Sun Coast v. Myron Corp.

• Decision Date: 15 May 2007
• Docket Number: No. A-2965-04T5.,No. A-6148-03T5.,A-6148-03T5.,A-2965-04T5.
• Citation: 922 A.2d 782,393 N.J. Super. 55
• Parties: SUN COAST MERCHANDISE CORPORATION, a California corporation, and J.M. Wechter & Associates, Inc., a Connecticut corporation, Plaintiffs-Respondents/Cross-Appellants, v. MYRON CORPORATION, a New Jersey corporation, and Myron Manufacturing Corporation, a New Jersey corporation, Defendants-Appellants/Cross-Respondents. Sun Coast Merchandise Corporation, a California corporation, and J.M. Wechter & Associates, Inc., a Connecticut corporation, Plaintiffs-Appellants, v. Myron Corporation, a New Jersey corporation, and Myron Manufacturing Corporation, a New Jersey corporation, Defendants-Respondents.
• Court: New Jersey Superior Court

922 A.2d 782

393 N.J. Super. 55

SUN COAST MERCHANDISE CORPORATION, a California corporation, and J.M. Wechter & Associates, Inc., a Connecticut corporation, Plaintiffs-Respondents/Cross-Appellants, v. MYRON CORPORATION, a New Jersey corporation, and Myron Manufacturing Corporation, a New Jersey corporation, Defendants-Appellants/Cross-Respondents.

Sun Coast Merchandise Corporation, a California corporation, and J.M. Wechter & Associates, Inc., a Connecticut corporation, Plaintiffs-Appellants, v. Myron Corporation, a New Jersey corporation, and Myron Manufacturing Corporation, a New Jersey corporation, Defendants-Respondents.

No. A-6148-03T5.

No. A-2965-04T5.

Superior Court of New Jersey, Appellate Division.

Argued December 6, 2006.

Decided May 15, 2007.

Michael S. Stein, Hackensack, argued the cause for appellants/cross-respondents in A-6148-03T5 (Cole, Schotz, Meisel, Forman & Leonard, and Pashman Stein, attorneys; Thomas J. LaConte and Mr. Stein, on the brief).

Surjit P. Soni (The Soni Law Firm), Pasadena, CA, of the California bar, admitted pro hac vice, argued the cause for

respondents/cross-appellants in A-6148-04T5 and appellants in A-2965-04T5 (Ascione & Wilson, attorneys; Mr. Soni, of counsel; Janyce M. Wilson, on the briefs).

David M. Kohane, Hackensack, argued the cause for respondents in A-2965-04T5 (Cole, Schotz, Meisel, Forman & Leonard, attorneys; Mr. Kohane, on the brief).

Before Judges PARKER, C.S. FISHER and YANNOTTI.

The opinion of the court was delivered by

FISHER, J.A.D.

Following a thirteen-day jury trial, judgment was entered in the amount of $2,792,603.32, which included $700,000 in punitive damages, in favor of plaintiffs Sun Coast Merchandise Corporation and J.M. Wechter & Associates, Inc., the alleged sellers of certain goods. In this appeal, defendants Myron Corporation and Myron Manufacturing Corporation, the alleged buyers, contend that a number of issues — including whether a binding contract was formed — should have been resolved in their favor as a matter of law, and also that even if there were factual issues to be resolved by the jury, the trial judge failed to provide adequate jury instructions. Although we reject the contention that the chief issues in this case could have been resolved as a matter of law in this factually convoluted matter, we agree that the judge's jury instructions were inadequate, and, thus, reverse and remand for a new trial.

I

Plaintiff Sun Coast Merchandise Corporation, a California corporation, is in the business of designing various products, which are manufactured in factories in China, and sold to entities who then offer them as promotional items or gifts to clients or potential clients. Plaintiff J.M. Wechter & Associates, Inc., a Connecticut corporation, is one of Sun Coast's largest distributors. Wechter's involvement included the identification of potential clients in the marketplace and relaying their needs to Sun Coast, which then attempted to design and create the product.

Defendants Myron Corporation and Myron Manufacturing Corporation, both New Jersey corporations, are engaged in the business of marketing such products to small and medium-sized companies through the internet and by sampling programs, which involved sending small samplings of personalized products to potential customers.

The claims asserted by Sun Coast and Wechter (hereafter often collectively referred to as "sellers") against the Myron corporations (hereafter "Myron") largely revolve around the submission by Myron of purchase orders to the sellers for small calculators with flip-tops. Myron's intention was to engrave the names of its customers on the calculators so that the customers could distribute them as gifts to their clients. At a meeting on June 15, 2000, Myron indicated to sellers its interest in a flip-top calculator if it could be produced in a small enough size to fit into its mailings and at the right price.

A. Version I Calculators

In pursuing these intentions, Myron first entered into a series of transactions regarding what the parties have referred to as the "Version I calculators." Between December 2000 and May 2001, Myron purchased nearly 400,000 Version I calculators. With the exception of a May 8, 2001 order for 100,000 calculators, there were no disputes regarding Myron's other purchases of Version I calculators.

Myron received the goods referred to in the May 8, 2001 purchase order but withheld payment, contending that the sellers breached the warranty against infringement, N.J.S.A. 12A:2-312(3), and also that it was entitled to withhold payment as an offset against damages it claimed to have suffered as a consequence of the sellers' actions regarding the Version II calculators.

Evidence was adduced during the trial that, on January 23, 2001, the United States Patent and Trademark Office granted a patent to CCL Products Enterprises, Inc. (CCL), a Sun Coast competitor, for a flip-top calculator similar to the Version I calculator. Sun Coast learned about this a few days after the patent was granted, when CCL representatives approached a Sun Coast representative at a trade show and asserted that the "flipping mechanism" on the Version I calculators infringed on CCL's patent. The next day, Sun Coast sued CCL in the United States District Court for the Central District of California, seeking a declaratory judgment that the Version I calculators did not infringe and that CCL's patent was invalid.

Within a day or so of issuing the February 12, 2001 purchase order for 70,000 Version I calculators, sellers informed Myron of CCL's patent infringement claim. According to Myron, sellers advised that they could nevertheless continue to sell the Version I calculators, but would have to pay a "royalty," which would cause an increase in the purchase price by six cents per calculator. Myron contended at trial and provided evidence to suggest that this additional payment was a "royalty." Sellers disputed this, providing testimony that it only advised Myron that this "upcharge" represented a payment toward "potential royalties" and litigation costs regarding the suit with CCL, and that such a charge was not unusual in this industry.

Myron claimed that it understood from these communications that the patent problem regarding the calculators would be "resolved" with this additional payment per calculator and, therefore, agreed to the upcharge. A revised purchase order regarding the February 12, 2001 purchase was sent by Myron to sellers on March 2, 2001.

On May 23, 2001, Myron representatives attended a trade show in New York City. At that time they spoke with the president of CCL, who said he had heard Myron was selling flip-top calculators and warned Myron to be careful because CCL was suing all those who violated its patent. According to Myron, these discussions generated concern about whether sellers were authorized to sell the Version I calculators.

An e-mail sent from sellers to Myron on June 1, 2001 provided an explanation for what Myron claims was represented as a "royalty," and for what sellers claim was represented as a cost toward "potential royalties" and litigation expenses in the CCL lawsuit:

When we first sold this calculator . . . your cost was $.60 cents F.O.B. [Hong Kong]. Then what happened is that someone (not us) was issued a patent on the flipping device. We then had to increase the unit by 10% (making it $.66 cents each) so that there were royalties built in to each calculator. At that point, [we] began to design, and patent, [our] own flipping mechanism. That is why, with the new molds being made for your larger quantities, your cost is down to $.57 cents F.O.B. [Hong Kong].

Myron also provided testimony that it received confirmation from CCL through a telephone conversation on June 4, 2001 that sellers were not authorized by CCL to sell the Version I calculators and should not have been charging a "royalty." As indicated, sellers provided competing evidence that this upcharge was only for "potential royalties" and litigation costs in defending the product, and that Myron should have understood that it was not a royalty per se because of the pending lawsuit, of which Myron was aware. The jury resolved this dispute by concluding that sellers had negligently misrepresented that the 10% upcharge on the Version I calculators was a "royalty" payment when in fact it was not.

B. Version II Calculators

As the patent infringement issues arose during the final purchases of Version I calculators, sellers agreed to attempt a redesign, leading to the creation of what the parties have referred to as the Version II calculators. Prior to the issuance of any purchase order for Version II calculators, Sun Coast represented to Myron that the goods "would not infringe the CCL patent."

In March or April 2001, Myron indicated its desire to purchase a very large quantity of Version II calculators. The sellers offered a discounted price of $.57 per unit, three cents less than that paid for Version I calculators before the "royalty/potential royalty" upcharge was added. By April 22, 2001, Sun Coast had completed its redesign work for the Version II calculators, and representatives of the parties met in Hong Kong on either April 24 or 25, 2001. Sellers claimed at trial that Myron was then provided with a sample of the Version II calculator; Myron disputed this, providing evidence and arguing that it did not receive a sample until June 1, 2001.

In either event, on April 25, 2001, Myron issued a purchase order for 1,216,000 Version II calculators, providing both shipping dates and delivery dates. Sellers sent an e-mail on April 30, 2001, which approved a delivery schedule compatible with the schedule contained in the first purchase order.

In early May, Myron communicated its intent to make an even larger purchase, requiring the production of a total of 4,000,000 Version II calculators. A Myron representative sent an e-mail to sellers on May...