Cmc Telecom Inc v. Neyer Tiseo & Hindo Ltd

STATE OF MICHIGAN

COURT OF APPEALS

CMC TELECOM, INC, UNPUBLISHED

February 21, 2017

Plaintiff-Appellant,

v No. 327955

Oakland Circuit Court

NEYER TISEO & HINDO, LTD, doing business LC No. 2012-125166-CK

as NTH CONSULTANTS, LTD,

Defendant-Appellee.

Before: WILDER, P.J., and CAVANAGH and K. F. KELLY, JJ.

PER CURIAM.

Plaintiff, CMC Telecom, Inc, appeals as of right the trial court’s verdict of no cause of

action in favor of defendant, Neyer Tiseo & Hindo, LTD, doing business as NTH Consultants,

LTD. We affirm.

I. FACTUAL BACKGROUND

This breach of contract action arises out thousands of alleged fraudulent calls placed

remotely by hackers who compromised defendant’s voicemail system. The primary question

presented below was whether defendant was obligated to pay for such fraudulent calls under its

telecommunications agreement with plaintiff. There was a prior appeal in this case at the

summary disposition stage. CMC Telecom, Inc v Neyer Tiseo & Hindo, LTD, unpublished

opinion per curiam of the Court of Appeals, issued September 23, 2014 (Docket No. 315338)

(CMC I). Much of the pertinent factual background is set forth by CMC I, and the parties

stipulated to many other relevant “uncontested” facts at trial.1

“Plaintiff is a local telephone provider who purchases long distance and international

phone service from Level 3, a wholesaler, and resells these services to [plaintiff’s] customers.”

1

Such stipulated facts are “sacrosanct” and must be accepted as true. See Dana Corp v Appeal

Bd of Mich Employment Security Comm, 371 Mich 107, 110; 123 NW2d 277 (1963); see also

Staff v Johnson, 242 Mich App 521, 535; 619 NW2d 57 (2000). Accordingly, we quote the

parties’ stipulated facts in this opinion where practicable.

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Id. at 1. Plaintiff began providing telecommunication services to defendant’s Dearborn office in

2006. “Plaintiff provided Defendant with a voicemail system with an integrated call forwarding

service on certain of Defendant’s phone lines for use at the Dearborn Office.”

During the timeframe at issue in this case, the parties’ agreement was memorialized

primarily by two “basic documents”: a “customer service order” (CSO) and a “service terms and

conditions” agreement (the Service Terms agreement). The Service Terms agreement was the

principal contract between the parties. On the other hand, the CSO was a supplemental

agreement.

The pertinent provisions of the Service Terms agreement are as follows:

PAYMENT. Customer shall pay CMC for Services pursuant to this

Agreement.

* * *

LIMITATION OF LIABILITY. . . . CMC SHALL NOT BE LIABLE FOR

ANY LOSSES OR DAMAGES RESULTING FROM . . . THE . . .

OPERATION, USE, OR MISUSE OF AN ACCOUNT, EQUIPMENT, OR

SERVICES . . . .

The Service Terms agreement contains “a merger provision which expressly provides that the

Service Terms [agreement] and the documents explicitly referenced therein constitute the parties

entire agreement, and ‘supersedes all other agreements, whether written or oral.’ ” On the other

hand, in pertinent part, the CSO provides, “By executing this Customer Service Order [CSO],

Customer [defendant] is ordering the Services set forth herein and on related documentation.

Customer agrees to pay for all Services ordered or otherwise used[.]” Neither the Service Terms

agreement nor the CSO define the terms “Services,” “ordered,” or “used,” and “[n]one of

Plaintiff’s alleged contracts with Defendant reference any variation of the word fraud.”

In early March of 2011, more than 20,000 fraudulent international calls were placed

using three lines associated with defendant’s account. Plaintiff’s “switch engineer,” Norman

Joseph Diedrich, investigated the fraudulent call incident and determined that the fraudulent calls

were placed when defendant’s voicemail system was compromised by hackers, who remotely

changed defendant’s voicemail settings to forward all calls to “an international location number.”

The hackers’ use of defendant’s “call forwarding always” function allowed them to make such a

high volume of calls despite the relatively short period of time at issue. A call so forwarded was

never routed through defendant’s hardware, only through the voicemail server and the hardware

of plaintiff and Level 3; thus, the hackers were able to place up to 240 international calls

simultaneously. Defendant would have had no way to know the fraudulent calls were being

placed until plaintiff or Level 3 alerted it of that fact. Diedrich opined that the fraudulent calls

“were definitely made,” but he admitted that his opinion in this regard was premised solely on

the fact that “[t]he calls were recorded by Level 3.” Diedrich also admitted that he “kn[e]w

nothing about Level 3’s billing.”

“Plaintiff issued an invoice to Defendant dated April 10, 2011 for $224,082.58, including

charges for the fraudulent international calls at issue,” and “Defendant paid Plaintiff the

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undisputed portion of the invoice, leaving a disputed balance of $209,993.28. . . .” The April 10,

2011 invoice is 280 pages long and was not prepared by plaintiff or its employees but “by one of

Plaintiff’s vendors, Profitec, Inc. (‘Profitec’). . . .” Moreover, “[t]he international call charges . .

. reflected in the [April 10, 2011] invoice . . . are based on call data that was generated by Level

3 and not on any call data generated by Plaintiff.” After defendant refused to pay the disputed

balance, plaintiff instituted this action.

Plaintiff called only three witnesses at trial. The first, Rhonie Hamel, is the accounts

receivable manager for plaintiff. Hamel testified that the person at Profitec who would have

personal knowledge about how the April 10, 2011 invoice was generated is Caren Bennett, who

was never deposed or called as a witness at trial. Hamel was unsure whether any of plaintiff’s

employees ever actually reviewed the “raw call data” from which the April 10, 2011 invoice was

compiled. Plaintiff attempted to have Hamel offer “trade usage” testimony, but such testimony

was excluded because plaintiff failed to establish that Hamel was a competent expert with the

ability to offer such testimony.

Plaintiff’s second witness was the switch manager, Diedrich. Through Diedrich’s

testimony, plaintiff attempted to introduce documents regarding how “Comcast” and “Bright

House Networks” handle fraudulent calls, but those exhibits were excluded on hearsay grounds

after Diedrich testified that he was unfamiliar with the documents and their origin.

Finally, plaintiff called its president and sole owner, Craig Champagne. Champagne

acknowledged that, other than asking the billing company, Profitec, to compile the April 10,

2011 invoice, plaintiff did nothing to verify the accuracy of the billed calls. During

Champagne’s testimony, plaintiff attempted to introduce several documents Champagne had

located online. The documents in question concerned the “toll fraud” policies of several major

telecommunications companies. Defendant objected, arguing that the documents were

inadmissible hearsay. Plaintiff responded by arguing that the documents were admissible under

MRE 803(24), i.e., the “catch-all” hearsay exception. The trial court held that the documents

were not admissible under the catch-all exception.

At the conclusion of the trial, the trial court issued a written opinion and order in favor of

defendant. This appeal ensued.

II. ANALYSIS

Plaintiff first argues that the trial court committed error requiring reversal by excluding

plaintiff’s proffered trade usage evidence. We disagree.

Plaintiff’s failure to duly preserve this issue for appeal is fatal to its instant claim of error.

“[I]t is well settled that in order to preserve the issue of the admissibility of evidence for appeal,

the proponent of evidence excluded by the trial court must make an offer of proof.” Detroit v

Detroit Plaza Ltd Partnership, 273 Mich App 260, 291; 730 NW2d 523 (2006). Plaintiff did not

make an offer of proof regarding any of its excluded trade usage evidence, and hence our review

is for plain error affecting plaintiff’s substantial rights. See Landin v Healthsource Saginaw, Inc,

305 Mich App 519, 541; 854 NW2d 152 (2014). “To avoid forfeiture under the plain error rule,

three requirements must be met: 1) error must have occurred, 2) the error was plain, i.e., clear or

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obvious, 3) and the plain error affected substantial rights.” In re Contempt of Henry, 282 Mich

App 656, 666; 765 NW2d 44 (2009), quoting People v Carines, 460 Mich 750, 763; 597 NW2d

130 (1999). “The third requirement generally requires a showing of prejudice, i.e., that the error

affected the outcome of the lower court proceedings.” Carines, 460 Mich at 763. Without an

offer of proof, it is impossible for plaintiff to carry its burden of proving that the exclusion of the

trade usage evidence prejudiced it. Thus, plaintiff’s instant claim of error necessarily fails. See

People v Hampton, 237 Mich App 143, 154; 603 NW2d 270 (1999) (“Because defendant did not

make an offer of proof at trial regarding the substance of Parkman’s excluded testimony, we are

unable to conclude that the exclusion of Parkman’s testimony affected defendant’s substantial

rights.”).

Plaintiff also argues that the trial court either erred or relied on clearly erroneous factual

findings when it decided, following trial, that plaintiff had failed to carry its burden of proving its

claims by a preponderance of the evidence. We again disagree.

“We review a trial court’s findings of fact for clear error, giving particular deference to

the trial court’s superior position to determine witness credibility.” Miller-Davis Co v Ahrens

Construction, Inc, 495 Mich 161, 172; 848 NW2d 95 (2014) (Miller-Davis). “A factual finding

is clearly erroneous if there is no substantial evidence to sustain it or if, although there is some

evidence to support it, the reviewing court is left with the definite and firm conviction that a

mistake has been committed.” Id. at 172-173 (footnotes omitted). On the other hand, “[t]he

existence and interpretation of a contract are questions of law reviewed de novo.” Kloian v

Domino’s Pizza LLC, 273 Mich App 449, 452; 733 NW2d 766 (2006).

As an initial consideration, we reject plaintiff’s portrayal of the federal caselaw it cites as

“controlling” over this matter. Although “federal precedent is generally considered highly

persuasive when it addresses analogous issues,” such precedent is “not binding on this Court”

under the doctrine of stare decisis. Wilcoxon v Minnesota Mining & Mfg Co, 235 Mich App 347,

360; 597 NW2d 250 (1999). Moreover, “the interpretation of a contract is ordinarily a matter of

state law,” DIRECTV, Inc v Imburgia, ___ US ___, ___; 136 S Ct 463, 468; 193 L Ed 2d 365

(2015), and “the Michigan Supreme Court has the ultimate responsibility for determining a

question of state law,” In re Apportionment of State Legislature, 413 Mich 96, 116; 321 NW2d

565 (1982). See also Mullaney v Wilbur, 421 US 684, 691; 95 S Ct 1881; 44 L Ed 2d 508 (1975)

(“[S]tate courts are the ultimate expositors of state law”).

In any event, based on Michigan law and the facts of the case at bar, we discern no error

warranting reversal. “A party asserting a breach of contract must establish by a preponderance

of the evidence that (1) there was a contract (2) which the other party breached (3) thereby

resulting in damages to the party claiming breach.” Miller-Davis, 495 Mich at 178. The first

element is undisputed here; both parties admit that a contract existed. The determinative

question is whether defendant was obligated to pay for the fraudulent calls and, by failing to do

so, breached the parties’ agreement.

As explained by the Miller-Davis Court,

[O]ur primary task in construing a contract . . . is to give effect to the parties’

intention at the time they entered into the contract. We determine the parties’

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intent by examining the language of the contract according to its plain and

ordinary meaning. In doing so, we avoid an interpretation that would render any

portion of the contract nugatory. [Miller-Davis, 495 Mich at 174.]

Contractual ambiguities can be either patent or latent. Shay v Aldrich, 487 Mich 648, 668; 790

NW2d 629 (2010).

A contract is patently ambiguous only if, after the court has engaged in its judicial

duties of giving effect to the contract’s language, the court concludes that a term

is equally susceptible to more than a single meaning, or that two provisions of the

same contract irreconcilably conflict. . . . [Id. at 678 (quotation marks, citations,

and emphasis omitted).]

Contrastingly, “[a] latent ambiguity exists when the language in a contract appears to be clear

and intelligible and suggests a single meaning, but other facts create the necessity for

interpretation or a choice among two or more possible meanings.” Id. at 668 (quotation marks

and citations omitted). “It is an elementary rule of construction . . . that in case of doubt, a

contract is to be strictly construed against the party by whose agent it was drafted.” Id. at 673.

Here, although the trial court’s opinion and order does not contain the phrase “latently

ambiguous,” or other words to the same effect, the trial court’s analysis of extrinsic evidence

strongly suggests that it found latent ambiguity in the parties’ agreement. The trial court

reasoned, “[t]he term ‘services’ is not defined and none of Plaintiff’s witnesses provided

testimony establishing that ‘services’ included fraudulent international calls.” (Emphasis

added.) Through such analysis, the trial court considered testimony (i.e., extrinsic evidence) as a

means of discerning the parties’ intent—an exercise that was only permissible if the language of

the agreement was ambiguous. See Blackhawk Development Corp v Village of Dexter, 473 Mich

33, 49; 700 NW2d 364 (2005). Because the trial court is presumed to have known and properly

applied the law, see Charles A Murray Trust v Futrell, 303 Mich App 28, 44; 840 NW2d 775

(2013), we do not presume that the trial court impermissibly considered extrinsic evidence.

Instead, we presume that the court found the parties’ agreement to be ambiguous. And because

no patent ambiguity is apparent in the contractual language—indeed, the parties have never

argued that their agreement was patently ambiguous—we further presume that the trial court

found the parties’ agreement to be latently ambiguous.

We perceive no error in that conclusion. Plaintiff emphasizes the “LIMITATION OF

LIABILITY” language from the Service Terms agreement, which provides that plaintiff

“SHALL NOT BE LIABLE FOR ANY LOSSES OR DAMAGES RESULTING FROM . . .

THE . . . OPERATION, USE, OR MISUSE OF AN ACCOUNT, EQUIPMENT, OR

SERVICES. . . .” Plaintiff posits that the fraudulent use of defendant’s voicemail to place

international calls constitutes “misuse of an account, equipment, or services,” further contending

that, under the terms of the agreement, plaintiff “shall not be liable” for such misuse. But the

fact that plaintiff is not “liable” to defendant does not mean that defendant is liable to plaintiff.

On the contrary, the plain language in question establishes nothing more than a limitation on

plaintiff’s liability.

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Moreover, as applied to the facts of this case, we find the pertinent portion of the CSO to

be latently ambiguous. The CSO provides, “Customer agrees to pay for all Services ordered or

otherwise used. . . .” (Emphasis added.) It cannot be rationally argued that defendant “ordered”

the fraudulent calls; plaintiff’s switch manager, Diedrich, admitted at trial that defendant had no

way to know about the fraudulent calls until it was notified by plaintiff or Level 3. Hence, the

question becomes whether the fraudulent calls qualify as services “otherwise used.” It is in this

respect that the latent ambiguity arises. The construction offered by plaintiff is facially

reasonable. But the agreement does not specify whether defendant was agreeing to pay for

services used by itself only or those used by itself and third parties. Given the CSO’s lack of

specificity, either construction is reasonable. Therefore, the CSO is latently ambiguous.

Standing alone, of course, that latent ambiguity was not fatal to plaintiff’s position, even

in light of contra proferentem. That rule of construction—“that ambiguities are to be construed

against the drafter of the contract”—“should only be applied if all conventional means of

contract interpretation, including the consideration of relevant extrinsic evidence, have left the

finder of fact unable to determine what the parties intended their contract to mean.” Woodington

v Shokoohi, 288 Mich App 352, 376; 792 NW2d 63 (2010). As explained in CMC I, “an

integrated writing ‘may be explained or supplemented by operative usages of trade, by the course

of dealing between the parties, and by the course of performance of the agreement.’ ” CMC I,

unpub op at 3, quoting Restatement Contracts, 2d, § 209, Comment A. Thus, by introducing

extrinsic evidence at trial, plaintiff could have proven that the CSO’s latent ambiguity should be

construed against defendant.

At trial, however, despite the opportunity to do so, plaintiff was unable to produce any

admissible evidence regarding trade usage. Plaintiff’s evidence that some number of

unidentified clients had, at some time in the past, paid for allegedly fraudulent calls does not

establish that doing so is standard practice in the telecommunications industry. Plaintiff was also

unable to present any “course of dealing” or “course of performance” evidence that the trial

judge, as trier of fact, found credible or persuasive. Nor was plaintiff able to produce any

witnesses competent to testify regarding the veracity of the April 10, 2011 invoice or to explain

its seeming internal inconsistencies. Champagne admitted that plaintiff did nothing to verify the

accuracy of the billed calls. Because of the limited proofs offered by plaintiff, the trial court was

not satisfied that defendant breached the parties’ agreement or that the April 10, 2011 invoice

had been proven to be accurate, and we are not definitely or firmly convinced that the trial court

made a mistake in that regard. The ultimate failure in plaintiff’s proofs is not attributable to any

error by the trial court but rather to plaintiff’s decision to call only three witnesses, to call no

expert witnesses, and to fail to secure admissible evidence regarding trade usage.

Thus, the trial court did not err by construing the latent ambiguity in the parties’

agreement against plaintiff. Given the lack of admissible extrinsic evidence to indicate that the

ambiguity should be construed against defendant, the trial court could properly rely on the rule of

contra proferentem. Moreover, given the fact that the burden of proof rested with plaintiff, it

was appropriate for the trial court to determine that plaintiff had failed to prove its case by a

preponderance of the evidence.

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Affirmed. As the prevailing party, defendant may tax costs pursuant to MCR 7.219.

/s/ Kurtis T. Wilder

/s/ Mark J. Cavanagh

/s/ Kirsten Frank Kelly

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