Case 10(2) Treibacher

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CISG CASE PRESENTATION

United States 12 September 2006 Federal Appellate Court [11th Circuit] (Treibacher Industrie,A.G. v. Allegheny Technologies, Inc.)[Cite as: http://cisgw3.law.pace.edu/cases/060912u1.html]

Primary source(s) of information for case presentation: Case text

Case Table of Contents

Case identification UNCITRAL abstract Classification of issues present Editorial remarks Citations to case abstracts, texts, and commentaries Case text

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Case identification

DATE OF DECISION:20060912 (12 September 2006)

JURISDICTION:United States [federal court]

TRIBUNAL:U.S. Court of Appeals (11th Circuit) [federal appellate court]

JUDGE(S):Tjoflat, Pryor and George

CASE NUMBER/DOCKET NUMBER:05-13995

CASE NAME:Treibacher Industrie, A.G. v. Allegheny Technologies, Inc.

CASE HISTORY:1st instance U.S. District Court, Northern District of Alabama 27 April 2005[affirmed]; see District Court presentation for citations to Appellate briefs

SELLER'S COUNTRY:Austria (plaintiff)

BUYER'S COUNTRY:United States (defendant)

GOODS INVOLVED:Tantalum carbide

Page 1 of 8United States 12 September 2006 Federal Appellate Court [11th Circuit] (Treibacher I...

11/29/2013http://cisgw3.law.pace.edu/cases/060912u1.html


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Case abstract

UNITED STATES: Federal Circuit Court of Appeals (11th Circuit) 12 September 2006(Treibacher Industrie, A.G. v. Allegheny Technologies, Inc.)

Case law on UNCITRAL texts (CLOUT) abstract no. 777

Reproduced with permission of UNCITRAL

Abstract prepared by John H. Rooney, Jr.

An Austrian supplier and a United States buyer located in Alabama entered into a series ofcontracts for the purchase of a chemical compound for "consignment". Each contract specified theamount of compound that would be delivered to the buyer. For all contracts preceding thecontracts in dispute, the buyer had purchased the entire compound delivered by the supplier, andon one occasion had desisted from an attempt to return unused compound. The buyer, during theterms of the two contracts in dispute, notified the supplier that it would not be taking additionaldelivery of compound and would not be paying for compound that had been delivered but notused. Unknown to the supplier, the buyer had found a less expensive source for compound. Thesupplier found an alternate buyer for the compound, but at a lower cost. It then filed suit to recoverthe amount the buyer should have paid if it had taken delivery of all of the powder indicated in thecontracts.

The supplier and the buyer disagreed as to the meaning of the delivery term "consignment".According to the buyer's expert, in the metals industry "consignment" meant that no sale occurreduntil the compound was actually used by the buyer. The supplier provided evidence of course ofdealing between the parties to establish that "consignment" meant that the buyer had the obligationto pay for all of the compound delivered, but that the buyer would not be billed until thecompound was actually used by it.

Applying the CISG, the lower judge found that "evidence of the parties' interpretation of the termin their course of dealings trumped evidence of the term's customary usage in the industry," andfound that the buyer was obligated to purchase all compound delivered pursuant to the contractand was condemned to pay the price.

The buyer appealed, arguing that under the CISG a term in a contract should be interpretedaccording to its customary usage "unless the parties have expressly agreed to another usage." The

buyer also argued that the parties in their course of dealing did not require the buyer "to use andpay for all of the [compound] specified in each contract." Finally, it argued that the lower courtincorrectly found that the supplier had properly mitigated its damages.

The appellate court affirmed the judgment of the lower court in all respects.

First, the appellate court confirmed the applicability of the CISG, since the United States andAustria were contracting States of the Convention (articles 1 and CISG). The appellate courtframed the issue of breach of contract as governed by article 9 of the CISG, as informed by article8.

The appellate court noted that article 8, which governs the interpretation of the parties' statementsand conduct, dealt separately with the situation in which the actual intent of a party is known tothe other party and when the actual intent is not known. The court concluded that when actualintent is not known, article 8 imposes a reasonable person standard. Article 8(3) identifies thesources for determining a party's actual intent, "including the negotiations, any practices which the

parties have established between themselves, usages and any subsequent conduct of the parties."




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The buyer argued that article 9 requires the express agreement of the parties for usage between theparties to prime customary usage in the industry. Specifically, it argued that article 9(2) requiredthat the parties expressly agree not to be bound by customary usage. In support, it cited the portionof article 9(1) that obligates the parties to "any usage to which they have agreed and by any

practices which they have established between themselves." The buyer also argued that when thisdefinition is applied to article 9(2), the contract terms should "be interpreted according to

customary usage" unless the parties agree to the contrary.

The appellate court found that the buyer's interpretation would render article 8(3) and the latterportion of article 9(1) nullities.

The latter part of article 9(1) would be rendered void because the parties would no longer begoverned by "any practices which they have established between themselves." In rejecting the

buyer's interpretation of article 9(2), the appellate court stated that the parties' usage of a term intheir course of dealings controls that term's meaning in the face of a conflicting customary usageof the term".

The appellate court noted that it was not disputed that the parties had entered into a series ofcontracts for supply of the chemical compounds between 1993 and 2000. All contracts were forspecific quantities of compound, and were for "consignment", compound was segregated by the

buyer, who provided monthly "usage reports" to the supplier. The usage reports were used toinvoice the buyer for compound as it was used. All compound delivered to the buyer had beenused and paid for by it for all contracts entered into prior to the two contracts in dispute.

The appellate court also noted that the buyer had in the past acted as if it was obligated topurchase all compound delivered in accordance with the contracts.

The appellate court finally found that the supplier did take reasonable steps to mitigate itsdamages, as required under article 77 of the CISG, as it had found a buyer for part of thecompound within 17 days of the buyer's notice. The court found that the article 77 placed the

burden on the buyer to prove the supplier's failure to mitigate, but that the buyer had presented noevidence showing a failure to mitigate.

The appellate court decided that the district court properly determined that, under the CISG, themeaning the parties ascribe to a contractual term in their course of dealings establishes themeaning of that term in the face of a conflicting customary usage of the term. The district courtwas not clearly erroneous in finding that the supplier and the buyer understood their contracts torequire the buyer to purchase the entire compound specified in each contract and that the suppliertook reasonable measures to mitigate its losses after the buyer's breach.

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Classification of issues present

APPLICATION OF CISG:Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue:Articles 8; 9; 14; 77[Also cited: Article 4]

Classification of issues using UNCITRAL classification code numbers:




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8C ; 8C2 ; 8C3 [Interpretation in light of surrounding circumstances; Practices established by theparties; Usages];

9B ; 9C [Implied agreement on international usage; Practices established by the parties];

77A [Obligation to take reasonable measures to mitigate damages]

Descriptors:Intent ; Usages and practices ; Mitigation of loss ; Burden of proof


Editorial remarks

Unavailable


Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English:Unilex database

CITATIONS TO TEXT OF DECISION

Original language(English): Text presented below; see also 464 F.3d 1235: 19 Fla. L. Weekly

Fed. C 1046 (11th Cir. (Ala.) Sep 12, 2006); 2006 WL 2595225 (11th Cir. (Ala.) Sep 12, 2006)Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

English:Keith A. Rowley, "The Convention on the International Sale of Goods", in: Hunter ed.,Modern Law of Contracts, Thomson/West (03/2007) 23:22, 23:24; Trevor Perea, Treibacher

Industrie, A.G. v. Allegheny Technologies, Inc.: A Perspective on the Lackluster

Implementation of the CISG by American Courts, 20 Pace International Law Review

(Spring 2008) 191-213

French:Claude Witz, Recueil Dalloz (23 October 2008) 2624-2625, 2630


Case text

United States Court of Appeals, Eleventh Circuit

Treibacher Industrie, A.G. v. Allegheny Technologies, Inc. et. al

No. 05-13005 D.C. Docket No. 01-02872-CV-HS-NE

12 September 2006




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Before Tjoflat and Pryor, Circuit Judges, and George,[*]District Judge.

Tjoflat, Circuit Judge:

I. A. This lawsuit arises out of two contracts, executed in November and December of 2000,respectively, whereby Treibacher Industrie, AG ("Treibacher"), an Austrian vendor of hard metal

powders, agreed to sell specified quantities of tantalum carbide ("TaC"), a hard metal powder, toTDY Industries, Inc. ("TDY") [1]for delivery to "consignment." TDY planned to use the TaC inmanufacturing tungsten-graded carbide powders [2]at its plant in Gurney, Alabama. After it hadreceived some of the amount of TaC specified in the November 2000 contract, TDY refused totake delivery of the balance of the TaC specified in both contracts, and, in a letter to Treibacherdated August 23, 2001, denied that it had a binding obligation to take delivery of or pay for anyTaC that it did not wish to use. Unbeknownst to Treibacher, TDY had purchased the TaC itneeded from another vendor at lower prices than those specified in its contracts with Treibacher.Treibacher eventually sold the quantities of TaC of which TDY refused to take delivery, but atlower prices than those specified in its contracts with TDY. Treibacher then filed suit againstTDY, seeking to recover the balance of the amount Treibacher would have received had TDY paid

for all of the TaC specified in the November and December 2000 contracts.[3]

On TDY's motion for summary judgment, the district court isolated Treibacher's claims from thecomplaint and granted the motion on all counts but Counts I and VI. The court, following a benchtrial, gave Treibacher judgment on Counts I and VI, awarding Treibacher $5,327,042.85. Since weaffirm the court's judgment on Count I, we need not review the court's disposition of Count VI.

The case proceeded to a bench trial, where TDY and Treibacher disputed the meaning of the term"consignment"-- the delivery term contained in both contracts. TDY introduced experts in themetal industry who testified that the term "consignment," according to its common usage in thetrade, meant that no sale occurred unless and until TDY actually used the TaC. Treibacher

introduced evidence of the parties' prior dealings to show that the parties, in their course ofdealings (extending over a seven-year period), understood the term "consignment" to mean thatTDY had a binding obligation to pay for all of the TaC specified in each contract but thatTreibacher would delay billing TDY for the materials until TDY had actually used them. Thedistrict court ruled that, under the United Nations Convention on Contracts for the InternationalSale of Goods ("CISG"), opened for signatureApril 11, 1980, S. Treaty Doc. No. 9, 98th Cong.,1st Sess. 22 (1983), 19 I.L.M. 671, reprinted at 15 U.S.C. app. (1997), evidence of the parties'interpretation of the term in their course of dealings trumped evidence of the term's customaryusage in the industry, and found that Treibacher and TDY, in their course of dealings, understoodthe term to mean "that a sale had occurred, but that invoices would be delayed until the materialswere withdrawn." [4]The court therefore entered judgment against TDY, awarding Treibacher

$5,327,042.85 in compensatory damages (including interest).

B. TDY now appeals. TDY contends that, under the CISG, a contract term should beconstrued according to its customary usage in the industry unless the parties have expressly agreedto another usage. TDY argues, in the alternative, that the district court erred in finding that, intheir course of dealings, Treibacher and TDY understood the term "consignment" to require TDYto use and pay for all of the TaC specified in each contract. Finally, TDY contends that, if weuphold the district court's ruling that TDY breached its contracts with Treibacher, we shouldremand the case for a new trial on damages on the ground that the district court erroneously foundthat Treibacher reasonably mitigated its damages.

Reviewing the district court's legal conclusions de novoand factual findings for clear error,Newellv. Prudential Ins. Co.,904 F.2d 644, 649 (11th Cir.1990), we hold that the district court properlyconstrued the contract under the CISG -- according to the parties' course of dealings -- and did not




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commit clear error in finding that the parties understood the contracts to require TDY to use all ofthe TaC specified in the contracts. As to the mitigation of damages issue, which we review forclear error,Bunge Corp. v. Freeport Marine Repair, Inc.,240 F.3d 919, 923 (11th Cir.2001), wefind that the evidence before the district court supported its finding that Treibacher's mitigationefforts were reasonable under the circumstances. We therefore affirm the judgment of the districtcourt.

II. A. We begin our analysis by discussing the CISG, which governs the formation of and rightsand obligations under contracts for the international sale of goods. CISG, arts. 1, 4.[5]Article 9 ofthe CISG provides the rules for interpreting the terms of contracts. Article 9(1) states that, "partiesare bound by any usage to which they have agreed and by any practices which they haveestablished between themselves." Article 9(2) then states that, "parties are considered, unlessotherwise agreed, to have impliedly made applicable to their contract ... a usage of which the

parties knew or ought to have known and which in international trade is widely known to ...parties to contracts of the type involved in the particular trade concerned." Article 8 of the CISGgoverns the interpretation of the parties' statements and conduct. A party's statements and conductare interpreted according to that party's actual intent "where the other party knew ... what that

intent was," CISG, art. 8(1), but, if the other party was unaware of that party's actual intent, then"according to the understanding that a reasonable person ... would have had in the samecircumstances," CISG, art. 8(2). To determine a party's actual intent, or a reasonable interpretationthereof, "due consideration is to be given to all relevant circumstances of the case including thenegotiations, any practices which the parties have established between themselves, usages and anysubsequent conduct of the parties." CISG, art. 8(3).

In arguing that a term's customary usage takes precedence over the parties' understanding of thatterm in their course of dealings, TDY seizes upon the language of article 9(2), which states that,"parties are considered, unless otherwise agreed, to have made applicable to their contract"customary trade usages. TDY contends that article 9(2) should be read to mean that, unless parties

to a contract expressly agree to the meaning of a term, the customary trade usage applies. Insupport of its argument, TDY points to the language of article (9)(1), which binds parties to "anyusage to which they have agreed and by any practices which they have established betweenthemselves." According to TDY, the drafters of the CISG, by separating the phrase "usages towhich they have agreed" from the phrase "practices which they have established betweenthemselves," intended the word "agreed," in article 9, to mean express agreement, as opposed totacit agreement by course of conduct. Applying this definition to the language of article 9(2), TDYcontends that contract terms should, in the absence of express agreement to their usage, beinterpreted according to customary usage, instead of the usage established between the partiesthrough their course of conduct.

TDY's construction of article 9 would, however, render article 8(3) superfluous and the latterportion of article 9(1) a nullity. The inclusion in article 8(3) of "any practices which the partieshave established between themselves," as a factor in interpreting the parties' statements andconduct, would be meaningless if a term's customary usage controlled that term's meaning in theface of a conflicting usage in the parties' course of dealings. The latter portion of article 9(1)would be void because the parties would no longer be "bound by any practices which they haveestablished between themselves." Instead, in the absence of an express agreement as to a term'smeaning, the parties would be bound by that term's customary usage, even if they had establisheda contrary usage in their course of dealings. We therefore reject TDY's interpretation of article 9(2), and, like the district court, adopt a reading that gives force to articles 8(3) and 9(1), namely,that the parties' usage of a term in their course of dealings controls that term's meaning in the face

of a conflicting customary usage of the term. Cf. Gonzalez v. McNary,980 F.2d 1418, 1420 (11thCir.1993) ("A statute should be construed so that effect is given to all its provisions, so that no partof it will be inoperative or superfluous, void or insignificant.").




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B. The district court did not commit clear error in finding that, in their course of dealings,TDY and Treibacher defined the term "consignment" to require TDY to accept and pay for all ofthe TaC specified in each contract. The parties do not dispute that they executed, between 1993and 2000, a series of contracts in which Treibacher agreed to sell certain hard metal powders, suchas TaC, to TDY. In each instance, TDY discussed its needs with Treibacher, after whichTreibacher and TDY executed a contract whereby Treibacher agreed to sell a fixed quantity of

materials at a fixed price for delivery to "consignment." Treibacher then delivered to TDY thespecified quantity of materials--sometimes in installments, depending upon TDY's needs.[6]TDYkept the materials it received from Treibacher in a "consignment store," where the materials werelabeled as being from Treibacher and segregated from other vendors' materials. As it withdrew thematerials from the consignment store for use, TDY published "usage reports," which documentedthe amounts of materials withdrawn. TDY sent the usage reports to Treibacher, and Treibacher, inturn, sent TDY invoices for the amounts of materials withdrawn at the price specified in therelevant contract. TDY then paid the invoices when they came due. In each instance, TDYultimately withdrew and paid for the full quantity of materials specified in each contract.

A particularly telling interaction, the existence of which the parties do not dispute, occurred in

February 2000, when a TDY employee, Conrad Atchley, sent an e-mail to his counterpart atTreibacher, Peter Hinterhofer, expressing TDY's desire to return unused portions of a hard metalpowder, titanium carbonitride ("TiCN"), which Treibacher had delivered. Hinterhofer telephonedAtchley in response and explained that TDY could not return the TiCN because TDY wascontractually obligated to purchase the materials; Treibacher had delivered the TiCN as part of aquantity of TiCN that it was obligated to provide TDY under a contract executed in December1999. Atchley told Hinterhofer that TDY would keep the TiCN. TDY subsequently used the TiCNand sent a usage report to Treibacher, for which Treibacher sent TDY an invoice, which TDY

paid. This interaction -- evidencing TDY's acquiescence in Treibacher's interpretation of thecontract -- along with TDY's practice, between 1993 and 2000, of using and paying for all of theTaC specified in each contract amply support the district court's finding that the parties, in their

course of dealings, construed their contracts to require TDY to use and pay for all of the TaCspecified in each contract.

C. With respect to damages, the district court did not commit clear error in finding thatTreibacher reasonably mitigated its damages. Article 77 of the CISG requires a party claiming

breach of contract to "take such measures as are reasonable in the circumstances to mitigate theloss." Article 77, however, places the burden on the breaching party to "claim a reduction in thedamages in the amount by which the loss should have been mitigated." Treibacher's CommercialDirector, Ulf Strumberger, and Hinterhofer testified that Treibacher sought to mitigate damages assoon as possible and ultimately obtained the highest prices possible for the quantity of TaC thatTDY refused; their first sale in mitigation occurred on September 9, 2001, seventeen days after the

date of TDY's letter denying its obligation to purchase all of the TaC. TDY, the party carrying theburden of proving Treibacher's failure to mitigate, presented no evidence showing that Treibacherdid not act reasonably. The district court therefore had no basis upon which to find that Treibacherdid not take reasonable steps to mitigate its losses.

III.In sum, the district court properly determined that, under the CISG, the meaning the partiesascribe to a contractual term in their course of dealings establishes the meaning of that term in theface of a conflicting customary usage of the term. The district court was not clearly erroneous infinding that Treibacher and TDY understood their contracts to require TDY to purchase all of theTaC specified in each contract and that Treibacher took reasonable measures to mitigate its lossesafter TDY breached. Accordingly, the judgment of the district court is

AFFIRMED.




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FOOTNOTES

* Honorable Lloyd D. George, United States District Judge for the District of Nevada, sitting bydesignation.

1. TDY, a California corporation, is a subsidiary of Allegheny Technologies, Inc., a Pennsylvaniacorporation, which produces various metals and metal-based products.

2. TaC is a component of tungsten-graded carbide powder, which is used to harden other metals.

3. Treibacher's complaint contains six counts. Count I is a claim for "Breach of Contract under theUnited Nations Convention on Contracts for the International Sale of Goods." Count II is a claimfor "Anticipatory Breach of Contract" under the same United Nations convention. Count III is aclaim for "Breach of Contract" under Alabama law. Count IV is a claim for "Moneys Owed andUnjust Enrichment" under Alabama law. Count V is a claim for "Conversion" under Alabama law.Count VI is a claim for "Misrepresentation," alleging that TDY misrepresented that it wouldaccept and pay for the goods Treibacher shipped to it. Counts II through VI incorporate byreference the allegations of all previous counts.

4. Although the parties presented conflicting evidence regarding the customary usage in theindustry of the term "consignment," the district court did not make a finding regarding thecustomary usage of the term because it found that the parties had established a meaning for theterm in their course of dealings, thus rendering customary usage irrelevant.

5. The parties do not dispute that the CISG governs their dispute. Article 1 of the CISG provides,in relevant part, that it "applies to contracts of sale of goods between parties whose places of

business are in different States ... when the States are Contracting States." The United States andAustria are contracting states. Article 4 of the CISG provides, in relevant part, that it "governs ...the formation of the contract and the rights and obligations of the seller and buyer arising fromsuch a contract." The parties dispute their respective "rights and obligations" under the contracts atissue in this case.

6. TDY would notify Treibacher as to when it wanted to take delivery of portions of the quantityof materials provided for in each contract.


Pace Law School Institute of International Commercial Law - Last updated January 9, 2009

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Case 10(2) Treibacher