Quality Business Forms of Minneapolis, Inc., Appellant, vs. Secured Choice, Inc., Respondent.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

C1-02-1764

 

 

Quality Business Forms of Minneapolis, Inc.,

Appellant,

vs.

Secured Choice, Inc.,

Respondent.

Filed July 1, 2003

Affirmed

Lansing, Judge

 

Hennepin County District Court

File No. CT01005137

 

 

Michael D. Schwartz, Travis D. Stottler, Schwartz, Stottler & Dean, P.A., Chanhassen Financial Center, Suite 210, 761 West Seventy-eighth Street, Chanhassen, MN  55317 (for appellant)

 

David N. Lutz, Ryan L. Nilsen, Bowman and Brooke LLP, Suite 2600, 150 South Fifth Street, Minneapolis, MN  55402 (for respondent)

 

            Considered and decided by Lansing, Presiding Judge, Shumaker, Judge, and Wright, Judge.

U N P U B L I S H E D   O P I N I O N

LANSING, Judge

            Quality Business Forms of Minneapolis, Inc., appeals the denial of its posttrial motions challenging a jury's determination that it breached its contract and warranties with Secured Choice, Inc., and the jury's award of lost profits to Secured Choice.  Because the district court applied the correct legal standards in reviewing the jury's findings and its determination of damages, we affirm.

F A C T S

            Secured Choice, Inc., entered into a renewable, one-year contract with American Express to produce personal financial statements for employees of customers of American Express.  Under the agreement, Secured Choice received the relevant raw data from American Express and generated the content to be included on the statements.  For the actual production of the statements, Secured Choice contracted with Quality Business Forms of Minneapolis (QBF), which in turn worked with various subcontractors.  The terms of the Secured Choice-QBF agreement provided that Secured Choice was responsible for marketing, account coordination, project timing, data and calculations, audit of deliverables, and measurement of results.  QBF and its subcontractors were responsible for design, programming, printing, quality control of production, timely delivery, cost management, and confidential treatment of data.

            Nearly a year after QBF began working on the financial statements of American Express customers, it sued Secured Choice for outstanding payments.  Secured Choice counterclaimed for breach of contract, breach of implied warranties of merchantability and fitness for a particular purpose, negligence, and misrepresentation.  Before trial, the parties stipulated to the amount Secured Choice owed QBF under the contract. 

            The jury heard evidence that shortly after QBF began producing statements for Secured Choice, several of American Express's customers and their employees experienced delays in receiving their financial statements and some received statements containing printing, folding, cutting, and collating errors.  The jury also heard evidence that after these problems began occurring, American Express first reduced its order for financial statements and then declined to renew its contract with Secured Choice.

            At the close of the trial, QBF moved for a directed verdict.  The district court granted the motion with respect to Secured Choice's negligence claim and reserved judgment on the breach-of-contract and warranty claims;  Secured Choice also voluntarily dismissed its misrepresentation claim.  In response to the special-verdict questions, the jury determined that QBF breached the contract and warranties, that Secured Choice had given reasonable notice of its breach-of-contract and warranty claims, and that QBF's breaches were a direct cause of damages to Secured Choice.  The jury awarded damages to Secured Choice of $276,750 in lost profits.

            QBF moved for judgment notwithstanding the verdict, which the district court denied.  QBF now appeals that denial.

D E C I S I O N

QBF contends that the district court erred in denying its motion for judgment notwithstanding the verdict (JNOV) because the evidence did not support the jury's special-verdict findings that QBF breached the contract and express and implied warranties, and because Secured Choice failed to prove QBF's performance was the direct cause of Secured Choice's lost profits.

 

We review de novo the denial of a motion for JNOV.  Pouliot v. Fitzsimmons, 582 N.W.2d 221, 224 (Minn. 1998).  JNOV is proper when a jury verdict has no reasonable support or is contrary to the law.  Diesen v. Hessburg, 455 N.W.2d 446, 452 (Minn. 1990).  Whether to grant a JNOV presents an issue of law, but the analysis admits every inference reasonably to be drawn from the evidence and an order denying JNOV will stand unless the evidence is practically conclusive against the verdict.  Seidl v. Trollhaugen, Inc., 305 Minn. 506, 507, 232 N.W.2d 236, 239 (1975).

Breach of contract and breach of warranty

Whether an act or omission constitutes a material breach of a contract is a fact question.  See Cloverdale Foods of Minn., Inc. v. Pioneer Snacks, 580 N.W.2d 46, 49-50 (Minn. App. 1998).  Whether a warranty has been breached is also a fact question.  Hydra-Mac, Inc. v. Onan Corp., 450 N.W.2d 913, 917 (Minn. 1990). 

Secured Choice presented evidence in the form of testimony from American Express customers and its own personnel that QBF produced smeared, missorted, creased, "double-stuffed" and improperly cut statements on several occasions.  Secured Choice also presented a letter from QBF acknowledging the errors and pledging to "tak[e] action * * * to insure that these problems do not occur again."  In addition, the jury heard evidence that QBF failed to resolve the production problems despite its repeated assurances and that Secured Choice lost business with American Express after the production errors and delays began occurring.  Viewing this evidence in a light most favorable to the verdict, we cannot conclude that the jury's finding of breach was unreasonable.

 

Lost Profits

 

A party seeking lost profits from a breach of contract must prove that the breach caused the loss.  See Polaris Indus. v. Plastics, Inc., 299 N.W.2d 414, 419 (Minn. 1980) (holding that plaintiff failed to prove it lost profits as a result of a defective tank).  Causation is generally a question of fact left to the finder of fact.  Paidar v. Hughes, 615 N.W.2d 276, 281 (Minn. 2000). 

QBF acknowledges that the jury heard evidence that QBF had produced defective financial statements and that American Express ceased doing business with Secured Choice after the production errors occurred.  But QBF argues that Secured Choice was barred from receiving lost profits as a matter of law because the record contained no evidence that American Express broke off the relationship with Secured Choice because of QBF's non-performance.  We understand QBF to be arguing that causation may not be proven by circumstantial evidence, and we reject the argument.  Minnesota law does not require direct proof of causation; a plaintiff claiming lost profits need only present "a sufficient basis to support a reasonable inference" that it lost profits as a result of defendant's breach.  Hydra-Mac, Inc., 450 N.W.2d at 921 (emphasis added).

QBF argues that Secured Choice's lost profits were the product of multiple causes, and Secured Choice therefore should not have been able to recover without segregating the harm attributable to QBF.  QBF misstates the applicable burdens of proof.  Once a plaintiff raises a reasonable inference that a particular plaintiff's breach resulted in lost profits, the burden shifts to the defendant to establish that other factors caused the loss.  Id.  Secured Choice was not required to prove causation through direct evidence or to establish that QBF's non-performance was the sole cause of its lost profits.

Notice of Breach

            QBF contends that the district court erred in failing to dismiss Secured Choice's breach of warranty claim for failure to provide effective notice under Minn. Stat. § 336.2-607(3) (2002).  That statute specifies that "the buyer must within a reasonable time after the buyer discovers or should have discovered any breach notify the seller of [the] breach or be barred from any remedy."  Minn. Stat. § 336.2-607(3).  Sufficiency of notice of breach of warranty is a jury question.  Church of the Nativity of Our Lord v. WatPro, Inc., 491 N.W.2d 1, 5 (Minn. 1992).

QBF argues that Secured Choice did not give effective notice because it did not explicitly inform QBF that the production errors constituted a breach and that it intended to seek damages, and because Secured Choice continued its business relationship with QBF after complaining about the errors.  Current Minnesota law does not impose the rigid notice standard advanced by QBF.  A 1965 Minnesota Supreme Court decision cited by QBF does suggest in dicta that the buyer must explicitly state an intent to bring a claim for breach and seek damages.  See Truesdale v. Friedman, 270 Minn. 109, 121-22, 132 N.W.2d 854, 862-63 (1965).  But the court has more recently explained that "‘[t]he content of the notification need merely be sufficient to let the seller know that the transaction is still troublesome and must be watched.'"  Church of the Nativity of Our Lord, 491 N.W.2d at 5 (quoting Minn. Stat. Ann. §  336.2-607, U.C.C. cmt. 4 (West 1966)).

In determining the necessary content of the notification, the court relied on the U.C.C. comment to Minn. Stat. § 336.2-607 (2002), which requires informational notification rather than a formal claim because

[t]here is no reason to require that the notification which saves the buyer's rights under this section must include a clear statement of all the objections that will be relied on by the buyer * * * .  Nor is there reason for requiring the notification to be a claim for damages or of any threatened litigation or other resort to a remedy.  The notification which saves the buyer's rights * * * need only be such as informs the seller that the transaction is claimed to involve a breach, and thus opens the way for normal settlement through negotiation.

 

Minn. Stat. § 336.2-607, U.C.C. cmt. 4 (West 2002) (emphasis added).  We believe this approach is particularly appropriate when, as in this case, the buyer attempts to address an alleged nonperformance through negotiation rather than by immediate recourse to litigation.

QBF's course-of-conduct argument is equally unpersuasive.  QBF contends that Secured Choice's continued dealings with QBF after the production errors came to light are inconsistent with its claim that its complaints constituted effective notice of breach.  QBF rests its argument on a 1977 federal district court opinion indicating that a notice of breach should be evaluated in light of the "buyer's entire course of conduct, particularly when * * * there is a continuing relationship."  Kopper Glo Fuel, Inc. v. Island Lake Coal Co., 436 F. Supp. 91, 96 (E. D. Tenn. 1977).  The facts of Kopper Glo are readily distinguishable from the facts of this case, however.  The Kopper Glo buyer's complaints "were interspersed among numerous ‘glowing' reports about how pleased [the buyer's] customers were with Kopper Glo's coal," and the buyer continued to place new orders during the period of time the complaints were made.  Id. at 97.  The record in this case contains no evidence that Secured Choice sent the type of mixed signals at issue in Kopper Glo.  While attempting to work out the problems with QBF, Secured Choice did not communicate satisfaction with QBF's work product, and the additional projects which QBF began during this period were within the scope of the initial agreement rather than new responsibilities.

            Consequential damages

            QBF argues that the district court erred in upholding the award of lost profits because there was no basis in law for awarding consequential damages to Secured Choice.  In support of this position, QBF contends, first, that a jury may not award lost profits without proof of "special circumstances" and, second, that the parties' trial stipulation operated to preclude consequential damages.

The Minnesota Uniform Commercial Code clearly envisions recovery of lost profits for a breach of warranty with respect to accepted goods.  See Minn. Stat. § 336.2-714(3) (2002) ("[i]n a proper case any incidental and consequential damages * * * may also be recovered"); Minn. Stat. § 336.2-715(2)(a) (2002) (defining consequential damages to include "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").  QBF contends, however, that Minn. Stat. § 336.2-714(2) precludes an award of lost profits "unless special circumstances show proximate damages of a different amount."  Minn. Stat. § 336.2-714(2) (2002).  We do not agree.  Section 714(2) specifies the means and requirements for ascertaining general damages; it has no application to claims for consequential damages.  See Peterson v. Bendix Home Sys., 318 N.W.2d 50, 53 (Minn. 1982) (explaining that U.C.C. provides three different types of damages: general damages under section 714(2), incidental damages under section 715(1), and consequential damages under section 715(2)(b)).  Accordingly, a plaintiff must prove "special circumstances" only when seeking to recover general damages measured on some basis other than a difference in the value of the goods as warranted and as received.

QBF's contention that the stipulation precludes consequential damages is equally unpersuasive.  QBF contends that when Secured Choice stipulated that QBF's invoices were valid and that a specified sum of money was "due and owing," Secured Choice effectively waived its breach of contract and warranties claims and therefore should not have recovered damages.  This narrow reading of the stipulation does not withstand a full review of the document.  The stipulation states that "[t]his lawsuit was commenced by [QBF] to recover monies owed by Secured Choice, Inc. * * * for work performed by QBF" and that Secured Choice asserted counterclaims "alleging that it is entitled to damages for lost profits as a result of business it alleges it lost because of production errors and delays on the projects." 

The stipulation clearly envisioned the possibility that QBF would be found in breach:  "If QBF is determined to be liable on the Secured Choice counterclaim and if Secured Choice is awarded damages, the amount to QBF will be offset by or against such damages, if any."  The stipulation then concludes:  "Accordingly, the parties have stipulated that QBF does not have to put on its case because there is no longer a dispute about the amount or validity of the invoices.  Trial will therefore proceed only on the counterclaims of Defendant Secured Choice against Plaintiff QBF."  (Emphasis added.)  Clearly, this stipulation does not state or suggest an intent by the parties to stipulate whether QBF breached the contract or warranties.  On the contrary, the stipulation explicitly holds open the possibility that QBF will be determined "to be liable on the Secured Choice counterclaim."

The record provides adequate support for the jury's findings, and the district court applied the appropriate legal standards in denying QBF's motion for JNOV.

            Affirmed.