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147860 - Service Source v DHL Express

The Service Source, Inc. and The Service Source Franchise, LLC,
 
John J. Bursch
 
Plaintiffs-Appellees,
 
v
(Appeal from Ct of Appeals)
 
 
(Lenawee – Noe, M.)
 
DHL Express (USA), Inc.,
 
Noreen L. Slank
 
Defendant-Appellant.
Christopher S. Ruhland

Summary

​Defendant DHL Express (USA), Inc. (DHL) is an Ohio corporation with its principal place of business in Florida. Long involved in international shipping, DHL attempted to enter the domestic shipping market in 2003 by acquiring Airborne Express, a domestic shipper. The plaintiffs, The Service Source, Inc. (TSS) and The Service Source Franchise, LLC (TSSF), each signed contracts with DHL authorizing them to act as resellers of DHL’s shipping services.  Resellers obtain preferential wholesale rates from shipping companies such as DHL, and resell the shipping services to smaller customers at rates between the wholesale rate and the retail rate that would otherwise be charged by the shipper. DHL and TSS entered into a Reseller Agreement on January 6, 2006, while a contract between DHL and TSSF was executed on July 22, 2007. The two contracts were substantially the same, explaining that the resellers had “requirements for expedited international air express services . . . and for domestic door-to-door air and ground express services . . . .”  The contracts stated that shipments would originate at the plaintiff resellers’ customers’ “domestic locations at which DHL regularly provides collection service with its own personnel and will be delivered to any destination regularly serviced by DHL or its designated agents.”  The contracts further stated that they would be governed by Florida law.

Faced with stiff competition and the economic downturn, DHL decided to withdraw from the domestic shipping market and provide only international service in the U.S. On November 10, 2008, DHL issued a press release stating that domestic service would end January 30, 2009.  At that time, the parties’ contracts were set to expire in 2013.  Paragraph 17 of the contracts provided for early termination under limited circumstances, but it was undisputed that none of these criteria existed when DHL announced that it would stop all domestic shipments.

The plaintiffs sued DHL on February 10, 2009, alleging that DHL’s announcement on November 10, 2008 constituted an anticipatory breach of the contracts. The plaintiffs continued to use DHL’s domestic services through January 2009, and international shipping for the next few months thereafter. The plaintiffs also stopped paying DHL for services still being used, with the last payment made on December 2, 2008. By late February 2009, DHL claimed that the plaintiffs owed over $500,000. As a result, DHL sent a letter to the plaintiffs informing them that the contracts were terminated as of March 5, 2009.

The trial court ordered DHL to file as a counterclaim its affirmative defense that the plaintiffs owed it over $500,000. The plaintiffs moved for partial summary disposition on the question of liability. The trial court ruled that the contracts required DHL to provide domestic service. Because there was no dispute that DHL ceased domestic service in January 2009, the court granted the plaintiffs’ motion. The case then continued to a bench trial on the issues of damages and DHL’s counterclaim.

Plaintiffs’ damages expert determined that the present value of TSS’s lost profits amounted to $4,420,000, assuming the business would have been shut down when the contract ended in 2013, or $3,490,000 if it simply ran normally for the term of the contract. The damages calculation was adjusted to account for the payments that the plaintiffs admitted they did not make to DHL after DHL announced it would cancel all domestic service.

The trial court entered judgments in favor of the plaintiffs of $3,546,789 for TSS and $287,522 for TSSF, largely adopting the testimony of the plaintiffs’ expert.

DHL appealed.  In an unpublished per curiam opinion, the Court of Appeals affirmed the trial court’s legal analysis. The Court of Appeals held that, although the trial court erred in applying Michigan law despite the parties’ free choice of Florida law, it correctly ruled that DHL was liable for breach of contract. The panel explained:  “Taken as a whole, the contracts between the parties clearly contemplate that defendant would provide domestic service. . . .  Reading the contracts as a whole and giving meaning to all of the words in the contract, defendant could likely cease service to a handful of specific domestic locations without breaching the contract, but could not completely stop all domestic service.”  The Court of Appeals also held that the trial court’s award of damages was not clearly erroneous, with the exception of a minor correction to be made to the calculation of TSS’s lost profits.   

DHL filed an application for leave to appeal to the Supreme Court, which was granted on May 23, 2014.  The Supreme Court has directed the parties to include among the issues briefed:  “(1) whether the two agreements at issue are requirements contracts, and if so, whether that affects the issue of the defendant’s alleged breach of contract; (2) whether summary disposition was appropriately granted to the plaintiffs on the issue of liability; and (3) assuming that the defendant is liable for breach of contract, the period for which the defendant is responsible for plaintiffs’ lost profits.”