Court Opinion

ID: 4110955
Source: CourtListenerOpinion
Date Created: 2016-12-26 08:08:07.574943+00
Date Added: 2024-06-11T14:35:32.239145
License: Public Domain

STATE OF MICHIGAN

                           COURT OF APPEALS

SUMMIT DIAMOND BRIDGE LENDERS, LLC,                                 UNPUBLISHED
                                                                    December 22, 2016
               Plaintiff-Appellant,

v                                                                   No. 326679
                                                                    Oakland Circuit Court
PHILIP R. SEAVER TITLE COMPANY, INC.,                               LC No. 2014-143557-CK
also known as PRS ASSETS, INC.,

               Defendant-Appellee.

Before: MURPHY, P.J., and STEPHENS and BOONSTRA, JJ.

PER CURIAM.

        Plaintiff appeals as of right the trial court order granting defendant’s motion for summary
disposition pursuant to MCR 2.116(C)(7) (agreement to litigate in a different forum) in this case
involving an alleged breached of fiduciary duty. Plaintiff is a limited liability company located
in Royal Oak, Michigan, and defendant is a corporation located in Bloomfield Hills, Michigan.
We reverse and remand for the reasons stated in this opinion.

                                  I. BACKGROUND FACTS

       In 2010, Diamond Heroes of Southeastern Michigan, LLC sought funding to construct a
park in Waterford, Michigan. Citywide Lending Group International, a California based entity,
offered to provide Diamond Heroes a $12 million construction loan, but required Diamond
Heroes to pay $676,000 as a “Collateral Commitment Deposit.”1 In June 2010, plaintiff was
formed to provide a “bridge loan” to Diamond Heroes to pay the required collateral. In
exchange, plaintiff sought security in the form of a “Stand-By Letter of Credit.”

        In order to effectuate the transaction, plaintiff, Diamond Heroes, Citywide, and defendant
entered into an escrow agreement in which defendant was the escrow agent. According to
plaintiff, the escrow agreement provided that plaintiff’s funds were not to be disbursed until
defendant received the “Stand-By Letter of Credit,” and that each party was to indemnify the

1
  According to plaintiff, it “was eventually requested to raise $700,000.00 in funds, and
Plaintiff’s members did in fact raise the said funds.”

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others for any claims or damages arising out of or in connection with an instrument used in the
transaction. The agreement also provided that “[a]ny dispute arising from or related to this
Agreement, shall be governed by, and subject to, the laws of the State of California and shall be
handled by the appropriate state or federal court located in California.”

        Defendant received a document purporting to be the letter of credit, but did not approve it
because it believed the document to be a copy and not an original. According to plaintiff, the
document was never verified and the letter of credit was never approved. Defendant disbursed
plaintiff’s $700,000 loan to Citywide and another party. Plaintiff brought this action in circuit
court alleging defendant breached its fiduciary duty as escrow agent of the loan funds by
dispersing the funds without an approved letter of credit.

        Defendant moved for summary disposition pursuant to MCR 2.116(C)(8). Defendant
argued that dismissal was appropriate because plaintiff failed to join Citywide as an essential
party. Defendant also argued that the parties agreed to unambiguous choice-of-law and forum-
selection clauses that the court should enforce. Plaintiff responded that while defendant sought
to enforce the forum-selection clause, it failed to address the choice-of-law provision, which
requires California law govern any disputes. Plaintiff argued that pursuant to the choice-of-law
provision, California law governs the validity of the forum-selection clause, and California law
requires that this case be brought in Michigan.

        The trial court concluded that plaintiff’s claim was actually one for breach of contract and
that MCR 2.116(C)(7) was the controlling rule when seeking summary disposition based on “an
agreement to . . . litigate in a different forum.” In rejecting plaintiff’s argument that defendant
did not agree to submit to California jurisdiction, the court concluded that California “has a long
history of enforcing contractual forum-selection clauses.” The court also concluded that the
exceptions set forth in MCL 600.745(3) did not apply, and declined to invoke the doctrine of
forum non conveniens. Finally, the court noted that plaintiff failed to “include” Citywide, a
California entity, as a party to this suit and that as a result, “it is disingenuous for Plaintiff to
characterize this dispute as having no connection to California.”

                                  II. STANDARD OF REVIEW

        “This Court reviews de novo a trial court’s grant of summary disposition, as well as a
trial court’s jurisdictional rulings.” Turcheck v Amerifund Fin, 272 Mich App 341, 344-345; 725
NW2d 684 (2006). “With regard to a motion for summary disposition pursuant to MCR
2.116(C)(7), this Court reviews the affidavits, pleadings, and other documentary evidence
presented by the parties and ‘accept[s] the plaintiff’s well-pleaded allegations, except those
contradicted by documentary evidence, as true.’ ” Young v Sellers, 254 Mich App 447, 450; 657
NW2d 555 (2002), quoting Novak v Nationwide Mut Ins, Co, 235 Mich App 675, 681; 599
NW2d 546 (1999) (alteration in Young).

       The “legal effect of a contractual clause is a question of law that we [also] review de
novo.” Turcheck, 272 Mich App at 345.

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                                         III. ANALYSIS

                                     A. PROPER FORUM

        The overarching question in this case is whether the trial court properly enforced the
forum-selection clause contained in the parties’ escrow agreement. In Michigan, public policy
favors the enforcement of such clauses and, absent certain exceptions2, courts will do so. Id. at
345-346. Plaintiff claims, however, that the forum-selection clause’s enforceability must be
decided pursuant to California law and that a California court would refuse to hear the case.
Defendant argues that the forum-selection clause is enforceable pursuant to the law of either
jurisdiction, Michigan or California.

        The question of which jurisdiction’s law applies originates from the choice-of-law
provision contained in the escrow agreement. That clause provides that California law governs
any dispute arising from or related to the escrow agreement. The parties also designated the state
of California in the agreement’s forum-selection clause. In Turcheck, this Court considered the
issue of whether the enforceability of a forum-selection clause should be determined by using the
law of the jurisdiction selected in the choice-of-law provision or whether it should be determined
pursuant to Michigan law. 3 However, the Turcheck Court never reached the issue, having
determined that the forum-selection clause was enforceable under either jurisdiction involved.
Id. at 348. The same is not true in the case at hand.

                                     1. CALIFORNIA LAW

         The Supreme Court of California has stated, “No satisfying reason of public policy has
been suggested why enforcement should be denied a forum selection clause appearing in a
contract entered into freely and voluntarily by parties who have negotiated at arm’s length.”
Smith, Valentino & Smith, Inc v Superior Court, 17 Cal 3d 491, 495-496; 131 Cal Rptr 374; 551
P 2d 1206 (1976). Thus, in California, “forum selection clauses are valid and may be given
effect, in the court’s discretion and in the absence of a showing that enforcement of such a clause
would be unreasonable.” Id. at 496. A forum-selection clause is unreasonable if “the forum
selected would be unavailable or unable to accomplish substantial justice.” CQL Original Prods,
Inc v Nat’l Hockey League Players’ Ass’n, 39 Cal App 4th 1347, 1354; 46 Cal Rptr 2d 412
(1995). To be reasonable, “the choice of forum requirement must have some rational basis in
light of the facts underlying the transaction.” Id. But inconvenience must not factor into the
reasonability determination, because it is assumed that the party considered this factor when it
contracted. Smith, 17 Cal 3d at 496. However, “a forum selection clause will not be enforced if

2
    See MCL 600.745(3)(a)-(e).
3
  Turcheck, 272 Mich App at 346, n 2 quoting Beilfuss v Huffy Corp, 274 Wis 2d 500, 506-507;
685 NW2d 373 (2004) (“describing the decision whether to construe a contract’s forum-selection
clause and choice-of-law provision together or independently as ‘the classic conundrum’ “).

                                                -3-
to do so will bring about a result contrary to the public policy of the forum.” CQL, 39 Cal App
4th at 1354.

        When the circumstances are reversed, i.e., when the parties have indicated California as
their forum of choice in a forum-selection clause, California has a statute which applies. Cal
Code Civ Proc § 410.40 provides, in relevant part, as follows:

               Any person may maintain an action or proceeding in a court of this state
       against a foreign corporation or nonresident person where the action or
       proceeding arises out of or relates to any contract, agreement, or undertaking for
       which a choice of California law has been made in whole or in part by the parties
       thereto and which (a) is a contract, agreement, or undertaking, contingent or
       otherwise, relating to a transaction involving in the aggregate not less than one
       million dollars ($1,000,000), and (b) contains a provision or provisions under
       which the foreign corporation or nonresident agrees to submit to the jurisdiction
       of the courts of this state.

Under this provision, a plaintiff is precluded from bringing suit against a defendant who is a
foreign corporation unless (1) the action involves an agreement “for which a choice of California
law has been made,” (2) the agreement relates to a transaction involving at least $1,000,000, and
(3) the agreement contains a provision whereby the foreign corporation “agrees to submit to the
jurisdiction of the courts of this state.”

        Here, there is no dispute that defendant is a Michigan corporation, and thus, as it relates
to California law, a “foreign corporation.” The cause of action here also involves an agreement
“for which a choice of California law has been made.” Specifically, the escrow agreement
provided that “[a]ny dispute arising from or related to this Agreement, shall be governed by, and
subject to, the laws of the State of California . . . .” However, the agreement does not relate to a
transaction involving at least $1,000,000, because defendant only agreed to hold in escrow
$700,000 of plaintiff’s funds. Further, this Court cannot conclude that a California court would
find that defendant agreed “to submit to the jurisdiction of” the California courts, because, as
discussed below, California law is not settled on the subject.

        Plaintiff argues that under California law, forum-selection is not the same as a consent to
jurisdiction, and cites Global Packaging, Inc v The Superior Court, 196 Cal App 4th 1623, 1627;
127 Cal Rptr 3d 813 (2011), in support. In Global, the agreement provided, in relevant part, that
“Any controversy or claims arising out of or relat[ ] to this Agreement shall be venued only in
the state or federal court in and [ ] (a) Orange County, California.” Id. (alteration in Global
Packaging). A dispute arose between Global Packaging, located in Pennsylvania, and Epicor
Software, a Delaware corporation with its principal place of business in California, regarding the
payment of licensed software. Id. Suit was brought in California by Epicor. “Global Packaging
moved to quash service of summons,” arguing that California had no jurisdiction over it because
the forum-selection clause did not constitute a consent to personal jurisdiction, and it did not
otherwise submit to jurisdiction. Id. at 1627-1628. The trial court denied the motion and held
that the clause “was an enforceable forum-selection clause that, by implication, included a
consent to jurisdiction.” Id. at 1628. The California Court of Appeal disagreed. The court
found that in “the forum-selection-clause context, forum and jurisdiction are distinct concepts

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with different legal implications.” Id. at 1633. The appellate court held: “Given the crucial role
played by limits on jurisdiction in the American legal system, and in particular their importance
as a preserver of individual liberty, we cannot agree that consenting to a location in and of itself
carries with it a consent to personal jurisdiction.” Id. at 1632. Thus, it held that an agreement to
litigate in a certain forum does not imply an agreement to submit to the jurisdiction of that forum
when personal jurisdiction is otherwise absent. Id. at 1632.

        In contrast to Global, defendant cites Berard Constr Co v Muni Court, 49 Cal App 3d
710, 713; 122 Cal Rptr 825 (1975). In Berard, there were two agreements. The first agreement
with defendant Berard Construction Company provided in relevant part, “[t]his lease is executed
in Los Angeles, California, and shall be construed under the laws of the State of California, And
the parties hereto agree that any action relating to this lease shall be instituted and prosecuted in
the courts in Los Angeles County and each party waives the right to change of venue.” Id. at
720-721. The trial court found this clause to be “a venue provision, not a jurisdiction provision.”
Id. at 721. The California Court of Appeal disagreed, holding that “[t]he provision that ‘any
action relating to this lease shall be instituted and prosecuted in the courts in Los Angeles
County’ is an unequivocal consent to the jurisdiction of the California courts.” Id. The second
agreement with defendant Rene J. Berard, president of defendant Berard Construction Company,
provided in part, “(t)his guaranty shall be governed by and construed in accordance with the laws
of the State of California.” Id. at 723. In this second instance, the California court of appeal
agreed with the trial court and held “[t]his provision does not constitute a consent to
jurisdiction.” Id. Defendant argues that the language of the clause in the instant case is similar
to the language in the agreement with defendant Berard Construction Company, such that a
California court would hold that the instant clause was an agreement to submit to personal
jurisdiction in California.

        The forum-selection clause in the instant case, the Global case and the Berard case
contain similar language. Each clause contains the all-inclusive term “any,” Title Ins & Trust Co
v Co of Riverside, 48 Cal 3d 84, 94; 767 P2d 1148 (1989), and the mandatory term “shall,” City
& Co of San Francisco v Boyd, 22 Cal 2d 685, 704; 140 P2d 666 (1943). Each clause also
employs “arising from or related to” language and references the action, dispute or claim being
instituted, handled, prosecuted or venued in a California court system.

        The parties have correctly analyzed the effect of their cited case law on the case before
this Court. We agree with plaintiff, that under Global, it is reasonable to assume that the instant
forum-selection clause would not equate to an agreement to submit to personal jurisdiction.
Under Global, the clause would only be an agreement to litigate in a certain forum. Id. at 1632.
However, we also agree with defendant, that under Berard, it would be reasonable to assume that
the instant clause would be an “unequivocal consent” to the jurisdiction of the California court
system. 49 Cal App 3d at 723. Similar to Berard, the clause here provides that any dispute
related to the agreement is subject to the laws of California and is to be handled by a California
court.

       The contradictory holdings in Global and Berard are able to coexist because “there is no
horizontal stare decisis in the California Court of Appeal.” Sarti v Salt Creek Ltd, 167 Cal App
4th 1187, 1193; 85 Cal Rptr 3d 506 (2008). “A decision of a court of appeal is not binding in the
courts of appeal. One district or division may refuse to follow a prior decision of a different

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district or division, for the same reasons that influence the federal Courts of Appeals of the
various circuits to make independent decisions....” McCallum v McCallum, 190 Cal App 3d 308,
315 n 4; 235 Cal Rptr 396, 400 (1987) citing 9 Witkin Cal Procedure (3d ed 1985) Appeal, §
772, pp 740–741. Given the state of the law there, we question whether Global would have been
decided differently had it been filed in the third division, instead of the fourth, and vice versa
with Berard. In California, appellate cases may hold precedential value, “the only qualifications
being that the relevant point in the appellate decision must not have been disapproved by the
California Supreme Court and must not be in conflict with another appellate decision.” Sarti,
167 Cal App 4th at 1193. Global and Berard however, clearly conflict. The Global court
recognized this, noting that Berard existed and held the opposite. Global, 196 Cap App 4th at
1632, n 10. When appellate decisions conflict, “the court exercising inferior jurisdiction can and
must make a choice between the conflicting decisions.” Auto Equity Sales, Inc v Superior Court
of Santa Clara Co, 57 Cal 2d 450, 456; 369 P2d 937 (1962). Under this case law, we cannot
predict how a California trial court would interpret the forum selection clause.

        While the question of whether the instant clause here was a consent to personal
jurisdiction remains unanswered, there is, in any event, an undisputed jurisdictional amount of
one million dollars that has not been met. Accordingly, because the escrow agreement is not
“relat[ed] to a transaction involving in the aggregate not less than one million dollars,” the
parties cannot maintain this action in California. Cal Code Civ Proc § 410.40. Because “the
forum selected would be unavailable or unable to accomplish substantial justice,” the forum-
selection clause would be unreasonable and unenforceable. CQL Original Prods, 39 Cal App
4th at 1354.

                                      2. MICHIGAN LAW

        Michigan courts favor enforcement of contractual forum selection clauses with few
exceptions. “The exceptions to this rule are stated in MCL 600.745(3)(a)-(e), and unless one of
the statutory exceptions applies, Michigan courts will enforce a forum-selection clause as
written.” Turcheck, 272 Mich App at 348.

       MCL 600.745(3) provides as follows:

               If the parties agreed in writing that an action on a controversy shall be
       brought only in another state and it is brought in a court of this state, the court
       shall dismiss or stay the action, as appropriate, unless any of the following occur:

               (a) The court is required by statute to entertain the action.

               (b) The plaintiff cannot secure effective relief in the other state for reasons
       other than delay in bringing the action.

                (c) The other state would be a substantially less convenient place for the
       trial of the action than this state.

                                                 -6-
              (d) The agreement as to the place of the action is obtained by
       misrepresentation, duress, the abuse of economic power, or other unconscionable
       means.

             (e) It would for some other reason be unfair or unreasonable to enforce the
       agreement.

         Plaintiff contends that the trial court should not have dismissed the action because the
factors outlined in subdivisions (b), (c), (d), and (e) are all present in this case. Both parties
argue that § 745(3)(b) applies in their favor. As noted above, plaintiff cannot secure effective
relief in California because the parties’ action fails to meet the threshold jurisdictional amount
required to maintain an action against a foreign corporation in a California court. Further,
whether the forum clause here is also an agreement to submit to the jurisdiction of the California
courts is debatable, such that this Court cannot hold with certainty that plaintiff would secure
effective relief there.

        As to § 745(3)(c), plaintiff argues that litigating this case in California would be
substantially less convenient than litigating it in a Michigan court, asserting that both parties to
the suit, most witnesses, and all evidence are located in Michigan. This Court has held that

       inconvenience, insofar as it is within the contemplation of the parties at the time
       of contracting, should not render a forum-selection clause unenforceable. Where
       the inconvenience of litigating in another forum is apparent at the time of
       contracting, that inconvenience is part of the bargain negotiated by the parties.
       Allowing a party who is disadvantaged by a contractual choice of forum to escape
       the unfavorable forum-selection provision on the basis of concerns that were
       within the parties’ original contemplations would unduly interfere with the
       parties’ freedom to contract and should generally be avoided. [Turcheck, 272
       Mich App at 350.]

Plaintiff makes a cogent argument that California would be a substantially less convenient place
for trial than Michigan. However, the reasons cited are all things the parties would have been
aware of at the time they entered into the escrow agreement. In other words, nothing happened
after the parties entered into the agreement that would render California more inconvenient now
than it was when the agreement was made.

        As for § 745(3)(d), plaintiff argues that “Citywide was a completely phoney [sic]
operation created and designed for the purpose of stealing money” and that the clause should not
be enforced because at the time of contracting, the parties believed that all of the transacting
entities were legitimate businesses. Plaintiff never argues, or even suggests, that the forum-
selection clause itself (or, for that matter, escrow agreement) was entered into by means of fraud.
Plaintiff cites no authority for the proposition that the alleged fraudulent nature of Citywide
renders the negotiated agreement fraudulent. See Mitcham v Detroit, 355 Mich 182, 203; 94
NW2d 388 (1959) (“It is not enough for an appellant in his brief simply to announce a position
or assert an error and then leave it up to this Court to discover and rationalize the basis for his
claims . . . .”).

                                                -7-
       We conclude that the escrow agreement’s forum-selection clause cannot be enforced
because at least one of the statutory exceptions applies in MCL 600.745(3).

                                         B. CITYWIDE

       Although the question of whether Citywide was an essential party was not dispositive
below, we provide the following direction for purposes of remand.

       MCR 2.205(A) provides the pertinent law:

               Subject to the provisions of subrule (B) and MCR 3.501, persons having
       such interests in the subject matter of an action that their presence in the action is
       essential to permit the court to render complete relief must be made parties and
       aligned as plaintiffs or defendants in accordance with their respective interests.

“The purpose of the rule is to prevent the splitting of causes of action and to ensure that all
parties having a real interest in the litigation are present.” Mason Co v Dep’t of Community
Health, 293 Mich App 462, 489; 820 NW2d 192 (2011). “[W]here a party’s presence in the
action is not essential to the court rendering complete relief, factors such as judicial economy or
avoidance of multiple litigation are not enough to compel joinder.” Hofmann v Auto Club Ins
Ass’n, 211 Mich App 55, 96; 535 NW2d 529 (1995).

        Here, defendant contends that it has the right under the escrow agreement to seek
indemnification from Citywide should defendant be found liable in this lawsuit. The
determination of whether Citywide must indemnify defendant is not the same legal question as is
raised in the instant cause of action, which is whether defendant breached its fiduciary duty owed
to plaintiff. Citywide’s legal status has nothing to do with answering this question. Thus,
Citywide’s “joinder is not essential to a determination of the rights and obligations between
plaintiff[] and [defendant], nor to permit the court to render complete relief.” Id. at 96-97.

        Reversed and remanded for further proceedings consistent with this opinion. We do not
retain jurisdiction.

                                                             /s/ William B. Murphy
                                                             /s/ Cynthia Diane Stephens

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