Yorgo Foods v. Orics Industries 08-CV-438-SM 09/29/11 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Yorgo Foods, Inc., Plaintiff
v. Case No. 08-cv-438-SM Opinion No. 2 011 DNH 145 Orics Industries, Inc., Defendant
MEMORANDUM OF DECISION
The plaintiff, Yorgo Foods, Inc., ("Yorgo"), is in the
business of producing and selling Middle Eastern food products
(hummus, tabbouleh, etc.). The defendant, Orics Industries, Inc.
("Orics"), manufactures and sells food packaging equipment.
Seeking to increase productivity, Yorgo purchased a food
packaging machine from Orics. But, due to extended delays in
delivery, Yorgo cancelled the purchase. Yorgo requested return
of its substantial deposit and, when Orics failed to return the
funds, Yorgo brought suit, asserting breach of contract and
various related causes of action. Orics, in turn, counterclaimed
for breach of contract. The case was tried before the court on
the merits. The pertinent facts are largely uncontested, with
some exceptions related to alleged oral conversations and other
interactions between the parties. Relevant Facts
On December 12, 2006, Yorgo agreed to buy an S-40-DX
automated cup filling and sealing machine from Orics, for
$150,000.00. That agreement was memorialized in a document
entitled "Proposal for S-40-DX-lup Packaging Machine, Quote
#62890" (hereafter referred to as the "Agreement").
The Agreement called for payment in several stages: 50% of
the purchase price was due immediately as a down payment; 40% was
due on "acceptance prior to shipment," and the remaining 10% was
due 30 days after shipment. The Agreement also provided that
"[d]elay in receipt of down payment and/or delay of subsequent
progress payments may cause production and/or shipment delays."
Completion of the machine and shipment was to occur in "14 to 16
weeks based on removal of all contingencies," though the
Agreement provides no hint as to what "removal of all
contingencies" means.
Shortly after Yorgo signed the Agreement, Orics sent an
invoice and, on January 3, 2007, Yorgo made the required down
payment. Orics began the design and fabrication process, but at
some point after February of 2007, an Orics salesman, Kevin Meek,
suggested an addition that would allow the machine to not only
fill containers with flowable products (e.g., hummus), as
2 originally contemplated, but also with non-flowable products like
salads (e.g., tabbouleh). Mr. Bechara El-Khoury, Yorgo's
principal, had several conversations with Orics' sales
representative about the potential change. Eventually, El-Khoury
agreed to add the additional component, an integrated scale and
vibratory filler for non-flowable product. That modification
required some redesign by Orics, as well as mechanical
alterations to the S-40-DX.
Yorgo could have reasonably expected the machine, as
originally ordered, to be completed by either the end of March,
or the end of April, 2007 (depending on whether Orics began work
when the Agreement was signed by Yorgo, on December 12, 2006, or
after the down payment was received, on January 4, 2007) . But,
by May it was still not completed. Given the discussions about a
potential change, however, Orics says it justifiably stopped
working on the machine at some point after March, awaiting El-
Khoury' s final decision about adding the vibratory filler and
scale.
The specified time for delivery of the original machine
expired in April, but the Agreement was amended on July 12, 2007,
as documented by a "Revised Order," which was sent to Yorgo. The
Revised Order referenced the original order date of December 13,
3 2006, and the original order number: #6289C. It recited that
Orics would "[u]pgrade equipment to new customer request" by
incorporating the vibratory filler and scale [to be obtained from
a third party supplier — Ohlson Co.] and Orics would "extend
machine length to fit Net-Weigh System." Def. Ex. A, p. 178.
The changes increased the total purchase price to $252,000.00,
and Orics expected an additional down payment of $51,250.00. The
original delivery term of 14 to 16 weeks was not specifically
modified. Yorgo made the additional down payment on September
21, 2007. Orics says that "[o]nce [it] received the additional
down payment money, work on the machine continued in earnest."
Defendant's Post-Trial Brief, at 5.
Anticipating the addition of a vibratory scale, Orics had
already contacted Ohlson Scales, in May of 2007, to discuss
procurement of the necessary component. Ohlson is a well-known
manufacturer of such equipment, and Orics planned to buy the
component from Ohlson, then integrate it into the S-40-DX
machine. Ohlson provided Orics with an initial quote for the
scale in May and, after some exchange of technical data between
Orics and Ohlson, Ohlson sent a revised proposal to Orics in July
of 2007. Ohlson was prepared to build and deliver the required
filler and scale in 12 to 14 weeks. But, although the Agreement
between Yorgo and Orics was amended in July, and Yorgo paid the
4 additional deposit on September 21, Orics did not actually place
an order for the Ohlson filler and scale until November 16.
El-Khoury was anxious to take delivery of the machine and
probably expected that integration of the Ohlson scale would not
delay completion by more than a few weeks. He was not told by
anyone at Orics that work on his machine would stop and not begin
again until an additional deposit was received, or that an
extended delay in delivery would necessarily accompany the
modification. By November of 2007, El-Khoury was particularly
upset that nearly a year had passed and the machine he ordered
was not yet complete, even allowing for additional time to make
the requested modification. (He of course did not know that the
Ohlson scale had just been ordered that month.)
On December 6, 2007, Attorney Victor Dahar wrote to Orics on
behalf of Yorgo to notify Orics that, due to its failure to
deliver the ordered machine, Yorgo was cancelling the contract
and requesting a refund of its deposit. Mr. Ori Cohen, President
of Orics, testified that he did not recall seeing that letter,
but Kevin Meek, the Orics' salesperson, said he received a copy
of the letter and discussed it with Cohen. Whether Cohen did or
did not see the letter, it was ignored by Orics.
5 A month later, on January 9, 2008, El-Khoury's niece, who
worked for Yorgo, sent an email to Cohen, inquiring, again, as to
when the ordered machine would be finished. Cohen responded on
January 11 that Orics was still waiting for the Ohlson scale,
which was expected to take another three to four weeks. Cohen
did not disclose that Orics had yet to review and approve
engineering drawings Ohlson had submitted to Orics in December —
a necessary prerequisite to Ohlson's completing the filler/scale.
Orics did not provide Ohlson with approved drawings until January
29, 2008. Yorgo, however, did not press its previously announced
election to cancel the Agreement for failure to deliver, and both
parties continued on, tacitly agreeing that the cancellation
communicated by Attorney Dahar was withdrawn and the deal
remained viable.
Once it received the approved drawings from Orics, Ohlson
expedited its work on the filler/scale and completed it by
February 12, 2008. Orics, however, never took delivery of the
filler/scale, and never paid for it. No plausible explanation
was given at trial by Orics, and Ohlson was not able to explain
why Orics never took possession of the component. Without the
Ohlson scale, the modified S-40-DX machine obviously could not be
completed, tested, and delivered.
6 From February, when the scale was ready, until June of 2008,
El-Khoury continued to inquire, with increasing frustration,
about completion and delivery dates. Orics, primarily through
Cohen, continually put him off with oral assurances that the
machine was nearly complete, or would be complete in a matter of
"a few weeks," or in "ten days," or "soon," etc. During that
period, however, Orics made no effort to obtain the essential
piece of equipment necessary to complete the machine — the Ohlson
filler/scale.
In its post-trial memorandum (document no. 56) Orics says,
implausibly, that "[b]etween February and June of 2008, Orics
Industries continued to work on finishing the S-40-DX machine and
getting it ready to integrate the automated scale into the
system." Xd. at 7. The evidence suggests otherwise — Yorgo's
project was generally ignored or given only occasional and
sporadic attention. Both Cohen and Staci Banta (Cries' Project
Manager) testified, unpersuasively, that Yorgo's machine was
completed in April or May of 2008. By "complete," however, Cohen
and Banta were not suggesting that the machine was fully
assembled and awaiting testing and shipping. Rather, they meant
that various component parts or subassemblies could be gathered
and combined in a matter of hours or a few days, and then the
machine would be ready for testing. Why Orics never performed
7 that final assembly — especially given Yorgo's increasing
impatience — remains a mystery.
In April of 2008, El-Khoury prevailed upon Robert
Mikelinich, a sales acquaintance who was planning to be in New
York on other business very near Orics' facility, to stop in and
check on his machine's status. Cohen showed Mikelinich some
components and a frame. Mikelinich testified (by deposition)
that the Orics' machine was "just a stainless steel square stock
skeletal frame of a machine," with "no components bolted to it or
welded to it . . . [n]o electrical, no bearings, no nothing."
Mikelinich Dep. at 18.
El-Khoury, though increasingly unhappy, reluctantly accepted
Cohen's oral assurances that the machine would soon be completed,
and refrained from seeking termination. After all, he wanted the
machine for his business, and had already invested far too much
time in waiting to simply cancel and start over with a different
manufacturer if the greater delay likely inherent in such a
decision could be avoided. He decided to wait longer.
On June 9, 2008, Cohen again assured Yorgo, by email, that
Orics would "finish the machine next week" and would "send you a
complete report on the exact schedule of completion shipment and installation," PI. Ex. 1, p. 5, (belying his trial testimony that
it was actually complete in April). But the Ohlson filler/scale
had still not been obtained by Orics, and the machine could not
be completed or tested without it. John Tropp, Orics' own
expert, unequivocally testified that the Ohlson scale had to be
integrated into the S-40-DX before it could be adequately tested.
Tr. Day 3, PM, p. 38.
El-Khoury's patience finally expired in August of 2008 — the
machine having still not been completed, the Ohlson scale still
awaiting Orics' pick-up, and no reasonable prospect of delivery
seemingly in sight. On August 25, 2008 — more than a year after
the parties amended the Agreement to include the filler and
scale, and nearly a year after the additional down payment was
made — a second letter was sent to Orics by different legal
counsel representing Yorgo. That letter gave notice to Orics
that Yorgo deemed it to be in breach of the Agreement. Yorgo
also notified Orics that it was cancelling the Agreement unless
Orics delivered a completed functioning machine within ten days,
and, failing that delivery, demanded return of its down payment
of $128,250.00, as well as legal fees, and interest on the
deposited funds. Orics neither responded, nor delivered the
completed machine, nor did it return Yorgo's down payment.
9 Yorgo filed suit on October 23, 2008, advancing a number of
claims: breach of contract (Count I); breach of the duty of good
faith and fair dealing (Count II); unjust enrichment (Count III);
intentional misrepresentation (Count IV); negligent
misrepresentation (Count V); fraud (Count VI); and Consumer
Protection Act violations (Count VII). Orics, in turn, filed a
counterclaim, alleging that Yorgo breached the Agreement by
failing to pay the agreed upon purchase price and by terminating
the contract without justification, since the machine, by August
of 2008, "was basically complete, and was awaiting final testing
and integration." Defendant's Post-Trial Memorandum (document
no. 56) at 16. Orics asserted that because Yorgo breached its
own contractual obligation to provide packaging material (cups
and lids) and food products (hummus, tabbouleh) necessary to test
the machine's operation, the project stalled at the testing
phase.
Following the bench trial, both parties filed post-trial
memoranda and requests for findings of fact and rulings of law.
The parties have stipulated that New Hampshire law should be
applied in resolving this dispute.
10 Breach of Contract
The parties agree that they are merchants who contracted for
the sale of goods. Accordingly, this contract dispute is
governed by applicable provisions of the Uniform Commercial Code,
as adopted by the State of New Hampshire. N.H. Rev. Stat. Ann.
ch. 382-A (hereinafter "UCC"). The UCC describes "a
comprehensive system for determining the rights and duties of
buyers and sellers with respect to contracts for the sale of
goods" and describes the exclusive remedies available in the
event of contract breach. Spring Motors Distributors v. Ford
Motor C o ., 98 N.J. 555, 565, 489 A.2d 660, 665 (1985).
The parties also acknowledge not only the Agreement, but its
operative terms, though they of course construe some relevant
terms differently. The principal issue here is the time in which
Orics was required to perform under the Agreement — that is, to
complete fabrication and ship the modified S-40-DX machine.
Yorgo says Orics failed to deliver as required; Orics counters
that it would have delivered in timely fashion but for Yorgo's
own breach of the Agreement and unjustified termination.
As noted, the initial Agreement signed by Yorgo on December
12, 2006, provided that the machine would ship (so, necessarily,
would be complete) in "14 to 16 weeks based on removal of all
11 contingencies." The form also stated that any "delay in receipt
of down payment . . . may cause production and/or shipment
delays." The shipment date was based on "current production
schedules" and was valid for "30 days." So, Orics was required
to complete and ship the machine in 14 to 16 weeks or, time not
being of the essence, within a reasonable time thereafter,
assuming no disruptive "contingencies." The Agreement did not
describe what kind of "contingencies" might warrant delay in
performance, though it was apparent from the Agreement's terms
that a delay in receipt of Yorgo's down payment "may" cause
production or shipment delays.
The amended Agreement signed in July of 2007, was described
by Orics as a revision of the original order. The amended
Agreement did not purport to alter the delivery terms. Rather,
the amendment merely added language to the effect that Orics
would "[u]pgrade equipment to new customer request," integrating
the vibratory filler and scale to be obtained from Ohlson. Joint
Exhibits, at 179.
Evidence was presented at trial suggesting that it is
customary in the industry for a manufacturer to refrain from
working on orders until the requisite down payment is made.
Accepting the reasonableness of that practice at face value.
12 Orics was obligated to begin working on the modified machine, at
the latest, when Yorgo made the additional down payment on
September 21, 2007. The amendment modified the contract in a
substantive way and both Yorgo and Orics necessarily understood
that additional redesign work and mechanical changes would be
required, which, in turn, would require additional time to
complete.
On January 11, 2008, Cohen, by email, represented that
Yorgo's machine was almost ready, and would be completed shortly.
Cohen wrote:
The Ohlson scale for the Tabuli will be done in 3- 4 weeks, the machine frame is ready to be welded and assembled, the tools are done and ready for assembly on the frame, as you know we had to change the entire frame size and shape and the machine operation by adding the Tabuli filler, as soon as the Tabuli filler will be at our facility we will integrate it test it and will be ready for FAT factory acceptance test.
Joint Exhibits, p. 222. The gist of that communication was that
as soon as Orics procured the Ohlson scale, completion of the
machine would be just a matter of assembling the component parts
and testing it. Yet, three months later (in April of 2008) that
assembly had not been accomplished, and the Ohlson scale
inexplicably remained at the Ohlson plant, ready to be acquired
and installed. In fact, by June of 2008, some six months after
Cohen's January 11 assurances, the component parts had still not
13 been assembled (nor had Orics even obtained the completed
filler/scale from Ohlson). On June 9, 2008, Cohen again emailed
El-Khoury at Yorgo, promising to "finish your machine next week"
and to "send you a complete report on the exact schedule of
completion shipment and installation." Yorgo Ex. at 5.
Testimony by Kevin Meek, a former Orics' salesperson,
offered at least one plausible explanation for Orics' continuing
failure to complete: Orics was too busy filling other, presumably
more important orders, so deferred Yorgo's project as necessary.
Cohen's own testimony supported that explanation. He admitted
that a project larger than Yorgo's was begun on January 29, 2008,
and completed on June 5, 2008 (i.e., in approximately four
months). Tr. Nov. 18, 2010, AM, pp. 43-47.
Orics never obtained the completed Ohlson filler/scale, and
it offered nothing of substance to explain that critical and
ongoing failure. The only plausible explanation, given this
record, is managerial neglect. There is no evidence suggesting
that Orics was in financial trouble and could not pay for the
Ohlson scale; there is no evidence suggesting that Orics harbored
some animosity toward Yorgo that motivated it to deliberately
string Yorgo along with no intent to actually build the machine
(it was eventually partially assembled in the Fall of 2008,
14 albeit still without the Ohlson scale, the very object of the
amendment); and surely Orics would have been far better off
economically had it paid for the filler/scale when it was
completed in February, taken delivery, and did what Cohen said it
would do in his January 11 email — finish the job.
As noted, the amended Agreement did not purport to vary the
delivery term in the original Agreement. But, plainly, the
revised order called for substantive changes to the S-40-DX
machine, and the time set for delivery in the original Agreement
had expired two months before the revised order was accepted by
the parties. Orics also points out that the delivery term in the
original Agreement applied to what was essentially a standard-
platform packaging machine, while the amended Agreement
contemplated a "custom" machine, that required modifications to
the standard S-40-DX design platform. The new machine, says
Orics, took much longer to redesign, modify, and build than the
standard machine Yorgo initially ordered.
Accordingly, says Orics, it would be unreasonable to hold it
to the original delivery term of 16 weeks, either by applying the
original term to the revised order, or imposing that term as
describing a "commercially reasonable time" in which to deliver
the modified machine. UCC §§ 1-205 and 2-309(1). I find that
15 Orics generally overstates the complexity involved. Cohen
testified that absent other work and distractions, the modified
Yorgo project could have been completed in two to three months.
Cohen himself told Yorgo, in January of 2008, that completion was
only a few weeks away, and in June of 2008, he again told Yorgo
that completion was only a week or so away. Still, Orics has a
point.
Assuming the modification effectively rendered indefinite
the 16 week delivery time specified in the original Agreement,
then the UCC imposes a "reasonable" time for delivery. Section
2-309(1) provides:
(a) The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time.
A "reasonable time" is for the finder of fact to determine,
taking into account the nature, purpose, and circumstances of the
transaction, including the parties' course of dealing, usages of
trade in the pertinent industry, and the parties' course of
performance. Superior Boiler Works v. R.J. Sanders, Inc., 711
A.2d 628, 636 (R.I. 1998) .
Orics offered expert opinion evidence at trial with respect
to what period would be considered, in the packaging machine
16 manufacturing industry, a commercially reasonable time in which
to complete Yorgo's machine. Joel Tropp, an expert in that field
testified that:
In going back and looking at, again, the work in process — and I know what the individual assemblies were, so I know what was done — I would say that somewhere in the month of April, either the beginning or the end. I'm not sure, right, somewhere at that time the machine would have been — should have been ready for final testing.
Tr. Day 3, PM, p. 21. Mr. Tropp also testified that, to be
tested, the machine had to be in the same condition as it would
be in the customer's factory. JCd. at 38. That is, fully
assembled, with the Ohlson scale fully integrated. Id.
According to Tropp, a customer, like Yorgo, should not be told
that a packaging machine is complete and ready for testing if the
components and subassemblies have not been put together, and the
scale to be integrated is still at the fabricator's facility in
another state. .Id. (Tropp, also, could think of no technical
reason why the completed Ohlson scale was not obtained by Orics
and integrated into the S-40-DX.)
In Tropp's expert opinion, a reasonable time in which to
complete a machine like Yorgo's would have been between six and
eight months, from payment of the additional deposit (September
21, 2007), with an "outside time" of eight to ten months ("but I
17 would go between six and eight months, would be a reasonable time
to complete the machine and get it ready for testing."). Id.
at 27. Yorgo offered no contrary evidence with respect to what a
commercially reasonable time for completion of the modified
machine would be.
Even accepting Tropp's opinion, however, and applying the
six to eight month delivery term described by him as the
reasonable time in which Orics should have completed and
delivered the modified machine, Orics still failed to make timely
delivery. The machine was not assembled, complete, and ready for
testing in April of 2008 (seven months) when Tropp said it should
have been completed, or in May (eight months), or even in July of
2008 (ten months). By August 25, 2008, when notice of
termination was given by Yorgo, Orics had exceeded even the
outside limit on the reasonable delivery time that its own expert
could support.
Orics argues, unpersuasively, that it was Yorgo's fault that
the machine was never delivered — that if Yorgo had only heeded
repeated calls from Ori Cohen and Staci Banta to provide Orics
with adequate quantities of sample packaging (the cups and lids)
and products (hummus and tabbouleh) necessary to test the
machine, all would have been well. Orics' point seems to be that
18 had it first been given packaging and product to test in a timely
fashion, then it would have assembled the machine, tested it, and
shipped it.
I reject that argument out of hand.It is simply not
credible, and I find Cohen's and Banta's testimony to that effect
unpersuasive. I also completely reject Orics' claim (through
Cohen and Banta) that El-Khoury or anyone working for Yorgo was
told that delay in completion and delivery of the modified
machine was due to Yorgo's failure to deliver testable packaging
and product. I also find unpersuasive the suggestion that El-
Khoury, who was energetically seeking delivery, would have
undermined his own demands for delivery by failing to provide a
few gallons of hummus, or a few boxes of cups and lids, had he
been told that they were necessary to obtain delivery of the
machine, and a direct request for those materials was made.
Orics' position is not consistent with the fact that the machine
was never assembled before Yorgo terminated the Agreement and,
so, was never ready to be tested.
This is a case in which the buyer's patience and expectation
that the seller would eventually perform was rewarded with
neglect and empty assurances. Orics, for reasons satisfactory to
it, gave Yorgo's project a low priority. Orics no doubt would
19 have eventually completed the machine, tested it, and shipped it,
but it would have done so only in its own good time.
Having failed to make delivery within a commercially
reasonable time after September 21, 2007, whether that time
expired in April of 2008, or June of 2008, or even July of 2008,
and indeed, having failed to make delivery by August 25, 2008
(some eleven months after Yorgo's supplemental deposit was
received), without justification or excuse, Orics plainly
breached the Agreement. "Although a variety of factors may
explain nondelivery, its occurrence is simple enough. Some
breaches are easy to prove; if without excuse the seller fails to
deliver at all or fails to deliver on time, his breach is clear."
White Summers, Uniform Commercial Code, Fifth Edition, § 6-2, p.
374, 1996. Orics, as it concedes, never delivered at all, and
its breach is clear. Orics had no legitimate excuse for its
breach; the excuse offered — that Yorgo prevented delivery by
undermining Cries' ability to test the machine is not credible
and is rejected.
When a seller breaches a contract for the sale of goods by
failing to deliver, the UCC affords the buyer a number of
remedies, including the right to cancel the contract, recover so
much of the price as has been paid, and, as provided in § 2-713,
20 recover incidental and consequential damages for nondelivery.
UCC §§ 2-711, 2-713. In addition, the buyer is entitled to
recover interest on the purchase price paid (here the two down
payments), at the legal rate, from the date of cancellation and
demand upon the seller. See banners v. Whitney, 428 P.2d 398,
247 Ore. 223 (1967).
Plainly, then, Yorgo is entitled to recover its down
payments, and interest at the legal rate on that amount
commencing ten days after the date of Yorgo's August 25, 2008,
cancellation notice (the date upon which Yorgo effectively
terminated the Agreement).
Damages
Yorgo also seeks damages for Orics' breach. Yorgo's
cancellation of the Agreement does not preclude it from
recovering damages for breach under the UCC. Cancellation and
recovery of damages are not exclusive remedies. See Robertson
Cos, v. Kenner, 311 N.W.2d 194 (N.D. 1981). Yorgo does not seek
incidental damages (§ 2-715(1)), but does seek consequential
damages in a particular respect. Yorgo argues that had delivery
of the machine been made in a timely fashion it would have been
able to reduce its work force by four employees. Accordingly, it
claims, as consequential damages, the salary and associated costs
21 of those employees from the time delivery should have been made
through June of 2009 (when it obtained a different packaging
machine).
Under the UCC, consequential damages resulting from a
seller's breach include:
(a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise.
The burden of proving the extent of loss incurred by
consequential damage is on the buyer, but the loss may be
established in any manner that is reasonable under the
circumstances. See RSA 382-A 2-715, official comment 4.
I find that Yorgo's trial evidence failed to establish its
entitlement to consequential damages. To be sure, Mr. El-Khoury
testified that he expected acquisition of the packaging machine
would allow him to reduce his work force by four employees. An
accountant then offered his calculation of the costs that Yorgo
could have avoided over a defined period of time had four
employees been let go. But there was scant evidence supporting
the claim that operation of the machine would have likely
resulted in the hoped-for reduction in force. And, Yorgo did not
establish that Orics had reason to know that failure to deliver
22 the machine would result in Yorgo's inability to reduce its
workforce by four employees, or that the loss occasioned by
failure to deliver "could not reasonably be prevented by cover or
otherwise." UCC § 2-715(2). El-Khoury merely said that he
expected to lay off four employees. But he had no experience
with packaging machines like the S-40-DX, and was not promised
that type or degree of savings by Orics.
Yorgo failed both to establish the claimed loss in a manner
that was reasonable under the circumstances (i.e., no expert
familiar with the production capacity of the modified S-40-DX and
Yorgo's work force testified; no comparative authoritative
studies were produced; no industry standards or accepted norms
were referenced), and Yorgo failed to establish that Orics had
reason to foresee the nature and extent of the claimed loss. See
e.g., Hvdraform Prods. Corp. v. American Steel & Aluminum Corp.,
127 N.H. 187 (1985); Bailey v. Sommoviqo, 137 N.H. 526, 531
(1993) .
Orics, on the other hand, presented evidence to the effect
that the S-40-DX automated filler would certainly increase
production beyond that achievable by the largely manually
operated system then in place at Yorgo. But, the new machine
23 would still require adequate staffing, and was not likely to
result in a reduction of the current workforce.
I do not find the evidence of consequential damages
presented by Yorgo sufficient to reasonably establish the claimed
losses. The "unsaved labor costs" claim is speculative at best,
inadequately supported, and in the end unpersuasive.
Accordingly, consequential damages, as claimed, are not awarded.
Breach of the Covenant of Good Faith and Fair Dealing
Yorgo also asserts a claim for breach of the implied
covenant of good faith and fair dealing. " [A]n obligation of
good faith is imposed by statute in the performance and
enforcement of every contract or duty subject to the Uniform
Commercial Code." Centronics Corp. v. Genicom Corp., 132 N.H.
133, 138 (1989) (Souter, J.); see also RSA 382-A:1-304 ("Every
contract or duty within this chapter imposes an obligation of
good faith in its performance and enforcement."); RSA 382-A:l-201
("'Good faith,' except as otherwise provided in Article 5, means
honesty in fact and the observance of reasonable commercial
standards of fair dealing."). And, as detailed in Centronics,
New Hampshire's common law also recognizes an implied covenant of
good faith and fair dealing in every contract.
24 But, "[i]t is generally accepted that the good faith
standard of U.C.C. [§ 1-304] does not create an independent cause
of action and that it does not create an obligation conceptually
separate from the underlying agreement." Wortlev v. Camplin, 333
F.3d 284, 293 (1st Cir. 2003) (citation omitted). Similarly, New
Hampshire's common law does not recognize a cause of action for
breach of the implied covenant of good faith and fair dealing
outside the contractual context. J & M Lumber & Constr. Co. v.
Smviunas, 161 N.H. 714, 724 (2011) . As noted in Centronics,
Our own common law of good faith contractual obligation is not, however, as easily stated as we might wish, there being not merely one rule of implied good faith duty in New Hampshire's law of contract, but a series of doctrines, each of them speaking in terms of an obligation of good faith but serving markedly different functions. Since the time of our first contract decision couched in terms of good faith, Griswold v. Heat Corporation, 108 N.H. 119, 229 A.2d 183 (1967), we have relied on such an implied duty in three distinct categories of contract cases: those dealing with standards of conduct in contract formation, with termination of at-will employment contracts, and with limits on discretion in contractual performance.
Centronics, 132 N.H. at 139.
In its complaint (Count II), Yorgo seems to invoke the first
referenced category — that is, conduct related to contract
formation. But its post-trial brief seems to rely on the third
category — that is, limits on discretion. In either event, I
25 find that Yorgo has failed to carry its burden of proof with
respect to this claim.
The evidence presented does not establish that Orics engaged
in bad faith conduct of any sort in connection with formation of
the Agreement. Like Yorgo, Orics had a genuine economic interest
in the Agreement. Orics is in the business of designing and
building packaging machines and Yorgo wished to obtain such a
machine. There was no evidence presented to support a claim that
Orics negotiated the contract with the intent not to perform, or
that it knew it could not perform. Indeed, Yorgo took the
position at trial that Orics could have built its machine in
timely fashion, but instead chose to apply its resources to
competing projects, i.e., other customers with more profitable
jobs, or more important status. That explanation for the
inordinate delay was supported by the evidence, but even if true,
such a choice by Orics likely would not support a claim for
breach of the covenant of good faith and fair dealing.
What Yorgo complains about primarily, of course, is that
Orics repeatedly promised to complete the machine in short order,
yet continually failed to do so, while Yorgo continually relied
upon those promises in delaying exercise of its right under the
UCC to terminate the Agreement for failure to deliver. Yorgo was
26 free, however, to exercise its contractual rights, or not, as it
deemed appropriate. It waited because it thought that was the
better course.1 While the court is sympathetic to Yorgo's
plight, still, Yorgo made a series of judgments about Orics'
competence and reliability in deciding to wait, and it turns out
that Yorgo made the wrong choice.
Yorgo has not proven either that Orics' conduct in
negotiating the contract's formation was in breach of its good
faith obligations, or that the contract vested Orics with a
degree of discretion that Orics exercised contrary to its good
faith obligations. Orics had no discretion with respect to the
delivery term; it was obligated to meet it. It failed, and
thereby breached the contract, but that breach does not also
amount to a breach of the covenant of good faith and fair
dealing.
I find that Yorgo has not proven a good faith and fair
dealing claim that is recognized under either the UCC or New
Hampshire's common law.
1 In hindsight, Yorgo was perhaps wise to wait until August to cancel, since it presented no contrary evidence regarding what, in the pertinent industry, would constitute a reasonable time in which to complete the modified machine. That time could well have expired as late as July of 2008, according to Orics' expert.
27 Unjust Enrichment
Yorgo's unjust enrichment claim (Count III) fails as well.
A cause of action for unjust enrichment does not lie when a valid
unrescinded contract governs the rights of the parties. See
Clapp v. Goffstown Sch. Dist., 159 N.H. 206, 210-11 (2009) .
Here, the rights of the parties are governed by the Agreement and
applicable provisions of the Uniform Commercial Code.
Intentional Misrepresentation, Negligent Misrepresentation, and Fraud
Yorgo's negligent misrepresentation, intentional
misrepresentation, and fraud causes of action are based,
essentially, upon the premise that well after the time for
delivery had passed, Orics, through its principal and chief
engineer Ori Cohen, "assured Yorgo again and again that the
machine would be ready in one to two weeks, even though he was
aware that Orics had not received the scale from Ohlson and had
not integrated it with the machine." Plaintiff's Post-Trial
Brief, at 17.
It is true that Orics seemed to have little compunction in
making promises of imminent action, only to repeatedly fail to
realign its work priorities. As noted earlier, the likely
explanation for those failures is that Orics simply had more work
than it could handle and, during the period between December of
28 2006 and August of 2008, Yorgo's project was a low priority for
Orics. But there is little evidence supporting Yorgo's claim
that Cohen deliberately told El-Khoury that the machine would be
completed in the near future with no intention to fulfill that
promise. The road to ruin is supposedly paved with good
intentions, and that appears to be the road Cohen regularly
travelled. But expressions of good intentions are not generally
actionable.
Under New Hampshire law, " [A] promise is not a statement of
fact and hence cannot, as such, give rise to an action for
misrepresentation." Hvdraform Prods. Corp. v. American Steel &
Aluminum Corp., 127 N.H. 187, 200 (1985). "A promise, therefore,
will only give rise to a claim of misrepresentation if, at the
time it was made, the defendant had no intention to fulfill the
promise." Thompson v. H.W.G. Group, 139 N.H. 698, 701 (1995).
No evidence was presented that persuades me that Orics was
incapable of fulfilling its promises when Cohen made them, or
that Cohen had no intention of doing so. Though painfully slow
from Yorgo's perspective, Orics did stumble along toward
completion in fits and starts. It did design the modified
machine. It assembled various components, fabricated the basic
frame, and arranged for fabrication of the Ohlson scale. It was
not an effort likely to have satisfied even the most indifferent
29 customer, but neither was it an effort indicative of an intention
not to perform at all. And there was no reason for Orics not to
perform — it undoubtedly would have eventually performed, given
its own substantial investment in the project, and the risk of
economic loss associated with non-performance.
Because the evidence does not support a factual finding that
Cohen had no intention of fulfilling his promises of completion
and delivery when those promises were made, Yorgo cannot recover
on its negligent misrepresentation, intentional
misrepresentation, or fraud claims.
Consumer Protection Act
Yorgo's Consumer Protection Act Claim (N.H. Rev. Stat. Ann.
("RSA") ch. 358-A) also necessarily fails for a number of
reasons. Although the Act broadly provides that "[i]t shall be
unlawful for any person to use any unfair method of competition
or any unfair or deceptive act or practice in the conduct of any
trade or commerce within [New Hampshire]," RSA 358-A:2 (emphasis
supplied), the New Hampshire Supreme Court has authoritatively
held that "[a]n ordinary breach of contract claim does not
present an occasion for the remedies under the Consumer
Protection Act." Barrows v. Boles, 141 N.H. 382, 390 (1996);
Milford Lumber Co. v. RGB Realty, 147 N.H. 15, 19 (2001) .
30 Yorgo of course argues that Orics' conduct went beyond a
straightforward breach of contract in that it made multiple
promises of imminent completion and delivery when it knew that it
had not yet obtained the Ohlson scale, so could not complete the
machine and ship it, and Yorgo relied to its detriment on those
empty promises. As noted earlier, however, Orics' many
statements of intention constituted promises of future action,
not representations of fact, so cannot support a
misrepresentation claim. I find that Orics could have completed
the machine, as promised, easily enough. It merely had to obtain
the Ohlson scale (after February of 2008, a matter of a day or
two at most) and then assign the necessary workforce to complete
the job. Hence, Yorgo's frustration. That Orics did not do so,
as required by the Agreement, and that Yorgo decided to wait
perhaps beyond the time it was required to wait, however, does
not turn the underlying dispute into something other than an
ordinary contract dispute between merchants.
And, for Yorgo to recover under the Consumer Protection Act,
Orics' repeated promises of delivery would have to "attain a
level of rascality that would raise an eyebrow of someone inured
to the rough and tumble of the world of commerce." Barrows, 141
N.H. at 390 (citation omitted). Repeated assurances of future
performance by merchants, made to placate unhappy customers, even
31 unrealistic assurances, are not unknown in the rough and tumble
of the world of commerce. When assurances of performance prove
meritless, the UCC provides a ready remedy. Buyers not tolerant
of such unfulfilled promises are entitled to cancel and recover
down payments made, provable incidental and consequential
damages, and interest. Cries' repeated promises and failures
(whether due to choices to serve other customers first, or common
mismanagement) were hardly admirable, but did not rise to the
level of rascality necessary to support a cause of action under
New Hampshire's Consumer Protection Act.
Attorney's Fees
Finally, Yorgo seeks an award of its reasonable attorney's
fees. The Agreement does not address the issue directly, and
courts have found "silence to be the simplest way to draft a
contract to indicate that no such fees are contemplated by the
parties." Indiana Glass Co. v. Indiana Mich. Power Co., 692
N.E.2d 886, 887 n.l, (Ind. A p p . C t . 1998). The parties could
easily have included a fee-shifting provision in the Agreement
had they intended to avoid the general rule that parties bear
their own legal fees, but they did not. And, attorney's fees are
generally not recoverable under § 2-715 of the UCC as incidental
or consequential damages in contract breach actions. .Id. (citing
Nick's Auto Sales, Inc. v. Radcliff Auto Sales, Inc., 591 S.W.2d
32 709 (Ky. C t . App. 1979) (holding that, in accordance with the
overwhelming weight of authority from other states that
attorneys' fees are not recoverable under UCC § 2-715)).
On the other hand, the UCC does not foreclose the
possibility of recovering attorney's fees in a contract action.
Section 1-103 of the Code "emphasizes the continued applicability
to commercial contracts of all supplemental bodies of law except
insofar as they are explicitly displaced by the provisions of the
UCC." Indiana Glass Co., 692 N.E. 2d at 889. Section 2-715 does
not explicitly provide for (or preclude) recovery of attorney's
fees, so, like other state courts that have considered the issue.
New Hampshire's courts would likely conclude that the UCC's
provisions were not intended to and do not abrogate the common
law principles governing awards of attorney's fees.
New Hampshire's common law permits recovery of attorney's
fees under very limited circumstances. "A prevailing party may
be awarded attorney's fees when that recovery is authorized by
statute, an agreement between the parties, or an established
judicial exception to the general rule that precludes recovery of
such fees." Town of Nottingham v. Newman, 147 N.H. 131, 137
(2001) (citation and internal punctuation omitted); see also
Grenier v. Barclay Square Commer. Condo. Owners' Ass'n, 150 N.H.
33 Ill, 117 (2003). The New Hampshire Supreme Court has established
judicial exceptions to the general rule that parties bear their
own attorney's fees, recognizing
exceptions where an individual is forced to seek judicial assistance to secure a clearly defined and established right if bad faith can be established; where litigation is instituted or unnecessarily prolonged through a party's oppressive, vexatious, arbitrary, capricious or bad faith conduct; as compensation for those who are forced to litigate in order to enjoy what a court has already decreed; and for those who are forced to litigate against an opponent whose position is patently unreasonable.
Business Publications v. Finnegan, 140 N.H. 145, 147 (1995). See
also Daigle v. City of Portsmouth, 137 N.H. 572, 574 (1993).
It is the last described exception that arguably applies
here. The dispositive question, then, is this: After Yorgo
terminated the Agreement, was it forced to litigate against an
opponent whose litigation position was patently unreasonable? In
considering that question, the focus is not on Orics' indolence
and unfulfilled promises of future performance, nor on the
consequences of its breach. Rather, "[t]he focus in such cases
is on a litigant's unjustifiable belligerence or obstinacy where
an action is commenced, prolonged, required or defended without
any reasonable basis in the facts provable by evidence."
Grenier, 150 N.H. at 118. The decision to award or decline to
award fees under the described judicial exception is highly
34 discretionary, and given "tremendous deference." .Id. at 116;
Daigle, 137 N.H. at 574.
Yorgo's claim is not an unsympathetic one. It argues that
Orics very well knew that it had made repeated promises of
completion and delivery from November of 2007, onward, and
repeatedly failed to perform. Accordingly, Orics knew that once
Yorgo unambiguously exercised its right to terminated the
contract, the down payment should have been promptly refunded,
and Yorgo should not have had to bring suit to recover that down
payment.
But Yorgo's claim is not one that fits within the limited
exception to New Hampshire's general rule that parties to
litigation bear their own legal fees. Here, Orics readily
conceded that it never shipped the machine, but interposed a
defense recognized in law: that Yorgo's own contract breach
precluded Orics from delivering, or excused it's failure to
perform, and, indeed, required Yorgo to pay damages — the full
contract price. Orics points out that the Agreement specifically
contemplated "factory acceptance testing" before shipment of the
machine, and that type of pre-shipment testing is well-understood
in the industry. (The Agreement specifically provides that 40%
of the purchase price was due on "acceptance prior to shipment.")
35 Cohen testified that, particularly with new customers and
unfamiliar products, testing before shipment is critical to
successful operation of the packaging machine. He also testified
that Yorgo understood from the outset that testing samples, both
of packaging (cups and lids) and food products, had to be
provided before the factory acceptance tests could be run.
Finally, he testified, supported by Staci Banta's testimony, that
El-Khoury was uncooperative, would not come to the Orics factory
to participate in the required testing, and never provided the
required samples. Shipment did not occur, says Orics, because
testing could not occur due to Yorgo's breach.
The machine was "complete," Cohen and Banta said, in April
of 2008, in the sense that had Yorgo complied with its own
obligations to cooperate in carrying out the anticipated factory
tests and to provide testing samples, the fabricated components
would have been quickly assembled, including the Ohlson scale
(located only four hours away in Massachusetts). Testing and
shipment would then have promptly followed. Orics, Cohen pointed
out, had every economic incentive to complete and ship the
machine, and little incentive to stall. Indeed, said Cohen,
Orics had already invested far more money in designing and
building the machine than was covered by Yorgo's down payment.
36 and Orics reasonably expected Yorgo to cooperate in testing, and
to pay the full purchase price.
Orics' defense and counterclaim for breach as described were
weak, to be sure, and have been rejected as explained earlier.
But, on this record, I cannot find Orics' litigation position to
have been "patently unreasonable" merely because it was weak and
unsuccessful. See Guaraldi v. Trans-Lease Group, 136 N.H. 457,
462 (1992). As in Guaraldi, the record here includes conflicting
testimony which could reasonably be interpreted differently with
respect to the commercially reasonable obligations of a buyer of
packaging machines. While there is an absence of documented
correspondence between the parties regarding critical demands for
testing supplies, and when they were expected to be supplied, the
Agreement does contemplate the testing process, and provision by
the buyer of materials necessary to that process. So, there was
a basis in law and in the contract for Orics' litigation
position, and Orics did offer some evidence of facts necessary to
support its position.
Had the evidence been stronger regarding Orics' claims that
the machine was essentially "complete" and could have been
adequately tested, and had the evidence been more persuasive that
El-Khoury was told directly that his failure to provide the
37 required testing materials was the only remaining impediment to
delivery, the outcome of this litigation might have been
different. I have found Orics' position to be insufficiently
supported, unpersuasive, and without merit, but I cannot find, on
this record, that it was frivolous or patently unreasonable, in
that it "lacked any reasonable basis in the facts provable by
evidence . . . in the law as it is, or as it might arguably be
held to be." Guaraldi, 136 N.H. at 463 (quoting Adams v .
Bradshaw, 135 N.H. 7, 18 (1991) ) . See also Daigle, 137 N.H. at
575. Absent such a finding, attorney's fees are not recoverable
under the judicially created exception to New Hampshire's general
common law rule.
Accordingly, New Hampshire's general rule applies, and each
party to the litigation must bear its own legal fees.
Orics' Counterclaim for Breach of Contract
For the reasons given above, I find in favor of Yorgo on
Orics' breach of contract counterclaim. Orics failed to meet its
burden of proof regarding Yorgo's alleged breach. To the
contrary, I find that the machine was never in a completed
condition sufficient to test it. I accept Joel Tropp's testimony
that the machine had to be assembled as it would be in the
buyer's facility as a prerequisite to adequate testing. I credit
38 El-Khoury's testimony that he was not told that the machine was
complete and ready for testing, awaiting only Yorgo's supplying
materials to test. I do not credit Cohen and Banta's claims that
El-Khoury knew that the lack of testing materials was all that
kept the machine from being completed, tested and shipped, or
that he was uncooperative, or that he refused requests to supply
testing materials. Yorgo did not breach the Agreement.
Conclusion
Judgment shall be entered in favor of plaintiff on its
breach of contract claim (Count I). Judgment shall be entered in
favor of defendant on plaintiff's breach of the duty of good
faith and fair dealing claim (Count II); its unjust enrichment
claim (Count III); its intentional misrepresentation claim (Count
IV); its negligent misrepresentation claim (Count V ) ; its fraud
claim (Count VI); and its Consumer Protection Act claim (Count
VII). Judgment shall be entered in favor of plaintiff on
defendant's breach of contract counterclaim.
Defendant shall refund plaintiff's down payment(s) in full,
with interest at the legal rate from September 4, 2008, until
paid. Each party shall bear its own legal fees. This Decision
shall constitute the court's findings of fact and rulings of law.
Fed. R. Civ. P. 52(a)(1). If either party believes this decision
39 leaves specific requests for findings of fact or rulings of law
unaddressed, that party may, by pleading filed within fourteen
(14) days of the date of this order, identify those specific
requests and a ruling will be made.
SO ORDERED.
Steven J./McAuliffe Chief Judge
September 29, 2011
cc: Ronald E. Cook, Esq. Clara A. Dietel, Esq. Paul R. Kfoury, Sr., Esq Lisa M. Lee, Esq. Andrew B. Livernois, Esq.