Plaintiff appeals by right the trial court's order granting summary disposition in favor of defendant under MCR 2.116(C)(8) (failure to state a claim) and dismissing plaintiff's declaratory-judgment action. We affirm.
I. NATURE OF THE CASE
This case involves the interpretation of a force-majeure clause in a contract. Generally, the purpose of a force-majeure clause is to relieve a party from penalties for breach of contract when circumstances beyond the party's control render performance untenable or impossible. See Erickson v. Dart Oil & Gas Corp., 189 Mich.App. 679, 689, 474 N.W.2d 150 (1991). The contract at issue is a take-or-pay contract. A take-or-pay contract obligates a buyer to purchase a specific quantity of product from the seller (usually also the manufacturer of the product) at a fixed price; if the buyer purchases less than that quantity, it is nonetheless obligated to pay the seller for the full specified quantity at the specified price. See, e.g., Mobil Oil Exploration & Producing Southeast Inc. v. United Distrib. Co., 498 U.S. 211, 229, 111 S.Ct. 615, 112 L.Ed.2d 636 (1991). The very essence of a take-or-pay contract is to allocate to the buyer the risk of falling market prices by virtue of fixed purchase obligations at a long-term fixed price and to thereby secure for the buyer a stable supply, while allocating to the seller the risk of increased market prices and, by virtue of the buyer's obligation to take or pay for a fixed quantity of product, removing from the seller the risk of producing product that may go unpurchased. See generally Medina, The Take-or-Pay Wars: A Cautionary Analysis for the Future, 27 Tulsa L J 283 (1991).
At stake in this case is plaintiff's liability under its take-or-pay contract for the purchase of polysilicon for use in solar panels. If plaintiff is liable under the contract for the full purchase price of all unordered polysilicon for the duration of the contract, plaintiff faces liability of up to $1.74 billion. Plaintiff asserts that such a liability would force it to leave the solar panel industry. Nonetheless, as developed later in this opinion, we conclude that plaintiff contracted for precisely that liability, that plaintiff contractually assumed the very market risks that give rise to that liability, and that the plain language of the force-majeure clause at issue does not permit relief to plaintiff on the ground that the market for polysilicon has shifted, regardless of the cause of that shift. We therefore affirm the trial court's dismissal of plaintiff's complaint for declaratory relief under MCR 2.116(C)(8).
II. PERTINENT FACTS AND PROCEDURAL HISTORY
Plaintiff is a Japanese company that produces high-quality solar panels. Defendant is a Michigan company and a large manufacturer of polycrystalline silicon (also called polysilicon), which is used in the manufacture of solar panels. Plaintiff alleges that in 2005 there was a worldwide shortage of polysilicon and defendant proposed partnering with plaintiff to provide it with a stable supply of polysilicon. According to plaintiff, defendant intended to significantly expand its manufacturing capacity to meet the increased demand for its product, funding this expansion with long-term contracts for the sale of polysilicon.
Between 2005 and 2008, the parties entered into four long-term contracts requiring plaintiff to purchase a certain quantity of polysilicon annually over a period of ten years, and allowing defendant to bill plaintiff for the difference between the quantities of polysilicon plaintiff ordered in a year and the expected order for that year. Plaintiff thus contracted to secure a long-term, stable supply of polysilicon, by virtue of which it protected itself from market disruptions that might threaten that supply. The trade-off was a contracted-for fixed price, and an obligation to pay for quantities of polysilicon for which plaintiff anticipated a need, even if that need ultimately proved to be nonexistent. The parties did not (although they could have) negotiate a contractual limitation (e.g., a price floor or ceiling), and therefore plaintiff assumed all downside price risk (if the market price fell) and defendant assumed all upside price risk (if the market price rose). According to plaintiff, the contracts provided for advance payments to be used by defendant in expanding its polysilicon manufacturing infrastructure. Plaintiff alleges that by 2010, it had made $685 million in advance payments on the contracts toward $2.6 billion in total purchases of polysilicon from defendant. Plaintiff asserts that the advance payments allowed defendant to open a new facility in Tennessee, costing approximately $1.2 billion. Each agreement also contained an acceleration clause that rendered plaintiff liable for the full purchase price of all unordered polysilicon for the entire length of the contract in the event of a default in payment.
At issue in this case is the November 13, 2008 long-term supply agreement between the parties (Agreement IV), which plaintiff alleges is the "last, and by far the largest" agreement between the parties. Pursuant to that agreement, plaintiff was to pay defendant more than $514,848,000 in advance payments for set amounts of polysilicon to be purchased through 2020. The deliveries were scheduled to begin in 2011 and end in 2020. Section 19 of Agreement IV is a force-majeure provision, which states as follows:
Plaintiff alleges that after Agreement IV was executed, the Chinese government embarked on a plan to become the world leader in the solar industry. To that end, the Chinese government provided illegal subsidies to Chinese companies, some of which are state owned. Plaintiff further alleges that the Chinese companies engaged in "large-scale dumping," i.e., "when a foreign producer, aided by state support, sells a product at a price that is lower than its cost of production to intentionally manipulate an industry and capture market share." As a result, plaintiff contends that China gained 75% of the global solar-panel market, causing over 20 United States and European manufacturers to go out of business and solar-panel prices to "decline precipitously." In 2012, plaintiff asserts, the United States imposed anti-subsidy and anti-dumping import tariffs on Chinese-manufactured components of solar panels.
According to plaintiff, the President and CEO of defendant's majority shareholder, Dow Corning Corporation, issued a response to the tariffs, hoping that the United States and Chinese governments would reach an acceptable compromise to stabilize the industry. However, defendant announced layoffs in January 2013 and reduced production because of the trade problems with China.
Plaintiff alleges that as a result of China's market interference, the price of polysilicon to which the parties agreed in 2008 is significantly higher than the market price as of 2015. Consequently, plaintiff maintains, defendant has reduced its participation in the solar market and focused on enforcing its long-term contract, in many cases accepting cash settlements without having to provide polysilicon, which has caused defendant to remain profitable despite the United States and China's lack of progress toward resolution of the dispute.
In 2011 and 2012, the parties agreed to a series of amendments to Agreement IV, lowering the gross price and applying advance payments to shipments in 2011 and 2012. However, the gross prices from 2013 to 2020 were left unchanged. Plaintiff claims that defendant did not follow through with its additional proposal to amend the long-term pricing to a figure that would be based on market conditions.
On February 2, 2015, plaintiff sent notice to defendant that it would be exercising its right under the force-majeure clause of Agreement IV to discontinue its contractual obligations because of the actions of the Chinese government. On February 13, 2015, plaintiff filed a complaint for declaratory judgment, seeking a declaration that the acts of the Chinese and United States governments constitute a force-majeure event under Agreement IV, and that it is not liable for delays or failures to perform for as long as the force-majeure event continues. On March 6, 2015, defendant moved for summary disposition under MCR 2.116(C)(8), alleging that plaintiff had failed to state a claim upon which relief could be granted because the force-majeure clause does not apply to changes in financial conditions and no governmental act prevented plaintiff from performing under Agreement IV.
After lengthy oral arguments and supplemental briefing, the trial court granted defendant's motion, holding that the unambiguous language of the force-majeure clause indicated that even if the acts of the Chinese or United States governments constituted a force-majeure event under the contract, economic hardship caused by market conditions "is simply not sufficient to invoke force majeure," particularly in the context of a take-or-pay contract, and that the force-majeure clause in the parties' contract "does not provide [plaintiff] any potential relief from its obligation to pay merely because the contract price is no longer financially advantageous."
This appeal followed.
III. STANDARD OF REVIEW
We review a trial court's grant of summary disposition de novo. Spiek v. Dep't of Transp., 456 Mich. 331, 337, 572 N.W.2d 201 (1998). "MCR 2.116(C)(8) tests the legal sufficiency of the claim on the pleadings alone to determine whether the plaintiff has stated a claim on which relief may be granted." Spiek, 456 Mich. at 337, 572 N.W.2d 201; MCR 2.116(G)(5). "A motion under MCR 2.116(C)(8) may be granted only where the claims alleged are so clearly unenforceable as a matter of law that no factual development could possibly justify recovery." Maiden v. Rozwood, 461 Mich. 109, 119, 597 N.W.2d 817 (1999) (citation and quotation marks omitted). "All well-pleaded factual allegations are accepted as true and construed in a light most favorable to the nonmovant." Id. However, unsupported statements of legal conclusions are insufficient to state a cause of action. ETT Ambulance Serv. Corp. v. Rockford Ambulance, Inc., 204 Mich.App. 392, 395, 516 N.W.2d 498 (1994).
The interpretation of contractual language, as well as the determination of whether that contractual language is ambiguous, is a question of law that we review
Plaintiff argues that the trial court erred when it determined that the language of the force-majeure clause was unambiguous and that plaintiff had failed to state a claim under the clause. That is, plaintiff contends that it adequately pleaded, in accordance with the terms of the force-majeure clause, that its "delays or failure in performance of its obligations under [the] Agreement" (i.e., plaintiff's inability to pay) "ar[o]se out of or result[ed] from ... acts of the [Chinese] Government," such that its performance should have been excused. We disagree.
This Court's "main goal in the interpretation of contracts is to honor the intent of the parties." Mahnick, 256 Mich. App. at 158-159, 662 N.W.2d 830. The words used in the contract are the best evidence the parties' intent. Id. at 159, 662 N.W.2d 830, citing UAW-GM Human Resource Ctr. v. KSL Recreation Corp., 228 Mich.App. 486, 491, 579 N.W.2d 411 (1998). "When contract language is clear, unambiguous, and has a definite meaning, courts do not have the ability to write a different contract for the parties, or to consider extrinsic testimony to determine the parties' intent." Mahnick, 256 Mich. App. at 159, 662 N.W.2d 830.
The relevant language of the force-majeure clause is as follows: "Neither Buyer nor Seller shall be liable for delays or failures in performance of its obligations under this Agreement that arise out of or result from causes beyond such party's control, including without limitation:... acts of the Government...." This Court has previously observed that there is a paucity of Michigan cases interpreting force-majeure clauses, see Erickson, 189 Mich.App. at 686, 474 N.W.2d 150, and that remains the case today. However, our general rules of contract interpretation, such as the rule that terms used in a contract are to be given their commonly used meanings unless defined in the contract, apply to the interpretation of force-majeure clauses. See Group Ins. Co. of Mich. v. Czopek, 440 Mich. 590, 596, 489 N.W.2d 444 (1992). Further, contracts must be read as a whole. Hastings Mut. Ins. Co. v. Safety King, Inc., 286 Mich.App. 287, 292, 778 N.W.2d 275 (2009). Force-majeure clauses are typically narrowly construed, such that the clause "will generally only excuse a party's nonperformance if the event that caused the party's nonperformance is specifically identified." In re Cablevision Consumer Litigation, 864 F.Supp.2d 258, 264 (E.D.N.Y., 2012), citing Reade v. Stoneybrook Realty, LLC, 63 A.D.3d 433, 434, 882 N.Y.S.2d 8 (2009); see also Great Lakes Gas Transmission Ltd. Partnership v. Essar Steel Minnesota, LLC, 871 F.Supp.2d 843, 854 (D.Minn., 2012).
In this case, the trial court assumed
At the outset, we note that the bulk of plaintiff's complaint for declaratory relief consists of allegations of bad behavior on the part of defendant. Such conduct, even if true, cannot form the basis for relief under the force-majeure clause, because none of the alleged acts are "acts of God; acts of the Government or the public enemy; natural disasters; fire; flood; epidemics; quarantine restrictions; strikes; freight embargoes; war; acts of terrorism; [or] equipment breakage...." While we appreciate the indulgence granted by the trial court in assuming the occurrence of a force-majeure event, we hold that the conduct alleged in this case did not constitute a force-majeure event under the parties' contract, and that the trial court should have, had it considered the issue, granted summary disposition to defendant on that additional ground. Regardless, however, of whether we analyze whether a force-majeure event occurred, or whether plaintiff's alleged inability to perform its contractual obligations arose out of or resulted from an assumed force-majeure event, our holding is the same: plaintiff failed to state a claim on which relief could be granted, and the trial court properly granted summary disposition to defendant. We will affirm a trial court's decision on a motion for summary disposition if it reached the correct result, even if our reasoning differs. Washburn v. Michailoff, 240 Mich.App. 669, 678 n. 6, 613 N.W.2d 405 (2000).
Plaintiff argues that, because of the effect of the "trade war" in the solar industry market, it can no longer pay defendant the prices that the parties negotiated in Agreement IV, and would be forced to leave the solar panel industry if it remained liable under the contract. But these allegations are conclusory and unsupported by allegations of fact. See ETT Ambulance Serv. Corp., 204 Mich.App. at 395, 516 N.W.2d 498. Specifically, even taking plaintiff's factual allegations as true and construing them in plaintiff's favor, the allegations of the complaint only indicate that the deflation of the market price for polysilicon has rendered plaintiff's contract with defendant unprofitable. The risk of such a deflation of market prices — no matter the cause — was expressly assumed
Rather, construing the force-majeure clause narrowly, as we must, In re Cablevision Consumer Litigation, see 864 F.Supp.2d at 264, the conduct at issue simply does not constitute a force-majeure event. Plaintiff does not allege any "act[ ] of the Government" that directly prevented its performance under the contract. It merely alleges that the depression of prices in the solar panel market caused performance by plaintiff to become unprofitable or unsustainable as a business strategy. But plaintiff did not (although, again, it could have) negotiate a contractual force-majeure clause that by its terms would have excused contractual performance resulting from unprofitability due to governmental market manipulation. Having failed to do so, plaintiff cannot now, through judicial action, effectively reform the contract to include a provision that was not negotiated for by the parties.
A similar argument to plaintiff's was presented to, and rejected by, the United States Court of Appeals for the Fourth Circuit in Langham-Hill Petroleum Inc. v. Southern Fuels Co., 813 F.2d 1327 (C.A.4, 1987). In Langham-Hill Petroleum, the defendant argued that action taken by Saudi Arabia, "which led to a dramatic drop in world oil prices, falls within the scope of the contract's force majeure or Act of God clause," excusing the party's failure to perform under the contract. Langham-Hill Petroleum, 813 F.2d at 1328. The court rejected that argument, holding as a matter of law that summary disposition in favor of the non-breaching party was proper because a "[s]hortage of cash or inability to buy at a remunerative price cannot be regarded as a contingency beyond the seller's control." Id. at 1330 (citation and quotation marks omitted). The court further reasoned that "[i]f fixed-price contracts can be avoided due to fluctuations in price, then the entire purpose of fixed-price contracts, which is to protect both the buyer and the seller from the risks of the market, is defeated." Id.
Further, allowing a force-majeure clause to provide a party with relief from an unprofitable market downturn would defeat the purpose of a take-or-pay contract, under which a party (in this case, plaintiff) obligates itself to purchase a set amount of a product at a set price per year, or pay the other party the difference between the amount of product it purchases and the contractual amount. "The very reason for entering the take-or-pay contracts [is] to insure payment to the producer in the event of substantial change in the marketplace." Day v. Tenneco, Inc., 696 F.Supp. 233, 236 (S.D.Miss., 1988). In this case, Agreement IV states that "Buyer is absolutely and irrevocably required to pay the Net Price per kilogram for the Contract Quantity per calendar year over the Term of this Agreement." Thus, reading the contract as a whole, see Hastings Mut. Ins., 286 Mich. App. at 292, 778 N.W.2d 275, we conclude that applying the force-majeure clause to excuse plaintiff's obligation to pay pursuant to the contract's take-or-pay provision would "nullify a central term of the contract," Northern Indiana Pub. Serv. Co. v. Carbon Co. Coal Co., 799 F.2d 265, 275 (C.A.7, 1986), and relieve plaintiff from the very risk it contracted to assume.
More generally, although in the context of contracts with fixed prices rather than
Again, plaintiff does not allege any objective event that directly affected its ability to perform under Agreement IV. It merely alleged market events that allegedly make the contract no longer profitable.
Additionally, plaintiff's reliance on ANR Pipeline Co. v. Devon Energy Corp., unpublished opinion of the United States District Court for the Western District of Michigan, issued February 1, 1989 (Case No. G86-1123 CA), is misplaced. In ANR, the take-or-pay contract at issue contained two inconsistent clauses addressing the force-majeure event at issue (the failure of the plaintiff's customers to purchase gas given the availability of cheaper gas from other sources). Id. at pp 1-12. The trial court thus found the contract ambiguous and inappropriate for summary disposition. Id. at 12-13.
In this case, the parties did not argue below that the force-majeure clause or any portion of Agreement IV is ambiguous. "It is well settled that the meaning of an ambiguous contract is a question of fact that must be decided by the jury." Klapp v. United Ins. Group Agency, Inc., 468 Mich. 459, 469, 663 N.W.2d 447 (2003). On appeal, plaintiff does not articulate a sufficient basis for this Court to conclude that either a patent or latent ambiguity exists in the contract so as to render summary disposition inappropriate. See Shay v. Aldrich, 487 Mich. 648, 667-668, 790 N.W.2d 629 (2010). ANR Pipeline therefore does not aid plaintiff's case. Further, Sharon Steel Corp. v. Jewell Coal and Coke Co., 735 F.2d 775, 779 (C.A.3, 1984), while involving a force-majeure clause, centered on a determination of whether the plaintiff's claim of commercial impracticability was arbitrable in light of the strong federal policy favoring arbitration. The Sharon Steel court's decision that the plaintiff's claim was arbitrable despite the trial court's holding that a drop in market price would not trigger the contract's force-majeure clause does not aid plaintiff here in light of the substantially different
Notwithstanding this analysis, plaintiff argues that the parties did not foresee the alleged illegality of the Chinese government's conduct. Plaintiff relies on Chang v. Pacificorp, 212 Or.App. 14, 157 P.3d 243 (2007), and Cartan Tours, Inc. v. ESA Servs., Inc., 833 So.2d 873 (Fla.Dist.Ct. App., 2003). Chang involved the common-law doctrine of frustration of purpose, not the interpretation of a contract. Chang, 212 Or.App. at 40-41, 157 P.3d 243. Although plaintiff makes much of the trial court's statement in Chang that "`intelligent and informed executives of these corporations'" could not reasonably be expected to anticipate "`unlawful activity or activity that is so highly manipulative that it totally distorts the market by the use of false or misleading trading practices,'" that statement was made in the context of the plaintiff's assertion of the defense of frustration of purpose, an essential element of which is the occurrence of an unforeseeable event. See id. at 22, 38-39, 157 P.3d 243, citing Restatement Contracts, 2d (1981) § 265. Cartan Tours, 833 So.2d at 874, did involve the interpretation of a force-majeure clause, but did not discuss the foreseeability of illegal activity; rather the Cartan Tours court was simply tasked with determining whether an act of "terrorism" interfered with "`the ability of the Olympic Games to be held....'"
Plaintiff further distinguishes Langham-Hill Petroleum Inc., 813 F.2d at 1328-1329, on foreseeability grounds, arguing that it was foreseeable that Saudi Arabia could affect the global oil market.
More importantly, our decision does not rest on foreseeability grounds, but on interpretation of the contract and the risks assumed by both parties. Certainly, the general notion that markets are volatile and prices may rise and fall was known to both parties and such risk was precisely allocated by the take-or-pay nature of Agreement IV. Agreement IV states, and plaintiff does not challenge, that the parties to the agreement were sophisticated business entities with equal bargaining power; thus, if plaintiff had wished to protect itself from artificial market deflation because of government action (or, for that matter, excessive market downturns of any kind), it could have done so. Simply put, plaintiff has failed to allege a cognizable claim that a force-majeure event occurred, or that a force-majeure event caused a delay or failure in performance under the contract.
Finally, plaintiff argues that at a minimum its case should be allowed to proceed to discovery, so that the issue of the foreseeability of China's alleged illegal actions in the solar market and the parties' intent with regard to allocation of risk can be explored. However, as already stated, plaintiff did not argue below, and does not
Therefore, construing the force-majeure clause narrowly, see In re Cablevision Consumer Litigation, 864 F.Supp.2d at 264, we conclude that plaintiff has failed to allege a force-majeure event, or a cognizable delay or failure to perform arising from a force-majeure event, within the meaning of, and so as to trigger the protections of, the force-majeure clause contained in the parties' contract. Rather, plaintiff has merely pleaded unprofitability given the deflation of market prices — a risk plaintiff expressly assumed. Plaintiff has thus failed to plead a claim on which relief can be granted. MCR 2.116(C)(8); see also ETT Ambulance Serv. Corp., 204 Mich.App. at 395-396, 516 N.W.2d 498.
SAAD and HOEKSTRA, JJ., concurred with BOONSTRA, P.J.