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Palm Bay International, Inc v. Marchesi Di Barolo S.P.A

July 11, 2011

PALM BAY INTERNATIONAL, INC., PLAINTIFF,
v.
MARCHESI DI BAROLO S.P.A., DEFENDANT.
DAVID S. TAUB AND MARC TAUB, PLAINTIFFS,
v.
MARCHESI DI BAROLO S.P.A., DEFENDANT.



The opinion of the court was delivered by: Spatt, District Judge.

MEMORANDUM OF DECISION AND ORDER

The plaintiffs Palm Bay International, Inc., ("Palm Bay") and David S. Taub and Marc Taub (the "Taubs") (collectively the "plaintiffs") move for a post-judgment ruling granting to them a judgment as a matter of law pursuant to Federal Rule of Civil Procedure ("Fed.R.Civ.P.") 50(b) or, in the alternative, a new trial pursuant to Fed.R.Civ.P. 59. For the reasons set forth below, the plaintiffs' motions are denied in part and granted in part.

I. THE BACKGROUND

The facts in this case were initially stated in the Court's prior Memorandum and Decision and Order dated May 17, 2010. At the four week trial the facts were further set forth in greater detail. In this opinion the Court will review only the essential facts which, together with the applicable law, form the basis for this decision.

On January 1, 1994, defendant Marchesi Di Barolo S.P.A. ("Marchesi") and the Taubs entered into an "Agency Agreement," by the terms of which Marchesi appointed David Taub and Martin Taub as its exclusive sales agents in the United States. Martin Taub's interest in the agreement was later assigned to his grandson, the defendant Marc Taub. The Taubs are the owners of Palm Bay, a New York company that specializes in importing wine and spirits.

On February 7, 1994, Palm Bay entered into a written agreement with Marchesi for the exclusive right to import Marchesi's wine in the United States ("the Importation Agreement"). Among the terms of the agreement was the provision that payment for the wines must be made by Palm Bay 100 days from the date on the bill of lading.

In 2006 and 2007, Palm Bay engaged in discussions with its customer, the Olive Garden Restaurant chain with regard to the sale of a wine known as Moscato d'Asti wine ("Moscato") to be offered by Olive Garden in its 700 restaurants in the United States. On August 21, 2007, Palm Bay gave Marchesi a written order for the Moscato wine. The wine was to be made available to all the Olive Garden restaurants on or about January 4, 2008. In October and November 2007, Marchesi began to deliver the first two installments of approximately 3,500 cases each of Moscato wine. The installments were in two lots, named Lot 291 and Lot 310.

In January 2008, Palm Bay began to receive reports from Olive Garden restaurants that the Moscato wine was defective. The evidence revealed that some of the bottles resembled either a cloudy appearance with sediment or a clear appearance with a noxious smell and taste. Palm Bay immediately notified Marchesi. On February 5 and 6, 2008, Marchesi directed that the Moscato Lot 291 be recalled from the market. Palm Bay incurred significant expenses in recovering the defective wine; in air-freighting replacement wine; and in a substantial payment to Olive Garden. Nevertheless, on February 21, 2008, Olive Garden cancelled the Moscato program, and would not accept any new wine product from Marchesi. This cancellation caused additional money damages to Palm Bay. In fact, Palm Bay paid Olive Garden the sum of $1.1 million in alleged damages.

Prior to and following the termination of the Olive Garden program, Palm Bay and Marchesi representatives met and exchanged communications to try to resolve various issues, without success. By this time, Palm Bay had paid Marchesi for all the Moscato. However, in a letter dated January 15, 2008, Palm Bay notified Marchesi that it was setting off the purchase price of the Moscato against other outstanding payments due to Marchesi under the terms of their Importation Agreement. Thereafter, on January 28, 2009, as a result of the "set-off", Marchesi sent a letter to Palm Bay and the Taubs terminating both the Importation Agreement and the Agency Agreement.

A major issue in this case was the alleged attempt by Marchesi to "cure" the problem caused by the defective Moscato wine. The cure by a seller of a defective delivery is governed by the New York Uniform Commercial Code § 2-508, which reads as follows:

§ 2-508. Cure by Seller of Improper Tender or Delivery; Re-placement

(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.

A. The Trial History

A jury was selected on July 12, 2010 and the trial commenced on July 13, 2010 and concluded on August 3, 2010. The case went to the jury with regard to the following cause of action and six counterclaims.

The plaintiff Palm Bay's cause of action -- Breach of the Implied Warranty of Merchantability.

The defendant's First Counterclaim -- Based on as to the payment set-off by Palm Bay. The defendant's Second Counterclaim -- Based on the failure of Palm Bay to pay for conforming Marchesi wine within 100 days from the date on the bill of lading.

The defendant's Third Counterclaim -- Based on the claim by Marchesi that Palm Bay breached the Dispute Resolution provision of the Importation Agreement.

The defendant's Fourth Counterclaim -- Based on the claim by Marchesi against Palm Bay on an Agency Agreement term involving replacing defective wine on a "dollar for dollar" basis. However, as to this provision, the jury would first have to determine that Marches proved that the Agency Agreement and the Importation Agreement were part of a single transaction and were to be construed as a single contract. The jury found that Marchesi failed to prove that the two agreements were part of a single transaction.

The defendant's Fifth Counterclaim -- Based on the claim by Marchesi against David Taub and Marc Taub for breaching their fiduciary duty as agents by not considering any wine importer other than Palm Bay.

The defendant's Sixth Counterclaim -- Based on the claim by Marchesi against David Taub and Marc Taub for breach of their fiduciary duty by instructing Palm Bay to take a set-off of the price of the wine.

B. The Verdict

As to the plaintiff's cause of action, the jury found that there was a breach of the implied warranty of merchantability by Marchesi, in that the Moscato wine was not reasonably fit for the intended use. However, the jury also determined that Marchesi proved the "cure" defense, namely that it notified Palm Bay of its intention to cure and, also, that "it could have provided a conforming delivery of valid conforming Moscato d'Asti wine sufficient to comply with Olive Garden requirements within the time specified in the arrangements between Palm Bay and Marchesi." (Verdict; question 2). Therefore, the plaintiff Palm Bay was not entitled to recover damages in its sole cause of action.

As to the first counterclaim, the jury was advised that, ". . . the Court has already determined that the plaintiff Palm Bay has breached the Importation Agreement by taking this set-off and failing to pay for certain Marchesi products, so that your function is to fix the damages caused by this set-off. The damages on the first counterclaim based on the set-off is for you to determine. It consists of the wine that was delivered and not paid for." The set-off was for non-Moscato wine that was delivered to Palm Bay and was due and owing. The jury found that the total amount of monetary damages to be awarded to Marchesi on the first counterclaim was the sum of $519,552.68. The Court notes that Marchesi contended that the proper set-off damages was the sum of $597,335.48. However, the jury determined that the Palm Bay proposed lesser figure of $519,552.68 was the proper measure of damages.

As to the second counterclaim, the Court similarly advised the jury that it had already determined that "Palm Bay had no legitimate basis to withhold payment for the conforming wine. Therefore, Palm Bay breached that paragraph in the Importation Agreement." However, the jury was further instructed that the damages are the same as in the first counterclaim. "Do not compensate Marchesi twice for the same damages." As to the second counterclaim there was an additional contested request for the cost of relabeling the wine in the sum of $115,885.89. The jury, as in the first counterclaim, determined that the lesser sum of $519,557.68 was due to Marchesi and also declined to award it the additional sum requested for the cost of relabeling.

The third counterclaim was based on the defendant's assertion that Palm Bay breached the Dispute Resolution provision in the Importation Agreement. The jury found that Palm Bay breached this provision and awarded the same amount of damages of $519,552.68. As to the defendant's fourth and fifth counterclaims, the jury found in favor of the plaintiff.

The sixth and final counterclaim was against David Taub and Marc Taub for breach of their fiduciary duty in instructing Palm Bay to take the set-off of the price of the wine. Again, the Court instructed the jury that "the damages are the same as the first counterclaim, namely the unpaid wine deliveries." The jury found in favor of Marchesi in the sixth counterclaim, awarding the same amount of damages, namely the sum of $519,552.68.

II. THIS MOTION AND THE CONTENTIONS OF THE PARTIES

A. The Plaintiff's Contentions

The plaintiff Palm Bay brings this post verdict motion for judgment as a matter of law pursuant to Fed.R.Civ.P. 50(b) or, in the alternative, for a new trial pursuant to Fed.R.Civ.P. 59. These are the plaintiff's contentions:

1. As to the plaintiff's cause of action for breach of the implied warranty of merchantability, the plaintiff contends that the defendant failed to prove the defense of "cure." The plaintiff contends that "As a matter of law, such 'cure' was deficient because it did not put Palm Bay in the position it would have been in but for the breach." (Pltf's Motion at p. 1). In this regard, the plaintiff contends that there was no "cure" as a matter of law because: (1) Palm Bay never received a tender of the purchase price; (2) Palm Bay incurred significant incidental costs in removing the defective product from the market place but never received a tender of those damages; (3) Palm Bay suffered lost profits as a result of the Olive Garden cancellation, but never received a tender of those damages; and (4) Palm Bay never received a replacement product.

It this regard the plaintiff also states that the jury verdict is "contrary to established law and the expressed purpose of the U.C.C. which is to put the non-breaching party in its intended position." (Pltf's Motion at p. 2). Stated otherwise, "Marchesi failed to cure because it did not put and hold conforming goods at Palm Bay's disposition and give Palm Bay notification necessary to enable it to take delivery." Also, Palm Bay asserts that Marchesi "did not make a conforming tender within the time provided by the contract as required by U.C.C. § 2-508.

2. As to the third counterclaim and the jury finding that Palm Bay breached the "Dispute Resolution Provision" of the Importation Agreement, the plaintiff contends this provision "was a non-exclusive remedy and was a mere agreement to agree and thus not binding on the parties."

3. With regard to the sixth counterclaim, the Taubs contend that "the set-off taken by Palm Bay was outside the scope of the Taubs and Marchesi's fiduciary relationship and that the parties were acting at arm's length." (Pltf's Motion at p. 2). Stated otherwise, the plaintiff's contend that "the Taubs were not acting as Marchesi's agents at the time of the set-off." (Pltf's Motion at p. 23). Because ". . . the Taubs at best had only a limited fiduciary duty, namely the appointment of importers, distributors and wholesalers, and they were not acting within the scope of these relations when they instructed Palm Bay to take the set-off." (Pltf's Motion at p. 23). Accordingly, the plaintiff's contend that this Court must hold, as a matter of law, that the Taubs were not acting as fiduciaries when they instructed Palm Bay to take the set-off.

B. The Response by the Defendant Marchesi

The defendant presents a multifaceted response to the plaintiff's contentions. Initially, the defendant contends that this motion is essentially an attack on the jury's fact finding, which, according to Marchesi "are amply supported by this record."

In addition, the defendant contends that these contentions by Palm Bay have been waived.

As to the plaintiff's assertion that the proof did not set forth a valid "cure" defense, in addition to contesting the merits of this assertion, the defendant contends that this argument was not raised by the plaintiff Palm Bay at the proper time during the trial and therefore it is waived. In this regard, the defendant contends that the plaintiff's Rule 50(a) motion did not raise the claim that Marchesi's cure was legally ineffective because it did not make the plaintiff's "whole". The only contention raised by the plaintiff in the Rule 50(a) motion was that the cure was futile in that Olive Garden terminated the program. The defendant contends that the issue raised in this motion, namely, the supposed legal ineffectiveness of the cure is distinct from the question of whether the cure was futile. Therefore the defendant contends that the plaintiffs are precluded from asserting the ineffectiveness of the cure defense in this Rule 50(b) motion.

Further, even assuming that the plaintiff's prior Rule 50(a) motion could be construed to contend that Marchesi's cure was legally ineffective because it did not cover all the damages allegedly sustained by Palm Bay, the defendant contends that it is untimely under Fed.R.Civ.P. 51(6)(2)(A). The defendant further contends that in the pre-charge conference the Court related to counsel its proposed charge. According to Marchesi no argument was made by the plaintiff that it could not legally offer a "cure" without first providing for the damages suffered by Palm Bay by reason of the breach of warranty, which is their present argument.

In addition, Marchesi supplements its waiver argument by the fact that at the time the Court addressed the content of the verdict sheet with counsel, "Plaintiffs again sat silent." (Dft's Response at p. 6). So that the plaintiff did not object to the form of the Verdict Sheet as to the cure defense. Again, at this time, no mention was made of the plaintiff's damages; instead the jury was to determine if Marchesi "could have provided a conforming delivery of valid conforming Moscato d'Asti wine sufficient to comply with Olive Garden requirements within the time specified in the arrangements between Palm Bay and Marchesi." (Verdict Sheet at question 2). Therefore, the defendant contends that this "cure" contention by the plaintiff is barred by the provisions of Fed.R.Civ.P. 51(c).

Further, as to the cure defense, Marchesi points to the jury finding in the third counterclaim. In that determination, the jury found that Palm Bay "refused to reach a mutually satisfactory solution concerning the defective Moscato d'Asti" by not accepting Lot 310 expedited by air-freight to the United States as a replacement for the defective wine in Lot 291, together with the majority of non-defective bottles in Lot 291, estimated to be in excess of 30,000 bottles, and the proposed Sella & Mosca Moscato wine, all of which could have filled any Olive Garden order.

An important issue addressed by Marchesi is its response to the plaintiff's contention that any wine would be futile because Olive Garden had already cancelled the Moscato program at the time the cure was rendered. Not so, says Marchesi; the relevant efforts to cure took place prior to the termination of the Olive Garden -- Moscato program which took place on February 21, 2008. In this regard, Marchesi contends that there were three separate theories of cure:

(1) Lot 310 constituted a replacement for Lot 291; (2) a new third party supplier Sella & Mosca, could have provided new replacement wine from its existing inventory; and (3) Petteruti of Palm Bay was told by Ernesto Abbona that Marchesi's employees would personally come to Palm Bay's warehouse in the United States and remove the defective bottles, estimated to be 6,000 in number, from Lot 291 thereby permitting the remaining good 34,000 bottles in Lot 291 to be resold. In sum, the defendant contends that, as to the cure defense, there were proper factual issues for the jury concerning whether Marchesi could offer a proper cure under the provisions of § 2-508.

As to the third counterclaim, the defendants contends that the jury was presented with factual questions as to whether Palm Bay complied with the Dispute Resolution Provision in the Importation Agreement. In response to the argument by Palm Bay that the Dispute Resolution Provision was not an exclusive remedy, Marchesi asserts that "it is at the very least a condition precedent to Palm Bay asserting other remedies." In addition, Marchesi disputes the contention by Palm Bay that the provision was too indefinite to be enforceable. Marchesi contends that "the requirement that the parties negotiate to settle disputes is enforceable." Further, Marchesi contends that although the parties did negotiate for a period of time, Palm Bay did not negotiate in good faith, as is required in all such agreements.

As to the sixth counterclaim based on breach of their fiduciary duty by the Taubs in instructing Palm Bay to take the set-off of the price of the good wine, the defendant contends that this was a question of fact for the jury and there is no basis to disturb their verdict. The defendant asserts that the Taubs, as agents, owed to Marchesi good faith, loyalty and honesty. As such, when the Taubs instructed Palm Bay to take the set-off, the jury could and did find that there was a breach of fiduciary duty.

Finally, the defendant contends that the plaintiff's Rule 59 motion for a new trial should also be denied in that the plaintiffs failed to demonstrate that the verdict was against the weight of the evidence. Marchesi asserts that the trial was about ...


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