Environamics v. Thelco CV-98-068-M 12/03/98 UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

Environamics Corporation, Plaintiff

v. Civil No. 96-68-M

Thelco Corporation, Defendant

O R D E R

On November 20, 1998, the jury returned a verdict in this

case. The responses to special verdict questions established

that the jury found in favor of Environamics on its breach of

contract claim as well as on Thelco's counterclaims asserting

breach of the contractual duty of good faith and fair dealing,

and for unfair or deceptive trade practices. The jury found for

Thelco on its counterclaim for negligent misrepresentation.

Both Environamics and Thelco have moved for judgment on the

verdict. Environamics argues that the jury's award of damages i

inconsistent with its answers to the special questions put to it

Contending that the verdict form contained both general and

special verdicts in accordance with Fed. R. Civ. P. 49(b),

Environamics urges the court to ignore the general verdict and

damages award on its breach of contract claim and to enter

judgment on the special verdicts for the contract price (i.e.,

that amount representing unpaid invoices plus interest). See

Fed. R. Civ. P 49(b) (where special verdicts are consistent with

each other but inconsistent with the general verdict, the trial court may, among other options, enter judgment in accordance with

the special verdicts notwithstanding the general verdict).

Thelco also urges the court to enter judgment on the

verdict, but in the amount awarded by the jury. Thelco argues

that the verdict is both clear and consistent.

The Seventh Amendment imposes the following reguirement:

"Where there is a view of the case that makes the jury's answers

to special interrogatories consistent, they must be resolved that

way." Atlantic and Gulf Stevedores, Inc. v. Ellerman Lines,

Ltd.,

(1962). See also Mashpee Tribe v. New

Seaburv Corp.,

(1st Cir. 1979) (guoting same).

In addition, "it is well established that verdicts must be

construed in light of the totality of the surrounding

circumstances, including the court's instructions." Putnam

Resources v. Pateman,

(1st Cir. 1992).

The jury's verdict is consistent with the court's

instructions and is supported by the evidence. The jury found

(Question 1) in favor of the plaintiff on its breach of contract

claim and, as instructed, awarded full and fair damages as

necessary to put the plaintiff in the position it would have been

in had the defendant fully performed. The jury's damages award

reads as follows:

return of unsold stock to Environamics plus a restocking fee of 15% plus return freight plus 1.5% per month interest on unpaid invoices from 1st invoice due date until initiation of litigation plus invoice price for 2 sold pumps.

2 The jury plainly found that defendant breached the Distributor

Agreement by failing to pay invoices in a timely manner, but also

plainly construed the ambiguities in the Distributor Agreement

regarding the return policy (for credit) as argued by defendant —

against the plaintiff. That is, the jury necessarily determined

that the contract, properly understood, did afford defendant the

right to return inventory for credit, and that under the

circumstances of this case plaintiff was obligated to accept

returned inventory for credit. Thus, the jury concluded that the

harm plaintiff suffered as a result of defendant's breach

(failure to timely pay) was not the full contract price, but, as

provided for in the contract itself, invoice price for the pumps

actually sold, interest on the outstanding balance at 1.5% until

litigation was initiated (by which point, the jury presumably

decided, plaintiff should have reasonably accepted the return of

inventory and thereby avoided further lost use value measured by

interest), plus the contractually mandated 15% restocking charge

associated with returned inventory, and return freight costs paid

by defendant. The award of damages is not an eguitable order to

perform (by returning the goods). Rather, the jury was simply

stating its finding as to what the damages suffered by plaintiff

actually were, and how to calculate, or express those damages in

a manner that could be easily converted into an accurate dollar

figure. The jurors could have simply agreed upon a figure, after

doing their own calculation, but they were not strictly reguired

to do so, and the parties no doubt can agree on the math.

3 Perhaps a simple supplemental question to the jury might

have categorically resolved Environamics' doubts about

consistency, but both Environamics and Thelco expressly objected

to the court's submission of any additional questions to the

jury. The court sustained those objections because the jury's

verdict can be read in a clear and consistent manner, and no

further inquiry was necessary to do so.

The jury consistently found that Environamics did not

fraudulently induce Thelco to enter into the contract, and made

no fraudulent misrepresentations (or, that defendant at least

failed to meet its "clear and convincing" burden of proof on

those issues). See Question 2 and Question 3. Similarly, the

jury found that Environamics did not engage in unfair or

deceptive business practices (or, again, that defendant at least

did not meet its burden of proof). See Question 7.

The jury also found that Environamics did not breach its

implied covenant of good faith and fair dealing. See Question 5.

A number of plausible explanations consistent with other findings

support this conclusion — the jury could well have determined

that Environamics did not breach the duty because it actually

thought the contract did not permit returns for credit (as its

witnesses testified) , and, therefore, while Environamics was

entirely wrong in its own construction of the ambiguous contract

language relating to returns, it, nevertheless, was acting in

sufficient good faith to avoid a finding of breach of the implied

covenant. The jury also could have reasonably concluded, based

4 on the evidence presented at trial, that given Environamics'

refusal to acknowledge any right to return for credit at all

(which, as noted above, the jury could have plausibly determined

was not a position advanced by Environamics in bad faith) the

parties simply never got to the point at which the inventory was

tendered back to Environamics in the manner or on the form

described in the contract, and, so, Environamics never reached

the point of exercising its "prior approval" function in an

arbitrary or bad faith manner.

Although instructed not to answer Question 6 if the answer

to Question 5 was "No" (which it was), the jury nevertheless

answered it. The answer is surplusage and need not be considered

at all. See White v. Grinfas,

(5th Cir.

1987). However, the answer given is still not necessarily

inconsistent with the jury's other responses or its verdict.

Question 6 asked:

Do you find, by a preponderance of the evidence, that Environamics had no further duty to perform under the Distributor Agreement because Thelco was the first party to materially breach the contract?

The answer was "Yes." But plaintiff is wrong in reading that

unnecessary answer as creating a hopeless inconsistency, or as

establishing jury confusion. The jury could plausibly have

determined that Environamics was not reguired to continue to ship

goods, or continue to maintain the distributorship relationship,

i.e. "perform," given Thelco's failure to timely pay invoices as

reguired by the contract. The jury could also have taken note of

the evidence and defendant's argument — that the contract

5 required Environamics to give Thelco written notice of the breach

and an opportunity to cure before terminating the agreement, as

well as the evidence tending to establish that Environamics

failed to do so. In addition, the jury could well have decided

that while Environamics had no obligation to continue to perform

its obligations, its actual damages for Thelco's breach of the

payment terms still did not exceed the amount described, given

the contract's allowance of inventory return for credit even in

the event of breach by untimely payment, or non-payment.

Environamics' suggestion that the jury decided that it was not

obligated to take return of inventory for credit after Thelco

breached the payment terms is not plausible and not consistent

with the jury's award of damages, which obviously is dependent

upon construction of the ambiguous return policy as argued by

defendant.

Finally, the court rejects Environamics' assertion that the

only damages award allowable on the verdict is an award of the

contract price pursuant to Sections 2-607 and 2-709 of the

Uniform Commercial Code ("UCC"). See RSA 382-A:2-607(1), :2-

709(1) (1994). The UCC's provisions "may be varied by

agreement." RSA 382-A:1-102(3) (1994). As noted above, the jury

could have plausibly found that the Distributor Agreement gave

Thelco the right to return inventory for credit even after

breach, or termination by either party, of the agreement. Thus,

under the terms of the contract, Environamics' loss was not the

contract price but an amount that takes into account credit for

6 returned inventory. The jury properly calculated damages with

reference to the terms of the contract itself rather than the

fall-back provisions of the UCC.

For the foregoing reasons, the defendant's Motion for Entry

of Judgment in Accord with Special Jury Verdicts (document no.

73) is granted and the plaintiff's Motion for Entry of Judgment

(document no. 72) is denied. Should the parties disagree as to

the mathematical calculation of the damages award expressed in

dollars, on motion of either party the court will hold a hearing

with a view toward determining the dollar amount owed.

SO ORDERED.

Steven J. McAuliffe United States District Judge

December 3, 1998

cc: Michael C. Harvell, Esg. Laurin D. Quiat, Esg. Rosemary A. Macero, Esg.

7