e-Journal Summary

e-Journal Number : 63154
Opinion Date : 07/14/2016
e-Journal Date : 07/18/2016
Court : Michigan Supreme Court
Case Name : Innovation Ventures, LLC v. Liquid Mfg., LLC
Practice Area(s) : Contracts
Judge(s) : McCormack, Young, Jr., Markman, Zahra, Viviano, Bernstein, and Larsen
Full Text Opinion
Issues:

Whether contracts were void for failure of consideration; General Motors Corp. v. Department of Treasury; McCarty v. Mercury Metalcraft Co.; Kunzie v. Nibbelink; Rosenthal v. Triangle Dev. Co.; Abbate v. Shelden Land Co.; Determining the reasonableness of noncompete provisions in contracts between business entities; Inapplicability of MCL 445.774a (framework for evaluating noncompete agreements between employers & employees); The Michigan Antitrust Reform Act (MCL 445.771 et seq.); MCL 445.772; Staebler-Kempf Oil Co. v. Mac’s Auto Mart, Inc.; MCL 445.784(2); The rule of reason; Perceptron, Inc. v. Sensor Adaptive Machs., Inc. (6th Cir.); County Materials Corp. v. Allan Block Corp. (7th Cir.); State Oil Co. v. Khan; Board of Trade of City of Chicago v. United States; Abandoning a claim by failing to present an argument; Wilson v. Taylor; The Equipment Manufacturing & Installation Agreement (EMI); Nondisclosure Agreement (NA); Termination Agreement (TA)

Summary

The court held that the parties’ EMI and NA were not void for failure of consideration. It also held that commercial noncompete agreements such as those at issue are to be evaluated under the rule of reason. The case involved breach of contract and tort claims arising from the defendants’ production of energy drinks. The trial court did not make any findings as to a failure of consideration – it held that no valid consideration supported the EMI and NA. The court disagreed, holding that both contracts were supported by sufficient consideration. The Court of Appeals found that the contracts were unenforceable due to failure of consideration. The court again disagreed, concluding that the parties exercised their rights in accordance with the contracts. The EMI contemplated termination of the contract “with 14 days’ notice, at any time, without cause. A party seeking to void a contract on the basis of an event anticipated by the contract cannot claim failure of consideration.” Thus, the court reversed the Court of Appeals’ ruling that the contracts were void for failure of consideration. It also held that the Court of Appeals applied the wrong standard in determining whether the noncompete provision in the parties’ TA was unreasonable. The lower court erred in applying the MCL 445.774a standard applicable to noncompete agreements between employers and employees. The court held that it should have applied the rule of reason. Concluding that there was no genuine issue of material fact as to whether defendants-Krause and K & L Development breached the EMI, or that Krause breached the NA, the court affirmed the trial court’s grant of summary disposition to the defendants on those claims. It left undisturbed the Court of Appeals’ ruling that defendant-Liquid Manufacturing did not breach the TA by producing one of the energy drinks (Eternal Energy). However, it remanded the remaining claims to the trial court to determine whether the noncompete provisions in the NA and TA were reasonable under the proper standard, whether K & L Development breached the NA, and whether Liquid Manufacturing violated the TA by producing energy drinks other than Eternal Energy.

Full Text Opinion