RANDALL BUIST V DIGITAL MESSAGE SYSTEMS CORP
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STATE OF MICHIGAN
COURT OF APPEALS
RANDALL BUIST,
UNPUBLISHED
December 27, 2002
Plaintiff-Appellee,
No. 229256
Oakland Circuit Court
LC No. 98-004946-CZ
V
DIGITAL MESSAGE SYSTEMS
CORPORATION, d/b/a MESSAGE ON HOLD
NETWORK, BYRON LANCASTER and J.B.
SELIGMAN,
Defendants-Appellants.
Before: Gage, P.J., and Cavanagh and Wilder, JJ.
PER CURIAM.
Defendants appeal as of right from the trial court’s order granting summary disposition in
favor of plaintiff and awarding plaintiff a judgment of $71,284.88 in this action under the
Michigan Franchise Investment Law (“MFIL”), MCL 445.1501, et seq. We affirm.
I
In April 1994, plaintiff entered into a non-exclusive licensing agreement (“agreement”)
with defendants to market one of defendant Digital’s products, a “Message On Hold” (“MOH”)
telephone recording system to provide information to callers while they are waiting on hold for
businesses. Defendant Digital is a Florida corporation, and defendants Lancaster and Seligman
are officers of the corporation. Plaintiff is a resident of Grand Rapids, Michigan.
The agreement grants plaintiff, in exchange for a fee, a non-exclusive license to sell the
MOH system throughout the United States, with his “primary markets” being Calhoun,
Kalamazoo, Allegan and Barry counties. Plaintiff also paid an additional amount for an option
to acquire the Kent County market. Although the license was non-exclusive, a provision in an
addendum to the agreement stated that plaintiff’s market was to be his exclusively for a ninetyday period, subject to renewal every thirty days as long as plaintiff was pursuing the account.
The addendum also provides for other protections of plaintiff's market share. Additionally, the
agreement contains the following language:
14. GOVERNING LAW AND VENUE: The parties agree that the
validity, construction, interpretation, and enforceability of this Agreement shall be
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governed by the laws of the State of Florida. The parties agree that the
jurisdiction and venue of this Agreement shall lie in the Thirteenth Judicial
Circuit Court of the State of Florida in and for Hillsborough County, or the United
States District Court for the Middle District of Florida, with respect to any legal
proceedings arising from or under this Agreement.
Another section of the agreement contains a provision stating that the parties were to bring legal
proceedings only in a court listed in paragraph 14.
Plaintiff commenced this action in March 1998, alleging that defendants misrepresented
their product, and further alleging that defendants failed to provide the disclosure (or notice)
required under the MFIL, MCL 445.1508.
Defendants moved for summary disposition, relying on the contract language providing
that Florida was the proper forum to bring an action and that Florida law governed the action.
Plaintiff filed a cross-motion for summary disposition, alleging that defendants’ disclosure did
not satisfy the MFIL disclosure requirement. Following a hearing, the trial court determined that
the agreement’s limitation requiring that any action be brought in Florida was void and that
Michigan law governed the instant dispute, notwithstanding the contract language to the
contrary. The trial court also determined that defendants’ disclosure did not satisfy MCL
445.15081 and, accordingly, granted plaintiff's motion for summary disposition pursuant to MCR
2.116(C)(10). Following a subsequent hearing, the court awarded plaintiff damages of
$71,284.88.
II
Defendants first argue that the trial court erred in refusing to dismiss the instant action or,
alternatively, in failing to apply Florida law to the dispute in accordance with the express terms
of the parties’ agreement. We disagree.
We review a trial court’s decision on a motion for summary disposition de novo.
Martino v Cottman Transmission Systems, Inc, 218 Mich App 54, 57; 554 NW2d 17 (1996). The
question whether the parties’ choice of law provision is to be given legal effect is also a question
of law which we review de novo. Id. at 60. Statutory interpretation is likewise reviewed de
novo. County Bd of Rd Comm’rs v Michigan Property & Casualty Guaranty Ass’n, 456 Mich
590, 610; 575 NW2d 751 (1998).
As Macomb County Prosecutor v Murphy, 464 Mich 149, 158; 627 NW2d 247 (2001)
observed:
In considering a question of statutory construction, this Court begins by
examining the language of the statute. We read the statutory language in context
to determine whether ambiguity exists. If the language is unambiguous, judicial
construction is precluded. We enforce an unambiguous statute as written. Where
ambiguity exists, however, this Court seeks to effectuate the Legislature’s intent
1
Defendants have not challenged this determination on appeal.
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through a reasonable construction, considering the purpose of the statute and the
object sought to be accomplished. [Citations omitted.]
Unless defined in the statute, every word or phrase of a statute should be accorded its plain and
ordinary meaning, taking into account the context in which the words are used, Phillips v Jordan,
241 Mich App 22-23 n 1; 614 NW2d 183, citing Western Michigan Univ Bd of Control v
Michigan, 455 Mich 531, 539, 565 NW2d 828 (1997). Further, the language must be applied as
written, Camden v Kaufman 240 Mich App 389, 394; 613 NW2d 335 (2000); Ahearn v
Bloomfield Charter Twp, 235 Mich App 486, 498; 597 NW2d 858 (1999), and nothing should be
read into a statute that is not within the manifest intent of the Legislature as evidenced from the
act itself. In re SR, supra at 314.
In the instant case, the disputed statutory language appears in MCL 445.1527,2 which
provides, in pertinent part:
Each of the following provisions is void and unenforceable if contained in
any documents relating to a franchise:
***
(b) A requirement that a franchisee assent to a release, assignment,
novation, waiver, or estoppel which deprives a franchisee of rights and
protections provided in this act. This shall not preclude a franchisee, after
entering into a franchise agreement, from settling any and all claims.
***
(f) A provision requiring that arbitration or litigation be conducted
outside this state. This shall not preclude the franchisee from entering into an
agreement, at the time of arbitration, to conduct arbitration at a location outside
this state. [Emphasis added.]
Thus, under the plain language of 445.1527(f), the provision requiring plaintiff to bring
suit in Florida is unenforceable. See also Martino, supra at 59; Banek Inc v Yogurt Ventures
USA, Inc, 6 F3d 357, 360 (CA 6, 1993). Further, defendants’ reliance on MCL 600.745 is
unwarranted in light of the following emphasized language in the statute:
(3) If the parties agreed in writing that an action on a controversy shall be
brought only in another state and it is brought in a court of this state, the court
shall dismiss or stay the action, as appropriate, unless any of the following occur:
(a) The court is required by statute to entertain the action. [Emphasis
added.]
2
As discussed infra, we find no error in the trial court’s determination that the parties’
agreement was subject to the MFIL.
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Accordingly, we conclude that the trial court did not err in refusing to enforce the “forum
selection” clause in paragraph 14 of the parties’ agreement.
We also reject defendants’ argument that the trial court erred in ruling that Michigan law
should govern this action. While the MFIL does not expressly prohibit a choice of law provision
in a franchise agreement, we cannot conclude that the choice of law provision in the parties’
contract is therefore enforceable. This Court addressed and rejected a similar argument in
Martino, supra:
Alternatively, defendant argues that Pennsylvania law must be followed,
because the franchise agreement stated that Pennsylvania law controlled the
franchise agreement.
In a similar situation, the Michigan Supreme Court ruled that, when
determining the applicable law, we are required to balance the expectations of the
parties with the interests of the States. Chrysler Corp v Skyline Industrial
Services, Inc, 448 Mich 113, 125; 528 NW2d 698 (1995). In doing so, the Court
adopted, as guidelines, §§ 187 and 188 of the Second Restatement of Conflicts.
Section 187(1) permits the application of the parties' choice of law if the
issue is one the parties could have resolved by an express contractual provision.
However, there are two exceptions. The parties' choice of law will not be
followed if: (1) the chosen state has no substantial relationship to the parties or the
transaction, or (2) there is no reasonable basis for choosing that state's law.
Section 187(2)(a). Also, § 187(2)(b) bars the application of the chosen state's law
when it "would be contrary to the fundamental policy of a state which has a
materially greater interest than the chosen state in the determination of the
particular issue, and which, under the rule of § 188, would be the state of the
applicable law in the absence of an effective choice of law by the parties."
Here, we find compelling evidence that, in this state, Michigan has a
materially greater interest than Pennsylvania in applying its franchise laws. A
fundamental policy may be embodied in a statute which (1) makes one or more
kinds of contracts illegal or (2) which is designed to protect a person against the
oppressive use of superior bargaining power. Comment g to § 187 of the
Restatement 2d, p 568. As gleaned from the MFIL, Michigan's notice
requirements are designed to make certain contract provisions illegal and to
protect potential franchisees from the superior bargaining power of franchisors.
Applying Pennsylvania, rather than Michigan, law would result in a
substantial loss of protection provided by the MFIL. As franchisors under
Pennsylvania law do not have to provide the notice required by the MFIL,
Pennsylvania's franchise law violates the fundamental public policy of Michigan.
Therefore, Michigan law, not Pennsylvania law, applies. [Martino, supra at 6061.]
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The trial court concluded that a similar result is warranted here, finding that applying
Florida law to this case would result in a substantial loss of protections to franchisees and thus be
“contrary to the fundamental policy” of the MFIL:
While Florida has a substantial relationship to the parties and transaction,
this Court find that Michigan had a materially greater interest than Florida in
applying its Franchise Law. Specifically, Florida law provides limited protection
to franchisees and little, if any, protection to out of state franchisees.
Additionally, Florida has no disclosure requirements as required by the MFIL.
Finally, co-defendants, Lancaster and Seligman, Defendants’ principles, would
not be subject to joint and several liability in Florida. By applying Florida law,
this Court would be overlooking this State’s legislative mandates as set forth in
the MFIL. Therefore, the Court, this Court finds that Michigan law applies in this
case.
The trial court did not err. A review of Florida law reveals that limited protection is
afforded to franchisees such as plaintiff here. Specifically, Florida’s Sale of Business
Opportunities Act, which the parties refer to as the Florida Business Opportunities Act
(“FBOA”), FSA 559.801 et seq., does contain disclosure requirements designed to provide
protections similar to those contained in the MFIL. FSA 559.803. Indeed, the act’s definition of
a “business opportunity” is more limited that the MFIL’s definition of a “franchise” and, as
defendants seem to acknowledge on appeal, the agreement in this case arguably does not fall
within this definition. See FSA 559.801(1)(a)(4). Defendants instead maintain that the trial
court neglected to consider the parties’ agreement in the context of the protections afforded by
Florida’s Franchise and Distribution statute, also termed the Florida Franchise Act (“FFA”), FSA
817.416 et. seq. However, as noted by plaintiff, it is questionable whether the FFA applies to
out-of-state franchisees. See Waldman, The Florida franchise act - protection for the in-state
franchisor or out-of-state franchisee?, 73 Fla B J 42, 44 (1999); see also Grand Kensington, LLC
v Burger King Corp, 81 F Supp 2d 834, 839 (ED Mich, 2000) (holding invalid the parties’
Florida choice of law provision partly on the ground that the uncertain application of the FFA to
out-of-state franchisees undermined the protections inherent in the MFIL). In addition, even if
plaintiff here would receive the benefit of the protections afforded by the FFA, application of this
statutory scheme would still result in a substantial loss to plaintiff of the protection provided by
the MFIL. Although the FFA makes it unlawful to misrepresent or fail to disclose certain items
in connection with the establishment of a franchise, FSA 817.416(2), the minimal protections
afforded by the FFA do not approach those provided under MCL 445.1508. Additionally,
defendants assert without providing any citation to authority that plaintiff would be able to obtain
joint and several liability for his claims under either the FBOA or the FFA, as would be available
to him under the MFIL. See MCL 445.1532.
In light of the foregoing considerations, we conclude that the trial court did not err in
holding that Florida law would result in a substantial loss of protections provided by the MFIL
and that Michigan law should therefore govern this lawsuit, notwithstanding the provision to the
contrary in the parties’ agreement.
III
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Defendants also maintain that the parties agreement did not constitute a “franchise” as
defined by the MFIL. Because defendants did not raise this issue below, we review this
unpreserved issue for plain error affecting defendants’ substantial rights. Kern v Blethen-Coluni,
240 Mich App 333, 336; 612 NW2d 838 (2000), citing People v Carines, 460 Mich 750, 763;
597 NW2d 130 (1999).
After reviewing MCL 445.1504 and the regulations promulgated pursuant to this statute,
we conclude that defendants have not met their burden of demonstrating plain error, because the
agreement between the parties constituted a “franchise” under the MFIL.
MCL 445.1504 provides, in pertinent part:
(1) This act applies to all written or oral arrangements between a
franchisor and franchisee in connection with the offer or sale of a franchise,
including, though not limited to, the franchise offering, the franchise agreement,
sales of goods or services, leases and mortgages of real or personal property,
promises to pay, security interests, pledges, insurance, advertising, construction or
installation contracts, servicing contracts, and all other arrangements in which the
franchisor or subfranchisor has an interest.
MCL 445.1402(3) provides:
(3) "Franchise" means a contract or agreement, either express or implied,
whether oral or written, between 2 or more persons to which all of the following
apply:
(a) A franchisee is granted the right to engage in the business of offering,
selling, or distributing goods or services under a marketing plan or system
prescribed in substantial part by a franchisor.
(b) A franchisee is granted the right to engage in the business of offering,
selling, or distributing goods or services substantially associated with the
franchisor's trademark, service mark, trade name, logotype, advertising, or other
commercial symbol designating the franchisor or its affiliate.
(c) The franchisee is required to pay, directly or indirectly, a franchise fee.
Defendants contend that the plaintiff cannot establish that the parties’ agreement was conducted
“under a marketing plan or system prescribed in substantial part by [defendants]”, and that
accordingly, the MFIL does not apply. We disagree.
As noted above, the remedial nature of the MFIL was recognized in Martino, supra at 61
(the notice requirements of the MFIL are designed "to protect potential franchisees from the
superior bargaining power of franchisors."). See also Geib v Amoco Oil Co, 29 F3d 1050, 1056
(CA 6, 1994). Because this statute is a remedial one, this Court construes it liberally to achieve
its intended goals. Dudewicz v Norris-Schmid, Inc, 443 Mich 68, 77; 503 NW2d 645 (1993).
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The question whether the agreement utilized by defendants falls within the statutory
definition of a franchise under the MFIL was considered in Vaughn v Digital Message Systems
Incorporated, et al, ___ F Supp ___; 1997 WL 115821 (ED Mich, 1997), which concluded that it
did. We find the decision in Vaughn persuasive on this point and, accordingly, choose to follow
it.
Although the statute does not define “prescribe,” Black's Law Dictionary includes the
following definition of this term:
To lay down authoritatively as a guide, direction, or rule; to impose as a
peremptory order; to dictate; to point, to direct; to give as a guide, direction, or
rule of action; to give law. To direct; define; mark out. [Black's Law Dictionary
(6th ed), p 1182; emphasis added.]
This definition encompasses a situation in which a franchisee follows a set marketing plan
developed by the franchisor because that plan was proffered as a suggested guide for selling the
product as well as one in which the franchisee was specifically required to adopt the franchisor’s
marketing plan. The applicability of this broader definition to MCL 445.1402 is supported by
the regulations promulgated pursuant to the MFIL:
(4) "Prescribed in substantial part by the franchisor," as used in [MCL
445.1402 (3)(a)], shall be interpreted in light of the following:
(a) A marketing plan may be determined to be prescribed if the franchise
or other written or oral agreement, the nature of the franchise business, or other
circumstances permit or require the franchisee to follow an operating plan or
standard operating procedure, or their substantial equivalent, promulgated by or
for the franchisor. An operating plan or standard operating procedure includes
required procedures, prohibitions against certain business practices, or
recommended or offered practices, whether or not enforceable with economic
sanctions.
(b) A marketing plan may be determined to be prescribed without regard
to whether the franchisee is an independent contractor and not the agent of the
franchisor, and notwithstanding provisions of a franchise or other agreement
purporting to grant the franchisee complete freedom in operating his business.
(c) The presence of any of these factors, among others, indicates that a
marketing plan or system is prescribed in substantial part by the franchisor:
(i) Representations by, or requirements of, the franchisor that the
franchisee operate a business which can purchase a substantial portion of its
goods solely from sources designated or approved by the franchisor.
(ii) Representations by, or requirements of, the franchisor that the
franchisee follow an operating plan, standard procedure, training manual, or its
substantial equivalent promulgated by the franchisor in the operation of the
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franchise, violations of which may, under the terms of the agreement, permit the
franchisor to terminate or refuse to renew the agreement.
(iii) Representations by, or requirements of, the franchisor that the
franchisee is limited as to type, quantity, or quality of any product or service the
franchisee may sell, or that limit the franchisee as to the persons or accounts to
which he may sell the franchisor's product or service.
(iv) Representations by, or requirements of, the franchisor that the
franchisor aid or assist the franchisee in training or in obtaining locations or
facilities for operation of the franchisee's business, or in marketing the
franchisor's product or service. [1979 AC, R 445.101; emphasis added.]
Comparing these definitions with the provisions of the parties’ agreement leads us to
conclude that the agreement is within the purview of the MFIL. Significantly, § 2 of the
agreement provides:
MARKETING ASSISTANCE. Upon execution of this Agreement,
Supplier agrees to provide Licensee with certain marketing/operating supplies as
previously agreed upon, a training/operating manual, as well as reasonable
quantities of selling supplies, brochures, demonstration tapes, supply order/price
forms, and such other materials as the Supplier shall, from time to time, make
available to its Licensees. Supplier shall provide Licensee with up-to-date
pricing, leasing and warranty information regarding Product as is reasonably
necessary to assist Licensee in selling product.
In addition, § 3 of the agreement provides:
ADVERTISING. Supplier reserves the right to approve all promotional
and advertising methods and materials used by Licensee in connection with
Licensee's activities and discharge by Licensee of its obligations created by this
Agreement, such approval to be not unreasonably withheld by Supplier.
[Emphasis added.]
Also, § 5 of the agreement states:
PURCHASE. Licensee herewith tenders the cash sum of Nineteen
Thousand Five Hundred and 00/100 Dollars ($19,500.00) as the total
consideration agreed upon between Supplier and Licensee for Supplier to enter
this Agreement. In exchange therefor, Supplier agrees that it will timely provide
Licensee with all operating materials, marketing materials, and supplies . . .
[Emphasis added.]
Finally, § 6 of the agreement provides, in pertinent part:
The following representations made by Licensee are acknowledged by
Supplier as being material inducements for Supplier to enter this Agreement.
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Licensee represents and agrees that during the term of this Agreement, Licensee
shall at all times:
***
(3) abide by such reasonable rules, regulations and policies as the
Supplier may from time to time establish[.] [Emphasis added.]
In addition to these provisions, the restrictions with regard to marketing the MOH system
contained in § 1 of the agreement and § A of the addendum clearly point to defendants’ attempt
to restrict the marketing activities of plaintiff in a manner contemplated by 1979 AC, R
445.101(c)(3).
Accordingly, the trial court did not err in finding that the parties’ agreement was subject
to the MFIL.
IV
Lastly, defendants argue that the trial court erred in its award of damages under MCL
445.1531. Defendants assert that the court improperly awarded damages for expenses incurred
in running the franchise rather than simply awarding the fee paid for the procurement of the
franchise itself. Given defendants’ cursory treatment of this issue in their brief, and their failure
to cite any authority supporting their position, we find that this issue has been abandoned.
Prince v MacDonald, 237 Mich App 186, 197; 602 NW2d 834 (1999); Schellenberg v Rochester
Elks, 228 Mich App 20, 49; 577 NW2d 163 (1998).
Affirmed.
/s/ Hilda R. Gage
/s/ Mark J. Cavanagh
/s/ Kurtis T. Wilder
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