Clive Samuels & Associates, Inc. v. Boxcar Foods, USA, Inc.

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
JULY 21, 2008
No. 08-11029 THOMAS K. KAHN
Non-Argument Calendar CLERK
________________________
D. C. Docket No. 06-01701-CV-H
CLIVE SAMUELS & ASSOCIATES, INC.,
Plaintiff-Appellee,
versus
BOXCAR FOODS, USA, INC.,
Defendant,
RETAIL GROUP SE, INC.,
JEROME D. HOFFMAN,
Defendants-Appellants.
________________________
Appeal from the United States District Court
for the Northern District of Alabama
_________________________
(July 21, 2008)
Before HULL, MARCUS and WILSON, Circuit Judges.
PER CURIAM:
In this breach of contract action, defendants Retail Group, SE, Inc. (“Retail
Group”) and Jerome Hoffman (“Hoffman”) (collectively, “Defendants”) appeal
from the district court’s entry of summary judgment in favor of plaintiff Clive
Samuels & Associates, Inc. (“CSA”). After review, we affirm in part and reverse
in part.
I. BACKGROUND
In September 2005, Hoffman, the CEO, CFO, president, and sole
shareholder of Retail Group, approached CSA, an engineering firm, about design
services for several retail stores to be known as “Boxcar” stores. Hoffman
requested that CSA design, among other things, a refrigeration system for the
Boxcar stores’ food storage areas that would hold food products on carts located
behind an air curtain system. The air curtain system would replace the doors
typically used in food refrigeration units, eliminating the need for customers to
open doors to access products. Hoffman believed that the system would reduce
labor costs and integrate the process of handling products by allowing pallets of
perishable food to be placed in position for selection without the need to manually
restock traditional refrigeration units.
2
On October 9, 2005, CSA submitted a design proposal that incorporated the
air curtain refrigeration system. On October 12, 2005, Hoffman sent a letter, on
Retail Group letterhead, accepting CSA’s proposal. The parties agree that the
October 9 design proposal and October 12 letter constitute the contract at issue.
Hoffman’s October 12 letter stated, in pertinent part:
Reference your proposal for Boxcar Foods USA Inc. dated October
9th, 2005, we hereby accept.
Retail Group S.E. Inc. and Boxcar Foods USA Inc. hereby guarantee
payment within ninety (90) days.
As agreed upon, you will deliver the prototype engineering and
specifications within eight weeks of today. And we will notify you
accordingly what will be the first location.
Letter from Hoffman to CSA of Oct. 12, 2005.1
Although the original contract called for an air curtain system, at some point
between October and December 2005, CSA recommended changing the design to
include doors instead of the air curtain system. In December 2005, Hoffman
personally approved CSA’s recommended change to a more conventional
refrigeration system, although Hoffman testified he “was forced to go along with”
1
It is undisputed that Boxcar Foods USA Inc. is a non-existent entity. Boxcar Foods
USA Inc. was originally named as a defendant in this action but was dismissed by the district
court after the parties agreed that it did not exist. CSA discovered Boxcar Foods USA Inc.’s
non-existence in discovery, and the district court gave CSA leave to amend its complaint to add
the correct entity—alleged by defendant Hoffman to be an entity called Boxcar Foods, Inc.—but
CSA declined to amend its complaint. Thus, the only remaining defendants are Hoffman and
Retail Group.
3
the change because “we were so far into it with a number of stores and fighting a
deadline.” Deposition of Jerome Hoffman, at 99. According to Hoffman, CSA’s
change from the air curtain system to a more conventional system “wasn’t the
original contract, and [CSA] knew it.” Id.
In any event, CSA ultimately provided six sets of drawings for six different
Boxcar stores, and each set implemented conventional refrigeration systems.2
Defendants used CSA’s drawings in submissions to government planning offices
in Birmingham, Cullman, and Tuscaloosa, Alabama; Salisbury and Greenville,
North Carolina; and Conway, South Carolina.
Beginning in January 2006 and ending in July 2006, CSA submitted twenty-
eight invoices to Hoffman, totaling $549,203.20. Defendants never paid a single
invoice. Hoffman admitted that Defendants had neither cash nor a line of credit
available to pay CSA’s invoices. Instead, according to Hoffman, CSA understood
that it would not be paid until a Boxcar store was sold and leased back. However,
Hoffman’s October 12, 2005, acceptance letter unambiguously states that “Retail
Group S.E. Inc. and Boxcar Foods USA Inc. hereby guarantee payment within
ninety (90) days.” Letter from Hoffman to CSA of Oct. 12, 2005.
2
Hoffman contends that the drawings were all the same.
4
In August 2006, CSA filed this lawsuit, alleging breach of contract3 and
asking that Retail Group’s corporate form be disregarded so as to hold Hoffman
personally liable for its breach. CSA moved for summary judgment, which the
district court granted. The district court entered final judgment against Hoffman
and Retail Group, jointly and severally, in the amount of $549,203.20. Hoffman
and Retail Group appeal.4
II. DISCUSSION
A. Contract terms
Defendants first argue that the district court erred in determining that the
contract was unambiguous. Under Alabama law, “[a]mbiguity in a contract
precludes the trial court from entering a summary judgment.” Whitetail Dev.
Corp. v. Nickelson, 689 So. 2d 865, 867 (Ala. Civ. App. 1996).5 “If the terms
within a contract are plain and unambiguous, the construction of the contract and
its legal effect become questions of law for the court and, when appropriate, may
3
Federal jurisdiction exists pursuant to 28 U.S.C. § 1332 (diversity jurisdiction).
4
We review the district court’s grant of summary judgment to CSA de novo and resolve
all reasonable doubts about the facts in favor of the non-movants (Hoffman and Retail Group).
See Van Voorhis v. Hillsborough County Bd. of County Comm’rs, 512 F.3d 1296, 1299 (11th
Cir. 2008). Summary judgment is appropriate if there is no genuine issue as to any material fact
and the moving party is entitled to a judgment as a matter of law. See id.5
The district court applied Alabama law, and the parties agree that Alabama law governs
this dispute. Accordingly, we apply Alabama law.
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be decided by a summary judgment.” McDonald v. U.S. Die Casting & Dev. Co.,
585 So. 2d 853, 855 (Ala. 1991). If a contract is ambiguous, a court should first
employ established rules of contract construction to try to resolve the ambiguities.
Alfa Life Ins. Corp. v. Johnson, 822 So. 2d 400, 405 (Ala. 2001). “However, if the
terms within the contract are [still] ambiguous in any respect, the determination of
the true meaning of the contract is a question of fact to be resolved by a jury.”
McDonald, 585 So. 2d at 855; see Johnson, 822 So. 2d at 405 (“Where factual
issues arise, the resolution of the ambiguity becomes a task for the jury.”).
Defendants argue that summary judgment was inappropriate because the contract
contains at least three ambiguities that should have been resolved by a jury.6
First, the contract is not ambiguous as to whether it is for the design of one
“store” as opposed to multiple “stores.” The contract specifically provides that the
“Fee . . . for the first prototype store, as detailed above, shall be $95,000,” and that
the “Fee . . . for the next five stores, as detailed above, shall be $340,000.”
Proposal of Oct. 9, 2005, at 8. As Defendants acknowledge, the “major portion of
6
In the district court, Defendants argued that there were eight ambiguities in the contract
that rendered summary judgment inappropriate. On appeal, Defendants raise (and so we
address) only three purported ambiguities. See United States v. Curtis, 380 F.3d 1308, 1310
(11th Cir. 2004) (noting the “long-standing rule in this circuit” that issues not raised in initial
briefs on appeal are waived); see also United States v. Gupta, 463 F.3d 1182, 1195 (11th Cir.
2006) (stating that if a party fails to provide arguments on the merits of an issue and makes only
passing reference to the issue in its briefs, the argument is waived), cert. denied, 127 S. Ct. 2446(2007).
6
the contract” addresses work to be performed on multiple stores, and even
Hoffman’s acceptance letter indicates that the contract concerns multiple stores.
Br. of Appellants at 11; Letter from Hoffman to CSA of Oct. 12, 2005 (“And we
will notify you accordingly what will be the first location.”) (emphasis added).
Accordingly, the contract’s isolated reference to a single “store” in its next-to-last
sentence does not render the contract ambiguous, as the only reasonable
interpretation of the contract is that it pertains to work to be performed on multiple
stores. See State v. Lorillard Tobacco Co., __ So. 2d __, 2008 Ala. LEXIS 62, at
*14 (Ala. Mar. 28, 2008) (noting that one rule of contract construction is that a
court should construe a contract as a whole and that detached words standing alone
are not controlling); see also Russell v. Garrett, 93 So. 711, 713 (Ala. 1922)
(same).7
Second, the contract is not ambiguous on account of the fact that “there is no
indication as to which stores were included within the scope of the contract.” Br.
of Appellants at 9. Although Defendants do not fully explain this assertion, their
claim seems to be that because the contract indicates that CSA will bill Retail
7
Additionally, the one-sentence reference to a single “store” is an obvious typographical
error in a boilerplate conclusion sentence, particularly given that the same sentence includes a
reference to CSA looking forward to working with “Fairway,” an entity that apparently has
nothing to do with this case or these parties. The next-to-last sentence of CSA’s proposal states
in full: “We look forward to working with Fairway [sic] in developing the engineering plans for
this store.” Proposal of Oct. 9, 2005, at 9.
7
Group at a lower rate after the first six stores are completed, CSA will be able to
“cherry-pick” which stores it will place in the first group of six stores and which
stores it will place in subsequent groups, so as to maximize its profits. Id. at 11.
The problem with this argument is that the contract unambiguously states
that CSA will provide design services to Retail Group: (1) for one prototype store;
(2) for five additional stores; and (3) for a refrigeration manufacturing facility in
Greenville, South Carolina. Beyond that, the contract only “anticipate[s]” that
further stores could be designed by CSA for a reduced cost and that identical stores
could be provided at a further reduced fee. Proposal of Oct. 9, 2005, at 8. In other
words, the contract does not impose additional obligations on CSA beyond its
work on the first six stores and the Greenville facility. (Indeed, it is noteworthy
that CSA actually provided Defendants with exactly six sets of drawings for six
Boxcar stores.) Thus, the contract is not ambiguous as a result of its purported
failure to indicate which stores were included within its scope.
However, we agree with Defendants that the contract is ambiguous as to
whether it includes direct travel expenses. The contract lists various design and
other services that are covered by the proposed fees for the stores. See Proposal of
Oct. 9, 2005, at 8 (Section VIII: “Compensation”) (noting that the “Fee for the
Mechanical, Electrical, Plumbing and Refrigeration Engineering Design Services”
8
is to be $95,000 for the first store and $340,000 for the next five stores). However,
the contract expressly excludes direct travel expenses from those proposed fees, as
follows:
VII. EXCLUSIONS
1. This proposal does not include any work involved with the
presence of asbestos or asbestos containing materials.
2. All direct travel expenses.
3. All meetings above and beyond those designated in this
proposal.
4. Site safety and security conditions.
5. Building structural systems and design.
6. Modifications to existing fire sprinkler systems.
Id. at 7.
Despite this express exclusion of direct travel expenses, CSA argues—and
the district court found—that the contract unambiguously includes travel expenses.
According to CSA and the district court, the items listed as “Exclusions” can only
be reasonably interpreted as items that will be billed separately by CSA, above and
beyond the proposed fees listed in the contract.
While CSA’s and the district court’s interpretation is one reasonable
construction of the contract, it is not the only reasonable construction of the
contract. Instead—given that “direct travel expenses” are listed under
“Exclusions”—the contract can also reasonably be read so as to exclude direct
travel expenses completely, which renders the contract ambiguous as to direct
9
travel expenses. See McCollough v. Regions Bank, 955 So. 2d 405, 411 (Ala.
2006) (stating that a contract term is ambiguous if it is reasonably susceptible of
more than one interpretation). This is particularly so in light of the fact that travel
expenses are not listed in a later portion of the contract that discusses certain
“items and services [that] shall be deemed reimbursable expenses.” Proposal of
Oct. 9, 2005, at 8 (emphasis added). Although this list of “items and services [that]
shall be deemed reimbursable expenses” is not necessarily reflective of every
reimbursable expense between the parties, it is certainly notable that direct travel
expenses are not listed thereunder, and their absence supports Defendants’
contention that the contract is ambiguous as to direct travel expenses. For these
reasons, the district court erred in granting CSA summary judgment for the
approximately $10,000 that it charged Defendants in direct travel expenses, and a
jury must resolve the question of whether the contract includes those expenses.
B. Breach
Defendants next argue that the district court erred in determining that CSA
was entitled to summary judgment on the underlying breach of contract claim. To
establish its breach of contract claim, CSA must prove four elements: (1) a valid
contract between the parties; (2) CSA’s own performance under the contract; (3)
Defendants’ nonperformance under the contract; and (4) damages. See Hooper v.
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Columbus Reg’l Healthcare Sys., Inc., 956 So. 2d 1135, 1139 (Ala. 2006).
Only the second element is in dispute here. According to Defendants, CSA
cannot satisfy the second element because CSA never provided the air curtain
refrigeration system originally in the contract. While Defendants acknowledge that
they agreed to utilize a conventional refrigeration system due to time constraints,
they argue that their agreement to use a conventional refrigeration system did not
constitute an abandonment of their expectations for an air curtain system. Instead,
Defendants contend that they still were entitled to receive an air curtain system,
even after they agreed to allow CSA to provide a more conventional system.
This argument fails because Defendants’ undisputed agreement to use a
more conventional refrigeration system modified the contract between the parties.
“[P]arties are free to modify agreements, and if the terms of a subsequent
agreement contradict the earlier agreement, the terms of the later agreement
prevail.” Cavalier Mfg., Inc. v. Clarke, 862 So. 2d 634, 641 (Ala. 2003). Here, it
is undisputed that as of December 2005, Hoffman agreed to have CSA proceed
with Boxcar store designs that included conventional refrigeration systems. It is
further undisputed that Defendants used CSA’s designs—which included doors on
refrigerated spaces, rather than air curtains—in submissions to six government
planning offices. Accordingly, it is clear that the parties mutually agreed to modify
11
the contract to include a more conventional refrigeration system instead of an air
curtain system, and that this change superseded the earlier agreement between the
parties.8
Defendants further contend that any modification of the contract had to be
supported by new consideration, and that here, there was no additional
consideration given for the purported modification. However, Defendants failed to
raise this “consideration” issue before the district court, and thus they have waived
the argument. See Access Now, Inc. v. Sw. Airlines Co., 385 F.3d 1324, 1331
(11th Cir. 2004) (noting that this Court has repeatedly held that an issue not raised
in the district court and raised for the first time on appeal is waived).9
Accordingly, the district court correctly determined that CSA was entitled to
8
Defendants seem to argue in passing that the contract was unilaterally modified by CSA
(as opposed to modified by mutual agreement), and that unilateral modification is impermissible
under Alabama law. Defendants are correct that a party “cannot unilaterally alter the terms of a
contract after the contract has been made” and that “[b]oth parties must mutually assent to a
modification.” Ex parte Amoco Fabrics & Fibers Co., 729 So. 2d 336, 340 (Ala. 1998).
However, the contract here was not unilaterally modified. Hoffman undisputedly agreed with
CSA to have CSA proceed with designs that included conventional refrigeration systems instead
of air curtain systems, even if he did so reluctantly.
Defendants also argue in passing that the contract was rendered ambiguous by the
parties’ alteration of the contract to allow CSA to include conventional food refrigeration
systems. However, this contention is without merit because the parties modified the contract,
thereby relieving CSA of any duties to provide designs that included air curtain refrigeration
systems. The modification did not create ambiguity.
9
In any event, the Alabama Supreme Court recently stated: “‘Parties to a written contract
may by mutual consent without other consideration orally alter, modify or rescind the contract.’”
Cavalier Mfg., 862 So. 2d at 640-41 (emphasis added) (quoting Watson v. McGee, 348 So. 2d
461, 464 (Ala. 1977)).
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summary judgment on its breach of contract claim.
C. Hoffman’s personal liability
Finally, the district court did not err in concluding that Retail Group’s
corporate veil should be pierced so as to make Hoffman personally liable.
In order to pierce Retail Group’s corporate veil, CSA must establish that: (1)
Hoffman had complete control of Retail Group’s finances, policy, and business
practices so that at the time of the contract, Retail Group had no will or existence
of its own; (2) Hoffman misused his control of Retail Group; and (3) Hoffman’s
misuse of control proximately caused CSA’s loss. See Messick v. Moring, 514 So.
2d 892, 894-95 (Ala. 1987). As to the first element, “[t]he mere fact that a party
owns a majority or all of the corporation’s stock does not, of itself, destroy the
corporate identity, but it is a factor to be considered in determining the control of
the corporation.” Id. at 895. As to the second element, “fraud or the violation of a
statutory or other positive legal duty is misuse of control, [but] when it is necessary
to prevent injustice or inequitable circumstances, misuse of control will be
presumed.” Id.Here, all three elements are present. As to the first element, Hoffman owned
all the stock of Retail Group and was its CEO, CFO, and president. While
Hoffman’s status as Retail Group’s sole shareholder does not by itself establish his
13
“complete control and domination” over Retail Group, it is a factor to be
considered. Id. at 894. Moreover, when asked if there were any other directors of
Retail Group beyond himself, Hoffman first testified that he did not know.
Deposition of Jerome Hoffman, at 17. Although Hoffman eventually named Aaron
Arradondo as another director, when Hoffman was asked about Arradondo’s
responsibilities, he testified only that Arradondo was a “research analyst” whose
duties were limited to studying the retail market for supermarkets and helping
“develop the Boxcar concept.” Id. at 17-18, 32-33. Hoffman mentioned no
traditional officer responsibilities for Arradondo, further establishing that Hoffman
exercised sole and complete control over Retail Group.
As to the second and third elements, the undisputed evidence establishes that
Hoffman misused his control of Retail Group to obtain services from CSA and that
his misuse caused CSA’s loss. Hoffman’s acceptance letter, written on Retail
Group letterhead, expressly “guarantee[d]” payment to CSA from Retail Group
and the non-existent Boxcar Foods USA Inc., see Letter from Hoffman to CSA of
Oct. 12, 2005, and CSA relied on that guarantee and performed under the contract
as later modified. Despite his written guarantee to pay CSA within ninety days,
however, Hoffman admitted that he never intended to pay CSA until the Boxcar
stores were built, sold, and leased back. Indeed, Hoffman admitted that neither he
14
nor Retail Group (nor, for that matter, Boxcar Foods USA Inc.) had cash or a line
of credit available from a bank or any other source that would have enabled him to
pay CSA even if he had chosen to do so.
Moreover, the fact that Hoffman contracted on behalf of a non-existent
entity (Boxcar Foods USA Inc.) in addition to Retail Group is further evidence of
Hoffman’s subterfuge. And given that Retail Group’s stock has no value and that
Retail Group has no insurance with which to satisfy a judgment against it,
Hoffman’s misuse of control could even be presumed here in order to prevent
injustice. See Cohen v. Williams, 318 So. 2d 279, 281 (Ala. 1975).
Accordingly, we cannot say that the district court erred in piercing Retail
Group’s corporate veil to hold Hoffman personally liable.
III. CONCLUSION
For the foregoing reasons, we affirm the district court’s grant of summary
judgment in favor of CSA and against Defendants Hoffman and Retail Group
except as to the approximately $10,000 in direct travel expenses. With regard to
the travel expenses, we remand for further proceedings consistent with this
opinion.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
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