Court Opinion

ID: 4354854
Source: CourtListenerOpinion
Date Created: 2018-12-28 10:06:47.018869+00
Date Added: 2024-06-11T14:46:02.858808
License: Public Domain

STATE OF MICHIGAN

                        COURT OF APPEALS

RON VANALSTINE, and JOAN VANALSTINE,      FOR PUBLICATION
                                          December 27, 2018
           Plaintiffs-Appellants,         9:05 a.m.

v                                         No. 340150
                                          Clinton Circuit Court
LAND O’LAKES PURINA FEEDS, LLC,           LC No. 16-011503-NZ

           Defendant-Appellee,

and

DIVERSIFIED FARMS, LLC,

           Defendant.

RON VANALSTINE, and JOAN VANALSTINE,
doing business as ROLJOS DAIRY,

           Plaintiffs-Appellants,

v                                         No. 342990
                                          Clinton Circuit Court
LAND O’LAKES PURINA FEEDS, LLC,           LC No. 2016-011503-NZ

           Defendant-Appellee,

and

DIVERSIFIED FARMS, LLC,

           Defendant.

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Before: RIORDAN, P.J., and RONAYNE KRAUSE and SWARTZLE, JJ.

SWARTZLE, J.

        An implied warranty, once disclaimed, cannot be revived by the inadequacy of an express
warranty’s remedy. This rule of law is fatal to plaintiffs’ claims of breach of implied warranty
under Michigan’s version of the uniform commercial code, and thus we affirm summary
disposition against plaintiffs. On the matter of taxable costs, we vacate in part the trial court’s
order taxing costs and remand for correction.

                                       I. BACKGROUND

        Plaintiffs operate a dairy farm in Eaton County. Defendant is a Minnesota corporation
that manufactures and distributes animal feed and related products. Diversified Farms, LLC
(Diversified) is a distributor of those products in Michigan. In July 2008, Diversified executed a
Credit Application and Agreement (the Credit Agreement) with defendant that included a
disclaimer of warranties and a remedy-limiting provision. Plaintiffs were not parties to the
Credit Agreement.

        In early 2013, plaintiffs entered into an oral contract with Diversified in which
Diversified agreed to supply defendant’s products to plaintiffs. The two products at issue are a
dairy-protein supplement and a dry-cow supplement, which are concentrates that are mixed with
grain, haylage, and silage before being fed to dairy cattle. Plaintiffs also purchased from
Diversified a salt-and-mineral supplement commonly referred to as “SE-90,” which was not
defendant’s product. SE-90 was provided to the herd on a “free choice” basis, meaning that the
cattle could eat as much or as little of it as they wanted.

       Plaintiffs began to notice that the herd showed signs of sickness a few months after
entering the oral contract with Diversified. It was ultimately determined that the herd suffered
from iodine toxicity. After performing tests of the feed, plaintiffs concluded that defendant’s
products sickened the herd. Defendant disagreed, arguing that the iodine toxicity came from
another source, likely the SE-90.

       Plaintiffs sued, alleging that defendant’s products caused iodine toxicity in plaintiffs’
herd and, as a result, defendant breached the implied warranties of merchantability and fitness
for a particular purpose under the Uniform Commercial Code (UCC). Defendant moved for
summary disposition under MCR 2.116(C)(10), arguing that it effectively disclaimed the implied
warranties under the following paragraphs of the Credit Agreement:

       17. DISCLAIMER OF WARRANTIES. SUPPLIER EXCLUDES AND
       DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
       FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY
       GOODS SOLD TO APPLICANT. THERE ARE NO EXPRESS OR IMPLIED
       WARRANTIES, WHICH EXTEND BEYOND THE WARRANTIES
       EXPRESSLY STATED ON THE FACE OF ANY SUCH PRODUCT.

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       18. EXCLUSIVE REMEDY. Applicant’s sole and exclusive remedy for claims
       made against Supplier (including, without limitation, claims for breach of
       contract, breach of warranty, negligence, or strict liability) are limited to the
       replacement of any products sold or services provided. Supplier is not
       responsible and Applicant expressly agrees to hold Supplier harmless for any
       special, indirect, consequential, exemplary, incidental, or additional damages.

The Credit Agreement also contained a choice-of-law provision designating Minnesota law as
the applicable state law.

        Applying Michigan’s version of the UCC, the trial court found that the disclaimer of
implied warranties in paragraph 17 was effective because it adhered to the statutory
requirements. Plaintiffs maintained that the remedy-limitation in paragraph 18 failed of its
essential purpose, thereby invalidating the disclaimer found in paragraph 17, and allowing them
to recover under the standard warranty provisions of the UCC. The trial court disagreed,
concluding that a failure of a remedy does not revive effectively disclaimed implied warranties.
Accordingly, the trial court granted defendant’s motion for summary disposition.

        After the trial court granted summary disposition, defendant submitted a proposed
taxation of costs, requesting $4,982.26. Plaintiffs filed an objection, arguing that the costs
requested were not authorized by statute. Defendant filed an amended taxation of costs and
sought a revised amount of $3,331.20. Concluding that the amended taxation was authorized
and not extraordinary, the trial court taxed costs against plaintiffs.

       Plaintiffs appealed both rulings of the trial court.

                                          II. ANALYSIS

                                  A. STANDARD OF REVIEW

        “A motion for summary disposition under MCR 2.116(C)(10) tests the factual
sufficiency of a claim, and is appropriately granted when, except as to the amount of damages,
there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a
matter of law.” Tomra of North America, Inc v Dep’t of Treasury, ___ Mich App ___, ___; ___
NW2d ___ (2018) (Docket No. 336871); slip op at 2. We review de novo issues of statutory and
contractual interpretation. Heritage Resources, Inc v Caterpillar Fin Servs Corp, 284 Mich App
617, 632; 774 NW2d 332 (2009).

       We review a trial court’s ruling on a motion to tax costs for an abuse of discretion. Ivezaj
v Auto Club Ins Ass’n, 275 Mich App 349, 367; 737 NW2d 807 (2007). “An abuse of discretion
occurs when the court’s decision falls outside the range of principled and reasonable outcomes.”
Guerrero v Smith, 280 Mich App 647, 660; 761 NW2d 723 (2008). “[W]hether a particular
expense is taxable as a cost is a question of law” that this Court reviews de novo. Id. at 670.

                                      B. CHOICE OF LAW

      In a footnote in their appellate brief, plaintiffs argue that this Court should apply
Minnesota law to this dispute because of the choice-of-law provision in the Credit Agreement.
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“When determining the applicable law, the expectations of the parties must be balanced with the
interests of the states.” Hudson v Mathers, 283 Mich App 91, 96; 770 NW2d 883 (2009). “The
parties’ choice of law should be applied if the issue is one the parties could have resolved by an
express contractual provision.” Id. This Court, however, will not defer to the parties’ choice of
law if “(1) the chosen state has no substantial relationship to the parties or the transaction,” “(2)
there is no reasonable basis for choosing that state’s law,” or (3) when applying the chosen
state’s law “would be contrary to the fundamental policy of a state that has a materially greater
interest than the chosen state in the determination of the particular issue and whose law would be
applicable in the absence of an effective choice of law by the parties.” Id. at 96-97.

        The Credit Agreement was executed by defendant, a Minnesota corporation, and
Diversified, a Michigan limited-liability company. If defendant and Diversified were the only
parties to this dispute, then it appears that there would be little question that Minnesota law
would apply per the Credit Agreement’s choice-of-law provision. Yet, Diversified was
dismissed from the lawsuit, and plaintiffs were not parties to the Credit Agreement.

        At no time before this appeal have plaintiffs argued that Minnesota law applies to this
case. Rather, only after the trial court granted defendant’s motion for summary disposition—
applying Michigan law—did plaintiffs argue that this state’s law was inapplicable. On appeal,
plaintiffs have not provided any argument as to why the choice-of-law provision should apply to
them despite not being a party to the Credit Agreement. Moreover, plaintiffs do not argue that
the choice between Michigan or Minnesota law is outcome determinative, and, indeed, the two
states have both adopted the same model provisions of the UCC at issue here. Compare MCL
440.2316 with Minn Stat 336.2-316. Thus, because Michigan law has been applied from the
outset, and plaintiffs have not provided any support for their argument that Minnesota law should
apply, we apply Michigan law to this dispute. Hudson, 283 Mich App at 97.

                                    C. EXPRESS WARRANTY

        Moving to the merits of plaintiffs’ claims, plaintiffs first argue that the trial court erred by
granting summary disposition because the record shows that defendant breached an express
warranty. Plaintiffs did not, however, assert a claim of breach of an express warranty in their
complaint, nor did they otherwise raise the issue before the trial court. On appeal, plaintiffs did
not include the issue in their statement of questions presented. Therefore, we decline to address
the issue in the first instance on appeal. Orion Twp v State Tax Comm, 195 Mich App 13, 18;
489 NW2d 120 (1992).

                                   D. IMPLIED WARRANTIES

       Plaintiffs’ primary argument on appeal is that the limited remedy in paragraph 18 of the
Credit Agreement failed of its essential purpose and, as a result, the disclaimers of implied
warranties in paragraph 17 were ineffective. Michigan’s version of Article 2 of the UCC, MCL
440.2101 et seq., governs the transactions of the sale of goods. “Every contract for the sale of
goods under Article 2 of the [UCC] includes implied warranties of merchantability and fitness
for a particular purpose.” Lumber Mut Ins Co v Clarklift of Detroit, Inc, 224 Mich App 737,
739; 569 NW2d 681 (1997), citing MCL 440.2314 and MCL 440.2315. “The warranty of

                                                  -4-
merchantability requires that the goods sold be of average quality within the industry. A
warranty of fitness for a particular purpose requires that the goods sold be fit for the purpose for
which they are intended.” Computer Network, Inc v AM Gen Corp, 265 Mich App 309, 316; 696
NW2d 49 (2005) (cleaned up). A seller may, however, disclaim either implied warranty,
provided that certain statutory requirements are met. MCL 440.2316. Whether a warranty was
effectively disclaimed is a question of law for this Court. Lumber Mut Ins, 224 Mich App at
742.

        To begin, the parties do not dispute that the disclaimers of implied warranties in
paragraph 17 are binding on plaintiffs, even though plaintiffs were not parties to the Credit
Agreement. An indirect purchaser, such as plaintiffs here, can acquire no greater implied-
warranty rights from the manufacturer than those originally bargained-for by the direct
purchaser. While the indirect purchaser could bargain for additional implied warranties from the
direct purchaser, those additional rights would have to arise from an agreement between the two
purchasers. If the indirect purchaser seeks to enforce the manufacturer’s implied warranty, then
the indirect purchaser is limited to what the manufacturer and direct purchaser negotiated. See
Heritage Resources, 284 Mich App at 641 & n 15.

        Nor is there any real question that the language of paragraph 17 satisfies the statutory
requirements for disclaiming the implied warranties of merchantability and fitness for a
particular purpose. To disclaim the implied warranty of merchantability, the language of the
disclaimer must mention “merchantability” and be “conspicuous.” MCL 440.2316(2). To
disclaim the implied warranty of fitness for a particular purpose, “the exclusion must be by a
writing and conspicuous.” Id.

       The title of paragraph 17 is “DISCLAIMER OF WARRANTIES” and the text of the
paragraph is in ALL-CAPS. The first sentence disclaims in plain English the implied warranty
of “merchantability” and “fitness for a particular purpose,” using those specific terms. The
second sentence makes clear that there are “no . . . implied warranties.” The appropriate terms
are used, the operative language is clear and in writing, and the format makes the disclaimers
conspicuous. Thus, paragraph 17 adheres to the disclaimer requirements of MCL 440.2316(2).
Given this, a claim of breach of implied warranty would appear to be fatally deficient.

        To counter this conclusion, plaintiffs argue that the implied warranties disclaimed in
paragraph 17 were revived by operation of law because the express warranty and remedy
provided in paragraph 18 failed of their essential purpose. “[A] warranty fails of its essential
purpose where unanticipated circumstances preclude the seller from providing the buyer with the
remedy to which the parties agreed, in which event the buyer is entitled to seek remedies under
the standard UCC warranty provisions.” Severn v Sperry Corp, 212 Mich App 406, 413-414;
538 NW2d 50 (1995).

         Plaintiffs explain that the feed supplements manufactured by defendant were not
realistically subject to replacement because the products were consumed soon after delivery and
the products damaged the herd upon consumption. Therefore, plaintiffs conclude that the
“limited express warranty” remedy in paragraph 18—the promised replacement of any products
sold or services provided—failed of its essential purpose. Plaintiffs argue that this failure
revived the otherwise disclaimed implied warranties in paragraph 17.

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        Plaintiffs’ argument is without merit. As explained earlier, plaintiffs did not make a
breach of express warranty claim below, nor did they preserve the issue for appeal. Instead, they
claimed breaches of implied warranties of merchantability and fitness. But, to state the obvious,
to succeed on a claim of breach of implied warranty, a party must, among other things, be able to
point to an actual implied warranty. And here, defendant effectively disclaimed any implied
warranty in the Credit Agreement. As a matter of logic, once an implied warranty is effectively
disclaimed, there can be no breach of that disclaimed warranty, regardless of whether the remedy
for an express or other undisclaimed implied warranty is arguably deficient. See MCL 440.2316
cmt 2 (“If no warranty exists, there is of course no problem of limiting remedies for breach of
warranty.”). Simply put, once an implied warranty is effectively disclaimed, it cannot be revived
by the inadequacy of some other warranty’s remedy.

        When interpreting this state’s UCC, we may gain guidance from decisions of other
jurisdictions interpreting similar model provisions. Heritage Resources, 284 Mich App at 632.
Our conclusion is supported by comparable holdings in other jurisdictions. See, e.g., FMC v Fin
Corp v Murphree, 632 F2d 413, 420 (CA 5, 1980) (“If there is no warranty because of a valid
disclaimer, there is no problem of limiting warranty breach remedies.”); Ritchie Enterprises v
Honeywell Bull, Inc, 730 F Supp 1041, 1047-1048 (D Kan, 1990) (“Despite any argument that
the limited remedy failed of its essential purpose, plaintiff is bound by the written exclusion of
the express and implied warranties, and its only warranty claim is based on the express warranty”
in the agreement.); Earl Brace & Sons v Ciba-Geigy Corp, 708 F Supp 708, 711 (WD Pa, 1989)
(“There can be no breach where the warranty has been disclaimed . . . and no consequential
damages where there is no breach.”); RJ Meyers Co v Reinke Mfg Co, Inc, 885 NW2d 429, 439
(Iowa, 2016) (“[T]he failure of the repair and replace remedy for breach of the express warranty
does not revive otherwise disclaimed implied warranties.”).

        In support of their position, plaintiffs rely on two decisions of this Court, Kelynack v
Yamaha Motor Corp, USA, 152 Mich App 105; 394 NW2d 17 (1986), and Severn, 212 Mich
App 406. Yet, both cases involved the question whether an express warranty covering defective
parts with a remedy of repair or replace failed of its essential purpose. Neither decision held that
a disclaimed implied warranty could be revived, and thus both decisions are inapposite to
plaintiffs’ claims here.

       Accordingly, we affirm the trial court’s grant of summary disposition to defendant.

                                      E. TAXABLE COSTS

        Plaintiffs next argue that the trial court erred by allowing defendant to tax costs that were
not authorized by the statute. MCR 2.625(A)(1) provides that “[c]osts will be allowed to the
prevailing party in an action, unless prohibited by statute or by these rules or unless the court
directs otherwise, for reasons stated in writing and filed in the action.” “The power to tax costs
is purely statutory, and the prevailing party cannot recover such expenses absent statutory
authority.” Guerrero, 280 Mich App at 670.

       Plaintiffs first object to the amount authorized for witness fees. Under MCL 600.2552(1)
“[a] witness who attends any action or proceeding pending in a court of record shall be paid a
witness fee of $12.00 for each day and $6.00 for each half day.” Defendant originally requested
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$12.00 each for four depositions, but, after plaintiffs pointed out that each of the four depositions
only lasted half of a day, defendant agreed that the correct amount was $6.00 for each deposition.
The trial court, however, did not adjust the amount to the half-day fee when it granted
defendant’s motion for costs. Thus, remand is necessary to correct the award.

        Next, plaintiffs object to the costs allowed for the taking of depositions. Defendant
requested $2,316.37 for the taking of depositions. Plaintiffs disputed this amount, arguing that
there should be no taxable costs for the taking of depositions because the depositions were not
read into evidence and were not filed with the clerk. The trial court disagreed and granted the
request in full.

        To tax costs for the taking of a deposition, the deposition must be (1) filed with any
clerk’s office, and (2) read into evidence at trial or when damages were assessed. MCL
600.2549. Although defendant asserts that the deposition transcripts were filed in the clerk’s
office, a review of the register of actions does not support this assertion. Furthermore, the record
does not indicate that the depositions were read into evidence in the trial court. Thus, defendant
was not entitled to any taxable costs for the taking of depositions.

        Finally, plaintiffs argue that costs for service fees, mileage, and travel were improperly
taxed under MCL 600.2559. Under this section, defendant requested $420.37 for mail fees and
the trial court granted the request in full. The record indicates that defendant requested the
amount to pay for certified mail and federal express fees to send documents to file with the clerk
of the court. Because these documents were sent to the court, they do not qualify as “process or
papers served out of a court.” MCL 600.2559(1) (emphasis added). Thus, defendant has not
shown that it is entitled to the costs related to these mailings.

        The trial court also granted defendant’s request for $392.03 for mileage and travel under
this section for defense counsel’s travel to certain depositions, hearings, and court proceedings.
Nonetheless, this type of mileage and travel is not covered by MCL 600.2559. Defendant argues
that the heading of MCL 600.2559 indicates that mileage may be taxed under this section. The
catch-line heading for this section reads: “Fees for service of process; fee for process with
incorrect address; mileage; fee for advertising; liability; charging fee in excess of law; tax costs;
‘order for the seizure of property’ defined.” The heading, however, cannot be used to construe
the statute. MCL 8.4b; In re Lovell, 226 Mich App 84, 87 n 3; 572 NW2d 44 (1997). To the
extent that mileage is authorized in some of the subsections of MCL 600.2559, Subsection 1
makes clear that any mileage taxed under MCL 600.2559 must be related to out-of-court service
of process or papers, and defendant has not shown that these fees were related to this type of
service. Thus, because defendant has not shown that the mileage and travel fees were authorized
by statute, defendant has not shown that the taxation of $392.03 was authorized by statute.

                                        III. CONCLUSION

        In Docket No. 340150, we affirm the trial court’s order granting summary disposition. In
Docket No. 342990, we vacate the trial court’s order taxing costs to the extent it allowed the
taxation of improper expenses. On remand, the trial court shall modify the order taxing costs by

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decreasing the amount of taxable costs from $3,331.20 to $178.43. Because no party prevailed
in full on appeal, neither party may tax costs under MCR 7.219. We do not retain jurisdiction.

                                                         /s/ Brock A. Swartzle
                                                         /s/ Michael J. Riordan
                                                         /s/ Amy Ronayne Krause

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