McCORMACK, J.
In this case, we consider whether agreements between sophisticated businesses are void for failure of consideration and whether the noncompete provisions in these agreements are reasonable. Plaintiff Innovation Ventures, LLC, has alleged a variety of tort and breach of contract claims against defendants Liquid Manufacturing, LLC, K & L Development of Michigan, LLC, Eternal Energy, LLC, LXR Biotech, LLC, Peter Paisley, and Andrew Krause based on the defendants' production of Eternal Energy and other energy drinks.
Contrary to the determination of the Court of Appeals, we conclude that the parties' Equipment Manufacturing and Installation Agreement (EMI) and Nondisclosure
We also hold that a commercial noncompete provision must be evaluated for reasonableness under the rule of reason. We conclude that the Court of Appeals erred when it failed to evaluate under this standard the noncompete provision in the parties' Termination Agreement. We leave undisturbed, however, the Court of Appeals' determination that Liquid Manufacturing did not breach the Termination Agreement by producing Eternal Energy.
Accordingly, we reverse the Court of Appeals in part, affirm in part, and remand to the trial court for consideration of whether the noncompete provisions in the parties' Nondisclosure Agreement and Termination Agreement are reasonable under the rule of reason, whether K & L Development breached the Nondisclosure Agreement, and whether Liquid Manufacturing breached the Termination Agreement with respect to its production of products other than Eternal Energy.
In 2007, the plaintiff engaged defendants Andrew Krause and K & L Development of Michigan (K & L Development) to design, manufacture, and install manufacturing and packaging equipment for the production of 5-Hour ENERGY at Liquid Manufacturing's bottling plant.
On the same day the EMI was memorialized, the plaintiff and defendant K & L Development entered into an agreement titled Nondisclosure and Confidentiality Agreement (Nondisclosure Agreement).
Shortly after entering the EMI and the Nondisclosure Agreement, the plaintiff terminated the EMI, which was permitted by the EMI's explicit terms with 14 days' notice.
In March 2007, the plaintiff contracted with defendant Liquid Manufacturing, LLC (Liquid Manufacturing), to produce and package 5-hour ENERGY. The parties subsequently amended this agreement, executing an Amended Manufacturing Agreement, which required Liquid Manufacturing to acquire several pieces of production equipment necessary to bottle 5-hour ENERGY. Liquid Manufacturing owned some of the equipment, and the plaintiff owned the remainder of the equipment. The Amended Manufacturing Agreement also provided the plaintiff with
In April 2010, the plaintiff terminated the Amended Manufacturing Agreement with Liquid Manufacturing. The plaintiff, as provided by the Agreement, then exercised its option to purchase the production equipment that Liquid Manufacturing had acquired to manufacture 5-hour ENERGY. The parties memorialized the termination of their business relationship and the plaintiff's purchase of Liquid Manufacturing's production equipment in a new agreement titled Agreement to Terminate and Exercise Purchase Option (Termination Agreement).
In September 2010, the defendants, Andrew Krause, former managing member of K & L Development, and Peter Paisley, CEO and President of Liquid Manufacturing, formed Eternal Energy, LLC, to produce the energy shot, Eternal Energy. On September 20, 2010, Liquid Manufacturing sought the plaintiff's permission to add Eternal Energy to the Approved Manufacturer's List. On the following day, the plaintiff provided its permission to add Eternal Energy to the Approved Manufacturer's List. Andrew Krause and Peter Paisley then formed LXR Biotech, LLC, to market and distribute Eternal Energy.
From September 2010 until March 2011, Liquid Manufacturing used the plaintiff's equipment to bottle Eternal Energy.
On January 27, 2012, the same day that the plaintiff informed Liquid Manufacturing that it had breached the Termination Agreement, the plaintiff instituted the instant action, alleging several tort and breach of contract claims against the defendants. The plaintiff alleged that defendants Liquid Manufacturing, Peter Paisley, K & L Development, and Andrew Krause wrongfully shared and used confidential information and violated their noncompete agreements by manufacturing, marketing, and distributing Eternal Energy and other energy drinks. The plaintiff sought a temporary restraining order to stop Liquid Manufacturing's production of Eternal Energy and sought emergency discovery. The trial court granted the temporary restraining order and the request for emergency discovery, and the court also ordered Liquid Manufacturing to allow the plaintiff to inspect its facility to determine whether it was manufacturing energy shots not approved by the plaintiff or included in the Approved Manufacturer's List. On January 30, 2012, and February 6, 2012, the plaintiff inspected Liquid Manufacturing's facility and discovered evidence that Liquid Manufacturing had produced Eternal Energy as well as a number of unapproved products.
The defendants moved for summary disposition under MCR 2.116(C)(8) and MCR 2.116(C)(10). The trial court initially denied the defendants' motion on all claims except the plaintiff's claims against Krause and Paisley of tortious interference. The court also allowed discovery to proceed. After the plaintiff sought additional discovery on third parties, the defendants sought to stay discovery while the trial court ruled on their renewed motions for summary disposition on the remaining claims. The trial court stayed discovery and subsequently granted summary disposition to the defendants on the remaining claims.
Addressing the breach of contract claims against K & L Development and Krause, the trial court held that there was no genuine issue of material fact on the question whether the defendants breached the EMI, because the EMI did not have a noncompete provision preventing direct competition with the plaintiff, and the EMI did not protect information obtained before the EMI was signed. It further held that the Nondisclosure Agreement between the plaintiff and K & L Development failed for lack of consideration. In the alternative, the trial court held that the noncompete provision in the Nondisclosure Agreement was unenforceable because it was unreasonable.
The trial court also concluded that Liquid Manufacturing did not breach the confidentiality provisions of the Termination Agreement because the plaintiff allowed Liquid Manufacturing to produce 36 different products using the same equipment used to manufacture 5-hour ENERGY, which effectively waived any confidentiality concerning the manufacturing process. The court reasoned that because the plaintiff authorized the alleged disclosure to Eternal Energy, Liquid Manufacturing could not have breached the agreement by providing information to Eternal Energy, LLC, or LXR Biotech, LLC. The trial court also noted that the plaintiff's claim that Liquid Manufacturing breached the confidentiality provisions of the Termination Agreement could not be sustained because the plaintiff failed to take any precautions to prevent Krause and K & L Development, the designers of the equipment, from disclosing their knowledge about the bottling equipment placed in Liquid Manufacturing's facilities. Finally, the trial court held that the noncompete provision in the Termination Agreement between the plaintiff and Liquid Manufacturing was unreasonable, and therefore unenforceable, because the plaintiff did not impose the provision to protect a legitimate business interest. The court reasoned that because the only intent of the Termination Agreement was to prevent competition, not to prevent an unfair advantage, the agreement was invalid on its face as an unreasonable restraint of trade.
The Court of Appeals affirmed the trial court's grant of summary disposition to defendants on all of the plaintiff's claims. The panel affirmed the trial court's grant of summary disposition of the breach of contract claims against K & L Development on different grounds. The Court further held that the EMI and the Nondisclosure Agreement were unenforceable for a failure of consideration because the plaintiff terminated the parties' business/employment relationship within two weeks of signing the Agreements and without providing K & L Development and Krause what they were promised under the Agreements.
The Court of Appeals also affirmed the trial court's grant of defendants' motions for summary disposition of the breach of contract claims against Liquid Manufacturing and Paisley. Like the trial court, the Court of Appeals reasoned that there was no genuine issue of material fact on the question whether Liquid Manufacturing breached the Termination Agreement by manufacturing Eternal Energy; the plaintiff expressly approved the bottling of Eternal Energy, and Liquid Manufacturing cured its breach of the Termination Agreement by providing the plaintiff with the executed nondisclosure agreement from Eternal Energy, LLC, within the time specified by the Termination Agreement. The Court also affirmed the trial court's grant of summary disposition to Liquid Manufacturing for its production of any product, reasoning that the noncompete provision in the Termination Agreement was unreasonable, and therefore, unenforceable. The Court of Appeals evaluated the reasonableness of the parties'
We granted leave to consider two questions: (1) whether the parties' Nondisclosure Agreement and EMI are void due to failure of consideration, and (2) whether the noncompete provisions in the Termination Agreement and the Nondisclosure Agreement are enforceable.
We review de novo a trial court's grant of summary disposition. Maiden v. Rozwood, 461 Mich. 109, 118, 597 N.W.2d 817 (1999). While the trial court did not state whether it was granting the defendants' motion for summary disposition under MCR 2.116(C)(8) or MCR 2.116(C)(10), we treat its grant of summary disposition as under MCR 2.116(C)(10) because it considered information beyond the pleadings. "A motion under MCR 2.116(C)(10) tests the factual sufficiency of the complaint." Maiden, 461 Mich. at 120, 597 N.W.2d 817. When evaluating a motion for summary disposition under MCR 2.116(C)(10), "a trial court considers affidavits, pleadings, depositions, admissions, and other evidence submitted by the parties... in the light most favorable to the party opposing the motion." Id. "Where the proffered evidence fails to establish a genuine issue regarding any material fact, the moving party is entitled to judgment as a matter of law." Id.
We review de novo, as a question of law, the proper interpretation of a contract. Miller-Davis Co. v. Ahrens Const., Inc., 495 Mich. 161, 172, 848 N.W.2d 95 (2014). "Absent an ambiguity or internal inconsistency, contractual interpretation begins and ends with the actual words of a written agreement." Universal Underwriters Ins. Co. v. Kneeland, 464 Mich. 491, 496, 628 N.W.2d 491 (2001). When interpreting a contract, our primary obligation "is to give effect to the parties' intention at the time they entered into the contract." Miller-Davis Co., 495 Mich. at 174, 848 N.W.2d 95. To do so, we examine "the language of the contract according to its plain and ordinary meaning." Id. "If the contractual language is unambiguous, courts must interpret and enforce the contract as written...." In re Egbert R. Smith Trust, 480 Mich. 19, 24, 745 N.W.2d 754 (2008). Reasonableness of a noncompete agreement is inherently fact-specific, see, e.g., Woodward v. Cadillac Overall Supply Co., 396 Mich. 379, 391, 240 N.W.2d 710 (1976), but, "[t]he reasonableness of a noncompetition provision is a question of law when the relevant facts are undisputed." Coates v. Bastian Brothers,
We turn first to the Court of Appeals' determination that the EMI and the Nondisclosure Agreement were unenforceable for failure of consideration. "A valid contract requires five elements: (1) parties competent to contract, (2) a proper subject matter, (3) legal consideration, (4) mutuality of agreement, and (5) mutuality of obligation." AFT Michigan v. State of Michigan, 497 Mich. 197, 235, 866 N.W.2d 782 (2015). "To have consideration there must be a bargained-for exchange"; "[t]here must be a benefit on one side, or a detriment suffered, or service done on the other." Gen. Motors Corp. v. Dep't. of Treasury, 466 Mich. 231, 238-239, 644 N.W.2d 734 (2002) (quotation marks and citation omitted). Generally, courts do not inquire into the sufficiency of consideration: "[a] cent or a pepper corn, in legal estimation, would constitute a valuable consideration." Id. at 239, 644 N.W.2d 734 (quotation marks and citation omitted; alteration in original).
As an initial matter, the trial court did not make any findings about a failure of consideration, but instead held that the EMI and the Nondisclosure Agreement were not supported by valid consideration. We disagree; both the EMI and the Nondisclosure Agreement were supported by sufficient consideration. According to the EMI, Krause and K & L Development were to design, manufacture, and assemble production equipment for the plaintiff to place in Liquid Manufacturing's facility. Once the manufacturing line placed in Liquid Manufacturing's facility was functioning properly, Krause and K & L Development were to install a second line in the plaintiff's Indiana facility according to the specifications outlined by the plaintiff. In exchange, the plaintiff was to pay Krause and K & L Development in installments proportionate to the value of their work. In fact, at the time the parties memorialized their oral agreement in the EMI, much of the work contemplated in the EMI had already been completed by Krause and K & L Development. Similarly, there was sufficient consideration to support the Nondisclosure Agreement between the plaintiff and K & L Development. In exchange for the plaintiff's acknowledgment that K & L Development wished to continue doing business with the plaintiff, K & L Development agreed to the confidentiality and noncompete agreements contained in the Nondisclosure Agreement.
In contrast to a lack of consideration, which relates to the adequacy of consideration at the time of the contract's formation, failure of consideration relates to the parties' performance under the contract. Failure of consideration is "[a] seriously deficient contractual performance that causes a contract's basis or inducement to cease to exist or to become worthless." Black's Law Dictionary (10th ed). In general, failure of consideration is an affirmative defense, and the party asserting it bears the burden of proof. See MCR 2.111(F)(3).
While we have had few opportunities to address this doctrine, generally we have recognized a failure of consideration when one party has committed a first, substantial breach of a contract, and sought to maintain an action against the other party for a subsequent failure to perform. See, e.g., McCarty v. Mercury Metalcraft Co., 372 Mich. 567, 573, 127 N.W.2d 340
We disagree with the Court of Appeals' holding that the EMI and the Nondisclosure Agreement were void for a failure of consideration. The EMI and the Nondisclosure Agreement were not void for a failure of consideration because the parties exercised their rights as plainly contemplated by the contract.
We turn next to the Court of Appeals' analysis of the noncompete provision in the parties' Termination Agreement. The plaintiff contends that the Court of Appeals applied the wrong standard to determine whether the noncompete provision was unreasonable. We agree. The Court of Appeals erred by applying the standard articulated in MCL 445.774a, which is the proper framework to evaluate the reasonableness of noncompete agreements between employees and employers. Instead, the Court should have applied the rule of reason to evaluate the parties' noncompete agreement.
The Michigan Antitrust Reform Act (MARA) governs the contracts at issue in this case. MCL 445.771 et seq.
The only statutory guidance MARA provides for assessing the reasonableness of a noncompete provision is contained in MCL 445.774a. MCL 445.774a sets forth the factors a court must consider to assess whether a noncompete agreement between an employer and an employee is reasonable.
In general, federal courts have assessed noncompete agreements between two commercial entities under the rule of reason.
We conclude that the parties' noncompete agreements should have been evaluated under the rule of reason.
Because we hold that the EMI and the Nondisclosure Agreement were not void for failure of consideration, we must determine whether K & L Development and Krause violated the noncompete and confidentiality provisions in the EMI, whether K & L Development violated the noncompete and confidentiality provisions in the Nondisclosure Agreement, and whether the noncompete provision in the Nondisclosure Agreement is a reasonable restraint of trade. We affirm the trial court's grant of summary disposition of the plaintiff's breach of contract claims against Krause without evaluating the reasonableness of the noncompete provision in the EMI because there is no genuine issue of material fact on the question whether Krause breached the confidentiality and nondisclosure provisions contained in the EMI. With respect to the breach of contract claims against K & L Development, we affirm the trial court's grant of summary disposition regarding any alleged breaches of the EMI, but we remand to the trial court the claim that K & L Development breached the Nondisclosure Agreement because we cannot say, as a matter of law, that K & L Development did not breach the Nondisclosure Agreement.
We first address the confidentiality and noncompete provisions in the EMI between the plaintiff and K & L Development and the plaintiff and Krause. The plaintiff alleges that K & L Development and Krause violated the EMI by sharing confidential information with Eternal Energy, LLC, and by producing Eternal Energy. While the Court of Appeals did not address whether K & L Development and Krause breached the parties' agreements, the trial court held that there was no genuine issue of material fact on the question whether Krause breached the EMI. We affirm the trial court's reasoning and hold that the same reasoning applies to K & L Development's liability under the EMI. The EMI defined confidential information as information obtained by the parties after the execution of the EMI. Because the EMI explicitly excluded from its definition of confidential information, any information obtained by K & L Development and Krause before the execution of the EMI, K & L Development and Krause may only be liable for violating the EMI with regard to information obtained after the execution of the EMI and shared with Eternal Energy, LLC. There is no allegation that Krause or K & L Development obtained confidential information after April 27, 2009, the date the EMI was executed.
Similarly, the noncompete provision in the EMI only prohibited K & L Development and Krause from designing and producing bottling equipment. It did not prohibit the parties from producing a competing energy drink. There is no evidence in the record that K & L Development
While defendants argue that they are entitled to a ruling as a matter of law that K & L Development did not breach the Nondisclosure Agreement, there are insufficient grounds for this Court to conclude that no genuine issue of material fact exists on that question.
While the Court of Appeals erred by not evaluating the noncompete provision in the Termination Agreement under the rule of reason, it is unnecessary to evaluate whether the noncompete provision is reasonable with respect to Liquid Manufacturing's production of Eternal Energy because the plaintiff has abandoned any claim that Liquid Manufacturing breached the Termination Agreement by producing Eternal Energy. Although the plaintiff made these claims in both the trial court and the Court of Appeals, the plaintiff failed to present to this Court any argument on these breach issues, opting instead to make conclusory statements in its application for leave to appeal and in its briefs to this Court. "It is not sufficient for a party `simply to announce a position or assert an error and then leave it up to this Court to discover and rationalize the basis for his claims, or unravel and elaborate for him his arguments, and then search for authority either to sustain or reject his position.'" Wilson v. Taylor, 457 Mich. 232, 243, 577 N.W.2d 100 (1998), quoting Mitcham v. Detroit, 355 Mich. 182, 203, 94 N.W.2d 388 (1959); Tyra v. Organ Procurement Agency of Michigan, 498 Mich. 68, 88-89, 869 N.W.2d 213 (2015). The defendants even highlighted the plaintiff's failure to seek leave to appeal on these issues in their response to the plaintiff's application by noting that the plaintiff had abandoned this claim.
There is, however, a genuine issue of material fact regarding whether Liquid Manufacturing breached the Termination Agreement by producing other products. Accordingly, we remand to the trial court the plaintiff's claim that Liquid Manufacturing breached the Termination Agreement with respect to its production of other energy drinks. The trial court should consider whether the noncompete provision in the Termination Agreement is reasonable under the rule of reason, and whether Liquid Manufacturing violated the Termination Agreement by producing energy drinks other than Eternal Energy.
We conclude that the parties' EMI and Nondisclosure Agreement were not void for failure of consideration. The agreements were supported by sufficient consideration and sufficient performance to render them enforceable. We also conclude that commercial noncompete agreements should be evaluated under the rule of reason. Because there is no genuine issue of material fact on the question whether defendants Krause and K & L Development breached the EMI, or that defendant Krause breached the Nondisclosure Agreement, we affirm the trial court's grant of summary disposition to the defendants on these claims. We leave undisturbed the Court of Appeals' holding that defendant Liquid Manufacturing did not breach the Termination Agreement by producing Eternal Energy.
We remand, however, the remaining claims to the trial court to consider whether the noncompete provisions in the parties' Nondisclosure Agreement and Termination Agreement are reasonable under the proper standard, whether K & L Development breached the Nondisclosure Agreement, and whether Liquid Manufacturing violated the Termination Agreement by producing products other than Eternal Energy.
YOUNG, C.J., and MARKMAN, ZAHRA, VIVIANO, BERNSTEIN, and LARSEN, JJ., concurred with McCORMACK, J.
The EMI also contained the following noncompete provision:
The plaintiff argues for the first time in this Court that the Nondisclosure Agreement is a modification of the EMI, rather than a separate agreement. We disagree. The plaintiff is correct that in general, "contracts made at [the] same time, between [the] same parties, with reference to [the] same subject matter, are to be construed together." Savercool v. Farwell, 17 Mich. 307, 317 (1868). Despite being signed at the same time, the EMI and the Nondisclosure Agreement were signed by different parties and referred to different subject matter. Moreover, the EMI and the Nondisclosure Agreement each contain integration clauses, limiting the ability of the parties to modify the agreements.
Similarly, in Gottesman v. Rheinfrank, 303 Mich. 153, 5 N.W.2d 701 (1942), we held that when a contractor failed to fulfill a promise to remedy defects in a house constructed by the contractor, the purchaser could rescind the contract for failure of consideration.
While the Court of Appeals did not evaluate the reasonableness of the noncompete provision in the Nondisclosure Agreement, the trial court held that the noncompete provision was unenforceable. We vacate that holding and remand to the trial court to consider whether the noncompete provisions in the Nondisclosure Agreement and the Termination Agreement were reasonable under the proper standard.