Martin v. AO Smith Corp., No. 1:94-CV-181.

• Court: United States District Courts. 6th Circuit. United States District Court (Western District Michigan)
• Citation: 931 F. Supp. 543
• Decision Date: 01 February 1996
• Parties: Michael and Lavonda MARTIN, Plaintiffs, v. A.O. SMITH CORPORATION and A.O. Smith Harvestore Products, Inc., jointly and severally, Defendants.
• Docket Number: No. 1:94-CV-181.

931 F. Supp. 543

Michael and Lavonda MARTIN, Plaintiffs,
v.
A.O. SMITH CORPORATION and A.O. Smith Harvestore Products, Inc., jointly and severally, Defendants.

No. 1:94-CV-181.

United States District Court, W.D. Michigan, Southern Division.

January 4, 1996.

Opinion Denying Reconsideration February 1, 1996.

931 F. Supp. 544

COPYRIGHT MATERIAL OMITTED

931 F. Supp. 545

John E. Anding, Christopher G. Hastings, Drew, Cooper & Anding, Grand Rapids, MI, for Michael Martin and Lavonda Martin

William J. Brennan, Dykema Gossett PLLC, Grand Rapids, MI, David K. Schmitt, Katten, Muchin & Zavis, Chicago, IL, for A.O. Smith Corporation.

William J. Brennan, Dykema Gossett PLLC, Grand Rapids, MI, John M. Sheran, Leonard, Street and Deinard, Minneapolis, MN, for A.O. Smith Harvestore Products, Inc.

OPINION OF THE COURT

McKEAGUE, District Judge.

This case presents fraud claims under Michigan law and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. Now before the Court is defendants' motion for summary judgment, challenging all of plaintiffs' claims.

I

Plaintiffs Michael and Lavonda Martin are husband and wife. At all pertinent times, they were dairy farmers in Kent County, Michigan. Defendants A.O. Smith Corporation and A.O. Smith Harvestore Products, Inc., are Delaware corporations, the latter being the wholly-owned subsidiary of the former. They manufacture and sell farm equipment and machinery; in particular, the Harvestore feed storage system. Defendants allegedly represented that the Harvestore system was "oxygen-limiting," and would better preserve feed quality and improve herd health. These representations were communicated to the Martins by sales-person contacts, in person and by telephone, and through mailed literature and materials. Plaintiffs allege defendants knew these representations were false when made.

Plaintiffs used Harvestore silos in their farming operations during the 1980's and until 1993, when they discontinued dairy farming. Plaintiffs allege they relied on defendants' knowing misrepresentations about the "oxygen-limiting" capability of the Harvestore system: (1) in their use of Harvestore silos on the farm they leased from Lavonda Martin's father, Irvin Rodgers; (2) in expanding one of the existing Harvestore silos in 1989; and (3) in leasing an additional Harvestore system in 1989. The Harvestore systems allegedly failed to perform as represented and allowed plaintiffs'

931 F. Supp. 546

feed to become exposed to oxygen, causing feed spoilage and nutritional deficits in plaintiffs' herd. As a proximate result, plaintiffs allege they experienced depressed milk production, breeding problems, a less fit dairy herd and related economic damages

In counts I, II and III of their complaint, plaintiffs assert state law tort claims for fraud and conspiracy to commit fraud against both defendants. Count IV contains the RICO claim, asserting that defendants' use of the mails and interstate telephone lines to execute and further their fraudulent representations constitutes a "pattern of racketeering activity," entitling plaintiffs to treble damages and attorneys' fees.

For purposes of their motion for summary judgment, defendants concede that "(1) defendants knowingly misrepresented the oxygen-limiting capabilities of the Harvestore silos, and (2) plaintiffs suffered lost profits including diminished milk production and damages to the herd as a result." Nonetheless, defendants contend they are entitled to judgment as a matter of law because plaintiffs' tort claims are barred by the "economic loss doctrine" and because plaintiffs are unable to demonstrate that defendants' "racketeering activity" proximately caused their losses.

II

Defendants' motion for summary judgment requires the Court to look beyond the pleadings and evaluate the facts to determine whether there is a genuine issue of material fact that warrants a trial. Fed. R.Civ.P. 56(c). See generally Barnhart v. Pickrel, Schaeffer & Ebeling Co., 12 F.3d 1382, 1388-89 (6th Cir.1993). That is, the Court must determine "whether the evidence presents sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2511-12, 91 L.Ed.2d 202 (1986). The Court must consider all pleadings, depositions, affidavits, and admissions on file, and draw all justifiable inferences in favor of the party opposing the motion. Matsushita Elec. Ind. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

Once the moving party identifies elements of a claim or defense which it believes are not supported by evidence, the nonmovant must present affirmative evidence tending to show a genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 324-25, 106 S.Ct. 2548, 2553-54, 91 L.Ed.2d 265 (1986). An issue of fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmovant. Anderson, supra, 477 U.S. at 248, 106 S.Ct. at 2510. Production of a "mere scintilla of evidence" in support of an essential element will not forestall summary judgment. Anderson, 477 U.S. at 252, 106 S.Ct. at 2512. The nonmovant must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, supra, 475 U.S. at 586, 106 S.Ct. at 1355-56.

The substantive law identifies which facts are "material." Facts are material only if establishment thereof might affect the outcome of the lawsuit under governing substantive law. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510. A complete failure of proof concerning an essential element necessarily renders all other facts immaterial. Celotex, supra, 477 U.S. at 322-23, 106 S.Ct. at 2552-53.

III

In Neibarger v. Universal Cooperatives, Inc., 439 Mich. 512, 527-28, 486 N.W.2d 612 (1992), the Michigan Supreme Court expressly adopted the "economic loss doctrine," providing that where a plaintiff seeks to recover for economic loss caused by a defective product purchased for commercial purposes, the exclusive remedy is in contract as provided in the Uniform Commercial Code. That is, under such circumstances, tort remedies are generally not available.

Plaintiffs undisputedly seek recovery of economic loss caused by defective silos purchased or leased for commercial purposes. Therefore, defendants contend their tort claims are barred. Plaintiffs contend, notwithstanding the broad language of Neibarger, that the economic loss doctrine should not be construed so broadly as to preclude intentional tort claims like fraud.

931 F. Supp. 547

Plaintiffs' argument has logical appeal, but their position remains without support in the published case law. In the interest of maintaining predictability in commercial transactions, the courts have been reluctant to recognize exceptions to the general rule of Neibarger.

In Huron Tool & Engineering Co. v. Precision Consulting Services, Inc., 209 Mich.App. 365, 532 N.W.2d 541 (1995), the Michigan Court of Appeals recognized an exception for a claim of fraud in the inducement or fraud extraneous to the contract. The exception applies only where the alleged misrepresentations do not concern the quality or character of the goods that are the subject of the parties' contractual agreement. Id., at 373, 532 N.W.2d 541. Here, all of the alleged misrepresentations concern the quality or character of the Harvestore silos and could freely have been made part of the parties' contract negotiations. The present allegations do not make out claims for fraud in the inducement as the term is defined in Huron Tool.

Similarly unavailing is plaintiffs reliance on Theuerkauf v. United Vaccines, 821 F.Supp. 1238, 1242, n. 1 (W.D.Mich.1992), and Roehm v. Charter Mobile Home Moving Co., 907 F.Supp. 1110, 1114 n. 1 (W.D.Mich.1993). In both cases, which predate Huron Tool, the Honorable Gordon J. Quist observed in dicta that claims for fraud in the inducement may avoid the bar of the economic loss doctrine. In both cases, Judge Quist relied on Williams Electric Co., Inc. v. Honeywell, Inc., 772 F.Supp. 1225 (N.D.Fla.1991), and thereby identified fraud in the inducement as pre-contractual misrepresentations concerning matters extraneous to the contract whereby the plaintiff was tricked into contracting.¹ Here, the alleged misrepresentations were intrinsic to the quality and performance of the Harvestore silos and did not concern extraneous matters. They do not make out claims for fraud in the inducement as the term is defined in Theuerkauf or Roehm.

In Begola Services, Inc. v. Wild Brothers, 210 Mich.App. 636, 639-40, 534 N.W.2d 217 (1995), yet another definition was employed. "Fraud in the inducement occurs where a party materially misrepresents future conduct under circumstances in which the assertions may reasonably be expected to be relied upon and are relied upon." This definition does not help plaintiffs, inasmuch as defendants' misrepresentations concerned the existing qualities and capabilities of the Harvestore system, not future conduct.

The Court thus concludes that plaintiffs have failed both to allege and adduce facts in support of the fraud in the inducement exception. This conclusion is consistent with the Honorable Benjamin F. Gibson's recent partial summary judgment ruling in Valleyside Dairy Farms, Inc. v. A.O. Smith Corp., W.D.Mich. No. 1:94-CV-53, opinion dated October 26, 1995, finding the fraud...