UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF
MICHIGAN
SOUTHERN DIVISION
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INDUSTRIAL
MAXIFREIGHT SERVICES, LLC, a Michigan limited liability company, |
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Plaintiff, |
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v. TENNECO AUTOMOTIVE OPERATING COMPANY, INC., aka, WALKER MANUFACTURING COMPANY, a Delaware corporation, |
File No. 4:01‑CV‑30 HON. ROBERT HOLMES BELL |
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Defendant. |
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In accordance with the opinion entered this date,
IT IS HEREBY ORDERED that Defendant Tenneco
Automotive Operating Company, Inc.'s motion for
summary judgment (Docket #
32) is GRANTED.
IT IS FURTHER ORDERED that
JUDGMENT is entered in favor of Defendant Tenneco Automotive
Operating Company, Inc., and this action is DISMISSED in its entirety.
Date: January 28, 2002
ROBERT HOLMES BELL
CHIEF UNITED STATES DISTRICT JUDGE
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF
MICHIGAN
SOUTHERN DIVISION
|
INDUSTRIAL
MAXIFREIGHT SERVICES, LLC, a Michigan limited liability company, |
|
|
Plaintiff, |
|
|
v. TENNECO AUTOMOTIVE OPERATING COMPANY, INC., aka, WALKER MANUFACTURING COMPANY, a Delaware corporation, |
File No. 4:01‑CV‑30 HON. ROBERT HOLMES BELL |
|
Defendant. |
|
OPINION
Plaintiff Industrial
MaxiFreight Services LLC's action for promissory estoppel is before the Court
on Defendant Tenneco Automotive Operating Company, Inc.'s motion for summary
judgment. For the reasons that follow, Defendant's motion for summary judgment
will be granted.
I.
Plaintiff Industrial
MaxiFreight Services is a limited liability company located in Litchfield,
Michigan. Plaintiff is owned by Kathleen Blonde. Both Kathleen Blonde and her
husband, Mark Blonde, are actively involved in the activities of Plaintiff.
Defendant Tenneco Automotive
Operating Company, Inc. ("Tenneco") is an Illinois corporation doing
business in Litchfield, Michigan as Walker Manufacturing Company. James Collins
was the materials manager of the local Tenneco plant.
In 1997 Mark Blonde sold the
farm supply business that he had owned for approximately 20 years. In 1999 the
Blondes decided to start a business to build and lease warehouse space. Mark
Blonde investigated the need for warehouse space in several areas, including
Jonesville, Litchfield and Hillsdale, Michigan. (Blonde dep. at 15). In
February 2000 Mark Blonde began speaking to potential lessees and requested
quotes from a builder, Scott Brand, on several different sizes of buildings.
(Blonde dep. at 17).
On February 9, 2000 and
March 8, 2000, Plaintiff submitted plans for a warehouse to the Litchfield Tax
Incremental Finance Authority ("TIFA"). (Def. Exh. H & K). On
March 13, 2000, Plaintiff filed for a $323,468 bank loan for a 25,000 square
foot warehouse, listing Walker Manufacturing, Hilex, Essex, and Bose as
potential tenants. (Def. Exh. E). On March 17, 2000, Plaintiff accepted Scott Brand's
written proposal for the construction of a warehouse on Lot 14. (Def. Exh. J).
Plaintiff received a warranty deed to Lot 14 of the Litchfield Industrial Park
on March 22, 2000. (Def. Exh. L). Plaintiff filed an application for building
permit and an application for zoning compliance permit on March 29, 2000. (Def.
Exh. P & X). Plaintiff’s builder, Scott Brand, filed a notice of
commencement of construction on April 7, 2000. (Def. Exh. R). On April 21,
2000, Brand submitted a change order for a 20,000 square foot addition to the
existing building. (Def. Exh. Z).
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There is no written
documentation of Plaintiff's discussions with Defendant prior to April 10,
2000. Plaintiff has presented evidence that sometime in February 2000 Jim
Collins advised Mark Blonde that Tenneco would be needing additional warehouse
space in Litchfield. (Blonde dep. at 19). Plaintiff has presented evidence that
Collins advised that he needed at least 30,000 square feet of warehouse space
by summer and perhaps as much as 60,000 square feet. (Blonde dep. at 23‑24).
Plaintiff has presented evidence that Collins committed to leasing all 30,000
square feet for five years before Plaintiff bought the land or appeared at the
first Litchfield TIFA meeting. (Blonde dep at 28). Finally, Plaintiff has
presented evidence that in early March 2000 Collins informed Mr. Blonde that he
would need an additional 20,000 square feet. (Blonde dep. at 161‑62, 169,
201).
On April 10, 2000, the
Blondes met with their attorney, Roy Brandes, to prepare a proposed lease. The
proposed lease was presented to Defendant. (Pl. Exh. 6, Def. Exh. N). On April
19, 2000, the parties met to discuss changes proposed by Defendant. Based upon
the revisions discussed at that meeting Plaintiff presented Defendant with a revised
proposed lease agreement. (Def. Exh. T). Collins forwarded the proposed draft
lease to Tenneco's corporate offices for review. Plaintiff continued building
its warehouse. In mid‑June 2000 Tenneco advised Plaintiff that it had
decided against entering into the lease.
Plaintiff filed this suit in
the Hillsdale County Circuit Court alleging breach of contract and seeking
specific performance and damages. Defendant removed the action to
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federal court on the basis
of diversity of citizenship. Plaintiff filed an amended complaint adding a
claim for promissory estoppel.
Plaintiff sued Tenneco for
specific performance, breach of contract, and promissory estoppel. This Court
previously dismissed Plaintiff's claims for specific performance and breach of
contract pursuant to Rule 12(b)(6) because the unwritten and unsigned proposed
lease agreement at issue failed to comply with the requirements of Michigan's
statute of frauds. Defendant now seeks summary judgment on the promissory
estoppel claim.
II.
Defendant Tenneco contends
that the doctrine of promissory estoppel should not be used to circumvent the
statute of frauds in real property cases.
The Michigan statute of
frauds provides that an agreement that by its terms is not to be performed
within 1 year from the making of the agreement is void unless it is in writing.
M.C.L. § 566.132(1)(a). "Every contract for the leasing for a longer
period than one year . . . shall be void, unless the contract, or some note or
memorandum thereof be in writing." M.C.L. § 566.108. "No estate or
interest in lands, other than leases for a term not exceeding one year . . .
shall be created, granted, assigned, surrendered or declared" unless in
writing. M.C.L. § 566.106.
In Lovely v. Dierkes, 132 Mich. App. 485, 489 (1984), a case involving
an oral promise for three years employment, the Michigan Court of Appeals held
that "where it would be inequitable to apply the statute of frauds,"
the common law claim of promissory
4
estoppel can bar application
of the statute of frauds. Id. at 489.
The Michigan Court of Appeals has recently questioned the continued viability
of Lovely on the basis that
principles of separation of powers preclude a court from overriding the policy
choices of the legislature. Crown
Technology Park v. C&N Bank, FSB, 242 Mich. App. 538, 548 n. 4 (2000).
However, the court ultimately did not decide this issue because the court was
able to dismiss the action on the basis that the statute of frauds with respect
to financial institutions specifically bars "an action" against a
financial institution for promises that are not in writing.
This Court cannot find,
based simply upon the separation of powers dictum in Crown Technology, that the Michigan Supreme Court is prepared to
reject the well‑established principle that promissory estoppel can be
used, in some cases, to circumvent the application of the statute of frauds.
On the other hand, the Court
is of the firm conviction that Michigan courts would apply extra caution where
the doctrine of promissory estoppel is invoked to circumvent the statute of
frauds in the real estate context. Judge Cohn recognized the special need for
writings in real estate matters in Hazime
v. Martin Oil of Indiana, Inc., 792 F. Supp. 1067 (E.D. Mich. 1992):
A survey of Michigan cases
involving doctrine of promissory estoppel reveals that there has never been a
decision that addresses whether it may be applied to a statute of frauds case,
like this one, involving a real estate transaction. Nevertheless, the Court is
satisfied that if the Michigan Supreme Court looked at the issue today, it
would rule that, under the circumstances of this case, the doctrine of
promissory estoppel may not be applied to a statute of frauds case involving
the sale of real estate.
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Id. at 1069.
The particular need for
writings in real estate matters was also recognized by the Sixth Circuit in Seale v. Citizens Savings & Loan Ass'n, 806
F.2d 99 (6th Cir. 1986). The Sixth Circuit held that Ohio's application of
equitable estoppel to avoid the statute of frauds in the employment context did
not mean that the doctrine should be similarly applied in the real estate
context. Id. at 104. The court
reasoned that because real estate transactions are usually more formal, involve
significant sums of money, and have the potential to affect the actions and
interests of third parties, such transactions need a writing. Id.
In D&S Coal Co. v. USX
Corp., 678 F. Supp. 1318 (E.D. Tenn. 1988), the court held that a lessee
could not avail itself of the doctrine of promissory estoppel to circumvent the
statute of frauds defense to an alleged coal lease. The court did not find a
per se rule against application of promissory estoppel to circumvent the
statute of frauds in real estate cases, but instead found no evidence of fraud
that needed to be remedied by promissory estoppel. Id. at 1322‑23. The court noted that the longevity of the
statute of frauds and the fact that similar statutes are found in every state,
indicates that the writing requirement advances important interests,
particularly in the real estate context. Id.
This Court declines
Defendant's request for a per se ruling that promissory estoppel can never be
applied to circumvent the statute of frauds in a real estate case. However, as
demonstrated in the analysis below, the historical importance attached to
writings in real estate cases is not irrelevant to this Court's analysis of
Plaintiff's promissory estoppel claim.
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III.
Defendant contends that even
if the statute of frauds does not bar promissory estoppel, there is no genuine
issue of material fact regarding any element of Plaintiff's promissory estoppel
claim.
Under Rule 56(c) of the
Federal Rules of Civil Procedure, summary judgment is proper if there is no
genuine issue as to any material fact and the moving party is entitled to
judgment as a matter of law. In evaluating a motion for summary judgment the
Court must look beyond the pleadings and assess the proof to determine whether
there is a genuine need for trial. Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). If
Defendant carries its burden of showing there is an absence of evidence to
support a claim then Plaintiff must demonstrate by affidavits, depositions,
answers to interrogatories, and admissions on file, that there is a genuine
issue of material fact for trial. Celotex
Corp. v. Catrett, 477 U.S. 317, 324‑25 (1986).
"On summary judgment,
all reasonable inferences drawn from the evidence must be viewed in the light
most favorable to the parties opposing the motion." Hanover Ins. Co. v. American Engineering Co., 33 F.3d 727, 730 (6th
Cir. 1994) (citing Matsushita, 475
U.S. at 586‑88). Nevertheless, the mere existence of a scintilla of
evidence in support of Plaintiff’s position is not sufficient to create a
genuine issue of material fact. Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). The proper inquiry is
whether the evidence
7
is such that a reasonable
jury could return a verdict for Plaintiff. Id.
See generally, Street v. J.C. Bradford
& Co., 886 F.2d 1472, 1476‑80 (6th Cir. 1989).
IV.
Promissory estoppel is an
equitable remedy that is "employed to alleviate an injustice resulting
from strict adherence to established legal principles, such as those underlying
the statute of frauds." Crest the
Uniform Co. v. Foley, 806 F. Supp. 164, 169 (E.D. Mich. 1992). Promissory
estoppel is based on the idea that a particular promise must be enforced if
injustice is to be avoided. ECCO Ltd. v. Balimoy Mfg. Co., 179 Mich. App.
748, 750, 446 N.W.2d 546, 548 (1989). The elements of a promissory estoppel
claim are:
(1) a promise, (2) that the
promisor should reasonably have expected to induce action of a definite and
substantial character on the part of the promisee, and (3) that in fact
produced reliance or forbearance of that nature in circumstances such that the
promise must be enforced if injustice is to be avoided.
Novak v. Nationwide Mutual Ins. Co., 235 Mich. App 675, 686‑687; 599 NW2d
546 (1999). See also Nygard v. Nygard, 156
Mich. App. 94, 100 (1986).
"The doctrine of
promissory estoppel is cautiously applied." Marrero v. McDonnell Douglas Capital Corp., 200 Mich. App. 438, 442, 505 N.W.2d 275, 278 (1993) (citing State Bank of Standish v. Curry, 190
Mich. App. 616, 621, 476 N.W.2d 635 (1991), reversed
in part on other grounds, 442 Mich. 76, 500 N.W.2d 104 (1993)). A court must "exercise caution in
evaluating an estoppel claim and should apply the doctrine only where the facts
are unquestionable and the wrong to be prevented undoubted." Novak v. Nationwide Mut.
8
Ins. Co., 235 Mich. App. 675, 687, 599 N.W.2d 546, 552 (citing Marrero, 200 Mich. App. at 442‑43).
The first element of a
promissory estoppel claim is a promise. "Promissory estoppel requires an
actual, clear and definite promise." First
Security Savings Bank v. Aitken, 226 Mich. App. 291, 312 (1997) (citing Ypsilanti Twp. v. General Motors Corp., 201
Mich. App. 128, 134 (1993)). According to one court, a promise that is definite
and clear is the "sine qua non" of promissory estoppel. Marrero, 200 Mich. App. at 442.
Defendant contends there is
no evidence that Tenneco made an actual, clear, and definite promise to lease
warehouse space from Plaintiff. No lease was ever signed by either party, and
Defendant has presented evidence that the proposed lease agreement of April 19,
2000, specifically states that it is for 30,000 square feet, not for 50,000
square feet, even though Plaintiff alleges there was an agreement for a 50,000
square foot building as early as February or March 2000. Defendant has
presented unrebutted evidenced that the parties were aware that Tenneco might
require a lease term of three years instead of five years. (Blonde dep. at 42).
Finally, Defendant has presented evidence that several different price terms
were discussed. Defendant contends there was no definite promise regarding
these essential terms. Defendant has also presented evidence that any promise
was conditional because Defendant informed Plaintiff that any lease would have
to be approved by the corporate office.
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Plaintiff has presented
evidence that it had discussions with Collins as early as February and March
2000, first for a 30,000 square foot facility, and later for 50,000 square
feet; that because they had already ordered the 30,000 square foot building,
the proposed lease was written up for 30,000 square feet, with the
understanding that there would be an amended or replacement lease when the
larger building was completed. Plaintiff has presented evidence that Collins
represented that he would sign the lease, that he was satisfied with the terms
of the proposed lease for 30,000 square feet for 60 months at $12,000 per
month, and that he would have signed the lease if corporate had agreed.
(Collins dep. at 23-24). Plaintiff has also presented evidence that Defendant
represented that the approval from the corporate office was in the nature of a
rubber stamp.
The second element of a
promissory estoppel claim is that the promisor should reasonably have expected
to induce action of a definite and substantial character on the part of the
promisee. Defendant contends there is no evidence that Tenneco made promises to
Plaintiff which it reasonably expected would induce Plaintiff to build the
warehouse. Plaintiff has presented evidence that Defendant was aware that
Plaintiff was proceeding to build the warehouse in accordance with Defendant's
specifications.
Based upon the lack of
certainty as to the number of square feet, the length of the lease and the
articulated need for corporate approval, this Court is highly skeptical as to
whether Plaintiff's evidence is sufficient to create a genuine issue of fact on
the first two elements of its promissory estoppel claim. However, this Court
need not make a definitive
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ruling on these first two
elements because it is clear that Plaintiff cannot succeed on the third element
of its claim.
The third element of a
promissory estoppel claim is that the promise in fact produced reliance in
circumstances such that the promise must be enforced if injustice is to be
avoided. Plaintiff has not met this element of its promissory estoppel claim.
There are no special circumstances that require relief from the statute of
frauds in this case.
Although Plaintiff has
presented evidence that it relied on Defendant's promises, there is no basis
for finding that Plaintiff's reliance was reasonable or that the promise must
be enforced to avoid injustice. Plaintiff contends that Collins made repeated
assurances that he had authority to sign the lease and that he would sign it.
The evidence is unrebutted, however, that Defendant told Plaintiff on more than
one occasion that the lease would have to be approved by the corporate office.
(Blonde dep. at 31, 43; Plaintiff's Answers to Interrogatories, Def. Exh. G. at
#88; Brandes dep. at 17‑18).
Defendant has presented
unrebutted evidence that prior to the initial lease discussions on April 10,
2000, Plaintiff had developed plans for a warehouse, contacted a contractor,
presented its plan to the Litchfield Tax Increment Finance Authority, applied
for a loan to build the warehouse listing Tenneco and others as potential
tenants, bought the property, signed
a contract with the builder for construction, ordered building materials,
obtained a building permit, and filed a notice of commencement of construction.
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There is no question of fact
that Plaintiff knew a writing was required to protect its interests. Although
this was Plaintiff's first experience in building and leasing warehouses,
Plaintiff was not unsophisticated in business matters. Mark Blonde had been in
the farm equipment business for many years. The Blondes were familiar with the
need for written contracts. All aspects of the construction of the warehouse
had involved written contracts, including the purchase of the property, the
building contract, and the bank loan. Plaintiff was also represented by counsel
during the lease negotiations.
As noted previously,
Michigan courts apply the doctrine of promissory estoppel cautiously, and only
where the facts are unquestionable and the wrong to be prevented undoubted. Marrero, 200 Mich. App. at 442‑43.
If the doctrine of promissory estoppel is to be applied to circumvent the
statute of frauds, it should be applied only to avoid the perpetration of a
fraud. D&S Coal, 678 F. Supp. at 1323 (citing 73 Am.Jur.2d, Statute of Frauds
§ 562 (1974); see also Anno., Promissory Estoppel as Basis for Avoidance of
Statute of Frauds, 56 A.L.R.3rd 1037 (1974)).
Enforcing the alleged promise to enter into a lease is not necessary to avoid injustice in this case. It is not unjust to require Plaintiff to comply with the statute of frauds. Plaintiff is a business, operated by two long‑time business owners, represented by counsel in lease discussions with unrepresented local plant personnel regarding a warehouse Plaintiff was already building. Plaintiff could have reduced any alleged lease agreement to an enforceable writing in compliance with the statute of frauds. Nothing prevented Plaintiff from requiring
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a lease or letter of intent
prior to proceeding with construction of the warehouse. Moreover, Tenneco
retained no tangible benefit by not leasing from Plaintiff. It appears that the
Blondes made an optimistic, but ultimately unsound decision to proceed with the
construction of the warehouse before they had a firm, written commitment from
Defendant. They were not unfairly
misled by Defendant.
This case is a
prime example of why the statute of frauds is of such importance in real estate
matters. A considerable sum of money is involved. Unique property is involved.
Significant details concerning the lease relationship are involved. Non‑enforcement
of the statute of frauds under the circumstances of this case would render the
statute of frauds meaningless.
Because
Plaintiff has not presented facts from which it can reasonably be found that
Defendant made promises that in fact produced Plaintiff's reliance in
circumstances such that the promise must be enforced if injustice is to be
avoided, Plaintiff's claim for promissory estoppel fails as a matter of law.
Summary judgment will accordingly be entered in favor of Defendant Tenneco.
An
order consistent with the opinion will be entered.
Date: January 28, 2002
ROBERT HOLMES BELL
CHIEF UNITED STATES DISTRICT JUDGE
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