SUPERL SEQUOIA LIMITED v. THE CARLSON CO. (August 11, 2010)

In preparation for a Martha Stewart promotion, Macy's solicited bids for the furniture required to create the promotion settings and its installation. Carlson Company, a Wisconsin furniture manufacturer, wanted to bid but lacked sufficient capacity. Superl Sequoia, a Hong Kong manufacturer, and Carlson agreed to work together. Sequoia agreed to provide most of the furniture -- Carlson agreed to install the furniture and to fix or replace furniture, as necessary. They also agreed to split the profits 50-50. Sequoia quoted a $3.4 million price to Carlson. Carlson marked up the quote, added its anticipated cost, and submitted a $5 million bid. Macy's accepted the bid, was satisfied with the work, and paid the invoice. Carlson only paid Sequoia $2 million, however, claiming that it spent more on replacements and repairs for late or substandard furniture than it had anticipated. Sequoia brought an action for breach of contract. Judge Crabb (W.D. Wis.) concluded that Sequoia breached the contract because of late and substandard deliveries and that Carlson could recover its replacement and repair costs. She then held a bench trial to calculate those costs. She disregarded the $3.4 million quote, instead demanding that Sequoia provide evidence of its actual costs. At trial, the court first concluded that Sequoia's costs were $2.2 million and that Carlson's were $.4 million -- entitling each to approximately $1.15 million in profit. But the court then added that Carlson was entitled to an additional $1.16 million to cover its extra expenses and entered judgment for Carlson for approximately $10,000. Sequoia appeals.

In their opinion, Chief Judge Easterbrook, Circuit Judge Kanne, and District Judge Kennelly vacated and remanded. The Court first concluded that the district court's calculations of damage amounts were not clearly erroneous. On the other hand, the Court questioned two legal decisions of the trial court. The first was the court's allowance of the $1.16 million in replacement and repair costs to Carlson, which was calculated to include overhead and profit. Although the agreement of the parties was documented in a group of e-mails without a formal contract, the Court concluded that the parties agreed that only Carlson's out-of-pocket repair and replacement costs were recoverable. The second legal decision addressed by the Court was the district court's treatment of the $3.4 million bid. Again interpreting a number of e-mails documenting the agreement with some difficulty, the Court disagreed with that treatment. First, the Court noted that Carlson accepted the quote long before the relevant e-mail exchange. The quote was the basis upon which Sequoia joined the venture -- Carlson cannot retroactively ignore it. Second, the quote was given as a fixed amount -- both the floor and the ceiling on Sequoia's costs. The later e-mails should not be viewed as fundamentally changing the structure of the deal. The Court remanded with instructions to the district court to recalculate the judgment.