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Remapp International Corp. v. Comfort Key Board Co.

March 24, 2009


Appeal from the United States District Court for the Eastern District of Wisconsin. No. 07 C 287-Aaron E. Goodstein, Magistrate Judge.

The opinion of the court was delivered by: Kapala, District Court Judge


Before FLAUM and WILLIAMS, Circuit Judges, and KAPALA, District Judge.*fn1

In this diversity action, plaintiff, ReMapp International Corporation, filed a complaint alleging that defendant, Comfort Keyboard Company, Inc., breached the parties' contract for the sale of goods by failing to pay for the items it ordered from plaintiff. Following a bench trial, the magistrate judge entered judgment in favor of plaintiff on its breach of contract claim in the amount of $67,560. Defendant now appeals.

I. Background

At trial, Hal Edmonds, the president of plaintiff, testified that plaintiff provides contract manufacturing services of electronic materials, including printed circuit boards. Edmonds testified that plaintiff had done business with defendant for about six or seven years. When plaintiff and defendant started doing business, defendant would submit a written purchase order for goods. How-ever, within a very short time, defendant would just call plaintiff and say what parts it needed. Edmonds testified that since 2004, the payment terms for all board assemblies were 50% "ARO" (after receipt of the pro forma order) and 50% thirty days after receipt of the shipment.

Edmonds recalled that in April 2006 defendant ordered 1,000 USB boards, and in May 2006, defendant placed an order for 1,000 HUB boards.*fn2 In July 2006, both orders were increased to 2,000. According to Edmonds, the defendant's president, Khalil "Charles" Afifi verbally placed each order directly with Edmonds, as was the practice for some years. In addition to the boards, Afifi verbally asked plaintiff to buy microprocessors for all the boards if plaintiff could buy the microprocessors for less than six dollars. Plaintiff was able to find microprocessors for $5.85. Plaintiff then called Afifi and obtained Afifi's verbal authorization to purchase 4,100 microprocessors at the $5.85 price.

According to Edmonds, after Afifi placed the orders for the boards, plaintiff provided defendant with a pro forma invoice, which was essentially "what the final invoice would look like when the product is finished and delivered." This would assure that defendant knew exactly what it would be paying when the bill was due. The pro forma invoice contains conditions and includes the freight, "it documents what's transpired, and has built into it a request for the payment conditions." Edmonds explained that a pro forma invoice is not a quotation, but "a follow-up to an agreement to an acceptance." As to the microprocessors, plaintiff issued a standard invoice dated July 19, 2006, which stated "100% Payment at time of purchase."

Edmonds recounted that from April through August 2006 the parties had continuing dialog on various aspects of the orders. At no time did defendant tell Edmonds not to proceed with the orders. According to Edmonds, he and Afifi had discussed the invoices for the boards numerous times, and Afifi encouraged plaintiff to keep going and make whatever changes were necessary. On May 2, 2006, Edmonds sent an e-mail to Afifi stating that plaintiff was finishing "the USB" and the "HUB can move quickly, as well." On May 19, 2006, Edmonds sent Afifi an e-mail stating that he found a program in a sample board that was used to program a component of the USB board and stated that he had attached the pro forma invoice for the USB boards. Afifi replied, "YOU ARE THE BEST. . . . . . GREAT NEWS . . . 'THANK YOU.' " Edmonds explained that on August 17, 2006, he sent Afifi an e-mail asking if Afifi wanted one USB connector on 1,000 HUB boards, and two USB connectors on the other 1,000 HUB boards. Later that day, Afifi responded with an e-mail stating, "1500 with two and 500 with one." On August 18, 2006, Edmonds sent Afifi an e-mail about a design change defendant had requested. In that e-mail Edmonds states, in part, "[F]or the 1000 boards already made the engineer says he can put an SMT pad on the backside using the existing pads. Will that work for you?" Later that day, Afifi replied, "GREAT. . . . PLEASE HAVE THEM DO THAT. . ."

On July 28, 2006, Edmonds sent Afifi an e-mail requesting payment for the invoices for the USB and HUB boards. Edmonds explained that plaintiff deviated slightly from its normal procedure by ordering the products prior to pre-payment. On cross-examination, Edmonds admitted that in his history of working with defendant, this was the first time that defendant had not paid at least 50% before plaintiff placed an order with the supplier.

Edmonds sent Afifi several more e-mails in August and September requesting payment. Edmonds estimated that between May and October 2006, he had approximately twenty conversations with Afifi in which Afifi promised that the payments were forthcoming. On September 26, 2006, Afifi sent an e-mail to Edmonds stating that his investors wanted to use a different supplier. Edmonds responded with an e-mail requesting that Afifi pay the balance of his account.

Edmonds further testified that on October 6, 2006, plaintiff issued an invoice to defendant for the parts that had been manufactured. Edmonds testified that both the USB and HUB boards had been manufactured, but the microprocessors had not yet been put on the boards when production was stopped. According to Edmonds, the printed boards are unique for each customer because they are designed for each customer's particular need. If the customer did not take what they ordered, the boards would be scrapped. The microprocessors, on the other hand, were purchased, but could be sold and used elsewhere. At the time of the trial, the boards and the microprocessors remained in China undelivered because defendant had not paid plaintiff.

Afifi testified that the parties first started doing business around 2001-2002. Afifi described the parties' purchasing practice up until May 2006 as follows. Purchases would begin by Edmonds calling Afifi and asking if Afifi needed anything. Afifi would then ask for a price and Edmonds would issue a pro forma invoice, which was "technically like a quote." Sometimes they would go back and forth, and Edmonds would send multiple pro forma invoices with adjustments. If the price was acceptable to Afifi, he would send Edmonds 50% of the payment for the order. Once the job was done, Edmonds would call Afifi to inform him that the boards were ready to ship, and the other 50% was required. Afifi identified several previous pro forma invoices where he paid 50% at the time he placed the order and 50% at the time the order was ready to be shipped. According to Afifi, the 50% payment was an approval by defendant to proceed with the job.

Afifi further testified that he never authorized invoices for the USB boards, HUB boards or the microprocessors. Specifically, Afifi testified that he never asked Edmonds to see how much it would be to increase the original board orders to 2,000 boards. As to the microprocessors, Afifi testified that he never authorized the purchase of the microprocessors because he could get them in the United States for a cheaper price. Afifi also claimed he never paid 50% down on any of the orders as he had done in the past, and denied having any conversation with Edmonds that plaintiff would order any of the items on credit. Afifi denied receiving several of Edmonds' e-mails seeking payment and averred that many of the e-mails that Edmonds claimed were from Afifi were fraudulent.

The magistrate judge entered judgment in favor of plaintiff on plaintiff's breach of contract claim concluding that three oral contracts existed between plaintiff and defendant. The first was for defendant to purchase 2,000 USB boards at a price of $21.65 each for a total cost of $43,300. The second was for defendant to purchase 2,000 HUB boards at a price of $23.60 each for a total cost of $47,200. The third was for defendant to purchase 4,100 microprocessors at a price of $5.85 each for a total of $23,985.

The magistrate judge noted that because the sale of goods in each contract was in excess of $500, Wisconsin's codification of the Uniform Commercial Code's Statute of Frauds required the contract to be in writing. Wis. Stat. § 402.201. However, the magistrate judge concluded that the parties' oral contracts fell within exceptions to the Statute of Frauds. First, he found that the evidence established that the USB and HUB boards were custom manufactured for defendant and were not suitable for resale to others. As such, he held that the first two contracts were enforceable under Wisconsin Statute § 402.201(3)(a), which provides an exception to the Statute of Frauds for specially manufactured goods. Second, the magistrate judge found that defendant failed to object to plaintiff's July 19, 2006 invoice for the 4,100 processors within ten days after receipt of the invoice. Accordingly, he held that this third contract was enforceable under Wisconsin Statute § 402.201(2), which provides an exception to the Statute of Frauds where a merchant sends another merchant a written confirmation of the parties' contract, and no written objection is made within ten days of receipt.

The magistrate judge awarded damages to plaintiff for the USB and HUB board contracts, but not for the micro- processor contract. The magistrate judge held that plaintiff was not entitled to damages for defendant's breach of the microprocessor contract because plaintiff failed to show that it mitigated its damages by attempting to resell the microprocessors which could be resold at the full price. As to damages for the USB and HUB boards, the magistrate judge found these could not be resold, deducted freight charges and additional unproven charges as well as the $.10 per pound that plaintiff could obtain as scrap for the boards, and awarded plaintiff a total of $67,560.00 in damages.

II. Discussion

On appeal, defendant argues that the magistrate judge erred in his findings of fact by concluding that oral con-tracts existed, that those oral contracts were outside of the Statute of Frauds and that plaintiff was entitled to dam-ages. Defendant also argues that plaintiff assumed the risk of ordering all of these electronic ...

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