Ultra Pure Water Technologies, Inc. v. Standex International Corp. D/B/A Master-Bilt

• Court: Louisiana Court of Appeal
• Decided: May 16, 2012
• Docket: CA-0011-1531
• Status: Unknown

Opinion

STATE OF LOUISIANA COURT OF APPEAL, THIRD CIRCUIT

11-1531

ULTRA PURE WATER TECHNOLOGIES, INC.

VERSUS

STANDEX INTERNATIONAL CORP. D/B/A MASTER-BILT, ET AL.

********** APPEAL FROM THE FIFTEENTH JUDICIAL DISTRICT COURT PARISH OF LAFAYETTE, DOCKET NO. C-2008-4587 HONORABLE KRISTIAN EARLES, DISTRICT JUDGE **********

SYLVIA R. COOKS JUDGE

**********

Court composed of Sylvia R. Cooks, Marc T. Amy and Phyllis M. Keaty, Judges.

REVERSED AND REMANDED.

Amy, J., concurs in the result and assigns reasons.

Bob F. Wright Thomas R. Edwards Domengeaux, Wright, Roy & Edwards 556 Jefferson Street, Suite 500 P.O. Box 3668 Lafayette, LA 70502-3668 (337) 233-3033 ATTORNEY FOR PLAINTIFF/APPELLANT Ultra Pure Water Technologies, Inc.

Walter C. Thompson, Jr. Thomas E. Schwab Mark P. Seyler Barkley & Thompson, L.C. 1515 Poydras Street, Suite 2350 New Orleans, LA 70112 (504) 595-3350 ATTORNEY FOR PLAINTIFF/APPELLANT Ultra Pure Water Technologies, Inc. Richard B. Eason, II Joseph W. Looney Raymond P. Ward Adams & Reese LLP 4500 One Shell Square 701 Poydras Street New Orleans, LA 70139 (504) 581-3234 ATTORNEY FOR DEFENDANT/APPELLEE Standex International Corporation d/b/a Master-Bilt COOKS, Judge.

In this appeal, Plaintiff contends the trial court erred in granting Defendant’s

motion for summary judgment dismissing its entire case-in-chief. Finding

summary judgment was not appropriate at this stage in the proceedings, we reverse

and remand.

FACTS AND PROCEDURAL HISTORY

Plaintiff in this matter is Ultra Pure Water Technologies, Inc. (hereafter

Ultra Pure), a company based in Lafayette. Ultra Pure developed, marketed and

sold a product called the “ICEX Ice Island,” a system that makes, bags, stores, and

vends ice on site for sale at retail locations. The “ICEX Ice Island” consists of

three components: (1) an ice-making machine on top, which drops the newly-

made ice into, (2) a bagging machine, which bags the ice and drops the bagged ice

into a (3) “merchandiser” or freezer, from which the public can then purchase the

bagged ice.

Ultra Pure’s business model is “to lease the ICEX Ice Island systems to retail

grocery stores and convenience store chains, either directly or through a leasing

company under a favorable lease financing arrangement.” Ultra Pure explained

leasing enables it to share in the retailer’s revenue stream from the bags of ice sold,

without any significant capital outlay by the retailer. The retailer either directly

pays Ultra Pure a fee on a cents-per-bag formula, or, when lease financing is

involved, the retailer pays the leasing company, which then accounts to the lender

and Ultra Pure for its share.

The cuber or ice making component was made by a Japanese company,

Hoshizaki, which is not involved in this litigation. Ultra Pure hired a contract

manufacturer, Courtesy Manufacturing Company and its susbsidiary, CMC

Refrigeration, Inc. (hereafter CMC) to make the baggers and merchandisers. CMC made the baggers, but subcontracted the design and manufacture of the freezers to

Standex International Corporation, through its Master-Bilt Division (hereafter

Master-Bilt).

Between 2005 and 2007, Ultra Pure purchased from CMC approximately

140 of the Master-Bilt freezers. They were installed in various ICEX Ice Island

retail locations throughout the country. Apparently, some operational problems

arose but they were addressed by Master-Bilt sufficiently to accommodate

operation of the machines.

In January of 2007, Food Lion, who operates supermarkets in various states,

agreed to lease ICEX Ice Island systems for ten of its North Carolina supermarkets.

In late 2007, the Arizona division of Safeway, which operates supermarkets in

various states, agreed to install ICEX Ice Island systems in over 100 supermarkets

in Arizona. To fulfill these new contracts, Ultra Pure ordered more than 200

Master-Bilt freezers from CMC. The purchase of the machines in both the Food

Lion and Safeway leases was financed through limited liability companies

(allegedly a banking necessity to avoid negative ratings assigned Ultra Pure for a

poor financial history.)

For the Safeway contract, ICEX Management, L.L.C., was created to

purchase and lease the equipment. The lender who financed the equipment, Zions

Credit Corporation, loaned to ICEX Management the exact amount of the invoice

for the requested equipment. ICEX Management then gave Zions a security

interest in the equipment, then leased the equipment to safeway. Master-Bilt

contended Ultra Pure was not a party to the Safeway lease and did not receive any

rent payments from Safeway. Rent payments were received by ICEX

Management.

2 A similar arrangement was made in regard to the freezers purchased for the

Food Lion lease. In that lease, Noreast Capital Corporation loaned the money for

the equipment to ICEX Financial Services, L.L.C., which was created to own the

machines leased to Food Lion. Ultra Pure acknowledged it sold the equipment

leased to Food Lion to ICEX Financial Services.

These freezers are at issue in the present litigation, as Ultra Pure asserts the

freezers repeatedly failed in operation and needed constant repair and replacement

of parts. Eventually, Safeway terminated the arrangement with Ultra Pure because

melting ice was leaking onto the floors and creating hazardous conditions for

customers. According to Ultra Pure, it repeatedly requested that Master-Bilt repair

the problems, but it was unwilling to do so.

On August 12, 2008, Ultra Pure, in its capacity as buyer of the allegedly

defective freezers, filed a suit in redhibition against Master-Bilt, as manufacturer of

the freezers. The petition also asserted, in the alternative, a claim in quanti minoris

and a claim for breach of implied warranty of fitness for the intended or ordinary

use. The freezers were tendered by Ultra Pure, who prayed for the return of the

purchase price, or alternatively, a reduction in price, and in either event, expenses

of the sale and damages, including lost profits, plus reasonable attorney fees.

Master-Bilt answered the petition and disputed Ultra Pure’s allegations, contending

the cause of the problems was defective design of the overall system, for which

Ultra Pure was responsible. Master-Bilt also brought a third-party demand against

CMC.

On June 3, 2011, Master-Bilt filed a motion for summary judgment, raising

several grounds for dismissal of Ultra Pure’s claims in their entirety, and several

alternative grounds for dismissing Ultra Pure’s claims for lost profits. At the

August 1, 2011 hearing on the motion, Master-Bilt argued Ultra Pure was not the 3 proper party to bring this claim because it did not own the equipment alleged to

have been defective. Ultra Pure countered that it did own the equipment and was

the proper party to sue for redhibition. At the close of the hearing, the trial court

asked the parties to address the issue of Ultra Pure’s right of action in the next

scheduled hearing.

At the next hearing on August 1, 2011, the trial court was informed that

several relevant depositions still had not been taken. The trial court noted that

there were issues of fact which precluded summary judgment on Master-Bilt’s

motion for summary judgment on the liability grounds asserted. The trial court

also denied “the Motion for Summary Judgment as it pertains to Safeway of

Arizona and any damages arising out of that contract.” The trial court then ordered

another hearing on the remaining issues. There was no ruling on the issue of

whether Ultra Pure was the real party in interest.

At the next hearing, on August 22, 2011, Master-Bilt filed into evidence

discovery documents and deposition excerpts which Master-Bilt contended showed

Ultra Pure had sold the equipment in question before any claim for redhibition

arose. Ultra Pure objected to the documents as untimely in violation of the

requirement for fifteen days’ notice under La.Code Civ.P. art. 966(B). Master-Bilt

countered that Ultra Pure should have been familiar with the documents and that its

counsel was present at the depositions from which the excerpts were taken. Ultra

Pure argued that most of the materials had neither been provided with the summary

judgment motion nor timely identified and served as supplemental support for the

motion, thus, the fifteen day notice requirement of La.Code Civ.P. art 966(B)

should have been enforced. The trial court did not agree and gave Ultra Pure only

a short recess to familiarize itself with the documents and deposition excerpts in

question. 4 At the hearing, Ultra Pure conceded that the machines leased to Food Lion

were purchased by ICEX Financial Services. Thus, the trial court granted

summary judgment with respect to the machines leased by ICEX Financial

Services with regard to the Food Lion stores. Master-Bilt also contended there

were no genuine issues of fact that Ultra Pure had sold the machines leased to

Safeway to ICEX Management. The trial court agreed stating the machines “[were

not] Ultra Pure’s ice machines anymore, unless you can show me somewhere that

it was. I mean, all the documents say that it wasn’t.” Therefore, the trial court

granted summary judgment with respect to the machines leased by ICEX

Management in the Safeway stores.

Ultra Pure appeals the trial court’s judgment, asserting the trial court made

multiple errors of fact and of law in granting Master-Bilt’s motion for summary

judgment.

ANALYSIS

On appeal, we are mindful that our Louisiana Supreme Court has instructed

us on the standard of review relative to a motion for summary judgment as follows:

A motion for summary judgment is a procedural device used when there is no genuine issue of material fact for all or part of the relief prayed for by a litigant. Duncan v. U.S.A.A. Ins. Co., [06-363 (La.11/29/06)], 950 So.2d 544, [see La.Code Civ.P.] art. 966. A summary judgment is reviewed on appeal de novo, with the appellate court using the same criteria that govern the trial court’s determination of whether summary judgment is appropriate; i.e. whether there is any genuine issue of material fact, and whether the movant is entitled to judgment as a matter of law. Wright v. Louisiana Power & Light, [06-1181 (La.3/9/07) ], 951 So.2d 1058[ ]; King v. Parish National Bank, [04-337 (La.10/19/04) ], 885 So.2d 540, 545; Jones v. Estate of Santiago, [03-1424 (La.4/14/04) ], 870 So.2d 1002[.]

Samaha v. Rau, 07-1726, pp. 3-4 (La.2/26/08), 977 So.2d 880, 882-83 (footnote omitted). Louisiana Code of Civil Procedure Article 966(C)(2) provides: 5 The burden of proof remains with the movant. However, if the movant will not bear the burden of proof at trial on the matter that is before the court on the motion for summary judgment, the movant’s burden on the motion does not require him to negate all essential elements of the adverse party’s claim, action, or defense, but rather to point out to the court that there is an absence of factual support for one or more elements essential to the adverse party’s claim, action, or defense. Thereafter, if the adverse party fails to produce factual support sufficient to establish that he will be able to satisfy his evidentiary burden of proof at trial, there is no genuine issue of material fact.

Kerry v. Pearson, 10-103, pp. 4-5 (La.App. 3 Cir. 6/2/10), 40 So.3d 463, 466.

The trial court’s grant of summary judgment is based on its acceptance of

Master-Bilt’s argument that by selling or retitling the freezers to the lease

financing companies (ICEX Management and ICEX Financial Services), Ultra

Pure lost its rights to sue Master-Bilt. Master-Bilt contends when Ultra Pure sold

the freezers to ICEX Management and ICEX Financial Services, those entities

became subrogated to any warranty rights Ultra Pure once had against Master-Bilt

pursuant to La.Civ.Code art. 2548. This subrogation of rights, according to

Master-Bilt, means that Ultra Pure, the subrogor, no longer has those warranty

rights. Essentially, Master-Bilt argues Ultra Pure can no longer return the thing

sold and transferred to the purchaser any right to enforce any seller’s warranty

against any upstream sellers.

Ultra Pure argues the jurisprudence of this state has consistently held in the

absence of a “conventional” assignment of all claims and remedies, a sale with

subrogation to rights in warranty does not deprive a seller of his right to bring a

warranty action for his own damages against any other person in the chain of title,

including any other seller and the manufacturer. We pretermit definitively ruling

on this issue today.

6 Even accepting as true Master-Bilt’s legal argument that the buyer of a

defective thing who resells it to another automatically loses his right of action for

his own damages against all prior sellers, including the manufacturer, summary

judgment was only appropriate if there were no genuine issues of fact as to

whether ownership of all the freezers was actually transferred to the lease

financing companies. We find there was conflicting evidence on this issue, which

was inappropriately weighed by the trial court at the summary judgment stage.

Initially, we note the record established that Ultra Pure, in its attempt to

facilitate lease financing, would use an affiliated leasing company or an unrelated

leasing company created by the lender, to act as the nominal lessor. The lender

would then advance the funds used to purchase the equipment. Ultra Pure would

then share in the revenue stream from the bags of ice sold by way of a cents per

bag royalty.

The trial court accepted Master-Bilt’s contention that Ultra Pure had resold

all of the defective and unfit freezers to leasing companies. Ultra Pure consistently

maintained there was no record evidence on summary judgment that Ultra Pure

had ever executed an act translative of title to any leasing company or any other

third party. Danny Leblanc, Ultra Pure’s president, attested in his affidavit that

“Ultra Pure never actually transferred title to the equipment” to ICEX

Management, the accommodation lessor used to perfect Zions Credits security

interest in the leases to Safeway. Master-Bilt does not specifically dispute this

testimony by LeBlanc, but argues LeBlanc’s testimony was parol evidence and

inadmissible in a summary judgment proceeding. Ultra Pure points out that

Master-Bilt, who was not a party to the lease financing contract, is not entitled to

contend that LeBlanc’s affidavit was parol evidence. The law is clear that “the

parol evidence rule applies only to actions between the parties to the contract and 7 their privies, not to actions between parties and third persons.” Hobbs v. Central

Equip. Rentals, Inc., 382 So.2d 238, 243 (La.App. 3 Cir.), writ denied, 385 So.2d

785 (La.1980). Thus, LeBlanc’s affidavit testimony is competent summary

judgment evidence, and presents genuine issues of fact as to ownership of the

freezers.

In regard to the Food Lion lease, it was acknowledged that ICEX Financial

services did take title to the equipment, but Ultra Pure retained a reversionary

interest to get the machines back at the end of the lease term for one dollar. Thus,

Ultra Pure argues, when it filed suit, it either owned or controlled all of the freezers

which it attempted to tender back to Master-Bilt.

Ultra Pure also argued, under the lease arrangement, it, at all times, retained

an interest in the profits in the form of a cents per bag royalty for every bag sold.

Ultra Pure contends, even if it did not formally retain ownership of the equipment,

this created an ongoing interest in the recurring revenue stream created by the

equipment.

The conflicting evidence on this issue is apparent when the following

colloquy between counsel and the trial court is examined:

MR. EDWARDS (Counsel for Ultra-Pure): Well judge, you’re not ruling that Ultra Pure is not the real party in interest; you haven’t said that?

THE COURT: No, no; I haven’t said that. I’m just thinking that, you know – I haven’t seen any evidence. That one thing you pointed to doesn’t necessarily show a sharing of profits or –

MR. EDWARDS: It actually does, Judge. If you look at the schedule in the back, all that ICEX Management got was a Two Cents ($.02) a bag management fee for doing the administration. The rest of the money flowed to Ultra Pure. And it still –

THE COURT: But you see I’ve seen some contrary evidence, too, because like in this other contract they had to be owners of the machines. And then counsel argued that they didn’t own or lease the machines. 8 (Emphasis added.)

As the courts have uniformly noted , the trial court cannot “determine or

even inquire into the merits of issues raised or . . . weigh conflicting evidence on

the existence of material facts.” Benniefiel v. Zurich Am. Ins. Co., 08-1416, p. 5

(La.App. 3 Cir. 5/6/09), 10 So.3d 381, 385 (quoting Brittain v. Family Care Servs.,

Inc., 34,787, p. 4 (La.App. 2 Cir. 6/20/01, 801 So.2d 457, 460)). The weighing of

conflicting evidence has no place in summary judgment procedure. LaGrange v.

Dynamic Industries, Inc., 04-100 (La.App. 3 Cir.6/9/04), 875 So.2d 1059; Smith v.

Lynn, 32,093 (La.App.2 Cir.08/18/99), 749 So.2d 692. Therefore, finding the trial

court weighed the conflicting evidence regarding ownership of the freezers, we

reverse the grant of summary judgment and remand back to the trial court for

further proceedings consistent with this opinion.

We also note the trial court erred in allowing the introduction of evidence in

support of Master-Bilt’s motion without abiding by the mandatory service

provision of La.Code Civ.P. art. 966 and Louisiana District Court Rule 9.9.

Master-Bilt argued below that Ultra Pure should have been familiar with the

documents and that its counsel was present at the depositions from which the

excerpts were taken. Ultra Pure countered that even if the documents were

previously in its possession, the voluminous discovery conducted in this case made

knowledge of specific documents unlikely, if not impossible, without time to

review the specific documents. Rather than abide by the fifteen-day period

provided in La.Code Civ.P. art. 966(B), the trial court gave Ultra Pure only a short

recess to review the submissions. We find the short recess provided by the trial

court was not only in violation of La.Code Civ.P. art. 966(B), but in no way

9 provided any meaningful opportunity for Ultra-Pure to defend itself against the

submissions.

Louisiana Code of Civil Procedure Article 966(B) provides:

The motion for summary judgment, memorandum in support thereof, and supporting affidavits shall be served within the time limits provided in District Court Rule 9.9. For good cause, the court shall give the adverse party additional time to file a response, including opposing affidavits or depositions. The adverse party may serve opposing affidavits, and if such opposing affidavits are served, the opposing affidavits and any memorandum in support thereof shall be served pursuant to Article 1313 within the time limits provided in District Court Rule 9.9. The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to material fact, and that mover is entitled to judgment as a matter of law.

Louisiana District Court Rule 9.9 states, in pertinent part:

(a) When a party files an exception or motion, that party shall concurrently furnish the trial judge and serve on all other parties a supporting memorandum that cites both the relevant facts and applicable law. The memorandum shall be served on all other parties so that it is received by the other parties at least fifteen calendar days before the hearing, unless the court sets a shorter time.

(Emphasis added.)

The Louisiana Supreme Court in Buggage v. Volks Constructors, 06-0175

(La. 5/5/06), 928 So.2d 536, noted that the time limitation established by La.Code

Civ.P. art. 966(B) was mandatory. Nevertheless, the Buggage court did also

indicate a trial court has some discretion in this matter. Rather than holding that

untimely affidavits must be excluded by the trial court, the supreme court

specifically stated that such affidavits “can” be excluded by the trial court, and

noted that the trial court “acted within its discretion” in excluding the opposition.

Buggage, 928 So.2d at 536. Other courts of this state have also indicated that

district courts have discretion, absent prejudice, in application of this otherwise

mandatory time period. See Phillips v. Lafayette Parish Sch. Bd., 10-373 (La.App.

10 3 Cir. 12/8/10), 54 So.3d 739; James Constr. Group, L.L.C. v. State ex rel. Dep’t.

of Transp. and Dev., 07-225 (La.App. 1 Cir. 11/2/07), 977 So.2d 989; Savoie v.

Savoie, 03-893 (La.App. 5 Cir. 12/30/03), 864 So.2d 742.

This case is complex, and consisted of coast-to-coast discovery, which is

evidenced by the lengthy record before us on appeal. We find Ultra Pure was

prejudiced by the trial court’s refusal to follow the procedural rule that allows them

advance notice of the filings and arguments against them. The late introduction by

Master-Bilt of the evidence in question prevented Ultra Pure from meeting this

evidence with their own arguments and submissions in opposition. Thus, we find

the trial court abused its discretion in ruling on the motion for summary judgment

at the point this evidence was offered for introduction. This error also warrants a

reversal of the trial court’s grant of summary judgment.

DECREE

For the foregoing reasons, the trial court’s judgment granting Master-Bilt’s

motion for summary judgment is reversed. The matter is remanded back to the

trial court for further proceedings consistent with this opinion. All costs of this

appeal are assessed to defendant-appellee, Master-Bilt.

11 NUMBER 11-1531

COURT OF APPEAL, THIRD CIRCUIT

STATE OF LOUISIANA

AMY, J., concurring in the result.

I agree with the majority that a reversal is required here. However, I write

separately insofar as I limit my analysis to the untimely introduction of evidence in

support of the motion for summary judgment. In my opinion, this preliminary and

foundational matter should be the sole focus of the court’s attention.

As the majority references, Master-Bilt sought to introduce evidence in

support of its motion for summary judgment at a second hearing conducted on that

motion. Ultra Pure objected to the supplemental submission and noted that it was

not given prior notice of the filing. Master-Bilt contended that Ultra Pure was not

disadvantaged by the lack of prior notice as the summary judgment proceedings

were a continuation of the earlier hearing and the issue under consideration was a

pre-existing one. Master-Bilt also noted that Ultra Pure had participated in the

depositions which were excerpted in the exhibits.

Ultimately, the trial court permitted the filing of the new evidence, finding

that it did not reveal “anything new.” Although it allowed a brief recess for Ultra

Pure to review the documents submitted on the day of the hearing, it denied

counsel’s request for additional time to file its own evidence in rebuttal.

Louisiana Code of Civil Procedure Article 966(B) provides that the

memorandum in support of a motion for summary judgment and supporting

affidavits “shall be served within the time limits provided in District Court Rule 9.9.” (Emphasis added.) Reference to Rule 9.9 demonstrates that the

memorandum “shall be served on all other parties so that it is received by the other

parties at least fifteen calendar days before the hearing, unless the court sets a

shorter time.” (Emphasis added.) Additionally, Rule 9.10 contains a series of

elements which shall be contained in that memorandum, including references to

legal documents relating to each material fact at issue and designation of the

pertinent part containing proof of that fact. In sum, the distinct time limitations

regarding such a filing, as well as those related to subsequent filings in opposition

and in reply to that opposition, provide notice to all concerned about the matter on

which the hearing is to be conducted.

Not only does Article 966(B) employ “shall” in setting forth the period for

advance notice, but, as recognized by the majority, the supreme court has

recognized that the time limitation is “mandatory.” Buggage v. Volks

Constructors, 06-0175 (La. 5/5/06), 928 So.2d 536. Like the majority, I too

recognize that Buggage and related jurisprudence indicate that the trial court is

afforded some degree of discretion in application of this time period. See, e.g.,

Sims v. Hawkins-Sheppard, 11-0678 (La. 7/1/11), 65 So.3d 154; Newsome v.

Homer Memorial Med. Ctr., 10-0564 (La. 4/9/10), 32 So.3d 800.

Here, however, the trial court chose to accept an untimely submission filed

in support of a motion for summary judgment and without any prior notice as to

the extent and contours of the submission afforded to the party in opposition.

Further, over objection and in a multi-faceted case, the trial court then ruled on that

related motion for summary judgment without a measured opportunity for the

opposing party to rebut the untimely, unnoticed evidence.

Once the trial court made the determination to accept the late evidence,

whether appropriately or not, it was not the role of the trial court nor the moving

party to suggest that the opposing counsel would be unable to offer anything in

2 rebuttal to change the course of the hearing. Also, given the extent of the evidence

generated by this litigation and the seemingly moving nature of the claim(s) and

defense(s) asserted, I find that the brief recess permitted for review of the new

evidence offered no real relief to the party in opposition given its inability to

introduce rebuttal evidence. I believe that all of this must be viewed in the context

of the mandatory notice strictures of Article 966(B), which required, at a

minimum, prior notice to the opposing party.

Finally, I do not find that the follow-up nature of this hearing relieved the

parties of the requirement of advance notice. It is true that the motion for summary

judgment was initially heard in early August 2011 and the hearing now at issue

was conducted three weeks later as a continuation of that matter. However, I find

no provision permitting a moving party to bootstrap new evidence into its

originally-filed submission without adequate notice. In short, the non-moving

party arrived at the hearing with no notice of the evidence and, upon acceptance of

that evidence, was afforded no prospective opportunity to rebut the offering. In my

opinion, this type of failure in process must certainly constitute an abuse of

discretion.

For these reasons, I join the majority in reversing the summary judgment and

in remanding the matter for further proceedings.