Redi-Co, LLC v. Prince Castle, LLC
Filing
30
OPINION & ORDER: Defendant's motion to dismiss 13 is granted, and this case is dismissed with prejudice. See 9-page opinion & order attached. Signed on 2/24/2016 by Judge Marco A. Hernandez. (mr)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PORTLAND DIVISION
REDI-CO, LLC,
an Oregon limited liability company,
No. 3:15-CV-01810-HZ
Plaintiff,
OPINION & ORDER
v.
PRINCE CASTLE, LLC,
a Delaware limited liability company,
Defendant.
____________________________________
George W. Mead
The Mead Law Firm PC
7455 SW Bridgeport Road, Suite 205
Tigard, OR 97224
Attorney for Plaintiff
Anna Helton
Schwabe, Williamson & Wyatt PC
1211 SW Fifth Avenue, Suite 1900
Portland, OR 97204
1 – OPINION & ORDER
J. David Duffy
Patrick Morales-Doyle
Thompson Coburn LLP
55 East Monroe Street, 37th Floor
Chicago, IL 60603
Attorneys for Defendant
HERNANDEZ, District Judge:
In this contract action, Plaintiff Redi-Co, LLC contends that Defendant Prince Castle,
LLC breached the parties’ supply contract. Pursuant to Federal Rules of Civil Procedure
12(b)(1), (2), and (6), Defendant moves to dismiss for lack of subject-matter jurisdiction, lack of
personal jurisdiction, and failure to state a claim upon which relief can be granted. I grant the
motion because the Court lacks subject-matter jurisdiction.
BACKGROUND
Plaintiff is an Oregon company with its principal place of business in West Linn, Oregon.
Compl., ¶ 1. Defendant is a Delaware company with its principal place of business in Carol
Stream, Illinois. Id., ¶ 2. For over forty-one years, Plaintiff and its predecessor have been selling
grill scrapers and other related products to Defendant. Id., ¶ 5. The parties put that sales
agreement into writing on August 28, 2013. Compl., Ex. 1. Slightly less than two years later, on
or about August 18, 2015, Defendant notified Plaintiff that it would no longer purchase the
products it had been ordering. Compl., ¶ 8. Several days later, Plaintiff sent Defendant a default
notice stating its intent to pursue remedies. Compl., Ex. 2.
STANDARDS
A motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(1)
addresses the court's subject-matter jurisdiction. The party asserting jurisdiction bears the
2 – OPINION & ORDER
burden of proving that the court has subject-matter jurisdiction over his claims. Kokkonen v.
Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994).
A Rule 12(b)(1) motion may attack the substance of the complaint's jurisdictional
allegations even though the allegations are formally sufficient. See Corrie v. Caterpillar, Inc.,
503 F.3d 974, 979-80 (9th Cir. 2007) (court treats motion attacking substance of complaint's
jurisdictional allegations as a Rule 12(b)(1) motion); Dreier v. United States, 106 F.3d 844, 847
(9th Cir. 1996) ("[U]nlike a Rule 12(b)(6) motion, a Rule 12(b)(1) motion can attack the
substance of a complaint's jurisdictional allegations despite their formal sufficiency[.]") (internal
quotation omitted). Additionally, the court may consider evidence outside the pleadings to
resolve factual disputes. Robinson v. United States, 586 F.3d 683, 685 (9th Cir. 2009); see also
Dreier, 106 F.3d at 847 (a challenge to the court's subject matter jurisdiction under Rule 12(b)(1)
may rely on affidavits or any other evidence properly before the court).
DISCUSSION
Defendant moves to dismiss, in part, on the basis that the court lacks subject-matter
jurisdiction. Federal courts have subject-matter jurisdiction when the “matter in controversy
exceeds the sum or value of $75,000, exclusive of interest and costs, and is between … citizens
of different states[.]” 28 U.S.C. § 1332(a). The inquiry involves determining (1) whether the
involved parties are citizens of different states and (2) whether the matter in controversy exceeds
$75,000. If the answer to either one of these factors is in the negative, the court does not have
subject-matter jurisdiction over the case.
Plaintiff and Defendant do not dispute that they are citizens of different states. Thus, the
issue here is whether the matter in controversy exceeds $75,000. Generally, the amount of
money alleged by the plaintiff controls, as long as the allegation is made in good faith. St. Paul
3 – OPINION & ORDER
Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288 (1938). However, if it appears to a legal
certainty that the plaintiff cannot recover the amount claimed, the court should dismiss for lack
of jurisdiction. St. Paul Mercury, 303 U.S. at 289. One situation that satisfies the legal certainty
test is when the terms of a contract limit the plaintiff’s recovery to below the jurisdictional
threshold. Pachinger v. MGM Grand Hotel-Las Vegas, Inc., 802 F.2d 362, 364 (9th Cir. 1986)
(citing 14A Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and
Procedure § 3702 (2d ed. 1985)).
As discussed in detail below, the matter in controversy in this case cannot exceed
$75,000, as required by 28 U.S.C. § 1332(a), because the limitation of remedy provisions in the
sales agreements preclude an amount that exceeds the jurisdictional threshold, and the course of
performance alleged by Plaintiff cannot contradict the express terms of the agreements. Thus, it
appears to a legal certainty that Plaintiff cannot recover an amount exceeding $75,000, and, as
such, this Court must dismiss the case. St. Paul Mercury, 303 U.S. at 289.
A.
Limitation of Remedy Provisions
Plaintiff alleges that it is entitled to $1,375,000 in damages for Defendant’s breach of
contract. Compl., ¶ 13. This amount, which includes expectation and consequential damages,
far exceeds the $75,000 threshold for federal jurisdiction. Defendant asserts that it is liable for a
maximum of $41,361.32 because the remedy is limited by the terms of the sales agreements to
any finished product and authorized raw material. Thus, the issue is whether the sales
agreements between Plaintiff and Defendant contain terms that limit the remedy, so as to indicate
to a legal certainty that the matter in controversy cannot exceed $75,000.
4 – OPINION & ORDER
There are two separate sales agreements with identical, relevant terms, as follows:
3 Customer is responsible only for KANBAN quantity of
finished products plus any additional Raw Material Authorized
in this contract.
4 Any inventory maintained at Supplier in excess of authorized
quantity in this agreement, is the sole responsibility of Supplier.
Compl., Ex. 1, 1-2. Both sales agreements list Plaintiff as the supplier and indicate that
Defendant is the customer. Id. By the plain language of these two terms, Defendant is
responsible for the following: (1) the quantity of finished products named in the sales
agreements, and (2) any Raw Material Authorized in the agreements. Plaintiff is responsible for
any inventory it maintains in excess of the authorized quantity in the agreements.
The first of the two agreements at issue lists five part numbers and a total of 5,148 total
finished products, which adds up to a sum of $7,932.28. There is a raw materials column on the
agreement, which indicates that none were authorized. Compl., Ex. 1, 1. The second of the
agreements lists the same part numbers, as well as a total of 13,508 finished products, to a total
of $33,429.04. There is no raw materials column on this agreement. Id., Ex. 1, 2. According to
the two sales agreements, the total amount due is $41,361.32. The quantity of finished products
listed in the agreements and resulting liability is undisputed by the parties.
The Uniform Commercial Code (“UCC”) allows parties to “limit or alter the measure of
damages recoverable under this Article[.]” 810 Ill. Comp. Stat. (“ILCS”) 5/2-719(1)(a); Or. Rev.
Stat. (“ORS”) § 72.7190.1 Illinois courts have enforced exclusive remedy provisions, even
where exclusivity is not explicit, if the contract as a whole calls for such a construction. S. Ill.
Riverboat Casino Cruises, Inc. v. Triangle Insulation & Sheet Metal Co., 302 F.3d 667, 677 (7th
1
Plaintiff asserts that Oregon law applies to this claim, and Defendant argues that Illinois law applies.
The Court finds that the outcome is the same whether Oregon or Illinois law is applied, as both states
have adopted the UCC. Moreover, court decisions from both states interpret the UCC in the same way,
for purposes of this case. Therefore, the Court cites to both Illinois and Oregon statutes and cases.
5 – OPINION & ORDER
Cir. 2002) (citing Intrastate Piping & Controls, Inc. v. Robert-James Sales, Inc., 315 Ill.App.3d
248, 733 N.E.2d 718 (2000)). The Supreme Court of Illinois has held that such remedy
limitations or exclusions of consequential damages should be upheld unless unconscionable in
nature. Razor v. Hyundai Motor Am., 222 Ill.2d 75, 99, 854 N.E.2d 607, 622 (2006).
Thus, under Illinois law, the limitations of remedy provisions are invalid only if they are
unconscionable. The Razor court went on to define procedural unconscionability as “a situation
where the term is so difficult to find, read, or understand that the plaintiff cannot be fairly said to
be aware that he was agreeing to it[.]” Id. Substantive unconscionability refers to extremely
one-sided terms. Id. In addition, the Illinois Supreme Court points out that most cases where a
court finds unconscionability involve both procedural and substantive issues. Id. at 99-100, 854
N.E.2d at 622.
The Oregon Supreme Court has indicated that, unless extraordinary circumstances or
bargaining power disparities are present, provisions which limit liability or remedies are valid.
K-Lines, Inc. v. Roberts Motor Co., 273 Or. 242, 252-253, 541 P.2d 1378, 1384 (1975). In
addition, such provisions are generally valid if conspicuous or brought to the buyer’s attention.
Id. at 254, 541 P.2d at 1384-1385; see also Seibel v. Layne & Bowler, Inc., 56 Or.App. 387, 392,
641 P.2d 668, 671 (1982) (holding such provisions invalid because they were inconspicuous and
not brought to the buyer’s attention).
Here, the terms at issue appear on the sales agreements with all other terms in uniform
style and size. The terms limiting the remedy to the products and materials authorized in the
sales agreements appear conspicuously on the agreements. Furthermore, they are not difficult to
understand, particularly considering that both parties are commercial entities, presumably with a
relatively sophisticated knowledge of sales. There is no indication of any disparity in bargaining
6 – OPINION & ORDER
power between the parties. The terms, while they do protect the customer from responsibility for
excess inventory, are not one-sided. For instance, they do not absolve Defendant of all
responsibility because Defendant remains responsible for any products and raw materials listed
in the sales agreements.
The limitation of remedies provisions in the agreements are valid under Illinois and
Oregon law. Thus, the agreements limit Plaintiff’s claim and Defendant’s liability to less than
the jurisdictional amount.
B.
Course of Performance and the Limitation of Remedies Provisions
Plaintiff contends that Defendant contacted Plaintiff to ensure that it had inventory in
excess of the agreements and that this request became an expectation that Plaintiff have such
excess inventory on hand. Pursuant to UCC 1-303 (ORS § 71.3030 and 810 ILCS 5/1-303),
Plaintiff contends that this request and accommodation became a course of performance and thus
waived or modified any inconsistent terms (e.g., the limitation of remedies provisions).
The UCC provides that “a course of performance is relevant to show a waiver or
modification of any term inconsistent with the course of performance.” ORS § 71.3030(6); 810
ILCS 5/1-303(f). Under the UCC, course of performance may explain or supplement terms
contained in “a writing intended by the parties as a final expression of their agreement,” but it
may not contradict these terms. ORS § 72.2020; 810 ILCS 5/2-202. Illinois and Oregon courts
have held that, when course of performance contradicts express terms, the latter control.
Midwest Builder Distrib., Inc. v. Lord & Essex, Inc., 383 Ill.App.3d 645, 673, 891 N.E.2d 1, 27
(2008); Deerfield Commodities, Ltd. v. Nerco, Inc., 72 Or.App. 305, 329, 696 P.2d 1096, 11111112 (1985).
7 – OPINION & ORDER
As discussed above, the plain language of the terms at issue is unambiguous. Buyer
(Defendant) is responsible only for the quantity of finished products and raw materials
authorized in the sales agreements. Thus, Defendant is not responsible for any other products or
materials. Supplier (Plaintiff) is solely responsible for any excess inventory it maintains, beyond
the quantity of finished products and raw materials authorized in the sales agreements.
The course of performance alleged by Plaintiff, in which Defendant requested that
Plaintiff keep more inventory on hand, can be used to explain or supplement these terms, but not
to contradict them, as they are express terms included in the sales agreements. ORS § 72.2020;
810 ILCS 5/2-202. However, the terms are not ambiguous and are in no need of further
explanation or supplementation. Plaintiff’s contention that the request for and willingness to
stock extra inventory waives or modifies Terms 3 and 4 relies on the premise that a contradictory
course of performance waives or modifies an express term. But, such a premise is not legally
sound.
Therefore, under the express language of the relevant sales agreements’ terms, it appears
to a legal certainty that Defendant’s damages are limited to $41, 361.32. As a result, the matter
in controversy is less than the $75,000 threshold.
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8 – OPINION & ORDER
CONCLUSION
Defendant’s motion to dismiss [13] is granted, and this case is dismissed with prejudice.
IT IS SO ORDERED.
Dated this ______ day of February, 2016.
MARCO A. HERNANDEZ
United States District Judge
9 – OPINION & ORDER
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