Aqua-Chem, Inc. v. D&H Mach. Serv., Inc.

AQUA-CHEM, INC. v. D&H MACHINE SERVICE, INC.

No. E2015-01818-COA-R3-CV

COURT OF APPEALS OF TENNESSEE AT KNOXVILLE

May 26, 2016 Session

OCTOBER 17, 2016

Appeal from the Circuit Court for Knox County

No. 1-306-14

Kristi M. Davis, Judge

Aqua-Chem, Inc. contracted with D&H Machine Service, Inc. for D&H to machine three large, identical pieces of equipment. The piece of equipment is referred to in the record as a "cooler."¹ The work was not done properly, rendering them unusable. Aqua-Chem sued D&H for breach of contract, seeking damages for the replacement cost of the coolers and for lost profits. Aqua-Chem also sought attorney's fees and expenses pursuant to the terms of its agreement with D&H. Following a two-day bench trial, the court awarded Aqua-Chem $191,870 in replacement costs, but declined to make an award for lost profits. The court did award Aqua-Chem $50,000 in attorney's fees and out-of-pocket expenses. D&H appeals. Both sides raise issues. D&H argues that the trial court erred when it held that the terms and conditions of the purchase orders presented to D&H were applicable to the facts of this case. It also argues that the award of damages is not supported by the evidence. Aqua-Chem contends that the trial court erred in refusing to award damages for lost profits. It also asserts that the trial court should have awarded it the full amount of its fees and expenses, the total of which was $64,739.48. We affirm the trial court's judgment in all respects.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed; Case Remanded

CHARLES D. SUSANO, JR., J., delivered the opinion of the court, in which JOHN W. MCCLARTY and THOMAS R. FRIERSON, II, JJ., joined.

John B. Dupree, Knoxville, Tennessee, for the appellant, D&H Machine Service, Inc.

W. Edward Shipe and Nicholas W. Diegel, Knoxville, Tennessee, for the appellee, Aqua-Chem, Inc.

OPINION

I.

Aqua-Chem was contractually obligated to the United States Navy to provide certain parts for use on destroyers. The contract extended to the three coolers at issue in this case. The coolers had to be machined, a function that Aqua-Chem was not able to do in-house. It contracted with D&H to perform the required machining. After some discussion and D&H's confirmation that it could perform the work, Aqua-Chem provided three purchase orders to D&H, all of which state the following pertinent terms and conditions:

For the purposes of these Terms and Conditions of Purchase, the term "Purchase Order" shall mean the agreement and binding contract between Aqua-Chem . . . and Seller arising as a result of Seller's submission of a fully executed acknowledgment copy of the purchase order. This Purchase Order shall be deemed to Incorporate and be governed by these Terms and Conditions. Seller shall be bound by this Purchase Order and its terms and conditions when it executes and returns the acknowledgment copy, when it otherwise indicates its acceptance of this Purchase Order, when it delivers to Aqua-Chem any of the items ordered herein or when it renders for Aqua-Chem any of the services ordered herein. THE TERMS AND CONDITIONS OF THIS PURCHASE ORDER TAKE PRECEDENCE OVER ANY TERMS AND CONDITIONS WHICH ARE PROPOSED BY SELLER. ALL TERMS PROPOSED BY SELLER ARE REJECTED UNLESS EXPRESSLY ASSENTED TO IN WRITING BY AQUA-CHEM. Aqua-Chem's failure to object to any provision contained in any communication from Seller shall not be construed as a waiver of these Terms and Conditions nor as an acceptance of any such provision.

* * *

SERVICES & DELIVERABLES. Seller agrees to perform the services . . . described in any purchase order, in accordance with the applicable purchase order, scope of work and with these Terms and Conditions ("Agreement"). Upon acceptance of a purchase order, shipment of Goods or commencement of a Service, Seller shall be bound by the provisions of this Agreement, including all provisions set forth on the face of any applicable purchase order, whether Seller acknowledges or otherwise signs this Agreement or the purchase order, unless Seller objects to such terms in writing prior to shipping Goods or commencing Services.

* * *

MODIFICATION OF TERMS. This Purchase Order is expressly subject to, and Seller's acceptance is expressly conditioned upon, Seller's assent to each and all of the terms and conditions contained on the face end reverse side hereof. No addition to or modification of the terms and conditions hereof shall be binding upon Aqua-Chem. . . . Where Seller's quotation, acknowledgement, invoice or other correspondence contains terms or conditions contrary to or in addition to Aqua-Chem's terms and conditions, such contrary or additional terms are hereby refused and rejected (and without any requirement of further notice of such refusal and rejection) and neither acceptance by Aqua-Chem of the goods nor payment therefor shall constitute a waiver by Aqua-Chem of any of the terms and conditions contained herein or assent to any other conditions.

* * *

COMPLETE AGREEMENT AND MODIFICATIONS. This contract constitutes the entire agreement between the parties relating to the Services and any products produced in connection with the Services and no addition to or modification of any provision of said agreement shall be binding upon Aqua-Chem unless agreed in writing by Aqua-Chem.

(Capitalization in original; emphasis added.)

No one from D&H signed the purchase orders. However, it is undisputed that D&H picked up the coolers, machined them, and sent them back to Aqua-Chem. It is also undisputed that the work was incorrectly done, which rendered the coolers unusable.

Aqua-Chem filed a complaint for breach of contract. D&H answered and filed a counterclaim, later amended, in which it alleged that D&H had orally rejected the terms and conditions of the purchase orders in a telephone call between representatives of the parties. D&H alleged that it orally agreed to machine the coolers, but disputed it was to be on the terms and conditions in the purchase orders.

Aqua-Chem moved for partial dismissal of the counterclaim, arguing that the clear and unambiguous terms of the purchase orders provided for acceptance by performance, and precluded any oral modification or selective rejection of the terms and conditions. The trial court granted the motion in an order, which stated:

[T]his Court . . . finds that [Aqua-Chem's] terms and conditions, which were either directly attached or incorporated by reference into each purchase order, apply to all transactions at issue in this case. Therefore, the Court finds that [D&H] performed the work at issue for [Aqua-Chem] subject to all of the terms and conditions, including the contractual limitation of liability clause limiting any potential recovery to the purchase price.

A bench trial followed. Three witnesses testified: two representatives from Aqua-Chem and one from D&H. The trial court rejected D&H's allegation that the plans provided by Aqua-Chem for the machining work were incorrect or unclear, noting that

the plans are approximately 18 years old and that they are a result of considerable testing that had to be approved by the Navy. They have been used apparently for 19 years.

The court found "no evidence . . . of there being any problems with implementation of the plans." The trial court held that "it was ultimately incumbent upon D&H to ensure that they did machine the coolers correctly and that its failure to do so is a breach of the contract." It awarded Aqua-Chem $191,870 - the cost of replacing the three coolers according to the evidence presented by Aqua-Chem.

At trial, Aqua-Chem's vice-president of quality, David Hansard, testified briefly regarding its claim for the profits lost as a result of the breach of contract. He said Aqua-Chem's accounting department provided him with numbers showing 730.35 labor hours spent by Aqua-Chem employees that would have not been necessary absent D&H's breach of contract. Hansard estimated that Aqua-Chem's profit margin on labor was $25.96 per hour, resulting in a lost profit claim totaling $18,960. No one from Aqua-Chem's accounting department testified. Hansard stated that "our CFO calculated this for me, and I do not know the exact method that he used." Because Aqua-Chem provided no other proof regarding the basis or method of computing its lost profits, the trial court held that the evidence of lost profits was not sufficient to justify an award. Accordingly, the court denied Aqua-Chem's claim for lost profits.

Aqua-Chem also submitted a claim for attorney's fees in the amount of $64,739.48. The trial court held that Aqua-Chem was entitled to attorney's fees under the contract and found that fees in the amount of $50,000 were reasonable and necessary under the circumstances. D&H timely filed a notice of appeal.

II.

D&H raises the following issues:

Whether the trial court erred in holding that the terms and conditions of the purchase orders were applicable when the written offer to D&H was rejected and Aqua-Chem never sued upon any alleged oral agreement or sought property damages.

Whether the trial court erred by awarding Aqua-Chem damages when Aqua-Chem failed to mitigate and when the damages sought by Aqua-Chem were too speculative to support an award.

Aqua-Chem raises these issues:

Whether the trial court erred by not awarding Aqua-Chem its lost profits based upon profit margin records provided to Aqua-Chem's executive witness by its accounting department and where the proof was admitted into evidence at trial without objection.

Whether the trial court erred in granting Aqua-Chem attorney's fees in the amount of $50,000 instead of the full amount of $64,739.48 requested.

Whether Aqua-Chem is entitled to attorney's fees on appeal.

III.

In this non-jury case, our standard of review is de novo upon the record of the proceedings below; however, the record comes to us with a presumption of correctness as to the trial court's factual determinations, a presumption we must honor unless the...