Servicios Comerciales Andinos, S.A. v. General Elec. Del Caribe, Inc.

• Decision Date: 06 November 1997
• Docket Number: No. 96-2352,96-2352
• Citation: 145 F.3d 463
• Parties: SERVICIOS COMERCIALES ANDINOS, S.A., Plaintiff--Appellee, v. GENERAL ELECTRIC DEL CARIBE, INC., Defendant--Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 463

145 F.3d 463

SERVICIOS COMERCIALES ANDINOS, S.A., Plaintiff--Appellee, v. GENERAL ELECTRIC DEL CARIBE, INC., Defendant--Appellant.

No. 96-2352.

United States Court of Appeals, First Circuit.

Heard Nov. 6, 1997.

Decided June 12, 1998.

Gordon T. Walker, with whom Heidi A. Chesley and McDermott, Will & Emery were on brief for appellant.

Edward M. Borges, with whom Luis Edwin Gonzalez-Ortiz and O'Neill & Borges were on brief for appellee.

Before TORRUELLA, Chief Judge, CYR, Senior Circuit Judge, and PIERAS, ^* Senior District Judge.

TORRUELLA, Chief Judge.

This appeal revolves around a breach of contract claim governed by Peruvian law. Defendant General Electric del Caribe, Inc. ("GE del Caribe") appeals from the September 20, 1996, judgment of the district court finding it liable for the breach of a contract to purchase 1,000 metric tons of Pima cotton from the plaintiff, Servicios Comerciales Andinos, S.A. ("SECOMAN"), a Peruvian partnership. Following a bench trial, the district court found for SECOMAN, awarded damages for loss of profits caused by the breach, and ordered GE del Caribe to pay a portion of SECOMAN's attorneys' fees as a sanction under P.R. R. Civ. P. 44.1 for its obstinate conduct during litigation. GE del Caribe appeals the finding of breach, the determination of damages, and the imposition of sanctions. We affirm in part and reverse in part.

I. Background

We recite the facts in the light most favorable to the district court's findings of fact. See Wainwright Bank & Trust Co. v. Boulos, 89 F.3d 17, 18 (1st Cir.1996).

SECOMAN had been engaged in the purchase and resale of Tanguis cotton since its founding in 1977. Until 1989, SECOMAN was licensed to sell cotton only inside Peru. At that time, SECOMAN attempted to enter the international cotton market, first by obtaining a license to export cotton from Peru, and then by entering into a joint venture with another Peruvian business to buy cotton and resell it on the international market. The joint venture focused on Pima rather than Tanguis cotton because Pima cotton is of higher quality and is generally in greater demand. Moreover, at the time there was a substantial differential between the price at which Pima cotton could be purchased from cotton producers in Peru and the international market price. In order to build a stock of cotton for export, SECOMAN obtained lines of credit, totaling $2,000,000, from various Peruvian banks. In the fall of 1989, SECOMAN began to purchase Pima cotton.

GE del Caribe, a corporation organized under the laws of Puerto Rico, is a subsidiary of the GE Supply Company, based in Connecticut, which is in turn a division of the General Electric Company. As its name suggests, GE del Caribe is engaged in the sale of General Electric products in the Caribbean, Central America, and South America. Mr. Enrique Aranda, a Peruvian national, was the president of GE del Caribe from 1986 to 1993. In 1990, he was trying to increase his company's sales by penetrating different Latin American markets.

In early 1990, Mr. Aranda spoke with a friend in Peru, Mr. Huertas del Pino, who was the president of Carmel Export Agency, Inc. ("Carmel"), and who informed him that through his contacts there, he could facilitate GE del Caribe's expansion into that market. In particular, Mr. Huertas had a business relationship with Horizon Trading, Inc. ("Horizon"), a Peruvian entity established in the Cayman Islands and engaged in the export of Peruvian products.

Around the same time, Horizon was informed that there was a seller on the market ready to provide 1,000 tons of Pima cotton for sale at $1.70 per pound, and that the seller was willing to pay a commission on the sale. Horizon communicated this information, as well as the fact that the international price for Pima cotton was $2.40 per pound, to Mr. Huertas, who replied that he believed that he could find a buyer.

That person was Mr. Aranda. Mr. Huertas arranged for a meeting to take place in Peru between Mr. Aranda and several Peruvian businessmen who were interested in exporting cotton and other Peruvian products. In preparation for the meeting, Mr. Aranda requested that both Mr. Huertas and a GE del Caribe employee provide him with information regarding the cotton market. He received samples of SECOMAN's Pima cotton, and began to research the possibility of reselling the cotton abroad.

The meeting was held on Friday, March 23, 1990, at the Caesar's Palace Hotel in Lima, Peru. Among those present was Mr. Alfredo Gordillo, general manager and 90% owner of SECOMAN. At the meeting, Mr. Aranda told Mr. Gordillo that he was interested in purchasing the cotton that SECOMAN had in stock. Although Mr. Gordillo was offering only 600 tons, when asked whether he could supply more he stated that he could export up to a total of 1,000 tons, at $1.72 per pound. After the meeting, Mr. Aranda called Mr. Gordillo and insisted that the two of them meet again the following day to discuss the transaction.

At the second meeting, held in Mr. Gordillo's office, Mr. Aranda and Mr. Gordillo negotiated the details of an agreement pursuant to which GE del Caribe would purchase 1,000 tons of Pima cotton from SECOMAN. Among other things, Mr. Gordillo agreed to Mr. Aranda's request that the asking price be reduced to $1.58 per pound. Payment was to be made by a negotiable letter of credit, with a face value of $2,800,000, which would be submitted to SECOMAN for its approval. GE del Caribe was also to make an initial deposit of $100,000 in Mr. Gordillo's account in a Miami, Florida bank. As they had discussed the day before, SECOMAN had 600 tons of Pima cotton in stock and ready to ship immediately. Mr. Aranda agreed to allow SECOMAN an additional two weeks to purchase and ship the extra 400 tons.

Mr. Gordillo also asked Mr. Aranda whether he had pre-sold the cotton. Mr. Aranda replied that he had not, but that he had some prospects. Mr. Aranda asked Mr. Gordillo for the names of some of SECOMAN's clients, which Mr. Gordillo agreed to do if Mr. Aranda's prospective buyers did not purchase the cotton. Mr. Gordillo also offered SECOMAN's services as a sales agent for GE del Caribe, given SECOMAN's greater expertise in the cotton market. Mr. Aranda agreed, but only on condition that SECOMAN not offer the same cotton for sale without GE's prior written authorization. Finally, Mr. Gordillo asked Mr. Aranda to have GE del Caribe confirm his authority to enter into the agreement.

Because it was a Saturday, Mr. Gordillo did not have secretarial assistance in the office, and he therefore suggested that the agreement be drafted at a later date. Mr. Aranda stated, however, that he would rather have a document drafted immediately, and then proceeded to type up the substance of their agreements in English in a document entitled "Agreement to Purchase" ("Agreement"). Both of them then signed the Agreement.

Initially, the parties began to perform their respective duties under the Agreement. Thus, on March 29, 1990, GE's Vice President of Finance sent a letter by facsimile to SECOMAN ratifying the Agreement, indicating that Mr. Aranda was "authorized by GE del Caribe to negotiate and conclude business deals such as the one we have concluded on March 24 with [SECOMAN]." On April 20, 1990, GE del Caribe deposited the agreed-upon $100,000 in Mr. Gordillo's bank account. SECOMAN, in the meantime, began purchasing additional Pima cotton to comply with its duty to provide a total of 1,000 tons of cotton.

Mr. Aranda had also immediately begun to seek buyers for the cotton at $1.90 per pound. However, by April 5, 1990, he had not yet found any buyers, so on that day he wrote to SECOMAN indicating that the sale of the cotton was taking longer than foreseen and requesting an additional eight working days to conclude the sale. At the same time, Mr. Huertas was also negotiating the sale of 1,000 tons of Pima cotton at $1.90 per pound. Mr. Huertas also required the prospective buyer to make a $100,000 deposit. Although Mr. Huertas claimed that it was merely a coincidence that he was offering Pima cotton for sale on the same terms as GE del Caribe, the district court found that Mr. Huertas had no cotton of his own, but was instead helping Mr. Aranda to find a buyer for the cotton that GE del Caribe had purchased from SECOMAN.

Throughout the late spring and early summer of 1990, the international market price for Pima cotton was steadily dropping, dooming Mr. Aranda's efforts to sell the cotton that GE del Caribe had purchased from SECOMAN. For example, on May 14, 1990, Mr. Aranda contacted again a potential purchaser who had offered to buy the cotton at $1.70 per pound, but had originally been turned down because GE del Caribe was asking for $1.90 per pound. Even though Mr. Aranda lowered the sale price to $1.73 per pound, the offeree rejected the offer noting that the world price had dropped even further.

In mid-April, Mr. Aranda began to visit banks in Puerto Rico to obtain the letter of credit that was due under the Agreement. At that time, he had not yet informed his superiors of his trip to Peru, of the existence of the Agreement, or of his efforts to sell the cotton. The banks, however, would not issue a letter of credit without a guarantee, or "letter of comfort," from GE's parent company. Therefore, in early May, Mr. Aranda sought the assistance of his superiors in GE Supply Co., explaining that GE del Caribe needed the letter of comfort in order to obtain the letter of credit that SECOMAN was to receive pursuant to the Agreement. He also explained that GE del Caribe stood to gain $300,000 on the sale of the cotton.

Mr. Aranda's superiors, however, refused to issue the letter of comfort, instructed him not to comply further with the Agreement, and began to investigate the matter. On May 23, 1990, Mr. James Ambrose, who was the Chairman of the Board of Directors of GE del Caribe as well as an officer in GE...