Voigt v. Fabricut Incorporated
Filing
76
OPINION AND ORDER by Judge Terence Kern The parties are to submit a revised pretrial order no later than Tuesday, April 10, 2012 at 9:00 a.m. ; granting in part and denying in part 50 Motion for Summary Judgment; denying 55 Motion in Limine (vah, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OKLAHOMA
GARTH MERRICK VOIGT, not
individually but as the appointed liquidator
of CASTELLANO BELTRAME (Pty)
LTD.,
Plaintiff,
v.
FABRICUT, INC.,
Defendant.
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) Case No. 10-CV-662-TCK-TLW
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OPINION AND ORDER
Before the Court is Plaintiff Merrick Voigt’s Motion for Summary Judgment (Doc. 50) and
Motion in Limine Concerning Recoupment (Doc. 55).
I.
Factual Background
Defendant Fabricut, Inc. (“Fabricut”), an Oklahoma corporation, is a distributor of fabric,
trimmings, wallpaper, and hardware. In the mid-1990s, Fabricut began a business relationship with
Castellano Beltrame (Pty) Ltd. (“Castellano”), a South African corporation in the business of
manufacturing decorative textiles. From this time until 2009, Fabricut ordered product from
Castellano. On December 17, 2009, in a case entitled Franco Giovanni Beltrame v. Castellano
Beltrame (Pty) Ltd., Case No. 5025/2009, Castellano became the subject of an involuntary
sequestration, or bankruptcy, proceeding in South Africa initiated by one of Castellano’s largest
creditors, Franco Beltrame. Plaintiff Garth Merrick Voigt (“Voigt”) was appointed as a “liquidator”
of the Castellano bankruptcy estate. As an appointed liquidator of Castellano and on behalf of the
Castellano estate, Voigt filed the instant lawsuit against Fabricut.
A.
Voigt’s Claims
Voigt asserts claims for breach of contract, account stated, and unjust enrichment based upon
Fabricut’s non-payment of forty-two invoices in the total amount of $324,033.65. Such invoices and
their corresponding airway bills are attached to Voigt’s Complaint. (See Compl. ¶ 8 & Ex. A.)
B.
Fabricut’s Recoupment Defense and Counterclaim
Fabricut filed a counterclaim against Voigt for breach of the promise of “product continuity,”
which generally refers to a manufacturer’s promise to continue making its product for a specified
length of time. Voigt moved to dismiss the counterclaim, arguing that (1) the only proper forum for
such claim was the South African bankruptcy proceeding, and (2) the Court should abstain from
deciding the counterclaim based on international comity. The Court permitted Fabricut’s
counterclaim for any pre-sequestration breaches to proceed only under the defensive doctrine of
recoupment and permitted the counterclaim for any post-sequestration breaches to proceed as an
ordinary claim. The Court declined to abstain based on international comity abstention. (See
5/23/11 Opinion and Order, Doc. 30.)1
C.
Summary Judgment Evidence
Voigt’s motion for summary judgment is supported only by the invoices and corresponding
airway bills. It is not supported by the underlying purchase orders or any other evidence of the
parties’ communications leading to the subject invoices. In its response brief, Fabricut submits
numerous “additional material facts” in opposition to the motion. These facts explain the fabric
industry, the parties’ course of dealing, and the parties’ communications leading to the purchases
1
The Court entered an amended version of its ruling on the motion to dismiss in order to
correct certain errors. (See Doc. 75.)
2
billed in the invoices. In its reply, Voigt does not attempt to dispute these additional facts. Instead,
Voigt argues that such facts are irrelevant and should be stricken. The Court denies Voigt’s request
to strike Fabricut’s additional material facts. As explained below, such facts are relevant to the
issues presented. Thus, much of the background information below is based upon Fabricut’s
undisputed evidence.
1.
Trimmings Programs - General Process
Throughout their business relationship, Fabricut’s “trimmings consultant,” Sharon Cash
(“Cash”), worked with Castellano designers to develop numerous “trimmings programs.”2 The
development of a trimmings program required substantial time and collaboration between Cash and
Castellano and sometimes involved Cash traveling to South Africa at Fabricut’s expense. Generally,
a trimmings program consists of numerous coordinated items in a range of colors and designs. Once
the trimmings programs were designed, Castellano would complete a form entitled Fabricut, Inc.
Trim Specification Sheet (“specification sheet”). All specification sheets in the record before the
Court contain the following continuity provision:
Continuity: Must be minimum of three years. If item is being booked,3 we must have
3 year continuity from the time the books are shipped to our customers.
(See, e.g., Resp. to Mot. for Summ. J. at Ex. B-1 (footnote added).) In his deposition, Fabricut CEO
David Finer (“Finer”) explained the three-year product continuity provision:
Inherent in any purchase by Fabricut, or any other distributor, one makes a
significant investment in inventory and sample equipment. The only way to – the
only way to return that investment is by servicing of that equipment.
2
“Trimmings” are decorative embellishments such as piping, tassels, and fringes used with
fabric in interior decorating.
3
As explained below, the term “booked” refers to the item being part of a sample book.
3
...
[I]f in fact after two and a half years [Castellano] came and said on said program
there was no longer continuity, we would consider that a severe breach of trust
because at two and a half years we would not have realized our full potential or full
revenue profile. If [Castellano] came to me at four and a half years [and] said,
David, we are going to have to change yarns, I would feel that it’s reasonable. And
then we would begin to make the switch.
...
[A]ny sample book that we make . . . we would never expect less than three years.
We demand three years.
(See id. at Ex. F, at 78, 83.)
Following receipt of these specification sheets containing the promise of product continuity,
which are signed by Castellano employees, Fabricut placed orders for product inventory and sample
books for a particular trimmings program. Sample books are (1) the means by which customers
select products, and (2) a representation by the distributor to the market that the product is available
for delivery. Upon receipt of the sample books, Fabricut then marketed the trimmings program to
its customers. Over the years, Cash and Castellano developed several trimmings programs without
problems, and Fabricut purchased millions of dollars of product from Castellano. According to
Fabricut, Castellano’s quality and reliability began declining in the mid-2000s.
2.
Anthology Collection
Fabricut claims to have experienced problems with a trimmings program known as the
Accents Anthology Trimmings Collection (“Anthology Collection”).4 Following collaborative
development of the Anthology Collection by Cash and Castellano designers, Cash received
specification sheets from Castellano for the collection. These specification sheets, which are dated
4
According to Cash, Castellano employees sometimes referred to the Anthology Collection
as “Portfolio,” and this name is used by Castellano in certain relevant correspondence.
4
July 19-August 10, 2007, contain a three-year product continuity provision identical to that
explained above.
From November 20-26, 2007, Fabricut placed orders for product from the Anthology
Collection. (See id. at B-2.) On January 22, 2008, Fabricut sent a work order for 3500 Anthology
Collection sample books and stated that Fabricut would need “60 sets by April 7, 2008 for our sales
reps to go out and pre sell this collection.” (Id. at Ex. B-3.) By December 2008, the Anthology
Collection sample books had not yet arrived. According to Finer, Castellano asked Fabricut to make
“advance payment” on these sample books. Finer also testified that Fabricut made an $80,000
advance payment in two $40,000 installments, by checks dated December 18 and 23, 2008. (See
id. at Ex. C-1.) Fabricut contends that the first Anthology Collection sample book arrived in July
2009, approximately 15 months after the requested date of April 2008. According to Fabricut,
invoices 2131, 2430, 2619, 2796, 2798, 2166, 3362, and 3363 are for purchases of Anthology
sample books.5
3.
Jeweled Collection
Fabricut also claims to have experienced significant problems with a trimmings program
known as the Jeweled Obsession Collection (“Jeweled Collection”). From February-April 2008,
Castellano completed specification sheets for the Jeweled Collection, all of which contained the
three-year product continuity provision. (See id. at Ex. B-5.) In April 2008, Fabricut placed orders
for product from the Jeweled Collection and then, in December 2008, also ordered 1500 sample
books. (See id. at Exs. B-6, B-7.) The sample book work order states that Fabricut would need 60
Jeweled Collection sample books by May 1, 2009 and that the remaining books should arrive by July
5
These invoices total $235,672.80.
5
1, 2009. (See id. at Ex. B-7.) Fabricut ultimately received the Jeweled Collection product but
claims that all such product contained a defective bead. (See Cash Dep., Ex. E to Resp. to Mot. for
Summ. J., at 12:15-14:11 (explaining that bead used in product was “bad” and “diseased looking”
and was “completely different” than the one promised during development process).)
In November 2009, Castellano representative Ian Huenis (“Huenis”) flew to Tulsa and met
with Cash and Finer. According to the evidence presented by Fabricut, Fabricut offered to accept
all defective product at a 10% discount; Castellano countered with a 5% discount (see id. at Ex. D-1
(email from Huenis stating that he could “offer a 5% discount on the product with has the affected
bead”); and the parties never reached an agreement. Fabricut never received the Jeweled Collection
sample books and contends that it could therefore not market the defective product it had. Finer
testified that, on or around December 2010, he made the decision to stop paying any Castellano
invoices due to these and other problems. According to Fabricut, invoices 2286, 2287, 2288, 2289,
2290, 2291, 2292, 2293, 2295, 2296, 2297, 2298, 2299, 2303, 2304, 2305, 2306, 2307, 2477, 2839,
2952, 4909, 4986, and 5425 are for Jeweled Collection product.6
4.
Post-Bankruptcy Dealings
On January 5, 2010, Voigt and Vic Beltrame sent a letter to Finer informing him that
Castellano had been placed into provisional bankruptcy and stating that the liquidators “require that
all outstanding accounts be brought up to date . . . before production of your new or existing orders
can commence.” (Mot. for Summ. J., at Ex. 3.) On January 25, 2010, Steven Heywood
(“Heywood”), a Castellano employee, sent an email to Finer stating that Castellano had inventory
of “Portfolio and Jeweled Ranges” and that it would “naturally prefer” Fabricut to buy them. (See
6
These invoices total $57,290.62.
6
id. at Ex. D-2.) The following day, on January 26, 2010, Finer responded by stating his concerns
regarding Heywood’s authority to enter into transactions on behalf of Castellano following
appointment of a liquidator. Finer also offered to buy certain inventory in Florida “at some discount
. . . to satisfy [his] customers and stem the losses that mount daily.” (Id.) On January 26, 2010,
Voigt sent Finer an email stating that he had requested Heywood’s assistance with collecting debt
and selling inventory. Voigt also requested that Finer respond as to whether Fabricut wished
Castellano to manufacture outstanding orders. Voigt did not respond to Finer’s offer regarding the
Florida inventory, and Finer did not agree to any further manufacturing of outstanding orders.
II.
Governing Law
The parties agree that (1) Oklahoma law governs the dispute, and (2) Article 2 of the
Oklahoma Uniform Commercial Code (“OUCC”) is applicable because all transactions underlying
the parties’ claims are “transactions in goods.” See Okla. Stat. tit. 12A, § 2-102 (article applies to
“transactions in goods”); id. § 105(1) (defining goods).7
III.
Voigt’s Motion for Summary Judgment - Breach of Contract
Voigt moves for summary judgment on its claim for breach of contract, arguing that the
invoices reflect unpaid amounts due and owing for goods received and kept by Fabricut. Fabricut
admits that it received and kept the goods without paying the invoices but asserts that questions of
fact preclude summary judgment in favor of Voigt as to thirty-three of the forty-two invoices.
Fabricut does not dispute that payment is due for the remaining nine invoices totaling $31,070.23.
7
Because the original briefs were based almost exclusively on Oklahoma common law and
not the OUCC, the Court ordered additional briefs on the OUCC’s applicability. Both parties agreed
that the OUCC applies and re-couched certain arguments in terms of the OUCC.
7
A.
Jeweled Collection
With respect to the twenty-four invoices that allegedly relate to Jeweled Collection product,
Fabricut argues that it rejected the products based on the defective bead.8 Under the OUCC, a buyer
in receipt of non-conforming goods has several “rights.” See Okla. Stat. tit. 12A, § 2-601 (setting
forth buyer’s rights upon delivery of non-conforming goods to reject the whole, accept the whole,
or accept any commercial unit or units and reject the rest). If a buyer of non-conforming goods (1)
rejects the goods, or (2) accepts the goods but then subsequently revokes such acceptance, the buyer
is “freed from its obligation to pay the purchase price” or may recover that portion of the purchase
price already paid. CMI Corp. v. Leemar Steel Co., Inc., 733 F.2d 1410, 1414 (10th Cir. 1984)
(citing Okla. Stat. tit. 12A, § 2-602)).
Fabricut’s evidence is sufficient to preclude summary judgment as to these twenty-four
invoices. First, it appears to be undisputed that the goods were non-conforming. Cash testified that
Castellano acknowledged the problem with the defective bead after seeing it. In correspondence,
Castellano representatives referred to the product as “defective” and entered into negotiations to
attempt to remedy the problem. At a minimum, Fabricut’s evidence is sufficient to survive a motion
for summary judgment on the question of non-conformity.
Second, there exists a question of fact as to whether the Jeweled Collection product was
“rejected” by Fabricut. Under the OUCC, the “rejection of goods occurs when a buyer, within a
reasonable time after the delivery or tender, seasonably notifies the seller of his rejection.” CMI
8
In its original response brief, Fabricut did not cite or apply the OUCC in support of this
“rejection of defective goods” argument. Instead, Fabricut cited general common law rules
regarding modification of a contract term. (See Resp. to Mot. for Summ. J. 12.) After the Court
ordered additional briefing regarding the applicability of the OUCC, Fabricut explained its rejection
argument in OUCC terms.
8
Corp., 733 F.2d at 1414 (citing Okla. Stat. tit. 12A, § 2-602)). Any rejection must be “clear and
unambiguous.” CMI Corp., 733 F.2d at 1414. A rejection is taken “‘seasonably’ when it is taken
at or within the time agreed or within a reasonable time where no time is agreed upon.” Id. (citing
Okla. Stat. tit. 12A, § 1-204).
The record indicates that, upon inspection of the Jeweled Collection product, Cash promptly
notified Castellano of the defect and communicated Fabricut’s desire to return the defective product.
Cash stated:
I [Cash] complained promptly about the defect and sought to return the product to
Castellano. Castellano representatives looked at the beads in Fabricut’s warehouse,
and acknowledged the defect immediately. Castellano delayed for months, however,
in providing information requested by Fabricut as needed for return of the defective
product. At the same time, Castellano’s attempt to remake the product dragged on
for months.
(Cash Aff., Ex. B to Resp. to Mot. for Summ. J., at ¶ 12; see also Cash Dep., Ex. E to Resp. to Mot.
for Summ. J, at 14-15.)9 Further, Fabricut never paid for the goods. Fabricut’s evidence is sufficient
to create a question of fact as to whether Fabricut clearly and timely rejected any Jeweled Collection
product with the defective bead. Cf. CMI Corp., 733 F.2d at 1414 (finding that no rejection occurred
as matter of law where (1) buyer was not specific about defect but merely stated by telephone there
was a “problem,” (2) buyer paid for the goods, (3) both parties attempted to find a way to correct
the defect, and (4) buyer then requested the seller pick up the goods and refund the price); Electrical
Power Sys., Inc. v. Argo Int’l Corp., 864 F. Supp. 1080, 1084 (N.D. Okla. 1994) (buyer failed to
9
Although Cash’s deposition testimony is less explicit than her affidavit, the two are in no
way inconsistent. The Court therefore rejects Voigt’s argument, made in its reply brief, that Cash’s
affidavit should be disregarded.
9
inspect and reject allegedly non-conforming goods by thirty-day deadline on invoice and therefore
did not provide clear and seasonable notice of the defect).10
Finally, assuming the goods were initially accepted, the record creates a question of fact as
to whether Fabricut revoked its acceptance. “Acceptance of goods occurs in Oklahoma when a
buyer, after an opportunity to inspect them, relates to the seller that the goods are conforming or that
he will take them despite their non-conformity, or where the buyer fails to make an effective
rejection, or does any act inconsistent with the seller’s ownership.” CMI Corp., 733 F.2d at 1414
(citing Okla. Stat. tit. 12A, § 2-606(1)). “[A] buyer may revoke his acceptance of goods of a
nonconforming nature by notifying the seller within a reasonable time.” Id. at 1415; see Darrow
v. Spencer, 581 P.2d 1309, 1313 (Okla.1978); Okla. Stat. tit. 12A, §§ 2-607 and 2-608. “The
question of whether a buyer’s revocation of an acceptance is timely is, as with rejections, a question
of fact.” CMI Corp., 733 F.2d at 1415. “A buyer who properly revokes has the same rights with
regard to the goods involved as if he had rejected them.” Id.; see Okla. Stat. tit. 12A, § 2-608(3).
Fabricut’s evidence could support a finding that it accepted the goods on the assumption that
Castellano would either cure the non-conformity or agree to a reasonable discount on the product,
which it ultimately failed to do. Upon Castellano’s failure to cure and the breakdown of any such
negotiations, Fabricut could be deemed to have revoked any acceptance that occurred. See CMI
10
In Electrical Power Systems, 864 F. Supp. at 1085, the court noted that cases involving
oral rejection had not “fared well in courts.” However, the code does not explicitly require a written
rejection. The record evidence in this case includes repeated oral notification of the problem and
written correspondence from the seller indicating that it had actual notice of the alleged defect. The
Court finds this sufficient to create a question of fact.
10
Corp., 733 F.2d at 1415 (finding that buyer was relieved of its obligation to pay the purchase price
where (1) buyer accepted goods on assumption that seller would cure non-conformity by grinding
certain product down to its specified size; (2) seller failed to cure; (3) non-conformity substantially
impaired value; (4) seller was aware that product did not meet specifications and could not be used
as manufactured; (5) parties unsuccessfully attempted to find party that could “cure” nonconformity; and (6) seller then refused to pick up product following request). Based on the factual
questions raised by Fabricut’s evidence, Voigt is not entitled to summary judgment as to any
invoices for Jeweled Collection product.
B.
Anthology Collection
With respect to the nine invoices that allegedly relate to Anthology Collection sample books,
Fabricut argued that a question of fact exists regarding the accuracy of the invoiced amounts:
Fabricut prepaid $80,000 for these sample books, which had not yet been produced
or delivered. This was an unprecedented step, and one taken by Fabricut in the
interest of furthering its business relationship with Castellano. The subject Voigt
invoices do not reflect this prepayment. This dispute over what amount, if any, is
owed by Fabricut on those invoices precludes summary judgment.
(Resp. to Mot. for Summ. J. 11.) In its supplemental brief addressing the OUCC, Fabricut argued
that failure of the invoices “to expressly reflect the Prepayment does not keep the Prepayment from
determining the price of the goods agreed upon.” (Supp. Resp. to Mot. for Summ. J. 4-5 (citing
“12A O.S. § 2-207(b)” as stating that if “‘a contract formed in any manner is confirmed by a record
that contains terms additional to or different from those in the contract being confirmed,’ any terms
to which both parties agree become part of the agreement ‘whether in a record or not’”).)11 Voigt
11
Fabricut purports to quote § 2-207(b) of the OUCC; however, such provision does not
exist. The quotation by Fabricut is from a provision of the Uniform Commercial Code that has not
been adopted in Oklahoma. See Rogers v. Dell Computer Corp., 138 P.3d 826, 832 (Okla. 2005)
11
argues that Fabricut has not presented sufficient evidence to establish that the $80,000 payment
related to the invoiced products. (See Reply in Support of Mot. for Summ. J. 3 (“Fabricut has
provided no citations that support that the $80,000 was a prepayment for anything, or that this
alleged prepayment was not previously deducted by Castellano.”).) Voigt did not make any
arguments specifically related to this issue in its supplemental brief addressing the OUCC.
Fabricut has presented sufficient evidence to support a finding that the $80,000 payment
related to the Anthology Collection sample books, which are the subject of nine relevant invoices.
Finer offered detailed testimony regarding Castellano’s production problems, cash-flow problems,
and request for assistance from Fabricut. Fabricut also offered (1) checks dated December 2008,
which corresponds with Finer’s testimony, (Ex. C-1 to Resp. to Mot. for Summ. J.); and (2) the
affidavit of Cherie Wilson, accounts payable manager at Fabricut, stating that “Fabricut made two
payments of $40,000 each to Castellano as pre-payments for sample books,” (Ex. C to Resp. to Mot.
for Summ. J). This evidence creates a question of fact as to whether the $80,000 related to the
Anthology Collection sample books, and Voigt is not entitled to summary judgment based on the
factual arguments it presented.12
(“Neither Oklahoma nor Texas has adopted the 2003 amended version of section 2–207. Thus, we
do not apply the 2003 amendment to section 2–207 in this case.”). Thus, Fabricut’s reliance on this
language is misplaced.
12
Assuming Fabricut can establish as a factual matter that the parties reached agreement as
to the effect of the $80,000 payment, the Court must determine the proper legal framework for
analyzing such agreement. In their trial briefs and proposed findings of fact and conclusions of law,
the parties should address whether the legal analysis of any such agreement arises under § 2-207
(governing additional terms in acceptance or confirmation), § 2-209 (governing modifications), or
some other OUCC provision or other principle of law. The parties may argue in the alternative.
12
C.
Conclusion
Voigt is entitled to summary judgment as to the nine undisputed invoices totaling
$31,070.23. Voigt is not entitled to summary judgment as to the twenty-four invoices allegedly
related to the Jeweled Collection product or the nine invoices allegedly related to the Anthology
Collection sample books.
IV.
Voigt’s Motion for Summary Judgment – Account Stated
Oklahoma law defines an account stated:
An account stated is an agreement, express or implied. The amount or balance so
agreed upon constitutes a new and independent cause of action, superseding and
merging the antecedent causes of action represented by the particular constituent
items. An account stated is a new obligation, taking the place of the obligation upon
the prior account.
Discover Bank v. Worsham, 176 P.3d 366, 369 (Okla. Civ. App. 2007) (internal citations omitted)
(quoting Webster Drilling Co. v. Sterling Oil of Okla, Inc., 376 P.2d 236, 238 (Okla. 1962)). The
Oklahoma Supreme Court has explained that negotiations and subsequent agreement of the parties
can “change the nature of the [original] obligation into an account stated,” such that the “agreement
on a balance owed becomes a new and independent obligation that supercedes and merges the prior
contractual obligation.” State ex rel. State Ins. Fund v. Accord Human Res., Inc., 82 P.3d 1015,
1017-18 (Okla. 2003).
The Court sua sponte grants summary judgment in favor of Fabricut as to the account stated
claim. As explained above, with respect to thirty-three of the forty-two invoices at issue, Fabricut
consistently disputed the invoices and refused to pay the invoices for specific reasons. While the
Court has found Fabricut liable for breach of contract as to nine invoices, there is certainly no
evidence that the parties reached any express or implied agreement that such invoices reflected
13
proper amounts owed. Cf. Discover Bank, 176 P.3d at 369 (non-party to credit agreement was
nonetheless bound to pay balance under theory of account stated, where she continued use of the
credit card for four years after death of card holder, continued to pay at least the minimum amounts
due under the agreement, incurred the debt in accordance with the terms of the original agreement,
and did not dispute amounts owed). Accordingly, Fabricut is entitled to judgment as a matter of law
on the account stated claim.
V.
Voigt’s Motion for Summary Judgment – Unjust Enrichment
The general “hornbook” rule is that quasi-contractual remedies such as unjust enrichment
“are not to be created when an enforceable express contract regulates the relations of the parties with
respect to the disputed issue.” Member Servs. Life Ins. Co. v. Am. Nat’l Bank and Trust Co. of
Sapulpa, 130 F.3d 950, 957 (10th Cir. 1997). However, Oklahoma courts do not, in every instance,
follow this general rule. See French Energy, Inc. v. Alexander, 818 P.2d 1234, 1238 (Okla. 1991)
(finding that, although there was an express contract between the parties on the subject matter in
question, equity required that the contract be rescinded and restitution paid to prevent unjust
enrichment); Lapkin v. Garland Bloodworth, Inc., 23 P.3d 958, 964 (Okla. Civ. App. 2000) (“This
court has held that an express contract between parties does not preclude rescission and a finding
of unjust enrichment where equity demands such a result.”). However, in the above-cited cases, the
courts found the remedy of unjust enrichment necessary because the parties presented evidence
justifying rescission of the original contract. See also Roberson v. PaineWebber, Inc., 998 P.2d 193,
200 (Okla. Civ. App. 1999) (holding that question of fact existed as to unjust enrichment claim,
despite express contract, where fraud and manipulation involved in procurement of the contract
arguably justified its rescission).
14
In this case, Voigt’s claim for unjust enrichment is simply that Fabricut has in its possession,
or has already sold, certain products sent pursuant to the invoices without paying for them. Voigt
does not allege any fraud, manipulation, or other conduct by Fabricut that implicates a possible
rescission of the original purchase contracts or any need to resort to quasi-contractual remedies.
Therefore, the Court sua sponte grants summary judgment in favor of Fabricut as to the unjust
enrichment claim.
VI.
Voigt’s Motion for Summary Judgment - Fabricut’s Recoupment Defense
Castellano is the subject of a South African bankruptcy proceeding. The Court nonetheless
allowed Fabricut to proceed against Voigt for any of Castellano’s pre-sequestration breaches of the
promise of product continuity under the theory of recoupment, as generally applied in suits brought
by a bankrupt estate. Following is a general explanation of recoupment:
Recoupment is a common-law, equitable doctrine that permits a defendant to assert
a defensive claim aimed at reducing the amount of damages recoverable by a
plaintiff. It allows a court to look at the whole contract, sum up the grievances on
each side, strike a balance, and give plaintiff judgment for only such difference as
may be found in his favor. The doctrine of recoupment allows a defendant to
“defend” against a claim by asserting, up to the amount of the claim, the defendant’s
own claim against the plaintiff growing out of the same transaction, or set of
transactions, strictly for the purpose of abatement or reduction of the plaintiff’s
claim. It encompasses the right of a defendant to reduce or eliminate the plaintiff’s
demand either because the plaintiff has not complied with some cross-obligation
under the contract on which the plaintiff sues or the plaintiff has violated some legal
duty in making or performing that contract.
80 C.J.S Set-off and Counterclaim § 2 (footnotes omitted); see also In re Peterson Distrib., Inc., 82
F.3d 956, 959 (10th Cir. 1996) (explaining recoupment doctrine in context of U.S. bankruptcy law)
(“Recoupment allows the defendant, in a suit between the estate and another, to show that because
of matters arising out of the transaction sued on, he or she is not liable in full for the plaintiff’s
15
claim.”) (internal quotations omitted). “Thus, recoupment is an equitable doctrine that allows the
determination of a just and proper liability regarding such a claim.” Id. (internal quotations omitted).
In bankruptcy cases, recoupment is narrowly construed because it violates the basic
bankruptcy principle of equal distribution to creditors. See id. (explaining that pre-petition debts
generally may not be satisfied through post-petition actions). For the same reasons, “same
transaction” is a term of art in the context of bankruptcy recoupment. See id. In order for claims
to arise from the same transaction for the purposes of recoupment, “both debts must arise out of a
single integrated transaction so that it would be inequitable for the debtor to enjoy the benefits of
that transaction without also meeting its obligations.” Id. (internal quotations omitted).
Applying these principles, the Court found, at the pleading stage, that the equitable doctrine
of recoupment permitted Fabricut to recoup, up to the amount ultimately recovered by Voigt, any
amounts owed to it for breaches committed by Castellano in connection with the same transactions
or set of transactions giving rise to Voigt’s claims.13 At this summary judgment stage, Voigt
essentially makes two arguments: (1) the alleged breaches of the promise of product continuity do
not arise from the same transactions or set of transactions for which Voigt seeks payment; and (2)
the promise of product continuity is not a term of any agreement underlying the subject invoices.
A.
Same Transactions or Set of Transactions
Fabricut has presented sufficient evidence to survive summary judgment as to the question
of whether Fabricut’s claim for breach of the promise of product continuity arises from the same
13
The Court ruled that Fabricut’s alleged facts supported a recoupment theory and therefore
allowed the claim to proceed in this manner. The Court did not intend to make a final factual
determination that the claim arose from the same transaction or set of transactions.
16
transactions or set of transactions for which Voigt seeks payment.14 Fabricut claims and has
presented evidence demonstrating that Castellano breached a promise contained in each purchase
agreement for the invoiced goods, which the Court construes as a claim for breach of an express
warranty. See Okla. Stat. tit. 12A, § 2-313(1) (defining express warranty as “[a]ny affirmation of
fact or promise made by the seller to the buyer which relates to the goods and becomes part of the
basis of the bargain”).15 This claim for breach of a promise flowing with the goods falls within “the
[equitable] right of a defendant [in a suit brought by a bankrupt entity] to reduce or eliminate the
plaintiff’s demand either because the plaintiff has not complied with some cross-obligation under
the contract on which the plaintiff sues or the plaintiff has violated some legal duty in making or
performing that contract.” 80 C.J.S Set-off and Counterclaim § 2 (footnotes omitted); see also
Matter of Penn. Tire Co., 26 B.R. 663, 675 (Bankr. Ohio 1982) (“The court is satisfied that the
respective liabilities of [p]laintiff and [d]efendant stem from the same set of transactions, as the tires
in question were sold to [d]efendant with express warranties under the program then in effect; a
refusal to allow recoupment would ignore the integration between contract and warranty which is
one of the main features of Article 2 of the Uniform Commercial Code.”).
Voigt argues that Fabricut could not have suffered any damages flowing from the breach of
the promise of “product continuity” associated with these forty-two invoices because all products
reflected in such invoices were actually received. (See Supp. Br. in Support of Mot. for Summ. J.
14
The Court will make a final determination as to this question following the non-jury trial,
and the parties should include arguments regarding this question in their trial briefs and proposed
findings of fact and conclusions of law.
15
Fabricut did not expressly allege breach of an express warranty; however, this OUCC
provision appears to apply to Fabricut’s evidence. Fabricut is free to assert other theories of liability
and remedies at trial.
17
4 (“[A]ny damages that Fabricut allegedly suffered due to loss of continuity result from Castellano’s
alleged failure to fill other purchase orders that Fabricut placed or would have placed had
Castellano remained capable of filling them (emphasis added).”). This argument ignores the alleged
purpose of the promise of product continuity. Such promise, as described by Finer, reflected the
reality that sample books or product for a particular trimming program become less valuable if
production of the product ceases prior to the agreed continuity period. According to Fabricut, the
promise recorded in the specification sheets reflected an agreement that, once sample books were
distributed for a particular trimmings program, the products therein would continue to be
manufactured and available from Castellano for an additional three years. Thus, although Fabricut
received the invoiced goods (either sample books or product), Fabricut could have nonetheless
suffered damages if (1) those goods were accompanied by a promise of product continuity; (2)
breach of the promise of product continuity directly affected the use and value of any goods
received; and/or (3) breach of the promise of product continuity affected the value of the trimmings
program as a whole and caused it to suffer other types of damages. See generally In re B&L Oil Co.
v. Ashland Pet. Co., 782 F.2d 155, 158 (10th Cir. 1986) (citing example of proper recoupment claim
as “a situation in which a building owner resists paying the contract price because of a bankrupt
contractor’s deficient work” and explaining that the overall goal of recoupment is to reach an
equitable outcome between the parties).
The Court therefore finds that Voigt is not entitled to summary judgment on this issue.
B.
Term of Purchase Agreements
Voigt also appears to assert that the promise of product continuity was never incorporated
into any of the relevant purchase contracts. (See Supp. Br. in Support of Mot. for Summ. J. 4
18
(“[N]one of those purchase orders or the invoices that resulted therefrom contain any promise of
continuity.”).16 However, Fabricut has presented evidence that the specification sheets were signed
by Castellano after completion of the development process and prior to the placement or shipment
of any orders. Fabricut has also presented evidence that these specification sheets related to the
Jeweled Collection and the Anthology Collection, which are the subject of at least some of the
relevant invoices. This is sufficient to survive summary judgment as to whether the promise of
product continuity was incorporated into any subsequent purchase contracts related to those
products. See Rogers v. Dell Computer Corp., 138 P.3d 826, 832 (Okla. 2005) (explaining that an
arbitration provision would have become a term of the governing purchase contracts “if it were
incorporated into them at the time the plaintiffs placed the orders”).17
VII.
Voigt’s Motion for Summary Judgment - Fabricut’s Counterclaim
Fabricut’s post-bankruptcy counterclaim is based upon the parties’ post-bankruptcy dealings
explained supra Part I.C.4. Fabricut argues that the circumstances create questions of fact as to (1)
whether Voigt and Fabricut entered into an agreement for the sale of existing Castellano inventory;
and (2) whether Voigt violated its covenant of good faith under such agreement. (Resp. to Mot. for
Summ. J. 19.) Voigt argues that no agreement existed and no breach occurred as a matter of law.
The undisputed facts demonstrate that Fabricut and Voigt did not enter into an agreement
for the sale of existing Castellano inventory located in Florida. Finer’s January 26, 2010 email was
16
This argument consisted of one sentence and was not well explained or developed.
17
At trial, Fabricut may argue and assert other theories under which the promise of product
continuity became incorporated into the relevant contracts. The Court simply finds, for purposes
of summary judgment, that Fabricut has presented sufficient evidence to support a finding that the
promise was an express term of the parties’ agreements via the specification sheets.
19
an offer to purchase such inventory, but Voigt’s response to Finer was silent as to such offer. There
is no other evidence that the parties reached any subsequent agreement regarding manufacturing of
outstanding orders. Accordingly, Voigt and Fabricut did not enter into any post-bankruptcy
contract, and Voigt is entitled to judgment as a matter of law.
VIII. Voigt’s Motion in Limine
Voigt moved the Court to preclude argument or testimony “pertaining to a potential award
on Fabricut’s recoupment claim in excess of the amount Voigt seeks on his counterclaim.” (Mot.
in Limine 4.) During the non-jury trial, Fabricut shall be permitted to present evidence of any and
all damages it allegedly suffered as a result of Castellano’s breach of the promise of product
continuity. However, the Court will utilize such damages evidence only for the purpose of offsetting
any amounts owed on Voigt’s claim against Fabricut. This motion in limine was unnecessary in
light of the Court’s previous rulings and will be denied.
IX.
Conclusion
Plaintiff Merrick Voigt’s Motion for Summary Judgment (Doc. 50) is GRANTED IN PART
AND DENIED IN PART as follows. It is granted as to Fabricut’s counterclaim based on the
parties’ post-bankruptcy dealings. It is denied as to Voigt’s claims and as to Fabricut’s recoupment
defense. The Court sua sponte grants summary judgment in favor of Fabricut as to Voigt’s claims
for account stated and unjust enrichment. Voigt’s Motion in Limine Concerning Recoupment (Doc.
55) is DENIED. The parties are to submit a revised Pretrial Order no later than Tuesday, April 10,
2012, at 9:00 am.
SO ORDERED this 6th day of April, 2012.
20
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