Data

Date:: 18-03-2008
Country:: USA
Number:: 07-161-JBT
Court:: U.S. District Court, Eastern District of Kentucky
Parties:: Sky Cast, Inc. v. Global Direct Distribution, LLC

Keywords

SCOPE OF CISG - NEGLIGENT MISREPRESENTATION NOT COVERED BY CISG (ART. 4 CISG).

LATE DELIVERY - ART. 39 CISG REGARDING NON-CONFORMITY OF GOODS APPLICABLE BY WAY OF ANALOGY

NON CONFORMITY OF GOODS - BUYER MUST GIVE NOTICE OF LACK OF CONFORMITY "WITHIN A REASONABLE TIME" AFTER IT DISCOVERED THE DEFECTS OR OUGHT TO HAVE DISCOVERED THEM - BUT NEVER MORE THAN TWO YEARS AFTER DELIVERY ( ART. 39 CISG)

Abstract

A Canadian seller and a US buyer concluded a contract for the sale of a certain quantity of concrete light poles which were delivered to a construction site in Florida. Pursuant to the practice and custom developed between the parties over the course of their long-term relationship, the seller had to deliver a quantity of poles every two weeks. The seller encountered various problems with production and failed to deliver the light poles on time; nevertheless, the seller supplied the goods requested which were accepted by the buyer and used in the project. Thereafter the seller sent invoices to the buyer for the goods, but the buyer failed to pay. The seller filed suit under UCC Art. 2 for breach of contract for damages under the contract; the buyer countersued under the CISG for breach of contract for damages as well as negligent misrepresentation under Kentucky tort law.

The court found the CISG was applicable since the buyer and seller had their principal places of business in different signatory states (CISG Art. 1(a)) and that the CISG preempted the applicability of the UCC.

The Court found that since the buyer had failed to pay the seller for the goods accepted and used in the construction project the seller was entitled to claim for breach of contract and was entitled to damages under CISG Art. 74. The decision on the amount of damages due to the seller was postponed.

The seller claimed under Art. 2 UCC that the buyer failed to follow procedures established between the parties and therefore was not entitled to damages. However, since CISG governed the case and not the UCC, the Court applied analogously Art. 39 CISG to establish that the poles had not been shipped according to the custom established between the parties and therefore had to be considered as non-conforming. As a result, the buyer had two years from the date of delivery to give the seller notice of non-conformity of the goods. Therefore, the Court concluded that by filing the law suit the buyer had given the seller timely notice of lack of conformity for the goods, and was entitled to damages according to Art. 74 CISG. The decision on the amount of damages due to the buyer was likewise postponed.

In respect to the tort claim of negligent misrepresentation, the Court concluded that it was not covered by CISG and applied Kentucky tort law.

Fulltext

I. INTRODUCTION

Plaintiff Sky Cast, Inc. ("Sky Cast"), a foreign corporation with its principal place of business in Guelph, Ontario, Canada, brings this action against defendants Global Direct Distribution, LLC ("Global"), a limited liability company with its principal place of business in Lexington, Kentucky; David J. Dixon ("Dixon"), a man-aging member of Global; and Raymond A. Sjogren ("Sjogren"), a managing member of Global, for breach of contract, alleging that Global is indebted to it in the principal amount of $ 83,203.78 for concrete light poles that Sky Cast made and delivered to Global's customer in Florida in 2006. Sky Cast also asserts claims against the defendants for unjust enrichment and fraud.

Sky Cast seeks judgment in the amount it is owed under its contract with Global, prejudgment interest, post judgment interest, and its costs and attorney's fees.
In response, Global has counterclaimed, alleging that Sky Cast breached their contract by failing to deliver the concrete light poles in question as Sky Cast had agreed to do and that Global sustained damages by Sky Cast's failure to perform the contract in a timely manner. Global also asserts claims for negligent misrepresentation and fraud and concealment. Global seeks unspecified compensatory damages, postjudgment interest, its costs and attorney's fees.

This matter is presently before the court on (1) plaintiff's motion for partial summary judgment on its breach of contract claim and on the defendant's counter-claim for breach of contract, (2) defendant's motion for partial summary judgment on its claim for negligent misrepresentation, and (3) the motion of the individual defendants Sjogren and Dixon for summary judgment on all claims asserted against them individually. Plaintiff's motion for partial summary judgment on its breach of contract claim and on the defendant's counterclaim for breach of contract and defendants' motion for partial summary judgment on their claim for negligent misrepresentation have been fully briefed and are ripe for review. Plaintiff has filed no response to the motion of the individual defendants for summary judgment on all claims, and the time for responding thereto has expired; therefore, this motion is also ripe for review.

II. FACTUAL BACKGROUND

For approximately three years prior to the events giving rise to this lawsuit, Sky Cast, a manufacturer of concrete light poles, sold concrete light poles and related products to Global 1 for use in various construction projects in the southeastern United States. 2 Global supplied concrete light poles to Tradition, one of Global's customers in Florida, for use in its construction/development projects.

1 At that time, Global was a limited liability company based in Palm City, Florida, and Tradition Development Company, LLC, and its affiliated companies in Florida ("Tradition") was one of Global's customers in Florida. In November of 2006, Global was voluntarily dissolved in Florida and is now a limited liability company in Kentucky.

2 While this action appears to stem from the Landings development project, one of the Purchase Orders in question predates the Landings project, which did not materialize until late April of 2006, and seems to concern a different project. The Purchase Order that predates the Landings project is dated February 16, 2006, and is in the amount of $ 46,050.00. See Exhibit A to plaintiff's Complaint [DE # 1]. Apparently, there is a balance also owed on this 2/16/06 Purchase Order.

During the period of time prior to April of 2006, a pattern or a course of dealing had developed between Sky Cast and Global in relation to Global's purchase of light poles from Sky Cast. Generally, representatives from Global would contact members of Sky Cast's sales team and talk with them about upcoming projects on which Global planned to bid. After exchanging information including job specifications and costs, Global would submit a bid on the project. If Global were awarded the project, then Global would send a purchase order to Sky Cast. See Affidavit of Raymond A. Sjogren - Exhibit A to Global Direct's Motion for Summary Judgment [DE # 24]. Sky Cast would then produce the items ordered and ship them to the project site pursuant to its agreement with Global. In April 2006, Sky Cast and Global had just completed a project in Florida, and the parties then engaged in preliminary discussions concerning a new job in the Landings development in Florida. Global had been awarded a contract by Tradition to supply the light poles for installation in the parking lot at a new Target store location in the Landings development.

Subsequently, after all of the details concerning the specifications had been provided to Sky Cast, on April 20, 2006, pursuant to the practice and custom that had developed between Global and Sky Cast, Global sent a Purchase Order to Sky Cast for various quantities of three different types of light poles for the Target store in the Landings development, which Sky Cast was to ship to the project site in Port St. Lucie, Florida. The total amount of this Purchase Order was $ 115,658.30. The purchase order also requested Sky Cast to provide wind-load certifications and requested that one truck load of light poles (viz., 20 light poles) be shipped within two weeks. 3

3 Global states that based on the parties' past practice, Sky Cast was to have shipped a load of light poles (approximately 20 poles) to the project every two weeks, following the first shipment which should have been made in early May of 2006. The Purchase Order dated April 20, 2006, states: "One truck load (20) to be shipped within 2 weeks ARO this date." However, this Purchase Order does not specify that a truck load of poles is to be shipped every two weeks thereafter.

By e-mail dated April 25, 2006, Sky Cast advised Global that it could have two loads leaving on Monday afternoon (presumably May 1, 2006) to arrive mid-week of that week. (See e-mail from Romi Pop to Ray Sjogren, Exhibit C to Global Direct's Motion for Summary Judgment [DE # 24]. Apparently, on May 4, 2006, Sky Cast shipped two (2) separate loads of 25 light poles (for a total of 50 light poles) to Town Park in Port St. Lucie, Florida, consistent with Romi Pop's e-mail dated April 25, 2006. See Exhibit 4 to Sky Cast's response to Global's motion for summary judgment [DE # 31]. How-ever, as explained in greater detail below, it is unclear whether this shipment of light poles was for the Landings project or whether it was for a different project.

Additionally, during the course of performing this contract, Sky Cast encountered problems with production 4 and was unable to ship a truck load of poles to the Landings project site every two weeks, consistent with the customary practice previously followed by Sky Cast and Global on this type of construction project. Nevertheless, Sky Cast ultimately supplied the products and/or services requested by Global in the four Purchase Orders at issue (Purchase Orders dated February 16, 2006, April 20, 2006, July 19, 2006, and October 13, 2006), and Global accepted the products and/or services provided.

4 In answering Global's Interrogatory No. 15, Sky Cast's response, in part, states: "There was a two-week partial shutdown at the plant due to a shift being on vacation. Additionally, there was a gas leak that closed the plant for two days, and there were inexperienced employees working on a certain shift."

Thereafter, Sky Cast sent invoices to Global for these products and/or services. The invoices specify a payment term of 30 days. See Exhibit B to Complaint [DE # 1]. Sky Cast asserts that Global has failed to pay these invoices in full and is indebted to it in the principal amount of $ 83,203.78.

III. THE MOTIONS FOR SUMMARY JUDGMENT

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B. Sky Cast's motion for partial summary judgment
In support of its motion for summary judgment on its breach of contract claim and on Global's counterclaim for breach of contract, Sky Cast contends that the contract at issue is governed by Article 2 of the Uniform Commercial Code, codified in Kentucky as Chapter 355 of the Kentucky Revised Statutes. More particularly, Sky Cast submits that since it supplied the goods in question and that since Global accepted these goods, this con-tract is controlled by KRS 355.2-606 and KRS 355.2-607. KRS 355.2-607, provides that "a buyer must pay at the contract rate for any goods accepted," and KRS 355.2-606(1)(b) specifies that "[a]cceptance of goods occurs when the buyer . . . fails to make an effective rejection." Based on these undisputed facts and the applicable law, Sky Cast asserts that it is clear that Global is in breach of contract and that it is entitled to summary judgment on its breach of contract claim because (1) Sky Cast sup-plied the light poles specified in the Purchase Orders (albeit untimely), and (2) Global accepted the light poles, made no efforts to reject the light poles, and used these light poles in the construction project.

With this claim resolved, Sky Cast notes that the only other contract issue remaining is whether it was in breach by the delays in shipment of the light poles and, if so, whether Global is entitled to a set-off against the contract price for damages resulting from any breach by Sky Cast. Sky Cast points out that pursuant to KRS 355.2-607(3)(a), "where tender has been accepted the buyer must within a reasonable time after he discovers . . . any breach notify the seller of breach or be barred from any remedy." Based on this provision, Sky Cast argues that if Global desired to deduct any damages for Sky Cast's breach of contract from the contract price, it was required to do the following: (1) notify Sky Cast of its breach within a reasonable time after discovering the breach, and (2) notify Sky Cast of its intent to deduct damages resulting from the breach. Sky Cast contends that since Global did not follow the foregoing procedure, it is now barred from any remedy. Sky Cast states that prior to the filing of this action, Global never notified it that Global considered Sky Cast to be in breach of contract and that it intended to offset its alleged damages against the contract price. For these reasons, Sky Cast also contends that Global has waived its claim for dam-ages under KRS 355.2-607 and that it is entitled to summary judgment on Global's counterclaim for breach of contract.

In opposing Sky Cast's motion for summary judgment on its breach of contract claim against Global and on Global's counterclaim for breach of contract, Global submits that since the contract in dispute is between parties in different nations, it is governed by the United Nations Convention on Contracts for the International Sale of Goods ("CISG") rather than by Article 2 of the Uniform Commercial Code, as urged by Sky Cast. Therefore, Sky Cast is not entitled to summary judgment on its breach of contract claim against Global or on Global's counterclaim for breach of contract.

Discussion/Analysis
Since Sky Cast is a foreign corporation with its principal place of business in Guelph, Ontario, Canada, and since Global is a company with its principal place of business in Lexington, Kentucky, U.S.A., it appears that the contract in dispute is contract is controlled by the CISG, which governs a contract for the sale of goods between parties whose principal places of business are in different nations if those nations are signatories to the treaty. BP Oil International, Ltd. v. Empresa Estatal Petroleos de Ecuador(PetroEcuador), 332 F.3d 333, 336 (5th Cir. 2003). In this case, both the United States of America, where Global's principal place of business is located, and Canada, where Sky Cast is located, are signatories to the CISG. Although the parties to a contract normally controlled by the CISG may exclude the applicability of the CISG to their contract, any such exclusion must be explicit. See PetroEcuador, 332 F.3d at 337. In this case, there is no indication that the parties elected not to have the CISG apply to their contract.

The CISG preempts state law contract claims. Asante Technologies, Inc. v. PMC-Serra, Inc., 164 F.Supp.2d 1142, 1151-1152 (N.D. Cal.2001). See also William S. Dodge, Teaching the CISG in Contracts, 50 J. Legal Educ. 72, 72 (March 2000) ("As a treaty the CISG is federal law, which preempts state common law and the UCC."); David Frisch, Commercial Common Law, The United Nations Convention on the International Sale of Goods, and the Inertia of Habit, 74 Tul. L. Rev. 495, 503-04 (1999) ("Since the CISG has the preemptive force of federal law, it will preempt article 2 when applicable.").
Since this contract concerns the sale of goods between parties in different countries (Canada and the United States of America), since these two countries are signatories to the CISG, and since there is no indication that the parties opted out of the CISG, the court concludes that the CISG governs this contract and that it preempts the applicability of Article 2 of the UCC to this transaction for the sale of goods that ordinarily would be controlled by Article 2 of the UCC. However, even though the CISG, rather than Article 2 of the UCC, controls this contract, the court also concludes that that fact does not operate to defeat Sky Cast's motion for summary judgment on its breach of contract claim, and the court further concludes that based on the undisputed facts of this case, at least as to liability, Sky Cast is entitled to summary judgment on its breach of contract claim. This conclusion is based on the fact that Sky Cast supplied the goods that were purchased by Global in the various Purchase Orders, that Global accepted these goods and made no efforts to reject these goods, that these goods were used in the construction project, and that Global failed to pay Sky Cast in full for the total amount of the invoices Sky Cast sent to Global concerning these goods. Therefore, liability on Sky Cast's breach of contract claim against Global is no longer an issue. The only remaining aspect of Sky Cast's claim for breach of contract is the amount of damages to which Sky Cast is entitled.

Global's counterclaim for breach of contract
Sky Cast also contends that it is entitled to summary judgment on Global's counterclaim for breach of contract because Global is barred from deducting from the balance owed on the contract price for any damages it may have sustained by reason of Sky Cast's delay in shipping the light poles to the construction project. In support of this argument, Sky Cast relies on Article 2 of the UCC and asserts that since Global did not follow the foregoing procedure, set out in detail above, Global has waived any claim it might have had under Article 2 of the UCC for damages and is now barred from any remedy. Therefore, it is entitled to summary judgment on Global's counterclaim for breach of contract.

Sky Cast's motion for summary judgment on Global's counterclaim for breach of contract is premised on Article 2 of the UCC, which is not applicable to this contract. As previously stated, the CISG governs this contract. Article 39 of the CISG contains the following provision concerning lack of conformity of the goods:

(1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.
(2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless this time-limit is inconsistent with a contractual period of guarantee.

Although Global has not asserted as a defense that the goods were non-conforming, per se, Global impliedly asserts that the goods were non-conforming because they were not shipped within the time-frame customarily followed by the parties on contracts for similar construction projects, and that it sustained damages by the delay in shipments. Thus, Article 39 of the CISG is applicable by analogy. Assuming the light poles were non-conforming because of the delay in shipments, under Article 39, it appears that Global had two years from the date of delivery of the light poles to the construction project within which to give Sky Cast notice that the goods were non-conforming.

In this case, the exact dates of Sky Cast's shipments of the light poles to the construction project are not clear from the record as it presently stands. However, all light poles were shipped to the construction project in the summer and early fall of 2006, and Sky Cast sent Global invoices to Global for these shipments, presumably at the time the light poles were shipped or shortly thereafter. Of the twelve (12) invoices attached to Sky Cast's complaint, two are dated August 14, 2006, three are dated August 31, 2006, three are dated September 14, 2006, and four are dated October 4, 2006. Thus, under Article 39 of the CISG, Global had a two years thereafter in which to notify Sky Cast that the light poles were non-conforming goods. Therefore, Global's two-year statute of limitations would not expire, at the earliest, until Au-gust 14, 2008. Global's counterclaim herein was filed on July 26, 2007. Consequently, the court concludes that under Article 39 of the CISG, Global's notice to Sky Cast that its goods were non-conforming was timely.

Nevertheless, even though Global's notice to Sky Cast that there was a problem with its goods, in the sense that Global considered the late delivery of the goods to have violated the terms of their contract, was timely, such notice does not mean that Global will or should prevail on its counterclaim for breach of contract. Article 74 of the CISG provides, in part, that a party can recover for damages for breach of contract "equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach." Global claims that it was damaged by Sky Cast's late shipments of the light poles in that (1) in order to appease its customer, Tradition, it had to pay the storage charges of certain materials that had to be placed in storage awaiting the delivery of the light poles, and (2) it has also incurred a loss of profits in that its volume of business with Tradition has declined as the result of this situation. As to proof of its damages, Global advises that its out-of-pocket expenses for the storage charges were $ 13,156.02 and that it lost profits in the amount of $ 146,885.76. 5 However, at this juncture, Global has come forward with no concrete proof of its loss of profits.

5 See Affidavit of Raymond A. Sjogren, p. 3, at-tached to Global's motion for partial summary judgment [DE # 24-4].

Consequently, for all of the foregoing reasons, the court concludes that neither Sky Cast nor Global is entitled to summary judgment on Global's counterclaim for breach of contract.

C. Global's motion for partial summary judgment

In support of its motion for summary judgment on its counterclaim for negligent misrepresentation, Global relies on § 552 of the Restatement (Second) of Torts, which was adopted in Kentucky in 2004 in Presnell Construction Managers, Inc. v. EH Construction, LLC, 134 S.W.3d 575 (Ky. 2004). Global contends that under § 552 of the Restatement (Second) of Torts, it is entitled to recover for pecuniary loss resulting from the false information on which it relied that was conveyed to it by Sky Cast concerning the deliveries of the light poles. Global also points out that while the CISG preempts Article 2 of the UCC in respect to the breach of contract claim, it does not preempt state law tort claims. Additionally, Global notes that Article 74 of the CISG provides for the award of lost profits.

In response, Sky Cast contends that Global's motion for partial summary judgment on its claim for negligent misrepresentation should be denied because Global has failed to produce any evidence of a negligent misrepresentation by Sky Cast and/or any evidence that it relied on any such misrepresentation. Sky Cast also asserts that Global has provided no concrete evidence as to its damages and that the evidence it has submitted concerning its loss is speculative. For all of these reasons, Sky Cast submits that there are genuine issues of material fact concerning Global's claim for negligent misrepresentations and that Global's motion for partial summary judgment on this claim must be denied.

Discussion/Analysis
In Presnell Construction Managers, Inc. v. EH Construction, LLC, supra, the Restatement (Second) of Torts § 552, was adopted as the law in Kentucky. § 552 concerns the tort of negligent misrepresentation and pro-vides, as follows: "One who, in the course of his business . . . supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information. In adopting § 552, the Kentucky Supreme Court held that "[w]e agree that privity is not necessary to maintain a tort action, and, by adopting § 552, we agree that the tort of negligent representation defines an independent duty for which recovery in tort for economic loss is available." Id.

Thus, negligent misrepresentation is a tort claim completely different from a claim for breach of contract. Being a tort claim, the court concludes that it is not controlled by the CISG, which only concerns the sales of good between merchants in different countries, and that since this action is a diversity action, Global's claim for negligent misrepresentation is controlled by state law.

Global's claim for negligent misrepresentation is based on the premise that Sky Cast provided it with false information concerning the delivery of the light poles. In support of this claim, Global relies on the following three e-mails from Romi Pop at Sky Cast to Global: (1) an e-mail dated April 25, 2006 to Ray Sjogren, (2) an e-mail dated June 7, 2006 to Ray Sjogren, and (3) an e-mail dated June 8, 2006 to Dave Dixon. These three e-mails are examined in greater detail, as follows:

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It is clear from the foregoing e-mails that they concerned the Landings project. Summarizing these e-mails, on June 7, 2006, Global advised Sky Cast that they "really need a truck load of poles immediately for the Tradition Landing Job," and requested a status report on those poles. Sky Cast responded that it had encountered some production problems, but that it expected to be able to have a full load of poles ready to ship on the week of June 19, 2006. The record reflects that on June 19, 2006, Sky Cast shipped a load of fourteen (14) poles and that on July 7, 2006, Global received another shipment containing twenty-one (21) poles.

Consequently, the court concludes that these two e-mails in question, viz., the e-mail dated June 7, 2006 to Ray Sjogren, and the e-mail dated June 8, 2006 to Dave Dixon, do not contain any false information. Therefore, these two e-mails do not support Global's motion for summary judgment on its claim for negligent misrepresentation.

For these reasons, the court also concludes that Global is not entitled to summary judgment on its counterclaim for negligent misrepresentation.

D. The motion for summary judgment filed Sjogren and Dixon on Sky Cast's fraud claim

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An Order and Judgment in accordance with this Memorandum Opinion will be entered on the same date herewith.}}

Source

Original in English, available at Westlaw.}}