CVS v. Data Capture Solutions-Repair & Remarketing, Inc. (2010)

RULING ON PLAINTIFF'S MOTION TO SET ASIDE AND MOTION FOR JUDGMENT

The plaintiff, CVS Pharmacy, Inc. (“CVS”), has moved to set aside the verdict on the First Count of the complaint on the grounds that it is entitled to judgment as a matter of law.   Therefore, CVS has also moved for judgment on the First Count.

The jury trial in this action lasted 12 days.   The parties to the action are CVS, a Rhode Island corporation which owns and operates drug stores, and Data Capture Solutions-Repair & Remarketing, Inc. (“Data Capture”), a Connecticut corporation which sells and services hand-held data entry and related devices.   In 2004 CVS decided to upgrade the hand-held bar code scanners for all of its stores.   Data Capture contacted CVS about the possibility of acquiring a large quantity of scanners, which were also referred to during the trial as “PDT” units.

A major issue in the case was whether the PDT units that CVS was selling to Data Capture were model 6846WW or 6846US.   CVS claimed that it was not in the business of buying and selling such units and was not aware of the distinction between the models.   Data Capture claimed that the 6846WW had greater capabilities and greater value and that its purchase of the PDT units was based on the belief that all of the 15,000 units it agreed to purchase were model 6846WW.

After verbally agreeing to the purchase and sale of the PDT units, Data Capture prepared a contract, identified at trial as the “Asset Purchase Agreement.”   That agreement contained a description of the PDT units as “Symbol PDT units Model 6846 NIS 63 WW.” This description further complicated the issue of the models being purchased because both sides agreed that there was no such model as the one described in the Asset Purchase Agreement.

CVS claimed that Joseph Teixeira, president of Data Capture, knew that CVS did not have 15,000 WW PDT units, and took advantage of CVS's failure to appreciate the distinction between the 6846WW and the 6846US PDT units by waiting until Data Capture had received all of the PDT units from CVS and then citing the WW/US model distinction as a basis to avoid paying the contract price for the PDT units.   There was considerable evidence to support that claim.

The Asset Purchase Agreement was dated March 18, 2005.   The first shipment of PDT units from CVS was received by Data Capture at the end of March 2005.   There was evidence that Data Capture employees inspected the very first shipment and realized that it contained very few WW units.   There were numerous e-mails exchanged between CVS employees and Data Capture employees between March 2005 and December 2005.   However, in none of the e-mails, or any other writing did anyone from Data Capture ever mention that the PDT units did not conform to the description in the Asset Purchase Agreement.

CVS sent Data Capture an invoice dated 12/30/05 in which it sought payment of $938,840 for the PDT units which had been delivered.   Mr. Teixeira responded with a letter which represented Data Capture's first written complaint about the quality of the PDT units:

CVS advises that it has completed the shipment of PDT units to Care Squared 1 under the Agreement.   Care Squared has received the following quantities of PDT units from CVS:

1. PDT6846-N2E643WW 1,516 units

* * *

Total PDT units received (all types) 12,552 units.

The WW units specified in the Agreement are those identified under item 1 above.   The U.S. units are of a lesser quality than the WW units specified in Section 1.1 of the Agreement, and are worth approximately $100 less than the WW units on the wholesale market.

Care Squared made advance payments to CVS of $4,333,000 under Sections 2.2(a) and (b) of the Agreement.   Section 2.2(c) of the Agreement requires CVS to deliver Care Squared 13,100 units before Care Squared is obligated to make another payment to CVS. To date Care Squared has only received 12,552 units.   CVS failed to meet the delivery milestone required to trigger another payment from Care Squared.   CVS' invoice # 123005 in the amount of $938,840 is not contemplated under the agreement.

CVS owes Care Squared $100 for each U.S. PDT unit received instead of a WW unit. 11,036 units times $100 = $1,103, 600.

After CVS filed the complaint in this action which sought payment for the balance due from Data Capture, Data Capture filed a counterclaim in which it claimed, among other things, lost profits due to the fact that it had received mainly U.S. units as opposed to WW units.   By the time of trial the amount of loss claimed by Data Capture was in excess of $4,000,000, substantially higher than the $1,103.600 figure in Mr. Teixeira's letter.

There was a substantial amount of evidence that notwithstanding Data Capture's stated position that the WW units were more valuable than U.S. units, Data Capture purposely refrained from selling the WW units.   According to Data Capture's own records the proceeds from the resale of 10,669 (mainly US) units purchased from CVS was $6,789,247.   Data Capture retained 1,867 (mostly WW) PDT units.   Using Data Capture's average sales price per unit of $636, the remaining units could have been sold for an additional $1,187,412.   CVS introduced evidence that the actual proceeds received by Data Capture from its sale of CVS PDT units was substantially higher than that claimed by Mr. Esposito, Data Capture's bookkeeper.

The Asset Purchase Agreement between the parties was drafted by Data Capture.   Although some parts of the agreement were changed by CVS, there was no evidence that the following portion of the Agreement was changed:

7.8 Notices. Any notice, request, instruction, or other document to be given hereunder by any party hereto shall be in writing and shall be sufficiently given if delivered in person or sent by registered or certified mail, postage prepaid, by facsimile transmission with receipt, or by nationally recognized overnight courier ․

Emphasis added.

After trial, the jury did not find in favor of the plaintiff on any count of the complaint and did not find in favor of Data Capture on the counterclaim.   The jury answered interrogatories in the Combined Verdict Form in which they found that the Asset Purchase Agreement required that notice of nonconforming PDT units be in writing (interrogatory # 2), that Data Capture gave written notice of the nonconforming units to CVS (interrogatory # 4), and that the notice of nonconforming units given by Data Capture to CVS did not occur within a reasonable time (interrogatory # 5).

The plaintiff has moved to set aside the verdict on the grounds that the jury misapplied the law.   It argues that under the Uniform Commercial Code of Rhode Island, Data Capture owes CVS the contract price for all units which it accepted unless it gave timely notice that the goods were nonconforming.   Based on the jury's response to interrogatory # 5, Data Capture failed to give timely notice of the nonconformity of the units, and, therefore, must pay the contract price for them.

The Asset Purchase Agreement, Section 7.9, provides that “it shall be governed and construed in accordance with the laws of Rhode Island.”   The claims of the parties arise out of the sale of goods and are, therefore, governed by Rhode Island's Uniform Commercial Code, which is basically the same as Connecticut's Uniform Commercial Code with respect to the issues of this case.  Rhode Island General Laws § 6A-2-607(1) provides that “[t]he buyer must pay at the contract rate for any goods accepted.”   See also Superior Wire and Paper Products, Ltd., v. Talcott Tool and Machine, Inc., 184 Conn. 10, 13, 441 A.2d 43 (1981) (“The buyer's acceptance of goods, despite their alleged nonconformity, is a watershed.   After acceptance, the buyer must pay for the goods at the contract rate”).

It is not disputed that Data Capture accepted the PDT units from CVS. Therefore, Data Capture's remedies are prescribed by Section 6A-2-714 of the Rhode Island Uniform Commercial Code, R.I. Gen. Laws § 6A-2-714, which provides in relevant part:

(1) Where the buyer has accepted goods and given notification (§ 6A-2-607(3)) he or she may recover as damages for any nonconformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable.

Section 6A-2-714 incorporates by reference the notice requirement of Section 6A-2-607(3).  “Section 2-607(3)(a) is among the most important single sections in Article 2.” Thomas M. Quinn, Quinn's Uniform Commercial Code Commentary and Law Digest (“Quinn's” ), § 2-607[A][5][a](2d ed.2002).   It requires a buyer to give timely notice of an alleged breach, or else, the buyer is barred from any remedy:

(3) Where a tender has been accepted:

(a)The buyers must within a reasonable time after he or she discovers or should have discovered any breach notify the seller of breach or be barred from any remedy ․

Quinn describes this notice requirement as follows:

The rule of 2-607(3)(a) is a very rough rule for buyers.   Its origin lies in buyer abuse.   It is common, for example, for a buyer to be in arrears in his payments for merchandise.   What is more common?   When pressed, it is also common for the buyer to stall for time.   Ploys of this type are legion, e.g., “Your check is in the mail.”   At some point, the buyer may well start complaining about the goods.   This shifts the focus to the good and, it is hoped, sets the stage for an “adjustment” that scales down the amount due.   It is not a pretty picture and 2-607(3)(a) puts an end to such practices.

Quinn, supra.

Another leading treatise on Contracts states:

The 2-607(3)(a) notice requirement of the Code, known as the “slam-dunk” provision because of its absolute preclusive effect, not only bars a buyer who fails to notify the seller within a reasonable time after he or she discovers or should have discovered a breach of warranty as to accepted goods from revoking his or her acceptance;  the buyer is also precluded from maintaining any action to recover damages for the asserted breach of warranty, or from any remedy whatsoever, whether by way of action or defense.

Richard A. Lord, Williston on Contracts, § 52.42 (4th ed.2009).

R.I. Gen. Laws, § 6A-2-607(1) provides that “The buyer must pay at the contract rate for any goods accepted.”   The effect of § 6A-2-607(1) and § 6A-2-607(3) in this case is that Data Capture must pay the contract price for the units because they were accepted and cannot claim any remedy such as breach of warranty or set-off even though the units were nonconforming because Data Capture began accepting units in March 2005, and did not give any written notice of nonconformity until after December 30, 2005 when all the Units had been delivered and CVS had sent a final bill.   The jury found that the notice was not given within a reasonable time.   This finding comported with the law of Rhode Island (and Connecticut) where courts have consistently found similar delays unreasonable as a matter of law.   See San Antonio v. Warwick Club Ginger Ale Co., 248 A.2d 778, 782 (RI.1968) (eight month delay unreasonable);  Champlin v. United States, 297, 503, 508 (D & S. R.I.1924) (finding it was “impossible to hold that notice was given within a reasonable time” where buyer knew of breach and waited seven months to notify Seller);  Mafcote Industries v. Limited, 60 Conn.App. 393, 397, 759 A.2d 153 (2000) (buyer barred from any remedy because it failed to give notice of defect until nine months after acceptance of goods).

Data Capture argues that CVS's motion is actually a challenge to the sufficiency of the evidence which should have been preserved by a motion for a directed verdict.   Data Capture has mischaracterized CVS's motion.   CVS moved for a directed verdict on Data Capture's counterclaim, but could not have moved for a directed verdict on its own claim because there were facts in dispute as to the number of units sold, the nonconformity of the units, and the sufficiency of the notice.

CVS does not contend that there was insufficient evidence to support the jury's finding that Data Capture failed to provide timely notice of nonconformity.   Rather, CVS contends that given that finding, coupled with the facts which are not controverted, 1) that the parties entered into the Asset Purchase Agreement, 2) that (by Data Capture's admission) Data Capture accepted 12,536 PDT units and 3) that the unit price of each PDT unit was $420, a verdict in its favor is mandated by law.

Until the jury determined that Data Capture had failed to provide timely notice of nonconformity, there was no issue to present to the Court.   The appellate courts of Connecticut have recognized the court's inherent authority to set aside a verdict in a similar context.   See Willow Springs Condominium Ass'n., Inc. v. Seventh BRT Development Corp., 245 Conn. 1, 49 n.44, 717 A.2d 77 (1998);  Hudson United Bank v. Cinnamon Ridge Corp, 81 Conn.App. 557, 564, n.9, 845 A.2d 417 (2004).

It is unusual for a court to enter a judgment in favor of a party where the jury has awarded no damages.   However, the court can see no good reason to retry a case which took 12 days of trial and over one hundred exhibits, particularly where there are no disputed issues of fact or law.   There is no dispute that the Asset Purchase Agreement was a contract between the parties.   Under the Asset Purchase Agreement, §§ 1.1, 2.1, and 2.2 the unit price of the PDT units is $420 per unit.   Data Capture has admitted receiving 12,536 units.   See Ex.48, Ex. PPPP, Testimony of Robert Esposito.   At $420 per unit, the contract price for 12,536 units is $5,265,120.   After deducting Data Capture's payments totaling $4,333,000, Data Capture owes CVS $932,120.

CVS also claims that it is entitled to prejudgment and postjudgment interest under R.I. Gen. Laws § 9-21-10 which provides:

(a) In any civil action in which a verdict is rendered or a decision made for pecuniary damages, there shall be added by the clerk of the court to the amount of damages interest at the rate of twelve percent (12%) per annum thereon from the date the cause of action accrued, which shall be included in the judgment entered therein.   Post-judgment interest shall be calculated at the rate of twelve percent (12%) per annum and accrue on both the principal amount of the judgment and the prejudgment interest entered therein.   This section shall not apply until entry of judgment or to any contractual obligation where interest is already provided.

CVS's cause of action for breach of contract accrued no later than January 2006 when Joseph Teixeira responded to CVS's invoice with a letter refusing to make any further payments.   Therefore, CVS is owed interest in the amount of $447,417.60 through the date hereof and interest will accrue on the amount of $1,379,537.60 at the rate of 12% until judgment is satisfied.

Based on the foregoing, the court sets aside the jury's verdict on the First Count of the Complaint (Combined Verdict Form Question 1) because it is contrary to the law.   The court further sets aside the Verdict on Combined Verdict Form Question 3 and judgment enters in favor of CVS on the First Count of the Complaint in the amount of $1,379,537.60, which includes damages of $932,120 and interest of $447,417.60.

By the court,

Aurigemma, J.

FOOTNOTES

FN1. The Asset Purchase Agreement was between CVS and Care Squared, Inc., an entity related to Data Capture.   By the time of trial, Care Squared had assigned its rights and obligations under the Asset Purchase Agreement to Data Capture..  FN1. The Asset Purchase Agreement was between CVS and Care Squared, Inc., an entity related to Data Capture.   By the time of trial, Care Squared had assigned its rights and obligations under the Asset Purchase Agreement to Data Capture.

Aurigemma, Julia L., J.