E-Alert Case Updates

Plaintiff Only Awarded Nominal Damages in Breach of Contract Case

Natural Product Solutions, LLC v. Vitaquest International, LLC
No. CCB-13-436, (D. Md., November 13, 2014)
by Colleen K. O’Brien, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.mdd.uscourts.gov/Opinions/Opinions/Natural%20Product%20Solutions,
%20LLC%2013%20Nov%2014.pdf

In Natural Product Solutions, LLC v. Vitaquest International, LLC, No. CCB-13-436 (D. Md., November 13, 2014), Plaintiff Natural Product Solutions, LLC (“NPS”) filed an action against Defendant Vitaquest International, LLC (“Vitaquest”) alleging breach of contract and negligence arising out of an error Vitaquest made while fulfilling one of NPS’s purchase orders. The parties filed cross-motions for summary judgment. The Court granted in part, and denied in part, both motions; the Court entered judgment in favor of Plaintiff for breach of contract, but only awarded nominal damages in the amount of $1.00, and entered judgment in favor of the Defendant on Plaintiff’s negligence count.

The dispute arose out of a purchase order gone wrong. Plaintiff NPS develops, markets, and distributes vitamins and dietary supplements, including VirMax, the product relevant to this dispute. NPS contracted with Defendant Vitaquest to manufacture the supplements. NPS further entered into a distribution agreement with Pharma Guri, Ltd. (“Pharma Guri”), whereby Pharma Guri became the exclusive distributor of VirMax in Israel. NPS would place purchase orders with Vitaquest on Pharma Guri’s behalf. This dispute concerned Defendant Vitaquest’s performance under Purchase Order 688.

With respect to Purchase Order 688, Plaintiff NPS sought 137 cartons of kosher VirMax for production and delivery to Pharma Guri in Israel. Defendant Vitaquest made an error during the course of performance and accidentally shipped 101 cartons of kosher VirMax and 36 cartons of an unrelated product, to Pharma Guri.

The shipping error triggered an assortment of issues according to Plaintiff. Because the shipment’s contents differed from the shipping documents, Israeli customs detained the shipment, and Pharma Guri was accused of smuggling products into Israel. Plaintiff had to indemnify Pharma Guri for the incidental customs, legal, and freight costs associated with the shipping mistake. NPS also alleged that it lost several future orders with accompanying lost profits of $182,520, that Pharma Guri would have placed with NPS, but for Vitaquest’s shipping error. Vitaquest argued that NPS took after-the-fact steps to inflate its damages and failed to mitigate those damages, despite Vitaquest’s offer to ship replacement product to Pharma Guri at no cost.

After discovery, the parties filed cross-motions for summary judgment as to breach of contract and negligence. Plaintiff alleged that Defendant breached two (2) contracts: 1) Purchase Order 688 and 2) an ongoing supply agreement. Defendant disputed an ongoing supply agreement contract with Plaintiff. The Court agreed that there was no verbal supply contract between the parties, and found that each purchase order constituted a separate contract. Even if a verbal ongoing supply contract had been created, a valid contract was not formed because there was no mutual assent, definite terms, or sufficient consideration. Further, the putative oral contract did not comply with Maryland’s statute of frauds as it required signature by Defendant to be enforceable against Defendant. Therefore, there was no breach of any ongoing supply agreement because no such contract existed. It was undisputed, however, that Defendant breached the purchase order 688 contract through the inadvertent packing mistake. Defendant claimed that Plaintiff suffered no damages from the error, however. The Court, which was considering this issue on summary judgment, agreed and awarded nominal damages only.

The Court first considered whether Plaintiff was entitled to general damages, “those which may fairly and reasonably be considered as arising naturally from the breach” itself. Here, Plaintiff may have been entitled to the difference between the price it would have received per unit from Pharma Guri and the cost to produce each unit, multiplied by the number of missing units (equaling $12,989.08), however, no such award was made because the Defendant had previously credited Plaintiff’s account with more than this amount (approximately $19,000), which made Plaintiff “whole.” Further, Defendant showed that Plaintiff failed to mitigate its damages by refusing to accept the missing 36 cartons of kosher VirMax that Vitaquest offered to ship, at its own expense, to Pharma Guri.

The Court next considered whether Plaintiff was entitled to special damages, in the form of collateral lost profits totaling $182,520, from two (2) future purchase orders Plaintiff alleged it would have received from Pharma Guri but for Defendant’s breach of Purchase Order 688. The Court did not award these lost profit damages because they were not forseeable or reasonably certain. The sole “proof” that Pharma Guri would have placed additional orders from Plaintiff was “a single post hoc declaration solicited from Pharma Guri.” Therefore, Plaintiff’s alleged lost profits were too “speculative, hypothetical, remote, [and] contingent” to be recoverable damages.

Finally, turning to the negligence count, the Court awarded judgment in favor of the Defendant, because Maryland law does not allow a party to pursue a negligence tort claim arising solely out of a breach of contract under the economic loss rule. Further, Plaintiff did not demonstrate that Defendant owed Plaintiff any tort duty.

Accordingly, the Court granted in part, and denied in part, the cross-motions for summary judgment. The Court entered judgment in favor of Plaintiff for breach of contract, but only awarded nominal damages in the amount of $1.00, and entered judgment in favor of the Defendant on Plaintiff’s negligence count.