Colonial Trading, LLC v. Bassett Furniture Industries, Inc.

Citation: 530 F. App'x 218Docket: Nos. 12-2296, 12-2358

Court: Court of Appeals for the Fourth Circuit; June 21, 2013; Federal Appellate Court

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A jury awarded Colonial Trading, LLC $1,312,665.35 for breach of contract against Bassett Furniture Industries, Inc., tied to a dispute over recalled baby cribs. Additionally, Colonial received $41,472.08 for a claim under North Carolina's Unfair and Deceptive Trade Practices Act (UDTPA), which the district court tripled. Bassett appealed the jury instructions, the UDTPA award, and the damages calculation, while Colonial cross-appealed the denial of its request for trebled contract damages. The court affirmed the jury's verdict.

Colonial, a North Carolina furniture sourcing agent, imported furniture from Chinese companies for American distributors, advancing costs and invoicing distributors upon arrival of goods. The case arose from orders for three crib models designed by Bassett. In 2005, Colonial signed Bassett's "Import Sourcing Policy," which required adherence to quality control procedures. However, in 2007, Bassett issued recalls for the crib lines due to defects, straining its relationship with Babies’R’Us. Instead of settling Colonial's invoices, Bassett attempted to offset recall costs against them and sought to directly negotiate with Chinese manufacturers when Colonial refused to advance funds.

Colonial sued Bassett for breach of contract, tortious interference with third-party contracts, and violations of the UDTPA, alleging Bassett engaged in bribery and coercion. Bassett counterclaimed, asserting it had validly revoked acceptance of the cribs due to Colonial’s breaches and defects. After an eight-day trial, the district court reviewed extensive jury instructions, incorporating Colonial's warranty instruction despite Bassett's objections. The jury awarded Colonial significant damages on its breach of contract claim and $1 for tortious interference.

The jury found that Bassett's actions constituted unfair trade practices under the UDTPA, affecting commerce and intending to disrupt Colonial’s supplier relationships. Bassett was deemed to have committed seven unfair trade practices, leading to a UDTPA damages award of $41,472.08 for bribing or coercing Colonial’s suppliers, while $1 was awarded for each of the other six practices. Bassett's counterclaims were mostly denied, except for a nominal $1 award for breach of express warranty against Colonial. Following the trial, Colonial sought attorneys’ fees and treble damages for its UDTPA and breach of contract claims. The district court granted treble damages for the UDTPA recovery, totaling $124,416.24, ruling that the breach of contract and UDTPA claims were based on distinct conduct. Bassett's appeal primarily challenges Jury Instruction 16, which addressed warranty definitions and damage claims, asserting it led to misinterpretation of warranties and improper jury instructions regarding damages. The standard of review for jury instructions is abuse of discretion, but incorrect legal statements in instructions are reviewed de novo. If no proper objection was made, review is for plain error, with a reversal occurring only if the instruction caused the jury to ignore or misapply fundamental legal principles.

Bassett's objection to Instruction 16, claiming it was "misleading or confusing," may not have been adequately preserved for appeal, as Colonial argues. According to Federal Rule of Civil Procedure 51(c)(1), a party must distinctly state the objection and its grounds on the record. Colonial cites Belk, Inc. v. Meyer Corp., where the appellant waived its challenge due to improper objection procedures. While Bassett's objection was vague, the court opted to affirm the decision based on the merits of the arguments rather than procedural grounds, proceeding to a de novo review of Instruction 16.

Bassett contends that the district court incorrectly instructed the jury on express warranties by using Colonial's language, stating that a warranty of a shipment being defect-free does not imply that every part of each crib is free from defects. The parties cited conflicting case law, but the court found both unpersuasive. It concluded that even if Instruction 16 contained an error, it was harmless, as the overall jury instructions adequately conveyed the applicable legal principles. The later instructions aligned with North Carolina's express warranty statute, clarifying that if Bassett proved Colonial's promise for cribs to be free of defects, the jury must find an express warranty existed. The court also explained that a breach of contract involves failing to perform any promise within the contract. Ultimately, the instructions provided a comprehensive understanding of express warranty formation and breach, countering Bassett's claim that Instruction 16 led the jury to overlook the express warranty, especially since breach of express warranty was the only claim Bassett successfully pursued.

A jury instruction must be evaluated within the context of the overall charge rather than in isolation. In this case, the court correctly explained the evaluation of Colonial's express warranty and the jury determined that Colonial breached this warranty, indicating that any alleged errors did not misapply crucial legal principles. Bassett argued that the instruction improperly restricted the jury from awarding damages for all costs related to recalling crib models, instead limiting recovery to specific defective cribs. The North Carolina Supreme Court has established that a warranty breach does not require proof that every unit is entirely unusable; therefore, the jury could consider damage claims for all units if a breach was found based on a sample of defective units. However, the jury did not find the cribs defective or award more than nominal damages. Overall, the court’s instructions adequately addressed how to calculate damages, emphasizing that Bassett should not be denied damages due to lack of precise calculation and including provisions for incidental and consequential damages. The court clarified that the damages were based on the reduced value of the cribs, consistent with North Carolina law. If the jury found a breach but insufficient proof of damages, it was instructed to award nominal damages of $1, recognizing a technical injury without substantial harm. The jury’s decision to award nominal damages suggests it believed Bassett failed to prove its claim for greater damages. Consequently, any misstatement in the jury instruction regarding recovery was not prejudicial, as the jury was properly guided on the burden of proof for damages.

Bassett contends that Instruction 16 suggested the acceptability of certain crib defects, which confused the jury regarding its claims for breach of contract, revocation of acceptance, and implied warranty of merchantability. However, Bassett's argument relies on the erroneous assumption that the jury found the cribs defective, a conclusion contradicted by the jury's actual findings. Under North Carolina law, Bassett had to demonstrate that the cribs were defective at the time of sale to support its claims related to implied warranty and revocation of acceptance. The precedent established in DeWitt v. Eveready Battery Co. requires proof of nonconformity at the time of sale, while Harrington Mfg. Co. Inc. v. Logan Tontz Co. necessitates showing that any defect substantially impaired the goods' value. The jury's ruling in favor of Colonial implies it did not find the cribs defective upon acceptance. Furthermore, the court's jury instructions on implied warranty, revocation of acceptance, and breach of contract were appropriate, rendering any perceived error in Instruction 16 harmless.

Bassett also argues for vacating the district court’s UDTPA award, asserting that the underlying dispute was contractual, that the UDTPA award duplicated Colonial's breach of contract recovery, and that Instruction 16 influenced the jury's evaluation of the alleged unfair trade practices. The standard of review for the UDTPA claim is de novo regarding legal determinations, while jury findings are assessed favorably toward the prevailing party. To succeed under the UDTPA, a party must prove: (1) the defendant engaged in commerce-affecting conduct, (2) that conduct was unfair or misleading, and (3) the plaintiff suffered actual injury due to the defendant’s actions. The jury determines the factual elements of alleged conduct and damages, while the court assesses whether the conduct qualifies as unfair or deceptive under the law. North Carolina law stipulates that only actions with egregious circumstances can violate the UDTPA, making the definition of unfair or deceptive practices context-dependent.

A trade practice is considered 'unfair' if it violates established public policy or is deemed immoral, unethical, oppressive, unscrupulous, or significantly harmful to consumers. North Carolina courts maintain that a mere breach of contract, even if intentional, does not constitute an unfair or deceptive act under the Unfair and Deceptive Trade Practices Act (UDTPA). In this case, Bassett argued that Colonial’s UDTPA claim stemmed from the same actions as its contract claims, which should preclude an UDTPA award. However, the jury identified separate unfair trade practices, including paying Colonial’s suppliers to refrain from dealings with Colonial and coercing suppliers to work with Bassett instead, which justified an UDTPA award. North Carolina law supports UDTPA claims for tortious interference with contracts and similar misconduct. Additionally, if a claimant proves commercial bribery, it suffices for a UDTPA claim. Bassett’s assertion that Colonial should choose between contract and UDTPA damages is flawed, as the district court clarified that the UDTPA claims were distinct from the breach of contract claims. The jury awarded UDTPA damages based on separate misconduct involving bribery of a manufacturer, thus eliminating concerns of duplicative recovery.

Colonial challenges the district court's denial of its request for treble damages related to breach of contract. Citing *Gray v. North Carolina Insurance Underwriting Ass’n*, the North Carolina Supreme Court ruled that only damages directly caused by a violation of the Unfair and Deceptive Trade Practices Act (UDTPA) may be trebled, not all damages in cases involving UDTPA violations. As the breach of contract damages did not arise from a UDTPA violation, they were not eligible for trebling. The North Carolina Court of Appeals has permitted trebling when breach of contract is accompanied by aggravating factors that lead to a UDTPA claim. However, Colonial's assertion that its contract damages are derived from unfair trade practices listed in the jury verdict is unsubstantiated. The verdict showed that jurors awarded specific damages only for the bribery and coercion claim, not for breach of contract acts. Furthermore, the structure of the verdict form in this case mirrored that in *Gray*, which only allowed for trebling of UDTPA damages. Consequently, the district court's decision to treble only the UDTPA damages is affirmed.

The district court's judgment is affirmed. Bassett paid YanRong Furniture, a Chinese crib manufacturer, $300,880 to release bills of lading, despite YanRong billing Colonial $170,000 for the same goods. The court dismissed Bassett's tortious interference claim based on the jury's findings, which indicated that Bassett acted inappropriately towards Colonial by: 

A. Ordering goods from Colonial without the intention to pay.
B. Unilaterally charging back Colonial for non-defective goods under false pretenses.
C. Unilaterally charging back expenses not permitted by contract, also under false pretenses.
D. Incurring unnecessary recall expenses to improperly charge back Colonial.
E. Paying Colonial's suppliers and persuading them not to deal with Colonial.
F. Inducing Colonial's suppliers to work with Bassett through bribery or coercion.
G. Misusing financial power to cripple Colonial and force factories to deal directly with Bassett.

The jury awarded only nominal damages, which suggests they found no proof of damages by Bassett. Additionally, Bassett's argument regarding jury confusion over damage calculations was weakened by the minimal award. The discussion on Instruction 16 in the UDTPA context is not reiterated as it mirrors previous analysis.