Michigan Supreme Court 

# Order
Lansing, Michigan

December 12, 2008 Clifford W. Taylor, Chief Justice 135117 Michael F. Cavanag h Elizabeth A. Weave r Marilyn Kell y Maura D. Corriga n Robert P. Young, Jr. GENERAL MOTORS CORPORATION, Stephen J. Markman, Plaintiff-Appellee, J ustices

v SC: 135117 COA: 270430 Wayne CC: 04-422587-CB ALUMI-BUNK, INC., and ERIC JAIN, Defendants-Appellants.

________________ _________________________/

On order of the Court, leave to appeal having been grante d, and the briefs and oral arguments of the parties having been considered by the Co urt, we hereby REVERSE in part the July 24, 2007 judgment of the Court of Appeals, for the reasons stated in the Court of Appeals dissenting opinion. Th e trial court did not err in granting the defendants’ motion for summary disposition on the plaintiff’s claim of fraudulent inducement. Therefore, the ruling of the Wayne Circuit court is AFFIRMED in all respects.

Y OUNG , J. ( concurring ).

I concur with the Court’s order to revers e the Court of Appeals resolution of the fraudulent inducement claim. I write separate ly to indicate that, contrary to Justice Kelly’s dissenting statement, th e tort claim raised in this case is clearly barred by the economic loss doctrine because it is inextricably in terwoven with plai ntiff’s claim of breach of contract.

The alleged basis for the contract was de fendant’s promise to “upfit” (modify) the vehicles it purchased from plaintiff in exchan ge for a discounted price. Contrary to Justice Kelly’s analysis, this singular “promise” is the sole reason for the dispute between the parties. Indeed, a reader will be hard -pressed to find a distinction between the two complaint averments that Jus tice Kelly quotes in support of her dissenting statement.

Plaintiff claims that defendant made this upfit promise during the negotiation phase, but it was never made a part of the cont ract. Nevertheless, plaintiff contends that2

defendant breached its promise to upfit the vehicles it purcha sed and that de fendant never intended to upfit when it promised to do so. Thus, this prom ise to upfit is both the basis for the breach of contract claim a nd the fraudulent inducement claim.

The trial court and the Court of Appeal s correctly determined that plaintiff’s breach of contract claim, base d on the violation of this promise, must be dismissed given that plaintiff failed to include this central term in the written contract. Moreover, there is no way to characterize these identi cal allegations as separate cl aims for breach of contract and fraudulent inducement. Accordingly, the tr ial court was required, as it did, to dismiss the fraud claim to prevent contract law from “drown[ing] in a sea of tort.” Neibarger v Universal Coop, Inc , 439 Mich 512, 531 (1992). The C ourt of Appeals erred in reversing that decision.

K ELLY , J. ( dissenting ).

I respectfully dissent from the Court’s orde r reversing in part the judgment of the Court of Appeals. I believe that the Cour t of Appeals majority correctly held that defendants are not entitled to summary dis position on the fraudulent inducement of plaintiff, General Motors Company. Accordingly, I would affirm.

I. F ACTUAL B ACKGROUND AND P ROCEDURAL H ISTORY

In 2003, defendants sought to purchase hundreds of pickup tr ucks from a General Motors Corporation (GMC) dealer. Defend ants ultimately purchas ed 148 trucks and obtained from plaintiff a Comp etitive Assistance Program (C AP) discount of $7,200 for each vehicle. Plaintiff contends that it granted the discount only because defendants agreed, both orally and in writing, to modify or “upfit” the vehicles before selling them. In this way, the vehicles would not comp ete with other, unmodified, GMC vehicles already on the market. However, the writte n contract contained no such requirement and defendants later sold the ve hicles without modifications.

Plaintiff filed a complaint setting forth counts of negligent, innocent, and/or intentional misrepresentation, fraud, and breach of contr act, among others. Defendants moved for summary disposition under M CR 2.116(C)(8) and (10), arguing that plaintiff’s claims were untenable because the written contract memorializing the CAP discount did not contai n a requirement that the vehicles be “upfitted.” Defendants also argued that the economic loss doctrine 1 applied to this case a nd barred plaintiff’s tort

1 The economic loss doctri ne provides that “[w]here a purchaser’s expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only economic losses.” Neibarger v Universal Cooperatives, Inc , 439 Mich 512, 520 (1992) (inter nal citations and quotation marks omitted).3

claims. Also, it asserted, plaintiff was li mited to the remedies available under the Uniform Commercial Code 2 (UCC). Plaintiff responded that the economic loss doctrine was inapplicable to plaintiff’s fraudulent inducement claim, and, even if applicable, the claim remained viab le because the fraud occurred be fore the contract existed.

The trial court granted defendants’ moti on for summary disposition, ruling that the fraud claim was not independent of the contract claim and was thus barred by the economic loss doctrine. The Court of Appeals ma jority affirmed in pa rt and reversed in part, finding no error in the trial court’ s conclusion that the economic loss doctrine governed because “the contract regarding the CAP discount invol ved the conducting of business concerning trucks, whic h are ‘goods’ under the UCC.” 3 However, the Court held that the trial court erred in concluding that the alleged fraud was so interwoven with the breach of contract claim that it could not be considered separately. 4 The Court concluded that outstanding que stions of fact existed rega rding the fraud claim. It referred to credible evidence that defendants had improperly induced plaintiff to enter into the contract by agreeing to “upfit” the vehicles without having a present intent to do
5 so.

We granted leave to appeal to determ ine (1) whether an exception to the economic loss doctrine exists fo r claims of fraudulent indu cement, and (2) whether the fraud claims in this case are sufficiently di stinguishable from the contract claims for purposes of applying the fraudulent inducement exception. 6

II. A NALYSIS

This Court officially recognized the economic loss doctrine in Neibarger v Universal Cooperatives, Inc

. 7 Neibarger involved a plaintiff seeking economic loss damages as the result of a defective product. Commenting on the differences between an individual consumer’s tort remedy for product liability compared with a commercial party suffering economic lo sses, the Court stated:

[I]n a commercial transaction, the parties to a sale of goods have the oppo rtunity to negotiate the terms and

2 MCL 440.1101 et seq.

3 Gen Motors Corp v Alumi-Bunk, Inc , unpublished opinion per curiam of the Court of Appeals, issued July 24, 2007 (Docket No. 270430), at 4.

4 Id . at 7.

5 Id . at 7-8.

6 Gen Motors Corp v Alumi-Bunk, Inc , 480 Mich 1193 (2008).

7 439 Mich 512 (1992).4

specifications, including warrantie s, disclaimers and limitations of remedies. Where a product pr oves to be faulty after the parties have contracted for sale and the only losses are economic, the policy consider ations supporting products liability in tort fail to serve the purpose of encouraging the design and production of safer products. [8]

The Court went on to hold th at “where a plaintiff seeks to recover for economic loss caused by a defective product purchased for commercial purpo ses, the exclusive remedy is provided by the UCC . . . . 9

The Neibarger Court also noted the policy rati onale behind the economic loss doctrine:

The purpose of a tort duty of care is to protect society’s interest in freedom from harm, i. e. the duty arises from policy considerations formed without reference to any agreement between the parties. A contract ual duty, by comparison, arises from society’s interest in th e performance of promises. Generally speaking, tort principl es . . . are better suited for resolving claims involving unantic ipated physical injury . . . . Contract principles, on the ot her hand, are generally more appropriate for determ ining claims for consequential damages that the parties have, or could have, addressed in their agreement. [10]

MCL 440.1103 provides the basis for pl aintiff’s assertion that there is an exception to the economic loss doctr ine for claims of fraud:

Unless displaced by the particular provisions of [the UCC], the principles of law and equity, incl uding the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud

, misrepresentation , duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions

. [11]

8 Id . at 523.

9 Id . at 527-528.

10 Id . at 521 (internal quotati on marks and citation omitted).

11 Emphasis added.5

Huron Tool & Engineering Co v Pr ecision Consulting Services, Inc 12 is the leading case discussing the fraudulent in ducement exception to the economic loss doctrine. 13 Huron Tool involved the defendant manufact urer’s claims for breach of contract, breach of warranty, fraud and misr epresentation arisi ng out of defective software purchased by the plaintiff. After determining that the plaintiff’s breach of contract claim was barred by the UCC’s st atute of limitations, the Court of Appeals addressed the viability of the plai ntiff’s fraudulent inducement claim:

With regard to the specific intentional tort of fraud, courts generally have distinguis hed fraud in the inducement as the only kind of fraud claim not barred by the economic loss doctrine. We believe this distin ction is warranted in light of the rationale of the economic loss doctrine.

* * *

In light of this rationale, we decline to adopt defendants’ position that the economic loss doctrine precludes any fraud claim. Fraud in the inducement presents a special situation where parties to a contract a ppear to negotiate freely—which normally would constitute grounds for invoking the economic loss doctrine—but where in fact the ability of one party to negotiate fair terms and make an informed decision is undermined by the other pa rty’s fraudulent behavior. 14

The Court of Appeals limited its holding, however, stating th at “a plaintiff may only pursue a claim for fraud in the inducement extraneous to the alleged breach of contract. 15

12 Huron Tool & Engineer ing Co v Preci sion Consulting Services, Inc, 209 Mich App 365 (1995).

13 Numerous jurisdictions have relied on Huron Tool for the proposition that an exception to the economic loss doctrine exists for cl aims of fraudulent inducement. See, e.g., Werwinski v Fo rd Motor Co , 286 F3d 661, 676 (CA 3, 2002); Marvin Lumber & Cedar Co v PPG Industries, Inc , 223 F3d 873, 885 (CA 8, 2000); Giles v Gen Motors Acceptance Corp , 494 F3d 865, 875 (CA 9, 2007); Dinsmore Instrument Co v Bombardier, Inc , 999 F Supp 968, 97 0 (ED Mich 1998); Kaloti Enterprises, Inc v Kellogg Sales Co , 283 Wis 2d 555, 581 (2005); Valleyside Dairy Farms, Inc v AO Smith Corp , 944 F Supp 612, 61 6 (WD Mich 1995).

14 Huron Tool, supra at 371-373 (emphasis in original).

15 Id . at 374.6

Applying the prin ciples expounded in Neibarger , MCL 440.1103, and Huron Tool to this case, it is clear that the majority’s decision to reverse the Court of Appeals and grant summary disposition to defendants is unwarranted. This case involves a “transaction in goods.” The UCC thus provides the relevant governing law, 16 and the economic loss doctrine would generally bar claims for economic loss related to the transaction, including breach of contract claims. 17 However, MCL 440.1103 explicitly recognizes that certain categories of claims are exempt from the economic loss doctrine. Specifically, claims for fraud are authorized by statute as a supplement to the remedies normally available under the UCC. 18 This is the premise th at governs this dispute.

Moreover, as recognized in Huron Tool , fraudulent inducement claims are proper despite the limitations of the ec onomic loss doctrine “where parties to a contract appear to negotiate freely . . . but wher e in fact the ability of one part y to negotiate fair terms and make an informed decision is undermined by the other party’s fraudulent behavior.” 19
Huron Tool addressed claims of fraud interwoven with claims of breach of contract. It held that, in such claims, the alleged misrep resentations relate to the breaching party’s performance of the contract a nd do not give rise to an in dependent cause of action in
tort. 20 This type of fraud is not extraneous to the contractual dispute between the parties. It is another thread in the fabric of plai ntiff’s contract claim, supported by factual allegations identical to those suppor ting its breach of contract counts. 21 Such fraud does not induce a plaintiff to enter in to a contract nor does it cause harm to a plaintiff distinct from that caused by the breach of contract. 22

As determined by the Court of Appeals majority in the inst ant case, the fraud alleged by plaintiff was not interwoven with its breach of contract claim. Rather, the alleged fraud induced plaintiff to enter into the contract; it did not relate to the breach of contract itself. In fact, plaintiff’s compla int specifically alleges, in pertinent part:

FRAUD 32. Defendants . . . knowingly misrepresented that any fleet vehicles purchased under the Competitive Assistance

16 MCL 440.2102.

17 Neibarger

, supra at 520. The issue whether the trial court properly dismissed plaintiff’s breach of contract claims is not the subject of this appeal.

18 MCL 440.1103.

19 Huron Tool

, supra at 372.

20 Id . at 373.

21 Id

. 22 Id

.7

Program would be upfitted before the resale of those vehicles to the general public. . . .

* * *

NEGLIGENT, INNOCENT AND/OR INTENTIONAL MISREPRESENTATION 39. Defendants . . . represented to [plaintiff] on several occasions that any fleet vehicles purchased under the Competitive Assistance Program would be upfitted before the resale of thos e vehicles to the public. [23]

Plaintiff’s complaint thus makes clear that its fraud and misrepresentation claims are not based on a breach of the cont ract itself. They are based, instead, on defendants’ representations made before the contract was executed. Accordingly, the Court of Appeals correctly distinguished the two intrin sically different allegations of misconduct by defendant—fraudulent inducement and breac h of contract—in holding that defendants are not entitled to summary disposition.

This analysis is also consis tent with the Court’s holding in Rutan v Straehly

. 24 In Rutan , the Court held that fraud claims generally cannot be predicated on future actions. However, the Court stated that “an unfilled prom ise to perform in the future is actionable when there is evidence that it was made w ith a present undisclo sed intent not to perform. 25 I agree with the Court of Appeals majority, which relied on Rutan. The Court concluded that plaintiff presen ted ample evidence of an unful filled promise to perform on the part of defendants. It presented ampl e evidence that, while de fendants agreed to “upfit” the vehicles, defendants had a present in tent to sell the vehicles without doing so. This situation fits squarely within Rutan , MCL 440.1103, the fraudulent inducement exception to the economic loss doctrine, and Huron Tool

. The majority’s reliance on the Court of Ap peals dissent is unfounded. The dissent misapplies Huron Tool and ignores the import of MCL 440.1103 and Rutan

. 26 The dissenting opinion correctly states that, pursuant to Huron Tool , a plaintiff must allege a claim for fraudulent inducement separate from a claim of breach of contract. However, it disregards documentary and testimonial eviden ce presented by plaintiff that during the negotiating process, defendants made severa l misrepresentations, both written and oral,

23 Plaintiff’s complaint at 7, 9 (emphasis added).

24 Rutan v Straehly, 289 Mich 341 (1939).

25 Id . at 348-349.

26 In fact, Justice Young’s concurrence and th e Court of Appeals dissent both fail to cite MCL 440.1103 or Rutan . Justice Young also fails to recognize the significance of Huron Tool whatsoever.8

that the purchased vehicles would be “upfitted.” Therefore, the dissenting opinion’s statement that “there is a glaring absence of any evidence at all that would even inferentially support [plaintiff’s claim fo r fraudulent inducement]” is inaccurate. 27

Similarly, Huron Tool evinces no intent to subvert the foundational rule of Michigan jurisprudence, embodied in MCR 2.111(A)(2), that a party may plead in the alternative even “where proof of one clai m must defeat the existence of another.” 28 A plaintiff’s “antithetical pleadings” ar e not grounds for summary judgment. 29 Thus, the fact that plaintiff pleaded alternate theories of liability flowing from the same facts— fraudulent inducement and brea ch of contract—does not support a rejection of its fraudulent inducement claim. The proper scope of analysis under Huron Tool is the fraud claim itself, as stated in plaintiff’s compla int. That claim should be analyzed to determine if it relates to a contractual provis ion or to the separate breach of contractual theory of liability alleged in the complaint. If it relates to a contractual provision, the economic loss doctrine bars the fraud claim. If not, the claim survives on its own.

It is undisputed that the contract at i ssue has no provision fo r “upfitting.” Hence, plaintiff’s fraudulent inducement claim does not relate to a contractual provision, and the claim should proceed. Specula tion about whether plaintiff should have included an “upfit” provision in the contract is an issue involving the contract, wholly irrelevant to the fraudulent indu cement claim.

III. C ONCLUSION

I believe that the Court of Appeals major ity correctly held that defendants are not entitled to summary disposition on plaintiff’s claims for fraudule nt inducement.

27 Gen Motors Corp v Alumi-Bunk, Inc, unpublished Court of Appeals dissenting opinion by Kelly, J., issued July 24, 20 07 (Docket No. 270430), at 5.

28 Abel v Eli Lilly & Co , 418 Mich 311, 335 (1984).

29 Id

._______________________________________ __ 9

Pursuant to MCL 440.1103, Huron Tool, and Rutan , claims of fraudulent inducement are not barred by the economic loss doctrine. Pl aintiff presented cr edible evidence of defendant’s precontractual fraud and misrepresent ations distinct from its claims of breach of contract. Therefore, it is entitled to its day in court. Accordingly, because questions of fact remain unanswered regarding plaintiff’s allegations, I would affirm the judgment of the Court of Appeals.

C AVANAGH , J., joins the statement of K ELLY , J.

1211 I, Corbin R. Davis, Clerk of the Mi chigan Supreme Cour t, certify that the foregoing is a true and complete copy of the order entered at the direction of the Court.

December 12, 2008
Clerk