Court Opinion

ID: 162460
Source: CourtListenerOpinion
Date Created: 2010-08-14 07:34:15+00
Date Added: 2024-06-11T15:02:11.756765
License: Public Domain

F I L E D
                                                                           United States Court of Appeals
                                                                                   Tenth Circuit
                          UNITED STATES COURT OF APPEALS
                                                                                   AUG 1 2002
                                       TENTH CIRCUIT
                                                                              PATRICK FISHER
                                                                                        Clerk

 LEANIN' TREE, INC.,

           Plaintiff - Appellee -
           Cross-Appellant,

 v.                                                       Nos. 01-1229, 01-1239
                                                          (D.C. No. 99-Z-2414)
 THIELE TECHNOLOGIES, INC.,                                   (D. Colorado)
 formerly known as Thiele Engineering
 Company,

           Defendant - Appellant -
           Cross-Appellee.

                                    ORDER AND JUDGMENT*

Before BRISCOE, Circuit Judge, BRORBY, Senior Circuit Judge, and LUCERO,
Circuit Judge.

       Plaintiff Leanin’ Tree, Inc. (Leanin’ Tree), filed this diversity action alleging that

defendant Thiele Technologies, Inc. (Thiele), breached a commercial contract for the

design and manufacture of an automated carton-packing machine. Following a bench

trial, the district court found in favor of Leanin’ Tree and ordered Thiele to repay Leanin’

       *
          This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.
Tree the amounts it had paid pursuant to the contract, as well as part of the consequential

damages sought by Leanin’ Tree. Thiele appeals, asserting that (1) it was entitled to

judgment based upon its defense of commercial impracticability, and (2) in any event, the

parties’ written agreement precluded Leanin’ Tree from recovering consequential

damages. Leanin’ Tree has filed a cross-appeal challenging the district court’s refusal to

award all consequential damages sought at trial. We exercise jurisdiction pursuant to

§ 1291 and affirm.

                                              I.

       Leanin’ Tree, a Colorado corporation, manufactures, distributes, and sells greeting

cards and other miscellaneous gift products. Leanin’ Tree has regularly hired seasonal

personnel to assist in the process of packaging greeting cards in clear plastic cartons for

retail display and sale. In 1995, Leanin’ Tree began exploring the possibility of

automating its process of packaging cards to save expenses and reduce the necessity of

hiring seasonal workers. After exploring various options, Leanin’ Tree entered into a

written agreement with Thiele in late March or early April 1998 whereby Thiele agreed to

design and manufacture a “cartoner” (i.e., an automated carton-packing machine). Thiele

specializes in the design and manufacture of cartoning equipment and, at the time of the

agreement, had considerable experience in designing and manufacturing equipment that

utilized cardboard cartons, but very little experience in designing and manufacturing

equipment that utilized plastic cartons, such as those used by Leanin’ Tree.

                                             -2-
       Prior to entering into the agreement, Leanin’ Tree provided Thiele with samples of

the plastic cartons it normally used for packaging cards. At no time prior to the

agreement did Thiele express concerns about the cartons or its ability to design a machine

that could accommodate the cartons. In fact, according to Leanin’ Tree, Thiele expressed

confidence that it could design and produce such a machine. On September 11, 1998,

Thiele wrote to Leanin’ Tree setting forth various “specifications concerning the

manufacture of [the] cartons.” Aplee. App. at 317. The letter stated that if Leanin’

Tree’s “suppliers w[ould] follow the enclosed specifications, then Thiele w[ould] be able

to successfully erect, fill and close the carton.” Id.

       The parties revised their agreement on several occasions between late 1998 and

May 1999 to allow for various design changes (e.g., addition of peripheral equipment).

According to the final revised agreement, the machine was to be completed and shipped

to Leanin’ Tree on June 30, 1999, at a total price of $468,682. Despite the agreed-upon

shipping date, and despite its previous assurances to Leanin’ Tree that it could design and

produce a functioning machine, Thiele was unable to get the cartoner to operate properly.

Specifically, the carton set-up portion of the machine, which was designed to take stacks

of flat unfolded cartons (essentially individual sheets of shaped and scored plastic) and

allow cards to be inserted inside, was not functioning effectively. Thiele did not meet the

agreed shipping date and, in July 1999, informed Leanin’ Tree of the problems. Although

the parties thereafter agreed to modify the design (e.g., by pre-breaking and by double-

                                              -3-
scoring the cartons), those modifications did not solve the problem.

       In late November or early December 1999, Thiele decided to stop working on the

cartoner. Even though the carton set-up portion of the machine was still not functioning

properly,1 Thiele informed Leanin’ Tree that, in its opinion, the cartoner was finished and

its obligations under the agreement were fulfilled. Thiele further informed Leanin’ Tree

that any problems with the cartoner were the result of Leanin’ Tree’s failure to provide an

acceptable carton design and were Leanin’ Tree’s responsibility. At the time of its

decision, Thiele’s costs in designing and producing the machine were in the

neighborhood of $750,000, more than $250,000 above the contract price, and more than

$350,000 above Thiele’s anticipated costs of design and production.

       On December 17, 1999, after sending a representative to observe the cartoner at

Thiele’s facility (and confirming that the cartoner was not working properly), Leanin’

Tree formally rejected the cartoner “based on its failure to conform to the [parties’]

agreement.” Aplt. App. at 46. On that same date, Leanin’ Tree filed this diversity action

against Thiele asserting a single claim for breach of contract.

       Thiele moved for partial summary judgment, asserting that a clause in the parties’

written agreement prohibited Leanin’ Tree from recovering consequential damages

arising out of the alleged breach of contract. The district court denied Thiele’s motion.

       1
         Because Thiele was unable to get the carton set-up portion of the machine to
function properly, it was unable to test the loading and closing features of the machine.

                                             -4-
The case was tried to the district court in February 2001. At the conclusion of the

evidence, the district court found in favor of Leanin’ Tree on its breach of contract claim.

The district court found that, prior to building the cartoner, Thiele had failed to conduct

an adequate investigation regarding the plastic cartons used by Leanin’ Tree, and had

failed to take into account the unique properties of those cartons (as compared to

cardboard containers) in designing the cartoner. The district court further found, contrary

to Thiele’s assertions, that additional changes or modifications to the plastic cartons

would not have remedied the problems. After directing the parties to file supplemental

pleadings on the issue of damages, the district court awarded Leanin’ Tree: (1) $283,669,

an amount equal to the payments it had made to Thiele under the written agreement, plus

prejudgment interest; and (2) consequential damages in the amount of $146,508.22 (to

cover costs incurred by Leanin’ Tree on the cartoner project). The district court rejected

Leanin’ Tree’s request for damages to cover the extra labor costs it incurred in 1999 and

2000 for hand-packing its greeting cards.

                                             II.

                           Thiele’s Appeal (Case No. 01-1229)

Commercial impracticability

       Thiele contends the district court erred in concluding that it breached the terms of

its written agreement with Leanin’ Tree. Thiele asserts that § 4-2-615 of the Colorado

Uniform Commercial Code “excuses a seller whose performance has been rendered

                                             -5-
impracticable by the failure of a contingency that both parties expected to be satisfied.”

Aplt. Br. at 23. According to Thiele, such a contingency occurred here when the

manufacturer hired by Leanin’ Tree to produce the plastic cartons failed to “supply

production cartons equal in quality to the samples it supplied [to Leanin’ Tree and Thiele]

in August 1998.” Id. at 23-24. More specifically, Thiele contends the cartons did not

contain score lines running to the ends of the cartons, which made it difficult for the

cartoner to erect them properly (Thiele also suggested in the district court that the

production cartons were not properly glued). Thiele suggests these carton problems made

performance under the agreement impracticable.2

       Colorado Revised Statute § 4-2-615 provides:

              Except so far as a seller may have assumed a greater obligation and
       subject to section 4-2-614 on substituted performance:
              (a) Delay in delivery or nondelivery in whole or in part by a seller
       who complies with paragraphs (b) and (c) of this section is not a breach of
       his duty under a contract for sale if performance as agreed has been made
       impracticable by the occurrence of a contingency, the nonoccurrence of
       which was a basic assumption on which the contract was made, or by
       compliance in good faith with any applicable foreign or domestic
       governmental regulation or order whether or not it later proves to be
       invalid.

       2
           Leanin’ Tree asserts that Thiele has waived this affirmative defense by failing to
raise it timely in the district court. See generally Harriscom Svenska, AB v. Harris Corp.,
3 F.3d 576, 580 (2d Cir. 1993) (characterizing defense of “commercial impracticability”
under UCC § 2-615 as an affirmative defense). Although it is true that Thiele’s answer
contained no reference to § 4-2-615, it did state that “Leanin’ Tree has not provided
Thiele with cartons suitable for operation in the Automatic Cartoner.” Aplt. App. at 51.
Further, Thiele asserted its § 4-2-615 defense at trial and the district court rejected it on
the merits. Accordingly, we assume the defense has not been waived.

                                             -6-
               (b) Where the causes mentioned in paragraph (a) of this section
       affect only a part of the seller’s capacity to perform, he must allocate
       production and deliveries among his customers but may at his option
       include regular customers not then under contract as well as his own
       requirements for further manufacture. He may so allocate in any manner
       which is fair and reasonable.
               (c) The seller must notify the buyer seasonably that there will be a
       delay or nondelivery and, when allocation is required under paragraph (b)
       of this section, of the estimated quota thus made available for the buyer.

Colo. Rev. Stat. § 4-2-615 (1996). There are no Colorado cases construing § 4-2-615.

However, because the statute is derived directly from the Uniform Commercial Code,

there are cases from other jurisdictions that provide adequate guidance. “The rationale

for the defense of commercial impracticability is that the circumstance causing the breach

has rendered performance so vitally different from what was anticipated that the contract

cannot be reasonably thought to govern.” Waldinger Corp. v. CRS Group Engineers,

Inc., 775 F.2d 781, 786 (7th Cir. 1985) (internal quotations omitted). “Because the

purpose of a contract is to place the reasonable risk of performance upon the promisor,

. . . it is presumed to have agreed to bear any loss occasioned by an event that was

foreseeable at the time of contracting.” Id.; see also Int'l Minerals & Chem. Corp. v.

Llano, Inc., 770 F.2d 879, 886 (10th Cir. 1985) (construing New Mexico’s version of

UCC § 2-615 in a similar fashion); Parrish v. Stratton Cripple Creek Mining & Dev. Co.,

116 F.2d 207, 209-10 (10th Cir. 1940) (applying pre-UCC doctrine of commercial

frustration to diversity action governed by Colorado law). Generally speaking, three

conditions must be satisfied before a seller’s performance under a commercial contract is

                                             -7-
excused as commercially impracticable: “(1) a contingency has occurred; (2) the

contingency has made performance impracticable; and (3) the nonoccurrence of that

contingency was a basic assumption upon which the contract was made.” Waldinger, 775
F.2d at 786 (applying Illinois’ version of UCC § 2-615). The establishment of each factor

is a question of fact, subject to review by this court for clear error. See id. at 788

(describing issue of foreseeability under § 2-615 as a factual issue).

       In rejecting Thiele’s § 4-2-615 defense, the district court found that neither the

second nor third factors had been established by Thiele. More specifically, the district

court stated:

       They [Leanin’ Tree] were given [carton] specs [by Thiele] which they tried
       their best to follow; and, indeed, as pointed out by counsel, there were no
       specifications about full scoring or full gluing . . . and the Court thinks this
       is a red herring anyway. I don’t think the full scoring and the full gluing
       would have made this machine work. I think [Leanin’ Tree’s expert
       witness] Mr. Luciano has it right that it takes a lot more than that. You
       would have to have this overbreak with the pressure on them to work.

Aplt. App. at 112-13.

       Well, as far as Leanin’ Tree was concerned, there wasn’t any contingency.
       They had been using these plastic cartons for years, hand-packing them.
       They were willing to do whatever Thiele wanted them to do, but they
       certainly weren’t told about scoring to the very edge or gluing to the very
       edge as a spec that they had to meet in order to make this work as a
       contingency. And, indeed, that didn’t come in till later. And, indeed, the
       Court is convinced that that wouldn’t have made any difference in making
       this machine work.

Id. at 113-14.

       [The scoring and gluing specifications] certainly should have been within

                                              -8-
       the contemplation of the expert in the machinery, Thiele. Leanin’ Tree
       didn’t even think about whether you needed scoring all the way or gluing all
       the way and really didn’t have to. They weren’t experts in cartoning
       machinery or in the requirements for what it needed, what was needed to
       erect or fill or close these.

Id. at 114.

       So 615 really doesn’t help the defendant. Thiele knew that they had to try
       to make a machine to work with the cartons of Leanin’ Tree. They did not
       do the investigation, the homework, that they should have done before
       entering into this contract. Probably making the scores up to the edge may
       very well result in tearing, which is not going to make these cartons work.
       As Mr. Luciano indicated, making the scores better or making the glue
       better may not be possible, and Thiele should have found out about these
       problems at the very beginning.

Id. at 115.

       The district court’s findings are not, in our view, clearly erroneous. Leanin’ Tree’s

expert witness, consulting engineer Robert Luciano, opined that the alleged carton

scoring problems pointed to by Thiele as a contingency could not have been corrected by

the carton manufacturer and, even if capable of correction, would not have resulted in the

cartoner working properly. Instead, Luciano opined, the plastic cartons needed a 180-

degree “overbreak” to allow them to work properly in the cartoner. Leanin’ Tree also

presented the testimony of Greg Fulkerson, Thiele’s director of applications engineering,

who admitted that: (a) the sample cartons provided by Leanin’ Tree were not run through

any test machines, but instead were examined by hand by Thiele personnel and deemed to

be “machineable”; (b) Thiele had no significant experience in designing and

manufacturing machines that worked with plastic cartons, and had little understanding of

                                            -9-
the unique properties of plastic (as compared to the cardboard cartons with which it

typically worked) when it agreed on an initial carton design and confirmed machinability;

(c) prior to actual production of the cartoner, Thiele did not direct Leanin’ Tree to have

the cartons scored or glued to any specific lengths; and (d) by producing the cartoner

without successful pre-production tests, and without an adequate understanding of

plastics, Thiele severely limited the options available for making the machine work

(effectively limiting the available options to changing the cartons themselves). In light of

this testimony, we conclude the district court's rulings were well within the evidence

when it found that the alleged problems with the cartons did not render Thiele’s

performance under the agreement impracticable, the parties’ agreement contained no

basic assumptions regarding the design of the cartons, and Thiele should have foreseen

the carton problems identified.

Contract provision - exclusion of consequential damages

       Thiele contends that even if its defense of commercial impracticability is rejected,

the district court’s judgment awarding consequential damages must be reversed because,

under the terms of the parties’ written agreement, Leanin’ Tree was precluded from

recovering consequential damages. Because Thiele’s contention requires us to interpret

the parties’ written agreement, we review the issue de novo. See Bank of Okla. v.

Muscogee (Creek) Nation, 972 F.2d 1166, 1171 (10th Cir. 1992); Ad Two, Inc. v. City &

County of Denver, 9 P.3d 373, 376 (Colo. 2000); see also Salve Regina College v.

                                            -10-
Russell, 499 U.S. 225, 231 (1991) (holding that issues governed by state law are reviewed

de novo by appellate court); Key Youth Servs., Inc. v. City of Olathe, 248 F.3d 1267,

1274 (10th Cir. 2001) (holding that, on appeal from a bench trial, this court reviews the

district court’s conclusions of law de novo).

       In Ad Two, the Colorado Supreme Court outlined the general principles of

contract interpretation that we must apply to resolve the issue:

       The primary goal of contract interpretation is to determine and give effect to
       the intent of the parties. The intent of the parties to a contract is to be
       determined primarily from the language of the instrument itself. In
       ascertaining whether certain provisions of an agreement are ambiguous, the
       instrument's language must be examined and construed in harmony with the
       plain and generally accepted meaning of the words employed. Written
       contracts that are complete and free from ambiguity will be found to
       express the intention of the parties and will be enforced according to their
       plain language. Extraneous evidence is only admissible to prove intent
       where there is an ambiguity in the terms of the contract.
               Terms used in a contract are ambiguous when they are susceptible to
       more than one reasonable interpretation. Absent such ambiguity, we will
       not look beyond the four corners of the agreement to determine the meaning
       intended by the parties. The mere fact that the parties may have different
       opinions regarding the interpretation of the contract does not itself create an
       ambiguity in the contract.
9 P.3d at 376-77 (internal citations omitted).

       Thiele argues the terms of the parties' contract limited its exposure to damage

liability. Thiele points to language contained in a form entitled “THIELE

ENGINEERING COMPANY STANDARD CONDITIONS OF SALE” (standard

conditions of sale) that was attached to the parties’ written agreement. Aplt. App. at 36.

The relevant paragraph of the form, Paragraph 4 entitled “Limitation of Liability,”

                                            -11-
provides as follows:

               The equipment being sold by Seller to Buyer is complex equipment.
       Seller has advised Buyer the equipment requires trained maintenance,
       upkeep and monitoring by trained members of Buyer’s staff during
       operation. Buyer has been advised by Seller that the equipment should not
       be used in production until Buyer, in its sole discretion, determines that the
       equipment, product and Buyer’s staff are ready. Buyer, as a sophisticated
       entity, has understood and accepts Seller’s advisory. Seller has priced the
       equipment upon the understanding that Seller will not be responsible or
       liable for any form of consequential, incidental, or indirect damages of
       whatever kind or type arising from any type of commercial, business,
       environmental, tort, warranty, contract, strict liability, or other cause(s)
       arising, directly or indirectly, from or in connection with the equipment
       and/or its use. Not by way of limitation, Seller shall not be liable for any
       losses to Buyer based on down time, spoilage, lost production or lost
       profits. It is the intention of the parties that this provision be construed by a
       court as being the broadest limitation of liability consistent with applicable
       law. In [no] event shall Seller be liable for damages which exceed the
       monies paid by Buyer to Seller for the equipment less the value of the
       benefits received by Buyer and the value of the equipment.

Id. at 36. In ruling on Thiele’s motion for partial summary judgment, the district court

concluded this provision did not limit Leanin’ Tree’s ability to recover consequential

damages from Thiele under the circumstances presented. The court noted that the

sentence purporting to limit Thiele’s liability for consequential damages was placed

immediately after the opening language of the provision discussing the complexity of the

equipment and advising Leanin’ Tree that the equipment was to be used by trained

personnel. The district court concluded that, “[i]n the context of the paragraph, Seller

[Thiele] appears to be seeking protection from liability for any problems that could arise

in connection with the equipment once Buyer [Leanin’ Tree] possesses and/or uses it.”

                                             -12-
Aplt. App. at 68. The court therefore agreed with Leanin’ Tree “that the language

‘arising, directly or indirectly, from or in connection with the equipment and/or its use’

[could not] apply to situations where there [wa]s no equipment in the buyer’s possession.”

Id. at 68-69.

       We agree with the district court’s interpretation. As noted by the district court, and

undisputed by the parties, the equipment at issue was never delivered to Leanin' Tree.

Although much of the key sentence is worded broadly (e.g., referring to “any type of

commercial, business, environmental, tort, warranty, contract, strict liability, or other

cause(s)”), the final clause of the sentence (“arising, directly or indirectly, from or in

connection with the equipment and/or its use”), in our view, is limited to occurrences that

might arise after the buyer (Leanin’ Tree) takes possession of a functioning machine from

the seller (Thiele). In other words, the sentence at issue, particularly when construed in

light of the “Limitation of Liability” provision as a whole, operates on the assumption that

a functioning machine either has been or will be delivered by the seller (Thiele) to the

buyer (Leanin’ Tree), and focuses on the types of liability and damages that might arise

thereafter. See generally Bd. of County Comm’rs of Adams County v. City & County of

Denver, 40 P.3d 25, 35 (Colo. Ct. App. 2001) (“Words and phrases should be interpreted

by examining the contract as a whole.”); Hallmark Bldg. Co. v. Westland Meadows

Owners Ass’n, 983 P.2d 170, 172 (Colo. Ct. App. 1999) (“In determining whether

provisions of a document are ambiguous, its language must be construed in harmony with

                                             -13-
the plain, ordinary and commonly accepted meaning of the words employed and reference

must be made to all provisions of the document. ”).

       Our conclusion is bolstered by examining the remainder of the standard conditions

of sale document, as well as the entire written agreement to which the standard conditions

of sale document was attached. Paragraph 3 of the standard conditions of sale, entitled

“Seller’s Warranty,” purports to limit Leanin’ Tree’s remedies to having defects in the

cartoner repaired or defective parts replaced. Aplt. App. at 36 (“No claim by Buyer for

damages, labor and installation charges will be allowed.”). That remedy, however,

expressly applies only after “the date of shipment by Seller.” Id. As for the parties’

written agreement, the opening paragraph entitled “Project Overview” states that the

cartoner to be manufactured by Thiele “will function as part of a larger system to

manufacture and package greeting cards.” Aplt. App. at 20. Numerous other paragraphs

of the agreement outline, in detail, how the cartoner will operate (e.g., operating speed,

carton set-up, product loading, carton closure, carton discharge). The agreement further

provides that the cartoner “will be tested at Thiele’s assembly plant prior to shipment to

the customer’s facility,” and “all capabilities of the machinery will be demonstrated.” Id.

at 31. Lastly, the agreement outlines how the cartoner will be shipped from Thiele to

Leanin’ Tree and how the cartoner is to be installed by Leanin’ Tree at its facility. Id. In

sum, both the standard conditions of sale and the parties’ agreement assume delivery of a

properly functioning machine to Leanin’ Tree.

                                            -14-
       In a fall-back argument, Thiele asserts that the last sentence of Paragraph 4 of the

standard conditions of sale, which provides that “[i]n [no] event shall Seller be liable for

damages which exceed the monies paid by Buyer to Seller for the equipment less the

value of the benefits received by Buyer and the value of the equipment,” independently

operates to limit its liability to the amount of the purchase price.3 Although the sentence

might, if construed in isolation, produce the result desired by Thiele, Colorado law

requires it to be construed in light of Paragraph 4 and the agreement as a whole. See

Rogers v. Westerman Farm Co., 29 P.3d 887, 898 (Colo. 2001) (“in contract law . . .

language should be construed as a whole, and specific phrases or terms should not be

interpreted in isolation”); Town of Silverton v. Phoenix Heat Source Sys., Inc., 948 P.2d
9, 11 (Colo. Ct. App. 1997) (“The meaning of a contract is found by examining the entire

instrument, not by viewing clauses or phrases in isolation.”). In our view, this is

particularly appropriate since the opening phrase of the sentence, “In no event,” appears

to relate to the preceding sentences of the paragraph. Applying such a construction, we

conclude that Paragraph 4 is focused on limiting Thiele’s liability for situations arising

after delivery of a functioning machine. Because that never occurred here, the damage

       3
          It is unclear from the record whether the argument was raised by Thiele in the
district court. Although Thiele’s appendix includes a copy of its actual motion for partial
summary judgment (on the issue of consequential damages), it does not include a copy of
the supporting memorandum. Nor does the appendix include a copy of Leanin’ Tree’s
response to Thiele’s motion. The district court’s order, although contained in the
appendix, makes no mention of the issue.

                                            -15-
limitations do not apply.

       For these reasons, we agree with the district court that the parties’ written

agreement did not prohibit Leanin’ Tree from obtaining consequential damages arising

out of Thiele’s failure to deliver a functioning cartoner.4

                    Leanin’ Tree’s Cross-Appeal (Case No. 01-1239)5

       In its cross-appeal, Leanin’ Tree contends the district court erred in refusing to

award it consequential damages for the extra costs it incurred ($124,000) in hand-packing

Christmas cards in the late summer and fall of 1999 and 2000.6 The district court

concluded that such an award “would amount to a double recovery for Leanin’ Tree,”

since it “would have had to carton its Christmas cards by hand, as it had in the years prior

to its contract with Thiele, if it had never ordered a cartoner.” Aplt. App. at 124.

According to Leanin’ Tree, these damages were allowable under Colo. Rev. Stat. § 4-2-

       4
         Having reached this conclusion, we find it unnecessary to address Leanin’ Tree’s
assertion that the agreement’s limited remedy of repair or replacement failed its essential
purpose.
       5
         This section represents only the opinion of Judge Briscoe. As noted in Judge
Lucero's concurring opinion, since there is no consensus among the panel regarding he
cross-appeal, the judgment of the district court is affirmed in all respects.
       6
          In arriving at the $124,000 figure, Leanin’ Tree calculated its total labor costs
for hand-packing in 1999 and 2000 and deducted the costs and expenses it would have
incurred if Thiele had delivered a working cartoner. For example, for the year 2000,
Leanin’ Tree expended $169,000 in labor costs for hand-packing. From this amount, they
deducted “[t]he depreciation expense and the personal property taxes” that would have
been associated with the cartoner had it been delivered in working order and arrived at a
figure of approximately $64,000 in “additional expense” incurred “in the year 2000” as a
result of not having a working cartoner. App. at 144.

                                             -16-
711 as the direct result of Thiele’s non-delivery of the cartoner. Leanin’ Tree further

argues there would be no double recovery because, if it “‘covers’ by buying another

automatic cartoner . . . , receives its deposit back and recovers the additional labor costs

for 1999 and 2000, [it] is in the same position it would have been had the contract been

performed.” Aplee. Br. at 37. Because this is a mixed question that appears to primarily

involve the consideration of legal principles under Colorado’s UCC, it is reviewed by this

court de novo. See Naimie v. Cytozyme Lab., Inc., 174 F.3d 1104, 1111 (10th Cir. 1999).

       Under Colorado law, “[d]amages are awarded in order to make the non-breaching

party whole.” Colorado Interstate Gas Co. v. Chemco, Inc., 833 P.2d 786, 791 (Colo. Ct.

App. 1991). “The general measure of damages for a contract case [under the Colorado

UCC] is that amount which places the non-defaulting party in the same position he would

have been in had the breach not occurred.” Id.; see also Colo. Rev. Stat. § 4-1-106(1)

(“The remedies provided by this title shall be liberally administered to the end that the

aggrieved party may be put in as good a position as if the other party had fully

performed.”).

       The question posed by Leanin’ Tree directly implicates three sections of

Colorado’s version of the Uniform Commercial Code. The first, § 4-2-711, provides:

              (1) Where the seller fails to make delivery or repudiates or the buyer
       rightfully rejects or justifiably revokes acceptance, then, with respect to any
       goods involved, and with respect to the whole if the breach goes to the
       whole contract . . . , the buyer may cancel, and whether or not he has done
       so, may in addition to recovering so much of the price as has been paid:
              ***

                                             -17-
              (b) Recover damages for nondelivery as provided in this article
       (section 4-2-713).

Colo. Rev. Stat. § 4-2-711 (1996). The second section, expressly referenced in the first,

is § 4-2-713. That section, entitled “Buyer’s damages for nondelivery or repudiation,”

provides:

       [T]he measure of damages for nondelivery or repudiation by the seller is the
       difference between the market price at the time when the buyer learned of
       the breach and the contract price together with any incidental and
       consequential damages provided in this article (section 4-2-715), but less
       expenses saved in consequence of the seller’s breach.

Colo. Rev. Stat. § 4-2-713(1) (1996). The final section, expressly referenced in the

second, is § 4-2-715. That section, entitled “Buyer’s incidental and consequential

damages,” provides:

              (1) Incidental damages resulting from the seller’s breach include
       expenses reasonably incurred in inspection, receipt, transportation, and care
       and custody of goods rightfully rejected, any commercially reasonable
       charges, expenses, or commissions in connection with effecting “cover” and
       any other reasonable expense incident to the delay or other breach.
              (2) Consequential damages resulting from the seller’s breach
       include:
              (a) 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
              (b) Injury to person or property proximately resulting from any
       breach of warranty.

Colo. Rev. Stat. § 4-2-715 (1996). “Subsection (2) operates to allow the buyer, in an

appropriate case, any consequential damages which are the result of the seller’s breach.”

Id. Comment 2. “[T]he seller is liable for consequential damages in all cases where he

                                           -18-
had reason to know of the buyer’s general or particular requirements at the time of

contracting.” Id. Comment 3.

       Applying these sections to the circumstances at issue, I conclude that the extra

labor costs incurred by Leanin’ Tree readily fall within the category of “consequential

damages” allowable under §§ 711, 713, and 715 for Thiele’s nondelivery of the cartoner.

Thiele does not dispute that, at the time the parties entered into their agreement, it knew

Leanin’ Tree was purchasing the cartoner to automate its card-packaging operations and

reduce the necessity of hiring seasonal labor. When Thiele failed to deliver a functioning

machine as promised, Leanin’ Tree was unable to cover (i.e., by purchasing a cartoner

from another manufacturer), and was forced to hire seasonal labor to perform the

intended task. Thus, the extra labor costs expended by Leanin’ Tree (i.e., the difference

between the cost of the seasonal labor and the costs Leanin’ Tree would have expended if

Thiele had provided a functioning cartoner), which were entirely foreseeable to Thiele,

fall readily within the scope of consequential damages as defined in § 4-2-715(2)(a). E.g.

Plastic Moldings Corp. v. Park Sherman Co., 606 F.2d 117, 119 (6th Cir. 1979)

(affirming award of consequential damages “for increased production costs caused when

[the buyer] was forced to use hand labor to assemble the usable parts rather than

machines”); Carl Beasley Ford, Inc. v. Burroughs Corp., 361 F. Supp. 325, 328, 335

(E.D.Pa. 1973) (allowing buyer to recover consequential damages for overtime pay and

expenses incurred in hiring accountants to reconstruct accounting records where computer

                                            -19-
equipment and accounting software failed to perform properly), aff’d, 493 F.2d 1400 (3d

Cir. 1974); General Elec. Capital Corp. v. Rauch, 970 S.W.2d 348, 358 (Mo. Ct. App.

1998) (affirming award of consequential damages to buyer under Missouri’s version of

UCC § 2-715 for “labor expenses [that] allowed Buyer to output a finished product as

originally contemplated by the parties”); Antz v. GAF Materials Corp., 719 A.2d 758, 761

(Pa. Super. Ct. 1998) (“Consequential damages can include replacement labor costs.”);

Cricket Alley Corp. v. Data Terminal Sys., Inc., 732 P.2d 719, 725 (Kan. 1987)

(concluding that, where computerized cash registers failed to perform with other

computerized equipment as warranted, consequential damages could include increased

labor costs).

       Although Thiele complains that awarding such damages to Leanin’ Tree places it

in a better position than it would have been if it had taken delivery of a functional

machine, I disagree. As noted by Leanin’ Tree, it is still without a cartoner and must rely

on hand-packing (and the extra labor costs associated with that process) until it can obtain

a cartoner. Thus, all of the refunded purchase price (and perhaps more) will be required

to purchase a new cartoner. Moreover, as pointed out by Leanin’ Tree, if it is not

awarded damages for the extra labor costs incurred in 1999 and 2000, it will not be placed

in the same position as if the breach had not occurred. Instead, it will be placed in the

position that it held prior to entering into the contract.

       For these reasons, I would remand to the district court with directions to award

                                              -20-
Leanin' Tree an additional $124,000 in consequential damages.

                                          III.

      The judgment of the district court is AFFIRMED in all respects.

                                                 Entered for the Court

                                                 Mary Beck Briscoe
                                                 Circuit Judge

                                         -21-
Nos. 01-1229 & 01-1239, Leanin’ Tree, Inc. v. Thiele Technologies, Inc.

LUCERO, Circuit Judge, concurring.

      I agree with the opinion of my colleague Judge Briscoe in all regards save

one—her view that this case should be remanded with directions to award

additional consequential damages to Leanin’ Tree. Upon the facts of this case,

and limiting my concurrence to the facts of this case, it is my considered opinion

that on the issue of consequential damages the district court’s disposition was

correct. See Colo. Rev. Stat. § 4-2-715 cmt. 4 (“Loss may be determined in any

manner which is reasonable under the circumstances.”); Eccher v. Small Bus.

Admin., 643 F.2d 1388, 1391–92 (10th Cir. 1981) (“We will not disturb the

district court’s determination of damages unless clearly erroneous.”); see also

Fed. R. Civ. P. 52(a). Reviewing the record before us, I cannot say that the

district court’s grant of some consequential damages, and rejection of others, is

unreasonable under the circumstances and thus clearly erroneous. For that reason

I would affirm the district court.

      I note that because there is a lack of a majority supporting remand, the

judgment of the trial court is affirmed in all respects.
Nos. 01-1229 & 01-1239 – Leanin’ Tree, Inc. v. Thiele Technologies, Inc.

BRORBY, Senior Circuit Judge, dissenting.

      I respectfully dissent.

      I agree with the majority’s well reasoned argument rejecting Thiele’s

commercial impracticability defense. However, I disagree with the majority’s

reading of the contract. Because I would limit Leanin’ Tree’s recovery to the

purchase price of the equipment, in my view, the cross-appeal seeking damages

for labor costs is moot.

      Initially, I agree the contract language that purports to eliminate “any form

of consequential ... damages” may reasonably be interpreted to contemplate only

situations arising after delivery of the equipment. When applying Colorado law,

we strictly construe contractual ambiguity against the drafter – in this case,

Thiele. United States Fidel. & Guar. Co. v. Budget Rent-A-Car Sys., Inc., 842
P.2d 208, 211 (Colo. 1992) (en banc). Therefore, I agree Thiele has not

successfully limited all liability prior to delivery of the equipment.

      Nevertheless, I cannot agree with the majority’s reading of the purchase

price damage cap found in the last sentence of paragraph four. In my view, the
contextual arguments relied upon by the majority are not sufficient to override the

unambiguous language “[i]n no[] event shall Seller be liable for damages which

exceed the monies paid by Buyer to Seller.” Courts resolving Uniform

Commercial Code disputes between sophisticated parties have consistently

enforced damage caps preceded with the language “in no event.” See, e.g.,

Computrol, Inc. v. Newtrend, L.P., 203 F.3d 1064, 1070-71 (8th Cir. 2000)

(holding contract which stated liability “shall in no event exceed the amounts

actually paid” was unambiguous and enforceable) (emphasis added); Global

Octanes Texas, L.P. v. BP Exploration & Oil Inc., 154 F.3d 518, 521-23 (5th Cir.

1998) (enforcing contractual damage cap which read “[i]n no event shall the

liability of either party under this Agreement ... exceed $500,000” (emphasis

added)).

      In this case, the majority asserts the clause “‘[i]n no event,’ appears to

relate to the preceding sentences of the paragraph,” and therefore “is focused on

limiting Thiele’s liability for situations arising after delivery.” According to the

majority, both the broader limitation of all direct and indirect damages as well as

the purchase price damage cap apply only after delivery of the equipment. This

reading appears to make the damage cap irrelevant, since if the equipment were

delivered, no damages would have been available anyway. However ambiguous

                                          -2-
the contract may be, it certainly does not permit a reading where there are no

circumstances in which liability could be limited to the purchase price. I do not

dispute the contract assumes the equipment will at some point be delivered. It

would be a strange equipment sales contract which did not provide for delivery.

What I cannot follow is the logical leap from this assumption to the conclusion

the contractual damage cap is only operative after delivery. Even if the “in no[]

event” clause “relates” to the preceding sentences, I believe it is sufficiently

broad to cap Thiele’s pre-delivery liability to the purchase price of the equipment.

The majority’s reading of the contract comes perilously close to inserting the

phrase “except for non-delivery of the equipment” after the words “in no event.”

      For these reasons I would reverse and remand on the question of damages.

                                          -3-