Opinion
Case No. C-3-98-063.
July 7, 1999.
Thomas M. Green, Michael Sussman, Attorney for Plaintiff.
Charles W. Slicer, Jr. Attorney for Defendant.
FINDINGS OF FACT; OPINION; CONCLUSIONS OF LAW; JUDGMENT TO BE ENTERED IN FAVOR OF PLAINTIFF AND AGAINST DEFENDANT; TERMINATION ENTRY
The Plaintiff brings this lawsuit to collect an amount, which the Defendant allegedly owes as a result of two produce transactions, one involving Belgian baby carrots and the other concerning corn. In particular, the Plaintiff alleges that it sold those agricultural commodities to the Defendant, who has failed to pay for them. The Plaintiff sets forth claims under the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. § 499a,et seq., as well as a supplemental, state law claim for breach of contract, seeking to recover the sales price on those agricultural commodities, interest, and costs of this litigation, including attorney's fees. In addition to denying liability for the sum which the Plaintiff claims, the Defendant contends that the Plaintiff owes him a commission for the sale of those commodities and that he is entitled to recover the amount which he paid for the storage of the corn.
After this case was filed, the parties were able to resolve many issues. See Doc. #17. They agreed that the following issues remained for resolution:
A. Ownership as between the parties of the corn;
B. Liability as between the parties for the storage fees for the corn;
C. Entitlement as between the parties to interest on amounts found by the Court to be attributable to the corn transaction;
D. Entitlement of defendant to commission(s) for the sale of the carrots and/or the corn, notwithstanding that defendant will have filed no counterclaim therefor; and
E. Liability of the defendant for attorney[`s] fees and expenses incurred by plaintiff and the costs of this action.Id. at 2.
This case was tried on June 1 and 2, 1998, with the Court sitting as the trier of fact. The parties have submitted post-trial memoranda, including their proposed Findings of Fact and Conclusions of Law. See Docs. ##32-34. On March 30, 1999, this Court filed an Entry, in which it indicated that it was finding for the Plaintiff and against the Defendant on all five issues reserved for trial by the parties in their Stipulation (Doc. #17).See Doc. #35. The Court also indicated that it would set forth the reasoning in support of that finding in a Decision to be filed, which would contain its Findings of Fact and Conclusions of Law, as well as its computation of the precise amount of damages Plaintiff is entitled to recover. Id. In accordance with that Entry and pursuant to Rule 52 of the Federal Rules of Civil Procedure, the Court now sets forth its Findings of Fact and Conclusions of Law.
I. Findings of Fact
1. The Plaintiff, Crown FoodService Group, Inc., is in the business of selling perishable and other agricultural commodities or products. Plaintiff regularly sells such commodities in interstate commerce. Plaintiff has been licensed to conduct that business by the United States Department of Agriculture ("USDA"), pursuant to the PACA. The Plaintiff does not engage in brokerage arrangements, whereby it would pay a commission to a third-party (broker), who was able to locate a buyer for Plaintiff's products.
2. Since September, 1974, the Defendant, Donald Hughes, has acted as a food broker, doing business under the proprietary name of Food Trends Company. As a food broker, Defendant's normal manner of operating is to arrange transactions between sellers and purchasers of food products, including agricultural commodities. The Defendant is typically paid a commission by the seller, with the seller obtaining payment for the items sold directly from the purchaser. In other words, Defendant is not normally responsible for paying for the produce, the sale of which he has arranged. Howard Duff ("Duff"), who operates a number of restaurants and cafeterias, is one of the purchasers with whom Defendant has had a long business relationship.
3. On March, 11, 1997, Plaintiff sent the Defendant an unsolicited facsimile, offering to sell various types of vegetables, such as corn, cauliflower, beans and peas, at stated prices. After that initial facsimile communication, Michael Bardill ("Bardill"), a regional sales manager for Plaintiff, began to call the Defendant, attempting to convince him to purchase products from Plaintiff, including agricultural commodities. These solicitations were made to the Defendant in an effort to convince him to purchase products, rather than as an attempt to cause him to act as a broker, who would solicit customers in exchange for being paid a commission.
4. In May, 1997, Bardill convinced the Defendant to purchase small quantities of Italian sausage and cheese filled tortellini. Those products were shipped on May 6, 1997, to Homer's Restaurant, an establishment that is located in Cincinnati, Ohio, and is owned by Duff. Although the Defendant's normal practice is not to pay for the produce, the sale of which he has arranged, the Plaintiff sent the invoice to him for payment, since it believed that the Defendant had purchased those products. That purchase was followed, on June 9, 1997, by a second small order of cheese filled tortellini. That order was also shipped to Homer's Restaurant, with the invoice being sent to the Defendant. The following language appears at the bottom of the invoices that accompanied those two orders:
Interest shall accrue on any past-due account balance at the rate of 1.5% per month (18% per annum). In the event [a] collection action becomes necessary, Buyer agrees to pay all costs of collection, including attorneys' fees and costs.See Defendant's Exhibits 7 and 8.
The Plaintiff has been paid for these two orders.
5. On June 26, 1997, Defendant placed an order with the Plaintiff for Belgian baby carrots. To confirm that order, the Defendant sent the Plaintiff a purchase order. See Defendant's Exhibit 3. That document indicated that the produce should be shipped to Mutual Wholesale, located in Lakeland, Florida, which was also to be billed for the order. The purchase order identified Plaintiff as a "Principal." In addition, that document indicated that the "customer order number" was 80547.
The Belgian baby carrots were ultimately destined for restaurants owned by Duff, located in the Lakeland area. Mutual Wholesale was a produce wholesaler, which sold the carrots and other types of produce to those restaurants owned by Duff.
6. The Plaintiff shipped the Belgian baby carrots on July 2, 1997. An invoice accompanied that shipment, with a copy being sent to the Defendant. See Plaintiff's Exhibit 2. That invoice indicated that the Defendant was to be billed the sum of $5,664.00, and included the customer order number that was on the Defendant's purchase order, 80547. In addition, that invoice contained language, identical to that quoted above, indicating that the Buyer (Defendant) would be liable for interest if he did not pay in a timely fashion, as well as for costs and attorney's fees, if it became necessary for Plaintiff to initiate a collection action.
Although the Defendant had ordered 500 cartons of Belgian baby carrots, the Plaintiff shipped only 472, the entirety of that type of produce which it had in stock at the time.
7. After that shipment had been received and accepted by Mutual Wholesale, the Defendant sent a bill to that business entity for the amount set forth in the Plaintiff's invoice, $5,664.00. See Plaintiff's Exhibit 3. Although the Defendant was promptly paid that amount by Mutual Wholesale, he did not pay the Plaintiff until after this litigation was initiated. Pursuant to the parties' stipulation, the Defendant has paid the Plaintiff the sum of $6,380.45, which represents principal and interest on the transaction involving the Belgian baby carrots.
8. The Defendant's purchase order indicated that the Plaintiff was to obtain payment from Homer's Restaurant. Nevertheless, the Plaintiff and the Defendant had entered into an oral contract, under which the latter agreed to purchase the Belgian baby carrots from the former, rather than the Defendant acting as a broker who merely arranged the transaction between the Plaintiff and Homer's Restaurant.
9. In late June or early July, 1997, the Plaintiff and the Defendant entered into an oral agreement regarding the sale by the former to the latter of a large quantity of corn. The Defendant did not, however, send a purchase order to the Plaintiff for the purchase of the corn. Nevertheless, that produce was shipped to Mutual Wholesale, on July 22, 1997, with an invoice accompanying the shipment and a copy being sent to the Defendant.See Plaintiff's Exhibit 5. That Invoice indicated that the Defendant was to be billed the sum of $18,600.00. In addition, the invoice contained the language quoted above, concerning the payment of interest and attorney's fees. Since the Defendant had not sent a purchase order, the invoice which accompanied the corn, unlike that which was sent with the Belgian baby carrots, did not include a customer order number.
The order was for two thousand cases of cut corn, with each case weighing 20 pounds, for a total order of 40,000 pounds. According to Bardill, that amount constituted a full truck load.
10. Mutual Wholesale refused to accept delivery of the corn, since the invoice which accompanied that produce did not contain a customer order number. As a result, the trucking company, with which the Plaintiff had contracted to deliver the corn, contacted the Plaintiff for instructions. Bardill, who had sold the corn to the Defendant, contacted the Defendant, who arranged to have the corn stored at Seaboard Cold Storage, Inc. ("Seaboard"), a facility located in Tampa, Florida. The corn remained in that facility, until after this litigation was initiated. Pursuant to the parties' Stipulation (Doc. #17), the Defendant has sold that corn for the sum of $14,480.00. See Defendant's Exhibit 10. As of May 18, 1998, the Defendant has paid Seaboard the sum of $2,500.00, for fees incurred to store the corn.
11. Pursuant to the parties Stipulation (Doc. #17), the Defendant has provided a letter of credit to the Plaintiff, in the sum of $20,952.76, which represents the amount of principal and interest (through February, 1998), claimed by the Plaintiff for the transaction involving the corn.
12. The Defendant was the owner of the corn reflected in the Invoice sent to him by the Plaintiff (Plaintiff's Exhibit 5).
13. Requiring the Defendant to pay interest and costs of collection, including attorney's fees, will not result in surprise or hardship; therefore, those terms will not materially alter the contracts between the parties.
14. The Plaintiff is entitled to recover an additional sum of $3,742.96, as interest on the transaction involving the corn.
15. The Plaintiff has incurred reasonable costs and attorney's fees in the sum of $24,570.30, in order to collect the amount owed by the Defendant for the purchase of the Belgian baby carrots and corn.
16. Since the Defendant purchased the Belgian baby carrots and the corn from the Plaintiff, he is not entitled recover some or all of the $2,500.00 that he has paid to Seaboard, as the storage fee for the corn.
17. The relationship between the Plaintiff and Defendant was one of seller and purchaser. The parties did not agree that the Defendant would act as a broker for the Plaintiff. Therefore, the Defendant is not entitled to recover a commission on the sale of either the Belgian baby carrots or the corn.
II. Opinion
As is indicated above, the parties have stipulated that there are five issues for this Court to resolve. As a means of analysis, the Court will address those issues in the order in which they appear in the parties' Stipulation (Doc. #17), discussing the third and fifth issues together, since they share a common legal predicate.
However, before resolving those issues, the Court will briefly address the question of the substantive law that is applicable to this controversy. Although the Plaintiff has asserted claims under both the PACA and under state law for breach of contract, the issues, which the parties have reserved for the Court to resolve, raise the basic questions of whether the parties entered into an oral contract for the sale of the corn and, if so, the terms of that contract (i.e., is the Plaintiff entitled to recover interest on the principal owed to it and attorney's fees). Those questions cannot be resolved by reference to the PACA, since that statute merely provides remedies to a seller of perishable agricultural commodities, through "the establishment of a nonsegregated trust under which a [purchaser of produce] holds its produce-related assets as a fiduciary until full payment is made to the produce seller." In re Milton Poulos, Inc., 947 F.2d 1351, 1352 (9th Cir. 1991). That statute does not answer the antecedent issues of whether a contract existed between the putative seller and purchaser, and, if so, the terms of that contract. To answer those questions, the parties have relied upon the law of Ohio, including its version of the Uniform Commercial Code ("UCC"), Ohio Revised Code § 1301.01, et seq. A. Ownership as between the parties of the corn
The Plaintiff's principal place of business is located within the state of Illinois, while the Plaintiff's place of business is within Ohio. Therefore, one might argue that, under Ohio's choice of law principles, the substantive law of Illinois must be applied in this litigation. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941). Since neither party has raised that argument, this Court will apply the law of Ohio. See Echo Inc. v. Whitson Co., Inc., 52 F.3d 702, 707 (7th Cir. 1995) ("Where neither party argues that the forum state's choice of law rules require the court to apply the substantive law of another state, the court should apply the forum state's substantive law").
The Plaintiff's theory of recovery in this litigation is that the Defendant purchased the Belgian baby carrots and the corn. The Defendant, on the other hand, denies that he had a contract with the Plaintiff to purchase those agricultural products. Rather, he contends that he was acting as a food broker, whereby he was merely to locate a buyer for the Plaintiff's products and to be paid a commission by the Plaintiff for his efforts. Indeed, the Defendant testified that there never was a transaction concerning corn. With the first issue that the parties have identified in their stipulation, the parties ask the Court to decide the question of whether the Defendant entered into a contract to purchase the corn from the Plaintiff. Above, the Court has found that the Plaintiff and the Defendant entered into an oral agreement, whereby the latter agreed to purchase the corn from the former. The Court now explains the reasoning which supports that factual finding.
Duff turned out to be the buyer that Defendant was to locate.
The Defendant, through the stipulation, has agreed that he owed the Plaintiff $6,380.45, as principal and interest, for the Belgian baby carrots. The Defendant has paid that sum and does not argue that he is entitled to a refund of any portion. The Defendant does, however, contend that he is entitled to a commission on the sale of that produce. The Court addresses that issue below.
As indicated, the Defendant testified that he did not agree to purchase any agricultural commodities from the Plaintiff. Rather, he testified that he merely acted as a broker who would procure a buyer for the Plaintiff, in exchange for the payment of a commission. Indeed, the Defendant testified that there was never any transaction between the parties concerning the corn. While the Defendant presented circumstantial evidence that supports his testimony (there is evidence that the Defendant's typical manner of conducting business was to act as a broker, rather than to purchase products for resale), the Court nevertheless has found that the Plaintiff and the Defendant entered into an oral contract, whereby the latter agreed to purchase the corn from the former. The Court bases this finding on both evidence that was introduced and evidence that was absent from the record.
The Defendant also points out that the invoice for the corn did not have a customer order number. Although the Defendant's assertion is correct, that fact does not prevent the Court from finding that the parties entered into an oral contract, whereby the Defendant agreed to purchase the corn from the Plaintiff. It is to be noted that the invoices involving the first two orders placed by the Defendant (for Italian sausage and cheese filled tortellini) did not include such a number.
First and foremost, Bardill, the Plaintiff's salesman with whom the Defendant dealt, testified that the parties had entered into such a contract. The Court finds that testimony to be more credible than the Defendant's denial of the existence of the contract. Both Bardill and Jeffery Eckert ("Eckert"), who, with the assistance of his father, founded the Plaintiff, testified that the Plaintiff has never employed a food broker. Rather, all of its sales are conducted through an in-house sales force. Therefore, it would be unreasonable to find that the Plaintiff altered its normal method of operations with respect to the Defendant. Indeed, to accept Defendant's theory with regard to the corn, would require the Court to believe that the Plaintiff shipped it to Florida out of the blue. In addition, Bardill's testimony is buttressed by the documentary evidence. On July 11, 1997, the Defendant sent a facsimile to Duff, indicating that he had a truckload of 20-pound cases of corn available, at $9.30 per case. See Plaintiff's Exhibit 9A. There was no evidence that, at that time, the Defendant was engaged in negotiations with any other produce supplier, concerning the sale of corn. Therefore, this Court finds that the corn which was the subject of that communication was the same corn that the Plaintiff had sold to the Defendant. Defendant's communication to Duff that he had such a quantity of corn available lends credence to Bardill's testimony that the Defendant had agreed to purchase that agricultural commodity.
The Defendant concedes that the question of whether the parties entered into an oral contract concerning the sale of corn is "essentially a matter of credibility." Doc. #32 at 7.
Moreover, the actions of the Defendant, after the corn was shipped to Florida, further convince the Court that he had agreed to purchase that produce. When Mutual Wholesale refused to accept delivery of the corn, because the Invoice that accompanied it did not contain a customer order number, Bardill informed Defendant of that fact. Defendant, in turn, made arrangements to have the corn diverted to Seaboard. Thereafter, during a conversation in which he was attempting to collect the unpaid invoices, Eckert told the Defendant that the Plaintiff would take the corn back. Defendant told Eckert that he had sold the corn. The Defendant's acts of diverting the corn to Seaboard and informing Eckert that he had sold the corn are consistent with his having entered into an oral contract to purchase that agricultural commodity.
Both Bardill and Eckert testified that the Defendant had diverted the corn to Seaboard, while the Defendant testified that he had merely given the Plaintiff names of storage facilities in the Lakeland, Florida, area. According to the Defendant, the Plaintiff then made arrangements with Seaboard to have the corn stored at that facility. The Court credits the testimony of Bardill and Eckert in this regard. Defendant testified that he refused to pay the Plaintiff for the Belgian baby carrots, even though Duff had paid him for that produce, until the Plaintiff agreed to come pick up the corn. If the Plaintiff, rather than the Defendant, had made arrangements to store the corn at Seaboard (and, thus, was liable for the storage bills), the Defendant would not have attempted to condition payment of the bill for the Belgian baby carrots (which he admittedly owed) upon resolution of a dispute between the Plaintiff and a third-party over payment of the cost to store the corn, a dispute to which the Defendant would not have been a party. Indeed, given the Defendant's testimony that there was never a transaction involving corn, it is difficult to understand why he would even be concerned about that produce. Parenthetically, while one could argue that the fact that Duff paid the Defendant for the carrots is evidence that the latter was acting as a broker, it is equally reasonable to infer from same fact that Defendant, acting as a wholesaler, purchased that produce in order to resell it to Duff.
Beginning in October, 1997, Plaintiff's counsel wrote the Defendant a number of letters, demanding that the Defendant pay for the Belgian baby carrots and the corn. In response to those letters, the Defendant never wrote, stating that he had neither purchased the corn nor engaged in any transaction concerning that commodity. On the contrary, the Defendant replied to the letter from Plaintiff's counsel Michael Keaton ("Keaton"), dated February 6, 1998, by writing on the bottom of that communication that "the checks are in the mail today." See Plaintiff's Exhibit 1-B. In that letter, Keaton had written that the Defendant had agreed to withdraw sufficient funds from an IRA to pay the Plaintiff's claim in full, in exchange for Plaintiff's agreement to forego filing suit. During his testimony, Keaton explained that the Defendant had agreed to pay the invoices for both the Belgian baby carrots and the corn.
In sum, based upon all of the evidence presented, the Court credits the testimony of Bardill, that the Defendant had entered into an oral agreement to purchase the quantity of corn reflected in the Invoice (Plaintiff's Exhibit 5), which the Plaintiff subsequently sent to him. Accordingly, with respect to the first issue posited by the parties in their Stipulation (Doc. #17), the Court finds that the Defendant was the owner of the corn.
B. Liability as between the parties for the storage fees for the corn
The Defendant has paid Seaboard $2,500.00, the expense incurred to store the corn. The Defendant contends that the Plaintiff is liable for that expense, since he (Defendant) did not purchase the corn. The Court agrees with the Defendant that Plaintiff, rather than he, would have been liable for the storage fees, if he had not purchased the corn. However, above, the Court has concluded that the Defendant did in fact purchase the corn; therefore, the Defendant is not entitled to recover all or any portion of the $2,500.00 he paid to Seaboard for storage fees for that produce.
The Defendant has not argued that he is entitled to recover any portion of the sum that he paid to Seaboard, if the Court should find that he did indeed purchase the corn.
C. Entitlement as between the parties to interest on amounts found by the Court to be attributable to the corn transaction; and liability of the Defendant for attorney's fees and expenses incurred by Plaintiff, and the costs of this action
The Plaintiff bases its assertion that it is entitled to collect interest and costs, including attorney's fees, upon the following language contained in the invoices it sent to the Defendant for the transactions involving the Belgian baby carrots and the corn:
Interest shall accrue on any past-due account balance at the rate of 1.5% per month (18% per annum). In the event [a] collection action becomes necessary, Buyer agrees to pay all costs of collection, including attorneys' fees and costs.See Plaintiff's Exhibits 2 and 5. Despite the fact that both parties did not execute a written contract embodying that language, the Plaintiff argues that those terms are part of their contract in accordance with Ohio Revised Code § 1302.10, § 2-207 of the UCC, which provides in pertinent part:
Chapter 1302 of the Ohio Revised Code, Article 2 of the UCC, is applicable to "transactions in goods." Ohio Rev. Code. § 1302.02. The term "goods" is defined broadly to include all things (with certain inapplicable exceptions), which are moveable at the time that the parties enter into a contract regarding their sale. See Ohio Rev. Code § 1302.01(A)(8). "Goods" also includes growing crops. Id. Given the broad definition of that term, the Court concludes that the Belgian baby carrots and corn are "goods" and that, therefore, the sale of those agricultural products constituted "transactions in goods." Consequently, the provisions of Chapter 1302, including § 1302.10, are applicable in this litigation. Parenthetically, the Court notes that, rather than arguing to the contrary, the parties have relied upon that statutory provision in their post-trial memoranda.
(A) A definite and seasonable expression of acceptance or a written confirmation that is sent within a reasonable time operates as an acceptance even though it states terms additional or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
(B) The additional terms are to be construed as proposals for addition to the contract. Between merchants, the terms become part of the contract unless one of the following applies:
(1) The offer expressly limits acceptance to the terms of the offer.
(2) They materially alter it.
(3) Notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
In McJunkin Corp. v. Mechanicals, Inc., 888 F.2d 481 (6th Cir. 1989), the Sixth Circuit noted that § 1302.10 answers the question of what terms govern the contractual relationship between parties, when they "have failed to incorporate into one formal, signed contract the explicit terms of their contractual relationship."Id. at 482.
Herein, there is no evidence that Bardill, the Plaintiff's salesman, and Defendant discussed, much less agreed, that the latter would be liable for interest on past-due account balances or costs and attorney's fees, in the event that the Plaintiff was required to file a collection action. Rather, the language concerning the payment of interest and attorney's fees was located in written confirmations of the parties' contracts (the Invoices). Therefore, the question of whether the terms contained on the Invoices that the Plaintiff sent to the Defendant, concerning the payment of interest and attorney's fees, are part of the parties' contractual relationship must be decided in accordance with § 1302.10(B). Under that statutory provision, the additional terms contained in the Invoices are part of the parties' contract, if their transaction was "between merchants" and, further, if none of the three exceptions is applicable. The Court must initially determine whether the transactions into which the parties entered were "between merchants." In the event that it concludes that the transactions in question were such, the Court will turn to the question of whether any of the three exceptions contained in § 1302.10(B) prevents the terms concerning the payment of interest from being part of the parties' contracts.
The phrase "between merchants" means any transaction in which "both parties are chargeable with the knowledge or skill of merchants." Ohio Rev. Code § 1302.01(A)(7). The term "merchant" is defined by Ohio Revised Code § 1302.01(A)(5), as:
a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.
Herein, the Plaintiff was in the business of selling food products, including agricultural commodities, while the Defendant had been engaged in the food brokerage business since September, 1974. Thus, both of parties dealt "in goods of a kind." Accordingly, the Court concludes that the Plaintiff and the Defendant were both "merchants" when they entered into their transactions and that, therefore, their transactions were "between merchants." Having so concluded, the Court now turns to the question of whether any of three exceptions, contained in § 1302.10(B), prevents the terms concerning the payment of interest and costs, including attorney's fees, from becoming part of the parties' oral agreements.
Parenthetically, the Plaintiff expressly argues that its transactions with the Defendant were "between merchants," while the Defendant does not argue to the contrary.
The Court need not spend a significant amount of time on the first and third exceptions contained in § 1302.10(B). Under the first exception, terms included in a written confirmation, such as the invoices that the Plaintiff provided to the Defendant, are not part of the contract, if the offer expressly limits acceptance to the terms of the offer. Ohio Rev. Code § 1302.10(B)(1). Herein, there was no evidence that the Defendant in any manner so conditioned his offer to purchase either the Belgian baby carrots or the corn. The third exception prevents an additional term from becoming part of the contract, if notification of an objection is given within a reasonable time, after notice of the term is received. Ohio Rev. Code § 1302.10(B)(3). The Defendant did not notify the Plaintiff that he objected to either of the additional terms. Accordingly, the Court turns to the second exception, to wit: will the additional terms materially alter the parties' contract?
The Defendant does not argue that either the first or third exceptions contained in § 1302.10(B) prevents the terms concerning the payment of interest and costs, including attorney's fees, from becoming part of the parties' contracts.
The Committee Comments to § 2-207, § 1302.10 of the Ohio Revised Code, provide in pertinent part:
4. Examples of typical clauses which would normally "materially alter" the contract and so result in surprise or hardship if incorporated without express awareness by the other party are: a clause negating such standard warranties as that of merchantability or fitness for a particular purpose in circumstances in which either warranty normally attaches; a clause requiring a guaranty of 90% or 100% deliveries in a case such as a contract by cannery, where the usage of the trade allows greater quantity leeways; a clause reserving to the seller the power to cancel upon the buyer's failure to meet any invoice when due; a clause requiring that complaints be made in a time materially shorter than customary or reasonable.
5. Examples of clauses which involve no element of unreasonable surprise and which therefore are to be incorporated in the contract unless notice of objection is seasonably given are: a clause setting forth and perhaps enlarging slightly upon the seller's exemption due to supervening causes beyond his control, similar to those covered by the provision of this Article on merchant's excuse by failure of presupposed conditions or a clause fixing in advance any reasonable formula of proration under such circumstances; a clause fixing a reasonable time for complaints within customary limits, or in the case of a purchase for sub-sale, providing for inspection by the sub-purchaser; a clause providing for interest on overdue invoices or fixing the seller's standard credit terms where they are within the range of trade practice and do not limit any credit bargained for; a clause limiting the right of rejection for defects which fall within the customary trade tolerances for acceptance "with adjustment" or otherwise limiting remedy in a reasonable manner (see Sections 2-718 and 2-719).
(Emphasis supplied). Based upon the language contained in those Comments, courts have held that a term will materially alter the parties' agreement if its inclusion will result in surprise or hardship. See e.g., Goodyear Tire Rubber Co. v. Chiles Power Supply, Inc., 7 F. Supp.2d 954, 964-65 (N.D.Ohio. 1998) (interpreting Ohio Revised Code § 1302.10(B)). As the Committee Comments indicate, a term indicating that interest will be charged on unpaid, overdue invoices will not result in surprise or hardship and, therefore, will not materially alter the parties' bargain. The one Ohio court to address the issue has concluded that a term requiring the buyer to pay interest on invoices that were past-due, contained on a written confirmation similar to the invoices the Plaintiff herein sent to the Defendant, did not materially alter the parties' contract. Elgin Steel, Inc. v. Perfection Manufacturing Corp., 1981 WL 6222 (Ohio App. 1981). This Court agrees with the reasoning and result reached therein and concludes that the inclusion of the term relating to the payment of interest did not materially alter the parties' agreements. Therefore, the Plaintiff is entitled to recover interest on the unpaid invoices for the Belgian baby carrots and the corn.
The Defendant mounts a two-pronged challenge to the Plaintiff's contention that the term requiring him to compensate it for costs incurred in a collection action, including attorney's fees, is part of their oral contracts. The Defendant contends that said term will materially alter those contracts and, therefore, it is not part of any agreements into which they may have entered. Alternatively, the Defendant contends that a term in a contract requiring one party to pay the other's attorney's fees, in the event of a breach, is unenforceable under the law of Ohio. As a means of analysis, the Court will initially address the question of whether the term concerning the payment of collection costs, including attorney's fees, was part of the parties' oral agreements. If the Court concludes that it was, it will then turn to their arguments regarding the enforceability of such a term.
The Committee's Comments to § 2-207 do not expressly address the question of whether a term requiring one contracting party to pay the other's costs of collection, including attorney's fees, materially alters their agreement. Additionally, no Ohio court, nor any federal court applying Ohio law, has addressed the issue. However, several courts have addressed the issue in decisions applying § 2-207, as enacted by other states. From those decisions, certain principles can be ascertained. To determine whether such a term will materially alter the parties' contract, courts have focused upon the question of whether surprise or hardship will result. American Ins. Co. v. El Paso Pipe and Supply Co., 978 F.2d 1185, 1189 (10th Cir. 1992) (citing Comment 4 to UCC § 2-207). In addition, each case must be decided upon its unique facts. Id. at 1190 (and cases cited therein). When analyzing the questions of surprise and hardship, courts have looked to the course of dealing between the parties, particularly whether other written confirmations had been sent previously, which included the same term regarding the payment of attorney's fees. Id. at 1191; Schulze and Burch Biscuit Co. v. Tree Top, Inc., 831 F.2d 709, 714 (7th Cir. 1987). As between merchants, additional terms are presumed to be included in the contract under UCC § 2-207(2); therefore, the party opposing the inclusion of that term has the burden of proving that its inclusion will materially alter the contract. American Ins. Co., 978 F.2d at 1192 n. 9; Comark Merchandising, Inc. v. Highland Group, Inc., 932 F.2d 1196, 1201 (7th Cir. 1991). See also, Jom, Inc. v. Adell Plastics, Inc., 151 F.3d 15, 26 (1st Cir. 1998) (holding that, as between merchants, the party opposing the inclusion of an additional term bears the burden of proving that one of the exceptions contained in § 2-207(2) applies).
Herein, the Defendant has not met his burden of proving that including in their oral contracts the term requiring him to pay for the Plaintiff's costs of collection, including attorney's fees, will result in surprise or hardship and that, therefore, its inclusion would materially alter those agreements. On the contrary, the evidence causes this Court to find that surprise or hardship will not result. As is indicated, the parties' course of dealing is an essential factor upon which courts have focused. The invoice concerning the Belgian baby carrots was the third such document containing the term, concerning the payment of costs of collection and attorney's fees, that the Plaintiff had sent to the Defendant, while the invoice for the corn was the fourth such. In no transaction did the Plaintiff fail to include that term. Therefore, the Court finds that the parties engaged "in a sequence of previous conduct," by which they established a common basis for understanding, so that the inclusion of the term in question will result in neither surprise nor hardship. See Ohio Rev. Code § 1301.11(A) (defining course of dealing). Accordingly, the Court finds that the inclusion of said term will not materially alter the parties' oral contracts. Consequently, pursuant to Ohio Revised Code § 1302.10(B), that term is part of those contracts.
Having concluded that the term in the invoices, concerning the payment of costs of a collection action, including attorney's fees, is part of the parties' oral contracts, the Court must now decide whether that term is enforceable under the law of Ohio. Resolution of that question requires the Court to decide whetherNottingdale Homeowners' Ass'n v. Darby, 33 Ohio St.3d 32, 514 N.E.2d 702 (1987), is applicable to the oral agreements herein. Prior to that decision by the Ohio Supreme Court, a provision in a contract requiring one party to pay the other's attorney's fees, in the event of a default, was void as against public policy. See Miller v. Kyle, 85 Ohio St. 186, 97 N.E. 372 (1911). InNottingdale, the Ohio Supreme Court changed that rule, holding in the syllabus:
Provisions contained within a declaration of condominium ownership and/or condominium by-laws requiring that a defaulting unit owner be responsible for the payment of attorney fees incurred by the unit owners' association in either a collection action or a foreclosure action against the defaulting unit owner for unpaid common assessments are enforceable and not void as against public policy so long as the fees awarded are fair, just and reasonable as determined by the trial court upon full consideration of all of the circumstances of the case.
The Defendant argues that Nottingdale does not support the proposition that a contractual provision requiring him to compensate Plaintiff for its costs of collection, including attorney's fees, is enforceable, since that case is distinguishable from this litigation, because it arose in a non-commercial setting, whereas this dispute involves commercial contracts for the sale of agricultural produce. Some support for that position may be found in Nottingdale. Therein, the Ohio Supreme Court distinguished, rather than overruling,Miller, because that lawsuit (Miller) arose in a commercial setting. Id. at 35, 514 N.E.2d at 705. However, the rationale of the Nottingdale court is more than sufficiently broad to be applicable to commercial transactions:
Nottingdale involved a provision contained in the by-laws of a residential condominium association, requiring owners who did not pay their common assessments to compensate the association for the legal fees it incurred to collect those assessments.
It has long been recognized that persons have a fundamental right to contract freely with the expectation that the terms of the contract will be enforced. This freedom "is as fundamental to our society as the right to write and to speak without restraint." Blount v. Smith (1967), 12 Ohio St.2d 41, 47, 41 O.O.2d 250, 253, 231 N.E.2d 301, 305. Government interference with this right must therefore be restricted to those exceptional cases where intrusion is absolutely necessary, such as contracts promoting illegal acts. No such necessity exists in this case.
* * *
In sum, this court will not interfere with the right of the people of this state to contract freely and without needless limitation. A rule of law which prevents parties from agreeing to pay the other's attorney fees, absent a statute or prior declaration of this court to the contrary, is outmoded, unjustified and paternalistic.Id. at 36-37, 514 N.E.2d at 705-07 (footnote omitted). Simply stated, that rationale is equally applicable in the commercial setting.
Moreover, the majority of Ohio appellate courts addressing the issue have concluded that the result reached in Nottingdale applies with equal force in commercial settings. See e.g., First Capital Corporation v. G J Industries, Inc., 1999 WL 43318 (Ohio App. 1999); Goldfarb v. The Robb Report, 101 Ohio App.3d 134, 655 N.E.2d 211 (1995); Gaul v. Olympia Fitness Center, Inc., 88 Ohio App.3d 310, 623 N.E.2d 1281 (1993); Hilb, Rogal Hamilton Agency of Dayton, Inc. v. Reynolds, 81 Ohio App.3d 330, 610 N.E.2d 1102 (1992). In all of those decisions, the courts relied upon the broad rationale employed by the Ohio Supreme Court inNottingdale, concerning the freedom to contract. This Court considers the result reached and the rationale employed by those Ohio appellate courts to be persuasive. Accordingly, this Court concludes that it is permissible under the law of Ohio to require the Defendant to compensate the Plaintiff for the expenses it incurred to prosecute this action, including attorney's fees.
In Telmark, Inc. v. Schierloh, 102 Ohio App.3d 801, 658 N.E.2d 43 (1995), the Putnam County Court of Appeals concluded that to award attorney's fees under a provision in a commercial, equipment lease, requiring a defaulting lessee to compensate the lessor for its attorney's fees, would be contrary to law. Although that court cited Nottingdale, it did not explain why it had reached that conclusion. Therefore, this Court does not consider Telmark to be persuasive.
The final question is the amount of such expenses that the Plaintiff is entitled to recover. In Nottingdale, the Ohio Supreme Court stressed, in the syllabus, that a contractual provision requiring one party to pay the other's attorney's fees was not void, as against public policy, "so long as the fees awarded are fair, just and reasonable as determined by the trial court upon full consideration of all of the circumstances of the case." Therefore, the Court turns to the question of what sum constitutes a fair, just and reasonable award under the circumstances.
The Plaintiff engaged the services of two attorneys to collect the sum owed by the Defendant, to wit: Michael Keaton ("Keaton") and Peter vonMeister ("vonMeister"). Keaton, whose offices are in Illinois, regularly performs legal services for the Plaintiff, while vonMeister was retained as local counsel to represent Plaintiff specifically in this litigation. According to the Plaintiff, it has incurred expenses for attorney's fees and costs in the sum of $34,860.96, to prosecute this action. See Doc. #33 at 5. Although the evidence is that the Plaintiff has actually incurred those expenses, this Court cannot agree with Plaintiff that, under the circumstances of this litigation, awarding the entirety of that requested amount would be fair, just and reasonable.
Plaintiff's local counsel, vonMeister, has billed his client $12,862.50 for attorney's fees and $1,679.35 for costs. See Plaintiff's Exhibit 7. The parties have stipulated that the amounts set forth in Plaintiff's Exhibit 7 represent reasonable and necessary expenses, actually incurred. See Transcript of Proceedings of June 1, 1998 (Doc. #30) at 137. Accordingly, the Court concludes that the Plaintiff is entitled to recover the sum billed by vonMeister, $14,541.85 ($12,862.50 for attorney's fees and $1,679.35 for costs).
Those bills include services through the trial of this litigation.
Keaton has billed his client $20,319.11 ($16,053.50 for attorney's fees and $4,265.61 for costs). See Plaintiff's Exhibit 8. The Court finds that any sum billed by Keaton, after the parties filed the Stipulation (Doc. #17), to be unreasonable. Once that Stipulation was filed, this case became nothing more than straight-forward credibility dispute, i.e., would the Court, as finder of fact, believe the Plaintiff's witnesses or those called by the Defendant. After the parties executed the Stipulation, the amount in dispute (excluding interest, costs and attorney's fees) was only $18,600.00, the purchase price of the corn, and the Plaintiff was fully secured for that amount. Nevertheless, while the Plaintiff elected to have both Keaton and vonMeister involved in trial preparation and in the trial of this simple collection case, vonMeister conducted the examination of all witnesses called at trial. Given the simplicity of the issue in this litigation, the small sum in dispute and the fact that vonMeister alone examined the witnesses, this Court cannot find that it is fair, just and reasonable to allow the Plaintiff to recover the fees and expenses attributable to Keaton, after the filing of the Stipulation, as well as those that are attributable to vonMeister. Accordingly, the Court finds that the Plaintiff is entitled to recover $10,028.45 ($7,673.00 for attorney's fees and $2,355.45 for costs), as compensation for collection expenses attributable to Keaton, expenses which were incurred before the parties entered into the Stipulation.
Those bills include all services performed and costs incurred through the trial of this litigation.
Before that document was filed, this litigation was more complex, with the Plaintiff seeking injunctive relief to insure that it was protected under the PACA. Therefore, the Court finds that it is fair, just and reasonable to require the Defendant to compensate the Plaintiff for the expenses incurred to retain two attorneys, through that date.
Moreover, the Defendant was obligated to pay the Plaintiff any portion of the proceeds realized from the sale of the corn, less storage charges that the Defendant paid to Seaboard. See Doc. #17 at ¶ 3.
In sum, the Court concludes that the Plaintiff is entitled to recover the sum of $24,570.30, as compensation for the reasonable costs and attorney's fees incurred to collect the sum owed by the Defendant.
D. Entitlement of Defendant to commissions for the sale of the Belgian baby carrots and the corn, notwithstanding that Defendant has not filed a counterclaim requesting same
Defendant's typical manner of business is to act as a food broker, whereby he merely brings a seller and purchaser together and is paid a commission by the seller. Nevertheless, the Court has found that the Defendant did not act as a broker during the transactions in question; rather, he purchased the Belgian baby carrots and the corn from the Plaintiff. Moreover, the Plaintiff did not agree to pay the Defendant any type of commission. Therefore, the Court finds that the Defendant is not entitled to recover a commission herein.
The Plaintiff points out that the Defendant has not filed a counterclaim in this litigation. See Doc. #34 at 9 n. 4 ("The Court will not overlook that Defendant is not only in default of answering [Plaintiff's] complaint, but he never asserted a counterclaim. Although Plaintiff stipulated to the issues reserved for trial, Defendant's failure to plead was not waivedper se."). If the intent of this comment is to convince the Court to find that the Defendant is not entitled to a commission because he did not file a counterclaim (and, thus, not to address the merits of his request for same), the Court declines to do so. This litigation was filed on February 13, 1998, with the Defendant being served on February 18, 1998. See Doc. #11. The parties and their counsel then met with the Court on February 25, 1998, and negotiated their Stipulation (Doc. #17), which identified the Defendant's entitlement to commissions as one of the issues to be resolved at trial. That activity took place well within the time in which the Defendant had to file an answer and counterclaim.See Fed.R.Civ.P. 12(a)(1)(A). Moreover, Rule 15(b) of the Federal Rules of Civil Procedure provides that "[w]hen issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings." This Court will not permit a party to stipulate that an issue has been reserved for trial and then argue that the issue has been waived, because it was not included in the pleadings.
E. Summary
The Court has now resolved the five issues which the parties reserved for trial. The only remaining matters are to quantify the amount of the judgment to which the Plaintiff is entitled and to resolve the Plaintiff's assertion that the Defendant holds its assets in trust under the PACA, until that judgment is satisfied.
Two items comprise the amount of the judgment to which the Plaintiff is entitled, to wit: principal and interest on the corn, and costs and attorney's fees. Above, the Court has concluded that the Plaintiff is entitled to recover $24,570.30, as compensation for costs and attorney's fees. With respect to the amount of principal attributable to the corn transaction, the sales price to which the parties agreed was $18,600.00. However, in accordance with the parties' Stipulation, the Defendant was required to use his best efforts to sell the corn and to deliver the proceeds from that sale (less storage costs) to the Plaintiff. The Defendant realized $14,480.00 from the sale of the corn and paid $2,500.00 to Seaboard for storage. After deducting the storage costs from the amount of the sale, the balance has been remitted to the Plaintiff. Therefore, the Plaintiff has received $11,980.00 of the $18,600.00 sales price. Accordingly, the Plaintiff is entitled to judgment in the sum of $6,620.00 ($18,600.00 minus $11,980.00), as principal owed by the Defendant on the corn transaction. With respect to interest on that transaction, the parties have stipulated that, through February, 1998, the Plaintiff was entitled to interest in the sum of $2,352.76. See Doc. #17 at ¶ 2. In addition, the Plaintiff is entitled to interest, at 1.5% per month, on the principal sum of $6,620.00, from the end of February, 1998, until the present, which equals $1,390.20. Therefore, the Plaintiff is entitled to interest in the sum of $3,742.96. Accordingly, the Court concludes that Plaintiff is entitled to judgment in the sum of $34,933.26 ($24,570.30 for costs and attorney's fees, $6,620.00 as principal for the corn transaction and $3,742.96 for interest on that transaction). In addition, the Plaintiff is entitled to post-judgment interest on that amount at the statutory rate. See 28 U.S.C. § 1961.
The parties have stipulated that Defendant owed $6,380.45, as principal and interest for the Belgian baby carrots. See Doc. #17 at ¶ 1. Since that amount has been paid, the parties' transaction concerning that produce is not part of the judgment.
It bears emphasis that the Court has concluded that the Defendant is responsible for the expenses incurred to store the corn. The parties' Stipulation merely authorized the Defendant to pay those costs out of the amount realized from the sale of that produce.
The final question is whether the Defendant holds some or all of its assets in trust, pursuant to the PACA, for the benefit of the Plaintiff to satisfy that judgment. In arguing that the Defendant's assets are so held, the Plaintiff relies upon 7 U.S.C. § 499e(c)(2), which provides, in pertinent part:
The Defendant executed a letter of credit in favor of Plaintiff, in the sum of $20,952.76, which has been reduced by the amount of the proceeds from the sale of the corn that the Defendant has delivered to the Plaintiff. Of course, the Plaintiff may execute a portion of the judgment entered herein against that letter of credit. The issue addressed by the Court at this point is whether the Defendant otherwise holds its assets in trust for the benefit of the Plaintiff.
(2) Perishable agricultural commodities received by a commission merchant, dealer, or broker in all transactions, and all inventories of food or other products derived from perishable agricultural commodities, and any receivables or proceeds from the sale of such commodities or products, shall be held by such commission merchant, dealer, or broker in trust for the benefit of all unpaid suppliers or sellers of such commodities or agents involved in the transaction, until full payment of the sums owing in connection with such transactions has been received by such unpaid suppliers, sellers, or agents.
The Plaintiff contends that it is entitled to take advantage of the trust provisions contained in the PACA, because § 499e(c)(2) provides that the trust shall remain for the benefit of a seller of agricultural commodities (such as itself), until "full payment of sums owing in connection with such transactions" has been received. According to the Plaintiff, that language is evidence of Congressional intent that the trust provision is applicable to an award of attorney's fees, costs of collection and prejudgment interest, as well as on the sales price of an agricultural commodity. This Court does not agree. Section 499e(c)(5), which invests District Courts with jurisdiction over lawsuits by unpaid suppliers to enforce payment from the trust, does not provide that a prevailing plaintiff/supplier may recover its attorney's fees and costs. In contrast, PACA authorizes the filing of complaints with the Secretary of Agriculture. 7 U.S.C. § 499f. If the Secretary's resolution of such a complaint is challenged in federal court, an appellee which prevails in that litigation is statutorily entitled to recover its attorney's fees. 7 U.S.C. § 499g (c). See also, Robinson Farms v. D'Acquisto, 962 F.2d 680 (7th Cir. 1992). Based upon the express provision concerning the award of attorney's fees in one part of the PACA, courts have held that a prevailing plaintiff, in an action filed pursuant § 499e(c)(5), is not entitled to recover attorney's fees, since that statutory provision does not expressly provide for the award of same. See e.g., Hereford Haven, Inc. v. Stevens, 1999 WL 155707 (N.D.Tex. March 12, 1999) (and cases cited therein). Since § 499e(c)(5) does not authorize the recovery of attorney's fees and costs, this Court concludes that the phrase, "full payment of sums owing in connection with such transactions," does not include such fees; therefore, the Defendant does not hold any portion of its assets in trust to secure the payment of that portion of the judgment entered herein that is attributable to the costs and attorney's fees incurred by the Plaintiff. Similarly, since § 499e(c)(5) does not authorize the recovery of prejudgment interest, the Court concludes that the Defendant does not hold any portion of his assets in trust for the portion of the judgment entered herein that is attributable to such interest. Accordingly, with respect to interest, costs and attorney's fees, Plaintiff is a normal judgment creditor, rather than a trust beneficiary under the PACA. III. Conclusions of Law
Of course, Plaintiff would be a trust beneficiary with respect to the portion of the judgment that is attributable to the unpaid principal for the corn transaction, if the Defendant had not provided the letter of credit, guaranteeing the payment of same. Since the Plaintiff may now execute on that instrument, it will have been paid, and its status as trust beneficiary will terminate. See 7 U.S.C. § 499e(c).
1. This Court has jurisdiction over this litigation pursuant to 7 U.S.C. § 499e(c)(5) and 28 U.S.C. § 1331 and 1367.
2. The Defendant was the owner of the corn, reflected in the Invoice sent to him by the Plaintiff.
3. Since the Defendant was the owner of the corn, he is liable for the fees incurred to store that produce.
4. The terms in the invoices concerning the payment of interest, costs and attorney's fees are part of the parties' oral agreements pursuant to Ohio Revised Code § 1302.10(B) (§ 2-207(2) of the UCC).
5. The provision requiring Defendant to compensate the Plaintiff for the reasonable attorney's fees it incurred to collect the amount owed for the Belgian baby carrots and the corn is not void under the law of Ohio.
6. Since the terms in the invoices concerning the payment of interest, costs and attorney's fees are part of the parties' oral agreements and, further, given that the provision pertaining to the payment of reasonable attorney's fees is not void under the law of Ohio, the Plaintiff is entitled to recover interest, reasonable attorney's fees and costs of this action.
7. The Defendant is not entitled to recover a commission for the sale of either the carrots or the corn.
8. The Defendant does not hold its assets in trust to secure the payment of any portion of the judgment entered herein.
9. Plaintiff is entitled to recover from Defendant the sum of $34,933.26, and post-judgment interest on that sum in accordance with 28 U.S.C. § 1961.
The Court directs that judgment be entered in favor of the Plaintiff and against the Defendant in the sum of $34,933.26, and post-judgment interest on that sum in accordance with 28 U.S.C. § 1961.
The captioned cause is hereby ordered terminated upon the docket records of the United States District Court for the Southern District of Ohio, Western Division, at Dayton.