Opinion
Case Number: 05-21698-CIV-MORENO.
August 23, 2007
ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT ON AMENDED COUNT I
THIS CAUSE came before the Court upon Defendant's Motion for Summary Judgment on Amended Count I (D.E. No. 285), filed on April 26, 2007 .
THE COURT has considered the motion and the pertinent portions of the record, and being otherwise fully advised in the premises, it is
ADJUDGED that the motion is GRANTED.
I. Background
On April 6, 2007, Topp filed its Second Amended Complaint. Count I of the Complaint alleges a claim for breach of contract; specifically, for breach of the written B-stock Contract ("the Contract") between Plaintiff Topp and Defendant Uniden. On April 26, 2007, Uniden filed the instant Motion for Summary Judgment on Amended Count I.
Topp contends that Uniden breached the contract by (1) skimming the most valuable B-stock for its own use; (2) making a separate agreement with AVS, a Canadian firm, under which returned phones in Canada would be directed to AVS rather than Topp; (3) making a separate agreement with Wal-Mart under which returned phones from Wal-Mart customers in North America would be directed to Wal-Mart rather that Topp; and (4) making bulk sales of B-stock to commercial non-consumer entities under the guise of permitted consumer direct sales.
Topp claims that it is entitled to lost profits as a result of the alleged breach. Specifically, Topp alleges damages of (1) loss of profit on lucrative Uniden America "as is" products improperly and impermissibly skimmed by Uniden; (2) loss of profit on "as is" products purchased by Topp before improper breaches and termination of contracts; and (3) loss of future profit from improper termination of the B-stock Contract. (Def. Appx. Tab M at 11.)
In Response to Interrogatory No. 3, regarding damages, Topp alleges damages for loss of investment which Uniden addresses in its Motion. Topp, however, states that these damages flow from Count IV of the Amended Complaint and not Count I. Therefore, the Court need not consider such damages when deciding the instant Motion.
Paragraph 3(h) of the Contract provides that Texas law shall govern the agreement. (Def. Ex. A.). Therefore, the Court will apply Texas law in deciding the instant Motion.
II. Standard of Review
Summary judgment is authorized when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The burden of establishing the absence of a genuine issue of material fact lies with the moving party. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The burden then shifts to the party opposing the motion, who must set forth specific facts and establish the essential elements of his case on which he will bear the burden of proof at trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The non-moving party "may not rest upon the mere allegations or denials of the adverse party's pleadings." Fed.R.Civ.P. 56(c).
III. Analysis
To succeed on a breach-of-contract claim, a plaintiff must prove "(1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of the contract by the defendant; and (4) damages sustained by the plaintiff as a result of the breach. Roof Sys., Inc. v. Johns Manville Corp., 130 S.W.3d 430, 442 (Tex.Ct.App. 2004).
In its Motion for Summary Judgment, Uniden contends that Topp cannot prove either breach or damages, and thus its breach-of-contract claim must fail as a matter of law. Specifically, Uniden contends that because Topp claims damages solely for lost profits, the damages disclaimer in the B-Stock Contract precludes recovery. For the reasons stated below, the Court agrees that Topp cannot recover the damages it seeks. Therefore, as a matter of law, Topp cannot state a claim for breach of contract.
Uniden argues that the damages disclaimer in the B-Stock Contract prohibits Topp from recovering the damages it has claimed with respect to Count I. It is undisputed that the only damages claimed under the B-stock contract are those for lost profits. See supra n. 1. Paragraph 3(i) of the Contract states:
IT IS AGREED THAT IN NO EVENT SHALL UNIDEN OR TOPP BE LIABLE TO THE OTHER FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND UNDER THIS AGREEMENT (Def. Appx. Tab A, ¶ 3(i)).
Uniden contends that such damages are properly considered consequential damages, and therefore are not recoverable pursuant to the Contract.
In opposition, Topp presents several arguments. First, it argues that Uniden's argument is based upon the assumption that the Uniform Commercial Code ("UCC") applies to the Parties' agreement, a position Defendant has successfully defeated in its statute of frauds arguments. However, Topp then goes on to contend that the UCC does, in fact, apply here. Second, it argues that there is a dispute to the meaning of "consequential damages." Third, Topp argues that the damages disclaimer is invalid. Finally, it argues that Uniden has misstated the damage principles of the UCC.
Topp's first argument regarding the application of the UCC is flawed for two reasons. First, both the UCC and Texas common law define consequential damages to include lost profits. Therefore, even if Uniden's position on consequential damages is partially rooted in the UCC's definition, that definition is also supported by an independent source of law.
Second, it is a misstatement to say that the Court has already decided that the UCC does not apply to the B-Stock Contract. In partially adopting Magistrate Judge Simonton's Report and Recommendation (D.E. No. 228), the Court considered whether, based upon Eleventh Circuit precedent, the Florida UCC Statute of Frauds provision barred Plaintiff's oral contract claims. Here, the parties are are operating under a written contract and applying Texas law. Therefore, there is not a previous decision of this Court in this case that would preclude the UCC from applying to the written Contract at issue.
Specifically, the Court decided that Florida's general Statute of Frauds rather than the UCC Statute of Frauds applied to determine whether an oral distributorship agreement intended to last for more than one year was enforceable.
Topp next argues that there is a dispute as to the meaning of consequential damages. In support of this argument, it points to the deposition testimony of Jamie Topp, where he states that the consequential damages the parties meant to disclaim were only those secondary claims from customers and not damages to either party from the other's breach. (Pl. Exh. A.; J. Topp Dec. ¶ 7.) Topp's argument that the Court must consider the intent of the parties is simply invalid. Under Texas law, where the words of a contract are clear and explicit, the introduction of parol evidence to evaluate contractual intent is barred. See Healthcare Cable Sys., Inc., v. Good Shepherd Hosp, Inc., 180 S.W.3d 787, 792 n. 7 (Tex.Ct.App. 2005) (noting that "a court may consider the parties' interpretations of the contract through extrinsic or parol evidence only after a contract is first determined to be ambiguous.") (citation omitted).
Both the UCC and Texas common law define consequential damages to encompass lost profits. See Tex. Bus. Com. Code Ann. § 2.715 (defining incidental and consequential damages); Naegelo Transp. v. Gulf Electroquip, Inc., 853 S.W.2d 737, 739 (Tex.Ct.App. 1993) ("Lost profits are recoverable in a breach of contract cause of action, as an element of consequential damages."). Further, "i[t] is widely accepted, as a general rule, that profits lost by the buyer as a result of the seller's breach of the contract are recoverable as consequential damages." 24 Williston on Contracts § 66:74 (4th ed.).
Here, the Contract clearly provides that no party is liable to the other for "SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND." The contract could not be any clearer in disclaiming all consequential damages, which include lost profits according to Texas case law, the UCC and a well-respected contracts treatise. Therefore, the Court finds that Jamie Topp's personal definition of conseqential damages is irrelevant.
Further, Topp misreads the case law upon which it relies to support the proposition that consequential damages do not always include lost profits. In Spinal Concepts, Inc. v. Curasan, AG, 2006 WL 2577820 *6 (N.D. Tex. Sept. 6, 2006), the court found that the lost profits disclaimed in a contract were not consequential, but direct. In so finding, it defined consequential damages as "those damages which do not arise within the scope of the immediate buyer-seller transaction, but rather stem from losses incurred by the non-breaching party in its dealings, often with third parties which were an approximate result of the breach." Id. The court then explained that the lost profits sought in that particular case were those which the defendant would have made had the plaintiff had purchased the contracted-for quota of product. Thus, the defendant's profit did not depend upon any third-party transaction.
Conversly, Topp did not stand to earn a profit merely from purchasing B-stock from Uniden. Instead, Topp only earned a profit if the purchased B-stock was later sold to a third party. Thus, following the logic of Spinal Concepts, the lost profits Topp seeks are not direct damages in the same sense as those inSpinal Concepts, but rather, consequential damages, which are clearly disclaimed by the B-stock Contract.
Topp's reliance on Great Pines Water Co. v. Liqui-Box Corp., 203 F.3d 920 (5th Cir. 2000) is also misplaced. Although the court does discuss lost profits and consequential damages seperately, so did the court in Spinal Concepts. And, this Court has already explained why the distinction in Spinal Concepts is unhelpful to Topp. Additionally, the Great Pines damages discussion is not within the context of a damages disclaimer clause and therefore, the discussion is inapposite here.
Third, Topp argues that the damages disclaimer contained in the Contract is invalid. In support of this argument, it points to the commentary of UCC § 2-719, which in essence states that there must be a fair remedy for breach of contract. Topp then posits that Uniden's argument would deprive Plaintiff of any remedy for breach.
Under Texas law, parties may limit or modify the remedies available to them in the event of a breach of their agreement.SAVA gumarska in kemijska industria d.d. v. Advanced, 128 S.W.3d 304, 317 (Tex.Ct.App. 2004). Further, the agreed upon remedy "will be enforced unless it is illegal or against public policy."Great Am. Ins. Co. v. N. Austin Mun. Util. Dist., 902 S.W.2d 488, 499 (Tex.Ct.App. 1993), aff'd in part, reversed in part on other grounds, 908 S.W.2d 415 (Tex. 1995); see also TEX. BUS. COM. CODE ANN. § 2.719(C) ("Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable.").
Here, the limitation on damages is not unconscionable, and despite what Topp argues, it is not left without a remedy. As Defendant points out, Topp was free to pursue other remedies and elected not to do so. For example, it could have pursued difference-in-value damages (the excess cost to Topp if it had purchased the products on the market at a price higher than the contract price). Although Topp argues that these damages are often equal to lost profits, Topp still should have pursued the remedy not disclaimed by the B-stock Contract.
Finally, Topp argues that Uniden has misstated the UCC's damages principle, and contends that the overriding principle is to place the non-breaching party in the same position as if the breach had not occurred. The Court rejects this argument. As discussed above, under Texas law, the parties may limit or modify the remedies available to them.
IV. Conclusion
For all of the foregoing reasons, the Court finds that Topp cannot prove damages which is an essential element of it's breach-of-contract claim. Because it cannot prove damages, there is no need for the Court to discuss whether Uniden breached the B-stock Contract. Topp fails to state a claim for breach of contract, and therefore, Uniden's Motion for Summary Judgment as to Count I of the Amended Complaint is GRANTED.
DONE AND ORDERED in Chambers at Miami, Florida.