Opinion
Case No. 2:04-810.
September 6, 2007
OPINION AND ORDER
On March 29, 2007, this Court granted Plaintiffs Big Lots' Motion for Summary Judgment and denied Defendants Luv N' Care's Motion for Partial Summary Judgment (Doc. 50). Defendants Luv N' Care were ordered to indemnify Big Lots for any expenses incurred as a result of selling the infringed Beatrix Potter products minus any setoff owed to Luv N' Care. As a result of this Order, both parties moved to Alter and/or Amend the Judgment (Docs. 52 and 53). Plaintiffs' Motion to Amend the Judgment was granted in part and denied in part, and Defendants' Motion to Amend the Judgment was granted. In the April 14, 2007 Opinion and Order addressing the parties Motions to Amend the Judgment, the Court ordered Plaintiffs to file their motion for damages, detailing the exact amount of damages sought with sufficient support such as the invoices, etc. (Doc. 54). Defendants were then ordered to respond to Plaintiffs' demand and to include their damages sought and any setoff amount. The parties' Motions for Award of Damages are now ripe for a decision.
Plaintiffs Big Lots Stores, Inc. d/b/a Consolidated International CSC Distribution, Inc., West Coast Liquidators, Inc., Closeout Distribution, Inc., and Durant DC, LLC's Motion for Award of Damages seeks a total award of $323,213.49 in damages (Doc. 56). Defendants Luv N' Care, Ltd. and Luv N' Care International, Inc. contest Plaintiffs' damages calculation and also seek an award of $116,082.24 in damages in their favor.
Plaintiffs Big Lots seeks damages of $323,213.49 comprised of six categories: (1) attorneys' fees and costs; (2) the cost of the unsold Beatrix Potter products remaining in its warehouses; (3) the loss on the sale of these Beatrix Potter products to USI Bridgefield; (4) storage costs; (5) lost profits; and (6) prejudgment interest.
Defendants do not contest the award of damages for categories 2, 3, and 6, the costs of the Beatrix Potter product remaining in its inventory, the loss on the sale of the Beatrix Potter products to USI, and the prejudgment interest. However, Defendants do contest any award of attorneys' fees and costs, storage costs, and lost profits. The Court will therefore address each of these in turn.
1. Attorneys' Fees and Costs
Plaintiffs assert that as of April 25, 2007, they had incurred $150,520.71 in attorneys' fees and costs for this action. Plaintiffs argue that the services provided by their counsel were reasonable and necessary in the prosecution of Big Lots' interests and claims asserted in this litigation and for the defense of Luv N' Care's counterclaims. They further assert that the attorneys' fees and costs are reasonable and consistent with the rates charged by other attorneys for similar services.
Plaintiffs also appear to argue that the Court has already found that they were entitled to attorneys' fees. This is simply not the case. In this Court's March 29, 2007 Opinion and Order, the phrase "attorneys' fees" appears just once in a block quote where the Court was citing to paragraph 15 of Big Lots's purchase orders. The Court solely addressed liability in its March 29, 2007 Opinion and Order, the Court's Order. The issue of damages and/or attorneys' fees was not addressed because the parties did not seek them at the time, nor reserve the right to address the issue after a ruling on the motions for summary judgment. At no time has the Court stated that Plaintiffs would be entitled to attorneys' fees.
Defendants argue that Big Lots is not entitled to recover any attorneys' fees incurred during this lawsuit because the attorney fee provision in Big Lots' purchase orders, on which Big Lots is relying, is unenforceable. Specifically, Defendants argue that Big Lots' boilerplate attorney fee provision, contained within the purchase orders, is unenforceable under Ohio law. This Court agrees.
In Ohio, courts have consistently held that contractual attorney fee provisions are unenforceable as a matter of law. See e.g., Vermeer of S. Ohio, Inc. v. Argo Constr. Co., 144 Ohio App. 3d 271, 276 (Ohio Ct.App. 2001). The Vermeer Court did not uphold the attorney fee provision because it did not believe it was the product of "free and understanding negotiation." Id. at 278.
Similarly, in Colonel's Inc. v. Cincinnati Milacron Mktg. Co., 1998 U.S. App. LEXIS 11756 (6th Cir. 1998), the Sixth Circuit considered a case involving a Sale and Security Agreement entered into between two commercial entities. The Colonel defendant sought to enforce an attorney fee provision contained in its contract, which was a standard contract form. The Sixth Circuit, applying Ohio law held that the enforceability of such provisions turns on whether or not it was "arrived at through free and understanding negotiation." Id. at *4.
The Court explained:
the attorney fee provision in the agreement was not the product of specific free and understanding negotiation. Instead, it was a preprinted clause that appeared in defendant's standard contract forms. Accordingly, the district court did not err when it concluded that the provision is void as against the public policy of Ohio.Id. at 5.
In Scotts Co. v. Cent. Garden Pet Co., 403 F.3d 781 (6th Cir. 2005), the Sixth Circuit, relying on this well-settled principle as articulated in Cincinnati Milacron, upheld the District Court's finding that an attorney fee provision in a standard form contract between two commercial entities was void as against public policy. The Court, applying Ohio law, stated once again that fee provisions are enforceable only where "the provision is specifically negotiated for." Id. at 791.
In the present case, this Court has already found that the terms and conditions of the purchase orders were "never discussed between the parties." (March 29, 2007 Opinion and Order at 5). This finding is well-supported. Big Lots' attorney fee provision is couched within twenty-three purported "Terms and Conditions" listed on the purchase orders. The phrase "attorneys' fees" is written only once in the purchase order. Further, a review of the fee provision reveals that it is one-sided, providing recovery of attorneys' fees for just Big Lots. Finally, despite the purchase order's express requirement for vendor signature, Defendants Luv N' Care never signed the purchase orders, and there is no evidence indicating that they otherwise assented to each and every term and condition. Instead, the evidence indicates that Luv N' Care responded to the purchase orders by sending their own invoices, which contained their own terms and conditions. Based upon the foregoing, this Court echoes it's earlier finding that the terms and conditions of the purchase orders, including the attorneys' fee provision, were never discussed or negotiated between the parties. As set forth above, because the attorneys' fee provision contained in the purchase orders was not a product of specific free and understanding negotiation, this Court, applying Ohio law as set forth in Vermeer, Milacron, and Scotts, finds that the Big Lots attorneys' fees provision is not enforceable.
2. Lost Profits and Storage Costs
Plaintiffs Big Lots seeks to recover $31,198.49 for lost profits on the 18,378 Beatrix Potter products they were unable to sell. Big Lots argues that lost profits are recoverable in a breach of contract action under Ohio law, citing Charles R. Combs Trucking, Inc. v. International Harvester Co., 12 Ohio St.3d 241 (1984). In addition, Big Lots seeks to recover for storage costs they have incurred to date of $27,475.80 on 181 pallets of Beatrix Potter products stored in Big Lots' warehouses. The storage cost is calculated at $4.60 per month, per pallet from August 1, 2004 through April 30, 2007. Big Lots asserts that this amount is both their actual storage cost for the products, as well as a reasonable and customary storage cost within the wholesale-closeout industry.
Defendants Luv N' Care argue that Big Lots should not be awarded lost profits and storage costs because these are damages now being sought that they never disclosed in discovery, despite specific requests to identify the damages sought in this lawsuit.
Rule 37(c)(1) of the Federal Rules of Civil Procedure specifically provides:
A party that without substantial justification fails to disclose information required by Rule 26(a) or 26(e)(1) or to amend a prior response to discovery as required by Rule 26(e)(2), is not, unless such failure is harmless, permitted to use as evidence at a trial, at a hearing, or on a motion any witness or information not so disclosed.
Defendants argue that in this case, Big Lots has failed to disclose any existence of lost profits and/or storage cost damages. Defendants served interrogatories on Big Lots which were specifically designed to identify the precise categories and amounts of damages that Big Lots was seeking from this lawsuit. Specifically, on April 11, 2005, Defendants served their first set of interrogatories which asked Big Lots to "Identify and individually itemize all damages that you are seeking in the lawsuit." Big Lots responded by identifying three categories of damages: the cost of the product, the loss on the sale of the product, and attorneys' fees and costs. Defendants then asked Big Lots to supplement their response with the amount of each damage claimed. After responding to that request, Big Lots has never provided any additional supplemental responses regarding damages to Defendants Luv N' Care.
Thus, Defendants Luv N' Care are asserting that they first learned of Big Lots' intent to seek damages for lost profits and storage costs when their Motion for Damages was filed. It appears from earlier pleadings in this case that Luv N' Care is correct that Big Lots has not indicated their intent to seek damages for lost profits and/or storage costs. The Court's Order permitting the parties to file Motions on Damages was not an invitation to begin conjuring up new and additional damages claims. Such claims must have been properly plead and/or disclosed to the other party during the discovery phase. See Rule 26(e)(2) of the Federal Rules of Civil Procedure.
Plaintiffs Big Lots asserts that their lost profits damages are recoverable because such profits were within the contemplation of the parties at the time the parties entered the contracts for the Beatrix Potter products. This further strengthens Defendants Luv N' Care's argument that Big Lots knew of these potential damages prior to the lawsuit or at a very minimum, prior to the end of the discovery period. Big Lots was aware of the amount it expected to make in profits from the Beatrix Potter products and therefore that amount sought should have been provided to Defendants during discovery. Further, Big Lots was aware that it was holding Beatrix Potter products at the start of this lawsuit and could have provided an estimated value of what it would cost to store those products throughout the duration of the lawsuit. Again, however, Big Lots failed to disclose that it was even seeking such damages.
Therefore, in accordance with Rules 26(e)(2) and 37(c)(1) of the Federal Rules of Civil Procedure, Big Lots is prohibited from seeking any damages not previously disclosed to Defendants Luv N' Care during the discovery phase. The Court would have, at a minimum, entertained the arguments on these damages had they been previously disclosed to Defendants during the discovery phase. Therefore, Big Lots' claims for lost profits and storage costs are denied.
3. Luv N' Care's Setoff Amount
In this Court's March 29, 2007 Opinion and Order, Defendants Luv N' Care were awarded the right to setoff the money they are owed on the outstanding invoices from the amount of damages they have to pay Big Lots. Specifically, Luv N' Care is owed $100,883.40 from three invoices issued to Big Lots in July 2004. While approximately $7,575 of the total amount owed on these invoices is for Beatrix Potter product which this Court has found to be infringing, Luv N' Care is still entitled to a credit for this amount. This Court has previously awarded Big Lots a refund on all the Beatrix Potter products remaining in their inventory, but the Court did not take into account that Big Lots never paid for $7,565.00 of those Beatrix Potter products. Therefore, unless Big Lots pays the full amount of these invoices, they would receive a refund on money that was never paid. Defendants Luv N' Care are therefore entitled to setoff in the amount of $100,883.40.
CONCLUSION
For the reasons stated above, the Court GRANTS IN PART AND DENIES IN PART Plaintiffs' Motion for Award of Damages. Plaintiffs Big Lots are hereby awarded $73,512.00 for the cost of the unsold Beatrix Potter products remaining in Big Lots' warehouses and $9,953.41 for the loss on the sale of the Beatrix Potter products to USI Bridgefield, totaling $83,465.41. Plaintiffs Big Lots are also entitled to prejudgment interest on these damages pursuant to Ohio Revised Code Section 1343.03(A), from August 10, 2004 to the date of filing this Order.
Defendants Luv N' Care are entitled to setoff in the amount of $100,883.40, plus prejudgment interest from the dates the invoices were due to the date of filing this Order.
The parties shall arrange for payment to be made no later than 30 days after the disposal of this case on appeal.
The Clerk shall remove Document 56 from the Court's pending motions list and remove this case from the Court's pending cases list.