General Trading International, Inc., Appellee/cross-Appellant v. Wal-Mart Stores, Inc., Appellant/cross-Appellee

Citations: 320 F.3d 831; 49 U.C.C. Rep. Serv. 2d (West) 1076; 2003 U.S. App. LEXIS 3368Docket: 02-1947, 02-2064

Court: Court of Appeals for the Eighth Circuit; February 25, 2003; Federal Appellate Court

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General Trading International, Inc. (GTI) initiated a lawsuit against Wal-Mart Stores, Inc. for breach of contract related to the sale of decorative "vine reindeer" intended for the 1999 Christmas season. GTI claimed Wal-Mart failed to pay for these goods. In response, Wal-Mart counterclaimed, alleging breach of contract and fraud, asserting that a significant number of the reindeer were defective and unsuitable for sale. Wal-Mart contended that GTI had orally agreed to absorb $200,000 of the purchase price due to the product's quality issues, a claim GTI denied, arguing that the oral agreement was unenforceable under the statute of frauds. 

GTI sought partial summary judgment for the unpaid $200,000 balance, which the District Court granted, allowing the remaining claims to proceed to a jury trial that ruled in favor of GTI. The District Court subsequently denied Wal-Mart's motion for a new trial and GTI's request for attorney fees. Wal-Mart appealed the summary judgment and the denial of its new trial motion, while GTI cross-appealed the denial of attorney fees. The court affirmed the District Court's decisions.

The background reveals that negotiations began in February 1999 between Wal-Mart's seasonal buyer and GTI for the purchase of 250,000 reindeer, formalized in March with a vendor agreement stipulating that changes must be documented in writing. By August, significant quality issues were identified, with Wal-Mart noting that 70% of the reindeer were defective. A meeting in September led to an agreement where Wal-Mart would accept some reindeer at a reduced price and withhold $400,000 from GTI for potential defects. Wal-Mart claims GTI orally agreed to reduce the total owed by $200,000 prior to the end of September.

On September 30, 1999, Gitlin informed Francis and Kuhn via email about low reindeer sales and indicated that Wal-Mart would implement a price markdown shortly. Gitlin expressed concern regarding the defect rate, estimating it at 20% instead of the usual 10%, and adjusted the reserve on the account to $600,000 while releasing other payments. Francis and Kuhn did not respond to this email. On November 12, 1999, Kuhn expressed frustration over Wal-Mart's delays in payment for overdue invoices, referencing Gitlin's statement that $400,000 would be withheld for future defective claims. Gitlin requested a call to discuss the issue, and during their November 19 conversation, she reiterated that $600,000 was on hold—$200,000 for markdowns and $400,000 for claims—and offered to reduce the hold to $500,000 if Kuhn agreed. GTI's counsel demanded full payment that same day. Kuhn later accepted Wal-Mart's withholding of $400,000 but insisted on immediate payment of $521,429 and a future review of the reserve.

In the following weeks, communications continued, with GTI pressing for payment and Wal-Mart maintaining its claim to withhold funds for defective merchandise and markdowns. GTI did not acknowledge the markdown amount in correspondence. In December 2000, GTI filed a lawsuit against Wal-Mart for breach of contract, alleging unpaid amounts for reindeer shipments. Wal-Mart counterclaimed for fraud and breach of contract. GTI sought partial summary judgment for $200,000, arguing that the vendor agreement prohibited oral modifications and that the statute of frauds barred any alleged agreement to deduct the markdown. The District Court granted GTI's motion in January 2002, affirming that the vendor agreement and statute of frauds precluded the oral agreement. A jury subsequently ruled in favor of GTI on its breach of contract claim, awarding $63,280, and also sided with GTI against Wal-Mart's counterclaim. The District Court denied Wal-Mart's motions for judgment as a matter of law or a new trial, as well as GTI's request for attorney fees. On appeal, Wal-Mart challenged the partial summary judgment and claimed it prejudiced the trial, while GTI cross-appealed regarding the denial of attorney fees.

A district court's grant of a summary judgment motion is reviewed de novo, affirming if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law, as per Fed. R. Civ. P. 56(c). Conversely, a denial of a new trial motion is reviewed for abuse of discretion. In the appeal by Wal-Mart, the company contends the District Court erred by granting partial summary judgment in favor of GTI, asserting that the oral agreement to deduct $200,000 for price markdowns was improperly barred by the statute of frauds. The Arkansas statute, aligned with the Uniform Commercial Code, invalidates unwritten contracts for goods exceeding $500 unless there is a sufficient written indication of the agreement, signed by the party against whom enforcement is sought. Both parties acknowledge the applicability of the "merchants' exception," which allows for a confirmatory writing to suffice if the receiving party is aware of its contents and does not object in writing within ten days. Wal-Mart claims that GTI did not object to a confirmatory writing sent by Wal-Mart regarding the $200,000 allowance, specifically citing an email from Gitlin. The court determined that whether a writing serves as a confirmation to satisfy the statute of frauds is a legal question. The District Court concluded that none of Wal-Mart's emails satisfied this requirement, and upon review, the court agreed. In Gitlin's September 30 email, she mentioned changing the reserve to $600,000, which Wal-Mart interpreted as a modification of the original contract. However, GTI argued that this email did not qualify as a confirmatory writing under the statute of frauds. While the merchants' exception does not mandate a signature, the writing must still meet the criteria of indicating a contract, which the court found Gitlin's email failed to do.

Under U.C.C. § 2-201(1), a writing must provide a basis for believing that an oral agreement is based on a real transaction to indicate a contract for sale. Courts generally require that such writings reflect a consummated contract rather than mere negotiations. Writings that suggest only a tentative agreement or lack clear binding language are deemed insufficient. In the case reviewed, Gitlin's September 30 e-mail failed to indicate any agreement regarding a $200,000 markdown, as it did not clarify what portion of a referenced $600,000 reserve was allocated for markdowns. The e-mail primarily demonstrated Wal-Mart's unilateral intention to take a markdown, lacking any mutual agreement on the matter.

Wal-Mart contended that Gitlin's subsequent e-mails could serve as confirmatory memoranda, specifically citing a November 19 e-mail in which Gitlin outlined a proposed allocation of the reserve. Although GTI did not dispute the potential confirmatory nature of these e-mails, it asserted timely objections to them. Kuhn's replies indicated a willingness to authorize retention of $400,000 for claims while demanding immediate payment on outstanding invoices, which GTI argued was not negotiable. While U.C.C. § 2-201(2) does not specify the form of objections to confirmatory writings, both parties acknowledged that courts require a clear objection to an alleged oral agreement. The cited case law indicates that responses lacking direct challenges to specific terms of a writing do not qualify as adequate objections.

Wal-Mart contends that GTI did not clearly object to a $200,000 price markdown in their email responses. The District Court determined that GTI's replies, which included different terms and demands for payment minus a reserve, constituted objections under UCC § 2-201(2). Although GTI did not explicitly mention the $200,000, the overall context of their responses indicated a lack of agreement on markdowns. Consequently, the District Court found no error in granting GTI partial summary judgment for the unpaid balance of the reindeers' purchase price.

In GTI's cross appeal regarding the denial of attorney fees, Arkansas law permits a court to award such fees at discretion in contract actions. The District Court ruled that GTI did not demonstrate any contractual provision allowing for fee recovery or provide sufficient justification for departing from the American Rule, which generally prohibits fee recovery without statutory grounds. While the District Court's reasoning could have been clearer, it was evident that the court understood the discretionary nature of fee awards. Therefore, the denial of GTI's request for attorney fees was upheld.

In conclusion, the orders of the District Court granting partial summary judgment to GTI and denying its request for attorney fees were affirmed.

The lack of Arkansas case law directly addressing the U.C.C. necessitates reliance on decisions from other jurisdictions. The court finds it unnecessary to analyze Wal-Mart's arguments regarding the District Court's summary judgment on the vendor agreement or the denial of a new trial. Wal-Mart contends that an alleged oral agreement concerning price markdowns is not subject to the statute of frauds, claiming it pertains to dispute resolution rather than a sale of goods, but this argument is rejected as legally unsound. 

Wal-Mart's appeal focuses on the District Court's ruling that the oral agreement for a $200,000 markdown was barred by the statute of frauds, which invalidates unwritten contracts for goods over $500 unless there is a written confirmation signed by the party against whom enforcement is sought. Both parties acknowledge the "merchants' exception," which allows a confirmatory writing to suffice if the recipient knows its contents and fails to object in writing within ten days. Wal-Mart argues that GTI did not object to a confirmatory email sent by Wal-Mart, asserting that the email established the terms of the oral agreement.

The court examines whether Wal-Mart's emails qualify as confirmatory writings under the statute of frauds, determining this to be a legal question. The District Court ruled that none of the emails satisfied the statute, a conclusion the appellate court supports. Specifically, Gitlin's September 30 email, which mentioned changing the reserve on the account to $600,000, is cited by Wal-Mart as evidence of a changed contract. However, GTI counters that the email does not meet the criteria for a confirmatory writing. The merchants' exception does not necessitate the confirmatory writing to be signed by the receiving party.

A writing is required under U.C.C. § 2-2011 for contract enforcement but does not need to be signed by the party against whom enforcement is sought, as established in Howard Constr. Co. v. Jeff-Cole Quarries, Inc. Courts interpret the "sufficient to indicate" requirement of U.C.C. § 2-201(2) to mean that the writing must reflect a completed contract rather than mere negotiations. Writings that express tentative agreements or lack definitive language indicating a binding contract are deemed insufficient. In reviewing Gitlin's September 30 e-mail, it was determined that it does not indicate an agreement regarding a $200,000 markdown, as it lacks explicit terms of agreement and only reflects Wal-Mart's unilateral actions concerning markdowns and reserve changes. Consequently, this e-mail does not satisfy the statute of frauds. Furthermore, although Wal-Mart asserts that Gitlin's subsequent e-mails could serve as confirmatory memoranda, GTI maintains that timely objections were raised. Specifically, Kuhn's responses included a proposal related to a reserve for defective merchandise claims, accompanied by a demand for immediate payment on outstanding invoices, highlighting that GTI's stance was non-negotiable. While no specific form for objections to confirmatory writings is mandated, both parties concur that courts require a clear objection to such writings in the context of alleged oral agreements.

A response to a purchase order was deemed inadequate as an objection under U.C.C. § 2-201(2) because it did not contest the price but mentioned a higher offer. Wal-Mart contended that GTI did not clearly object to a specific $200,000 price markdown in its e-mails. However, the District Court found that GTI's e-mails, which included different terms and demanded payment minus a reserve for defective merchandise claims, constituted sufficient objections. GTI’s failure to mention the $200,000 did not indicate acceptance of the markdown; rather, its demand for full payment suggested it did not agree to any markdown arrangement. The court concluded that the merchants' exception to the statute of frauds was not met, affirming partial summary judgment in favor of GTI for the unpaid $200,000.

In a cross-appeal, GTI challenged the District Court's denial of its attorney fee application, amounting to $107,262.75. Under Arkansas law, courts have discretion to award attorney fees in contract cases, which is not mandatory. The District Court noted that GTI did not provide a contractual basis for fee recovery or factors warranting a departure from the American Rule, which generally disallows fee recovery without statutory authorization. The court's reasoning, while not exhaustive, indicated an understanding that fee awards are discretionary under Arkansas law. Consequently, the District Court's denial of GTI's attorney fees was deemed not an abuse of discretion. The orders for partial summary judgment in favor of GTI and the denial of attorney fees were affirmed.

The District Court granted summary judgment in favor of GTI regarding Wal-Mart's counterclaim for fraud. The contract, both as written and as modified, involved the sale of goods exceeding $500, necessitating compliance with the statute of frauds (Ark.Code Ann. § 4-2-209(3)). This statute requires that any modifications to the contract also meet its criteria. There are no Arkansas decisions under the U.C.C. that directly address this issue, so the court referenced cases from other jurisdictions. The court determined it was unnecessary to evaluate Wal-Mart's arguments regarding the vendor agreement's potential prohibition of the oral agreement on price markdowns or the claim of abuse of discretion concerning the denial of a new trial. Additionally, Wal-Mart's assertion that the oral agreement on markdowns was exempt from the statute of frauds—claiming it pertained to dispute resolution rather than a sale of goods—was dismissed as without merit, confirming the District Court's legal correctness in rejecting it.