Earlier this week, the Michigan Court of Appeals issued its opinion in FCA US, LLC v. Kamax Inc., et al., the latest in a string of court decisions interpreting the enforceability of supply chain contracts in the wake of the Michigan Supreme Court’s landmark 2023 decision in AirBoss. We recently blogged about a federal court decision in March that held key language in Stellantis’ standard purchase orders to be unenforceable here.
On May 14, however, the Court of Appeals zagged, holding identical language enforceable. The decision sets up a potential showdown at the Michigan Supreme Court and poses interesting questions for suppliers relying on a string of federal court decisions in the meantime.
At issue in Kamax was whether Stellantis’ purchase orders, which stated that the quantity of parts to be purchased was “approximately 65%-100% of [Stellantis’] requirements,” created an enforceable requirements contract under Michigan law. In the federal decision a couple months ago, FCA US, LLC v. MacLean-Fogg Component Solutions LLC, et al., the United States District Court for the Eastern District of Michigan had held that this language did not pass muster, noting that it was bound by the United States Court of Appeals for the Sixth Circuit’s interpretation of the AirBoss opinion in Higuchi Int’l Corp. v. Autoliv ASP, Inc. In that case, the federal appeals court had held that a “written quantity term cannot be ambiguous,” but rather, “it must be precise and explicit.” Following this precedent, the federal district court held in March that Stellantis’ terms did not meet this standard, largely because they used the qualifier “approximately.”
This week, the Michigan Court of Appeals reached the opposite conclusion. The court focused on its pre-AirBoss decision in Cadillac Rubber & Plastics, Inc. v. Tubular Metal Sys. LLC, 331 Mich. App. 416 (2020), which we’ve previously written about in further detail. In that case, the court had upheld the enforceability of a provision that measured the quantity to be purchased as “no less than one piece or unit of each of the Supplies and no more than one hundred percent (100%) of Buyer’s requirements.” Kamax argued that a range such as this — and particularly one qualified by the word “approximately” — was no longer viable in light of AirBoss. As Kamax argued, if Cadillac Rubber was no longer good law, then Stellantis’ terms were also unenforceable.
The court rejected this argument, concluding that Cadillac Rubber did not irreconcilably conflict with the holding in AirBoss. The court explained that AirBoss dealt with the absence of a quantity provision altogether, not the acceptability of a range in quantities. Also noteworthy to the panel was that the Michigan Supreme Court in AirBoss had been asked to overturn Cadillac Rubber but had expressly declined to do so, which meant that it remained binding precedent. The court further took from Cadillac Rubber that any ambiguities regarding the quantity agreed to by the parties could be resolved by parol evidence outside of the written contract, including the parties’ course of performance.
Notably, and in sharp contrast to its federal counterpart, the Michigan Court of Appeals did not address or place any weight on Stellantis’ use of the word “approximately.” The court also stopped short of concluding that as a matter of law that Stellantis’ purchase orders always impose a binding obligation on suppliers to supply 100% of Stellantis’ requirements.
This decision will have a substantial impact on this area of law, at least for now. Suppliers that had relied on the federal decisions in Higuchi or MacLean-Fogg should reassess whether those precedents remain good law — aspects of those decisions may not.
Looking forward, all eyes will again turn to the Michigan Supreme Court. Kamax has the option to ask the Supreme Court to take the case on appeal. And several weeks ago, another federal judge in Detroit certified the question to the Michigan Supreme Court of whether the exact contract provision at issue in Cadillac Rubber — “one part to 100% of requirements” — remains viable post-AirBoss. In its AirBoss opinion, the Supreme Court foreshadowed in a footnote that this issue could return to the court. It looks like it may do just that, only two years later.
