Greenwood Prods., Inc. v. Greenwood Forest Prods., Inc.

• Jurisdiction: Oregon
• Court: Oregon Supreme Court
• Writing for the Court: WALTERS
• Citation: Greenwood Prods., Inc. v. Greenwood Forest Prods., Inc., 273 P.3d 116, 351 Or. 604 (Or. 2012)
• Decision Date: 24 February 2012
• Docket Number: (CC050302553,CA A135701,SC S059097).
• Parties: GREENWOOD PRODUCTS, INC., an Oregon corporation; and Jewett–Cameron Lumber Corp., an Oregon corporation, Petitioners on Review, v. GREENWOOD FOREST PRODUCTS, INC., an Oregon corporation; Jim Dovenberg, an individual; and Bill Lefors, an individual, Respondents on Review.

273 P.3d 116

351 Or. 604

GREENWOOD PRODUCTS, INC., an Oregon corporation; and Jewett–Cameron Lumber Corp., an Oregon corporation, Petitioners on Review,

v.GREENWOOD FOREST PRODUCTS, INC., an Oregon corporation; Jim Dovenberg, an individual; and Bill Lefors, an individual, Respondents on Review.

(CC050302553

CA A135701

SC S059097).

Supreme Court of Oregon.

Argued and Submitted Nov. 7, 2011.Decided Feb. 24, 2012.

On review of an order of the Court of Appeals.^*Kevin H. Kono, Davis Wright Tremaine LLP, Portland, argued the cause for petitioners on review. Timothy R. Volpert filed the brief for petitioners on review. With him on the brief were Kevin H. Kono and Robert D. Newell.

Maureen Leonard, Portland, argued the cause and filed the brief for respondents on review. With her on the brief was Ron D. Ferguson.

Cody Hoesly, Larkins Vacura LLP, Portland, filed the brief for amicus curiae Oregon Trial Lawyers Association.WALTERS, J.

Greenwood Products, Inc.,¹ and Jewett–Cameron Lumber Corp., (hereinafter “plaintiffs”), who obtained a jury verdict in their favor on a breach of contract claim against Forest Products, Dovenberg, and LeFors (hereinafter “defendants”), seek review of a Court of Appeals decision reversing the judgment entered on that verdict. The contract in question required defendants to sell, and plaintiffs to buy, all of defendants' large and ever—changing inventory, for a certain percentage over defendants' cost for that inventory. In their action against defendants, plaintiffs alleged that defendants had breached the contract by erroneously accounting for their cost of inventory—causing plaintiff to pay some $820,000 more for the inventory than it should have. Defendants moved for a directed verdict on the breach of contract claim, but the trial court denied the motion and sent the claim to the jury, which returned a verdict for plaintiffs. The Court of Appeals held that the trial court should have granted defendants' motion for a directed verdict because the contract did not impose any obligation on defendants to accurately account for the cost of the inventory. For the reasons discussed below, we reverse the Court of Appeals decision in part and remand to that court to consider other issues that defendants raised in their appeal.

Because we are reviewing a trial court's denial of a motion for a directed verdict, we consider and present the facts in the light most favorable to the party that opposed the motion—in this case, plaintiffs. Knepper v. Brown, 345 Or. 320, 323, 195 P.3d 383 (2008). In 2002, when the events that led to the action in question took place, defendant Forest Products was an Oregon corporation whose primary shareholders were two individuals, defendant Dovenberg and defendant LeFors. Forest Products was in the business of processing and selling industrial wood products, and maintained a large inventory of such products at numerous distribution centers throughout the United States. Dovenberg was friendly with Boone, the financial and administrative head of, and largest shareholder in, Jewett–Cameron Lumber Co., a wholesale distributor of lumber and related materials. Dovenberg had expressed to Boone his interest in selling Forest Products or otherwise retiring from the business. Initially, Boone felt that it would be unwise for Jewett–Cameron to attempt any kind of purchase of the business, because acquisition of Forest Products' enormous inventory would be overwhelming. In 2001, however, Dovenberg and Boone conceived a plan that would allow Jewett–Cameron to acquire Forest Products' inventory over time.

Under the plan, Jewett–Cameron would create a wholly owned subsidiary, Greenwood Products, Inc. (“Greenwood”) that initially would acquire Forest Products' equipment and place of business and would hire most of its employees. Greenwood then would proceed to purchase Forest Products' nationwide inventory over a two-year period, in geographically determined “units.” Until a particular unit's inventory was sold, Forest Products would continue to sell and replenish inventory within the unit, using employees loaned back to it by Greenwood. Eventually, after all the units of inventory were sold to Greenwood, Forest Products would be stripped of its assets, and its involvement in its former business would end (Forest Products itself, however, would continue to exist).

To facilitate the plan, Forest Products and Greenwood/Jewett–Cameron entered into an Asset Purchase Agreement (“the APA”).² The APA provided that, on a designated closing date—February 28, 2002–Greenwood would purchase Forest Product's furniture and equipment and a license to use certain of Forest Product's intangible assets, and would take over Forest Product's lease on its offices. Also by the February 28, 2002, closing date, Forest Products would dismiss most of its employees, and Greenwood would rehire them. ³

The APA provided that, over a two-year period after the closing date, Greenwood would purchase Forest Product's nationwide inventory in seven installments or “units”:

“1.4. Purchase of Inventories. [Forest Products] agrees to sell and [Greenwood] agrees to purchase [Forest Products'] inventories, work in process, raw materials and packaging (except the portions which are unusable as agreed by the parties prior to transfer) in stages over a two year period following closing, for a price equal to [Forest Products'] cost (including transportation, processing and storage) plus a premium of 2%, as follows: immediately upon execution of this agreement and prior to closing the parties will separate the inventory into seven discrete units by location. [Forest Products] shall sell and [Greenwood] shall purchase the first unit of inventory on May 31, 2002, and [Forest Products] shall sell and [Greenwood] shall purchase an additional unit at the end of each three month period thereafter until all of the units of inventory have been sold and purchased. The specific unit of inventory to be sold at the end of each three month period shall be selected by mutual agreement of the parties. Payment for each unit of inventory shall be due 30 days after purchase. Conveyance shall be by Bill of Sale.”

(Emphasis supplied). Finally, the APA provided for management of Forest Product's inventory during the transition period in the following terms:

“1.5. Interim Services and Supply Agreement. During the two-year inventory transition period [Forest Products] agrees to replenish, process, and maintain inventories in keeping with its past practice at each of the locations where the inventory has not yet been sold. [Greenwood] agrees to provide [Forest Products] with all management and administrative services associated with purchasing, processing, and maintaining [Forest Products'] inventory at each such location for a fee of $150 per month for each unit of the 7 units of inventory described in Section 1.4 above that is retained by [Forest Products]. During the inventory transition period [Forest Products] will also sell inventory from such retained locations in the regular course of business exclusively to [Greenwood] to allow [Greenwood] to fill customer orders. [Greenwood] shall pay 102% of [Forest Products'] costs for all such purchases and payment shall be due 30 days after invoice and shipping. [Greenwood] agrees to assume the credit risk associated with its customers and to bear the loss of nonpayment.”

(Emphasis supplied).

Thus, every three months after closing, Greenwood would purchase, in a single transaction, all of Forest Products' inventory in a given geographic “unit” (including products in warehouses, products being processed, and products en route from one location to another), paying Forest Products the cost of the inventory plus two percent. Until a particular geographic unit of inventory was sold in that manner, employees of Greenwood (who formerly had worked for Forest Products and were, in essence, contracted out to Forest Products for a nominal $150 per month fee) would manage the sale, processing, and replenishing of inventory in the unit in much the same manner as they previously had for Forest Products, with Forest Products being paid by Greenwood for the cost of any inventory sold plus a two-percent premium. After a unit of inventory was sold, Forest Products would be, in the words of one witness, “out of the picture as far as * * * that product line, and that area,” and Greenwood would step into Forest Products' shoes and be responsible for providing its own inventory.

After closing on February 28, 2002, Greenwood took over Forest Products' offices and equipment. Most of Forest Products' employees and management all became employees of Greenwood, holding the same positions that they had occupied at Forest Products. Forest Products continued to exist side-by-side with Greenwood-with Forest Products responsible, at least on paper, for maintaining the inventory that Greenwood employees sold. What this meant in practice was that, in those “units” that had not yet been purchased by Greenwood, Greenwood employees sold wood products to outside customers, purchasing inventory to cover each sale from Forest Products, at cost plus two percent. The purchases and sales were tracked automatically on two sets of books—as one witness described it, “when a sales entry was made, it was made in one company and automatically appeared as a * * * purchase and a sale in the other company.” Although, as noted, Forest Products was responsible, during the transition, for replenishing, processing, and maintaining the supply of inventory that Greenwood employees would be selling, it was Greenwood employees who actually performed all of that work, under the “management and administrative services” provision of the asset purchase agreement.

In fact, the parties interpreted the “management and administrative services” provision as extending to the work performed at Forest Products' highest levels. After the closing,...