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

                                                                                  [PUBLISH]

                  IN THE UNITED STATES COURT OF APPEALS

                            FOR THE ELEVENTH CIRCUIT          FILED
                                   ____________      U.S. COURT OF APPEALS
                                                                       ELEVENTH CIRCUIT
                                       No. 05-13005                    SEPTEMBER 12, 2006
                                      _____________                     THOMAS K. KAHN
                                                                            CLERK
                         D.C. Docket No. 01-02872-CV-HS-NE

TREIBACHER INDUSTRIE, A.G.,

                                                                  Plaintiff-Appellee,

                                            versus

ALLEGHENY TECHNOLOGIES, INC.,
a Pennsylvania corporation, et. al.,

                                                                  Defendants,

TDY INDUSTRIES, INC.,
                                                                 Defendant-Appellant.
                                      ______________

                      Appeal from the United States District Court
                         for the Northern District of Alabama
                                   _____________

                                   (September 12, 2006)

Before TJOFLAT and PRYOR, Circuit Judges, and GEORGE,* District Judge.

Tjoflat, Circuit Judge:

       *
          Honorable Lloyd D. George, United States District Judge for the District of Nevada,
sitting by designation.
                                                  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, to TDY Industries,

Inc. (“TDY”)1 for delivery to “consignment.” TDY planned to use the TaC in

manufacturing tungsten-graded carbide powders2 at its plant in Gurney, Alabama.

After it had received some of the amount of TaC specified in the November 2000

contract, TDY refused to take delivery of the balance of the TaC specified in both

contracts, and, in a letter to Treibacher dated August 23, 2001, denied that it had a

binding obligation to take delivery of or pay for any TaC that it did not wish to

use. Unbeknownst to Treibacher, TDY had purchased the TaC it needed 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 at lower prices than those specified in its contracts


          1
        TDY, a California corporation, is a subsidiary of Allegheny Technologies, Inc., a
Pennsylvania corporation, 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.

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with TDY. Treibacher then filed suit against TDY, 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

       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 the metal industry who testified that the

term “consignment,” according to its common usage in the trade, 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 of

dealings (extending over a seven-year period), understood the term “consignment”

to mean that TDY had a binding obligation to pay for all of the TaC specified in

each contract but that Treibacher would delay billing TDY for the materials until

TDY had actually used them. The district court ruled that, under the United

       3
          Treibacher’s complaint contains six counts. Count I is a claim for “Breach of Contract
under the United Nations Convention on Contracts for the International Sale of Goods.” Count II
is a claim for “Anticipatory Breach of Contract” under the same United Nations convention.
Count III is a claim for “Breach of Contract” under Alabama law. Count IV is a claim for
“Moneys Owed and Unjust 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 would accept and pay for the goods Treibacher shipped to it. Counts
II through VI incorporate by reference the allegations of all previous counts.
         On TDY’s motion for summary judgment, the district court isolated Treibacher’s claims
from the complaint and granted the motion on all counts but Counts I and VI. The court,
following a bench trial, gave Treibacher judgment on Counts I and VI, awarding Treibacher
$5,327,042.85. Since we affirm the court’s judgment on Count I, we need not review the court’s
disposition of Count VI.

                                               3
Nations Convention on Contracts for the International Sale of Goods (“CISG”),

opened for signature April 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 customary usage in the industry, and found that Treibacher and TDY, in

their course of dealings, understood the term to mean “that a sale had occurred, but

that invoices would be delayed until the materials were 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 be construed according to its customary usage in the industry unless the

parties have expressly agreed to another usage. TDY argues, in the alternative,

that the district court erred in finding that, in their course of dealings, Treibacher

and TDY understood the term “consignment” to require TDY to use and pay for

all of the TaC specified in each contract. Finally, TDY contends that, if we uphold



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

                                                4
the district court’s ruling that TDY breached its contracts with Treibacher, we

should remand the case for a new trial on damages on the ground that the district

court erroneously found that Treibacher reasonably mitigated its damages.

      Reviewing the district court’s legal conclusions de novo and factual

findings for clear error, Newell v. Prudential Ins. Co., 904 F.2d 644, 649 (11th Cir.

1990), we hold that the district court properly construed the contract under the

CISG – according to the parties’ course of dealings – and did not commit clear

error in finding that the parties understood the contracts to require TDY to use all

of the TaC specified in the contracts. As to the mitigation of damages issue,

which we review for clear error, Bunge Corp. v. Freeport Marine Repair, Inc., 240

F.3d 919, 923 (11th Cir. 2001), we find that the evidence before the district court

supported its finding that Treibacher’s mitigation efforts were reasonable under

the circumstances. We therefore affirm the judgment of the district court.

                                         II.

                                         A.

      We begin our analysis by discussing the CISG, which governs the formation

of and rights and obligations under contracts for the international sale of goods.




                                          5
CISG, arts. 1, 4.5 Article 9 of the CISG provides the rules for interpreting the

terms of contracts. Article 9(1) states that, “parties are bound by any usage to

which they have agreed and by any practices which they have established between

themselves.” Article 9(2) then states that, “parties are considered, unless

otherwise 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 CISG governs the interpretation of the parties’

statements and conduct. A party’s statements and conduct are 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 same circumstances,” CISG, art. 8(2). To determine a

party’s actual intent, or a reasonable interpretation thereof, “due consideration is to

be given to all relevant circumstances of the case including the negotiations, any


       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 and Austria 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 from such a contract.” The parties dispute their respective “rights and obligations” under
the contracts at issue in this case.

                                                 6
practices which the parties have established between themselves, usages and any

subsequent conduct of the parties.” CISG, art. 8(3).

      In arguing that a term’s customary usage takes precedence over the parties’

understanding of that term 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. In support of its argument, TDY points to the language of article (9)(1),

which binds parties to “any usage to which they have agreed and by any practices

which they have established between themselves.” According to TDY, the

drafters of the CISG, by separating the phrase “usages to which they have agreed”

from the phrase “practices which they have established between themselves,”

intended the word “agreed,” in article 9, to mean express agreement, as opposed to

tacit agreement by course of conduct. Applying this definition to the language of

article 9(2), TDY contends that contract terms should, in the absence of express

agreement to their usage, be interpreted according to customary usage, instead of

the usage established between the parties through their course of conduct.

      TDY’s construction of article 9 would, however, render article 8(3)

                                          7
superfluous and the latter portion of article 9(1) a nullity. The inclusion in article

8(3) of “any practices which the parties have established between themselves,” as

a factor in interpreting the parties’ statements and conduct, would be meaningless

if a term’s customary usage controlled that term’s meaning in the face 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 have established between themselves.” Instead, in the

absence of an express agreement as to a term’s meaning, the parties would be

bound by that term’s customary usage, even if they had established a 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 (11th Cir. 1993) (“A statute

should be construed so that effect is given to all its provisions, so that no part of it

will be inoperative or superfluous, void or insignificant.”).

                                           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

                                            8
to accept and pay for all of the TaC specified in each contract. The parties do not

dispute that they executed, between 1993 and 2000, a series of contracts in which

Treibacher agreed to sell certain hard metal powders, such as TaC, to TDY. In

each instance, TDY discussed its needs with Treibacher, after which Treibacher

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 the specified quantity of materials – sometimes in installments, depending

upon TDY’s needs.6 TDY kept the materials it received from Treibacher in a

“consignment store,” where the materials were labeled as being from Treibacher

and segregated from other vendors’ materials. As it withdrew the materials from

the consignment store for use, TDY published “usage reports,” which documented

the amounts of materials withdrawn. TDY sent the usage reports to Treibacher,

and Treibacher, in turn, sent TDY invoices for the amounts of materials withdrawn

at the price specified in the relevant contract. TDY then paid the invoices when

they came due. In each instance, TDY ultimately 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



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

                                               9
dispute, occurred in February 2000, when a TDY employee, Conrad Atchley, sent

an e-mail to his counterpart at Treibacher, Peter Hinterhofer, expressing TDY’s

desire to return unused portions of a hard metal powder, titanium carbonitride

(“TiCN”), which Treibacher had delivered. Hinterhofer telephoned Atchley in

response and explained that TDY could not return the TiCN because TDY was

contractually obligated to purchase the materials; Treibacher had delivered the

TiCN as part of a quantity of TiCN that it was obligated to provide TDY under a

contract executed in December 1999. Atchley told Hinterhofer that TDY would

keep the TiCN. TDY subsequently used the TiCN and 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 the

contract – along with TDY’s practice, between 1993 and 2000, of using and

paying for all of the TaC 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 TaC specified in each

contract.

                                          C.

      With respect to damages, the district court did not commit clear error in

finding that Treibacher reasonably mitigated its damages. Article 77 of the CISG

                                          10
requires a party claiming breach of contract to “take such measures as are

reasonable in the circumstances to mitigate the loss.” Article 77, however, places

the burden on the breaching party to “claim a reduction in the damages in the

amount by which the loss should have been mitigated.” Treibacher’s Commercial

Director, Ulf Strumberger, and Hinterhofer testified that Treibacher sought to

mitigate damages as soon as possible and ultimately obtained the highest prices

possible for the quantity of TaC that TDY 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 the

burden of proving Treibacher’s failure to mitigate, presented no evidence showing

that Treibacher did not act reasonably. The district court therefore had no basis

upon which to find that Treibacher did not take reasonable steps to mitigate its

losses.

                                         III.

      In sum, the district court properly determined that, under the CISG, the

meaning the parties ascribe to a contractual term in their course of dealings

establishes the meaning of that term in the face of a conflicting customary usage of

the term. The district court was not clearly erroneous in finding that Treibacher

and TDY understood their contracts to require TDY to purchase all of the TaC

                                         11
specified in each contract and that Treibacher took reasonable measures to

mitigate its losses after TDY breached. Accordingly, the judgment of the district

court is

      AFFIRMED.




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