Neufer v. Video Greetings, Inc.
| Decision Date | 26 April 1991 |
| Docket Number | No. 90-3272,90-3272 |
| Citation | 931 F.2d 56,1991 WL 65439 |
| Parties | Unpublished Disposition NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit. Kenneth E. NEUFER, Plaintiff-Appellant, v. VIDEO GREETINGS, INC., Harmon Cogert, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Before KENNEDY and RYAN, Circuit Judges, and FEIKENS, Senior District Judge. *
Kenneth Neufer ("plaintiff") brought suit against Video Greetings, Inc. ("VGI") and its president, Harmon Cogert, alleging several claims arising out of a breach of a franchise and purchase agreement relating to video booths. VGI counterclaimed to enforce the terms of the parties' agreement. After a bench trial, the court held against plaintiff on its claims and for VGI on its counterclaim. For the following reasons, we VACATE the decision of the District Court and REMAND for further proceedings.
On February 17, 1987, plaintiff filed suit against VGI and Harmon Cogert ("Cogert"), president of VGI, in his personal capacity. Plaintiff made numerous allegations: that VGI breached its contract with plaintiff (counts 1 & 2); that VGI interfered with a business opportunity plan in violation of Ohio law (count 3); that VGI and Cogert fraudulently misrepresented various aspects of the booths and franchises (count 4); that VGI and Cogert violated Ohio's deceptive trade practices law (count 5); and that the contract between VGI and plaintiff is unenforceable because it is an adhesion contract (count 6). Based on these allegations, plaintiff sought recission of the contract and restitution, monetary damages and attorney's fees. Plaintiff thereafter withdrew voluntarily count 3. VGI counterclaimed against plaintiff for the remaining amount owed for one of the booths sold to plaintiff.
On April 17, 1987, plaintiff moved pursuant to Federal Rules of Civil Procedure 65 for a preliminary injunction against defendants in the nature of an order sequestering $34,900.00, the amount necessary to satisfy plaintiff's requested remedy of restitution. Plaintiff made this motion based upon statements indicating that VGI was having financial difficulties. On September 25, 1987 and in response to this motion, VGI presented to the District Court its balance sheet and statement of income for the financial year ended as of May 31, 1987. These financial documents were compiled by an accounting firm 1 and showed that plaintiff was solvent as of May 31, 1987. On October 30, 1987, the District Court denied plaintiff's motion.
A trial was conducted on March 22, 1989. Immediately prior to the beginning of trial, Cogert informed the court that VGI was insolvent and therefore judgment-proof. After a bench trial, the District Court dismissed counts 4, 5 and 6 against VGI and all counts against Cogert. The District Court granted judgment in favor of VGI on counts 1 and 2 of plaintiff's complaint, and granted judgment in favor of VGI on its counterclaim. Plaintiff filed this timely appeal.
VGI is a corporation which manufactures booths containing specialized video equipment for the purpose of providing an economic and efficient method of correspondence using a video cassette medium. To promote the sale of these booths, VGI assigned "exclusive territories" to its customers. It advertised its product and services in several publications including the Wall Street Journal. Plaintiff, an Ohio resident with little business experience, responded to one of these advertisements and sought to establish a franchise. The parties executed a contract on November 21, 1986. Under the relevant terms of the agreement, VGI granted plaintiff an exclusive operating territory in parts of Ohio in exchange for plaintiff's promise to purchase ten booths at $15,000 per booth over a nine-month period. Plaintiff signed a customer order for two booths at the time this contract was executed.
The documents constituting the parties' contract contain several warranties made by VGI concerning the booths. On the reverse side of the customer order, VGI warrants the following:
VGI warrants that all equipment pursuant to this order will, at the time of delivery, be free from defects in material and workmanship under normal use and service and will conform to VGI applicable standard written specifications. VGI['s] sole obligation hereunder shall be limited to repair or replacement, at its option, of any of that equipment which, during a period of six months from the date of delivery, is found by VGI inspection to be defective in workmanship or materials. Any shipping costs incurred pursuant to this warranty shall be paid by Customer. This warranty is given to and the rights hereunder may be asserted by VGI Customers only and not by customers of its Customer or user[s] of its Customer's product.
THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
Joint.App. at 81. A separate document also provides a warranty by VGI that is longer in duration but more limited in scope:
The quality in the design and manufacture of [VGI's] products is unsurpassed. Consequently, as the only manufacturer in this industry we provide warranty coverage to all our customers.
VIDEO GREETINGS, INC. warrants its systems to be free from defects in material and workmanship, that affects its functionability, for a period of one year of normal and ordinary use....
VIDEO GREETINGS, INC. or its authorized representatives will replace or repair (at Video Greeting's option) any defective materials except in cases where components such as video recorders, TVs, etc., have individual warranties by the manufacturer. In such cases, those manufacturers will honor warranty.
VGI shipped the first booth to plaintiff during the first two weeks of December 1986. Plaintiff received the booth in an inoperable condition. Upon inspection, plaintiff discovered numerous disconnected wires and, after several phone calls to VGI, succeeded in repairing the booth. According to a stipulation of the parties, this booth later jammed. Notwithstanding this stipulation, the District Court concluded that this booth did not jam but continued to operate. VGI shipped the second booth some time shortly after Christmas 1986, and it too arrived in an inoperable condition. VGI sent a technical representative to Ohio in an effort to determine and remedy the problems, but the representative was unable to repair the booth during his two-day visit and returned to California. On January 14, 1987, the technical representative sent plaintiff the necessary parts and instructions to repair the booth. Plaintiff attempted unsuccessfully to repair this booth.
VGI shipped to plaintiff a third booth during the first week of January 1987. 2 This booth operated initially, but the television monitor blew out shortly thereafter. VGI sent plaintiff the manufacturer's warranty so that he could take the necessary steps to replace the monitor. Apparently this step was inadequate, and VGI then sent plaintiff a new monitor which placed this booth in an operable condition.
Thus, VGI sent plaintiff three booths over a six-week period, two of which arrived in an inoperable state and one of which broke shortly after receipt. Two of these booths were fixed shortly after discovering the problem, but one booth was not repaired. To date, it appears that only one of the three booths operates. Based on these events, plaintiff became dissatisfied with VGI's performance under the contract and sought to rescind the contract on January 21, 1986. VGI refused and these proceedings ensued.
Plaintiff contends that the District Court committed four errors. First, the District Court erred in making findings of fact contrary to the facts stipulated by the parties. Second, the District Court erred by dismissing plaintiff's allegation of fraudulent misrepresentation by defendants to plaintiff in order to consummate the instant contract. Third, the District Court erroneously concluded that plaintiff was not entitled to recission of the contract. Finally, the District Court erred by dismissing Cogert in his personal capacity as a party to this suit and by granting Cogert's motion to quash a subpoena subsequent to trial.
We address the issue of breach and recission first. The District Court construed plaintiff's complaint to seek relief based on two legal bases: breach of contract and revocation of acceptance. Without citing any authority, the District Court held in favor of VGI. On the issue of breach, the court concluded that VGI's warranty was limited to the warranties provided by the manufacturers of the components comprising the booths. The District Court further held that the contract reserved to VGI the right to cure any defects within a six-month period. This time had not yet expired at the time plaintiff brought this action. Thus, plaintiff brought this claim prematurely.
On the issue of revocation of acceptance, the court concluded that revocation is not permissible prior to the expiration of the six-month period established by the warranty. The District Court read the warranty as contemplating repair service by the manufacturers of the components based on their independent warranties and not by VGI. Because VGI had no contractual obligation to service the booths, its failure to provide repair service did not substantially impair the value of the booths. 3 Under such circumstances, revocation of acceptance is not permitted. Hence, in arriving at its holding, the District Court ultimately relied upon its interpretation of the operation and scope of the warranty provided by VGI in the contract.
The interpretation and construction of a written contract are...
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