Free Proposed Findings of Fact - District Court of Arizona - Arizona

Russell K. Ryan MOTSCHIEDLER, MICHAELIDES & WISHON, LLP 1690 West Shaw Avenue, Suite 200 Fresno, California 93711 Telephone (559) 439-4000 Facsimile (559) 439-5654 Admitted Pro Hac Vic Attorneys for: Plaintiff QC CONSTRUCTION PRODUCTS, LLC, a Delaware limited liability company UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

QC CONSTRUCTION PRODUCTS, LLC, a Delaware limited liability company, Plaintiff, v. COHILL'S BUILDING SPECIALTIES, INC. and MICHAEL COHILL Defendants. __________________________________ AND RELATED COUNTERCLAIM.

Case No.: CV '03 1997 PHX ROS

[PROPOSED] FINDINGS OF FACT AND CONCLUSION OF LAW SUBMITTED BY QC CONSTRUCTION PRODUCTS, LLC

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Plaintiff and Counter-Defendant QC Construction Products, LLC submits the following proposed findings of fact and conclusions of law filed on the same date as the joint pretrial statement. A. Findings of Fact 1. Cohills entered into a relationship with QC Construction Products to

be QC Construction Products' exclusive distributor in the State of Arizona through a letter agreement dated October 27, 2998 (the "Supply Agreement"). 2. Pursuant to the terms of that agreement, Cohills was required to

purchase from QC Construction Products "100% of the requirements for synthetic iron oxides and Bayferrox by QC Construction Products." Cohills also agreed in that Supply Agreement that "within 12 months of the execution of this agreement, every effort will be made by Cohills to purchase from QC Construction Products 100% of their requirements for the full line of QC Construction Products concrete coloring systems. . . unless another competing product is specified and cannot be switched over." 3. For purposes of this agreement, the term "specified" was intended to

mean specified by an architect on a particular job, not simply asked for by a customer. Further, Cohills was required to use its best efforts as the master distributor to develop the marketplace throughout the State of Arizona for Bayferrox by QC Construction Products and the full line of QC Construction Products concrete coloring systems. 4. term of 10 years. 5. From the time the joint venture became effective (September 1, This agreement commenced on November 1, 1998 and contained a

1999) through December 2002, QC reasonably believed that Cohills was purchasing all of its requirements for synthetic iron oxide products and Bayferrox by QC. However, it was not. This was brought to the attention of Cohills on numerous occasions, but they continued to refuse to exclusively sell QC's full line of concrete coloring systems

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products, and instead carried product lines from other manufacturers on their showroom shelves. 6. There were numerous discussions between QC representatives,

including its manufacturer's representative from Arizona, Tony Valdez and Cohills regarding this issue and there were a number of instances where the parties agreed to disagree on those issues, primarily because approximately 90% of the purchase volumes at Cohills was synthetic iron oxides and Bayferrox by QC and the balance of the QC product line represented less than 5% of the overall potential of the relationship, and QC was authorized by Cohills to sell some of these other concrete coloring systems products to non-Cohills customers in Arizona. 7. Although Cohills may have believe that QC may have been selling

products to others in the State of Arizona and had some knowledge of particular instances, it never terminated the agreement with QC or claimed that such sales were a basis of termination. Moreover, Cohills continued to have a business relationship with QC's Manufacturer's Representative Tony Valdez. Despite what Cohills perceived to be breaches of the agreement by QC by selling products to other customers in Arizona, Cohills never terminated the contract but continued in force. 8. Between 1999 and 2002, QC did sell various products to Border

Products Corp., but such products were sold with the permission, consent or acquiescence of Cohills, and some of those products were destined for work outside of the State of Arizona. Further, Border Products would not have purchased these products from Cohills if it had not purchased them from QC because of, among others things, its competitive relationship with Cohills. 9. Between 2000 and 2002, QC sold approximately $60,000.00 of

products to Meadow Valley Contractors and nominal amounts of products to Progressive Concrete (a franchisee of Bomanite Corporation, a 50% owner of QC during this time period), White Cap, Cemrock Landscapes, the Larson Company, Orco, United Metro
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Materials, Carter Waters, Concrete Construction Supply, Creative Concrete, HCS Cutler, Larson and QC's manufacturer's representative, Twenty One Tech. Once again, these sales were made with either the permission or acquiescence of Cohills. Further, these entities would not have purchased these products from Cohills if they had not purchased them from QC. 10. Mr. Stegemiller, a member of the QC Board of Directors appointed

by Bomanite, traveled to Phoenix, Arizona in early December 2002 to discuss name change of QC's synthetic iron oxides with Mike Cohill. He explained why the name change was being proposed and offered Mr. Cohill the opportunity to purchase products from QC at a reduced purchase price in exchange for agreeing to the name change and signing a new supply agreement. During this meeting, Mr. Stegemiller never stated or indicated to anyone that the existing Supply Agreement was terminated, breached or of no further force and effect. At no time did Mr. Stegemiller, or anyone at QC, ever tell anyone at Cohills that QC could not continue to supply or manufacture products containing Bayer synthetic iron oxide pigments. 11. Cohills never signed the new supply agreement, but after this

meeting Cohills stopped ordering products from QC. QC repeatedly called Cohills and asked about orders and when Cohills would be purchasing further products. At that time, Cohills representatives starting saying that the business was slow and they had no need to purchase products. It became evident, however, that by the end of January 2003 Cohills was not ordering products from QC any longer. Because of the fact that there was a large amount of consignment inventory belonging to QC at Cohills facility in Phoenix, Cohills began consuming that inventory and began purchasing replenishment orders for their inventory directly from Bayer Corporation rather than QC as they had done prior to January 2003. After January 2003, Cohills purchased little or no synthetic iron oxide products and only a small amount of other QC products.

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12.

Cohills did submit one further order to QC, which was only one

pallet of product and substantially less than what Cohills historically ordered, in late December 2002 or early January 2003 for QC products and QC sent to Cohills synthetic iron oxide pigments in the new Colortech bags. 13. After it became apparent that Cohills was no longer going to

purchase architectural concrete products as required by the Supply Agreement QC began attempting to mitigate its damages by finding another distributor in Arizona. In the late summer or early fall of 2003, QC agreed to a relationship with Border Products in Phoenix, Arizona to begin carrying QC products in its Marvel Stores. Marvel now carries QC synthetic iron oxide products and Border carries QC's other decorative concrete products. 14. QC was completely free to sell its products to non-Cohills entities

following the meeting between Mr. Stegemiller and Mr. Cohill since Cohills determined at that time not to purchase further products from QC. B. Conclusions of Law 1. Cohills bears the burden of proof with respect to establishing the

nature and extent of its damages. Deck v. Hammer, 7 Ariz. App. 466, 472, 440 P.2d 1006, 1012 (App. 1968); Thunderbird Metallurgical Inc. v. Arizona Testing Laboratories, 5 Ariz. App. 48, 50, 423 P.2d 124, 126 (App. 1967). 2. In order to recover damages for lost profits, Cohills must prove: (1)

that it is reasonably probable that the profits would have been earned but for QC's breach; (2) that the loss of profits is the direct and natural consequence of the breach; and (3) the amount of lost profits can be shown with reasonable certainty. See RAJI (CIVIL) 4th CONTRACT 19 (Damages for Lost Profits).
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3.

The court finds that Cohills has failed to prove that the sales for

which it seeks lost profits were either: (1) made in violation of the Supply Agreement or without Cohills' permission, consent or acquiescence; or (2) it was reasonably probable that these sales would have been made by Cohills but for QC's alleged breaches of the Supply Agreement. On the contrary, the court finds that Cohills would not have made these sales, particular sales to Border (its competitor in the decorative concrete marketplace) and Progressive Concrete (a Bomanite franchisee). 4. With regard to Cohills' claim for attorneys fees, the court recognizes

that pursuant to A.R.S. § 12-341.01, the court has the discretion of awarding attorneys fees if it finds one of the parties to be a prevailing party in this litigation. Although Cohills' was granted summary judgment in its favor on its claim for breach of contract as well as QC's claims, the court further finds that Cohills did not receive a net monetary recovery because it did not suffer damages resulting from lost profits. Accordingly, the court finds that neither party is the prevailing party in this action and does not award attorneys fees to either party. 5. Had the court found one of the parties to be a prevailing party, the

court still would not have exercised its discretion to award attorneys fees. Attorneys fees awardable under A.R.S. § 12-341.01 are discretionary and not mandated. See Apollo Group, Inc. v. Avnet, Inc., 58 F.3d 477, 482 (9th Cir. 1995) (citing Associated Indemnity Corp. v. Warner, 143 Ariz. 567, 694 P.2d 1181, 1184 (Ariz. 1985) The Arizona Supreme Court has outlined six factors which courts should use in determining whether to grant attorneys fees and costs. Newbury Corporation, et al. v. Fireman's Fund Insurance Company, et al., 95 F.3d 1392 (9th Cir. 1996). "These factors are (1) whether the unsuccessful party's claim or defense was meritorious; (2) whether the litigation could
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have been avoided or settled and the successful party's efforts were completely superfluous in achieving that result; (3) whether assessing fees against the unsuccessful party would cause an extreme hardship; (4) whether the successful party prevailed with respect to all the relief sought; (5) whether the legal question was novel and whether such claim or defense has previously been adjudicated in this jurisdiction; and (6) whether the award would discourage other parties with tenable claims or defenses from litigating or defending legitimate contract issues for fear of incurring liability for substantial amounts of attorneys fees. Id. at 1406 (citing Associated Indemnity Corp. v. Warner, supra, 694 P.2d at 1184). 6. The court finds that QC's unsuccessful claims were meritorious,

there was no meaningful settlement discussions or opportunity for QC to have settled the matter prior to trial, Cohills did not prevail with respect to all of the relief sought and that to award fees would cause an extreme hardship to QC and would discourage other parties with tenable claims or defenses from litigating or defending legitimate contract issues for fear of incurring liability for substantial amounts of attorneys fees. Consequently, no attorneys fees would have been awarded even if Cohills had been awarded contractual damages. Dated: April 24, 2006 MOTSCHIEDLER, MICHAELIDES & WISHON, LLP

By: _________/s/________________ Russell K. Ryan, Attorneys for Plaintiff and Counterdefendant QC CONSTRUCTION PRODUCTS, LLC
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Copy of the foregoing served by mail this 24th day of April 2006 on: William G. Klain, Esq. KENT & LANG 8767 Via de Commercio Suite 102 Scottsdale, Arizona 85258 Attorneys for Defendants/ Counterclaimants

By: ________________________ Katrina Morshead

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