PETFREEDOM.COM LLC V NET GENERATION INC
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STATE OF MICHIGAN
COURT OF APPEALS
PETFREEDOM.COM, L.L.C.,
UNPUBLISHED
August 4, 2009
Plaintiff-Appellant,
v
No. 284285
Macomb Circuit Court
LC No. 2005-003897-CK
NET GENERATION, INC.,
Defendant,1
and
VIRTUAL SYSTEMS SOLUTIONS, INC., d/b/a
SOFTURA, and MARK MURPHY,
Defendants-Appellees,
and
JUDD SEIDA,
Defendant.
Before: Talbot, P.J., and Fitzgerald and Hoekstra, JJ.
PER CURIAM.
Plaintiff appeals as of right the order granting summary disposition pursuant to MCR
2.116(C)(10) in favor of defendants, Virtual Systems Solutions, Inc., d/b/a Softura, and Mark
Murphy. We affirm in part and reverse in part.
Defendant Net Generation, Inc., contracted with plaintiff to develop plaintiff’s website.
Contrary to the terms of its contract with plaintiff, and without plaintiff’s knowledge or approval,
Net Generation subcontracted with defendants Virtual Systems Solutions, Inc., d/b/a Softura, and
1
According to the trial court’s Opinion and Order, a default judgment was entered against
defendant Net Generation, Inc.
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Mark Murphy, the president of Softura (hereinafter collectively referred to as “defendants”) to
create the computer code for plaintiff’s website. Plaintiff first argues that the trial court erred
when it granted defendants’ motion for summary disposition and denied plaintiff’s motion for
partial summary disposition on the basis of its conclusion that plaintiff was not an intended thirdparty beneficiary of the contract between defendants and Net Generation. We agree.
This Court reviews a trial court’s decision to grant or deny a motion for summary
disposition de novo. City of Taylor v Detroit Edison Co, 475 Mich 109, 115; 715 NW2d 28
(2006). The interpretation of a contract presents a question of law that this Court reviews de
novo. Schmalfeldt v North Pointe Ins Co, 469 Mich 422, 426; 670 NW2d 651 (2003).
MCL 600.1405 provides, in relevant part:
Any person for whose benefit a promise is made by way of contract, as
hereinafter defined, has the same right to enforce said promise that he would have
had if the said promise had been made directly to him as the promisee.
(1) A promise shall be construed to have been made for the benefit of a
person whenever the promisor of said promise has undertaken to give or to do or
refrain from doing something directly to or for said person.
An intended third-party beneficiary may maintain an action pursuant to MCL 600.1405
when a promise made in their favor has been breached. Kisiel v Holz, 272 Mich App 168, 170;
725 NW2d 67 (2006). However, where a contract allows “the possibility of some incidental
benefit to members of the public at large[,]” but does not establish that “a promisor has
undertaken a promise directly to or for that person[,]” that person is an incidental beneficiary,
and cannot maintain his action to enforce the promise. Schmalfeldt, supra at 427-429. “By
using the modifier directly [in MCL 600.1405], the Legislature intended to assure that
contracting parties are clearly aware that the scope of their contractual undertakings encompasses
a third party, directly referred to in the contract, before the third party is able to enforce the
contract.” Id. at 428, quoting Kammer Asphalt v East China Twp Schools, 443 Mich 176, 189;
504 NW2d 635 (1993). Whether a contract identifies a third-party beneficiary through a direct
promise to the third party is to be ascertained by “an objective review of the form and meaning
of the contract itself.” Kisiel, supra at 171. A plaintiff’s status as a third-party beneficiary is a
separate and distinct issue from questions involving whether a defendant has otherwise breached
the contract, whether the plaintiff sustained damages, and whether the breach of contract was a
proximate cause of the alleged damages. Vanerian v Charles L Pugh Co, 279 Mich App 431,
443; 761 NW2d 108 (2008).
In concluding that plaintiff was merely an incidental beneficiary of the oral contract
between Net Generation and Softura, the trial court, in its opinion, focused on the description of
the terms of the contract by Net Generation’s president, Bryan Hanson, as follows:
Just standard, keep the client happy, let’s get them what they want
regardless of changes, make it successful, that type of arrangement, you know,
payment terms were flexible.
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The trial court observed that it examined the conduct of the parties as established by the record,
and concluded that Softura, in its role as Net Generation’s subcontractor, had minimal direct
contact with plaintiff.
This Court has held that a contract between a contractor and a subcontractor that required
the subcontractor to “tear out water damaged flooring and subfloor and haul away debris from
the family room and the bar room[,] [s]upply and install a plywood floor in the same above
rooms[, and] [s]upply and install a plywood subfloor in the same above room[s, and] [s]upply,
install, sand, stain, seal and finish maple flooring in the same above rooms[,]” was made for the
direct benefit of the homeowner for whom this work was performed. Vanerian, supra at 433441. In Vanerian, the general contractor entered into an agreement to repair damages to the
plaintiff’s home. Id. at 433. The general contractor then contracted with a subcontractor to
repair the basement floor. Id. Concluding that the contract between the general contractor and
the defendant “expressly related to repairs in plaintiff’s basement[,]” this Court concluded that
the plaintiff was an intended third-party beneficiary. Id. at 434. The Vanerian Court reasoned
that the contract did not benefit some “expansive group or unidentified party[,]” but instead,
provided that the defendant would perform specific work for a specifically identified party. Id.
at 438.
Here, plaintiff contracted with the general contractor, Net Generation, for the ultimate
delivery of an Internet website. Net Generation then contracted with Softura, which performed
about 95 percent of the coding work on plaintiff’s main website. According to Softura’s
president, Mark Murphy, Softura employees had direct contact with plaintiff’s representatives
during the website’s development phase. Murphy also acknowledged that he was aware that
plaintiff was the “ultimate client or receiver” of Softura’s work product. Additionally, Net
Generation’s president described Net Generation’s contract with Softura as one intended to
“keep the client happy,” referring to plaintiff. This evidence reveals that plaintiff was an
intended third-party beneficiary of the contract between Net Generation and Softura. The trial
court erred when it granted defendants’ motion for summary disposition on the basis of its
conclusion that plaintiff was not an intended third-party beneficiary of the contract between
defendants and Net Generation.
Plaintiff also argues that the trial court improperly granted defendants’ motion for
summary disposition on its fraudulent misrepresentation and negligent misrepresentation claims.
We disagree. The elements of fraudulent misrepresentation are: “(1) the defendant made a
material representation; (2) the representation was false; (3) when the defendant made the
representation, the defendant knew it was false, or made it recklessly, without knowledge of its
truth as a positive assertion; (4) the defendant made the representation with the intention that the
plaintiff would act upon it; (5) the plaintiff acted in reliance upon it; and (6) the plaintiff suffered
damage.” Bergen v Baker, 264 Mich App 376, 382; 691 NW2d 770 (2004), quoting M&D, Inc v
McConkey, 231 Mich App 22, 27; 585 NW2d 33 (1998). The elements of silent fraud, also
known as fraudulent concealment, are the same as the elements for fraudulent misrepresentation.
McMullen v Joldersma, 174 Mich App 207, 213; 435 NW2d 428 (1988). “In order for the
suppression of information to constitute silent fraud there must be a legal or equitable duty of
disclosure.” Hord v Environmental Research Institute, 463 Mich 399, 412; 617 NW2d 543
(2000). Negligent misrepresentation requires “proof that a party justifiably relied to his
detriment on information provided without reasonable care by one who owed the relying party a
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duty of care.” Law Offices of Lawrence J Stockler, PC v Rose, 174 Mich App 14, 33; 436 NW2d
70 (1989). In addition, fraud claims must be pleaded with particularity, and must be proved by
clear and convincing evidence. MCR 2.112(B)(1); Cooper v Auto Club Ins Ass’n, 481 Mich 399,
414; 751 NW2d 443 (2008).
Here, the trial court granted summary disposition in Softura’s favor, in part, because of
the absence of proof that any Softura employee made any material misrepresentation of fact.
The trial court explained that the only misrepresentation plaintiff identified was the statement of
Net Generation’s president, Hanson, that he “may have misled plaintiff regarding the ownership
of the Novi office.” Hanson’s statement demonstrated to the trial court that although Net
Generation may have made a misrepresentation, Hanson’s statement did not show that either
Softura or Murphy made a misrepresentation. The trial court further observed that Murphy and
two of Softura’s employees stated that neither Murphy, nor anyone else at Softura,
misrepresented the relationship between Softura and Net Generation. Thus, the trial court
reasoned, because plaintiff could not show that Murphy or a Softura employee made a
misrepresentation, it could not satisfy the elements of fraudulent misrepresentation.
The trial court correctly concluded that, in the absence of evidence that any employee of
Softura made any material misrepresentation, summary disposition was appropriate because
plaintiff could not make out a prima facie case of fraudulent misrepresentation. Bergen, supra at
382. We further observe that plaintiff’s insistence that its fraud claims are not premised on a
particular misrepresentation made by Softura or Murphy, but rather on Softura and Murphy’s
general “fraudulent conduct,” underscores plaintiff’s inability to establish the elements of
fraudulent misrepresentation. Id. In other words, plaintiff’s argument that Softura and Murphy’s
“fraudulent conduct,” without more, was sufficient to allow plaintiff to proceed to trial on his
fraudulent misrepresentation claim, further persuades us that plaintiff did not, and cannot,
establish that Murphy or a Softura employee “made a material representation” and that the
“representation was false.” Id.
Although the trial court did not provide a rationale for its decision to grant Softura and
Murphy’s motion for summary disposition regarding plaintiff’s negligent misrepresentation
claim, we conclude that summary disposition was nonetheless proper because plaintiff failed to
identify any information provided by Softura or Murphy, much less demonstrate that such
information was provided in the absence of reasonable care, or that plaintiff justifiably, and
detrimentally, relied upon such information. Rose, supra at 33. Further, plaintiff fails to identify
a duty owed to it by Murphy or Softura that is separate and distinct from the contract. MCL
600.1405; Fultz v Union-Commerce Associates, 470 Mich 460, 467; 469-470; 683 NW2d 587
(2004); Kisiel, supra at 170. Because plaintiff cannot show that it “justifiably relied to [its]
detriment on information provided without reasonable care by one who owed the relying party a
duty of care[,]” we conclude that summary disposition was properly granted on plaintiff’s
negligent misrepresentation claim. Rose, supra at 33.
With respect to plaintiff’s silent fraud claim, the trial court correctly concluded that
plaintiff failed to demonstrate that Softura or Murphy were under a legal or equitable duty to
disclose information to plaintiff. At his deposition, Hanson testified that he provided a copy of
the contract between plaintiff and Net Generation to Softura employees, which may have
included Murphy. However, plaintiff cannot establish that this contact, in turn, gave rise to an
affirmative duty by Softura or Murphy to disclose Softura’s subcontractor status, and fails to
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establish that a duty of disclosure arose independently of the contract between Net Generation
and plaintiff, and we conclude that summary disposition in favor of Murphy and Softura with
respect to plaintiff’s silent fraud claim was proper. Hord, supra at 412.
Affirmed in part, reversed in part, and remanded for trial on plaintiff’s breach of contract
claim. Jurisdiction is not retained.
/s/ Michael J. Talbot
/s/ E. Thomas Fitzgerald
/s/ Joel P. Hoekstra
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