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SFEG Corp. v. Blendtec, Inc.

United States District Court, M.D. Tennessee, Nashville Division

January 30, 2017

SFEG CORP., Plaintiff / Counter-defendant,
v.
BLENDTEC, INC., d/b/a BLENDTEC, Defendant / Counter-claimant.

          MEMORANDUM

          ALETA A. TRAUGER United States District Judge.

         SFEG Corp. (“SFEG”) filed this action in the Williamson County Chancery Court in April 2015; Blendtec, Inc. (“Blendtec”) removed the matter to this court on the basis of diversity jurisdiction and brought counterclaims. Now pending are: (1) Blendtec's Motion for Partial Summary Judgment Limiting SFEG's Damages (Doc. No. 61); (2) Blendtec's Partial Motion for Summary Judgment on SFEG's 11th and 12th Affirmative Defenses, or, In the Alternative, That SFEG's “Terms and Conditions of Sale” Are Not Part of the Contract (Doc. No. 65); and (3) SFEG's Motion for Summary Judgment (Doc. No. 70).

         The motions have been fully briefed and are ripe for review. No hearing is necessary. For the reasons set forth herein, the court will grant both of Blendtec's motions and deny SFEG's motion.

         I. FAILURE TO COMPLY WITH LOCAL RULES

         Local Rule 56.01(b) requires a party seeking summary judgment to provide a “separate, concise statement of material facts as to which the moving party contends there is no genuine issue for trial.” Local Rule 56.01(c) requires the party opposing the motion for summary judgment to respond to the statement of undisputed facts by “either (i) agreeing that the fact is undisputed; (ii) agreeing that the fact is undisputed for the purpose of ruling on the motion for summary judgment only; or (iii) demonstrating that the fact is disputed. Each disputed fact must be supported by specific citation to the record.” In addition, “the non-movant's response may contain a concise statement of any additional facts that the non-movant contends are material and as to which . . . there exists a genuine issue to be tried.” Id.

         Here, in responding to its opponent's statement of facts, Blendtec in particular took substantial liberty in presenting its case rather than simply disputing a statement and citing to the record, as required by the Local Rule. For example, Blendtec's response to ¶ 6 of SFEG's Statement of Undisputed Facts (“Northland's parts were not defective in material, workmanship, or title.”) (Doc. No. 88, at 5) goes on for almost eight pages and consists of more argument than fact. (Id. at 5-12.) “Argument in responses to statements of material facts clouds issues and encumbers the court with motions-within-motions.” Maverick Grp. Mktg., Inc. v. Worx Envtl. Prods., Inc., 99 F.Supp.3d 822, 827, (W.D. Tenn. 2015), aff'd, 659 F. App'x 301 (6th Cir. 2016). Moreover, the appropriate means of introducing additional disputed facts into the record would have been by providing a separate statement of additional disputed facts. The difficulty posed by Blendtec's responses to SFEG's Statement of Undisputed Facts required the court to scour the record to piece together the relevant facts rather than relying on the parties' summaries of the facts. In the future, the court will either accept the facts as undisputed or require correction and resubmission of such a response.

         The court will nonetheless proceed to address the substance of the parties' motions as submitted.

         II. LEGAL STANDARD

         Rule 56 requires the court to grant a motion for summary judgment 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 win summary judgment on a particular claim by an adverse party, the moving defendant must show that there is no genuine issue of material fact as to at least one essential element of that claim. Once the moving defendant makes its initial showing, the burden shifts to the plaintiff to provide evidence beyond the pleadings, “set[ting] forth specific facts showing that there is a genuine issue for trial.” Moldowan v. City of Warren, 578 F.3d 351, 374 (6th Cir. 2009); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). “In evaluating the evidence, the court must draw all inferences in the light most favorable to the non-moving party.” Moldowan, 578 F.3d at 374 (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).

         At this stage, “‘the judge's function is not . . . to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial.'” Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). But “[t]he mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient, ” and the party's proof must be more than “merely colorable.” Anderson, 477 U.S. 242, at 252. An issue of fact is “genuine” only if a reasonable jury could find for the non-moving party. Moldowan, 578 F.3d at 374 (citing Anderson, 477 U.S. at 252).

         “The standard of review for cross-motions for summary judgment does not differ from the standard applied when a motion is filed by only one party to the litigation.” Ferro Corp. v. Cookson Group, PLC, 585 F.3d 946, 949 (6th Cir. 2009). “[S]ummary judgment in favor of either party is not proper if disputes remain as to material facts. Rather, the court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration.” Taft Broad. Co. v. United States, 929 F.2d 240, 248 (6th Cir. 1991) (citations omitted).

         III. FACTUAL AND PROCEDURAL OVERVIEW

         This action is a dispute between a seller, SFEG, [1] and a buyer, Blendtec, regarding the terms of their commercial transactions. There is no dispute that Blendtec, whose principal place of business is in Orem, Utah, manufactures and sells blending machines. SFEG is a Delaware corporation whose principal place of business is in Fairview, Tennessee. SFEG designs and manufactures electrical power products. In February 2011, SFEG agreed to begin manufacturing and supplying certain component parts for Blendtec's use in its blender motors.

         Blendtec initially requested that SFEG manufacture two motor parts known as armatures and fields. The parties refer to these parts collectively as “part sets.” A commutator is a component of the armature, and the armature is placed inside of the field. (Mason Dep. excerpt, Doc. No. 86-5, at 2.) After six rounds of testing over the course of a year and a half, Blendtec gave SFEG approval to begin large-scale production of the part sets, and Blendtec began issuing purchase orders for the part sets.

         In December 2012, Blendtec asked SFEG to supply brushes for its blenders. A brush is an electrical component part that conducts current between stationary wires and moving parts. Each brush fits into brackets within a field. (Doc. No. 86-5, at 3.) Each Blendtec blender motor incorporates two brushes. In April 2014, Blendtec began issuing purchase orders to SFEG for brushes.

         By March 2015, the parties' relationship had completely unraveled. SFEG filed suit against Blendtec on March 18, 2015 in state court; Blendtec removed the action to this court on the basis of diversity jurisdiction. SFEG filed an Amended Complaint (Doc. No. 14) on June 29, 2015, asserting, as it had in the original Complaint, claims for breach of contract and conversion and seeking damages in the amounts it alleges are owed to it for motor parts and brushes already shipped, a finance charge under the Terms & Conditions, and other damages including the value of the product ordered but not shipped, lost profits on the portion of purchase orders not shipped, the cost of retooling, pre- and post-judgment interest, punitive damages, attorney fees, costs and expenses.

         Thereafter, Blendtec filed an Answer, denying liability, and a Counterclaim, alleging that SFEG's part sets and brushes were defective. (Doc. No. 15.) As Affirmative Defense number 11 to Blendtec's Counterclaim, SFEG asserts that Blendtec's claim for consequential damages is barred by paragraph 11 of SFEG's Terms & Conditions. (Answer to Countercl., Doc. No. 16, at 5.) As Affirmative Defense number 12, SFEG asserts that Blendtec's claims generally are barred by the waiver of warranties contained in the Terms & Conditions. (Id.)

         Now pending are Blendtec's Motion for Partial Summary Judgment Limiting SFEG's Damages (Doc. No. 61) (the “Damages Motion”); Blendtec's Partial Motion for Summary Judgment on SFEG's 11th and 12th Affirmative Defenses, or, In the Alternative, That SFEG's “Terms and Conditions of Sale” Are Not Part of the Contract (Doc. No. 65) (the “Terms & Conditions Motion”); and (3) SFEG's Motion for Summary Judgment (Doc. No. 70), which incorporates, among other matters, a discussion of the enforceability of its Terms & Conditions.

         Many of the specific facts-or the inferences to be drawn from them-are disputed. To the extent practicable, the court will address each motion separately, in conjunction with the facts relevant to that motion.

         IV. THE TERMS & CONDITIONS MOTION

         A. Relevant Facts

         Between December 29, 2011 and March 3, 2015, Blendtec sent SFEG approximately 32 separate Purchase Orders (“POs”) for component parts used in production runs of Blendtec's blenders, as well as non-production run samples, pilot lots, and return orders, although the precise number is disputed. (See Def.'s Resp. to Pl.'s Statement of Undisp. Facts ¶ 1, Doc. No. 88; Pl.'s Resp. to Def.'s Statement of Undisp. Facts ¶¶ 5, 6, 13, Doc. No. 79; Wilson Decl. Ex. A, Doc. No. 104-1.) The Purchase Orders for production runs were for component parts that Blendtec planned to install or did install in its blenders that were for sale. (Doc. No. 79 ¶ 5.)

         Blendtec's POs included the PO number, a description of the items being ordered, the quantity being ordered, the per unit and total price, and payment terms. (Id. ¶ 14.) After receiving a PO from Blendtec, SFEG's practice was to email Blendtec an Order Acknowledgement confirming the terms of the PO. (Id. ¶ 7.) Among other things, SFEG's Order Acknowledgments referenced Blendtec's PO number and included a description of the items being ordered, the quantity ordered, the per unit and total price, and payment terms. (Id. ¶ 15.) SFEG usually, but not always, sent an Order Acknowledgement upon receipt of a PO from Blendtec. (Id. ¶ 9.)

         In addition to the Order Acknowledgement, SFEG sometimes, but not always, sent its Terms and Conditions of Sale (“Terms & Conditions”) to Blendtec in response to its POs. (Id. ¶¶ 10-13.) Among other things, the Terms & Conditions include language specifying that SFEG's acceptance of any purchase order was “expressly subject” to Blendtec's assent to the conditions set forth in the Terms & Conditions:

1. Acceptance: The Seller's acceptance of any order is expressly subject to Buyer's assent to each and all of the terms and conditions set forth below. Any additional or different terms and conditions submitted by Buyer shall be deemed objected to by Seller and shall be of no effect nor in any circumstances binding upon Seller unless accepted by Seller in writing. If Buyer objects to any of the terms and conditions said objections must be specifically brought [sic] the attention of Seller by Buyer by a written instrument separate from any purchase order or other printed form of Buyer. Said objections shall be deemed proposals for different terms and conditions and may be accepted only by a writing executed by an authorized representative of Seller at its offices in Fairview, TN, U.S.A.

(Id. ¶ 16; Doc. No. 64-7, at ¶ 1.) In addition, the Terms & Conditions provide for payment of a late fee (“finance charge”) by Buyer for any payments not made within 30 days of the invoice date; an express warranty that the equipment manufactured by SFEG would be free from defects in material, workmanship and title as of the date of shipment; a disclaimer of all other implied or statutory warranties; and a disclaimer of liability for damages. (Doc. No. 64-7 ¶¶ 5, 10, 11, 22.)

         Blendtec's POs are silent on the terms found at paragraphs 1, 5, 10, 11, and 22 of SFEG's Terms & Conditions. (Doc. No. 97 ¶ 17.) Blendtec apparently possessed a document that incorporated its own terms and conditions, but Blendtec never provided SFEG a copy of its terms and conditions.

         It is undisputed that Blendtec never expressly objected or assented to SFEG's Terms & Conditions. It accepted shipment of product from SFEG and continued to place orders with it, after having repeatedly received copies of the Terms & Conditions along with SFEG's shipments.

         B. Discussion

         In its Terms & Conditions Motion, Blendtec asserts that it is entitled to summary judgment on SFEG's Affirmative Defenses 11 and 12 on the basis that SFEG's Terms & Conditions are not, as a matter of law, part of the parties' contract. SFEG opposes that motion and asserts that, at a minimum, there are disputed issues of fact as to whether Blendtec's “continued silence in the face of receiving [SFEG's] Terms and Conditions constitutes assent” to them. (Doc. No. 78, at 2.)

         SFEG also seeks summary judgment in its favor, in part, on the basis that all of the Purchase Orders are governed by SFEG's Terms & Conditions, which bar Blendtec's affirmative defenses and Counterclaim. (Doc. No. 71, at 11.) In the alternative, SFEG argues that, “even under the UCC default rules, Blendtec's defense and counterclaim fail as a matter of law.” (Id.). In its Reply in support of its own motion, SFEG changes tack, insisting that its “argument is not that silence or inaction constitutes acceptance, ” but that “Blendtec's repeated ordering, in the face of [SFEG's] terms and conditions, and without validly sending [SFEG] any competing terms and conditions, is a course of dealing that constitutes acceptance to [SFEG's] terms and conditions.” (Doc. No. 100, at 3.)

         1. Section 2-207 of the Uniform Commercial Code

         This matter concerns the terms of a sales contract between merchants. Consequently, Article 2 of the Uniform Commercial Code (“UCC”), and specifically § 2-207 of the UCC, applies to the dispute.[2] As implemented in Tennessee, that section states:

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of chapters 1-9 of this title.

Tenn. Code Ann. § 47-2-207 (“Section 2-207”).

         This provision of the UCC “recognizes that in current commercial transactions, the terms of the offer and those of the acceptance will seldom be identical.” Dorton v. Collins & Aikman Corp., 453 F.2d 1161, 1166 (6th Cir. 1972). Under the resulting “battle of the forms, each party typically has a printed form drafted by his attorney and containing as many terms as could be envisioned to favor that party in his sales transactions.” Id. In the usual scenario, the parties never discuss or agree to the new terms, but the seller ships the goods and buyer accepts them as if there were a contract. Id. Section 2-207 defines what terms govern when a dispute arises between the seller and buyer and the dueling forms suddenly become relevant.

         Under the common law, changed or additional terms in an order acknowledgment would be construed as a counteroffer accepted by the original offeror when he proceeded to perform under the contract without objecting to the changed or additional terms. Dorton, 453 F.2d at 1166. Section 2-207(1) of the UCC effected a significant change to the common law. Under the UCC, “[a] definite and seasonable expression of acceptance or a written confirmation . . . operates as an acceptance, ” rather than a counteroffer, even if it proposes terms that are additional to or different from those in the offer. However, Section 2-207(1) is subject to a “proviso”: if a definite and seasonable expression of acceptance expressly conditions acceptance on the offeror's assent to additional or different terms contained therein, the parties' differing forms do not result in a contract unless the offeror expressly assents to the additional terms. Dorton, 453 F.2d at 1166.

         If the proviso is not implicated and a contract is formed under § 2-207(1), the additional terms are treated as “proposals for addition to the contract” under § 2-207(2). Dorton, 453 F.2d at 1166. If, on the other hand, no contract is recognized under § 2-207(1), typically because the offeree's acceptance is expressly conditioned on the offeror's assent to the additional or different terms and the offeror did not expressly assent, “the entire transaction aborts at this point.” Dorton, 453 F.2d at 1166. That is, the parties' writings do not form a contract. If the parties' conduct nonetheless recognizes the existence of a contract, § 2-207(3) comes into play; that subsection provides for the determination of the terms of that contract. “In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions” of the UCC. § 2-207(3).

         2. Application of § 2-207(1) to the Facts

         In this case, each of Blendtec's Purchase Orders functioned as an offer. SFEG typically responded to such offers with an Order Acknowledgement, sometimes sent with its Terms & Conditions. Because the Terms & Conditions contain additional terms that are not in the Purchase Orders, the case presents a typical battle of the forms.[3]

         The Terms & Conditions include language that essentially mirrors that of the § 2-207(1) proviso: “The Seller's acceptance of any order is expressly subject to Buyer's assent to each and all of the terms and conditions set forth below.” (Doc. No. 64-7, at ¶ 1.) See Dorton, 453 F.2d at 1168 (to fall within the “Subsection 2-207(1) proviso, ” “an acceptance must be expressly conditional on the offeror's assent to [the offeree's additional or different] terms”). SFEG's Terms & Conditions, which are indisputably additional and different terms from those in Blendtec's Purchase Orders, therefore only became part of the parties' contract if Blendtec assented to them. Blendtec insists that it did not assent; SFEG claims that it did.[4]

         Undoubtedly anticipating that Blendtec would never expressly assent to the limitations of warranties and liability contained in its Terms & Conditions, SFEG drafted the Terms & Conditions to indicate that silence on the part of Blendtec signaled assent: “If Buyer objects to any of the terms and conditions said objections must be specifically brought [sic] the attention of Seller by Buyer by a written instrument separate from any purchase order or other printed form of Buyer.” (Doc. No. 64-7, at ¶ 1.) SFEG argues that Blendtec's repeated acceptance of shipments, despite receiving SFEG's Terms & Conditions at least seven times, gives rise to a jury question as to whether Blendtec assented. Blendtec insists that mere silence and acceptance of the goods shipped by SFEG could never signal assent.

         SFEG relies for its position on Ralph Shrader, Inc. v. Diamond International Corp., 833 F.2d 1210, 1215 (6th Cir. 1987), and Aqua-Chem, Inc. v. D&H Machine Service, Inc., No. E2015-01818-COA-R3-Cv, 2016 WL 6078566 (Tenn. Ct. App. Oct. 17, 2016).[5] In Aqua-Chem, the parties disputed the terms of a contract for services; the UCC did not apply and is not referenced in the opinion. Even if the UCC had applied, § 2-207 would not have been implicated, because there was no battle of forms. Instead, the only written manifestation of the parties' agreement was Aqua-Chem's purchase orders incorporating its terms and conditions. Aqua-Chem therefore has no relevance here.

         In Ralph Shrader, the seller's acceptance fell within the § 2-207(1) proviso, giving rise to the question of whether the buyer had assented to the additional terms in the acceptance. There, as here, the seller relied on language in the acceptance requiring the buyer to “advise . . . immediately” if it did not agree to the additional terms. The Sixth Circuit held that “failure to so advise obviously does not require a conclusion of assent.” Id. at 1215 (citing UCC § 2-207(3)). The court further held that mere acceptance of and payment for goods did not constitute acceptance as a matter of law, but nonetheless remanded the case on the basis that the question of acceptance was a jury question under Michigan law. See Id. at 1215 (noting that, under Michigan's application of § 2-207(1), “[t]he determination of what has or has not been agreed upon will, of course, continue to be made by the trier of fact, but, in making that determination, the fact finder is no longer bound by the last manifestation” (quoting Am. Parts Co., Inc. v. Am. Arb. Ass'n, 154 N.W.2d 5, 16 (Mich. Ct. App. 1967)). Michigan law does not apply in this case.

         Moreover, where there are competing forms and the § 2-207(1) proviso is implicated, nearly every court to consider the issue-including the Sixth Circuit-has found that silence and performance without express objection to the additional terms in the acceptance are not sufficient to signal assent to the additional terms. See, e.g., McJunkin Corp. v. Mechanicals, Inc., 888 F.2d 481, 488 (6th Cir. 1989) (where the buyer issued several purchase orders to the seller over the course of five months, and each shipment from the seller in response was accompanied by an order acknowledgment setting forth the seller's additional terms, finding that the § 2-207(1) proviso applied but that the plaintiff “never explicitly accepted the terms of [seller's] acknowledgment” and that “silence in the face of [the seller's] acknowledgment” did not constitute assent); Diamond Fruit Growers, Inc. v. Krack Corp., 794 F.2d 1440, 1445 (9th Cir. 1986) (holding that the public policy reflected in the enactment of the UCC required “a specific and unequivocal expression of assent on the part of the offeror when the offeree conditions its acceptance on assent to additional or different terms”); C. Itoh & Co. (Am.) Inc. v. Jordan Int'l Co., 552 F.2d 1228, 1235 (7th Cir. 1977) (noting that the buyer must “expressly assent[] to the challenged . . . term” under § 2-207(1)).

         In its Reply in support of its own motion for summary judgment, SFEG attempts to avoid the result dictated by the cases referenced above by clarifying that it is not arguing “that silence or inaction constitutes acceptance.” (Doc. No. 100, at 3.) Rather, SFEG's “argument is that Blendtec's repeated ordering, in the face of [SFEG]'s terms and conditions, and without validly sending [SFEG] any competing terms and conditions, is a course of dealing that constitutes acceptance to [SFEG]'s terms and conditions.” (Id. (citing Dresser Indus., Inc. v. Gradall Co., 965 F.2d 1442, 1449 (7th Cir. 1992)).)

         SFEG apparently conflates the issue of assent with that of ascertaining the terms of the parties' agreement once it has been determined that the § 2-207(1) proviso applies and there was no express assent to the additional terms. In Dresser, upon which SFEG relies, the Seventh Circuit presumed without discussion that the § 2-207(1) proviso applied and that the offeror had not expressly assented to the offeree's supplemental or different terms. The court therefore proceeded to determine what the terms of the parties' contract were under § 2-207(3). See Dresser, 965 F.2d at 1451 (“We simply hold that, under Wisconsin law, all of the ...


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