Schmitz-Werke GMBH Co. v. Rockland Industries, Inc.

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

SCHMITZ-WERKE GMBH + CO., 
Plaintiff-Appellee,
v.
ROCKLAND INDUSTRIES, INCORPORATED;  No. 00-1125
ROCKLAND INTERNATIONAL FSC,
INCORPORATED,
Defendants-Appellants.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Catherine C. Blake, District Judge.
(CA-97-4353-CCB)

Argued: December 5, 2000

Decided: June 21, 2002

Before WIDENER and KING, Circuit Judges, and
William L. GARWOOD, Senior Circuit Judge of the
United States Court of Appeals for the Fifth Circuit,
sitting by designation.

Affirmed by unpublished per curiam opinion.

COUNSEL

ARGUED: Barry Lawrence Cohen, BARRY L. COHEN, P.C., Balti-
more, Maryland, for Appellants. Daniel Francis Crowley, Kronberg,
Germany, for Appellee. ON BRIEF: Mark R. Berman, MARK R.
2 SCHMITZ-WERKE GMBH v. ROCKLAND INDUSTRIES
BERMAN & ASSOCIATES, Baltimore, Maryland, for Appellants.
Thomas L. Crowe, Baltimore, Maryland, for Appellee.

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

OPINION

PER CURIAM:

On December 30, 1997, Plaintiff-Appellee Schmitz-Werke (Sch-
mitz) filed a complaint in the United States District Court for the Dis-
trict of Maryland alleging that Defendant-Appellant Rockland
International (Rockland) had breached a warranty under the United
Nations Convention on the International Sale of Goods (CISG), 15
U.S.C. App., by supplying defective drapery fabric. Rockland filed a
counterclaim against Schmitz seeking recission of a settlement agree-
ment between the parties and recovery of moneys paid Schmitz under
that agreement. Both parties moved for summary judgment, and on
May 26, 1999, the district court granted Rockland summary judgment
on its counterclaim, but proceeded to trial on Schmitz’ complaint. A
bench trial took place from October 25 through 28, 1999, and on
November 5, 1999, the district court found for Schmitz and orally
issued on the record its findings of fact and conclusions of law. Judg-
ment was entered in favor of Schmitz on its claim and in favor of
Rockland on its counterclaim on December 30, 1999. Schmitz does
not challenge the district court’s judgment on Rockland’s counter-
claim, but Rockland now appeals that portion of the court’s judgment
in favor of Schmitz. We affirm the judgment of the district court.

FACTS AND PROCEEDINGS BELOW

Rockland is a Maryland corporation that manufactures drapery lin-
ing fabric. In the early to mid 1990s, Rockland manufactured a type
of drapery fabric called Trevira Blackout FR (Trevira). "Blackout"
refers to the fabric’s ability to block light completely. The fabric was
 SCHMITZ-WERKE GMBH v. ROCKLAND INDUSTRIES 3
manufactured to meet European flame resistance standards, and was
intended for sale in European markets. Rockland no longer manufac-
tures this fabric, and claims that this is because the product did not
meet its volume requirements, while Schmitz maintains that Rockland
discontinued Trevira because of numerous problems with the mate-
rial.

Schmitz is a German company that manufactures, prints, and sells
finished decorative fabrics in Germany and in other countries. In
1993, a Rockland representative introduced the Trevira fabric to
Schmitz, and during their negotiations Rockland’s representatives
stated that the fabric was particularly suited to be a printing base for
transfer printing. Transfer printing is a process for imprinting the base
fabric with dyes of particular colors or patterns. In transfer printing,
the fabric is drawn over a heated metal cylinder along with a sheet of
transfer paper that contains the dye. The dye is heated by the cylinder
and turns into a gas, which is picked up by the fibers in the fabric.
Schmitz does not transfer print its fabrics itself. Instead, it relies on
another German company, PMD, which specializes in making transfer
print paper and in transfer printing fabrics.

Schmitz initially placed an order for about 200 meters of the Rock-
land fabric for testing. The sample was shipped to PMD, which trans-
fer printed it. On receipt of the test results, Schmitz notified Rockland
that there were several problems with the fabric but that in general
they were satisfied with the material. After this test, Schmitz placed
an initial order of 15,000 meters of Trevira, which was shipped via
ocean freight in mid-August 1994. Schmitz noted some additional
problems with this initial shipment, but decided to go ahead and print
the material. After the printing, additional problems with the fabric
became apparent, and a Rockland representative was offered a chance
to inspect the fabric. There was conflicting testimony at trial about the
results of a meeting between Schmitz and Rockland’s representative
that followed in October of 1994, but the district court credited
Schmitz’ version of events. According to Schmitz, despite some prob-
lems with the Trevira fabric, Rockland urged Schmitz to continue
printing the fabric, and claimed that the lower quality portions of the
Trevira fabric could successfully be transfer printed with patterns (as
opposed to being printed with solid colors). In November 1994, after
4 SCHMITZ-WERKE GMBH v. ROCKLAND INDUSTRIES
this meeting, Schmitz placed another order of Trevira fabric, this time
for 60,000 meters.

PMD, meanwhile, was continuing to print the original shipment of
the fabric. In December 1994, PMD told Schmitz about some of the
problems it observed with the fabric. In February 1995, Schmitz had
WKS, another German company, inspect part of the new order that
Rockland had sent as part of the November 1994 order. On March 20,
1995, WKS issued its report, which indicated that it had found some
problems with the Trevira fabric. By April of 1995, the post-printing
percentage of fabric that was classified as "seconds" (lower-grade
material) was between 15% and 20%.

On June 21, 1995, Schmitz contacted Rockland and indicated that
they wanted to return approximately 8,000 meters of fabric, and even-
tually Schmitz shipped that amount back to Rockland. There were
extended discussions between Rockland and Schmitz about how to
settle this dispute, but eventually these discussions broke down and
this suit followed.

After a bench trial, the district court issued its findings of fact and
conclusions of law in an oral opinion on November 5, 1999. The par-
ties agreed that the CISG governed the transaction in this case,
although the correct interpretation of that treaty was (and still is) in
dispute. The district court found that Rockland gave Schmitz a war-
ranty of fitness for a particular purpose (transfer printing) under Arti-
cle 35(2)(b) of the CISG. 15 U.S.C. App. Art. 35(2)(b). The court also
found that the Trevira fabric sold by Rockland had latent defects
which were not detectable before the fabric was transfer printed, and
that Schmitz’ continued printing of the fabric even after it began to
discover problems was reasonable since it was at the express urging
of Rockland1 and was in any event the best way to mitigate its dam-
ages. See id. at 750-53. The court specifically held that the goods did
not conform to the warranty Rockland had given Schmitz, and that
Schmitz had met its burden of proving that the defect existed at the
1
At trial, an issue of apparently some contention was the status of a
sales representative as a possible agent of Rockland. Rockland does not
challenge on appeal the district court’s finding that this representative
was indeed Rockland’s agent.
 SCHMITZ-WERKE GMBH v. ROCKLAND INDUSTRIES 5
time the fabric left Rockland’s plant. See id. at 754. In making this
ruling, the court held that Schmitz need not prove the exact mecha-
nism of the defect, and that showing that the transfer printing process
PMD had used on the fabric was ordinary and competent was enough
to establish that the Trevira fabric was unfit for the purpose of transfer
printing. Id. at 756-57. Having found for Schmitz, the court awarded
damages in dollars and converted those dollars to Deutche Marks
using the exchange rate as of the time Schmitz discovered the defects.
Rockland now appeals.

DISCUSSION

Findings of fact should not be set aside unless they are clearly erro-
neous. Fed. R. Civ. P. 52(a). Similarly, "due regard should be given
to the opportunity of the trial court to judge the credibility of wit-
nesses." Multi-Channel TV Cable Co. v. Charlottesville Quality
Cable, 65 F.3d 1113 (4th Cir. 1995). The district court’s conclusions
of law are reviewed de novo. Benedi v. McNeil-P.P.C., Inc., 66 F.3d
1378, 1383 (4th Cir. 1995).

Both parties agree that this case is governed by the CISG, but there
is some disagreement concerning how this Court should interpret that
treaty. Case law interpreting the CISG is rather sparse. See Claudia
v. Olivieri Footwear Ltd., 1998 WL 164824, *4 (S.D.N.Y.). When
two nations are signatories to the CISG, the treaty governs contracts
for the sale of goods between parties whose places of business are in
those two nations, unless the contract contains a choice of law clause.
See CISG, 15 U.S.C. App., Art. 1(1)(a), Delchi Carrier SpA v.
Rotorex Corp., 71 F.3d 1024, 1027-28 (2nd Cir. 1995). Courts inter-
preting the CISG should look to the language of the CISG and to the
general principles on which the Convention is based. See id. at 1027.
The CISG directs that "its interpretation be informed by its ‘interna-
tional character and . . . the need to promote uniformity in its applica-
tion and the observance of good faith in international trade.’" Id. at
1028 (quoting CISG, 15 U.S.C. App., Art. 7(1)). Case law interpret-
ing provisions of Article 2 of the Uniform Commercial Code that are
similar to provisions in the CISG can also be helpful in interpreting
the convention. Id. at 1027.
6 SCHMITZ-WERKE GMBH v. ROCKLAND INDUSTRIES
Rockland claims that the law of Maryland also governs this case.
The CISG provides that private international law is the default law to
apply to a question governed by the Convention that is not settled
under its own terms. CISG, 15 U.S.C App., Art. 7(2).2 The parties
agree that private international law would apply the choice of law
rules of the forum state (Maryland), which in this case would choose
to apply the law of the contracting state. See Guiness PLC v. Ward,
955 F.2d 875, 898 n.13 (4th Cir. 1992). However, a court should only
reach private international law if the CISG’s text, interpreted in con-
formity with the general principles on which the CISG is based, does
not settle the issue at hand. See CISG, 15 U.S.C. App., Art. 7(2).
Schmitz agrees that Maryland law applies to issues on which the
CISG is silent, but notes that Maryland law should not be reached
unless the CISG fails to provide a resolution of the issue.

CAUSATION

Rockland argues that Schmitz must demonstrate both the existence
and the nature of the defect in the fabric before it can recover for
breach of warranty—and that to show the nature of that defect, expert
testimony is required. Article 35 of the CISG governs the duty of the
seller to deliver goods that conform with the contract. Article 35(2)
lists various reasons goods may not conform with the contract, includ-
ing goods which were expressly or impliedly warranted to be fit for
a particular purpose.3 In response, Schmitz argues that all it need
show is that the goods were unfit for the particular purpose warranted
2
The CISG provides:
Questions concerning matters governed by this Convention
which are not expressly settled in it are to be settled in confor-
mity with the general principles on which it is based or, in the
absence of such principles, in conformity with the law applicable
by virtue of the rules of private international law.
Id.
3
CISG, 15 U.S.C. App., Art. 35(2)(b). Under Article 35(2)(b) goods
are unfit unless they "are fit for any particular purpose expressly or
impliedly made known to the seller at the time of the conclusion of the
contract, except where the circumstances show that the buyer did not
rely, or that it was unreasonable for him to rely, on the seller’s skill and
judgment."
 SCHMITZ-WERKE GMBH v. ROCKLAND INDUSTRIES 7
—transfer printing—and that it need not show precisely why or how
the goods were unfit if it can show that the transfer printing process
the goods underwent was performed competently and normally.
Rockland is correct that Schmitz did not provide any evidence at trial
that would establish the exact nature of the defect in the Trevira fab-
ric. The text of the CISG is silent on this matter. See CISG, 15 U.S.C.
App., Art. 35(2).

Under Maryland law,4 Rockland is correct that a plaintiff in a prod-
ucts liability case must show that the product in question is defective,
even if the cause of action is for breach of an express or implied war-
ranty. Virgil v. "Kash ’N’ Karry" Service Corp., 61 Md. App. 23, 30,
484 A.2d 652 (1984), cert. denied, 302 Md. 681, 490 A.2d 719
(1985). However, Rockland’s resort to Maryland law does not aid its
argument—there is no support in Maryland law for Rockland’s claim
that the plaintiff in such a case must always provide expert testimony
describing the exact nature of the defect.5 The district court in this
case did not rule that expert testimony was not required to show the
nature of the problem with the Trevira fabric. Instead, the district
court held that since Schmitz had submitted sufficient evidence of the
competence of PMD’s transfer printing process, it was proper to infer
that the fabric was not suited for that process, even without direct evi-
dence of the precise nature of the fabric’s unsuitability. Schmitz
argues that since it did submit expert testimony regarding the transfer
printing process, even if such testimony is required, Schmitz has satis-
fied its burden, and the district court’s ruling in their favor is sup-
ported by the evidence. We agree with Schmitz.
4
As noted above, the parties agree that Maryland law applies in this
case on any issue on which the CISG is silent.
5
In Virgil, the Maryland Special Court of Appeals rejected a claim that
expert testimony was necessary to establish the existence of a defect in
that case, and noted that "[t]he general rule is well established that expert
testimony is only required when the subject of the inference is so particu-
larly related to some science or profession that it is beyond the ken of the
average layman." See Virgil, 61 Md. App. at 31. Expert testimony is not
required on matters of which the jurors would be aware by virtue of com-
mon knowledge. Babylon v. Scruton, 215 Md. 299, 307, 138 A.2d 375
(1958).
8 SCHMITZ-WERKE GMBH v. ROCKLAND INDUSTRIES
Under either the CISG or Maryland law, Schmitz may prevail on
a claim that the fabric was unfit for the purpose for which it was
expressly warranted (transfer printing) by showing that when the fab-
ric was properly used for the purpose Rockland warranted, the results
were shoddy—even if Schmitz has introduced no evidence as to just
why or how the fabric was unfit. Schmitz has shown that the fabric
was defective—the fabric’s defect was that it was unfit for transfer
printing. Rockland attempts to counter this argument by claiming that
this improperly shifts the burden of proof. Rockland’s concerns are
misplaced—Schmitz still must prove that the transfer printing process
was ordinary and competently performed, and still must prove that the
fabric was defective—it just permits Schmitz to do so without proving
the exact nature of the defect.

There was significant evidence regarding PMD’s transfer printing
process presented at trial (including expert testimony), and the court’s
finding that the PMD printing process was ordinary and competent is
not clearly erroneous. The district court found that Rockland war-
ranted its fabric to be fit for transfer printing, that the fabric was trans-
fer printed in a normal and competent way, and that the resulting
printed fabric was unsatisfactory. This is enough to support the dis-
trict court’s factual finding in favor of Schmitz on the warranty claim
—the fabric was not fit for the purpose for which it was warranted.
The district court’s findings as to defect in this respect are not clearly
erroneous; nor did the district court err in law in regard thereto.

RELIANCE

Rockland also argues that even if the court properly found that the
Trevira fabric was not particularly well suited for transfer printing as
warranted, Schmitz cannot recover on such a warranty because it did
not in fact rely on Rockland’s advice as required under CISG Article
35(2)(b). Rockland is correct that Article 35(2)(b) of the CISG
requires that the buyer reasonably rely on the representations of the
seller before liability attaches for breach of a warranty for fitness for
a particular purpose. See CISG Art. 35(2)(b). The district court
explicitly found that Schmitz relied on the statements of Rockland’s
representative that the Trevira fabric was particularly well suited for
transfer printing. The court also found that Schmitz continued to print
the fabric with the express consent of Rockland after it discovered
 SCHMITZ-WERKE GMBH v. ROCKLAND INDUSTRIES 9
and reported problems with the fabric. The district court’s finding that
Schmitz relied on Rockland’s statements proclaiming the Trevira fab-
ric’s suitability for transfer printing is supported by the evidence and
was not clearly erroneous.

EXCHANGE RATE

Rockland also argues that the district court erred in the manner in
which it converted the award into German currency. The district court
used the exchange rate as of the date Schmitz learned of the problems
with the Trevira fabric. In contrast, the general rule is that the
exchange rate as of the date of the award should be used. See Restate-
ment (Second) of Conflict of Laws §144 (1971), see also Vlachos v.
M/V Proso, 637 F.Supp. 1354, 1376 (D. Md. 1986). Some courts,
however, use the exchange rate on the day of breach. See Middle East
Banking Co v. Citibank, 821 F.2d 897, 902 (2nd Cir. 1987) (noting
that New York courts apply the "breach-day rule"). The CISG is silent
on this issue, and it is proper for courts to resort to private interna-
tional law in such situations. See Joanne M. Darkey, A U.S. Court’s
Interpretation of Damage Provisions Under the U.N. Convention on
Contracts for the International Sale of Goods: A Preliminary Step, 15
J.L. & Com. 139, 150 (1995). As discussed above, the parties agree
that private international law would apply the choice of law rules of
the forum, Maryland, and that since Maryland’s choice of law rules
apply the law of the place of contract, Maryland substantive law
should apply. We agree that in the absence of controlling language in
the CISG, Maryland substantive law applies. But unfortunately there
does not appear to be any Maryland law on this topic. The one Mary-
land case discussing this issue applied the date of award rule, but in
that case a federal district court applied admiralty law, not Maryland
law. See Vlachos, 637 F.Supp. at 1376.

There is no clear resolution of this issue that is dictated by the
CISG or by Maryland law. And, we can discern no particular equita-
ble advantage to either of the two rules—it is not clear that either
position more fairly compensates an injured party or does so under
the discrete facts here. Under these particular circumstances, the dis-
trict court’s decision to use the exchange rate as of the date of breach
was not an abuse of discretion and we decline to disturb it.
10 SCHMITZ-WERKE GMBH v. ROCKLAND INDUSTRIES
CONCLUSION

Accordingly, the judgment of the district court is

AFFIRMED.