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ALLIED SEMI-CONDUCTORS INTL., LTD. v. PULSAR COMPO

November 21, 1995

ALLIED SEMI-CONDUCTORS INTERNATIONAL, LIMITED, Plaintiff/Appellee, against PULSAR COMPONENTS INTERNATIONAL, INCORPORATED, Defendant/Appellant.


The opinion of the court was delivered by: SPATT

 SPATT, District Judge.

 The plaintiff/appellee Allied Semi-Conductors International, Limited (the "plaintiff" or "Allied") commenced this breach of contract action on November 15, 1990 pursuant to the Court's diversity of citizenship jurisdiction. Allied is a corporation organized under the laws of the Republic of Ireland, with its principal place of business in that country. The defendant/appellant Pulsar Components International, Incorporated, (the "defendant" or "Pulsar") is a New York corporation with its principal place of business in Nassau County, New York. The substantive law of New York's version of the Uniform Commercial Code (the "U.C.C.") governs the parties' dispute. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 76, 82 L. Ed. 1188, 58 S. Ct. 817 (1938), G. A. Thompson & Co., Inc. v. Wendell J. Miller, Mortgage Co., Inc., 457 F. Supp. 996, 998 n.2 (S.D.N.Y. 1978).

 On April 9, 1991, the parties consented to have the case reassigned to United States Magistrate Judge David F. Jordan for trial, pursuant to 28 U.S.C. 636(c). Following a five day bench trial, which concluded on October 22, 1993, Judge Jordan issued an Amended Decision and Order dated December 17, 1993, in favor of Allied, and directed the Clerk of the Court to enter judgment for Allied in the amount of $ 331,650.00, with interest at the rate of nine (9) percent per annum from January 23, 1990 to the date of entry of judgment.

 Pulsar appeals from Judge Jordan's December 17, 1993 decision. The parties agreed that appeal would lie with this Court, pursuant to 28 U.S.C. § 636(c) (4). Pulsar alleges that the trial court erred in the following: (1) exercise of personal jurisdiction; (2) misapplication of the parties' stipulated issue for trial; (3) a finding of fact with regard to Pulsar's offer to replace the goods in question; and (5) the calculation of damages.

 BACKGROUND

 Allied and Pulsar are both wholesale suppliers of computer component parts. Allied ordered 50,000 computer chips from the defendant on November 29, 1988, at a unit price of $ 10.45 for resale to Apple Computer Ltd. ("Apple"). Pulsar accepted Allied's order, obtained chips to fill the order at a unit price of $ 9.25, and delivered the 50,000 chips to Allied's shipping agent KMT by December 18, 1988. Thereafter, in the same month, Allied delivered the chips to Apple. Apple paid Allied $ 11.00 per unit for the chips, and Allied in turn paid Pulsar the agreed price of $ 10.45 for the chips, or a total of $ 522,500.00.

 Upon inspection, Apple rejected 35,000 of the computer chips as defective. Allied informed Pulsar of the defect reported by Apple in mid-April, 1989. The 35,000 chips were returned to Pulsar by Allied on August 18, 1989, at which time Pulsar issued a return merchandise authorization number. Certain negotiations regarding the terms of the return transpired during the period between April and August, 1989. Pulsar contended that it agreed to take the parts back, despite the fact that the thirty-day return period had expired, on the condition that only the parts that had tested defective would be replaced. Pulsar did not deliver conforming goods to Allied in replacement for those that were returned, nor did Pulsar return to Allied the $ 365,750.00 that represented Allied's payment for 35,000 of the total 50,000 chips that were ordered, delivered, paid for and subsequently returned.

 Thereafter, Allied shipped 35,000 similar substitute chips to Apple in full satisfaction of the agreement between Allied and Apple. Because prices in the computer chip market had dropped precipitously since the initial transaction between the parties, 25,000 chips of the replacement chips were purchased by Allied for only $ 70,875.00 ($ 2.835/chip) from a source other than Pulsar. No evidence regarding the source or value of the additional 10,000 chips was introduced at the trial.

 Prior to the trial Pulsar agreed to concede, for purposes of the trial only, that the 35,000 parts that were rejected and returned were defective. Judge Jordan stated in his decision that the parties agreed that the sole issue to be tried was "whether Pulsar has cured the defective delivery as provided in [U.C.C.] § 2-508." Decision and Order, dated December 17, 1993 ("Decision"), at p. 5. Pulsar contends that the parties limited the trial issue to that of "cure" to avoid litigating complex technical issues relating to the quality of the computer chips. The parties disagree on the scope of the plaintiff's burden of proof on the issue of cure.

 DISCUSSION

 A. Standard of Review

 On appeal, the trial court's findings of fact may be disturbed only if they are found to be clearly erroneous, while its conclusions of law are subject to de novo review. See e.g. Travellers Intern. A.G. v. Trans World Airlines, Inc., 41 F.3d 1570, 1574-75 (2d Cir. 1994).

 B. Personal Jurisdiction

 Judge Jordan made the following findings with regard to service of the summons and complaint:

 
The summons and complaint were mailed to the defendant, whose president actually received them, but failed to acknowledge receipt thereof. The defendant served but did not file an answer raising lack of in personam jurisdiction as a defense. Personal service was not made until after the statute of limitations had expired.

 Decision, at p. 2. Pulsar contends that the trial court erred in concluding that it had jurisdiction over Pulsar, because Pulsar never acknowledged receipt of the mailed summons and complaint as required by Fed. R. Civ. P. 4.

 Judge Jordan's Decision noted that the Second Circuit's interpretation of Rule 4 does not strictly require personal service of the summons and complaint in the absence of written acknowledgement of receipt by the defendant, where actual receipt has occurred. In this Court's view, Judge Jordan properly relied upon Morse v. Elmira Country Club, 752 F.2d 35 (2d Cir. 1984), which held that "strong factors of justice and equity" favor a finding that effective service has been made where mailed, pursuant to Fed. R. Civ. P. 4(c) (2) (C) (ii) and actually received, but not acknowledged. Id. at 40; see also Darvoe v. Town of Trenton, 785 F. Supp. 305, 308 (N.D.N.Y.), aff'd, 979 F.2d 845 (2d Cir. 1992); Lee v. Carlson, 645 F. Supp. 1430, 1432 (S.D.N.Y. 1986), aff'd, 812 F.2d 712 (2d Cir. 1987).

 In the present case actual service was acknowledged by the defendant's president, Thomas Laviano, as discussed in his testimony at trial. Tr. Vol. V, at pp. 46-53. The defendant concedes that in the Second Circuit, a failure to follow the directives of Rule 4 is not fatal to a plaintiff's case. This Court is not persuaded by Pulsar's argument that numerous holdings to the contrary from courts of other circuits state a more proper view of the Rule. See, e.g., Schnabel v. Wells, 922 F.2d 726 (11th Cir. 1991); FDIC v. Mt. Vernon Ranch, Inc., 118 F.R.D. 496 (W.D. Mo. 1988); Wise v. Commissioner of I.R.S., 624 F. Supp. 1124 (D. Mont. 1986).

 Judge Jordan properly relied on the controlling law of the Second Circuit in concluding that actual receipt of the summons and complaint by the defendant satisfied the requirements of effective service and brought the defendant within the Court's jurisdiction. Similarly correct is Judge Jordan's conclusion that the statute of limitations ceased to run when the summons and complaint were actually received, so that this action was not barred by the four year statute of limitations. See Morse, 752 F.2d at 39-40.

 The Court takes note of one error in Judge Jordan's Decision, which states that "the mailing and actual receipt was a compliance with state law sufficient to stay the running of the statute of limitations." Decision, at p. 4 (citation omitted). Service was made under Fed. R. Civ. P. 4(c)(2)(C)(ii), not pursuant to the stricter requirements of the New York Civil Practice Law and Rules. This error is harmless in that it does not change the ruling in the case by affecting a substantial right of one of the parties. See Fed. R. Civ. P. 61 (stating that errors that are not inconsistent with substantial justice are harmless errors); see also McDonough Power Equip., Inc. v. Greenwood, 464 U.S. 548, 554, 104 S. Ct. 845, 848, 78 L. Ed. 2d 663 (1984) (citing De Santa v. Nehi, 171 F.2d 696 [2d Cir. 1948]) and stating that it is well settled that appellate courts should act in accordance with the policy embodied in Rule 61).

 Finally, with regard to service, the defendant objected promptly after personal service, that such service was not made within 120 days of filing of the complaint. Judge Jordan properly held that such a defect is not jurisdictional and that Pulsar waived its objection by participating in pretrial proceedings without raising the defect. See Datskow v. Teledyne, Inc., 899 F.2d 1298 (2d Cir.), cert. denied, 498 U.S. 854, 112 L. Ed. 2d 116, 111 S. Ct. 149 (1990).

 Accordingly, the decision of the trial court with regard to its jurisdiction over the defendant Pulsar and timeliness of the action is affirmed.

 C. The Stipulated Issue for Trial

 The defendant contends that the lower court erred in applying the stipulation of the parties as to the issue to be tried. Judge Jordan stated in his December 17, 1993 decision that "the parties agree that this case is governed by the Uniform Commercial Code and that the sole issue for trial is whether Pulsar has cured the defective delivery as provided in § 2-508. . . . It is the position of the defendant that it offered to cure, but that Allied rejected the offer." Decision, at pp. 5-6.

 Pulsar argues that the parties stipulated to limiting the issue at trial to whether Pulsar made a timely offer to cure. It is Pulsar's contention that pursuant to such a stipulation, it could prevail by establishing that it extended an offer to Allied to cure the defective goods. Pulsar argues that the trial court's decision implies that Judge Jordan mistakenly believed that it was the defendant's burden to demonstrate that an actual physical delivery of replacement goods had been made to the plaintiff. Pulsar further argues that because Judge Jordan did not limit the trial to the issue of whether there was an offer to cure, he came to the erroneous conclusion that Pulsar failed to establish facts that would lead to a verdict in its favor. See Martin v. City of Cohoes, 37 N.Y.2d 162, 371 N.Y.S.2d 687, 332 N.E.2d 867 (1975) (stating that in the absence of strong countervailing public policy, parties may consent to the law that is to be applied to the case); see also Nederlandse Draadindustrie N.D.I. B.V. v. Grand Pre Stressed Corp., 466 F. Supp. 846, 851 (E.D.N.Y.), aff'd 614 F.2d 1289 (2d Cir. 1979).

 Pulsar contends that this alleged misunderstanding by the trial court of the issue to be tried resulted in two errors, namely (1) an incorrect finding of fact regarding testimony relating to testing of the defective parts; and (2) a misapprehension of the ultimate issue by the trial court. Pulsar asks this Court to pose the question, "did Pulsar make an offer to cure," and based on the trial testimony to the effect that such an offer was made, find in its favor.

 It is Allied's position that the trial was to address the "issue of cure," which was not limited to whether an offer to replace the goods was made. Each party draws the Court's attention to various letters in the file and statements in the trial transcript that phrase the issue to be tried alternatively as "offer to cure" or "issue of cure." In other words, there is evidence to support each party's contention as to the meaning of the stipulated issue.

 As a threshold matter, this court notes that the validity of a stipulation is dependant upon a clear and unequivocal expression, either in writing or on the record in open court. See e.g., Orsini v. Kugel, 9 F.3d 1042 (2d Cir. 1993); In Re Greenspan, 43 A.D.2d 998, 352 N.Y.S.2d 263 (3d Dep't 1974), aff'd, 36 N.Y.2d 737, 368 N.Y.S.2d 162, 328 N.E.2d 791 (1975). That type of clear stipulation was not made in this case. The Court has reviewed the entire case file as well the record and finds no clearly stated agreement by the parties on the issue for trial. The record does suggest that the issue for trial was narrowed to exclude the question of whether defects were present in the computer chips. However, the record does not suggest that the parties and the court agreed to limit the question at trial to whether Pulsar had made an offer to cure rather than examine all elements of contractual cure as provided for in U.C.C. § 2-508.

 D. The Law of contractual Cure

 In this Court's view, Judge Jordan properly applied the law regarding cure as set forth in Section 2-508 of the Uniform Commercial Code, which provides:

 
(1) Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery.
 
(2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.

 Id. The plain language of this section reveals that contractual cure is a two step process. The first subsection requires (1) notification of the seller's intent to cure and (2) conforming delivery within the contract time. The second subsection requires (1) notification to the buyer and (2) substitution of conforming tender. This clearly entails more than a mere offer, but less than actual physical delivery, as illustrated by an examination of the term "tender" within the meaning of the U.C.C.

 The U.C.C. section concerning tender is Section 2-507, which provides that tender of delivery is a condition to the buyer's duty to accept the goods. "Tender entitles the seller to acceptance of the goods and to payment according to the contract." ...


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