Johnson v. Capital Offset

2014 DNH 110

• Court: District Court, D. New Hampshire
• Decided: May 22, 2014
• Docket: 11-cv-459-JD
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Alford Johnson, as Trustee of the Martha Wood Trust

v. Civil No. 11-cv-459-JD Opinion No. 2014 DNH 110 The Capital Offset Company, Inc., et al.

O R D E R

Alford Johnson, as the trustee of the Martha Wood Trust,

brought suit against The Capital Offset Company, Inc.; its

president, Jay Stewart; a consultant who later worked for Capital

Offset, Stephen Stinehour; and Acme Bookbinding Company, alleging

claims arising from printing and binding a photography book,

Spiritual Passports. Capital Offset, Stewart, and Stinehour

move, in limine, to exclude evidence of damages for the costs

incurred in producing Spiritual Passports and evidence of lost

profits for books that were not sold. In response, Johnson

agrees that certain costs incurred for the production of

Spiritual Passports will not be claimed as damages but objects to the motion to the extent it seeks to exclude other claimed

damages. The court directed the parties to brief the issue of

the application of the Uniform Commercial Code (“UCC”) in this

case, which they have done.

I. Application of the UCC - RSA Chapter 382-A:2

Capital Offset, Jay Stewart, and Stephen Stinehour contend

that RSA chapter 382-A:2 (“UCC”) governs the breach of contract claim and defenses in this case.1 Johnson contends that the UCC

does not apply to the breach of contract claim because the

parties’ agreement was for services not for goods. The parties

agree that a contract existed between Johnson and Capital Offset

for printing and binding Spiritual Passports and that the

contract was not memorialized by a single signed document but

instead was provided in a “fluid process of estimates.” They

also agree that one of the estimates, dated July 9, 2009,

contains many of the contract terms.

The UCC applies to transactions in goods. RSA 382-A:2-102.

For purposes of the UCC, “goods” are defined as “all things

(including specially manufactured goods) which are movable at the

time of identification to the contract for sale . . . .” RSA

382-A:2-105. When a contract involves both goods and services,

the court may apply the “gravamen of the action” test or the

“predominant factor” test to determine whether the UCC governs.

In re Trailer & Plumbing Supplies, 133 N.H. 432, 435 (1990).

The “gravamen of the action” test “simply asks whether the

underlying action is brought because of alleged defective goods

or because of the quality of the service rendered.” Id. at 436.

The “predominant factor” test examines the nature of the

transaction in the contract and whether the predominant factor,

thrust, or purpose of the contract is the rendition of a service,

1 Johnson alleges breach of contract against only Capital Offset. Therefore, the other defendants are not affected by the issue of the application of the UCC in this case.

2 with goods incidentally involved, or is a sales transaction with

labor only incidentally involved. Id. (citing Bonebrake v. Cox,

499 F.2d 951, 960 (8th Cir. 1974)). An example given of a

service contract, with incidental goods, is a contract with an

artist for a painting, and an example of a sales transaction

contract, with incidental labor, is installation of a water

heater in a residence. Trailer & Plumbing, 133 N.H. at 436.

In this case, Johnson alleges that under their contract,

Capital Offset “agreed to print a certain number of copies of

Spiritual Passports in a manner consistent with Plaintiff’s

specifications and industry standards for the printing and

binding of fine art books.” Compl. ¶ 69. Johnson further

alleges that Capital Offset failed to print the books as agreed

and that Acme Bookbinding, as Capital Offset’s agent, failed to

bind the books as agreed. As such, the action was brought

because of the quality of the services provided by Capital

Offset, although the result was defective books. Under the

gravamen of the action test, therefore, the UCC does not apply.

Similarly, application of the predominant factor test weighs

in favor of a service contract. Like a contract for an artist to

paint a picture, Johnson hired Capital Offset to produce an art

book of photographs by printing the photographs and having the

pages bound into books. Therefore, the contract was for

services, printing and binding the books. See, e.g., Curtis Publishing Co. v. Sheridan, 53 F.R.D. 642, 644 (S.D.N.Y. 1971);

accord Wills v. 10-X Mfg. Co., 609 F.2d 248, 254 (6th Cir. 1979);

3 see also Duro Bag Mfg., Inc. v. Printing Servs. Co., Inc., 2010

WL 3586855, at *5 (S.D. Ohio Sept. 9, 2010).

In Colonial Life Ins. Co. of Am. v. Elec. Data Sys. Corp.,

817 F. Supp. 235, 239 (D.N.H. 1993), the court concluded that a

contract for the license of computer software was a transaction

in goods for purposes of the UCC because the servicing

contemplated by the contract was to support the software product.

Here, in contrast, the services to be provided by Capital Offset

were the purpose of the contract, to produce the book. The UCC

does not apply to the breach of contract claim in this case.

II. Motion to Exclude Evidence of Damages

Capital Offset, Stewart, and Stinehour all move to exclude

evidence of damages based on the costs of producing Spiritual

Passports and damages due to lost profits. The motion appears to

focus on the breach of contract claim against Capital Offset, but

also mentions other claims in passing. The two categories of

damages are addressed separately.

A. Costs Incurred in Producing Spiritual Passports

The defendants challenge certain items listed as damages by

Johnson. In his response to the motion, Johnson agreed that

certain costs associated with producing Spiritual Passports are

not recoverable as damages because those costs would have been

incurred regardless of the defendants’ conduct. The remaining

4 disputed damages are seventeen items for costs incurred between

June 1, 2006, and June 1, 2010.2

1. Breach of Contract

To the extent that Capital Offset relies on the provisions

of RSA 382-A:2 to exclude production costs, those arguments are

inapposite to this case.

“‘The goal of damages in actions for breach of contract is

to put the non-breaching party in the same position it would have

been in if the contract had been fully performed.’” Audette v.

Cummings, 82 A.3d 1269, 1275 (N.H. 2013) (quoting Robert E.

Tardiff, Inc. v. Twin Oaks Realty Tr., 130 N.H. 673, 677 (1988)).

The nonbreaching party is entitled to consequential damages that

are caused by the breach and that “could have been reasonably

anticipated by the parties as likely to be caused by the

defendant’s breach.” George v. Al Hoyt & Sons, Inc., 162 N.H.

123, 134 (2011). “The requirement of reasonable foreseeability

may be satisfied in either of two ways: (1) as a matter of law

if the damages follow the breach in the ordinary course of

events; or (2) by the claimant specifically proving that the

breaching party had reason to know the facts and to foresee

injury.” Id. “A party claiming damages for breach of contract

must show, by a preponderance of the evidence, that the damages

were caused by the defendant’s alleged wrongful act, as well as

2 The list is reproduced as Appendix A to this order.

5 the extent and amount of such damages.” Audette, 82 A.3d at

1275.

The disputed items are money paid to Stephen Stinehour to

produce and print a prospectus for the book and to consult on

printing, the costs of Johnson’s efforts to find a publisher, the

cost of a consultation for a distribution agreement, marketing

expenses, a fee paid to Susan Cox for art direction, and costs

for trips to Capital Offset and to Acme Bookbinding. Capital

Offset contends that the disputed amounts cannot be recovered as

damages for breach of contract because they were incurred in

producing the books and were not caused by any breach of the

contract. Johnson argues that the disputed damages are amounts

that were paid in preparation for producing Spiritual Passports

and are recoverable for breach of contract because those efforts

were wasted when the defendants’ conduct caused the failure of

the book.

The seventeen disputed amounts, which total $39,021.47, were

incurred in preparation to produce Spiritual Passports. Under

the circumstances of this case, Capital Offset likely had reason

to know that Johnson had spent money to prepare for publication

of the book and that breach of their contract would cause him to

lose the value of those preparations. Therefore, Johnson will be

allowed to present evidence of the disputed amounts to prove

damages, if he chooses to proceed under the lost costs of

production damages theory.

Johnson acknowledges that he cannot recover both the amounts

spent for wasted efforts in producing the book and his future

6 costs for reproducing the book. He contends, however, that he

can present evidence of both although he can recover under only

one theory. To avoid confusing the jury, Johnson will be

required to elect which breach of damages theory he will pursue

at trial.

2. Breach of Fiduciary Duty

Johnson contends that certain amounts paid to Stinehour for

his consulting services, which are included in the challenged

costs, are recoverable as damages for Stinehour’s breach of

fiduciary duty. The defendants do not challenge any damages in

the context of the breach of fiduciary duty claim. Therefore,

those damages are not excluded.

3. Other Claims

The defendants state that “[t]he costs listed other than

incidental damages further cannot be recovered for plaintiff’s

claims of misrepresentation, fraudulent misrepresentation, or

violations of the Consumer Protection Act where, as a matter of

law, these costs were not incurred as a result of the alleged

wrongful conduct.” The defendants do not identify which costs

are incidental damages and which are those that could not be

recovered under the tort claims, leaving the issue unclear.

Therefore, the disputed damages items cannot be excluded for

purposes of the other claims.

7 B. Lost Profits

The defendants also contend that Johnson cannot recover

damages for lost profits from the sale of Spiritual Passports

because Johnson does not have an expert witness to support that

claim for damages. The defendants argue that lost profits are

speculative and that in this case an expert is necessary to

establish lost profits. In addition, the defendants assert that

the costs incurred in producing the book and the amount Johnson

planned to charge in selling the book would show a loss rather

than a profit.

In response, Johnson argues that he is entitled to show his

lost revenue, as distinct from lost profits, on the sale of the

books. Johnson, apparently, concedes that sales of the books

would not have yielded provided a profit. He states that he

would have received 50% of the gross sales of Spiritual

Passports, which was to be sold for $75 a copy, and that those

revenues would have helped to offset the costs of production. He

further contends that the lost revenue claim does not require

expert testimony. Johnson again acknowledges that he is entitled

to damages for either the lost costs of producing the defective

book or the future costs that will be incurred in reproducing it,

but not both.

Based on the present motion and Johnson’s response, this

case does not raise an issue of lost profits. The defendants

have not argued that expert testimony is required in this case to

show lost revenue due to the failure of the publication of

Spiritual Passports. However, as is noted above, Johnson will be

8 required to elect a theory of damages and will not be able to

proceed claiming both lost costs for producing the book and

future costs for reproducing the book.

Conclusion

For the foregoing reasons, the UCC, RSA chapter 382-A:2,

does not govern the breach of contract claim in this case. The

defendants’ motion to exclude certain evidence of damages

(document no. 126) is denied.

The plaintiff shall elect which damages theory he will

pursue and shall notify the defendants and the court of that

election on or before June 20, 2014.

The parties would be well-advised to discuss a resolution of

this case prior to expending additional resources to litigate it.

SO ORDERED.

____________________________ Joseph A. DiClerico, Jr. United States District Judge

May 22, 2014

cc: Lawrence F. Boyle, Esq. Gary M. Burt, Esq. Anthony M. Campo, Esq. Thomas J. Pappas, Esq. Arnold Rosenblatt, Esq. Mark W. Shaughnessy, Esq. William N. Smart, Esq.

9 APPENDIX A

DATE Description Amount Spent

6/1/06 Amount paid to Stephen Stinehour to print a prospectus. $900.00 07/14/06 Amount paid to Stephen Stinehour to prepare prospectus. $818.45 08/02/06 Amount paid to Stephen Stinehour for additional prints for $67.60 the prospectus. 02/16/07 New York visit to prospective publisher. $506.50 06/01/07 Amount spent to find a publisher. $874.45 03/22/07 Additional amount spent to find a publisher. $2,103.66 07/11/07 Consultation on distribution agreement. $1,800.00 02/21/08 Large print on canvas for marketing purposes. $575.00 06/02/08 Production advance to Fresco Fine Art Publications. $5,000.00 10/21/08 A marketing trip to the Peruvian Embassy. $246.38 07/04/09 Amount spent for layout and design prints. $4,724.65 07/15/09 Trip to Offset to check presses. $4,673.30 08/20/09 Additional art direction fee to Susan Cox. $10,000.00 10/26/09 Print consulting fee paid to Stephen Stinehour. $5,000.00 11/18/09 Trip to Acme Bookbinding. $639.06 12/17/09 Book signing in Taos, New Mexico. $642.42 06/01/10 Cost for marketing piece. $450.00

Total $39,021.47