Yorgo Foods v. Orics Industries 08-CV-438-SM 09/29/11 UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

Yorgo Foods, Inc., Plaintiff

v. Case No. 08-cv-438-SM Opinion No. 2 011 DNH 145 Orics Industries, Inc., Defendant

MEMORANDUM OF DECISION

The plaintiff, Yorgo Foods, Inc., ("Yorgo"), is in the

business of producing and selling Middle Eastern food products

(hummus, tabbouleh, etc.). The defendant, Orics Industries, Inc.

("Orics"), manufactures and sells food packaging equipment.

Seeking to increase productivity, Yorgo purchased a food

packaging machine from Orics. But, due to extended delays in

delivery, Yorgo cancelled the purchase. Yorgo requested return

of its substantial deposit and, when Orics failed to return the

funds, Yorgo brought suit, asserting breach of contract and

various related causes of action. Orics, in turn, counterclaimed

for breach of contract. The case was tried before the court on

the merits. The pertinent facts are largely uncontested, with

some exceptions related to alleged oral conversations and other

interactions between the parties. Relevant Facts

On December 12, 2006, Yorgo agreed to buy an S-40-DX

automated cup filling and sealing machine from Orics, for

$150,000.00. That agreement was memorialized in a document

entitled "Proposal for S-40-DX-lup Packaging Machine, Quote

#62890" (hereafter referred to as the "Agreement").

The Agreement called for payment in several stages: 50% of

the purchase price was due immediately as a down payment; 40% was

due on "acceptance prior to shipment," and the remaining 10% was

due 30 days after shipment. The Agreement also provided that

"[d]elay in receipt of down payment and/or delay of subsequent

progress payments may cause production and/or shipment delays."

Completion of the machine and shipment was to occur in "14 to 16

weeks based on removal of all contingencies," though the

Agreement provides no hint as to what "removal of all

contingencies" means.

Shortly after Yorgo signed the Agreement, Orics sent an

invoice and, on January 3, 2007, Yorgo made the required down

payment. Orics began the design and fabrication process, but at

some point after February of 2007, an Orics salesman, Kevin Meek,

suggested an addition that would allow the machine to not only

fill containers with flowable products (e.g., hummus), as

2 originally contemplated, but also with non-flowable products like

salads (e.g., tabbouleh). Mr. Bechara El-Khoury, Yorgo's

principal, had several conversations with Orics' sales

representative about the potential change. Eventually, El-Khoury

agreed to add the additional component, an integrated scale and

vibratory filler for non-flowable product. That modification

required some redesign by Orics, as well as mechanical

alterations to the S-40-DX.

Yorgo could have reasonably expected the machine, as

originally ordered, to be completed by either the end of March,

or the end of April, 2007 (depending on whether Orics began work

when the Agreement was signed by Yorgo, on December 12, 2006, or

after the down payment was received, on January 4, 2007) . But,

by May it was still not completed. Given the discussions about a

potential change, however, Orics says it justifiably stopped

working on the machine at some point after March, awaiting El-

Khoury' s final decision about adding the vibratory filler and

scale.

The specified time for delivery of the original machine

expired in April, but the Agreement was amended on July 12, 2007,

as documented by a "Revised Order," which was sent to Yorgo. The

Revised Order referenced the original order date of December 13,

3 2006, and the original order number: #6289C. It recited that

Orics would "[u]pgrade equipment to new customer request" by

incorporating the vibratory filler and scale [to be obtained from

a third party supplier — Ohlson Co.] and Orics would "extend

machine length to fit Net-Weigh System." Def. Ex. A, p. 178.

The changes increased the total purchase price to $252,000.00,

and Orics expected an additional down payment of $51,250.00. The

original delivery term of 14 to 16 weeks was not specifically

modified. Yorgo made the additional down payment on September

21, 2007. Orics says that "[o]nce [it] received the additional

down payment money, work on the machine continued in earnest."

Defendant's Post-Trial Brief, at 5.

Anticipating the addition of a vibratory scale, Orics had

already contacted Ohlson Scales, in May of 2007, to discuss

procurement of the necessary component. Ohlson is a well-known

manufacturer of such equipment, and Orics planned to buy the

component from Ohlson, then integrate it into the S-40-DX

machine. Ohlson provided Orics with an initial quote for the

scale in May and, after some exchange of technical data between

Orics and Ohlson, Ohlson sent a revised proposal to Orics in July

of 2007. Ohlson was prepared to build and deliver the required

filler and scale in 12 to 14 weeks. But, although the Agreement

between Yorgo and Orics was amended in July, and Yorgo paid the

4 additional deposit on September 21, Orics did not actually place

an order for the Ohlson filler and scale until November 16.

El-Khoury was anxious to take delivery of the machine and

probably expected that integration of the Ohlson scale would not

delay completion by more than a few weeks. He was not told by

anyone at Orics that work on his machine would stop and not begin

again until an additional deposit was received, or that an

extended delay in delivery would necessarily accompany the

modification. By November of 2007, El-Khoury was particularly

upset that nearly a year had passed and the machine he ordered

was not yet complete, even allowing for additional time to make

the requested modification. (He of course did not know that the

Ohlson scale had just been ordered that month.)

On December 6, 2007, Attorney Victor Dahar wrote to Orics on

behalf of Yorgo to notify Orics that, due to its failure to

deliver the ordered machine, Yorgo was cancelling the contract

and requesting a refund of its deposit. Mr. Ori Cohen, President

of Orics, testified that he did not recall seeing that letter,

but Kevin Meek, the Orics' salesperson, said he received a copy

of the letter and discussed it with Cohen. Whether Cohen did or

did not see the letter, it was ignored by Orics.

5 A month later, on January 9, 2008, El-Khoury's niece, who

worked for Yorgo, sent an email to Cohen, inquiring, again, as to

when the ordered machine would be finished. Cohen responded on

January 11 that Orics was still waiting for the Ohlson scale,

which was expected to take another three to four weeks. Cohen

did not disclose that Orics had yet to review and approve

engineering drawings Ohlson had submitted to Orics in December —

a necessary prerequisite to Ohlson's completing the filler/scale.

Orics did not provide Ohlson with approved drawings until January

29, 2008. Yorgo, however, did not press its previously announced

election to cancel the Agreement for failure to deliver, and both

parties continued on, tacitly agreeing that the cancellation

communicated by Attorney Dahar was withdrawn and the deal

remained viable.

Once it received the approved drawings from Orics, Ohlson

expedited its work on the filler/scale and completed it by

February 12, 2008. Orics, however, never took delivery of the

filler/scale, and never paid for it. No plausible explanation

was given at trial by Orics, and Ohlson was not able to explain

why Orics never took possession of the component. Without the

Ohlson scale, the modified S-40-DX machine obviously could not be

completed, tested, and delivered.

6 From February, when the scale was ready, until June of 2008,

El-Khoury continued to inquire, with increasing frustration,

about completion and delivery dates. Orics, primarily through

Cohen, continually put him off with oral assurances that the

machine was nearly complete, or would be complete in a matter of

"a few weeks," or in "ten days," or "soon," etc. During that

period, however, Orics made no effort to obtain the essential

piece of equipment necessary to complete the machine — the Ohlson

filler/scale.

In its post-trial memorandum (document no. 56) Orics says,

implausibly, that "[b]etween February and June of 2008, Orics

Industries continued to work on finishing the S-40-DX machine and

getting it ready to integrate the automated scale into the

system." Xd. at 7. The evidence suggests otherwise — Yorgo's

project was generally ignored or given only occasional and

sporadic attention. Both Cohen and Staci Banta (Cries' Project

Manager) testified, unpersuasively, that Yorgo's machine was

completed in April or May of 2008. By "complete," however, Cohen

and Banta were not suggesting that the machine was fully

assembled and awaiting testing and shipping. Rather, they meant

that various component parts or subassemblies could be gathered

and combined in a matter of hours or a few days, and then the

machine would be ready for testing. Why Orics never performed

7 that final assembly — especially given Yorgo's increasing

impatience — remains a mystery.

In April of 2008, El-Khoury prevailed upon Robert

Mikelinich, a sales acquaintance who was planning to be in New

York on other business very near Orics' facility, to stop in and

check on his machine's status. Cohen showed Mikelinich some

components and a frame. Mikelinich testified (by deposition)

that the Orics' machine was "just a stainless steel square stock

skeletal frame of a machine," with "no components bolted to it or

welded to it . . . [n]o electrical, no bearings, no nothing."

Mikelinich Dep. at 18.

El-Khoury, though increasingly unhappy, reluctantly accepted

Cohen's oral assurances that the machine would soon be completed,

and refrained from seeking termination. After all, he wanted the

machine for his business, and had already invested far too much

time in waiting to simply cancel and start over with a different

manufacturer if the greater delay likely inherent in such a

decision could be avoided. He decided to wait longer.

On June 9, 2008, Cohen again assured Yorgo, by email, that

Orics would "finish the machine next week" and would "send you a

complete report on the exact schedule of completion shipment and installation," PI. Ex. 1, p. 5, (belying his trial testimony that

it was actually complete in April). But the Ohlson filler/scale

had still not been obtained by Orics, and the machine could not

be completed or tested without it. John Tropp, Orics' own

expert, unequivocally testified that the Ohlson scale had to be

integrated into the S-40-DX before it could be adequately tested.

Tr. Day 3, PM, p. 38.

El-Khoury's patience finally expired in August of 2008 — the

machine having still not been completed, the Ohlson scale still

awaiting Orics' pick-up, and no reasonable prospect of delivery

seemingly in sight. On August 25, 2008 — more than a year after

the parties amended the Agreement to include the filler and

scale, and nearly a year after the additional down payment was

made — a second letter was sent to Orics by different legal

counsel representing Yorgo. That letter gave notice to Orics

that Yorgo deemed it to be in breach of the Agreement. Yorgo

also notified Orics that it was cancelling the Agreement unless

Orics delivered a completed functioning machine within ten days,

and, failing that delivery, demanded return of its down payment

of $128,250.00, as well as legal fees, and interest on the

deposited funds. Orics neither responded, nor delivered the

completed machine, nor did it return Yorgo's down payment.

9 Yorgo filed suit on October 23, 2008, advancing a number of

claims: breach of contract (Count I); breach of the duty of good

faith and fair dealing (Count II); unjust enrichment (Count III);

intentional misrepresentation (Count IV); negligent

misrepresentation (Count V); fraud (Count VI); and Consumer

Protection Act violations (Count VII). Orics, in turn, filed a

counterclaim, alleging that Yorgo breached the Agreement by

failing to pay the agreed upon purchase price and by terminating

the contract without justification, since the machine, by August

of 2008, "was basically complete, and was awaiting final testing

and integration." Defendant's Post-Trial Memorandum (document

no. 56) at 16. Orics asserted that because Yorgo breached its

own contractual obligation to provide packaging material (cups

and lids) and food products (hummus, tabbouleh) necessary to test

the machine's operation, the project stalled at the testing

phase.

Following the bench trial, both parties filed post-trial

memoranda and requests for findings of fact and rulings of law.

The parties have stipulated that New Hampshire law should be

applied in resolving this dispute.

10 Breach of Contract

The parties agree that they are merchants who contracted for

the sale of goods. Accordingly, this contract dispute is

governed by applicable provisions of the Uniform Commercial Code,

as adopted by the State of New Hampshire. N.H. Rev. Stat. Ann.

ch. 382-A (hereinafter "UCC"). The UCC describes "a

comprehensive system for determining the rights and duties of

buyers and sellers with respect to contracts for the sale of

goods" and describes the exclusive remedies available in the

event of contract breach. Spring Motors Distributors v. Ford

Motor C o .,

,

(1985).

The parties also acknowledge not only the Agreement, but its

operative terms, though they of course construe some relevant

terms differently. The principal issue here is the time in which

Orics was required to perform under the Agreement — that is, to

complete fabrication and ship the modified S-40-DX machine.

Yorgo says Orics failed to deliver as required; Orics counters

that it would have delivered in timely fashion but for Yorgo's

own breach of the Agreement and unjustified termination.

As noted, the initial Agreement signed by Yorgo on December

12, 2006, provided that the machine would ship (so, necessarily,

would be complete) in "14 to 16 weeks based on removal of all

11 contingencies." The form also stated that any "delay in receipt

of down payment . . . may cause production and/or shipment

delays." The shipment date was based on "current production

schedules" and was valid for "30 days." So, Orics was required

to complete and ship the machine in 14 to 16 weeks or, time not

being of the essence, within a reasonable time thereafter,

assuming no disruptive "contingencies." The Agreement did not

describe what kind of "contingencies" might warrant delay in

performance, though it was apparent from the Agreement's terms

that a delay in receipt of Yorgo's down payment "may" cause

production or shipment delays.

The amended Agreement signed in July of 2007, was described

by Orics as a revision of the original order. The amended

Agreement did not purport to alter the delivery terms. Rather,

the amendment merely added language to the effect that Orics

would "[u]pgrade equipment to new customer request," integrating

the vibratory filler and scale to be obtained from Ohlson. Joint

Exhibits, at 179.

Evidence was presented at trial suggesting that it is

customary in the industry for a manufacturer to refrain from

working on orders until the requisite down payment is made.

Accepting the reasonableness of that practice at face value.

12 Orics was obligated to begin working on the modified machine, at

the latest, when Yorgo made the additional down payment on

September 21, 2007. The amendment modified the contract in a

substantive way and both Yorgo and Orics necessarily understood

that additional redesign work and mechanical changes would be

required, which, in turn, would require additional time to

complete.

On January 11, 2008, Cohen, by email, represented that

Yorgo's machine was almost ready, and would be completed shortly.

Cohen wrote:

The Ohlson scale for the Tabuli will be done in 3- 4 weeks, the machine frame is ready to be welded and assembled, the tools are done and ready for assembly on the frame, as you know we had to change the entire frame size and shape and the machine operation by adding the Tabuli filler, as soon as the Tabuli filler will be at our facility we will integrate it test it and will be ready for FAT factory acceptance test.

Joint Exhibits, p. 222. The gist of that communication was that

as soon as Orics procured the Ohlson scale, completion of the

machine would be just a matter of assembling the component parts

and testing it. Yet, three months later (in April of 2008) that

assembly had not been accomplished, and the Ohlson scale

inexplicably remained at the Ohlson plant, ready to be acquired

and installed. In fact, by June of 2008, some six months after

Cohen's January 11 assurances, the component parts had still not

13 been assembled (nor had Orics even obtained the completed

filler/scale from Ohlson). On June 9, 2008, Cohen again emailed

El-Khoury at Yorgo, promising to "finish your machine next week"

and to "send you a complete report on the exact schedule of

completion shipment and installation." Yorgo Ex. at 5.

Testimony by Kevin Meek, a former Orics' salesperson,

offered at least one plausible explanation for Orics' continuing

failure to complete: Orics was too busy filling other, presumably

more important orders, so deferred Yorgo's project as necessary.

Cohen's own testimony supported that explanation. He admitted

that a project larger than Yorgo's was begun on January 29, 2008,

and completed on June 5, 2008 (i.e., in approximately four

months). Tr. Nov. 18, 2010, AM, pp. 43-47.

Orics never obtained the completed Ohlson filler/scale, and

it offered nothing of substance to explain that critical and

ongoing failure. The only plausible explanation, given this

record, is managerial neglect. There is no evidence suggesting

that Orics was in financial trouble and could not pay for the

Ohlson scale; there is no evidence suggesting that Orics harbored

some animosity toward Yorgo that motivated it to deliberately

string Yorgo along with no intent to actually build the machine

(it was eventually partially assembled in the Fall of 2008,

14 albeit still without the Ohlson scale, the very object of the

amendment); and surely Orics would have been far better off

economically had it paid for the filler/scale when it was

completed in February, taken delivery, and did what Cohen said it

would do in his January 11 email — finish the job.

As noted, the amended Agreement did not purport to vary the

delivery term in the original Agreement. But, plainly, the

revised order called for substantive changes to the S-40-DX

machine, and the time set for delivery in the original Agreement

had expired two months before the revised order was accepted by

the parties. Orics also points out that the delivery term in the

original Agreement applied to what was essentially a standard-

platform packaging machine, while the amended Agreement

contemplated a "custom" machine, that required modifications to

the standard S-40-DX design platform. The new machine, says

Orics, took much longer to redesign, modify, and build than the

standard machine Yorgo initially ordered.

Accordingly, says Orics, it would be unreasonable to hold it

to the original delivery term of 16 weeks, either by applying the

original term to the revised order, or imposing that term as

describing a "commercially reasonable time" in which to deliver

the modified machine. UCC §§ 1-205 and 2-309(1). I find that

15 Orics generally overstates the complexity involved. Cohen

testified that absent other work and distractions, the modified

Yorgo project could have been completed in two to three months.

Cohen himself told Yorgo, in January of 2008, that completion was

only a few weeks away, and in June of 2008, he again told Yorgo

that completion was only a week or so away. Still, Orics has a

point.

Assuming the modification effectively rendered indefinite

the 16 week delivery time specified in the original Agreement,

then the UCC imposes a "reasonable" time for delivery. Section

2-309(1) provides:

(a) The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time.

A "reasonable time" is for the finder of fact to determine,

taking into account the nature, purpose, and circumstances of the

transaction, including the parties' course of dealing, usages of

trade in the pertinent industry, and the parties' course of

performance. Superior Boiler Works v. R.J. Sanders, Inc.,

(R.I. 1998) .

Orics offered expert opinion evidence at trial with respect

to what period would be considered, in the packaging machine

16 manufacturing industry, a commercially reasonable time in which

to complete Yorgo's machine. Joel Tropp, an expert in that field

testified that:

In going back and looking at, again, the work in process — and I know what the individual assemblies were, so I know what was done — I would say that somewhere in the month of April, either the beginning or the end. I'm not sure, right, somewhere at that time the machine would have been — should have been ready for final testing.

Tr. Day 3, PM, p. 21. Mr. Tropp also testified that, to be

tested, the machine had to be in the same condition as it would

be in the customer's factory. JCd. at 38. That is, fully

assembled, with the Ohlson scale fully integrated.

According to Tropp, a customer, like Yorgo, should not be told

that a packaging machine is complete and ready for testing if the

components and subassemblies have not been put together, and the

scale to be integrated is still at the fabricator's facility in

another state. .Id. (Tropp, also, could think of no technical

reason why the completed Ohlson scale was not obtained by Orics

and integrated into the S-40-DX.)

In Tropp's expert opinion, a reasonable time in which to

complete a machine like Yorgo's would have been between six and

eight months, from payment of the additional deposit (September

21, 2007), with an "outside time" of eight to ten months ("but I

17 would go between six and eight months, would be a reasonable time

to complete the machine and get it ready for testing."). Id.

at 27. Yorgo offered no contrary evidence with respect to what a

commercially reasonable time for completion of the modified

machine would be.

Even accepting Tropp's opinion, however, and applying the

six to eight month delivery term described by him as the

reasonable time in which Orics should have completed and

delivered the modified machine, Orics still failed to make timely

delivery. The machine was not assembled, complete, and ready for

testing in April of 2008 (seven months) when Tropp said it should

have been completed, or in May (eight months), or even in July of

2008 (ten months). By August 25, 2008, when notice of

termination was given by Yorgo, Orics had exceeded even the

outside limit on the reasonable delivery time that its own expert

could support.

Orics argues, unpersuasively, that it was Yorgo's fault that

the machine was never delivered — that if Yorgo had only heeded

repeated calls from Ori Cohen and Staci Banta to provide Orics

with adequate quantities of sample packaging (the cups and lids)

and products (hummus and tabbouleh) necessary to test the

machine, all would have been well. Orics' point seems to be that

18 had it first been given packaging and product to test in a timely

fashion, then it would have assembled the machine, tested it, and

shipped it.

I reject that argument out of hand.It is simply not

credible, and I find Cohen's and Banta's testimony to that effect

unpersuasive. I also completely reject Orics' claim (through

Cohen and Banta) that El-Khoury or anyone working for Yorgo was

told that delay in completion and delivery of the modified

machine was due to Yorgo's failure to deliver testable packaging

and product. I also find unpersuasive the suggestion that El-

Khoury, who was energetically seeking delivery, would have

undermined his own demands for delivery by failing to provide a

few gallons of hummus, or a few boxes of cups and lids, had he

been told that they were necessary to obtain delivery of the

machine, and a direct request for those materials was made.

Orics' position is not consistent with the fact that the machine

was never assembled before Yorgo terminated the Agreement and,

so, was never ready to be tested.

This is a case in which the buyer's patience and expectation

that the seller would eventually perform was rewarded with

neglect and empty assurances. Orics, for reasons satisfactory to

it, gave Yorgo's project a low priority. Orics no doubt would

19 have eventually completed the machine, tested it, and shipped it,

but it would have done so only in its own good time.

Having failed to make delivery within a commercially

reasonable time after September 21, 2007, whether that time

expired in April of 2008, or June of 2008, or even July of 2008,

and indeed, having failed to make delivery by August 25, 2008

(some eleven months after Yorgo's supplemental deposit was

received), without justification or excuse, Orics plainly

breached the Agreement. "Although a variety of factors may

explain nondelivery, its occurrence is simple enough. Some

breaches are easy to prove; if without excuse the seller fails to

deliver at all or fails to deliver on time, his breach is clear."

White Summers, Uniform Commercial Code, Fifth Edition, § 6-2, p.

374, 1996. Orics, as it concedes, never delivered at all, and

its breach is clear. Orics had no legitimate excuse for its

breach; the excuse offered — that Yorgo prevented delivery by

undermining Cries' ability to test the machine is not credible

and is rejected.

When a seller breaches a contract for the sale of goods by

failing to deliver, the UCC affords the buyer a number of

remedies, including the right to cancel the contract, recover so

much of the price as has been paid, and, as provided in § 2-713,

20 recover incidental and consequential damages for nondelivery.

UCC §§ 2-711, 2-713. In addition, the buyer is entitled to

recover interest on the purchase price paid (here the two down

payments), at the legal rate, from the date of cancellation and

demand upon the seller. See banners v. Whitney,

,

(1967).

Plainly, then, Yorgo is entitled to recover its down

payments, and interest at the legal rate on that amount

commencing ten days after the date of Yorgo's August 25, 2008,

cancellation notice (the date upon which Yorgo effectively

terminated the Agreement).

Damages

Yorgo also seeks damages for Orics' breach. Yorgo's

cancellation of the Agreement does not preclude it from

recovering damages for breach under the UCC. Cancellation and

recovery of damages are not exclusive remedies. See Robertson

Cos, v. Kenner,

(N.D. 1981). Yorgo does not seek

incidental damages (§ 2-715(1)), but does seek consequential

damages in a particular respect. Yorgo argues that had delivery

of the machine been made in a timely fashion it would have been

able to reduce its work force by four employees. Accordingly, it

claims, as consequential damages, the salary and associated costs

21 of those employees from the time delivery should have been made

through June of 2009 (when it obtained a different packaging

machine).

Under the UCC, consequential damages resulting from a

seller's breach include:

(a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise.

The burden of proving the extent of loss incurred by

consequential damage is on the buyer, but the loss may be

established in any manner that is reasonable under the

circumstances. See RSA 382-A 2-715, official comment 4.

I find that Yorgo's trial evidence failed to establish its

entitlement to consequential damages. To be sure, Mr. El-Khoury

testified that he expected acquisition of the packaging machine

would allow him to reduce his work force by four employees. An

accountant then offered his calculation of the costs that Yorgo

could have avoided over a defined period of time had four

employees been let go. But there was scant evidence supporting

the claim that operation of the machine would have likely

resulted in the hoped-for reduction in force. And, Yorgo did not

establish that Orics had reason to know that failure to deliver

22 the machine would result in Yorgo's inability to reduce its

workforce by four employees, or that the loss occasioned by

failure to deliver "could not reasonably be prevented by cover or

otherwise." UCC § 2-715(2). El-Khoury merely said that he

expected to lay off four employees. But he had no experience

with packaging machines like the S-40-DX, and was not promised

that type or degree of savings by Orics.

Yorgo failed both to establish the claimed loss in a manner

that was reasonable under the circumstances (i.e., no expert

familiar with the production capacity of the modified S-40-DX and

Yorgo's work force testified; no comparative authoritative

studies were produced; no industry standards or accepted norms

were referenced), and Yorgo failed to establish that Orics had

reason to foresee the nature and extent of the claimed loss. See

e.g., Hvdraform Prods. Corp. v. American Steel & Aluminum Corp.,

(1985); Bailey v. Sommoviqo,

(1993) .

Orics, on the other hand, presented evidence to the effect

that the S-40-DX automated filler would certainly increase

production beyond that achievable by the largely manually

operated system then in place at Yorgo. But, the new machine

23 would still require adequate staffing, and was not likely to

result in a reduction of the current workforce.

I do not find the evidence of consequential damages

presented by Yorgo sufficient to reasonably establish the claimed

losses. The "unsaved labor costs" claim is speculative at best,

inadequately supported, and in the end unpersuasive.

Accordingly, consequential damages, as claimed, are not awarded.

Breach of the Covenant of Good Faith and Fair Dealing

Yorgo also asserts a claim for breach of the implied

covenant of good faith and fair dealing. " [A]n obligation of

good faith is imposed by statute in the performance and

enforcement of every contract or duty subject to the Uniform

Commercial Code." Centronics Corp. v. Genicom Corp.,

(1989) (Souter, J.); see also RSA 382-A:1-304 ("Every

contract or duty within this chapter imposes an obligation of

good faith in its performance and enforcement."); RSA 382-A:l-201

("'Good faith,' except as otherwise provided in Article 5, means

honesty in fact and the observance of reasonable commercial

standards of fair dealing."). And, as detailed in Centronics,

New Hampshire's common law also recognizes an implied covenant of

good faith and fair dealing in every contract.

24 But, "[i]t is generally accepted that the good faith

standard of U.C.C. [§ 1-304] does not create an independent cause

of action and that it does not create an obligation conceptually

separate from the underlying agreement." Wortlev v. Camplin,

(1st Cir. 2003) (citation omitted). Similarly, New

Hampshire's common law does not recognize a cause of action for

breach of the implied covenant of good faith and fair dealing

outside the contractual context. J & M Lumber & Constr. Co. v.

Smviunas,

(2011) . As noted in Centronics,

Our own common law of good faith contractual obligation is not, however, as easily stated as we might wish, there being not merely one rule of implied good faith duty in New Hampshire's law of contract, but a series of doctrines, each of them speaking in terms of an obligation of good faith but serving markedly different functions. Since the time of our first contract decision couched in terms of good faith, Griswold v. Heat Corporation,

,

(1967), we have relied on such an implied duty in three distinct categories of contract cases: those dealing with standards of conduct in contract formation, with termination of at-will employment contracts, and with limits on discretion in contractual performance.

Centronics,

.

In its complaint (Count II), Yorgo seems to invoke the first

referenced category — that is, conduct related to contract

formation. But its post-trial brief seems to rely on the third

category — that is, limits on discretion. In either event, I

25 find that Yorgo has failed to carry its burden of proof with

respect to this claim.

The evidence presented does not establish that Orics engaged

in bad faith conduct of any sort in connection with formation of

the Agreement. Like Yorgo, Orics had a genuine economic interest

in the Agreement. Orics is in the business of designing and

building packaging machines and Yorgo wished to obtain such a

machine. There was no evidence presented to support a claim that

Orics negotiated the contract with the intent not to perform, or

that it knew it could not perform. Indeed, Yorgo took the

position at trial that Orics could have built its machine in

timely fashion, but instead chose to apply its resources to

competing projects, i.e., other customers with more profitable

jobs, or more important status. That explanation for the

inordinate delay was supported by the evidence, but even if true,

such a choice by Orics likely would not support a claim for

breach of the covenant of good faith and fair dealing.

What Yorgo complains about primarily, of course, is that

Orics repeatedly promised to complete the machine in short order,

yet continually failed to do so, while Yorgo continually relied

upon those promises in delaying exercise of its right under the

UCC to terminate the Agreement for failure to deliver. Yorgo was

26 free, however, to exercise its contractual rights, or not, as it

deemed appropriate. It waited because it thought that was the

better course.1 While the court is sympathetic to Yorgo's

plight, still, Yorgo made a series of judgments about Orics'

competence and reliability in deciding to wait, and it turns out

that Yorgo made the wrong choice.

Yorgo has not proven either that Orics' conduct in

negotiating the contract's formation was in breach of its good

faith obligations, or that the contract vested Orics with a

degree of discretion that Orics exercised contrary to its good

faith obligations. Orics had no discretion with respect to the

delivery term; it was obligated to meet it. It failed, and

thereby breached the contract, but that breach does not also

amount to a breach of the covenant of good faith and fair

dealing.

I find that Yorgo has not proven a good faith and fair

dealing claim that is recognized under either the UCC or New

Hampshire's common law.

1 In hindsight, Yorgo was perhaps wise to wait until August to cancel, since it presented no contrary evidence regarding what, in the pertinent industry, would constitute a reasonable time in which to complete the modified machine. That time could well have expired as late as July of 2008, according to Orics' expert.

27 Unjust Enrichment

Yorgo's unjust enrichment claim (Count III) fails as well.

A cause of action for unjust enrichment does not lie when a valid

unrescinded contract governs the rights of the parties. See

Clapp v. Goffstown Sch. Dist.,

(2009) .

Here, the rights of the parties are governed by the Agreement and

applicable provisions of the Uniform Commercial Code.

Intentional Misrepresentation, Negligent Misrepresentation, and Fraud

Yorgo's negligent misrepresentation, intentional

misrepresentation, and fraud causes of action are based,

essentially, upon the premise that well after the time for

delivery had passed, Orics, through its principal and chief

engineer Ori Cohen, "assured Yorgo again and again that the

machine would be ready in one to two weeks, even though he was

aware that Orics had not received the scale from Ohlson and had

not integrated it with the machine." Plaintiff's Post-Trial

Brief, at 17.

It is true that Orics seemed to have little compunction in

making promises of imminent action, only to repeatedly fail to

realign its work priorities. As noted earlier, the likely

explanation for those failures is that Orics simply had more work

than it could handle and, during the period between December of

28 2006 and August of 2008, Yorgo's project was a low priority for

Orics. But there is little evidence supporting Yorgo's claim

that Cohen deliberately told El-Khoury that the machine would be

completed in the near future with no intention to fulfill that

promise. The road to ruin is supposedly paved with good

intentions, and that appears to be the road Cohen regularly

travelled. But expressions of good intentions are not generally

actionable.

Under New Hampshire law, " [A] promise is not a statement of

fact and hence cannot, as such, give rise to an action for

misrepresentation." Hvdraform Prods. Corp. v. American Steel &

Aluminum Corp.,

(1985). "A promise, therefore,

will only give rise to a claim of misrepresentation if, at the

time it was made, the defendant had no intention to fulfill the

promise." Thompson v. H.W.G. Group,

(1995).

No evidence was presented that persuades me that Orics was

incapable of fulfilling its promises when Cohen made them, or

that Cohen had no intention of doing so. Though painfully slow

from Yorgo's perspective, Orics did stumble along toward

completion in fits and starts. It did design the modified

machine. It assembled various components, fabricated the basic

frame, and arranged for fabrication of the Ohlson scale. It was

not an effort likely to have satisfied even the most indifferent

29 customer, but neither was it an effort indicative of an intention

not to perform at all. And there was no reason for Orics not to

perform — it undoubtedly would have eventually performed, given

its own substantial investment in the project, and the risk of

economic loss associated with non-performance.

Because the evidence does not support a factual finding that

Cohen had no intention of fulfilling his promises of completion

and delivery when those promises were made, Yorgo cannot recover

on its negligent misrepresentation, intentional

misrepresentation, or fraud claims.

Consumer Protection Act

Yorgo's Consumer Protection Act Claim (N.H. Rev. Stat. Ann.

("RSA") ch. 358-A) also necessarily fails for a number of

reasons. Although the Act broadly provides that "[i]t shall be

unlawful for any person to use any unfair method of competition

or any unfair or deceptive act or practice in the conduct of any

trade or commerce within [New Hampshire]," RSA 358-A:2 (emphasis

supplied), the New Hampshire Supreme Court has authoritatively

held that "[a]n ordinary breach of contract claim does not

present an occasion for the remedies under the Consumer

Protection Act." Barrows v. Boles,

(1996);

Milford Lumber Co. v. RGB Realty,

(2001) .

30 Yorgo of course argues that Orics' conduct went beyond a

straightforward breach of contract in that it made multiple

promises of imminent completion and delivery when it knew that it

had not yet obtained the Ohlson scale, so could not complete the

machine and ship it, and Yorgo relied to its detriment on those

empty promises. As noted earlier, however, Orics' many

statements of intention constituted promises of future action,

not representations of fact, so cannot support a

misrepresentation claim. I find that Orics could have completed

the machine, as promised, easily enough. It merely had to obtain

the Ohlson scale (after February of 2008, a matter of a day or

two at most) and then assign the necessary workforce to complete

the job. Hence, Yorgo's frustration. That Orics did not do so,

as required by the Agreement, and that Yorgo decided to wait

perhaps beyond the time it was required to wait, however, does

not turn the underlying dispute into something other than an

ordinary contract dispute between merchants.

And, for Yorgo to recover under the Consumer Protection Act,

Orics' repeated promises of delivery would have to "attain a

level of rascality that would raise an eyebrow of someone inured

to the rough and tumble of the world of commerce." Barrows,

(citation omitted). Repeated assurances of future

performance by merchants, made to placate unhappy customers, even

31 unrealistic assurances, are not unknown in the rough and tumble

of the world of commerce. When assurances of performance prove

meritless, the UCC provides a ready remedy. Buyers not tolerant

of such unfulfilled promises are entitled to cancel and recover

down payments made, provable incidental and consequential

damages, and interest. Cries' repeated promises and failures

(whether due to choices to serve other customers first, or common

mismanagement) were hardly admirable, but did not rise to the

level of rascality necessary to support a cause of action under

New Hampshire's Consumer Protection Act.

Attorney's Fees

Finally, Yorgo seeks an award of its reasonable attorney's

fees. The Agreement does not address the issue directly, and

courts have found "silence to be the simplest way to draft a

contract to indicate that no such fees are contemplated by the

parties." Indiana Glass Co. v. Indiana Mich. Power Co.,

, 887 n.l, (Ind. A p p . C t . 1998). The parties could

easily have included a fee-shifting provision in the Agreement

had they intended to avoid the general rule that parties bear

their own legal fees, but they did not. And, attorney's fees are

generally not recoverable under § 2-715 of the UCC as incidental

or consequential damages in contract breach actions. .Id. (citing

Nick's Auto Sales, Inc. v. Radcliff Auto Sales, Inc.,

709 (Ky. C t . App. 1979) (holding that, in accordance with the

overwhelming weight of authority from other states that

attorneys' fees are not recoverable under UCC § 2-715)).

On the other hand, the UCC does not foreclose the

possibility of recovering attorney's fees in a contract action.

Section 1-103 of the Code "emphasizes the continued applicability

to commercial contracts of all supplemental bodies of law except

insofar as they are explicitly displaced by the provisions of the

UCC." Indiana Glass Co.,

. Section 2-715 does

not explicitly provide for (or preclude) recovery of attorney's

fees, so, like other state courts that have considered the issue.

New Hampshire's courts would likely conclude that the UCC's

provisions were not intended to and do not abrogate the common

law principles governing awards of attorney's fees.

New Hampshire's common law permits recovery of attorney's

fees under very limited circumstances. "A prevailing party may

be awarded attorney's fees when that recovery is authorized by

statute, an agreement between the parties, or an established

judicial exception to the general rule that precludes recovery of

such fees." Town of Nottingham v. Newman,

(2001) (citation and internal punctuation omitted); see also

Grenier v. Barclay Square Commer. Condo. Owners' Ass'n,

Ill, 117 (2003). The New Hampshire Supreme Court has established

judicial exceptions to the general rule that parties bear their

own attorney's fees, recognizing

exceptions where an individual is forced to seek judicial assistance to secure a clearly defined and established right if bad faith can be established; where litigation is instituted or unnecessarily prolonged through a party's oppressive, vexatious, arbitrary, capricious or bad faith conduct; as compensation for those who are forced to litigate in order to enjoy what a court has already decreed; and for those who are forced to litigate against an opponent whose position is patently unreasonable.

Business Publications v. Finnegan,

(1995). See

also Daigle v. City of Portsmouth,

(1993).

It is the last described exception that arguably applies

here. The dispositive question, then, is this: After Yorgo

terminated the Agreement, was it forced to litigate against an

opponent whose litigation position was patently unreasonable? In

considering that question, the focus is not on Orics' indolence

and unfulfilled promises of future performance, nor on the

consequences of its breach. Rather, "[t]he focus in such cases

is on a litigant's unjustifiable belligerence or obstinacy where

an action is commenced, prolonged, required or defended without

any reasonable basis in the facts provable by evidence."

Grenier,

. The decision to award or decline to

award fees under the described judicial exception is highly

34 discretionary, and given "tremendous deference." .Id. at 116;

Daigle,

.

Yorgo's claim is not an unsympathetic one. It argues that

Orics very well knew that it had made repeated promises of

completion and delivery from November of 2007, onward, and

repeatedly failed to perform. Accordingly, Orics knew that once

Yorgo unambiguously exercised its right to terminated the

contract, the down payment should have been promptly refunded,

and Yorgo should not have had to bring suit to recover that down

payment.

But Yorgo's claim is not one that fits within the limited

exception to New Hampshire's general rule that parties to

litigation bear their own legal fees. Here, Orics readily

conceded that it never shipped the machine, but interposed a

defense recognized in law: that Yorgo's own contract breach

precluded Orics from delivering, or excused it's failure to

perform, and, indeed, required Yorgo to pay damages — the full

contract price. Orics points out that the Agreement specifically

contemplated "factory acceptance testing" before shipment of the

machine, and that type of pre-shipment testing is well-understood

in the industry. (The Agreement specifically provides that 40%

of the purchase price was due on "acceptance prior to shipment.")

35 Cohen testified that, particularly with new customers and

unfamiliar products, testing before shipment is critical to

successful operation of the packaging machine. He also testified

that Yorgo understood from the outset that testing samples, both

of packaging (cups and lids) and food products, had to be

provided before the factory acceptance tests could be run.

Finally, he testified, supported by Staci Banta's testimony, that

El-Khoury was uncooperative, would not come to the Orics factory

to participate in the required testing, and never provided the

required samples. Shipment did not occur, says Orics, because

testing could not occur due to Yorgo's breach.

The machine was "complete," Cohen and Banta said, in April

of 2008, in the sense that had Yorgo complied with its own

obligations to cooperate in carrying out the anticipated factory

tests and to provide testing samples, the fabricated components

would have been quickly assembled, including the Ohlson scale

(located only four hours away in Massachusetts). Testing and

shipment would then have promptly followed. Orics, Cohen pointed

out, had every economic incentive to complete and ship the

machine, and little incentive to stall. Indeed, said Cohen,

Orics had already invested far more money in designing and

building the machine than was covered by Yorgo's down payment.

36 and Orics reasonably expected Yorgo to cooperate in testing, and

to pay the full purchase price.

Orics' defense and counterclaim for breach as described were

weak, to be sure, and have been rejected as explained earlier.

But, on this record, I cannot find Orics' litigation position to

have been "patently unreasonable" merely because it was weak and

unsuccessful. See Guaraldi v. Trans-Lease Group,

(1992). As in Guaraldi, the record here includes conflicting

testimony which could reasonably be interpreted differently with

respect to the commercially reasonable obligations of a buyer of

packaging machines. While there is an absence of documented

correspondence between the parties regarding critical demands for

testing supplies, and when they were expected to be supplied, the

Agreement does contemplate the testing process, and provision by

the buyer of materials necessary to that process. So, there was

a basis in law and in the contract for Orics' litigation

position, and Orics did offer some evidence of facts necessary to

support its position.

Had the evidence been stronger regarding Orics' claims that

the machine was essentially "complete" and could have been

adequately tested, and had the evidence been more persuasive that

El-Khoury was told directly that his failure to provide the

37 required testing materials was the only remaining impediment to

delivery, the outcome of this litigation might have been

different. I have found Orics' position to be insufficiently

supported, unpersuasive, and without merit, but I cannot find, on

this record, that it was frivolous or patently unreasonable, in

that it "lacked any reasonable basis in the facts provable by

evidence . . . in the law as it is, or as it might arguably be

held to be." Guaraldi,

(quoting Adams v .

Bradshaw,

(1991) ) . See also Daigle,

. Absent such a finding, attorney's fees are not recoverable

under the judicially created exception to New Hampshire's general

common law rule.

Accordingly, New Hampshire's general rule applies, and each

party to the litigation must bear its own legal fees.

Orics' Counterclaim for Breach of Contract

For the reasons given above, I find in favor of Yorgo on

Orics' breach of contract counterclaim. Orics failed to meet its

burden of proof regarding Yorgo's alleged breach. To the

contrary, I find that the machine was never in a completed

condition sufficient to test it. I accept Joel Tropp's testimony

that the machine had to be assembled as it would be in the

buyer's facility as a prerequisite to adequate testing. I credit

38 El-Khoury's testimony that he was not told that the machine was

complete and ready for testing, awaiting only Yorgo's supplying

materials to test. I do not credit Cohen and Banta's claims that

El-Khoury knew that the lack of testing materials was all that

kept the machine from being completed, tested and shipped, or

that he was uncooperative, or that he refused requests to supply

testing materials. Yorgo did not breach the Agreement.

Conclusion

Judgment shall be entered in favor of plaintiff on its

breach of contract claim (Count I). Judgment shall be entered in

favor of defendant on plaintiff's breach of the duty of good

faith and fair dealing claim (Count II); its unjust enrichment

claim (Count III); its intentional misrepresentation claim (Count

IV); its negligent misrepresentation claim (Count V ) ; its fraud

claim (Count VI); and its Consumer Protection Act claim (Count

VII). Judgment shall be entered in favor of plaintiff on

defendant's breach of contract counterclaim.

Defendant shall refund plaintiff's down payment(s) in full,

with interest at the legal rate from September 4, 2008, until

paid. Each party shall bear its own legal fees. This Decision

shall constitute the court's findings of fact and rulings of law.

Fed. R. Civ. P. 52(a)(1). If either party believes this decision

39 leaves specific requests for findings of fact or rulings of law

unaddressed, that party may, by pleading filed within fourteen

(14) days of the date of this order, identify those specific

requests and a ruling will be made.

SO ORDERED.

Steven J./McAuliffe Chief Judge

September 29, 2011

cc: Ronald E. Cook, Esq. Clara A. Dietel, Esq. Paul R. Kfoury, Sr., Esq Lisa M. Lee, Esq. Andrew B. Livernois, Esq.

40