By Adam Kaufman
Legal Analyst
July 31, 2017 6:09 a.m.
The City Commission will meet Tuesday evening August 1, 2017 in executive session to determine how to proceed in its on-going litigation with Columbia Cascade Company, an Oregon corporation that sued to obtain payment for playground equipment the City Parks and Recreation Department purchased for $19,896.35 in early 2012.
The Court of Appeals in Oregon, on July 2, 2017, in a thirteen (13) page decision reversed a December, 2014 Circuit Court ruling in the City’s favor and remanded the case back to the Circuit Court for trial.
According to documents provided by the City Comptroller to the Observer, the City has paid $78,484 in fees and disbursements to its attorneys in Oregon. The City’s insurance carrier concluded that there was no coverage for the Columbia claim and determined it was not obligated to provide legal defense on behalf of the City.
Background
The case arose after Columbia and Columbia’s sales representative, Site Creations, LLC, both sent the City invoices for the same playground equipment that Columbia had manufactured for and delivered to the City. Columbia and Site Creations were parties to a Sales Representative Agreement. The City had engaged in communications with both Columbia and Site Creations before finalizing the purchase.
The City issued a purchase order for the equipment to Site Creations listing Site Creations as the vendor. After receiving the purchase order Columbia sent the City a confirmation on Columbia letterhead that confirmed the City’s order as placed through its regional representative Site Creations and noting that regional representatives do not have authority to enter into contracts on behalf of the company. After some negotiated modification the confirmation was signed by Columbia and the then City Manager.
In early 2012 Columbia shipped the playground equipment to the City. Columbia sent to the City invoices for the playground equipment dated February 24, 2012. Site Creations sent the City its own invoice for playground equipment dated February 29, 2012. The City did not act upon Columbia’s billing, but instead sent a check payable to Site Creations for $19,896.35. Columbia never received payment.
Columbia brought an action against the City for breach of contract.
Site Creations, LLC is now a dissolved limited liability company. Columbia’s suit against the City also included claims against Site Creations and an individual who was a member of that LLC. Columbia obtained a default judgment. Site Creations has no assets.
Circuit Court
In the Circuit Court, the City asserted that its agreement was with Site Creations and, in addition argued that Columbia had given Site Creations “actual” or “apparent” authority to act as its agent and to enter into contracts with purchasers on its behalf and therefore payment to Site Creations was appropriate.
“Apparent authority” is the authority that third parties, here the City, reasonably believe an agent, Site Creations, can exercise even though it may not have been actually granted by the principal, Columbia. It is authority which an agent appears to have as a result of some representation or conduct by the principal. Apparent authority arises only if a third party reasonably infers, from the principal’s conduct, that the principal granted such power to the agent.
The Circuit Court rejected the City’s argument that it had a contract with Site Creations rather than Columbia. The Court found that the negotiations for the playground equipment and the “deal” that resulted, by its terms was between the City and Columbia.
The Circuit Court however, found that the City, dealing with a known agent, Site Creations, had a right to assume, in the absence of information to the contrary, that “the agency is general” and concluded that Site Creations had actual or apparent authority to accept payment for the playground equipment and there was no breach of contract as a matter of law. The Court granted the City’s motion for summary judgment
Columbia appealed. The case was argued before the Court of Appeals of the State of Oregon on March 1, 2016.
Court of Appeals
Columbia argued that the Circuit Court erred by concluding that Site Creations had actual or apparent authority to issue its own invoice and to collect money and that the City by paying Site Creations, in effect, paid Columbia.
Columbia and the City on the appeal did not dispute that there was a contract between Columbia and the City that required the City to pay Columbia for the playground equipment.
The Court of Appeals found that the Sales Representative Agreement between Columbia and Site Creations did not delegate to Site Creations actual authority to act as it did. There was nothing in that agreement that delegated express authority to Site Creations to issue invoices or to obtain or collect payments. Any conclusion by the Circuit Court, said the Court of Appeals, that Site Creations had actual authority to invoice and receive payment from the City is incorrect as a matter of law.
The question that remained for the Court of Appeals was whether there was some conduct by Columbia which, when reasonably interpreted, caused the City to believe that Site Creations had apparent authority to act on behalf of Columbia with respect to demanding and accepting payment for the playground equipment.
The Court found that a ruling as a matter of law, granting summary judgment to either Columbia or the City, was inappropriate because there are issues of fact with respect to apparent authority.
The Court noted, in part, that the original quote for the equipment provided that checks should be forwarded to Columbia’s Oregon address and that the contract was expressly between Columbia and the City. Further, that there were numerous communications by and between Columbia and the City regarding the final agreement and that Columbia had issued an invoice which would be inconsistent with Site Creations being authorized to issue its invoice, also.
On the other hand, said the Court, Site Creations had actual authority to solicit orders for Columbia and that as part of the parties’ course of dealing, Site Creations continued to be involved in the deal after the quote was transmitted, including communicating with City representatives in order to obtain approval of shop drawings. The Court found that given that the City dealt with Site Creations throughout the transaction, a factfinder could conclude that the City “reasonably understood Site Creations to continue to act on behalf of Columbia with respect to demanding and accepting payment for the equipment.”
The question of whether there was conduct by Columbia upon which the City could reasonably believe that Site Creation had the authority to act on behalf of Columbia in accepting payment is a question for a jury.
“In sum,” said the Court, “in our view there is evidence from which a jury could find that Columbia apparently consented to Site Creation demanding and accepting payment for the playground equipment. There is also evidence from which a jury could find that Columbia did not appear to so consent.”
Next
The City has now invested $80,000 to defend a $20,000 claim.
When the question was raised in May of 2014 as to why the City would pursue this case and incur legal expense that, even at that time, outweighed the amount in question, The Observer wrote that City Attorney Bach reminded our reporter that the decision to pursue legal action as opposed to settling a case is made by the City Commission stating that the “city does not write checks just to write checks.”
Whether this case goes to trial or the parties engage in settlement discussions there will be additional attorneys’ fees incurred and payable to the City’s Oregon counsel.
Oregon, as with most States, provides for a nine (9) percent per annum interest rate by statute which may or may not be a consideration in any settlement discussions and would attach to a judgment if there was a decision adverse to the City.
Patently, Columbia Cascade has also incurred expense. How that factors in its decision making with regard to settlement or proceeding with the litigation is an open question. Nor is it clear on the record what the actual cost and expense incurred by Columbia was for the manufacturer and delivery of the playground equipment.
As the Harvard Negotiation Project teaches us, a mutual agreement settling a dispute compels each side to be able to understand what is required in the other side’s “victory speech.”
Editor’s Note: 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.
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