Kaes Enterprises v. Koppenberg Enterprises ( 2018 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
KAES ENTERPRISES, LLC,
No. 77288-1-1
Appellant,
DIVISION ONE
V.
UNPUBLISHED OPINION
KOPPENBERG ENTEPRISES, INC, a
Washington corporation,
Respondent. FILED: November 26, 2018
CHUN, J. — Koppenberg Enterprises, Inc.(Koppenberg) held several
subcontracts to erect columbarial at national cemeteries for interment of United
States veterans. Kaes Enterprises, LLC (Kaes) contracted to supply and ship
thousands of marble memorial plaques (niche covers) to various cemeteries for
Koppenberg employees to install on the columbaria. Government inspectors
visited the sites and rejected many of the installed niche covers as flawed. The
contracts obligated Kaes to replace rejected niche covers. As a result, Kaes
replaced thousands of niche covers at significant cost. Kaes eventually brought
suit against Koppenberg for breach of contract, arguing the replacement niche
covers were secondary sales requiring payment from Koppenberg. After a bench
trial, the trial court entered judgment in favor of Koppenberg and we affirm.
1 Columbaria are precast concrete units erected in cemeteries and churches to inter urns.
Each columbarium has multiple small compartments for urns. Each compartment has a marble
plaque or niche cover.
No. 77288-1-1/2
I.
BACKGROUND
Christopher (Chris)2 Kaes served as a federal contracting officer with the
Air Force. After retiring from the Air Force, Chris worked in federal contracting
and procurement for other organizations. Chris subsequently formed his own
venture, Kaes Enterprises, LLC.
In December 2010, Kaes entered a teaming agreement with Levantine
USA, Inc.(Levantine), a large supplier of natural stone, to bid on federal
solicitations for niche covers from the Veterans Administration (VA). Kaes
contracted with an Alabama marble supplier to cut the niche covers. Levantine
prepared the pricing and coordinated shipping from the quarry in Alabama to the
project sites.
Koppenberg held VA subcontracts to erect columbaria at veteran
memorials in national cemeteries. Owner Kim Koppenberg (Kim) had identified
Levantine as a potential supplier of marble niche fronts. Austin Lowrie, the
commercial division manager at Levantine, informed Koppenberg all VA projects
were bid under the teaming agreement and connected Chris and Kim.
For federal contracts like these veteran memorial projects, the government
contracts with a prime contractor. The prime contractor then enters into
subcontracts for different aspects of the projects, such as Koppenberg's
installation of columbaria. Usually, Memorial Program Services(MPS)3 supplied
2 This opinion refers to the individuals by their first names to distinguish them from their
corporations. We intend no disrespect.
3 MPS is a government agency that purchases materials directly from suppliers.
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Koppenberg with niche covers for its columbaria projects.4 At the time Kim and
Chris met, however, Koppenberg had bid on three contracts for the National
Cemetery Administration (NCA),5 requiring subcontractor-supplied niche covers.
Kim and Chris considered this an opportunity for Kaes to begin supplying niche
covers for government projects.
In November 2010, Koppenberg received the subcontracts to install
columbaria for veteran memorials at Bakersfield National Cemetery, Eagle Point
National Cemetery, and Fort Rosecrans National Cemetery. The subcontracts
required Koppenberg to provide marble niche covers. The project requirements
specified size and color and directed the subcontractor to "[u]nload, inspect,
store, and protect niche covers after delivery to the job site and prior to erection."
Koppenberg subsequently submitted purchase orders for Kaes to provide
marble niche covers for the three projects. The purchase orders specified,
4" thick as per approved samples and
"marble niche fronts 11-1/4" x 15-3/4" x/
3
specifications for this project. All materials that are supplied and rejected must
be replaced unless damaged by [sic] after arrival onsite."
Kaes first supplied Eagle Point. Kaes received the Eagle Point purchase
order in November 2010. Through Levantina, Kaes obtained the niche covers
from a quarry in Alabama and drop shipped them to the cemetery site for
installation. Kaes used specially designed foam-lined crates for shipping, with
the covers protected by thick polyplastic individual sleeves. The shipment in
4 Kaeshad wanted to become involved as a direct supplier to the government through MPS.
5 NCA is a department of the VA.
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fulfillment of the purchase order arrived at Eagle Point in January 2011 and
Koppenberg paid in full by March 3, 2011. Kaes delivered niche covers to
Bakersfield on March 24, 2011, with payment by Koppenberg on June 13, 2011.
Fort Rosecrans received deliveries in satisfaction of the purchase order in April,
May, and August, 2011. Koppenberg paid Kaes for these shipments in August
and December 2011.
At the time of delivery, Koppenberg employees visually inspected the
crates for shipping damage and stored them unopened until installation. At
installation, Koppenberg employees unpacked the crates, set the covers in the
niches, and screwed each one into place.
After installation, government employees inspected the niche covers for
compliance with the specifications. On May 11, 2011, Koppenberg forwarded an
email from the VA to Kaes explaining this process: "Typically we have the
contractor install the covers they feel meet spec, then MPS comes out to
inspect." A follow-up email warned, "[D]on't be surprised if they reject 25% or
more."
On May 10 and 11, 2011, an MPS employee visited Bakersfield to inspect
the installed niche covers. Inspection occurred at Eagle Point on May 12, 2011.
Eagle Point and Bakersfield both had rejection rates of 25 to 30 percent. At
Eagle Point, the inspector rejected 777 of the 3,100 installed niche covers.
After the Eagle Point inspection, Lowrie from Levantina met with the MPS
inspector to discuss the high rate of rejections. The inspector agreed to select
units to serve as examples for the quarry to use in quality control. Lowrie wrote
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an email for Koppenberg to forward to the Eagle Point and Bakersfield prime
contractors.6 The email promised changes to production process, quality control
inspections, and shipping. The email also assured the prime contractors the
supplier and quarry would replace defective units at no cost.
Koppenberg began requesting replacement niche covers, which Kaes
supplied in large quantities. In June 2011, Koppenberg requested 750 to 850
replacement niche covers for Bakersfield, reflecting a 25 to 35 percent rejection
rate. MPS conducted several rounds of inspections of the various sites,
continuing to reject installed niche covers. This resulted in multiple shipments of
replacements. Bakersfield received replacements in July and early September
2011. Eagle Point received 800 replacements on June 15, 2011, and 600 more
replacements in September 2011. Fort Rosecrans received replacements in
August 2011.
In late September 2011, Kaes became extremely concerned about
repeated inspections and seemingly arbitrary standards for evaluation of the
niche covers. Kaes demanded written explanations for each individual rejected
niche cover and contemplated filing a protest or claim against the VA. Kaes sent
formal letters to Koppenberg with its demands, stating,"KAES finds the large
number of undocumented, unspecified, niches being rejected for this project, with
oral notification only, unacceptable." Kaes further demanded,"For the end user
to examine and then consider any niche as rejected, they must provide, and we
6 Lowrie sent this email to Kim without including Chris on the message. The trial court found
Lowrie to be Kaes's agent with respect to these projects. Kaes does not assign error to this
finding, which results in a verity on appeal. See In re Marriage of Akon, 160 Wash. App. 48, 57, 248
P.3d 94(2011).
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require, specific, written documentation for each and every individual niche
rejected for purportedly failing to meet specifications." Kaes alerted Koppenberg
it would back-charge for returned niche covers meeting specifications and
without documentation of the reasons for rejection.
Koppenberg passed this message to the prime contractors for the
projects. But by November 4, 2011, Kaes had not received any specific
documentation for individual rejected niche covers. The returned, rejected niche
covers arrived at the quarry with serious damage because Koppenberg shipped
them without their original packaging.
Despite lack of compliance with the demand for detailed documentation of
individual rejections, Kaes continued supplying replacement niche covers. Eagle
Point received replacements in November and December 2011. In total, Kaes
supplied approximately 8,800 replacement niche covers.
In September 2011, Kaes attempted to solicit help from Koppenberg and
the prime contractors to protest the repeated inspections and rejections by MPS.
Koppenberg appeared sympathetic with Kaes's complaints, but never pursued a
grievance or claim. Instead, Koppenberg signed unconditional releases to close
the projects.
On August 11, 2015, Kaes brought a breach of contract claim against
Koppenberg. Kaes argued Koppenberg accepted and used the goods, requiring
payment for all replacement niche covers. After a bench trial, the trial court
entered judgment for Koppenberg.
Kaes appeals.
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No. 77288-1-1/7
DISCUSSION
A. Affirmative Defenses
Kaes argues the trial court erred by allowing Koppenberg to argue the
unpled affirmative defenses of rejection and revocation. The trial court
determined Koppenberg's answer to the complaint put "the issues of acceptance,
rejection and revocation of acceptance before the court." Additionally, the trial
court concluded Kaes did not allege surprise or prejudice due to Koppenberg's
failure to formally assert the affirmative defenses. While we disagree in part with
the trial court's reasoning, we conclude Kaes effectively waived any objection to
Koppenberg's failure to affirmatively plead defense.
Affirmative defenses must be specifically pleaded. CR 8(c). This applies
to any "matter constituting an avoidance or affirmative defense." CR 8(c).
Courts consider revocation of acceptance as an affirmative defense that must be
set forth in the pleadings. Allis-Chalmers Corn. v. Sygitowicz, 18 Wash. App. 658,
660, 571 P.2d 224(1977).
Generally, affirmative defenses are waived unless they are affirmatively
pleaded, asserted under CR 12(b), or tried by the express or implied consent of
the parties. Bickford v. City of Seattle, 104 Wash. App. 809, 813, 17 P.3d 1240
(2001). However,"the rule's policy is to avoid surprise and affirmative pleading is
not always required." Bickford, 104 Wash. App. at 813. Thus, a court considers
noncompliance harmless when the failure to plead an affirmative defense does
not affect the substantial rights of the parties. Hogan v. Sacred Heart Medical
Center, 101 Wash. App. 43, 54-55, 2 P.3d 968(2000). Additionally, "objection to a
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No. 77288-1-1/8
failure to comply with the rule is waived where there is written and oral argument
to the court without objection on the legal issues raised in connection with the
defense." Mahoney v. Tingley, 85 Wash. 2d 95, 100, 529 P.2d 1068 (1975).
An appellate court reviews trial court decisions on the application of the
civil rules for abuse of discretion. Sprague v. Sysco Corp., 97 Wash. App. 169,
171, 982 P.2d 1202(1999).
Kaes's complaint alleged,"Koppenberg has accepted and/or used all
products from Plaintiff Kaes." The trial court concluded Koppenberg's denial of
this allegation effectively raised the issue of rejection. But denial of an allegation
does not amount to affirmative pleading. Koppenberg specifically enumerated
several affirmative defenses in its answer to the complaint, but omitted any
mention of revocation of acceptance.
Despite Koppenberg's failure to plead the issue, rejection of the niche
covers occupied a significant portion of the trial testimony and evidence. Both
parties introduced evidence of Koppenberg's receipt of the product, installation,
rejection, and requests for replacement niche covers. Therefore, the parties
argued the issue of Koppenberg's rejection of the niche covers without objection.
This constitutes waiver of objection to the failure to comply with CR 8(c). See
Mahoney, 85 Wash. 2d at 100. Furthermore, given the significant evidence from
both parties on the issue of rejection, Kaes cannot demonstrate surprise.
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No. 77288-1-1/9
Noncompliance with CR 8(c) was of no consequence.7 The trial court did not
abuse its discretion by considering the unpled affirmative defense.
B. Contract Interpretation
Kaes assigns errors to many of the trial court's conclusions of law
pertaining to interpretation of the contracts. Where the trial court has weighed
the evidence, the reviewing court's role is limited to determining whether
substantial evidence supports the findings of fact, and whether those findings in
turn support the trial court's conclusions of law. Ford Motor Co. v. City of Seattle,
Exec. Serv. Dep't., 160 Wash. 2d 32, 56, 156 P.3d 185(2007). "Substantial
evidence to support a finding of fact exists where there is sufficient evidence in
the record 'to persuade a rational, fair-minded person of the truth of the finding."
Hegwine v. Longview Fibre Co., Inc., 162 Wash. 2d 340, 353, 172 P.3d 688(2007)
(quoting In re Estate of Jones, 152 Wash. 2d 1, 8, 93 P.3d 147 (2004)). An
appellate court will not substitute its judgment for that of the trial court, reweigh
the evidence, or adjudge witness credibility. In re Marriage of Rockwell, 141 Wn.
App. 235, 242, 170 P.3d 572(2007). Questions of law are reviewed de novo.
Heqwine, 162 Wash. 2d at 353.
1. Incomplete Record
As a threshold issue, we address the incomplete record before us on
review. Kaes assigns error to the trial court's conclusions of law but only
7 Additionally, "[w]hen issues that are not raised by the pleadings are tried by express or
implied consent of the parties, they will be treated in all respects as if they had been raised in the
pleadings." Dewey v. Tacoma Sch. Dist. No. 10, 95 Wash. App. 18, 26, 974 P.2d 847(1999). On
appeal, an appellate court can deem the pleadings to have been amended to conform to the
proof. See Maziarski v. Blair, 83 Wash. App. 835, 839, 924 P.2d 409 (1996).
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No. 77288-1-1/10
designated a partial record, omitting the verbatim reports of proceedings of the
direct testimony of Kim and Carlton Fuqua, a Koppenberg employee. This
impedes our review of Kaes's assignments of error.
"The party presenting an issue for review has the burden of providing an
adequate record to establish such error." State v. Sisouvanh, 175 Wash. 2d 607,
619, 290 P.3d 942(2012); see RAP 9.2(b). An incomplete record compromises
the ability of the appellate court to review the trial court's findings of fact for
substantial evidence. In re Parentage and Custody of A.F.J., 161 Wash. App. 803,
806 n.2, 260 P.3d 889(2011). Therefore, in such instances, we treat the findings
as verities on appeal. A.F.J., 161 Wash. App. 806 n.2.
Kaes challenges the trial court's findings of fact and conclusions of law,
but failed to provide complete verbatim reports of proceedings. We cannot fairly
evaluate the findings based on the record before the trial court. Therefore, we
consider the court's findings of fact as verities.
2. Uniform Commercial Code(UCC)and Parol Evidence
Kaes contends the trial court erred by employing usage of trade, course of
performance, and the prime and subcontractor contracts to interpret the
purchase orders. Kaes asserts the purchase orders constituted contracts to
provide goods governed by the UCC. It contends the installation of the niche
covers constituted acceptance, and that Koppenberg improperly rejected those
goods thereafter. Accordingly, Kaes claims Koppenberg must pay for all the
niche covers in keeping with the terms of the contract. Koppenberg argues parol
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No. 77288-1-1/11
evidence demonstrates the intention to inspect after installation and for Kaes to
supply replacement niche covers without additional charge.
Under the UCC,the terms of a contract intended by the parties as a final
expression of their agreement may not be contradicted by evidence of prior
agreement or of a contemporaneous oral agreement. RCW 62A.2-202(a).
However, the contract may be "explained or supplemented" by course of
performance,8 usage of trade, and evidence of consistent additional terms.9
RCW 62A.2-202(a),(b). Course of performance and usage of trade are relevant
"in ascertaining the meaning of the parties' agreement, may give particular
meaning to specific terms of the agreement, and may supplement or qualify the
terms of the agreement." RCW 62A.1-303(d). The terms of an agreement and
course of performance or usage of trade must be construed consistently
whenever reasonable. RCW 62A.2-103(e).
Kaes contends the trial court should have followed Cervitor Kitchens, Inc.
v. Chapman,82 Wn.2d 673, 513 P.2d 25(1973), and found Koppenberg's
installation of the niche covers constituted acceptance of the products under the
UCC. In that case, Cervitor Kitchens sued to recover the sale price of four
kitchen units. Cervitor, 82 Wash. 2d at 674. The company shipped the units, which
8 A course of performance "is a sequence of conduct between the parties to a particular
transaction that exists if: (1)The agreement of the parties with respect to the transaction involves
repeated occasions for performance by a party; and (2)The other party, with knowledge of the
nature of the performance and opportunity for objection to it, accepts the performance or
acquiesces in it without objection." RCW 62A.1-303(a).
9 Usage of trade "is any practice or method of dealing having such regularity of observance in
a place, vocation, or trade as to justify an expectation that it will be observed with respect to the
transaction in question." RCW 62A.1-303(c). Evidence of relevant usage of trade offered by one
party is not admissible unless the party has given sufficient notice to prevent unfair surprise.
RCW 62A.1-303(g).
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No. 77288-1-1/12
the contractor did not inspect upon delivery. Cervitor, 82 Wash. 2d at 675. After
installation of the kitchen units, the contractor attempted to reject the units, citing
poor quality and failure to comply with specifications. Cervitor, 82 Wash. 2d at 675.
The Washington Supreme Court determined installation of the kitchen units was
inconsistent with continuing ownership of the seller and amounted to acceptance
of the products despite any defects. 82 Wash. 2d at 676-77. Like Cervitor, Kaes
claims Koppenberg's installation of the niche covers was inconsistent with Kaes's
continuing ownership of the product and reflected acceptance of the goods under
the contract.
The trial court determined Cervitor did not apply because of the additional
requirements established by the terms of the prime and subcontracts, usage of
trade, and course of performance between the parties. The trial court properly
considered this evidence under RCW 62A.1-202. As a result of the parol
evidence, the trial court determined the purchase orders legally entitled the VA,
prime contractors, and Koppenberg to inspect and reject or revoke acceptance of
nonconforming niche covers until final inspection. The purchase orders required
Kaes to replace the nonconforming niche covers without charge, regardless of
installation.
The trial court's findings of fact, which are verities in this appeal, illustrate
incorporation of the VA contract terms, usage of trade within the industry, and a
clear course of performance between Kaes and Koppenberg to support this
interpretation of the contracts. The parol evidence demonstrates Kaes was
aware of the typical process of installation followed by inspection and possible
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No. 77288-1-1/13
rejection of the niche covers. In addition, Kaes repeatedly provided replacement
covers long after delivery of the original shipments.
The trial court found the language in the purchase orders bound Kaes to
the specification of the VA contracts. The VA contracts with prime contractors
and subcontractors provided terms and specifications for marble used in the
projects. The purchase orders' reference to "approved samples and
specifications for this project" referred to the specification established by the VA
contracts. These verities on appeal support the trial court's conclusion of law
that the purchase orders required Kaes to replace all non-conforming niche
covers after installation and inspection.10
The trial court also included extensive findings of fact about usage of trade
for military cemetery construction projects. These findings detailed the niche
cover process from arrival and crate inspection, through installation, VA
inspection, rejection, and replacement, until final inspection at the end of the
project. The findings conclude Koppenberg and Kaes knew of and followed the
usage of trade in delivery, handling, installation, and inspection of the marble
niche covers.11 This usage of trade then properly informed the trial court's
interpretation of the purchase orders.
As for course of performance, the trial court described the working
relationship between Kaes and Koppenberg throughout fulfillment of the
10 The trial court provided few findings on the incorporation of the federal prime and
subcontract terms in the purchase orders. Nonetheless, the extensive findings about usage of
trade and course of performance provide ample support for the trial court's ultimate conclusion
that the purchase orders required Kaes to replace all rejected niche covers at no additional cost.
11 The trial court further determined the usage of trade caused Kaes no unfair surprise or
prejudice. Like the other findings of fact, this is a verity on appeal.
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No. 77288-1-1/14
purchase orders.12 The court found Kaes knew Koppenberg employees
inspected just the crates on arrival, leaving the niche covers securely packaged
inside. At the time of installation, Koppenberg employees uncrated and screwed
the niche covers in place. After installation, VA inspectors evaluated and
rejected large numbers of niche covers as non-conforming. Kaes then replaced
the rejected niche covers. Kaes and Lowrie worked to improve quality and
coordinate delivery of the replacement niche covers. Between the three projects,
Kaes replaced over 8,000 niche covers.
In light of these findings, the trial court determined the purchase orders
entitled the VA, prime contractors, and Koppenberg to inspect and reject all non-
conforming niche covers until final inspection by the VA. The purchase orders
also required Kaes to replace rejected niche covers without charge, regardless of
installation or payment. The course of performance between the parties shows
12 Although Kaes provided incomplete verbatim reports of proceedings, Kaes submitted
hundreds of pages of exhibits. These exhibits support the course of performance described by
the trial court. As early as May 2, 2011, Koppenberg informed Kaes that inspection did not occur
upon arrival of the shipment, but waited until setting of the niche covers. "As far as the quality,
we really cant [sic] tell until we break it open and start setting them." Soon after, Kaes received
the email describing the process in which the contractor installs the covers and then MPS
inspects. An MPS inspector confirmed this process by inspecting and reporting only on the
installed niche covers.
Given the timing of delivery, inspection, and rejection, Kaes knew rejection did not occur
immediately upon arrival, yet agreed to replace the rejected niche covers when MPS rejected
them after installation. The original delivery of niche covers arrived in Bakersfield in March 2011.
The first inspection and associated rejections occurred in May 2011. Kaes shipped replacement
niche covers in July and September 2011. Similarly, in Eagle Point, the original delivery of niche
covers occurred in January 2011 with the first inspection and rejection occurring in May 2011.
Kaes shipped replacement covers in June, August, November, and December 2011. Finally, Fort
Rosecrans received its original shipments of niche covers in April and August 2011. Inspection
occurred thereafter with replacements coming in August and October 2011.
Thus, beginning in May 2011, Kaes was aware government inspectors rejected marble
niche covers after installation. From May to September 2011, Kaes supplied replacements for
those rejected covers and worked to improve the quality of the product to reduce the number of
rejections. Thus, the record demonstrates Kaes's commitment to fulfilling the requests for quality
replacements of rejected niche covers under the terms of the contracts.
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No. 77288-1-1/15
Kaes's intention to work with Koppenberg to provide suitable niche covers to
replace those rejected by MPS after installation. This course of performance
properly served as parol evidence for the parties' contractual relationship. Based
on this evidence, Kaes provided the niche covers, expecting installation and
subsequent inspection. Kaes also agreed to replace the rejections free of
charge. These findings support the trial court's legal conclusion that Koppenberg
complied with the rejection process established by course of performance and
usage of trade, resulting in no legal obligation to pay Kaes the replacement niche
covers.
C. Documentation of Rejections
Kaes contends the trial court failed to consider its demand for detailed
written rejection of each niche cover under RCW 62A.2-605. Koppenberg argues
Kaes waived this requirement. We agree.
Under the UCC,"[t]he buyer's failure to state in connection with rejection a
particular defect which is ascertainable by reasonable inspection precludes him
or her from relying on the unstated defect to justify rejection or to establish
breach." RCW 62A.2-605(1). In addition, "a course of performance is relevant to
show a waiver or modification of any term inconsistent with the course of
performance." RCW 62A.1-303(f).
The trial court concluded Kaes had waived the written notification of non-
conformity because it did not raise the issue until several months after a
significant portion of the niche covers had been inspected and rejected. The trial
court's findings on the parties' course of performance supports this conclusion.
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Kaes received notification of the first rejections and need to replace niche covers
in May 2011 but did not begin requesting detailed written documentation until late
September 2011. By the time of the request, Kaes had already shipped
approximately 6,300 replacement niche covers, representing the majority of the
8,200 replacements provided.
Given this history, the trial court properly considered Kaes's failure to
request written rejection until after shipping thousands of replacement niche
covers as evidence of the parties' course of performance. The course of
performance supports the trial court's legal conclusion that Kaes waived written
rejection.
D. Retainage
Kaes claims Koppenberg improperly withheld retainage and the trial court
failed to award the retained $26,626.00. Kaes cites Kim's admission of
withholding retainage and an entry in an exhibit detailing Koppenberg,"[u]nder
paid by $26,626.00 for expenses for replacing rejected niche fronts on all
projects due to rejected materials." Koppenberg claims all funds were paid.
The trial court made no findings of fact or conclusions of law on this issue.
In the absence of a finding of fact, an appellate court "must indulge in the
presumption that the party with the burden of proof failed to sustain their burden
on this issue." In re Welfare of A.B., 168 Wash. 2d 908, 927 n.42, 232 P.3d 1104
(2010). Because Kaes had the burden of proving breach of contract, the trial
court's failure to enter a finding of fact is construed as Kaes's failure to meet this
burden of proof.
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Other than described above, Kaes failed to produce evidence Koppenberg
withheld funds as retainage. Koppenberg provided evidence all funds were paid.
Therefore, substantial evidence supports the trial court's conclusion.
We affirm.
WE CONCUR:
.AvaavA4.4,f
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