Huntsville Hospital v. Mortara Instrument , 57 F.3d 1043 ( 1995 )

United States Court of Appeals,
Eleventh Circuit.
No. 94-6700
Non-Argument Calendar.
HUNTSVILLE HOSPITAL, a public health care authority, Plaintiff-
Appellee,
v.
MORTARA INSTRUMENT, Defendant-Third-Party Plaintiff-Appellant,
v.
Rusty DICKERSON, individually d/b/a Quality Rep Services, Third-
Party Defendant.
July 12, 1995.
Appeal from the United States District Court for the Northern
District of Alabama. (No. 93-L-2310-NE), Seybourn H. Lynne, Judge.
Before DUBINA and BARKETT, Circuit Judges, and MORGAN, Senior
Circuit Judge.
PER CURIAM:
The plaintiff-appellee, Health Care Authority of the City of
Huntsville d/b/a Huntsville Hospital (the hospital), filed this
action in the Circuit Court of Madison County, Alabama.
Subsequently, the defendant-appellant, Mortara Instrument
(Mortara), filed a notice of removal to the United States District
Court for the Northern District of Alabama, Northeastern Division,
on diversity grounds. The district court, after hearing ore tenus
evidence, entered a Judgment and Memorandum Opinion in favor of the
hospital. We affirm.
I. FACTUAL BACKGROUND
In late 1991, the hospital began negotiating with Quality Rep
Services, a recognized agent and distributor for Mortara, for the
purchase of an electrocardiogram management system manufactured by
Mortara. Michael Carter, the Director of Cardiology Services,
represented the hospital. Rusty Dickerson, Quality Rep Services'
president, represented Mortara.
The terms of the sale of the system were stated by two
documents: Mortara Quotation MI-2027-1 and a June 1, 1992 letter
from Dickerson to Carter. In the letter, Dickerson offered the
hospital a six-month "right of return" on the system. He stated:
this means that during the first six months after
installation, should the hospital be dissatisfied with the
system, you may return it, and all monies paid to Mortara
Instruments will be returned to you.
The hospital agreed to purchase the system for $155,380.1 Mortara
completed the installation of the system at the hospital on August
14, 1992.
After installation, the hospital experienced continuous
problems with the system. Carter testified that in late 1992 he
asked a Quality Rep Services salesperson how the hospital should
exercise its right of return if it chose to do so. According to
Carter, the salesperson replied that if necessary he would "back a
truck up" and take the system away himself.
On February 10, 1993, within the six-month return period,
Carter notified Dickerson that the hospital was electing to
"exercise [its] option to return all equipment and software for the
complete refund." Carter added that the hospital would need 30
days to purchase a replacement system. Five days later, Carl
Jeffries, the hospital's Director of Material Management, sent
1
The hospital received a $24,000 credit for trading in used
hardware and paid an additional $130,901.20 by check.
Mortara a fax asking that it "fully coordinate the return of the
check" in advance of picking up the system. On the same day,
Jeffries sent Mortara a letter requesting a refund check "on the
day that you pick up the equipment."
On March 29, 1993, Mortara's president sent Jeffries a letter
listing several considerations for the return of the system,
including a restocking fee and effective April 1, 1993, a $100-per-
day charge for the hospital's use of the system. On May 10, 1993,
the hospital installed a replacement system. On May 27, 1993 the
hospital's counsel informed Mortara that its system was available
for retrieval. However, Mortara did not retrieve the system or
refund any portion of the purchase price.
The district court concluded that under Ala.Code §§ 7-2-602
and 7-2-604 (1975), which are provisions governing sales, the
hospital was entitled to a refund of the system's purchase price.
The court did allow Mortara a $5900 setoff, representing $100 per
day for the hospital's use of the system from March 29 to May 27,
1993.
II. DISCUSSION
Mortara, appealing the district court's decision, first
contends that its agreement with the hospital required the hospital
to physically return the system from Huntsville, Alabama to
Mortara's office in Milwaukee, Wisconsin by February 14, 1993 in
order for the hospital to be entitled to a refund. As authority
for this contention, Mortara relies on a seventy-year-old Oklahoma
case regarding "sale or return" contracts under the common law of
sales. However, the instant case is clearly governed by the
Uniform Commercial Code as adopted in Alabama. See Intercorp, Inc.
v. Pennzoil Co., 877 F.2d 1524, 1527 (11th Cir.1989).
According to Ala.Code § 7-2-601(a), if goods do not conform to
a contract, the buyer may reject them. In the instant case, there
is no question that the system did not conform to the contract.
Indeed, the parties have stipulated that the hospital was
sufficiently dissatisfied to allow it to exercise its "right of
return." Under Ala.Code § 7-2-602(1), rejection is ineffective
unless the buyer seasonably notifies the seller. An action is
taken "seasonably" when it is taken within the time agreed.
Ala.Code § 7-1-204(3). Here, the parties set the time for
rejection at six months. Clearly, Carter notified Dickerson the
hospital was electing to exercise its option to return within six
months of the system's installation.2
Mortara maintains that the contract required the hospital to
not just notify Mortara, but physically return the system within
six months. This analysis is inconsistent with the Law of Sales in
Alabama. Ala.Code § 7-2-602(2) states that when a buyer is in
possession of goods after rejection, he is under a duty to hold
them with reasonable care at the seller's disposition for a time
sufficient to permit the seller to remove them, but the buyer has
no further obligations with regard to goods rightfully rejected.
(emphasis added) Ala.Code § 7-2-604 adds that if the seller gives
no instructions within a reasonable time after notification of
2
The district court apparently found that the parties agreed
to extend the six-month return period by ninety days. Because
Carter's notification was within the original six-month return
period, we need not review that finding.
rejection,3 the buyer may store, reship, or resell the rejected
goods. According to the official comment these actions are at the
buyer's option.
Therefore, we find that the hospital properly rejected the
electrocardiogram management system. After Carter notified
Dickerson on February 10 that the hospital was electing to exercise
its option to return, the hospital was under no further
obligations. The U.C.C. as adopted in Alabama in no way requires
the hospital to physically return the system in order to be
entitled to a refund.4
Moreover, the resolution of this case under the terms of the
U.C.C. is consistent with Carter's uncontroverted testimony that
the Quality Rep Services salesperson responded to Carter's request
regarding how to effectuate a return by promising that if necessary
he would "back a truck up" and take the system away himself.
Mortara challenges the district court's consideration of this
testimony as use of parol evidence to impeach or vary the terms of
a written agreement. However, Ala.Code § 7-2-202(b) specifically
allows the terms of a written agreement to be explained "by
evidence of consistent additional terms unless the court finds the
writing to have been intended also as a complete and exclusive
statement of the terms of the agreement." Here, there is
3
Mortara never instructed the hospital as to what carrier to
use or how to pack the system for return.
4
As the Supreme Court of Nebraska stated in Maas v. Scoboda,
188 Neb. 189, 195 N.W.2d 491 (1972), "the law regards parties as
being competent to contract as they see fit with respect to the
satisfactory character of equipment sold and the seller assumes
the hazard of rendering performance according to the terms of the
contract."
absolutely no indication that the district court found the parties'
written agreement to be a complete and exclusive statement of the
terms of their agreement. Therefore, it was not error for the
court to consider Carter's testimony.
Lastly, Mortara asserts that the district court erred in
calculating the $5900 setoff. The concept of setoff in sales cases
is based on Ala.Code § 7-2-602(2)(a), which provides that "after
rejection any exercise of ownership by the buyer with respect to
any commercial unit is wrongful as against the seller." See Ex
parte Stem, 571 So. 2d 1112, 1115 (Ala.1990). In calculating the
setoff, the district court found that after rejection, the hospital
used the electrocardiogram management system until May 27, 1993,
the day the hospital's counsel informed Mortara that its system was
available for retrieval. The court derived the $100-per-day charge
from the March 29, 1993 letter Mortara itself sent the hospital.
We review the district court's determination of damages for
clear error. Taylor Rental Corp. v. J.I. Case Co., 749 F.2d 1526,
1530 (11th Cir.1985). Mortara has presented no evidence to counter
testimony by Carter that after the hospital installed a replacement
system on May 10, 1993, the Mortara system was never used for any
purpose other than retrieving or editing tests that had already
been performed. Regarding the $100 fee, that amount was
voluntarily set by Mortara. At trial, the court noted that the fee
was described in document exhibits as a usage fee. Mortara offered
no evidence of rental fees charged by lessors of similar equipment.
Therefore, we cannot find the district court's setoff calculation
clearly erroneous.
III. CONCLUSION
For the reasons stated herein we hold that the district court
properly decided the merits of this case in favor of the hospital
and, accordingly, AFFIRM the court's judgment.