Alexin, LLC v. Olympic Metals, LLC

FILED
Apr 21 2016, 8:23 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR APPELLANT ATTORNEY FOR APPELLEE
Nelson D. Alexander Ralph E. Sipes
Darren A. Craig Anderson, Indiana
Jenai M. Bracket
Frost Brown Todd LLC
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Alexin, LLC, April 21, 2016
Appellant-Plaintiff, Court of Appeals Case No.
90A02-1510-CT-1608
v. Appeal from the Wells Circuit
Court
Olympic Metals, LLC, The Honorable Kenton W.
Appellee-Defendant. Kiracofe, Judge
Trial Court Cause No.
90C01-1307-CT-9
Najam, Judge.
Statement of the Case
[1] Alexin, LLC (“Alexin”) appeals the trial court’s judgment in favor of Olympic
Metals, LLC (“Olympic”) on Olympic’s counterclaim seeking attorney’s fees
under Indiana Code Section 34-52-1-1(b). Alexin presents a single issue for our
review, namely, whether the trial court abused its discretion when it awarded
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 1 of 24
Olympic attorney’s fees. Olympic cross-appeals and requests appellate
attorney’s fees. We conclude that the trial court did not abuse its discretion
when it awarded Olympic attorney’s fees, and we deny Olympic’s request for
appellate attorney’s fees.
[2] We affirm.
Facts and Procedural History
[3] Alexin is a manufacturer of aluminum extrusion ingots in Bluffton. Olympic is
an aluminum scrap broker located in Florida. In March 2013, Anita Eads, an
Alexin employee, communicated with Cecil Shiver, a sales representative for
Olympic, regarding Alexin’s desire to purchase a shipment of aluminum scrap.
On April 15, Alexin issued Purchase Order No. 16208 (“the purchase order”) to
Olympic requesting delivery of 40,000 pounds of “2XXX Series Aluminum
Scrap”1 for $33,800. Appellant’s App. at 292. Alexin specified in the purchase
order that the “[m]aterial will be 2024 sheets with thin paper in between.” Id.
[4] On April 25, Olympic delivered 40,643 pounds2 of aluminum sheets and
extrusions to Alexin to fill the purchase order. The shipment consisted of the
following: 26,478 pounds of 2024 aluminum sheets; 5,155 pounds of 2024
extruded aluminum; and 8,060 pounds of 2090 aluminum sheets. Each of the
three types of aluminum included in the shipment was clearly stamped as 2024
1
Series 2XXX aluminum scrap comes in different alloys, including 2024 and 2090.
2
This total weight included the weight of the pallets.
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 2 of 24
or 2090, and the various types of aluminum scrap were segregated onto separate
pallets. The purchase order and bill of lading stated that only 2024 aluminum
was being delivered, but a handwritten note provided to the Alexin clerk who
received the shipment, Remington Steele, stated that part of the shipment was
2090 aluminum. Steele stamped “Received” on the purchase order, bill of
lading, and handwritten note, and he signed his name to each stamp under the
word “Received.” Id. at 229-31.
[5] On May 29, Alexin melted down some of the aluminum scrap that Olympic
had shipped on April 25.3 The resulting batch of aluminum ingots had to be
“scrapped” because of poor quality. Id. at 243. On May 30, Tom Horter,
Alexin’s CEO, sent an email to other Alexin employees, including Kevin
Ferguson, that stated the following:
We had to scrap another cast last night for high Li[thium]. We
have found the culprit which is alloy 2090 sheet that is in the
2XXX series bin. We have segregated this bin for now until it
can be sorted. The scrap is a unique sheet that is very brittle (2%
3
Alexin explains its ingot manufacturing process as follows:
Alexin’s recycling process consists of essentially two stages. First, scrap aluminum is
melted down in Alexin’s primary furnace to create a molten state. Second, alloying
elements are added to the molten aluminum scrap in a separate furnace to produce a
given alloy for customer use. The chemical formulation involved varies depending on the
type of scrap (i.e., the particular alloy) and the end customer’s specifications. It is
essential that the scrap alloy meet specifications, as the proper metallurgy for the end
product depends on the integrity of the melted scrap.
Appellant’s App. at 38-39.
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 3 of 24
or so Li[thium]) and has a shiny “aluminum-like” side and a
darker gray side.
Kevin, this may have been purchased simply as a 2XXX series
package or part of one and if so can very well be in compliance
with our [purchase order], but nonetheless we should try to find
out from whom we bought it. Also, for all future 2XXX series
scrap purchases, we will need to add a note that alloy 2090
cannot be included in the package. There may be others too and
I will get you that list. For now, we will just have to fight
through the next few charges to get it down.
Appellant’s App. at 243-44.
[6] On June 4, Shiver emailed Eads and requested payment for the April 25
shipment. In response, Eads replied as follows:
I was out of the office due to an illness since we last spoke. The
material we discussed last week, 2024 sheet material purchase
order, also included 2090 sheet. Please see attached pictures of
the 2090 sheets that were sorted from the shipment. It is stamped
directly on the sheets “2090.” This material has High Li[thium] and
is not usable by Alexin. We have what material we sorted out placed
on pallets. The Alexin management team would like Olympic Metals to
pick up the remaining material. Please review the pictures and let’s
discuss. I am waiting [for] someone to weigh the material sorted.
Once I have that information, I will provided [sic] that to you as
well.
Id. at 236 (emphases added). At some point, “[s]omeone at Alexin” told Shiver
that Alexin had melted some of the 2090 aluminum in its furnace, which had
“caused damage to its furnace by contaminating it[] and resulted in charges and
fees associated with its furnace.” Id. at 224. But Alexin’s maintenance
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 4 of 24
manager, Scott Evans, told Shiver that Alexin’s furnaces “were not damaged
during [the relevant] period” of time. Id. Accordingly, on June 12, Shiver sent
the following email to Ferguson:
With all due respect, the commercial agreement in Alexin’s terms
and conditions does not address the issue of Alexin’s
responsibility with regards to quality control, segregation[,] and
prior acceptance of material received.
Regrettably, Alexin placed material in the furnace that resulted in
a loss to conformity. We are not disputing that we did not ship
[sic] 2090 material and in fact we are stating that Alexin signed
for and issued a settlement confirmation based on a clearly
marked packing slip that all the material was acceptable. There
was no attempt to ever mislead Alexin or hide the material. If the
material was not acceptable, then the first course of action should have
been to reject the undesirable material and contact Olympic Metals. The
burden lies with Alexin and its employees to inspect and approve
all shipments into Alexin’s facility. To this point, Olympic
Metals is in position [sic] of all the supporting documents that the
load was accepted. To complicate this issue further, the material
was not even segregated by load and was mixed and/or blended
with other material from multiple Alexin vendors making it more
difficult to determine the actual source of nonconforming
material.
In addition, Olympic Metals continues to seek compensation for
the past due amount owed on the load delivered.
However, Olympic Metals will accept rejection of the 8,060 lbs. of the
2090 material if Alexin so chooses. Olympic Metals would then
revert to the supplier for reconciliation which is standard practice
in the industry.
Id. at 241-42 (emphases added).
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 5 of 24
[7] On July 1, 2013, Alexin filed a complaint against Olympic in the United States
District Court for the Northern District of Indiana alleging breach of express
warranty, breach of implied warranty of fitness for a particular purpose, and
breach of implied warranty of merchantability and seeking damages of $91,518.
The next day, American Metal Market (“AMM”), an industry publication,
reported on Alexin’s lawsuit as follows:
A dispute between an aluminum billet producer and a scrap
broker over a truckload of scrap has escalated to the legal system,
much to the surprise of the broker.
Bluffton, Ind.-based Alexin LLC filed a lawsuit July 1 in [the]
U.S. District Court in Indiana against Miami-based Olympic
Metals LLC alleging breach of contract—a claim that Olympic
Metals said it strongly denies.
Alexin said in court documents that it ordered 40,000 pounds of
2024 aluminum scrap in April, but claimed that the 37,195
pounds delivered by Olympic Metals also included some lithium-
containing 2090 alloy scrap.
“Alexin melted down the 2024 aluminum that Olympic Metals
had supplied. After adding pure aluminum and otherwise
finished the product, Alexin noted that the finished aluminum
ingots had an unacceptable and unsalable surface condition,”
Alexin alleged in the lawsuit. “Emergency investigation and
analysis revealed that the unsalable ingots contained excessive
levels of the element lithium. As a result of the lithium
contamination, the ingots were worthless and were scrapped.”
Alexin estimated its total damages at $91,518.
***
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 6 of 24
When contacted July 2, Christos Gorgias, managing director of
Olympic Metals, said the company was unaware of Alexin’s legal
filing. “We filed a demand letter for payment after Alexin went
past the payment date. Following that, we even requested
mediation, which they did not accept. We had no idea they sued
us and we will fight these allegations with documents that prove
we are not in breach,” he told AMM.
Gorgias said that Olympic Metals delivered about 29,000 pounds
of 2024 alloy scrap and 8,000 pounds of 2090 scrap in segregated
lots. “If they didn’t want the 2090 scrap, they could have let us
know and we would’ve taken it back. In any case, I don’t know
how it could cause damage when the scrap was segregated,” he
said.
Olympic Metals’ June 20 letter to Alexin demanding payment—
sent by a Miami law firm—included a shipping order detailing
the different loads of 2024 and 2090 scrap, and noted that “the
scrap was inspected, accepted and, to our understanding,
consumed by Alexin.”
Alexin’s counsel did not respond to a request for comment, while
a company spokesman said July 2 that Alexin had no further
comment other than to say Olympic Metals “just didn’t ship
what was ordered and they need to come clean about it as most
people usually do.”
Id. at 72.
[8] After the federal court issued an order “rais[ing] doubt about” the court’s
jurisdiction, Alexin filed a complaint in the Wells Circuit Court and voluntarily
dismissed the federal lawsuit. Appellant’s Br. at 4. Olympic filed an answer
and asserted affirmative defenses, including failure to state a claim upon which
relief can be granted. In a counterclaim, Olympic sought attorney’s fees under
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 7 of 24
Indiana Code Section 34-52-1-1(b) on the grounds that Alexin had brought a
frivolous lawsuit or, in the alternative, had continued to litigate the lawsuit after
its claim had become frivolous, unreasonable, or groundless. After the parties
participated in an unsuccessful court-ordered mediation, the trial court set the
matter for trial for October 27, 2014. After Olympic moved to continue that
trial date, the trial court set the trial for February 3, 2015.
[9] On January 26, 2015, one week before trial, Alexin moved to voluntarily
dismiss its complaint “without any explanation.” Id. at 15. In addition, Alexin
“reported to the Court that it had submitted payment to Olympic for the
amount of Olympic’s Invoice No. 004339 of $31,477.94 and prejudgment
interest at 8%, for a total of $35,943.94.” Id. The trial court granted Alexin’s
motion to dismiss its complaint, with prejudice, and the parties submitted briefs
on Olympic’s counterclaim for attorney’s fees.
[10] Thereafter, the trial court entered judgment for Olympic on its counterclaim,
finding and concluding in relevant part as follows:
FINDINGS OF FACT
***
4. On March 19, 2013, Alexin sent an email to its suppliers
regarding its current aluminum scrap needs with real-time
pricing, which included 2024 aluminum scrap along with various
other types of scrap aluminum.
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 8 of 24
5. Beside the list of various aluminum needs and the price per
pound, the email provides that “All items must be clearly
segregated by type” and “3 items per load.”
***
14. On April 25, 2013, Alexin issued a Receipt #RCT013504
to Olympic for Purchase Order No. 16208 for “2XXX AL
SCRAP” showing Alexin received 40,643 pounds, of which
37,252 pounds comprised the weight Alexin was willing to pay
after deducting the weight of the shipping pallets. The receipt
also shows “Contaminate Deductions” of 3,448 pounds.
15. The receipt further states “Note: This load was received
per Alexin’s Terms and Conditions and applicable receiving
procedures.”
16. Alexin’s employees took both the Series 2024 and Series
2090 aluminum Alexin received on April 25, 2013[,] to the same
2024 alloy bin: “The goods were received in Alexin’s scrap yard
via a fork lift, and taken to the 2024 alloy bin.” (Plaintiff Alexin,
LLC’s Responses to Defendant’s Interrogatories served March
20, 2014, Answer to Interrogatory No. 2).
***
34. Olympic has incurred the following expenses and fees in
defending against Alexin’s complaint and in prosecuting its claim
against Alexin:
a. Attorney fees $29,480.00
b. The Mediation Group $1,386.26
c. Filing fees . . . and mileage expenses $581.29
d. Other expenses for travel and lodging . . . . $5,000.00
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 9 of 24
Total: $36,447.55
CONCLUSIONS OF LAW
1. Indiana Code [Section] 34-52-1-1 provides:
***
b. In any civil action, the court may award
attorney’s fees as part of the costs to the prevailing
party, if the court finds that either party:
1) brought the action or defense on a
claim or defense that is frivolous,
unreasonable, or groundless;
2) continued to litigate the action or
defense after the party’s claim or defense
clearly became frivolous, unreasonable,
or groundless; or
3) litigated the action in bad faith.
***
8. Based upon the fact Olympic recovered of [sic] the entire
amount requested in its Counterclaim 8 days prior to the
scheduled jury trial, after all discovery had closed and consistent
with other Indiana decisions, this Court determines that Olympic
is a “prevailing party” for purposes of I.C. [§] 34-52-1-1.
9. The next issue to resolve is whether Alexin litigated the
action in bad faith or brought and/or continued to litigate an
action that was frivolous, groundless, or unreasonable.
10. Indiana law provides that a claim is “frivolous” (a) if it is
taken primarily for the purpose of harassing or maliciously
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 10 of 24
injuring a person, or (b) if the lawyer is unable to make a good
faith and rational argument on the merits of the action, or (c) if
the lawyer is unable to support the action taken by a good faith
and rational argument for an extension, modification, or reversal
of existing law. A claim is “unreasonable” if, based on the
totality of the circumstances, including the law and the facts
known at the time of the filing, no reasonable attorney would
consider that the claim was worthy of litigation or justified. See
Kahn v. Cundiff, 533 N.E.2d 164 (Ind. Ct. App. 1989).
***
12. “The trial court is not required to find an improper motive
to support an award of attorney’s fees; rather, an award may be
based solely on a lack of good faith and rational argument in
support of the claim.”
13. Here, the records exist that[,] while Alexin may have
intended to purchase and receive 2024 aluminum scrap, it
nonetheless ordered 2xxx aluminum scrap which can be both
2024 and 2090 aluminum. The shipment was segregated by type;
2024 sheets, 2090 sheets[,] and 2024 extruded aluminum. The
attached paper to the bill of lading, which were marked
“received” by Alexin’s employee, clearly identifies the specific
type of aluminum contained in the shipment. Finally, both the
series 2024 aluminum and 2090 series aluminum were marked
with the respective series number.
14. Alexin issued Receipt #RCT013504 to Olympic for
Purchase Order No. 16208 for “2XXX AL SCRAP” showing
Alexin received 40,643 pounds, of which 37,252 pounds
comprised the weight Alexin was willing to pay after deducting
the weight of the shipping pallets. The receipt also shows
“Contaminate Deductions” of 3,448 pounds[, which is the
weight of the shipping pallets]. Clearly, Alexin had the
opportunity and did inspect the shipment in order to determine
the actual amount of aluminum it had purchased. Alexin could
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 11 of 24
have deducted the 2090 series aluminum as a contaminate if [it]
had [chosen] to.
15. Alexin’s own terms and conditions in its “Purchased Scrap
Specifications” provide that incoming material will be inspected
in regard to material type and chemistry and rejected or
downgraded. Alexin apparently failed to follow its own
procedure.
16. Alexin’s employees comingled the series 2024 and series
2090 aluminum once they received the shipment of aluminum.
17. Alexin argues that because it purchases 19 million pounds
of aluminum scrap and aluminum each month, it must rely on its
suppliers to strictly comply with its purchase orders. Further,
they argue the volume of aluminum purchased prohibits
inspection of each and every piece of aluminum scrap.
Therefore, because of the sheer volume of purchasing and the
consequences of receiving nonconforming material, it would be
incumbent on Alexin to insure its purchase orders are clear and
unambiguous. Apparently, in the industry, 2XXX can be
interpreted as both 2024 Series and 2090 Series aluminum. In
fact[,] when Alexin discovered the source of the problem with the
product they were producing[,] . . . its CEO notified some
employees, including Anita Eads[,] and its purchasing agent,
Kevin Ferguson, that they should be very specific when
purchasing 2024 aluminum in the future.
18. Clearly, based upon the email of CEO, Tom Horter, (prior
to the litigation) Alexin realized they may have in fact received
exactly what they ordered, despite what they intended.[4]
4
This finding, based on Horter’s statement in the email, that “Alexin realized they [sic] may have in fact
received exactly what they ordered,” is insignificant. (Emphasis added). When Horter sent his email, he was
speculating and did not yet know that the Alexin purchase order specifically called for 2024 sheets and that
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 12 of 24
19. Despite knowing they may have ordered incorrect
material, they not only initiated a lawsuit against Olympic, they
discussed the incident with an industry trade magazine. While
possible, the Court doubts very much that a reporter from the
trade publisher, American Metal Market, just happened to be
combing through filings of the Wells Circuit Court on the very
day the lawsuit was initiated. Clearly, based upon the timing,
Alexin notified American Metal Market sufficiently in advance
of its lawsuit such that an article appeared on American Metal
Market’s website concurrently with the filing.
20. Clearly, the lawsuit and accompanying publicity were
taken primarily for the purpose of harassing or maliciously
injuring Olympic and, therefore, was done frivolously.
21. Furthermore, Alexin continued to litigate the matter once
it became clearly frivolous. Extensive discovery was performed
by the parties and the information provided to the Court, which
it has relied upon for its decision, was available to Alexin at some
point during the litigation. Alexin makes no claim that the
information only became available 8 days prior to the trial.
22. The Court finds that Olympic incurred attorney fees in the
sum of $29,480.00. The fees were incurred from the 147.40
hours of service its attorney performed and are reasonable.
23. The Court further finds that Olympic incurred expenses in
the sum of $1,967.55 defending Alexin’s complaint and preparing
for the scheduled jury trial.
the shipment was nonconforming. Of course, neither did Horter know at the time that the shipment was
segregated by type and that Alexin could have easily sorted the 2024 from the 2090 aluminum.
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 13 of 24
Appellant’s App. at 12-18 (some citations omitted). Alexin filed a motion to
correct error, which the trial court denied. This appeal ensued.
Discussion and Decision
[11] Alexin contends that the trial court abused its discretion when it awarded
attorney’s fees to Olympic under Indiana Code Section 34-52-1-1(b). We
review a trial court’s decision to award attorney’s fees and any amount thereof
for an abuse of discretion. Purcell v. Old Nat’l Bank, 972 N.E.2d 835, 843 (Ind.
2012). A trial court abuses its discretion if its decision clearly contravenes the
logic and effect of the facts and circumstances or if the trial court has
misinterpreted the law. Id. Further, we note that, because the trial court’s
factual findings were based on a paper record, we conduct a de novo review of
the record. See Equicor Dev., Inc. v. Westfield-Washington Twp. Plan Comm’n, 758
N.E.2d 34, 37 (Ind. 2001). Thus, our review here is akin to review of a
summary judgment order, where a trial court’s findings are not binding on this
court on appeal. See Nagel v. Northern Ind. Pub. Serv. Co., 26 N.E.3d 30, 42 (Ind.
Ct. App. 2015), trans. denied.
[12] Indiana Code Section 34-52-1-1, the General Recovery Rule, provides in
relevant part as follows:
(a) In all civil actions, the party recovering judgment shall
recover costs, except in those cases in which a different provision
is made by law.
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 14 of 24
(b) In any civil action, the court may award attorney’s fees as part
of the cost to the prevailing party, if the court finds that either
party:
(1) brought the action or defense on a claim or
defense that is frivolous, unreasonable, or groundless;
(2) continued to litigate the action or defense after the
party’s claim or defense clearly became frivolous,
unreasonable, or groundless; or
(3) litigated the action in bad faith.
[13] Here, the trial court concluded that Alexin brought the action on a claim that
was frivolous or, at the very least, continued to litigate the action after it
became frivolous. A claim or defense is “frivolous” (a) if it is taken primarily
for the purpose of harassing or maliciously injuring a person; (b) if the lawyer is
unable to make a good faith and rational argument on the merits of the action;
or (c) if the lawyer is unable to support the action taken by a good faith and
rational argument for an extension, modification, or reversal of existing law.
Kahn v. Cundiff, 533 N.E.2d 164, 170 (Ind. Ct. App.), adopted, 543 N.E.2d 627
(Ind. 1989).
[14] On appeal, Alexin contends that two of the trial court’s findings 5 are not
supported by the evidence. First, Alexin challenges the trial court’s
“Conclusion No. 13” that, “while Alexin may have intended to purchase and
5
Both findings challenged by Alexin on appeal are listed as “Conclusions” in the trial court’s order. For
ease of discussion, we refer to them as “findings.”
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 15 of 24
receive 2024 aluminum scrap, it nonetheless ordered 2[XXX] aluminum
scrap[,] which can be both 2024 and 2090 aluminum.” Appellant’s App. at 17.
While it is true that 2XXX aluminum scrap includes both 2024 and 2090 alloys,
and while the purchase order states that Alexin is seeking 2XXX aluminum
scrap, the purchase order also unambiguously states that Alexin purchased only
“2024 sheets with thin paper in between.” Id. at 292. Thus, we agree with
Alexin that this finding is erroneous.
[15] Second, the trial court found as follows in “Conclusion No. 19”: “Clearly,
based upon the timing, Alexin notified American Metal Market sufficiently in
advance of its lawsuit such that an article appeared on American Metal
Market’s website concurrently with the filing.” Id. at 18. We agree with Alexin
that there is no actual evidence or reasonable inference from the evidence to
support that finding.6 Regardless, given the remainder of the trial court’s
findings, which are supported by the evidence, and given our standard of
review, we cannot say that these two erroneous findings require reversal.
[16] Alexin also contends that the trial court erroneously concluded that Alexin
“lacked a legal basis for its claims” against Olympic. Appellant’s Br. at 17. In
6
The trial court was incredulous that a reporter “just happened to be combing through filings of the Wells
Circuit Court on the very day the lawsuit was initiated.” Appellant’s App. at 18. But the story came out one
day after the federal lawsuit was filed, not one day after suit was filed in state court. Given that there is no
evidence that Alexin alerted AMM to the lawsuit, and given that the AMM reporter is just as likely to have
learned of the federal lawsuit by other means, we cannot agree with the trial court that “clearly” Alexin had
notified AMM about the lawsuit.
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 16 of 24
particular, Alexin maintains that, contrary to Olympic’s contention that Alexin
could not recover damages because Alexin had accepted the nonconforming
2090 sheets, its claims against Olympic “were well supported under the
Uniform Commercial Code and the parties’ agreement.” Id. In support of that
argument, Alexin maintains that
[t]he Uniform Commercial Code (“UCC”), which governs the
parties’ agreement for the sale of goods, . . . “requires that the
seller put and hold conforming goods at the buyer’s disposition.”
Ind. Code § 26-1-2-503(1). The UCC gives buyers who, like
Alexin, receive non-conforming goods, the authority to accept or
to reject those goods. [Ind. Code] § 26-1-2-601. A buyer who
accepts goods and notifies a seller that the goods do not conform
to the parties’ agreement “may recover as damages for any
nonconformity of tender the loss resulting in the ordinary course
of events from the seller’s breach as determined in any manner
which is reasonable.” [Ind. Code] § 26-1-2-714(1). A buyer may
also seek to recover incidental and consequential damages. [Ind.
Code] § 26-1-2-714(3). Consistent with the UCC, Alexin’s
Standard Terms and Conditions of Purchase also provide that
“[f]ailure to inspect, accept, reject[,] or detect defects by
inspection shall neither relieve [Olympic Metals] from its
responsibilities for such materials as are not in accordance with
the [Purchase] Order requirements nor impose liabilities on
Alexin.”
Id. at 17-18 (some citations omitted). Further, Alexin contends, in effect, that,
because it did not discover the nonconforming aluminum until after it had
comingled the 2024 and 2090 aluminum, Alexin’s acceptance of the
nonconforming aluminum was reasonably induced by the difficulty of
discovery before the acceptance. In particular, Alexin states as follows:
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 17 of 24
The UCC and Alexin’s Standard Terms and Conditions of
Purchase reflect the business reality that manufacturers must rely
upon their suppliers to provide conforming goods because it is
impractical for a manufacturer to inspect every item it receives.
Alexin buys nineteen million pounds of aluminum every month.
Accordingly, Alexin must rely on rigid purchasing specifications
and its suppliers’ quality systems to ensure the aluminum
received conforms to the applicable purchase order, and Alexin’s
Purchased Scrap Specification.
Appellant’s Br. at 18. Alexin further contends that it rightfully relied on
Olympic’s assurances upon delivery, as indicated in the purchase order and bill
of lading, both of which stated that only 2024 sheets were included in the
delivery.7
[17] We agree with Alexin that the undisputed evidence shows that Olympic
delivered 8,060 pounds of 2090 sheets in contravention of the purchase order.
But that evidence does not end our inquiry as it does not resolve the issue of
whether, on these facts, Alexin was entitled to revoke acceptance of the
delivery. Indiana Code Section 26-1-2-608 provides in relevant part as follows:
(1) The buyer may revoke his acceptance of a lot or commercial
unit whose non-conformity substantially impairs its value to him
if he has accepted it
***
7
Comment 3 to Indiana Code Section 26-1-2-608 states in relevant part that assurances by the seller “can
rest as well in the circumstances or in the contract as in explicit language used at the time of delivery.”
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 18 of 24
(b) without discovery of such non-conformity if his
acceptance was reasonably induced either by the difficulty of
discovery before acceptance or by the seller’s assurances.
(Emphasis added).
[18] In Trisler v. Carter, 996 N.E.2d 354 (Ind. Ct. App. 2013), Carter bought a chest
of drawers for his sister-in-law. After he got home and cleaned out the drawers,
Carter noticed that nails were sticking out through the backs of the drawers.
Carter then tried to return the chest of drawers to Trisler, but Trisler refused to
issue a refund. Carter sued, and the trial court entered judgment in favor of
Carter. On appeal, we held that, even though the chest of drawers was
nonconforming to Carter’s needs, Carter was not entitled to revoke his
acceptance under Indiana Code Section 26-1-2-608(1)(b). Specifically, we
stated as follows:
The fact that Carter was able to discover the defect upon opening
the drawers of the chest while cleaning it belies the difficulty of
discovering the non-conformity, and there is no allegation that
Trisler in any way kept Carter from inspecting the chest of
drawers prior to his purchase of it. Therefore, I.C. § 26–1–2–
608(1)(b) . . . does not apply to allow Carter to revoke his
acceptance of the chest of drawers. . . . Therefore, we conclude
that the trial court erred in entering judgment for Trisler and we
reverse its decision.
Id. at 358 (emphasis added).
[19] Here, again, the undisputed evidence shows that there were three types of
aluminum scrap included in the April 25 shipment: 2024 aluminum sheets;
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 19 of 24
2024 extruded aluminum; and 2090 aluminum sheets. All three were clearly
stamped as 2024 or 2090 alloys,8 and all three were segregated on separate
pallets. While the bill of lading and purchase order stated that only 2024 sheets
had been delivered, a handwritten note accompanying those documents upon
delivery clearly indicated that 8,060 pounds of 2090 aluminum was included in
the delivery,9 and Steele, an Alexin employee, stamped all three documents
“Received” and signed his name to them. As the trial court concluded, Alexin
“had the opportunity and did inspect the shipment in order to determine the
actual amount of aluminum it had purchased.” Appellant’s App. at 17. It
follows then, that Alexin also had the opportunity to identify the alloys
included in the delivery. A reasonable inspection would have alerted Alexin to
the nonconforming 2090 sheets immediately upon delivery. Alexin does not
allege any latent defects in the aluminum shipment.
[20] The trial court further concluded that “Alexin’s own terms and conditions in its
‘Purchased Scrap Specifications’ provide that incoming material will be
inspected in regard to material type and chemistry and rejected or downgraded.
Alexin apparently failed to follow its own procedure.” Id. at 18. Alexin does
8
We note that Eads took photographs of the stamps on the sheets and attached those photos to her June 4
email to Shiver. We also note that, after the batch of ingots had to be scrapped, Alexin was able to identify
the 2090 sheets remaining in the 2024 bin and remove the 2090 sheets. At no time has Alexin alleged that it
had difficulty differentiating between the 2024 and 2090 sheets.
9
The handwritten note indicates that the order originated with a company called “BSCM, Inc.” Appellant’s
App. at 231. As Alexin points out in its brief on appeal, Olympic is a broker and, therefore, it “does not take
possession of, sort, load, or ship scrap metals to its customers but, instead, relies on other sellers of aluminum
and transportation companies to fill the orders it accepts.” Appellant’s Br. at 7. Thus, that Olympic
contracted with a third party to fill the purchase order was consistent with its business model, which was
known to Alexin at the time of delivery.
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 20 of 24
not dispute that fact on appeal. Accordingly, the evidence shows that Alexin’s
acceptance of the nonconforming goods was not reasonably induced either by
the difficulty of discovering the nonconformity or by any assurances from
Olympic, and Alexin did not rightfully revoke its acceptance of the 2090 sheets
under Indiana Code Section 26-1-2-608. See Trisler, 996 N.E.2d at 358; see also
Scotco Inc. v. Dormeyer Indus., 402 F.2d 336, 338 (7th Cir. 1968) (interpreting
similar prior statute under Uniform Sales Act to prohibit revocation of
acceptance where buyer did not allege latent defects in product accepted).
[21] Further, it is well settled that the UCC limits a nonbreaching party’s damages to
those that are proximately caused by the breach, and,
[w]here the injury involved follows the use of goods without
discovery of the defect causing the damage, the question of
“proximate” cause turns on whether it was reasonable for the buyer
to use the goods without such inspection as would have revealed the
defects. If it was not reasonable for him to do so, or if he did in fact
discover the defect prior to his use, the injury would not proximately
result from the breach of warranty.
I.C. § 26-1-2-715 cmt. 5 (emphases added).10
[22] Here, again, the evidence supports the conclusion that Alexin’s failure to
identify the 2090 sheets prior to using them was not reasonable, and, therefore,
10
Alexin cites to Indiana Code Section 26-1-2-714 in support of its contention that it is entitled to damages
for Olympic’s breach despite Alexin’s acceptance of the goods. Comment 4 of that statute states that
incidental and consequential damages in that circumstance are explained in the comment to Section 26-1-2-
715.
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 21 of 24
that Olympic’s breach did not proximately cause Alexin’s claimed damages. In
particular, Alexin accepted the shipment containing both 2024 and 2090 sheets;
each type of aluminum was clearly stamped as 2024 or 2090; each type was
segregated from the other on separate pallets; and Steele, on Alexin’s behalf,
signed his name to the handwritten note, which clearly stated that the shipment
contained both 2024 and 2090 sheets. The evidence supports the trial court’s
finding that, prior to notifying Olympic that part of the shipment was
nonconforming, Alexin comingled the 2024 and 2090 sheets. And Alexin used
the comingled aluminum scrap to produce a batch of ingots.11
[23] In sum, we review the trial court’s attorney’s fee award for an abuse of
discretion. The evidence shows that Alexin’s acceptance of the 2090 sheets was
not reasonably induced either by the difficulty of discovery before acceptance or
by Olympic’s assurances. The evidence also shows that, had Alexin not
accepted the nonconforming aluminum or had not comingled the 2090 sheets
with the 2024 sheets, Alexin would not have sustained the damages alleged in
its complaint. Olympic erred in delivering the 2090 sheets along with the 2024
sheets, but that created only a storage problem for Alexin until Olympic could
retrieve the nonconforming goods.12 Alexin would not have suffered any
11
After Alexin discovered the problem with the high lithium, it was able to “sort[] out” the 2090 sheets from
the 2024 sheets, and it placed the remaining 2090 sheets on a pallet for Olympic to retrieve. Appellant’s App.
at 236. Then, despite Olympic’s offer to pick up the remaining 2090 sheets and accept payment only for the
2024 sheets under the purchase order, Alexin filed this lawsuit.
12
Of course, Steele could have rejected the 2090 portion of the shipment as nonconforming upon delivery.
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 22 of 24
damages beyond that inconvenience but for Alexin’s own conduct in
comingling the two alloys.
[24] Alexin knew, or reasonably should have known, that its damages were self-
inflicted when it filed its complaint against Olympic. Notwithstanding
Olympic’s breach of warranty, the evidence supports the conclusion that, for
lack of proximate cause, Alexin did not have a good faith or rational argument
to support its claim for damages under the UCC. Given our standard of review,
we cannot say that the trial court’s judgment is clearly against the logic and
effect of the facts and circumstances or that the court misinterpreted the law.
Thus, we hold that the trial court did not abuse its discretion when it awarded
Olympic attorney’s fees under Indiana Code Section 34-52-1-1(b).
Cross-Appeal
[25] Olympic cross-appeals and requests appellate attorney’s fees under Indiana
Appellate Rule 66(E), which provides: “The Court may assess damages if an
appeal, petition, or motion, or response, is frivolous or in bad faith. Damages
shall be in the Court’s discretion and may include attorney’s fees.” Our
discretion to award attorney’s fees under Appellate Rule 66(E) is limited,
however, to instances when an appeal is permeated with meritlessness, bad
faith, frivolity, harassment, vexatiousness, or purpose of delay. Helmuth v.
Distance Learning Systems Ind., Inc., 837 N.E.2d 1085, 1094 (Ind. Ct. App. 2005).
Additionally, while Appellate Rule 66(E) provides this court with discretionary
authority to award damages on appeal, we must use extreme restraint when
exercising this power because of the potential chilling effect upon the exercise of
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 23 of 24
the right to appeal. Id. A strong showing is required to justify an award of
appellate damages, and the sanction is not imposed to punish mere lack of
merit, but something more egregious. Id.
[26] Olympic contends that, on appeal, “Alexin has omitted or misstated many of
the facts in the record and should be required to pay Olympic Metals’ appellate
attorney fees.” Appellee’s Br. at 46. Olympic then lists seven examples of
alleged omissions and misstatements by Alexin in its brief. But four of the
alleged misstatements are not misstatements at all, and the others are not gross
misstatements of the facts. We cannot say that Alexin’s brief on appeal is
“permeated with meritlessness, bad faith, frivolity, harassment, vexatiousness,
or purpose of delay.” See Helmuth, 837 N.E.2d at 1094. Rather, Alexin makes
cogent argument based on relevant case law and citations to the record.
Indeed, we agree with Alexin that two of the trial court’s findings are not
supported by the evidence. We deny Olympic’s request for appellate attorney’s
fees.
[27] Affirmed.
Riley, J., and May, J., concur.
Court of Appeals of Indiana | Opinion 90A02-1510-CT-1608 | April 21, 2016 Page 24 of 24