Bohler-Uddeholm America v. Ellwood Group Inc.
| Decision Date | 04 June 2001 |
| Docket Number | BOHLER-UDDEHOLM,No. 99-3773,99-3773 |
| Citation | 247 F.3d 79 |
| Parties | (3rd Cir. 2001) AMERICA, INC., a Delaware Corporation;CORPORATION, a New York Corporation v. ELLWOOD GROUP, INC., a Pennsylvania Corporation; ELLWOOD QUALITY STEELS COMPANY, a Pennsylvania Business Trust; ELLWOOD SPECIALTY STEEL COMPANY, a Pennsylvania Corporation; DAVID E. BARENSFELD, an individual v. COPORATION, a New York Corporation; UDDEHOLM LIMITED, a Canadian Corporation; Ellwood Group, Inc.; Ellwood Quality Steels Co.; Ellwood Specialty Steel Co.; David Barensfeld; Bjorn E. Gabrielsson, Appellants |
| Court | U.S. Court of Appeals — Third Circuit |
H. WOODRUFF TURNER, ESQUIRE (ARGUED), ROBERT B. SOMMER, ESQUIRE, DAVID M. ACETO, ESQUIRE, DOUGLAS A. PEARSON, ESQUIRE, Kirkpatrick & Lockhart, LLP, Pittsburgh, PA, Counsel for Appellants.
VINCENT J. CONNELLY, ESQUIRE, ALAN J. MARTIN, ESQUIRE (ARGUED), DANIEL L. RING, ESQUIRE, ERIC S. DREIBAND, ESQUIRE, TERRI HOSKINS, ESQUIRE, AUDREY FRIED-GRUSHCOW, ESQUIRE, Mayer, Brown & Platt, Chicago, IL. WILLIAM M. WYCOFF, ESQUIRE, Thorp, Reed & Armstrong, Pittsburgh, PA, Counsel for Appellees.
Before: BECKER, Chief Judge, SLOVITER and NYGAARD, Circuit Judges.
This is an appeal by defendant Ellwood Group, Inc., (Ellwood) from a final judgment entered against it by the District Court for the Western District of Pennsylvania in favor of plaintiff Uddeholm Tooling AB (Uddeholm). This complicated commercial case emerges from the disintegration of a joint venture entered into by Ellwood, a Pennsylvania corporation in the business of forging steel ingots into various components of heavy machinery, and Uddeholm, a Swedish company that produces specialty tool steels. Uddeholm brought numerous claims against Ellwood, including breach of contract, breach of fiduciary duty, misappropriation of trade secrets, and civil conspiracy. Resolution of this appeal requires us to address a number of questions of Pennsylvania contract, business tort, and damages law, along with two questions on the application of the Federal Rules of Evidence.
The most important issue involves the question whether the joint venture agreement was ambiguous as a matter of law as to whether Ellwood could properly claim rebates for its sales to third parties of ingots produced by the Ellwood-Uddeholm Steel Company (EUS), the entity formed by the joint venture, or whether Ellwood was limited to rebates for sales by EUS to Ellwood for Ellwood's own use. Uddeholm maintains that the latter interpretation reflects not only the clear intent of the contracting parties but also the raison d'etre of the contract. We conclude that the District Court was correct in finding a contractual ambiguity. We also conclude, however, that it erred in instructing the jury that Ellwood had the burden of establishing the meaning of the disputed terms in the agreement because of the fiduciary relationship between the parties that was created by the joint venture. We must therefore vacate the jury verdict on the contract claim and remand for a new trial.
Other important issues include: (1) whether Uddeholm's breach of fiduciary duty and misappropriation of trade secrets claims were covered and thus precluded by its breach of contract claim; (2) whether Ellwood's potential liability on the civil conspiracy claim was foreclosed because the jury found no other conspirator; (3) whether Uddeholm could recover on its contract claim for rebates Ellwood received in 1991; (4) the interest rate to be applied to sums Uddeholm owed Ellwood for post-venture purchases of steel; and (5) two evidentiary questions: the admissibility of a document under Fed. R. Evid. 807 (), and whether the court erred by requiring redaction of an Uddeholm employee's memo before admitting it into evidence.
We will affirm the District Court's decision allowing Uddeholm to recover on its fiduciary duty claims, for the wrongful behavior that underlies this claim was not covered by the joint venture agreement. However, we will set aside both the verdict for Uddeholm on the misappropriation claim (because it was covered by the joint venture agreement) and the verdict on the civil conspiracy claim (as there was insufficient evidence of the existence of a second co-conspirator, which is required under Pennsylvania law). With respect to the latter issue, we reject Uddeholm's contention that Ellwood did not validly preserve its objection. We will also set aside the District Court's order that applied a 6% interest rate to the sums Uddeholm owed Ellwood for steel that it bought post-venture, and remand for further findings of fact on this issue. We will affirm the District Court's evidentiary rulings, because its application of Rule 807 and its redaction of the employee's memo were not abuses of the court's discretion. We therefore will affirm in part, reverse in part, and remand for further proceedings.
Prior to 1984, Ellwood relied on outside manufacturers to supply it with steel ingots for its steel-forging business. In early 1984, Ellwood decided to construct an ingot mill in Ellwood City, PA, in order to produce its own supply of steel, which it did under the name Ellwood City Forge Steel Company (ECF). At around this time, Uddeholm decided that it wanted to set up a manufacturing plant in the United States in order to avoid quotas on imports of tool steel from Sweden, deliver steel more quickly, and avoid currency fluctuations. The two companies entered negotiations with an eye towards forming a joint venture in which Uddeholm would provide its steelmaking expertise and some funding for Ellwood's new mill, while Ellwood would provide Uddeholm with a U.S. source of tool steel as well as most of the financing of the mill.
After nine months of negotiation, the two companies entered into a joint venture agreement which comprised several contracts executed in April and June 1985 (collectively, the Agreement).1 For the purposes of this appeal, the most important of these contracts are the Shareholders Agreement, the two Steel Purchase Agreements (one each for Ellwood and Uddeholm, covering their purchases from the new mill), and the Know-How License Agreement. Under the terms of the Agreement, Ellwood became an 80% shareholder and Uddeholm a 20% shareholder in ECF, which changed its name to the Ellwood-Uddeholm Steel Company (EUS). As it had with ECF, Ellwood continued to run the daily operations of EUS. The Agreement provided that EUS would sell steel ingots to Uddeholm and Ellwood at cost plus a percentage of this cost to cover overhead, which was set in the original contracts at 35%. "Overhead" is defined in the Agreement as including "all interest, depreciation, selling, general and administrative costs and all other costs and expenses which are not included as part of the 'base costs' [of the ingots]." Uddeholm had the right to purchase up to 10% of the ingots produced by EUS, and Ellwood had the right to purchase the rest.
The Agreement included the rebate provision ( 2.3 of the two Steel Purchase Agreements contained within the overall Agreement) that is central to the current dispute. This clause provided for "rebates" in case one of the partners paid more than its allotted share of EUS's overhead, which was based on each partner's percentage control of EUS: 80% for Ellwood, 20% for Uddeholm. More specifically, if the amount of Ellwood's steel purchases that went to EUS's overhead (i.e., the 35% over the ingot cost) exceeded 80% of the total sums that went to overhead during the calendar year, then Ellwood was entitled to a rebate of the amount it paid in excess of this 80%. The same held true for Uddeholm, but at 20%. The Agreement also provided that if either partner's contributions to EUS's over head totaled less than its percentage control of the company (i.e., if Ellwood's contributions were less than 80% of EUS's overhead, or Uddeholm's contributions were less than 20%), that partner had to make payments to EUS in order to bring its share of the overhead paid to the level equivalent to their percentage control. This system was designed to ensure that Ellwood always paid exactly 80% of EUS's overhead, and Uddeholm paid for exactly 20%, no matter how much steel each was buying from EUS.
As part of the Agreement, the parties established that after October 1, 1989, either party could cause EUS to buy Uddeholm's 20% stake in EUS at book value (thus making Ellwood the sole owner of EUS). The Agreement contained non-compete provisions that went into effect if this purchase option was exercised; the Agreement granted EUS an exclusive license for Uddeholm's "know-how," but prohibited EUS from using such know-how for three years after the end of the joint venture.
The documents comprising the Agreement included the Business Plan for EUS, which was incorporated by reference into the Shareholders Agreement. The Business Plan stated that "the principal purpose of EUS will be to supply high quality ingot to its owners, Ellwood City Forge Corporation and Uddeholm Tooling AB," and that "ingots shall be cast in a variety of shapes and weights according to the requirements of Ellwood City Forge Corporation and Uddeholm Tooling AB." During the negotiations for the Agreement, Ellwood proposed a draft Business Plan which indicated that Ellwood desired to sell EUS's ingots to third-party purchasers in the general market. Ellwood's proposed Business Plan included the additional purpose for EUS that "secondarily, [EUS] shall be operated with the purpose of earning the maximum possible profit from sale of its product to third parties." The proposal...
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