Xpert Technologies Inc v. Legacy Group Lighting LLC

STATE OF MICHIGAN
COURT OF APPEALS
XPERT TECHNOLOGIES, INC., UNPUBLISHED
May 15, 2018
Plaintiff/Counter-Defendant-
Appellee,
v No. 335202
Oakland Circuit Court
LEGACY GROUP LIGHTING, LLC, doing LC No. 2015-147137-CK
business as CREATIVE LIGHTING
SOLUTIONS,
Defendant/Counter-Plaintiff-
Appellant.
Before: BORRELLO, P.J., and SAWYER and JANSEN, JJ.
PER CURIAM.
Defendant appeals as of right the final judgment entered in favor of plaintiff. On appeal,
however, defendant challenges the trial court’s earlier order granting summary disposition in
favor of plaintiff on plaintiff’s breach of contract claim and defendant’s breach of contract
counterclaim. We affirm.
Defendant argues that the trial court erred when it found that the parties intended to enter
a fixed three-year term contract and granted summary disposition. Specifically, defendant
contends that because there is an ambiguity in the Master Services Agreement (MSA), the trial
court should not have granted summary disposition. We disagree.
A motion for summary disposition under MCR 2.116(C)(10) “tests the factual sufficiency
of the complaint.” Shinn v Mich Assigned Claims Facility, 314 Mich. App. 765, 768; 887 NW2d
635 (2016) (citation omitted). Decisions on such a motion are reviewed de novo. Id. (citation
omitted).
In evaluating a motion for summary disposition brought under Subrule (C)(10), a
reviewing 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 is properly granted if the proffered evidence
fails to establish a genuine issue regarding any material fact and the moving party
is entitled to judgment as a matter of law. [Id.]
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“A genuine issue of material fact exists when the record, giving the benefit of reasonable doubt
to the opposing party, leaves open an issue upon which reasonable minds might differ.” Bahri v
IDS Prop Cas Ins Co, 308 Mich. App. 420, 423; 864 NW2d 609 (2014) (citation and quotation
marks omitted).
“We review de novo, as a question of law, the proper interpretation of a contract.”
Innovation Ventures v Liquid Mfg, 499 Mich. 491, 507; 885 NW2d 861 (2016). “Where the
contract language is unclear or susceptible to multiple meanings, interpretation becomes a
question of fact.” Port Huron Ed Ass’n v Port Huron Area School Dist, 452 Mich. 309, 323; 550
NW2d 228 (1996).
“Absent an ambiguity or internal inconsistency, contractual interpretation begins and
ends with the actual words of a written agreement.” Innovation Ventures, 499 Mich. at 507
(quotation marks and citation omitted). When interpreting a contract, “our obligation is to
determine the intent of the contracting parties.” Quality Products & Concepts Co v Nagel
Precision, Inc, 469 Mich. 362, 375; 666 NW2d 251 (2003). This Court determines “the parties’
intent by examining the language of the contract according to its plain and ordinary meaning.”
Miller-Davis Co v Ahrens Const, Inc, 495 Mich. 161, 174; 848 NW2d 95 (2014). “[C]ourts must
also give effect to every word, phrase, and clause in a contract and avoid an interpretation that
would render any part of the contract surplusage or nugatory.” Klapp v United Ins Group
Agency, Inc, 468 Mich. 459, 468; 663 NW2d 447 (2003). However, “ ‘a written instrument is
open to explanation by parol or extrinsic evidence when it is expressed in short and incomplete
terms, or is fairly susceptible of two constructions, or where the language employed is vague,
uncertain, obscure, or ambiguous, and where the words of the contract must be applied to facts
ascertainable only by extrinsic evidence, a resort to such evidence is necessarily permitted.’ ” Id.
at 470, quoting Edoff v Hecht, 270 Mich. 689, 695-696; 260 N.W. 93 (1935). The Klapp Court
further explained the use of extrinsic evidence in interpreting a contract:
[E]xtrinsic evidence is not the best way to determine what the parties intended.
Rather, the language of the parties’ contract is the best way to determine what the
parties intended. However, where . . . it is not possible to determine the parties’
intent from the language of their contract, the next best way to determine the
parties’ intent is to use relevant extrinsic evidence. Such evidence at least affords
a way by which to ascertain the parties’ intent, unlike the rule of contra
proferentem, which focuses solely on the status of the parties to a contract.
[Klapp, 468 Mich. at 476 (emphasis in original).]
“A contract is ambiguous when two provisions ‘irreconcilably conflict with each other,’ or
‘when [a term] is equally susceptible to more than a single meaning.” Coates v Bastian Bros,
Inc, 276 Mich. App. 498, 503; 741 NW2d 539 (2007). “The rule of contra proferentum [sic]
(construction of an agreement against its drafter) is used only when there is a true ambiguity and
the parties’ intent cannot be discerned through all conventional means, including extrinsic
evidence.” Id. at 504 n 3, citing Klapp, 468 Mich. at 470-471.
As the trial court held below, the MSA is ambiguous with respect to its term. Under what
the parties refer to as the introductory paragraph, the MSA states that it “shall be effective for an
Initial Term of 3 years,” effective May 1, 2014. However, § 3.1 of the MSA provides:
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Term. This agreement will become effective on the Effective Date and shall
continue until [plaintiff] has complied with its duties and obligations identified on
Schedule A (the “Initial Term”), or a triggering event causing termination of the
Agreement under section 3.2, below. This Agreement shall automatically renew
for a one year period after the Initial Term unless terminated by mutual consent
upon thirty (30) days written notice, prior to the end of the Initial Term (the
“Renewal Term”). All provisions of this Agreement shall apply to all Services
and all periods of time in which [plaintiff] renders Services for [defendant].
“Schedule A” refers to a number of documents that contain work orders for services that plaintiff
would perform for defendant, but do not contain any date for purposes of the contractual term.
An interpretation of the MSA under the introductory paragraph would result in an
agreement that had a term of three years, lasting from May 1, 2014, to May 1, 2017. On the
other hand, an interpretation of the MSA in accordance with §§ 3.1 (the “Term” provision) and
3.3 (the “Early Termination” provision) would result in an agreement that “would become
effective on the Effective Date and continue until [plaintiff] . . . complied with its duties and
obligations on Schedule A.” Because the language of the MSA is ambiguous regarding the term
of the contract, and was therefore fairly susceptible to two constructions, the MSA was open to
explanation by extrinsic evidence. Id. at 470.
The trial court did not err when it concluded that the extrinsic evidence demonstrated that
there was no question of fact that the term of the contract was for three years and granted
summary disposition on that basis. Although defendant claims that the testimony of Dave
Maciejewski, a former employee of defendant who negotiated the MSA with plaintiff, Brad
Byrnes, plaintiff’s owner, and Anthony Paesano, plaintiff’s former attorney, conflicts with
respect to the intent of the parties, we disagree. As an initial matter, defendant fails to identify
any specific statements that conflict.
A party may not leave it to this Court to search for authority to sustain or reject its
position. An appellant may not merely announce his position and leave it to this
Court to discover and rationalize the basis for his claims, nor may he give issues
cursory treatment with little or no citation of supporting authority. Argument
must be supported by citation to appropriate authority or policy. An appellant’s
failure to properly address the merits of his assertion of error constitutes
abandonment of the issue. [Bank of America, NA v Fidelity Nat Title Ins Co, 316
Mich. App. 480, 517; 892 NW2d 467 (2016) (citations and quotation marks
omitted).]
Therefore, defendant has abandoned this argument on appeal. Nevertheless, the record belies
defendant’s assertion.
In his affidavit, Byrnes stated that the parties agreed that the MSA’s “Initial Term” would
be for three years. Byrnes further stated that although Schedule A provided for the performance
of a “one-time project involving the upgrading of the computer systems at [defendant’s] facilities
located in the Dominican Republic and Florida,” defendant also agreed to pay plaintiff “a
monthly recurring fee” for the Initial Term of three years. Further, Paesano testified that he
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believed the Initial Term was for three years. Moreover, as the trial court noted, Maciejewski’s
affidavit supported a finding that the term of the contract was three years. Maciejewski stated
that, as Creative Lighting Solutions’s president, he negotiated the MSA with Byrnes and
understood and agreed to a “fixed commitment of three years for the provision of the monthly
service charge, and that [defendant] would be liable for a fee equal to the monthly service fee for
the remaining months on the MSA” if defendant “terminated early without cause and without
giving the notice required under the MSA.” On defendant’s behalf, Maciejewski “agreed to the
fixed term of three years in order to obtain pricing concessions from [plaintiff] which was an
overall part of the bargain that [he] struck for” defendant. Maciejewski further stated that the
introductory paragraph of the MSA defining the “Initial Term” as being three years represented
the intent of both defendant and plaintiff to “bind [defendant] for that fixed three year period for
the payment of the monthly service fees.” Therefore, the extrinsic evidence demonstrates that
the “Initial Term” of the MSA was for three years. Thus, the trial court did not err in concluding
that there was no question of fact regarding the intent of the parties with respect to the term of
the contract and granting summary disposition in plaintiff’s favor.
Defendant asserts that the general reference to “Initial Term” in the introductory
paragraph is “overridden by the more specific provisions” of § 3.1, and therefore, the trial court
erred in granting summary disposition. We disagree.
“The settled rule regarding statutory construction is that a specific statutory provision
controls over a related but more general statutory provision.” DeFrain v State Farm Mut Auto
Ins Co, 491 Mich. 359, 367 n 22; 817 NW2d 504 (2012), citing In re Haley, 476 Mich. 180, 198;
720 NW2d 246 (2006). “The same is true with regard to contract provisions.” DeFrain, 491
Mich. at 367 n 22.
Although the specific provision of § 3.1 purports to define the “Initial Term” as a time
“until [plaintiff] has complied with its duties and obligations identified on Schedule A (the
‘Initial Term’),” those duties and obligations are open-ended and do not provide a specific end
date or term for the contract. Rather, the Schedule As simply provide work orders that the
parties drew up when new services were required. Paesano testified that when he created the
MSA template, it included a reference to Schedule A to allow for clients to adjust the MSA
according to the needs that may arise throughout a contractual agreement. Paesano intended for
the client to include a specific term in Schedule A, but it appeared to Paesano that Byrnes created
an ambiguity in the MSA by neglecting to include a specific term for the contract. Further,
Byrnes testified that “Schedule A would be identified as any Schedule A [plaintiff] would have
provided from” the point the agreement was entered, April 9, 2014, “forward.” Byrnes
elaborated, stating, “The reason for the term [Schedule A] . . . was designed so that way, if there
[were] additions to the service through its service term, it would be referenced the same way.”
For example, the Schedule A dated March 17, 2014, was a work order to move servers from
defendant’s previous tech service company to plaintiff’s facilities and perform upgrades.
Moreover, there are two Schedule As dated April 9, 2014. The first Schedule A, identified as
“Quote #003052,” outlines services for a one-time transaction to provide defendant with new
infrastructure. As Byrnes testified, this one-time transaction was completed in or “about mid-
August” 2014. The second Schedule A, identified as “Quote #003064,” outlines the “ongoing
support” that plaintiff would provide to defendant beginning on May 1, 2014, and continuing on
a monthly basis throughout the term of the MSA. Because none of the Schedule As include a
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specific date for the “Initial Term” of the MSA, and appear to simply be work orders for various
services to be provided by plaintiff to defendant, § 3.1 is rendered ambiguous and without
meaning regarding the “Initial Term.” As plaintiff points out, the introductory paragraph is more
specific with regard to a term for the contract than the provision in § 3.1 that purports to define
the “Initial Term.” Therefore, the trial court did not err in looking to the extrinsic evidence in
determining the “Initial Term,” and granting summary disposition.
Defendant contends that the liquidated damages clause is unenforceable because it is a
penalty and not a liquidated damages provision. We disagree.
“[W]hether a liquidated damages provision is valid and enforceable” is a question of law
that is reviewed de novo. St Clair Med, PC v Borgiel, 270 Mich. App. 260, 270; 715 NW2d 914
(2006). “A liquidated damages provision is simply an agreement by the parties fixing the
amount of damages in the event of a breach and is enforceable if the amount is reasonable with
relation to the possible injury suffered and not unconscionable or excessive.” Id. at 270-271. A
liquidated damages provision is appropriate when actual damages are uncertain and difficult to
ascertain. Id. at 271. “The courts are to sustain such provisions if the amount is ‘reasonable with
relation to the possible injury suffered’ and not ‘unconscionable or excessive.’ ” UAW-GM
Human Res Ctr v KSL Recreation Corp, 228 Mich. App. 486, 508; 579 NW2d 411 (1998)
(citations omitted). “To determine whether the amount stipulated as liquidated damages is
reasonable, the Court looks to conditions at the time the contract was entered into, not at the time
of breach of the contract. . . .” Solomon v Dep’t of State Hwys & Transp, 131 Mich. App. 479,
484; 345 NW2d 717 (1984). Use of the words “penalty,” “forfeit,” “liquidated” or “stipulated”
damages is not conclusive regarding whether a written instrument provides for liquidated
damages or a penalty. Moore v St Clair Co, 120 Mich. App. 335, 340-341; 328 NW2d 47 (1982)
(citations omitted).
Section 3.3, the early termination provision at issue here, states:
In the event [defendant] terminates this Agreement during the Initial Term or
Renewal Term, [defendant] shall be liable for an early termination penalty fee
(“Penalty Fee”). The Penalty Fee shall equal the sum of [defendant’s] current
monthly fee (as described in the attached, Schedule A) multiplied by the
remaining months left under the Initial Term. The Penalty Fee shall be payable to
[plaintiff] within thirty (30) days of termination.
Here, simply because the MSA refers to the damages provision as “Penalty Fee” does not
render it an unenforceable penalty. See id. The “Penalty Fee” provision provides for the
calculation of damages to which plaintiff was entitled should defendant prematurely terminate
the MSA before plaintiff rendered its promised performance. As plaintiff recognizes, “[i]t is
well settled that the appropriate measure of damages for breach of contract . . . is that which
would place the injured party in as good a position as it would have been in had the promised
performance been rendered.” Jim-Bob, Inc v Mehling, 178 Mich. App. 71, 98; 443 NW2d 451
(1989); see also Allison v AEW Capital Mgmt, LLP, 481 Mich. 419, 426 n 3; 751 NW2d 8 (2008).
At the time the contract was entered into, the parties were unable to calculate the actual damages
to which plaintiff would be entitled to should defendant breach the contract because the parties
could not know the point at which defendant would breach. Therefore, the parties provided that
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plaintiff’s damages would be calculated using “the sum of [defendant’s] current monthly fee”
described in Schedule A multiplied by the remaining months left under the Initial Term. This
provision appears reasonable with relation to the possible injury plaintiff would suffer if
defendant terminated the contract, and therefore, does not appear to be an invalid penalty. UAW-
GM Human Res Ctr, 228 Mich. App. at 508-509. Thus, the “Penalty Fee” is an enforceable
liquidated damages provision and not a penalty.
Defendant contends that the liquidated damages provision in § 3.3 should be viewed as a
penalty in light of § 4.1. We disagree.
In relevant part, § 4.1 states:
In the event of a breach by [plaintiff], [defendant’s] damages shall be limited to
[defendant’s] expenses for Services provided by [plaintiff] for the preceding three
(3) months. Furthermore, [defendant] agrees that any claim against [plaintiff],
whether arising in tort, contract or otherwise, must be brought within six (6)
months from the date the claim arose.
While § 4.1 details defendant’s damages in the event that plaintiff breached the contract,
§ 3.3 details plaintiff’s damages in the event that defendant terminated the contract early. As
plaintiff points out, “parties are free to contract as they see fit.” Tuscany Grove Ass’n v Peraino,
311 Mich. App. 389, 395; 875 NW2d 234 (2015), citing Wilkie v Auto-Owners Ins Co, 469 Mich.
41, 51; 664 NW2d 776 (2003). Plaintiff and defendant were free to negotiate a contract in which
the measure of damages was different for each party. Therefore, § 3.3 is a valid calculation of
plaintiff’s damages because it represents the amount that plaintiff would have received had
defendant not terminated the contract early.
Defendant argues that its breach of contract claim should not have been dismissed
because Czarnik’s affidavit established that plaintiff breached the MSA. We disagree.
Fred Sherrerd, plaintiff’s vice president of operations, stated that he had “extensive
involvement with” the MSA and that defendant “never contracted for backup services on the
AS400” server. Sherrerd further stated that defendant’s “computer system essentially consisted
of two sets of servers.” The first set of servers used the Microsoft operating system, while the
other server, the AS400, was manufactured by IBM and was used by defendant to runs its
business software. Sherrerd stated that defendant “only contracted for backup services on the set
of servers that ran Microsoft operating systems and did not contract for backup services on the
AS400.” Sherrerd additionally stated that plaintiff “performed the backup on the servers running
the Microsoft operating system[] on a daily basis until” defendant terminated the contract.
Sherrerd stated that plaintiff performed “system backups to the extent required by the” MSA.
Byrnes also stated that plaintiff “provided all back-up services to the full extent required by the”
MSA. Moreover, Byrnes testified that plaintiff was “purely only contracted to provide
colocation services for [the AS400] server to sit and be powered up, connected to the internet
and have the locations have access to it.”
Defendant relies on the affidavit of Daniel Czarnik, an employee of the IT company that
defendant hired after it terminated its contract with plaintiff, to support its breach of contract
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claim. Although Czarnik stated that plaintiff “never performed a full system backup” on the
AS400 while it was in plaintiff’s care, plaintiff conceded this point because, as Sherrerd and
Byrnes noted, defendant never contracted for plaintiff to perform such services on the AS400.
To the extent that defendant is arguing that plaintiff neglected to provide “24x7
Monitoring” on the AS400, as required by Schedule A, this argument is without merit. Byrnes
testified that plaintiff “was purely to provide colocation services for the AS400 and support at
hourly rates.” Byrnes also testified that although plaintiff did not perform full backups on the
AS400, it “did provide and do daily incremental backups. And even during the term that we had
the server we ordered new tapes because we determined that we needed to have some fresh tapes
to continue backing that server up.”1 Although Czarnik’s affidavit establishes that Czarnik was
unable to backup the AS400 server because a separate computer that was used to connect to the
server was not operational and that plaintiff never performed a full system backup on the AS400,
it did not establish that plaintiff neglected to perform “24x7 Monitoring.” In fact, Czarnik’s
affidavit suggests that plaintiff did perform “24x7 Monitoring” because Czarnik stated that “[t]he
procedure for daily backups performed by [plaintiff] was faulty. . . .” Even if the procedures
plaintiff followed were faulty because plaintiff did not perform the daily backups “in accordance
with industry best practices,” plaintiff nonetheless performed daily backups, suggesting that
“24x7 Monitoring” occurred.
Affirmed.
/s/ Stephen L. Borrello
/s/ David H. Sawyer
/s/ Kathleen Jansen
1
The record demonstrates that there was a difference between a “full backup” and the “daily
incremental backups.”
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