J. Lilly, LLC v. Clearspan Fabric Structures Int'l, Inc.
| Decision Date | 13 April 2020 |
| Docket Number | No. 3:18-cv-01104-HZ,3:18-cv-01104-HZ |
| Parties | J. LILLY, LLC, an Oregon Limited Liability Company, Plaintiff, v. CLEARSPAN FABRIC STRUCTURES INTERNATIONAL, INC., a Connecticut Corporation; and STORM CONSTRUCTION, LLC, a Michigan Limited Liability Company, Defendants. |
| Court | U.S. District Court — District of Oregon |
Joshua S. DeCristo
Kaitlyn M. Dent
Emerge Law Group
621 SW Morrison Street, Suite 900
Portland, OR 97205
Attorneys for Plaintiff
Ronald J. Clark
Peder A. Rigsby
Anna Lasher
Bullivant Houser Bailey, P.C.
300 Pioneer Tower
888 SW Fifth Avenue
Portland, OR 97204
Attorneys for Defendant/Counter Plaintiff Clearspan Fabric Structures
Rudy R. Lachenmeier
Lachenmeier Enloe Rall & Heinson
9600 SW Capitol Highway
Portland, OR 97219
Attorney for Defendant Storm Construction
Joshua S. DeCristo
JDC Law, LLC
P.O. Box 28385
Portland, OR 97228
Attorney for Counter Defendants Powell and Mahalo, Inc.
Defendant Clearspan moves for partial summary judgment to enforce a consequential damages waiver provision of one of the parties' contracts and to dismiss Plaintiff's claim of lost profits in this claim for breach of contract, breach of warranty, and negligence arising from the Plaintiff's lease of a commercial greenhouse from Clearspan. For the reasons explained in this opinion, the Court grants Clearspan's motion.
Plaintiff J. Lilly has a license from the state of Oregon to grow commercial marijuana. Not. Remov. Ex. A, ¶ 1, ECF 1-1 ("Compl."). When J. Lilly's owner, Frankie Powell, started J. Lilly, she owned a cannabis dispensary that she opened in 2015. Def. Mot. Part. Sum. J. ("Def. Mot."), Rigsby Decl. Ex. 1 ("Powell Dep.") 18:9-23, ECF 44-1. Powell had no experiencegrowing commercial marijuana. Powell Dep. 18:24-19:1. Powell formed J. Lilly because she wanted to grow cannabis to sell to her dispensary and to other dispensaries in Oregon. Powell Dep. 28:10-17. In January 2016, J. Lilly leased property in Washington County for the business. Compl. ¶ 5.
J. Lilly signed an equipment lease agreement with a purchase option (the "lease") that provided that Clearspan would lease J. Lilly a large greenhouse in exchange for $287,199.84. Rigsby Decl. Ex. 3 ("lease" or "lease agreement") at 10, ECF 44-3. The purchase option would allow Plaintiff to purchase the greenhouse for $100.00 at the end of the sixteen-month lease term. Id. at 10. The lease agreement provided that Plaintiff was "solely and exclusively responsible for the assembly of the equipment." Id. at 3. The lease contained an integration clause that said that "[t]his Agreement, Exhibit 1 and Schedule A constitutes the entire agreement of the Lessor and the Lessee with respect to the lease of the Equipment . . . provided, however, that any written agreement to which the Lessor and the Lessee may be a party concerning the design and/or construction of the Equipment shall be unaffected hereby and shall continue in full force and effect." Id. at 8.
In a separate agreement (the "construction contract"), Clearspan agreed to deliver and install the greenhouse for a price of $278,045.13, with $75,000 due before shipping, and the balance due "in consecutive monthly lease payments which sum shall be due and payable by [Plaintiff] not later than thirty (30) days after Clearspan's issuance of an invoice for the same." Rigsby Decl. Ex 4 ("construction contract") ¶¶ 1.1.2, 2.1.2, 6.2, ECF 44-4. Section 2.2 of the construction contract provided that "[a]ll products, equipment, systems or materials incorporated in the Work that are purchased by the Lessee from Clearspan shall be covered exclusively by the warranty attached hereto as Exhibit B." Id. The construction contract—at least the portion of itthat is in the summary judgment record—has two exhibits: "Exhibit A," which includes a "Construction Form" and "Design Documents," Rigsby Decl. Ex. 4 at 10-37, and "Exhibit C," which includes documents entitled "ClearSpan Fabric Structures Installation Warranty" and "Manufacturer's Product Warranty for Class IV Structure." Id. at 38-45.
Clearspan subcontracted Storm Construction to construct the greenhouse. Compl. ¶ 13. Storm Construction performed the work between June 2016 and August 2016. Id. at ¶ 14. Plaintiff alleges that the construction was not performed in a workmanlike manner or in accordance with the plans and specifications and, as a result, the greenhouse had several leaks, holes in the roof that interfered with fan system air flow, a broken weld on a pipe, and other defects. Id. at ¶¶ 15-16. Because of those defects, Plaintiff could not begin growing cannabis in the fall of 2017, as it had intended. Id. at ¶¶ 17, 20.
In November 2017, Clearspan sent Storm Construction to fix one defect that Plaintiff had identified (the broken weld), but Clearspan did not ask Storm Construction to repair any of the other defects. Id. at ¶ 22. Plaintiff alleges that because of the remaining defects, the greenhouse was unsuitable for growing cannabis, and it was never able to begin a cannabis crop, which caused a loss of $5,400,000 in profits. Id. at ¶ 25. Plaintiff brings claims of breach of contract and breach of warranty against Clearspan, id. at ¶¶ 27-48, and a negligence claim against Storm Construction, id. at ¶¶ 49-50.
Plaintiff's First Claim for Relief seeks rescission of "the contract"1 and restitution in the amount of $188,000. Id. at ¶ 31. Plaintiff's Second Claim for Relief seeks damages resulting from Defendants' breach of "the contract," including the cost to repair or replace the greenhouseor the reduced value of the defective greenhouse, not to exceed $288,045.13, plus lost profits from both defendants in the amount of $5,400,000. Id. at ¶¶ 36, 50. Clearspan asserted counterclaims for breach of the lease, unjust enrichment, conversion, and replevin and brought third party claims against Frankie Powell and Mahalo, Inc. for breach of guaranty. Def. Clearspan's Answer at ¶¶ 60-86, ECF 27.
Clearspan moves for partial summary judgment on Plaintiff's claim for lost profits on two grounds. First, Clearspan seeks to enforce paragraph 7.4 of the construction contract to bar Plaintiff's lost profits claim. Def. Mot. 5-9. Section 7.4 of the construction contract reads:
7.4 Mutual Waiver of Consequential Damages. The Lessee agrees to waive all claims against Clearspan for all consequential damages that may arise out of or relate to this Agreement including but not limited to the Lessee's loss of use of the property, all rental expenses incurred, loss of services of employees, or loss of reputation. Clearspan agrees to waive all claims against the Lessee for all consequential damages, other than loss of profits related to the Project, that may arise out of or relate to this Agreement including but not limited to the loss of business, loss of financing, principal office overhead, or loss of reputation. The provisions of this Section shall survive any termination of this Agreement.
Rigsby Decl. Ex. 4 at 6, ¶ 7.4. As an alternative ground for dismissing Plaintiff's lost profits claim, Clearspan argues that the evidence that Plaintiff produced in support of that claim is too indefinite and would require the jury to speculate. Def. Mot. 10-16. The Court agrees that Plaintiff is precluded from claiming damages for its lost profits on both of those grounds. At oral argument, the Court raised the issue of whether a federal court sitting in diversity can award Plaintiff damages for the loss of profits derived from the cultivation and sale of marijuana and received supplemental briefing from the parties addressing that question. The Court finds that it cannot award Plaintiff damages for lost profits from the sale of marijuana and dismisses Plaintiff's lost profits claim on that additional basis.
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Summary judgment is appropriate if there is no genuine dispute as to any material fact, and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The moving party bears the initial responsibility of informing the Court of the basis of its motion and identifying those portions of "'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting former Fed. R. Civ. P. 56(c)).
Once the moving party meets its initial burden of demonstrating the absence of a genuine issue of material fact, the burden then shifts to the nonmoving party to present "specific facts" showing a "genuine issue for trial." Fed. Trade Comm'n v. Stefanchik, 559 F.3d 924, 927-28 (9th Cir. 2009) (internal quotation marks omitted). The nonmoving party must go beyond the pleadings and designate facts showing an issue for trial. Bias v. Moynihan, 508 F.3d 1212, 1218 (9th Cir. 2007) (citing Celotex, 477 U.S. at 324).
The substantive law governing a claim determines whether a fact is material. Suever v. Connell, 579 F.3d 1047, 1056 (9th Cir. 2009). The court draws inferences from the facts in the light most favorable to the nonmoving party. Earl v. Nielsen Media Research, Inc., 658 F.3d 1108, 1112 (9th Cir. 2011). If the factual context makes the nonmoving party's claim as to the existence of a material issue of fact implausible, that party must come forward with more persuasive evidence to support his claim than would otherwise be necessary. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
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Clearspan argues that the construction contract's waiver of consequential damages precludes Plaintiff's lost profits claim. In response, Plaintiff argues that the consequential damages waiver provision is unenforceable because it is unconscionable and because it is a limited remedy that fails of its essential purpose under the Oregon Uniform Commercial Code ("U.C.C.").
Both parties' arguments about...
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