NOTICE: Summary decisions issued by the Appeals Court pursuant to its rule 1:28, as amended by 73 Mass. App. Ct. 1001 (2009), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
JRM Hauling & Recycling Services, Inc. (JRM) brought this action for breach of contract and breach of the implied covenant of good faith and fair dealing after The Newark Group, Inc. (Newark) stopped accepting loose paper from JRM. Following a jury-waived trial, a Superior Court judge concluded that Newark repudiated its contract with JRM but that JRM failed to prove damages. In response to posttrial motions, the judge awarded nominal damages to JRM and denied Newark's motion for legal fees and expenses. Because the judge's conclusion as to JRM's failure to prove damages rested on a clearly erroneous finding of fact, we vacate the judgment and remand for further proceedings consistent with this memorandum and order.
Background. We summarize the Superior Court judge's findings of fact, reserving a discussion of some facts for our subsequent analysis. JRM contracted with various municipalities to collect curbside recycling, including loose paper, and guaranteed that the loose paper would be recycled. In 2005, JRM needed an outlet for its loose paper and was also looking for a facility to house its operations. At the same time, Newark was manufacturing recycled board products from loose paper and was looking to purchase as much loose paper as possible. In addition, a Newark employee had a facility available for rent that was suitable for JRM's operations. This facility was located at 1130 Eastern Avenue in Malden (Malden facility).
In 2005 and 2006, JRM negotiated agreements for the lease of the Malden facility and for the sale of loose paper. The first of these agreements, a ten-year lease on the Malden facility, was executed on July 1, 2005. Over a year later, on November 1, 2006, JRM and Newark entered into a ten-year contract (contract) whereby JRM agreed to sell all loose paper "produced by [JRM] at the following location(s): 1130 Eastern Avenue, Malden, MA." This contract between JRM and Newark expressly prohibited JRM from assigning any interest in the contract without Newark's written consent and also contained an integration clause.
When JRM entered into the contract with Newark, the Malden facility was the only location where JRM received recyclables. JRM trucks collected curbside recycling and returned to the Malden facility, where loose paper and other recyclables were dumped in separate areas. From there, the loose paper was pushed onto a conveyor belt leading to a compactor and then into the trailer of a JRM truck for delivery to Newark. Newark did not care whether the loose paper came from the Malden facility, as Newark's priority was to obtain as much loose paper as possible.
In 2010, market demand for the recycled board products that Newark produced from loose paper began to decrease. By 2014, Newark was using only ten per cent of the loose paper that it was receiving from all of its suppliers, including JRM, and was refining and selling the remaining loose paper at a substantial loss.
In 2015, as JRM's ten-year lease on the Malden facility drew to a close, JRM's owners opened a state-of-the-art recycling facility through a separate company called GreenWorks, Inc. (GreenWorks). The GreenWorks facility contained an area where JRM trucks could dump and process loose paper for delivery to Newark. As part of the process of becoming operational, GreenWorks needed material to test its new sorting machine. JRM thus directed its drivers to deliver the loose paper to GreenWorks for these testing purposes. JRM failed to inform Newark that it would not be making a regular delivery. Nonetheless, when Newark sent an electronic mail message (e- mail) to JRM inquiring about the missing delivery, JRM responded that it had loose paper if Newark wanted it. In fact, Newark did not want the loose paper and had no objection to JRM temporarily suspending its deliveries. Shortly after the missed delivery, Newark informed JRM that it would no longer accept any loose paper from JRM.
After Newark stopped accepting the loose paper, JRM began to look for other buyers but could not obtain the purchase price that Newark was obligated to pay. JRM thus transferred the loose paper to GreenWorks, for no consideration, and GreenWorks refined it into a higher grade baled paper, for which there was a market.
Discussion. The parties raise arguments in their cross appeals as to Newark's obligations under the contract and as to the appropriate measure of damages. Pursuant to a choice of law provision in the contract, JRM and Newark agree that New Jersey law governs their duties, rights, and remedies and that Massachusetts law governs procedural matters such as the standard of review. See Morris v. Watsco, Inc., 385 Mass. 672, 675 (1982).
1. Newark's repudiation of the contract. Newark's main argument on appeal is that it had no obligation to purchase loose paper produced at the GreenWorks facility and that the judge erroneously relied on extrinsic evidence in concluding that Newark was obligated to do so. Newark's argument is based on a sentence in its contract with JRM that requires Newark to purchase all loose paper "produced by [JRM] at the following location(s): 1130 Eastern Avenue, Malden, MA." Newark contends that this sentence is unambiguous and that the integration clause in the parties' contract precluded the judge from reviewing extrinsic evidence.
As a variant of this argument, Newark also argues that it had no obligation to purchase any paper, whether loose or baled, from GreenWorks. This argument is premised on the fact that JRM gave the paper to GreenWorks after Newark stopped accepting it. This argument is without merit. Had Newark continued accepting the paper, JRM would have had no reason to give it to GreenWorks. The fact that JRM would have been producing the paper at the GreenWorks facility has no bearing on who owned it.
New Jersey "permit[s] a broad use of extrinsic evidence to achieve the ultimate goal of discovering the intent of the parties" and "to uncover the true meaning of contractual terms." Conway v. 287 Corporate Ctr. Assocs., 187 N.J. 259, 270 (2006). "It is only after the meaning of a contract is discerned that the parol evidence rule comes into play to prohibit the introduction of extrinsic evidence to vary the terms of the contract." Id. Here, the judge's use of extrinsic evidence fell squarely within the goal of discovering the intent of the parties. The contract was a form contract that included a space for an address, and nothing on the face of the contract indicates whether the address was a material term. The address could have been included simply to identify JRM's place of business, or it could have been included as a limitation on the parties' obligations. In these circumstances, there was no error in the judge's use of extrinsic evidence. See Atlantic N. Airlines, Inc. v. Schwimmer, 12 N.J. 293, 303 (1953) ("antecedent negotiations and attendant circumstances may be shown by parol to make plain the meaning of the written words").
That evidence supports the judge's conclusion that JRM's production address was immaterial to the parties. The Newark executive in charge of negotiating the contract with JRM testified that Newark did not care whether the loose paper came from the Malden facility. This testimony was corroborated by (1) evidence that Newark's main objective was to purchase as much loose paper as possible, and (2) evidence that production of the loose paper did not require anything unique to the Malden facility. Finally, we note that JRM's lease on the Malden facility and JRM's contact with Newark were negotiated in tandem between related entities and that JRM's lease expired before its contract with Newark. Newark has offered no plausible explanation why the contract between JRM and Newark would have extended beyond JRM's lease if the production location had been a material term. Accordingly, we discern no error in the judge's conclusion that Newark was obligated to purchase loose paper produced by JRM at the GreenWorks facility.
JRM's contract with Newark was unique in that it required Newark to purchase all of JRM's loose paper, with no cap specified. We are thus not convinced by Newark's argument that JRM's production address was a material term because the GreenWorks facility had a significantly greater capacity. Based on the evidence concerning the parties' objectives when they entered into the contract, Newark would have viewed the GreenWorks facility's greater capacity as a benefit.
2. Damages. Because Newark makes no other arguments challenging the judge's conclusion that it repudiated the contract, we are left with the question of damages. JRM sought damages under § 2-708(1) of New Jersey's Uniform Commercial Code (UCC). See N.J. Stat. Ann. § 12A:2-708(1). That section provides that "the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages . . . but less expenses saved in consequence of the buyer's breach." Id.
JRM also argues that damages could have been calculated under two other sections of the UCC. JRM first raised this argument in its posttrial motion for reconsideration. However, in light of our decision, we need not address whether this argument has been waived.
While this calculation is typically straightforward, the focus during trial was on the market price of baled paper, not of loose paper. The judge thus also began his market price analysis with the price of baled paper. After doing so, he found that JRM did not offer any evidence that would allow him to deduce or infer the market price of loose paper from the market price of baled paper. On that basis, he concluded that JRM failed to prove damages.
The flaw in the judge's analysis is that there was no reason to look at the market price of baled paper. The market price of comparable goods may be used if "there is no evidence available of the current market price at the time and place of tender." Comment to N.J. Stat. Ann. § 12A:2-708. While the judge found that "JRM introduced evidence showing that there was no market for loose paper," there is an important distinction between whether there was no evidence available of the current market price and whether there was no market for loose paper. The former may occur, for example, when a good is so rare that sales are infrequent. See, e.g., Chappell Chevrolet, Inc. v. Strickland, 4 Ark. App. 108, 110 (1982) (rarity of car made it difficult to prove market price in given location). By contrast, the latter (the absence of any market for the sale of an abundant commodity) implies that the market price was zero dollars, because no one wanted to purchase the loose paper.
Relying in part on language in the judge's original findings and rulings, JRM moved for reconsideration. JRM argued that, instead of trying to extrapolate the market price of loose paper from baled paper, the judge could have calculated damages based on a market price for loose paper of zero dollars. The judge disagreed. During a hearing on the motion, the judge stated that there was a market for loose paper because "Newark itself wanted delivery of the loose paper to meet some obligations it had to meet to sell to third parties." In his written memorandum and order on posttrial motions, the judge elaborated, "At minimum, there was a market for buying loose paper so that it could be refined to a higher grade at a profit, as demonstrated by both GreenWorks and Newark."
We are thus faced with the task of determining whether the judge's finding that there was a market for loose paper was clearly erroneous. We conclude that it was. In conducting this review, we give due regard to the trial judge's opportunity to weigh witness credibility, which "is particularly [relevant] in a case involving conflicting testimony." Demoulas v. Demoulas Super Mkts., Inc., 424 Mass. 501, 510 (1997). "A finding is 'clearly erroneous' only when, 'although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.'" Id. at 509, quoting Building Inspector of Lancaster v. Sanderson, 372 Mass. 157, 160 (1997).
The judge's finding was based on the fact that GreenWorks and Newark were refining loose paper into baled paper. However, the relevant question is whether GreenWorks and Newark were willing to pay for loose paper, and the evidence shows that they were not. At the time of Newark's repudiation, JRM was transferring the loose paper to GreenWorks for no consideration, and nothing in the record suggests that Newark would have purchased the loose paper for even a nominal sum of money. When asked whether JRM was able to sell the loose paper for at least some compensation after Newark stopped accepting it, JRM's president testified that "[n]o one else really wanted loose newspaper" and that they had to refine it into baled paper to sell it. JRM's vice-president similarly testified that there were no alternative buyers who would take the paper loose and unbaled. We also note that the judge found the testimony of JRM's vice-president and president to be credible and that Newark's witnesses did not offer conflicting testimony on this point. Based on this record, we conclude that the judge erred in finding that there was a market for loose paper.
Newark introduced an e-mail indicating that JRM sold "mix" to Newark around the time of Newark's repudiation. However, JRM's vice-president and a former Newark employee both testified that any such sale was of baled paper, not of loose paper.
While there was evidence of some sales of loose paper to other parties before Newark repudiated the contract, those sales were already at a loss. Moreover, in light of the declining nature of the market, any evidence of sales before Newark repudiated the contract do not support a finding that there was a market for loose paper at the time of Newark's repudiation.
Conclusion. Because the judge's conclusion as to damages rested on a clearly erroneous finding as to the existence of a market for loose paper, we vacate the judgment and remand for further proceedings consistent with this memorandum and order. In light of our decision, we need not address the parties' remaining arguments as to nominal damages and legal fees and expenses.
We note that the judge also rejected JRM's position regarding the quantity of loose paper that Newark was obligated to purchase in 2015 and 2016. However, the judge did not make a finding as to how much loose paper Newark was obligated to purchase. This, too, is appropriately addressed in the first instance on remand.
The panelists are listed in order of seniority. --------
Clerk Entered: April 2, 2019.