“More than one hundred years of Michigan caselaw contradicts the majority’s conclusion that no duty to perform a contract with due care can exist. As does the common law across the states in this circuit and across the country. And as does hornbook law.” So begins Judge Stranch’s dissent in the Sixth Circuit’s recent unpublished decision in Ram International, Inc. v. ADT Security Services, Inc. (6th Cir., Case No. 12-2023, Feb. 4, 2014) (PDF).
In 2008, Ram International entered into an agreement with ADT to provide security services for Ram’s jewelry and collectibles store in Michigan. The contract provided that ADT would monitor the store’s alarms, summon police or fire services where appropriate, and ensure line security to detect an intruder’s attempt to cut the store’s telephone lines. Relevant here, the contract included a merger and integration clause as well as a liquidated damages clause establishing ADT’s liability for loss at either 10% of ADT’s annual service charge or $1,000, whichever was greater. On the night of July 14, 2010, Ram’s store was burglarized, and the thieves made off with around $1 million in merchandise. The store’s security alarm had been activated when the last employee had closed up for the night, and the store’s security cameras recorded footage of the masked thieves ransacking the store. But ADT never notified Ram or police of the burglary, which was not discovered until employees opened the store in the morning. Later in 2010, Ram received calls from ADT pertaining to erroneous signals sent from the store to ADT’s system, and subsequent service by ADT indicated that the alarm system had been “coded wrong.” Ram filed suit in Michigan state court, alleging negligence, fraudulent misrepresentation, false advertising and breach of contract. The case was removed to the Eastern District of Michigan, where the district court dismissed all of the claims in tort but denied dismissal of the breach claim, yet held that Ram’s damages were controlled by the liquidated damages clause. Ram then appealed to the Sixth Circuit.
Writing for himself and Judge Kethledge, Judge Cole affirmed the district court’s ruling in its totality. The part of the majority’s holding that provoked Judge Stranch’s dissent was affirmance of dismissal of the negligence claim under Michigan law. The majority found that, “[u]nder Michigan law, ADT did not owe Ram a statutory or common-law duty to detect the burglary or dispatch police.” And in response to Ram’s argument that “ADT also had a duty to perform its contractual obligations with due care,” the majority concluded that Michigan law “do[es] not grant a plaintiff a cause of action in tort based on a common-law duty of due care, when the plaintiff has contracted directly with the alleged tortfeasor.” In short, “Ram’s remedy … is contractual.”
In her dissent, Judge Stranch took issue with that conclusion and then undertook an examination of Michigan law. According to Judge Stranch, the majority committed a not-uncommon error: “[I]nstead of asking if there was an independent tort duty, as Michigan common law instructs, the majority erroneously ask[s] if the situation, or the injury, could have arisen independently of the existence of the contract.” Judge Stranch agreed that “the duty must be independent of the contract — that is, it must exist by operation of law — but the facts that give rise to the breach of that duty need not.” Thus, Judge Stranch would have found that, once ADT contracted with Ram to provide security services, “the law imposed a duty of ordinary care in its prosecution. That duty existed independently of the contract; it would exist even if ADT had acted only out of the goodness of its heart.” Based on the allegations in Ram’s complaint, Judge Stranch would have ruled that Ram’s negligence claim survived dismissal under Rule 12.
Between the majority opinion and dissent, Ram International serves as a reminder that contested terrain still exists in the sometimes murky space between tort and contract.