Target Corporation v. JJS Developments LTD, o/a ERS International

Filing 58

ORDER: Target's Motion for Summary Judgment [Docket No. 46 ] is GRANTED IN PART and DENIED IN PART. Counts II, III, IV, and V of ERS's counterclaims are DISMISSED WITH PREJUDICE. (Written Opinion) Signed by Judge Joan N. Ericksen on February 9, 2018. (CBC)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Target Corporation,
Plaintiff,
v.

Case No. 16-cv-1184 (JNE/TNL)
ORDER

JJS Developments LTD o/a ERS
International,
Defendant.

Michael A. Ponto and Kyle R. Hardwick, Faegre Baker Daniels LLP, appeared for Target
Corporation.
Leny K. Wallen-Friedman and Diana Young Morrissey, Wallen-Friedman & Floyd, P.A.,
appeared for JJS Developments LTD o/a ERS International.

Target Corporation and JJS Developments LTD o/a ERS International (“ERS”)
entered into several contracts for the sale of certain assets by Target to ERS. Claiming
that ERS did not pay the amount due after the termination of one of the contracts, Target
brought this action against ERS for breach of contract, unjust enrichment, and
conversion. ERS asserted counterclaims for fraud, negligent misrepresentation, breach of
contract, and breach of the implied covenant of good faith and fair dealing. The case is
before the Court on Target’s Motion for Summary Judgment. For the reasons set forth
below, the Court grants in part and denies in part Target’s motion.

1

I.

BACKGROUND

Target is a discount retailer. In the course of its business, it acquires assets whose
disposal it seeks by recycling or other means. ERS is in the business of asset disposition
services, asset destruction auditing, data destruction, and material control services.
Non-TV Contracts
In 2014, Target issued several requests for quotes, seeking a purchaser of certain
assets for recycling or other disposition. The assets included electronics from Target’s
headquarters, assets and electronics from Target’s stores and distribution centers, and
electronics that Target accepted from its customers for recycling. ERS responded to
Target’s requests, and Target awarded contracts to ERS. Target and ERS executed a
Purchaser Qualification Agreement, as well as three program agreements. 1 Each program
agreement had an effective date of June 28, 2014, and an expiration date of June 30,
2016.
The Purchaser Qualification Agreement states that it “applies to and is
incorporated into all agreements relating to the sale . . . of merchandise and other assets
(‘Goods’) and/or the work, tasks or projects to be performed (‘Services’) between [ERS]
and Target, including any program agreement specific to the Goods and Services entered
into the by the parties (‘Program Agreement’)” and that the terms of a program
agreement govern in the event of a conflict between the program agreement and the
Purchaser Qualification Agreement. The Purchaser Qualification Agreement contains the
following warranties by Target:
1

The parties referred to the three program agreements as the Non-TV Contracts.
2

Target Warranties. Target has the right to sell the Goods; provided,
however, that with regard to any Goods that include embedded software or
consist, in whole or in part, of other computer software, Target makes no
representation or warranty as to Target’s right to sell or Purchaser’s right to
use the embedded software or other computer software. Target is
consigning and/or selling the Goods “AS IS”, “WHERE IS”, WITH ALL
FAULTS, WITHOUT WARRANTY OR REPRESENTATION OF
ANY KIND EXPRESSED OR IMPLIED, INCLUDING ANY
WARRANTY AS TO THE NON-INFRINGEMENT OR THE KIND,
SIZE, WEIGHT, QUALITY, CHARACTER, FUNCTIONALITY,
DESCRIPTION, DURABILITY, CONFORMITY WITH ANY
SPECIFICATIONS OR CONDITION OF THE GOODS, THE
PACKAGING OR LABELING OF THE GOODS, THE
MERCHANTABILITY OF THE GOODS OR THEIR FITNESS FOR
ANY PARTICULAR, SPECIAL OR INTENTED PURPOSE. Without
limiting the foregoing, the condition and use of the Goods shall be at the
sole risk of Purchaser. Target is not responsible for any damages to any
person or property as a result of the possible deficiencies or failures of the
Goods.
DDTV
In July 2014, Target sought a purchaser of certain damaged or defective
televisions. ERS responded, and, in August 2014, Target awarded a contract to ERS. 2
ERS agreed to pay $17 per television.
TV Unsaleables
A few months later, Target issued a request for quotes. It sought a purchaser of
returned and damaged televisions. Target anticipated an 18-month contract starting in
December 2014. It advised potential bidders of “substantial volume growth” in May
2015 “due to a change in programs at Target.” Target provided forecasts of the volume
of televisions subject to the program from the start of the contract to May 2015 and from
May 2015 to the end of the contract. Target also provided estimates of the screen sizes
2

The parties referred to this program as the DDTV program.
3

and damage rates. It advised potential bidders that the estimates were not guaranteed:
“Any volumes, conditions, mixes provided in the sourcing event are not a guarantee.
Estimates are provided for planning purposes only and will vary with Target store
openings and seasonal trends.”
ERS responded to the request, and Target awarded the contract to ERS. Target
and ERS executed a program agreement for the “Purchase of TV Unsaleables.” The
agreement’s effective date was December 21, 2014, and its expiration date was June 20,
2016. The program agreement acknowledged the estimates that Target had provided:
Target has made projections and forecasts of the amount of Goods
that Target estimates may be available (the actual amount may be less than
or more than any projections or forecasts). [ERS] understands and agrees
that these numbers are estimates only and, unless otherwise expressly stated
in this Program Agreement, Target is not obligated to sell or consign any
specific quantity of Goods to Supplier. Goods may be sold or consigned by
Target or by an affiliate of Target, including Target’s contracted service
provider.
A statement of work, which was attached to the program agreement as an exhibit,
described the goods to be purchased by ERS: “Unsaleable TV’s are items that have been
either returned to the store by a Target guest, classified as defective merchandise in store
or on Target.com returned items sent via mail.” The statement of work also reiterated
that “[a]ny volumes, condition, or mixes provided in the sourcing event are not a
guarantee. Estimates are provided for planning purposes only and will vary with Target
store openings and seasonal trends.”
In the request for quotes, Target provided estimates of damage rates by brand. In
total, it estimated that 67.0% of the televisions would be “No Fault Found,” that 9.2%

4

would be “Repairable,” and that 23.8% would be “Salvage/Scrap.” The condition of the
televisions that ERS bought from Target under the TV Unsaleables program did not
conform to the estimates provided by Target. For instance, a condition report, which was
sent by ERS to Target in early February and was based on approximately 5,500
televisions, indicated that approximately 43% of the televisions had cracked or broken
glass, rendering the unit “a teardown/salvage unit.” An audit conducted by Target in
April 2015 characterized 51% of the televisions as no fault found, 13% as repairable, and
36% as damaged.
ERS notified Target of the discrepancies between the estimated and actual
conditions of the televisions and sought pricing concessions. Negotiations took place
before and after ERS gave 90-day notice of termination in early March 2015. The parties
did not agree to a modification. The TV Unsaleables program agreement terminated in
early June 2015. Target has not received payment from ERS for several loads of
televisions.
Termination of Non-TV Contracts
In September 2015, Target notified ERS that Target had discovered “listings by
multiple pallet salvagers that appear to be marketing full pallets of Target merchandise
that should have been recycled via ERS.” Target directed ERS’s attention to a section of
the scope of work of the electronics recycling program agreement for assets and
electronics from Target’s stores and distribution centers. The section prohibits resale of
merchandise “in original form.” ERS explained to Target that ERS had sent a small
amount of goods to a subcontractor, that the subcontractor had not properly handled the
5

goods, and that ERS had taken steps to recover the goods. According to ERS, Target
advised ERS that Target would continue to honor the contracts. Nevertheless, in October
2015, Target terminated the Non-TV Contracts.
II.

DISCUSSION

Summary judgment is proper “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a). To support an assertion that a fact cannot be or is genuinely disputed, a
party must cite “to particular parts of materials in the record,” show “that the materials
cited do not establish the absence or presence of a genuine dispute,” or show “that an
adverse party cannot produce admissible evidence to support the fact.” Fed. R. Civ. P.
56(c)(1)(A)-(B). “The court need consider only the cited materials, but it may consider
other materials in the record.” Fed. R. Civ. P. 56(c)(3). In determining whether
summary judgment is appropriate, a court must view genuinely disputed facts in the light
most favorable to the nonmovant, Ricci v. DeStefano, 557 U.S. 557, 586 (2009), and
draw all justifiable inferences from the evidence in the nonmovant’s favor, Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
A.

Convention on Contracts for the International Sale of Goods
The parties disputed whether the United Nations Convention on Contracts for the

International Sale of Goods (“CISG”) applies. “As ‘a self-executing [treaty] between the
United States and other signatories, including Canada,’ the Convention supersedes state
law when it applies.” VLM Food Trading Int’l, Inc. v. Ill. Trading Co., 748 F.3d 780,
787 (7th Cir. 2014) (alteration in original) (quoting Chicago Prime Packers, Inc. v.
6

Northam Food Trading Co., 408 F.3d 894, 897 (7th Cir. 2005)). The CISG “applies to
contracts of sale of goods between parties whose places of business are in different States
when the States are Contracting States.” CISG art. 1(1). For purposes of the CISG, “if a
party has more than one place of business, the place of business is that which has the
closest relationship to the contract and its performance, having regard to the
circumstances known to or contemplated by the parties at any time before or at the
conclusion of the contract.” CISG art. 10(a).
Target maintained that the CISG does not apply because the parties’ places of
business are in the United States. ERS maintained that the CISG does apply because
Target’s place of business is in the United States and ERS’s place of business is in
Canada.
Although the Purchaser Qualification Agreement and each program agreement
that ERS and Target executed identifies a Canadian address as ERS’s principal address,
ERS acknowledged that “[p]artnering with Target was a major opportunity for ERS; to
accommodate Target’s product volume, ERS opened an Indianapolis facility and invested
in substantial infrastructure for transport, inspection, repair and repackaging, disassembly
and recycling, rerouting and disposal of TVs and other electronic products.” The Court
concludes that ERS’s place of business for the purposes of ERS’s contracts with Target is
in the United States. The CISG does not apply.

7

B.

ERS’s counterclaims
1.

Fraud—TV Unsaleables

ERS alleged that Target engaged in fraud by knowingly providing false
“Condition Estimates, mix of screen sizes, and sorting criteria” in the TV Unsaleables
request for quotes. Target moved for summary judgment on ERS’s fraud claim on two
grounds. First, Target asserted that the forecasts provided in the request for quotes
cannot form the basis of a fraud claim because the forecasts were not representations of
past or existing material facts. Second, Target asserted that “any purported reliance by
ERS was unreasonable as a matter of law.”
Under Minnesota law, the elements of a fraud claim are:
(1) there was a false representation by a party of a past or existing material
fact susceptible of knowledge; (2) made with knowledge of the falsity of
the representation or made as of the party’s own knowledge without
knowing whether it was true or false; (3) with the intention to induce
another to act in reliance thereon; (4) that the representation caused the
other party to act in reliance thereon; and (5) that the party suffer pecuniary
damage as a result of the reliance.
Specialized Tours, Inc. v. Hagen, 392 N.W.2d 520, 532 (Minn. 1986); see Valspar
Refinish, Inc. v. Gaylord’s, Inc., 764 N.W.2d 359, 368 (Minn. 2009). “Projections should
be considered actionable or not in fraud, depending upon whether they accurately reflect
surrounding past and present circumstances.” Berg v. Xerxes-Southdale Office Bldg. Co.,
290 N.W.2d 612, 615 (Minn. 1980); see Commercial Prop. Invs., Inc. v. Quality Inns
Int’l, Inc., 938 F.2d 870, 876 (8th Cir. 1991). There is evidence in the record that
Target’s forecasts did not accurately reflect surrounding past and present circumstances.
For instance, reports from the incumbent salvager about televisions sold from December

8

2013 to July 2014 indicated that 30% of the televisions were salvage or scrap. The
incumbent salvager also submitted a bid in response to Target’s request for quotes in
which the salvager explained its proposed pricing: “The reason for the drastic decline
from our 33% currently to 20% is because the influx of the previously bid out visibly
damaged. Current salvage rates are around 33% - we expect that the climb to over 42%
with the influx of the visibly damaged.” The Court rejects Target’s assertion that the
forecasts cannot form the basis of a fraud claim.
To support its argument that reliance by ERS on Target’s forecasts was
unreasonable as a matter of law, Target relied on disclaimers that appeared in the
Purchaser Qualification Agreement, the request for quotes, and the program agreement.
The Purchaser Qualification Agreement states that “Target is consigning and/or selling
the Goods ‘AS IS’, ‘WHERE IS’, WITH ALL FAULTS, WITHOUT WARRANTY
OR REPRESENTATION OF ANY KIND EXPRESSED OR IMPLIED.” The
request for quotes states: “Any volumes, conditions, mixes provided in the sourcing event
are not a guarantee. Estimates are provided for planning purposes only and will vary
with Target store openings and seasonal trends.” The program agreement provides that
“[a]ny volumes, condition, or mixes provided in the sourcing event are not a guarantee”
and that “[e]stimates are provided for planning purposes only and will vary with Target
store openings and seasonal trends.” It also states that, “[e]xcept as set forth in the
[Purchaser Qualification Agreement], Target makes no representations or warranties
whatsoever with respect to the Goods, or sale of Goods to, Supplier.”

9

“The only situation in which the Minnesota courts have held that a contract
provision negatives a claim of fraud is where the provision explicitly states a fact
completely antithetical to the claimed misrepresentations.” Commercial Prop. Invs., 938
F.2d at 875. “[E]ven fairly specific disclaimers are typically held to create jury questions
about reliance, rather than to negate reliance as a matter of law.” Randall v. Lady of Am.
Franchise Corp., 532 F. Supp. 2d 1071, 1086 & n.10 (D. Minn. 2007). Target provided
the estimates “for planning purposes only.” Viewing the record in the light most
favorable to ERS, the Court concludes that there is a genuine issue of material fact as to
whether ERS reasonably relied on the forecasts. The Court denies Target’s motion on
ERS’s fraud claim.
2.

Negligent misrepresentation—TV Unsaleables

ERS alleged in the alternative that Target negligently misrepresented the condition
estimates, mix of screen sizes, and sorting criteria to ERS in the request for quotes for the
TV Unsaleables program agreement. Target moved for summary judgment on the
grounds that Minnesota Statutes § 604.101 bars the claim, that ERS cannot demonstrate
Target failed to exercise reasonable care, and that ERS cannot show justifiable reliance
on Target’s forecasts. ERS responded that section 604.101 bars certain misrepresentation
claims unless the misrepresentation was made intentionally or recklessly, that Target’s
misrepresentations were made intentionally or recklessly, that Target failed to exercise
reasonable care in preparing the forecasts, and that ERS reasonably relied on the
information provided by Target.

10

“A buyer may not bring a common law misrepresentation claim against a seller
relating to the goods sold or leased unless the misrepresentation was made intentionally
or recklessly.” Minn. Stat. § 604.101, subd. 4 (2016); see Valspar Refinish, 764 N.W.2d
at 370 (“We conclude that under Minn. Stat. § 604.101, subd. 4, a buyer of goods is
barred from bringing a common-law negligent misrepresentation claim against the seller
that relates to the goods sold.”). The Court grants Target’s motion on ERS’s claim of
negligent misrepresentation.
3.

Breach of contract—TV Unsaleables

ERS claimed in the alternative that Target breached the TV Unsaleables program
agreement by providing televisions to ERS that did not conform to the estimates set forth
in the request for quotes. Target moved for summary judgment, arguing that it was not
obligated that provide televisions that conformed to the estimates. For present purposes,
the Court assumes that the program agreement was a valid, enforceable contract.
In the purchaser qualification agreement, Target disclaimed any warranty as the
kind, size, or quality of the goods sold. The TV Unsaleables program agreement states
that “[a]ny volumes, condition, or mixes provided in the sourcing event are not a
guarantee” and that “[e]stimates are provided for planning purposes only and will vary
with Target store openings and seasonal trends.” It also provides that, “[e]xcept as set
forth in the [Purchaser Qualification Agreement], Target makes no representations or
warranties whatsoever with respect to the Goods, or sale of Goods to, Supplier.” Target
did not contractually obligate itself to provide televisions to ERS that conformed to the

11

estimates in the request for quotes. The Court grants Target’s motion on ERS’s claim for
breach of the TV Unsaleables program agreement.
4.

Breach of contract—Non-TV Contracts

ERS claimed that “Target breached the Non-TV Contracts by shipping ERS outof-scope materials and by terminating them on the basis of non-material breaches that
ERS cured and that Target waived.” Target asserted that summary judgment in its favor
is appropriate because its “right to cancel was not dependent on the materiality of ERS’s
breaches” and because ERS cannot show “any damages as a result of Target’s alleged
breaches.” ERS responded that “a non-material breach does not provide a basis for
terminating an agreement”; that “[e]ven if a non-material breach was sufficient, Target
waived that breach by continuing to perform under the contract without objection”; and
that “ERS has provided documentation to Target setting forth lost income as well as
expenses incurred that can no longer be recovered because of Target’s improper
termination of the agreement.”
To support its argument that its right to cancel did not depend on the materiality of
its alleged breaches, Target relied on the following provision that appears in each of the
Non-TV Contracts: “Target may terminate this Program Agreement immediately by
providing written notice to Supplier if Supplier breaches any provision of this Program
Agreement.” Target reasoned that the provision does not require that a breach be
material to allow Target to terminate. The Court rejects Target’s argument. See Reuter v.
Jax Ltd., Inc., 711 F.3d 918, 921 (8th Cir. 2013) (“To justify termination, the breach must
be material.”).
12

Target maintained that ERS did not sustain any damages from the cancellation of
the Non-TV Contracts because the contracts were not exclusive and included no
guaranteed supply of goods. Target also argued that ERS has not demonstrated that ERS
sustained any damages caused by Target’s alleged shipping errors. ERS responded that it
“has provided documentation to Target setting forth lost income as well as expenses
incurred that can no longer be recovered because of Target’s improper termination of the
agreement.” Target maintained that the documents on which ERS relied “are merely
accounting schedules, neither of which speaks for itself.” In addition, Target asserted
that ERS waived claims for reimbursement of expenses or for lost profits.
“Under Minnesota law, damages for breach of contract must be proved to a
reasonable certainty, and a party cannot recover speculative, remote, or conjectural
damages. ‘Once the fact of loss has been shown, the difficulty of proving its amount will
not preclude recovery so long as there is proof of a reasonable basis upon which to
approximate the amount.’” Children’s Broad. Corp. v. Walt Disney Co., 245 F.3d 1008,
1016 (8th Cir. 2001) (citation omitted) (quoting Leoni v. Bemis Co., 255 N.W.2d 824,
826 (Minn. 1977)).
One of the exhibits that ERS cited to support its claim for damages contains
transaction reports in various categories such as professional fees, machinery and
equipment, payroll expenses, and equipment. The other also contains transaction reports,
a summary of startup and closing costs, and a calculation of “loss of income.” In the
Purchaser Qualification Agreement, ERS “expressly waive[d] any claim whatsoever
regarding the reimbursement of expenditures made in support of this Agreement.” ERS
13

also “expressly agree[d] that on termination, Target shall not be liable to [ERS] for any
compensation or indemnification of any kind, whether on account of loss of present or
prospective profits, or loss of goodwill or clientele, or anticipated revenue, expenditures,
investments or commitments made in connection herewith, arising solely by virtue of
termination by Target.” In the Non-TV Contracts, ERS agreed to essentially identical
terms.
At the motion hearing, ERS argued that its waiver of damages does not apply
because Target improperly terminated the Non-TV Contracts on the basis of non-material
breaches. The Court assumes for present purposes that Target did so. The Non-TV
Contracts allowed either party to terminate them without cause by providing 90 days’
notice. ERS’s calculation of loss of income extends from October 2015 to the expiration
of the Non-TV Contracts and beyond. ERS provided no factual basis to support its
calculation of damages. The Court grants Target’s motion on ERS’s claim for breach of
the Non-TV Contracts. See Mattson Ridge, LLC v. Clear Rock Title, LLP, 824 N.W.2d
622, 633 (Minn. 2012) (“Because there is a reasonable factual basis to support the court’s
award of lost profits to Mattson Ridge, we sustain the court’s calculation of Mattson
Ridge’s damages.”); Leoni, 255 N.W.2d at 826.
5.

Breach of the covenant of good faith and fair dealing

ERS alleged that Target breached the implied covenant of good faith and fair
dealing by refusing to address the discrepancy between the estimated and actual
conditions and sizes of the televisions sold to ERS, “by concealing the true sorting
criteria for the televisions,” and “by abandoning its efforts to negotiate in good-faith with
14

ERS to revise the contract to reflect the actual condition and screen-size mix of the
televisions.” Target moved for summary judgment on the ground that “Minnesota law
does not recognize an independent action for breach of such a covenant.”
“The implied covenant of good faith and fair dealing does not apply to sales
contracts . . . .” Minnwest Bank Cent. v. Flagship Props. LLC, 689 N.W.2d 295, 303 n.5
(Minn. Ct. App. 2004); see Sterling Capital Advisors, Inc. v. Herzog, 575 N.W.2d 121,
125 (Minn. Ct. App. 1998) (“Minnesota law does . . . impose an implied covenant of
good faith and fair dealing into every non-sales contract to prevent one party from
unjustifiably hindering the other party’s performance of the contract.”). The Court grants
Target’s motion on ERS’s counterclaim for breach of the implied covenant of good faith
and fair dealing.
C.

Target’s claim for breach of contract
Target moved for summary judgment on its claim for breach of contract. “A

successful breach-of-contract claim under Minnesota law has four elements:
‘(1) formation of a contract; (2) performance by plaintiff of any conditions precedent; (3)
a material breach of the contract by defendant; and (4) damages.’” Gen. Mills
Operations, LLC v. Five Star Custom Foods, Ltd., 703 F.3d 1104, 1107 (8th Cir. 2013)
(quoting Parkhill v. Minn. Mut. Life Ins. Co., 174 F. Supp. 2d 951, 961 (D. Minn. 2000)).
Target asserted that “[t]here is no dispute that the TV Unsaleables Program Agreement is
a legally binding contract—both parties seek to enforce the Agreement by their claims
and counterclaims in this action.” ERS asserted a claim for breach of the TV Unsaleables
program agreement as an alternative to its fraud claim. It asserted it was fraudulently
15

induced to enter into the contract. Having denied Target’s motion for summary judgment
on ERS’s fraud claim, the Court denies Target’s motion for summary judgment on
Target’s claim for breach of contract. See Carpenter v. Vreeman, 409 N.W.2d 258, 26061 (Minn. Ct. App. 1987) (“A contract is voidable if a party’s assent is induced by either
a fraudulent or a material misrepresentation by the other party, and is an assertion on
which the recipient is justified in relying.”).
III.

CONCLUSION

Based on the files, records, and proceedings herein, and for the reasons stated
above, IT IS ORDERED THAT:
1.

Target’s Motion for Summary Judgment [Docket No. 46] is GRANTED IN
PART and DENIED IN PART.

2.

Counts II, III, IV, and V of ERS’s counterclaims are DISMISSED WITH
PREJUDICE.

Dated: February 9, 2018
s/ Joan N. Ericksen
JOAN N. ERICKSEN
United States District Judge

16