USCA1 Opinion

January 11, 1996

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

____________________

No. 95-1220

KNAPP SHOES, INC.

Plaintiff, Appellant,

v.

SYLVANIA SHOE MANUFACTURING CORPORATION,

Defendant, Appellee.

____________________

ERRATA SHEET

The opinion of this

court, issued on December 20,

1995, is

amended as follows:

On

page

36,

line

four,

replace

"$233,626.47"

with

five,

replace

"$243,911.62"

with

"$223,626.47".

On

page

36,

line

"$253,911.62".

On

page 36, line five, add to

following sentence:
terminating the

the end of the paragraph the

"In addition, the

injunction against

magistrate judge's order

Sylvania, as entered

on May

31, 1991 and amended on June 10, 1991, is vacated; the magistrate
judge

is free

to reduce the

amount embargoed to

plus anticipated costs and interest."

the net award

UNITED STATES COURT OF APPEALS

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
____________________

No. 95-1220

KNAPP SHOES, INC.

Plaintiff, Appellant,

v.

SYLVANIA SHOE MANUFACTURING CORPORATION,

Defendant, Appellee.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Lawrence P. Cohen, U.S. Magistrate Judge]

_____________________

____________________

Before

Cyr, Boudin and Lynch,

Circuit Judges.

______________

____________________

Bernard J. Bonn III with

____________________

whom Timothy C. Blank,

________________

Kara W. Swan
____________

and Dechert Price & Rhoads were on briefs for appellant.

______________________
Joseph B. Green with
________________

whom Steven L. Katz and Kotin, Crabtre

_______________
_______________

Strong were on brief for appellee.

______

____________________

December 20, 1995

____________________

BOUDIN, Circuit Judge.

_____________

beginning

in

purchased nearly

early

Over the

1987,

Knapp

300,000 pairs

companies underwent

and broke off early in 1990.

claiming

that Sylvania

had

Shoes,

Inc.

of shoes from

Manufacturing Corp. ("Sylvania").

the two

course of three years,

("Knapp")

Sylvania Shoe

The relationship

strains during its

between

final year,

Knapp filed suit in April 1990

manufactured

Sylvania counterclaimed for unpaid bills.

defective

shoes;

In March 1995, the

magistrate judge

favor

awarded net damages of less than $65,000 in

of Sylvania.

reverse in part,

Knapp appeals.

We affirm

and remand for the entry of

in

part,

a new judgment

as specified in this opinion.

I.
I.

Knapp,

distributes

THE UNDERLYING FACTS

THE UNDERLYING FACTS

Massachusetts

work

shoes.

corporation, manufactures

In

addition

to

selling

and

and

distributing shoes that it manufactures, Knapp also sells and

distributes shoes manufactured by other shoe companies

the Knapp

logo.

Sylvania, a Pennsylvania

under

corporation, was

one such supplier to Knapp.

In late

1986, Jack

Esser, then Knapp's

for merchandising and manufacturing,

vice president

told Knapp personnel to

contact

Knapp

Sylvania to

was selling

delivered over

arrange

to

the U.S.

10,000 pairs

1249 and 1250--by

for the

manufacture of

Postal

Service.

of two styles

mid-February 1987.

shoes

Sylvania

of shoes--models

By all accounts, there

-2-2-

were few problems with

these shoes, nor were

there problems

with over

5,000 pairs

of 1249s delivered

between September

1987 and May 1988.

Thus

encouraged,

collaboration, and

Sylvania

by early

and

Knapp

expanded

1988 Sylvania

their

had made

making over two dozen models of shoes for Knapp.

or was

These later

models all differed in construction from the 1249s and 1250s.

While

the latter in each

cemented

to

case consisted of

polyurethane

sole,

the

a leather upper

new

models

were

constructed of three parts:

a rubber outsole, an ethyl vinyl

acetate

(EVA) midsole, and

a leather upper.

various

problems

complaint was

with

that the

tended to fall apart.

Sylvania

shoes,

leather

upper and

Among Knapp's

the

most

serious

the EVA

midsole

The bulk of Knapp's

The

These

first, style

was

use

required

in

for nearly

athletic-style postal

the

140,000 pairs.

for

1251, accounted

shoes were

category

purchases were in three categories.

2600

series, which

These shoes were

industrial

shoes.

The second

accounted

for

over

steel-toed shoes, intended

settings

protective footwear.

25,000 pairs.

where

The

OSHA

regulations

final category

was the

2800 and 2900 series of non-steel-toe shoes, of which perhaps

70,000 pairs were

sold.

A number of

models that

Sylvania

produced for Knapp are not implicated in this litigation.

Quality control problems with shoes in these three lines

-3-3-

appeared

history

Knapp

almost immediately

of the

found

improperly

shoes

were

shipped to

and

two companies'

that

the

toe

continued

throughout

relationship.

bumpers

of

style

the

In mid-1987,

2600

were

bonded to the shoe and could be peeled off; these

returned to

Sylvania

Knapp's customers.

for

repair before

being

further problem--this time

with sole adhesion--appeared soon afterwards, affecting white

shoes in the 2600 and 2800 lines.

its cement company, had

the cement for

the bond.

Sylvania, on the advice of

in late 1987 added white

cosmetic reasons, and

This difficulty led

pigment to

this seemed to

affect

to the recall of thousands of

shoes in early 1988.

By summer 1988, the

to

black shoes.

In a

sole separation problems had spread

letter sent

individual at Knapp charged

development, to

by

John Sprague,

the

with quality control and product

Colin Elliot, a vice

president at Sylvania,

Sprague wrote that the problems reported with the black shoes

"scare[s]

"[r]ash

the hell

of

separations

number

of

out

telephone

of us"

and

reported also

calls"

had

complained

on style

1251.

shoes were

sent

Following these

to

the Footwear

that

of

sole

complaints, a

Institute

of

America for

pull testing.1

These tests

indicated that some

____________________

1Pull

tests,

measurement
addition

of

standard

the

to measuring

in

strength
the

of

the
shoe

pounds of

industry,

allow

construction.
pressure that

for
In

can be

applied to a particular area of the shoe before it will fail,

the tests indicate whether the failure was caused by material

-4-4-

sole adhesion problems were caused by improper manufacture.

Esser later testified that he concluded at the time that

the

problems

purchases

remained

were

minimal

from Sylvania.

and

he

However,

authorized

continued

both Sprague

and Esser

in almost daily contact with Elliot in an effort to

correct the defects.

In

legend on the bottom

addition, Knapp began

of some of its purchase

to place

orders, "ORDER

PENDING CORRECTION OF SOLE SEPARATION PROBLEM."

Throughout

this

Sylvania and Knapp

problems

changes

that

that

the evidence

worked together to

were affecting

were suggested

many of them.

models

period,

the

by Knapp,

that

attempt to solve

shoes.

and

indicates

Various

the

design

Sylvania implemented

The suggestions included adding toe bumpers to

lacked

them and

substituting

polyurethane

midsole

for the EVA midsole in certain models.

In addition,

Sylvania changed cement companies in mid-1988.

In 1989,

to

the relations between the

deteriorate.

Sylvania

Knapp's then-parlous

cash

blames

member); Richard

deterioration

Knapp established

on

(of which John

Esser was a

Nedder, Knapp's president, was

replaced by

Joel Murray in April.

Sylvania,

this

financial state.

committee in February 1989

two companies began

Knapp

fell behind on its account with

prompting Sylvania president

Robert Pearlstein to

____________________

failure--a

tearing of the upper or of the sole--or by a bond

failure.

-5-5-

send letters of complaint in the summer of 1989.

Knapp

jeopardizing

insists

that

defects

some

of its

most

offered evidence

in

Sylvania

important

accounts and

that failures in models 2810

of particular concern.

to

return 1000 pairs of

EVA

midsole; Sylvania

shoes

were

it

and 2930 were

In the summer of 1989 Knapp attempted

2810's that were

refused to

produced with the

accept the

returns.

At

trial, Sylvania offered evidence, credited

judge,

that many

of

these 2810

manufactured by Sylvania, but

from

Taiwan.

problems

There was

affected some

also

and

by the magistrate

2930 shoes

were

not

were instead imported by Knapp

evidence that

models that

sole adhesion

were never

produced by

Sylvania.

In an effort to work out a payment schedule, Pearlstein

met with

fall of

sought to

Sylvania

manually.

Murray and others at Knapp

1989.

At the latter

twice in the summer and

meeting on October

demonstrate that there were

shoes

by

twisting

the

17, Knapp

quality problems with

soles

and

uppers

apart

This was done, but the ease, and the significance,

of the demonstration

were disputed.

At that

meeting, Knapp

agreed

to pay $40,000 for

Sylvania, the

every $35,000 of

extra $5,000 being part of

product sent by

Knapp's attempt to

repay earlier amounts owned to Sylvania.

Records of both companies show that shipments

in October and

November 1989.

-6-6-

Payments were

continued

also made

by

Knapp against its outstanding balance in January 1990.

December 1,

1989, Dick

vice president

Sebastiao joined Knapp

as executive

understanding that he

would become

with the

president in February 1990.

been fired and

By the end of 1989,

Sprague had

Esser, who had been on the board of directors

of the company, also had left.

final shipment

February

1990, after Knapp

Crabtree,

were

a Knapp

Sylvania shoes

was delivered

made an advance

employee, testified

payment.

that when

in

James

the shoes

inspected, he was able to pull them apart with his bare

hands;

he

Sylvania.

disputed

found

of

alerted

Sebastiao,

Pearlstein

asked for

Crabtree's findings.

Crabtree's

testimony

who

called

a sample

The

Pearlstein

to inspect,

magistrate judge

incredible

and

at

and

later

credited

Pearlstein's assertion

that the

shoes in the

February 1990

shipment were not defective, although two Sylvania employees-

-Elliot

and

John

Cartwright

supervisor)--admitted that

(Sylvania's

they had

been

manufacturing

able manually

to

separate the soles on some of the shoes.

Crabtree further

Knapp's existing

it

was "95%

credited

various

shoes

by

testified that

he then began

inventory of Sylvania shoes

defective."

the magistrate

Again,

and found that

this testimony

judge.

to test

Knapp also

was

not

performed

tests on the shoes from the February shipment and on

in

inventory

after

the

-7-7-

start

of

litigation;

its

evidence

at trial

was that

problems

with the bonding of

these tests

consistently found

the shoes.

This evidence was

also not credited by the magistrate judge.

-8-8-

II.
II.

On

April 10,

against

Sylvania

contract (count

warranties of

purpose

PRIOR PROCEEDINGS
PRIOR PROCEEDINGS

1990, Knapp

under

filed this

Massachusetts

1), breach

law

diversity action

for

of express warranty

merchantability and

(counts 2-4), breach of

fitness for a

the duty of

breach

of

and implied

particular

good faith and

fair dealing (count 5), fraud and negligent misrepresentation

(counts 6

(count

and 7),

8).2

for unpaid

and violation

Sylvania

of Mass.

Gen. L. ch.

93A

also counterclaimed, seeking $277,000

bills, plus multiple damages

and attorney's fees

under Chapter 93A.

Both parties

consented to

proceed before a

magistrate

judge without a jury, and the magistrate judge bifurcated the

trial into a liability

in the

after

phase and a damages phase.

liability phase was

completed on

nine days of testimony.

judge entered

January 31,

1991,

That same day, the magistrate

a four-page memorandum and

one paragraph each to

Evidence

order that devoted

five of Knapp's eight counts,

without

discussing Sylvania's counterclaims.

In

this

decision,

the

Sylvania had

breached its

had shown, or

could show,

magistrate

judge

ruled

warranties only insofar

that shoes delivered

that

as Knapp

to it

were

____________________

2Chapter

93A outlaws

and unfair or deceptive

any

trade

or

"[u]nfair methods

of competition

acts or practices in the

commerce,"

and permits

damages and attorneys' fees.

-9-

awards

conduct of
of

multiple

-9-

defective.

The

failed

prove

to

magistrate judge also

fraud,

negligent

found that Knapp

misrepresentation

had

or--

"except to the extent that plaintiff has shown, or can show,"

a refusal

by Sylvania

breach of

the duty of good

Knapp's chapter

to credit returned

93A claim,

defective shoes--

faith and fair dealing.

the decision said

As for

that Sylvania

had

not been shown to

it noted,

payments

but

have engaged in unscrupulous conduct;

did not

decide,

the question

whether

some

might still be due Knapp under chapter 93A based on

a regulation of the state's attorney general.

In

May 1991, prior to

Knapp learned

the damages phase

that Sylvania

liquidating its assets.

was going

out of

precluding Sylvania from dissipating

$3,775,657.22--the amount

of

this order on June

be

restraining order

assets in the amount of

damages that

prove in the damage phase of the trial.

preliminary injunction

business and

Fearful that Sylvania would soon

judgment-proof, Knapp obtained a temporary

modified

of the trial,

Knapp

hoped

to

The magistrate judge

10, 1991, converting

and amending it to

it into a

allow Sylvania to

make limited payments to its creditors and lawyers.

The damages phase of the trial took place over five days

in June

1991; at

evidence was heard

Sylvania's

on November 25, 1991.

of fact and conclusions of

March 1992.

behest, an

additional day

of

Proposed findings

law were filed by the

parties in

Then, in March 1993, the magistrate judge issued

-10-10-

an

order

proposing

to

Massachusetts Supreme

certify certain

Judicial

certification,

but on

certified

questions,

two

The

with

magistrate judge

a ten-page

Court.

April 8,

both

application of Chapter 93A to

statement.

questions

Both sides

1993, the

relating

to

the

opposed

magistrate judge

to

the

possible

"a simple breach of warranty."

prefaced the

In it,

certified questions

he first

repeated the

rulings on the five counts contained in the January 31, 1991,

order.

parties

Then, he

had

understandings

determined for

agreed

by

and express

the

express

course of

first time

that the

negotiations,

express

dealings that

in the

event of defects, "Knapp's remedy, and sole remedy, would

____

be

the

replacement of [or credit

defective

and

(footnote

omitted;

for] those shoes

returned--nothing

brackets

more,

in

the

and

shown to be

nothing

original).

less"

The

certification also said, in a footnote, that

less than three

percent

to

of

the

Sylvania

shoes

delivered

Knapp

were

defective.

On Sylvania's motion, the magistrate judge dissolved the

preliminary injunction on May

now

had little hope of

appeal,

this

court

5, 1993, concluding that Knapp

a substantial recovery.

stayed

and

then

vacated

On Knapp's

the

order

dissolving the preliminary injunction.

Knapp Shoes, Inc. v.

_________________

Sylvania Shoe Manufacturing Corp., 15

___________________________________

F.3d 1222

(1st Cir.

-11-11-

1994).

We held

that Sylvania

had waived

the affirmative

defense of limitation of remedies by failing to raise it in a

timely fashion.

Since the

issue of limitation

of remedies

had never been litigated by the parties, the waiver could not

be avoided by amending the pleadings to conform to the proof.

Cf. Fed. R.

Civ. P. 15(b).

Accordingly, we said that

"the

___

limitation

of remedies defense is out of the case and cannot

support the order vacating the injunction."

We

also rejected

Sylvania's alternative

the termination of the

magistrate

Id. at 1227.
___

argument that

injunction could be supported

judge's footnote

finding, in

the certification,

that the percentage of

defects was very small.

pointed

magistrate

out

findings or

that the

analysis to

judge had

support this

of defects, so we

were "unable to

judgment

whether, on

critical issue

magistrate

judge's

finding

was

Our opinion

not

set forth

conclusion as

quantity

this

or

erroneous'" under Fed. R. Civ. P. 52(a).

by the

was

to the

make a reasoned

of defects,

not

the

`clearly

Id. at 1228-29.
___

On October 13, 1994, the Supreme Judicial Court answered

the

certified

magistrate

questions

judge.

that

had been

Knapp Shoes, Inc.

___________________

submitted

v.

the

Sylvania Shoe
______________

Manufacturing Corp., 640 N.E.2d 1101 (Mass. 1994).

___________________

held that 940 Code Mass. Regs.

by

The Court

3.08, which provides in part

that "[i]t shall be

an unfair and deceptive act

or practice

to fail

or fulfill

obligations

to perform

-12-12-

any promises or

arising

under

a warranty,"

was not

meant "to

encompass a

contract dispute between businessmen based on a breach of the

implied warranty of merchantability."

Thus informed,

decision on

(breach

again

extent

reason.

judge

the magistrate

March 1, 1995.

of warranties

particular shoes

On count

said

breaches of

1 (breach

again that

judge

there

warranty covered

issued his

With respect to counts

of merchantability

held that Sylvania had

that

Id. at 1105.
___

final

3 and 4

and fitness),

he

breached its warranties to the

were

of

defective

for whatever

contract), the

was no

violation

by counts

3 and

magistrate

beyond the

4.

He also

reaffirmed that Knapp

had failed to establish

its claims in

count 2 (breach of express warranties), count 5 (duty of good

faith

and fair dealing), count 6 (common law fraud), count 7

(common law negligent

misrepresentation) and count 8

(Mass.

Gen. L. ch. 93A violation).

On Sylvania's counterclaims, the magistrate

that

Knapp was

liable for

shoes that Sylvania had

judge found

contract price

the outstanding balance

delivered to Knapp.

that Sylvania

judge found

was not entitled

of additional

shoes it had

due for

The magistrate

to recover

the

manufactured for

Knapp but not yet delivered; the reason was that Sylvania had

failed

to make a reasonable effort

to resell the shoes.

He

also rejected Sylvania's own chapter 93A claim against Knapp.

Sylvania does not challenge these rulings on appeal.

-13-13-

In

computing

damages, the

magistrate judge

held that

Knapp should receive credit only for defective shoes still in

its

inventory--which he

percent of the

determined to

total--and for specified

be between

3 and

incidental damages.

He ruled that

Knapp had no right to revoke acceptance of any

non-defective

goods in

shipment of shoes sent

lost

of

profits.

dissolved.

We

to reject

in February 1990, nor to

the final

recover for

In the final tally, Knapp was awarded damages

$160,062.74,

$223,626.47.

inventory, nor

and

Sylvania

Finally,

the

stayed the

was

awarded

preliminary

judgment pending

damages

injunction

of

was

disposition of

this appeal.

III.
III.

Our

LAW OF THE CASE AND STANDARD OF REVIEW

LAW OF THE CASE AND STANDARD OF REVIEW

review of

the facts

found by

the trial

judge is

normally deferential; findings are not to be set aside unless

clearly

erroneous, with

"due

regard .

. given

to

the

opportunity of the trial court to judge of the credibility of

the

witnesses."

Fed.

Poulos, 11 F.3d 271,

______

our review should

R. Civ.

P.

52(a); see
___

278 (1st Cir. 1993).

Knapp argues that

be less deferential in this

attention to paragraph 49

Williams v.
________

case, drawing

of the magistrate judge's findings

of fact and its accompanying footnote.

[Paragraph 49]
shoes

which Knapp

Sylvania,
clear:
express

one
By

With respect to
requested

finding

is

their express

understandings,

conduct, and by

be

all lines of

manufactured

unmistakenably

[sic]

negotiations, by

their

by

their

demonstrated

their express course of

-14-14-

by

dealings,

Sylvania
shoes

promised
were

Knapp that,

defectively

remedy,

and sole remedy,

____

of

credit

[or

for]

in the

event that

manufactured,

Knapp's

would be the replacement

those

shoes

defective and returned--nothing

shown

more, and

to

be

nothing

less.

[Footnote]
reported to
under

This

finding

suggest that

Sections

2-601,

is not

made

Knapp waived its

2-608,

and

rights

2-609 of

Uniform Commercial Code (M.G.L., ch. 106,

2-608

and 2-609).

this court--then

and

the

2-601,

Although it was and is clear to

and now--that

understanding of the

that was

parties in terms

the sole

of remedies

and relief, and that it was clear (then and now) to

all

parties that

throughout, and
now--establish
plaintiff

the

defense

of

waiver

that plaintiff could

any

legal
_____

prejudice

loomed

not--then or
(that

is,

could not--then or now--make any showing

that the
our

case would have been

Court

of

Appeals,

in

tried differently),
the

context

of

an

interlocutory appeal relating to the dissolution of

an injunction, has concluded otherwise.

Nevertheless, this finding and conclusion bear

heavily on the credibility of the witnesses

called

by Knapp, and other issues to be determined herein.

Knapp argues

the case by

that this

discussion violates the

contradicting our holding in Knapp that Sylvania

_____

had waived any such limitation of remedies

issue

law of

of limitation

of remedies

trial, and that

it was now

1227.

further

Knapp

magistrate

insists

tainted

his

to

subject

these

us

scrutiny.

Paragraph 49

had not been

litigated at

"out of the case."

judge

requiring

defense, that the

that

other

this

15 F.3d

error

factual

findings

to

by

at

the

findings,

heightened

has certainly complicated matters on

this

appeal,

but

we

conclude

that

Knapp

has

somewhat

exaggerated its import and consequences.

-15-15-

The law of the case doctrine has more than one dimension

and

certain

complexities, but

as

applied

to the

problem

before us, the doctrine provides that when a court of appeals

makes a ruling of law, whether on appeal of a

final judgment

or in an interlocutory appeal, that ruling becomes the law of

the case

in any subsequent

proceedings in the

Elias v. Ford Motor Co., 734 F.2d 463 (1st Cir.

_____
______________

a ruling is "[a] mandate [that] is

to

trial court.

1984).

Such

completely controlling as

all matters before the appellate court and disposed of by

its decree."

Id. at 465.
___

We agree with Sylvania that the magistrate judge did not

contradict

our legal

limitation

of remedies was waived

He

did

not

rest

proposition that

any

ruling in

of his

Knapp that
_____

own

the defense

and now out

legal

Knapp had limited its

of

of the case.

rulings

on

the

remedies by contract

to

credit

for

returned

shoes; indeed,

he

awarded

Knapp

damages for defective shoes still in its possession (although

he found the number of such shoes to be very small).

extent,

Knapp's law-of-the-case

claim

is

To that

something

of

diversion.

At the same time, on an intermediate proposition of fact

a direct conflict exists between our earlier opinion and

most recent decision of the magistrate judge.

judge

in

repeats in the footnote to

text, his earlier conclusion

-16-16-

the

The magistrate

paragraph 49, quoted above

that Knapp and Sylvania did

agree in fact

that this

to limit Knapp's

court on

remedies; and he

the prior appeal

recognizes

"concluded otherwise."

Our actual conclusion was slightly narrower--we said that the

parties

had not purported to litigate the issue and we could

find no evidence

that

of such an agreement--but

the magistrate judge has reasserted

the fact remains

his view that such

agreement has been proved.

All this

might matter little if

disagreement with us played

the magistrate judge's

no role in his decision,

but he

goes

on

heavily

to

say that

"this

finding

and conclusion

bears

on the credibility of the witnesses called by Knapp,

and other issues to be determined herein."

No

resort to law

of the case doctrine is required for us to determine that his

"finding

and

limiting

remedies

defect--the

identified

conclusion"

is

lack of

in

our

that such

clearly

an

agreement

erroneous.

evidence

to show

earlier

decision

The

such an

existed

very

same

agreement--

remains,

utterly

why we

were not

unaltered.

We

persuaded

explained

of such

in our

an

earlier opinion

agreement by

reliance on Esser's testimony

testimony

that

did

not

the magistrate

judge's

that a return remedy existed--

even

purport

to

address

the

exclusivity of the remedy--and

dealing by

15

the parties that

F.3d at 1226-27.

No new

also why we saw no

could prove such

course of

a limitation.

evidence was taken on remand to

-17-17-

prove

this

mustered

limitation;

by the

no

magistrate

additional support

judge out

of the

for

it

is

pre-existing

record.

About the best we can do in this disturbing situation is

to

defer to

the usual

extent as

to those findings

of the

magistrate judge that we are confident have not been infected

by his

belief in

the supposed agreement

limiting remedies;

and, on all other findings, to consider them in the knowledge

that the magistrate judge has credited or discredited certain

witnesses

already

way,

and

based (at least in part) on a premise that we have

held to be mistaken.

deciding

how

to

Sorting out

treat

findings in this

infected

findings,

is

something of a task but better than an outright remand on all

issues to a new judge.

IV.
IV.

THE MERITS
THE MERITS

Our analysis of

Knapp

raises

some

the merits is

rather

divided in three

half-hearted

parts.

objections

to the

magistrate judge's rulings that reject most of its counts; we

find

that

Knapp's

these rulings

next

objections

are

sustainable

concern

the

on this

record.

magistrate

judge's

rulings on remedies; here we find that the magistrate judge's

analysis of the

remedies available to

one issue (Knapp's purported

shipments) but

first

February

flawed on

1990

Knapp was correct

on

revocation of acceptance of all

another (Knapp's rejection

shipment).

-18-18-

Finally,

we

find

of the

that

elements of the magistrate judge's

determinations on damages

were clearly erroneous but that the necessary corrections can

be made on the existing record.

A.

Knapp's complaint

magistrate

Liability
_________

alleged eight causes of

judge ruled that Knapp had

action.

The

failed to persuade on

all except for counts 3 and 4, breaches of implied warranties

of merchantability and fitness; these warranties were held to

be

breached

only

with respect

actually defective.

finding

of

rejecting

Sylvania

liability;

its other

to

those

shoes

does not appeal

Knapp

appeals

counts, but

from

that were

that limited

the

its arguments

decision

are without

merit.

Breach of Contract.
___________________

contract,

Knapp

With respect to count 1, breach of

objects

that

the

magistrate

judge

in

rejecting this count relied upon his footnote 49 finding that

the

parties had previously

Knapp's own

count 1

agreed to

alleged only

deliver shoes of promised

that

limit remedies.

Sylvania failed

quality; and it has not

this claim

exceeds the

breach of warranty

magistrate

judge allowed under counts 3 and 4.

But

to

shown how

claims that

the

We therefore

affirm the magistrate judge's disposition of count 1.

Breach of Express Warranty.

__________________________

express warranty,

it

On count 2, the

Knapp argues that

breach of

Sylvania warranted that

would produce a defect-free shoe and that the high defect

-19-19-

rate

caused

each

entire

shipment

to

be

in

breach

of

Sylvania's

sent

to

problems

express warranty.

Knapp

were

first, Elliot

this product

without

stand

by

Sylvania in

affecting shoes

and it is

our

points to

mid-1988,

in the

wrote, "We know the

defect."

behind

Knapp

up to us

two letters

when

2600

sole

line.

bond

In the

industrial consumer wants

to give it

to him

or her

In the second, Elliot wrote "As always, we

product

and fully

warrant

the

product

against manufacturing defect."

If Knapp

means to

suggest that Sylvania

had warranted

that each and every shoe in a given shipment would be free of

defects

such

and that a shipment

defect, that

witnesses for both

could be rejected

suggestion is not

parties agreed

based on any

reasonable.

that no one

At trial

in the

shoe

industry expects that any shipment of shoes will

free of defects.

be entirely

Sylvania's quoted statements can at most be

read to mean that it was capable

of producing shoes that met

industry standards as to the percentage of defects.

Of

course, to

the

extent that

various commitments, it may

under certain

that

shown to be defective

exceed

defective shoes.

the

its

as remedial measures be liable--

circumstances--to rejection

particular shoes

damages

Sylvania breached

price

See IV(B) and

___

paid

of more

than the

and to consequential

for

(C), below.

the

But

particular

so far as

Knapp's claim depends on the notion that Sylvania promised no

-20-20-

defects at all, we think no such warranty was made.

Breach of Duty of Good Faith and Fair Dealing.

______________________________________________

alleged that

Sylvania breached

fair dealing.3

In

magistrate judge

his

its duty

January 31,

found that

Knapp had

of good

Count 5

faith and

1991, memorandum,

failed to

the

carry its

burden on this claim, ruling that "the defendant acted in the

utmost

good faith

in an

attempt to

correct a

problem not

reasonably

foreseen

relationship."

by

Knapp

any

insists that

correct its manufacturing

to Knapp

that

the

of

the

parties

Sylvania's

to

the

failure

to

processes, despite its

quality

of

its

shoes

assurances

would

improve,

breached its duty.

Whether conduct violates the duty of good faith and fair

dealing is necessarily a

Farnsworth,

Contracts
_________

magistrate judge's

There

was

fact-specific inquiry, see E. Allan

___

ample

7.17

finding

here is

untainted

record

strove to improve the

suggested

ed.

1990),

not clearly

and

the

erroneous.

evidence

that Sylvania

quality of the shoes it

delivered; it

changed its cement suppliers

changes

(2d

by Knapp.

and implemented various

There

is

no evidence

design

that

Sylvania's failure

to improve its manufacturing

process was

____________________

3In Massachusetts, "[e]very

contract implies good faith

and fair dealing between the parties to it."

Warner Ins. Co.

_______________

v. Commissioner of Ins., 548 N.E.2d 188, 193 n.9 (Mass. 1990)

____________________
(quoting
1972).

Kerrigan
________
Similarly,

v. Boston,
______

278

Mass. Gen.

N.E.2d

L. ch.

imposes an "obligation of good faith."

-21-21-

387, 393

106 ("UCC")

(Mass.
1-203

motivated by bad

faith rather

than by a

simple failure

to

root out and remedy all of the problems.

Fraud and Negligent Misrepresentation.

______________________________________

charged

that

fraudulent

in Massachusetts

material fact,

part

and negligent

of

the

require a

knowledge of

defendant,

Counts

misrepresentation, claims

false representation

falsity or carelessness

and

6 and 7

reasonable

reliance

of a

on the

by

the

plaintiff.4

The magistrate judge found, in his memorandum of January

31,

1991,

that

Knapp's

because Sylvania had done

best

misrepresentation

claims

what it said it would

efforts to produce shoes

free of defects.

failed

do--use its

On appeal,

Knapp

insists

that

Sylvania

assured Knapp

that it

shoes,

that

and

had

repeatedly

would correct

Knapp

and

falsely

any problems

reasonably

relied

with the

on

these

representations in continuing its purchases.

We

need

reasonable,

not

but cf.
_______

decide

whether such

IV(C) below,

false representation has been

reliance

would

because we agree

shown.

The evidence

be

that no

at trial

indicated that Knapp and Sylvania remained in regular contact

regarding

Sylvania

carry out.

proposed

never

design

and manufacturing

misrepresented the

changes

changes,

it

and

proposed to

In this context, Sylvania's conclusory statements

____________________

4VMark Software, Inc. v. EMC Corp., 642 N.E.2d

____________________
_________

587, 593

n.8

(Mass. App. Ct. 1994); Zimmerman v. Kent, 575 N.E.2d 70,

_________
____

77 (Mass. App. Ct. 1991).

-22-22-

that its quality would improve--and Knapp calls our attention

to no more specific alleged misstatement--are no more than an

"expectation, estimate, opinion, or judgment."

Rasmussen, 243 N.E.2d 167, 168 (Mass. 1969).

_________

See Powell v.
___ ______

Chapter 93A.
____________

again

must

count 8--Knapp's

affirm the magistrate judge.

prove that

deceptive act,"

as

On

requiring

especially

Sylvania's conduct

showing

difficult

transactions

between

of

included an

"unfair or

Massachusetts courts read

"rascality;"

where the

claim--we

For Knapp to prevail, it

a phrase that the

ch. 93A

case

the

showing

is

involves arm's-length

sophisticated

business

entities.

Anthony's Pier Four, Inc. v. HBC Assocs., 583 N.E.2d 806, 821
_________________________
___________

(Mass. 1991).

The crux of Knapp's argument

that there

were problems with its

failed to make

judge

is that Sylvania was aware

the needed

held, there was

manufacturing process and

changes.

no evidence at

But

as the

magistrate

trial that Sylvania's

failure to improve the quality of its shoes was deliberate or

willful; on the contrary, it made repeated efforts on its own

and in consultation with Knapp to correct perceived problems.

Knapp's claim

for multiple

damages and attorney's

fees was

therefore properly denied.

B.

Revocation and Rejection Remedies

_________________________________

Even if liability is based only on counts 3 and 4, Knapp

argues on appeal that the magistrate judge nevertheless erred

-23-23-

in determining the remedies available to it.

It says that he

improperly

denied

"revocation

acceptance"

(with

"rejection" (with

to

Knapp

respect

remedies

to

all

of

prior

respect to the shipment

and that these errors

shipments)

of

and

of February 1990)

led him into a further

error, namely,

to direct his damage assessment only to those

shoes actually

shown to be defective.

Revocation of Acceptance as to All Shoes.

_________________________________________

argues

that

inventory

it

is entitled

purchased

to

revoke

Knapp

acceptance

from Sylvania--including

first

of all

non-defective

shoes--because the rate of defects was

impossible

so high as to make it

for Knapp to sell shoes from that inventory.

The

magistrate judge rejected this remedy because he found a very

low rate of defects.

Although this finding is not adequately

supported, see IV(C) below, we agree with the

___

Knapp

failed

to

make

acceptance under UCC

an

effective

result because

revocation

buyer forfeits the right to "reject"

2-607.

However, a

under UCC

(1)
or

its

2-608.

When a buyer "accepts" goods, as defined in UCC

the

of

buyer may be able to

2-606,

the tender.

"revoke acceptance"

2-608 as follows:

The buyer
commercial

may revoke his acceptance of

unit

substantially impairs

whose

its value

UCC

a lot

non-conformity
to him if

he has

accepted it
(a) on the reasonable assumption that its nonconformity

would

be cured

and

it

has not

been

seasonably cured; or
(b) without discovery

of such

non-conformity

-24-24-

if his acceptance was reasonably

induced either by

the difficulty of discovery before acceptance or by

the seller's assurances.
(2)

Revocation of acceptance must

occur within a

reasonable time after the buyer discovers or should

have discovered
substantial
is

the ground

for it and

before any

change in condition of the goods which

not caused

by their

effective until

own defects.

the buyer

It

is not

notifies the seller

of

it.

The buyer

who revokes has

the same rights and

the buyer had rejected the goods.

Knapp

argues

section 2-608

that

(1)(b).

were hard to discover

visible

inspection

this

It

UCC

case

2-608.

falls

says that the

squarely

that

it

within

sole-bond problems

because they could not be

and

duties as if

reasonably

detected by

relied

upon

Sylvania's assurances that it had corrected the bond problem.

Knapp

cites

to

S & R Metals, Inc.

_____________________

v.

C. Itoh & Co.

_______________

(America), 859 F.2d 814 (9th Cir. 1988), as authority for the
_________

view

that

a buyer

can

revoke

acceptance

when the

prior

acceptance was made

without knowledge of the

defect and the

defect was "latent and difficult to discover."

The difficulty with Knapp's position is that by mid-1988

it had ample knowledge

separation, and

that customers were complaining about

its own experience

was not successfully solving

itself points

confirmed that

the underlying problems.

to pull-tests done

in 1988 which,

prove that Sylvania's manufacturing

not

until spring

1990--the

Sylvania

precise

it argues,

process was flawed.

date is

Knapp

Yet

disputed--did

Knapp purport to revoke acceptance for all shoes delivered to

-25-25-

it over the entire period.

This is not a

time" after

revocation occurring within "a reasonable

the buyer

discovered the ground

for rejection,

and the contrast between the present facts and those of S & R
_____

Metals underscores the point.

______

reason to

doubt the quality

In that case, the buyer had no

of the

steel until

complaints

were received; advance testing

would have been expensive and

destroyed the valuable product

tested; and the revocation of

acceptance

was made

within nine days after the

__________

been discovered

and confirmed.

817.

in this

Nothing

Knapp,5

suggests that

vast number of

defects

S & R Metals, 859 F.2d

_____________

decision,

a buyer

or

any

can accept

items over a period of a year

then suddenly revoke the

whose presence

defect had

other cited

by

deliveries of

and a half and

acceptance of all of them

was

known or

at

based on

suspected during

the

entire period.

Rejection of the February 1990 Shipment.

____________________________________________

narrower and

stronger claim

rejected the

single shipment

1990.

Section 2-601

by Knapp

is

that it

of shoes received

of the UCC

provides that

much

properly

in February

if goods or

____________________

5In Fortin
______
(Mass. 1977),
buyer to

v.

Ox Bow Marina, Inc., 557

_____________________

also cited

by

Knapp, the

revoke acceptance of

N.E.2d

court allowed

a boat delivered

1157
the

four months

earlier when the seller had provided repeated assurances that

it would cure the identified

defects in the boat.

involved a different problem--a

item

already

delivered--and

The

case

promise to repair a specific

is

provision (section 2-608(1)(a)).

-26-26-

governed

by

different

tender fail to "conform" to the

may

reject the whole

within

delivery;6 but this

reasonable time,

notify the seller

magistrate judge

parties' contract, the buyer

and

the

buyer must

of the rejection.

found that Knapp

February shipment

rejection must be

UCC

seasonably

2-602(1).

failed to prove

was nonconforming, and further

The

that the

found that

Knapp's rejection was untimely.

Knapp

because

insists

all of

that

the

shoes in

inasmuch as they could

Knapp's key

The

witness on

magistrate

by

the

shipment

the

was

nonconforming

shipment were

be pulled apart manually.

this issue, so

judge made

Crabtree's testimony,

affected

the

clear

that

judge's

Crabtree,

testified at

he did

but this appraisal may

magistrate

defective

not

trial.

accept

well have been

mistaken

finding

on

limitation of remedies:

that

the

procedure

established

only

customer returns

judge found

in

Crabtree also testified to

of

return

mid-1988

of

customer

and that

were discarded, a fact

surprising in

view of the

the fact

defects

was

that

time

before

that the magistrate

"clear understanding

between the parties."

Knapp did

carry out

a prompt

inspection of

the shoes

____________________

6To

permit

rejection

nonconformity, Knapp
defective

shoes

had to

but that

of

the

show not
the defect

entire

shipment

for

just that

there were

rate was

higher than

agreed upon or, lacking specific agreement, than the standard

in the industry.

See
___

Agoos Kid. Co.

______________

Corp., 184 N.E. 279, 281 (Mass. 1932).

_____

-27-

v. Blumenthal Import
__________________

-27-

that

arrived

immediately

in

the

February

to Pearlstein

that the

defective, and sent him a case

the formal "rejection"

judge

actions

found that

were

1990

shipment,

shoes were

certainly

100 percent

for his own inspection.

occurred is disputed--the

it did

complained

not occur

consistent

magistrate

until May--but

with

its

When

Knapp's

claim

of

substantial defects and

represented steps toward

It immediately placed the seller

rejection.

on notice that the

defects

were pervasive and began to negotiate the seller's response.

The magistrate judge chose to credit fully the testimony

of Pearlstein,

Sylvania's president,

to the effect

that no

shoes from the sample case sent by Knapp to Sylvania from the

February

Knapp

shipment separated.

witnesses

who

But quite

supported

Crabtree,

employees--Elliott and Cartwright--both

some of the

find

shoes could be

it hard to

"plaintiff has

evidence

other

other

Sylvania
________

agreed that at least

pulled apart by

accept the magistrate

apart from

hand.

Thus

we

judge's finding that

failed to establish by a preponderance of the

that any of the

lot--failed to conform."7

shoes--much less the

whole of the

This court finds

clear error only where,

"on the whole

____________________

7The

magistrate

test is not standard

judge suggested

that the

in the industry and that

"hand" pull
evidence that

shoes could be pulled apart by hand did not necessarily prove

them defective.
at

Common sense, buttressed

by ample evidence

trial, confirms that an industrial work shoe is defective

where it can readily be pulled apart by hand.

-28-28-

of

the record,

mistake

902

we form

has been made."

F.2d 148, 152 (1st

this

instance, we

clearly in error

was

a strong

unyielding belief

Cumpiano v.
________

Banco Santander P.R.,

____________________

Cir. 1990) (citations

conclude

that the

in finding that the

that a

omitted).

magistrate judge

was

February 1990 shipment

free of defects and conformed to industry standard.

question whether Knapp gave

but we

need

rightfully

practical

With the

not resolve

rejected

impact

the

issue because

nonconforming

damages to

magistrate judge's

side, Knapp's

The

prompt notice is more difficult,

the

on the

In

whether

shipment

which it

finding on defects

ordinary damages

as to the

Knapp

has

no

is entitled.

set to

one

February shipment

produce essentially the same amount as it would receive under

the "rejection" remedy.

See IV(C) below.

___

C.

Knapp's damage

Damages
_______

claims

were based

upon its

that Sylvania shoes suffered from a very

defects.

In his

involved

in

Knapp argues

rate

rate of defects in the

this litigation

on appeal

finding was

substantial rate of

final damages calculation,

judge found that the

was

less

erroneous, and

the magistrate

inventory shoes

than four

that the magistrate

clearly

allegation

percent.

judge's defect-

insists that

the

evidence established a defect rate of at least 40 percent for

the shoes remaining in inventory at Knapp.

magistrate judge's

We think that the

finding is clearly erroneous

and that on

-29-29-

this record the

40 percent

figure is

the only

alternative

choice.

Knapp's allegations

shoes remaining

testimony by

in

of substantial defect

inventory

Crabtree; by

were

supported

rates in the

by

detailed

corroborating testimony of

other

Knapp personnel; by evidence of substantial customer returns,

dissatisfaction

and cancelled

customers

testified;

defective

shoes

returns

Knapp and

and,

held

acknowledged

magistrate's

by

testimony

by Knapp

by

customers threw

by

that

plus

Sylvania

3-to-4 percent

finally,

relationships

was

the

to

the

which

the

number

of

number

nearly

finding; by evidence

of prior

twice

that both

away additional defective

fairly detailed

sampling

the

study

shoes;

that

appearedto establish a defect rate of at least 41.7 percent.8

In adopting

the 3-to-4 percent defect

magistrate judge accepted the

(both

disaffected former

personnel, to the effect

problem with Sylvania

rate figure, the

testimony of Esser and Sprague

Knapp

employees) and

of Sylvania

that there was never a

substantial

shoes.

He

disregarded Crabtree as

liar; and he dismissed

customer testimony as not necessarily

____________________

8A

biostatistician analyzed

performed

on

inventory.
percent

randomly selected
Using a 20-pound

that

"we

of shoes in

have a

pairs

of

Given the

of pull-tests

unused shoes

figure for the

of the shoes failed.

and the number

the results

pull-tests, 60

sample size tested

inventory, the expert

95 percent

level

actual proportion of defective

of confidence

concluded
that the

pairs in the inventory .

is at least 41.7 percent."

-30-30-

in

. .

relating to

Sylvania shoes but rather

in Taiwan.

He found the pull tests

that Knapp

failure

had failed to

to shoes manufactured

inconclusive, insisting

present evidence that

a pull-test

at under 20 pounds showed that a shoe was defective.

He refused

to believe

Knapp's accounting

of the

number of

defective shoes in inventory.

Under

the

Cumpiano
________

standard,

we

reject

as

clearly

erroneous the magistrate judge's assessment of the percentage

of

defects in the Sylvania shoes.

why his

We have already explained

related appraisal of testimony

the February

1990 shipment

regarding quality of

is unpersuasive, see
___

IV(B), and

this is equally so

inventory.

Knapp

on the broader question of

Knapp's claims

but from

defects came

customers disinterested

from the

presence in

returned

to

independent

of

from

experts--the last

the

of

not only

in the

inventory of defective

Knapp, and

the remaining

from

litigation,

shoes actually

pull-tests conducted

which sampled

by

the entire

remaining Knapp inventory in the contested models.

The notion that any

___

foreign sources

rests on

of these defective shoes

came from

doubtful evidence; but,

given the

poor quality

of the

Sylvania, it

is obvious that foreign sources

away

the problem.

February 1990 shipment

From the

testimony

admittedly from

do not explain

on pull-tests,

appears that the 20-pound figure that Knapp asked

it

the expert

to

employ was not only

plausible but conservative.

Knapp's

-31-31-

accounting of the number of defective

was

essentially uncontradicted.

overwhelming

that the

defect

shoes in its inventory

In sum,

rate was

the evidence

is

considerably higher

than the rate adopted by the magistrate judge.

Each side had its chance to present evidence and neither

side is entitled to introduce further evidence on this issue.

On the present

claim

record the stark choice is between Sylvania's

that defects were

no greater than

evidence to the contrary.

The Knapp evidence was that it had

6,045 known

defective pairs in

returned by

customers, the

February 1990

inspection

shipment and

of inventory,

inventory 21,010

litigation, at

new shoes

least 41.7

normal and Knapp's

inventory, comprising

1,422 pairs torn-apart

other shoes pulled

from the

apart during

and--in addition--that

of the

it had

models involved

percent of which

shoes

in

in this

the statistical

sampling showed to be defective.

The

evidence

as

to

essentially uncontradicted

raw

numbers

even though the

in

inventory

was

magistrate judge

declined

study,

to

the

conservative

percent

accept the

20-pound

numbers.

pull-test

standard based

figure even

As

was (as

on the

more so.

in inventory.

"Where, as

the statistical

already

noted)

evidence; and

Sylvania

contest its liability for defective

for

has chosen

the 41.7

not to

shoes no matter how long

here, the record

is sufficiently

developed that we can apply the law to the facts before us

-32-32-

. that route is available to

F.2d 934, 943 (1st Cir. 1992).

Knapp

has

proved

the

us."

We take it here and find that

raw figures

discussed, any other conclusion

Lipsett v. Blanco, 975

_______
______

and

defect

rate

just

on this record being clearly

erroneous.

As

for the

cost

of

the

shoes,

we

agree

with

the

magistrate judge that the most accurate figure is the average

price

of the shoes

"Fifo

average cost."9

figures

purchased by Knapp,

Using

rather than Knapp's

the magistrate

judge's price

for each model and applying that price to the larger

number of defective shoes that we have found to be present in

Knapp's

inventory

damages

for

(14,806),

defective

we

shoes

have

as

calculated

Knapp's

$338,138.31.

The

calculations, by model number, are set forth in Appendix A.

Knapp argues that

of defective shoes

useless to it

regardless of the precise

in its

because the number of

allow Knapp

to deliver the

that

will

they

fall

essentially attempting

revocation of

inventory, all of

the shoes

defects is too high

shoes to customers

apart

on

to invoke

percentage

their

to

without fear

feet.

through the back

acceptance remedy that Knapp

are

Knapp

is

door the

failed to invoke

____________________

9Even

if we were to accept (as the magistrate judge did

not) that Knapp maintained a strict Fifo inventory procedure,

some

of

the new

shoes in

Knapp's Brockton

warehouse were

returned from field warehouses; some may have been from early
shipments, and the average

price figure therefore appears to

us to be the better measure.

-33-33-

in

a timely manner.

value

of

the

Whatever decrease Knapp has suffered in

non-defective

shoes,

Knapp

inflicted

this

decrease on itself when it accepted the deliveries and failed

to revoke that acceptance within a reasonable time.

Knapp

damages,

and

also

claimed

detailed

some of which were granted

list

of

by the magistrate judge

are not challenged by Sylvania on appeal.

that it is

issued to

also entitled

incidental

to reimbursement for

Knapp insists

a credit

it

Federal Express and for storage costs beyond those

granted by the magistrate judge.

The magistrate judge found

that

that

Knapp

had failed

credit from Sylvania or

to prove

it had

not received

replacements for the defective shoes

for which Federal Express demanded and received credit.

We agree

represented

Knapp will be

the actually

that Knapp

failed to

actual damages.10

credited only for

As

prove that

to the

this credit

storage charges,

the amount attributable

defective shoes, as the

to

magistrate judge held,

but that amount

is increased

to $4,146 to

account for

the

enlarged number of defective shoes determined on this appeal.

The

result is achieved

by using the

magistrate judge's own

____________________

its

10It is apparently undisputed

that Knapp gave credit to

customer Federal

resolve complaints

defective

shoes.

uncertain whether
had

to

Nevertheless,

the

evidence

about

left

it

some of the shoes reflected in this figure

already been returned by Knapp to Sylvania or were among

shoes

in Knapp's

reflected
on

Express

inventory, damages

for which

in the calculations in Appendix A.

are already

The burden was

Knapp to show actual damages without double counting, and

it failed to do so.

-34-34-

formula set forth in his March 1, 1995, decision.

Knapp further claims that it is entitled to lost profits

from the

shoes in inventory it

lost profits,

could not sell.

the plaintiff must show by

To recover

a preponderance of

the evidence that

the actionable breach caused

that the loss was

foreseeable and calculable with reasonable

certainty.

Matsushita Electric Corp.

__________________________

N.E.2d 880,

890

shipments,

that it

(Mass. 1972).

Knapp's claim

had an urgent

For

v. Sonus Corp., 284

____________

the pre-February

is hopeless.

need for any

the loss and

Knapp did

1990

not show

of that inventory,

nor

justify its

knowledge

failure to obtain alternative

of persisting

problems.

See
___

sources given its

UCC

2-715(2)(a)

(consequential damages include only those losses "which could

not reasonably be prevented by cover or otherwise").

With respect to the February 1990 shipment, the issue is

closer, because

Knapp established

at trial

urgent need for that inventory; the quality

was

even

lower

than

earlier

shipments;

that it had

an

of that shipment

and

Sebastiao

testified that Knapp lost orders because it could not deliver

these

shoes.

On

the other hand,

Sylvania shoes suffered from

Knapp was

on notice that

a high rate of defects,

failure

to switch

to other, more

earlier

date is hard to justify.

reliable suppliers

so its

at an

Knapp knew or should have

known

that it might well get defective shoes in the February

shipment, and

it chose

to take

that risk.

We

affirm the

-35-35-

magistrate

judge's

finding

that

lost

appeal

its

profits

are

not

appropriately awarded.

Knapp

also

presses on

broader claim

for

consequential

testimony

damages.

It

that because

of

presented

the defective

future profits

of $2,895,326 that

other
_____

to

sales

dissatisfaction

showed

customers

with

its product.

that its relationships

irretrievably damaged.

could

by

who

at

trial

shoes Knapp

it would have

left

Its

expert

lost

enjoyed on

Knapp

out

of

evidence certainly

with important customers were

But it is

equally clear that

Knapp

have minimized the damage through reasonable diligence

increasing its

inspections

and, to

the extent

needed,

finding alternative suppliers.

Although Sylvania

goods and must reimburse

defective,

was at fault for

supplying defective

Knapp for those goods proved

Knapp cannot recover for

to be

any larger harm done to

its

own

reputation and

principle

is well

customer

settled that

relations.

The

a party cannot

general

recover for

harms that its own reasonable precautions would have avoided.

Columbia Novelty Co.

_____________________

Serv.

(Callaghan) 679, 679 (N.Y.

715(2)(a).

simply

quality

v. Leslie Dawn, Inc., 6

___________________

To permit such

reward Knapp

control,

for

and

magistrate judge's order

bad

App. Term 1969);

a recovery on

its own

U.C.C. Rep.

lack

judgment.

2-

this record would

of attention,

In

addition,

terminating the injunction

-36-36-

UCC

poor

the

against

Sylvania, as entered on May 31, 1991 and amended

1991,

on June 10,

is vacated; the magistrate judge is free to reduce the

amount embargoed to the net

interest.

award plus anticipated costs and

-37-37-

CONCLUSION

In summary, Knapp is entitled to damages as follows:

Cost of Defective Inventory:

$338,138.31

Storage Costs:

$4.146.00

Unpaid Credits:

$92,472.97

Credit to Miami Hilton:

$9,250.00

Refund to Marriott:

$3,194.54

Price concessions to Federal Express:

$11,096.25

Replacement shoes supplied to Hilton:

$6,401.20

Increased inspection costs:

$4,167.30

Freight charges:

$6,877.60

Travel expenses:

$1,793.92

Total

The

$477,538.09

first

corrections

determined by

has

two

explained

in the

are adjusted

opinion;

the magistrate judge in

not appealed.

Sylvania

entries

The award

against

the

to

reflect

the

others are

as

rulings that Sylvania

Knapp in

favor

of

for unpaid bills, in the amount of $223,626.47, has

also

not

been

challenged

on

appeal

and

so

stands

as

previously entered.

On

remand, the

judgment

should be

modified to

award

$477,538.09 to Knapp and $223,626.47 to Sylvania, so that the

net

award

$253,911.62.

is

now

in

Knapp's

It is so ordered.
________________

-38-38-

favor

in

the

amount

of

Appendix A

Style

Defects New

x41.7%

Total

Ave Cost

Cost

1244

150

199

83

233

18.20

4,240.60

1245

63

189

79

142

23.75

3,372.50

1251

493

509

212

705

21.65

15,263.25

1257

111

402

168

279

26.25

7,323.75

2600

914

765

319

1,233

24.25

29,900.25

2601

47

60

25

72

25.75

1,854.00

2605

578

2,034

848

1,426

26.75

38,145.50

2660

485

1,926

803

1,288

23.25

29,946.00

2665

654

955

398

1,052

22.00

23,144.00

2670

464

599

250

714

27.90

19,920.60

2675

566

404

168

734

27.90

20,478.60

2810

514

2,438

1,017

1,531

21.91

33,544.21

2814

53

1,474

615

668

18.75

12,525.00

2815

51

1,311

547

598

22.10

13,215.80

2816

26

87

36

62

22.10

1,370.20

2840

125

548

229

354

27.40

9,699.60

2845

136

1,538

641

777

27.30

21,212.10

2916

39

264

110

149

18.75

2,793.75

2930

339

3,968

1,655

1,994

17.25

34,396.50

2935

211

1,302

543

754

19.90

15,004.60

2950

38

16

17

18.75

318.75

2955
____

25
__

0
_

25
__

25
__

18.75
_____

468.75
______

Total 6,045

21,010

8,761 14,806

338,138.31

The first column refers

to the Knapp shoe style

second

the number of

customer returns plus

apart by Knapp personnel

in Knapp's inventory;

column sets out

shoes pulled
the

third column

inventory; the
shoes among

sets

out

fourth column

the

number

of

gives the number

the new shoes, based on

number; the

new

shoes

in

of defective

the statistical survey;

the fifth column gives the total number of defective shoes in

Knapp's inventory;

the sixth column gives

the average price

for each style; the last column gives the price paid by Knapp
for defective shoes still in inventory.

-39-39-