Court Opinion

ID: 2977241
Source: CourtListenerOpinion
Date Created: 2015-09-22 18:05:04.464434+00
Date Added: 2024-06-11T08:10:22.419706
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                          File Name: 08a0745n.06
                          Filed: December 4, 2008

                                          No. 07-4296

                         UNITED STATES COURT OF APPEALS
                              FOR THE SIXTH CIRCUIT

BIG LOTS STORES, INC., d/b/a Consolidated       )
International; CSC DISTRIBUTION, INC.;          )
WEST COAST LIQUIDATORS, INC.;                   )
CLOSEOUT DISTRIBUTION, INC.;                    )
DURANT DC, LLC,                                 )
                                                )
       Plaintiffs-Appellants,                   )
                                                )
v.                                              )    ON APPEAL FROM THE UNITED
                                                )    STATES DISTRICT COURT FOR THE
LUV N’ CARE, LTD; LUV N’ CARE                   )    SOUTHERN DISTRICT OF OHIO
INTERNATIONAL, INC.,                            )
                                                )
       Defendants-Appellees.                    )

       Before: CLAY, GILMAN, and ROGERS, Circuit Judges.
       Rogers, Circuit Judge. In this diversity case in which Big Lots won its contract action, Big

Lots appeals the denial of attorney fees. The district court interpreted Ohio law to preclude

enforcement of a boilerplate contractual provision that can be read to allow Big Lots to recover

attorney fees for the underlying lawsuit. Big Lots claims that the Ohio courts would enforce the

provision, and that, even without the provision, Ohio law provides for attorney fees because the

underlying cause of action was for “indemnity.” Our court has held that the Ohio courts would not

award attorney fees based on boilerplate contractual provisions in similar circumstances, and
No. 07-4296
Big Lots Stores v. Luv n’ care

intervening Ohio appellate cases have not changed the landscape sufficiently for us to come to a

different conclusion. The district court therefore correctly resolved the attorney fees issue. The

district court also correctly refused to award damages that Big Lots did not identify during discovery.

                                                  I.

       The suit at issue here concerns 46,000 Beatrix Potter-themed “infant care products.” Big

Lots and Luv n’ care began negotiating the sale of these products in November and December of

2003. Big Lots did not know that Luv n’ care’s license from the trademark holder to sell Beatrix

Potter products expired at the end of 2003, or that Luv n’ care did not have permission to sell the

products to Big Lots at all—it could sell only to three named retailers, including Wal-Mart. Big Lots

also was unaware that the license did not permit sales in Great Britain. In late December, the

companies exchanged emails indicating that Big Lots would send purchase orders to Luv n’ care for

the Beatrix Potter products.

       In January 2004, Big Lots sent Luv n’ care eleven purchase orders for the products in

question.   These orders incorporated the terms negotiated in 2003, but also added numerous

additional terms, including shipping dates and preprinted boilerplate terms and conditions. The

parties did not discuss the boilerplate provisions. After Big Lots picked up each shipment, Luv n’

care issued an invoice for the products received by Big Lots. These invoices also contained standard

terms and conditions that were not discussed by the parties.

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       Big Lots resold many of the products, both retail and wholesale, without difficulty. However,

it sold some of the products to a company in England, and those products ended up in toy stores in

Great Britain. When the trademark holder discovered this unauthorized sale, the trademark holder

ordered the British company to stop selling the products. Big Lots accepted the remaining unsold

goods from the British company, and ceased selling the remaining disputed products. At that point,

Big Lots had successfully sold about $78,000 worth of the unlicensed products, but had about

$82,000 worth of the products remaining in its inventory.

       Big Lots demanded that Luv n’ care accept return of the remaining unsold products,

reimburse Big Lots for costs and expenses incurred, and agree to indemnify Big Lots from any

infringement actions the trademark holder might bring. Luv n’ care refused. Big Lots in turn refused

to pay invoices to Luv n’ care, withholding about $100,000 for mostly non-Beatrix Potter products

purchased from Luv n’ care. The trademark holder never took further action against Big Lots.

       In August 2004, Big Lots filed suit against Luv n’ care in federal district court under the

court’s diversity jurisdiction. Big Lots filed claims for breach of contract, breach of warranty of

noninfringement, and unjust enrichment. It also sought a declaratory judgment that it was entitled

to indemnification from Luv n’ care in the event it was “found liable for infringement to a third

party.” Luv n’ care denied liability and counterclaimed, seeking recovery on the unpaid invoices.

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        Both sides conducted discovery during 2005, and moved for summary judgment in early

2006. In March 2007, the district court ruled in favor of Big Lots. The court resolved the battle-of-

the-forms question by holding that the Big Lots purchase orders were offers to purchase, which Luv

n’ care accepted by shipping the goods. The court accordingly found that the parties created a series

of eleven contracts in 2004, after Luv n’ care’s license to sell the products had expired. Further, the

court held that Luv n’ care accepted Big Lots’ boilerplate terms and conditions when it accepted Big

Lots’ offers to purchase the Beatrix Potter products. The district court thus found effective Big Lots’

contract term requiring Luv n’ care to “indemnify, defend (at [Big Lots’] sole option) and hold

harmless [Big Lots] from any and all liabilities, damages, costs, expenses and/or suits (whether

actual or alleged), including, without limitation, reasonable attorneys’ and experts’ fees arising from

[Luv n’ care’s breach]. [Luv n’ care] shall have no right to limit its liabilities.”1

        The court granted summary judgment to Big Lots, holding that “[Luv n’ care] shall indemnify

Big Lots for any expenses incurred as a result of selling the infringed [sic] Beatrix Potter products

minus any set off.” Following briefing on damages, the court issued the order from which Big Lots

appeals.

        1
         The district court did not explicitly address the effect of the boilerplate terms in Luv n’
care’s invoices. Luv n’ care does not challenge on appeal the district court’s resolution of the battle-
of-the-forms question, and we therefore do not consider any argument based on terms in Luv n’
care’s invoices.

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Big Lots Stores v. Luv n’ care

       In its order, the district court noted that Luv n’ care did not contest Big Lots’ claim of

damages for “the cost of the unsold Beatrix Potter products remaining in its warehouses,” “the loss

on the sale of these Beatrix Potter products to [another company],” and “prejudgment interest.”

However, Luv n’ care contested Big Lots’ claim for attorney fees and costs under Ohio law. Luv n’

care also disputed Big Lots’ claim for storage costs and lost profits on the grounds that Big Lots had

not disclosed these damages in discovery despite answering interrogatories from Luv n’ care

“specifically designed to identify the precise categories and amounts of damages that Big Lots was

seeking.”

       The district court found that the attorney fee provision in Big Lots’ boilerplate contract was

unenforceable under Ohio law, relying on an Ohio appellate decision as well as on two Sixth Circuit

cases. The district court considered the fact that the attorney fee provision “was not a product of

specific free and understanding negotiation” to be critical in holding the fee provision unenforceable.

The district court further found that Big Lots’ claims to damages for storage costs and lost profits

should have been, but were not, disclosed in mandatory disclosures or in response to interrogatories

during discovery, and the court therefore denied these claims.

       Notwithstanding Big Lots’ arguments on this appeal, the district court properly resolved these

questions.

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Big Lots Stores v. Luv n’ care

                                                  II.

       The contract provision allowing Big Lots to recover its attorney fees2 is unenforceable under

this court’s interpretation of Ohio law because it was not specifically negotiated. In an unpublished

1998 opinion, this court held that Ohio law precludes contractual recovery of attorney fees without

specific negotiation. Colonel’s Inc. v. Cincinnati Milacron Mktg. Co., Nos. 96-1243, 96-1244, 1998
WL 321061, at *5 (6th Cir. June 1, 1998). In a published 2005 opinion, we reaffirmed that

conclusion. Scotts Co. v. Cent. Garden & Pet Co., 403 F.3d 781, 792 (6th Cir. 2005). While Big

Lots’ analysis of Ohio law does suggest that the issue might not be as simple as these opinions may

have implied, Big Lots does not provide a persuasive reason to depart from these precedents.

       In Colonel’s, two companies disputed their rights under a written contract for the sale of

plastic injection molding machines. 1998 WL 321061, at *1. The court considered, as one issue on

appeal, whether one party could recover its attorney fees under a boilerplate term of the contract.

       2
          The district court and the parties appear to have assumed that the contract provision in
question calls for recovery of attorney fees for a routine breach of contract, as well as for defending
suits brought by third parties. However, the first clause—“indemnify, defend . . . and hold
harmless”—implies that Luv n’ care’s duty to reimburse arises only if a third party brings suit against
Big Lots. Big Lots did not include a provision that explicitly required Luv n’ care to reimburse Big
Lots for Big Lots’ attorney fees expended in recovering damages should Luv n’ care breach the
contract. The actual provision must be read fairly broadly to achieve this result.
         Thus, as a matter of law, the contract may not require the recovery Big Lots seeks. However,
the district court and the parties have not addressed this interpretation. We thus will assume, without
deciding, that the contract provision does call for recovery of attorney fees for Luv n’ care’s breach.

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Big Lots Stores v. Luv n’ care

Id. at *4-5. This court interpreted Ohio law to prohibit such fees except in certain limited

circumstances, including “if a stipulation in the parties’ contract provides for such fees and was

specifically contracted for by both parties.” Id. at *4.

       The Colonel’s court relied on two Ohio Supreme Court cases—Worth v. Aetna Casualty &

Surety Co., 513 N.E.2d 253 (Ohio 1987), and Nottingdale Homeowners’ Assoc. v. Darby, 514
N.E.2d 702 (Ohio 1987). After analyzing Ohio law, the court concluded that “[a]lthough Worth and

Nottingdale recognize that where specifically contracted for, attorney fee provisions should be

enforced, these cases do not change the general common law rule of unenforceability. Indeed, the

Ohio Supreme Court expressly refused to overrule [precedents                finding such provisions

unenforceable] and left those cases undisturbed.” Colonel’s, 1998 WL 321061, at *5 (citations

omitted).

       Seven years later, this court applied Ohio law to reject contractual attorney fees again, this

time in a published opinion in Scotts. We are bound by Scotts unless Ohio law has measurably

changed in the meantime. See Koch v. Koch Indus., Inc., 203 F.3d 1202, 1231 (10th Cir. 2000)

(“Following the doctrine of stare decisis, one panel of this court must follow a prior panel’s

interpretation of state law, absent a supervening declaration to the contrary by that state’s courts or

an intervening change in the state’s law.”). The Scotts case involved multiple, interrelated contract

disputes between a manufacturer and a distributor of lawn and garden products. 403 F.3d at 783.

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One of the issues on appeal was the district court’s denial of attorney fees. The Scotts court dealt

with this issue in one paragraph of its lengthy opinion, noting its agreement with the district court’s

reliance on Colonel’s: “Although several Ohio courts have carved out an exception where the

provision is specifically negotiated for, [Colonel’s] at *5, that exception is not applicable to the facts

of this case. We therefore hold that the district court did not abuse its discretion by denying Scotts’s

motion for attorney fees.” Id. at 791.

        The Scotts court did not analyze several intervening Ohio appellate decisions that arguably

eroded Ohio law’s hostility to contractual provisions for attorney fees. See Broadway v. Arthur, No.

99CA-G-12-063, 2000 WL 1275375, at *2 (Ohio Ct. App. Aug. 30, 2000) (fee provision in home-

improvement contract enforced where parties were of “relatively equal bargaining power in a setting

that did not involve commercial lending”); Brzezinski v. Feuerwerker, No. 74288, 2000 WL
1297699, at *5 (Ohio Ct. App. Sep. 14, 2000) (permitting a hearing on attorney fees under home-

construction contract); Furnier & Thomas LLP v. Bus. Info. Solutions, Inc., Nos. C-010780,

C-010786, 2002 WL 31094472, at *2 (Ohio Ct. App. Sept. 20, 2002) (law firm bound by fee

provision in a document-storage contract, where there was no indication “that the law firm did not

or could not have participated in free and understanding negotiation had it chosen to do so”).

Because these cases pre-date Scotts, we cannot rely on them to come to a conclusion that the law has

changed since Scotts.

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       Decisions from three appellate courts in Ohio after Scotts arguably support Big Lots’

position, but, in the end, these decisions are not sufficient for us to disregard Scotts. The Sixth

District upheld an attorney fee provision in a contract between a bank and a merchant indemnifying

the bank for credit card fraud on the part of the merchant’s employees. The court noted the absence

of “evidence of unequal bargaining power.” Saferin v. Sky Bank, No. L-05-1091, 2006 WL 259618

*6 (Ohio Ct. App. Feb. 3, 2006). However, two months later, the Sixth District refused to enforce

an attorney fee provision where the provision in question allowed only one party to recover fees from

the other. The court reasoned that the one-sided nature made the provision a litigation-promoting

“penalty” that was unenforceable as against public policy. K&A Cleaning, Inc. v. Materni, No.

L-05-1293, 2006 WL 1047477, at *3 (Ohio Ct. App. Apr. 21, 2006). But the Sixth District with

minimal analysis later enforced an attorney fee provision. Painters Supply & Equip. Co. v. Wagner,

No. L-07-1320, 2008 WL 203576, at *3 (Ohio Ct. App. Jan. 25, 2008).

       The Eighth District in Firestone Financial Corp. v. Syal, No. 86249, 2006 WL 242479, at

*2 (Ohio Ct. App. Feb. 2, 2006), determined that a contractual attorney fee provision in a vending

machine purchase financing agreement was facially enforceable, but remanded the case for

consideration of whether the parties had equal bargaining power and whether the contract was

entered under compulsion or duress. Similarly, the Ninth District upheld an award of attorney fees

in a commercial landlord/tenant contract dispute in Cambridge Co., Ltd. v. Telsat, Inc., No. 23935,

2008 WL 649582, at *6 (Ohio Ct. App. Mar. 12, 2008).

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        Although these cases may be some indication of a shift in the law from the situation at the

time of Scotts, they are not sufficient for us to depart from the Scotts holding. They are not that

different from pre-Scotts Ohio appellate cases. And they do not deal with the type of battle-of-the-

forms situation presented in this case. Without a clearer signal from the Ohio courts, we adhere to

our holdings in Scotts and Colonel’s.

        Even less persuasive in this context is the somewhat circular dictum of the Ohio Supreme

Court in Reagans v. MountainHigh Coachworks, Inc., 881 N.E.2d 245, 254 (Ohio 2008), that parties

are responsible for their own attorney fees absent “an enforceable contract,” or the recognition in

dictum in Taylor Building Corp. of America v. Benfield, 884 N.E.2d 12, 27-28 (Ohio 2008), that “in

some circumstances” Ohio law permits contract-based attorney fees. Big Lots further points to an

Ohio law, effective in 2000, that allows attorney fee recovery provisions in certain contracts. See

Ohio Rev. Code § 1301.21. However, this argument, rather than illustrating a “trend” toward

enforcing attorney fee provisions, could just as easily illustrate that the Ohio legislature can abrogate

the common law rule should it choose to, but has chosen not to do so.

        Under the applicable interpretation of Ohio law, recovery of attorney fees pursuant to a

contractual provision is not permitted unless the parties specifically negotiated the contractual term

so providing. Luv n’ care prevails on this issue, as Luv n’ care and Big Lots did not specifically

negotiate the boilerplate term at issue here.

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                                                   III.

        Big Lots, moreover, is not entitled to attorney fees based on the mere fact that the contractual

claim is for indemnification from Luv n’ care. The Ohio cases that Big Lots invokes in this

connection involve indemnity for litigation with third parties, but that is not the situation presented

here.

        Big Lots claims that Ohio law would allow it to recover its attorney fees from Luv n’ care,

even if the attorney fee provision in the contract is unenforceable, because the district court found

that Luv n’ care must indemnify Big Lots. But Big Lots only moved for a declaratory judgment that

it was entitled to indemnification if it was “found liable for infringement to a third party.” Big Lots

has not been found liable to a third party for its sale of the products in question, nor has a third party

sued Big Lots.

        Big Lots asks this court to interpret Ohio law as requiring attorney fees even for actions

between the indemnitor and the indemnitee. However, Big Lots cites no Ohio cases in which an

indemnitee recovered its attorney fees for the costs of suing the indemnitor for a declaratory

judgment without ever being sued by a third party. The cases Big Lots cites deal mainly with

circumstances in which a third party sued the indemnitee before litigation between the indemnitee

and indemnitor commenced. See, e.g., Allen v. Standard Oil Company, 443 N.E.2d 497, 500 (Ohio

1982); Libbey-Owens-Ford Co. v. Henry Gurtzweiler, Inc., No. L-96-103, 1997 WL 220987 (Ohio

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Ct. App. Apr. 25, 1997); Bd. of Educ. of S. Euclid-Lyndhurst City Sch. Dist. v. Nationwide Mut. Ins.

Co., No. 67306, 1995 WL 277060 (Ohio Ct. App. May 11, 1995). Big Lots also cites a case in

which the indemnitee had to defend against an unsuccessful declaratory judgment action by an

indemnitor while being sued by a third party, Grange Mut. Cas. Co. v. Schmidt, No. L-93-230, 1994
WL 236207 (Ohio Ct. App. May 27, 1994), and a case in which attorney fees were awarded as

compensation for a wrongful breach of a settlement agreement, not as costs of the action, Shanker

v. Columbus Warehouse Ltd. P’ship, No. 99AP-772, 2000 WL 726786 (Ohio Ct. App. June 6, 2000).

None of these cases are analogous to the instant case, in which, in the absence of an imminent threat

of suit, Big Lots sued to receive a declaratory judgment that it is entitled to indemnification should

a third party sue.

        In the absence of applicable authority, Big Lots’ arguments that it should be able to recover

its attorney fees to be made whole are unconvincing because Big Lots was not directly harmed by

Luv n’ care’s failure to “defend” against suits that were never filed. Moreover, Big Lots’ arguments

that it should be able to recover the costs of its litigation to be made whole are arguments that Ohio’s

public policy is unwise, but whatever the wisdom of Ohio’s adoption of the American rule regarding

litigation expenses, this court must apply Ohio’s law.

        Ohio law thus does not permit the recovery of a party’s own litigation expenses in these

circumstances, notwithstanding an indemnity relationship.

                                                 - 12 -
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                                                 IV.

       The district court did not abuse its discretion in finding that Big Lots may not recover

damages that it should have, but did not, disclose that it was seeking during discovery.

       Big Lots now seeks recovery for lost profits and storage costs. However, during discovery,

when Luv n’ care served interrogatories on Big Lots that included a request to “[i]dentify and

individually itemize all damages that [Big Lots was] seeking in the lawsuit,” Big Lots did not include

lost profits or storage costs on its list of damages sought. Even after Luv n’ care asked Big Lots to

supplement its response with specific damage amounts, Big Lots did not provide any information

on these types of damages in its discovery responses. The district court found that Big Lots should

have disclosed these damages under Rule 26 of the Federal Rules of Civil Procedure, and excluded

them from consideration under Rule 37.

       Fed. R. Civ. P. 26(1)(A)(iii) requires each party to provide to the other parties “a computation

of each category of damages claimed by the disclosing party.”3 “A party must make its initial

disclosures based on the information then reasonably available to it,” and failure to investigate fully

is not an excuse to fail to disclose. Fed. R. Civ. P. 26(1)(E). Parties must supplement their initial

       3
         Although the district court released its opinion before the recent restyling, citations herein
are to the current version of the Rules, as substance of the cited rules has not changed in a relevant
way.

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disclosures and interrogatory responses “in a timely manner.” Id. 26(e)(1)(A). Interrogatories “must

. . . be answered separately and fully in writing under oath.” Id. 33(b)(3). “If a party fails to provide

information . . . as required by Rule 26(a) or (e), the party is not allowed to use that information . . .

to supply evidence on a motion . . . unless the failure was substantially justified or is harmless.” Id.

37(c)(1).

        “Federal Rule of Civil Procedure 37(c)(1) requires absolute compliance with Rule 26(a), that

is, it mandates that a trial court punish a party for discovery violations in connection with Rule 26

unless the violation was harmless or is substantially justified.” Roberts ex rel. Johnson v. Galen of

Virginia, Inc., 325 F.3d 776, 782 (6th Cir. 2003) (citation omitted).

        In its lengthy argument as to why Luv n’ care should have anticipated its damages requests

despite its failure to request them, Big Lots gives no excuse for why its violation of the rules was

substantially justified, and makes no showing that the district court abused its discretion in imposing

a routine sanction. And any irregular handling of the case at the summary judgment stage does not

excuse earlier discovery violations. Luv n’ care had ample reason, after a lengthy discovery period,

to be surprised that Big Lots sought additional damages after Big Lots answered interrogatories in

a way that indicated that it was not seeking such damages.

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                                                 V.

       For the foregoing reasons, the order of the district court is affirmed.

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