Judge: Gregory Keosian, Case: 19STCV28595, Date: 2022-08-11 Tentative Ruling

Case Number: 19STCV28595    Hearing Date: August 11, 2022    Dept: 61

Plaintiff and Cross-Defendnat Romex Textiles, Inc.’s Motion for Summary Judgment or Adjudication is GRANTED as to the first and second causes of action alleged against Defendant Dool FNA in Romex’s First Amended Complaint, and GRANTED as to Dool FNA’s third cause of action for breach of the implied covenant of good faith and fair dealing in its cross-complaint. The motion is DENIED as to the first, second, and fourth causes of action in the Dool FNA’s cross-complaint.

I.                   OBJECTIONS

Defendant objects to the evidence submitted in support of Plaintiff’s motion for summary judgment. Objections No. 2 and 3 to the declaration of Shahab Binafard are SUSTAINED, as Binafard testifies to the formation of the delivery contracts from the invoices, authenticated under Evidence Code § 1271, but does not lay foundation for testimony derived from the absence of certain items (e.g. agreed delivery dates) in the invoices as provided in Evidence Code § 1272. Defendant’s remaining objections are OVERRULED.[1]

Plaintiff objects to the declaration of Robert Chang, submitted with Defendant’s opposition. Plaintiff argues that, other than a conclusory statement of his position as vice president of Defendant, he provides no foundation in personal knowledge for the assertions and evidence contained in his declaration. Objections No. 5, 6, and 10–17 are SUSTAINED, as Robert Chang provides testimony to support an inference that he possesses personal knowledge or admissible records upon which to base his testimony concerning the ultimate destination for the goods ordered or Plaintiff’s representations concerning same, beyond the emails he introduces. The other objections are OVERRULED, because despite the conclusory foundation laid in Chang’s declaration, he gives sufficient foundation for the emails that he introduces which were exchanged with Plaintiff, given that he — “robertc@doolfna.com” — was the recipient or sender of the emails that he presents. (Chang Decl. Exhs. A, C, D, F, G.)

II.                MOTION FOR SUMMARY JUDGEMENT

A party may move for summary judgment “if it is contended that the action has no merit or that there is no defense to the action or proceeding.”  (Code Civ. Proc. § 437c, subd. (a).) “[I]f all the evidence submitted, and all inferences reasonably deducible from the evidence and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law,” the moving party will be entitled to summary judgment.  (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.) A motion for summary adjudication may be made by itself or as an alternative to a motion for summary judgment and shall proceed in all procedural respects as a motion for summary judgment.  (Code Civ. Proc. § 437c, subd. (f)(2).)  

The moving party bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact, and if he does so, the burden shifts to the opposing party to make a prima facie showing of the existence of a triable issue of material fact.  (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850; accord Code Civ. Proc. § 437c, subd. (p)(2).) Plaintiffs moving for summary judgment may meet their initial burden by “prov[ing] each element of the cause of action entitling the party to judgment on the cause of action.” (Code Civ. Proc. § 437c(p)(1).)

Once the plaintiff has met that burden, the burden shifts to the defendant to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto.  (Code Civ. Proc. § 437c(p)(1).)  The defendant may not rely upon the mere allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to that cause of action or a defense thereto.  (Code Civ. Proc. § 437c(p)(1).)  To establish a triable issue of material fact, the party opposing the motion must produce substantial responsive evidence.  (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.)

Plaintiff Romex Textiles (Plaintiff) moves for summary judgment against the claims in Defendant Dool FNA’s cross-complaint, and favor of the claims in its own complaint. Plaintiff argues that Defendant accepted delivery of Plaintiff’s goods, and as such owes Plaintiff payment for the goods delivered under California’s Commercial Code. Plaintiff also argues that provisions included with its invoices, and thus made part of the parties’ agreement, require the dismissal of Defendant’s cross-claims.

Plaintiff’s argument invokes several provisions of the Commercial Code. The Code states that “[t]he buyer must pay at the contract rate for any goods accepted.” (Com. Code § 2607, subd. (1).) Acceptance of goods occurs

(a) After a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their nonconformity; or

(b) Fails to make an effective rejection (subdivision (1) of Section 2602), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or

(c) Does any act inconsistent with the seller's ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him.

(Com. Code § 2606, subd. (a)–(c).) That statute further provides, “Acceptance of a part of any commercial unit is acceptance of that entire unit.” (Com. Code § 2606, subd. (2).)

Plaintiff here argues that Defendant accepted the goods that were delivered from August 2018 to March 2019, did not reject them, and in fact exercised ownership over them by cutting and dying them in the hopes making their deliveries. (Tabibi Decl. Exh. 2.) Thus Plaintiff contends that this act of possession was inconsistent with Plaintiff’s continuing ownership of the goods, meaning that Defendant now owes an obligation to pay at the invoiced price. (Motion at pp. 7–13.) Here, the declaration of Shahab Binafard, Plaintiff’s president, establishes the contract price for the goods of $503,377.30, with an amount remaining owed of $498,600.10. (Binafard Decl. ¶¶ 6, 13.)

Defendant in opposition argues that the goods were delivered later than agreed and were of poor quality. (Opposition at pp. 7–9.) But Defendant does not dispute that it accepted and used the goods under Commercial Code § 2606, and that it must therefore pay at the contract rate under Commercial Code § 2607. Although it asserts the delay and the defects each constitute a “complete defense,” it provides no authority for this proposition as against the clear statutory authority presented by Plaintiff. (Opposition at pp. 7–8.) Rather than a complete defense, the remedy provided to buyers who accept goods subject to material nonconformities in kind or manner of delivery is an action for damages, as provided in Commercial Code § 2714.

Defendant in opposition contends that the calculations of damages presented by Defendant do not account for credits for returned goods acknowledged by Plaintiff. (Opposition at p. 10; Chang Decl. Exh. H.) However, the invoices that Plaintiff presents on their face account for credits. (Binafard Decl. Exhs. 1, 2.) The credit that Defendant identifies as applicable to Invoice # 295725, dated October 4, 2018, is accounted for in Plaintiff’s calculation of damages. (Binaford Decl. ¶¶ 6, 13, Exh. 2.) And the credit that Defendant identifies as applicable to Invoice #297816, dated November 26, 2018, is not an invoice for which Plaintiff here seeks repayment. (Chang Decl. Exh. H; Binafard Decl. Exh. 2.) There are no triable issues on Plaintiff’s claims for damages or amounts owed under the invoices.

Thus Plaintiff’s motion for summary adjudication is therefore GRANTED as to the first and second causes of action against Defendant Dool FNA.  

Plaintiff further argues that Defendant cannot succeed on its cross-claims for breach of contract, breach of warranty, and associated claims, based on the terms of confirmation propounded by Plaintiff in its invoices. (Motion at pp. 13–20.) Plaintiff relies on Commercial Code § 1302, which states that the effect of Code provisions may be varied by agreement. (Com. Code § 1302, subd. (a).) Plaintiff also points to Commercial Code § 2207, which states that a “written confirmation” of a contract may contain additional terms, which “are construed as proposals for addition to the contract.” (Com. Code § 2207, subd. (1).) And when the contract is “[b]etween merchants,” those additional terms contained in the confirmation “become part of the contract,” unless the offer or purchase order limited acceptance to its terms, the additional terms “materially alter” the agreement between the parties, or notice of objection to the terms is previously given or given within a reasonable time. (Com. Code § 2207, subd. (2)(a)–(c).)

Plaintiff points to the following additional terms contained in its invoices, which constitute written confirmations under Commercial Code § 2207:

1. CLAIMS - Goods must be counted upon receipt...We are not responsible for any goods after garment dyeing. All claims or demands for defective merchandise must be made in writing by certified mail within 5 days of receipt goods. Failure to give such notice shall constitute unqualified acceptance and waiver of all such claims by buyer. Written return authorization by seller is required for returns. Any errors in items or price must be reported within 5 days.

2. TESTING OF GOODS - It is the buyer’s responsibility to test and sample the goods received before cutting or altering to meet specific requirements, performance standards, or applications especially for color-fastness, shrinkage, sewable, stretch, weight/yield, and general appearance. This fabric does not meet the flammability standards for childrens sleepwear. Absolutely no returns will be accepted or allowances made after goods have been cut or altered from original delivered form. Do not mix dye lots.

3. CASUALTIES - Goods delivered throughout common carriers or sent via parcel post are at the risk of buyer. In no event shall the seller be liable for loss of profits, late deliveries, damages for breach of contract by buyer, or other consequential or contingent losses.

4. WARRANTIES - Seller makes no warranty, either express or implied, of merchantability or of fitness of goods for any specific purpose unless expressly specified.

5. PAYMENT - Payments are due within time period specified on invoice, time being of the essence. Upon failure of the buyer to make timely payments, buyer agrees to pay any and all costs of collection and litigation, including but not limited to attorney fees and interest at the rate of 10% per year.

(Binaford Decl. Exh. 1.)

Plaintiff argues that the above language affects Defendant’s claims as follows. Under the first heading, “Claims,” all claims are demands for defective merchandise are waived unless they are made within five days of delivery by certified mail. Because Defendant made no such complaints within the allotted time by certified mail, the claims cannot be brought. (Motion at p. 14; Binafard Decl. ¶ 17.) Plaintiff also points to the third heading, “Casualties,” which states that it is not liable for late deliveries, lost profits, or other consequential damages, meaning that Defendant cannot obtain damages for delayed deliveries or canceled orders from Defendant’s customers. (Motion at p. 14.)

These contract provisions providing for objections only by certified mail and a waiver of consequential damages, however, do not provide a basis to adjudicate Defendant’s cross-claims, because they materially alter the agreement that existed between the parties.

The statute upon which Plaintiff relies does not permit additional terms contained in written confirmations to become part of the parties’ agreement if “[t]hey materially alter [the contract].” (Com. Code § 2207, subd. (2)(b).) “A clause that would materially alter the contract is one which result [s] in surprise or hardship if incorporated without express awareness by the other party.” (C9 Ventures v. SVC-West, L.P. (2012) 202 Cal.App.4th 1483, 1506, internal quotation marks omitted.) The statute at issue is taken from the Uniform Commercial Code, which in its commentary on the provision at issue states examples of terms that materially alter most commercial agreements:

Examples of typical clauses which would normally “materially alter” the contract and so result in surprise or hardship if incorporated without express awareness by the other party are: a clause negating such standard warranties as that of merchantability or fitness for a particular purpose in circumstances in which either warranty normally attaches; a clause requiring a guaranty of 90% or 100% deliveries in a case such as a contract by cannery, where the usage of the trade allows greater quantity leeways; a clause reserving to the seller the power to cancel upon the buyer's failure to meet any invoice when due; a clause requiring that complaints be made in a time materially shorter than customary or reasonable.

(Com. Code, § 2207, Uniform Commercial Code (UCC) Comments, subd. 4.)

Here, Plaintiff relies upon an additional term requiring not only that claims and objections be made within five days of delivery, but that such claims also be made by certified mail. This term resembles one in which a seller requires “that complaints be made in a time materially shorter than customary or reasonable,” particularly given the volume of email correspondence that exists between the parties, and also Defendant’s evidence that some invoices were not received until after the receipt of the goods in question. (Chang Decl. ¶ 9, Exh. F.) The purported disclaimer of consequential damages also constituted a material alteration, as consequential damages are “a commercially recognized type of damage” that vendors “should be able to rely on . . . in the absence of being informed to the contrary.” (A & M Produce Co. v. FMC Corp. (1982) 135 Cal.App.3d 473, 492 [holding commercial waiver of consequential damages unconscionable].) Thus these provisions furnish no basis to dismiss Defendant’s cross-claims.

Plaintiff further argues that no triable issues exist as to the elements of Defendant’s claims because Defendant’s damages were caused by its unilateral decision to cut and alter the delivered fabrics without having any buyer lined up. (Motion at pp. 14–15.) Plaintiff further argues that because evidence suggests Defendant was able to sell some garments made from Plaintiff’s fabrics, this suggests that Plaintiff’s goods were not defective. (Motion at p. 15.)

Plaintiff’s arguments on these latter points do not establish the absence of triable issues of fact. This is because Plaintiff’s argument that Defendant’s exacerbation of damages is undercut by the evidence that it introduces that the garments produced from these efforts were actually sold and delivered. (Tabibi Decl. Exh. 1.) Moreover, the testimony that Plaintiff introduces states that the additional garments were prepared because, despite the cancellation of the order, the fabric had already been cut. (Ibid.) The evidence thus does not establish the absence of a triable issue as to the existence of defective goods or the failure to mitigate damages.

Plaintiff next argues that the second cause of action for breach of implied warranty of merchantability is barred by the disclaimer of such a warranty contained in its invoices. (Motion at p. 16.) It relies on Commercial Code § 2316, which allows sellers to disclaim implied warranties in writings that are sufficiently “conspicuous.” (Com. Code § 2316, subd. (2).) The invoices here indeed contain an explicit waiver of the warranty of merchantability. However, the basis for the inclusion of these disclaimers into the parties’ agreement is, as with the other “additional terms” contained in Plaintiff’s invoices, Commercial Code § 2207, which once more does not permit language to become additional terms if they “materially alter” the original agreement. (Com. Code § 2207, subd. (2)(b); Reply at pp. 6–7.) And the comment to that section expressly includes disclaimers of the warranty of merchantability as terms that materially alter ordinary sales contracts.  (See Com. Code, § 2207, UCC Comment, subd. 4.) Accordingly, the motion is DENIED as to Defendant’s second cause of action for breach of the implied warranty of merchantability.

Plaintiff further argues that the third cause of action for breach of the implied covenant of good faith and fair dealing must be dismissed because its alleged basis is merely a restatement of Defendant’s breach of contract claim and the seeking of the same damages therefore. (Motion at pp. 17–18.) “If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated. Thus, absent those limited cases where a breach of a consensual contract term is not claimed or alleged, the only justification for asserting a separate cause of action for breach of the implied covenant is to obtain a tort recovery.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395.) Here, the facts alleged to support the breach of implied covenant claim are Plaintiff’s delayed delivery of defective goods, which are the same facts as support their breach of contract claim. (XC ¶¶ 25, 38.) As such, the third cause of action is superfluous, and the motion is GRANTED as to the breach of implied covenant claim.

Plaintiff finally argues that the cross-complaint’s fifth cause of action for violation of Business & Professions Code § 17200 fails, because Defendant alleges nothing more than a common law breach of contract claim, which cannot without more form a basis for claiming unlawful or unfair business practices.  (Motion at pp. 18–20; see Puentes v. Wells Fargo Home Mortgage, Inc. (2008) 160 Cal.App.4th 638, 645 [breach of contract could support UCL violation “provided it also constitutes conduct that is ‘unlawful, or unfair, or fraudulent”.] However, Defendant has not merely alleged a common law breach of contract, but a violation of the statutory warranty of merchantability provided under Commercial Code § 2314. (See Rose v. Bank of America, N.A. (2013) 57 Cal.4th 390, 396 [UCL’s “unlawful” prong “borrows violations of other laws and treats them as unlawful practices' that the [UCL] makes independently actionable”].) Accordingly, as the breach of warranty claim remains, so too may Defendant’s UCL claim, and the motion is DENIED accordingly.

In summary, Plaintiff’s motion is GRANTED as to the first and second causes of action alleged against Defendant Dool FNA in the First Amended Complaint, and GRANTED as to Dool FNA’s third cause of action for breach of the implied covenant of good faith and fair dealing in its cross-complaint. The motion is DENIED as to the first, second, and fourth causes of action in the Dool FNA’s cross-complaint.