Nature's Plus Nordic A/S v. Natural Organics, Inc. , 646 F. App'x 25 ( 2016 )

15-714-cv
Nature’s Plus Nordic A/S v. Natural Organics, Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY
OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held
at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 15th day of April, two thousand sixteen.
PRESENT: JOHN M. WALKER, JR.,
REENA RAGGI,
CHRISTOPHER F. DRONEY,
Circuit Judges.
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NATURE’S PLUS NORDIC A/S, DERMAGRUPPEN
A/S,
Plaintiffs-Appellees,
v. No. 15-714-cv
NATURAL ORGANICS, INC.,
Defendant-Appellant,
HOUSE OF NATURE A/S, HANS KARE
LUNDESTAD, ORGANIC HOUSE A/S,
Defendants.
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APPEARING FOR APPELLANT: KEVIN SCHLOSSER, Meyer, Suozzi, English
& Klein, P.C., Garden City, New York.
APPEARING FOR APPELLEE: ERNEST E. BADWAY (Gerard P. Norton and
Christopher R. Kinkade, on the brief), Fox
Rothschild LLP, New York, New York.
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Appeal from a judgment of the United States District Court for the Eastern District
of New York (Arthur D. Spatt, Judge).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the judgment entered on June 22, 2015, is AFFIRMED.
Defendant Natural Organics, Inc. (“NOI”), appeals from a judgment entered after
a jury trial in favor of plaintiff Nature’s Plus Nordic A/S (“NPN”). NOI argues that the
district court erred in (1) construing a contract obligation as a promise requiring only
substantial performance, rather than a condition precedent requiring strict performance, in
granting NPN partial summary judgment; (2) denying NOI judgment as a matter of law
and allowing NPN to recover (a) out-of-pocket expenses, (b) damages amounting to a
double recovery, and (c) reliance damages not contemplated by the parties; (3) denying
NOI a new trial; and (4) awarding NPN prejudgment interest. While we review both a
summary judgment award and the denial of a motion for judgment as a matter of law de
novo, see Jackson v. Fed. Express, 766 F.3d 189, 193−94 (2d Cir. 2014) (summary
judgment); Merrill Lynch Interfunding, Inc. v. Argenti, 155 F.3d 113, 120 (2d Cir. 1998)
(judgment as matter of law), we review the denial of a Rule 59 motion for a new trial and
an award of prejudgment interest only for abuse of discretion, see SEC v. Contorinis, 743
F.3d 296, 307 (2d Cir. 2014) (prejudgment interest); Bucalo v. Shelter Island Union Free
Sch. Dist., 691 F.3d 119, 128 (2d Cir. 2012) (Rule 59 motion for new trial). In so doing,
we assume the parties’ familiarity with the facts and record of prior proceedings, which
we reference only as necessary to explain our decision to affirm.
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1. Condition Precedent
In faulting the district court’s summary determination that NOI breached its
contract with NPN as a matter of law, NOI argues that NPN’s obligation to purchase
$600,000 of NOI’s products was a condition precedent to NPN’s sole distributorship,
which obligation was not subject to the doctrine of substantial performance. Like the
district court, we conclude that NPN’s purchase obligation is properly construed as a
promise and, thus, can be reviewed for substantial performance. See Nature’s Plus
Nordic A/S v. Natural Organics, Inc., 980 F. Supp. 2d 400, 411, 413 (E.D.N.Y. 2013).
Under New York law, which controls our construction of the contract at issue, a
condition precedent is “an act or event, other than a lapse of time, which, unless the
condition is excused, must occur before a duty to perform a promise in the agreement
arises.” Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 690,
636 N.Y.S.2d 734, 737 (1995) (internal quotation marks omitted). New York law
demands that parties state conditions precedent “in unmistakable language,” absent which
courts will interpret an obligation “as embodying a promise or constructive condition
rather than an express condition.” Id. at 691, 636 N.Y.S.2d at 737; see Unigard Sec. Ins.
Co. v. N. River Ins. Co., 79 N.Y.2d 576, 581, 584 N.Y.S.2d 290, 292 (1992); see also
Israel v. Chabra, 537 F.3d 86, 93 (2d Cir. 2008) (citing Oppenheimer in acknowledging
New York courts’ caution when interpreting contract clause as condition precedent).
NOI argues that the contract’s use of the phase “in order for” unambiguously
establishes NPN’s minimum-purchase obligation as a condition precedent to its rights
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under the agreement. See J.A. 139 (“In order for [NPN] to maintain the sole
distributorship for the Products, [NPN] agrees that it will purchase and pay for Products
from NOI as follows: a minimum of 1) USD $600,000.00 during the first year . . . of this
agreement.” (emphasis added)). We disagree.
Even if the phrase “in order for” could be used to signal a condition in some
contexts, cf. Israel v. Chabra, 537 F.3d at 93 (explaining that “if,” “on condition that,”
“provided that,” “in the event that,” and “subject to” are “linguistic conventions”
recognized to create conditions precedent); Oppenheimer & Co. v. Oppenheim, Appel,
Dixon & Co., 86 N.Y.2d at 691, 636 N.Y.S.2d at 737 (recognizing “if” and “unless and
until” as “unmistakable language of condition”), it is not so used here where the purchase
does not trigger any other contractual duty. If NPN fulfilled its minimum-purchase
obligation, no “duty to perform a promise” would arise. Oppenheimer & Co. v.
Oppenheim, Appel, Dixon & Co., 86 N.Y.2d at 690, 636 N.Y.S.2d at 737 (internal
quotation marks omitted). Rather, NPN’s failure to fulfill its purchase obligation would,
at most, allow NOI, at its option, to terminate the agreement after appropriate notice and
opportunity to cure. See J.A. 143. In these circumstances, the minimum-purchase
obligation is not a condition precedent requiring strict performance, but, rather, a promise
properly reviewed for substantial performance.1 See Cramer v. Esswein, 220 A.D. 10,
1
Insofar as NOI relies on Wakefield v. N. Telecom, Inc., 769 F.2d 109 (2d Cir. 1985),
that case is distinguishable because, there, the phrase “in order to” conditioned a
participant’s entitlement to incentive compensation under a company commission plan on
the participant being an employee of that company “on the date the incentive
compensation is to be paid pursuant to the Plan.” Id. at 111. Thus, the employer’s
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11, 220 N.Y.S. 634, 634 (2d Dep’t 1927) (explaining that “[s]ubstantial performance is
performance, the deviations permitted being minor, unimportant, inadvertent, and
unintentional” (internal quotation marks omitted)); Bernard v. Las Ams. Commc’ns, Inc.,
84 F.3d 103, 108 (2d Cir. 1996); see also Callanan Indus., Inc. v. Smiroldo, 100 A.D.2d
717, 718, 474 N.Y.S.2d 611, 612 (3d Dep’t 1984).
Upon reviewing the record, we conclude, as the district court did, that NPN’s
purchase of at least $597,031.02 of NOI’s products, representing approximately 99.5% of
the $600,000 quota, manifests substantial performance as a matter of law. Accordingly,
we affirm the district court’s partial award of summary judgment in favor of NPN.
2. Rule 50 Motion for Judgment as a Matter of Law
We review the denial of a Rule 50 motion de novo, but we do so “applying the
same standards as the district court,” Merrill Lynch Interfunding, Inc. v. Argenti, 155
F.3d at 120, which ask whether there was “such a complete absence of evidence
supporting the verdict that the jury’s findings could only have been the result of sheer
surmise and conjecture,” Turley v. ISG Lackawanna, Inc., 774 F.3d 140, 155 (2d Cir.
2014) (internal quotation marks omitted).
A. Out-of-Pocket Expenses
NOI argues that it was entitled to Rule 50 relief from the jury’s award of out-of-
pocket expenses to NPN as reliance damages because NPN never repaid the loan it
obligation to pay did not arise unless and until the participant was a company employee.
Here, NPN’s duty to purchase $600,000 of Nature’s Plus products does not similarly
condition any obligation on behalf of NOI.
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obtained from its parent company, Dermagruppen A/S (“Dermagruppen”), and, thus,
never suffered a “loss” of any out-of-pocket expenses from NOI’s breach of the
agreement. Like the district court, we reject the argument.
New York allows a party to recover “damages based on his reliance interest,
including expenditures made in preparation for performance or in performance.” St.
Lawrence Factory Stores v. Ogdensburg Bridge & Port Auth., 13 N.Y.3d 204, 208, 889
N.Y.S.2d 534, 535 (2009) (internal quotation marks omitted). Although, as the district
court recognized, testimony by NPN executives was “somewhat contradictory” as to
whether the influx of cash from Dermagruppen to NPN was a loan or some other form of
cash advance, Nature’s Plus Nordic A/S v. Natural Organics, Inc., 98 F. Supp. 3d 600,
608 (E.D.N.Y. 2015), the record admits a finding that NPN used the Dermagruppen funds
to cover expenses that NPN had already incurred in reliance upon its contract with NOI.
See J.A. 400–02 (testimony explaining that Dermagruppen gave NPN money so that
NPN could pay “their bills” and “ongoing operational costs”); id. at 563–64 (testimony
stating that “the $2,964,481 [NPN] received from Dermagruppen” was used to “pa[y] the
operational costs, such as salaries and the cost of products from NOI,” as well as “debt
owed” to certain suppliers). It is those underlying debts—NPN’s bills and ongoing
operational costs—that NPN was entitled to recover because (1) NPN incurred the debts
in reliance upon its contract with NOI and (2) NPN had an obligation to pay them. That
Dermagruppen loaned NPN the money to satisfy these debts is irrelevant to the question
of whether they originally were incurred by NPN in reliance upon its contract with NOI.
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Further, despite some conflicting testimony, which we must assume the jury
resolved in favor of NPN, the record evidence was sufficient for the jury to find that NPN
remained obligated to repay Dermagruppen the amount loaned. See Nature’s Plus Nordic
A/S v. Natural Organics, Inc., 98 F. Supp. 3d at 609. Thus, the jury reasonably could
have concluded that, by awarding NPN its requested out-of-pocket expenses, it was
restoring NPN to the position it was in before the contract was formed. See Clifford R.
Gray, Inc. v. LeChase Constr. Servs., 51 A.D.3d 1169, 1170, 857 N.Y.S.2d 347, 349 (3d
Dep’t 2008) (explaining that reliance damages are “those necessary to restore plaintiff to
the position in which it would have been had it not relied on defendant’s alleged
promise”); accord Farash v. Sykes Datatronics, Inc., 59 N.Y.2d 500, 505–06, 465
N.Y.S.2d 917, 920 (1983) (noting that “promisee who partially performs . . . at a
promisor’s request should be allowed to recover the fair and reasonable value of the
performance rendered”). In sum, because the record supports the conclusion that NPN
incurred debts that it was obliged to replay in reliance upon its contract with NOI, NOI
was not entitled to judgment as a matter of law precluding an award of out-of-pocket
damages.
B. Double Recovery
NOI contends that insofar as NPN was awarded “both the amount of various
operating expenses . . . and the amount of the funds received from non-parties that NPN
used to pay for those very same operating expenses” it was entitled to judgment as a
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matter of law preventing such dual recovery. Appellant’s Br. 55 (emphasis in original).
We are not persuaded.
Trial testimony established that NPN had total out-of-pocket expenses of
$4,433,263, see J.A. 474, a figure which NOI did not dispute, but that NPN received only
$2,964,481 from Dermagruppen, see id. at 563. The record further reflects that NPN paid
a portion of its expenses, including some short-term debt, with its own funds. See, e.g.,
id. at 819–20. This record does not ineluctably lead to the conclusion that NPN received
a double recovery and, thus, permits the challenged award. See Cross v. N.Y.C. Transit
Auth., 417 F.3d 241, 248 (2d Cir. 2005) (explaining that Rule 50 motion must be denied
unless evidence is such that, without weighing credibility of witnesses or otherwise
considering weight of evidence, there can be but one conclusion as to verdict that
reasonable people could have reached). Accordingly, NOI was not entitled to judgment
as a matter of law on a theory of double recovery.
C. Damages Not Contemplated by Parties
NOI claims that certain damages awarded to NPN were not contemplated by the
parties at the time of contract and, thus, that it is entitled to judgment as a matter of law
on those amounts. See Kenford Co. v. County of Erie, 73 N.Y.2d 312, 319, 540
N.Y.S.2d 1, 3–4 (1989) (explaining that nonbreaching party may only recover “unusual
or extraordinary damages” upon showing that such damages were “within the
contemplation of the parties as the probable result of a breach at the time of or prior to
contracting”). Specifically, NOI argues that NPN is not entitled to recover “extraordinary
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amounts listed as ‘advertising’” and “money NPN borrowed from non-parties.”
Appellant’s Br. 59.
As to NPN’s advertising expenses, we conclude, for substantially the reasons
stated by the district court, that such expenses were contemplated by the parties at the
time of contract and, thus, recoverable at trial. See Nature’s Plus Nordic A/S v. Natural
Organics, Inc., 98 F. Supp. 3d at 610–11 (citing contract requirement that NPN spend
“‘no less than 5% of [its] net purchases of Products during the applicable contract year’”
on “‘Product advertising and promotion’”); see also J.A. 140.
Further, as already mentioned, NPN used the borrowed Dermagruppen funds to
pay ongoing operating costs associated with performing the distribution contract. Such
operational costs were clearly contemplated by the parties at the point of contract. Thus,
NOI was not entitled to judgment as a matter of law vacating the award of these damages.
3. Rule 59 Motion
Insofar as NOI’s motion for a new trial, see Fed. R. Civ. P. 59, relied on the same
arguments as its Rule 50 motion, we identify no abuse of discretion in the district court’s
denial of the former relief for much the same reason we identify no error in the denial of
the latter relief. See Gomez v. City of New York, 805 F.3d 419, 423 (2d Cir. 2015)
(explaining that district court abuses its discretion under Rule 59 only when it “bases its
ruling on an erroneous view of the law or on a clearly erroneous assessment of the
evidence or renders a decision that cannot be located within the range of permissible
decisions” (alteration and internal quotation marks omitted)); Haber v. Nassau Cty., 557
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F.2d 322, 325 (2d Cir. 1977) (noting that district court has more discretion to order new
trial than to enter judgment notwithstanding verdict).
4. Prejudgment Interest
NOI argues that the district court abused its discretion in awarding NPN
prejudgment interest under N.Y. C.P.L.R. § 5001(a) in light of Bulk Oil (U.S.A) Inc. v.
Sun Oil Trading Co., 697 F.2d 481 (2d Cir. 1983). The argument fails on the merits for
the reasons stated by the district court. See Nature’s Plus Nordic A/S v. Natural
Organics, Inc., 108 F. Supp. 3d 52, 55–58 (E.D.N.Y. 2015).
In Bulk Oil, defendant breached its payment obligation on a delivery of fuel oil,
the production of which plaintiff had financed through a bank loan. See Bulk Oil (U.S.A)
Inc. v. Sun Oil Trading Co., 697 F.2d at 482, 485. This court held that insofar as plaintiff
had been awarded both the unpaid contract price and interest payments it was obliged to
make on its loan, plaintiff could recover statutory interest on the former but not the latter
because such an interest award would have provided plaintiff with a windfall by placing
it in a better position than it would have been had the contract been performed. See id. at
484–86.
No such concern arises here because NPN has not been awarded damages for any
interest payments it had to make on its loan. Rather, it has been awarded out-of-pocket
expenses incurred in anticipation of fulfilling the contract. Awarding prejudgment
interest on these monies does not place NPN in a better position than it would have been
in had the contract been performed. Rather, it compensates NPN only for loss of the use
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of money expended in furtherance of its contract with NOI. In these circumstances,
prejudgment interest is mandatory. See N.Y. C.P.L.R. § 5001(a); New Eng. Ins. Co. v.
Healthcare Underwriters Mut. Ins. Co., 352 F.3d 599, 607 (2d Cir. 2003); J. D’Addario &
Co. v. Embassy Indus., Inc., 20 N.Y.3d 113, 117, 957 N.Y.S.2d 275, 277 (2012).
Accordingly, we affirm the district court’s award.
5. Conclusion
We have considered NOI’s remaining arguments and conclude that they are
without merit. We, therefore, AFFIRM the judgment of the district court.
FOR THE COURT:
CATHERINE O’HAGAN WOLFE, Clerk of Court
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