Fanczi Screw Co. v. Orix Financial Services, Inc. , 114 F. App'x 548 ( 2004 )

AMENDED OPINION
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-1117
FANCZI SCREW COMPANY; CAROLINA TOOLING
CONCEPTS,
Plaintiffs - Appellees,
versus
ORIX FINANCIAL SERVICES, INCORPORATED, a/k/a
Orix Credit Alliance, Incorporated,
Defendant - Appellant.
No. 04-1170
FANCZI SCREW COMPANY; CAROLINA TOOLING
CONCEPTS,
Plaintiffs - Appellants,
versus
ORIX FINANCIAL SERVICES, INCORPORATED, a/k/a
Orix Credit Alliance, Incorporated,
Defendant - Appellee.
Appeals from the United States District Court for the District of
South Carolina, at Greenville. Terry L. Wooten, District Judge.
(CA-02-198-6-25)
Argued: September 29, 2004 Decided: December 13, 2004
Before MICHAEL and MOTZ, Circuit Judges, and Roger W. TITUS, United
States District Judge for the District of Maryland, sitting by
designation.
Affirmed in part, vacated in part and remanded by unpublished per
curiam opinion.
ARGUED: Samuel Walter Hixon, III, WILLIAMS MULLEN, P.C., Richmond,
Virginia, for Appellant/Cross Appellee. Walter Henry Bundy, Jr.,
SMITH, BUNDY, BYBEE & BARNETT, P.C., Mount Pleasant, South
Carolina, for Appellees/Cross Appellants. ON BRIEF: Patrick R.
Hanes, Edward J. Dillon, Jr., WILLIAMS MULLEN, P.C., Richmond,
Virginia; Rivers S. Stilwell, NELSON, MULLINS, RILEY & SCARBOROUGH,
L.L.P., Greenville, South Carolina, for Appellant/Cross Appellee.
Stanley E. Barnett, SMITH, BUNDY, BYBEE & BARNETT, P.C., Mount
Pleasant, South Carolina; James W. Logan, Jr., LOGAN, JOLLY &
SMITH, L.L.P., Anderson, South Carolina, for Appellees/Cross
Appellants.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
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PER CURIAM:
In the first phase of a bifurcated trial, the jury found that
(1) Orix Financial Services had entered into an agreement to enter
into a lease with Fanczi Screw Company, Inc.; and (2) four
documents memorialized that agreement. The district court then
held that, although three of those four documents included forum
selection, choice of law, and damages limitations provisions, these
provisions did not govern the agreement to enter into the lease.
In the second phase of the trial, the jury awarded Fanczi
compensatory and punitive damages, finding that under South
Carolina law Orix had breached the contract, breached it with a
fraudulent act, and violated the South Carolina Unfair Trade
Practices Act (SCUTPA). The jury also awarded Carolina Tooling
Concepts damages for Orix’s violation of SCUTPA. Orix appeals; it
does not dispute the breach of contract finding or award of
compensatory damages and costs, but contends, on various grounds,
that the remaining damages and attorney’s fees awards should be
vacated. Fanczi and Carolina cross-appeal, asserting that the
district court erred in denying their motion for treble damages
under SCUTPA. For the reasons that follow, we vacate the judgment
of the district court as to Fanczi’s claims and remand for further
3
proceedings consistent with this opinion.1 However, we affirm the
judgment of the district court as to Carolina’s SCUTPA claim.
I.
Fanczi Screw manufactures large industrial screws used in the
production of plastics. These screws are traditionally
manufactured by hand using lathes, and a single screw can take two
to three days to complete. Laszlo Fanczi, Sr., who manages the
company, became interested in boosting productivity by purchasing
a computer-operated robotic machine, called a “whirling machine,”
that can produce superior screws in a fraction of the time it would
take to produce them in the traditional manner.
Fanczi charged Charles Brewington, a principal of Carolina
Tooling Concepts, which is a broker of machine tools, with
negotiating a deal to purchase a whirling machine from Weingärtner
Maschinenbau GmbH, an Austrian manufacturer. Weingärtner proposed
a sales price of $1.15 million, including a $230,000 down payment,
with a delivery time of 11 months. Carolina would receive from
Weingärtner a 5% commission on the purchase price of the machine,
to be paid in stages. Brewington contacted Orix to secure
financing for the sale.
1
Because of our resolution of this case, we need not reach the
other issues raised by Fanczi on appeal and cross-appeal.
4
In July 2000, Fanczi accepted a secured purchase and leaseback
agreement, which had been proposed in a letter from Orix loan
officer John Calfee (the “Calfee Letter”), and was subject to
Fanczi’s payment of an application fee and approval by Orix. The
Calfee Letter described an arrangement in which Orix would purchase
the machine and lease it to Fanczi for seven years. At the end of
the term of the lease, Fanczi would have the option to purchase the
machine for $1.00. The loan financing the purchase would be
secured by Fanczi’s assets, excluding real property.
A month later, in August 2000, Fanczi paid the application
fee, and executed both a promissory note for the down payment (the
“Note”) and a security agreement (the “Security Agreement”); in
addition, Lazslo Fanczi executed a personal guaranty (the
“Guaranty”). Fanczi Screw also executed an equipment lease
agreement (the “Lease Agreement”), but Orix never signed the Lease
Agreement. The Note, Guaranty, Security Agreement, and Lease
Agreement all included provisions choosing New York law and the
County of New York as the venue for all claims arising under the
contract; waiving the right to a jury trial; and disallowing
consequential and punitive damages (collectively, the “Limitations
Provisions”). The Calfee Letter did not include any of these
limitations.
Unaware that Orix had not signed the Lease Agreement and
assuming that a lease agreement had been reached, Fanczi issued a
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purchase order to Weingärtner for the machine, and Orix paid
Weingärtner the $230,000 down payment. Weingärtner then paid
Carolina a commission of 5% of the downpayment on the machine.
Prior to the delivery of the machine, a representative of
Fanczi contacted Orix to request that Orix provide Weingärtner with
the remaining financing on the machine. Orix, having determined
that Fanczi was not an acceptable credit risk, refused; Orix
declared that there was no agreement to lease the whirling machine
to Fanczi, but rather that what Fanczi regarded as a down payment
was actually only a short-term loan.
During the time in which Fanczi attempted to secure new
financing for the machine, it was delivered and installed.
Ultimately, Fanczi did not succeed in acquiring financing, but
negotiated an arrangement through which Weingärtner took possession
of the machine and reimbursed Fanczi for the amount of the down
payment and expenses. Fanczi repaid the $230,000 to Orix.
Weingärtner resold the whirling machine to one of Fanczi’s
competitors.
II.
Fanczi and Carolina filed a complaint in state court in South
Carolina, alleging that Orix had breached its agreement to enter
into an equipment lease; breached that same agreement accompanied
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by a fraudulent act;2 and violated SCUPTA, S.C. Code Ann. § 39-5-10et seq. (Law. Co-op. 1985). Orix removed the case to federal
court, which held a bifurcated trial.
At the conclusion of the first phase of that trial, the
parties agreed that the judge would submit two questions to the
jury. First, the jury was asked to determine if Orix had
“enter[ed] into an agreement with Fanczi Screw Company, Inc. to
lease . . . a whirling machine for 7 years with an option to
purchase it at the end of the term.” If the jury answered this
question in the affirmative, it was asked to determine which of
five documents -- the Note, Security Agreement, Guaranty, Lease
Agreement, and Calfee Letter -- “memorialize[d] the terms of the
lease to purchase contract referenced in the Complaint.”
The jury answered the first question yes, finding that Orix
had an agreement with Fanczi to enter into an equipment lease. In
answering the second question, the jury identified the Note,
Security Agreement, Guaranty, and Calfee Letter (but not the Lease
Agreement) as the documents memorializing the terms of this
agreement. The district court then held that the Note, Security
Agreement, and Guaranty, all of which included the Limitations
2
South Carolina law provides a separate cause of action for
breach of contract accompanied by a fraudulent act, allowing
recovery of punitive damages. See Hardee v. Penn Mutual Life Ins.
Co. of Philadelphia, 53 S.E.2d 861, 865 (S.C. 1949) (stating that
a party can recover punitive damages only when a fraudulent act
accompanies a breach of contract).
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Provisions, did not govern the agreement to enter into the
equipment lease itself, but applied only to the financing of the
$230,000 loan to Fanczi.
The case proceeded to the second phase of the trial. At the
conclusion of that phase, the jury found for Fanczi on all claims,
and awarded Fanczi $1,040,352 in damages for breach of contract and
for violation of SCUTPA, and $2.5 million in punitive damages for
breach of contract accompanied by a fraudulent act. The jury also
awarded Carolina $46,000 for violation of SCUTPA. Orix renewed its
motion for judgment as a matter of law made before and during
trial, and also moved for a new trial. Fanczi and Carolina moved
for treble damages and attorney’s fees under SCUTPA. The district
court denied Orix’s post-trial motions, awarded Fanczi and Carolina
attorney’s fees and costs under SCUTPA, and denied their motion for
treble damages.
III.
We address, first, Orix’s appeal of the judgment in favor of
Fanczi, and then turn to the appeal of the judgment in favor of
Carolina and Carolina’s cross-appeal.
A.
The initial, and ultimately determinative, question as to
Fanczi’s claims is whether the district court erred in construing
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the terms of the agreement to enter into an equipment lease. As
the parties acknowledge, this determination involves an issue of
law, which we consider de novo. See Williams v. Prof’l Transp.,
Inc., 294 F.3d 607, 613 (4th Cir. 2002).
The district court noted that the jury, in finding that the
written Lease Agreement did not memorialize the agreement to enter
into a lease, disavowed a document that included the key
Limitations Provisions. The court regarded this fact as critical,
inferring from this disavowal an intention by the jury not to apply
the Limitations Provisions to the agreement to enter into an
equipment lease. The court determined that the Note, Security
Agreement, and Guaranty, which included the Limitations Provisions,
contemplated neither an equipment lease to Fanczi nor a default by
Orix. According to the district court, their effect was limited to
the initial $230,000 loan to Fanczi. Thus, the district court
concluded that only the Calfee Letter, which did not designate a
New York forum or New York law or limit damages, envisioned and
affected the agreement to enter into an equipment lease. That
interpretation, although certainly plausible, fails in light of the
jury’s answer to the second question and the explicit language in
the Security Agreement.
In response to the second question, the jury found that four
documents -- the Note, Guaranty, Security Agreement, and Calfee
Letter -- memorialized the terms of the agreement to enter into an
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equipment lease.3 The jury’s finding that all four of these
documents memorialized the agreement requires that all four
documents be construed together as a single contract. See Café
Assocs., Ltd. v. Gerngross, 406 S.E.2d 162, 164 (S.C. 1991)
(holding that contracts executed by the same parties for the same
purpose and during the course of the same transaction should be
read together); Ellie, Inc. v. Miccichi, 594 S.E.2d 485, 492 (S.C.
Ct. App. 2004) (“In South Carolina, two contracts executed at
different times relating to the same subject matter, entered into
by the same parties, are to be construed as one contract and
considered as a whole.”).
3
A review of the record reveals that at trial Fanczi contended
that Orix and Fanczi had an agreement to enter into an equipment
lease (not an agreement to lease) memorialized by the Calfee
letter. Orix, on the other hand, argued that there was no
agreement, at all, or that, if there was, it was an agreement
memorialized not only by the Calfee Letter, but also by the Note,
Security Agreement, Guaranty, and Lease Agreement, and limited by
the Limitations Provisions included in the last four of those
documents. At oral argument, counsel for Fanczi suggested that the
jury’s acceptance of its contention that there was an agreement to
enter into an equipment lease meant that the jury also accepted its
view that nothing but the Calfee Letter constituted the terms of
that agreement. However, the jury not only found that Orix and
Fanczi had an agreement to enter into an equipment lease, but also
identified the documents memorializing that agreement: i.e., the
Note, Security Agreement, Guaranty, and Calfee Letter. That answer
rendered irrelevant the question of whether the agreement between
the two parties constituted an agreement to enter into an equipment
lease or a lease agreement. Whatever the subject of the agreement,
the jury found it “memorialized” by four documents and all four of
those documents must be construed to determine the rights of the
parties.
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One of the documents memorializing the agreement to enter into
a lease that contained the Limitations Provisions--the Security
Agreement--broadly defined the “mortgage obligations” to which it
applied as including “all obligations and/or indebtedness of any
and every kind arising out of . . . equipment lease agreements . .
. .” Of course, as Fanczi notes, an equipment lease agreement does
not constitute a traditional mortgage obligation. However,
“[p]arties to a contract may, by agreement, attribute to a word
used in the contract any meaning they may desire, and if such
meaning is clear the courts will give effect to it.” See, e.g.,
Standard Oil Co. of New Jersey v. Powell Paving & Contracting Co.,
138 S.E. 184, 193 (S.C. 1927). That is what the parties have done
here. By adopting this definition of mortgage obligation, the
parties have provided that the Security Agreement, complete with
its Limitations Provisions, applies to any agreement to enter into
an equipment lease. Accordingly, the Limitations Provisions,
mandating venue in the County of New York, choosing New York state
law, and prohibiting consequential and punitive damages, govern the
parties’ agreement to enter into the equipment lease for the
whirling machine.
This holding requires us to conclude that the agreement (by
its Limitations Provisions) prohibited the causes of action under
South Carolina law--breach of contract accompanied by a fraudulent
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act and violation of SCUTPA--and also prohibited the award of any
damages other than actual damages.
B.
Carolina, however, was not a party to the agreement, and is
therefore not affected by its Limitations Provisions. Orix asserts
that there was insufficient evidence to support the jury’s finding
that it violated SCUTPA. Carolina cross-appeals the district
court’s denial of its motion for treble damages.
We have reviewed the record, briefs and applicable case law,
and we have heard oral argument on these issues. The district
court did not err in its resolution of these issues. See Fanczi
Screw Co. v. Orix Fin. Servs., Civil Action No. 6:02-0198-25
(D.S.C. Dec. 23, 2003). However, in light of our resolution of
Fanczi’s SCUTPA claim, on remand the district court should revisit
its award of attorney’s fees and costs under SCUTPA.
IV.
For the reasons set forth above, we affirm in part and vacate
in part the judgment of the district court and remand for further
proceedings consistent with this opinion.
AFFIRMED IN PART, VACATED IN PART AND REMANDED
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