Court Opinion

ID: 2756109
Source: CourtListenerOpinion
Date Created: 2014-11-28 08:04:11.818745+00
Date Added: 2024-06-11T11:26:06.469095
License: Public Domain

Order                                                                       Michigan Supreme Court
                                                                                  Lansing, Michigan

  November 26, 2014                                                                 Robert P. Young, Jr.,
                                                                                               Chief Justice

  147860                                                                             Michael F. Cavanagh
                                                                                     Stephen J. Markman
                                                                                         Mary Beth Kelly
                                                                                          Brian K. Zahra
                                                                                  Bridget M. McCormack
  THE SERVICE SOURCE, INC. and THE                                                      David F. Viviano,
  SERVICE SOURCE FRANCHISE, LLC,                                                                    Justices
            Plaintiffs-Appellees,
  v                                                       SC: 147860
                                                          COA: 301013
                                                          Lenawee CC: 09-003258-CK
  DHL EXPRESS (USA), INC.,
           Defendant-Appellant.

  _________________________________________/

         On order of the Court, leave to appeal having been granted and the briefs and oral
  arguments of the parties having been considered by the Court, we VACATE our order of
  May 23, 2014. The application for leave to appeal the July 11, 2013 judgment of the
  Court of Appeals is DENIED, because we are no longer persuaded that the questions
  presented should be reviewed by this Court.

         MARKMAN, J. (dissenting).

         Because I believe that the trial court clearly erred when it awarded plaintiff
  damages for profits that it lost before the contract was breached on January 31, 2009, as
  well as profits that it lost after the contract was lawfully terminated on March 5, 2009, I
  respectfully dissent from this Court’s order denying leave to appeal.

         The two corporate parties entered into a contract in which defendant would
  provide international and domestic shipping services for plaintiff’s customers and, in
  return, plaintiff would promote defendant as a preferred carrier to its customers. Facing
  difficult economic circumstances, defendant informed plaintiff on November 10, 2008 of
  its plans to discontinue providing domestic shipping services on January 31, 2009.
  Plaintiff made its last payment to defendant on December 2, 2009. Although defendant
  continued to provide domestic services until January 31, 2009, and international services
  until March 5, 2009, plaintiff never paid defendant for these services. Paragraph 17 of
  the contract gave defendant the power to terminate the contract for non-payment upon 10
  days’ notice. In response to plaintiff’s non-payment, defendant gave the required notice
  and terminated the contract effective March 5, 2009. Plaintiff then filed this action for
  breach of contract on February 10, 2009, after defendant ceased providing domestic
  services.

         The trial court awarded plaintiff damages in the amount of $3,546,789, which
  represented the amount of profits plaintiff lost between January 1, 2009, and December
  31, 2012, less the money that plaintiff owed defendant. However, given that plaintiff
                                                                                           2

itself concedes that defendant did not actually breach the contract until January 31, 2009,
any lost profits plaintiff suffered before this date cannot be said to have been caused by
defendant’s breach. Miller-Davis Co v Ahrens Constr, Inc, 495 Mich. 161, 178 (2014)
(“A party asserting a breach of contract must establish by a preponderance of the
evidence that (1) there was a contract (2) which the other party breached (3) thereby
resulting in damages to the party claiming breach.”). In addition, given that defendant
lawfully terminated the contract on March 5, 2009, defendant’s liability under the
contract could not extend beyond this date. Wilkie v Auto-Owners Ins Co, 469 Mich. 41,
51 (2003) (“[T]he bedrock principle of American contract law [is] that parties are free to
contract as they see fit, and the courts are to enforce the agreement as written absent
some highly unusual circumstance. . . .”). Therefore, to the extent that the trial court
awarded damages for profits lost before the contract was breached (assuming for the sake
of argument that the contract was breached at all, a matter that I would also review
further were this Court to grant leave), and for profits lost after the contract was lawfully
terminated, the trial court clearly erred, in my judgment. A corrected calculation of
plaintiff’s lost profits from January 31, 2009, through March 5, 2009, would reduce the
award of damages by roughly $3.3 million.

       In light of this error, I would vacate the trial court’s award of damages to the
extent that it includes damages for profits lost before January 31, 2009, and after March
5, 2009. The parties here are sophisticated business entities and freely constructed the
agreement that governed their relationship, and when parties enter into such agreements,
they do so with the expectation that courts will accurately enforce their terms. At least
with respect to the award of damages, I do not believe that this occurred in this case.

       ZAHRA, J. (dissenting).

       This case concerns the fallout from the decision of defendant, DHL Express
(USA), Inc., to pull out of the United States domestic shipping business. Defendant has
long been involved in international shipping. In 2003, defendant entered the domestic
shipping market by acquiring Airborne Express, a domestic shipper. As part of the
acquisition, defendant assumed Airborne Express’s agreements with other companies
known as “resellers.” Resellers obtain preferential wholesale rates with shipping
companies and resell the shipping services to smaller customers at rates in between the
wholesale rate and the retail rate that would otherwise be charged by the shipper. One of
those resellers, plaintiff The Service Source, Inc. (TSS), was a reseller for Airborne
Express and operating under a 5-year “Reseller Agreement for U.S. Origin Domestic and
International Service.”

       After DHL acquired Airborne Express, TSS and defendant, on January 6, 2006,
entered into a 5-year “Reseller Agreement for U.S. Origin Domestic and International
Service.” Except for the dates and parties, this agreement was the same as the 5-year
“Reseller Agreement for U.S. Origin Domestic and International Service” between
                                                                                       3

Airborne Express and TSS. TSS and defendant renewed this reseller agreement in
November 2006 and December 2007, each time extending the 5-year agreement an
additional year. In 2007, the owners of TSS incorporated plaintiff The Service Source
Franchise, LLC (TSSF), to expand and franchise its reseller operations. On July 22,
2007, defendant and TSSF entered into a 5-year “Reseller Agreement for U.S. Domestic
Origin and International Service,” which except for the dates and parties, had the same
terms as the reseller agreement with TSS bearing the same name. 1

       The two reseller agreements, which are in relevant part identical, provide the
following pertinent recitals on page 1:

                             RESELLER AGREEMENT
       FOR U.S. ORIGIN DOMESTIC AND INTERNATIONAL SERVICE
                                         *   *   *
                                        RECITALS:
             WHEREAS, RESELLER has requirements for expedited
      international air express services for documents and/or packages or freight
      being sent to various locations around the world and for domestic door-to-
      door air and ground express services for documents and/or packages or
      freight being sent to various locations throughout the United States
      (“Services”); and
             WHEREAS, DHL regularly provides such Services for its
      customers and desires to handle substantially all the requirements of
      customers of RESELLER (“RESELLER customers”) for such Services to
      the locations served by DHL in accordance with the terms and conditions
      contained herein; and
              WHEREAS, RESELLER’s agreement to consign a certain amount
      of its requirements for such service to DHL will result in cost savings and
      decreased operational expenses to DHL due to the minimum volumes
      expected; and
           WHEREAS, as a result of said cost savings and expense reduction,
      DHL agrees to provide Services at the rates specified herein.
The reseller agreements then provide:

                                   AGREEMENT:

1
 Plaintiff TSS and plaintiff TSSF will hereafter generally be referred to collectively as
“plaintiff.”
                                                                                       4

             1. THE SERVICES.
              RESELLER agrees to promote DHL’s Services to RESELLER
      customers, and DHL agrees to provide Services to RESELLER customers
      to fulfill RESELLER customers’ needs for Services. RESELLER shall
      promote DHL’s Services as a preferred carrier to RESELLER customers
      for international and domestic shipments of documents and small packages.
      Shipments will originate at RESELLER customers’ domestic locations at
      which DHL regularly provides collection service with its own personnel
      and will be delivered to any destination regularly serviced by DHL or its
      designated agents. . . .
           DHL may, at its discretion, add additional services to this
      Agreement from time to time, under terms and conditions to be determined.
Paragraph 16 of the reseller agreements provides in part:

             DHL will invoice RESELLER on a weekly basis for the Services
      provided by DHL to RESELLER customers during the previous week.
      Invoiced amounts will be remitted by RESELLER to DHL within twenty-
      one (21) days of invoice date. RESELLER’s account will be considered
      past due twenty-one (21) days after invoice date. A late payment fee of 5%
      or $5.00, whichever is greater, will be assessed upon past due balances.
Paragraph 17 of the agreements relates to the term of agreement and termination. It
provides in part:

             (a) This Agreement shall become effective on the date set forth
      above and shall remain in full force and effect for five (5) years, unless
      sooner terminated in accordance with the provisions of this Agreement. By
      mutual consent, to be embodied in writing no later than December 1 of each
      calendar year, this Agreement may be extended for an additional one (1)
      year period(s) so that it will have a rolling five (5) year term. For example,
      by December 1, 2006, the parties may agree in writing to extend the
      Agreement for an additional year, i.e., until January 6, 2012. By December
      1, 2007, the parties may agree in writing to extend the Agreement for an
      additional year; i.e., until January 6, 2013.
             (b) If either party defaults in any obligation or covenant of this
      Agreement, and continues in default for a period of thirty (30) days after
      receiving notice of default from the non-defaulting party, the non-
      defaulting party may, without prejudice to other rights and remedies,
      terminate this Agreement upon thirty (30) days written notice.
           (c) Notwithstanding sub-sections (a) and (b) above, in the event of
      RESELLER’S nonpayment of any bill or other charge when past due and
                                                                                             5

       not reasonably contested by RESELLER, DHL may terminate this
       Agreement upon ten (10) days written notice.[2]
       As mentioned, defendant decided to withdraw from the domestic shipping market
and provide only international shipping service. On November 10, 2008, defendant
issued a press release stating that domestic service would end January 30, 2009, and that
it could no longer guarantee specific delivery dates for domestic packages as of
November 18, 2008. Ninety percent of plaintiff’s resale shipping was domestic.

       On February 10, 2009, plaintiff filed this suit, alleging that defendant’s
announcement on November 10, 2008, “breached said Agreements, and [defendant] has
since that time refused to honor its obligations under the Agreements.” Plaintiff
continued to use defendant’s domestic shipping services through January 2009, and
international shipping services for the next few months. Plaintiff also stopped paying
defendant for services still being used, with the last payment made on December 2, 2008.
By late February 2009, defendant claimed that plaintiff owed it more than $500,000. As
a result, defendant sent a letter to plaintiff informing plaintiff that the reseller agreements
were terminated as of March 5, 2009, under ¶ 17(c) of the agreements.

       Defendant filed a counterclaim asserting that plaintiff owed it more than $500,000.
Plaintiff did not contest the counterclaim and conceded that it owed defendant $673,000
for unpaid shipping services.

        Plaintiff moved for partial summary disposition on the question of liability. The
circuit court did not address the specific language of the reseller agreements, relying
instead on the parties’ course of dealing. The court held:

              Counsel, this is a contract case. There’s a contract commencing
       January of ‘06. I think it was later affirmed sometime maybe in ‘07, and
       then maybe again in ‘08. But it provided for and in fact did include
       domestic and international delivery service. Commencing sometime in the
       end of ‘08 Defendants ceased and altered the terms of the practice and the
       contract that was in existence at that time.
              I think that there are probably all kinds of ways to shade the facts
       here. Bottom line is there is going to be a litany of damages if they exist or
       not, but as far as the fact of, both of you agree, that you no longer -- the

2
  Notably, ¶ 28 of the reseller agreements provides for “GOVERNING LAW,” stating
that “[t]his Agreement shall be governed by and construed in accordance with the laws of
Florida without regard to its conflict of law rules.” This provision is not pertinent here
given the parties agreement that Michigan and Florida law is the same in regard to this
case.
                                                                                          6

       Defendant no longer provides the same services that were provided to the
       Plaintiff at the time that the contract was entered into and that was in fact
       the practice between the parties for all that time up until such time as
       Defendant ceased providing that for Plaintiffs and Plaintiffs’ clients
       received their packages back undelivered contrary to the terms of the
       contract.
              I don’t find it that far reaching, I don’t find it as complicated as
       Defendants would like to see it, and I think all the arguments that go to the
       corpus of Defendant’s position here remain in tact [sic] under the issue of
       damages. I am granting Plaintiffs’ motion for partial summary judgment
       and allowing the matter to go forward on the issue of damages.
       In essence, the circuit court held that the reseller agreements required defendant to
provide domestic service. Because there was no dispute that defendant ceased domestic
service in January 2009, the court granted plaintiff’s motion on the issue of liability.

      The Court of Appeals took a different approach and addressed the specific
language of the reseller agreements:

               As defendant argues, one sentence of the contract suggests that
       defendant was free to cease service to any location if it so chose:
       “Shipments will originate at RESELLER customers’ domestic locations at
       which DHL regularly provides collection service with its own personnel
       and will be delivered to any destination regularly serviced by DHL or its
       designated agents.” This suggests that if DHL ceased regular service in any
       given area, it would no longer be required to collect or deliver there for
       plaintiff[]. If one were to consider only this sentence, it would appear that
       defendant’s argument is correct that it was not bound to pick up or deliver
       packages at any domestic location.
The panel held the following:

               However, a contract must be read as a whole, and “isolated words
       and phrases are not determinative of the parties’ intentions.” City Nat’l
       Bank of Miami v Citibank, NA, 373 So 2d 703 (Fla Dist Ct App, 1979); see
       also Royal Prop Group, LLC v Prime Ins Syndicate, Inc, 267 Mich. App.
708, 719; 706 NW2d 426 (2005) (“This Court is required to read contracts
       as a whole, giving harmonious effect, if possible, to each word and
       phrase.”). Taken as a whole, the contracts between the parties clearly
       contemplate that defendant would provide domestic service. The contracts
       are titled “Reseller Agreement for U.S. Origin Domestic and International
       Service.” The agreements require defendant to provide “services” to
       plaintiffs’ customers, and defines services as “expedited international air
       express services . . . and for domestic door-to-door air and ground express
                                                                                             7

       services for documents and/or packages or freight being sent to various
       locations throughout the United States.” (Emphasis added.) Further, every
       reference to shipping refers to both international and domestic service.
       There is no indication that the parties intended to allow DHL to completely
       cease either domestic or international service. Reading the contracts as a
       whole and giving meaning to all of the words in the contract, defendant
       could likely cease service to a handful of specific domestic locations
       without breaching the contract, but could not completely stop all domestic
       service.[3]
        In my view, the provisions relied on by the Court of Appeals do not address the
volume of services defendant must legally provide to plaintiff’s customers under the
reseller agreements. The complete title of the reseller agreements is not germane to this
question, and the definition of “services” under the agreements is simply not in dispute.
Rather than addressing the question whether the reseller agreements provide for the
volume of services defendant must provide, the panel simply read into the agreements a
vague fiat that defendant’s cessation of domestic service to a “handful” of locations
would be just fine. 4 Of course, this conclusion only raises the question whether it then is
permissible for defendant to cease service to “two handfuls” of the locations, or perhaps
20% or even 60% of the locations. In other words, the panel here improperly assumed
that closing a “handful” of locations is permissible despite that the language of the
reseller agreements it relied on does not provide a sufficient basis for determining
whether defendant’s cessation of any volume of services constitutes a breach of the
agreements.

       Rather, the only provision that does address the amount of services defendant must
provide is contained in the recitals, which in part state that “DHL regularly provides such
Services for its customers and desires to handle substantially all the requirements of
customers of RESELLER (“RESELLER customers”) for such Services to the locations
served by DHL in accordance with the terms and conditions contained herein[.]” While
this provision clearly states defendant’s intent to “handle substantially all the
requirements of [plaintiff’s] customers,” the provision also makes clear that defendant’s
obligation is limited to providing services “to the locations served by DHL in accordance
with the terms and conditions contained herein[.]” And the only provision in the reseller
agreements addressing the locations served by defendant provides that “[s]hipments will

3
 Service Source, Inc v DHL Express (USA), Inc, unpublished opinion per curiam of the
Court of Appeals, issued July 11, 2013 (Docket No. 301013), p 5.
4
  Indeed, the uncertainly of the panel’s conclusion is reflected in its listless statement that
“defendant could likely cease service to a handful of specific domestic locations without
breaching the contract, but could not completely stop all domestic service.” Id.
(emphasis added).
                                                                                           8

originate at RESELLER customers’ domestic locations at which DHL regularly provides
collection service with its own personnel and will be delivered to any destination
regularly serviced by DHL or its designated agents.” Reading this provision and the
recital together, I find it rather plain that defendant is obligated to provide services to
plaintiff’s customers at locations regularly serviced by defendant. As such, defendant
owes no legal duty to plaintiff to maintain regular service to all or any of its locations.
Rather, I agree with defendant that this language “means that [defendant] agreed that
whatever infrastructure it had in place to pick up and deliver packages to any particular
location would be available at a discount to [plaintiff’s] customers—nothing more and
nothing less.”

        This position is also consistent with other express provisions of the reseller
agreements. For instance, the agreements do not require plaintiff to pay for services in
advance. Paragraph 16 of the reseller agreements states that defendant would bill
plaintiff on a weekly basis for the services provided by defendant to plaintiff’s customers
during the previous week. Had the services been purchased in advance, that would be an
indication that plaintiff was expecting that the delivery services would be available for
the length of the reseller agreements. Further, neither party to the contract is required to
deal exclusively with the other party. That is, defendant may do business with other
resellers and plaintiff may do business with other shippers. In my view, these provisions
of the reseller agreements reflect that plaintiff could not reasonably rely on future
services from defendant. Rather, as defendant posits in reply to plaintiff’s brief on
appeal, “[i]f [defendant] was not obligated to satisfy [plaintiff’s] requirements, and if
[plaintiff] had no obligation to ship with [defendant], then it makes no sense to interpret
the contract as locking [defendant] into an entire domestic delivery network just for
[plaintiff’s] benefit.”

       In its brief to this Court, plaintiff notes that “[t]here is also no argument that the
contract is unenforceable due to an indefinite quantity, see In re Anchor Glass Container
Corp, 297 B.R. 887, 891 ([Bankr] MD Fla, 2003), because [plaintiff] committed to a $4
million minimum annual volume.” I find this assertion to be inaccurate. Paragraph 21
provides only that

       [t]he discounted rates presented are in expectation of minimum monthly
       payments by [plaintiff] to DHL for Services of three hundred and twenty
       eight thousand dollars ($328,000). If such expectations are not met, DHL
       may elect in its discretion to adjust rates under this Agreement accordingly
       or to terminate this Agreement.
Paragraph 21 does not at all reflect that plaintiff committed to a $4 million minimum
annual volume. Indeed, plaintiff could unilaterally decide not to ship with defendant and,
according to ¶ 21, defendant could only “elect in its discretion to adjust rates under this
Agreement accordingly or to terminate this Agreement.”
                                                                                         9

       Last, I find Anchor Glass instructive. That case is concisely summarized in 30
Williston, Contracts (4th ed), § 77:2, pp 288-289:

      The agreement was an indefinite quantity supply agreement. Under the
      parties’ arrangement, the buyer was neither obligated to buy glass bottles
      for use in bottling wine exclusively from the seller, a now bankrupt bottle
      manufacturer, nor did the agreement mandate that the manufacturer had to
      satisfy all of the buyer’s requirements for bottles. Rather, the buyer was
      free, when it wanted to purchase bottles, to send the seller a purchase order,
      which the seller could—and presumably would—fill, promising only that it
      would provide the buyer with certain discounts and rebates if and when it
      bought from the seller. However, the buyer conceded that it did not have to
      buy exclusively from this manufacturer and that it did not do so; and that it
      was not obligated to buy its requirements, or any specified quantity, from
      the manufacturer. In short, when the buyer filed its claim against the
      manufacturer in the latter’s bankruptcy, the court determined that this was
      not an agreement to do anything else than engage in some business when a
      need arose, and to the extent that each party was capable or desirous of
      doing business with the other at the time.”
        As in Anchor Glass, plaintiff was not obligated to buy shipping services
exclusively from defendant, nor did the agreement mandate that defendant had to satisfy
all of plaintiff’s requirements for shipping. Rather, plaintiff was free, when it wanted to
purchase shipping, to send defendant a purchase order, which defendant could—and
presumably would—fill, promising only that it would provide plaintiff certain discounts
and rebates if and when plaintiff bought from defendant. However, plaintiff conceded
that it did not have to buy exclusively from defendant and that it was not obligated to buy
its requirements, or any specified quantity, from defendant. Similarly, this was not an
agreement to do anything other than engage in some business when a need arose and to
the extent that each party was capable or desirous of doing business with the other at the
time. Thus, I agree with defendant that the reseller agreements merely provide that
defendant “agreed that whatever infrastructure it had in place to pick up and deliver
packages to any particular location would be available at a discount to [plaintiff’s]
customers—nothing more and nothing less.” There is simply no language in the
agreements imposing a legal duty on defendant to continue domestic shipping service to
                                                                                                              10

plaintiff at a certain volume. Accordingly, I conclude that defendant did not breach any
provision of the reseller agreements, and would reverse the lower courts’ decisions and
remand for entry of summary disposition for defendant.

                        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 26, 2014
       t1125
                                                                            Clerk