O'NEILL, District Judge.
Plaintiff and counterclaim-defendant QVC, Inc. brings an action for breach of contract seeking declaratory relief, equitable relief and damages against its vendor, defendant and counterclaim-plaintiff MJC America, Ltd., d/b/a Soleus International, Inc. Soleus has asserted a counterclaim for breach of contract against QVC. The parties' claims against each other arise out of QVC's purchase from Soleus of electric space heaters and other items in 2007 and early 2008 and QVC's subsequent recall of certain of those space heaters. QVC contends that it reasonably determined that the recalled heaters were defective, that Soleus breached its purchase order contracts
A bench trial was held from January 9 to January 13, 2012. The parties submitted their post-trial briefs including proposed findings of fact and conclusions of law on March 12, 2012. Pursuant to Federal Rule of Civil Procedure 52(a) and after review of the evidence presented and applicable law, I make the following findings of fact and conclusions of law.
QVC, a retailer, markets and sells merchandise directly to consumers through various media including direct response television programming and the internet. Jt. Stip. ¶ 1. "Soleus is in the business of promoting, marketing, distributing and selling home comfort products, including portable air conditioners, heaters, air purifiers, fans and coolers under the trade names of `Soleus,' `SoleusAir' and variations thereof." Id. ¶ 2. QVC sold Soleus products to its retail customers. Id. ¶ 6.
Purchase Order 550957, issued by QVC to Soleus on or about August 31, 2007 and subsequently revised on September 13, 2007 and October 9, 2007, required Soleus to provide QVC with 27,000 units of a SoleusAir 360-Degree Micathermic Heater with Three-Heat Settings further identified as QVC SKN V24882 (the "Heater"). Id. ¶ 3. Purchase Order 567520, issued on or about January 4, 2008 and subsequently revised on January 7
The Heaters were manufactured in China by Ningbo Bole Electric Appliance Co., Ltd. Id. ¶ 7. They were cylindrical, portable electric space heaters designed and intended to stand on the floor. See P-154 at 5. The Heaters were equipped with manual, not digital, control panels and the manual version was sold exclusively in the United States by and through QVC. Jt. Stip. ¶ 8. They had an interior metal wall housing a micathermic heating element. Each Heater's electric wiring, circuit board and thermostat were mounted on a combination of metal and plastic surfaces in a compartment outside of the interior wall. See P-154.
QVC promoted and marketed the Heaters for sale to its customers beginning on December 31, 2007, when they were featured as a Today's Special Value® on QVC's live television programming and on QVC's related website. Jt. Stip. ¶ 18; Tr. Day 1 at 106:4-8 (McGrath). QVC sold more than 19,100 Heaters to its retail customers between December 31, 2007 and March 11, 2008. Jt. Stip. ¶ 19. Most of the Heaters were sold on December 31, 2007 and in January 2008. Tr. Day 2 at 13:18-19 (Fitzgerald).
On January 5, 2008, a customer contacted QVC claiming that the Heater he or she had purchased "has a gas odor to it and
Soleus's designated contact for the Heaters was Gary Mickles, "an intermediary between [QVC] and Soleus." Tr. Day 1 at 63:24-64:12 (Fitzgerald). Mickles was an independent contractor for Coleman and Hirshman, a sales organization that represented Soleus's products through Epic International, an independent contractor sales representative for Soleus. Mickles Dep. at 8:20-9:15.
On February 1, Tom Kluxen, identified as a QVC "Buyer" for "Home Improvement, Household, Cleaning and Storage" forwarded to Mickles a January 31 email from Shawn Fitzgerald, a Senior Engineer for Quality Assurance at QVC. P-27. Fitzgerald was charged with investigating the Heaters and the customer complaints. Tr. Day 1 at 52:14-20 (Fitzgerald), id. at 93:25-94:3 (McGrath). Fitzgerald's email noted that "QVC's call rate [for the Heaters] is climbing high with several claims of `fire.'" P-27. Kluxen asked Mickles to "[p]lease alert Soleus about this concern about this and let us know if they have had any calls/concerns." Id. Kluxen noted that QVC's quality assurance "department [wa]s going to evaluate a few of these customer returns." Id.
Fitzgerald asked the OOP if he could get some Heaters back for evaluation. Tr. Day 1 at 55:17-56:1 (Fitzgerald); P-27. On January 31, the manager of the OOP responded to Fitzgerald's request by email, stating that "1 came back today and Dolores is shipping it over to you." P-25; Tr. Day 1 at 75:23-24 (Fitzgerald). When Fitzgerald visually inspected the first customer-returned Heaters he received from the OOP he observed
Tr. Day 1 at 58:3-13 (Fitzgerald).
By February 8, Fitzgerald had inspected and photographed three customer return Heaters. P-30.
Later that day, Kluxen emailed Mickles, stating that
P-32. Mickles responded to Kluxen by email, noting that he had "informed Soleus of a potential problem, and of course stopped production for the units you wanted." P-33. Mickles added, "I think everyone out there is heading into Chinese New Year, and they will be on top of this when they get back." Id.
On February 11, Mickles visited Fitzgerald at QVC to discuss and inspect certain of the damaged Heaters. Tr. Day 1 at 72:6-11 (Fitzgerald). At the end of their meeting, Fitzgerald gave Mickles two of the customer-returned Heaters and asked him to send them to Soleus for examination. Id. at 73:20-22; Mickles Dep. at 53:23-54:3. Mickles "sent them right to Soleus." Mickles Dep. at 54:17-18. Also on February 11, Gino Aiello
On February 12, QVC offered to send Mickles or Soleus another customer-returned Heater "with the same wire burnt behind the control panel." P-37. Responding by email on February 13, Mickles told
On February 14, Mickles sent Fitzgerald a document regarding the "Burnt wires factory evaluation." P-42. It included an initial evaluation of the Heaters based on photo images of two Heaters with melted wires from the Ningbo Bole factory in China. Citing "oxidation (rusting) on a surrounding metal trim" on one unit "which can only be caused from contact with water or sodium" and, on the other unit, "grease or oil content found near the burnt wires which would suggest foreign debris entering the circuitry," the document concluded that "the factory suspects that these units were either used under non-residential environment [sic] or advertently tempered [sic] by foreign substance." P-41.
Fitzgerald responded to the factory's conclusions in a February 14 email to Mickles noting that he had "a hard time believing the conclusions for the burnt wires giving [sic] they are not isolated incidents. It seems more epidemic than random foreign material getting into the control panel since there are a large quantity of failures." P-43. Mickles forwarded Fitzgerald's response to Soleus and asked whether Soleus "would like me to have QVC send the additional burned units to you." P-44. There is no immediate response from Soleus to Mickles' inquiry in the record.
On February 22, Mickles emailed Tyler Scott
On February 25, Scott sent Mickles an email with a copy to Aiello with Soleus's "initial findings regarding QVC's melting issue of the HM5" after its initial inspection of the returned units received from QVC. P-46 at 5. Soleus's conclusion was that "the melting problem appears to be in this rare incident and only on product that was used improperly. Most importantly, it does not appear to be a fire hazard." P-47 at 2. Scott explained that "[t]he melting is still considered very serious by us, thus we have shipped [the samples that were returned to QVC and then to Soleus] to China for a thorough evaluation." Id. Mickles responded to Scott's email that day, explaining that "QVC has many more units with the same problem, and they want me to pick them up this week." P-48. Further, QVC "seem[s] to feel that this was not an isolated incident, rather an Epidemic in regard to the units overheating and melting wires inside. The return rate for this product is approaching 20%." Id.
Also on February 25, in response to Scott's email, Mickles sent an email to Aiello asking whether anyone had seen "what Shawn [Fitzgerald] wrote back to us when we gave him that bullshit about water and grease getting into the units I sent back?" P-47. Mickles noted his concern that Soleus would be "forced into a 100% recall of this item." Id. He also asked whether "Soleus ha[d] Lot numbers for product manufactured," noting that "[i]f they do, we can talk about a small amount produced in a lot, and therefor convince them that it can be isolated." Id.
On February 27, at a meeting with QVC, Mickles gave QVC Soleus's initial findings. P53; Tr. Day 1 at 85:14-22, 87:16-19 (Fitzgerald). Fitzgerald was dissatisfied with the initial findings, noting at trial that "given the volume of complaints that we had and the failures that we were seeing, to state that the product had been used in the rain, or someone repeatedly poured water onto it, causing it to catch on fire, was beyond comprehension for me." Tr. Day 1 at 89:4-9 (Fitzgerald). At their meeting, QVC told Mickles that QVC had received "more complaints and under [United States Consumer Product Safety Commission] guidelines they [were] required to report a certain amount of complaints." Mickles Dep. at 80:15-24.
On February 28, Aiello emailed Scott, explaining that during Mickles's meeting with QVC, QVC was looking for a reason from Soleus "for the wires melting." P-52; D-10. Aiello explained that the CPSC would require a retailer "receiv[ing] significant complaints on an item that could be a hazard to a consumer" to report the complaints to the CPSC. Id. Aiello also noted that "QVC wants to avoid this and they have empathy for our position, which is why they want us to come up with an explanation, so they can avoid having to report[ ] this to CPSC." Id. Scott forwarded Aiello's email to Charley Loh, explaining that
Id.
On February 29, Scott emailed Fitzgerald a one page "Factory Evaluation of HM5s with melting damage." P-55. The document purported to be Soleus's "final report" conducted after the Ningbo Bole factory reviewed and tested the two damaged customer-returned Heaters that Fitzgerald had given to Mickles. The document concluded that:
Id. In forwarding the Factory Evaluation to QVC, Scott explained that "[t]he good news is that the factory confirmed what our initial findings were, that this is not a fire hazard." Id. (emphasis in original). He also noted that it was "reasonable to assume that this small percentage of customers may have used this heater improperly." Id.
Fitzgerald forwarded Soleus's report to Tom Long, id., who was QVC's Director of Quality Assurance. Tr. Day 1 at 64:20-21 (Fitzgerald). Fitzgerald reacted to the conclusions in the Final Factory Evaluation by explaining that he was "skeptical that two different cases of customer misuse result in the exact same wire catching fire." P-55. McGrath, who was QVC's Vice President of Quality Assurance and Quality Control at the time, Tr. Day 1 at 90:20-25 (McGrath), explained that the report "led me to think that Soleus was not viewing this with the same gravity as we were in terms of the potential impact that this could have to a customer in a household use." Id. at 100:20-23.
Sometime in or around the second week of March, QVC had an internal meeting to discuss the Heaters. Tr. Day 1 at 26:19-27:8 (McDermott). QVC decided it would make the Heaters unavailable for purchase so that it "could take a further investigation." Id. at 26:24-27:15. Because QVC "didn't have confidence in Soleus's testing and the thoroughness of the review that would be done on the evaluation of the Heaters," Tr. Day 1 at 101:5-13 (McGrath), it felt that it "needed to take a more robust physical analysis of the units" and decided to engage Intertek, an independent testing company to look at the Heaters. Id. at 128:20-21. On March 14, Intertek sent a proposal to QVC for a "constructional review of 2 damaged [Heaters] and a review of a new unit." P-65. Intertek proposed to "perform basic tests to characterize the unit and try some actual failure modes test to determine if the product fails or results in a hazardous condition." Id.
Scott testified that as a result of conversations directly with QVC and dialogue about the Heaters, he knew that QVC planned to send two units to Intertek for testing. Tr. Day 4 at 10:15-25 (Scott). From the record at trial, it appears that although the sales middlemen for the Heaters may have known about QVC's plans to have Intertek examine certain Heaters, Soleus was not made aware of QVC's arrangements with Intertek.
QVC ultimately supplied Intertek with four customer-returned damaged Heaters and four new Heaters. P-168, ¶ 26. On March 18, Fitzgerald emailed Steven Hartquist, Intertek's general manager for retail/home appliances and electronics, with details about the history of the four used Heaters. P-94. The following day Fitzgerald
On March 31, Intertek provided to QVC a draft report on the Heaters. Id. The draft report concluded that with respect to any burning or melting of plastic it "seemed to occur from an overheating condition on conductors or terminal connectors," and "a possible cause would be increased amperage and resulting temperatures from a poor quality crimp connection." Id. at QVC-03-00212. Also on March 31, Hartquist sent an email to Fitzgerald responding to Fitzgerald's questions. P-96. Hartquist explained that "[t]here is clearly a breakdown of insulation on electrical components which make the units non-compliant with safety standards, and from inspection of the damaged units; there is clearly shorting of live parts to ground, ignition of plastic which may or may not have left the enclosure." Id.
On April 1, Intertek sent QVC a finalized version of the report regarding the Heaters. Jt. Stip. ¶ 32; P-98. In the report, Intertek explained that it "was not able to reproduce similar failures on any of the new samples provided." D-22 at 15. However, its examination of the four customer-returned units demonstrated:
Id. Intertek noted that the overheating apparently originated near metal connectors that were "crimped" to the end of affected wires and observed that poor quality crimp connections could be a cause of overheating. Id. at 14. The report concluded that "it is possible that the cause of the failures is quality of construction related and thus an intermittent problem." Id. at 15.
Although Jimmy Loh, Soleus's chief financial officer, Tr. Day 4 at 60:23-24 (J. Loh), testified that he did not see the Intertek report until after this action had been filed, id. at 89:8-10, Scott testified that he remembered viewing the results of the Intertek testing. Tr. Day 4 at 12:7-13:12 (Scott).
At QVC's meeting in early March, before QVC retained Intertek, in addition to discussing the need for further investigation of the Heaters, QVC also discussed the possibility that the Heaters might be subject to a recall. Tr. Day 1 at 27:16-18 (McDermott). On March 10, QVC put all Soleus items "on hold" pending resolution of QVC's concerns about the Heaters. P58.
Also on March 10, having learned of the hold, Mickles informed Aiello that QVC would not accept any additional products from Soleus. P-59. Aiello asked Mickles, "[w]hat is it that they want for a resolution? We have not found any significant manufacturing defect." Id. Mickles emailed Long at QVC and asked him to let Soleus know what QVC needed in order to resolve the issue with the Heaters. Id.
On March 12, Dan Feiner, in-house counsel for QVC forwarded a copy of QVC's customer contact log for the Heaters to Soleus and asked Soleus to "contact [him] as soon as [Soleus] ha[d] had a chance to review it." P-61. Feiner sent a second report of "customer contacts regarding fire, smoke, burning, melting, etc." to Soleus on March 13. P-63. Also on March 13, Feiner wrote a letter to Charley Loh to "provide [Soleus] with formal written notice in connection with any liability QVC may have in connection with the sale and use" of any Heaters for which it had received a customer report "involving fire, smoke, burning and/or melting plastic controls." P-64. QVC asked Soleus to provide adequate assurances and "confirm in writing that [it would] honor its indemnification obligation set forth in the Purchase Order(s)." Id.
On March 14, Soleus acknowledged receipt of the customer-complaint logs through an attorney, Ryutaro Hirota, and requested "a copy of the proposed initial report QVC would like to make to the [CPSC]." P-66. On March 15, Charley Loh wrote to Feiner to "confirm that Soleus International Inc[. would] indemnify QVC for any claims associated with the products that Soleus International Inc[.] sold to QVC, as detailed in QVC purchased [sic] order(s)." P-68. Loh's letter did not make any reference to a potential recall or the CPSC. Id.
Before receiving the results of Intertek's testing, QVC continued to prepare for a possible recall of the Heaters. On March 17, Feiner sent Hirota "a draft of an Initial Report that we intend to file [with the CPSC] by the close of business today." P-69. In the draft letter, QVC included a statement that it "intend[ed] to work expeditiously with the vendor to determine whether corrective action is necessary." Id. Feiner also provided Hirota with contact information for Michael Gidding, QVC's outside counsel who was assisting QVC in its interactions with the CPSC. Id. Soleus did not respond immediately to Feiner's letter. Notwithstanding the absence of a response from Soleus, Gidding, on behalf of QVC, submitted a letter regarding the Heaters to the CPSC on March 17. P-70.
The letter Gidding submitted to the CPSC was edited to remove a reference to QVC's intent to work with its vendor to determine the necessity of corrective action — a reference that had been included in the draft sent to Hirota. Id. Instead, the letter stated that "QVC is expeditiously investigating this matter to determine whether a recall is appropriate." Id. QVC noted a "possible problem" with the Heaters. Id. QVC explained that it had "received multiple customer reports of the [Heater] smoking, sparking and overheating, and ha[d] also received reports of fire or flames coming from units" and that "QVC has received over 70 reports of heaters smoking, overheating, sparking, melting, and/or emitting odors of burning. Nine additional customers have reported observing flames or fire coming out of or inside the heaters." Id. QVC reported that the "[n]ature and extent of possible risk" associated with the Heaters was "burns or house fires." Id. The letter informed the CPSC that, if QVC determined that a recall were appropriate, "QVC intend[ed] to participate in the Commission's Fast Track recall program." Id.
On March 19, Hirota wrote a letter to Feiner "[t]o follow up on their earlier teleconference"
Id.
On March 20, Scott sent an email to Charley Loh about a conversation that Scott had with Dennis D'Angelo, a merchandiser from QVC. D-18; Tr. Day 4 at 5:4-19 (Scott). D'Angelo had "mentioned [that QVC] may want to do a recall of their own." D-18. Scott wrote that "I told him whatever they do, we want to do with them" and that D'Angelo "was very positive and wants to work together." Id. Scott noted, however, that D'Angelo knew less about "what was going on" with the Heaters than Scott did and that D'Angelo "did not know something was sent to CPSC." Id.
By March 20, QVC had decided "to notify the customers that we had received complaints and to provide them with information on the nature of those complaints and to advise them to stop using the product temporarily. But [QVC] did not — [it] had not decided to recall the product at that time." Tr. Day 1 at 103:12-16 (McGrath). McGrath testified that
Tr. Day 1 at 102:5-14 (McGrath).
Accordingly, on March 20, with the approval of the CPSC, QVC sent a letter to customers who had purchased a Heater stating that QVC
P-75. At trial Dan McDermott, who was Senior Vice President of Customer Service at all relevant times, Tr. Day 1 at 15:11-15 (McDermott), explained that "[t]he letter indicates that we would get back to the customers within three weeks, and that's something that we normally do, is just ask the customers to take the product out of use to allow our investigation to continue so there is no additional damage — property damage or personal damage risk, but at this time, the decision — we did not make the decision for the recall" prior to sending the letter. Id., 29:24-30:5.
Also on March 20, QVC sent a pre-recorded telephone message containing similar information to customers who had purchased a Heater.
Feiner responded to Hirota that his message came "as quite a surprise to [QVC]. For it is the first real substantive response that we have received from your client in the nearly three weeks since it has been put on notice of this potential safety issue." P-78. Feiner continued:
Id. Feiner explained that QVC had reported the customer complaints regarding the Heaters to the CPSC on the advice of its CPSC counsel. Id. He concluded by noting that "QVC [was] dismayed to learn that [Soleus] does not believe that customers should at least be told not to use the product until further investigation is completed, in light of the evidence gathered to date." Id.
One week later, on March 28, Hirota sent an email to Feiner in which he wrote that "[c]ontrary to your claim, Soleus has been closely working with QVC to investigate the complaints." P-93. He added that "Soleus is taking very seriously the
Id. Hirota said that Soleus would "fully cooperate with the CPSC in its inquiry and investigation while [it] continue[d its] own investigation." However, Soleus disputed "QVC's position that it was necessary to submit a voluntary report to CPSC" and claimed that "QVC's warning to all its customers advising them to stop using and unplug the heater was premature and unwarranted," noting that it was "in effect a recall action which could result in substantial financial damage to Soleus." Id.
On April 2, after QVC received the finalized report from Intertek, QVC notified the CPSC that it "intend[ed] to participate in the Commission's Fast Track recall program to recall all of the heaters QVC distributed" to its customers
Soleus contends that "QVC never allowed Soleus to participate in any fashion with respect to the scope or conduct of the recall." Dkt. No. 93 at 15. Soleus did not, however, produce any evidence (aside from its generalized assertions that it would cooperate with the CPSC) that it asked to participate in decisionmaking about the recall process.
On April 8, QVC's outside counsel sent a letter to Charley Loh in which QVC advised Soleus that, under the terms of the Purchase Orders, QVC was rejecting or revoking acceptance of 28,056 units of the Heaters. P-103. The letter explained that "QVC has received multiple customer reports that units of the [Heaters], when used for the purpose, and in the manner intended, emitted smoke and sparks and/or overheated." Id. The letter noted that QVC had "received reports of fire or flames coming from units of the" Heaters. Id. It explained that the Heaters did "not comply with applicable safety standards" because "of unacceptable breakdown of insulation on electrical components of the [Heaters] when used in the ordinary course." Id. Further, "QVC ha[d] been compelled to cease all sales of the" Heaters.
Id.
QVC's outside counsel sent a second letter to Soleus on April 10. In the April 10 letter, QVC estimated that "its damages and costs in connection with the recall of the [Heaters] may exceed $2,500,000." P-104. QVC explained that by Feiner's letter of March 12, it had requested "that Soleus provide adequate assurances of both its intention and ability to indemnify and hold QVC harmless" for damages and costs resulting from a recall of the Heaters. Id. In the letter, QVC contended that in Soleus's response, Soleus had stated only that it would honor its obligations "with respect to third party claims." Id. QVC asserted that "the response of Soleus falls short of assuring compliance by Soleus of its obligations arising from QVC's rejection of the [Heaters] and its damages and costs in connection with the recall of the [Heaters]." Id. QVC wrote that it "ha[d] reasonable ground for insecurity with respect to the ability or intention of Soleus to perform its obligations under the Purchase Orders" and demanded "adequate assurances that [Soleus could and would] indemnify and hold QVC harmless" for all costs and damages "arising from the defective [Heaters] and all actions (including, without limitation, the recall actions) required to be taken by QVC as a result thereof." Id.
CPSC approved QVC's proposed recall letter and notice, P-100, and on April 12, QVC notified its customers that it was conducting a voluntary recall of the Heater. QVC's letter stated, in relevant part,
Id. Customers were instructed to cut the electrical cord off at the point at which it attaches to the appliance and to return the cord and an order barcode to QVC in order to obtain a full refund of the original purchase price, applicable taxes and shipping and handling charges. Id. Customers were instructed to dispose of the Heaters. Id. QVC instructed customers to return only the cords because "the unit itself would be difficult to return intact." Tr. Day 1 at 113:16-114:5 (McGrath). QVC wanted to make it easy for its customers to disable the Heaters and take them out of use. Id. at 114:6-23. QVC also believed
Also on April 12, counsel for QVC forwarded to counsel for Soleus
In spite of all of the previous communications about the Heaters between Soleus, its representatives and QVC, Soleus expressed surprise at QVC's decision to recall the Heaters. On April 14, counsel for Soleus sent an email to counsel for QVC and asked "Did U.S. Consumer Product Safety Commission recommend or request a recall of the heater? ... I was under the impression that a testing company was appointed, it tested the heater, and recommended only future modifications, not a recall." P-109. In a second email on April 14, counsel for Soleus informed counsel for QVC that Soleus had provided a return authorization to QVC for "9000+" unsold units of the Heaters and a return authorization for approximately 1300 units of unsold HM1 heaters. P-111; Jt. Stip. ¶ 36.
Also on April 14, outside counsel for QVC sent copies of the Purchase Orders for the Heaters to counsel for Soleus. P-116. In the accompanying letter, QVC noted that it continued to await a response to its request that Soleus would "indemnify and hold QVC harmless for all costs and damages arising from the ongoing recall" of the Heaters. Id.
On April 18, counsel for Soleus wrote to QVC's outside counsel. Soleus's counsel explained that "[b]ased on reports and testing of the heater, it was not reasonable for QVC to recall the heater." P-117. He noted that on March 15, 2008, Charley Loh had "confirmed that [Soleus] would honor its indemnification obligation." Id. He also explained that "based [on] the parties' prior course of dealing, Soleus has always accepted return merchandise, provided appropriate credit, and provided return merchandise authorizations." Id.
QVC filed the instant action against Soleus on August 12, 2008.
Ultimately, QVC, the Ningbo Bole factory and experts for QVC and Soleus concluded that there was a problem with the wiring in certain of the Heaters. Randy Bills, testifying as an expert on behalf of QVC, examined forty-six customer returned-Heaters. Tr. Day 3 at 9:19-10:18 (Bills). Bills observed that thirty-six of the Heaters he inspected displayed damage to the salmon colored wire connecting the Heater's manual selector switch to its thermostat. Tr. Day 3 at 17:9-18:2 (Bills); P-161. The damage appeared to be caused by overheating of the salmon colored wire. Id. Daryl Ebersole, Soleus's expert, explained "that the failures of the heaters that [he] observed [were] the result of overheating from a crimp connection" and that the crimp connection was "a manufacturing defect".... Tr. Day 5 at 13:6-11 (Ebersole). Huang Hui, a general director for Ningbo Bole, Tr. Day 3 at 79:24-80:2 (Huang), testified that "there's a problem inside the wire." Id. at 99:11. When asked for further detail, Huang, responding through a translator, explained:
Id. at 101:21-102:14. Both Bills and Ebersole agreed that the problems with the Heaters were not the result of customer misuse. Tr. Day 3 at 11:22-12:3 (Bills); Tr. Day 5 at 14:25-15:16 (Ebersole).
The manufacturing defect was a latent defect because, as the experts for QVC and Soleus agreed, the crimping defect in the salmon colored wires did not affect all of the Heaters manufactured for QVC. Tr. Day 3 at 65:18-22 (Bills); P-154 at 1; Tr. Day 5 at 13:12-14:1 (Ebersole). Jimmy Loh testified that "[w]ith what I know today, it appeared to be like we have a quality problem with a batch of crimp which caused the problem." Tr. Day 4 at 90:20-22 (J. Loh). QVC's customers could not have known from a visual inspection of their Heater whether or not they had purchased a Heater with a defective crimp connection. Tr. Day 513:20-14:1 (Ebersole).
The defective crimp connection caused overheating and, in some cases, combustion within the Heaters' wiring compartments. Tr. Day 3 at 23:7-15; 35:22-36:2; 36:25-37:9 (Bills); Tr. Day 5 at 33:9-24 (Ebersole). Heat damage from the loose connections could cause insulation on the wires to burn away, Tr. Day 3 at 21:10-14 (Bills), and in some instances, "[w]hen the wire severs, there will be a[n] electrical arc event, either by the wire separating in line, or shorting to the metal case or another wire, and that arc will ignite the vapors that are being given off by the loose connection, vapors from the charring of the blue terminal connectors, the insulation of the wiring, or the heating up of the plastic." Id. at 35:22-36:2.
The Heaters were equipped with four mechanisms designed to prevent fire: (1) a thermostat designed to measure ambient temperatures and cause the unit to cycle when ambient temperatures exceeded the human comfort setting; (2) a thermal switch on the inside wall facing the heating element; (3) a "one-time" thermal switch located on the base of the wiring compartment; and (4) a tip-over switch. Id. at 14:10-15:25; Tr. Day 5 at 30:17-31:4 (Ebersole). Further, certain components of the Heaters were made of "a hard formed type of plastic that typically don't support combustion." Tr. Day 3 at 58:18-22 (Bills). The safety devices, however, did not prevent bad crimp connections from causing overheating or fire. Id. at 35: 1-11; Tr. Day 5 at 21:16-24 (Ebersole). Nor did the flame retardant plastics. Id. at 33:17-34:17.
Under QVC's return policy, its customers may return products for a refund within thirty to forty-five days for any reason. Jt. Stip. ¶ 39. QVC has "very high" standards for customer satisfaction. Tr. Day 1 at 15:20-16:1 (McDermott). The "Q" in QVC sands for "quality," it is a factor that is important to QVC from a product differentiation standpoint, and "it was very, very important for [QVC] just because of the nature of the business ... that the customer had a sense of trust in the product, that the product they were going to receive would conform to how it was described on [television]." Tr. Day 1 at 92:10-21 (McGrath). McGrath testified that QVC was "vigilant in building a quality assurance infrastructure to make sure that those customer expectations were met." Id. at 92:21-23. QVC "goe[es]
QVC has an "incredibly low" tolerance for health or safety issues. Tr. Day 1 at 31:24-32:3 (McDermott). When QVC customers raise complaints about purchased products that implicate "Health & Safety" issues — problems that could lead to personal injury or property damage — it takes only three to five similar complaints before the issue receives additional attention from QVC's OOP. Tr. Day 1 at 18:22-19:1; 31:19-32:3 (McDermott).
QVC considers carefully decisions to recall products because "[w]hen you recall an item, there is a level of customer remorse. They've trusted us to buy the item, that it is as described on-air or online, and there is a negative customer impact to recall. It is something that we wish we never had to do." Id. at 32:10-14.
Each of the Purchase Orders constitutes a complete contract between QVC and Soleus. Jt. Stip. ¶ 10. Soleus accepted the terms of the Purchase Orders without modification by, among other things, delivery of some or all of the Heaters and other Soleus products under each of the Purchase Orders to QVC. Jt. Stip. ¶ 11.
Section 3 of the relevant Purchase Orders includes a representation, warranty and covenant by Soleus that, inter alia, the Heaters shall be "free from all defects (including latent defects) in workmanship, material and design." Jt. Stip. ¶ 13; P-9. Relevant here, Section 3 provides that:
Jt. Stip. ¶ 13; P-9.
Section 7 of the Purchase Orders provides QVC with a mechanism for obtaining a refund for certain merchandise, including merchandise that was returned by QVC's customers and any other merchandise, including unsold merchandise,
Id.
Section 5 of the relevant Purchase Orders provides, in part:
Jt. Stip. ¶ 15; P-9. QVC contends that it reasonably determined that the Heaters contained a defect and that it properly exercised its discretion to recall the Heaters.
In Section 4 of the Purchase Orders, Soleus agreed, inter alia, to hold harmless and indemnify QVC from and against any "direct, special, incidental, exemplary, and consequential damages and losses of any kind," specifically including lost profits and reasonable attorneys' fees "based upon or resulting from ... any alleged or actual defect" in the Heaters. Jt. Stip. ¶ 14; P-9. Section 4 provides, in relevant part:
Id.
At trial, Alan Kujawa, QVC's Vice President of Inventory Accounting testified as to QVC's claimed damages. Exclusive of prejudgment interest and attorneys' fees, QVC seeks a total of $1,838,855.59 in damages related to the Heaters. QVC seeks damages for the cost price of the Heaters in addition to lost profits, refunded out-bound customer shipping costs, shipping costs for the return of Heater Cords to QVC, refunded customer shipping costs for Heaters returned to QVC, return-to-vendor shipping costs, returns center processing costs and other costs associated with the recall.
Each Heater had a cost price to QVC of $41.07 — $36.00 to Soleus and $5.07 to third parties for landed costs. Jt. Stip. ¶ 40. As set out below, QVC's claimed cost price damages for all of the Heaters at issue in this action is $1,046,176.11. P-159 at 1.
On July 18, 2011, the Court granted summary judgment in favor of QVC and against Soleus with respect to Soleus's liability to refund QVC for 4,284 customer returned Heaters that QVC shipped to Soleus in February and March 2008 (the "Shipped Customer Return Heaters"). Dkt. No. 50 at 11. QVC's claimed cost price damages for the Shipped Customer Return Heaters total $175,943.88 — or the cost price of $41.07 multiplied by 4,284. P-159 at 1; Tr. Day 2 at 102:1-3 (Kujawa).
Summary judgment was also granted in favor of QVC and against Soleus with respect to QVC's right to payment by Soleus for customer returned Heaters still in its possession (the "Unshipped Customer Return Heaters"). Dkt. No. 50 at 13. As of January 8, 2012, QVC had in its inventory 1,824 Unshipped Customer Return Heaters. P-165. QVC's claimed cost price damages for the Unshipped Customer Return Heaters are $74,911.68. P-159 at 1.
As of January 8, 2012, QVC had in its inventory 8,752 Heaters that had never been sold to its retail customers (the "Unsold Heaters."). P-165. QVC's claimed cost price damages for the Unsold Heaters are $359,444.64. P-159 at 1.
Upon receipt of a Customer Return Heater or a Heater Cord, QVC refunded to its customer the full value that the customer paid to QVC for the Heater. Tr. Day 2 at 104:19-22 (Kujawa). The Today's Special Value® price for the Heaters was $67.86, the lowest per unit price at which QVC offered the Heaters for sale. Id. at 105:5-16. QVC claims that $26.49
In addition to refunding customers with the full value that they paid for Heaters, all QVC customers who purchased Heaters from QVC were refunded the full value of the cost they paid to have the Heater shipped to them when they purchased it from QVC. Tr. Day 2 at 105:19-106:14 (Kujawa). QVC's customers paid $8.04 for delivery of Heaters purchased as a Today's Special Value®. Id. at 106:2-7. As damages for refunded outbound customer shipping costs, QVC seeks $8.04 for each of the Heaters it sold, as represented by 4,284 Shipped Customer Return Heaters, 1,824 Unshipped Customer Return Heaters and 10,613 Heater Cords, for a total of $134,436.84. P-159 at 2.
Pursuant to the recall, QVC instructed customers to cut the Heater Cords off of their Heaters and to send them back to QVC. P-102. QVC provided its customers with packaging and prepaid postage for the Heater Cords at a cost of $2.00 per Heater Cord. QVC seeks $21,226.00 in damages — $2.00 multiplied by 10,613 Heater Cords — for the shipping costs to return the Heater Cords to QVC. Tr. Day 2 at 108:5-21 (Kujawa); P-159 at 3; P-165.
QVC customers who returned intact Heaters to QVC (as opposed to just Heater Cords), were refunded the full value of their cost to ship their Heater back to QVC. Tr. Day 2 at 107:13-108:1 (Kujawa). As damages for refunded customer shipping costs for Heaters returned to QVC, QVC seeks $8.04 for each of 4,284 Shipped Customer Return Heaters and 1,824 Unshipped Customer Return Heaters, for a total of $49,108.32.
Return-to-vendor shipping costs are the estimated shipping costs to return goods back to a vendor. QVC calculates this cost on a company-wide basis and expresses
QVC incurs returns center processing costs
QVC seeks $111,286.78 in other costs associated with the recall. P-159 at 3. Costs incurred in conjunction with recalling the Heaters included: (1) the initial
From February 13, 2007 to January 8, 2008, QVC issued various purchase orders for the following products: (1) SoleusAir Micathermic Ultra Thin Portable Heater (V25162); (2) SoleusAir 10″ Velocity Table/Hall Fan with Adjustable Head (V25871); (3) SoleusAir 16″ Oscillating Stand Fan with Remote Control (V25872); (4) Soleus FC1-38R-2138″ Tower Fan (H133258); (5) Soleus FTM-25 10″ Metal Table Fan (H133264); (6) Soleus FTY-25 10″ Table or Wall Mount Fan (H133266); (7) Soleus CFM-40 Portable Dehumidifier — 40-pt (H133274); (8) Soleus FC1-42R-03 42″ Tower Fan (H133260); (9) Soleus SA-150 Multi-Filter UV Air Purifier (H133270); and (10) Soleus MW-55 Water Cooler (H133282). Jt. Stip. ¶ 5.
On July 18, 2011, the Court granted summary judgment in favor of QVC and against Soleus with respect to Soleus's liability to refund QVC for both Soleus merchandise other than Heaters that had been returned by QVC's customers and then sent to Soleus — the Shipped Other Merchandise and Soleus merchandise other than Heaters returned by QVC's customers and not sent to Soleus — the Unshipped Other Merchandise. Dkt. No. 50 at 11, 13. QVC's claimed damages relating to the Other Merchandise include the cost price, return to vendor shipping costs and return center processing costs.
QVC and Soleus have stipulated as to the purchase price of the Other Soleus Merchandise. Jt. Stip. ¶ 4. With respect to the Shipped Other Merchandise, QVC's claimed cost price damages total $101,321.50. P-159 at 4-5; Tr. Day 2 at 116:10-117:1 (Kujawa). QVC's claimed cost price damages for the Unshipped Other Merchandise total $49,263.17. P-159 at 4; P-165 (number of items in inventory as of January 8, 2012); Tr. Day 2 at 115:15-116:9 (Kujawa). QVC's claimed return to vendor shipping costs for the Other Merchandise are $1,530.12. P-159 at 5-6; Tr. Day 2 at 117:2-14 (Kujawa). QVC's claimed return center processing costs for the Other Merchandise are $6,157.80. P-159 at 6-7; Tr. Day 2 at 117:15-118:6 (Kujawa). In total, QVC's claimed damages for the Other Merchandise are $158,272.59. P-164 at 7.
On December 13, 2011, QVC reasserted its right to return Other Merchandise still in its inventory. Jt. Stip. ¶ 38; P-128
QVC and Soleus have stipulated that
To succeed on its breach of contract claims under Pennsylvania law, QVC must establish, by a preponderance of the evidence, "(1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract and (3) resultant damages." Ware v. Rodale Press, Inc., 322 F.3d 218, 225 (3d Cir. 2003), quoting CoreStates Bank, N.A. v. Cutillo, 723 A.2d 1053, 1058 (Pa.Super.Ct.1999). There is no dispute that a contract, with essential terms, existed between the parties. Further, on summary judgment the Court determined that Soleus is liable to QVC for the breach of its obligation to refund QVC for the Shipped and Unshipped Customer Return Heaters and for the Shipped and Unshipped Other Merchandise. Dkt. Nos. 50, 51 and 57.
Still remaining for resolution after trial are the following questions. First, whether certain Heaters were defective such that Soleus breached the representations, warranties and covenants set forth in Section 3 of the Purchase Orders. If so, QVC was entitled to return the Heaters to Soleus for a refund in accordance with Section 7 of the Purchase Orders.
As an initial matter, I find that an implied duty of good faith and fair dealing cannot be used to impose on QVC obligations outside of those set forth in the Purchase Orders. Under Pennsylvania law, "`[i]t is firmly settled that the intent of the parties to a written contract is contained in the writing itself.'" Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 613 (3d Cir.1995), quoting Samuel Rappaport Family P'ship v. Meridian Bank, 441 Pa.Super. 194, 657 A.2d 17, 21 (1995) (internal quotations omitted). "[C]ourts generally utilize the good faith duty as an interpretive tool to determine the parties' justifiable expectations, and do not enforce an independent duty divorced from the specific clauses of the contract." Duquesne, 66 F.3d at 617 (quotation omitted).
Thus, the question before me is not whether QVC could have done more to involve Soleus in QVC's investigation of and ultimate determination as to whether the Heaters contained a defect or in QVC's decision to recall the Heaters. Nor is the question whether QVC could have taken additional steps to limit the scope of the Heater recall. Instead, the relevant question is whether QVC was required to do so given the terms of its agreements with
In its post-trial filings, Soleus faults QVC for not having a "procedure in place to allow it to quickly isolate health and safety related product returns in its returns warehouse." Dkt. No. 93 at 20. As McGrath conceded at trial, such a procedure "would have been a good idea, yes." Tr. Day 1 at 123:12 (McGrath). But the Purchase Orders did not obligate QVC to have such a procedure in place and an implied duty of good faith and fair dealing cannot be used to create such a duty.
Soleus also contends that QVC "should have used its complaint and return data processes to collect [serial number] information and provide it to Soleus...." Dkt. No. 93 at 20. Soleus asserts that in failing to do so, QVC breached its duty of good faith. Again, the Purchase Orders did not obligate QVC to provide Soleus with serial number information prior to making its recall determination and the implied duty of good faith cannot be used to create such a duty. Further, Soleus never asked QVC for serial number information. In addition, prior to QVC's recall determination, QVC provided Soleus with access to the serial numbers of eight customer-returned Heaters obtained by QVC. P-30 at QVC-06-00113; QVC-06-00124; P-37. Soleus also had access to the serial numbers on the Shipped Customer Return Heaters.
To read into the Purchase Orders a duty of "good faith" on the part of QVC that required it to defer to Soleus or to modify its returns procedure or to provide Soleus with serial numbers "would not `utilize the good faith duty as an interpretive tool to determine the parties' justifiable expectations'; rather, it would `override the parties' agreement for reasons of fairness, policy or morality." Pierce v. QVC, Inc., 555 F.Supp.2d 499, 504 (E.D.Pa.2008), quoting Duquesne, 66 F.3d at 617.
In Section 3 of the Terms and Conditions of the Purchase Orders, Soleus represented and warranted to QVC that "all Merchandise ... shall be free from all defects (including latent defects) in workmanship, material and design[.]" Jt. Stip. ¶ 13 (emphasis added). This warranty is "[i]n addition to and without prejudice to any and all other warranties, express or implied by law." Id. Under Pennsylvania law, "[a]ny affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise." 13 Pa. Cons. Stat. § 2313(a). Further, the implied warranty of merchantability requires that
13 Pa. Cons. Stat. § 2314(b).
To determine whether Soleus is in breach of the warranties set forth in Section 3 of the Purchase Orders, I must consider whether the evidence at trial supports a finding that certain Heaters were defective. I find that it does.
In its Pretrial memorandum, Soleus represented that "the heaters were not defective, and that QVC's recall violated the terms of the purchase orders." Dkt. No. 64 at 3. A different story emerged at trial. Soleus's expert admitted that certain Heaters suffered from a latent defect, one that consumers would be unable to detect before actual overheating, melting, smoke or fire had occurred. Tr. Day 5 at 13:12-14:1 (Ebersole). QVC's expert agreed that the Heaters contained a manufacturing defect in the nature of a poor wire crimp connection in their wiring compartment. Tr. Day 3 at 23:7-23:15 (Bills). In its post-trial brief, Soleus concedes that "[a]t trial, all of the parties' experts agreed that the cause of the overheating observed in damaged units was likely due to a `crimping error' on the orange-colored wire that connected to `Terminal A' on the thermostat of the Heater.... [A]ny crimping error would constitute a manufacturing defect."
Soleus contends, however, that to prevail on its claims QVC was obligated to determine the scope of the intermittent manufacturing defect. Dkt. No. 97 at 9-11. I disagree. See Blommer Chocolate
Because I find that Soleus breached the warranties set forth in the Purchase Orders, I find that QVC was entitled to return all of the Heaters to Soleus for a refund under Section 7 of the Purchase Orders, regardless of whether they were sold or unsold.
I find that QVC reasonably determined that the Heaters contained a defect. Section 5 of the Purchase Orders provides that
Jt. Stip. ¶ 15.
Section 1115.4 of the regulations under the Consumer Product Safety Act ("CPSA") provides guidance as to what constitutes a defect. A defect is defined as
16 C.F.R. § 1115.4. As an example, the regulation notes that "a defect as a result of manufacturing or production error" is present in "[a]n electric appliance [that] presents a shock hazard because, through a manufacturing error, its casing can be electrically charged by full-line voltage." Id. The evidence presented at trial demonstrated that certain of the Heaters contained a similar "fault, flaw or irregularity" that clearly falls within the definition of a defect — an inadequate crimp connection in a salmon colored wire. Heaters containing the inadequate crimp connection were subject to overheating and, when overheated, insulation on wires inside the units could melt, smoke or catch fire.
QVC's determination that the Heaters contained a defect was reasonable in light of the information available to QVC at the time of its decision to recall the Heaters including: (1) an unusually high number of complaints from customers that the Heaters they had purchased were smoking, sparking, emitting odors or flames, and/or had melted control panels; (2) Fitzgerald's finding after an examination of a number of customer-returned Heaters that the same salmon-colored wire was melted, discolored or severed in each damaged Heater; and (3) Intertek's findings after evaluating four customer-returned Heaters, including Intertek's observation that "there is clearly shorting of live parts to ground and ignition of plastic which may or may not have caused flames to leave the enclosure" and its conclusion that poor quality crimp connections could be a cause of overheating. D-22 at 14-15.
Soleus contends that QVC's determination that the Heaters contained a defect was unreasonable because QVC did not investigate whether the crimping errors could be isolated to a particular batch. I disagree. The regulations under the CPSA provide that "[e]ven one defective product can present a substantial risk of injury and provide a basis for a substantial product hazard determination under section 15 of the CPSA
Because I find that QVC reasonably determined that certain of the Heaters contained a defect, QVC was entitled to exercise its discretion to participate in the CPSC's Fast Track recall program for the Heaters where QVC had high standards for customer satisfaction and where its customers had purchased Heaters subject to a latent manufacturing defect that could result in fire.
In considering an appropriate award of Heater related damages to QVC,
QVC's conduct was reasonable when considering that it had no contractual obligation to isolate a subset of potentially defective Heaters and where Soleus denied the existence of any defect. Soleus's sales middlemen
QVC is entitled to recover the costs it incurred as a result of the sale by Soleus of defective Heaters — including the costs to conduct the recall — because Soleus breached the warranties set forth in the Purchase Orders and because QVC was entitled to conduct a voluntary recall of the Heaters.
Under Section 7 of the Purchase Orders, QVC was entitled to "receive a credit or refund equal to the average cost of amounts paid by [QVC] for each [Heater], including, without limitation, in-bound freight charges...." Jt. Stip. ¶ 16. Section 7 also provides that "[a]ll expense of unpacking, examining, repacking, storing, returning and reshipping any Merchandise rejected (or acceptance of which has been
Section 4 of the Purchase Orders provides, inter alia, that Soleus would
Jt. Stip. ¶ 14; P-9 (bracketed alterations in Jt. Stip.).
Further, under the UCC, as adopted in Pennsylvania, incidental damages "include (1) expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected; (2) any commercially reasonable charges, expenses or commissions in connection with effecting cover; and (3) any other reasonable expense incident to the delay or other breach." 13 Pa. Cons. Stat. Ann. § 2715(a). Consequential damages include: "(1) 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; and (2) injury to person or property proximately resulting from any breach of warranty." Id. § 2115(b).
I find that QVC has met its burden to pass the costs of the recall along to Soleus. Soleus was aware when it entered into the Purchase Orders that QVC was reselling the Heaters to its customers and that QVC retained the right to conduct a recall of the Heaters in the event of a breach of warranty. "[I]n an appropriate case, where the record supports the logic and reasonability of costs of same, this element of damages should be allowed." In re Repco Products Corp., 100 B.R. 184, 200 (Bankr.E.D.Pa.1989); see also United Cal. Bank v. Eastern Mountain Sports Inc., 546 F.Supp. 945, 970-71 (D.Mass. 1982) (finding costs of recall campaign necessitated by seller's breach of contract were recoverable as consequential damages where seller had reason to know of buyer's standards), aff'd without op., 705 F.2d 439 (1st Cir.1983).
Costs that QVC is entitled to recover include cost-price damages, lost profits, refunded outbound customer shipping costs, the cost of the Heater cord returns, refunded customer shipping costs for Heaters returned to QVC, return-to-vendor shipping costs, returns center processing costs and other recall costs. Accordingly, and because Soleus did not offer evidence at trial to rebut the damages evidence set forth by Kujawa, QVC's damages expert, I will award Heater related damages to Soleus in the following amounts:
On July 18, 2011, the Court granted summary judgment in favor of QVC and against Soleus with respect its liability for breach of its obligations under Section 7 of the Purchase Orders for the Shipped and Unshipped Other Merchandise. Dkt. No. 50 at 11, 13. As is further elaborated above, QVC set forth evidence at trial to support a finding that it is owed damages for the Shipped and Unshipped Other Merchandise. Under Section 7 of the Purchase Orders, QVC was entitled to "receive a credit or refund equal to the average cost of amounts paid by [QVC] for each [item of Other Merchandise], including, without limitation, in-bound freight charges...." Jt. Stip. ¶ 16. Section 7 also provides that "[a]ll expense of unpacking, examining, repacking, storing, returning and reshipping any Merchandise rejected (or acceptance of which has been revoked)... shall be at [Soleus's] expense and risk." Jt. Stip. ¶ 16.
Soleus did not offer evidence at trial to rebut the damages evidence set forth by Kujawa. Accordingly, I will award Other Merchandise related damages to Soleus in the following amounts:
QVC is entitled to a total award of $1,997,128.18 in damages for the Heaters and Other Merchandise. The amount owed to QVC by Soleus will be offset by the Offset Amount of $315,321.34, the stipulated amount that Soleus owes to QVC, for a total of $1,681,806.84 in damages, absent attorneys' fees and prejudgment interest.
Because I find that Soleus has breached its obligations to QVC under terms of the Purchase Orders, I also find that Soleus is liable for QVC's reasonable attorneys' fees resulting from such breach. I will withhold judgment with respect to the amount of QVC's attorneys' fees, because such fees have yet to be fixed. Accordingly, QVC may submit an application in support of the reasonable attorneys' fees it has incurred in prosecuting its claims against Soleus. QVC must "submit evidence supporting the hours worked and rates claimed." Hensley v. Eckerhart, 461 U.S. 424, 433, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983).
Under Pennsylvania law, a plaintiff is entitled to interest on money owed under contract as a matter of legal right beginning when an obligation to pay arises. See Fernandez v. Levin, 519 Pa. 375, 548 A.2d 1191, 1193 (1988) (holding the prevailing party's "right to interest begins at the time payment is withheld after it has been the duty of the debtor to make such payment."); see also Restatement of Contracts § 337(a). "The basic premise underlying the award of prejudgment interest to a party centers on the fact that the breaching party has deprived the injured party of using interest accrued on money which was rightfully due and owing to the injured party." Widmer Eng'g, Inc. v. Dufalla, 837 A.2d 459, 469 (Pa.Super.Ct.2003).
Restatement (Second) of Contracts § 354 (1981) (emphasis added); see Fernandez, 548 A.2d at 1193. As it does not appear that the parties have by contract determined otherwise prejudgment interest should be calculated at the statutory rate of 6 percent per annum. 41 P.S. § 202 and 42 Pa. Cons. Stat. Ann. § 8101.
Because I find that Soleus breached its obligations under the Purchase Orders with respect to the Heaters and the Shipped and Unshipped Other Merchandise, I find that Soleus is liable to QVC for prejudgment interest with respect to QVC's damages.
QVC's right to interest for damages related to the Heaters arose when QVC demanded a refund for the Heaters on April 8, 2008. P-103. With respect to the Other Merchandise, QVC's right to prejudgment interest for the Shipped Other Merchandise arose when it shipped such Merchandise back to Soleus on the dates set forth in Defendant's Exhibit 33, the Affidavit of Alan Kujawa in support of Plaintiff and Counterclaim-Defendant QVC Inc.'s Motion for Summary Judgment Pursuant to Fed.R.Civ.P. 56 on Counts VII, IX, and XI of Plaintiff's Complaint. D-33 at ¶ 6; see also P-10. QVC triggered its right to prejudgment interest for any unshipped customer returned units of the SoleusAir Micathermic Ultra Thin Portable Heater bearing QVC item number V25162 on April 11, 2008, when QVC demanded a refund for the ultra thin heaters in a letter to Charley Loh. P-104. Finally, absent proof of a demand from QVC that Soleus accept the return of any remaining Other Unshipped Merchandise prior to the filing of the instant action, I find that QVC's right to interest for any remaining Other Merchandise arose on August 12, 2008, when QVC filed the instant action against QVC.
I will withhold judgment as to the amount of prejudgment interest owed to QVC. QVC may submit to the Court a proposed calculation of the appropriate amount of prejudgment interest.
Soleus seeks an award of fees, costs, and disbursements, incurred in connection with litigating their counterclaims. Dkt. No. 97 at 16. Because Soleus did not sustain its burden of proof on its counterclaims, I find that Soleus is not entitled to recover its attorneys' fees or costs.
An appropriate Order and Judgment follows.
AND NOW, this 22nd day of October, 2012, following a bench trial and upon consideration of the parties' proposed findings of fact and conclusions of law and responses thereto (Dkt. Nos. 93, 94, 95, 97 and 98), and consistent with the accompanying findings of fact and conclusions of law, it is ORDERED that JUDGMENT IS ENTERED in favor of Plaintiff and Counterclaim-Defendant QVC, Inc. and against Defendant and Counterclaim-Plaintiff MJC America, Ltd. d/b/a Soleus International, Inc. as follows:
The Clerk of Court shall enter judgment in favor of Plaintiff and Counterclaim-Defendant QVC, Inc. and against Defendant and Counterclaim-Plaintiff MJC America, Ltd. d/b/a Soleus International, Inc. in the amount of $1,681,806.84.
It is FURTHER ORDERED that QVC may, on or before November 13, 2012, file a motion to revise the Judgment to include its reasonable attorney's fees and prejudgment interest with an application in support of its reasonable attorney's fees and a calculation of its prejudgment interest. If QVC files such a motion, Defendant shall file a response to such motion on or before December 3, 2012.
It is FURTHER ORDERED that Soleus shall accept from QVC return of the Unsold and Unshipped Heaters and Unshipped Other Merchandise remaining in QVC's inventory.
It is STILL FURTHER ORDERED that QVC's objection to certain exhibits offered into evidence by Soleus (Dkt. No. 99) is DENIED as moot.
Fed.R.Evid. 1006.
At trial, Alan Kujawa, QVC's damages witness referred to exhibit P-159 in his testimony about how QVC calculated both the returns center processing cost, Tr. Day 2 at 106:18-24 (Kujawa), and the cost of customer service calls. Id. at 111:2-8. Soleus made no objection to Kujawa's testimony or to exhibit P-159 during the trial.
Rule 103(a)(1) of the Federal Rules of Evidence requires a party to make a "timely objection." An objection may be waived, if it is not made as soon as the grounds for the objection could reasonably have been known. Gov't of V.I. v. Archibald, 987 F.2d 180, 184 (3d Cir.1993); see also Stich v. United States, 730 F.2d 115, 119 (3d Cir.1984) (finding that party waived objection to admissibility of evidence when it failed to object to the admission of a table summarizing the evidence at trial). I find that Soleus waived any argument with respect to the admissibility of the information contained in exhibit P-159.
Tr. Day 4 at 108:14-24 (J. Loh).
First, Rule 103(a)(1) of the Federal Rules of Evidence requires a party to make a "timely objection." As QVC argues, "Soleus has waived its spoliation argument by failing to raise this issue prior to or during trial." Dkt. No. 98 at 20. See Archibald, 987 F.2d at 184 (3d Cir.1993). Further, in determining whether a spoliation sanction is appropriate, I must consider whether QVC "intended to impair the ability of the other side to effectively litigate its case." Paramount Pictures Corp. v. Davis, 234 F.R.D. 102, 111 (E.D.Pa.2005). Soleus has not offered any evidence that QVC instructed its customers to cut off the Heater Cords for any reason other than to protect its customers from what it perceived to be a potential health and safety risk posed by the Heaters. See Tr. Day 1 at 113:16-114:23; 115:6-20 (McGrath). Indeed, the mechanics of the recall were approved by the CPSC, Tr. Day 2 at 162:14-23 (Gidding).
