July 15, 2010
MAMACITA, INC., PLAINTIFF-RESPONDENT/ CROSS-APPELLANT,
COLBORNE CORP., DEFENDANT-APPELLANT/CROSS-RESPONDENT.
On appeal from Superior Court of New Jersey, Law Division, Camden County, Docket No. L-2731-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued December 15, 2009
Before Judges Fuentes and Gilroy.
Plaintiff Mamacita, Inc. filed suit against defendant Colborne Corporation alleging breach of contract, breach of expressed and implied warranties, and violations of the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -20. Following a bench trial, the Law Division found in plaintiff's favor on the claims based on breach of contract and awarded compensatory damages in the amount of $538,167.08. However, the court dismissed plaintiff's claims under the CFA and denied damages for loss of profits.
Defendant appealed the judgment of the trial court; plaintiff cross-appealed the court's rulings which dismissed its claims under the CFA and denied lost profits as an additional measure of damages. By order dated April 30, 2009, we granted defendant's motion seeking leave to withdraw its appeal. Thus, the only issues before us relate to plaintiff's uncontested cross-appeal. Specifically, the trial court held that the CFA is not applicable here because the product sold by defendant to plaintiff was not intended to be available to "the public at large," but was manufactured by defendant to meet plaintiff's specific business needs. The trial court also precluded plaintiff from presenting evidence of lost profits damages as a sanction for plaintiff's discovery violation.
We now reverse the trial court's ruling concerning the inapplicability of the CFA and remand for the court to make specific findings on this issue. The CFA protects a corporation, such as plaintiff, from unconscionable commercial practices, deception, false promises and misrepresentations in connection with the acquisition of equipment. It does not matter whether the corporation intended to use the equipment for its own business use, or purchased the equipment for resale to a third party or to the public at large.
We affirm, however, the trial court's ruling which denied plaintiff's application to recover lost profits as a measure of damages. Notwithstanding plaintiff's characterization on its cross-appeal, the trial court's ruling was not predicated on its application of the new business rule. The record shows that the trial court based its ruling entirely on plaintiff's counsel's failure to provide defense counsel with copies of the documentary evidence supporting plaintiff's claim for lost profits. Thus framed, we discern no legal basis to disturb the trial court's ruling in this respect.
The following facts inform our discussion of the legal issues raised by plaintiff in its cross-appeal.
At the time this suit began, plaintiff had been producing a vegetable-based frozen product for Goya Foods, Inc. for approximately twenty-five years. Sometime in 2000, Goya offered plaintiff the opportunity to become its new provider of dough discos for Goya's use in making empanadas. In response to this business opportunity, plaintiff developed a dough recipe and began searching for a company to provide it with the equipment necessary to manufacture the Goya dough discos.
Starting in early 2003, plaintiff and defendant Colborne, a company specializing in manufacturing machinery used to produce dough-based products, began exchanging emails to determine the type of equipment defendant would manufacture and/or supply in order to meet plaintiff's business needs. Throughout 2005, the parties worked together to test different equipment with differing dough recipes provided by plaintiff. Defendant agreed to supply plaintiff with equipment of a certain quality to be used in making the dough discos.
In 2005, as part of a financing package with its bank, plaintiff agreed to lease the dough equipment from Central Atlantic Leasing Corporation (CAL), who in turn purchased the equipment from defendant. Plaintiff presented CAL with a commitment agreement from Goya as part of the security for this financing scheme.
Plaintiff alleged that defendant breached its contractual obligations by providing equipment not of the quality promised. Specifically, plaintiff alleged that the equipment provided by defendant never functioned properly and was not USDA approved or corrosion-resistant. Plaintiff's breach of contract, breach of warranties, and CFA claims were based on these alleged misrepresentations.
The court found in plaintiff's favor after conducting a bench trial. In a written decision, the trial judge found that defendant "breached the contract in that [it] failed to supply a machine that could produce the discos in the manner and speed required by the specifications and further failed to provide corrosion resistant and stainless steel construction." The court further concluded that defendant "breached the implied warranty of merchantability and fitness for a particular purpose." The court gave the following explanation for denying plaintiff's CFA claims:
Here[,] both parties were experienced commercial entities, the contract that was entered into was between parties of equal bargaining power, who engaged in a negotiation process, and the product sold was not a product sold to the public at large, indeed it was specified equipment to make a special product, specifically empanadas. This contract does not come within the CFA.
We disagree. The CFA "is applicable if the nature of the transaction comes within the purview of the Act, and if the defendants' conduct amounted to an unconscionable commercial practice." Perth Amboy Iron Works, Inc. v. Am. Home Assurance Co., 226 N.J. Super. 200, 208-09 (App. Div. 1988) (internal citation omitted), aff'd, 118 N.J. 249 (1990). N.J.S.A. 56:8- 1(d) states that "person" under the CFA includes a corporation. Additionally, N.J.S.A. 56:8-1(c) defines "merchandise" as "any objects, wares, goods, commodities, services or anything offered, directly or indirectly to the public for sale." Under N.J.S.A. 56:8-2, it is an unconscionable commercial practice to engage, in connection with the sale of any merchandise, in a fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise... or with the subsequent performance of such person... whether or not any person has in fact been misled, deceived or damaged thereby.
From the evidence presented here, the trial court found that defendant breached its contract with plaintiff by failing "to supply a machine that could produce the discos in the manner and speed required by the specifications and further failed to provide corrosion resistant and stainless steel construction." However, because the court dismissed plaintiff's CFA claims as a matter of law, it never examined the evidence to determine whether defendant's conduct also amounted to an unconscionable commercial practice under N.J.S.A. 56:8-2.
We are thus compelled to remand this matter for the court to make specific findings, from the evidence presented, as to whether defendant made a false promise or misrepresentation, or knowingly concealed, suppressed, or omitted any material fact with the intent that plaintiff rely upon such concealment, suppression or omission, in connection with the sale or advertisement of the empanada disco equipment. The court is to determine whether defendant's failure to provide corrosion resistant and stainless steel construction constitutes a knowing concealment of a material fact with the intent that plaintiff rely upon that fact. If the court were to find CFA violations on these facts, plaintiff will then have the burden of establishing it sustained an ascertainable loss proximately caused by such violations. Thiedemann v. Mercedes-Benz U.S.A. LLC, 183 N.J. 234, 248 (2005); N.J.S.A. 56:8-19.
We turn next to the court's denial of plaintiff's application to include lost profits as a measure of damages. The record shows that defense counsel objected when plaintiff's counsel referred to a document that allegedly reflected an agreement with Goya for plaintiff to supply frozen discos from October 1, 2005, to February 28, 2006. After defense counsel made clear that this document had not been provided to her in the normal course of discovery, the court sustained her objection. Plaintiff's counsel did not return to this issue for the remainder of trial. On these facts, the trial court was well within its case-management authority to exclude this evidence as a sanction for a discovery violation. Abtrax Pharm., Inc. v. Elkins-Sinn, Inc., 139 N.J. 499, 513 (1995); R. 4:23-2(b).
Affirmed in part, reversed in part, and remanded.
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