Geoffrey E. MacPherson, Ltd. v. Brinecell, Inc.

PUBLISH

UNITED STATES COURT OF APPEALS
Filed 10/22/96TENTH CIRCUIT

GEOFFREY E. MACPHERSON, LTD.,
an English corporation,

Plaintiff-Counter-
Defendant-Appellee, No. 95-4077

v.

BRINECELL, INC., a Nevada
corporation; TIM THEMY-
KOTRONAKIS, an individual,

Defendant-Counter-
Claimant-Appellant,

and

BRINECELL, INC., a predecessor Utah
corporation,

Defendant-Counter-
Claimant.

Appeal from the United States District Court
for the District of Utah
(D.C. No. 92-C-634 B)

Mary Anne Q. Wood, Wood Quinn & Crapo, L.C., Salt Lake City, Utah, for Appellee.

Robert L. Booker, Booker & Associates, Salt Lake City, Utah, for Appellant.
Before HENRY, LIVELY,* and MURPHY, Circuit Judges.

HENRY, Circuit Judge.

Appellants, Brinecell, Inc. and its principal shareholder, Tim Themy-Kotronakis

(collectively “Brinecell”), appeal the judgment entered by the United States District Court

for the District of Utah in favor of appellee Geoffrey E. Macpherson, Ltd.

(“Macpherson”). The district court’s judgment finalized two prior orders, one granting

Macpherson’s motion for summary judgment in favor of its breach of contract claim and

the other granting Macpherson’s motion for summary judgment on Brinecell’s fraud

counter-claim. Brinecell argues that a factual dispute as to whether Macpherson properly

returned goods pursuant to their contract exists and precludes summary judgment in favor

of Macpherson on its breach of contract claim. Brinecell also contends that the district

court erred by entering summary judgment for Macpherson on Brinecell’s fraud counter-

claim because a genuine issue of material fact remains as to Macpherson’s capability to

distribute Brinecell products in England. We exercise jurisdiction pursuant to 28 U.S.C.

§ 1291, and we affirm.

*
The Honorable Pierce Lively, Senior Circuit Judge, United States Court of
Appeals for the Sixth Circuit, sitting by designation.

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 I. BACKGROUND

Macpherson is an English corporation that has been providing services to the

textile industry in England and Europe for over fifty years. Brinecell is a Nevada

corporation that manufactures liquid purification equipment and has its principal place of

business in Salt Lake City, Utah. The relationship between these two parties began on

January 7, 1992, when Macpherson received from Brinecell a brochure advertising a

machine that treated liquid industrial effluent. The advertisement contained the following

description of the Model 201 purification machine: “Very simple! Fill a tank with 25

gallons (100L) of your normal dischargeable effluent. Add from 1% to 3% NaCl and

lower its pH to 6. Nothing else!” Aple’s Supp. App. at 40. The brochure made the

following offer:

We will ship you our ‘201’ within 45 days from receipt of your check for
only $15,000! You can use it for 30 days. If it does not absolutely thrill
you with its overall performance, return it in good order, freight collect, for
immediate refund of your $15,000.

Id. Macpherson believed such a machine might be useful to its clients in the textile

industry and initiated negotiations with Brinecell to purchase a purification machine and

possibly become Brinecell’s exclusive European dealer. During these negotiations

Macpherson represented to Brinecell that “if it had an exclusive contract with Brinecell, it

was capable of selling Brinecell’s equipment throughout a much larger area of England

than Brinecell could on its own.” Aple’s Supp. App. at 15 (Amended Counter Claim for

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Fraud); see also Aple’s Br. at 4.

The parties came to an agreement whereby Macpherson would pay $35,000 to

Brinecell in exchange for a 201 purification machine and Macpherson would have forty-

five days to return the machine for a full refund if test results were unsatisfactory. The

forty-five-day period would begin when Brinecell’s chemical engineer arrived at

Macpherson’s place of business to install the Model 201 and to help Macpherson test it.

Shortly thereafter, Macpherson received the Model 201, and Brinecell received

from Macpherson a check for $35,000. Brinecell’s chemical engineer arrived at

Macpherson’s place of business on April 18, 1992. On May 19, 1992, Macpherson faxed

Brinecell a letter notifying it that Macpherson was not satisfied with the Model 201 and

was returning it according to the terms of the agreement. The letter asked for the return

of the $35,000 paid to Brinecell. On May 22, 1992, Macpherson faxed Brinecell to notify

it that the Model 201 would be dispatched on Saturday, May 23, for arrival in Salt Lake

City on May 24, and asked for confirmation of the return of the $35,000. This

transmission included the exact way-bill number and the flight number for the Model

201’s shipment. On or about May 26, 1992, the Model 201 arrived in Salt Lake City,

addressed to Brinecell and bearing Macpherson’s return address. The invoice displayed

both the way-bill number and the flight number that Macpherson had faxed to Brinecell,

but the invoice incorrectly listed the shipment’s contents as “embroidery machine spares.”

Aple’s Supp. App. at 92. Based on this error, Brinecell refused to accept the shipment.

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Macpherson contends, and Brinecell does not refute the contention, that the error was

made by the shipping company. After being notified by the shipping company of

Brinecell’s refusal of the shipment, Macpherson, in a letter faxed to Brinecell on June 2,

1992, protested Brinecell’s refusal and asked again for the return of the $35,000.

Brinecell did not return the $35,000.

Macpherson initiated this suit for the return of the $35,000 and other damages.

Brinecell counter-claimed that Macpherson had fraudulently misrepresented its ability to

market Brinecell’s purification equipment in England by representing that “if it had an

exclusive contract with Brinecell, it was capable of selling Brinecell’s equipment

throughout a much larger area of England than Brinecell could on its own.” Aple’s Supp.

App. at 15 (Amended Counter Claim for Fraud). On September 23, 1993, the United

States District Court for the District of Utah granted Macpherson’s motion for partial

summary judgment on the breach of contract issues. On September 20, 1994,

Macpherson moved to dismiss Brinecell’s counter-claim, arguing that the statement upon

which Brinecell based its counter-claim referred to a future event, not a present fact, and

therefore could not constitute fraud. On November 16, 1994, a magistrate judge

recommended denial of this motion, finding that the statement had referred to

Macpherson’s presently existing ability to distribute Brinecell’s machines. Macpherson

subsequently moved for summary judgment against Brinecell’s fraud counter-claim, and

on April 23, 1995, the district court granted Macpherson’s motion after finding

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Macpherson’s representation to be true as a matter of law. After voluntarily dismissing

its own fraud claim, which was the only remaining issue in the case, Macpherson moved

the court to enter final judgment. On May 9, 1995, the district court made final all of its

prior orders and entered judgment against Brinecell for damages in the amount of $35,000

plus interest and costs.

II. DISCUSSION

We must first address the threshold issue of subject matter jurisdiction, even

though it was not raised by either side. See Laughlin v. Kmart Corp., 50 F.3d 871, 873

(10th Cir.) (“[I]f the parties fail to raise the question of the existence of jurisdiction, the

federal court has the duty to raise and resolve the matter.”), cert. denied, 116 S.Ct. 174

(1995). The $35,000 payment upon which Macpherson’ s breach of contract claim is

based is insufficient, standing alone, to convey jurisdiction to the district court in this

diversity action. See 28 U.S.C. § 1332 (requiring in diversity actions that the matter in

controversy exceed $50,000, exclusive of interest and costs). In addition to recovery of

the $35,000 deposit, Macpherson’s complaint asked for an additional $35,000 or more in

punitive damages. Although Utah law, which we apply in this diversity action, see Erie

R. Co. v. Tompkins, 304 U.S. 64, 78 (1938),1 does not allow punitive damages to be

1
Utah law directs us to apply the “most significant relationship” analysis to
determine choice of law in a contract action. See Rocky Mountain Helicopters v. Bell
Helicopter, 24 F.3d 125, 129 (10th Cir. 1994). Because both parties proceed on the assumption
that Utah substantive law applies to their dispute, we apply that law without further analysis. See

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awarded for breach of contract, see, e.g., Jorgensen v. John Clay and Co., 660 P.2d 229,

232-33 (Utah 1983), Macpherson’s complaint included a second cause of action for fraud,

which Macpherson later voluntarily dismissed so that the district court could enter final

judgment against Brinecell based on the two prior summary judgments. Under Utah law,

punitive damages may flow from a fraud claim. See, e.g., Ong Int’l (U.S.A.) Inc. v. 11th

Ave. Corp., 850 P.2d 447, 457-58 (Utah 1993). Because Brinecell did not challenge

Macpherson’s purported jurisdictional amount, we assume it was made in good faith. See

Strey v. Hunt Int’l Resources Corp., 749 F.2d 1437, 1441 (10th Cir. 1984), cert. denied,

479 U.S. 870 (1986). Thus, examining the complaint at the time it was filed, see Watson

v. Blankinship, 20 F.3d 383, 387 (10th Cir. 1994), and aggregating Macpherson’s claims

for breach of contract and fraud, including the claim for punitive damages, see Alberty v.

Western Sur. Co., 249 F.2d 537, 538 (10th Cir. 1957), it cannot be said “to a legal

certainty that the claim is really for less than the jurisdictional amount,” see St. Paul

Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 289 (1938). Therefore, the

complaint satisfied the jurisdictional amount required by 28 U.S.C. § 1332.2

Missouri Pacific R.R. Co. v. Kansas Gas & Elec. Co., 862 F.2d 796, 798 n. 1. (10th Cir. 1988).
2
Furthermore, Brinecell’s counterclaim, which was compulsory, see Fed. R. Civ. P.
13(a), and for damages far in excess of $50,000, would provide a sufficient independent basis
for federal jurisdiction. See 14A Charles A. Wright, Arthur R. Miller & Edward H. Cooper,
Federal Practice and Procedure § 3706, at 115-17 (1985) (presenting the argument that when a
plaintiff’s complaint lacks the necessary jurisdictional amount, a defendant’s compulsory
counterclaim may supply the jurisdictional amount for plaintiff’s claim without either party being
disadvantaged thereby); see also Fenton v. Freedman, 748 F.2d 1358, 1359 (9th Cir. 1984)
(holding that a defendant’s compulsory counterclaim which exceeded the jurisdictional amount

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 We review de novo the district court’s granting of Macpherson’s motions for

summary judgment, applying the same standards as those used by the district court.

Valley Camp of Utah, Inc. v. Babbitt, 24 F.3d 1263, 1267 (10th Cir. 1994). Summary

judgment is appropriate where “there is no genuine issue as to any material fact and . . .

the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). In

order to withstand a properly supported motion for summary judgment, “an adverse party

may not rest upon the mere allegations or denials of the adverse party’s pleading, but . . .

must set forth specific facts showing that there is a genuine issue for trial.” Fed. R. Civ.

P. 56(e); see also Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). We review the

record in the light most favorable to the party opposing a motion for summary judgment,

Deepwater Invs., Ltd. v. Jackson Hole Ski Corp., 938 F.2d 1105, 1110 (10th Cir. 1991);

however, more than a mere “scintilla” of evidence is needed to create a genuine issue of

material fact, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).

A. Breach of Contract Issues

In support of its motion for summary judgment, Macpherson stated that it had

returned the Model 201 in good faith before the forty-five-day trial period had elapsed

was sufficient to invoke the jurisdiction of the district court even though the plaintiff’s complaint
did not aver the required jurisdictional amount); Motorists Mutual Insurance Co. v. Simpson, 404
F.2d 511, 514-15 (7th. Cir. 1968) (stating, in dictum, that when a defendant files a counterclaim
for more than the jurisdictional amount, without previously objecting to plaintiff’s failure to
claim the necessary jurisdictional amount, the amount counterclaimed may provide the basis for
federal jurisdiction), cert. denied, 394 U.S. 988 (1969).

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and that it was therefore entitled to return of its $35,000 payment. In response to this

motion, Brinecell argued that Macpherson failed to return the Model 201within the 45-

day trial period as required by the contract because the shipping invoice was mislabelled.

The district court held that Brinecell had violated its duty of good faith by failing to

refund Macpherson’s $35,000 based on the shipping company’s clerical error.

We agree with the district court that Brinecell’s argument is without merit.

Pursuant to the duty of good faith and fair dealing under Utah law, the parties to a

contract constructively promise not to intentionally impair the other party’s right to

receive the fruits of the contract. See St. Benedict’s Dev. Co. v. St. Benedict’s Hosp.,

811 P.2d 194, 199 (Utah 1991). Parties to a sales contract must exercise their express

rights in accordance with this over-arching duty. See Utah Code Ann. § 70A-1-203.

Macpherson informed Brinecell of the expected return date of the equipment, the exact

way-bill number, and the number of the flight carrying the Model 201 from England. The

invoice received by Brinecell lists Macpherson as the shipper, the way-bill number and

the flight number. Acting in good faith, anyone in Brinecell’s place would have known

what was contained in the package or, at least, inquired of Macpherson. Brinecell neither

accepted the shipment nor contacted Macpherson and offers no excuse for its inaction.

This is such a clear breach of the duty to perform the contract in good faith that no

reasonable jury could have decided the issue in Brinecell’s favor. Therefore, the district

court properly entered summary judgment against Brinecell. See Anderson, 477 U.S. at

9
248 (summary judgment may only be averted “if the evidence is such that a reasonable

jury could return a verdict for the nonmoving party.”).

We note that the district court could have relied also on Utah Code Ann. § 70A-2-

327(1) to resolve this dispute. This section of the Uniform Commercial Code as codified

in Utah provides in relevant part: “Under a sale on approval unless otherwise agreed . . .

after due notification of election to return, the return is at the seller’s risk and expense . . .

.” Utah Code Ann. § 70A-2-327(1). Brinecell does not dispute that the shipping

company, not Macpherson, mislabeled the Model 201 as embroidery spare parts.

Macpherson properly notified Brinecell of the return and the returned goods arrived

within the agreed forty-five-day return period. Pursuant to the Utah Code, Brinecell bore

the risk of any shipping errors and has no legal claim under these facts for damages that

might result therefrom.

On appeal, Brinecell makes two additional arguments which it failed to make

below in opposition to Macpherson’s motion for summary judgment. Specifically,

Brinecell now contends that the terms of the contract are ambiguous and that Macpherson

lacked the expertise necessary to properly test the Model 201 before returning it for a

refund. We will only briefly address these recently acquired theories. See Farmers Ins.

Co. v. Hubbard, 869 F.2d 565, 570 (10th Cir. 1989) (“This court will generally not

address issues that were not considered and ruled upon by the district court. The narrow

exceptions to that general rule relate to issues of jurisdiction . . . and questions of

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sovereign immunity.”) (citations omitted). As for Brinecell’s argument that the contract

is ambiguous, Brinecell clearly stated the opposite below, conceding that it did “not argue

with Plaintiff’s statement of facts 1-17.” See Aple’s Supp. App. at 87 (Opposition to

Plaintiff’s Motion for Partial Summary Judgment and Memorandum in Support Thereof).

Facts 8, 9, and 10 in Macpherson’s Memorandum in Support of Partial Summary

Judgment describe the terms of the agreement. See Aple’s Supp. App. at 22-23

(Memorandum in Support of Plaintiff’s Motion for Partial Summary Judgment at iii-iv);

see also Aple’s Supp. App. at 117 (Order of the district court granting Plaintiff’s Motion

for Partial Summary Judgment) (“The parties are agreed as to the terms of the contract

and the right of the plaintiff to return the goods if unsatisfactory within 45 days.”)

(emphasis added). Brinecell and its counsel run the risk of being sanctioned when they

make for the first time on appeal an argument that was specifically abandoned before the

district court. See Fed. R. App. P. 38; 28 U.S.C. § 1927.

Brinecell’s second new argument -- that Macpherson lacked sufficient expertise to

adequately test the Model 201 prior to returning it -- is equally meritless. The parties

clearly agreed that Macpherson could return the Model 201 if it was unsatisfied with the

outcome of tests it performed during the forty-five-day trial period. No particular tests

were required. Of course, Macpherson had a duty to test the Model 201 in good faith.

See Utah Code Ann. § 70A-1-203. However, Brinecell conceded in the district court, see

Aple’s App. at 87 (Brinecell’s Opposition to Plaintiff’s Motion for Partial Summary

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Judgment and Memorandum in Support Thereof), that “[b]y May 19, 1992 -- well within

the 45 day period -- Macpherson had run sufficient tests to discover that the Model 201

was unsuitable for its intended purpose,” Aple’s App. at 24 (Memorandum in Support of

Plaintiff’s Motion for Partial Summary Judgment at v). Again, Brinecell should have

checked the record for its previous admissions before making such groundless arguments

before this court.

B. Fraudulent Misrepresentation

Brinecell’s counter-claim alleged fraud against Macpherson. Under Utah law, a

person who knowingly or recklessly makes a false representation of an existing material

fact for the purpose of inducing another person’s reliance thereon and upon which the

other person reasonably relies may be liable to that person for any damages resulting

therefrom. See Horton v. Horton, 695 P.2d 102, 105 (Utah 1984). At issue here is

Macpherson’s representation that “if it had an exclusive contract with Brinecell, it was

capable of selling Brinecell’s equipment throughout a much larger area of England than

Brinecell could on its own.” Aple’s Supp. App. at 15 (Amended Counter Claim for

Fraud); see also Aple’s Br. at 4. Macpherson initially moved to dismiss Brinecell’s

counter-claim on the grounds that fraud must be based upon a statement of a presently

existing fact, not a future occurrence. A magistrate judge denied Macpherson’s motion to

dismiss, holding that Macpherson had been referring to its then existing capabilities.

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Macpherson subsequently moved for summary judgment, arguing that the statement was

true. Noting Macpherson’s vast contacts in England’s textile industry and Brinecell’s

complete lack of any references in England, the district court granted Macpherson’s

motion for summary judgment.

Without addressing the somewhat more difficult issue of whether Macpherson’s

statement referred to a present or future fact, we hold that there is no genuine issue as to

the truth of the statement. Macpherson argues that it was in a better position to distribute

Brinecell’s products in England. Brinecell’s argument that Macpherson’s lack of

expertise made it impossible for it to effectively distribute Brinecell’s products is

irrelevant to the truth of Macpherson’s representation. Macpherson’s representation

makes neither reference to nor assertion of its expertise in Brinecell’s products. Rather,

the statement refers only to Macpherson’s position in the English market relative to

Brinecell’s. Brinecell had no contacts in England, while Macpherson was a well

established participant in England’s textile market. Macpherson was without any doubt

“capable of selling Brinecell’s equipment throughout a much larger area of England than

Brinecell could on its own,” Aple’s Supp. App. at 15; see also Aple’s Br. at 4. No

reasonable jury, confronted with the evidence presented in support of and in opposition to

the motion for summary judgment, could have found in favor of Brinecell. Thus, the

district court properly granted Macpherson’s motion for summary judgment. See

Anderson, 477 U.S. at 248 (summary judgment may only be averted “if the evidence is

13
such that a reasonable jury could return a verdict for the nonmoving party.”).

CONCLUSION

For the forgoing reasons, we AFFIRM the judgment entered by the district court.

The mandate shall issue forthwith.

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