between the contracting parties, a court must give fair meaning to all the language used in
the contract, and it must leave no provision in the contract without force and effect. Id. at 493.
We conclude that the trial court erred in determining that defendant, upon prevailing in
its breach of contract claim, was not entitled to an award of attorney fees. The language in the
indemnity provision was “extremely broad.” Crossroads ABL, LLC v Canaras Capital Mgt, 105
AD3d 645, 646; 963 NYS2d 645 (2013). It provided, in pertinent part, that each party was to
indemnify the other party “from and against any and all losses, claims, damages and liabilities
(including reasonable attorney’s fees) arising out of or in connection with this Agreement that
are directly caused by that party’s breach.” Additionally, the indemnity provision did not include
an exhaustive list of actions for which indemnification would be required (and which were third-
party claims), nor did the engagement letter contain any provisions that would be rendered
meaningless if the indemnity provision were to include claims between the parties. See Hooper
Assoc, 74 NY2d at 492-493. It did not contain a provision that requires a party to promptly
notify the other party of any claim or litigation to which the indemnity provision might apply or
a provision that the other party may assume the defense of such a claim or litigation. See id.Moreover, under the indemnity provision, a party must indemnify the other party for its
losses that are directly caused by that party’s (1) breach of the engagement letter or (2) violation
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of any applicable laws. The only third-party claims that plaintiff has identified that could arise
from a breach of the engagement letter were based on violations of applicable laws. Because
third-party claims that arise from either party’s breach of the engagement letter are also based on
violations of applicable laws, then the second clause in the indemnity provision—i.e., that a party
must indemnify the other party for its losses that are caused by that party’s violation of any
applicable laws—is rendered superfluous unless the first clause—i.e., that a party must
indemnify the other party for its losses that are caused by that party’s breach of the engagement
letter—includes first-party claims. If the first clause is limited to third-party claims, and third-
party claims can be based on a party’s violations of applicable laws, the second clause has no
meaning. This result must be avoided. Hooper Assoc, 74 NY2d at 493; see also Nat’l Union
Fire Ins Co of Pittsburgh v Williams, 223 AD2d 395, 397; 637 NYS2d 36 (1996) (stating that,
under New York law, a fundamental principle of contract interpretation is that no provision of a
contract should be rendered surplusage). Accordingly, the inclusion of the two clauses in the
indemnity provision indicates that the parties intended for the indemnity provision to apply to
first-party claims.
We reverse the trial court’s July 25, 2014 order regarding attorney fees.
V. CONCLUSION
We affirm the trial court’s April 11, 2014 grant of summary disposition to defendant,
reverse the July 25, 2014 order regarding attorney fees, and affirm the October 10, 2014 order
regarding prejudgment interest. We remand this case for further proceedings consistent with this
opinion. We do not retain jurisdiction.
/s/ Mark T. Boonstra
/s/ Michael J. Riordan
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