New England Precision Grinding, Inc. v. Simply Surgical, LLC

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14-P-1637 Appeals Court
NEW ENGLAND PRECISION GRINDING, INC. vs. SIMPLY SURGICAL, LLC1
& another.2
No. 14-P-1637.
Worcester. November 2, 2015. - March 9, 2016.
Present: Milkey, Carhart, & Massing, JJ.
Uniform Commercial Code, Acceptance of goods, Revocation of
acceptance. Indemnity. Judgment, Interest. Practice,
Civil, Instructions to jury, Judgment notwithstanding
verdict, Verdict.
Civil action commenced in the Superior Court Department on
August 7, 2006.
The case was tried before Richard T. Tucker, J., and
motions for the entry of separate and final judgment and to
reach the proceeds of the judgment were heard by him.
Barry A. Bachrach for the plaintiff.
Matthew R. Johnson for Simply Surgical, LLC.
Dale C. Kerester for Iscon Surgicals, Ltd.
1
Doing business as Pricon US.
2
Iscon Surgicals, Ltd.
2
CARHART, J. This Superior Court contract action stems from
the sale by defendant Simply Surgical, LLC (Simply Surgical) to
plaintiff New England Precision Grinding, Inc. (NEPG) of medical
device parts manufactured by defendant Iscon Surgicals, Ltd.
(Iscon). All three parties appeal from an amended judgment
entered on January 8, 2013, in favor of Simply Surgical; Iscon
also appeals from an order entered on January 18, 2013, denying
its motion for entry of a separate and final judgment and to
reach the proceeds of the judgment due to Simply Surgical from
NEPG.3
On appeal, NEPG argues that the judge wrongly declined to
instruct the jury that, under the Uniform Commercial Code
(U.C.C.), codified in Massachusetts at G. L. c. 106, NEPG had
the right to revoke its acceptance of parts once they were
rejected by its customer Kyphon, Inc. (Kyphon). It also
complains that the jury's verdict was against the weight of the
evidence and its award excessive. Simply Surgical argues that
the judge erroneously prevented it from presenting its claim for
common-law indemnification against Iscon. Iscon contends that
the judge should have corrected the amount of the damages
awarded by the jury to include the total unpaid balance sought
by Iscon on its account stated.
3
As Iscon failed to make any argument as to the order
entered on January 18, 2013, it has waived that issue on appeal.
See Mass.R.A.P. 16(a)(4), as amended, 367 Mass. 921 (1975).
3
We affirm the amended judgment, and the order entered
January 18, 2013, denying Iscon's motion.
Background. We summarize the trial evidence. NEPG is a
Massachusetts-based manufacturer of precision medical
components. In or around 2004, NEPG contracted with Kyphon and
agreed to supply Kyphon with medical device parts referred to as
stylets and nozzles.4 In 2005, Kyphon ordered six lots from
NEPG, with each lot containing 25,000 pieces of each component.
Because NEPG could not manufacture the parts at the price point
that Kyphon requested, it contracted with Robert Longo, the
owner of Simply Surgical, to obtain the parts from Indian
manufacturer Iscon. Iscon shipped the initial order directly to
NEPG, but shipped subsequent orders to Longo at Simply Surgical.
The parts were shipped by lot, and Iscon would certify that the
parts conformed to the plans and specifications provided by
NEPG.
Upon receiving the parts from Iscon or Simply Surgical,
NEPG would conduct its own inspection using a process that was
approved by Kyphon and which accorded with industry standards
for medical devices. If NEPG approved of the parts, it would
4
Kyphon is a California-based medical device manufacturer
which has patented a surgical procedure called "kyphoplasty."
The procedure involves the insertion of a solidifying agent
between the patient's vertebrae to remove pressure from the
spine, and the stylets and nozzles it ordered from NEPG are part
of the medical kit designed by Kyphon for use in the procedure.
4
certify that they conformed to Kyphon's plans and specifications
and would ship them to Kyphon. Kyphon would then do its own
inspection before accepting or rejecting NEPG's shipment. The
purchase orders from NEPG to Simply Surgical neither mentioned
Kyphon nor required that the parts ultimately be accepted by
Kyphon;5 rather, the terms were listed as "Net 30 days." The
"[d]escription" of the products ordered included
"[c]ertifications [r]equired," and the purchase orders contained
a directive that the parts are not to be shipped "UNTIL
INSPECTION DATA HAS BEEN REVIEW [sic] AND APPROVED BY NEPG."
Early on, NEPG brought to Longo's attention conformity
issues that Simply Surgical and Iscon worked to correct. At one
point, in order to keep the project moving, Simply Surgical gave
NEPG approximately $20,000 in credits. Later, on two occasions
after Kyphon rejected lots 4 and 5, which NEPG had certified
were conforming, Longo agreed to take the parts back and rework
them.6 When Longo refused to take them back a third time, NEPG
used in-house labor to polish and improve the appearance of the
parts to Kyphon's satisfaction.
5
Indeed, NEPG took pains to conceal from Kyphon the fact
that it was not manufacturing the parts, and from Simply
Surgical and Iscon the fact that Kyphon was NEPG's customer.
6
In 2006, Kyphon issued new appearance standards for the
parts it had ordered from NEPG. However, NEPG acknowledged that
those standards were not incorporated into NEPG's purchase
orders with Simply Surgical.
5
NEPG promptly paid Simply Surgical for lots shipped in June
and July, 2005. However, Simply Surgical received no payments
from NEPG from August through November, 2005. From that time
through July, 2006, payments from NEPG to Simply Surgical
lagged. Indeed, there was one period of several months when
NEPG failed to pay Simply Surgical over $100,000, despite having
received from Kyphon, during that time, payments totaling
$188,000.7 NEPG's chief financial officer testified that the lag
in payment resulted from a "policy" instituted at NEPG as a
result of the "quality issues" with previous shipments, whereby
NEPG would not "immediately pay" Simply Surgical for parts until
NEPG "received notice from Kyphon that the parts were inspected
and deemed good." As of January 26, 2006, NEPG owed Simply
Surgical $163,331.08. By the spring of 2006, Longo was refusing
to ship the remainder of lot 3 until NEPG addressed its
outstanding balance with Simply Surgical. He also demanded
upfront payment for lot 6, which was waiting to be shipped from
India. NEPG refused, and, in early August, 2006, Kyphon
canceled its contract with NEPG.
7
Although the owner of NEPG denied that NEPG lacked "a cash
flow to pay Simply Surgical in or about 2006," the jury was
entitled to credit Longo's testimony that NEPG's owner told him
that NEPG failed to pay Simply Surgical because NEPG was
protecting its cash flow. Admitted into evidence were NEPG's
financial reports indicating that NEPG's monthly cash flow was
low or negative during the period it failed to pay Simply
Surgical.
6
NEPG then sued Simply Surgical for breach of contract,
breach of the implied warranties of merchantability and of
fitness for a particular purpose, and violation of G. L. c. 93A,
§ 11, alleging that Simply Surgical had supplied defective parts
that caused Kyphon to cancel its contract with NEPG. Simply
Surgical counterclaimed for breach of contract, breach of the
implied covenant of good faith and fair dealing, quantum meruit,
and violation of c. 93A, based upon NEPG's failure to pay.
After NEPG's motion to join Iscon was allowed, NEPG amended its
complaint to request a judgment declaring that it was not liable
to Iscon, and Iscon and Simply Surgical brought claims against
each other. Kyphon was not sued.
A jury trial took place over the course of two weeks, with
the judge reserving for himself the cross claims of NEPG and
Simply Surgical under c. 93A. The judge denied Iscon's motion
for a directed verdict at the close of Simply Surgical's case
insofar as it was based upon Simply Surgical's alleged failure
to show an agency relationship; however, he allowed the motion
with respect to Simply Surgical's claim for common-law
indemnification. He denied NEPG's request for a jury
instruction that NEPG had the right under the U.C.C. to revoke
its prior acceptance of parts because NEPG did not give "the
proper notice to anyone that [it was] revoking [its] previously-
made acceptance." The judge also denied Simply Surgical's
7
request that he instruct the jury that if they found that Simply
Surgical was an agent of Iscon, then Iscon had a common-law duty
to indemnify Simply Surgical for its litigation costs.
The jury found that NEPG committed a breach of its
contracts and the implied covenant of good faith and fair
dealings with Simply Surgical and was liable to Simply Surgical
in quantum meruit, and awarded damages in the amount of
$125,997.84. The jury further found that Simply Surgical
committed a breach of its contract with Iscon and was liable to
Iscon "upon an unpaid balance of account," and awarded damages
in the amount of $84,150. After a hearing and "careful review
of the memoranda of the[] parties," the judge determined that
neither Simply Surgical nor NEPG had engaged in an unfair or
deceptive act or practice within the meaning of c. 93A.
Judgment entered against NEPG and in favor of Simply Surgical
awarding damages in "the sum of $125,997.84 plus interest
thereon from 03/21/07 through 11/28/2012 in the amount of
$86,121.14 and . . . costs of action as provided by law," and,
as to the cross claims, against Simply Surgical and in favor of
Iscon awarding damages in "the sum of $84,150.00 with interest
thereon from 07/15/10 through 11/28/12 in the sum of $35,914.88
and . . . costs of action as provided by law." The judgment
also dismissed NEPG's and Simply Surgical's respective c. 93A
claims.
8
After trial, the judge denied NEPG's motion for judgment
notwithstanding the verdict and motion for a new trial and for a
remittitur on Simply Surgical's counterclaim. He denied Iscon's
motion to correct the amount of the jury award and the
calculation of prejudgment interest. The judge allowed so much
of Simply Surgical's motion to amend the judgment so as to
correct a miscalculation of prejudgment interest,8 but he denied
the remainder of the motion, which sought application of a
different accrual date and interest rate. As a result, an
amended judgment entered, and the original judgment's interest
award to Iscon was changed to "7/15/10 through 11/28/12 in the
sum of $23,986.42." The judge denied Iscon's motion for entry
of separate and final judgment (against Simply Surgical) and to
reach and apply the proceeds of the judgment due to Simply
Surgical from NEPG.
Discussion. 1. Claims by NEPG. NEPG claims error in the
judge's refusal to instruct the jury that it had the right under
the U.C.C. to revoke its acceptance of parts once they were
rejected by Kyphon. There was no error.
8
In its motion to amend the judgment, Simply Surgical
argued that "[a]pplying the time period set forth in the
judgment and the 12% interest rate[] yields a pre-judgment
interest amount due ISCON of $23,982.75." While the record does
not state the interest rate applied by the judge, his allowance
of Simply Surgical's motion suggests that it was the statutory
prejudgment interest rate set forth in G. L. c. 231, § 6C.
9
The evidence established that the goods provided by Simply
Surgical were "conforming" and that NEPG "accepted" them within
the meaning of the U.C.C. See G. L. c. 106, §§ 2-106(2) and 2-
606(1). Specifically, it was undisputed that NEPG ordered parts
from Simply Surgical that it knew Iscon would manufacture
according to NEPG's specifications, that Iscon manufactured the
parts and certified that they conformed to those specifications,
that NEPG did its own inspection before accepting parts, and
that NEPG then sent parts to Kyphon with a certification that
they conformed to Kyphon's specifications. As such, NEPG had no
right of revocation. See G. L. c. 106, § 2-607(2), inserted by
St. 1957, c. 765, § 1 ("Acceptance of goods by the buyer
precludes rejection of the goods accepted"); G. L. c. 106, § 2-
608(1), inserted by St. 1957, c. 765, § 1 ("The buyer may revoke
his acceptance of a lot or commercial unit whose non-conformity
substantially impairs its value to him" [emphasis supplied]).
Even if NEPG did have the right to revoke, there was no
evidence that NEPG expressed or communicated to Simply Surgical
an intent to do so. See G. L. c. 106, § 2-608(2) ("Revocation
of acceptance [under the U.C.C.] . . . is not effective until
the buyer notifies the seller of it"). NEPG never provided
Simply Surgical with "notice" as that term is defined in the
U.C.C., see G. L. c. 106, § 1-202, and while any delay in
providing notice could have been justified by NEPG's constant
10
communication with Longo and Longo's attempts to address NEPG's
complaints, see Fortin v. Ox-Bow Marina, Inc., 408 Mass. 310,
318 (1990), NEPG ultimately bore the burden of "proving the date
upon which it revoked its acceptance." Jeffco Fibres, Inc. v.
Dario Diesel Serv., Inc., 13 Mass. App. Ct. 1029, 1030 (1982).
It offered no evidence on this point. Instead, the evidence was
clear that "neither party treated nonconforming deliveries as
substantially impairing the value of the whole contract so as to
constitute a breach of the whole." Bevel-Fold, Inc. v. Bose,
Corp., 9 Mass. App. Ct. 576, 581 (1980). NEPG continued to
demand parts from Simply Surgical after expressing its
dissatisfaction with previous shipments of parts, and NEPG
continued to ship Simply Surgical's parts to Kyphon with
certifications that they conformed to Kyphon's specifications.
NEPG provides no authority for its argument that it could accept
goods from Simply Surgical, inspect them, certify that they were
conforming, and then revoke acceptance when the parts were
rejected by Kyphon. We see no error in the judge's conclusion
that there had been no effective revocation of acceptance under
the U.C.C., such that NEPG was entitled to the requested
instructions. See Jeffco Fibres, Inc., supra ("[A]n effective
revocation of acceptance may be accomplished by oral notice
. . . or by conduct which unequivocally manifests a desire to
11
revoke the sale," taking into account "the course of dealing
between the parties after the sale and prior to the rejection").9
There having been no effective revocation by NEPG, NEPG was
obligated under the U.C.C. to pay Simply Surgical. See G. L.
c. 106, §§ 2-301, 2-310(a), and 2-607(1). Under the terms of
its contracts, NEPG was required to do so within thirty days.
See Miller Brewing Co. v. Alcoholic Bevs. Control Commn., 56
Mass. App. Ct. 801, 803 (2002) (credit terms of "net eleven
days" meant eleven days within which to pay the seller in full).
Although NEPG "really wanted to tie [its] payments [to Simply
Surgical] to the acceptance date by Kyphon," the judge correctly
observed that "the approval and formal acceptance of the goods
by NEPG is the determinative factor under the terms of the
NEPG/Simply Surgical contracts, not the acceptance by Kyphon."
The parties "easily could have included language expressly"
requiring ultimate approval by Kyphon had they so intended,
Merrimack College v. KPMG LLP, 88 Mass. App. Ct. 803, 806
(2016); they did not, and "the contract [must] be enforced
according to its terms." Mejia v. American Cas. Co., 55 Mass.
App. Ct. 461, 465 (2002). Contrast Bevel-Fold, Inc., supra at
578 ("In the agreement, [the buyer] reserved the right to reject
cabinets defective in material or workmanship 'at anytime'").
9
For this same reason, the judge correctly denied NEPG's
motion for a new trial on the basis that he gave erroneous
instructions.
12
Viewing NEPG's testimony in the light most favorable to
Simply Surgical, see Solimene v. B. Grauel & Co., 399 Mass. 790,
792 (1987), NEPG inspected and accepted parts from Simply
Surgical before sending them to Kyphon with a certificate of
conformity, but "determined . . . that [it] would not
immediately pay" Simply Surgical until it "received notice from
Kyphon that the parts were inspected and deemed good." The
terms of NEPG's contracts with Simply Surgical were "Net 30
days," yet NEPG failed to make any payments for at least four
months. Thus, the judge properly denied NEPG's posttrial motion
for judgment notwithstanding the verdict and motion for a new
trial and for a remittitur. See McCarthy v. Waltham, 76 Mass.
App. Ct. 554, 560 (2010), quoting from O'Brien v. Pearson, 449
Mass. 377, 383 (2007) ("Review of these motions requires us to .
. . evaluate whether anywhere in the evidence, from whatever
source derived, any combination of circumstances could be found
from which a reasonable inference could be made in favor of the
nonmovant").10
10
NEPG's argument that Simply Surgical's taking back of
rejected parts established a course of performance whereby
Kyphon's acceptance became part of the deal is unavailing in
light of the express terms of the contracts. While a course of
performance may illuminate or supply missing contract terms, it
will not be construed to contradict express terms. See G. L.
c. 106, § 2-208(2). See also Affiliated FM Ins. Co. v.
Constitution Reinsurance Corp., 416 Mass. 839, 845 (1994)
("Express terms are to be given preference in interpretation
over course of performance"); Somerset Sav. Bank v. Chicago
13
The judge did not abuse his discretion in denying NEPG's
motion to reduce the jury verdict, see Solimene v. B. Grauel &
Co., supra at 803 ("A challenge to the damages awarded as
against the weight of the evidence generally is a matter within
the judge's discretion"), because "the jury could have reached,
honestly and fairly, the award that they did based on the"
testimony and the documentary evidence at trial. Ibid.
2. Claims by Simply Surgical. The judge correctly denied
Simply Surgical's request to submit its common-law
indemnification claim against Iscon to the jury, because such
"indemnification [is] available . . . only to a defendant whose
liability was vicarious or formal." Economy Engr. Co. v.
Commonwealth, 413 Mass. 791, 794 (1992). While NEPG did allege
that Simply Surgical provided it with defective parts that Iscon
undisputedly manufactured, NEPG did not bring defective
manufacturing claims against Simply Surgical or Iscon. Instead,
NEPG alleged that Simply Surgical was in breach of contract
"[b]y its conduct," including a "refus[al] to address the
defective product" and wrongfully withholding shipments.
Title Ins. Co., 420 Mass. 422, 427-428 (1995) (in the absence of
ambiguity, evidence of custom and practice cannot be used to
vary contract provisions). Compare Vita v. Berman, DeValerio &
Pease, LLP, 81 Mass. App. Ct. 748, 755 (2012), quoting from
Lawrence v. Cambridge, 422 Mass. 406, 411 (1996) ("[I]n an
ordinary contract, where matters are left open, the court may
imply terms either that are reasonable or that may be gathered
from the subsequent course of performance [of the parties]").
14
Because Simply Surgical's allegedly tortious conduct "was
independent of" any allegedly defective manufacturing of the
products by Iscon, the judge correctly concluded that it "had no
common law right of indemnity against [Iscon]." Id. at 793-794.
Simply Surgical also argues error in the judge's denial of
so much of its motion to amend the judgment that sought
application of a contract rate and accrual date other than what
was set forth in the original judgment. Simply Surgical,
however, does not challenge the judge's finding that it failed
to establish the contract interest rate or the date of breach.
Interest on damages awarded for breach of contract "shall be
added . . . at the contract rate, if established, or at the rate
of twelve per cent per annum from the date of the breach or
demand" (emphasis added), G. L. c. 231, § 6C, as appearing in
St. 1982, c. 183, § 3, and "[i]f the date of the breach or
demand is not established, interest shall be added . . . at
[the] contractual rate, or at the rate of twelve per cent per
annum from the date of the commencement of the action." Ibid.
We think the judge properly applied the statutory interest rate
as of the date of commencement of the Simply Surgical's
counterclaim. See Graves v. R.M. Packer Co., 45 Mass. App. Ct.
760, 771 (1998).
15
3. Iscon's claims.11 Iscon argues error in the judge's
denial of its motion for judgment notwithstanding the verdict
and to amend the jury award, because, it claims, the jury
improperly deducted $79,589.55 from the nearly $140,000 that
Iscon claimed to be owed. We see no abuse of discretion or
error of law. See Bartley v. Phillips, 317 Mass. 35, 43 (1944).
"An account stated does not create a liability where none
existed before; it merely determines the amount of a debt where
liability already exists." Davis v. Arnold, 267 Mass. 103, 110
(1929). It is "a promise to pay whatever balance is thus
acknowledged to be due." Rizkalla v. Abusamra, 284 Mass. 303,
307 (1933). Iscon submitted its account stated claim to the
jury. Accordingly, it was for the jury to decide whether there
was an accounting, see Berwin v. Levenson, 311 Mass. 239, 247
(1942), and, if so, for how much. See Cavanaugh Bros. Horse Co.
v. Gaston, 255 Mass. 587, 591 (1926) ("The questions, what was
to be believed, and what inferences were proper, were for the
jury"). The judge correctly instructed the jury that it must
determine "whether the account balance statement accurately sets
11
We decline to address Iscon's argument that the judge
should have awarded prejudgment interest from the date Simply
Surgical filed its counterclaims against NEPG, instead of from
the date that Iscon filed its crossclaims against Simply
Surgical, because Iscon cites to no authority for the
proposition that "action," as used in G. L. c. 231, § 6C, should
be interpreted to mean Simply Surgical's claims against NEPG and
not Iscon's claims against Simply Surgical. See Mass.R.A.P.
16(a)(4).
16
forth the amount, if any, due Iscon." Iscon did not object to
the judge's instructions, and, as the judge aptly noted, the
jury was free to "disbelieve any portion of the account." We
will not disturb his conclusion that the jury's verdict should
stand. See Freeman v. Wood, 379 Mass. 777, 781 n.9 (1980).
Amended judgment affirmed.
Order entered January 18,
2013, affirmed.