Court Opinion

ID: 9409666
Source: CourtListenerOpinion
Date Created: 2023-07-19 00:00:41.609869+00
Date Added: 2024-06-11T17:20:52.474292
License: Public Domain

Case: 22-40440    Document: 00516824827        Page: 1   Date Filed: 07/18/2023

           United States Court of Appeals
                for the Fifth Circuit                            United States Court of Appeals
                                                                          Fifth Circuit

                               ____________                             FILED
                                                                    July 18, 2023
                                No. 22-40440                       Lyle W. Cayce
                               ____________                             Clerk

   Shenzen Synergy Digital Company, Limited,

                                                         Plaintiff—Appellee,

                                    versus

   Mingtel, Incorporated,

                                          Defendant—Appellant.
                 ______________________________

                 Appeal from the United States District Court
                      for the Eastern District of Texas
                           USDC No. 4:19-CV-216
                 ______________________________

   Before Wiener, Southwick, and Duncan, Circuit Judges.
   Stuart Kyle Duncan, Circuit Judge:
         Mingtel, a Texas-based company, ordered two batches of computer
   tablets from Shenzen Synergy Digital, a Chinese company, hoping to resell
   them through the Home Shopping Network (“HSN”). The first batch
   bombed on HSN, with customers complaining about slow speeds and flawed
   screens. Mingtel then rejected the second batch out of hand. Synergy sued
   for breach of contract; Mingtel countersued, alleging Synergy provided
   nonconforming goods. The district court sided with Synergy. We affirm.
Case: 22-40440       Document: 00516824827             Page: 2      Date Filed: 07/18/2023

                                        No. 22-40440

                                             I.
          Synergy is a Chinese manufacturer, distributor, and exporter of “Tier
   2” computer tablets and other electronics. 1 Mingtel is a Texas importer and
   distributor of electronics, including computer tablets. The companies
   successfully contracted together for three years before the transactions at
   issue here. Mingtel would define specifications for computer tablets, and
   Synergy would fulfill them.
          In the summer of 2017, Mingtel contracted with HSN to sell 60,000–
   70,000 tablets on HSN’s website. Mingtel sent two purchase orders to
   Synergy on August 28, 2017: Order MT0559 (“Order 59”) and Order
   MT0560 (“Order 60”). Order 59 was for 10,000 Model G1058S tablets—a
   32GB model. Each tablet cost $76.32 for a total of $763,200. Order 60 was
   for 10,000 Model G1058A tablets—an otherwise identical 16GB model. Each
   tablet cost $73.03 for a total of $730,300. Mingtel paid a small deposit on both
   orders.
          In late October 2017, Synergy notified Mingtel that Order 60 was
   ready. Under the parties’ agreement, Mingtel was responsible for picking up
   the tablets and handling shipping from Synergy’s factory in China. Mingtel
   inspectors examined some samples and approved the batch for shipment.
   Both parties knew that certain features, like the WiFi and SIM cards, were
   built for use in the United States and would not function in China. Even so,
   Mingtel paid Synergy in full and shipped the tablets directly to HSN’s
   warehouse.

          _____________________
          1
           The market for computer tablets consists of different “tiers.” “Tier 1” tablets,
   for example, include those made by Apple and Samsung. The differences between “Tier
   1” and “Tier 2” tablets include the name brand and user experience.

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                                    No. 22-40440

          After some tablets were sold through the HSN website, customers
   complained about slow processing speeds and screen issues. But in
   communications with HSN, Mingtel representatives explained that they
   were “having difficulty replicating the issues,” that customer complaints
   represented “not a tablet issue [but] a WiFi or network issue,” and that the
   “tablet [was] not slow at all.” Nevertheless, only 2,700 tablets were sold and
   37% of those were returned.
          Later, in early 2018, Synergy informed Mingtel that 5,000 tablets of
   Order 59 were ready. Given the problems with Order 60, Mingtel refused to
   accept Order 59 and declined to pay the balance on the order. To recoup
   some of its losses, Synergy resold the 5,000 tablets at a discount.
          In March 2019, Synergy sued Mingtel for breaching their contract by
   refusing to accept or pay for Order 59. Mingtel countersued, arguing that
   Synergy provided nonconforming goods. After a bench trial, the district court
   found Mingtel liable to Synergy. Mingtel now appeals.
                                        II.
          “The standard of review for a bench trial is well established: findings
   of fact are reviewed for clear error and legal issues are reviewed de novo.”
   Guzman v. Hacienda Records & Recording Studio, Inc., 808 F.3d 1031, 1036
   (5th Cir. 2015) (quoting One Beacon Ins. Co. v. Crowley Marine Servs., Inc.,
   648 F.3d 258, 262 (5th Cir. 2011)). This case is governed by the U.N.
   Convention on Contracts for the International Sale of Goods (“CISG”). See
   CISG Art. 1(1)(a) (“This Convention applies to contracts of sale of goods
   between parties whose places of business are in different States . . . [w]hen
   the States are Contracting States.”); see also BP Oil Int’l, Ltd. v. Empresa
   Estatal Petroleos de Ecuador, 332 F.3d 333, 337 (5th Cir. 2003) (“As
   incorporated federal law, the CISG governs the dispute so long as the parties
   have not elected to exclude its application.”).

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                                        III.
          Mingtel argues that Synergy breached Order 60 by providing
   nonconforming goods. We evaluate that claim by looking to the CISG, which
   provides the following relevant principles.
          The CISG defines a fundamental breach of contract as one that
   “results in such detriment to the other party as substantially to deprive him
   of what he is entitled to expect under the contract, unless the party in breach
   did not foresee and a reasonable person of the same kind in the same
   circumstances would not have foreseen such a result.” CISG art. 25. It
   explains further:
          (1) The seller must deliver goods which are of the quantity,
          quality and description required by the contract and which are
          contained or packaged in the manner required by the contract.
          (2) Except where the parties have agreed otherwise, the goods
          do not conform with the contract unless they:
                 (a) are fit for the purposes for which goods of the same
                 description would ordinarily be used;
                 (b) are fit for any particular purpose expressly or
                 impliedly made known to the seller at the time of the
                 conclusion of the contract . . .
                 (c) possess the qualities of goods which the seller has
                 held out to the buyer as a sample or model . . .
   CISG art. 35. Moreover, the CISG placed on Mingtel the burden of proving
   that the tablets were defective at the time of transfer. See Chi. Prime Packers,
   Inc. v. Northam Food Trading Co., 408 F.3d 894, 898 (7th Cir. 2005); Hefei
   Ziking Steel Pipe Co. v. Meever & Meever, No. 4:20-CV-00425, 2021 WL
   4267162, at *6 (S.D. Tex., Sept. 20, 2021).
          The district court concluded that Mingtel failed to satisfy this burden
   because its “evidence on the matter was sparse at trial.” That evidence

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   included: the fact that 37% of the tablets sold by HSN were returned, Mingtel
   president James Hu’s testimony that the tablets took about 15–20 seconds
   longer to boot up than similar tablets, and Hu’s testimony that tests run on
   the tablet’s WiFi without SIM cards showed that slow processing speeds
   were the result of a problem with the tablet itself. Lacking, however, was any
   relevant evidence about how fast the WiFi should ordinarily be and any
   quantitative tests comparing the tablets’ processing speed to other similar
   tablets.
          By contrast, Synergy produced testimony from its president, David
   Chan, that Mingtel defined the tablets’ exact specifications, selected the
   components, and approved the golden sample of the tablets. Moreover,
   emails from Mingtel to HSN acknowledged that Mingtel’s internal tests
   suggested that the tablet was not the issue, but that the slow speed was “a
   WiFi or network issue.” Even Mingtel’s president himself emailed HSN that
   “[t]his tablet is not slow at all.” Synergy also argued that the 37% return rate
   does not mean that the tablets were nonconforming; customers may have not
   liked the tablets’ features or colors.
          In light of Mingtel’s limited evidence, which was rebutted by Synergy,
   the district court concluded that Mingtel failed to satisfy its burden to prove
   that Synergy provided nonconforming goods. On appeal, Mingtel largely
   seeks to relitigate the district court’s underlying factual findings—findings
   we review for clear error. We find no error, clear or otherwise, and so decline
   to disturb the district court’s judgment.
          And even if the tablets were nonconforming goods, we agree with the
   district court that Mingtel did not timely examine them or notify Synergy of
   any problems. Under the CISG, a “buyer loses the right to rely on a lack of
   conformity of the goods if he does not give notice to the seller specifying the
   nature of the lack of conformity within a reasonable time after he has

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   discovered it or ought to have discovered it.” CISG art. 39(1). Additionally,
   the CISG requires buyers to “examine the goods, or cause them to be
   examined, within as short a period as is practicable in the circumstances.”
   CISG art. 38(1). What constitutes a “reasonable time” for a notice of
   nonconformity under Article 39 is evaluated by reference to the duty to
   examine the goods in “as short a period as is practicable” under Article 38.
   See, e.g., Chi. Prime Packers, Inc. v. Northam Food Trading Co., 320 F. Supp.
   2d 702, 714 (N.D. Ill. 2004), aff’d, 408 F.3d 894 (7th Cir. 2005).
          The district court found Mingtel did not examine the tablets as soon
   as practicable because it failed to inspect them when they arrived the United
   States. True, Mingtel inspected the tablets at Synergy’s factory in China, but
   it knew that the WiFi and SIM cards could not be tested there. Instead of
   testing those capabilities upon the tablets’ arrival in the United States,
   Mingtel shipped them directly to HSN’s warehouse and examined them only
   after they were sold and returned by customers. We agree with the district
   court that, given those facts, Mingtel did not timely inspect the tablets. It
   follows that Mingtel did not provide Synergy with a notice of nonconformity
   within a reasonable time.
          Having concluded that the district court properly found that Synergy
   did not breach Order 60, we now evaluate whether Mingtel breached Order
   59. It is true that, under the CISG, a party may sometimes be justified in
   suspending performance. See CISG art. 71(1) (“A party may suspend the
   performance of his obligations if, after the conclusion of the contract, it
   becomes apparent that the other party will not perform a substantial part of
   his obligations as a result of: . . . (b) his conduct in preparing to perform or in
   performing the contract.”); id. art. 72(1) (“If prior to the date for
   performance of the contract it is clear that one of the parties will commit a
   fundamental breach of contract, the other party may declare the contract
   avoided.”). But because Synergy did not breach Order 60, Mingtel was not

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                                          No. 22-40440

   justified in its anticipatory breach of Order 59. Instead, Mingtel was obligated
   to pay for the tablets and take delivery of them. Because it failed to do so, the
   district court properly found Mingtel liable. 2
                                              IV.
           The district court’s judgment is AFFIRMED.

           _____________________
           2
             Mingtel raises a few other matters on appeal. It argues that although Order 59 was
   originally for 10,000 tablets, it was later verbally reduced to 5,000 tablets. And it argues
   that the district court improperly calculated damages because Synergy resold the tablets
   from Order 59 for more than what it claimed to have sold them for. But the district court’s
   factual findings on both these issues largely involved weighing witnesses’ competing
   testimony. Those are credibility determinations that we have no reason to second-guess.
   See Matter of Complaint of Luhr Bros., Inc., 157 F.3d 333, 337 (5th Cir. 1998) (“[D]ue regard
   shall be given to the opportunity of the trial court to judge of the credibility of the
   witnesses.” (quoting Anderson v. Bessemer City, 470 U.S. 564, 573 (1985))).

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