Comark Merchandising, Inc. v. Highland Group, Inc.

• Decision Date: 23 May 1991
• Docket Number: 90-1763,Nos. 90-1672,s. 90-1672
• Parties: 14 UCC Rep.Serv.2d 999 COMARK MERCHANDISING, INCORPORATED, Plaintiff-Appellant/Cross-Appellee, v. HIGHLAND GROUP, INCORPORATED, Defendant-Appellee/Cross-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1196

932 F.2d 1196

14 UCC Rep.Serv.2d 999

COMARK MERCHANDISING, INCORPORATED, Plaintiff-Appellant/Cross-Appellee, v. HIGHLAND GROUP, INCORPORATED, Defendant-Appellee/Cross-Appellant.

Nos. 90-1672, 90-1763.

United States Court of Appeals Seventh Circuit.

Argued Sept. 26, 1990.

Decided May 23, 1991.

James A. Flesch, Richard S. Davis, Rudnick & Wolfe, Chicago, Ill., for plaintiff-appellant/cross-appellee.

J. Timothy Cerney, Diana J. Faust, Edward J. McGillen, Carroll, Hartigan & McCauley, Chicago, Ill., for defendant-appellee/cross-appellant.

Before BAUER, Chief Judge, WOOD, Jr., and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

The plaintiff contracted with the defendant to produce two million recipe brochures for the defendant's pizza promotional project. The parties exchanged price quotations and a purchase order reflecting the agreement. The plaintiff's price quotations contained an additional terms provision requiring interest and attorney's fees in the event of late payment. A dispute arose concerning the amount due under the contract, and this litigation ensued. Following a bench trial, the district court ruled in favor of the plaintiff, but did not award attorney's fees. Both parties appealed. For the following reasons, we affirm the judgment of the district court.

I BACKGROUND

A. Facts

Boboli Co. (Boboli) produces thick "California style" pizza bread shells (pizza bread) for sale in supermarkets and for use in restaurants. Boboli decided to introduce its pizza bread into Southern California supermarkets. To promote this introduction, Boboli decided to insert folded brochures containing suggested recipes in the plastic package with the pizza bread. Given its limited promotional budget, Boboli decided not to overwrap each brochure in polypropylene plastic, a method of shielding the brochures from the oil and grease of the fresh pizza bread. In the summer of 1987, Boboli engaged the Highland Group, Inc. (Highland), a marketing and sales promotion agency, to design and produce the brochures.

Because the brochures would be in contact with food, federal law required that they be produced with non-toxic inks approved by the Food and Drug Administration (FDA inks). In November 1987, Sydney Griffin, Highland's production manager, discussed the printing of the brochures with several paper and ink suppliers, including Colorcon, Inc. (Colorcon), an FDA ink manufacturer. Griffin explained to Colorcon that the brochures would be placed on a pizza dough product. Colorcon replied that FDA inks may smear in such application and offered to test Colorcon's inks on the Boboli pizza bread. Neither Griffin nor any other Highland employee, however, accepted Colorcon's offer to test the FDA inks. Colorcon also recommended Comark Merchandising, Inc. (Comark), as a quality printer of FDA ink materials.

Griffin approached Kenneth Kroslak, a Comark sales representative, to obtain a price quotation for printing the brochures. Griffin explained to Kroslak that the brochures were to be used in connection with a new pizza product, but refused, when Kroslak asked for additional details, to identify further the nature of the product, the conditions under which the brochures would be packaged with the product, or the name of the company producing the product. Griffin informed Kroslak that she had researched the brochure project carefully by discussing the project with ink and paper manufacturers, and was simply looking for a printer to produce a quality job satisfying her specifications. Kroslak replied that, because of the nature of FDA inks, Comark desired to know, prior to production, how materials printed with FDA inks will be used. He also indicated that overwrapping the materials often should be considered. Griffin again refused to provide further information. Sensing that he could lose Highland's business if he pressed the issue, Kroslak did not insist on additional information.

In several subsequent conversations, Kroslak provided Griffin with various price quotations for printing the brochures on different types and weights of paper. On November 23, 1987, Comark sent Griffin, at Kroslak's direction, a price quotation, on Comark's standard sales quotation form, for production of either two million or three million brochures on FDA-approved 100 pound coated text paper. Such paper, however, is unsuitable for direct contact with food because it is not water, oil, or grease resistant and thus tends to bleed or smear when it touches those substances. Thereafter, Kroslak and Griffin discussed quotes for printing the brochures on oil and grease resistant (OGR), or water, oil, and grease resistant (WOGR) paper. During these discussions, Kroslak remained uninformed as to the brochure's intended use. During this time, Griffin also requested and received samples of Planters Popcorn coupons, which were printed by Comark on WOGR paper with FDA inks. Griffin and Highland's vice-chairman were pleased with the appearance and quality of the coupons and forwarded some of the coupons to Boboli. Boboli in turn placed several coupons in packages of its freshly baked pizza bread to determine whether the coupons would warp or absorb grease. Neither problem occurred.

In late December 1987, after further discussions, Kroslak and Griffin agreed that the brochures would be printed on fifty pound WOGR paper. On December 23, 1987, at Kroslak's direction, Comark sent Griffin a second price quotation listing those specifications and a $61,420 base price for production of two million brochures. Both this quotation and the prior November 23, 1987 quotation from Comark to Highland simply listed the job as a "recipe brochure" project, without mentioning Boboli, because Griffin had not yet told Kroslak that Highland's client was Boboli. Moreover, after sending the December 23, 1987 price quotation, Comark received Highland's brochure artwork; the artwork text did not describe whether the pizza bread was fresh or frozen.

The reverse side of Comark's December 23, 1987 price quotation contained the following terms:

ADDITIONAL TERMS: Your acceptance of the terms of this Quotation also constitutes your acceptance of the following conditions:

1. If your account is not fully paid within sixty (60) days after the date of any invoice for work performed pursuant to this Quotation, you will be charged interest at the rate of one and one-half percent (1 1/2%) per month until the account has been fully paid.

2. In the event that Cooperative Marketing ¹ shall institute any collection proceedings against you with respect to your delinquent account, then you agree to pay to Cooperative Marketing on demand, an amount which is equal to all costs, charges and expenses paid or incurred by Cooperative Marketing in pursuing such collection, including, without limitation, all reasonable attorney's fees, court costs and other litigation expenses in connection therewith.

On January 4, 1988, Griffin sent Comark a purchase order requesting production of the brochures for a base price of $61,420 on more expensive seventy pound WOGR paper, and with additional color. After numerous negotiations, Kroslak and Griffin agreed that Comark would produce the brochures on the heavier seventy pound paper and with additional color for the same base price quoted for the fifty pound WOGR paper, notwithstanding the additional cost to Comark. In late January 1988, again at Kroslak's direction, Comark sent Griffin a third price quotation confirming the final brochure specifications and the base price of $61,420. This January 27, 1988 price quotation also contained the same additional terms and conditions as the December 23, 1987 price quotation above. ²

In late January 1988, Comark shipped an initial group of 72,000 brochures to Boboli. Boboli in turn packaged 20,000 to 35,000 brochures with its pizza bread and shipped thousands of them to supermarkets for sale. Soon thereafter, a consumer informed Boboli that a red mark appeared on the pizza bread where a brochure had been placed. Subsequent inspection revealed that other pizza bread experienced the same problem. Boboli decided to cease packaging the brochures with the bread and informed Highland of the consumer's complaint. Highland in turn contacted Comark and, for the first time, informed Comark of Boboli's exact packaging process and of its plan to place the brochures in direct contact with freshly baked pizza bread. Kroslak told Griffin that, had he known this, Comark would not have produced the brochures without overwrapping each brochure in polypropylene plastic; Griffin responded that Boboli's limited budget had prohibited overwrapping.

After determining that overwrapping was the only certain way to cure the problem, Kroslak offered to have Comark overwrap each brochure. Kroslak informed Griffin, however, that Comark would not bear the cost of the overwrapping, because Comark had fulfilled satisfactorily its responsibility to produce quality brochures. He reminded Griffin that she had refused to inform Kroslak of the nature of the Boboli pizza product and the manner in which the brochures would be packaged with that product. After this conversation, Griffin directed Kroslak to overwrap the brochures. The remaining brochures were overwrapped and sent to Boboli without further incident of bleeding. Comark had the nearly two million brochures overwrapped by an outside vendor at a cost of $16,651.

Subsequently, a dispute arose between Highland and Comark over the amount due under the brochure contract. Since March 1988, Highland has conceded that it owes Comark at least $55,220 for the brochures, but has refused to pay that amount because Comark asserts that Highland owes more. On June 6, 1988, Comark filed this diversity action against Highland for the amount due under the contract. The district court awarded Comark $86,960, plus prejudgment interest. The court did not, however, award attorney's fees as requested by...