Pleasurecraft Marine Engine Co. v. Thermo Power Corp.

• Decision Date: 24 September 2001
• Docket Number: No. 00-2328,00-2328
• Citation: 272 F.3d 654
• Parties: (4th Cir. 2001) PLEASURECRAFT MARINE ENGINE COMPANY, Plaintiff-Appellant, and CAROLINA FIRST BANK, Plaintiff, v. THERMO POWER CORPORATION, Defendant-Appellee. Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 654

272 F.3d 654 (4th Cir. 2001)

PLEASURECRAFT MARINE ENGINE COMPANY, Plaintiff-Appellant and CAROLINA FIRST BANK, Plaintiff, v. THERMO POWER CORPORATION, Defendant-Appellee.

No. 00-2328

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Argued: September 24, 2001

Decided: November 16, 2001

Appeal from the United States District Court for the District of South Carolina, at Columbia. Dennis W. Shedd, District Judge. (CA-00-126-3-19) COUNSEL ARGUED: Wilburn Brewer, Jr., NEXSEN, PRUET, JACOBS & POLLARD, L.L.C., Columbia, South Carolina, for Appellant. Peter L. Murphy, LAW OFFICES OF PETER L. MURPHY, Columbia, South Carolina, for Appellee. ON BRIEF: Harold W. Jacobs, Richard S. Dukes, Jr., NEXSEN, PRUET, JACOBS & POLLARD, L.L.C., Columbia, South Carolina, for Appellant.

Before WIDENER, LUTTIG, and MOTZ, Circuit Judges.

Affirmed by published opinion. Judge Luttig wrote the opinion, in which Judge Widener and Judge Motz joined.

OPINION

LUTTIG, Circuit Judge:

Pleasurecraft appeals a district court order granting summary judgment to Thermo on Pleasurecraft's claims that it was entitled to an adjustment in purchase price under certain provisions of an asset purchase agreement between the two companies. The district court also granted summary judgment to Thermo on its counterclaim for payment of the outstanding balance due under the agreement. We agree, in relevant part, with the district court's conclusions, and, accordingly, affirm.

I.

Pleasurecraft Marine Engine Company (Pleasurecraft) entered into an agreement with Thermo Power Corporation (Thermo) to purchase assets that Thermo owned in connection with the production of its lines of marine engines. Upon arrival of the items shipped pursuant to the agreement, Pleasurecraft verified that each shipping basket contained the number of parts indicated on the accompanying packing slip, but did not confirm that the part number on the slip corresponded to the actual part received. Only much later did Pleasurecraft commence this task of confirmation.

Perhaps because neither party to the contract knew precisely what Thermo had in its warehouse, section 2.4(a) of the agreement provided a purchase price adjustment mechanism. J.A. 34. Errors in the quantity of any asset were to be reported to Thermo within 48 hours of delivery. By contrast, Pleasurecraft had one year from closing to report errors in "book value."

At closing, Pleasurecraft objected that it never received some items for which it had been invoiced. As a result, the parties lowered the purchase price by almost $300,000 and amended the agreement. Subsequently, Pleasurecraft discovered that Thermo had listed incorrect part numbers on at least three packing slips. Pleasurecraft claims that this resulted in a "substantial overstatement of the book value of the inventory." Appellant's Br. at 8. Pleasurecraft also asserts that Thermo charged it for more than $200,000 in unmerchantable inventory.

Unsatisfied with Thermo's response, Pleasurecraft brought suit in South Carolina state court, seeking a declaration of the amount owed under the agreement and an injunction preventing Thermo from drawing down a letter of credit delivered by Pleasurecraft to ensure final payment to Thermo. Thermo removed to federal court and counterclaimed for the outstanding balance.

Before the district court, Pleasurecraft argued that Thermo's alleged misidentifications resulted in an error in book value of the inventory, entitling Pleasurecraft to a purchase price adjustment under section 2.4(a) of the agreement. After finding that Pleasurecraft had actually received at least one of each disputed asset, J.A. 355, the district court held that the claim related only to quantity, and was therefore barred because Pleasurecraft did not object within 48 hours of delivery (of either the goods or the actual invoice). The court also found that Pleasurecraft had adduced little or no evidence regarding merchantability but had at most put forth evidence that some of the merchandise was not marketable. The district court granted summary judgment to Thermo on all issues and Pleasurecraft appeals.

II.

Pleasurecraft asserts that it is entitled to a purchase price adjustment under section 2.4(a) of the agreement, because Thermo's misidentification of certain parts delivered to Pleasurecraft resulted in an "erroneous inflation of the Book Value of the inventory," Appellant's Reply Br. at 1 (emphasis added), and hence an inflated purchase price.

Under Ohio law, which controls interpretation of this agreement, J.A. 48, the interpretation of an unambiguous contract is for the court. See Packer, Thomas & Co. v. Eyster, 709 N.E.2d 922, 926 (Ohio Ct. App. 1998) (citing Inland Refuse Transfer Co. v. Browning-Ferris Indus. of Ohio, 474 N.E.2d 271, 272 (Ohio 1984)). We conclude that while Pleasurecraft's claim has superficial appeal, the agreement unambiguously precludes it, though for reasons somewhat more complicated than those given by the district court.

Pleasurecraft's book value claim relates to three types of assets. Because the analysis is the same for each, our discussion focuses on only one type. Pleasurecraft claims to have received a shipment that the accompanying packing slip identified as containing 646 units of part number 97876. Upon delivery, Pleasurecraft's workers verified that the shipment contained 646 units as claimed on the slip. Only later did Pleasurecraft discover that part number 97876 corresponds to an expensive heat exchanger, which Pleasurecraft maintains it could not have received. Because Pleasurecraft received at least three such units, the district court held that the dispute involves only quantity, a claim foreclosed by the 48-hour requirement of section 2.4(a)(i).

Pleasurecraft's claim, however, has a little more staying power. Pleasurecraft argues that Thermo's failure to provide adequate and accurate information with each shipment, as required by section 2.4(c) of the agreement, resulted in mismatches between items and appropriate book values. And although Pleasurecraft concedes that the book value for part number 97876 "was stated correctly," J.A. 305, it nonetheless contends that an error in book value resulted from the alleged fact that Thermo delivered something other than part number 97876 in a crate labeled with that number. On Pleasurecraft's view, the claim cannot possibly be about quantity, since Pleasurecraft asserts that it did receive 646 units of something (though it has no idea what), just not 646 of part number 97876.

Clearly such a mixup could -and almost certainly would -result in an incorrect (and, in this case, an inflated) purchase price. Just as clearly, such an error need not be characterized as relating to quantity. But Pleasurecraft asks us to conclude that an error in matching otherwise correct book values with the wrong parts constitutes an error in book value under the agreement. This we cannot do.

Section 1.1 of the agreement defines "Book Value ":

"Book Value" of each individual Asset shall mean the lowest of either:

(a) the value of the Asset as reflected on the books and records of Seller; or

(b) the purchase price of the Asset paid by Seller, or the price of the Asset on the purchase order if lower . . ..

J.A. 28 (emphasis added). That is, book value is defined on an assetby-asset basis. An error in book value, then, must be a misstatement of the value of some particular asset under consideration (e.g., valuing a 10-cent screw at $100). But Pleasurecraft does not allege that Thermo misstated the value of the heat exchanger. Indeed, this is precisely the sort of error that Pleasurecraft concedes did not occur. And because Pleasurecraft admits that it has no idea what parts it received in lieu of the heat exchangers, it could not possibly produce evidence that Thermo incorrectly valued those parts.

Pleasurecraft contends, nonetheless, that the district court erred in granting summary judgment to Thermo on this claim, because Thermo did not "dispute[ ] the [alleged] misidentification." Appellant's Br. at 16. But the misidentification, assuming it occurred, cannot transmute the nature of Pleasurecraft's claim into one of error in book value. Pleasurecraft's repeated references to Thermo's alleged misidentifications are simply not material to Pleasurecraft's book value claim.

The real problem here, if any, is that Pleasurecraft suffered financial loss as a result of such misidentifications. Thermo's mistakes may constitute a material breach of Thermo's obligation, set forth in section 2.4(c) of the agreement, to include with each shipment an invoice stating the book value of the delivered assets. And, perhaps Pleasurecraft could have proceeded under section 9.2(b) of the agreement, which provides for indemnification in such situations. In fact, Pleasurecraft's initial state court complaint could be read to support such a claim. Unfortunately, however, whether or not Pleasurecraft intended to pursue this theory, it has abandoned it by failing to mention it in its opening brief. See Edwards v. City of Goldsboro, 178 F.3d 231, 241 n.6 (4th Cir. 1991) (citing Fed. R. App. P. 28(a)(9)(A)).

Pleasurecraft's claim fails for an additional reason. At closing, Pleasurecraft raised concerns regarding quantities of several items. This resulted in a purchase price reduction and an amendment to the agreement. Section 9 of the amendment states:

The parties hereby agree that the Purchase Price has been reduced by $296,790 to...