Service Source Inc v. Dhl Express (Usa) Inc ( 2014 )


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  • 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
    

Document Info

Docket Number: 147860

Filed Date: 11/26/2014

Precedential Status: Precedential

Modified Date: 11/28/2014