Title: Chrysler Corp. v. SKYLINE INDUSTRIAL SERVICES INC.
Citation: 448 Mich. 113, 528 N.W.2d 698
Docket Number: 
State: Michigan
Issuer: Michigan Supreme Court
Date: March 7, 1995

Decided March 7, 1995. Feikens, Foster, Vander Male, Bellamy & Gilchrist, P.C. (by Roger L. Wolcott), for the plaintiff. Loesch & Ball (by Patrick D. Ball) for the defendant. *116 LEVIN, J. The question presented concerns a conflict of Illinois and Michigan law. Plaintiff Chrysler Corporation and defendant Skyline Industrial Services, Inc., entered into a contract for construction services to be performed by Skyline in Illinois. The contract provided that Skyline would indemnify and hold Chrysler harmless from Chrysler's negligence. Such an indemnification provision in a construction contract is void under an Illinois statute,[1] but valid under a Michigan statute unless the indemnitee is solely negligent.[2] Chrysler and Skyline have significant Michigan contacts, and the contract contained an indemnification provision referring to the Michigan statute.[3] The circuit judge granted Chrysler's motion for summary disposition on the issue of indemnification, holding that Michigan law was applicable. The Court of Appeals reversed relying on 1 Restatement Conflict of Laws, 2d, §§ 187-188, pp 561-575, holding that Illinois law was applicable, and *117 that the disputed clause was unenforceable because it violated Illinois law. Although the Court of Appeals was correct in considering the Restatement approach, we conclude, on the facts of this case, that it erred in applying Illinois law. Michigan law applies, and the indemnification clause is valid. I Chrysler is a Delaware corporation with its principal place of business in Michigan. Skyline is a Michigan corporation. In the spring, 1986, Chrysler contracted with Skyline, in Michigan, to paint and renovate Chrysler's Belvidere Assembly Plant in Illinois. The negotiations for this contract mainly occurred in Michigan. The contract contained a reference to Chrysler's purchase order general terms and conditions, which included indemnification.[4] Subsequently, *118 in 1987, the purchase order general terms were amended to specify the law of Michigan as governing.[5] On June 17, 1986, a Skyline employee, Richard Pfaff, was injured while working at the Belvidere plant.[6] Chrysler commenced this action in Wayne *119 Circuit Court, alleging breach of contract and seeking a declaratory judgment. Both Chrysler and Skyline moved for summary disposition on the indemnification issue.[7] The circuit court denied Skyline's motion and granted Chrysler's motion.[8] The circuit court adopted Chrysler's argument that the place of performance of the indemnification was Michigan, although the contract was for services to be performed in Illinois. The circuit court found that the place of contracting was Michigan and that applying Michigan law, referred to in the indemnification clause, would best give effect to the parties' intentions at the time of contracting.[9] *120 The Court of Appeals reversed.[10] The Court accepted, arguendo, the circuit court's conclusion that Michigan law applied.[11] Relying on a footnote in Hardy v Monsanto Enviro-Chem Systems, Inc,[12] adverting to 1 Restatement Conflict of Laws, 2d, § 187,[13] the Court of Appeals analyzed the choice-of-law question under § 187 and 1 Restatement Conflict of Laws, 2d, § 188.[14] The Court concluded *121 that, although the place of contracting was Michigan, the place of performance and the location of the subject matter of the contract Pfaff's action commenced in Illinois was Illinois.[15] The Court observed that comment c to § 188, p 578, indicates that the place where the contract was to be performed had the more significant interest in enforcing a statute designed to regulate or deter specific business practices.[16] The Court concluded that the Illinois statute should apply, and the indemnification clause was void.[17] II The Court of Appeals engaged in an extensive analysis of the conflict of laws issue. The question whether to adopt the Restatement approach to resolve conflict of laws issues was not squarely *122 presented in Hardy.[18] In footnote 60, Justice MOODY cited § 187, and a series of older Michigan cases analyzing choice-of-law provisions, in support of the view that when the parties have agreed to an explicit choice of law, that choice will be respected unless there are compelling reasons for not doing so. The predominant view in Michigan has been that a contract is to be construed according to the law of the place where the contract was entered into.[19] The trend nationally, however, has been to adopt the Restatement approach emphasizing the law of the place having the most significant relation with the matter in dispute.[20] Thus, [A]lthough affording less certainty and predictability than rigid general rules traditionally followed by the courts, [this approach] has merit in giving to the place having the most interest in the problem paramount control over the legal issues, thus allowing the forum to apply the policy of the jurisdiction most intimately concerned with the outcome of the litigation, and in enabling the court, not only to reflect the relative interests of the several jurisdictions involved, but also to give effect to the probable intention of the parties and consideration to the best practical result. [16 Am Jur 2d, Conflict of Laws, § 83, p 141.] The trend in this Court has been to move away from traditional choice-of-law conceptions toward a *123 more policy-centered approach.[21] In Sexton v Ryder Truck Rental, Inc, 413 Mich 406; 320 NW2d 843 (1982), this Court abandoned the traditional lex loci doctrine for resolving conflicts between the tort laws of different states, overruling Abendschein v Farrell, 382 Mich 510; 170 NW2d 137 (1969).[22] Justice WILLIAMS, writing for a plurality of justices, observed that the lex loci approach had not been consistently applied and had lost the power of consistency that had been its hallmark.[23] Adopting a lex fori approach in its stead, Justice WILLIAMS said: As a consequence of these premises, in the normal common-law tradition, we hold that where Michigan residents or corporations doing business in Michigan are involved in accidents in another state and appear as plaintiffs and defendants in Michigan courts, the courts will apply the lex fori, not the lex loci delicti, and we do so without reference to any particular state policy. We reach this conclusion on the facts and reasoning herein developed. We do not here adopt the law of dominant contacts or any other particular methodology, although any such reasoning may, of course, be argued where persuasive and appropriate. [Id. at 433.] Among the reasons for applying lex fori, Justice WILLIAMS noted that "the forum state generally has an interest in seeing that its injured citizens are well-served and that its citizen defendants are *124 afforded every protection that such citizens would have in their own state."[24] In Olmstead v Anderson,[25]Sexton was reaffirmed, and the choice of lex fori was expanded in a case in which a Michigan resident was a defendant in a tort action in Michigan.[26] The resolution of the conflicts presented in Sexton and Olmstead does not mandate that we endorse one particular analytical method over another for resolving contract law conflicts.[27] Underlying the holdings in Sexton and Olmstead was the view that resolving conflicts questions requires moving beyond traditional rules. Much as lex loci delicti had proven too inflexible for resolution of tort conflicts, the rigid "law of the place of contracting" approach has become outmoded in resolving contract conflicts. Rather, §§ 187 and 188 of the Second Restatement, with their emphasis on examining the relevant contacts and policies of the interested states, provide a sound basis for moving beyond formalism to an approach more in line with modern-day contracting realities.[28] *125 In the instant case, there is an explicit reference to the Michigan statute in the indemnification clause. Our concern is to balance the expectations of the parties with the interests of Michigan and Illinois. As the comments to § 187 of the Second Restatement state, "Prime objectives of contract law are to protect the justified expectations of the parties and to make it possible for them to foretell with accuracy what will be their rights and liabilities under the contract."[29] But, in contract law; regard must also be had for state interests and for state regulation."[30] Were we to be faced with a different factual scenario, the relative balance of these concerns might be different. We cannot foresee other factual scenarios that might appear before a court. It is sufficient to say that the concerns for certainty and public policy expressed in the Second Restatement reflect sound considerations that may guide a court in resolving specific conflicts between the contract laws of different states. III In voiding the indemnification clause choosing Michigan law, the Court of Appeals considered the *126 policies expressed in the Second Restatement, §§ 187 and 188. While the Court correctly concluded that Illinois has a significant interest in this controversy and that Illinois public policy would most likely prevent indemnification, the Court gave insufficient weight to the effective choice of law made by the contracting parties and downplayed the significance of Michigan's interest in applying its own law to this dispute. The Court also should have engaged in an analysis of the purposes of the Illinois and Michigan statutes before concluding that public policy barred indemnification in this case. Our analysis starts where the Court of Appeals started, with § 187 of the Restatement, 2d. Although § 187(1) permits the application of the parties' choice of law if the issue is one the parties could have resolved by an express contractual provision, § 187(2) states two exceptions. Section 187(2)(a) provides that the choice of law will not be followed if the chosen state has no substantial relationship to the parties or the transaction, or when there is no reasonable basis for choosing that state's law. Section 187(2)(b) bars the application of the chosen state's law when it "would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties." Michigan has a substantial relationship to the parties and the transaction at issue here. Both companies have significant contacts with this state, as Chrysler's principal place of business and Skyline's place of incorporation.[31] Michigan was *127 both the place of negotiation and the place of contracting. The parties had good reason to choose Michigan law for the contract. The Court of Appeals concluded that the parties' choice of law was contravened by Restatement, § 187(2)(b).[32] This section requires an inquiry whether Illinois has a materially greater interest than Michigan (and, under § 188, would have been the state of applicable law in the absence of the Michigan choice of law) and whether the indemnification provision would have been contrary to a fundamental policy of Illinois. In determining that Illinois had a materially greater interest, the Court of Appeals focused mostly on the "place of performance" factor of § 188.[33] As the place of performance of the construction work, Illinois has a strong interest in ensuring that the parties conform to its laws. Thus, the Court of Appeals correctly noted that Illinois would have great interest in deterring specific construction practices; however, the question is whether Illinois has a materially greater interest than Michigan sufficient to ignore the parties' choice of Michigan law.[34] It is questionable whether Illinois has a greater interest in reaching *128 into the contractual arrangements of out-of-state companies when those companies have negotiated an agreement in their own state concerning the relative liability obligations between them.[35] The circuit court correctly noted that the place of performance may not have been Illinois, but Michigan. Other courts have taken the view that the place of performance of an indemnification agreement is the place where the indemnitee is found subject to liability.[36] Since the place of performance of the indemnification is unclear, merely because the contract was for construction in Illinois does not provide a compelling basis for concluding that Illinois has a "materially greater interest" than Michigan regarding indemnification.[37] *129 The Court of Appeals assumed that there was a conflict between Illinois and Michigan public policy on the question of indemnification. As the Illinois Supreme Court noted, [B]y filing in Michigan, Chrysler has not necessarily gained the benefit of more favorable substantive law. With the exception of a claim based on breach of contract for the failure to procure insurance, the Michigan complaint seeks recovery and judgment based on contractual indemnification. Michigan Compiled Laws § 691.991 [MSA 26.1146(1)] (1987), titled "Void Construction Contracts," provides that agreements to indemnify for liability for damages resulting from one's sole negligence is against public policy, void and unenforceable. Michigan's law is quite similar in scope and purpose to the Illinois Construction Contract Indemnification for Negligence Act (Ill Rev Stat 1987, ch 29, par 61), on which the trial court relied to dismiss Chrysler's contractual indemnity counts. Both Acts were intended to arrest efforts to contractually avoid liability for negligence. [Pfaff v Chrysler Corp, 155 Ill 2d 35, 64; 610 NE2d 51 (1992).] The Court of Appeals has held that it is against public policy for a party to construction or maintenance *130 contracts to require another party to purchase insurance to cover the other party's sole negligence.[38] The Court has also held that the Michigan statute[39] requires focus on the cause of the resulting harm in deciding whether an indemnitee would be indemnified for its sole negligence in violation of the statute.[40] The appropriate focus is thus on the injury as a whole, rather than the portion of damages attributable to the indemnitee.[41] The Illinois Supreme Court said that the Illinois statute[42] protects workers in the industry and the public as well from dangers associated with construction work. The statute would thwart attempts to avoid the consequences of liability and thereby insure a continuing motivation for persons responsible for construction activities to take accident prevention measures and provide safe working conditions.[[43]] Whether this was the actual motivation for the legislation,[44] Illinois courts have held that prohibiting *131 indemnification agreements in construction contracts is a "fundamental policy" in Illinois.[45] *132 Michigan and Illinois both have sought to limit indemnification agreements. Depending on how one views the purpose of the public policy, either state's policy might be violated by the application of the other's statute.[46] The application of the Illinois statute might offend the public policy of Michigan reflected in the Legislature's decision to prohibit indemnification only when the indemnitee is solely negligent.[47] This potential conflict suggests that, at a minimum, Michigan has as much an interest as Illinois in regulating this business practice and applying its law to this controversy. There are additional fairness issues implicated in the contractual relationship between Chrysler and Skyline that should be considered. Skyline procured insurance, as required by the contract, with the expectation of insuring against negligence within the limits of the Michigan statute.[48] This lawsuit concerns two Michigan corporations, with a longstanding business relationship, who contracted in Michigan and chose Michigan law to govern their contractual relationship.[49] Both *133 parties apparently acted as if Michigan law would apply. We decline to void the parties' express preference for Michigan law in the absence of compelling evidence that Illinois has a materially greater interest than Michigan. The judgment of the Court of Appeals is reversed and the case is remanded to the Court of Appeals for further proceedings consistent with this opinion. BRICKLEY, C.J., and CAVANAGH, BOYLE, RILEY, and MALLETT, JJ., concurred with LEVIN, J. *134 WEAVER, J., took no part in the decision of this case.