Court Opinion

ID: 2983004
Source: CourtListenerOpinion
Date Created: 2015-09-22 20:46:39.115571+00
Date Added: 2024-06-11T18:01:02.463868
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                              File Name: 15a0619n.06

                                       No. 14-3335/14-3387

                           UNITED STATES COURT OF APPEALS
                                                                                           FILED
                                                                                     Sep 01, 2015
                                FOR THE SIXTH CIRCUIT
                                                                                 DEBORAH S. HUNT, Clerk
GERLING & ASSOCIATES, INC.,                               )
                                                          )
          Appellant/Cross-Appellee,                       )
                                                          )       ON CROSS-APPEAL FROM
v.                                                        )       THE    UNITED   STATES
                                                          )       DISTRICT COURT FOR THE
GEARHOUSE BROADCAST PTY. LTD.,                            )       SOUTHERN DISTRICT OF
                                                          )       OHIO
          Appellee/Cross-Appellant.                       )

          Before: KETHLEDGE and DONALD, Circuit Judges; McCALLA, District Judge.*

          KETHLEDGE, Circuit Judge. Gerling & Associates (“Seller”) sold a media trailer to

Gearhouse Broadcast (“Buyer”), but delivered the trailer late and in defective condition. Buyer

repaired the trailer, rented substitute trucks to broadcast a series of soccer games, and then sued

Seller for breach of contract. After a trial, the jury awarded damages to Buyer for the repairs and

truck rentals. Seller appeals, arguing among other things that the district court erred by failing to

instruct the jury that Buyer had a duty to mitigate damages. We agree with that argument, vacate

the award for repair damages, and remand for a new trial on those damages. We otherwise

affirm.

                                                 I.

          Seller, an Ohio corporation, makes custom-built trailers that media companies use to

broadcast events from remote locations. In February 2010, an Australian media company,

*
 The Honorable Jon P. McCalla, Senior Judge of the United States District Court for the
Western District of Tennessee, sitting by designation.
Nos. 14-3335/3387, Gerling v. Gearhouse

Buyer, sought to purchase such a trailer. Buyer’s CEO, Graham Elliot, saw an advertisement on

Seller’s website for a trailer that could be “ready . . . within 45 days.” R. 181-3 at 4396. Elliott

contacted Seller’s president, Fred Gerling, to ask for details. Gerling responded that Seller could

have the trailer “ready for [Buyer’s] acceptance within 55 working days,” and assured Elliott that

the trailer would comply with traffic regulations in New South Wales, Australia. R. 181-4 at

4398-99; R. 176 at 3505-06. Elliot explained that his company needed the trailer to broadcast a

series of soccer and rugby games. R. 176 at 3511-13.

       During further negotiations, Seller proposed a different delivery date, but Buyer replied

that Seller’s proposed timetable was unacceptable: Buyer needed to begin installing equipment

on the trailer by July 1 so that it could broadcast games in the fall. R. 181-5 at 4401-03. Seller

then offered to have the trailer ready by May 17, 2010, to deliver the trailer to Australia by July

1, and to sell the trailer for $450,000. R. 181-5 at 4400. Buyer accepted and the parties signed a

contract on March 17, 2010. The contract itself did not identify a completion date, but stated that

“[t]he completion date quoted is the promised date upon which the unit will be completed[.]”

R. 181-1 at 4391.

       In late March, Elliot emailed Gerling to express concerns about the width of the trailer:

some of the trailer’s drawings showed that it would be wider than 2.5 meters, which was too

wide for roads in New South Wales. Gerling responded that the problem would be addressed “in

a timely manner.” R. 181-9 at 4411.

       The trailer arrived in Australia in early September—about three months late—at which

point Buyer discovered that the trailer was still too wide. Buyer also noticed that the trailer’s

metal work and paint finish were shoddy, that the expanding sides of the trailer did not fully

retract, and that the “[g]eneral build quality” was “very poor.” R. 181-17 at 4434. Buyer

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Nos. 14-3335/3387, Gerling v. Gearhouse

contacted an Australian company, Varley Group, which provided a quote for the repairs. After

Varley completed the repair work, Buyer received an invoice for the repairs and other work

performed on the trailer. Buyer paid the invoice in full.

       Around the same time, Buyer rented trucks to broadcast the soccer games. Buyer also

needed to cover a professional-cycling event, so Buyer purchased and modified a shipping

container to serve as a mobile-production facility at the event.

       Seller thereafter sued Buyer in the Southern District of Ohio, seeking a declaratory

judgment stating that Buyer had breached the terms of the contract’s limited warranty when

Buyer hired Varley to repair the trailer, and that Buyer was therefore not entitled to damages. In

response, Buyer filed a counterclaim alleging breach of contract and seeking damages incurred in

repairing the trailer, renting trucks to broadcast the soccer games, and modifying the shipping

container to broadcast the cycling event.

       The case proceeded to trial. After the close of evidence, Seller moved for judgment as a

matter of law, which the district court granted as to the cycling-event claim, but otherwise

denied. The jury awarded Buyer 107,793.90 Australian dollars for the repairs and 244,204.40

Australian dollars for the truck rentals. This appeal and cross-appeal followed.

                                                 II.

                                                 A.

       Seller challenges the award of repair damages on two grounds. First, Seller argues that

the district court should have granted judgment as a matter of law because, according to Seller,

Buyer’s evidence of the repair damages was only speculative. We review the district court’s

decision de novo. Wallace v. FedEx Corp., 764 F.3d 571, 586 (6th Cir. 2014). To prevail on a

breach-of-contract claim under Ohio law, which the parties agree applies here, a buyer must

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Nos. 14-3335/3387, Gerling v. Gearhouse

provide a “reasonable basis on which [the jury] could calculate” the amount of damages that the

seller’s breach caused. World Metals, Inc. v. AGA Gas, Inc., 755 N.E.2d 434, 439 (Ohio Ct.

App. 2001). But a buyer need not prove the amount of damages with “mathematical precision.”

Bobb Forest Prods., Inc. v. Morbark Indus., Inc., 783 N.E.2d 560, 578 (Ohio Ct. App. 2002).

       To show how much Buyer paid to repair the trailer, Buyer provided a quote from Varley

indicating that the repair work would cost 123,335.10 Australian dollars, as well as Buyer’s bank

records showing that Buyer paid 349,664.10 Australian dollars for those repairs and for other

work performed on the trailer. R. 159-9 at 2888; R. 181-21 at 4448. These two documents gave

the jury a reasonable basis on which to calculate damages: the bank records showed the total

amount that Buyer paid; the Varley quote showed approximately what portion of the total

amount was for the repairs.

       Seller responds that the district court should not have considered the Varley quote when

deciding whether Buyer presented sufficient evidence as to the repair damages. Specifically,

Seller says that the quote was inadmissible hearsay. To answer that argument on its own terms, a

document is hearsay only if it is admitted “to prove the truth of the matter asserted.” Fed. R.

Evid. 801(c)(2). The district court made clear that the quote was not offered for that purpose.

R. 178 at 3922 (“[The quote] is not in evidence for the truth of the matter stated therein[,] but

just to demonstrate that this quote was communicated from Varley to [Buyer].”). Hence the

Varley quote was not hearsay.

       Moreover, the quote was admissible under the business-records exception to the hearsay

rule. See Fed. R. Evid. 803(6). Seller contends that the quote was inadmissible under this rule

because Buyer failed to present a “qualified witness” who was “familiar with [Varley’s] record-

keeping system.” Seller Br. at 48. But Buyer did not need to present such a witness to admit the

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Nos. 14-3335/3387, Gerling v. Gearhouse

quote. A document is admissible by a company under Rule 803(6)—even if someone else

created that document—so long as a witness testifies that it was “integrated into [the] company’s

records and relied upon in [the company’s] day-to-day operations.” United States v. Adefehinti,

510 F.3d 319, 326 (D.C. Cir. 2007) (citations omitted); see also United States v. Hollie, 25 F.3d
1051, at *3 (6th Cir. 1994) (table decision). One of Buyer’s employees, Adrian Young, testified

as to both of those things. Hence the quote was admissible under Rule 803(6) as well.

       Second, Seller argues that the district court should have instructed the jury that Buyer had

a duty to mitigate damages. We reverse if “the omitted instructions are a correct statement of the

law[,] the instruction is not substantially covered by other delivered [instructions], [and] the

failure to give the instruction impair[ed] the requesting party’s theory of the case.” Webster v.

Edward D. Jones & Co., L.P., 197 F.3d 815, 820 (6th Cir. 1999).

       Under Ohio law, a plaintiff must use reasonable efforts to mitigate damages, but the

defendant bears the burden to show that the plaintiff failed to mitigate. Frenchtown Square

P'ship v. Lemstone, Inc., 791 N.E.2d 417, 421 (Ohio 2003). Here, Seller asked for a jury

instruction that in relevant part provided:

       A party is required to exercise reasonable care to avoid loss and to minimize the
       consequences of damages. If a party fails to exercise such care, then its recovery
       is limited to damages that would have arisen even if he mitigated damages . . . If
       you find by a preponderance of the evidence that [Buyer] has failed to mitigate its
       damages, then you may only award damages it would have suffered, if any, had it
       exercised reasonable care and diligence to avoid or minimize its damages.

R. 142 at 2711. That proposed instruction nowhere states that Seller had the burden to show that

Buyer failed to mitigate damages. “The requested instruction, although correct, was therefore

not a complete statement of the law and [might] have misled the jury.” Webster, 197 F.3d at 820.

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Nos. 14-3335/3387, Gerling v. Gearhouse

       That said, if a party requests a flawed instruction that nevertheless “raises an important

issue of law,” then the court has a duty “to frame a proper instruction on the issue raised.” Id.

Seller’s proposed instruction did raise “an important issue of law,” namely that Buyer had a duty

to mitigate damages. Thus, the district court should have “frame[d] a proper instruction” on that

issue. Id.

       As for whether Seller’s requested instruction was “substantially covered by other

delivered [instructions],” Buyer argues that the court’s general damages instruction—that the

jury could award only “reasonable” damages—was enough. But we rejected the same argument

in Webster. There, we held that a similar instruction—“it is your duty to determine the amount

of money which reasonably . . . compensates [plaintiff] for his damages”—did not “substantially

cover[]” the proposed instruction that the plaintiff had a duty to mitigate damages. Id. We reach

the same conclusion here.

       Finally, the court’s failure to give that instruction impaired Seller’s theory of the case.

Seller presented evidence that the trailer could have been repaired for 16,000 Australian

dollars—much less than the 107,000 that the jury ultimately awarded Buyer for those same

repairs. R. 175 at 3299. Given that evidence, a properly instructed jury might have found that

Buyer failed to use reasonable efforts to mitigate damages. Thus, we must vacate the award for

repair damages and remand for a new trial on those damages. See Webster, 197 F.3d at 821.

                                               B.

       Seller challenges the award of rental damages on five grounds. First, Seller argues that

the rental fees for the trucks were “cover damages” to which Buyer was not entitled. If a seller

fails to deliver a good on time, the buyer may reject the good and seek cover damages, i.e., the

cost of “any reasonable purchase of . . . goods in substitution for those due from the seller.”

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Nos. 14-3335/3387, Gerling v. Gearhouse

Ohio Rev. Code § 1302.86(A). If the buyer accepts the good, however, he may not seek cover

damages. Ohio Rev. Code § 1302.85(A)(1); id. § 1302.88. This limitation on cover damages

prevents a buyer from receiving a windfall by keeping the original good while buying another on

the seller’s tab. See, e.g., Int'l Adhesive Coating Co. v. Bolton Emerson Int'l, Inc., 851 F.2d 540,

546 (1st Cir. 1988) (interpreting an identical provision of New Hampshire law). Here, Buyer

accepted the trailer. Thus, Seller says, the truck-rental fees were “cover damages” that Buyer

could not lawfully recover.

       The problem with that argument is that the rental fees were not cover damages in the first

place. To seek “cover damages,” a buyer must “purchase . . . goods in substitution for those due

from the seller.” Ohio Rev. Code § 1302.86(A). Here, Buyer did not “purchase” a substitute

trailer but merely rented the trucks for a total of seven days while waiting for Seller’s trailer

finally to arrive. Rather than cover damages, therefore, the rental fees were consequential

damages, which are “any loss resulting from general or particular requirements and needs of

which the seller at the time of contracting had reason to know.”                 Ohio Rev. Code

§ 1302.89(B)(1). Here, Seller in fact knew that Buyer needed the trailer to broadcast the soccer

games. Moreover, recovery of the rental fees would merely put Buyer in the same position it

would have been in had Seller delivered the trailer on time. Thus, Buyer was entitled to recover

the fees as consequential damages.

       Second, Seller argues that its warranty expressly disclaims any liability for the rental

fees. The warranty provides in relevant part:

       [This] Warranty is limited to [Seller] construction defects only and the service
       required to resolve those structural issues. [Seller] will not be responsible for any
       costs or lost revenue related to the [trailer] being out of service for any reason.

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Nos. 14-3335/3387, Gerling v. Gearhouse

R.121-1 at 2447 (emphasis added). According to Seller, the truck rentals were “related to the

trailer being out of service” and thus “costs” that the Warranty specifically disclaims. By its

plain terms, however, the warranty’s scope is limited to “construction defects only[.]” The

warranty therefore does not disclaim costs that result from other forms of breach, e.g., late

delivery. And the jury awarded rental damages only on the basis that Seller “failed to timely

deliver the trailer.” R. 159-2 at 2804 (Jury verdict form). Thus, the warranty did not preclude

Buyer from recovering the rental costs.

       Third, Seller argues that, because Buyer did not have a contract to broadcast the soccer

games, Buyer could not recover the costs of renting trucks to broadcast those games. But

whether Buyer had a contract to broadcast the games is beside the point. Under Ohio law, a

buyer may recover any costs “resulting from . . . requirements and needs of which the seller at

the time of contracting had reason to know and which could not reasonably be prevented.” Ohio

Rev. Code § 1302.89(B)(1). And Seller admits that, at the time of the contract, Seller knew that

Buyer needed the trailer to broadcast the games.

       Fourth, Seller argues that the district court should have excluded parol evidence as to

when the trailer was scheduled to be completed, i.e., the delivery date that Seller’s executives

quoted during pre-contract negotiations. Under Ohio’s parol-evidence rule, the terms set forth in

a final agreement “may not be contradicted by evidence of any prior agreement or of a

contemporaneous oral agreement[.]” Ohio Rev. Code § 1302.05. Such terms “may be explained

or supplemented,” however, “by evidence of consistent additional terms.” Id. § 1302.05(B).

       Here, the sales contract provided that “[t]he completion date quoted is the promised date

upon which the unit will be completed[.]” R. 181-1 at 4391. But the contract nowhere identifies

that “promised date.” Nor does the contract contain an integration clause. Parol evidence

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Nos. 14-3335/3387, Gerling v. Gearhouse

identifying the promised date therefore did not “contradict” the terms of sales agreement, but

rather “explained or supplemented” those terms with “consistent additional” ones. Ohio Rev.

Code § 1302.05(B).

        Seller responds that the district court should have excluded this evidence nonetheless

because Ohio law imposes a “reasonable time” for delivery if a contract fails to include a

delivery date. But this case is not one where the contract fails to speak to the delivery date at all.

Instead, the contract does refer to a delivery date—“the promised date upon which the unit will

be completed[.]” R. 181-1 at 4391. And since the contract itself does not identify what the

“promised date” was, the district court did not err in admitting parol evidence to allow the jury to

identify it.

        Finally, Seller argues that Buyer provided no factual basis on which the jury could

reasonably calculate how much Buyer spent to rent the substitute trucks. Specifically, Seller

says that, in Buyer’s damages estimates, Buyer included costs that it would have incurred even if

Seller had delivered the trailer on time, e.g., the cost of fueling the trucks, the cost of paying the

camera crew, and so forth. Thus, Seller contends, the jury had no basis to calculate the amount

Buyer spent to rent the trucks alone.

        The record refutes that contention. To show how much Buyer paid to rent the trucks,

Buyer presented a series of invoices that included only the cost of renting the trucks and hiring

“core crew,” i.e., engineers who were familiar with how the rented trucks worked. And Young

provided undisputed testimony that, if Buyer wanted to rent the trucks, it had “no choice but to

take [the core] crew.” R. 178 at 3971. The cost of paying the crew, then, was in fact a cost of

renting the trucks themselves. The invoices therefore provided a factual basis on which the jury

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could reasonably calculate how much Buyer paid to rent the trucks. The district court correctly

denied Seller’s motion for judgment as a matter of law as to the rental damages.

                                                C.

       On cross-appeal, Buyer argues that the district court should not have granted judgment as

a matter of law to Seller as to Buyer’s claim for damages related to the cycling event. Buyer

contends that the cycling-event damages were “consequential damages” caused by Seller’s

breach. To recover consequential damages, a plaintiff must show that the damages “were within

the contemplation of both parties at the time of the making of the contract.” The Toledo Grp.,

Inc. v. Benton Indus., Inc., 623 N.E.2d 205, 211 (Ohio Ct. App. 1993) (emphasis added). Here,

Buyer admitted that it did not tell Seller about the cycling event until a month after the parties

signed the contract. R. 176 at 3513; R. 64-1 at 987. And there is no other evidence suggesting

that Seller had reason to contemplate damages related to that event.          Thus, neither party

contemplated the cycling event or any damages related to it when they signed the contract. As a

matter of law, therefore, Buyer was not entitled to damages related to that event.

       Buyer responds that it “made a commitment to broadcast the [cycling] event based on

[Seller’s] specific representations about when the trailer would be completed.” Buyer Br. at 49.

But the question is not whether Buyer reasonably relied upon Seller’s representations when

Buyer agreed to broadcast the cycling event. Rather, the question is whether Seller contemplated

damages related to that event when it agreed to sell the trailer. And Seller had no reason to

contemplate those damages. Buyer’s argument is meritless.

                                          *      *     *

       We vacate the jury’s award as to the repair damages and remand to the district court for a

new trial on those damages. We otherwise affirm the district court’s judgment.

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