Opinion
08 Civ. 2856 (NRB)
03-29-2011
PHOENIX WAREHOUSE OF CALIFORNIA, LLC, Plaintiff, v. TOWNLEY, INC., Defendant. - and - PHOENIX WAREHOUSE OF NEW JERSEY, L.L.C., PHOENIX HOLDING GROUP, L.L.C., ALAN ANTONUCCI and CHRISTOPHER ANTONUCCI, Additional Counterclaim-Defendants.
MEMORANDUM AND ORDER
Phoenix Warehouse of California, LLC ("Phoenix") initiated this action against Townley, Inc. ("Townley") alleging that it is owed money for services rendered pursuant to a contract. Townley asserted two counterclaims against Phoenix, affiliated companies, and its principals, Alan and Christopher Antonucci. Phoenix moved for summary judgment on its breach of contract claim and to dismiss Townley's counterclaims as seeking unrecoverable consequential damages. At oral argument on March 8, 2011, this Court denied Phoenix's motion for summary judgment on its contract claim. However, we granted Phoenix's motion to dismiss Townley's counterclaims for any damages sought for injuries occurring prior to November 1, 2007. The Court reserved decision on whether to grant Phoenix's motion dismissing Townley's counterclaims in their entirety. For the reasons stated below, Phoenix's motion is hereby granted inasmuch as Townley's counterclaims attempt to recover damages for cancelled orders and chargebacks, credits, and other cash incentives. Townley's counterclaims are not dismissed in their entirety, however, as there are outstanding issues of material fact regarding whether Phoenix is liable to Townley for overpayments as a result of Phoenix's alleged breaches of contract.
FACTS
In their submissions to the Court, the parties focused much of their attention on allocating blame for the deterioration of the contractual relationship. While this issue was significant to the broad motion originally made by Phoenix, it is largely irrelevant to the relatively narrow question remaining before the Court. Only the facts pertinent to the present determination will be addressed here.
Townley is a company which supplies cosmetics and cosmetic gift sets to retailers such as Wal-Mart, Target, CBI, and Kohl's. Pl.'s Statement of Facts ("Pl.'s SF") ¶ 3. Townley's goods are primarily imported from Asia. Id. ¶ 2. On June 6, 2001, Phoenix and Townley entered into a contract in which Phoenix undertook to provide warehousing and distribution services for Townley. Ex. 1 to Townley's Opp'n Mem. of Law ("Opp'n Mem."). Pursuant to this agreement, Phoenix would store Townley's merchandise and prepare goods for shipping to Townley's retail customers. In return for these services, Townley made payments to Phoenix based on the amount of goods received and stored. Id. Phoenix's shipping responsibilities included processing, packaging, ticketing, labeling, and assembling orders. In fulfilling these duties, Phoenix would often "pick and pack" orders for Townley. Pl.'s SF ¶¶ 8-11. Under this process, Townley would provide Phoenix with a "pick ticket" that contained specific instructions as to how to process an order. Id. ¶ 11. For example, the ticket would reflect whether the store preferred to receive goods in six or twenty-four piece sets. Id. Phoenix would prepare the order for shipping in compliance with these instructions, literally "picking" the goods off of the shelf and "packing" them for shipping.
On February 18, 2004, the parties revised their agreement in order to alter the method by which Phoenix was compensated. Under the new system, Townley paid Phoenix based on a percentage of sales to its customers. Specifically, Townley paid Phoenix 2% of the sales price for "Target, Holiday, Pick & Pack, In/Out Programs" and 5% for "other" services including "Kitting, Assembly, Ticketing, Sorting and like programs." Ex. 2 to Opp'n Mem. Townley guaranteed ten million dollars in sales each year, and pledged to make monthly payments of twenty thousand dollars. Id.
Two elements of these contracts are particularly relevant to the issue before the Court. First, both agreements contained a clause which stated that Phoenix "shall be accountable for [chargeback] due to warehouse error, only if such error is unequivocally the responsibility of Phoenix" and that liability for a chargeback is limited to the "amount of work or work order performed." Exs. 1, 2 to Opp'n Mem. The 2004 agreement further required that chargebacks be "fully documented and presented for review and consideration." Ex. 2 to Opp'n Mem. Chargebacks, which the parties agree are common in the retail goods industry, can occur when a retailer receives a shipment that does not perfectly comply with its request. For example, if a retailer received a shipment that was one or two pieces short of what it ordered or had a misplaced label, it could chargeback Townley, which would owe it money as a result.
Such a restriction on liability makes sense, given the limited role Phoenix plays in the distribution of Townley's goods and the lack of control it has in ensuring goods arrive to retailers on time and without error. As stated by Phoenix in reply to Townley's memorandum of law opposing this motion:
"The rationale for this limited liability emanates from the peculiar circumstances of the warehouse industry. The goods are shipped from Asia via steamship, must clear customs at the pier, are picked up by a trucking company, and delivered to the warehouse. There they remained until Townley issues an order for picking and packing. The goods are then picked up by another trucking company and delivered to a distribution center or a retail store. Virtually the entire transaction is beyond Phoenix'[s] control. Phoenix has no ability to meet Townley's deadlines without the goods on hand in a timely manner, which is out of Phoenix'[s] control."Phoenix Mem. in Reply at 5.
At his deposition, Alan Antonucci noted that "in this industry, customers are notorious for chargebacks for any reason." Ex. 15 to Opp'n Mem. at 54. Eddie Habbaz, another agent of Phoenix, stated that Townley could "get a chargeback from their customer for some - either valid or frivolous charge. It could be a supposed error...it could be a physical thing or could not be a physical thing." Ex. 19 to Opp'n Mem. at 36.
Second, neither agreement specified any time limits within which Phoenix was to perform any of its contractual duties. Despite the lack of any affirmative time obligations, it appears that both parties understood that Townley's customers were allowed to cancel orders if they were not received by a certain date. Each order made by one of Townley's customers had its own cancel date; if the customer did not receive the ordered goods by that date, for any reason, it had the right to cancel the order. See Transcript of Oral Argument at 9-10.
The relationship between Townley and Phoenix began to deteriorate in 2007. It is undisputed that sometime during that year, Townley began omitting the retail cost of the goods in its packing instructions to Phoenix, and that Townley's account became past due by "August or September of 2007." Pl.'s SF ¶ 45, 47. Furthermore, the parties agree that while Townley initially paid "specific invoices by check, earmarked to each Phoenix invoice," eventually it "began paying Phoenix by lump sum wire transfers that were not earmarked to any particular Phoenix invoice." Id. ¶¶ 49-50. Townley does not dispute these facts, but it does claim that Phoenix was able to obtain the pricing information by other methods, that Phoenix "began to fall behind on processing and shipping Townley's orders to its customers beginning in or about June 2007," and that "around" August 2007, Phoenix "began to fall behind in its invoicing to Townley." Def.'s Statement of Facts ("Def.'s SF") ¶¶ 45-47. According to Townley, invoices "were not received until months later, were received without backup, or were not received at all." Id. ¶ 47. Townley claims that despite the fact that "Phoenix was not billing Townley accurately or timely," Phoenix was "demanding payments from Townley." Id. Furthermore, Townley claims that it made lump sum payments "at Phoenix's request," that the payments were "'prepayments' and not against balance due," and that Townley "'had overpayments in [its] books' because Townley 'had no invoices.'" Id. ¶ 50 (quoting deposition of Wendy Abreau, Townley's comptroller, Ex. H to Pl.'s Mot. for Summary Judgment ("Pl.'s Mot.")).
The parties' respective allegations raise a classic chicken-and-egg dilemma. It is not clear whether Townley's failure to provide the retail costs of the goods constituted a material breach which led to Phoenix's inability to properly bill Townley and Townley's eventual default, or whether Phoenix should have obtained the information from other sources and breached first by either falling behind in preparing its shipments or providing appropriate invoicing. Resolution of this issue, however, is not necessary in order to reach a conclusion on this motion.
Regardless of which party breached the contract first, a question not presently before us, it is undisputed that in September and October 2007 the parties vigorously contested what amount, if any, Townley owed Phoenix for services rendered. This dispute culminated on October 12, 2007, when Phoenix's CEO directed his employees to cease all work on Townley's orders. Ex. 4 to Opp'n Mem. Four days later, on October 16, the parties entered into a third agreement which was to take effect on November 1. Ex. 5 to Opp'n Mem. The primary purpose of this contract was to return the parties to a method of billing similar to the first agreement. See Ex. 5 to Opp'n Mem.; Transcript of Oral Argument at 22. As in the 2001 contract, Phoenix would be compensated based on the amount of goods it received on behalf of Townley and prepared for shipping.
Phoenix's complaint attaches and appears to rely on a contract dated September 7, 2007. This contract sets out different billing rates than the one entered into on October 16. It is not clear whether the parties ever operated under this agreement and, oddly, it appears to have been ignored by the parties in briefing the instant motion and making their presentations at oral argument.
The 2007 agreement contained two potentially significant distinctions from the previous contracts. First, there was no explicit mention of chargebacks. Second, Phoenix promised to process Townley's orders within certain timeframes. Specifically, in a section titled "Processing," the agreement set forth:
We note that the agreement is styled as a "Schedule of Services and Rates to be effective November 1, 2007" and does not include any of the liability disclaimers or other affirmative duties included in the first two. Thus, one could easily conclude that the provisions from the 2001 and 2004 contract carried over, and that this agreement was only meant to supersede the billing method of the 2004 contract. Interestingly, neither party makes this argument in their submissions to the Court.
"assuming pick tickets, freight and all components are on hand, [turnaround] times shall be as follows and no overtime shall be billed:Ex. 5 to Opp'n Mem. at 2.
Shippable inners and full case quantities for in/out and replenishment orders shall be two business days
Re-work orders shall be five business days"
After entering into this revised agreement, the parties continued to dispute the amount owed to Phoenix by Townley. On November 7 and 8, the parties' lawyers exchanged a series of emails. In these emails, Townley sought to obtain Phoenix's commitment to prepare their goods for shipping within certain time periods, and Phoenix demanded compensation for outstanding payments. Ex. 20 to Opp'n Mem.
To summarize, on November 7, Townley made an offer to place certain funds in escrow on the condition that Phoenix promise to meet certain shipping deadlines. Phoenix rebuffed Townley's proposed conditions as "entirely unrealistic" and informed Townley that:
"Without payment of the current outstanding balance, $197,000, our position remains unchanged. Once we see the October numbers and that balance is paid, we can discuss anything your client suggests. The past due balance is a prerequisite.Ex. 20 to Opp'n Mem. In response, Townley's counsel provided the "October numbers," requested that Phoenix's counsel suggest goals that are "realistic in your client's view," and pointed out a number of "unexplained undocumented information that has given rise to this dispute" as the need for escrowing certain amounts.
We see no need for escrowing any portion of our past due monies, especially tied to impossible preconditions."
The following morning, November 8, Phoenix's counsel replied that he had forwarded the email to his client, but that "[u]nless the account is brought current, which is now $250,000, we will not release any freight and your personnel, at our facility will be asked to leave." Phoenix's counsel then pointed out why the issues with shipping and billing were the result of Townley's failures to sign work orders and timely provide sales figures necessary for billing. He concluded that Phoenix was "ready, willing and able to resume release of the goods, upon the account being made current, with the same timetables and structure that the parties have operated under for the past seven years" and that the "entire situation was created by your client's delinquency." Id.
On November 8, just a few hours after Phoenix's email refusing to release any goods until it received payment of the outstanding balance of $250,000, the parties reached an agreement over email under which Townley would pay Phoenix $200,000 immediately and would place $50,000 in escrow "until the mediation of the balance has occurred." Ex. 22 to Opp'n Mem. In exchange for these payments, Phoenix accepted Townley's terms that:
"-All goods on the floor get released immediately.
-All pick and pack orders go out by Monday
-All work orders under production are expedited and a schedule is given
-Target and weekly replenishment customers get fulfilled as required
-Closeout orders (Electronic Emporium) goes out in full by Friday the 16th
-All goods not tied to orders (we will give you a list) get pulled and released by Friday the 16thEx. 22 to Opp'n Mem.
-Joe Shamie can be a good mediator, and I would trust him holding any of funds"
On November 14, the parties entered into a formal escrow agreement. Pursuant to that agreement, the parties stipulated that "Phoenix is in possession of certain goods which are subject to a warehouseman's lien" and that "Townley wishes Phoenix to release that lien." Ex. 21 to Opp'n Mem. Townley agreed to deposit $50,000 into an escrow account, where it would remain until the escrow agent was directed to deliver any portion of the funds. The parties agreed to mediate the outstanding issues before Joseph Shamie.
We note that some of the obligations Phoenix consented to undertake pursuant to the email exchange of November 8 were actually to be completed prior to November 14.
While the contemporaneous emails and formal escrow agreement presented to the Court state that the amount placed in escrow was $50,000, the parties' statement of facts, affidavits, and representations at oral argument assert that the amount was $150,000. At oral argument, Phoenix's counsel stated that "$50,000 was the first escrow deposit. Thereafter, after the parties had a little bit of time to discuss it, they increased the escrow to 150 [thousand] because Townley made it clear that they were emptying out the warehouse." Transcript of Oral Argument at 40. As both parties claim the amount placed in escrow was $150,000, we will accept it as true despite the fact that the documentary evidence before the Court reflects otherwise.
Apparently the escrow agreement and mediation did not resolve the situation, as Phoenix initiated this proceeding on March 18, 2008. In its complaint, Phoenix alleged that it fully complied with the contractual and escrow agreements and was owed $401,002.12 in outstanding payments by Townley. Townley responded by filing counterclaims, asserting that Phoenix breached its contractual obligations and was liable for damages in the form of overpayments, chargebacks suffered, and cancelled orders.
The amount Phoenix now seeks is $408,846.84. In addition, Phoenix's complaint alleged that it was owed at least $500,000 under a quantum meruit theory.
As noted above, at oral argument this Court denied Phoenix's motion for summary judgment on its contract claim, and granted its motion dismissing Townley's claim for any damages pertaining to chargebacks or cancelled orders prior to November 1, 2007.
DISCUSSION
A. Summary Judgment Standard
Summary judgment is appropriate only where the parties' submissions "show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Summary judgment is inappropriate if the court, resolving all ambiguities and drawing all reasonable inferences against the moving party, finds that the dispute about a material fact is "such that a reasonable jury could return a verdict for the nonmoving party." See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986).
To defeat a motion for summary judgment, the non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50 (internal citations omitted). The nonmoving party may not rest upon mere conclusory allegations or denials, but must set forth "concrete particulars" showing that a trial is needed. Nat'l Union Fire Ins. Co. v. Deloach, 708 F. Supp. 1371, 1379 (S.D.N.Y. 1989) (quoting R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69, 77 (2d Cir. 1984) (internal quotation marks omitted)). It is thus insufficient for a party opposing summary judgment "merely to assert a conclusion without supplying supporting arguments or facts." BellSouth Telecomms., Inc. v. W.R. Grace & Co., 77 F.3d 603, 615 (2d Cir. 1996) (internal citations and quotation marks omitted). Further, while credibility determinations, weighing evidence, and drawing legitimate inferences from facts are functions that the court must leave to the jury, if the nonmoving party does not present evidence from which a reasonable jury could return a favorable verdict, then summary judgment is appropriate. See, e.g., Golden Pac. Bancorp. v. F.D.I.C., 375 F.3d 196, 200 (2d Cir. 2004). B. Consequential Damages
In an action for breach of contract, a plaintiff "may seek two distinct categories of damages." Schonfeld v. Hilliard, 218 F.3d 164, 175 (2d Cir. 2000). First, a plaintiff is typically entitled to general damages, which compensate for "the value of the very performance promised." Id. Second, a plaintiff might be entitled to consequential damages, which "seek to compensate a plaintiff for additional losses (other than the value of the promised performance) that are incurred as a result of the defendant's breach." Id. As a general rule, consequential damages are "not recoverable unless the party was on notice of those special damages at the time of contracting." Jessica Howard Ltd. v. Norfolk S. Ry. Co., 316 F.3d 165, 170 (2d Cir. 2003) (quoting Neptune Orient Lines, Ltd. v. Burlington N. & Santa Fe Ry. Co., 213 F.3d 1118, 1120 (9th Cir. 2000)).
The leading New York case on the availability of consequential damages is Kenford Co. v. County of Erie, 73 N.Y.2d 312 (1989). In Kenford, the New York Court of Appeals noted that in order to be recoverable, consequential damages must have been "brought within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting." Id. at 319 (internal quotations and citations omitted). In order to determine the "reasonable contemplation of the parties, the nature, purpose, and particular circumstances of the contract known by the parties should be considered" as well as "what liability the defendant fairly may be supposed to have assumed consciously, or to have warranted the plaintiff reasonably to suppose that it assumed, when the contract was made." Id. (internal quotations and citations omitted). When the contractual provisions do not address whether certain damages are available, the "commonsense rule to apply is to consider what the parties would have concluded had they considered the subject." Id. at 320 (emphasis in original).
The key consideration is not whether the breaching party could have foreseen that its counterparty might suffer the damages in question, but whether it "contemplated at the time of the contract's execution that it assumed legal responsibility for these damages upon a breach of the contract." Id. Indeed, "bare notice of special consequences which might result from a breach of contract, unless under such circumstances as to imply that it formed the basis of the agreement, would not be sufficient [to impose liability for special damages]." Id. at 320-21 (internal citations and quotations omitted) (brackets in original). C. Townley's Counterclaims
Townley brought two counterclaims against Phoenix. The first alleges that Phoenix and its affiliated companies breached the October 2007 agreement, which took effect on November 1. Specifically, Townley claims that Phoenix "fail[ed] to provide, fail[ed] to timely provide" and "negligently provid[ed] the Warehouse Services called for in the [2007 contract]" and "fail[ed] to properly and timely invoice Townley for the Warehouse Services." Countercl. ¶ 24. The second counterclaim is substantively identical to the first, but is brought against the individual defendants, whom Townley claims exercised "complete domination and control" over the corporate entities. Id. ¶¶ 29-44.
Townley's memorandum of law and positions at oral argument focused almost exclusively on the escrow agreement the parties entered into in November 2007 and the six tasks that Phoenix undertook in the email conversation of November 8. However, there is no mention of that agreement in Townley's pled counterclaim. Rather, other than a passing reference to Phoenix breaching "the [2007 contract] and/or the parties' other agreement(s)," it appears that Townley's counterclaim is brought exclusively under the 2007 contract. Nonetheless, given the focus on the agreement of November 8, we will consider Phoenix's potential breaches of that contract as well.
Townley seeks damages for three separate alleged injuries. First, it states that it overpaid Phoenix in excess of $456, 994.39. Id. ¶ 26. Second, it complains that it incurred damages related to "cancellations of orders from Townley's clients and customers" in excess of $1,606,879.66. Id. ¶ 27. Third, it alleges that it sustained damages "related to chargebacks, credits and other cash incentives required to be provided to Townley's clients and customers in excess of $619, 639.50." Id. ¶ 28.
A review of the chargebacks submitted by Townley reflects that several of them were incurred for shipments that "never arrived." Townley does not clearly articulate why some orders which never reached their destination were cancelled, whereas others simply resulted in a chargeback. See Ex. 18 to Opp'n Mem.
Townley's claim that it overpaid Phoenix for its services attempts to obtain compensation for the value of the very performance promised, and is thus appropriately viewed as requesting general damages. However, Townley's effort to recover for the chargebacks and cancelled orders that it suffered goes beyond the value of the performance promised. Thus, they are consequential damages.
1. Phoenix's Liability for "Chargebacks, Credits, and Other Cash Incentives" and Cancelled Orders
In order for Townley to recover for chargebacks and cancelled orders, it must convince a jury that Phoenix "contemplated at the time of the contract's execution that it assumed legal responsibility for [chargebacks] upon a breach of contract." Kenford, 73 N.Y.2d at 320. We find that no reasonable jury could reach such a conclusion.
At first glance, it might appear that the existence of time obligations in the 2007 contract and escrow agreement and Phoenix's awareness of the damage Townley would suffer through chargebacks and cancelled orders if its goods did not get out on time support a conclusion that Phoenix assumed liability for these types of damages. As we stated at oral argument, the "inclusion of time periods" along with the "common knowledge" that "retailers have a right to cancel, that they chargeback" potentially creates "a basis for Townley to argue that [it] can recover breach of contract damages for the failure to timely comply." Transcript of Oral Argument at 24.
In using the phrase "escrow agreement" we are not only referring to the document signed November 14, but also the emails of November 8 in which Phoenix undertook six tasks in exchange for a payment of $200,000 and $150,000 placed in escrow.
However, an understanding of the parties' respective bargaining positions at the time of these agreements precludes such a conclusion. When Phoenix consented to the third contract on October 16, 2007, and to undertake the tasks pursuant to the emails of November 8, it was operating under the assumption that it had a valid lien on Townley's goods. Once Phoenix decided to hold Townley's goods until back payments were made, it was in an extremely powerful negotiating position. Essentially, there were only three ways in which Townley could get its goods out of Phoenix's warehouse. It could pay the amount that Phoenix claimed was due and otherwise comply with Phoenix's demands, initiate legal proceedings, or reach a settlement. Townley opted for the third option and attempted to reach a settlement. Apparently, Phoenix was willing to take this course of action as well. However, given that Phoenix was operating under the belief that it was rightfully holding Townley's goods, a fact which Townley later conceded, it would have been entirely irrational for Phoenix to give up its legal right to hold Townley's goods in exchange for a payment of $200,000, with another $50,000 or $150,000 placed in escrow, and an assumption of liability for almost $3,000,000 in consequential damages. In deciding to compromise, Phoenix determined that it was worth giving up its claim to Townley's goods and immediate payment of the full amount it believed it was owed. A rational trier of fact cannot conclude, however, that Phoenix was willing to compromise further or to assume a risk as large as Townley suggests, given that simply maintaining the status quo would have left Phoenix is an enviable position.
There is a factual dispute as to whether Phoenix formally asserted such a lien or used the precise words "warehouseman's lien" in its negotiations with Townley. See Def's SF ¶ 48; Ex. G to Opp'n Mem. at 171 (deposition of Abraham Safdieh, CEO of Townley, testifying that he "never recall[s] Phoenix talking to [him] about a warehouseman's lien"). However, there is no question that Phoenix informed Townley that it was holding its goods until it received what it believed to be past due amounts.
Obviously, since Townley stipulated that there was a warehouseman's lien as of November 14, Phoenix cannot be liable for any damages prior to that date while the lien was in effect. It is true that after the lien was lifted by payment of $200,000 and an amount placed in escrow, Phoenix did not have the blanket protection of the lien. Nevertheless, no reasonable trier of fact could conclude that Phoenix exchanged that blanket protection for an assumption of consequential damages many times the amount it received to release the lien.
Phoenix's counsel, who was involved in the contemporaneous negotiations, argues that in contrast to the damage claims made in this lawsuit, Townley's agents represented at the time that the goods were worth $150,000. He claims that this is why the parties settled on placing $150,000 in escrow as collateral for the goods remaining in Phoenix's warehouse. See Transcript of Oral Argument at 40.
Not only is this the only logical conclusion, but it is supported by the factual record. The emails exchanged between Townley and Phoenix in early November demonstrate that Townley was aggressively trying to get its goods out of Phoenix's warehouse, and that Phoenix was willing to hold on to them until it received payment. Ex. 20 to Opp'n Mem. The concern exhibited by Townley is evidence that it did not believe it was protected by the law of consequential damages during this period. Logically, if one were to accept the argument Townley makes in this litigation, the November 7 and 8 pleas to Phoenix to release the goods from the warehouse would have been largely unnecessary, because any cancelled orders or chargebacks it suffered would be recompensed by Phoenix. Moreover, under Townley's theory, in refusing to ship Townley's goods in early November, Phoenix was assuming an astonishing risk. Essentially, Townley argues that Phoenix refused to release its goods until it received $250,000, even though it knew that by keeping the goods on its premises it was exposing itself to millions of dollars of potential liability in consequential damages if a court were to find that a lien was improper.
We recognize that this argument only specifically rebuts Townley's claim that the contract effective November 1 included consequential damages. However, this is rather significant, given that this is the agreement that Townley actually bases its counterclaim on. Furthermore, once one concludes that the November 1 agreement did not result in an assumption of liability for consequential damages by Phoenix, it follows logically, for the same reasons laid out above, that the November 8 email did not either. There is simply no basis to conclude that Phoenix agreed to a massive amount of liability on November 8 for the first time in the contractual relationship.
As noted above, in the "absence of an express contractual provision governing the availability of [consequential] damages for a breach of contract," the "proper inquiry is...'to consider what the parties would have concluded had they considered the subject.'" Lava Trading, Inc. v. Hartford Fire Ins. Co., 03 Civ. 7037(PKC), 2004 U.S. Dist. LEXIS 7618 at *6-7 (S.D.N.Y. May 3, 2004) (quoting Trademark Research Corp. v. Maxwell Online, Inc., 995 F.2d 326 (2d Cir. 1993)). In this case it is plainly obvious that had this question been considered by the parties, Phoenix would have refused to assume responsibility for such liability. If Townley had insisted that Phoenix take such responsibility, Phoenix would have ended negotiations and continued to hold on to Townley's goods, as was its right.
We note that Townley presents no evidence to suggest that our analysis is incorrect, and that Phoenix did consciously assume liability for cancelled orders and chargebacks. Townley's memorandum of law relies exclusively on the two facts identified at the beginning of this section; specifically, Phoenix undertook to provide the services within certain time periods and was aware that Townley's customers "would impose chargebacks against Townley and/or cancel their orders" if Phoenix did not prepare Townley's goods for shipping on time. Opp'n Mem. at 17. As was stated in Kenford, "bare notice of special consequences which might result from a breach of contract, unless under such circumstances as to imply that it formed the basis of the agreement, would not be sufficient" to impose liability for special damages. Kenford, 73 N.Y.2d at 320-21. Rather, the question is whether Phoenix "contemplated at the time of the contract's execution that it assumed legal responsibility for these damages upon a breach of the contract." Id. at 321. Since Townley has offered no actual evidence that Phoenix assumed such responsibility, and it appears to be so fundamentally irrational and at odds with its economic interest for it to have done so, Townley's claims for these damages are unsustainable as a matter of law in these circumstances. In this regard, we note that while for purposes of this motion we grant Townley every reasonable inference and resolve all factual disputes in their favor, it is ultimately Townley's burden at trial to demonstrate that Phoenix assumed this liability.
To clarify, this is the only evidence Townley submits regarding the specific question of what the parties contemplated at the time of the contract. Townley's memorandum also argues that Phoenix cannot rely on the provisions of the Uniform Commercial Code protecting warehousers and the receipts it issued to Townley upon storage of goods. As was discussed at oral argument, we agree with this contention. See Transcript of Oral Argument at 28. Furthermore, Townley's memorandum contends that the damages in question are not consequential, but rather seek to "make the parties finish in a position they would have been in had the contract been properly performed." Opp'n Mem. at 19. Regardless of the accuracy of this claim, it is clear that since the damages sought go beyond the value of the very performance promised, they are only recoverable if they meet the standards of Kenford and the seminal case of Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854).
In addition, there is the fact that the 2001 and 2004 agreements contained provisions dealing with chargebacks, whereas the contracts that Townley alleges were breached do not. There are two potential conclusions that can be drawn from this, and neither favors Townley. First, as noted above, it is possible that the 2007 agreement establishing a new "Schedule of Rates and Services" intended to incorporate the preexisting contractual framework, and thus that the chargeback provisions were meant to apply going forward. If this is the case, then Townley's claims for chargebacks cannot survive for several arguable reasons. Townley has made no allegation that it "fully documented and presented [the chargebacks] for review and consideration" by Phoenix, and the damages requested here almost certainly go beyond the "amount of work or work order performed." Ex. 2 to Opp'n Mem. Furthermore, it is far from clear that a delay in shipping is the sort of "warehouse error" contemplated by that agreement. Lastly, Townley made clear at oral argument that it did not bring counterclaims against Phoenix under the 2001 or 2004 agreements between the parties, even though it seeks damages for orders cancelled after the November 1 effective date of the 2007 contract which relied on cancel dates which preceded November 1. The only logical conclusion to draw is that Townley does not believe the 2001 and 2004 chargeback provisions allow it to recover for these damages, and thus only sued under the 2007 contract, which was facially ambiguous as to liability for chargebacks.
Again, we note that neither party actually takes this position, and we are not formally adopting it.
Chargebacks for delay in shipping constitute approximately half of the spreadsheet claims. Most of the others, namely those for shortages, are not developed in the record and have not been the thrust of Townley's argument.
At oral argument, Townley relied on the fact that even though the cancel dates for those orders were prior to November 1, the customer had not actually cancelled by that date. Thus, it believed that Phoenix's alleged assumption of liability for chargebacks on November 1 could apply to goods which were in its possession relating to pre-November 1 cancel dates but not yet cancelled by that date. We rejected this contention.
Alternatively, the fact that the 2007 agreement made no provision for chargebacks could mean that the parties specifically intended to remove the provision from their agreement. In this scenario, the trier of fact would have to determine whether the parties affirmatively omitted this provision in order increase or decrease the amount of liability assumed by Phoenix. For the reasons discussed above, we do not believe that a rational trier of fact could review the record before the Court and determine that Phoenix was assuming greater liability for chargebacks in 2007 than it had in the past. Given the respective bargaining positions of the parties, it would be completely illogical for Phoenix to have done so. Indeed, Townley provides absolutely no evidence to support such a conclusion.
2. Phoenix's Liability for Overpayments
Townley's claim that it overpaid Phoenix for its services is properly understood as seeking general damages, since it aims to compensate Townley for the value of the very performance promised. In its memoranda, Phoenix argues that Townley's claim of overpayments should be dismissed as Phoenix did not breach its responsibilities to Townley under the contract, and Townley has not demonstrated any overpayments to Phoenix. However, just as we found at oral argument that there were material issues of fact as to whether Townley owes Phoenix the amounts claimed by Phoenix under its contract claim, there are similar issues of fact regarding whether Townley overpaid Phoenix for any of its services. Thus, Townley's counterclaims are not dismissed inasmuch as they seek compensation for overpayments made to Phoenix.
It is our hope that with the clarification from this opinion, the parties will, with the assistance of accountants if necessary, reconcile the payment issues (over or under) between them. The parties should report to the Court within three weeks on the status of the efforts. If the parties are unable to reach a resolution on their own, the Court will set a trial date.
CONCLUSION
To recapitulate, at oral argument we denied Phoenix's motion for summary judgment on its contract claim, and granted Phoenix's motion to dismiss Townley's counterclaims for any damages incurred prior to November 1, 2007. And for the aforementioned reasons, Townley's claims are dismissed inasmuch as they seek damages for injuries relating to chargebacks and cancelled orders. However, Townley's counterclaims are not dismissed in their entirety, as there are outstanding issues of fact as to whether they overpaid Phoenix. Such damages, if proved, are recoverable.
Thus, the remaining issues in this case are Phoenix's claim for breach of contract, and Townley's counterclaim for overpayments.
SO ORDERED.
Dated: New York, New York
March 29, 2011
/s/_________
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE
Copies of the foregoing Order have been mailed on this date to the following: Robert William Piken
630 Third Avenue
New York, NY 10017 Scott E. Silberfein
Moses & Singer LLP
405 Lexington Avenue
New York, NY 10174-1299