Court Opinion

ID: 4372596
Source: CourtListenerOpinion
Date Created: 2019-03-01 10:05:25.427863+00
Date Added: 2024-06-11T14:49:39.207652
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

JOHN J. HAYES,                                                     UNPUBLISHED
                                                                   February 28, 2019
               Plaintiff-Appellant,

v                                                                  No. 340725
                                                                   Oakland Circuit Court
GINOSKO DEVELOPMENT COMPANY, AMIN                                  LC No. 2016-154700-CB
IRVING and MARY TISCHLER,

               Defendant-Appellees.

Before: JANSEN, P.J., and BECKERING and O’BRIEN, JJ.

PER CURIAM.

         In this dispute involving interpretation of a stock redemption agreement, plaintiff, John
Hayes, appeals by right from an order granting summary disposition to defendants Ginosko
Development Company, Amin Irving, and Mary Tischler pursuant to MCR 2.116(C)(8) (failure
to state a claim). For the reasons set forth below, we affirm.

                      I. BASIC FACTS AND PROCEDURAL HISTORY

        Plaintiff incorporated Ginosko Development Company (GDC) in 2002, assigning 49% of
its stock to himself and 51% to defendant Amin Irving. In 2012, the company employed
defendant Mary Tischler as its chief financial officer. Also in 2012, the individual parties
entered into certain agreements that restructured GDC’s operation and ownership. These
included an employment agreement, whereby plaintiff became GDC’s chief executive officer,
and a partial stock redemption agreement (PSRA), whereby GDC agreed to redeem stock from
plaintiff amounting to 15% of his ownership interest. The plan was that Tischler would receive
the stock and reimburse GDC its purchase price. In accordance with the provisions of the PSRA,
an independent valuation firm valued plaintiff’s 15% interest in GDC. Plaintiff disagreed with
the initial valuation and informed GDC of his disagreement, but, according to plaintiff, GDC
declined to comply with the PSRA’s provisions for resolving the valuation dispute.

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        On December 16, 2015, plaintiff and the individual defendants1 signed an agreement
providing for plaintiff’s termination and buyout. Section 1 of the December 2015 Agreement set
forth the terms of plaintiff’s termination, and § 2(c) provided for valuation of plaintiff’s stock as
follows:

               The purchase price of the Stock (the “Purchase Price”) will be the value of
       the Stock as determined exclusively by Baker Tilly (Michigan) under Article III
       Option A of the Buy-Sell Agreement. The Parties agree that the provisions of
       Article III Option B will not apply. However, as provided in the Buy-Sell
       Agreement, the fees and expenses charged by Baker Tilly (Michigan) will be paid
       solely by the Company. The Purchase Price will be determined as of December
       31, 2015. As provided by the Buy-Sell Agreement, the valuation will not include
       discounts of any kind.

        The individual parties had earlier entered into the referenced Buy-Sell Agreement
(hereafter “BSA”) to provide “for the purchase of a Shareholder’s stock interest upon certain
conditions.” Article III, Option A, of the BSA provides for determination of the stock’s purchase
price as follows:

       The purchase price for the shares of the Corporation to be purchased hereunder
       shall be their fair market value as of the end of the month preceding the event
       giving rise to a purchase and sale, as determined by an independent valuation firm
       mutually agreed upon by the Selling Shareholder (or such Shareholder’s legal
       representative) and the Purchaser(s). For purposes of this Agreement, a Selling
       Shareholder shall mean a Shareholder who is selling his/her shares due to such
       Shareholder’s death, disability, retirement or other event subject to this
       Agreement. In the event the Selling Shareholder and the Purchaser(s) do not
       agree on the price set by the independent valuation firm, the price shall be set in
       accordance with Option B. The valuation shall be determined under the same
       methods as would be used for determining the estate tax value of the shares being
       sold hereunder as if the Selling Shareholder has died on the valuation date,
       ignoring any alternative valuation date (under IRC 2032) or special use valuation
       (under IRC 2032A). The Corporation shall provide such data as the valuation
       firm deems necessary or useful to make such determination of the fair market
       value of the shares being sold. The fees and reimbursed expenses charged by the
       valuation firm in the valuation under this Article shall be borne solely by the
       Corporation. The valuation and stock purchase price shall not include discounts
       of any kind, provided, however, any valuation by the independent valuation firm
       using the income method may still be allowed to reduce to present value. The
       event giving rise to a purchase and sale shall be (i) the date on which the retiring
       or withdrawing Shareholder’s notice under Article VI is given to the Corporation,

1
  Various GDC affiliates were also party to the December 2015 Agreement. They are not party
to this appeal.

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       (ii) the date of death of the Shareholder, or (iii) the date of the event giving rise to
       a total and permanent disability under Article VII.

       The BSA’s Option B provides in relevant part:

       If Option A is not followed, the purchase price for the shares of the Corporation to
       be purchased hereunder shall be their fair market value as of the end of the month
       preceding the event giving rise to a purchase and sale, as determined by
       submitting the matter to arbitration as provided below. The Purchaser(s) and the
       Selling Shareholder (or his/her legal representative) shall each name one
       independent accountant. If the two (2) accountants cannot agree upon the fair
       market value within forty-five (45) days, they shall appoint a third accountant and
       the decision of the majority shall be binding upon all parties. . . .

        Baker Tilly valued plaintiff’s remaining stock in accordance with the provisions of the
December 2015 Agreement. Plaintiff disagreed with the valuation, informed GDC of his
disagreement, and reiterated his disagreement with the earlier valuation of 15% of his stock
under the PSRA. Plaintiff insisted that the December 2015 Agreement obligated GDC to resolve
the valuation dispute in accordance with the provisions set forth in Option B of the BSA. When
GDC disagreed, plaintiff filed a two-count complaint. He alleged in Count I that GDC breached
the PSRA by not complying with Option B after he disagreed with the 2012 valuation, and in
Count II that all defendants breached the December 2015 Agreement and the BSA by not
complying with Option B after he disagreed with the Baker Tilly valuation. The instant appeal
involves Count II only.

        Defendants responded to plaintiff’s complaint with separate motions for summary
disposition.2 With respect to Count II, defendants argued that the December 2015 Agreement
superseded the BSA with respect to redemption of plaintiff’s remaining stock, and that it
expressly stated the parties’ intent that the value of plaintiff’s stock was to be “determined
expressly by Baker Tilly” and “that the provisions of Article III Option B will not apply.”
Because the December 2015 Agreement expressly stated that Option B “will not apply,”
defendants’ refusal to comply with the provisions of Option B did not breach the agreement.
Because the December 2015 Agreement superseded the BSA for purposes of GDC’s redemption
of plaintiff’s remaining stock, defendants’ non-compliance with Option B did not breach the
BSA. For these reasons, defendants argued, Count II of plaintiff’s claim fails as a matter of law
and should be dismissed.

        Plaintiff argued in response that the December 2015 Agreement did not expressly
eliminate the dispute resolution provision of Option A, it merely prohibited the parties from
choosing Option B of the BSA as the initial means of determining the purchase price of
plaintiff’s shares. Defendants’ position, plaintiff argued, rendered nugatory a portion of Option

2
  The individual defendants moved for summary disposition of Count II pursuant to MCR
2.116(C)(8), and GDC incorporated by reference their arguments.

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A. Plaintiff argued in the alternative that ignoring Option A’s reference to Option B created
ambiguities in the December 2015 Agreement that the trial court should leave to a jury to
resolve, such as the meaning of the “Option B will not apply” language and how the parties were
to resolve valuation disputes.

        Subsequent to oral argument, the trial court granted defendants’ motions for summary
disposition of Count II. The court indicated in its reasoning that, to the extent that Option A
incorporated Option B, the parties’ agreement that the statement in the December 2015
Agreement that “the provisions of Option B will not apply” prevailed because it unambiguously
expressed the parties’ intent, and to ignore it would impermissibly render the phrase nugatory.
This appeal followed.

                                         I. ANALYSIS

        Plaintiff first contends that the trial court erroneously interpreted the parties’ December
2015 Agreement as prohibiting the parties from turning to the BSA’s Option B to resolve the
dispute with the valuation of plaintiff’s GDC stock. Based on this incorrect interpretation, the
trial court erred by granting defendants’ motions for summary disposition. Plaintiff argues that
at the very least, the trial court’s interpretation of the agreement created ambiguities that the
court should have left to a jury to resolve. We disagree. This Court reviews de novo a trial
court’s decision on a motion for summary disposition based on a party’s failure to state a claim.
Bailey v Schaaf, 494 Mich. 595, 603; 835 NW2d 413 (2013). Likewise, the Court reviews de
novo a trial court’s interpretation of contractual language, including whether the language is
ambiguous. Kyocera Corp v Hemlock Semiconductor, LLC, 313 Mich. App. 437, 445; 886 NW2d
445 (2015).

        A motion for summary disposition brought pursuant to MCR 2.116(C)(8) tests the legal
sufficiency of a claim by the pleadings alone. Bailey, 494 Mich. at 603. All factual allegations in
support of the claim are accepted as true, as well as any reasonable inferences or conclusions that
can be drawn from the facts, and are construed in the light most favorable to the nonmoving
party. Johnson v Pastoriza, 491 Mich. 417, 435; 818 NW2d 279 (2012); Gorman v American
Honda Motor Co, 302 Mich. App. 113, 131; 839 NW2d 223 (2013). A motion under MCR
2.116(C)(8) is properly granted only when a claim is so clearly unenforceable as a matter of law
that no factual development could possibly justify recovery. Johnson, 491 Mich. at 435.

        This Court’s main goal when interpreting contracts is to honor the intentions of the
parties, the best evidence of which are the words used in the contract. Kyocera Corp, 313 Mich
App at 446. “When contract language is clear, unambiguous, and has a definite meaning, courts
do not have the ability to write a different contract for the parties, or to consider extrinsic
testimony to determine the parties’ intent.” Id. (quotation marks and citation omitted). If a
contract’s language is unambiguous, this Court “construe[s] and enforce[s] the contract as
written.” In re Estate of Koch, 322 Mich. App. 383, 398; 912 NW2d 205 (2017). “A contract is
ambiguous when its provisions irreconcilably conflict,” Id, or if a term is “equally susceptible to
more than a single meaning,” Barton-Spencer v Farm Bureau Life Ins Co of Mich, 500 Mich. 32,
40; 892 NW2d 794 (2017). Contracts must be read as a whole, and their terms given their
commonly used meanings unless defined in the contract. Hastings Mut Ins Co v Safety King,
Inc, 286 Mich. App. 287, 292, 294; 778 NW2d 275 (2009).

                                                -4-
       Plaintiff first argues that the trial court’s interpretation “negates” the provision in the
BSA’s Option A instructing shareholders to follow the steps in Option B to resolve any disputes
regarding the valuation of stock. Plaintiff implies that the December 2015 Agreement
incorporates the BSA and, therefore, that the trial court should have interpreted § 2(c) of the
Agreement and Option A of the BSA as a whole. See In re Estate of Koch, 322 Mich. App. at
399. (“When a contract incorporates a writing by reference, it becomes part of the contract, and
courts must construe the two documents as a whole.”). Assuming arguendo that the December
2015 Agreement incorporated by reference the BSA, plaintiff provides no authority for his
assumption that, where the language of § 2(c) of the December 2015 Agreement expressly
prohibiting the applicability of Option B conflicts with language in the BSA instructing
shareholders to follow Option B to resolve valuation disputes, the BSA controls.

        The structure of § 2(c) of the December 2015 Agreement suggests that to the extent §
2(c) incorporated by reference Option A of the BSA, incorporation was selective. The first
sentences of the BSA’s Option A and § 2(c) of the December 2015 Agreement describe how to
determine the purchase price of the stock on offer. Option A states that the stock’s purchase
price will be the fair market value of the shares on a designated date as determined by a mutually
agreed upon valuation firm. Section 2(c) names Baker Tilly as the mutually agreed upon
valuation firm and identifies Option A as the method for calculating the stock’s value.
Immediately following these basic instructions, the BSA’s Option A provides a means of
resolving disputes about the initial purchase price; specifically, “the price may be set in
accordance with Option B.” Section 2(c) parallels Option A’s reference to Option B, but states
contrariwise, “[t]he parties agree that the provisions of Article III Option B will not apply.” The
third sentence of § 2(c) provides the designated valuation date, while the remainder of the section
expressly traces certain provisions to the BSA with the phrase, “as provided in the [BSA].” For
example, “as provided in the [BSA],” GDC will pay Baker Tilly’s fees and costs, and, “as
provided in the [BSA],” “valuation will not include discounts of any kind.” The structural
similarities between the BSA’s Option A and § 2(c) of the December 2015 Agreement, along
with the specific references that certain provisions of § 2(c) follow those of the BSA, belie an
intent to incorporate Option A wholly and as written into § 2(c). Instead, the similarities and
differences of the two provisions reflect the construction of a unique valuation provision arrived
at by adopting and adapting the provisions of Option A. This adaptation included expressly
rejecting Option A’s call for using the provisions of Option B to resolve valuation disputes.

        Plaintiff next argues that the rules of construction mandate rejection of the provision in §
2(c) that “the provisions of Option B will not apply.” Plaintiff contends that the first and second
sentences of § 2(c) conflict because the first sentence’s reference to Option A effectively
incorporates Option B, but the second sentence states that the provisions of Option B will not
apply. When this occurs, the rules of construction mandate that the first provision is controlling
and the latter rejected. See Klever v Klever, 333 Mich. 179, 189; 52 NW2d 653 (1952).
Rejecting the second provision, i.e., that the provisions of Option B will not apply, means that
Option B is available as a means of resolving his disagreement with Baker Tilly’s valuation.
Plaintiff’s argument is unpersuasive and his reliance on Klever unavailing.

      At issue in Klever was the interpretation of certain provisions in a reconciliation
agreement between the plaintiff-wife and her now-deceased husband. Paragraph three of the
agreement stated that if certain conditions were met and the husband predeceased the plaintiff,
                                                -5-
the plaintiff would be entitled to all of the real and personal property owned by the husband, “or
of which he shall die seized.” Id. at 184. The conditions set forth in paragraph three having been
met, the plaintiff relied on the paragraph’s provisions to support her claim to all of the property
at issue. Paragraph four stated that if certain conditions regarding a mortgage the plaintiff had
given her husband nearly two decades earlier were fulfilled, “ ‘the obligations of the parties
hereto under said [mortgage agreement], and under this agreement, shall hereupon cease and
terminate.’ ” Id. at 185. The defendant, brother of the plaintiff’s deceased husband, argued that
paragraph four terminated the decedent’s obligations under paragraph three, which meant that
the plaintiff was not entitled to all of the decedent’s property. Since the husband had died
intestate with plaintiff and defendant as sole heirs, each was entitled to half of the decedent’s
estate, which included the land at issue. Id. at 186-187. The trial court found in favor of the
plaintiff, and the defendant appealed in the Michigan Supreme Court.

       Michigan’s Supreme Court elected to resolve the conflict between the two paragraphs by
reading and understanding the agreement “in a way that will render all of its provisions
consistent and meaningful, and in full accord with the obvious intent of the parties.” Id. at 188.
Accordingly, the Court held that the parties had in mind that once the husband fulfilled the
conditions pertinent to the mortgage, his obligation as to the mortgage agreement would “cease
and terminate,” but not his obligations under paragraph three, which was unrelated to the
mortgage. Id. In support of its holding, the Court noted that the provisions in paragraph three
preceded the relevant provision in paragraph four and observed, “one of the rules of construction
to which resort may be had is that where in an instrument there are two conflicting clauses or
provisions, the first shall be received as controlling and the latter rejected.” Id. at 189.

        The present plaintiff relies on the Klever Court’s latter observation regarding the rules of
construction to argue that the trial court in this case should have rejected the second sentence of
§ 2(c), which precluded use of the provisions of Option B. Plaintiff’s reasoning is flawed.
Whereas the conflict in Klever arose from language in two provisions of the same instrument, the
conflict that plaintiff alleges is between provisions of different instruments, Option A of the BSA
and § 2(c) of the December 2015 Agreement. Moreover, whereas the conflict in Klever emerged
from reading and considering the provisions in the reconciliation agreement, the alleged conflict
here arises only because plaintiff ignores the clearly expressed provision in the December 2015
Agreement stating,“[t]he parties agree that the provisions of Option B will not apply.” The
Klever Court resolved the conflict between paragraphs three and four of the reconciliation
agreement by reading and understanding the provisions in a way that “would render all of its
provisions consistent and meaningful, and in full accord with the obvious intent of the parties.”
Klever, 333 Mich. at 188. In the present case, the December 2015 Agreement states that
valuation will be determined under Option A, and that the provisions of Option B will not apply.
There is no contradiction on the face of these two provisions and, even if Option A does
recommend recourse to the provisions of Option B to resolve valuation disputes, the December
2015 Agreement memorializes the parties’ agreement in unqualified terms “that the provision of
Article III Option B will not apply.” For these reasons, plaintiff’s argument that the rules of
construction require rejection of the second sentence of § 2(c) fails.

        Finally, plaintiff argues that interpreting the parties’ agreement, “that the provisions of
Article III Option B will not apply,” to preclude Option A’s recourse to the provisions of Option

                                                -6-
B to resolve a dispute arising from a valuation determined under Option A, creates an ambiguity.
We disagree.

        An ambiguity may be patent or latent. Shay v Aldrich, 487 Mich. 648, 667; 790 NW2d
629 (2010). A patent ambiguity is one that appears on the face of the instrument. Id. Plaintiff
does not argue that the December 2015 Agreement contains a patent ambiguity. Rather, he
suggests a latent ambiguity arising from the court’s interpretation of the second sentence of §
2(c) to preclude any recourse to the provisions of Option B. A latent ambiguity is one

       that does not readily appear in the language of a document, but instead arises from
       a collateral matter when the document’s terms are applied or executed. Because
       the detection of a latent ambiguity requires a consideration of factors outside the
       instrument itself, extrinsic evidence is obviously admissible to prove the existence
       of the ambiguity, as well as to resolve any ambiguity proven to exist. [Id. at 668.]

         The essence of plaintiff’s latent-ambiguity argument is that the trial court’s interpretation
of the December 2015 Agreement raises questions about how the parties are going to resolve
disputes about valuation if they cannot resort to the provisions in Option B. However, in order to
prove a latent ambiguity, plaintiff had to do more than raise questions about the consequences of
the disputed language. He had to present extrinsic evidence indicating the existence of an
ambiguity, e.g., other facts that create the “necessity for interpretation or a choice among two or
more possible meanings.” See id. (quotation marks and citation omitted). Plaintiff presents no
such evidence. The questions plaintiff asserts arise from the trial court’s interpretation of § 2(c)
suggest the omission of a dispute resolution provision or a mistake in plaintiff’s interpretation of
the contract more than a latent ambiguity. “An omission or mistake is not an ambiguity[,]” and
extrinsic evidence “under the guise of a claimed latent ambiguity is not permissible to vary, add
to, or contradict the plainly expressed terms of [a] writing or to substitute a different contract for
it, to show an intention or purpose not therein expressed.” Michigan Chandelier Co v Morse,
297 Mich. 41, 48; 297 N.W. 64 (1941). Plaintiff has failed to establish a latent ambiguity in the
December 2015 Agreement.

       Affirmed.

                                                              /s/ Kathleen Jansen
                                                              /s/ Jane M. Beckering
                                                              /s/ Colleen A. O’Brien

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