Court: District Court, S.D. Ohio; March 30, 2015; Federal District Court
The court issued an order addressing several motions in a civil case involving Plaintiff Dean Technology, Inc. and Defendants CE Power Solutions, LLC and CE Power Solutions of Florida, LLC. The order includes the following key decisions:
1. Denial of the Defendants' motion to dismiss for lack of subject-matter jurisdiction, which challenged the Plaintiff's claim of diversity jurisdiction under 28 U.S.C. § 1332 on the grounds that the amount in controversy did not exceed $75,000.
2. Denial of the Plaintiff's motion for summary judgment.
3. Denial of the Defendants' motion for leave to file a sur-reply brief concerning the Plaintiff's motion for summary judgment.
4. Partial granting of the Defendants' motion for partial summary judgment.
The Plaintiff asserts that it specializes in manufacturing and distributing high voltage components and has contracts with the Defendants, who provide electrical solutions for critical power facilities. The dispute centers around three blanket purchase orders issued by Defendants between 2009 and 2011, which required the Plaintiff to maintain inventory for the products needed by the Defendants. The Plaintiff claims the purchase orders and corresponding sales orders constitute binding contracts and alleges that the Defendants failed to accept and pay for approximately $100,000 worth of ordered products, leading to claims of breach of contract and promissory estoppel.
A Rule 12(b)(1) motion to dismiss for lack of subject-matter jurisdiction can involve two standards, depending on whether the challenge is factual or facial. If the challenge is factual, the court evaluates the evidence, and the plaintiff must prove jurisdiction. If the challenge is facial, the court treats the allegations in the complaint as true, akin to a Rule 12(b)(6) motion. In this case, the defendants present a factual challenge, allowing consideration of evidence beyond the complaint. A good faith claim of the jurisdictional amount is sufficient unless it can be shown with legal certainty that the claim is for less. If evidence demonstrates that the plaintiff lacks a claim within the required amount, the diversity action must be dismissed, a conclusion that also applies if such evidence emerges during pre-trial discovery.
The defendants contest the existence of three separate contracts concerning certain products but argue that if such contracts exist, the maximum recoverable amount is dictated by a specific liquidated damages clause. This clause outlines charges for canceled orders, including a re-stocking fee for standard products and specific cancellation charges for specialty products. Testimony from the plaintiff's representative indicates that most refused products were custom-designed specialty products. The total costs for both manufactured and unproduced components amount to $29,002.61, plus an additional 30%, totaling $37,703.39. Defendants assert that this figure is below the jurisdictional threshold of $75,000 for breach of contract claims.
Plaintiff argues that Section 2.f.2. does not apply since it is only triggered by mutually agreed cancellations. Plaintiff highlights testimonies from Defendants’ representatives confirming that the orders were not cancelled. Even if Section 2.f.2. were relevant, Plaintiff contends it is not a liquidated damages clause and represents a “non-exclusive” remedy, which allows for full recovery of damages from the breach, including incurred costs and lost profits (referencing Ohio Rev.Code. 1302.82(B), UCC 2-708). Defendants failed to identify any provision in the Terms and Conditions granting them a unilateral cancellation right. Instead, they suggest a de facto cancellation through their refusal to accept delivery of ordered specialty products. However, evidence indicates that the orders were effectively cancelled through a mutual understanding, as seen in the modifications made to purchase orders, which imply a deliberate cancellation process rather than a default occurrence. The Court raises critical inquiries regarding Defendants' unilateral cancellation rights and whether any actual cancellation took place. If Defendants lacked unilateral cancellation rights, the damages would exceed those specified in Section 2.f.2., meeting jurisdictional thresholds. Conversely, if they did have such rights, the determination of actual cancellation becomes crucial. Defendants have not demonstrated with legal certainty that lost profits cannot be recovered, leading to the denial of their motion to dismiss for lack of subject-matter jurisdiction.
Plaintiff has filed for summary judgment on both liability and damages, arguing that there are no genuine disputes regarding the enforceability of the agreements and seeking $82,050.69 in damages, including lost profits. Defendants, while not contesting liability through a cross motion, assert that material questions exist regarding the binding nature of the three blankets and confirming sales orders. They have filed for partial summary judgment on four issues, including a claim that any transactions were exclusively with CE Power Solutions of Florida and a request to limit Plaintiff’s damages to $37,703.39, citing a failure to mitigate damages.
During their business relationship, the traditional purchase order system became ineffective, prompting an agreement for Defendants to issue blanket purchase orders to help manage inventory. These blankets specified item numbers, quantities, and pricing but indicated that actual purchase obligations arose only upon the issuance of new purchase orders with specific ship dates. CE Power Solutions’ President described the blankets as forecasts rather than binding commitments, while Plaintiff acknowledged that the new purchase orders functioned as releases from the blankets. The expectation was that all items on a blanket would be released within 12 months, with some flexibility extending to 18 months, after which customers would be urged to schedule releases.
A motion for summary judgment is appropriate when evidence shows no genuine dispute regarding material facts, allowing the moving party to obtain judgment as a matter of law, as outlined in Federal Rule of Civil Procedure 56(c). The burden lies with the moving party to demonstrate the absence of factual disputes that could influence the case's outcome, requiring all facts to be viewed in the light most favorable to the opposing party. The opposing party cannot rely solely on allegations or denials but must present specific facts indicating a genuine trial issue. In this diversity action governed by Ohio law, the plaintiff argues that the key issue is whether the Blanket Purchase Orders and confirming Sales Orders obligate the defendants to purchase specially manufactured goods. The court finds that material factual questions exist regarding this issue, thus precluding summary judgment. While Ohio courts often enforce blanket purchase orders, their enforceability hinges on the inclusion of essential contract terms. In this case, the orders identify the parties, specific part numbers, quantities, and unit prices but notably lack a specific shipping date and an overall timeframe for the multiple release requests.
Plaintiff's argument heavily references the Kidron case, where a buyer canceled a blanket purchase order after four years, asserting that the order was not binding due to the use of separate purchase orders. The appellate court upheld summary judgment for the seller, stating that the requirement for separate purchase orders did not invalidate the agreement. In the current case, although the quantity term is more precise than in Kidron, the court found a significant distinction: despite the presence of an integration clause in Kidron, the current agreement was deemed only partially integrated. The trial court considered affidavits from both parties' negotiating agents, which indicated that if the buyer canceled or reduced orders, they would compensate the seller for materials purchased based on the blanket order. This led to the appellate court affirming the trial court's summary judgment in favor of the seller. In the present situation involving Dean Technology and the CE Power Defendants, no integration clause exists in their agreements, suggesting partial integration. Conflicting testimonies about the agreements’ intents indicate that the terms can be supplemented but not contradicted by previous dealings and consistent additional terms. However, unlike Kidron, the extrinsic evidence here leaves room for a trier of fact to interpret the intentions behind the agreements, such as whether the orders were merely estimates. Consequently, since summary judgment regarding liability is not warranted, the court denies the plaintiff's motion for summary judgment.
Defendant CE Power Solutions, LLC (CEP Solutions) seeks partial summary judgment, asserting it is not liable as contracts were exclusively formed with CE Power Solutions of Florida, LLC (CEP Florida). CEP Solutions cites testimonies from Craig Dean and John Czech to support its claim. However, the Court finds this argument unconvincing due to the presence of a “CE Power Solutions” logo on all relevant documents and inconsistencies in the addresses listed on purchase orders and invoices. Specifically, orders PO Numbers 19252 and 20388 indicate CE Power Solutions of Florida as the originator, while PO Number 22130 and several invoices show “CE Power Solutions” as the originator, with mixed shipping addresses. Craig Dean’s testimony suggests that the Plaintiff recognized contracts with both CEP Solutions and CEP Florida, despite CEP Solutions arguing that this contradicts Dean's earlier deposition. The Court does not see a definitive contradiction and views the testimony of John Czech as not wholly persuasive either. The documentation's imprecision raises questions about the liability of both entities, particularly since order confirmations were directed to CEP Solutions, implying shared responsibility for payments. Testimony from Czech indicates he documented items after meeting with CEP Florida staff, further muddying the identification of the responsible party. Overall, the mix of logos, addresses, and approvals in the documents creates a material fact dispute regarding the contractual obligations of both entities.
Kathy Foster, an employee at CEP Solutions, communicated via email with Pam Brank from Dean Technology regarding order processing and invoicing requirements. Foster emphasized that CE Power should not accept orders without a current purchase order (PO) and warned against using blanket POs. She reiterated the necessity of having a specific PO on packing slips and invoices to ensure proper payment and urged Brank to contact Drew for quick assistance with obtaining a PO. The court expressed confusion regarding the relevance of Foster's communications since CEP Solutions is not a party to the alleged agreements in question. Consequently, the court denied CEP Solutions' motion for judgment as a matter of law on liability.
Regarding the recovery of attorneys’ fees, the plaintiff's complaint sought such fees, but the defendants contended this would violate the American Rule, which typically does not allow fee recovery unless specified in a contract. The court noted that for attorneys’ fees to be recoverable, there must be evidence of equal bargaining power and that the provision must have been specifically negotiated, rather than appearing as a preprinted clause. The plaintiff cited Section 9.d. of its General Terms and Conditions of Sale for indemnification, but the defendants argued that it does not mention attorneys’ fees or allege a breach of any representation or warranty. The court found no evidence of negotiation regarding the standard terms and concluded that the plaintiff cannot recover attorneys’ fees as damages in its breach of contract claim. Thus, the defendants' motion was granted on this issue.
Defendants argue that Section 2.f.2. of the Terms and Conditions serves as a liquidated damages clause, limiting Plaintiff's recovery to $37,703.39 if binding agreements exist. Plaintiff contends that Section 2.f.2. does not apply, is not a liquidated damages clause, and is not an exclusive remedy. Section 2 addresses "Orders," specifically cancellation, without reference to breach or failure to perform. The Court concludes that Section 2.f.2. pertains only to cancellations and questions whether Defendants' actions constitute a cancellation, creating a material fact issue. If Defendants’ actions are not deemed a cancellation, Plaintiff could recover damages under Ohio Revised Code 1302.82(B), UCC 2-708. If a cancellation is found, the Court will then determine if Section 2.f.2. limits recoverable damages, requiring analysis of whether it is an enforceable liquidated damages clause through a three-part test: (1) uncertainty and difficulty in proving damages; (2) unconscionability, unreasonableness, or disproportionality of the provision; and (3) consistency with intent for stipulated damages upon breach. Plaintiff claims none of these criteria are met, asserting that its damages are easily calculable at $82,050.69. Defendants argue that current calculability does not negate the potential uncertainty at the time of the blanket purchase orders, suggesting delays in product shipment could affect damage assessment.
Plaintiff argues that interpreting Section 2.f.2. as a liquidated damages provision would unjustly restrict its ability to claim lost profits under Section 1302.82(B). The term "liquidated damages" is absent from Section 2.f.2. and the Terms and Conditions, with no evidence of negotiation for such a clause. The language of Section 2.f.2. only discusses "cancellation charges" equating to a specific sum, which does not imply a limitation on damages intended by the parties. Furthermore, even if the language could be construed as such, it lacks any reference to exclusivity of remedy. Defendants reference the DeLorean Cadillac case to support their claim that liquidated damages provisions preclude other remedies, but this decision is not widely recognized and misinterprets Ohio Rev.Code. 1302.93. This statute allows for remedies to be cumulative unless expressly stated as exclusive, contradicting the narrow interpretation of the DeLorean court. The Court concludes that Section 2.f.2. is neither a valid liquidated damages clause nor an exclusive remedy, allowing Plaintiff to seek damages beyond the specified $37,703.39. Consequently, Defendants’ motion for summary judgment is denied.
Defendants argue that Plaintiff has not mitigated damages as required under Ohio law. However, the Court finds that summary judgment on this issue is inappropriate due to unresolved factual questions. Craig Dean, CEO of Dean Technology, testified about his unsuccessful attempts to sell remaining products to NWL, the company that acquired CEP Florida. Dean reached out to David Seitz of NWL to discuss open purchase orders, which Seitz indicated were not included in the asset purchase agreement. Despite Dean's multiple follow-ups over six weeks, Seitz ultimately expressed disinterest in the products, suggesting only a low percentage of the sale price for them. Defendants assert that any potential damages should be reduced by at least 30% based on this exchange. While a plaintiff typically has a duty to mitigate damages, the Uniform Commercial Code (UCC) applies here, requiring a standard of "commercial reasonableness" in evaluating the seller's conduct. Defendants failed to provide evidence regarding what would constitute reasonable commercial conduct in this context and incorrectly claim that Dean Technology must accept any offer for mitigation. Thus, the Court denies Defendants' motion for judgment on the mitigation issue. Additionally, the Court denies Defendants’ Motion to Dismiss for Lack of Subject-Matter Jurisdiction and Plaintiffs Motion for Summary Judgment.
Defendants’ request to submit a Sur-Reply Brief opposing Plaintiffs’ Motion for Summary Judgment is denied. However, the court grants Defendants’ Motion for Partial Summary Judgment regarding the potential award of attorneys’ fees as damages if the Plaintiff prevails on its breach of contract claim; all other aspects of this motion are denied. The motions and related documents were filed under seal, indicating confidentiality. CKE is identified as "Vendor" on the purchase orders, and Dean Technology, Inc. is noted as its division. Dean, designated as a witness for the Plaintiff, and CE Power Solutions' President, William McCloy, both provided testimony. McCloy indicated that CE Power Solutions was allowed to cancel certain products under specific conditions, which required confirmation from Dean Technology. Testimony from Craig Dean clarified that cancellations were contingent upon Dean Technology’s acceptance, highlighting that Section 2f of the Terms and Conditions permits customer cancellations only if accepted by the seller.
The document outlines a dispute concerning a blanket purchase order (PO) and the conditions for order cancellations and releases. The individual states that they are unable to cancel the order or negotiate a release, despite the lack of communication regarding payment and cancellations from the other party. The blanket order, PO Number 19252, specifies that it involves multiple release requests, with no set due dates, and indicates that new purchase order numbers will be issued for each release. The testimony from Dean clarifies that the blanket order was used to maintain inventory and that CE Power would issue releases as new orders, reducing the blanket order quantity accordingly. This practice was designed to track shipments for specific customer jobs. The excerpt argues that the governing nature of these releases is central to the dispute, contrasting it with two cited cases where blanket orders included clear terms that releases governed delivery quantities and dates. In the referenced cases, the courts focused on the ambiguities of estimated usage and whether the parties were bound to a requirements contract, neither of which applies in the current situation.
Plaintiff asserts that the introduction of evidence regarding the intent behind the blankets as "estimates" is prohibited by the parol evidence rule, a claim the Court rejects. The Court denies Defendants’ request to file a sur-reply, stating that no further briefing is necessary. It clarifies that this ruling does not prevent Plaintiff from seeking attorneys’ fees if it prevails, based on allegations of Defendants' bad faith litigation. The Court acknowledges the vigorous motion practice and some overlap between Defendants’ motions, but finds their positions acceptable within advocacy limits.
Concerns arise from John Czech's affidavit, where he describes a threatening call from William McCloy, President of CE Power Solutions, who used derogatory language and made threats regarding Czech and Dean Technology. Although Czech did not pursue legal action following these calls, the Court advises counsel to investigate any claims of intimidation. Plaintiff's argument that Defendants waived their right to raise certain issues by not including them as affirmative defenses in their Answer is deemed meritless, and the Court refrains from determining the burden of proof.
Finally, the document details specific financial claims totaling $81,050.69, attributed to costs incurred based on reliance on the blankets from Defendants. It also notes that any potential liability for the Company is limited to $50 as liquidated damages, which the Court emphasizes is not a penalty and must be respected under Ohio law, particularly as contract remedies are exclusive only if explicitly stipulated by the parties.
