Royal Cup, Inc. v. Jenkins Coffee Service, Inc.

898 F.2d 1514, 1990 WL 40147
CourtCourt of Appeals for the Eleventh Circuit
DecidedApril 25, 1990
DocketNo. 88-7487
StatusPublished
Cited by2 cases

This text of 898 F.2d 1514 (Royal Cup, Inc. v. Jenkins Coffee Service, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eleventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Royal Cup, Inc. v. Jenkins Coffee Service, Inc., 898 F.2d 1514, 1990 WL 40147 (11th Cir. 1990).

Opinion

TJOFLAT, Chief Judge:

This contract dispute arises from the sale of a portion of a coffee service business.1 Both the buyer, Royal Cup, Inc. (Royal Cup),2 and the seller, Jenkins Coffee Service, Inc. (JCS),3 appeal from the judgment of the district court awarding (1) $4,400.00 to JCS, representing the unpaid balance of the purchase price less contractually authorized deductions; and (2) $33,000.00 in attorneys’ fees to Royal Cup. We affirm the $4,400.00 award to JCS and reverse the award of attorneys’ fees.

I.

A.

Royal Cup and JCS operate coffee service businesses in several southeastern states. In the fall of 1986, Royal Cup became interested in purchasing two JCS routes in the Mobile, Alabama and Pensacola, Florida areas. Several months of negotiation followed, during the course of which JCS, in response to Royal Cup’s questioning, told Royal Cup that it had 310 active accounts as of December 31, 1986. The parties eventually reached an agreement, and, on or about April 21, 1987, executed an “Agreement to Purchase and Sell” (the contract), drafted by Royal Cup.

Under the contract, Royal Cup was to pay JCS a total purchase price of $297,-251.00. Value was apportioned as follows:

Brewing Equipment: $172,250.00

Identifying Marks and Customers List: 1.00

Covenant not to Compete: 125,000.00

Total: $297,251.00

The contract did not ascribe a separate dollar value to JCS’ customers, either individually or in the aggregate, but the recited consideration of $1.00 for identifying marks and customers list was to cover customer route cards (account histories) and “all good will inherent in the same.” The purchase price was to be paid in the following steps:

(1) $50,000.00 already delivered as a down payment;
(2) $146,251.00 upon closing;
(3) $101,000.00 on July 24, 1987, twelve weeks after the May 1, 1987 closing.

JCS was to transfer assets including all (but not less than 370) units of used coffee brewing equipment, all salable merchandise inventory on hand,4 a current customer list plus all customer route cards, and the right to use JCS’ name and identifying symbols for a six-month period after closing. JCS also agreed not to compete with Royal Cup in the territories for a period of five years.

In addition to the above terms, the contract provided that the purchase price would be reduced upon the occurrence of certain events. Under the heading of “Warranties and Representations of Seller,” the contract recited that JCS had 310 active accounts as of December 31, 1986 and provided that, for each such account that did not remain an active account for Royal Cup, the balance of the purchase price due twelve weeks after closing, i.e., $101,000.00, would be reduced by $500.00. During an eight-week, post-closing “validation” period, Royal Cup would examine JCS customer lists and route cards, work the territory, and ascertain how many JCS customers qualified as active accounts; the contract specified the criteria on the basis of which an account would qualify as active. In another price-reduction provision, the contract stated that, if JCS delivered fewer than 370 units of coffee brewing equipment, the purchase price would be lowered by $150.00 for each missing unit. [1517]*1517Unlike the customer-account provision, the adjustment for missing units of brewing equipment was not expressly tied to the post-closing payment.

Also relevant to the current dispute is a contract provision that, in any suit to compel compliance with the terms of the contract or to obtain damages for breach, the prevailing party would be entitled to reimbursement for reasonable attorneys’ fees and reasonable expenses of litigation.

On July 24, 1987, the day fixed for payment of the remaining purchase price, i.e., $101,000.00 minus reductions for any accounts that did not qualify as active, Royal Cup filed suit in United States District Court for the Northern District of Alabama, alleging breach of contract and fraud. In its breach of contract claim, Royal Cup alleged that JCS did not have 310 “active customers” on December 31, 1986, and that JCS had “fail[ed] to deliver its assets based upon the performance criteria expressly incorporated in the Purchase Agreement.” Royal Cup sought $25,000.00 in compensatory damages for the alleged breach. The fraud claim was based on essentially the same factual allegations as the contract claim and on additional allegations that JCS had engaged in sales and accounting practices designed to inflate its assets and sales volume and that JCS had intentionally or recklessly misrepresented these to Royal Cup. On the fraud claim, Royal Cup sought $25,000.00 in compensatory damages and $250,000.00 in punitive damages. In connection with both claims, Royal Cup sought attorneys’ fees pursuant to the contract.

JCS counterclaimed, also alleging breach of contract and fraud. JCS based its contract claim on Royal Cup’s alleged “fail[ure] to pay the balance of $100,000.00 [sic] owing to defendants under the agreement.” In addition, JCS claimed that Royal Cup had breached the contract by failing to use its best efforts, as promised, to maintain former JCS customers as active Royal Cup accounts. JCS alleged in its fraud claim that Royal Cup, at the time of promising to use best efforts, had no intention of keeping that promise. JCS also sought attorneys’ fees under the contract.

The case went to trial before a jury. Royal Cup advanced the theory that it had substantially overvalued the JCS routes based on JCS’ warranty of 310 active accounts whereas the routes actually contained many fewer accounts. Royal Cup’s president testified that he would not have paid the “roughly $300,000.00” price for fewer than 310 accounts and hypothesized that his valuation of a business with “225 accounts” would have been “somewhere on the order of $165,000.00, $175,000.00.” He explained that customer loyalty is a large factor in the coffee service business and that the $500.00 price-reduction provision for each non-validating account was intended as protection against the “slippage” that inevitably occurs when such a business changes hands. Mr. Troy Haas, the Royal Cup executive in charge of implementing the acquisition, testified that only 130 of the expected 310 accounts “validated” (i.e., qualified as active) and that Royal Cup was therefore seeking a $90,000.00 price reduction (180 x $500.00) under the contract. In addition, he stated that Royal Cup sought a second price adjustment of $6,150.00 because only 329 of the expected 370 pieces of brewing equipment were delivered. Both parties introduced numerous exhibits relating in general to their sales and accounting practices and in particular to the number of JCS accounts and brewers.

In closing argument, counsel for JCS invoked the contract’s price-reduction provision; he requested the jury to determine the number of legitimate “chargebacks” and to reduce the $101,000.00 final payment accordingly. Counsel for Royal Cup requested damages totaling “$117,650.00” [sic], calculated as follows:

Overvaluation of JCS’ business

(Contract price: $297,000.00

Less true value: $175,000.00): $ 122,000.00

Set-off for nonvalidating accounts: 90,000.00

Set-off for undelivered brewers: + 6,150.00

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Cite This Page — Counsel Stack

Bluebook (online)
898 F.2d 1514, 1990 WL 40147, Counsel Stack Legal Research, https://law.counselstack.com/opinion/royal-cup-inc-v-jenkins-coffee-service-inc-ca11-1990.