Court Opinion

ID: 3183906
Source: CourtListenerOpinion
Date Created: 2016-03-09 15:28:35.039073+00
Date Added: 2024-06-11T14:35:52.862377
License: Public Domain

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14-P-1637                                           Appeals Court

NEW ENGLAND PRECISION GRINDING, INC. vs.     SIMPLY SURGICAL, LLC1
                           & another.2

                           No. 14-P-1637.

         Worcester.     November 2, 2015. - March 9, 2016.

             Present:   Milkey, Carhart, & Massing, JJ.

Uniform Commercial Code, Acceptance of goods, Revocation of
     acceptance. Indemnity. Judgment, Interest. Practice,
     Civil, Instructions to jury, Judgment notwithstanding
     verdict, Verdict.

     Civil action commenced in the Superior Court Department on
August 7, 2006.

     The case was tried before Richard T. Tucker, J., and
motions for the entry of separate and final judgment and to
reach the proceeds of the judgment were heard by him.

    Barry A. Bachrach for the plaintiff.
    Matthew R. Johnson for Simply Surgical, LLC.
    Dale C. Kerester for Iscon Surgicals, Ltd.

    1
        Doing business as Pricon US.
    2
        Iscon Surgicals, Ltd.
                                                                    2

     CARHART, J.   This Superior Court contract action stems from

the sale by defendant Simply Surgical, LLC (Simply Surgical) to

plaintiff New England Precision Grinding, Inc. (NEPG) of medical

device parts manufactured by defendant Iscon Surgicals, Ltd.

(Iscon).   All three parties appeal from an amended judgment

entered on January 8, 2013, in favor of Simply Surgical; Iscon

also appeals from an order entered on January 18, 2013, denying

its motion for entry of a separate and final judgment and to

reach the proceeds of the judgment due to Simply Surgical from

NEPG.3

     On appeal, NEPG argues that the judge wrongly declined to

instruct the jury that, under the Uniform Commercial Code

(U.C.C.), codified in Massachusetts at G. L. c. 106, NEPG had

the right to revoke its acceptance of parts once they were

rejected by its customer Kyphon, Inc. (Kyphon).   It also

complains that the jury's verdict was against the weight of the

evidence and its award excessive.   Simply Surgical argues that

the judge erroneously prevented it from presenting its claim for

common-law indemnification against Iscon.   Iscon contends that

the judge should have corrected the amount of the damages

awarded by the jury to include the total unpaid balance sought

by Iscon on its account stated.

     3
       As Iscon failed to make any argument as to the order
entered on January 18, 2013, it has waived that issue on appeal.
See Mass.R.A.P. 16(a)(4), as amended, 367 Mass. 921 (1975).
                                                                      3

     We affirm the amended judgment, and the order entered

January 18, 2013, denying Iscon's motion.

     Background.   We summarize the trial evidence.    NEPG is a

Massachusetts-based manufacturer of precision medical

components.   In or around 2004, NEPG contracted with Kyphon and

agreed to supply Kyphon with medical device parts referred to as

stylets and nozzles.4    In 2005, Kyphon ordered six lots from

NEPG, with each lot containing 25,000 pieces of each component.

Because NEPG could not manufacture the parts at the price point

that Kyphon requested, it contracted with Robert Longo, the

owner of Simply Surgical, to obtain the parts from Indian

manufacturer Iscon.     Iscon shipped the initial order directly to

NEPG, but shipped subsequent orders to Longo at Simply Surgical.

The parts were shipped by lot, and Iscon would certify that the

parts conformed to the plans and specifications provided by

NEPG.

     Upon receiving the parts from Iscon or Simply Surgical,

NEPG would conduct its own inspection using a process that was

approved by Kyphon and which accorded with industry standards

for medical devices.     If NEPG approved of the parts, it would

     4
       Kyphon is a California-based medical device manufacturer
which has patented a surgical procedure called "kyphoplasty."
The procedure involves the insertion of a solidifying agent
between the patient's vertebrae to remove pressure from the
spine, and the stylets and nozzles it ordered from NEPG are part
of the medical kit designed by Kyphon for use in the procedure.
                                                                    4

certify that they conformed to Kyphon's plans and specifications

and would ship them to Kyphon.    Kyphon would then do its own

inspection before accepting or rejecting NEPG's shipment.     The

purchase orders from NEPG to Simply Surgical neither mentioned

Kyphon nor required that the parts ultimately be accepted by

Kyphon;5 rather, the terms were listed as "Net 30 days."    The

"[d]escription" of the products ordered included

"[c]ertifications [r]equired," and the purchase orders contained

a directive that the parts are not to be shipped "UNTIL

INSPECTION DATA HAS BEEN REVIEW [sic] AND APPROVED BY NEPG."

     Early on, NEPG brought to Longo's attention conformity

issues that Simply Surgical and Iscon worked to correct.    At one

point, in order to keep the project moving, Simply Surgical gave

NEPG approximately $20,000 in credits.   Later, on two occasions

after Kyphon rejected lots 4 and 5, which NEPG had certified

were conforming, Longo agreed to take the parts back and rework

them.6   When Longo refused to take them back a third time, NEPG

used in-house labor to polish and improve the appearance of the

parts to Kyphon's satisfaction.

     5
       Indeed, NEPG took pains to conceal from Kyphon the fact
that it was not manufacturing the parts, and from Simply
Surgical and Iscon the fact that Kyphon was NEPG's customer.
     6
       In 2006, Kyphon issued new appearance standards for the
parts it had ordered from NEPG. However, NEPG acknowledged that
those standards were not incorporated into NEPG's purchase
orders with Simply Surgical.
                                                                   5

     NEPG promptly paid Simply Surgical for lots shipped in June

and July, 2005.   However, Simply Surgical received no payments

from NEPG from August through November, 2005.    From that time

through July, 2006, payments from NEPG to Simply Surgical

lagged.   Indeed, there was one period of several months when

NEPG failed to pay Simply Surgical over $100,000, despite having

received from Kyphon, during that time, payments totaling

$188,000.7   NEPG's chief financial officer testified that the lag

in payment resulted from a "policy" instituted at NEPG as a

result of the "quality issues" with previous shipments, whereby

NEPG would not "immediately pay" Simply Surgical for parts until

NEPG "received notice from Kyphon that the parts were inspected

and deemed good."    As of January 26, 2006, NEPG owed Simply

Surgical $163,331.08.    By the spring of 2006, Longo was refusing

to ship the remainder of lot 3 until NEPG addressed its

outstanding balance with Simply Surgical.   He also demanded

upfront payment for lot 6, which was waiting to be shipped from

India.    NEPG refused, and, in early August, 2006, Kyphon

canceled its contract with NEPG.

     7
       Although the owner of NEPG denied that NEPG lacked "a cash
flow to pay Simply Surgical in or about 2006," the jury was
entitled to credit Longo's testimony that NEPG's owner told him
that NEPG failed to pay Simply Surgical because NEPG was
protecting its cash flow. Admitted into evidence were NEPG's
financial reports indicating that NEPG's monthly cash flow was
low or negative during the period it failed to pay Simply
Surgical.
                                                                   6

    NEPG then sued Simply Surgical for breach of contract,

breach of the implied warranties of merchantability and of

fitness for a particular purpose, and violation of G. L. c. 93A,

§ 11, alleging that Simply Surgical had supplied defective parts

that caused Kyphon to cancel its contract with NEPG.      Simply

Surgical counterclaimed for breach of contract, breach of the

implied covenant of good faith and fair dealing, quantum meruit,

and violation of c. 93A, based upon NEPG's failure to pay.

After NEPG's motion to join Iscon was allowed, NEPG amended its

complaint to request a judgment declaring that it was not liable

to Iscon, and Iscon and Simply Surgical brought claims against

each other.   Kyphon was not sued.

    A jury trial took place over the course of two weeks, with

the judge reserving for himself the cross claims of NEPG and

Simply Surgical under c. 93A.   The judge denied Iscon's motion

for a directed verdict at the close of Simply Surgical's case

insofar as it was based upon Simply Surgical's alleged failure

to show an agency relationship; however, he allowed the motion

with respect to Simply Surgical's claim for common-law

indemnification.    He denied NEPG's request for a jury

instruction that NEPG had the right under the U.C.C. to revoke

its prior acceptance of parts because NEPG did not give "the

proper notice to anyone that [it was] revoking [its] previously-

made acceptance."   The judge also denied Simply Surgical's
                                                                   7

request that he instruct the jury that if they found that Simply

Surgical was an agent of Iscon, then Iscon had a common-law duty

to indemnify Simply Surgical for its litigation costs.

    The jury found that NEPG committed a breach of its

contracts and the implied covenant of good faith and fair

dealings with Simply Surgical and was liable to Simply Surgical

in quantum meruit, and awarded damages in the amount of

$125,997.84.   The jury further found that Simply Surgical

committed a breach of its contract with Iscon and was liable to

Iscon "upon an unpaid balance of account," and awarded damages

in the amount of $84,150.   After a hearing and "careful review

of the memoranda of the[] parties," the judge determined that

neither Simply Surgical nor NEPG had engaged in an unfair or

deceptive act or practice within the meaning of c. 93A.

Judgment entered against NEPG and in favor of Simply Surgical

awarding damages in "the sum of $125,997.84 plus interest

thereon from 03/21/07 through 11/28/2012 in the amount of

$86,121.14 and . . .   costs of action as provided by law," and,

as to the cross claims, against Simply Surgical and in favor of

Iscon awarding damages in "the sum of $84,150.00 with interest

thereon from 07/15/10 through 11/28/12 in the sum of $35,914.88

and . . . costs of action as provided by law."   The judgment

also dismissed NEPG's and Simply Surgical's respective c. 93A

claims.
                                                                       8

     After trial, the judge denied NEPG's motion for judgment

notwithstanding the verdict and motion for a new trial and for a

remittitur on Simply Surgical's counterclaim.      He denied Iscon's

motion to correct the amount of the jury award and the

calculation of prejudgment interest.       The judge allowed so much

of Simply Surgical's motion to amend the judgment so as to

correct a miscalculation of prejudgment interest,8 but he denied

the remainder of the motion, which sought application of a

different accrual date and interest rate.      As a result, an

amended judgment entered, and the original judgment's interest

award to Iscon was changed to "7/15/10 through 11/28/12 in the

sum of $23,986.42."     The judge denied Iscon's motion for entry

of separate and final judgment (against Simply Surgical) and to

reach and apply the proceeds of the judgment due to Simply

Surgical from NEPG.

     Discussion.   1.    Claims by NEPG.   NEPG claims error in the

judge's refusal to instruct the jury that it had the right under

the U.C.C. to revoke its acceptance of parts once they were

rejected by Kyphon.     There was no error.

     8
       In its motion to amend the judgment, Simply Surgical
argued that "[a]pplying the time period set forth in the
judgment and the 12% interest rate[] yields a pre-judgment
interest amount due ISCON of $23,982.75." While the record does
not state the interest rate applied by the judge, his allowance
of Simply Surgical's motion suggests that it was the statutory
prejudgment interest rate set forth in G. L. c. 231, § 6C.
                                                                     9

    The evidence established that the goods provided by Simply

Surgical were "conforming" and that NEPG "accepted" them within

the meaning of the U.C.C.   See G. L. c. 106, §§ 2-106(2) and 2-

606(1).   Specifically, it was undisputed that NEPG ordered parts

from Simply Surgical that it knew Iscon would manufacture

according to NEPG's specifications, that Iscon manufactured the

parts and certified that they conformed to those specifications,

that NEPG did its own inspection before accepting parts, and

that NEPG then sent parts to Kyphon with a certification that

they conformed to Kyphon's specifications.    As such, NEPG had no

right of revocation.   See G. L. c. 106, § 2-607(2), inserted by

St. 1957, c. 765, § 1 ("Acceptance of goods by the buyer

precludes rejection of the goods accepted"); G. L. c. 106, § 2-

608(1), inserted by St. 1957, c. 765, § 1 ("The buyer may revoke

his acceptance of a lot or commercial unit whose non-conformity

substantially impairs its value to him" [emphasis supplied]).

    Even if NEPG did have the right to revoke, there was no

evidence that NEPG expressed or communicated to Simply Surgical

an intent to do so.    See G. L. c. 106, § 2-608(2) ("Revocation

of acceptance [under the U.C.C.] . . . is not effective until

the buyer notifies the seller of it").    NEPG never provided

Simply Surgical with "notice" as that term is defined in the

U.C.C., see G. L. c. 106, § 1-202, and while any delay in

providing notice could have been justified by NEPG's constant
                                                                   10

communication with Longo and Longo's attempts to address NEPG's

complaints, see Fortin v. Ox-Bow Marina, Inc., 408 Mass. 310,

318 (1990), NEPG ultimately bore the burden of "proving the date

upon which it revoked its acceptance."    Jeffco Fibres, Inc. v.

Dario Diesel Serv., Inc., 13 Mass. App. Ct. 1029, 1030 (1982).

It offered no evidence on this point.    Instead, the evidence was

clear that "neither party treated nonconforming deliveries as

substantially impairing the value of the whole contract so as to

constitute a breach of the whole."   Bevel-Fold, Inc. v. Bose,

Corp., 9 Mass. App. Ct. 576, 581 (1980).    NEPG continued to

demand parts from Simply Surgical after expressing its

dissatisfaction with previous shipments of parts, and NEPG

continued to ship Simply Surgical's parts to Kyphon with

certifications that they conformed to Kyphon's specifications.

NEPG provides no authority for its argument that it could accept

goods from Simply Surgical, inspect them, certify that they were

conforming, and then revoke acceptance when the parts were

rejected by Kyphon.   We see no error in the judge's conclusion

that there had been no effective revocation of acceptance under

the U.C.C., such that NEPG was entitled to the requested

instructions.   See Jeffco Fibres, Inc., supra ("[A]n effective

revocation of acceptance may be accomplished by oral notice

. . . or by conduct which unequivocally manifests a desire to
                                                                   11

revoke the sale," taking into account "the course of dealing

between the parties after the sale and prior to the rejection").9

     There having been no effective revocation by NEPG, NEPG was

obligated under the U.C.C. to pay Simply Surgical.    See G. L.

c. 106, §§ 2-301, 2-310(a), and 2-607(1).    Under the terms of

its contracts, NEPG was required to do so within thirty days.

See Miller Brewing Co. v. Alcoholic Bevs. Control Commn., 56
Mass. App. Ct. 801, 803 (2002) (credit terms of "net eleven

days" meant eleven days within which to pay the seller in full).

Although NEPG "really wanted to tie [its] payments [to Simply

Surgical] to the acceptance date by Kyphon," the judge correctly

observed that "the approval and formal acceptance of the goods

by NEPG is the determinative factor under the terms of the

NEPG/Simply Surgical contracts, not the acceptance by Kyphon."

The parties "easily could have included language expressly"

requiring ultimate approval by Kyphon had they so intended,

Merrimack College v. KPMG LLP, 88 Mass. App. Ct. 803, 806

(2016); they did not, and "the contract [must] be enforced

according to its terms."    Mejia v. American Cas. Co., 55 Mass.

App. Ct. 461, 465 (2002).   Contrast Bevel-Fold, Inc., supra at

578 ("In the agreement, [the buyer] reserved the right to reject

cabinets defective in material or workmanship 'at anytime'").

     9
       For this same reason, the judge correctly denied NEPG's
motion for a new trial on the basis that he gave erroneous
instructions.
                                                                  12

     Viewing NEPG's testimony in the light most favorable to

Simply Surgical, see Solimene v. B. Grauel & Co., 399 Mass. 790,

792 (1987), NEPG inspected and accepted parts from Simply

Surgical before sending them to Kyphon with a certificate of

conformity, but "determined . . . that [it] would not

immediately pay" Simply Surgical until it "received notice from

Kyphon that the parts were inspected and deemed good."   The

terms of NEPG's contracts with Simply Surgical were "Net 30

days," yet NEPG failed to make any payments for at least four

months.   Thus, the judge properly denied NEPG's posttrial motion

for judgment notwithstanding the verdict and motion for a new

trial and for a remittitur.   See McCarthy v. Waltham, 76 Mass.

App. Ct. 554, 560 (2010), quoting from O'Brien v. Pearson, 449
Mass. 377, 383 (2007) ("Review of these motions requires us to .

. . evaluate whether anywhere in the evidence, from whatever

source derived, any combination of circumstances could be found

from which a reasonable inference could be made in favor of the

nonmovant").10

     10
       NEPG's argument that Simply Surgical's taking back of
rejected parts established a course of performance whereby
Kyphon's acceptance became part of the deal is unavailing in
light of the express terms of the contracts. While a course of
performance may illuminate or supply missing contract terms, it
will not be construed to contradict express terms. See G. L.
c. 106, § 2-208(2). See also Affiliated FM Ins. Co. v.
Constitution Reinsurance Corp., 416 Mass. 839, 845 (1994)
("Express terms are to be given preference in interpretation
over course of performance"); Somerset Sav. Bank v. Chicago
                                                                   13

    The judge did not abuse his discretion in denying NEPG's

motion to reduce the jury verdict, see Solimene v. B. Grauel &

Co., supra at 803 ("A challenge to the damages awarded as

against the weight of the evidence generally is a matter within

the judge's discretion"), because "the jury could have reached,

honestly and fairly, the award that they did based on the"

testimony and the documentary evidence at trial.     Ibid.

    2.   Claims by Simply Surgical.   The judge correctly denied

Simply Surgical's request to submit its common-law

indemnification claim against Iscon to the jury, because such

"indemnification [is] available . . . only to a defendant whose

liability was vicarious or formal."   Economy Engr. Co. v.

Commonwealth, 413 Mass. 791, 794 (1992).   While NEPG did allege

that Simply Surgical provided it with defective parts that Iscon

undisputedly manufactured, NEPG did not bring defective

manufacturing claims against Simply Surgical or Iscon.       Instead,

NEPG alleged that Simply Surgical was in breach of contract

"[b]y its conduct," including a "refus[al] to address the

defective product" and wrongfully withholding shipments.

Title Ins. Co., 420 Mass. 422, 427-428 (1995) (in the absence of
ambiguity, evidence of custom and practice cannot be used to
vary contract provisions). Compare Vita v. Berman, DeValerio &
Pease, LLP, 81 Mass. App. Ct. 748, 755 (2012), quoting from
Lawrence v. Cambridge, 422 Mass. 406, 411 (1996) ("[I]n an
ordinary contract, where matters are left open, the court may
imply terms either that are reasonable or that may be gathered
from the subsequent course of performance [of the parties]").
                                                                     14

Because Simply Surgical's allegedly tortious conduct "was

independent of" any allegedly defective manufacturing of the

products by Iscon, the judge correctly concluded that it "had no

common law right of indemnity against [Iscon]."   Id. at 793-794.

    Simply Surgical also argues error in the judge's denial of

so much of its motion to amend the judgment that sought

application of a contract rate and accrual date other than what

was set forth in the original judgment.   Simply Surgical,

however, does not challenge the judge's finding that it failed

to establish the contract interest rate or the date of breach.

Interest on damages awarded for breach of contract "shall be

added . . . at the contract rate, if established, or at the rate

of twelve per cent per annum from the date of the breach or

demand" (emphasis added), G. L. c. 231, § 6C, as appearing in

St. 1982, c. 183, § 3, and "[i]f the date of the breach or

demand is not established, interest shall be added . . . at

[the] contractual rate, or at the rate of twelve per cent per

annum from the date of the commencement of the action."      Ibid.

We think the judge properly applied the statutory interest rate

as of the date of commencement of the Simply Surgical's

counterclaim.   See Graves v. R.M. Packer Co., 45 Mass. App. Ct.
760, 771 (1998).
                                                                      15

     3.    Iscon's claims.11    Iscon argues error in the judge's

denial of its motion for judgment notwithstanding the verdict

and to amend the jury award, because, it claims, the jury

improperly deducted $79,589.55 from the nearly $140,000 that

Iscon claimed to be owed.      We see no abuse of discretion or

error of law.    See Bartley v. Phillips, 317 Mass. 35, 43 (1944).

     "An account stated does not create a liability where none

existed before; it merely determines the amount of a debt where

liability already exists."      Davis v. Arnold, 267 Mass. 103, 110

(1929).    It is "a promise to pay whatever balance is thus

acknowledged to be due."       Rizkalla v. Abusamra, 284 Mass. 303,

307 (1933).    Iscon submitted its account stated claim to the

jury.     Accordingly, it was for the jury to decide whether there

was an accounting, see Berwin v. Levenson, 311 Mass. 239, 247

(1942), and, if so, for how much.      See Cavanaugh Bros. Horse Co.

v. Gaston, 255 Mass. 587, 591 (1926) ("The questions, what was

to be believed, and what inferences were proper, were for the

jury").    The judge correctly instructed the jury that it must

determine "whether the account balance statement accurately sets

     11
       We decline to address Iscon's argument that the judge
should have awarded prejudgment interest from the date Simply
Surgical filed its counterclaims against NEPG, instead of from
the date that Iscon filed its crossclaims against Simply
Surgical, because Iscon cites to no authority for the
proposition that "action," as used in G. L. c. 231, § 6C, should
be interpreted to mean Simply Surgical's claims against NEPG and
not Iscon's claims against Simply Surgical. See Mass.R.A.P.
16(a)(4).
                                                                    16

forth the amount, if any, due Iscon."   Iscon did not object to

the judge's instructions, and, as the judge aptly noted, the

jury was free to "disbelieve any portion of the account."      We

will not disturb his conclusion that the jury's verdict should

stand.   See Freeman v. Wood, 379 Mass. 777, 781 n.9 (1980).

                                    Amended judgment affirmed.

                                    Order entered January 18,
                                      2013, affirmed.