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RSB Laboratory Services, Inc. v. BSI

May 07, 2004


On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-9527-99.

Before Judges Petrella, Wefing and Fuentes.

The opinion of the court was delivered by: Fuentes, J.A.D.


Argued March 1, 2004

This is a breach of contract action instituted by plaintiff RSB Laboratory Services, Inc., against defendant BSI, Corporation (d/b/a Block Scientific, Inc., or Block Scientific Equipment Exchange, Inc.). A jury awarded plaintiff $254,763.55 in damages, including lost profits, attorneys' fees, costs and prejudgment interest.

Defendant appeals arguing that the Law Division erred when it denied its motion to: (1) dismiss plaintiff's claims for lost profits as barred under the new business rule; (2) dismiss plaintiff's consumer fraud claim and breach of warranty claims; and (3) exclude plaintiff's expert's testimony as a net opinion. Plaintiff cross-appeals arguing that the court erred when it denied its consumer fraud claim for treble damages.

Addressing the issues raised by the parties requires us to re-examine the continued legal viability of the so-called new business rule. Before doing so, we will lay out the facts of the case as revealed by the evidence presented at trial.


Ruth B. Yao graduated from college with a degree in medical technology. Beginning in 1972, Yao worked as a medical technician and later as a supervisor in the department of hematology at Bayonne Hospital. In 1995, she left Bayonne Hospital to work for Brookdale Clinical Laboratory ("Brookdale"), a small medical lab in Hackensack, as a general supervisor of medical technicians and support staff. According to Yao, the owner of Brookdale encouraged her to open a"bleeding station," that is an office to which doctors refer patients to have blood or other bodily fluids drawn for analysis at a laboratory.

In 1996, Yao and Susan Reyes, Yao's sister and a registered nurse, formed plaintiff, a New Jersey corporation, with an office in Bayonne, which initially operated under the name RSB Services, Inc., as a bleeding station. Yao worked part-time at Brookdale and part-time at plaintiff, while Reyes, who was an equal partner in the business, contributed only financial resources. Brookdale referred its Bayonne patients to plaintiff for blood and fluid draws. Plaintiff would then send the specimens to Brookdale for analysis. Plaintiff received a commission from Brookdale for all laboratory work referred.

In 1997, Yao, who continued to operate plaintiff as a bleeding station, left Brookdale to work part-time as a sales person for Alex Laboratory ("Alex"), another small medical laboratory. Plaintiff sent specimens to Alex for analysis. Yao testified that in her estimation, ninety percent of Alex's business resulted from her referrals. Plaintiff received a commission for all work referred.

In June 1998, Yao terminated her association with Alex and began sending blood samples for analysis to Clinical Diagnostics Services ("CDS"), a reference medical laboratory. At the same time, according to Yao, she also had a good working relationship with twelve area physicians who referred patients to plaintiff for blood extraction.

In late 1998, Yao began to implement a plan to transform plaintiff's business operations from a bleeding station to a full service laboratory. As a result, plaintiff changed its corporate name to"RSB Laboratory Services." According to Yao, the State required a medical laboratory facility to include the term"laboratory" in its name. Yao believed she could successfully operate the laboratory because of her experiences as a technician and a supervisor. She was also qualified by the State to operate this type of facility. She admitted, however, that in her capacity as a supervisor she did not have any actual experience operating the laboratory equipment.

In October 1998, Yao contacted defendant, a company engaged in the business of refurbishing, selling and servicing used laboratory equipment. Yao spoke to Peter Will, a salesman for defendant, and advised him that she had the facility and the client base to operate a lab, and now needed equipment in"excellent working condition" to conduct hematology, chemistry, and coagulation of blood testing. In this initial encounter with defendant, Yao addressed two issues she considered"very important," namely, service and training. According to Yao, Will assured her that they would provide service and maintenance of the equipment, provide her with training and training for all of plaintiff's technicians, and provide equipment that would be in"excellent working condition."

Will recommended that plaintiff purchase a refurbished Abbott Cell Dyn 1600 ("Cell Dyn"), a machine used for hematology testing to calculate a complete blood count, and a Hitachi 704 ("Hitachi"), a machine used to detect chemical imbalances in the blood, including cholesterol, blood sugar, triglycerides, bilirubin, sodium, potassium and other chemical compounds. Yao had no prior experience with the Hitachi, although she had worked on similar machines that performed the same type of testing.

Will advised Yao that she would need to have a floor drain installed prior to delivery of the equipment. He also advised her that she would need a water filtration system providing deionized water to operate the Hitachi. Will represented that U.S. Filter could provide the necessary system, and according to Yao, indicated that defendant would pay for it. In his trial testimony, Will indicated that plaintiff was to pay U.S. Filter for the water and drain filtration system and that defendant had only agreed to supply free of charge the actual filter.

Will quoted Yao a price of $24,375 for the equipment ($5850 (Cell Dyn) $18,525 (Hitachi)). After discussing the price and financing options, Yao decided to obtain the equipment from defendant. The transaction was structured through a third-party lease with Lease World Corporation ("Lease World"), a company defendant had prior dealings with. Lease World approved plaintiff's application and authorized a $25,000 credit limit. In light of this credit authorization, Yao decided to also obtain a $500 BBL fibrometer ("fibrometer"), a machine used to perform coagulation testing. This item increased the total contract price to $24,875. Plaintiff declined to enter into a service contract, whereby defendant would have provided siX months of unlimited service visits and support, including preventive maintenance and repairs.

In January 1999, Reyes, on behalf of plaintiff, signed a lease contract under which plaintiff agreed to pay Lease World $1,523.80, representing the first and last months' rent, and upon receipt of the equipment from defendant, installments of $761.90 per month for forty-eight months. The lease provided that plaintiff had requested that Lease World purchase the equipment from defendant and that Lease World had no responsibility for the failure of defendant to deliver the equipment specified therein. Defendant was not a party to the lease. Yao indicated, however, that Lease World had agreed to pay defendant $25,000 upon plaintiff's receipt and acceptance of the equipment and upon plaintiff's execution of an"Equipment Condition Report." It is undisputed that Lease World, not defendant, drafted the equipment condition report, which required, inter alia, that plaintiff describe the overall condition of the equipment.

A. Equipment Problems

In late January 1999, defendant forwarded to plaintiff a copy of a partially completed equipment condition report, reflecting that plaintiff had received the equipment, that a complete quality control test had been performed, and that the equipment was in"excellent working condition." Yao refused to sign the report because she had not received the equipment. Thereafter, Yao testified that she received a telephone call from Will"insisting" that she sign the report. She again refused to do so. At trial, Will admitted that he spoke to Yao twice about signing the forms, but said it was"understandable" that she would not do so until she received the equipment.

On March 22, 1999, Brian Griffin, an employee of defendant, delivered to plaintiff the Cell Dyn and the Hitachi, but not the fibrometer. Griffin was unable to install the Cell Dyn and the Hitachi because an electrical outlet needed to be changed. Despite this problem, Griffin asked Yao to sign the equipment condition report, which again indicated that the equipment was operational and in excellent working order. Yao signed the report, but included the notation,"[r]eceived the instrument but not set-up yet."

Thereafter, Manny Licker, president of Lease World, made repeated telephone calls to both Yao and Reyes demanding that they unconditionally sign the report. Jeremy Linder, defendant's president, also called threatening to take the equipment back if they did not sign. On March 26, 1999, defendant sent plaintiff a fax containing the following message:"[A]s discussed with Manny [Licker], please have the enclosed [equipment condition report] form signed.... We will schedule to finish the installation next week."

Defendant followed this fax transmission with a letter signed by Will dated April 16, 1999, reading in part, that,

[a]s verbally agreed, [defendant] would refurbish the equipment to factory specifications. In addition, we would transport the equipment to your laboratory, install the equipment, and train the lab personnel on basic operation of the systems for the total cost of $25,000. As of today, we have refurbished the equipment and delivered it to the lab. We would like to fulfill our obligation of installing and providing training on the systems. In order to do so, we must first receive payment for the equipment.

As part of the leasing procedure, once the equipment is delivered, the"Equipment Condition Report" must be completed by both the Vendor and Lessee. [Defendant]... has completed the report however the Lessee,... [plaintiff] has not completed or signed the report. This report is just to acknowledge that the equipment has been received by the Lessee. Until this report is signed by both parties, [defendant] can not be paid and is unable to fulfill their obligation of installing and training.

According to Yao, Will called her again representing that the report was simply a"formality" and that she"must" sign it.

Shortly thereafter, plaintiff retained an attorney to represent its interests in this matter. As a result, plaintiff, defendant, and Lease World, entered into an agreement on May 18, 1999, which required, in part, that defendant: (1) install the Hitachi and the Cell Dyn at plaintiff's Bayonne offices in accordance with all manufacturers' specifications; (2) supply plaintiff with a fibrometer; (3) supply plaintiff with a water filter at no charge; (4) train four members of plaintiff's staff in the use of the Cell Dyn and Hitachi at either plaintiff's or defendant's office over three consecutive days; (5) supply plaintiff with sufficient chemical substances to conduct the training sessions; (6) provide written proof that the equipment conforms with all manufacturer's specifications; (7) provide equipment that functions in a manner that enables plaintiff to operate its business in accordance with any laws or regulations governing the operation of a medical laboratory; (8) perform twenty-six specific tests on the equipment; (9) provide plaintiff with the written results of these tests demonstrating that the equipment met or exceeded all applicable quality control standards; and (10) provide a ninety-day parts warranty commencing upon defendant's successful completion of the requirements in the above set-forth sections (6) and (8).

Under the agreement, plaintiff did not have to sign the equipment condition report until after defendant had installed the equipment and furnished written proof that the machines met or exceeded all applicable quality control standards. At that point plaintiff was to begin making the lease payments to Lease World.

What happened next is disputed by the parties. According to Griffin, on May 22, 1999, he delivered to plaintiff the fibrometer, installed the Cell Dyn and the fibrometer, but not the Hitachi, and performed a series of tests on the Cell Dyn and the fibrometer. Yao, on the other hand, testified that Griffin delivered only part of the fibrometer, namely the timer, and did not deliver the thermal prep block precision heating unit, which is the part of the fibrometer that incubated the plasma in the reagent in order to perform the coagulation test. In response, Linder testified that"the timer is the fibrometer" and that if plaintiff had wanted any additional accessories, such as a thermal prep block, ...

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