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Transfill Equipment Supplies, Inc. v. Advanced Medical Equipment, LLC

Court of Appeals of Tennessee, Nashville

May 31, 2017

TRANSFILL EQUIPMENT SUPPLIES & SERVICES, INC.
v.
ADVANCED MEDICAL EQUIPMENT, LLC

          Session January 18, 2017

         Appeal from the Circuit Court for Sumner County Nos. 83CC1-2013-CV-1241, 83CC1-2013-CV-1242 Joe Thompson, Judge

         In this breach of contract case, Transfill Equipment Supplies & Services, Inc. (TESS) sued Advanced Medical Equipment, LLC (AME) for delinquent payments of (1) rent due on TESS's equipment, (2) purchases of medical oxygen, and (3) the fair market value of rented equipment that AME had not returned to TESS. AME filed a separate lawsuit against TESS seeking damages for conversion of oxygen tanks. After consolidating the cases, the Sumner County General Sessions Court awarded damages to TESS and dismissed all of AME's claims. AME appealed to the trial court. The court found that AME was guilty of breach of contract due to its failure to make timely payments. As a consequence, the court awarded judgment to TESS in the amount of $34, 999.45. The trial court also found that TESS had not converted AME's oxygen tanks. AME appeals. We affirm.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed; Case Remanded

          Clement J. Carlton, Huntsville, Alabama, and Walter Stubbs, Gallatin, Tennessee, for the appellant, Advanced Medical Equipment, LLC.

          Arthur E. McClellan, Gallatin, Tennessee, for the appellee, Transfill Equipment Supplies & Services, Inc.

          Charles D. Susano, Jr., J., delivered the opinion of the court, in which Andy D. Bennett and W. Neal McBrayer, JJ., joined.

          OPINION

          CHARLES D. SUSANO, JR., JUDGE.

          I.

         TESS is engaged in the business of filling tanks with medical oxygen, as well as renting and selling oxygen tanks for medical use. AME provides already filled oxygen tanks for patients with respiratory needs. TESS and AME commenced doing business under the terms of a written pricing contract executed by AME on September 30, 2004. The contract establishes the prices for filling various sizes of oxygen tanks, the prices for renting oxygen tanks, and delivery fees. The contract also provides that, in case of litigation, "[t]he prevailing party shall be awarded its costs and legal fees." The contract contains the following provision:

Replacement Cost for the Rental Cylinders and Equipment if lost will be Market Replacement Price, and Rental Charges continue until Equipment and Cylinders are returned o[r] purchased at Market Value.

(Bold font in original.) The parties operated under this contract until May 3, 2010, when the parties executed a new contract that adjusted the prices.

         During the course of the business relationship, AME would provide TESS with AME's own tanks and AME would pay for the oxygen to fill the tanks. AME also rented tanks from TESS. AME paid rental charges and also paid for the medical oxygen provided by TESS. In addition to delivering filled tanks to AME, TESS would pick up its empty rental tanks and the AME tanks to be filled. TESS provided a delivery ticket to AME. The delivery ticket, signed by the TESS driver and by AME, contains the following language: "[b]y signing this delivery ticket, I agree that all items and quantities are correct." (Bold font in original.) In addition to the delivery ticket, TESS provided AME with a distribution log specifying the size, type, and number of tanks that were delivered.

         When the delivery vehicle arrived back at the TESS facility, TESS verified the accuracy of the information on the delivery ticket. David Graves, TESS's president and CEO, testified regarding this process as follows:

[E]very time a truck goes out and makes a delivery, somebody other than a driver goes on and reverifies every cylinder on that truck. . . . [T]here are times that deliverers will pick up a tank and pick up a customer tank that should have been a rental. They'll pick up a rental tank that was a customer's tank. That's the whole purpose in verification. There are times that they'll go in and pick up cylinders, and . . . there are times there may be 20 and they say there's 19. And if there is, we correct the delivery ticket, fax a copy back to the customer, and we bill off of the corrected delivery ticket before it's there when it gets back in our facility, if there's an error[.]

AME asserts that this verification process has led to overbilling by TESS and, further, that TESS has converted AME-owned tanks through this process. Furthermore, AME claims that this verification process at the TESS facility indicates that TESS has conducted its business with AME in bad faith, unfairly, or in a commercially unreasonable manner.

         Because TESS fills both customer-owned tanks and its own tanks that are rented to customers, TESS must differentiate between its tanks and those of AME for accurate billing. Graves testified regarding how TESS differentiates between tanks. He stated that

TESS rental cylinders are very clearly marked. They either have "TESS" spray painted down the side of them and they have a green ring spray-painted at the very bottom of them or else they've got our logo under the clear coat of the cylinders. And our steel tanks have TESS neck rings on the top of them they say "property of the TESS Company, Gallatin, Tennessee." . . . They are clearly identified.

         The record reflects that it is common in the medical gas industry for tanks to be lost. Graves testified about this problem, stating that in "the durable medical equipment industry and the home oxygen equipment, it is an accepted standard that [tanks] are lost. . . . They're constantly lost. In the industry, . . . tanks don't always come back to the home care company that puts them out on the patients." AME acknowledged this problem when it questioned Graves at trial. AME's counsel asked Graves whether he had "told [AME] that the average loss in the industry, for rental tanks, is 17 percent per year[.]" Suffice it to say that both parties agreed that it is common in the industry for tanks to become lost.

         Early in the business relationship, AME struggled to keep its payment account with TESS current. Graves testified that

[f]rom the day this account opened in 2004, they have been delinquent. There have been phone calls, credit holds, trying to get payment and everything else."

          In October 2007, TESS notified AME that it was placing a hold on AME's account and that it would cease doing business with AME until the delinquency on the account was resolved. AME responded with a proposed payment plan under which it would pay $4, 000 and then would set up weekly payments of $1, 000. AME made the $4, 000 payment, and business between the parties resumed. Subsequently, AME continued to have trouble making timely payments to TESS. In September 2008, Graves sent a letter to AME regarding the growing past due balance on AME's account, stating that the balance on the account was $30, 046.54 with $27, 995.29 past due. He also claimed that AME still had equipment rented to AME with a replacement value of $22, 646. In that letter, Graves notified AME that its account was being put on hold until a payment arrangement could be reached. Business between the parties recommenced after AME made a payment to TESS. In February 2010, a payment that AME made to TESS in the amount of $500 was returned for insufficient funds. As a result, TESS again placed AME's account on hold. TESS ceased doing business with AME on June 5, 2012.

         TESS pressured AME to make arrangements to pay the balance on its account. AME expressed concerns over the balance due, questioning the validity of the number of outstanding rental tanks for which it was being charged. AME made some payments on its balance, but failed to bring its account current. In a September 2012 email to TESS, AME asked if TESS could "please try to make a decent offer . . . to settle the equipment issue. I would like to be fair." In October 2012, Graves provided AME with the number of and types of rental tanks that had not been returned and an amount for which TESS was willing to settle the equipment charges. He also scheduled a meeting with AME to review all of the delivery tickets and the charges for outstanding rental tanks. In November 2012, TESS provided AME with its business records detailing AME's account balance in an attempt to resolve the parties' disagreement.

         This matter was not resolved. AME remained in a delinquent status. In December 2012, counsel for AME sent a letter to TESS asserting that AME-owned tanks that TESS had picked up for filling had not been returned, and he demanded the return of such tanks. Counsel for TESS responded with a letter demanding payment of AME's account balance by January 8, 2013.

         On January 10, 2013, TESS filed a civil warrant against AME in the Sumner County General Sessions Court seeking damages for breach of contract on a sworn account. TESS claimed that AME owed payments for medical gas provided by TESS, rent on TESS tanks, and the replacement cost for TESS-owned tanks that had not been returned. AME disputed the amount of TESS's claim. AME filed a sworn denial stating that

[t]here [are] multiple errors and changes made by TESS upon documents it uses. I cannot authenticate or dispute Delivery Tickets without the originals. I will not agree to use copies at a trial. The [audit] is unreliable. TESS never provided a complete history of payments by AME to verify a claimed balance owed.

         AME filed a separate action in the same court against TESS alleging conversion of personal property. The Sumner County General Sessions Court consolidated the cases. It dismissed AME's conversion claim and awarded $18, 094 in damages to TESS for breach of contract and $4, 099.50 in attorney's fees.

         AME appealed to the trial court. In awarding TESS a judgment, the court made extensive findings of fact:

TESS entered into a contract with [AME] on September 24, 2004 (the "2004 Agreement").
The parties operated under the 2004 Agreement until they executed a new contract on May 3, 2010 (the "2010 Agreement"). The 2010 Agreement was very similar to the 2004 Agreement, with only minor price adjustments.
***
Significantly, both the 2004 Agreement and the 2010 Agreement contained the following provision:
Replacement Cost for the Rental Cylinder and Equipment if lost will be Market Replacement Price, and Rental Charges continue until Equipment and Cylinders are returned or purchased at Market Value.
The 2004 and 2010 Agreements each contained an attorney's fee provision that awarded "costs and legal fees" to the prevailing party ...

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