Republic Industries v. Atlantic Veneer Corp

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
REPUBLIC INDUSTRIES, INCORPORATED,
Plaintiff-Appellant,
v. No. 97-2236
ATLANTIC VENEER CORPORATION,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of North Carolina, at Greenville.
Malcolm J. Howard, District Judge.
(CA-96-164-4-H)
Argued: October 30, 1998
Decided: January 11, 1999
Before MURNAGHAN, HAMILTON, and MICHAEL,
Circuit Judges.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Don Stokes, STOKES LAW OFFICE, Marshall, Texas,
for Appellant. L. Patten Mason, MASON & MASON, P.A., More-
head City, North Carolina, for Appellee. ON BRIEF: P. Wayne Rob-
bins, ROBBINS, MAY & RICH, L.L.P., Pinehurst, North Carolina,
for Appellant.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
Appellant, Republic Industries (Republic), is a Texas cabinet man-
ufacturer who contracted to purchase maple-veneer plywood from
Appellee, Atlantic Veneer Corporation (AVC) of North Carolina. The
parties' contract contained a choice of law clause dictating that dis-
putes arising out of the parties' agreement would be governed by the
laws of North Carolina.
After Republic used a shipment of AVC's plywood to manufacture
kitchen cabinets, the plywood warped, causing economic damage to
Republic. As a result, Republic brought suit in the United States Dis-
trict Court for the Eastern District of Texas, pursuant to the Texas
Deceptive Trade Practices Act, Tex. Bus. & Com. Code§ 17.41 et
seq., seeking monetary damages for a breach of the implied warran-
ties of merchantability and fitness for a particular purpose. The case
was transferred to the United States District Court for the Eastern Dis-
trict of North Carolina. Thereafter, the district court determined that
the parties' choice of law agreement was controlling and, applying
North Carolina law, granted AVC's motion for summary judgment.
Republic now appeals.
I.
Since approximately 1990, Republic purchased plywood in truck-
load lots from AVC. To place its orders, Republic would telephone
AVC, who would then prepare and send Republic an order acknowl-
edgment and an invoice, both of which contained the following lan-
guage on the front side of the form: "THIS SALE IS SUBJECT TO
ALL TERMS AND CONDITIONS CONTAINED ON THE
REVERSE SIDE." The conditions of sale on the reverse side of the
forms contained language which disclaimed all warranties except
those specifically reserved by the parties' contract and a provision
naming North Carolina as the applicable choice of forum and law.
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Republic used a shipment of plywood it received from AVC to
build kitchen cabinets for customers in New York. Shortly after
installation, the plywood warped, causing economic damage to
Republic. As a result, Republic commenced this suit against AVC in
the United States District Court for the Eastern District of Texas,
alleging a breach of the implied warranties of merchantability and fit-
ness for a particular purpose. The district court found that the choice
of forum provisions were valid and transferred the case from Texas
to the Eastern District of North Carolina. The North Carolina court
concluded that the choice of law provisions were valid and, applying
North Carolina law, granted summary judgment to AVC on the
ground that the disclaimer of warranties in the contract precluded
Republic from recovering. This appeal followed.
II.
Republic contends that the district court erred in granting summary
judgment to AVC. According to Republic, the court incorrectly con-
cluded that AVC's choice of law agreement, which provided that
North Carolina law would apply to disputes under the contract, was
controlling. We review the district court's decision to grant summary
judgment de novo. See M&M Med. Supplies & Servs. v. Pleasant Val-
ley Hosp., Inc., 981 F.2d 160, 163 (4th Cir. 1992) (en banc). Pursuant
to Fed. R. Civ. P. 56(c), summary judgment is proper if there is no
genuine issue of material fact and the moving party is entitled to judg-
ment as a matter of law. See M&M Med. Supplies & Servs., 981 F.2d
at 162-63. With that standard in mind, we now consider the merits of
Republic's contention.
A federal court exercising diversity jurisdiction, as in the present
case, must apply the substantive law of the state in which it sits, see
Erie R.R. v. Tompkins, 304 U.S. 64, 78-79 (1938), which includes
applying the forum state's choice of law rules, see Klaxon Co. v. Sten-
tor Elec. Mfg. Co, Inc., 313 U.S. 487, 496 (1941). In the present case,
Republic does not challenge, on appeal, the transfer of its case from
the Eastern District of Texas to the Eastern District of North Carolina.
Therefore, as a threshold matter, it is undisputed that North Carolina
is the forum state for purposes of determining the applicable law.
In North Carolina, as in most other states, parties to a contract may
agree in advance as to the choice of law that will govern any disputes
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that arise between them. See Perkins v. CCH Computax, Inc., 333
N.C. 140, 145 n.1, 146 (1992) (noting that the state Supreme Court
has held choice of law provisions to be valid and enforceable in North
Carolina); see also Allen v. Lloyd's of London , 94 F.3d 923, 928 (4th
Cir. 1996) (noting that "the [United States] Supreme Court has consis-
tently accorded choice of forum and choice of law provisions pre-
sumptive validity"). Section 105 of the North Carolina Commercial
Code provides in pertinent part that "... when a transaction bears a
reasonable relation to this State and also to another state or nation the
parties may agree that the law either of this State or of such other state
or nation shall govern their rights and duties ...." N.C. Gen. Stat.
§ 25-1-105 (1995). Thus, as a general matter, choice of law clauses
are enforceable in North Carolina.
In the case at bar, the parties' contract contained a clause delineat-
ing the choice of applicable law and forum. The relevant clause pro-
vides:
GOVERNING LAW AND VENUE. The provisions of the
Uniform Commercial Code in effect in the State of North
Carolina as of the date of this order shall govern all aspects
of this agreement except where in conflict with the terms
and conditions contained herein, in which event these condi-
tions shall control. This agreement, including its validity,
interpretation, performance, operation and enforcement shall
be governed by the laws of the State of North Carolina.
Buyer submits to the jurisdiction of the state and federal
courts of the State of North Carolina for the resolution of
any legal action arising out of this agreement and agrees that
venue for such legal action shall be exclusively in ... the
Eastern District of North Carolina for any action instituted
within the Federal Court system.
Although the language of the parties' contract would ordinarily leave
little doubt as to the appropriate choice of law, the issue is compli-
cated by the fact that Republic's suit against AVC was brought pursu-
ant to the Texas Deceptive Trade Practices Act (DTPA). See Tex.
Bus. & Comm. Code § 17.41 et seq. The DTPA creates a cause of
action for damages on behalf of consumers who, inter alia, suffer
economic damage or emotional anguish as a result of a "breach of an
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express or implied warranty." See Tex. Bus. & Comm. Code
§ 17.5(a)(2). It is therefore necessary to determine whether the nature
of a claim under the DTPA has any effect on the parties' choice of
law agreement.
In ITCO Corp. v. Michelin Tire Corp., 722 F.2d 42 (4th Cir. 1983),
we held that a contractual choice of law clause designating New York
law as governing was inapplicable to a claim for damages arising
under North Carolina's Unfair Trade Practice Act (UTPA), N.C. Gen.
Stat. § 75-1.1. The UTPA, which is closely analogous to Texas'
DTPA, provides consumers with a private cause of action for dam-
ages arising from any "[u]nfair methods of competition ..., and unfair
or deceptive acts or practices in or affecting commerce ...." ITCO, 722
F.2d at 47. Because the plaintiff's suit in ITCO was brought pursuant
to the UTPA, we were left to determine whether the suit would be
governed by the parties' contractual choice of law provision. We con-
cluded that because "[t]he nature of the liability ... imposed by the
statute is ex delicto, not ex contractu , ... [n]o issue of contractual con-
struction, interpretation, or enforceability is raised ...." Id. at 49 n.11.
We, therefore, held that "North Carolina's courts would apply N.C.
Gen. Stat. § 75-1.1 to the facts presented ... without regard to the pres-
ence of the contractual choice of law provision." Id.; see also United
Dominion Industries, Inc. v. Overhead Door Corp., 762 F.Supp. 126,
128 (W.D.N.C. 1991) (citing ITCO, the court noted that "[t]he con-
tractual provision here may govern the choice of laws as to the inter-
pretation and construction of the contract; however it does not provide
the applicable law for a claim based on unfair and deceptive acts.").
Unlike ITCO and its progeny, however, in the instant case, Repub-
lic contractually and expressly waived any action for breach of
express or implied warranties beyond those contained in the agree-
ment under the "conditions of sale." The waiver reads:
All implied warranties of merchantability and all implied
warranties of fitness for a particular purpose or use are spe-
cifically excluded. There are no warranties, expressed or
implied, which extend beyond the written warranties con-
tained herein.
Since the Court must determine the validity and enforceability of the
contractual waiver, the nature of liability is ex contractu and, thus,
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subject to the parties' choice of law agreement. The fact that the claim
is brought under the DTPA has no effect on the parties' choice of law.
In accordance with the terms of the agreement, the law of North Caro-
lina should apply.
North Carolina law allows the type of waiver contained in the
agreement. Under state law, implied warranties of merchantability
and fitness may be excluded or modified, if done in accordance with
the provisions of N.C. Gen. Stat. § 25-2-316. See Angola Farm Sup-
ply and Equipment Co. v. FMC Corp., 59 N.C. App. 272, 277 (1982).
Section 25-2-316(2) of the General Statutes of North Carolina states
in pertinent part:
(2) Subject to subsection (3), to exclude or modify the
implied warranty of merchantability or any part of it the lan-
guage must mention merchantability and in case of a writing
must be conspicuous, and to exclude or modify any implied
warranty of fitness the exclusion must be by a writing and
conspicuous. Language to exclude all implied warranties of
fitness is sufficient if it states, for example, that "There are
no warranties which extend beyond the description on the
face hereof." N.C. Gen. Stat. § 25-2-316(2) (1995).
Section § 25-1-201(10) defines "conspicuous" as follows:
A term or clause is conspicuous when it is so written that
a reasonable person against whom it is to operate ought to
have noticed it. A printed heading in capitals (as: NONNE-
GOTIABLE BILL OF LADING) is conspicuous. Language
in the body of a form is "conspicuous" if it is larger or other
contrasting type or color. But in a telegram any stated term
is "conspicuous." Whether a term or clause is"conspicuous"
or not is for decision by the court. N.C. Gen. Stat.
§ 25-1-201(10) (1995).
So, as long as the waiver satisfies the requirements of § 25-2-316 and
§ 25-1-201(10), it is permissible.
As further support, the North Carolina Supreme Court has held that
parties may, by contract, exclude implied warranties of merchanta-
6
bility and fitness for a particular purpose. In Billings v. Joseph Harris
Co., Inc., the state Supreme Court, addressing a claim of breach of
warranty against a seed dealer, upheld a disclaimer of warranties
clause contained in the parties' contract. 290 N.C. 502, 508-509
(1976). The contract of sale in Billings provided: "It makes no war-
ranties, express or implied, of merchantability, fitness for purpose, or
otherwise which would extend beyond such descriptions, and in any
event its liability for breach of any warranty or contract with respect
to such seeds or plants is limited to the purchase price of such seeds
or plants." 290 N.C. at 504. Citing § 25-2-316, the court stated: "[The
disclaimer language] clearly permits a seller of seed, just as a seller
of other merchandise, to incorporate in his contract a disclaimer of
any warranty of merchantability or of fitness for purpose provided he
complies with the conditions stated in subsection (2) [of § 25-2-316]."
290 N.C. at 508-509.
Similarly, in Angola Farm Supply and Equipment Co. v. FMC
Corp., the North Carolina Court of Appeals held that language in the
parties' contract was sufficient to exclude the implied warranties of
merchantability and fitness for a particular purpose. 59 N.C. App. at
277-278. In Angola Farm, the contract provided that its products
would be "free from defects in material and workmanship for a period
of six (6) months from the date placed in service or twelve (12)
months from the date of factory shipment, whichever occurs first." 59
N.C. App. at 273. The warranty further provided:"This warranty is
in lieu of all other warranties, express or implied, including those of
merchantability and fitness of any product for a particular purpose not
expressly set forth herein." 59 N.C. App. at 273. The court concluded
that the disclaimer of warranty, written in bold and capitalized print,
satisfied the requirements of § 25-2-316(2). Angola Farm, 59 N.C.
App. at 506; see also Ace, Inc. v. Maynard, 108 N.C. App. 241,
248-249 (1992) (enforcing agreement that contained a disclaimer of
warranties clause), review denied, 333 N.C. 574 (1993).
We, therefore, conclude that the waiver language contained in the
contract between Republic and AVC is permissible under North Caro-
lina law. On the face of the invoice, there is plainly visible, capital-
ized print indicating that the sale was subject to the terms and
conditions contained on the reverse side. The disclaimer on the
reverse side of the invoice is in capitalized type and is larger than the
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surrounding text, clearly satisfying the definition of "conspicuous"
provided above. See generally Tyson v. Ciba-Geigy Corp., 82 N.C.
App. 626, 631 (1986) (determining that text in darker and larger type
than other language on label was "conspicuous").
Republic had ample opportunity to read the back of the invoice and
object to any terms it found unconscionable or unfair. Republic never
objected, however. Rather, over the course of nearly six years, Repub-
lic continued to order plywood from AVC and received, with each
shipment, an invoice containing the same terms and conditions out-
lined above. See generally N.C. Gen. Stat.§ 25-2-207(1) (1995) ("...
a written confirmation which is sent within a reasonable time operates
as an acceptance even though it states terms additional to or different
from those offered or agreed upon, unless acceptance is expressly
made conditional on assent to the additional or different terms."). If
a self-described, "illiterate" farmer is obliged to comply with a dis-
claimer of warranties, as was the case in Billings, 290 N.C. at 507,
surely a sophisticated business enterprise like Republic must be pre-
vented from avoiding the terms of its agreement with AVC. Barring
fraud, of which there is no evidence here,* we are obliged to enforce
the contractual provisions agreed upon by the parties.
III.
Accordingly, we conclude that the district court's grant of sum-
mary judgment in favor of Appellee-Defendant was proper. AVC is
entitled to judgment as a matter of law. We affirm.
AFFIRMED
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*Under North Carolina law, substantial evidence of fraud consists of
(1) false representation or concealment of a material fact, (2) reasonably
calculated to deceive, (3) made with intent to deceive, (4) which does
in fact deceive, (5) resulting in damage to the injured party. Ace, 108
N.C. App. at 249.
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