BROWN, Chief Judge:
This matter comes before the Court upon cross-motions for summary judgment. (Doc. Nos. 88, 92.) Defendants' cross-motion also seeks to redesignate affirmative defenses as counterclaims pursuant to Federal Rule of Civil Procedure 8(c)(2). Plaintiff also moves in limine to exclude certain defense expert witnesses pursuant to Federal Rule of Evidence 702. (Doc. No. 87.) This Court heard oral argument on these motions on September 16, 2010. For the following reasons, the Court will grant Plaintiff's motion in part without prejudice and deny Defendants' motion. The Court will allow Defendants to redesignate their affirmative defenses, but the Court will limit these counterclaims to the 2006 deliveries. The Court will also deny Plaintiff's motion in limine without prejudice and permit Plaintiff to refile in light of this Court's ruling with regard to the other motions.
This case involves a contract dispute between Plaintiff Rocheux International of New Jersey, Inc. ("Rocheux"), a distributor of raw plastic materials, and Defendants U.S. Merchants Financial Group, Inc., U.S. Merchants Inc. (d/b/a U.S. Merchants or The Merchant of Tennis, Inc.), and Diversified Repackaging Corporation, who are California-based providers of plastic product-packaging services. The dispute concerns large shipments of raw plastics delivered by Rocheux to Defendants between January and June 2006. For purposes of the parties' cross-motions for summary judgment, the Court draws all reasonable inferences in the light most favorable to the respective non-moving
The Court begins with the uncontested facts. The parties agree that Defendants ordered large quantities of raw PVC and APET plastic from Rocheux in 2005 and 2006, as demonstrated by purchase orders 21920, 22190, 22897, P13295, P13300, P13302, 20188, 20491, 20564, 20583, and 22488 (hereinafter "2005-2006 purchase orders"). (Pl.'s 56.1 Statement ¶ 1; Defs.' 56.1 Resp. ¶ 1.) According to the parties' descriptions, the plastic was ordered by the pound and delivered in rolled-up form as more than 7,000 rolls of plastic the size of garbage cans. (Flood Decl. ¶¶ 3, 9; see also Pl.'s Br. at 1; Defs.' Resp. Br. at 6.) There is no dispute that Rocheux delivered to Defendants some of the plastic products related to the 2005-2006 purchase orders between January 2006 and June 2006 (hereinafter "2006 deliveries"), and that Rocheux sent Defendants invoices for these deliveries. (See Pl.'s 56.1 Statement ¶¶ 2, 6; Defs.' 56.1 Resp. ¶¶ 2, 6.) It is undisputed that Defendants did not pay for most if not all of the 2006 deliveries and that Defendants no longer possess the goods from the 2006 deliveries. (Pl.'s 56.1 Statement ¶¶ 8, 12; Defs.' 56.1 Resp. ¶¶ 8, 12.) According to Plaintiff, the outstanding balance for the 2006 deliveries is $2,116,571.76. (Pl.'s 56.1 Statement ¶ 9; Stephanoff Decl. ¶ 32 & Ex. A; Defs.' 56.1 Resp. ¶ 9.)
In addition to the 2006 deliveries, it appears that Rocheux delivered some of the goods related to the 2005-2006 purchase orders to a local warehouse so that Defendants would be able to access the goods as needed on short notice. These deliveries to the warehouse (hereinafter "warehouse goods") appear to have taken place between November 2005 and August 2006. (Pl.'s 56.1 Statement ¶¶ 262, 266, 270, 274, 277, 280, 283, 286, 289, 292, 295, 298, 301, 305, 308, 311, 314, 317, 320, 323, 326, 329, 332, 335, 338, 341, 344, 347, 350, 353; McRavin Decl. ¶¶ 275, 279, 283, 287, 290, 293, 296, 299, 302, 305, 308, 311, 314, 318, 321, 324, 327, 330, 333, 336, 339, 342, 345, 348, 351, 354, 357, 360, 363, 366; Defs.' Resp. ¶¶ 262, 266, 270, 274, 277, 280, 283, 286, 289, 292, 295, 298, 301, 305, 308, 311, 314, 317, 320, 323, 326, 329, 332, 335, 338, 341, 344, 347, 350, 353.) According to Rocheux Vice President and Chief Operating Officer Robert Stephanoff, the original purchase price for the warehouse goods was $1,582,282.31. (Stephanoff Decl. ¶ 28; see also Defs.' 56.1 Statement ¶ 3.) On September 24, 2006, Rocheux President Wendy Steed sent an email to Defendants' President and CEO Jeffrie Green requesting the delinquent payments for the 2006 deliveries and the warehouse goods by September 29, 2009, and notifying Defendants that their failure to pay would result in Rocheux selling the warehouse goods and seeking any deficiency from Defendants pursuant to UCC § 2-706. (Steed Decl. ¶ 14 & Ex. F.) Rocheux incurred $18,562.36 in freight charges and $56,622.67 in additional warehouse charges in attempting to re-sell the warehouse goods, and Rocheux eventually sold the warehouse goods to third parties for $1,194,582.68, resulting in a deficiency of $387,699.70 compared to the original purchase price for the warehouse goods. (Pl.'s 56.1 Statement ¶¶ 18-19; Stephanoff Decl. ¶¶ 28-29; Defs.' 56.1 Resp. ¶¶ 18-19.)
Although the parties do not contest the basic facts surrounding the 2006 deliveries and the warehouse goods, Defendants contest their liability for both, contending that the 2006 deliveries contained substantial amounts of unusable and/or nonconforming materials, and that Rocheux breached its contracts with Defendants when it resold
For its part, Rocheux claims that it was not notified of problems with the 2006 deliveries until its president received an email from Defendants' president on September 6, 2006. (Steed Decl. Ex. D (Sept. 6, 2006 email from Jeffrie Green to Wendy Steed) (indicating that "there have been some problems with the materials which Rocheux supplied," and inquiring whether "[Rocheux's] other customers encountered sealing problems").) Prior to the September 6 email, Rocheux claims that Defendants had generally acknowledged that they owed payments for the 2006 deliveries.
After Ms. Steed received the September 6 email, she replied the following day with an email asking Mr. Green to "please provide [Rocheux] full details" regarding his assertion of defects with delivered goods. (Steed Decl. Ex. E (Sept. 7, 2006 email from Wendy Steed to Jeffrie Green).) Her response further asserted "We stand behind our product and will send a team to investigate any problems you may be having with our material. Any defective materials should be returned for a full credit." (Id.) Ms. Steed asserts that Defendants never responded to her request for inspection or return of defective goods. (Steed Decl. ¶ 13.) Defendants concede that "the vast majority" of the 2006 deliveries had been discarded as scrap when they received Ms. Steed's September 7, 2006 email requesting the return or inspection of defective goods. (Margaros Decl. ¶ 15.) More than a year later, the parties met at Defendants' plant in California in November 2007 for an inspection of the defective goods Defendants still possessed. Defendants produced 33 rolls of plastic, "most of which, if not all, of which [we]re not part of the [2006 deliveries]." (Stephanoff Decl. ¶ 7; see also Margaros Decl. ¶ 15.)
The parties also dispute the applicability of additional terms for interest and attorneys' fees that Rocheux asserts it included in both its order confirmations and invoices to Defendants. (See Pl.'s 56.1 Statement ¶ 257; Defs.' 56.1 Resp. ¶ 257.) Rocheux's Supervisor of Customer Service Donna McRavin attests that Rocheux, by virtue of its document-producing software, automatically included a "Terms and Conditions" page as page 2 of every order acknowledgment it sent to Defendants in response to Defendants' purchase orders. (McRavin Decl. ¶ 11.) Paragraph 7 of the Terms and Conditions page provides for a service charge of 1.5% per month on "all... outstanding charges and invoices," and states that the purchaser will be responsible for "all costs and expenses of collection, including reasonable attorneys' fees of 25% of the outstanding balance, incurred by Rocheux in connection with [the parties' sales contracts] or in any action or proceeding against Customer for breach of [the parties' sales contracts]." (E.g., McRavin Decl. Ex. F.) Ms. McRavin included order confirmations containing Terms and Conditions pages for the 2005-2006
In addition to the Terms and Conditions pages Rocheux contends it included with the order confirmations, Rocheux asserts that it sent Defendants invoices after each delivery that contained essentially the same additional terms. (Pl.'s 56.1 Statement ¶¶ 258, 260.) A footnote in the invoices provides that "[d]elinquent accounts are subject to a service charge of 1.5% per month" and notifies the purchaser that it will be responsible for costs and "reasonable attorney's fees" if Rocheux has to institute legal proceedings to collect under the parties' sales contracts. (E.g., McRavin Decl. Ex. K.) Ms. McRavin included the invoices for the 2005-2006 purchase orders. (See McRavin Decl. Exs. A-TTTTTTTT.) Defendants deny that they ever received Terms and Conditions pages with the order confirmations that Rocheux sent. (Green Decl. ¶ 14; Oprisan Decl. ¶¶ 6-7.) According to Mr. Green, Defendants' president and CEO, he arranged Defendants' initial agreement to purchase plastics from Rocheux in a conversation or series of conversations with Rocheux salesman Mike Flood, ostensibly in or about 2000. (Green Decl. ¶¶ 10-11.) Mr. Green attests that his companies only purchase plastic materials "from suppliers [he] approve[s], on terms that [he] negotiate[s]," and that his companies "do not accept additional terms and conditions from [their] vendors." (Id. ¶ 11.) Mr. Green further alleges that he discussed these limitations with Mr. Flood when they first met, and that Mr. Flood "agreed that if we did business, it would be on the terms that I outlined." (Id.) Mr. Green denies being apprised of the additional terms for interest and attorneys' fees now sought by Rocheux at any point in the parties' business relationship, and Mr. Green further contends that, prior to the instant litigation, Rocheux never attempted to charge Defendants interest or attorneys' fees on past-due invoices. (Id. ¶¶ 14-15.) Defendants do not deny receiving invoices containing terms for interest and attorneys' fees,
On December 21, 2006, Rocheux filed a six-count Complaint presenting claims for breach of contract (Counts I, V), claims on book accounts (Counts II, VI), unjust enrichment (Count III), and conversion of property (Count IV). Counts I-IV seek damages for the 2006 deliveries, and Counts V-VI seek damages for the warehouse goods. Defendants filed an Answer on February 28, 2007, that denied most of the allegations supporting Rocheux's claims and asserted a number of affirmative defenses, including that Rocheux's claims were barred by Rocheux's prior breach of contract, failure to supply conforming goods of merchantable quality, and breach of express and implied warranties. (Answer, Affirmative Defenses IV, VIII, IX.) Rocheux now moves for summary judgment on its claims for the 2006 deliveries and warehouse goods, seeking $4,635,761.18 in damages, interest, attorneys' fees, and costs.
The Court first considers Defendants' request to redesignate certain affirmative defenses as counterclaims pursuant to Federal Rule of Civil Procedure 8(c)(2). This Rule provides in pertinent part: "If a party mistakenly designates a defense as a counterclaim, or a counterclaim as a defense, the court must, if justice requires, treat the pleading as though it were correctly designated, and may impose terms for doing so." Fed.R.Civ.P. 8(c)(2). Defendants intend to rely on their affirmative defenses of breach of warranty and breach of contract to seek offsets from any amount due under its contracts with Rocheux on the basis of Rocheux's failure to provide conforming goods between 2000 and 2006. According to Defendants, towards the beginning of the their business relationship, Rocheux expressly warranted that it would give Defendants the best prices on for all purchases and that it would always deliver "first quality virgin grade (non-recycled) material." (Defs.' Cross-Motion Br. at 4-5; Green Decl. ¶¶ 11-12.) Defendants allege that, in addition to shipping a substantial amount of unusable plastic, Rocheux also sold and delivered goods that did not conform to the "best-pricing" and "virgin-grade" warranties. Rocheux objects to Defendants' proposed counterclaims on the grounds that Defendants' requested modification would alter the "essential character" of the affirmative defenses by including "new counterclaim[s] that w[ere] not the subject of the complaint or the answer." (Pl.'s Reply Br. at 26-27.) The question before the Court, then, is whether Defendants' proposed modification redresses a simple mistaken designation, for which Rule 8(c)(2) provides the appropriate standard for relief, or whether Defendants' modification presents a new claim, for which leave to amend is governed by Federal Rule of Civil Procedure 15(a)(2). See Bozsi Ltd. P'ship v. Lynott, 676 F.Supp. 505, 515-16 (S.D.N.Y.1987) (differentiating between "technical pleading error[s]," to which Rule 8(c) applies, and redesignations that would "alter[] the essential character of a case"); 5 Wright & Miller, Federal Practice & Procedure § 1275 (West 2010) ("The misdesignation provision in Rule 8(c) reflects the conscious attempt by the draftsmen to ignore pleading technicalities; it also promotes the liberality with which courts generally construe pleadings under the federal rules."). Consequently, the parties' pleadings provides the appropriate frame of reference.
Rocheux's Complaint alleges that Defendants breached contractual obligations to pay for goods delivered between January and June 2006. (Compl. ¶ 21.) Indeed, the Complaint generally avers that the parties had a business relationship prior to this time. (Compl. ¶¶ 12 (alleging that Defendants had purchased materials from Rocheux "[f]or the last several years," and that Rocheux "sought information concerning Defendants' creditworthiness"
The pleadings thus unequivocally demonstrate that the parties' dispute concerned goods delivered between January and June 2006, as well as warehouse goods billed in September 2006. The plausibility standard imposed by Federal Rule of Civil Procedure 8(a), see Ashcroft v. Iqbal, ___ U.S. ____, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) and Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), which applies to counterclaims, see Fed.R.Civ.P. 8(a) (2007) and 2007 amendment note (noting "stylistic changes"), persuades this Court that Defendants' generic affirmative defenses did not expand the temporal scope of the legal claims. Therefore, Defendants' purported modification seeking offsets on the basis of nonconforming goods delivered between 2000 and 2005 is properly characterized as a motion to amend their Answer to include new counterclaims.
Federal Rule of Civil Procedure 15(a)(2) provides that, under the present circumstances, "a party may amend [its] pleading only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires." This standard applies to affirmative and responsive pleadings alike. Long v. Wilson, 393 F.3d 390, 400 (3d Cir.2004). The Supreme Court identified several factors that guide the application of this Rule in Foman v. Davis:
Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); see also Arthur v. Maersk, Inc., 434 F.3d 196, 204-05 (3d Cir.2006). The Third Circuit has explained that "[d]elay alone is not sufficient to justify denial of leave to amend." Arthur, 434 F.3d at 204; see also Howze v. Jones & Laughlin Steel Corp., 750 F.2d 1208, 1212 (3d Cir.1984). "[H]owever, at some point, the delay will become `undue,' placing an unwarranted burden on the court, or will become `prejudicial,' placing an unfair burden on the opposing party." Adams v. Gould Inc., 739 F.2d 858, 868 (3d Cir.1984). "The question of undue delay, as well as the question of bad faith, requires that [the court] focus on the plaintiffs' motives for not amending their complaint to assert this claim earlier; the issue of prejudice requires that we focus on the effect on the defendants." Id.; see also Cureton v. Nat'l Collegiate Athletic Ass'n, 252 F.3d 267, 273 (3d Cir.2001). It is well established in this Circuit that "prejudice to the non-moving party is the touchstone for the denial of an amendment," e.g., Arthur, 434 F.3d at 204, but "the longer the unexplained delay, the less the [non-moving party] must show in terms of prejudice" to defeat the motion to amend, Long v. Wilson, 393 F.3d 390, 400 (3d Cir.2004) (citing Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir.1993)). Rocheux argues that Defendants' motion to redesignate should be denied because of undue delay, prejudice, and futility.
With regard to delay, the undisputed record demonstrates that Defendants did not seek to add the proposed counterclaims until it opposed Rocheux's motion for summary judgment on April 16, 2010, more than three years after they filed their Answer on February 28, 2007, and more than 16 months after the close of discovery on November 28, 2008. (See Doc. No. 41 (July 29, 2008 Revised Scheduling Order).) Furthermore, based on Defendants' representation that their answers to interrogatories notified Rocheux as early as August 2007 that they intended to seek offsets for nonconforming goods delivered before January 2006 (see Defs.' Cross-Motion Br. at 16-17), the Court may deduce that Defendants knew of their potential counterclaims in August 2007, more than 30 months prior to moving to include these counterclaims. Other than arguing their understanding that the parties' installment contract opened the door for offsets in prior years, Defendants did not provide an explanation for their delay in seeking redesignation in either their motion briefs or during oral argument. As noted above, Defendants' unpled understanding regarding the parties' installment contract did not expand the scope of the pleadings, and the Court does not find that Defendants were justified in believing that it did. As the Court notes below, Defendants' purported redesignation would drastically change the scope of the claims before the Court. Defendants' delay in presenting these counterclaims has been substantial, and because Defendants have not provided a satisfactory explanation, the Court finds Defendants' delay undue. See, e.g., In re Madera, 586 F.3d 228, 234 (3d Cir.2009) (finding motion to amend "untimely" where the party waited until its adversary's motion for summary judgment to seek leave to amend, and the proposed claims "[we]re not based on evidence that came to light after discovery").
Defendants respond that their answers to interrogatories in 2007 and 2008 timely notified Rocheux of their intent to seek offsets for nonconforming goods delivered before 2006.
Although substantial delay and prejudice alone warrant denying Defendants' motion to redesignate, the Court also notes that Defendants' proposed counterclaims appear to be time-barred. New Jersey law provides a four-year limitations period for contract and warranty claims arising under New Jersey's Uniform Commercial Code (UCC) provisions. N.J. Stat. Ann. § 12A:2-725; see also Spring Motors Distrib., Inc. v. Ford Motor Co., 98 N.J. 555, 561, 489 A.2d 660 (1985) (explaining that the UCC's four-year statute of limitations applies to breach of warranty claims brought by "a commercial buyer seeking damages for economic loss resulting from the purchase of defective goods"). This provision states that "[a] cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach," but notes that "[a] breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered." N.J. Stat. Ann. § 12A:2-725(2). Section 12A:2-725(2) thus operates as an exception to the general discovery rule. See, e.g., South Jersey Gas Co. v. Mueller Co., Ltd., No. 09-4194, 2010 WL 1742542, at *5 (D.N.J. Apr. 27, 2010). Here, Defendants' purported counterclaims for breach of warranty (i.e., the "best-price" and "virgingrade" warranties) do not rely on a warranty regarding future performance. Cf. Comm'rs of Fire Dist. No. 9 v. Am. La France, 176 N.J.Super. 566, 573, 424 A.2d 441 (App.Div.1980) ("The key requirement in finding a warranty of future performance is that it makes specific reference to a future time here, a period of at least one year. This type of warranty cannot be characterized as a mere representation of the product's condition at the time of delivery. . . ."); see also South Jersey Gas, 2010 WL 1742542, at *5. Therefore, Defendants' cause of action for breach of warranty "occur[red] when tender of delivery [was] made." N.J. Stat. Ann. § 12A:2-725(2). Defendants did not seek to include counterclaims for nonconforming goods sold and delivered before 2006 until they filed the instant cross-motion on April 16, 2010, more than four years after the tender of delivery of any such goods. Defendants have provided no legal or equitable reason why the statute of limitations should be tolled for these counterclaims. Because Defendants' proposed counterclaims appear to be time-barred, redesignation would be futile. See, e.g., Arab African Int'l Bank v. Epstein, 10 F.3d 168, 174-75 (3d Cir.1993) (affirming district court's denial of leave to amend on the grounds of futility where the proposed claim was time-barred).
The Court will permit Defendants to redesignate Affirmative Defenses IV, VIII, and IX as counterclaims to seek offsets related to the goods that are the subject of Rocheux's Complaint and Defendants' Answer: goods delivered between January 2006 and June 2006.
A party seeking summary judgment must "show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Hersh v. Allen Prods. Co., 789 F.2d 230, 232 (3d Cir.1986). The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (noting that no issue for trial exists unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict in its favor). An issue is "genuine" if a reasonable jury could possibly hold in the nonmovant's favor with regard to that issue. Id.
The substantive law identifies which facts are "material." Anderson, 477 U.S. at 247-48, 106 S.Ct. 2505. Therefore, "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Id. at 248, 106 S.Ct. 2505. In deciding whether triable issues of fact exist, the court must view the underlying facts and draw all reasonable inferences in the light most favorable to the non-moving party. Matsushita, 475 U.S. at 587, 106 S.Ct. 1348; see also Peters v. Del. River Port Auth. of Pa. & N.J., 16 F.3d 1346, 1349 (3d Cir. 1994). The court may not resolve factual disputes or make credibility determinations at the summary judgment stage. Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir.1992). However, "if the non-movant's evidence on any essential element of the claims asserted is merely `colorable' or is `not significantly probative,' the court should enter summary judgment in favor of the moving party." Peterson v. AT & T, No. 99-4982, 2004 WL 190295, at *3 (D.N.J. Jan. 9, 2004) (quoting Anderson, 477 U.S. at 249, 106 S.Ct. 2505). To present a genuine issue of material fact, the summary judgment opponent "`need not match, item for item, each piece of evidence proffered by the movant,' but simply must exceed the `mere scintilla' standard." Petruzzi's IGA Supermarkets, Inc. v. Darling-Delaware Co., Inc., 998 F.2d 1224, 1230 (3d Cir. 1993); see also Anderson, 477 U.S. at 252, 106 S.Ct. 2505 ("The mere existence of a scintilla of evidence in support of the [nonmovant's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [nonmovant].").
With the present case, both parties present multiple theories in favor of or against summary judgment with regard to two distinct sets of goods (2006 deliveries and warehouse goods) and the disputed interest and attorneys' fees provisions Rocheux claims were part of their contracts with Defendants. Accordingly, the Court will assess the parties' arguments as they relate to these disputed claims, shifting the summary judgment standard as necessary to account for the arguments raised on cross-motion. Rocheux contends, and Defendants do not dispute, that New Jersey law applies to this action. Accordingly, the Court will apply New Jersey law to the claims at issue in these motions. See, e.g., Am. Cyanamid v. Fermenta Animal Health Co., 54 F.3d 177, 180 (3d Cir.1995). Because this case involves the application of New Jersey's UCC provisions, this Court may consult the decisions of other courts that have applied their state's UCC provisions to the extent that such decisions are persuasive and do not conflict with the
Rocheux argues that Defendants are liable for the purchase price of the 2006 deliveries because (1) Defendants accepted the goods; (2) Defendants violated N.J. Stat. Ann. §§ 12A:2-515 and 12A:2-603 because they resold the goods without notifying Rocheux and failed to credit Rocheux's account; and (3) Defendants have stated an account in favor of Rocheux. Defendants respond (1) that Rocheux is estopped from obtaining judgment for the 2006 deliveries; (2) that Defendants have presented evidence creating a genuine issue of fact regarding whether Defendants rejected or revoked acceptance of a portion of the 2006 deliveries;
Defendants argue that the undisputed record demonstrates that Rocheux's representatives repeatedly made promises to give Defendants credits for nonconforming goods throughout the course of the parties' relationship, promises upon which Defendants relied by continuing to purchase plastic from Rocheux, but that Rocheux never delivered on these promises. Accordingly, Defendants argue that Rocheux's promises estop them from seeking the full contract price on the 2006 deliveries.
Before the Court assesses Defendants' arguments, the Court notes that Defendants did not plead an estoppel counterclaim for promises of credits made on deliveries prior to 2006. Nor do Defendants seek to redesignate their estoppel affirmative defense as a counterclaim. Thus, the Court limits Defendants' estoppel affirmative defense to promises of credits made on the 2006 deliveries in accordance with this Court's ruling on Defendants' cross-motion to redesignate affirmative defenses.
Defendants invoke the doctrines of both promissory estoppel and equitable estoppel. In New Jersey, promissory estoppel consists of: "(1) a clear and definite promise by the promisor; (2) the promise must be made with the expectation that the promisee will rely thereon; (3) the
The only evidence relied upon by Defendants to establish that Rocheux made promises of credits is the declaration of Mr. Margaros, their thermoforming manager. (Defs.' Cross-Motion Br. at 36.) While Mr. Margaros's Declaration generally asserts that Rocheux representatives "always and repeatedly assured that Defendants would receive credits to their account for any and all defective and/or nonconforming material" whenever he notified them of problems with the goods (Margaros Decl. ¶ 12), it does not provide any details regarding when these promises were made, to which deliveries they applied, or the extent of the promised credit for the alleged defects. The Court cannot determine from these vague statements that Rocheux made definite representations regarding the 2006 deliveries, as opposed to prior deliveries not the subject of this suit, or that Defendants' reliance was reasonable and the detrimental impact substantial. As the moving party with respect to this affirmative defense, Defendants must satisfy the burden of production by "identify[ing] those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which [they] believe[ ] demonstrate the absence of a genuine issue of material fact." See Celotex, 477 U.S. at 323, 106 S.Ct. 2548; Fed. R.Civ.P. 56(c). Defendants have not met this burden.
As noted above, Rocheux has presented three primary arguments in favor of summary judgment on the 2006 deliveries: (1) Defendants' acceptance of the goods; (2) Defendants' noncompliance with N.J. Stat. Ann. §§ 12A:2-515 and 12A:2-603, which
With regard to Rocheux's argument that Defendants accepted the 2006 deliveries, it is undisputed that Rocheux made deliveries related to the 2005-2006 purchase orders (purchase orders no. 21920, 22190, 22897, P13295, P13300, P13302, 20188, 20491, 20564, 20583, and 22488) between January and June 2006, and that Rocheux sent Defendants invoices for these deliveries. (Pl.'s 56.1 Statement ¶¶ 1, 2, 6; Defs.' 56.1 Resp. ¶¶ 1, 2, 6.) It is undisputed that Defendants did not pay for the 2006 deliveries and that Defendants no longer possess the goods from the 2006 deliveries. (Pl.'s 56.1 Statement ¶¶ 8, 12; Defs.' 56.1 Resp. ¶¶ 8, 12.) Although Defendants dispute their liability for the 2006 deliveries, they do not dispute Rocheux's assertion that the outstanding balance for the 2006 deliveries is $2,116,571.76. (Pl.'s 56.1 Statement ¶ 9; Stephanoff Decl. ¶ 32 & Ex. A; Defs.' 56.1 Resp. ¶ 9.)
Under the UCC, the buyer has the following options with regard to delivery of nonconforming goods: "(a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest." N.J. Stat. Ann. § 12A:2-601.
N.J. Stat. Ann. § 12A:2-105(6). The record in this case demonstrates that the plastic was priced and ordered by the pound. (See, e.g., McRavin Decl. Ex. E (purchase order).) Although the Court has not located New Jersey case law using goods' weight as the commercial unit, other courts have applied their state's UCC provisions in such a manner. See, e.g., Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567, 577-78 (Idaho Ct.App.1992) (finding that the commercial unit was a ton of betonite where the betonite was priced by the ton); Askco Eng'g Corp. v. Mobil Chem. Corp., 535 S.W.2d 893, 896 (Tex.Civ. App.1976) (finding that commercial unit was a pound of film where the film was priced by the pound). The Court finds these rulings persuasive and will adopt a pound of plastic as the commercial unit for this case.
Defendants do not identify how much of the 2006 deliveries they were able to use, but assert that Dr. Luna's expert report
However, there are two problems with relying on this deduction to determine the proportion of the 2006 deliveries that Defendants accepted. First, Defendants' asserted offsets appear to be based on value and not the commercial unit (pounds of plastic). Second, Dr. Luna applied an estimated "loss percentage" of 8.99% to calculate offsets due to unusable material. Dr. Luna determined this estimated loss percentage by dividing Defendants' total loss write-offs from 2000 through January 2006 by the total product delivered during the same period. (Id. at 7-8.) Although this approach appears reasonable at first blush, it obscures the fact that Defendants have not presented records for the total loss write-offs for February-June 2006. This omission is surprising, considering that this litigation concerns the delivery of goods from January-June 2006 that Defendants allege were nonconforming, and because Dr. Luna's Report appears to contain Defendants' detailed records regarding the exact losses from all deliveries from March 2001 through January 2006. (Id. sched. 7.2.) The Court specifically inquired about these missing records during oral argument, and defense counsel did not have an explanation for why Defendants relied on loss estimates for February-June 2006. (Oral Argument Tr. at 41-42.) It would not be appropriate to permit Dr. Luna to estimate the losses for February-June 2006 to fill in these gaps, because Defendants concede that Dr. Luna, as a damages expert, has no first-hand knowledge of the amount of nonconforming goods, and that she would not have been qualified to make such a determination. (Defs.' Cross-Motion Br. at 114 (arguing that Dr. Luna "base[s] her conclusions as to the amount of damages on an assumption regarding the product's characteristics supplied by those with first-hand knowledge").)
Rocheux, as the party seeking summary judgment, has met the burden of production by presenting undisputed facts regarding its shipment of the 2006 deliveries, the balance owed for these goods, and Defendants' failure to pay for or retain these goods. The burden therefore shifts to Defendants to present more than a "mere scintilla" of evidence to establish a genuine issue of fact. See, e.g., Petruzzi's IGA Supermarkets, Inc. v. Darling-Delaware Co., Inc., 998 F.2d 1224, 1230 (3d Cir.1993) (explaining that the summary judgment opponent "`need not match, item for item, each piece of evidence proffered by the movant,' but simply must exceed the `mere scintilla' standard'") (citing Anderson, 477 U.S. at 252, 106 S.Ct. 2505). Defendants appear to have presented evidence indicating that they did not use a small portion of the 2006 deliveries (i.e., the business records Dr. Luna relied upon in schedule 7.2), but as presently constituted, the Court cannot discern what portion Defendants accepted and what portion Defendants rejected or revoked. Defendants have presented evidence that they notified Rocheux that they were rejecting and/or revoking acceptance of a portion of the 2006 deliveries (see Margaros Decl. ¶ 11,
Given the voluminous nature of the records that Dr. Luna relied upon to calculate Defendants asserted loss offsets, the Court will not undertake to calculate the exact loss offsets claimed by Defendants for 2006. Rather, the Court will grant Rocheux's motion for summary judgment without prejudice and give Defendants 15 days from the receipt of the accompanying Order to submit supplemental documentation and revised calculations of their loss offsets setting forth their exact losses, by value and pound, for 2006. Defendants shall not base these losses upon an estimate determined from prior deliveries' loss percentages. The Court will give Rocheux 10 days to respond to any supplemental materials submitted by Defendants on this issue. Upon review of the parties' submissions, the Court may deny summary judgment in part for the portion (in commercial units) of the 2006 deliveries Defendants contend they rejected and/or revoked, but the Court will award summary judgment in favor of Rocheux for the commercial units that Defendants accepted.
In anticipation that Defendants will submit supplemental documentation and/or revised calculations of loss due to unusable materials so as to substantiate their defenses of rejection and/or revocation of a portion of the 2006 deliveries, the Court notes that this dispute extends no further than (1) whether Defendants owe the contract price for these goods, if the factfinder were to find that Defendants did not reject or revoke acceptance of these goods, or (2) whether Defendants owe a lesser amount reflecting the difference between the value of the scrap material and the costs they incurred by storing and reselling the scrap, if the factfinder were to resolve that Defendants rejected or revoked acceptance of a portion of the 2006 deliveries. Defendants appear to argue that they have no liability for worthless rejected goods. (See Defs.' Cross-Motion Br. at 71) (citing Northrop Corp. v. Litronic Indus., 29 F.3d 1173, 1176 (7th Cir.1994).) But the record indicates that Defendants did not merely discard the defective plastic; they sold it for considerable value. (Luna Report at 8 (indicating that Rocheux resold the lost material as scrap for $293,330).) For the 2006 deliveries alone, it appears Defendants resold the lost material at a price of 0.267 per unit, for approximately $50,000. (See Luna Report sched. 2.5.) While Defendants may have had a right to discard the lost material if their storage costs exceeded their value, see Northrop, 29 F.3d at 1176, they did not have a right to resell the lost material and keep the resale price. See N.J. Stat. Ann. §§ 12A:2-603 (explaining that, under certain circumstances, the buyer may sell nonconforming goods "for the seller's account," deducting "reasonable expenses of caring for and selling them" and a commercially reasonable commission), 2-604 ("[I]f the seller gives no instructions within a reasonable time after notification of rejection the buyer may store the rejected goods for the seller's account or reship them to him or resell
Rocheux next argues that Defendants are liable for the deficiency between the original purchase price and the subsequent resale value of the warehouse goods, as well as the costs Rocheux incurred by storing and reselling the same. Defendants respond that Rocheux cannot recover these sums as a matter of law because Rocheux improperly repudiated its contracts with Defendants under N.J. Stat. Ann. § 12A:2-609 without demanding adequate assurance and despite receiving such assurance from Defendants. Defendants do not seek any offset or damages related to the warehouse goods; accordingly, the Court considers whether Rocheux demanded adequate assurance and whether Defendants provided such assurance.
Section 12A:2-609 provides in pertinent part:
N.J. Stat. Ann. § 12A:2-609(1). The "failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract." Id. § 12A:2-609(4). Subsection 2 of this provision further provides that "[b]etween merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards." Id. § 12A:2-609(2).
With regard to Defendants' first contention that Rocheux did not demand adequate assurances, Defendants appear to challenge not only the language used by Rocheux in its correspondence, but also Rocheux's grounds for insecurity. Defendants argue that Rocheux did not demand adequate assurance, as was required by § 12A:2-609 prior to repudiating the parties' contracts, because Rocheux "conditioned its own future performance on Defendants'
(Steed Decl. Ex. F.) Defendants cite a number of cases for the proposition that a party's breach of a collateral contract does not authorize the aggrieved party to refuse performance under a separate and distinct contract. However, comment 3 to § 12A:2-609 provides that, "[u]nder commercial standards and in accord with commercial practice, a ground for insecurity need not arise from or be directly related to the contract in question. . . . Thus a buyer who falls behind in `his account' with the seller, even though the items involved have to do with separate and legally distinct contracts, impairs the seller's expectation of due performance." N.J. Stat.Ann. § 12A:2-609 cmt. 3; see also Brisbin, 398 F.3d at 286. Furthermore, the correspondence relied upon by Defendants indicates that Rocheux's insecurity arose from Defendants' failure to pay for both the 2006 deliveries and the warehouse goods. Defendants overlook the fact that Rocheux's September 21 letter, as well as Ms. Steed's prior email of August 2, 2006, sought to remedy Defendants' non-payment on the purchase orders that comprised both the 2006 deliveries and the warehouse goods. (Steed Decl. Ex. F (noting that Defendants were past-due on invoices for materials kept in the warehouse); Steed Decl. Ex. A (Aug. 2, 2006 email from Wendy Steed to Jeffrie Green) (noting that she was including "all open invoices" for "the warehouse shipments").) Rocheux's correspondence indicates that it sought nothing more than the performance due under the parties' contracts, which was Defendants' payment for and receipt of the warehouse goods, in addition to Defendants' payment for the 2006 deliveries. Considering the parties' course of dealings, which included Defendants' undisputed failure to pay more than $2 million of the purchase price for the 2006 deliveries and the warehouse goods, this Court cannot say that Rocheux's insecurity was unreasonable as a matter of law.
Turning to the actual language of Rocheux's correspondence of August 2 and September 21, 2006, which must be read in the context of the parties' prior dealings, the Court notes that Rocheux both (1) clearly conveyed its reasons for insecurity—Defendants' failure to pay substantial sums related to invoices for the 2006 deliveries and the warehouse goods, and (2) clearly indicated that it intended to suspend its own performance. Specifically, the August 2 email recognized that Defendants had recently sent a check on an invoice, and presented the following proposal to resolve Defendants' problem with past-due invoices:
(Steed Decl. Ex. A.) As noted above, the September 21 letter indicated that Rocheux would dispose of the warehouse goods if Defendants did not pay on their past-due invoices. (Steed Decl. Ex. F.) Although neither message included the exact term "adequate assurance," courts have generally eschewed applying formalistic requirements for the demand of adequate assurances, instead opting for a case-specific approach that considers a party's demands in the context of its course of dealings with the adverse party. See, e.g., AMF, Inc. v. McDonald's Corp., 536 F.2d 1167, 1170-71 (7th Cir.1976) (rejecting a "formalistic" approach to § 2-609, and looking instead to the parties' "clear understanding that [one party] had suspended performance until it should receive adequate assurance of due performance from [the other party]"); Atwood-Kellogg, Inc. v. Nickeson Farms, 602 N.W.2d 749, 753 (S.D.1999) (agreeing with the AMF court that "a demand for adequate assurances may be either written or oral, as long as the demand provides a `clear understanding' of the insecure party's intent to suspend performance until receipt of adequate assurances from the other party"); see also Cumberland Couty Improvement Auth. v. GSP Recycling Co., 358 N.J.Super. 484, 499, 818 A.2d 431 (App.Div.2003) (finding that plaintiff failed to demand adequate assurance because "plaintiff is unable to point to any written or verbal demand that conveyed plaintiff's intent to terminate deliveries if defendant either refused to pay the past-due invoices, or refused to pay for future deliveries"); Koch Materials Co. v. Shore Slurry Seal, Inc., 205 F.Supp.2d 324, 332 (D.N.J.2002) (noting that "courts have routinely accepted as sufficient under § 609 requests for assurances of a far less formal nature" than statements specifically citing § 609); but see Scotts Co. v. Central Garden & Pet Co., No. 2:00-CV-755, 2002 WL 1578781, at *4 (S.D.Ohio Apr. 22, 2004) (applying UCC's requirement that a demand for adequate assurance be made in writing in accordance with the decisions of Ohio courts). Considering the parties' course of dealings, which included multiple in-person meetings between Rocheux and Defendants concerning Defendants' failure to pay accounts on time, the Court cannot say as a matter of law that Rocheux's correspondence of August 2 and September 21, 2006 did not constitute a demand for adequate assurance.
Finally, with regard to assurances provided, Defendants argue that Mr. Green's October 4 letter provided adequate assurance that Defendants would continue to perform under the contract. (See Steed Decl. Ex. G (Oct. 4, 2006 letter from Jeffrie Green to Wendy Steed).) This letter generally disputed Defendants' liability for Rocheux's invoices, asserting that "Rocheux alone is responsible for its failure to ship and bill product which we ordered," but nevertheless indicated that Defendants "[we]re willing to purchase the undelivered PVC . . . ordered under [purchase orders] 20491 and 21920." (Id. at 1.) The letter also indicated a willingness to purchase "APET which Rocheux did not deliver . . . at the price and terms set forth on our orders . . . ." (Id. at 3.) Both of these proposals were conditioned on the assumption that Rocheux would provide "first quality virgin" and "RF sealable" material. (Id. at 2-3.) The letter appears to adopt quantities and prices from the parties' 2005-2006 purchase orders. (See id. at 3-4.) Defendants further proposed in the letter that:
(Id. at 4.) Rocheux's president responded by letter of October 6, 2006, which stated that Defendants' "continuing failure to pay Rocheux's outstanding invoices . . . relieved [Rocheux] of any obligation to ship any material to [Defendants]," but proposed that withheld materials would be released to Defendants "only on the condition that, prior to shipment, [Defendants] open[ ] an irrevocable letter of credit in favor of Rocheux . . . for an amount not less than the total amount of the open invoices . . . ." (Steed Decl. Ex. H (Oct. 6, 2006 letter from Wendy Steed to Jeffrie Green).) The letter concluded "[t]he aforesaid letter of credit need be your only reply." (Id.) The October 6, 2006 letter appears to have been the last correspondence between the parties on this matter.
Defendants argue that, by offering to pay on a C.O.D. basis or extend a letter of credit in the October 4 letter, they provided adequate assurance as a matter of law. While Defendants correctly note that courts have generally recognized that letters of credit provide adequate assurance of performance due, see, e.g., Lustrelon, Inc. v. Prutscher, 178 N.J.Super. 128, 139, 428 A.2d 518 (App.Div.1981), it is undisputed that Defendants did not provide a letter of credit for the warehouse goods, even after Rocheux's October 6 response indicated that the "letter of credit need be [Defendants'] only reply." (Steed Decl. Ex. H.) Furthermore, while some courts have recognized that an insecure party may request C.O.D. payments, see, e.g., Coke Lumber & Mfg. Co. v. First Nat'l Bank in Dallas, 529 S.W.2d 612, (Tex.Civ. App.1975), the Court is aware of no authority for the proposition that an insecure party must accept an assurance of C.O.D. where the delinquent party had fallen in arrears more than $2 million on goods delivered at the time that the insecure party sought assurances of performance. "Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards," N.J. Stat. Ann. § 12A:2-609(2), and comment 4 to this section notes that "repeated delinquencies must be viewed as cumulative." Comment 4 further provides:
N.J. Stat. Ann. § 12A:2-609 cmt. 4. Given Defendants' continued failure to pay outstanding invoices regarding the 2006 deliveries and warehouse goods, this Court cannot say as a matter of law that Rocheux's demand for a letter of credit covering
Furthermore, it appears Defendants' October 4 letter sought to change the terms of delivery of the warehouse goods.
However, nor can this Court determine as a matter of law that Defendants' letter of October 4 constituted repudiation or provided inadequate assurance. These issues usually present questions of fact to be determined according to commercial standards. See, e.g., Timmerman v. Grain Exchange, LLC, 394 Ill.App.3d 189, 333 Ill.Dec. 592, 915 N.E.2d 113, 124 (2009) ("Whether an anticipatory repudiation has occurred is a question of fact. . . ."); Upton v. Ginn, 231 S.W.3d 788, 791 (Ky.Ct.App.2007) (same); S & S, Inc., 478 N.W.2d at 863 (noting that adequacy of assurance presents a question of fact). This Court finds that a reasonable jury could conclude that Defendants' October 4 letter provided adequate assurance and did not repudiate the parties' contracts. Accordingly, the Court will deny both parties' cross-motions for summary judgment with regard to the warehouse goods.
Finally, with regard to interest and attorneys' fees, Rocheux argues that it sent two written confirmations in response to each of Defendants' purchase orders—the Terms and Conditions page and a subsequent invoice—both of which included terms for interest on overdue invoices at 1.5% per month and attorneys' fees. Because the parties are merchants, Rocheux contends that these terms became part of the parties' contract pursuant to N.J. Stat. Ann. § 12A:2-207.
UCC § 2-207 states:
N.J. Stat. Ann. § 12A:2-207. Defendants respond that they never received the Terms and Conditions pages with Rocheux's Order Acknowledgments, that they expressed objection to additional terms in advance of the purchase orders, that the subsequent invoices do not qualify as a "written confirmation" under UCC § 2-207, that the interest and attorneys' fees terms sought by Rocheux materially altered the parties' agreement, and that Rocheux waived these terms by failing to enforce them. Of these responses, Defendants only cross-move for summary judgment on the ground that the additional terms materially altered the parties' agreement.
Defendants have presented evidence that they never received Terms and Conditions pages Rocheux claims it sent with the Order Acknowledgments. (See Green Decl. ¶ 14; Oprisan Decl. ¶¶ 6-7.) This evidence presents a genuine issue of material fact regarding whether the Order Acknowledgments contained the additional terms provided in the Terms and Conditions pages. Because Rocheux claims that the subsequent invoices also incorporated these terms, the Court begins with Defendants' argument, raised in opposition to Rocheux's motion for summary judgment, that § 2-207 does not apply to Rocheux's subsequently sent invoices. For purposes of this issue, the Court draws all inferences in the light most favorable to Defendants as the non-moving party, and presumes that Defendants did not receive the Terms and Conditions pages.
Defendants argue that Rocheux's invoices are not "written confirmations" under the statute because Rocheux sent them after it accepted the Defendants' purchase orders. Although Defendants contest that they received the Terms and Conditions page (page 2) of Rocheux's Order Acknowledgments, they do not dispute that they received the first page of the Order Acknowledgments. The Order Acknowledgments specify the customer purchase orders, expressly state "Rocheux Int'l acknowledges your order and here by [sic] confirms our acceptance as follows," and identify the goods, quantities, and prices proposed in the purchase order. (See, e.g., McRavin Decl. Ex. F.) It is undisputed that Rocheux subsequently shipped goods related to the purchase orders to Defendants. Considering the express terms of the Order Acknowledgments and the parties' course of dealing, this Court may conclude that the Order Acknowledgments constituted Rocheux's acceptance of Defendants' offers to purchase goods. See N.J. Stat. Ann. § 12A:2-206(2) ("Unless otherwise unambiguously indicated by the language or circumstances. . . an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods. . . ."). Yet, Rocheux did not send the respective invoices for the purchase orders until after it sent the Order Acknowledgments. Although the invoices were typically sent within a day of the shipment, they sometimes came a matter
It does not appear that New Jersey's courts have considered whether a writing sent after the acceptance of goods can modify the parties' agreement pursuant to N.J. Stat. Ann. § 12A:2-207. Accordingly, this Court must predict how the New Jersey Supreme Court would interpret this statutory provision. Zamboni v. Stamler, 847 F.2d 73, 81 (3d Cir.1988). Because this issue requires the interpretation of a provision of the UCC, this Court looks to decisions of courts in other jurisdictions for guidance. See, e.g., Green Constr. Co., 735 F.Supp. at 1260 & n. 2.
There is a considerable split of authority regarding whether a document sent after the delivery of goods qualifies as a "written confirmation" capable of modifying the parties' agreement under UCC § 2-207. Compare Cosden Oil & Chem. Co. v. Karl O. Helm Aktiengesellschaft, 736 F.2d 1064, 1075-76 (5th Cir.1984) (applying Texas's UCC provisions and finding that an invoice sent after the shipment of goods did not modify the contract pursuant to § 2-207), and Wheaton Glass Co. v. Pharmex, Inc., 548 F.Supp. 1242, 1244 (D.N.J.1982) (same, applying New Jersey's UCC provisions), and 1 White & Summers, Uniform Commercial Code § 1-6 (5th ed. West 2010) ("[W]here the buyer sends a purchase order, the seller then ships the goods, and thereafter sends a form that arrives after the goods arrive, 2-207 does not control.") with Permian Petroleum Co. v. Petroleos Mexicanos, 934 F.2d 635, 654 (5th Cir. 1991) (applying Texas's UCC provisions to suggest that invoices included with shipments constituted a proposal capable of modifying the agreement under § 2-207), and Advance Concrete Forms, Inc. v. McCann Const. Specialties Co., 916 F.2d 412, 415 (7th Cir.1990) (applying Wisconsin's UCC provisions and determining that a seller's invoice sent after shipment of goods constituted a confirmation capable of modifying the parties' agreement under § 2-207), and McJunkin Corp. v. Mech., Inc., 888 F.2d 481, 487 (6th Cir.1989) (same, applying Ohio's UCC provisions to a seller's order acknowledgment sent after delivery of the goods), and Mid-South Packers, Inc. v. Shoney's, Inc., 761 F.2d 1117, 1122-24 (5th Cir.1985) (per curiam) (same, applying Mississippi's UCC provisions to seller's invoice sent after shipment of goods), and Sudenga Indus., v. Fulton Performance Prods., Inc., 894 F.Supp. 1235, 1237-38 (N.D.Iowa 1995) (same, applying Iowa's UCC provisions to seller's invoices sent after shipment of goods, but "done relatively contemporaneously" with the shipment), and Herzog Oil Field Service v. Otto Torpedo Co., 391 Pa.Super. 133, 570 A.2d 549, 550-51 (Pa.Super.Ct.1990) (same, applying Pennsylvania's UCC provisions to seller's invoices sent after shipment of goods); see also Step-Saver, 939 F.2d at 101 n. 29 (citing Herzog and McJunkin and suggesting that § 2-207 applies to writings sent after performance). Although the above cases suggest that a majority of jurisdictions are willing to apply § 2-207 to invoices submitted after the delivery of goods, these decisions do not speak to the exact issue before this Court: whether § 2-207 applies to a subsequent written confirmation proposing additional terms, made after a prior written confirmation proposing different additional terms. Indeed, in each of the above cases finding that § 2-207 applied to the seller's invoices, it appears as
Here, there is no dispute that the Order Acknowledgments constituted written confirmations under § 2-207. Pursuant to the statute, each Order Acknowledgment thus "operate[d] as an acceptance." N.J. Stat. Ann. § 12A:2-207. Generally speaking, "[o]nce a contract is formed, the parties may of course change their agreement by another agreement, by course of performance, or by conduct amounting to a waiver or estoppel. In order to determine the terms of such change, we look to UCC 2-208 and 2-209, not 2-207." CT Chems. (U.S.A.), Inc. v. Vinmar Impex, Inc., 81 N.Y.2d 174, 597 N.Y.S.2d 284, 613 N.E.2d 159, 162 (N.Y.1993) (citing 1 White and Summers, Uniform Commercial Code § 1-3, at 36-37, n. 22, § 1-6, at 57 (3d ed.)). Section 2-207 does not contemplate multiple written confirmations operating as acceptance, with each confirmation having the capability of adding new and/or different terms.
N.J. Stat. Ann. § 12A:2-207 cmt. 1. Had Rocheux simply sent the ordered goods contemporaneously with the invoices without previously sending the Order Acknowledgment, this matter would appear to fall under the first scenario presented by the comment. Rocheux relies heavily upon this Court's prior decision in Phibro Animal Health U.S., Inc. v. Cornerstone AG Products, Civ. No. 03-2664, 2006 WL 2570839, at *4 (D.N.J. Sept. 5, 2006), wherein the Court allowed invoice interest terms to become part of the contract. However, the parties in Phibro did not dispute the applicability of the interest terms, and it appears that the parties in that case did not exchange any other confirmatory memoranda prior to the invoices. Thus, the circumstances in Phibro differ from the circumstances in this case. Accepting Rocheux's representations about the Order Acknowledgment for purposes of argument, the present case appears to fall into the second scenario suggested by the comment: the Order Acknowledgment
Rocheux also argues that the parties' course of dealing, which spanned more than five years and always involved Order Acknowledgments and invoices bearing these additional terms, enables the invoice terms to become part of the parties' bargain regardless of § 2-207. However, the Third Circuit rejected this contention in Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91, 104 (3d Cir.1991) ("[W]e hold that the repeated sending of a writing which contains certain standard terms, without any action with respect to the issues addressed by those terms, cannot constitute a course of dealing which would incorporate a term of the writing otherwise excluded under § 2-207."). Although Step-Saver applied Pennsylvania's UCC provisions, this Court has found no authority from New Jersey courts suggesting that they would adopt a contrary position.
Because the invoices cannot supply the additional terms sought by Rocheux, the additional terms must derive from the Order Acknowledgment. As the Court noted above, there remains a genuine dispute of fact regarding whether or not Defendants received the Terms and Conditions pages containing the additional arguments. For this reason, the Court must deny Rocheux's motion for summary judgment with regard to interest and attorneys' fees.
Having denied Rocheux's motion, the Court considers Defendants' cross-motion for summary judgment on the ground that the additional terms would materially alter the parties' agreement. For purposes of adjudicating this issue, the Court must draw all inferences in the light most favorable to Rocheux as the non-moving party. The Court will therefore presume that Defendants did receive the Terms and Conditions pages with the Order Acknowledgments for purposes of this cross-motion.
Rocheux presently seeks to apply an 18% annual service charge and a flat attorneys' fees rate calculated as 25% of Defendants' outstanding balance, in accordance with the interest and attorneys' fees terms stated on the Terms and Conditions pages of the Order Acknowledgments. Defendants argue that the interest and attorneys' fees rates should not become a part of the contracts under N.J. Stat. Ann. § 12A:2-207, because they would materially alter the parties' agreements and unduly burden Defendants. Based on Rocheux's calculation of interest and the flat rate for attorneys' fees, it appears that these terms would add approximately $2 million in interest and approximately $1 million in attorneys' fees to Defendants' liability if they apply to the parties' agreements. (See Defs.' Cross-Motion Br. at 28, 30.)
The Court notes that there is a considerable split of authority among jurisdictions regarding whether the material alteration determination presents a question of law or fact. In New Jersey, two federal district court decisions resolved the matter as presenting a question of fact for the jury, ICI Australia Ltd. v. Elliott Overseas Co., 551 F.Supp. 265, 269 (D.N.J.1982), Wheaton Glass Co., 548 F.Supp. at 1245, but it appears that the Third Circuit has taken a different approach in cases applying New Jersey law, see CECG, Inc. v. Magic Software Enters., Inc., 51 Fed.Appx. 359, 364 (3d Cir.2002) (affirming district court's finding that an additional term providing an "unlimited runtime license . . . constituted a material alteration of the contract and therefore did not become part of the contract"), Olefins Trading, Inc. v. Han Yang Chem Corp., 9 F.3d 282, 287-88 (3d Cir.1993) (noting that "[s]ection 2-207 of the UCC is designed to prescribe, by law, what non-negotiated terms are to be considered a part of a contract" in response to an argument that an additional term materially altered the parties' agreement as a matter of law), cf. Step-Saver, 939 F.2d at 105 (applying Pennsylvania's UCC provisions and concluding "as a matter of law" that the additional terms appearing on the software box-top license "substantially alter the distribution of risk between [the parties]" and, therefore, did not become a part of the contract under § 2-207). It further appears that the prevailing authority is for the court to decide the matter as either a question of fact or law. See, e.g., American Ins. Co. v. El Paso Pipe & Supply Co., 978 F.2d 1185, 1190 (10th Cir. 1992) (applying New Mexico's UCC provisions, and determining that the trial court must make findings of fact regarding whether the additional term constituted a material alteration); Luedtke Eng'g Co. v. Ind. Limestone Co., 740 F.2d 598, 600 (7th Cir.1984) (same, applying Indiana's UCC provisions); Dorton v. Collins & Aikman Corp., 453 F.2d 1161, 1169 (6th Cir. 1972) (same, ostensibly applying Tennessee law); Herzog, 570 A.2d at 551-52 (applying Pennsylvania law and determining material alteration issue as a matter of law); Extel Corp. v. Cermetek Microelectronics, Inc., 183 Ill.App.3d 688, 132 Ill.Dec. 10, 539 N.E.2d 320, 323 (1989) (same). This Court finds that the prevailing trend is consistent with the approach applied by the Third Circuit in CECG, Olefins Trading, and Step-Saver, and the Court will determine the issue as a mixed question of fact and law.
In deciding whether the additional terms materially altered the parties' agreement, this Court begins with the UCC comments on § 2-207. See El Paso Pipe & Supply Co., 978 F.2d at 1189; Luedtke Eng'g, 740 F.2d at 600. Comment 4 to § 2-207 indicates that an additional term constitutes a material alteration where the term "result[s] in surprise or hardship if incorporated without express awareness by the other party." Comment 4 further provides the following examples of material alterations:
N.J. Stat. Ann. § 12A:2-207 cmts. 4, 5. "[W]hether an addition to a contract constitutes a material alteration . . . depends on the unique facts of every case." El Paso Pipe & Supply Co., 978 F.2d at 1190; accord Comark Merch., Inc. v. Highland Group, Inc., 932 F.2d 1196, 1203 n. 8 (7th Cir.1991).
In determining whether the additional terms constituted an unreasonable surprise, this Court considers a number of factors, including: (1) the parties' prior course of dealing; (2) industry custom; (3) how clearly the additional terms were marked in the confirmation; and (4) whether the additional terms appeared in the parties' standard forms. See El Paso Pipe, 978 F.2d at 1191 (collecting cases). "A profession of surprise and raised eyebrows are not enough. . . . To carry the burden of showing surprise, a party must establish that, under the circumstances, it cannot be presumed that a reasonable merchant would have consented to the additional term." Bayway Refining Co. v. Oxygenated Mktg. & Trading A.G., 215 F.3d 219, 224 (2d Cir.2000) (citation omitted). In determining whether the additional terms imposed an unreasonable hardship on the non-assenting party, the Court considers "whether the clause at issue would impose substantial economic hardship on the nonassenting party." Id. (citations omitted); see also Trans-Aire Int'l, Inc. v. N. Adhesive Co., Inc., 882 F.2d 1254, 1262 (7th Cir.1989). "The nonassenting party has burden of proving surprise or hardship." El Paso Pipe, 978 F.2d at 1190 n. 9; Comark Merch., 932 F.2d at 1201.
In this case, Rocheux has presented evidence that it sent Terms and Conditions pages with each Order Acknowledgment it sent related to the 2006 deliveries. (E.g., McRavin Decl. Ex. F.) Rocheux has also presented evidence that it sent Defendants hundreds of invoices and credit memos bearing the same additional terms for interest and attorneys' fees as the 2006 invoices
Defendants argue that they have presented evidence that they previously objected to additional terms and that Rocheux waived these terms by not charging interest or attorneys' fees prior to the 2006 deliveries. Neither argument has evidentiary support. Mr. Green's Declaration, which Defendants rely upon to demonstrate previous objection to additional terms, states that he met with Rocheux salesman Michael Flood at the beginning of the parties' relationship, ostensibly in or about 2000. The Declaration further states that Mr. Green advised Mr. Flood that "[Defendants] do not accept additional terms and conditions from our vendors.. . . [Mr. Flood] agreed that if we did business, it would be on the terms I outlined and he agreed to them on behalf of Rocheux." (Green Decl. ¶ 11.) However, these statements refer to the parties' negotiation expectations, and do not indicate that the parties formed a contract for the sale of goods that was limited by Mr. Green's terms. Furthermore, Defendants do not suggest that Rocheux previously proposed terms for interest and attorneys' fees, and that Defendants rejected these terms. Rather, the undisputed records indicates that Defendants began making orders, and Rocheux began sending confirmations and invoices containing additional terms that Defendants never noticed or rejected. Under such circumstances where the non-assenting party does not respond to the additional terms, comment 6 to § 2-207 instructs that "it is both fair and commercially sound to assume that [the additional terms'] inclusion has been assented to." N.J. Stat. Ann. § 12A:2-207 cmt. 6; see also Vulcan Auto. Equip., Ltd. v. Global Marine Engine & Parts, Inc., 240 F.Supp.2d 156, 162 (D.R.I.2003).
With regard to Defendants' waiver argument, the Declarations of Mr. Green and Defendants' accounting representative Catalin Oprisan generally aver that Rocheux never charged interest or attorneys' fees for prior past-due invoices. (Green Decl. ¶ 15; Oprisan Decl. ¶ 7.) Other than the 2006 deliveries, Defendants do not specify another time when they fell behind on paying their invoices or how those defaults were remedied. Rocheux disputes that Defendants ever fell behind on accounts so as to trigger these default terms. (Rocheux's Reply Br. at 22; Stephanoff Decl. ¶ 19.) However, even if Rocheux declined to enforce such terms on prior occasions, the Terms and Conditions page contained a savings clause specifying that "Rocheux's failure to insist on performance of any of the terms and conditions . . . shall not
Having carefully considered the parties' evidence under the factors outlined above, this Court concludes that Defendants should have known of the additional terms appearing on the hundreds of sales forms, and that Defendants have not met the burden of proving unreasonable surprise.
Having determined that the additional terms did not constitute unfair surprise, the Court notes that a number of courts have suggested that hardship does not provide independent grounds for a finding of material alteration. See, e.g., Union Carbide Corp. v. Oscar Mayer Foods Corp., 947 F.2d 1333, 1336 (7th Cir.1991) (noting that comment 4 to § 2-207 provides examples of additional terms that would typically materially alter the contract "and so result in surprise or hardship if incorporated," and concluding that "[h]ardship is a consequence, not a criterion") (emphasis in original); Suzy Phillips Originals, Inc. v. Coville, Inc., 939 F.Supp. 1012, 1017-18 (E.D.N.Y.1996) (citing Union Carbide with approval and excluding hardship from the court's consideration of material alteration); see also Bayway Refining, 215 F.3d at 226 (noting the persuasive authority of Union Carbide). Although the Court finds the reasoning of these courts to be sound in light of § 2-207's comments, the Court will consider Defendants' evidence regarding hardship in the absence of guidance from the New Jersey courts.
As noted above, Defendants argue that Rocheux's calculations of interest and attorneys' fees (approximately $3 million combined) would cause Defendants significant hardship, considering that Rocheux seeks only $2.5 million in damages. However, the Court notes that the current interest and attorneys' fees calculations necessarily reflect the protracted nature of the parties' attempts to resolve the instant dispute. Had the parties resolved the matter within one year as opposed to four, the interest and attorneys' fees would have been roughly 1/3 of the current estimates.
Defendants cite New Jersey's usury statute and cases to challenge the inclusion of these terms under UCC § 2-207. See, e.g., Springfield School Dist. R-12 v. Transamerica Ins. Co., 633 S.W.2d 238, 247 (Mo.Ct.App.1982) (declining to incorporate additional term for 18% annual interest rate under § 2-207); Herzog, 570 A.2d at 551-52 (declining to incorporate additional term for attorneys' fees under § 2-207); Johnson Tire Serv., Inc. v. Thorn, Inc., 613 P.2d 521, 523 (Utah 1980) (same). The Court notes, however, that the Herzog decision upon which Defendants heavily rely also found that an 18% annual interest rate on past-due invoices did not constitute a material alteration, noting that such an interest rate "is common in commercial circles, including transactions with non-merchants." Herzog, 570 A.2d at 551 ("We have little difficulty in determining that the interest charge term is not one that materially alters the agreement."). Indeed, it appears as though the
The Court is not persuaded that New Jersey's usury statute, which Defendants concede does not apply to the instant dispute, see N.J. Stat. Ann. § 31:1-6 ("No corporation . . . shall plead or set up the defense of usury to any action brought against it to recover damages or enforce a remedy on any obligation executed by said corporation."), demands a contrary finding. The 18% rate allegedly proposed by Rocheux does not substantially exceed the 16% rate imposed by the usury statute for written contracts that specify rates of interest. See N.J. Stat. Ann. § 31:1-1. Defendants have not presented evidence that Rocheux's interest rate exceeds the trade practice, and Rocheux's proposed interest rate is within the range permitted by the majority of courts listed above. The fact that Defendants' delays have led to substantial amounts of accrued interest does not by itself warrant a finding of hardship. See Advance Concrete Forms, 916 F.2d at 414-416 (incorporating interest rate provision under § 2-207 where accrued interest (more than $25,000) was more than half the outstanding balance (approximately $32,000).) Ultimately, the comments to § 2-207, the above authority, and the evidence in this case all convince this Court that the 18% interest rate allegedly proposed by Rocheux's Order Acknowledgments does not create a substantial hardship.
The attorneys' fees term presents a slightly more difficult issue. Defendants correctly note that courts in Pennsylvania and Utah have squarely rejected additional terms for attorneys' fees under § 2-207. Herzog, 570 A.2d at 551-52; Johnson Tire, 613 P.2d at 523. However, a number of courts have also allowed the incorporation of attorneys' fees under § 2-207. Mid-South Packers, 761 F.2d at 1123 (applying Mississippi's UCC provisions); Cement Asbestos Prods. Co. v. Hartford Accident & Indem. Co., 592 F.2d 1144, 1148 (10th
The Court notes that in many of the cases allowing the incorporation of attorneys' fees under § 2-207, it appears that the parties did not object to the additional term, and most of the cases on both sides of the issue contain scant discussion of the material impact of the attorneys' fees terms. Based on this Court's review of these decisions, it appears that Herzog is the only one to discuss material alteration at length. In considering an identical 25% attorneys' fees provision, the Herzog court reasoned:
570 A.2d at 551-52. The Herzog court provided no authority for its observations about the frequency or usual rate of attorneys' fees provisions, and Defendants have not presented compelling evidence regarding industry custom for attorneys' fees terms.
A reasonable term for attorneys' fees, which presumes the need to take legal action to recover sums owed under contract, more closely resembles a term for interest on past-due invoices than any of the examples of material alteration provided by comment 4 to § 2-207. Under the unique facts of this case, the Court cannot say as a matter of law that the attorneys' fees provision allegedly added by Rocheux's Order Acknowledgments constituted an unreasonable hardship.
Because Defendants have failed to demonstrate unreasonable surprise or hardship, the Court concludes that the interest and attorneys' fees provisions did not materially alter the parties' agreements, and the Court will deny Defendants' cross-motion in this regard.
This Court's rulings with respect to Defendants' cross-motion to redesignate and Rocheux's motion for summary judgment on the 2006 deliveries necessarily affect the relevance of the testimony of Defendants' proposed expert witnesses. An expert witness who did not examine the 2006 deliveries is not qualified to testify as to the factual issue regarding the portion of the 2006 deliveries that were unusable (losses) or otherwise nonconforming. Because the parties' briefing on the expert witness issue did not anticipate the limitations now imposed by this Court with regard to the scope of the remaining claims, the Court will deny Rocheux's motion in limine without prejudice and permit Rocheux to renew their motion in light of this Court's rulings on the cross-motions.
For the aforementioned reasons, the Court will grant Rocheux's motion for summary judgment (Doc. No. 88) in part without prejudice and deny Defendants' cross-motion for summary judgment (Doc. No. 92). Defendants will have 15 days from receipt of the accompanying Order to submit supplemental documentation and revised calculations of their loss offsets setting forth their exact losses, by value and pound, for 2006. Rocheux will have 10 days to respond to Defendants' submissions on this issue. The Court will allow Defendants to redesignate their affirmative defenses, but the Court will limit these counterclaims to the 2006 deliveries. The Court will also deny Rocheux's motion in limine (Doc. No. 87) without prejudice and permit Rocheux to renew this motion in light of this Court's rulings on the cross-motions. An appropriate form of order accompanies this Memorandum Opinion.
In the absence of colorable evidence on this issue, Defendants have not established a genuine issue of fact regarding recoupment that would preclude summary judgment on the contract price for goods they concede they accepted.
