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Matched Legal Cases: ['§ 1', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 1', '§ 2', '§ 1', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 4']

193 F3d 47 Jom Inc Chipco International Ltd v. Adell Plastics Inc | OpenJurist
193 F. 3d 47 - Jom Inc Chipco International Ltd v. Adell Plastics Inc HomeFederal Reporter, Third Series193 F.3d
193 F3d 47 Jom Inc Chipco International Ltd v. Adell Plastics Inc 193 F.3d 47 (1st Cir. 1999)
JOM, INC., d/b/a CHIPCO INTERNATIONAL, LTD., Plaintiff, Appellee,v.ADELL PLASTICS, INC., Defendant, Appellant.
Heard March 4, 1998.Decided Oct. 4, 1999.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MAINEJohn M.R. Paterson, with whom Mary Elizabeth Fougere and Bernstein, Shur, Sawyer & Nelson were on brief for appellant.
The trial judge denied the motion on the ground that Adell's objection should have been raised during discovery. We agree.1 Whatever the breadth of its original document request, had Adell truly been concerned that Chipco either misinterpreted or willfully failed to comply with the discovery request, it should have conferred in a timely manner with a view to obtaining voluntary disclosure by Chipco, see Fed. R. Civ. P. 37(a)(2)(A) (requiring certification of movant's good-faith consultation), failing which it should have moved to compel production, see id., well in advance of trial. See DesRosiers v. Moran, 949 F.2d 15, 22 n.8 (1st Cir. 1991) (noting that "courts have often deemed discovery violations to have been waived" where parties fail "to bring the matter of non-production to the court's attention at the pretrial hearing or in some other timely fashion"); Allen Pen Co. v. Springfield Photo Mount Co., 653 F.2d 17, 23 (1st Cir. 1981) (noting that party which deliberately passes up available discovery remedies "cannot wait for trial and then seek close to a declaration of victory on the issue"); Clinchfield R.R. Co. v. Lynch, 700 F.2d 126, 132 (4th Cir. 1983) (same); see also Jackson v. Harvard Univ., 900 F.2d 464, 469 (1st Cir. 1990) ("Preclusion and negative inference are grave steps, 'by no means an automatic response to a delayed disclosure . . . [or] where failure to make discovery [is] not willful.'") (citation omitted).
B. Evidentiary Ruling Relating to Damages
1. UCC Section 2-207(2)(c)
Adell next challenges the denial of its motion in limine to preclude evidence of contract damages over and above the resin purchase price based on the damages-limitation clause cap.3 Although Judge Hornby had granted Adell partial summary judgment on this issue earlier, the trial judge thereafter ruled that our intervening decision in Ionics, 110 F.3d at 184, required a different result. See Parilla-Burgos v. Hernandez-Rivera, 108 F.3d 445, 448 n.6 (1st Cir. 1997) (if governing law changes, court may revisit law of the case).
The instant claim turns on an interpretation of section 2-207 of the Uniform Commercial Code ("UCC"), whose drafters intended to address "the sad fact that many [modern] sales contracts are not fully bargained, not carefully drafted, and not understandingly signed by both parties." 1 James J. White & Robert S. Summers, Uniform Commercial Code § 1-3, at 6 (4th ed. 1995) [hereinafter: "White & Summers"]. Thus, contracting merchants commonly exchange "canned" forms: typically, the prospective buyer forwards a purchase order to a prospective seller after filling in the quantity and price; then the seller delivers the goods to the buyer, along with an invoice.4 It is not at all uncommon, of course, for the purchase order and invoice to prescribe quite different conditions of sale, normally as prompted by the perceived self-interest of the proponent.
Finally, where for any reason the exchange of forms does not result in contract formation (e.g., the buyer "expressly limits acceptance to the terms of [its offer]" under § 2-207(2)(a), or the buyer does not accept the seller's counteroffer under the second clause of § 2-207(1)), a contract nonetheless is formed if their subsequent conduct -- for instance, the seller ships and the buyer accepts the goods -- demonstrates that the parties believed that a binding agreement had been formed. The terms of their agreement would then be determined under the "default" test in § 2-207(3), which implicitly incorporates the criteria prescribed in § 2-207(2).
The present controversy implicates the very different interpretation of § 2-207 announced more than three decades ago in Roto-Lith, Ltd. v. F.P. Bartlett & Co., 297 F.2d 497 (1st Cir. 1962). But see Ionics, 110 F.3d at 187 (overruling § 2-207 interpretation announced in Roto-Lith). There, Roto-Lith sent Bartlett a purchase order which did not mention warranties. Bartlett returned an invoice expressly excluding all warranties and limiting Roto-Lith's remedies for breach of contract to the replacement cost of any goods which differed materially from specified samples. The Bartlett invoice further required that Roto-Lith notify it "at once" in the event the additional conditions in the invoice were unacceptable. Instead, Roto-Lith accepted delivery of the goods and remained silent. When the goods proved defective, Roto-Lith brought an action for breach of contract against Bartlett. See id. at 498-99.
At trial, Bartlett moved for directed verdict on the ground that its invoice was an "acceptance . . . expressly made conditional on assent to [its] additional or different terms," and therefore constituted a mere counteroffer under the second clause of § 2-207(1), rather than an acceptance which formed a binding contract. Bartlett argued that (i) a binding contract thereafter was formed when Roto-Lith accepted delivery of the goods without objecting to Bartlett's exclusion of warranties, (ii) all terms of the invoice then became part of the sales contract by operation of the common-law "mirror-image" rule, and (iii) therefore the statutory criteria for determining the terms of the contract i.e., subsections 2-207(2) and (3) were rendered inapposite. See id. at 499-500.
Roto-Lith responded that notwithstanding the divergent term in the Bartlett invoice excluding all warranties, the invoice did not announce itself as a counteroffer; hence, the invoice qualified as an "acceptance" within the meaning of the first clause of § 2-207(1), and a contract was formed. Further, Roto-Lith argued, since the warranty exclusion in the Bartlett invoice "materially altered" the terms of the Roto-Lith offer, § 2-207(2)(b) controlled and precluded the warranty exclusion from becoming a contract term. Id.
The district court accepted Bartlett's interpretation, holding that the drafters did not intend that the UCC displace the common law tests applicable to these everyday commercial transactions. We affirmed. See id. at 500 (holding that "a response [viz., an invoice] which states a condition materially altering the obligation solely to the disadvantage of the offeror is an 'acceptance . . . expressly conditional on assent to the additional terms'"); see also Ionics, 110 F.3d at 185 (noting that Roto-Lith abandoned subsections 2-207(2) and (3), and "reverted to the common law").
Thirty-five years later, Ionics displaced Roto-Lith. There, Ionics had sent Elmwood a purchase order expressly reserving all "remedies provided by law or equity" and insisting that "[a]cceptance by [Elmwood] of this order shall be upon the terms and conditions set forth [herein] . . . [and] [n]o terms which are in any manner additional to or different from those herein set forth shall become a part of, alter or in any way control the terms and conditions herein set forth." Id. Elmwood returned an invoice which excluded all warranties not "expressly set forth herein," disclaimed any liability for consequential or incidental damages, and limited Ionics's remedy for breach to a refund of the purchase price upon return of the goods. Id. at 186. After Ionics accepted delivery, the goods proved defective and Ionics sued Elmwood for contract damages. Relying on Roto-Lith, Elmwood moved for partial summary judgment, contending that the express exclusion of any implied warranty of fitness contained in its invoice became part of the contract which was formed when Ionics accepted Elmwood's "counteroffer" by taking delivery of the goods without any objection to its divergent terms.
The district court denied the Elmwood motion for summary judgment. Ionics, Inc. v. Elmwood Sensors, Inc., 896 F. Supp. 66 (D. Mass. 1995). It distinguished Roto-Lith on the ground that the Roto-Lith purchase order had been silent in regard to warranties, whereas the Ionics purchase order expressly reserved all implied warranties "provided by law," thus directly contradicting and precluding ab initio the subsequent proposal in the Elmwood invoice to exclude all implied warranties. "If Roto-Lith applied in [both types of] cases [viz., to objecting and "silent" buyers alike] . . . , § 2-207(3) would be preempted entirely" by the "mirror image" rule. Id. at 69. The district court then certified its partial summary judgment ruling for immediate appeal.
Where clauses on confirming forms sent by both parties conflict[,] each party must be assumed to object to a clause of the other conflicting with one on the confirmation sent by himself. As a result the requirement that there be notice of objection which is found in subsection (2)[(c)] is satisfied and the conflicting terms do not become a part of the contract. The contract then consists of the terms originally expressly agreed to, terms on which the confirmations agree, and terms supplied by this Act, including subsection (2).
We thus rejected the Roto-Lith "mirror image" rule that the mere proposal of an additional or different material term by the seller would make its invoice a counteroffer to the buyer's purchase offer (i.e., an "acceptance . . . expressly made conditional on [the buyer's] assent"), rather than an outright acceptance of the buyer's purchase offer. Instead, the forwarding of such an invoice gives rise to a binding contract and in the event of a contract dispute the terms of the contract are determined under the test set forth in § 2-207(3), which in turn implicitly incorporates the criteria in § 2-207(2). Ionics, 110 F.3d at 189.
Chipco urges -- as the trial judge held -- that Ionics controls the present dispute even though the Chipco purchase orders contained no express objection to a damages-limitation clause, on the ground that our "background legal rules" discussion in Ionics necessarily implied that all so-called UCC "gap-fillers" -- those UCC provisions designed to supply necessary default terms where the parties' contract is silent -- must be read into all "silent" purchase orders, and thus serve as the buyer's "[prior] notification of objection" under § 2-207(2)(c). According to Chipco, these gap-fillers include not only a reservation of the implied warranties, see, e.g., UCC §§ 2-314 (implied warranty of merchantability) & 2-315 (implied warranty of fitness for a particular purpose), which were at issue in Roto-Lith and Ionics, but also the buyer's presumptive right to recover in full measure all contract damages attributable to the seller's breach, see id. §§ 2-714 (damages for breach) & 2-715 (recovery of incidental and consequential damages). We conclude that the reading given our "background legal rules" discussion by the trial judge is more expansive than its context warranted.
The "background legal rules" discussion in Ionics addressed Ionics' attempt to hypothesize a factual distinction between its case and Roto-Lith. Assuming arguendo that the Roto-Lith rule were to remain intact as controlling circuit precedent, we posed the very narrow question whether it would make sense to establish an exception to Roto-Lith's "mirror image" rule where the buyer expressly excludes ab initio, in its purchase order, the seller's additional terms, while withholding that same protection to a buyer -- like Roto-Lith -- which reasonably may have presumed that the court would use the UCC as its baseline guide for determining the buyer's contract expectations. For the policy reasons already noted, see supra, we were persuaded that engrafting a common-law exception (i.e., when the purchase order expressly forecloses the seller from proposing particular divergent terms) onto the common-law rule announced in Roto-Lith was not warranted.
In fashioning common-law rules -- like the broad common-law exception to § 2-207 carved out in Roto-Lith -- courts almost invariably weigh public policy considerations, often on their own motion if need be. See, e.g., Claypool v. Levin, 562 N.W.2d 584, 588 (Wis. 1997). It is hardly surprising, therefore, that our opinion in Ionics discussed the policies which would be fostered were we to refine and perpetuate the common-law rule established in Roto-Lith. On the other hand, when called upon to interpret a statute, we are constrained in the first instance by the policymaking prerogatives of the legislative and executive branches as expressed or implied in the statute itself. See, e.g., Harrison v. Montgomery County Bd. of Educ., 456 A.2d 894, 903 (Md. 1983) (noting that "declaration of the public policy of [the State] is normally the function of the General Assembly," which is fully empowered to abrogate common-law rules).
Once we determined that Roto-Lith and Ionics could not be distinguished in a principled manner, however, the "background legal rules" discussion in Ionics went by the wayside with the common-law hypothetical from which it emerged, which explains why the phrase is never again mentioned in the Ionics decision. Instead, after concluding that routine recourse to common-law rules is not required by the second clause of UCC § 2-207(1), we turned to the more constringent task of statutory interpretation. Presented with a clean statutory slate, we announced the narrow holding that the UCC expressly protects a buyer, like Ionics, whose purchase order expressly forewarns the seller of particular contract terms which the buyer would find objectionable -- pursuant to the "[prior] notification of objection" clause in § 2-207(2)(c). Ionics, 110 F.3d at 189. Indeed, given the emphatic language in its purchase order, it is likely that Ionics was entitled to the protection of § 2-207(2)(a) as well.
Further conclusions of law were not required. It was Elmwood which had sought partial summary judgment based on the per se rule announced in Roto-Lith that all new terms in a seller's "counteroffer" automatically become contract terms where the buyer remains silent and renders performance under the contract. Once the common-law rule in Roto-Lith became defunct, it necessarily followed that Elmwood was not entitled to judgment as a matter of law under Rule 56, and its appeal failed. Since Ionics was not a "silent" buyer of the Roto-Lith type, nor had it moved for summary judgment, we were not required to consider whether a "silent" buyer, such as Roth-Lith or Chipco, also would be protected by § 2-207(2)(c) or by any other provision in section 2-207. In other words, Ionics simply announced that both types of buyers were relieved from the per se common-law rule of inclusion laid down in Roto-Lith, and not that a Roto-Lith-type "silent" buyer may invoke § 2-207(2)(c). As Chipco is a "silent" buyer, however, we now address that unresolved issue.
Whatever its policy implications, the rationale underlying this distinction is readily discernible. The buyer which explicitly includes a particular term in its purchase order -- even a UCC gap-filler -- presumably demonstrates that it has considered the allocation of business risks associated with the term, and, for example, has determined that it is unwilling to accept greater risk. Thus, as is the case with "restricted offers" under § 2-207(2)(a), it is appropriate to treat the buyer's explicit prior objection as a term which is "material," per se, to the formation of any contract.
On the other hand, although the "silent" buyer may be signaling its implicit preference for the UCC's gap-filler terms, its silence alone provides no reliable basis for a per se rule of exclusion since it leaves open the key question whether the buyer regarded any particular gap-filler term as especially "material" in the circumstances of the transaction at hand. For instance, its purchase order may have omitted a clause precluding any damages-limitation clause, not because the buyer meant to insist that no such term be precluded, but rather, for example, because the parties' course of performance or course of dealing, or the relevant trade usage, establishes that a damages-limitation clause is presumptively included as an implicit term in the contract. See White & Summers § 1-3, at 18 (noting that the § 2-207(2)(b) "materiality" test may turn, inter alia, on course of dealing or performance, or trade usage); UCC § 1-205 ("Course of Dealing and Usage of Trade"); § 2-208 ("Course of Performance or Practical Construction"). In such a setting, the buyer's silence may simply reflect that it considers a damages-limitation clause "immaterial" to contract formation. See, e.g., Dale R. Horning Co. v. Falconer Glass Indus., 730 F. Supp. 962, 966 (S.D. Ind. 1990); see also The Berquist Co. v. Sunroc Corp., 777 F. Supp. 1236, 1246 (E.D. Pa. 1991).
The context of UCC § 2-207 conclusively confirms that its drafters intended to accord distinctive treatment to sales transactions involving "silent" buyers. Official Comments 4 and 5 set forth examples of the additional or different terms which may give rise to "material" and "immaterial" alterations under 2-207(2)(b).7 Comment 5 lists, as an example of an "immaterial" alteration, "a clause . . . otherwise limiting remedy in a reasonable manner (see Sections 2-718 and 2-719)." Section 2-719 envisions that contracting parties may agree to limit recoverable damages otherwise available under §§ 2-714 and 2-715. Thus, if Chipco's interpretation of Ionics were correct, and all UCC gap-fillers (like §§ 2-714 and 2-715) were to be read into every "silent" purchase order, then damages-limitation clauses invariably would be excluded from the contract under 2-207(2)(c), whether or not the purchase order expressly objected to such a limitation clause, and the "materiality" inquiry at the very core of UCC § 2-207(2)(b) and Comment 5 would become wholly superfluous. See, e.g., Costos v. Coconut Island Corp., 137 F.3d 46, 49 (1st Cir. 1998) ("'Nothing in a statute may be treated as surplusage if a reasonable construction supplying meaning and force is otherwise possible.'") (citation omitted). Thus, under the only harmonious interpretation available in the present context, these UCC provisions require that the "silent" buyer establish that it would have rejected a damages-limitation clause as a "material alteration," within the meaning of § 2-207(2)(b), given all the circumstances surrounding the transaction. See supra note 7; infra Section II.B.2.
Nevertheless, Chipco has not cited -- and we cannot find -- any case which endorses its reading of § 2-207(2)(c) and Ionics. Rather, the courts which have interpreted § 2-207(2)(c) do not read UCC gap-fillers into purchase orders as a matter of law, but insist that a merchant-buyer prove, for example, that a given invoice term worked a "material alteration" to the contract. See, e.g., LTV Energy Prods. Co. v. Northern States Contracting Co. (In re Chateaugay Corp.), 162 B.R. 949, 952, 957-58 (Bankr. S.D.N.Y. 1994) (summarizing extant case law supporting proposition that, where "[buyer's] Purchase order . . . did not contain any general terms or conditions of sale," and "where UCC § 2-207(2)(a) and (2)(c) [thus] do not apply," the non-assenting party must prove, inter alia, that the seller's clause limiting the buyer's remedy to repair and replacement of the goods was a "material alteration") (emphasis added).
In summary, Ionics does not support the proposition that a "silent" buyer is presumed to have objected in advance to any seller-term that conflicts with a UCC gap-filler provision. Instead, Ionics merely relieved the buyer of the burden imposed by the automatic rule announced in Roto-Lith, which, by removing the case entirely from UCC § 2-207 and relying on the common law, precluded a buyer who had performed under the contract from demonstrating at trial that the adverse seller-term at issue did not become part of the contract. But if the "silent" buyer's purchase order neither "expressly limits acceptance to the terms of the offer" under § 2-207(2)(a), nor necessarily constitutes "[prior] [n]otification of objection to [any new terms added by the seller]" under § 2-207(2)(c), the buyer must look to some other UCC provision to exclude the new seller-term.
As Ionics is inapposite, and Adell's damages-limitation clause is not excludable under § 2-207(2)(c), Chipco could prevail only if the damages-limitation clause (i) effected a "material alteration" to the contract, see UCC § 2-207(2)(b), (ii) was "unconscionable," id. § 2-719(3), or (iii) failed of its essential purpose, id. § 2-719(2). See LTV Energy Prods., 162 B.R. at 957-58.
2. UCC Section 2-207(2)(b): Materiality
Where, as here, both contracting parties are merchants (viz., non-"consumers"), see UCC § 2-104(1) (defining "merchant"), UCC § 2-207(2) provides that any additional or different terms proposed by the seller become part of the sales contract "unless" the party which opposes the presumption of inclusion here, Chipco can show that at least one of the three preconditions specified in § 2-207(2) was met. See, e.g., Avedon Eng'g, Inc. v. Seatex, 126 F.3d 1279, 1284 (10th Cir. 1997); Comark Merch'g, Inc. v. Highland Group, Inc., 932 F.2d 1196, 1201-02 (7th Cir. 1991); Dale R. Horning, 730 F. Supp. at 966 n.2; LTV Energy Prods., 162 B.R. at 956.
Section 2-207(2)(b) allows the buyer to show that a damages-limitation clause proposed by the seller did not become part of the contract, even though not objected to by the buyer, because its inclusion would work a "material alteration." Although the UCC does not define "material alteration," Official Comments 4 & 5 advise that a new term proposed by the seller is a "material alteration" where it would "result in [unreasonable] surprise or hardship [to the buyer] if incorporated without [the buyer's] express awareness." UCC § 2-207 cmt. 4 (emphasis added). Of course, Comments 4 and 5 are illustrative only and the UCC provides no further elucidation of the terms "surprise" or "hardship."
The panel opinion concluded that Chipco, in the summary judgment proceedings before Judge Hornby, had not preserved the issue as to whether the damages-limitation clause constituted a "material alteration," hence that Chipco was not entitled to a new trial. As the en banc court, excepting two members of the original panel, has determined that the highly idiosyncratic circumstances and travel of this case so warrant, a remand for further proceedings shall be ordered to permit Chipco an opportunity to establish that the contractual damages cap worked a "material alteration." As this "material alteration" question was never briefed or argued, either below or on appeal, we leave its consideration to the district court in the first instance.8
The judgment of liability in favor of Chipco is affirmed; the case is remanded for further proceedings in accordance with this opinion. The parties shall bear their own costs. SO ORDERED.
We assume arguendo that the CRB was material to Chipco's breach of contract claim (i.e., evidence that the condition of the returned chips violated express or implied warranties) as well as to damages (i.e., evidence of replacement costs). Of course, to the extent the CRB was relevant to establish a measure of damages in excess of the cost of the Adell resin, its admission in evidence would have been harmless error as well. See Fed. R. Civ. P. 61; infra Section II.B.
Adell also contended, for example, that Chipco failed to produce certain artwork depicting the distinctive designs Chipco printed on the chips it produced for individual casinos. It argues that the artwork might have been matched to the various invoices in the CRB, so as to belie the trial testimony that all chips returned to Chipco were manufactured with Adell resin. Adell acknowledges that it made no specific request to produce the artwork at any time prior to its motion in limine. Moreover, its oblique and convoluted "matching" technique was not so patently obvious a method of proving the resin content of the returned chips as to place Chipco on fair notice of Adell's desire to obtain the artwork. Further, though Chipco nonetheless offered to produce the artwork on the first day of trial, Adell declined its offer. Adell now characterizes Chipco's offer as "too little, too late," because the court would not have countenanced a motion to continue the trial. As we have observed repeatedly, however, a party claiming prejudice resulting from its belated receipt of evidence is poorly positioned on appeal if it elected to forego a request for continuance below. See Newell Puerto Rico, Ltd. v. Rubbermaid, Inc., 20 F.3d 15, 20 (1st Cir. 1994); DesRosiers, 949 F.2d at 22. Finally, the other evidentiary challenges Adell poses to financial records, physical evidence, and expert testimony neither demonstrate reversible error nor warrant separate discussion.
At trial, Adell did not renew the substance of its motion in limine, presumably because it did not understand that the earlier ruling was provisional only. Cf. Waukesha Foundry, Inc. v. Industrial Eng'g, Inc., 91 F.3d 1002, 1006 (7th Cir. 1996) (treating comparable motion in limine as one for summary judgment). Although unpreserved claims normally are reviewed for "plain error," see Gill v. Thomas, 83 F.3d 537, 540-41 (1st Cir. 1996), the waiver rule is not rigidly applied, particularly where there is language in the trial court order which sounds sufficiently "final" that it could reasonably have misled the party seeking to challenge the ruling on appeal, here Adell, see, e.g., Fusco v. General Motors Corp., 11 F.3d 259, 262-63 (1st Cir. 1993). See JOM, Inc. v. Adell Plastics, Inc., No. 96-156, slip op. at 1 (D. Me. Aug. 22, 1997) ("determining as a matter of law that the disputed term is not part of the contract"). We therefore review the present objection by Adell for abuse of discretion only.
In some cases, of course, the seller -- rather than the buyer -- may initiate the "battle of forms." For ease in reference, however, we adhere to the format and labels set out in the text.
As there is no contention that the transactions at bar would be accorded divergent treatment under the law of Maine, Maryland or Massachusetts, we apply the UCC § 2-207 interpretation laid down in Ionics. See Fashion House, Inc. v. K Mart Corp., 892 F.2d 1076, 1094 (1st Cir. 1989) (court may bypass choice-of-law issue where result would be same in either jurisdiction).
UCC Official Comments "do not have the force of law, but are nonetheless the most useful of several aids to interpretation and construction of the [UCC]." LTV Energy Prods. Co. v. Northern States Contracting Co. (In re Chateaugay Corp.), 162 B.R. 949, 955 n.5 (Bankr. S.D.N.Y. 1994) (citing White & Summers § 4, at 12).
Since Chipco's $884,322.39 damages award may not survive remand, it is not necessary at this juncture to address Adell's remaining arguments on appeal, relating to the jury award of future damages and lost profits.