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Zodiac Seats U.S. LLC v. Synergy Aerospace Corp.

United States District Court, E.D. Texas, Sherman Division

April 23, 2019

ZODIAC SEATS U.S. LLC, Plaintiff,
v.
SYNERGY AEROSPACE CORPORATION, Defendant.

          MEMORANUM AND OPINION

          KIMBERLY C. PRIEST JOHNSON UNITED STATES MAGISTRATE JUDGE.

         Presently before the Court are two issues: (1) whether the United Nations Convention on Contracts for the International Sale of Goods (“CISG”) applies to a breach of contract and warranty dispute between Plaintiff Zodiac Seats U.S. LLC (“Zodiac”) and Defendant Synergy Aerospace Corporation (“Synergy”); and (2) if the CISG applies, whether the CISG precludes recovery of attorneys' fees. See Dkts. 66, 67, 68, 69. For the limited purpose of determining these issues of law, the parties consented to proceed before the undersigned United States Magistrate Judge. See Dkts. 66, 67. The determination of these limited issues was subsequently referred to the undersigned Magistrate Judge. See Dkt. 68.

         Upon review of the entire docket, including the updated briefing and exhibits submitted in this matter, the Court finds the CISG controls the parties' dispute. The Court further finds the CISG does not preclude recovery of attorneys' fees pursuant to Chapter 38 of the Texas Civil Practice and Remedies Code.

         I. BACKGROUND

         Zodiac and Synergy entered into a series of agreements wherein Zodiac agreed to manufacture commercial airplane seats, both for tourist and business class passengers, for use in Airbus airplanes manufactured for use by Synergy. Both parties argue that the purchase orders, which acted as contracts between the parties, were breached. Generally, Zodiac asserts that Synergy breached because Zodiac never received full payment for the products manufactured and delivered. Generally, Synergy asserts that Zodiac breached because the seats were delivered both late and with product defects and, as a result, Synergy asserts counterclaims for breach of contract and breach of express and implied warranties. Both parties assert a claim for attorneys' fees. See Dkt. 6 at 9; Dkt. 23 at 6.

         Zodiac is an American business based in Texas. Synergy is a South American conglomerate which operates in Colombia and Brazil, among other locations. The contracts at issue fail to specify whether the CISG governs their terms and whether a party asserting breach thereof can recover attorneys' fees.

         Synergy filed a partial motion for summary judgment (Dkt. 40) arguing: (1) the CISG applies and pre-empts Texas state contract law; and (2) under the CISG, Zodiac may not collect attorneys' fees. See Dkt. 40 at 4-6. Zodiac filed a response (Dkt. 49), and Synergy filed a reply (Dkt. 54). The Court held oral arguments on the motion on January 15, 2019. See Dkt. 64. The undersigned issued a Report and Recommendation, recommending that Synergy's partial motion for summary judgment be denied because there existed a genuine issue of material fact regarding Synergy's “place of business.” See Dkt. 69. The district court issued a Memorandum Adopting the Report (Dkt. 79) and denying Synergy's partial motion for summary judgment. The parties consented to proceed before the undersigned on the limited issues of determining conflict of law and whether the CISG precludes recovery of attorneys' fees in this case. See Dkts. 66, 67, 68. The Court issued a briefing schedule on the issues, as agreed upon by the parties. See Dkt. 68. Synergy filed a brief with exhibits (Dkt. 72), Zodiac filed a response with exhibits (Dkt. 73), and Synergy filed a reply (Dkt. 75).

         Synergy argues that the CISG controls the law in this case because its “place of business” is located in Colombia for the purpose of the Zodiac contracts. See Dkt. 72 at 2. Additionally, Synergy asserts that Zodiac cannot bring a claim for attorneys' fees because the damages provision of the CISG does not include attorneys' fees in its definition of “loss.” See Dkt. 72 at 4. Zodiac argues that Synergy, a business with multiple locations, is not based in Colombia for purposes of this contract, but rather is based in Brazil. See Dkt. 73 at 1. Additionally, Zodiac argues that even if the CISG applies, it can still recover attorneys' fees, as they were sought pursuant to a Texas state statute, not the damages provision of the CISG. See Dkt. 73 at 3.

         II. ANALYSIS

         The CISG was ratified by the United States Senate in 1986. United Nations Convention on Contracts for the International Sale of Goods, opened for signature Apr. 11, 1980, 19 I.L.M. 668; see also BP Oil Int'l, Ltd. v. Empresa Estatal Petroleos de Ecuador, 332 F.3d 333, 336 (5th Cir. 2003). The CISG “creates a private right of action in federal court” and “applies to ‘contracts of sale of goods between parties whose places of business are in different States . . . [w]hen the States are Contracting States.'” Id. (quoting the CISG art. 1(1)(a)). “As incorporated federal law, the CISG governs [any dispute arising out of contracts for sales of goods between member states] so long as the parties have not elected to exclude its application.” BP Oil, 332 F.3d at 336 (requiring parties to show a clear intent to affirmatively opt-out of the CISG).[1] An intent to preempt state law has been found in the introductory text of the CISG, which states that “the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic[, ] and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade.” Honey Holdings I, Ltd. v. Alfred L. Wolff, Inc., 81 F.Supp.3d 543, 551 (S.D. Tex. 2015) (quoting Asante Technologies, Inc. v. PMC-Sierra, Inc., 164 F.Supp.2d 1142, 1151-52 (N.D. Cal. 2001)) (internal punctuation omitted).

         A. APPLICATION OF THE CISG

         The parties do not dispute that the contracts at issue were for the sale of goods, in the form of commercial airline seats. The contracts are silent, however, as to the applicability of the CISG. As an American business, Zodiac is bound by the terms of the CISG if it contracts with a party whose “place of business” is in a country that is a signatory to the CISG at the time the contract was signed. Thus, to determine whether the CISG applies to the disputed contracts, the Court must determine Synergy's “place of business” with the closest relationship to the contracts.

         Synergy argues that it is based in Colombia, while Zodiac argues Synergy is based in Brazil. See Dkt. 40 at 4; Dkt. 49 at 6-7. Colombia adopted the CISG in 1999, and reaffirmed it in 2000. See Corte Constitucional [Constitution] May 10, 2000 (Colum.); see also U.N. General Assembly, United Nations Commission on International Trade Law: Case Law on UNCITRAL TEXTS (Clout), 4, U.N. Doc. A/CN.9/SER.C/ABSTRACTS/123 (Sep. 26, 2012). Brazil entered the CISG in 2014, after the formation of the contracts (e.g., purchase orders) at issue. See Juan Antonio Gaviria-Gil, The Puzzle of the Lack of Colombian Cases on the CISG, 26 International Law, Revista Colombiana de Derecho Internacional, 289, 301 (2015); see also Dkt. 6 at 4-5. Thus, for the CISG to apply, Synergy must establish that its place of business with regard to the contracts at issue was in Colombia.

         Article 10 of the CISG provides, “[I]f a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time or at the conclusion of the contract.” CISG art. 10. In weighing which location has the closest relationship to the contract, courts consider where the communications about the contract or representations about the product originated.[2] See McDowell Valley Vineyards, Inc. v. Sabate USA Inc., 2005 WL 2893848, at *3 (N.D. Cal. Nov. 2, 2005) (holding the CISG does not apply where most communications emanated from the United States, thus under the CISG, the parties were both American, not from different member states); Asante Technologies, Inc. v. PMC-Sierra, Inc., 164 F.Supp.2d 1142, 1149 (N.D. Cal. 2001) (Finding the “place of business” to be Canada where “most if not all of the defendant's representations regarding the technical specifications of the products emanated from Canada.”).

         At issue in this case is not just from where communications emanated, but also when those communications were sent. Scholars interpreting the CISG explain that when Article 10 “refers to the performance of the contract, it is referring to the performance that the parties contemplated when they were entering into the contract.” Guide to CISG Article 10, Secretariat Commentary, available at Pace Law School institute of International Commercial Law, “Place of Business, subparagraph (a), ” http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-10.html (last updated Aug. 29, 2006).[3] Moreover, “[t]he phrase ‘the contract and its performance' refers to the transaction as a whole, including factors relating to the offer and acceptance[, ] as well as the performance of the contract. The location of the head office or principal place of business is irrelevant for the purposes of [A]rticle 9 and [A]rticle 10 unless [that location] has the closest relationship to the contract and its performance.” Secretariat Commentary on Article 9, Article 10 regarding 1978 Draft, CISG, available at https://cisgw3.law.pace.edu/cisg/text/secomm/secomm-10.html. Thus, the Court must consider from where Synergy's communications with Zodiac regarding entering into the contract emanated.

         In this case, the parties did not execute a single contract covering all goods ordered and delivered. While the parties negotiated and edited a comprehensive contract, it was never signed or adopted by the parties. See Dkt. 73-1. Thus, the contracts asserted in this case are in fact a series of purchase orders, executed between February 20, 2013, and December 2, 2013. Dkt. 6 at 5-7. Moreover, Synergy asserts that during the performance of the purchase orders, new agreements were formed and novation occurred. Dkt. 23 at 4. Accordingly, because there is no single contract, the Court considers the parties' communications prior to the execution of each ...


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