Court Opinion

ID: 3158476
Source: CourtListenerOpinion
Date Created: 2015-11-27 08:05:24.782781+00
Date Added: 2024-06-11T12:09:43.749143
License: Public Domain

Order                                                                         Michigan Supreme Court
                                                                                    Lansing, Michigan

  November 25, 2015                                                                  Robert P. Young, Jr.,
                                                                                                Chief Justice

  149536                                                                              Stephen J. Markman
                                                                                           Brian K. Zahra
                                                                                   Bridget M. McCormack
                                                                                         David F. Viviano
                                                                                     Richard H. Bernstein
  DAVID ABBO, COLORADO TOYZ,                                                               Joan L. Larsen,
  INC., and WIRELESS PHONES, LLC,                                                                    Justices
              Plaintiffs-Appellees,
  v                                                        SC: 149536
                                                           COA: 304185
                                                           Oakland CC: 2007-082804-CK
  WIRELESS TOYZ FRANCHISE, LLC,
  JOE BARBAT, RICHARD SIMTOB,
  JSB ENTERPRIZES, INC., and JACK
  BARBAT,
            Defendants-Appellants.

  ____________________________________/

         On November 4, 2015, the Court heard oral argument on the application for leave
  to appeal the May 13, 2014 judgment of the Court of Appeals. On order of the Court, the
  application is again considered, and it is DENIED, because we are not persuaded that the
  questions presented should be reviewed by this Court.

         ZAHRA, J. (dissenting).

         After a breakdown in the relationship between the franchisee-plaintiffs (David
  Abbo and related persons) and the franchisor-defendants (Wireless Toyz Franchise, LLC,
  and related persons), plaintiffs filed suit against defendants, alleging that defendants had
  failed to disclose certain costs and expenses of operating a franchise. Specifically, this
  allegation of “silent fraud” was based on defendants’ failure to disclose “chargebacks” 1
  and “hits.” 2 This Court was sufficiently concerned about the substance of the Court of
  Appeals’ opinion to order oral argument on the application for leave to appeal. Abbo v
  Wireless Toyz Franchise, LLC, 497 Mich 1032 (2015). After hearing the parties’
  arguments, the majority has elected to deny leave.

         I write separately because, despite the factual complexities of this case and the fact
  that the Court of Appeals opinion’ is unpublished and of no precedential value, I would
  reverse. The opinion below cuts against a fundamental tenet of this Court’s jurisprudence
  that requires the enforcement of unambiguous contracts freely executed by the parties.
  This proposition is so central to our jurisprudence that it has become “an unmistakable

  1
    Chargebacks are described as revocations of a franchise store owner’s commission that
  take effect when a customer prematurely cancels a telephone service contract.
  2
    Hits are described as discounts awarded to customers as incentives to purchase a
  telephone.
                                                                                          2

and ineradicable part of the legal fabric of our society.” Wilkie v Auto-Owners Ins Co,
469 Mich 41, 52 (2003) (“The notion, that free men and women may reach agreements
regarding their affairs without government interference and that courts will enforce those
agreements, is ancient and irrefutable.”); Quality Prod & Concepts Co v Nagel Precision,
Inc, 469 Mich 362, 370 (2003) (“[T]he freedom to contract principle is served by
requiring courts to enforce unambiguous contracts according to their terms . . . .”); Rory v
Continental Ins Co, 473 Mich 457, 461 (2005) (“[A] court must construe and apply
unambiguous contract provisions as written.”); Bloomfield Estates Improvement Ass’n,
Inc v City of Birmingham, 479 Mich 206, 212 (2007) (“We ‘respect[] the freedom of
individuals freely to arrange their affairs via contract’ by upholding the ‘fundamental
tenet of our jurisprudence . . . that unambiguous contracts are not open to judicial
construction and must be enforced as written’ . . . .”) (citation omitted) (alteration in
original).

       Silent fraud arises “from the suppression of the truth . . . with the intent to
defraud.” Tompkins v Hollister, 60 Mich 470, 483 (1886). But silent fraud requires more
than simply a failure to disclose material information. It must be coupled with a duty to
disclose. M&D, Inc v McConkey, 231 Mich App 22, 29 (1998) (“Michigan courts have
recognized that silence cannot constitute actionable fraud unless it occurred under
circumstances where there was a legal duty of disclosure.”) (quotation marks and citation
omitted). Further, in asserting silent fraud, “[a] plaintiff cannot merely prove that the
defendant failed to disclose something; instead, a plaintiff must show some type of
representation by words or actions that was false or misleading and was intended to
deceive.” Lucas v Awaad, 299 Mich App 345, 364 (2013) (quotation marks and citation
omitted). Therefore, a silent-fraud claim cannot be maintained unless it can be
established that there was (1) a duty to disclose, (2) an omission of a material fact from
an otherwise truthful statement, and (3) the intent to mislead. See US Fidelity &
Guaranty Co v Black, 412 Mich 99 (1981); Roberts v Saffell, 280 Mich App 397 (2008),
aff’d 483 Mich 1089 (2009).

      To establish defendants’ duty to disclose, plaintiffs rely on MCL 445.1505 of the
Michigan Franchise Investment Law, which provides:

             A person shall not, in connection with the filing, offer, sale, or
       purchase of any franchise, directly or indirectly:
                                          * * *
               (b) Make any untrue statement of a material fact or omit to state a
       material fact necessary in order to make the statements made, in the light of
       the circumstances under which they are made, not misleading.

      This statute requires either an affirmative untrue statement or a misleading
omission coupled with an otherwise true statement. Plaintiffs argue that the latter
                                                                                          3

occurred when defendants made incomplete statements during the negotiation process
about the various chargebacks and hits. According to plaintiffs, these incomplete
statements, coupled with defendants’ duty to disclose complete information, constituted
silent fraud.

       But here, plaintiffs and defendants entered into unambiguous written agreements
containing broad disclaimers. For instance, the development agent agreement expressly
acknowledged that no prior representations had been made:

       [N]either Wireless Toyz nor any of its agents have made or are authorized
       to make any oral, written or visual representations or projections of
       potential earnings, sales, profits, costs, expenses, prospects or chances of
       success . . . . Development Agent agrees that it has not relied on and that
       Wireless Toyz will not be bound by allegations of any representations as to
       potential earnings, sales, profits, costs, expenses, prospects or chances of
       success . . . .

A similar disclaimer was also included in the franchise agreement. Accordingly, for the
purposes of the agreements between plaintiffs and defendants, there were no prior
representations made, including specifically about costs and expenses. Plaintiffs and the
Court of Appeals majority failed to indicate why these disclaimers are not dispositive.

       Both the duty to disclose, arising in this case under MCL 445.1505, and silent
fraud require a prior representation in order for an omitted material fact to render
misleading that otherwise truthful representation. Notwithstanding whether prior
representations were actually made, two sophisticated entities negotiated contracts and
determined that no prior representations had been made. Moreover, the parties agreed
that defendants were not authorized to make representations regarding costs or expenses.
Simply stated, as a matter of contract, the parties agreed that no prior representations had
been made. We should respect that agreement. This Court’s contract-law jurisprudence
requires lower courts to accept that agreement. And without any prior representations,
there can be no claim for silent fraud or a breach of any duty arising out of MCL
445.1505.
                                                                                                              4

       The Court of Appeals’ quick dismissal of the pertinent contract language is a
jurisprudentially significant error, and one that I would correct, notwithstanding the
factual complexities of the record. The Court of Appeals’ opinion is unpublished and has
no precedential value. Nor should it be considered for its persuasiveness because the
conclusion is inconsistent with this Court’s longstanding contract-law jurisprudence. I
would reverse.

      MARKMAN, J., joins the statement of ZAHRA, J.

                        I, Larry S. Royster, Clerk of the Michigan Supreme Court, certify that the
                  foregoing is a true and complete copy of the order entered at the direction of the Court.
                        November 25, 2015
       a1124
                                                                            Clerk