Submitted by Adam Kaufman
Legal Analyst
December 18, 2014 2:00 p.m.
In 280 BC and 279 BC Greek King Pyrrhus of Epirus defeated the Romans at Heraclea and Asculum but his army sustained such casualties and staggering losses he is quoted as remarking “another such victory and I am undone.”
A “Pyrrhic victory” has come to mean a victory that is costly to the point of negating or outweighing the expected benefits.
On December 16, a Circuit Court in the State of Oregon ruled in favor of the City of Fernandina Beach denying a claim that the City was required to pay approximately $20,000 to the Columbia Cascade Company of Oregon, a manufacturer of playground equipment. The City purchased equipment made by that company in the fall of 2011. The lawsuit was filed on October 30, 2012 alleging that the City violated its contract with Columbia Cascade by not directing payment for the purchase of that equipment to the company as was required by the agreement.
In making its ruling, the Circuit Court acknowledged that there was no real dispute about what it called “the essential, if discouraging, facts” presented in the case.
Columbia Cascade delivered playground equipment to the City. The City sent a check for $19,896.35 for the purchase of that equipment to Site Creations, LLC, a Neptune Beach firm then representing Columbia Cascade in this area of Florida. Site Creations did not convey the funds to Columbia Cascade. Columbia Cascade then sued the City to recover payment for the cost of the equipment.
The City’s insurance carrier, after review, concluded that there was no coverage for the claim and the lawsuit and further determined that it was not obligated to provide legal defense on behalf of the City.
The City and its taxpayers will bear the costs of defense of this litigation. The costs, assuming no appeal by Columbia Cascade of the Circuit Court ruling, are now between $45,000 and $50,000 according to estimates provided to the Observer by the City.
Columbia Cascade contends that the City’s obligation pursuant to its contract was to pay Columbia Cascade and that the City breached the contract. Columbia Cascade also alleges that it had submitted an invoice for payment prior to the time payment was made to Site Creations.
The City argued that its contract was with Site Creations, LLC. Site Creations and its principal owner are also named defendants in the lawsuit but the Circuit Court’s order only addresses the City and Columbia Cascade. Site Creations apparently has no assets.
In reaching its determination that it was “not unreasonable” for the City to conclude “that paying Site Creations was acceptable” pursuant to the contract and the Oregon law of “agency,” the Circuit Court navigated its way through a series of documents representing the negotiations for the equipment purchase and those reflecting the parties’ inter-relationships.
The Circuit Court found that the “relevant documents refute the City’s contention” that the contract for the purchase of playground equipment was with Site Creations. The Court found that the negotiations for the playground equipment and the “deal” that resulted, by its terms, was between the City and Columbia Cascade.
The Circuit Court also determined that the “contractor/vendor” to whom payment “shall be made” under the City’s standard “terms and conditions” that are incorporated in the “Purchase Order” for the playground equipment is Columbia Cascade.
The Circuit Court observed, however, that while the contract required the City to pay Columbia Cascade, “it didn’t specify how to pay for it.”
The contract, said the Circuit Court, did not specify that the payment had to be made directly to Columbia Cascade or that it could not be made to Columbia Cascade “indirectly, through its agent, Site Creations.” The City had negotiated modifications of the terms of the Confirmation of its Purchase Order through Site Creations. That Confirmation Order, noted the Circuit Court, acknowledged that the order was placed through Columbia Cascade’s “regional representative Site Creations, LLC.”
The Circuit Court also noted that Columbia Cascade’s agreement with Site Creations provides that Site Creations does not have any authority to contract on behalf of Columbia Cascade, but it does not contain a similar disclaimer of authority to receive payments on Columbia Cascade’s behalf.
Under Oregon law, said the Court, persons dealing with a known agent have a right to assume, in the absence of information to the contrary, that “the agency is general.” The Court concluded “that Site Creations had apparent, if not actual, authority to accept payments.” Payment to Site Creations was thus payment to Columbia Cascade, said the Circuit Court, and there was no breach of contract by the City.
In May 2014, City Attorney Tammi Bach when asked about this proceeding and why the City would incur legal expenses that exceed the amount in question advised that the decision to pursue legal action as opposed to settling a case is made by the City Commission.
There is no indication as to whether or not Columbia Cascade will appeal this decision.
Adam Kaufman is a semi-retired mediator and attorney. A graduate of Northwestern University School of Law, he was born and raised in the Bronx, NY. and attended NYC public schools, including Stuyvesant High School. He still serves on the American Arbitration Association Labor Panel. From 1994 – 2005, he was Regional Director for the New York State Public Employment Relations Board.
A prime argument for those that contend there should be a loser pays all legal expenses; as well as the potential pitfalls of dealing with parent companies based out of state with language in the sales agreement stating that legal disputes will be handled by courts in the jurisdiction of the company and not the customer.
While some will take the view of penny wise and pound foolish, one must also question why Columbia Cascade was also willing to go to such lengths since their “out of pocket” cost of the equipment was clearly less than the amount billed to the City.
Maybe impose a surcharge to those using the Sunrise Park playground to help recoup the expense (just kidding!).
Did the city commission vote on pursuing this suit? And did the city again have to hire outside counsel? I hope the new commission can do something about these expensive-to-the-taxpayers lawsuits that are either lost or cost so much the reward is negated. What a waste of $$$$ and time.
I don’t understand how this could even happen. When I worked in construction for public works (California), any supplier of materials or labor in excess of $500, either first tier, or sub was advised to file a “Preliminary Lien” notice to the property owner, lender and/or prime contractor. Progress payments and retainage was only paid upon obtaining either a conditional (for joint payment) or an unconditional release (upon full payment of said labor/material listed in the lien notice). I did these for small projects (less than $20,000, and for large projects in excess of 5 million dollars) Maybe this needs to be addressed on future projects, after all, paying an administrative assistant to do these is cheaper than paying a lawyer to litigate the problem down the road.
In our construction company the sub contractors had to give us a partial lien waiver from their suppliers before the sub received their check. If they didn’t then we made out a dual payment check to both the sub and their supplier. It’s a very simple process.
Karen,
The City Commission has to ALWAYS vote on authorizing the City Attorney to engage in litigation for or against the City. In this case, since the company was located in Oregon, they filed their action in Oregon which necessitated the City in retaining a law firm in Oregon to represent the City. One would have to review the minutes of the Commission meeting where the action was taken to determine if there was an estimate given for what the legal expenses might be. I’m sure Adam will correct anything that I have stated if it is wrong.
Can’t say if it was the case here, but sometimes you have to fight an action for the principle and I understand the principle here. The City paid an agent of the parent company for the equipment but that agent didn’t remit the necessary payment he owed to the company he was representing. You will note that they also sued the agent but he either disappeared or probably didn’t have any worth they could go after, so they go after the deep pockets of the City. Bet everyone would have been upset if the City just paid a “second time” for the same equipment. Kind of a no win situation.
Defendant city entered into a contract with plaintiff Columbia Cascade and only Columbia Cascade. All negotiations to arrive at the purchase and sale agreement terms were exclusively between the city and Columbia. The city auditor, city attorney and city manager negotiated and confirmed the contract in writing. Columbia fulfilled its part of the bargain and sent the city its invoice. When it became delinquent, defendant said it paid a third party, asserting the recipient was Columbia’s agent when there was no agent. Nothing in the contract or invoice implied payment to a third party was acceptable. I explained this to the mayor and all council members and was rebuffed. We expect to continue to pursue just payment as a matter of principle and remain dismayed by their wasteful position.
Kenneth, evidently the Circuit Court in your area saw things a little different. The City doesn’t have an internal auditor and assume you mean the City Finance Director as she, the City Attorney and City Manager are all required to sign contracts on behalf of the City.