Ram International, Inc. v. ADT Security Services, Inc., 020414 FED6, 12-2023

Docket Nº:12-2023
Opinion Judge:COLE, Circuit Judge.
Judge Panel:BEFORE: COLE, KETHLEDGE and STRANCH, Circuit Judges STRANCH, Circuit Judge, dissenting.
Case Date:February 04, 2014
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit




No. 12-2023

United States Court of Appeals, Sixth Circuit

February 4, 2014





COLE, Circuit Judge.

Plaintiffs-Appellants Ram International, Inc. and Narendar Agarwal ("Ram") appeal the district court's order dismissing their complaint against Defendant-Appellee ADT Security Services, Inc. alleging negligence, fraud, and false advertising. Additionally, Ram appeals the court's determination that a limitation-of-liability clause contained in its sales agreement with ADT caps Ram's damages for breach of contract. For the reasons stated below, we affirm.


A. Factual Background

Ram owns and operates a jewelry and collectibles store in Michigan. On July 11, 2008, Ram entered into an agreement with ADT by which ADT would provide Ram with certain security services in exchange for a one-time fee and an annual service fee. Among other services specified in the contract, ADT agreed to provide a "Central Station Signal Receiving and Notification Service." The agreement explained, "in the event an alarm signal registers at ADT's Central Station, ADT shall endeavor to notify the appropriate Police or Fire Department and the designated representative of the Customer." The contract also listed particular components to be installed and services to be provided, including equipment compatible with a "line security" system and a note indicating that ADT would "Upgrade UL Certificate to Include Line Security." As Ram's complaint indicates, "line security" is a feature allowing a security system to detect an intruder's attempt to disable the system by, for example, cutting the customer's telephone wires. The agreement contained a number of limiting clauses, including one pertaining to ADT's liability in case of loss:

The customer does not desire this contract to provide for full liability of ADT and agrees that ADT shall be exempt from liability for loss, damage, or injury due directly or indirectly to occurrences, or consequences therefrom, which the service or system is designed to detect or avert, that if ADT should be found liable for loss, damage, or injury due to a failure of service or equipment in any respect, its liability shall be limited to a sum equal to 10% of the annual service charge or $1, 000, whichever is greater, as the agreed upon damages and not as a penalty, as the exclusive remedy . . . .

The agreement also included a merger or integration clause:

This agreement constitutes the entire agreement between the customer and ADT. In executing this agreement, customer is not relying on any advice or advertisement of ADT. Customer agrees that any representation, promise, condition, inducement or warranty, express or implied, not included in writing in this agreement shall not be binding upon any party . . . .

In addition to the agreement, ADT provided Ram with a separate document, a "UL [Underwriters Laboratories] Certificate, " certifying that ADT is "qualified to use the UL Listing Mark in connection with its certificated Alarm System" and that the system "has been installed and will be maintained in compliance with requirements established by UL."

On July 14, 2010, shortly after midnight, plaintiffs' store was burglarized. Security camera footage showed three masked individuals ransacking the store. Although a store employee had activated the alarm while closing up earlier that evening, ADT did not inform Agarwal or any other party of the burglary, nor did ADT itself respond. The burglary was not discovered until several hours later, when an employee opened the store for business in the morning. Upon investigating, police found that the phone lines had been cut on the exterior of the building. About one million dollars worth of merchandise had been stolen.

Two months after the burglary, on September 15 and 16, 2010, Agarwal received three calls from ADT pertaining to erroneous signals that had been sent from the store to ADT's system. An ADT representative informed Agarwal that the alarm system was "coded wrong" and then fixed the problem. At that point, Agarwal asked ADT to send him its data logs. ADT did so, but did not send logs pertaining to the night of the burglary. ADT did, however, issue two "service tickets" dated July 14, 2010 and July 17, 2010. These documents recorded the presence of alarm signals and/or communication failures, indicative of an "alarm condition" or a break-in, shortly after midnight on July 14, 2010, the night of the burglary.

B. Procedural History

Plaintiffs filed suit in the Sixth Judicial Circuit Court of Oakland County, Michigan alleging negligence, fraudulent misrepresentation, false advertising, and breach of contract. Defendant ADT removed the case to the United States Court for the Eastern District of Michigan. ADT moved for judgment on the pleadings, and the parties then stipulated to Ram's request to amend its complaint.

Ram's amended complaint alleged that ADT had committed negligence or gross negligence by installing a poorly designed alarm system, by failing to install the line security feature, and by failing to protect the store or alert police on the night of the burglary; had breached the UL Certificate by failing to install and maintain equipment in compliance with UL standards; and had engaged in fraud, fraudulent misrepresentation, and false advertising in its statements pertaining to the reliability and operation of its alarm system. ADT moved to dismiss on the basis of plaintiffs' failure to state a claim.

Following a hearing, the district court issued an order dismissing all of Ram's claims except its breach of contract claim per Rule 12(b)(6). However, the court held that the Agreement's liquidated damages clause would limit Ram's damages to $1, 000. Additionally, although Ram brought claims for the breach of two distinct contracts—first, the sales agreement between Ram and ADT, and second, the UL Certificate certifying that Ram's security system complied with UL standards—the district court held that the parties had entered into only one contract, as the subsequent document did not impose any new obligations on the parties. Ram did not appeal this particular finding.

The parties entered into a final stipulation to dismiss on July 12, 2012, pursuant to Raceway Properties, Inc. v. Emprise Corp., 613 F.2d 656, 657 (6th Cir. 1980) (per curiam) (holding appealable a case dismissed "in effect" by the district court's order). The plaintiffs filed a notice of appeal on August 6, 2012. This Court has jurisdiction under 18 U.S.C. § 1291.


A. Standard of Review

This Court reviews de novo a district court's dismissal of a plaintiff's complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). See, e.g., Kottmyer v. Maas, 436 F.3d 684, 688 (6th Cir. 2006). This Court will dismiss the complaint only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Id. (quotation omitted). While we must "accept as true all the allegations contained in the complaint and construe the complaint liberally in favor of the plaintiff, " we are not required to "accept as true legal conclusions or unwarranted factual inferences." Id. A complaint must allege facts that "raise a right to relief above the speculative level" such that the plaintiff's claim is "plausible on its face." Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)).

Since this Court has jurisdiction due only to the diversity of the parties, we apply the substantive law of Michigan, the forum state, and the procedural rules of the federal courts. Rupert v. Daggett, 695 F.3d 417, 423 (6th Cir. 2012). Additionally, because the contract between the parties contains no choice of law provision, Michigan law controls, as Michigan is the "place of contracting, performance, and subject matter of the contract." Spengler v. ADT Sec. Servs, Inc., 505 F.3d 456 (6th Cir. 2007).

B. Negligence

Under Michigan law, a defendant acting pursuant to a contract is liable in tort only if he or she "owed a duty to the plaintiff that is separate and distinct from the defendant's contractual obligations." Fultz v. Union-Commerce Assocs., 683 N.W.2d 587, 592 (Mich. 2004); see also Hill v. Sears, Robuck and Co., 822 N.W.2d 190, 202 (Mich. 2012); Hart v. Ludwig, 79 N.W.2d 895, 898 (Mich. 1956) (tort action can be brought when "a situation of peril has been created, with respect to which a tort action would lie without having recourse to the contract itself"). When the parties have contracted directly, such a duty may arise if one party's conduct "creates a new hazard" resulting from something more than non-performance. See Fultz, 683 N.W.2d at 592–93; see also Hill, 822 N.W.2d at 202. Some older cases draw a distinction between nonfeasance and misfeasance, finding only the latter to be actionable in tort, but this approach has largely been supplanted by the "separate and distinct" and "new hazard" standards. See Fultz, 683 N.W.2d at 592 ("[T]he former misfeasance/nonfeasance inquiry . . . is defective because it improperly focuses on whether a duty was breached instead of whether a duty exists at all.").

Under Michigan law, ADT did not owe Ram a statutory or common-law duty to detect the burglary or dispatch police. See Spengler, 505 F.3d at 458 (holding that ADT's failure to dispatch EMS to correct address was not actionable in tort); see also Hill, 822 N.W.2d at 196 (no common law duty to aid or protect another)....

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