Blue Coast, Inc. v. Suarez Corp. Industries

• Decision Date: 10 March 2005
• Docket Number: No. 2003-455-Appeal.,2003-455-Appeal.
• Citation: 870 A.2d 997
• Parties: BLUE COAST, INC. v. SUAREZ CORPORATION INDUSTRIES.
• Court: Rhode Island Supreme Court

870 A.2d 997

BLUE COAST, INC. v. SUAREZ CORPORATION INDUSTRIES.

No. 2003-455-Appeal.

Supreme Court of Rhode Island.

March 10, 2005.

Brian C. Newberry, Esq., Providence, for Plaintiff.

Lauren E. Jones, Esq., Providence, for Defendant.

Present: WILLIAMS, C.J., GOLDBERG, FLAHERTY, SUTTELL, and ROBINSON, JJ.

OPINION

FLAHERTY, Justice.

Blue Coast, Inc., and Suarez Corporation Industries once enjoyed a lucrative and harmonious business relationship in the production of costume jewelry for marketing and sale through the latter's national mail-order catalog. In 1999, however, all good will between the two companies vanished when Suarez's upper management suspected that Blue Coast had failed to adhere to certain contractual obligations set forth in the parties' production and manufacturing agreements. A civil action ensued, and from a once fruitful and profitable business relationship evolved a jury trial replete with allegations of fraud, breach of contract, breach of warranty, and unethical business practices. Ten years after these two entities first embarked on their business relationship, we are asked to bring finality to difficult legal questions attributable to the litigation occasioned by their unfortunate fallout.

I Background

The plaintiff, Blue Coast, Inc. (Blue Coast), was a one-man wholesale jewelry manufacturing business founded by Jerome Biern in 1995.¹ Running the business from his home in Cranston, Biern engaged Blue Coast in both the resale and production of costume jewelry. When Biern launched his entrepreneurial venture, one of his three original customers was the defendant, Suarez Corporation Industries (Suarez), a direct mail retailer based in Ohio and dealing in the sale of costume jewelry and other products through a national marketing campaign. Over time, Blue Coast became one of Suarez's main jewelry suppliers in the region. The business arrangement proved profitable for both entities, and by 1999, Suarez accounted for more than 90 percent of Blue Coast's production. In 1998, their last full year of cooperation, Blue Coast did approximately $1.7 million in business with Suarez.

Over the years, the parties engaged in a course of dealing that is of particular importance in this case. According to Biern, when Suarez was planning to market a new piece of costume jewelry, it first would send a sample of the prospective piece to various vendors, asking each to submit a price quotation or bid.² If Biern was interested in manufacturing the piece, he would submit a price quote. In the event that Suarez found a lower price from another vendor, Biern often was given the opportunity to lower his original offer, rather than lose the potential sale. On other occasions, Suarez would forgo the bidding process altogether and directly solicit Biern to manufacture a specified quantity of jewelry for a certain price.

If Biern "won" the bidding process or otherwise accepted a direct solicitation from Suarez, that company would forward him a specifications sheet that set forth the production information, including price, manufacturing process, and place of manufacture for the jewelry items. If the product was a plated item, Biern then would add to the product specifications the "milage" intended and return the document to Suarez.³ After receiving the specification sheet, Suarez would then fax a requisition form detailing a specific delivery date. When he received the requisition form, Biern would either sign off that he could fill the order in accordance with the specifications sheet or he would request more time to do so. In the latter instance, Biern would simply cross off the date and write in another before faxing the form back to Suarez.⁴ Because the delivery dates were tight, it was Biern's customary practice to begin manufacturing the product immediately upon returning the requisition form.

Biern testified that after he received the signed requisition form, Suarez would fax him one side of a purchase order. About a week later, Suarez would mail the entire purchase order, which contained legal and contractual language on its reverse side. Included in that language were the following provisions: "All specifications, drawings, and data submitted by Buyer are incorporated and made a part of this order. The terms of this order contain the entire agreement of the parties and no modification of the terms of this order shall be valid unless modified, superseded or otherwise altered by a written instrument by an authorized representative of [Suarez]* * *." By the time Biern received the formal order sheet, however, he either would be late in the process of manufacturing the goods or, in some instances, already would have shipped them.

The Dispute

Blue Coast and Suarez maintained a smooth working relationship until February 1999, when Suarez discovered that a number of earrings and chains that it had ordered from Blue Coast were insufficiently plated. After learning of this discrepancy, Suarez's quality assurance manager sent Biern a letter informing him of the company's concerns. On March 3, 1999, Biern responded that he was totally unaware of any underplating and that he had taken action to ensure that the plating companies whose services he employed adhered to the milage requirements specified by Suarez.

Despite this bump in the road, Blue Coast and Suarez continued their business association, and shortly thereafter agreed on a contract pursuant to which Blue Coast would produce a large order of gold-plated chains of varying thickness to be marketed by Suarez as the "Regal Gold Chain" set. The specifications called for 50 mils of gold plating on each of the chain styles in the set. Blue Coast began production on the Regal set and, by April 1999, had shipped 106,000 gold-plated chains to Suarez. When it received those items, however, Suarez, alerted by the previous nonconformity, sent some of the chains to be tested at an outside laboratory to ensure that Blue Coast had, in fact, provided the 50 mils of gold layering called for on the specifications sheet. According to Suarez, the test results revealed that the chains had been grossly underplated.

When Suarez informed Biern of the problem with the Regal order, he promptly offered to replate any chains that had not yet been sent out to consumers. However, Biern claimed that he would have to negotiate a new price with respect to any outstanding orders. Also, on April 13, 1999, Biern sent a letter to Suarez regional buyer Dan O'Brien, explaining that the chains were inadequately plated because of a language miscommunication between Blue Coast and its Korean plater.⁵ Around that same time, Biern participated in a conference call with Suarez's management, during which Suarez requested that Blue Coast pay for the recall and replating of the approximately 80,000 Regal Chains that previously had been sold and shipped to Suarez customers. Biern flatly refused to participate in the recall, and openly questioned why Suarez would alert its customers to the problem.

Because of Biern's statements during the conference call, Suarez canceled all its outstanding orders with Blue Coast and placed it on a "Do Not Do Business" status. In addition to severing all relations, Suarez also withheld payments due Blue Coast for a number of other items, unrelated to the Regal chains, that Blue Coast previously had shipped. In response, Blue Coast brought a breach of contract action against Suarez, alleging that Suarez owed it $349,794.12 for products produced and shipped prior to its termination as a supplier. Suarez counterclaimed, alleging breach of contract, breach of warranty, fraudulent misrepresentation, and obtaining money by false pretenses, all in connection with the Regal Gold Chain order. On those claims, Suarez sought damages totaling $164,553.04.

The Trial

The primary issue at trial concerned the specifics of Blue Coast's contractual obligations to Suarez. Blue Coast's contention was that the paperwork exchanged between the parties, including the specifications sheets and the purchase orders, neither represented nor was intended by the parties to be a complete integration of the agreements between the parties. On this point, Blue Coast asserted that there were numerous oral agreements and understandings reached between Biern and Suarez's regional buyer Dan O'Brien that formed the actual basis of the bargain between the companies, some of which contradicted the documents exchanged by the parties. Blue Coast maintained that it had not breached any of its contracts with Suarez, including that for the Regal Gold Chain set. Suarez, on the other hand, contended that the contracts between the parties were limited to the terms of the formal purchase order, which incorporated by reference the milage amount specified on the requisition form. Thus, Suarez asserted that Blue Coast had willfully breached its written contract to provide 50 mils of gold plating on the Regal Gold Chain set as clearly set forth on the specification sheet and requisition form, both of which were part of the formal purchase order.

Biern was Blue Coast's sole witness at trial, and his testimony painted an interesting picture of his relationship with Suarez through Dan O'Brien, with whom Biern dealt almost exclusively. According to Biern, O'Brien was under significant pressure to obtain product manufacturing agreements at totally unrealistic prices. Biern testified that because of that pressure, O'Brien advised him to put as much plating on the jewelry pieces as was possible for the agreed price, not necessarily the amount called for in any of the documents or order forms exchanged between Suarez and Blue Coast. On cross-examination, Biern added that he was under the impression that the milage amounts specified on the product worksheets and other written documentation "were nothing but window dressing for top management." Biern reiterated that his standing agreement with O'Brien obligated...