Company Image Knitware v. Mothers Work

• Decision Date: 28 September 2006
• Citation: 909 A.2d 324
• Parties: COMPANY IMAGE KNITWARE, LTD. and Perma Lift Corseteria, S.A. De C.V., Appellees/Cross-Appellants v. MOTHERS WORK, INC., Appellant/Cross-Appellee.
• Court: Pennsylvania Superior Court

909 A.2d 324

COMPANY IMAGE KNITWARE, LTD. and Perma Lift Corseteria, S.A. De C.V., Appellees/Cross-Appellants v. MOTHERS WORK, INC., Appellant/Cross-Appellee.

Superior Court of Pennsylvania.

Filed September 28, 2006.

COPYRIGHT MATERIAL OMITTED

Edward S. Mazurek, Philadelphia, for Mothers Work.

Leo M. Stepanian, Butler, for Company Image Knitware and Perma Lift Corseteria.

BEFORE: MUSMANNO, TODD, and JOHNSON, JJ.

OPINION BY TODD, J.:

¶ 1 In this breach of contract action, Mothers Work, Inc., appeals the judgment entered in favor of Company Image Knitware, Ltd. ("CIK") and Perma Lift Corseteria, S.A. De C.V. ("PLC") (collectively "Appellees"), and Appellees cross-appeal. We affirm.¹

¶ 2 The extensive factual background of this case, based on the detailed factual findings of the Honorable Marilyn J. Horan, is as follows. CIK is a U.S. garment manufacturing company owned and operated by Clarence B. Williams. PLC is a Mexican garment manufacturing company, with its business headquarters in Mexico City, Mexico, and is owned and operated by Carlos Sandoval. Mothers Work, a Pennsylvania corporation with headquarters in Philadelphia, is a "knock off" maternity garment company that produces clothing by copying the designs of other leading manufacturers.

¶ 3 In February 1999, Don Oaks, Mothers Work's then-executive vice president, asked Williams, with whom Oaks had a long-standing business relationship in the garment industry, to come to Philadelphia to discuss a business venture with Mothers Work wherein Williams would manufacture garments for Mothers Work in Mexico. Williams was asked to locate the appropriate mills and manufacturing centers in Mexico City.

¶ 4 According to the testimony at trial, at this meeting, Mothers Work and Williams' company, CIK, reached an oral agreement whereby CIK agreed to specially manufacture maternity garments in Mexico according to the standards set and approved by Mothers Work regarding fabric, color, style, and pattern, and Mothers Work agreed to pay CIK a set price, 50% after fabric cutting, and 50% on delivery. The trial court set forth the agreed-upon production routine as follows:

a. [Mothers Work] would provide a sample material to CIK, which represented the fabric texture, content, and "feel" desired by [Mothers Work]. These fabric samples were generally taken from a garment of a competitor of [Mothers Work], which [Mothers Work] wanted CIK to reproduce.

b. CIK, through Mr. Williams, would negotiate with mills in Mexico City for the production of this specific fabric to meet the requirements of [Mothers Work].

c. Once sample fabrics were produced, they were sent to [Mothers Work] in Philadelphia for approval. Upon approval by [Mothers Work], [Mothers Work] would then send specific color swatches to CIK for exact matching in the manufacture of the fabric.

d. Mr. Williams would take the color swatches to the mill. CIK, through Mr. Williams, would obtain matching colors in sample quantities from the mill and forward the same to [Mothers Work] for approval. Upon approval by [Mothers Work], [Mothers Work] would instruct CIK to order production of a designated quantity of said fabric and color according to [Mothers Work's] specifications.

e. After [Mothers Work] approved the dyed fabric and while the fabric was in production, [Mothers Work] would make a garment fit and pattern, and [Mothers Work] would send those to CIK for purposes of cutting and manufacturing sample garments pursuant to [Mothers Work's] instructions and specifications.

f. CIK would have the Mexican factory make the final fit sample garments from the approved fabric and send the same to [Mothers Work] for final approval. Upon final approval, [Mothers Work] would send CIK the patterns and specifications for the findings, i.e., trim buttons, etc., manufacturing directions, and instructions to proceed with production.

g. [Mothers Work] would also issue orders for the purchase of maternity garments from CIK. These orders from [Mothers Work] were by written documents such as purchase orders, faxed notes and requests for garments and scheduling timetables. [Mothers Work] also placed oral orders by telephone, which were sometimes followed by written confirmations and other times only by acceptance of the finished goods that were produced pursuant to the oral orders.

h. After receiving a written or oral order, CIK, through Mr. Williams, would order the specially made and specially dyed fabric from the mill. The findings were also specially ordered to match the fabric and [Mothers Work] specifications.

i. Once the garments were produced, they were boxed in Mexico City and picked up by [Mothers Work] at said location through carriers hired and directed by [Mothers Work]. Delivery of goods would occur from CIK to [Mothers Work] at the manufacturing plant in Mexico City.

(Memorandum Opinion and Decision, 7/1/05, at 3-4.)

¶ 5 PLC, a manufacturer of ladies lingerie and maternity tops to the local Mexican market and for export, was selected by CIK as the Mexican clothing manufacturer, and PLC was also interviewed and approved by Mothers Work. With approval of Mothers Work, and following Mothers Work's inspection of PLC's facilities, Appellees entered into a joint venture for the manufacture of garments pursuant to orders placed by Mothers Work. Mothers Work approved the hiring of an on-site quality control inspector for CIK and PLC, and also interviewed and hired its own inspector.

¶ 6 The inspectors checked the fabric and garment manufacturing processes for all Mothers Work orders, including fabric manufacture at the mills, garment production at the factories, and garment packaging for delivery. The inspectors implemented protocol for fabric and garment inspection in accordance with the military standard and the JCPenney's standard, which were the standards in the industry.

¶ 7 In 1999, Appellees began manufacturing garments for Mothers Work. Mothers Work placed its orders for fabric and garments by purchase order, telephone, fax, and some e-mail communications. When garments were delivered to Mothers Work, invoices were issued by CIK or PLC. According to Williams, Appellees produced about 150,000 units for Mothers Work in 1999, about 500,000 units in 2000, and about 200,000 units in the early months of 2001. (N.T. Trial, 5/23/05, at 68-69.)

¶ 8 Mothers Work terminated its relationship with Appellees in the spring of 2001 by failing to place any further orders for garment production or fabric manufacture. After Mothers Work refused to pay sums Appellees asserted were due for goods already shipped and materials and goods in the process of manufacture, in June 2002, Appellees sued Mothers Work, asserting claims for breach of oral contract, promissory estoppel, and quasi-contract, and seeking damages of nearly $2 million.

¶ 9 Appellees' damages claim was ultimately divided into three categories: Category I damages concerned goods for which Appellees had invoiced Mothers Work, but for which Appellees had not received payment. It is undisputed that, over the course of the relationship, Appellees invoiced Mothers Work for the sum of $4,478,137.65 and that, on those invoices, Mothers Work remitted $4,353,321.70, leaving an unpaid balance of $124,815.80.² Category II damages concerned raw materials, including fabric and findings, and finished goods on hand at Appellees' facilities for which Mothers Work had not yet issued a purchase order, totaling $212,323.78 in value. Finally, Category III damages concerned fabric special-ordered for Mothers Work that was in the process of production at the behest of Appellees, again for which Mothers Work had not issued a purchase order, valued at $467,519.44.³

¶ 10 In response to Appellees' suit, Mothers Work, inter alia, denied the existence of an oral contract between the parties, and asserted that, in any case, Appellees' claims were barred by the statute of frauds. It also counterclaimed for damages related to unfulfilled purchases orders of $300,000.

¶ 11 Following a nonjury trial on May 23, 2005 to May 25, 2005, the trial court found in favor of Appellees in the amount of $603,848.40.⁴ Mothers Work's post-trial motions were denied; Appellees' post-trial motions were denied to the extent that they sought lost profits for fabric on hand and in production at the time of the breach, but granted to award Appellees statutory prejudgment interest. Judgment was entered against Mothers Work on October 5, 2005, Mothers Work timely appealed, and Appellees cross-appealed.

¶ 12 On appeal, Mothers Work asks:

A. Whether the trial court erred as [a] matter of law in holding that the discussions between Mothers Work and [Appellees] contained sufficient specific terms to form an oral contract?

B. Whether the trial court erred as a matter of law in holding that the goods at issue fell within the specially manufactured goods exception to the Statute of Frauds?

C. Whether the mere existence of invoices demanding payment beyond the amount already paid by the buyer of goods is sufficient evidence to establish that these amounts were actually owed?

D. Whether sufficient competent evidence exists that the seller purchased approximately half-a-million dollars worth of fabrics to use for garments for the buyer, where no documentation reflecting such purchases has been produced or entered into evidence?

E. Whether damages are available in this action through promissory estoppel or Quantum meruit, absent an enforceable oral contract?

(Appellant's Brief at 4.)⁵ In their cross-appeal, Appellees challenge the trial court's refusal to award lost profits. (Appellees' Brief at 4.)

¶ 13 Initially, we note that our standard of review in nonjury cases is limited to:

a determination of whether the findings of the trial court are supported by competent evidence and whether the trial court committed error in the application of law. Findings of the trial judge in a non-jury case must be given...