Articles Posted in Contracts

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Auburn bought Chrysler parts for resale to Cypros, which then sold those parts to customers in the Middle East. The FBI raided Cypros’ warehouse and charged its president, Kilani, with trafficking in counterfeit goods. Unbeknownst to Auburn, Kilani had been obtaining counterfeit parts, mixing them with the legitimate Chrysler parts received from Auburn, and selling the commingled parts to customers. When Chrysler learned of the scheme, it terminated its relationship with Auburn. Auburn brought tortious interference claims and a breach of contract claim against Cypros that the district court dismissed, stating that Cypros did not specifically intend to interfere with Auburn’s relationship with Chrysler and that Cypros and Auburn did not have a written contract. The Sixth Circuit affirmed, holding that Michigan tortious interference law requires the specific intent to interfere with a business relationship and that the Michigan statute of frauds applied. View "Auburn Sales, Inc. v. Cypros Trading & Shipping, Inc." on Justia Law

Posted in: Business Law, Contracts

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ATC, a Michigan manufacturer, outsources orders, including to YiFeng, a Chinese company. ATC pays vendors in four separate payments, based on manufacturing progress. YiFeng emails ATC invoices. On March 18, 2015, ATC’s vice-president, Gizinski, emailed YiFeng employee Chen requesting all outstanding invoices. An unidentified third party intercepted this email, and impersonating Chen, began corresponding with Gizinski. On March 27, the impersonator emailed Gizinski that, due to an audit, ATC should wire its payments to a different account from usual. YiFeng had previously, legitimately informed ATC it had changed its banking details; ATC had no process for verifying the information. Gizinski wired the money to the new account. On April 3, the impersonator emailed Gizinski, stating that “due to some new bank rules,” the previous transfer was not credited to its account so it would return the payment. The impersonator requested that Gizinski wire the money to a different bank account. Gizinski wired the money to this new account. The impersonator ran this scam twice more. Gizinski wired additional payments of $1575 and $482,640.41. When the real YiFeng demanded payment, ATC paid YiFeng approximately 50% of the outstanding debt; the remaining 50% was contingent on ATC’s insurance claim. ATC sought recovery from Travelers, under the Policy’s “Computer Fraud” provision. Travelers denied the claim. ATC sued for breach of contract. The court granted Travelers summary judgment. The Sixth Circuit reversed. Computer fraud “directly caused” ATC’s “direct loss” and no exclusion applied. View "American Tooling Center, Inc. v. Travelers Casualty & Surety Co." on Justia Law

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Lossia used a Flagstar Bank checking account to initiate Automated Clearing House (ACH) transactions--electronic payments made from one bank account to another. Common ACH transactions include online bill pay and an employee’s direct deposit. The account agreement states: Our policy is to process wire transfers, phone transfers, online banking transfers, in branch transactions, ATM transactions, debit card transactions, ACH transactions, bill pay transactions and items we are required to pay, such as returned deposited items, first—as they occur on their effective date for the business day on which they are processed.” National Automated Clearing House Association Operating Rules and Guidelines define an ACH transaction's effective date as “the date specified by the Originator on which it intends a batch of Entries to be settled.” In practice, this date is whatever date the merchant or bank submits the transaction to the Federal Reserve, which includes this settlement date in the batch records that it submits to the receiving institution (Flagstar), which processes the transactions in the order that they were presented by the Federal Reserve in the batch files. Lossia asserted that the order in which Flagstar processed his transactions caused him to incur multiple overdrafts rather than just one. The Sixth Circuit affirmed summary judgment for Flagstar; the plain language of the agreement does not require Flagstar to process transactions in the order that the customer initiated them. View "Lossia v. Flagstar Bancorp, Inc." on Justia Law

Posted in: Banking, Contracts

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Leone’s employer used a degasser, a large vat lined with brick, to extract gas impurities from molten steel. The degasser’s components include an alloy chute near the top of the vat. The employer hired BMI to “tearout” the degasser’s deteriorated face brick. Although the contract did not include any work on the alloy chute, a BMI employee testified that his team would dislodge loose material from the chute to ensure that nothing could fall. He did not notice any loose slag on the chute. After BMI finished, his employer assigned Leone to reline the degasser. Leone and his crew frequently climbed ladders near the alloy chute. They never spotted any loose slag on the chute but, 21 days after BMI completed its one-day job, a 40-pound piece of slag fell and struck Leone. Leone sued, claiming that the slag detached from the alloy chute. Because no molten metal could have created new slag, the court concluded that the slag must have existed when BMI finished but that BMI owed Leone no duty of care under Michigan law. The Sixth Circuit reversed. The district court interpreted Michigan law too narrowly. Although a contractor’s creation of a new hazard can trigger a duty to third parties, that is not the only way that such a duty might arise. A contractor can be liable to a third party if “any legal duty independent of the contract existed,” including by voluntary assumption of a duty. View "Leone v. BMI Refractory Services., Inc." on Justia Law

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In 2008, facing insolvency, Chrysler offered certain employees incentives to take early retirement, in addition to benefits they had earned under its Pension Plan. Pearce, then 60 years old, had worked for Chrysler for 33 years, and was eligible for the buyout plus the Plan’s 30-and-Out benefits--a monthly pension supplement “to help early retirees make ends meet until eligible for Social Security.” Chrysler provided Pearce with Pension Statements that repeatedly advised him to consult the Summary Plan Document (SPD). The SPD cautioned that “[i]f there is a conflict ... the Plan document and trust agreement will govern.” With respect to the 30-and-Out benefits, the SPD stated: “You do not need to be actively employed at retirement to be eligible ... you must retire and begin receiving pension benefits within five years of your last day of work for the Company.” Pearce believed that he could not lose his 30-and-Out benefits if he lost his job and declined the buyout offer. Chrysler terminated him that same day. Pearce was told that, because he had been terminated before retirement, he was ineligible for the 30-and-Out benefits; the SPD omitted a clause contained in the Plan, which said that an employee who was terminated was ineligible. Pearce sued under the Employee Retirement Income Security Act, 29 U.S.C. 1001. The Sixth Circuit reversed the district court’s grant of summary judgment to the Plan on Pearce’s request for reformation, affirmed summary judgment rejecting Pearce’s request for equitable estoppel, and remanded. Analyzing Pearce’s request for reformation under contract law principles, the court should consider information asymmetry--Chrysler had access to the Plan while Pearce did not but repeatedly referred Pearce to the SPD--and other factors. View "Pearce v. Chrysler Group LLC Pension Plan" on Justia Law

Posted in: Contracts, ERISA

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The plaintiffs, former employees at Honeywell’s Boyne City, Michigan auto parts plant, were represented by the UAW while working. The collective bargaining agreement (CBA) between that union and Honeywell that became effective in 2011 and expired in 2016 stated: Retirees under age 65 who are covered under the BC/BS Preferred Medical Plan will continue to be covered under the Plan, until age 65, by payment of 16% of the retiree monthly premium costs ... as adjusted year to year,” Article 19.7.4. The plaintiffs took early retirement under the 2011 CBA and received Honeywell-sponsored healthcare, consistent with Article 19.7.4. Other Boyne City employees had retired before the 2011 CBA took effect, but were still eligible for benefits under Article 19.7.4. In 2015, Honeywell notified the UAW and the Boyne City retirees that it planned to terminate retiree medical benefits upon the 2011 CBA’s expiration. The plaintiffs, citing the Labor Management Relations Act, the Employment Retirement Income Security Act, and Michigan common law estoppel, obtained a preliminary injunction. The Sixth Circuit reversed, reasoning that the CBA did not clearly provide an alternative end date to the CBA’s general durational clause, so the plaintiffs have not shown a likelihood of success on the merits. View "Cooper v. Honeywell International, Inc." on Justia Law

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Heimer, one year over the legal drinking age, drank alcohol with friends and then rode motorbikes in a field. Heimer and his friend collided. Heimer suffered extensive injuries, incurring more than $197,333.50 in medical bills. Heimer’s blood alcohol level shortly after the crash was 0.152, nearly twice the limit to legally use an off-road vehicle in Michigan. Heimer was insured. As required by his plan, he submitted a medical claim form shortly after the accident. The plan administrator denied coverage based on an exclusion for “[s]ervices, supplies, care or treatment of any injury or [s]ickness which occurred as a result of a Covered Person’s illegal use of alcohol.” After exhausting administrative appeals, Heimer filed suit. The district court held that the plan exclusion did not encompass Heimer’s injuries, reasoning that there is a difference between the illegal use of alcohol—such as drinking while under 21 or drinking in defiance of a court order—and illegal post-consumption conduct, such as the illegal use of a motor vehicle. The Sixth Circuit affirmed. Reading “illegal use of alcohol” to disclaim coverage only for the illegal consumption of alcohol, and not for illegal post-consumption conduct is consistent with the ordinary meaning of “use” and best gives effect to the contract as a whole. View "Heimer v. Companion Life Insurance Co." on Justia Law

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Palmer’s vacant Detroit apartment complex was covered by a Scottsdale fire insurance policy until November 2012. The property was vandalized in February 2012. Palmer reported the loss in October 2013. Scottsdale replied that it was investigating. In November, Palmer sent Scottsdale an itemized Proof of Loss. Scottsdale paid Palmer $150,000 in June 2014. Michigan law provides that losses under any fire insurance policy shall be paid within 30 days after receipt of proof of loss. Palmer requested an appraisal. Scottsdale agreed, noting the claim remained under investigation. Appraisers concluded that Palmer’s actual-cash-value loss was $1,642,796.76. The policy limit was $1,000,000. Scottsdale tendered checks over a period of several months that paid the balance. Palmer requested penalty interest for late payment. Michigan law states that if benefits are not paid on a timely basis, they bear simple interest from a date 60 days after satisfactory proof of loss was received by the insurer at the rate of 12% per annum. The Sixth Circuit reversed the district court’s conclusion that the penalty-interest claim arose “under the policy” and was barred by the policy’s two-year limitations provision. Palmer did not allege that Scottsdale breached the policy agreement. Scottsdale paid the insured loss and the policy had no time limit for paying a loss, Palmer has no unvindicated rights and no claim “under the policy” to assert. His claim is under the statute. View "Palmer Park Square, LLC v. Scottsdale Ins. Co." on Justia Law

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Hall and Thompson built a significant client base as brokers of equipment rental insurance. They brought some of their clients to a specialty division they formed at Hylant. USI paid a substantial sum for Hylant’s assets and to keep Hall and Thompson on as employees to continue building their client base; Hall and Thompson gave up any ownership interest in their clients and promised that if they were terminated, they would refrain from soliciting those clients for two years. They agreed that USI could assign their employment contracts to a subsequent purchaser. Edgewood bought out USI’s entire equipment rental insurance business. Hall and Thompson could not work out an arrangement with Edgewood, so USI terminated them. They began contacting their old clients and sought a declaratory judgment permitting them to do so. Edgewood obtained a preliminary injunction barring Hall and Thompson from breaching their non-solicitation agreements. The Sixth Circuit remanded for factual findings as to which of Thompson’s clients he recruited and developed solely on his own accord, and which clients Hylant and USI expended their resources in recruiting and developing, with respect to which Edgewood is likely to succeed on the merits. Edgewood has no legitimate interest in barring Thompson from soliciting clients who came to Hylant and USI solely to avail themselves of Thompson’s services and only as a result of his own independent recruitment efforts. View "Hall v. Edgewood Partners Insurance Center, Inc." on Justia Law

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General Motors provides sales incentives to dealers who sell cars to GM employees, retirees, and their family members at a discounted rate. The dealer must collect a signed agreement from the purchaser that establishes his eligibility for the program. In 2014, GM audited one of its Ohio dealers, Sims, and discovered transactions in which Sims had failed to collect the agreement from purchasers within the timeline set by GM in a 2012 dealership bulletin. GM debited Sims’ account $47,493.28 for improper incentive payments. Sims is located near a large GM plant in Lordstown, and the Purchase Program accounts for 80% to 90% of its sales. Sims filed suit alleging breach of contract and violations of the Ohio Dealer Act. The district court granted GM summary judgment. The Sixth Circuit affirmed. The parties’ dealership arrangement permitted the debit and a timely filed Consumer Dealer Agreement constitutes “material documentation” under Section 4517.59(A)(20)(a) of the Ohio Dealer Act. View "Sims Buick-GMC Truck, Inc. v. General Motors, LLC" on Justia Law

Posted in: Business Law, Contracts