March 16, 2010
CAR WASH MANAGEMENT INC., TRADING AS ON THE GO, PLAINTIFF-APPELLANT,
EQUIPMENT MARKETERS AND ADC DRYER CORPORATION, DEFENDANTS-RESPONDENTS, AND EQUIPMENT MARKETERS, THIRD-PARTY PLAINTIFF,
FRED BARREN, INDIVIDUALLY T/A AFFORDABLE HEATING & AIR CONDITIONING; AND AFFORDABLE HEATING & AIR CONDITIONING CORPORATION, THIRD-PARTY DEFENDANTS.
On appeal from the Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-1239-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued: November 5, 2009
Before Judges Axelrad and Fisher.
Plaintiff Car Wash Management, Inc., t/a On the Go, the owner and operator of four coin laundromat facilities, appeals from summary judgment dismissal of its complaint against the seller/distributor and the manufacturer of allegedly defective dryers. In separate orders, the trial court dismissed plaintiff's claims asserting breach of Uniform Commercial Code (UCC) (revocation of acceptance) against both defendants, breach of contract against the seller/distributor, and breach of implied warranty against both defendants. We affirm.
Viewed most favorably for plaintiff, Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995), the motion record reveals the following. Early in 2004, an Equipment Marketers' sales representative visited plaintiff's laundromat in Burlington and recommended that plaintiff purchase seven Maytag MLG32 commercial dryers that were manufactured by defendant ADC. Plaintiff purchased the dryers from Equipment Marketers at a cost of $4775 each. Equipment Marketers delivered the machines to plaintiff's Burlington facility around October 26, 2004, and pursuant to plaintiff's instruction, the dryers were installed by third-party defendant, Fred Barren individually and t/a Affordable Heating and Air Conditioning (collectively referred to as Barren). The record does not reflect how many other dryers were in the facility during the relevant period.
Starting about eight months later, four dryers each caught fire on separate dates, causing clothing or towels within the tumbler to burn, necessitating responses by the fire department. The fires occurred on June 6, 2005, April l8, 2006, September 21, 2006, and February 4, 2007. The record is not clear whether defendants were informed of the first two fires, or what their responses were. However, it is clear both defendants were notified after the third fire. According to Steven Platt, plaintiff's president, he spoke on the phone and exchanged emails with representatives of ADC in an effort to find a solution. Equipment Marketers sent service technicians to check the machines and there were discussions with plaintiff regarding venting of the machines and cleaning lint from them, but nothing was definitively resolved.
Albert Maugeri, plaintiff's service manager, testified in depositions on September 4, 2008, that plaintiff's regular maintenance for these machines that was in effect at the time of all four fires consisted of taking off the front panel and removing the lint from the drums and wherever else it had accumulated, and cleaning the lint from the stacks.*fn1 This maintenance program was performed by plaintiff every six months. After the third fire, maintenance was increased to a minimum monthly schedule and, if staffing permitted, it was performed every two weeks. As of Maugeri's deposition, there had been no further fires, which he attributed to plaintiff's increased maintenance and keeping the lint out of the dryers.
On March 29, 2007, plaintiff's counsel sent correspondence to Equipment Marketers' president, demanding the dryers be removed and plaintiff be reimbursed for the purchase price of the equipment and other damages. A consultant's report was attached, and as represented by the letter, "[t]his report makes clear that the four fires that have occurred at the laundromat were caused by a malfunction of [the] dryers[, which] pose a very real threat, not only to the laundromat itself, but also to patrons who use the dryers."*fn2 The letter further requested a response by April 4, 2007, as to when Equipment Marketers would make arrangements to remove the dryers so that new dryers could be installed, and included the threat to have the equipment "removed and placed in storage at [Equipment Marketers'] expense" if a response setting forth a date for the removal within a reasonable time was not forthcoming. A copy of the letter was sent to ADC's president.
On April 11, 2007, plaintiff's counsel spoke with ADC's president, again asserting that the dryers manufactured by ADC were defective and non-conforming, and requesting their removal. Neither defendant removed the dryers from plaintiff's facility.
On May 8, 2007, plaintiff filed suit against both defendants, alleging: Count I - UCC Breach - revocation of acceptance of non-conforming goods (both defendants); Count II -breach of contract (Equipment Marketers only); and Count III -breach of implied warranty due to defective dryers causing fires to clothing in the dryer drums (both defendants).*fn3
Throughout litigation, plaintiff continued to use the dryers. Platt acknowledged in depositions on September 4, 2008, that his intention as a businessman was to "make money" so his plan was to use the dryers and keep them running whenever he could. There had been no further fires and the only time the dryers were not used was when the maintenance program work was performed or they were getting serviced for items such as broken belts. Platt qualified, however, that he attempted to minimize the use of these dryers by having his attendants steer customers away from them if the laundromat was not that busy because he was worried about another incident. He explained that he did not want to mark the dryers "out of order," however, because it "looks bad" as plaintiff's operations were known "for hardly ever having equipment down for more than as long as it takes to get a part." If the laundromat was busy, Platt would "keep all the units... operational but keep an eye on them from a maintenance standpoint and aggressively clean them."
On September 24, 2008, Equipment Marketers filed a motion for summary judgment to dismiss the first count, arguing that plaintiff's continued use of the dryers in its commercial operation, after giving purported notice of revocation under UCC 2-608, constituted confirmation of its continued acceptance of them. In other words, no material issue of fact existed that plaintiff accepted the dryers and continued to perform acts inconsistent with the seller's ownership that made its revocation ineffective. See N.J.S.A. 12A:2-606(1)(c).
In response, plaintiff admitted that it continued to use the dryers, albeit in a restricted fashion, but contended it was a necessary means to mitigate its damages and maintain its business. Plaintiff referenced Platt's testimony that the dryers were used as a last resort as backup dryers and if the laundromat was crowded, the attendants kept a careful eye on the dryers rather than turning away business. He also referenced Maugeri's testimony that plaintiff constantly cleaned the dryers, more so than any other dryer in any of plaintiff's locations, in an effort to use the dryers and minimize the risk of incidence. Plaintiff also discussed the procedural history of the fires, lack of satisfactory responses from defendants, the determination by its consultant that the dryers were defective*fn4, and notification to defendants of revocation and demand for removal. Plaintiff thus argued it had raised a sufficient question of fact for the jury under the applicable case law as to the reasonableness of its continued use of the dryers after revocation.
Following oral argument on October 24, 2008, Judge Baldwin granted summary judgment to Equipment Marketers, dismissing the first count of plaintiff's complaint. The court expressly noted that plaintiff was a commercial establishment with many different locations and the allegedly defective dryers were a small portion of the number of dryers it owned. Moreover, plaintiff had used the dryers for four years, and the last fire occurred almost two years ago. The court rejected plaintiff's argument that under the facts of the case, its continued use of the dryers was "an issue of damages." Rather, the court found the issue was whether plaintiff successfully revoked acceptance under the UCC. Judge Baldwin concluded, with all inferences in plaintiff's favor, that no jury could find this commercial plaintiff successfully revoked acceptance under the UCC by using the dryers for four years and not returning them or even taking them out of production.
Both defendants then filed motions to dismiss the balance of plaintiff's complaint, arguing plaintiff's claims arose in their entirety from the sale of goods, and were thus wholly governed by the UCC.*fn5 At oral argument on December 12, 2008, plaintiff abandoned his breach of contract claim (Count II). Following oral argument, the court granted summary judgment dismissing plaintiff's implied warranty claim (Count III), finding the separate claim was precluded by ADC's express warranty regarding repair and replacement, which was complied with by defendants. The court entered orders dismissing plaintiff's complaint against both defendants. This appeal ensued.
On appeal, plaintiff only appears to challenge Count I concerning its attempted revocation under the UCC and does not appear to appeal the breach of implied warranty claim asserted in Count III of its complaint. Plaintiff argues that the reasonableness of its continued use was an issue of fact which should have been left for resolution by the jury. Plaintiff also contends the court erred as a matter of law in determining that the issue of its use after revocation went to whether the revocation was effective rather than a potential set-off against the damages that might have been ultimately awarded to plaintiff. In response, ADC also argues that, as a threshold matter, its express warranty, which limits plaintiff's remedies to repair and replacement parts, defines the available remedies and these were all duly provided to plaintiff; therefore, the warranty compelled the dismissal of plaintiff's claim for revocation of Count I. See Palmucci v. Brunswick Corp. d/b/a Mercruiser & Sanborn Marine Ctr., 311 N.J. Super. 607 (App. Div. l998).
When reviewing a grant of summary judgment, we employ the same standards used by the motion judge. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). First, we determine whether the moving party has demonstrated that there were no genuine disputes as to material facts, and then we decide whether the motion judge's application of the law was correct. Atlantic Mut. Ins. Co. v. Hillside Bottling Co., Inc., 387 N.J. Super. 224, 230-31 (App. Div.), certif. denied, 189 N.J. 104 (2006). In so doing, we view the evidence in the light most favorable to the non-moving party. Brill, supra, 142 N.J. at 523. We accord no deference to the motion judge's conclusions on issues of law, Manalapan Realty, L.P., v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995), which we review de novo.
Dep't of Envtl. Prot. v. Kafil, 395 N.J. Super. 597, 601 (App. Div. 2007).
We will focus on the revocation of acceptance issue as that is the basis for plaintiff's appeal and, based on our review of the record, the case can be disposed of on that ground.*fn6 We are satisfied the court properly found the matter was ripe for summary judgment based on the record presented with all favorable inferences given to plaintiff, and correctly concluded that plaintiff's continued use of the dryers rendered its revocation ineffective as a matter of law under the UCC.
The UCC provides that a buyer may revoke acceptance of goods where the "non-conformity substantially impairs its value."*fn7 N.J.S.A. 12A:2-608(1). "Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects." N.J.S.A. 12A:2-608(2). Moreover, revocation "is not effective until the buyer notifies the seller of it." Ibid.
"[R]evocation of acceptance is tantamount to rescission." Cuesta v. Classic Wheels, Inc., 358 N.J. Super. 512, 518 (App. Div. 2003). See also N.J.S.A. 12A:2-608(3) (stating that a buyer who revokes has the same rights and duties regarding the goods as if the buyer rejected them). However, a buyer who revoked acceptance of subsequently determined non-conforming goods cannot then continue to use them because continued use is "inconsistent with the seller's ownership" of the goods, which constitutes acceptance of them. N.J.S.A. 12A:2-606(1)(c).
The question here is whether plaintiff's continued use of the dryers after it sent its letter of revocation in March 2007 constituted a waiver of its right to revoke its initial acceptance and a bar to the remedy of rescission. The UCC provides that once a buyer provides notification of rejection, if the seller offers no instructions within a reasonable time, the buyer may (1) store the rejected goods for the seller's account; (2) reship the goods to the seller; or (3) resell them to the seller's account. N.J.S.A. l2A:2-604; Fablok Mills, Inc. v. Cocker Mach. & Foundry Co., 125 N.J. Super. 251, 257 (App. Div.), certif. denied, 65 N.J. 317 (1973). Section 2-604 provides an illustrative and non-exhaustive list of options of what the rejecting buyer may do with the non-conforming goods. N.J.S.A. 12A:2-604, Uniform Comment. As we elaborated,
Furthermore, avoidance of an absolute rule against continued use is counseled by the overriding requirement of reasonableness which permeates the Code. We conceive that in certain circumstances continued use of goods by the buyer may be the most appropriate means of achieving mitigation, i.e., where the buyer is unable to purchase a suitable substitute for the goods. [Fablok Mills, supra, 125 N.J. Super. at 257-58. See also Cuesta, supra, 358 N.J. Super. at 520.]
In Fablok Mills the seller was the only domestic manufacturer of the particular types of knitting machines that the plaintiff's business had bought and the plaintiff was confronted with the "grim choice" of either continuing to use some of the machines after it wrote to the seller revoking its acceptance or going out of business. Fablok Mills, supra, 125 N.J. Super. at 258. It continued to use some of the machines, replacing others and putting them in storage. Id. at 255. Under the undisputed facts and specific circumstance where the buyer was unable to purchase a suitable substitute for the deficient goods, we reversed the grant of summary judgment to the seller, stating as follows:
Thus, to hold, as a matter of law, that the buyer in these circumstances was required to discontinue his use of the goods and destroy his entire business would be contrary to the Code's rule of reasonableness and its underlying purposes and policies. We again conclude that the reasonableness of plaintiff's continued use of the machines, after revocation, is a question of fact to be resolved by a jury referable to the issue of waiver. [Id. at 258-59.]
In Cuesta, in addressing the issue of whether a buyer's continued use of a Corvette after revocation constituted rescission in the context of a Consumer Fraud Action case, we found particularly instructive the Ohio Supreme Court's analysis in McCullough v. Bill Swad Chrysler-Plymouth, Inc., 449 N.E.2d 1289 (Ohio 1983). Cuesta, supra, 358 N.J. Super. at 520. In McCullough, on January 8, l979, the plaintiff offered to return a car she had purchased in May l978, which continued to malfunction despite the dealer's efforts to repair. The dealer did not respond to her letter and on January l2, 1979, the plaintiff filed suit seeking rescission of the sales agreement and damages. Plaintiff continued to operate the car, and by the time of trial about a year and a half later, the car had been driven nearly 35,000 miles, of which 23,000 were driven after plaintiff gave notice of revocation. The trial court entered judgment for the plaintiff, which the court of appeals affirmed, determining she had properly revoked her acceptance of the car despite her continuing use of it, which the appellate court found reasonable. The Ohio Supreme Court affirmed, explaining that "[t]he genesis of the 'reasonable use' test lies in the recognition that frequently a buyer, after revoking his earlier acceptance of a good, is constrained by exogenous circumstances -- many of which the seller controls -- to continue using the good until a suitable replacement may realistically be secured. Clearly, to penalize the buyer for a predicament not of his own creation would be patently unjust." [McCullough, supra, 449 N.E.2d at 1292. See also Cuesta, supra, 358 N.J. Super. at 521.]
The Ohio Supreme Court suggested the following five-prong test for the factfinder to consider in determining whether the buyer's continued use after revocation was reasonable: (1) Upon notice of revocation, what instructions did the seller give the buyer about the goods? (2) Did the buyer's business needs or personal circumstances compel the continued use? (3) During the period of the buyer's use, did the seller assure the buyer that all non-conformities would be cured or that provisions would be made to compensate the buyer for the dissatisfaction and inconvenience caused by the defects? (4) Did the seller act in good faith? and (5) Was the seller unduly prejudiced by the buyer's continued use? McCullough, supra, 449 N.E.2d at 1293.
The Court in McCullough considered each of these criteria and concluded that the plaintiff acted reasonably in continuing to operate her car even after revocation of acceptance. Ibid. The factors the Court found persuasive were: (1) the dealer's failure to respond to the plaintiff's request for instructions regarding disposition of the car; (2) the plaintiff's limited financial position which significantly restricted her ability to return the defective car and purchase another one, thereby incurring another car loan while she remained liable for repayment on the first one; (3) the dealer's attempts to repair even after the plaintiff tendered her notice of revocation, thereby providing both express and tacit assurances that its defects were remediable and inducing the plaintiff to retain possession; and (4) the dealer's refusal to honor the warranties before their expiration and other conduct evidencing less than fair dealing. Ibid. The Court also found the dealer was not prejudiced by the plaintiff's driving of the car for 23,000 more miles because it was still marketable at the time of trial, but, nevertheless, having failed to reassume ownership of the car when requested to do so, determined the dealer must bear the loss for any diminution of the car's resale value occurring between the two dates. Ibid.
Plaintiff argues on appeal, as it did to the trial court, that because the issue of the reasonableness of a buyer's continued use of goods following revocation may create an issue for the jury, a court is precluded from disposing of the issue on summary judgment. The trial court rejected that argument, as do we.
In determining whether there exists a genuine issue of material fact that precludes summary judgment under Rule 4:46-2, the motion judge, and the reviewing court, consider "whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill, supra, 142 N.J. at 540. The trial court should not hesitate to grant summary judgment when the evidence "'is so one-sided that one party must prevail as a matter of law.'" Ibid. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 2512, 91 L.Ed. 2d 202, 214 (1986)).
The law is clear that continued use of merchandise following revocation is the exception rather than the rule and that such use may be reasonable if the buyer is constrained by exigent and compelling circumstances, many of which are within the control of the seller. Plaintiff has made no claim that the goods it purchased from Equipment Marketers were anything other than run-of-the-mill commercial dryers ADC manufactured under the Maytag brand name and that it could not purchase a "suitable substitute." Thus, unlike the buyer in Fablok Mills who was held hostage by the defendant-seller as the only domestic manufacturer of that particular kind of machine, plaintiff was never confronted with the "grim choice" of either continuing to use the dryers or going out of business. Fablok Mills, supra, 125 N.J. Super. at 258. Nor does the record reflect, or is it reasonable to assume, that this business entity that operates four commercial establishments, is in similar strained financial circumstance as the McCullough buyer such that it was practically impossible for it to have paid another $38,000 to purchase and install seven replacement machines after revocation.
It does not appear either defendant offered to pick up the dryers after receiving plaintiff's letter in March 2007. However, plaintiff never disconnected any of the dryers. Assuming for good will purposes the commercial plaintiff did not want to mark the dryers "out of order" for an extended period of time, it still made no attempt to reship them, store them in one of its warehouse facilities or pay for storage and add that as a damage. Plaintiff's bald assertion that the cost of removing the dryers and storing them "would have caused economic hardship" is insufficient evidence to raise a debatable issue on this point. The record is also devoid of evidence that either defendant made any representations that would have induced plaintiff to keep the dryers after revocation.
Plaintiff's conclusory assertions that the dryers were necessary to "maintain its business" or "mitigate its loss" are not supported by the record. The reality is that Platt made a business judgment to continue using the dryers because there were no further fires, the monthly lint maintenance program appeared to have taken care of the problems, and the machines were generating income. Thus, the record is clear that plaintiff chose to continue with a "predicament of [its] own creation," not one that was "constrained by exogenous circumstances -- many of which the seller control[led]." McCullough, supra, 449 N.E.2d at 1292. Plaintiff may have had to take the "extra precaution" of having its attendants steer customers towards other dryers when the laundromat was not busy. Otherwise, plaintiff continued to use the allegedly defective machines and gain revenue from them, with no additional precautions identified other than a more aggressive maintenance plan than it performed on other dryers.
Plaintiff correctly notes that there has been no evidence of prejudice to defendants presented by its continuous use of the dryers, though we assume there is some unquantified depreciation of the useful life. However, prejudice is but one of the non-exhaustive criteria relevant for consideration in determining whether a buyer's continued use of goods is reasonable. See Cuesta, supra, 358 N.J. Super. at 521. We are satisfied that when the totality of the evidence is considered in light of the applicable law, a rational juror could not conclude other than that plaintiff did not act reasonably in continuing to use the purportedly defective dryers after revocation of acceptance. Accordingly, summary judgment was appropriately granted by the trial court.
Moreover, we reject plaintiff's argument that defendants' potential entitlement to an offset against damages (considering the coin-operated dryers) has a bearing on whether the revocation was effective. See Cuesta, supra, 358 N.J. Super. at 522 (recognizing that a car dealer may be entitled to an offset for all or portion of lease payments made by buyer after he sought revocation, with defendant bearing burden of proof on that issue). We have recognized that a buyer's continued use must first be found to be reasonable, then the factfinder determines damages. Ibid. In other words, where a revocation is justifiable, a buyer may recover the purchase price paid, less potential offset. See ibid. (emphasis added).