Greenwood Products, Inc. v. Greenwood Forest Products, Inc.

• Jurisdiction: Oregon
• Court: Oregon Court of Appeals
• Writing for the Court: HASELTON
• Citation: Greenwood Products, Inc. v. Greenwood Forest Products, Inc., 242 P.3d 723, 238 Or.App. 468 (Or. App. 2010)
• Decision Date: 10 November 2010
• Docket Number: 050302553; A135701.
• Parties: GREENWOOD PRODUCTS, INC., an Oregon corporation; and Jewett-Cameron Lumber Corp., an Oregon corporation, Plaintiffs-Respondents Cross-Appellants, v. GREENWOOD FOREST PRODUCTS, INC., an Oregon corporation; Jim Dovenberg, an individual; and Bill LeFors, an individual, Defendants-Appellants Cross-Respondents.

242 P.3d 723

238 Or.App. 468

GREENWOOD PRODUCTS, INC., an Oregon corporation; and Jewett-Cameron Lumber Corp., an Oregon corporation, Plaintiffs-Respondents Cross-Appellants,

v.GREENWOOD FOREST PRODUCTS, INC., an Oregon corporation; Jim Dovenberg, an individual; and Bill LeFors, an individual, Defendants-Appellants Cross-Respondents.

050302553; A135701.

Court of Appeals of Oregon.

Argued and Submitted Sept. 23, 2009.

Decided Nov. 10, 2010.

Maureen Leonard argued the cause for appellants-cross-respondents. With her on the briefs was Ron D. Ferguson.

Kevin H. Kono, Portland, argued the cause for respondents-cross-appellants. With him on the briefs were Robert D. Newell and Davis Wright Tremaine LLP.

Before HASELTON, Presiding Judge, and ARMSTRONG, Judge, and CARSON, Senior Judge.

HASELTON, P.J.

Defendants appeal from a general judgment in favor of plaintiffs on their claim for breach of an asset purchase agreement (APA), which provided for several bulk transfers of inventory from defendant Forest Products to plaintiff Greenwood, and from a supplemental judgment awarding attorney fees. ¹ Plaintiffs cross-appeal, asserting thatthe trial court erroneously failed to rescind one of three promissory notes that were issued as final payments for the inventory. We write to address (1) defendants' assignments of error on appeal concerning whether the trial court erred in denying their motions for a directed verdict against plaintiffs' breach of contract claim on the ground that, as a matter of law, the APA did not obligate Forest Products to accurately state or account for its inventory; (2) defendants' challenges to the supplemental judgment awarding attorney fees; and (3) plaintiffs' cross-appeal. As explained below, we conclude that defendants were entitled to a directed verdict on plaintiffs' claim for breach of the APA; that some aspects of the supplemental judgment were erroneous; and that plaintiffs' contention on cross-appeal is unreviewable because they failed to preserve it before the trial court. Accordingly, we reverse on appeal and affirm on cross-appeal.

I. MATERIAL FACTS AND PROCEDURAL HISTORY

In reviewing the trial court's denial of defendants' motions for a directed verdict "we consider the evidence, including any inferences, in the light most favorable" to plaintiffs, "the party that obtained a favorable verdict." Najjar v. Safeway, Inc., 203 Or.App. 486, 489-90, 125 P.3d 807 (2005). If, after viewing the facts in that light, defendants are "entitled to judgment as a matter of law, then a directed verdict is appropriate." Id. at 490, 125 P.3d 807. We state the facts material to plaintiffs' breach of contract claim accordingly.

As of 2002, defendant Forest Products was in the business of purchasing, processing, and selling industrial wood and other products to original equipment manufacturers. In order to provide its customers with prompt service, Forest Products maintained substantial inventory at numerous locations throughout the United States.

On February 25, 2002, Forest Products entered into an agreement- viz., the APA-with plaintiff Jewett-Cameron. Jewett-Cameron is a manufacturer and wholesale distributor of lumber and other building materials. Plaintiff Greenwood is a wholly owned subsidiary of Jewett-Cameron-and is the entity that ultimately operated under the APA.

In general terms, according to the APA, Jewett-Cameron agreed to purchase, inter alia, Forest Products' inventory over a two-year period. As pertinent to the dispositive issues in this case, the APA provided:

"1.4. Purchase of Inventories. [Forest Products] agrees to sell and Jewett-Cameron 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 Jewett-Cameron shall purchase the first unit of inventory on May 31, 2002, and [Forest Products] shall sell and Jewett-Cameron 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.

"1.5. Interim Services and Supply Agreement. During the two-year inventory transition period [ForestProducts] 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. Jewett-Cameron 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 Jewett-Cameron to allow Jewett-Cameron to fill customer orders. Jewett-Cameron shall pay 102% of [Forest Products'] costs for all such purchases and payment shall be due 30 days after invoice and shipping. Jewett-Cameron agrees to assume the credit risk associated with its customers and to bear the loss of nonpayment."

(Section headings in italics and boldface in original; emphasis added.)

To summarize, under the terms of the APA, the parties contemplated seven bulk transfers of inventory from Forest Products to Greenwood. Donald Boone, the person primarily responsible for finance and administration at Jewett-Cameron, explained that the country was divided into seven geographic areas and that the inventory in a geographic area included product in warehouses and treating facilities as well as product that was en route from one location to another. According to Boone, when the inventory in a geographic area could be "identif [ied]," regardless of whether it was "in process, or en route" or "on the ground," a bulk transfer would occur-that is, Greenwood would purchase that area's inventory.

Before a bulk transfer, Greenwood filled customer orders with existing inventory from one of Forest Products' sites and paid Forest Products the cost of that inventory plus a two percent premium, and Forest Products replenished the inventory that had been sold. After a bulk transfer, however, Boone testified that Forest Products "[was] out of the picture as far as * * * that product line, and that area. And from there on Greenwood would do the replenishing, as opposed to Forest Products[.]"

Although the parties intended that the seven bulk transfers would occur over a two-year period, the parties completed the transfer of inventory within a period of 13 to 14 months. Greenwood issued three promissory notes as final payment for the inventory. The first two notes were issued in March 2003 in the principal amounts of $2,376,896.23 and $512,663.89.² The third note was issued in June 2003 in the principal amount of $510,823.³

After the close of Greenwood's fiscal year in August 2003, its auditor identified problems with Greenwood's books. Boone directed Steven Schmidt, a certified public accountant with Greenwood's local accounting firm, to examine the books. Ultimately, Schmidt received permission to examine Forest Products' books as well.

Then, in November 2004, after spending a significant period of time reconstructing the books of both companies and discovering various discrepancies, Schmidt concluded, as pertinent to the issues in this case, that "Greenwood had overpaid Forest Products for inventory that it didn't receive" in the amount of "$819,731.68." Schmidt attributed many of the discrepancies on Greenwood's books to Jim Fahey.

Fahey had been Forest Products' head bookkeeper before the parties entered into the APA. He was one of Forest Products' employees who, under the terms of the APA, was hired by Greenwood as its head bookkeeper.⁴ In fact, Faheywas responsiblefor keeping the books of both Forest Products and Greenwood after the parties executed the APA. According to Boone, employees such as Fahey spent "part of the day * * * wearing a Forest Products hat, and part of the day * * * wearing a Greenwood hat, because * * * [t]he activities of both companies had to function more or less in parallel."

Also in the fall of 2004, as Schmidt was finishing his reconstruction of the parties' books, Dovenberg came to believe that Fahey might be embezzling from Dovenberg's accounts at Forest Products. In May 2005, Forest Products obtained a civil judgment for over $369,000 against Fahey. Fahey was also convicted of embezzlement before the trial in this case began.

In light of those facts, plaintiffs proceeded under the following theory: Fahey hid his embezzlement from Forest Products by making it appear as though Greenwood was receiving inventory. As a consequence of Fahey's conduct, Greenwood paid for inventory that it did not receive. Although Fahey was an employee of Greenwood, Forest Products retained the right to control Fahey's work on behalf of Forest Products. Accordingly, in plaintiffs' view, Forest Products was responsible for Fahey's conduct that resulted in Greenwood's approximate $819,000 overpayment for nonexistent inventory.

Consistently with that theory, in March 2005, while Forest Products was in the process of obtaining its civil judgment against Fahey, plaintiffs filed a complaint against defendants for breach of contract and reformation. As pertinent to the...