Chrysler Corp. v. Skyline Indus. Services, Inc.

• Decision Date: 07 March 1995
• Docket Number: Docket No. 97396,No. 5,5
• Citation: 448 Mich. 113,528 N.W.2d 698
• Parties: CHRYSLER CORPORATION, a Delaware Corporation, Plaintiff/Appellant, v. SKYLINE INDUSTRIAL SERVICES, INC., a Michigan Corporation, Citizens Insurance Company, Insurance Marketing Systems, Inc., and Matthew E. Williams, Defendants/Appellees. Calendar
• Court: Michigan Supreme Court

Page 698

528 N.W.2d 698

448 Mich. 113

CHRYSLER CORPORATION, a Delaware Corporation, Plaintiff/Appellant, v. SKYLINE INDUSTRIAL SERVICES, INC., a Michigan Corporation Citizens Insurance Company, Insurance Marketing Systems, Inc., and Matthew E. Williams Defendants/Appellees.

Docket No. 97396.

Calendar No. 5.

Supreme Court of Michigan.

Argued Dec. 7, 1994.

Decided March 7, 1995.

Feikens, Vander Male, Stevens, Bellamy & Gilchrist, P.C. by Roger L. Wolcott, Detroit, for appellant

Loesch and Ball by Patrick D. Ball, Troy, for defendant, Skyline Indus. Services, Inc.--appellee.

OPINION

LEVIN, Justice.

The question presented concerns a conflict of Illinois and Michigan law.

Plaintiff Chrysler Corporation and defendant Skyline Industrial Services, Inc., entered into a contract for construction services to be performed by Skyline in Illinois. The contract provided that Skyline would indemnify and hold Chrysler harmless from Chrysler's negligence. Such an indemnification provision in a construction contract is void under an Illinois statute, ¹ but valid under a Michigan statute unless the indemnitee is solely negligent. ²

Chrysler and Skyline have significant Michigan contacts, and the contract contained an indemnification provision referring to the Michigan statute. ³

The circuit judge granted Chrysler's motion for summary disposition on the issue of indemnification, holding that Michigan law was applicable. The Court of Appeals reversed relying on 1 Restatement Conflict of Laws, 2d, §§ 187, 188, pp. 561-575, holding that Illinois law was applicable, and that the disputed clause was unenforceable because it violated Illinois law.

Although the Court of Appeals was correct in considering the Restatement approach, we conclude, on the facts of this case, that it erred in applying Illinois law. Michigan law applies, and the indemnification clause is valid.

I

Chrysler is a Delaware corporation with its principal place of business in Michigan. Skyline is a Michigan corporation.

In the spring, 1986, Chrysler contracted with Skyline, in Michigan, to paint and renovate Chrysler's Belvidere Assembly Plant in Illinois. The negotiations for this contract mainly occurred in Michigan. The contract contained a reference to Chrysler's purchase order general terms and conditions, which included indemnification. ⁴ Subsequently, in 1987, the purchase order general terms were amended to specify the law of Michigan as governing. ⁵

On June 17, 1986, a Skyline employee, Richard Pfaff, was injured while working at the Belvidere plant. ⁶ Chrysler commenced this action in Wayne Circuit Court, alleging breach of contract and seeking a declaratory judgment. Both Chrysler and Skyline moved for summary disposition on the indemnification issue. ⁷ The circuit court denied Skyline's motion and granted Chrysler's motion. ⁸ The circuit court adopted Chrysler's argument that the place of performance of the indemnification was Michigan, although the contract was for services to be performed in Illinois. The circuit court found that the place of contracting was Michigan and that applying Michigan law, referred to in the indemnification clause, would best give effect to the parties' intentions at the time of contracting. ⁹

The Court of Appeals reversed. ¹⁰ The Court accepted, arguendo, the circuit court's conclusion that Michigan law applied. ¹¹ Relying on a footnote in Hardy v. Monsanto Enviro-Chem Systems, Inc, ¹² adverting to 1 Restatement Conflict of Laws, 2d, § 187, ¹³ the Court of Appeals analyzed the choice-of-law question under § 187 and 1 Restatement Conflict of Laws, 2d, § 188. ¹⁴ The Court concluded that, although the place of contracting was Michigan, the place of performance and the location of the subject matter of the contract--Pfaff's action commenced in Illinois--was Illinois. ¹⁵ The Court observed that comment c to § 188, p. 578, indicates that the place where the contract was to be performed had the more significant interest in enforcing a statute designed to regulate or deter specific business practices. ¹⁶ The Court concluded that the Illinois statute should apply, and the indemnification clause was void. ¹⁷

II

The Court of Appeals engaged in an extensive analysis of the conflict of laws issue. The question whether to adopt the Restatement approach to resolve conflict of laws issues was not squarely presented in Hardy. ¹⁸ In footnote 60, Justice Moody cited § 187, and a series of older Michigan cases analyzing choice-of-law provisions, in support of the view that when the parties have agreed to an explicit choice of law, that choice will be respected unless there are compelling reasons for not doing so.

The predominant view in Michigan has been that a contract is to be construed according to the law of the place where the contract was entered into. ¹⁹ The trend nationally, however, has been to adopt the Restatement approach emphasizing the law of the place having the most significant relation with the matter in dispute. ²⁰ Thus,

[A]lthough affording less certainty and predictability than rigid general rules traditionally followed by the courts, [this approach] has merit in giving to the place having the most interest in the problem paramount control over the legal issues, thus allowing the forum to apply the policy of the jurisdiction most intimately concerned with the outcome of the litigation, and in enabling the court, not only to reflect the relative interests of the several jurisdictions involved, but also to give effect to the probable intention of the parties and consideration to the best practical result. [16 Am.Jur.2d, Conflict of Laws, § 83, p. 141.]

The trend in this Court has been to move away from traditional choice-of-law conceptions toward a more policy-centered approach. ²¹ In Sexton v. Ryder Truck Rental, 413 Mich. 406, 320 N.W.2d 843 (1982), this Court abandoned the traditional lex loci doctrine for resolving conflicts between the tort laws of different states, overruling Abendschein v. Farrell, 382 Mich. 510, 170 N.W.2d 137 (1969). ²² Justice Williams, writing for a plurality of justices, observed that the lex loci approach had not been consistently applied and had lost the power of consistency that had been its hallmark. ²³ Adopting a lex fori approach in its stead, Justice Williams said:

As a consequence of these premises, in the normal common-law tradition, we hold that where Michigan residents or corporations doing business in Michigan are involved in accidents in another state and appear as plaintiffs and defendants in Michigan courts, the courts will apply the lex fori, not the lex loci delicti, and we do so without reference to any particular state policy. We reach this conclusion on the facts and reasoning herein developed. We do not here adopt the law of dominant contacts or any other particular methodology, although any such reasoning may, of course, be argued where persuasive and appropriate. [Id. 413 Mich. at 433, 320 N.W.2d 843.]

Among the reasons for applying lex fori, Justice Williams noted that "the forum state generally has an interest in seeing that its injured citizens are well-served and that its citizen defendants are afforded every protection that such citizens would have in their own state." ²⁴

In Olmstead v. Anderson, ²⁵ Sexton was reaffirmed, and the choice of lex fori was expanded in a case in which a Michigan resident was a defendant in a tort action in Michigan. ²⁶

The resolution of the conflicts presented in Sexton and Olmstead does not mandate that we endorse one particular analytical method over another for resolving contract law conflicts. ²⁷ Underlying the holdings in Sexton and Olmstead was the view that resolving conflicts questions requires moving beyond traditional rules. Much as lex loci delicti had proven too inflexible for resolution of tort conflicts, the rigid "law of the place of contracting" approach has become outmoded in resolving contract conflicts. Rather, §§ 187 and 188 of the Second Restatement, with their emphasis on examining the relevant contacts and policies of the interested states, provide a sound basis for moving beyond formalism to an approach more in line with modern-day contracting realities. ²⁸

In the instant case, there is an explicit reference to the Michigan statute in the indemnification clause. Our concern is to balance the expectations of the parties with the interests of Michigan and Illinois. As the comments to § 187 of the Second Restatement state, "Prime objectives of contract law are to protect the justified expectations of the parties and to make it possible for them to foretell with accuracy what will be their rights and liabilities under the contract." ²⁹ But, "[f]ulfillment of the parties' expectations is not the only value in contract law; regard must also be had for state interests and for state regulation." ³⁰

Were we to be faced with a different factual scenario, the relative balance of these concerns might be different. We cannot foresee other factual scenarios that might appear before a court. It is sufficient to say that the concerns for certainty and public policy expressed in the Second Restatement reflect sound considerations that may guide a court in resolving specific conflicts between the contract laws of different states.

III

In voiding the indemnification clause choosing Michigan law, the Court of Appeals considered the policies expressed in the Second Restatement, §§ 187 and 188. While the Court correctly concluded that Illinois has a significant interest in this controversy and that Illinois public policy would most likely prevent indemnification, the Court gave insufficient weight to the effective choice of law made by the contracting parties and downplayed the significance of Michigan's interest in applying its own law to this dispute. The Court also should have engaged in an analysis of the purposes of the Illinois and Michigan statutes before concluding that public policy barred...