Court Opinion

ID: 9400730
Source: CourtListenerOpinion
Date Created: 2023-06-09 05:08:02.602149+00
Date Added: 2024-06-11T17:19:47.555214
License: Public Domain

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
                 revision until final publication in the Michigan Appeals Reports.

                          STATE OF MICHIGAN

                           COURT OF APPEALS

FRASER ENGINE REBUILDER, INC., and                                  UNPUBLISHED
ENGINE & TRANSMISSIONS INCORPORATED,                                June 8, 2023

               Plaintiffs-Appellants,

v                                                                   No. 360110
                                                                    Macomb Circuit Court
KENNETH ALLEN LANCASTER, CAROL                                      LC No. 2019-004497-CZ
LANCASTER, and BEN LANCASTER,1

               Defendants-Appellees.

Before: GARRETT, P.J., and K. F. KELLY and HOOD, JJ.

PER CURIAM.

       Plaintiffs, Fraser Engine Rebuilder, Inc. (Fraser Engine), and Engine & Transmissions
Incorporated (E&T) (collectively, plaintiffs), appeal as of right the trial court order granting
summary disposition in favor of defendants, Kenneth Allen Lancaster (Kenneth) and Carol
Lancaster (Carol) (collectively, defendants). That order disposed of plaintiffs’ claim for
misappropriation of trade secrets. But, on appeal, plaintiffs challenge the trial court’s earlier
opinion and order granting defendants’ motion for summary disposition under MCR 2.116(C)(10),
and concluding that the economic loss doctrine barred plaintiffs’ tort claims.2 We reverse and
remand for further proceedings consistent with this opinion.

1
 The trial court dismissed the claims of plaintiffs Fraser Engine Rebuilder, Inc., and Engine &
Transmissions Incorporated, against defendant Ben Lancaster for lack of personal jurisdiction.
2
  The trial court’s opinion and order related to the economic loss doctrine dismissed Counts I
through V of plaintiffs’ complaint (two fraudulent inducement claims, two statutory conversion
claims, and one breach of fiduciary duty claim), leaving only the misappropriation of trade secrets
claim. That remaining claim was later dismissed by the trial court in the order from which
plaintiffs appealed. Plaintiffs concede on appeal that they are not challenging the trial court’s

                                                -1-
                                       I. BACKGROUND

        This case started with service contracts for sales leads related to a business selling
remanufactured engines and transmissions. Ricco Ramaci is the owner of Fraser Engine and E&T.
Fraser Engine is an engine repair shop located in Fraser, Michigan, that also sold remanufactured
engines and transmissions. Ramaci formed E&T in January 2016 out of concern that Fraser
Engine’s sale of engines and transmissions would confuse customers, since it previously acted
solely as a repair shop. Ramaci, therefore, dedicated E&T to the sale of engines and transmissions.
Kenneth was the principal of nonparty Lancaster Advertising & Marketing, Inc. (LAM), which
operated a website known as “Powertrain Direct.” Powertrain Direct generated sales leads for
remanufactured engines and transmissions. It provided Fraser Engine with sales leads from late
2014 through all of 2015. In January 2016, LAM converted to nonparty MPO, Inc. (MPO) (a
Texas corporation). Kenneth was the sole shareholder of MPO. Carol was an employee of MPO;
according to plaintiffs’ complaint, she was MPO’s bookkeeper.

        E&T entered two agreements with “MPO/Lancaster” relevant to this appeal, one on
January 5, 2016, the other on January 26, 2016. Under the January 5, 2016 agreement, E&T paid
$18,000 per month for services. Shortly after the parties entered the January 5, 2016 agreement,
Kenneth sought an increase in the monthly payment from $18,000 to $32,000 a month. This
prompted the parties to enter the January 26, 2016 agreement, which included the increased
monthly payment. Plaintiffs alleged that, to induce E&T to enter the January 26, 2016 agreement
and agree to the increased monthly payment, Kenneth represented that E&T would be the sole
customer and licensee of Powertrain Direct and that all sales leads it generated would be directed
to E&T. According to plaintiffs, Kenneth also represented that Powertrain Direct was the only
entity he owned that operated in the market of remanufactured engines and transmissions.

       In the spring of 2016, “MPO/Lancaster” asked to increase the monthly payment from
$32,000 to $60,000. Plaintiffs alleged that Lancaster represented that, in exchange for another
increase to the monthly payment, he would provide, through MPO and Powertrain Direct,
additional “enhanced services” to “generate increased sales volumes” for E&T. Plaintiffs further
alleged that these representations—and those from the earlier discussions related to the January
26, 2016 agreement—induced them to increase their monthly payment to $60,000.

        Lancaster asked for price increases, to which plaintiffs agreed, at least two more times
related to the Powertrain Direct services: once in September 2016 for an increase from $60,000 to
$110,000 per month, and again in January 2017 for an increase from $110,000 to $150,000.
According to plaintiffs, Kenneth reiterated his previous representations regarding exclusivity with
respect to both of these price increases. Plaintiffs alleged that Kenneth represented that the
increase to $150,000 a month would result in gross monthly revenue of over $1.8 million for E&T.

      In March 2017, plaintiffs alleged, E&T learned that Kenneth had started a new company,
Discount Powertrain, that was directly competitive with E&T and was a customer and licensee of

dismissal of Count II (breach of fiduciary duty) or Count VI (misappropriation of trade secrets) of
their complaint.

                                                -2-
“Lancaster/MPO.” They also alleged that Lancaster, without E&T’s or Ramaci’s knowledge or
consent, diverted E&T’s $150,000 monthly payments to benefit Discount Powertrain.

        Separate from the January 2016 agreements, in 2015 and 2016, Kenneth and Fraser Engine
discussed the development of a website, branded “Reviews Report,” that was based on “concepts”
and “ideas” of Ramaci. In exchange for Kenneth developing the website, Fraser Engine paid
$8,000 per month, for seven months (totaling $56,000). According to plaintiffs, however, Kenneth
never delivered the website or code for it, despite repeated requests. Plaintiffs further alleged that
Kenneth did not use the $8,000-monthly payments for the development of the website but, instead,
diverted them to an unauthorized, but unidentified, purpose. Plaintiffs also alleged that Kenneth
indicated he would develop a “web-based sales program,” called “Sales Fury,” for E&T, that
would “take the unique business challenges of E&T and address them th[r]ough the developed
software.” But, according to plaintiffs, Kenneth failed and refused to deliver the Sales Fury
software to E&T.

         Plaintiffs alleged that in November 2016, Kenneth informed E&T that venture capitalists
were interested in purchasing E&T, the Sales Fury software, or both. In mid-December 2016,
Ramaci met with the venture capitalist and Kenneth’s son, Luke Lancaster. Plaintiffs alleged that
the venture capitalist offered $15,000,000 to purchase E&T’s assets. Ramaci declined the offer,
which, according to plaintiffs, led Kenneth to retaliate. They alleged that Kenneth manipulated
the Powertrain Direct program and reduced the sales leads it generated for E&T “to a level nowhere
near commensurate with” E&T’s $150,000 monthly payments. Plaintiffs alleged that when the
sales leads and revenue did not increase in January 2017, despite the increased monthly payments,
E&T asked Kenneth for an explanation and for meetings Kenneth had previously promised.
Plaintiffs alleged that Kenneth refused these requests and stated “that E&T could simply cease to
utilize the Powertrain Direct program.” Regarding the allegations against Carol, plaintiffs alleged
that in March 2017, she, as MPO’s bookkeeper, charged $35,000 to E&T’s credit card without
E&T’s or Ramaci’s consent or authorization.

        Before filing the instant case, plaintiffs sued LAM and MPO in 2017 in Macomb Circuit
Court Case No. 2017-001424-CB. Their claims were based on the January 5, 2016 agreement,
January 26, 2016 agreement, and an earlier August 2014 agreement. In the 2017 case, plaintiffs
alleged that MPO and LAM breached the parties’ agreements by failing to provide E&T with
promised services, giving sales leads to E&T’s competitor, and starting Discount Powertrain.
Plaintiffs also included allegations related to the development of the Reviews Report website and
the Sales Fury software. According to the trial court’s October 13, 2021 opinion in the instant
case, although the 2017 case proceeded to summary disposition, that did not resolve the case;
instead, a bankruptcy stay resulted in the administrative closing of the 2017 case in early April
2019.

        In early November 2019, plaintiffs filed the instant action, suing Kenneth, Carol, and Ben,
and raising six claims: (1) fraudulent inducement related to statements by Kenneth that E&T would
be the sole customer and beneficiary of the sales-lead software; (2) breach of fiduciary duty by
Kenneth related to his failure to disclose his formation and operation of a business competitive to
E&T; (3) fraudulent inducement against Kenneth related to the payment for, and creation of, the
Reviews Report website; (4) statutory conversion under MCL 600.2919a related to the fraudulent
inducement claims against Kenneth; (5) statutory conversion under MCL 600.2919a(1)(b) against

                                                 -3-
Kenneth, Carol, and Ben related to “receiv[ing] funds from E&T which each of them knew to have
[been] obtained under fraudulent pretenses”; and (6) misappropriation of trade secrets under MCL
445.1904. According to the trial court, the allegations in the 2017 and 2019 cases were “nearly
identical,” though the 2017 case was based on a theory of breach of contract, rather than theories
of fraud and breach of fiduciary duty like in the 2019 case.

         Defendants took no action on plaintiffs’ complaint until February 2020. Beginning in
February 2020, defendants filed various dispositive motions, most of which are irrelevant to the
issues on appeal. After defendants unsuccessfully moved for reconsideration of the denial of two
of their summary disposition motions, there was no action between mid-July 2020 and mid-
September 2020. Plaintiffs requested entry of default against defendants, which the Macomb
Circuit Court Clerk entered the same day plaintiffs requested it. The case was essentially dormant
until late February 2021, when the trial court entered a notice of intent to dismiss the case for no
progress. This sparked a series of motions from the parties, including motions from defendants to
set aside the defaults and a motion for entry of default judgment by plaintiffs.

       In mid-April 2021, the trial court granted defendants’ motion to set aside the defaults and
ordered them to file their answers and affirmative defenses, and denied plaintiffs’ request for entry
of default judgment. Defendants, thereafter, filed individual answers, affirmative defenses, and
counterclaims in late May 2021.3

        In late July 2021, defendants again moved for summary disposition under MCR
2.116(C)(10). Citing Brock v Consolidated Biomedical Laboratories, 817 F2d 24, 25 (CA 6,
1987), they argued that tort actions required a breach of a duty separate and distinct from a breach
of contract. They also argued that “courts have referred to the requirement that a separate and
distinct duty exist as the ‘economic loss doctrine’ when the contract is governed by the Uniform
Commercial Code (UCC).” The essence of their argument regarding each of plaintiffs’ tort claims
was that because each claim arose out of the parties’ contract, and did not allege a violation
separate from a breach of a contractual obligation, the economic loss doctrine barred each claim.
Defendants also argued that the fraudulent conduct alleged in plaintiffs’ complaint was subject to
dismissal under Huron Tool & Engineering Co v Precision Consulting Servs, Inc, 209 Mich App
365; 532 NW2d 541 (1995). They asserted that because plaintiffs’ fraud claims were intertwined
with the parties’ contracts, as opposed to the fraud being extraneous to the contract, the economic
loss doctrine barred those claims.

        Plaintiffs responded, arguing that defendants were mistaken that the fraudulent inducement
claims related to the parties’ contract performance; instead, plaintiffs alleged that Kenneth’s
“knowingly false” representations that induced them to enter a series of contracts were the bases
for the misrepresentation claim in Count I. They further argued that the economic loss doctrine
was limited to cases covered by the UCC and, and fraud in the inducement was an exception to

3
 Defendants amended their counterclaims a number of times, including to add several nonparties.
MPO also moved to join the action. Defendants, however, moved to dismiss their counterclaims
without prejudice, in mid-December 2021, because they wanted to “properly file their claims as a
separate action.” The trial court granted the motion to dismiss and denied defendants’ motion to
add nonparties and MPO’s motion to join.

                                                -4-
the economic loss doctrine. Plaintiffs’ argument regarding their fraudulent inducement claim in
Count III provided the underlying factual basis for the claim and simply reiterated language
defining a fraudulent inducement claim. Plaintiffs further argued that their statutory conversion
claim in Count IV also survived because it was based on the same fraudulent conduct supporting
their valid claims in Counts I and III. They also argued defendants’ reliance on two cases, Hart v
Ludwig, 347 Mich 559; 79 NW2d 895 (1956), and Huron Tool, 209 Mich App at 365, was
misplaced. Plaintiffs asserted that Hart did “not impact Plaintiffs’ claims in any way” and,
regarding Huron Tool, plaintiffs argued that the economic loss doctrine was “limited to cases
covered by the UCC in Michigan” and that this case was “not covered by the UCC.” Plaintiffs
also argued that, regardless, “Huron Tool recognized that fraud in the inducement is an exception
to the economic loss doctrine.” Because the fraud alleged in the complaint was fraud in the
inducement, plaintiffs argued, Huron Tool did not bar their claims.

        After a hearing, the trial court, in mid-October 2021, issued a written opinion and entered
an order dismissing Counts I through V of plaintiffs’ complaint, leaving only Count VI
(misappropriation of trade secrets) remaining. The court found that the economic loss doctrine
barred the two fraudulent inducement claims and the breach of fiduciary duty claim because they
were related to the parties’ relationship under their agreements. The court also found that the
statutory conversion claims were subject to dismissal because they were “directly tied” and
“predicated on” the fraud claims that had been dismissed. The court did not dismiss plaintiffs’
claim for misappropriation of trade secrets, at that time.

       Shortly after the court issued its opinion regarding Counts I through V, defendants moved
for summary disposition of Count VI. In early November 2021, plaintiffs moved for
reconsideration of the trial court’s October 2021 opinion related to the economic loss doctrine.
The court denied reconsideration in early December 2021, then granted defendants’ dispositive
motion related to Count VI.

        This appeal followed. While the appeal was pending, defendants moved to dismiss the
appeal, asserting that plaintiffs filed their appellate brief late and failed to serve it on defendants,
thereby depriving them of the chance to respond and defend themselves. We denied that motion.
Fraser Engine Rebuilder, Inc v Lancaster, unpublished order of the Court of Appeals, entered
March 22, 2023 (Docket No. 360110).

                                  II. STANDARDS OF REVIEW

         This Court reviews de novo a trial court’s decision on a motion for summary disposition.
El-Khalil v Oakwood Healthcare Inc, 504 Mich 152, 159; 934 NW2d 665 (2019). A motion under
MCR 2.116(C)(10) “tests the factual sufficiency of a claim.” Id. at 160 (citation and emphasis
omitted). In considering a motion under MCR 2.116(C)(10), the trial court “must consider all
evidence submitted by the parties in the light most favorable to the party opposing the motion.”
Id. (citation omitted). Such a motion “may only be granted when there is no genuine issue of
material fact.” Id. (citation omitted). “A genuine issue of material fact exists when the record
leaves open an issue upon which reasonable minds might differ.” Id. (quotation marks and citation
omitted).

                                                  -5-
      We review questions of law, like the proper application of the economic loss doctrine, de
novo. Mather Investors, LLC v Larson, 271 Mich App 254, 256; 720 NW2d 575 (2006).

  III. OVERVIEW OF ECONOMIC LOSS DOCTRINE AND SEPARATE-AND-DISTINCT
                               ANALYSIS

       This case implicates questions of the application of the economic loss doctrine and the
closely related separate-and-distinct requirement for tort claims. We begin by addressing the
background of each concept applicable to plaintiffs’ fraudulent inducement and conversion claims.

 A. THE ECONOMIC LOSS DOCTRINE APPLIES ONLY TO CONTRACTS FOR GOODS
                     OR PRODUCTS, NOT SERVICES

        Generally, economic losses relating to commercial transactions are not recoverable in tort.
See Quest Diagnostics, Inc v MCI WorldCom, Inc, 254 Mich App 372, 376; 656 NW2d 858 (2002).
This doctrine, known as the economic loss doctrine, is intended to maintain a distinction between
damage remedies for breach of contract and for tort. Neibarger v Universal Coops, Inc, 439 Mich
512, 520-523; 486 NW2d 612 (1992). It provides that economic losses are only recoverable in
contract. See id. at 520 (explaining that the economic loss doctrine provides that “where 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.”)
(Quotation marks, citations, and brackets omitted). As initially envisioned by this Court, this
judicially-created rule “bar[red] all tort remedies where the suit is between an aggrieved buyer and
a nonperformance seller, the injury consists of damage to the goods themselves, and the only losses
alleged are economic.” Sullivan Indus, Inc v Double Seal Glass Co, 192 Mich App 333, 339; 480
NW2d 623 (1991).

       Eventually, the Michigan Supreme Court formally adopted the economic loss doctrine in
Neibarger, 439 Mich at 527-528, when it held that “where a plaintiff seeks to recover for economic
loss caused by a defective product purchased for commercial purposes, the exclusive remedy is
provided by the UCC[.]” The Supreme Court emphasized that

       [t]his doctrine hinges on a distinction drawn between transactions involving the sale
       of goods for commercial purposes where economic expectations are protected by
       commercial and contract law, and those involving the sale of defective products to
       individual consumers who are injured in a manner which has traditionally been
       remedied by resort to the law of torts. [Id. at 520-521.]

The Court indicated that the “proper approach requires consideration of the underlying policies of
tort and contract law as well as the nature of the damages.” Id. at 531. It further explained that

       the individual consumer’s tort remedy for products liability is not premised upon
       an agreement between the parties, but derives either from a duty imposed by law or
       from policy considerations which allocate the risk of dangerous and unsafe products
       to the manufacturer and seller rather than the consumer. Such a policy serves to
       encourage the design and production of safe products.

                                                -6-
               On the other hand, in a commercial transaction, the parties to a sale of goods
       have the opportunity to negotiate the terms and specifications, including warranties,
       disclaimers, and limitation of remedies. Where a product proves to be faulty after
       the parties have contracted for sale and the only losses are economic, the policy
       considerations supporting products liability in tort fail to serve the purpose of
       encouraging the design and production of safer products. [Id. at 523.]

In other words, the economic loss doctrine applies to the commercial sale of goods because, unlike
a consumer buying a product, a commercial buyer and seller have the ability to negotiate their
duties and consequences for breach. See id.

        Since Neibarger, Michigan courts have gradually clarified the scope of the economic loss
doctrine. For example, in Huron Tool (relied on by plaintiffs on appeal) this Court interpreted
Neibarger’s adoption of the economic loss doctrine to not expressly preclude intentional tort
claims and held that the economic loss rule does not bar claims of fraud in the inducement. Huron
Tool, 209 Mich App at 370, 374. Critically, this Court recognized in Quest Diagnostics that the
economic loss doctrine has never been applied to a contract for services. Quest Diagnostics, Inc,
254 Mich App at 379-380. Further, the economic loss doctrine does not apply when the plaintiff
could not have anticipated the harm at the time of the negotiations. Id. Taking this jurisprudence
all together, this Court articulated a rule for application of the doctrine in Quest Diagnostics, as
follows:

       [P]arties to a transaction for goods are precluded recovery in tort for economic loss
       caused by inferior products where: (1) the parties or others closely related to them
       had the opportunity to negotiate the terms of the sale of the good or product causing
       the injury, and (2) their economic expectations can be satisfied by contractual
       remedies. [Id. (emphasis added).]

B. TORT CLAIMS ARISING OUT OF A CONTRACT—THE SEPARATE-AND-DISTINCT
                              ANALYSIS

        Our Supreme Court in Hart, 347 Mich at 559, first addressed whether an action in tort
could be maintained where it arises out of a breach of contract. There, the defendant agreed to
care for and maintain the plaintiffs’ orchard under an oral contract, but failed to perform the care
and maintenance. Id. at 560. The plaintiffs, orchard owners, alleged negligence, related to the
defendant’s alleged failure to remove chutes, to prune, to fertilize, and to protect against
destructive wildlife. Id. Recognizing the sometimes confusing dividing line between contract
actions and tort actions, the Hart Court relied on a dichotomy between malfeasance (action) and
nonfeasance (inaction). Id. at 562. It held that when a party agrees to do work, he is liable for any
malfeasance, or bad action, he commits in the course of that work. Id. But if he agrees to do work,
and simply does not do it, “no [tort] action will lie against him for the nonfeasance.” Id. The
Court further explained this principle as follows:

       When the cause of action arises merely from a breach of promise, the action is in
       contract. The action of tort has for its foundation the negligence of the defendant,
       and this means more than a mere breach of a promise. Otherwise, the failure to
       meet a note, or any other promise to pay money, would sustain an action in tort for

                                                -7-
       negligence, and thus the promisor be made liable for all the consequential damages
       arising from such failure. As a general rule, there must be some active negligence
       or misfeasance to support tort. There must be some breach of duty distinct from
       breach of contract.

                                               * * *

       [I]f a relation exists which would give rise to a legal duty without enforcing the
       contract promise itself, the tort action will lie, otherwise not. [Id. at 563, 565
       (quotation marks and citations omitted; emphasis added).]

Ultimately, the Court concluded that the defendant in Hart merely violated the promise to complete
his contracted-for performance. Id. at 565. Because the duty arose out of the intentions of the
parties themselves, the Court concluded that a tort action could not be maintained. Id. at 565-566.

        More recently, in Rinaldo’s Constr, 454 Mich at 65, our Supreme Court again considered
the dichotomy between misfeasance and nonfeasance in determining whether a tort claim could be
maintained in a contract action. There, the Court indicated that the threshold question is “whether
the plaintiff alleges violation of a legal duty separate and distinct from the contractual obligation.”
Id. at 84. The Court also quoted the following passage from Prosser and Keeton to explain this
inquiry:

       Misfeasance or negligent affirmative conduct in the performance of a promise
       generally subjects an actor to tort liability as well as contract liability for physical
       harm to persons and tangible things. Generally speaking, there is a duty to exercise
       reasonable care in how one acts to avoid physical harm to persons and tangible
       things. Entering into a contract with another pursuant to which one party promises
       to do something does not alter the fact that there was a preexisting obligation or
       duty to avoid harm when one acts. [Id., quoting Prosser & Keeton, Torts, § 92, pp
       656-657 (quotation marks and emphasis omitted).]

Applying these principles, the Court held that the defendant in Rinaldo’s Constr merely failed to
perform according to the terms of its promise. Id. at 84-85. The Court noted that

       there is no allegation that this conduct by the defendant constitutes tortious activity
       in that it caused physical harm to persons or tangible property; and plaintiff does
       not allege violation of an independent legal duty distinct from the duties arising out
       of the contractual relationship. [Id. at 85.]

Consequently, the Court concluded that the plaintiff had no cause of action at tort. Id.

 IV. THE ECONOMIC LOSS DOCTRINE DOES NOT BAR PLAINTIFFS’ FRAUDULENT
                         INDUCEMENT CLAIMS

        Plaintiffs first argue that the trial court erred when it found that the economic loss doctrine
barred their claims for fraudulent inducement in Counts I and III of their complaint. We agree.

                                                 -8-
        Here, the trial court found that the agreement between the parties was for services related
to sales leads for the sale of remanufactured engines and transmissions. It also found that the
economic loss doctrine “applies to both contracts for goods and contracts for services, and it
applies to oral agreements.” The court supported this statement of law by citing Rinaldo’s Constr
Corp v Mich Bell Tel Co, 454 Mich 65, 84-85; 559 NW2d 647 (1997), and Hart, 347 Mich at 560,
562. But neither case supports the proposition that the economic loss doctrine applies to cases
involving transactions for services. Instead, both cases, though involving contracts for services,
addressed whether an action in tort could be maintained where it arose out of a breach of contract.
Rinaldo’s Constr, 454 Mich at 83-84; Hart, 347 Mich at 562-563, 565-566. Contrary to the trial
court’s assertion, Michigan courts have only applied the economic loss doctrine to a contract for
goods and, in fact, have specifically declined to apply the doctrine to a contract for services. See
Higgins v Lauritzen, 209 Mich App 266; 530 NW2d 171 (1995) (reversing summary disposition
on basis that the economic loss doctrine was wrongly applied to a contract for services); Quest
Diagnostics, Inc, 254 Mich App at 380 (“This Court has declined to apply the economic-loss
doctrine where the claim emanates from a contract for services.”). Accordingly, the trial court
erred when it found that the economic loss doctrine barred plaintiffs’ fraudulent inducement claims
in Counts I and III, which related to the service contract at issue.

          Although the trial court erroneously applied the economic loss doctrine in this case
involving a service contract, the principles regarding raising tort claims for contractual breaches
from Hart and Rinaldo’s Constr apply. See Hart, 347 Mich at 559-560, 562-563, 565-566;
Rinaldo’s Constr, Inc, 454 Mich at 65, 84-85. To raise a tort claim, a plaintiff must allege a
“violation of a legal duty separate and distinct from the contractual obligation.” Rinaldo’s Constr,
454 Mich at 84. Here, the trial court appeared to treat this principle and the economic loss doctrine
as the same. They are, however, historically separate doctrines. Though the court erroneously
applied the economic loss doctrine to this service contract, the separate-and-distinct-duty analysis
is still a relevant consideration. We, therefore, reverse the trial court’s application of the economic
loss doctrine and remand for it to evaluate whether plaintiffs sufficiently alleged a violation of a
legal duty separate and distinct from the contractual obligation with respect to their fraudulent
inducement claims in Counts I and III. On remand, the trial court should consider whether
plaintiffs’ tort claims allege a malfeasance, as opposed to a nonfeasance, and whether tort is
separate from contractual obligations.

  V. THE ECONOMIC LOSS DOCTRINE DOES NOT BAR PLAINTIFFS’ STATUTORY-
               CONVERSION CLAIM RELATED TO KENNETH

        Plaintiffs argue that because their fraudulent inducement claims were valid tort claims and
should not have been dismissed pursuant to the economic loss doctrine, the trial court erroneously
dismissed their statutory-conversion claim in Count IV because it was based on the fraudulent
inducement claims. We agree, but, as with plaintiffs’ fraudulent inducement claims, we remand
for the trial court to evaluate the applicability of the separate-and-distinct analysis.

       The conversion statute, MCL 600.2919a, provides:

              (1) A person damaged as a result of either or both of the following may
       recover 3 times the amount of actual damages sustained, plus costs and reasonable
       attorney fees:

                                                 -9-
                (a) Another person’s stealing or embezzling property or converting property
        to the other person’s own use.

                                                * * *

              (2) The remedy provided by this section is in addition to any other right or
        remedy the person may have at law or otherwise. [MCL 600.2919a.]

        Plaintiffs’ conversion claim in Count IV was related to their fraudulent inducement claims
in Counts I and III, which, in turn, related to the services contract between the parties. To the
extent the trial court applied the economic loss doctrine to bar Count IV, this was erroneous. See
Quest Diagnostics, Inc, 254 Mich App at 379-380. As with plaintiffs’ fraudulent inducement
claims, however, there is a question of whether plaintiffs sufficiently alleged a violation of a legal
duty separate and distinct from the contractual obligation with respect to the conversion claim in
Count IV.

        In Loweke v Ann Arbor Ceiling & Partition Co, 489 Mich 157, 170; 809 NW2d 553 (2011)
(citations omitted), our Supreme Court recognized that “a separate and distinct duty to support a
cause of action in tort can arise by statute . . . .” In evaluating whether a statute creates a particular
duty with respect to a specific party, courts typically consider two questions: “(1) did the
Legislature intend that the statute would prevent the type of injury and harm actually suffered by
the party; and (2) did the Legislature intend that the party was within the class of persons protected
by the statute?” Randall v Mich High Sch Athletic Ass’n, 334 Mich App 697, 720; 965 NW2d 690
(2020) (citation omitted). “If the answers to both are yes, then a legal duty arises from the statutory
enactment.” Id. (citation omitted).

       The trial court did not address this issue below and should be the first to address it.
Accordingly, we remand this issue for the trial court to evaluate whether plaintiffs suffered the
type of harm MCL 600.2919a intended to prevent and whether plaintiffs, as parties to service
contracts, are the types of parties the statute intended to protect. If the trial court answers both of
these questions in the affirmative, then a legal duty arises from MCL 600.2919a. See Randall, 334
Mich App at 720.4

    VI. THE ECONOMIC LOSS DOCTRINE DOES NOT BAR PLAINTIFFS’ STATUTORY-
                   CONVERSION CLAIM RELATED TO CAROL

        Finally, plaintiffs argue that the economic loss doctrine does not bar their conversion claim
related to Carol’s unauthorized use of E&T’s credit card because her conduct was “entirely

4
  Given our conclusion that the economic loss doctrine does not bar plaintiffs’ conversion claim
(because that doctrine only applies to contracts for goods or products, not service contracts like
the ones at issue here), we need not address plaintiffs’ unpreserved argument that application of
the economic loss doctrine, a judicially-created doctrine, to bar a legislatively-enacted cause of
action offends the separation of powers.

                                                  -10-
extraneous” to the performance terms of the contract. We agree that the economic loss doctrine
does not apply to bar plaintiffs’ conversion claim against Carol.

        An issue must be raised in or decided by the trial court for it to be preserved for appeal.
Glasker-Davis v Auvenshire, 333 Mich App 222, 227; 964 NW2d 809 (2020). Plaintiffs did not
raise their argument that Carol’s alleged credit card charges were extraneous to the parties’
contract, except perhaps in their motion for reconsideration. The issue is, therefore, unpreserved.
See Vushaj v Farm Bureau Gen Ins Co of Mich, 284 Mich App 513, 521; 773 NW2d 758 (2009)
(noting that an issue raised for the first time in a motion for reconsideration is unpreserved for
appellate review). This Court reviews unpreserved issues for plain error. Molnar v Tenacity Farm
Inc, ___ Mich App ___, ___; ___ NW2d ___ (2023) (Docket No. 359740); slip op at 5.5 “To avoid
forfeiture under the plain error rule, three requirements must be met: 1) the error must have
occurred, 2) the error was plain, i.e., clear or obvious, 3) and the plain error affected substantial
rights,” or was outcome determinative. Id. (quotation marks and citations omitted).

        Plaintiffs’ conversion claim in Count V was related to Carol’s unauthorized use of E&T’s
credit card. Carol arguably had access to E&T’s credit card by virtue of the services contract
between the parties. To the extent the trial court applied the economic loss doctrine to bar Count
V, therefore, this was plainly erroneous. See Quest Diagnostics, Inc, 254 Mich App at 379-380.
Applying the economic loss doctrine to bar a tort claim arising out of a services contract was error,
and the error was obvious for the reasons stated above. Because the error led to dismissal of
plaintiffs’ claim, it was also outcome determinative. As with plaintiffs’ other claims, however,
there is a question of whether they sufficiently alleged a violation of a legal duty separate and
distinct from the contractual obligation with respect to conversion claim in Count V. As with the
conversion claim in IV, the trial court should evaluate whether MCL 600.2919a imposed a legal
duty on Carol not to steal plaintiffs’ property. If the conversion statute was intended to protect
plaintiffs from the conduct alleged in Count V, MCL 600.2919a imposed a legal duty on Carol not

5
  Our Court has applied two different standards to unpreserved issues in the civil context: plain-
error, see, e.g., Wischmeyer v Schanz, 449 Mich 469, 483, 483 n 26; 536 NW2d 760 (1995); Mr
Sunshine v Delta College of Trustees, ___ Mich App ___, ___; ___ NW2d ___ (2022) (Docket
No. 358042); slip op at 2; Kern v Blethen-Coluni, 240 Mich App 333, 336; 612 NW2d 838 (2000),
and the so-called “raise-or-waive” rule, see, e.g., In re Conservatorship of Murray, 336 Mich App
234, 240-242; 970 NW2d 372 (2021); Jawad A Shah, MD, PC v State Farm Mut Auto Ins Co, 324
Mich App 182, 192-194, 194 n 5; 920 NW2d 148 (2018) (acknowledging that the Michigan
Supreme Court has applied the plain-error standard in the civil context and noting that the
Michigan Supreme Court has yet to hold that plain-error is the correct standard to apply). Our
Supreme Court has yet to state definitively which standard is the appropriate standard for the civil
context. In practice, both standards are unforgiving. Here, we apply the plain-error standard
because it provides a workable standard, as opposed to “raise-or-waive,” which treats an issue as
waived unless a panel decides there is a reason to address an otherwise waived issue. See Walters
v Nadell, 481 Mich 377, 387-388; 751 NW2d 431 (2008); see also Shah, 324 Mich App at 194-
195 (declining to exercise jurisdiction to review a waived issue for want of a compelling reason to
do so).

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to steal plaintiffs’ property. Because this issue was not addressed by the trial court, however, on
remand, it should be addressed by the court in the first instance.

                                      VII. CONCLUSION

        The economic loss doctrine applies only to contracts for goods or products, not services.
This case involves a service contract, so the trial court erroneously found that the economic loss
doctrine barred plaintiffs’ fraudulent inducement and conversion claims. Even so, a tort action
arising out of a breach of contract may be maintained when a plaintiff sufficiently alleges a duty
separate and distinct from a contractual obligation. The trial court appears to have conflated the
economic loss doctrine with the separate-and-distinct analysis, as opposed to conducting an
evaluation of each principle independent of the other. This was erroneous.

       We, therefore, reverse and remand for further proceedings consistent with this opinion. On
remand, the trial court should evaluate whether plaintiffs sufficiently alleged a violation of any
legal duty separate and distinct from the contractual obligations with respect to plaintiffs’
fraudulent inducement and conversion claims. We do not retain jurisdiction.

                                                            /s/ Kristina Robinson Garrett
                                                            /s/ Kirsten Frank Kelly
                                                            /s/ Noah P. Hood

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