Ariz. Chem. Co. v. Mohawk Indus., Inc.

• Decision Date: 18 July 2016
• Docket Number: No. 1D15–2436.,1D15–2436.
• Citation: 197 So.3d 99
• Parties: ARIZONA CHEMICAL COMPANY, LLC, Appellant, v. MOHAWK INDUSTRIES, INC. and Aladdin Manufacturing Corporation, Appellees.
• Court: Florida District Court of Appeals

197 So.3d 99

ARIZONA CHEMICAL COMPANY, LLC, Appellant,

v.MOHAWK INDUSTRIES, INC. and Aladdin Manufacturing Corporation, Appellees.

No. 1D15–2436.

District Court of Appeal of Florida, First District.

July 18, 2016.

Sylvia H. Walbolt and Christine Davis Graves of Carlton, Fields, Jorden, Burt, P.A., Tallahassee. Michael A. Abel, Jeremy J. Ches, and Andrew J. Steif of Holland & Knight, LLP, Jacksonville, for Appellant.

Thomas E. Bishop, Michael G. Tanner, and Casey W. Arnold of Tanner Bishop, Jacksonville. Doug Scribner, Daniel C. Norris, and Jason Rottner of Alston & Bird, LLP, Atlanta, pro hac vice, for Appellees.

RAY, J.

Arizona Chemical Company, LLC, appeals from an award of prejudgment interest in favor of Mohawk Industries, Inc., and Aladdin Manufacturing Corporation (collectively “Mohawk”). Arizona argues that the trial court erred in awarding prejudgment interest for periods of time earlier than the dates Mohawk suffered the pecuniary losses for which the jury awarded damages. We agree. Accordingly, we reverse and remand for recalculation of Mohawk's prejudgment interest from the dates of Mohawk's losses.

Facts

The prejudgment interest award followed a final judgment entered on a jury verdict awarding Mohawk damages for Arizona's breach of contract and warranty. Arizona appealed that final judgment separately, and we affirmed it in all respects in a separate opinion. Ariz. Chem. Co., LLC v. Mohawk Indust., Inc. & Aladdin Mfg. Corp., 193 So.3d 95 (Fla. 1st DCA 2016). The facts leading to the jury's findings of breach are detailed in that opinion. We now briefly summarize the facts pertinent to the prejudgment interest issue presently before us.

Arizona and Mohawk had a contractual relationship requiring Arizona to provide Mohawk a resin that Arizona specially designed and manufactured for use by Mohawk as a component of Unibond-brand carpet. Mohawk began using this resin, along with resin produced by another manufacturer, as part of the backing system for Unibond carpet in 2000. In 2005, Mohawk increased its usage of Arizona's resin in Unibond carpet. Around the same time, unbeknownst to Mohawk, Arizona changed its resin formula. Approximately three years later, in 2008, Mohawk began receiving an unusually high number of warranty claims pertaining to the Unibond backing system. Although the claims rate spiked during that time, the majority of the carpet manufactured with Arizona's resin, both before and after 2005, did not generate any claims. Nevertheless, suspicious that Arizona's resin caused the backing failures and resulting claims spike, Mohawk stopped using that resin in March 2009. Even though the claims rate returned to normal, the brand suffered and was discontinued in 2011.

Mohawk determined that the carpet that was the subject of the backing-failure claims was manufactured from 2005 until the time that Mohawk stopped using Arizona's resin. After discovering the defect, Mohawk decided to sell some of the remaining carpet manufactured with that resin at a discount as a “second quality” product and to discard some of it. Mohawk sued Arizona under theories of breach of contract and breach of warranty to recover these losses, its expenses in fulfilling customer warranty claims, and profits it lost due to declining sales of Unibond carpet and the ultimate demise of the brand.

The jury awarded Mohawk damages for each of the aforementioned categories, and the trial court awarded Mohawk prejudgment interest for the damages arising from past warranty claims, “second quality” carpet, and discarded carpet. The trial court accepted Mohawk's argument that it was entitled to interest on all past damages from the date of Arizona's breach, meaning the date Arizona delivered defective resin. However, because that date could not be determined, the court used the date that Mohawk had applied the resin to each roll of carpet that was the subject of a warranty claim or was discarded or sold as second quality.

Arizona argues on appeal, as it argued below, that prejudgment interest does not begin to accrue until the date that (1) the defendant had notice of the plaintiff's claim and (2) the plaintiff sustained the actual pecuniary loss for which it was awarded damages. Arizona is partially correct: there is no bright-line rule establishing that prejudgment interest begins to accrue only after the date the plaintiff has notice of a claim, but Florida law does link the date prejudgment interest begins to accrue to the date the plaintiff suffered the pecuniary loss for which the plaintiff is being compensated. See Argonaut Ins. Co. v. May Plumbing Co., 474 So.2d 212, 214–15 (Fla.1985). Arizona's notice argument is based on an exception to the general rule that has been applied in certain cases based on equitable principles. See Broward Cnty. v. Finlayson, 555 So.2d 1211, 1213 (Fla.1990). We resolve the dispute before us by first explaining the general rule and then briefly addressing the equitable exception. We then apply the general rule to the facts of this case and leave the equitable question open for the trial court to resolve in its discretion on remand.

Florida's “Loss Theory” of Prejudgment Interest

In Argonaut Ins. Co. v. May Plumbing Co., the Florida Supreme Court distilled over a century of precedent governing awards of prejudgment interest in tort and contract cases, concluding that prejudgment interest awards in this state are governed by the “loss theory.” 474 So.2d at 214–15. Under the loss theory, the purpose of awarding prejudgment interest is to make the plaintiff whole. Id. Thus, an award of prejudgment interest is not an opportunity for the plaintiff to obtain a windfall or for the court to penalize the defendant. See id.; see also Nat'l Educ. Ctrs., Inc. v. Kirkland, 678 So.2d 1304, 1306 (Fla. 4th DCA 1996) (citing Metro. Dade Cnty. v. Bouterse, Perez & Fabregas Architects Planners, Inc., 463 So.2d 526, 527 (Fla. 3d DCA 1985) ). In consideration of the compensatory goal of prejudgment interest awards in Florida, the law of this state is that “when a verdict liquidates damages on a plaintiff's out-of-pocket, pecuniary losses, plaintiff is entitled, as a matter of law, to prejudgment interest at the statutory rate from the date of that loss.” Argonaut, 474 So.2d at 215. A verdict is said to have the effect of liquidating damages as long as the verdict establishes the loss and “the pertinent date can be ascertained from the evidence.” Pace Property Fin. Auth., Inc. v. Jones, 24 So.3d 1271, 1272 (Fla. 1st DCA 2009).

Mohawk contends that, in a breach-of-contract or warranty action, prejudgment interest accrues from the date of breach rather than the date the plaintiff sustains the pecuniary loss for which the jury awarded damages. This position is inconsistent with the loss theory of prejudgment interest as articulated in Argonaut. Indeed, in Bosem v. Musa Holdings, Inc., 46 So.3d 42, 46 (Fla.2010) (quoting William B. Hale, The Law of Damages, § 67 (2d ed.1912)), the court reiterated that, whether the case arises in tort or contract, if the plaintiff's damages are “wholly pecuniary,” the plaintiff should recover “not only the value of what he has lost, but receive it as nearly as may be as of the date of his loss.”

Although some cases reference “the time of the accrual of the cause of action” as the time when prejudgment interest begins to accrue in a contract action,¹ we are aware of no controlling case since Argonaut that has made this reference in regard to a situation where the court was called upon to decide between two alternate dates for beginning the accrual of interest, one being the date the cause of action accrued and the other being the date an actual pecuniary loss was sustained. We acknowledge that Griffing Brothers Co. v. Winfield, 53 Fla. 589, 43 So. 687, 691 (1907), appears to support Mohawk's position. However, to the extent Winfield allows the recovery of prejudgment interest from a date preceding the plaintiff's actual loss, we must conclude that it was superseded by Argonaut. Indeed, Winfield has not been cited in any published opinion on the subject of prejudgment interest since Argonaut, and Argonaut itself did not cite Winfield.

Consistent with Argonaut, this Court has recognized that the date the cause of action accrues may not always be the dispositive date for prejudgment interest, even in a contract action. In Craigside, LLC v. GDC View, LLC, 74 So.3d 1087, 1092 (Fla. 1st DCA 2011), we noted, “Generally, interest awarded as damages in a contract action runs from the date when the right to recover on the claim became vested or accrued, which is ordinarily the date of the breach or the date when payment was due under the contract.” This observation makes sense because, in many breach-of-contract cases, the damages are direct, occurring simultaneously with the breach. E.g., Lumbermens Mut. Cas. Co. v. Percefull,

653 So.2d 389, 390 (Fla.1995) (holding that prejudgment interest began to accrue on the date payment was due to the plaintiff, but wrongfully withheld, under the terms of the parties' contract); Craigside, 74 So.3d at 1092 (holding that interest was to run from the date a condominium developer was contractually obligated to return a sum of money but failed to do so); Thomas v. Toth, 539 So.2d 8, 9 (Fla. 2d DCA 1989) (explaining that buyers of property that was not as promised “suffered their loss when they paid for the property and title was transferred”). In such cases, the date the cause of action accrues is the same as the date of loss. In some cases, such as the instant case, the pecuniary loss caused by a breach of contract does not occur until sometime later. See, e.g.,

Pegasus Helicopters, Inc. v. United Techs. Corp., 35 F.3d 507, 512–13 (10th Cir.1994) (holding, under Colorado law, that prejudgment interest on consequential damages flowing from breach of express warranty ran from the date the plaintiff “suffered the loss of each business opportunity or otherwise...