Auburn Sales, Inc. v. Cypros Trading & Shipping, Inc.
Auburn Sales, Inc. v. Cypros Trading & Shipping, Inc.
Opinion
This dispute arises from Auburn Sales, Inc.'s role as a middleman selling Chrysler automotive parts. Auburn Sales would buy Chrysler parts and then resell those parts to Cypros Trading & Shipping, Inc., who would then sell those parts to customers in the Middle East. This business arrangement, however, came to an end when the FBI raided Cypros' warehouse and charged its president, Fadi Kilani, with trafficking in counterfeit goods. Unbeknownst to Auburn Sales, Kilani had been obtaining counterfeit parts, mixing them with the legitimate Chrysler parts received from Auburn Sales, and then selling the comingled parts to customers.
After the fallout, Auburn Sales brought tortious interference claims and a breach of contract claim against Cypros that the district court dismissed on summary judgment. The district court identified two undisputed facts that are fatal to Auburn Sales' claims: (1) Cypros did not specifically intend to interfere with Auburn Sales' relationship with Chrysler, and (2) Cypros and Auburn Sales did not have a written contract. Because we conclude that Michigan tortious interference law requires the specific intent to interfere with a business relationship, and that the Michigan statute of frauds applies here, we AFFIRM.
I.
Auburn Sales bought automotive parts from Chrysler, and then resold them to Cypros. 1 Cypros then resold the Chrysler parts to customers in the Middle East. The supply chain worked as follows: (1) Automotive Aftermarket Resources, LLC ("AAR") obtained Chrysler parts, (2) that Auburn Sales purchased at a markup, then (3) Cypros would pay an additional premium for the parts from Auburn Sales. Despite this "three-level" system, neither AAR nor Auburn Sales ever took possession of the parts. Instead, Auburn acted as a middleman-getting paid roughly three *714 percent to ensure that Chrysler "drop shipped" the parts directly to Cypros.
This was a successful business model. Auburn Sales' gross sales grew from $1 million in 2010 to more than $3.5 million in 2012. Importantly, this entire business relationship was created only through oral agreements between Chrysler, AAR, Auburn Sales, and Cypros. There was "nothing in writing" between the parties. (Rigby Dep., R. 107-5 at 55.) No partnership agreement; no written contracts.
Instead, Auburn Sales would typically provide Cypros a spreadsheet with quotes for various parts-which would change from time to time. Then, when Cypros required certain parts, it would send Auburn Sales a purchase order based on the spreadsheet pricing. As Auburn Sales described the arrangement, Cypros "would order parts based on [its] requirements." ( Id. at 128.) But if Cypros was not happy with a certain price, it did not have an obligation to buy the parts. And if Cypros wanted to end the business relationship altogether, it was free to do so. Nevertheless, from 2010 through early 2013, the parties successfully worked together.
Everything changed in February 2013. Without Auburn Sales' knowledge, Cypros had been counterfeiting automotive parts. Cypros would obtain counterfeit parts, mix them with the legitimate Chrysler parts received from Auburn Sales, and then sell the comingled parts to customers. Cypros accomplished this by placing fake Chrysler labels on parts. The FBI caught wind of the scheme and raided Cypros' New Jersey warehouse on February 19, 2013. Shortly thereafter, Cypros' president, Fadi Kilani, pled guilty to
When Chrysler learned of Cypros' counterfeiting, it terminated the supply chain between AAR, Auburn Sales, and Cypros. It remains disputed whether, after the FBI raid, Auburn Sales could have obtained Chrysler parts for other potential customers, if any existed. Regardless, Cypros' counterfeiting, along with the end of the "three-level" supply chain between Chrysler and Cypros, put Auburn Sales out of business for good. 2
In response, Auburn Sales filed this lawsuit against Cypros, bringing claims under Michigan law for tortious interference with a business relationship, tortious interference with a prospective economic advantage, breach of contract, and negligence. The district court dismissed the negligence claim at the pleadings stage. Auburn Sales does not appeal that decision. Then, after the parties completed discovery, Auburn Sales and Cypros filed cross-motions for summary judgment on the remaining tortious interference claims and breach of contract claim (along with Cypros' counterclaims; not at issue here).
The district court granted summary judgment in favor of Cypros and dismissed Auburn Sales' remaining claims. Regarding the tortious interference claims, the district court explained that Auburn Sales "failed to demonstrate that Defendants sold counterfeit automobile parts for the purpose of causing Chrysler to refuse to sell parts to AAR [and Auburn Sales]." (Op. & Order Granting Summ. J., R. 123 at 8.) For the breach of contract claim, the district court determined that the Michigan statute of frauds, found at
II.
Summary judgment comes down to two questions. First, whether Michigan law requires the specific intent to interfere with a business relationship to support a tortious interference claim-even where the act alleged was wrongful in itself. And second, whether the Michigan statute of frauds invalidates the oral agreement between the parties. The district court answered both questions in the affirmative. We now review this decision de novo.
United Rentals (N. Am.), Inc. v. Keizer
,
In this diversity action, we apply Michigan tort and contract law.
Maldonado v. Nat'l Acme Co.
,
A.
Under Michigan law, a tortious interference claim "requires proof of (1) a valid business relationship or expectancy; (2) knowledge of that relationship or expectancy on the part of the defendant; (3) an intentional interference by the defendant inducing or causing a breach or termination of that relationship; and (4) resulting damage to the plaintiff."
Warrior Sports, Inc. v. Nat'l Collegiate Athletic Ass'n
,
We have recognized that "[t]he third element requires more than just purposeful or knowing behavior on the part of the defendant."
Wausau Underwriters Ins. Co. v. Vulcan Dev., Inc.
,
*716
This creates two distinct requirements before Auburn Sales can satisfy the third element: an
intentional
interference and an
improper
interference.
Formall, Inc.
,
First, "intentional" interference means that the defendant's purpose or desire is to cause an interference with a contract or business relationship.
Knight Enters. v. RPF Oil Co.
,
Second, "improper" interference means conduct that is either "(1) wrongful
per se
; or (2) lawful, but done with malice and unjustified in law."
Warrior Sports, Inc.
,
The Michigan Supreme Court recognizes the difference between
intentional
interference and
improper
interference-through the adoption of Michigan's Model Civil Jury Instructions.
See, e.g.
, Mich. M. Civ. JI 126.01 (d)-(e). Before a jury can find a defendant liable for tortious interference, the jury must find that the defendant both (1) "intentionally interfered with the business relationship or expectancy," and (2) "improperly interfered with the business relationship or expectancy."
To be sure, at least under the Restatement, there is interplay between "intentional" interference and "improper" interference. This is especially true when considering the defendant's motive, which can potentially overlap the two requirements:
The relation of the factor of motive to that of the nature of the actor's conduct is an illustration of the interplay between factors in reaching a determination of whether the actor's conduct was improper. If the conduct is independently wrongful-as, for example, if it is illegal because it is in restraint of trade or if it is tortious toward the third person whose conduct is influenced-the desire to interfere with the other's contractual relations may be less essential to a holding that the interference is improper. On the other hand, if the means used by the actor are innocent or less blameworthy, the desire to accomplish the interference may be more essential to a holding that the interference is improper.
Restatement (Second) of Torts § 767 cmt. d (1979). In other words, as the improper conduct becomes more egregious, the plaintiff's burden to demonstrate the defendant's intent to interfere may inversely lessen. This ultimately depends on the knowledge of the defendant.
*718
For example, "if there is no desire at all to accomplish the interference and it is brought about only as a necessary consequence of the conduct of the actor engaged in for an entirely different purpose, his knowledge of this makes the interference intentional."
Here, however, Auburn Sales does not raise this issue. Nor does Auburn Sales argue that Cypros knew, or was substantially certain, that Chrysler would terminate its relationship with Auburn Sales because it was counterfeiting.
5
Auburn Sales thus forfeited these arguments.
See
Bickel v. Korean Air Lines Co.
,
B.
Under Michigan's equivalent of the Uniform Commercial Code and Statute of Frauds, "a contract for the sale of goods for the price of $1,000.00 or more is not enforceable ... unless there is a writing sufficient to indicate that a contract for sale has been made between the parties."
Auburn Sales admits that it agreed to sell goods to Cypros-and that the sales "via this agreement" exceeded millions of dollars. (Compl., R. 1 ¶¶ 13, 27-30.) Thus, Auburn Sales can enforce the agreement only if there is a sufficient writing under
Instead, Auburn Sales urges that a writing is not required because the agreement with Cypros was a "requirements" contract. According to Auburn Sales, a requirements contract does not need a writing to "specify the quantity" because there is no precise quantity. For example, Cypros did not agree to buy a specific number of Chrysler parts from Auburn Sales-it agreed to generally buy all the parts needed to fill its customer orders. But even if Auburn Sales' oral agreement with Cypros was a requirements contract, the result does not change. Michigan law still requires a writing to enforce a requirements contract for the sale of goods. 6
*719
The Michigan Supreme Court explained that "[a] requirements or output term of a contract, although general in language, nonetheless is,
if stated in the writing
, specific as to the quantity, and in compliance with [
But here, Auburn Sales admits that there is no writing whatsoever-not even one that contains a general quantity term. This might have been a different case if Cypros signed a written agreement to "purchase all Chrysler parts as needed," or if the parties agreed that this was a "distribution" agreement rather than a sale of goods agreement.
See
AB Prod. v. Dampney Co.
,
*720 (unpublished table decision). Instead, because it is undisputed that there is no written agreement between the parties, Auburn Sales' claim for breach of the sales contract fails under the Michigan statute of frauds.
III.
Although Cypros' counterfeiting scheme is regrettable, it cannot create a per se tortious interference claim. And situations like this remind parties of the importance of written contracts. For these reasons, we affirm the district court's grant of summary judgment dismissing Auburn Sales' tortious interference claims and breach of contract claim.
Dorne Rigby, the sole owner and president of Auburn Sales, ran the business out of his home in Michigan.
It is worth noting that, after 2009, Auburn Sales retained only a single client, Cypros, which "represented 100 percent" of Auburn Sales' business. (Rigby Dep., R. 107-5 at 18.)
When determining whether otherwise lawful conduct becomes wrongful and thus improper, a court can consider several factors, such as the nature of the conduct, the actor's motive, the parties' competing interests, social interests and policy considerations, proximate cause, and the relationship between the parties. Restatement (Second) of Torts § 767 (1979) ;
Jim-Bob, Inc. v. Mehling
,
In contrast, Auburn Sales would collapse these two requirements into one by relying on the "last antecedent" rule-arguing that "[t]his appeal turns on the lack of a comma." (Appellant's Br. at 8.) While we do not dismiss the helpfulness of this grammatical rule, Auburn Sales concedes that the rule "is not an absolute and can assuredly be overcome by other indicia of meaning." (
Id.
at 16 (quoting
Barnhart v. Thomas
,
Auburn Sales also failed to raise this argument in the district court. (Pl.'s Mot. Summ. J., R. 107 at 7 (relying only on Defendants' admissions of counterfeiting and a wrongful act per se ).)
Auburn Sales' arguments to the contrary are unavailing. First, Auburn Sales cites
Miltimore Sales, Inc. v. International Rectifier, Inc.
,
This is consistent with
The district court reached the correct result that
Reference
- Full Case Name
- AUBURN SALES, INC., Plaintiff-Appellant, v. CYPROS TRADING & SHIPPING, INC. ; Joseph Kilani; Fadi Kilani, Defendants-Appellees.
- Cited By
- 40 cases
- Status
- Published