Coburn Supply Co. Inc. v. Kohler Co., 02-41317.

• Decision Date: 06 August 2003
• Docket Number: No. 02-41317.,02-41317.
• Citation: 342 F.3d 372
• Parties: COBURN SUPPLY COMPANY INC., Plaintiff-Appellee, v. KOHLER CO., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 372

342 F.3d 372

COBURN SUPPLY COMPANY INC., Plaintiff-Appellee, v. KOHLER CO., Defendant-Appellant.

No. 02-41317.

United States Court of Appeals, Fifth Circuit.

August 6, 2003.

Revised August 25, 2003.

Rehearing Denied September 4, 2003.

Larry R. Veselka (argued), Justin M. Waggoner, Smyser, Kaplan & Veselka, Houston, TX, for Plaintiff-Appellee.

Don D. Martinson (argued), Robert Harris Fugate, Mark Dyer, Fanning, Harper & Martinson, David Steven Coale, Carrington, Coleman, Sloman & Blumenthal, Dallas, TX, for Defendant-Appellant.

Appeal from the United States District Court for the Eastern District of Texas.

Before KING, Chief Judge, and HIGGINBOTHAM and BARKSDALE, Circuit Judges.

KING, Chief Judge:

This case involves the alleged wrongful termination of an at-will, non-exclusive wholesale distributor of plumbing products. Consistent with the jury's verdict, the district court entered judgment in favor of the at-will distributor on its breach of contract and negligent misrepresentation claims and denied the defendant's renewed motion for judgment as a matter of law. We reverse.

I. FACTUAL AND PROCEDURAL HISTORY

A. Facts

The defendant, Kohler Co. ("Kohler"), manufactures and sells plumbing products to contractors and end users through a nation-wide network of non-exclusive independent distributors. The plaintiff, Coburn Supply Company, Inc. ("Coburn"), is a wholesale distributor of plumbing, electrical, and HVAC products, with locations throughout Louisiana and East Texas. Coburn was a non-exclusive, at-will distributor of Kohler's products from 1938 through 1999.

While no single written or oral contract controlled the terms by which the distributor relationship was governed, certain obligations of each party were defined by written and oral communications between the companies and through their course of dealing over the years. For example, Coburn and Kohler met each year to discuss account plans and goals for the coming year — which were memorialized in an "annual agreement."¹ Further, certain terms that governed the relationship were set forth in letters sent by Kohler to Coburn. In most instances, these were form letters sent to all of Kohler's distributors. These terms set forth general obligations that Kohler distributors were required to meet to continue on as a Kohler distributor, such as: the requirement that distributors purchase a minimum of $500,000 of Kohler plumbing products annually; the requirement that distributors not sell certain competing products; the requirement that distributors commit a sales force properly trained in Kohler products; and the requirement that distributors promote and advertise Kohler products. The letters, as well as oral communications between the parties, also set forth certain benefits Kohler distributors were entitled to receive from Kohler, including: access to Kohler's Rebate Growth Program (which provided financial rewards for a distributor's successful sales); funds for showroom development and advertising; consumer referrals; promotional products; training programs for sales staff; and financial and logistical assistance with product returns and warranty issues. It is undisputed, however, that no contractual term required Kohler to provide notification to Coburn, or any of its other distributors, before terminating the distributor relationship.

On September 17, 1999, following a sixty-year distributorship relationship, Kohler gave notice to Coburn that effective December 31, 1999, it would terminate Coburn as a distributor of Kohler products. From this time, Coburn was thus provided with 105 days' notice of the termination. Coburn began negotiating with American Standard, one of Kohler's three major competitors, within days of this notice of termination, and Coburn was doing business with American Standard approximately two months before the relationship between Coburn and Kohler was terminated. Coburn and American Standard publicly announced their new union in November 1999. However, Coburn continued to order Kohler products on an open account through the end of 1999 and, indeed, bought and sold Kohler products during the first quarter of 2000.²

B. Procedural History

Coburn sued, claiming Kohler breached its obligation to Coburn to provide reasonable notice before terminating the relationship and that Kohler made negligent misrepresentations to Coburn regarding the stability of the distributor relationship. A five-day trial was held. During the trial, the district court denied Kohler's motions for judgment as a matter of law and, alternatively, for mistrial made after Coburn's case in chief and, again, before the district court presented the charge to the jury.

The jury thereafter found in favor of Coburn on its breach of contract and negligent misrepresentation claims. The jury found that Kohler breached a "contract or obligation to Coburn in the manner Kohler terminated its distributorship agreement with Coburn." The jury specifically entered the figure -0- as the sum of money necessary to compensate Coburn fairly and reasonably for the loss of profits it incurred following the termination of the relationship, but nevertheless found $1,801,153 in damages proximately caused by Kohler's conduct, not including lost profits.

On July 3, 2002, the district court entered final judgment consistent with this verdict and awarded aggregate damages totaling $2,616,039.18 — including pre-judgment interest calculated at an annual rate of 10% (totaling $419,941.72), attorneys' fees on the plaintiffs' breach of contract claim (totaling $360,773.75), and costs of court (totaling $34,170.71). On August 6, 2002, the court denied Kohler's renewed Rule 50 motion for judgment after trial or, in the alternative, Rule 59 motion for new trial. Kohler appeals from the July 3, 2002 final judgment and from the August 6, 2002 entry of the district court's denial of Kohler's Rule 50 motion.

II. DISCUSSION

A. Breach of Contract

Both parties spend a good portion of their briefing debating whether the termination was, as Coburn contends, a "surprise" because Kohler had led Coburn to believe that it was performing satisfactorily before "suddenly" giving Coburn notice of its intent to terminate the relationship or, as Kohler maintains, a natural outgrowth of differing market philosophies between the two companies. However, all parties agree that the distributor relationship was an at-will relationship and Coburn was a non-exclusive distributor of Kohler's products. Thus, Kohler's rationalization for its decision to terminate Coburn simply has no bearing on the outcome of this case. Texas law has never required a party to demonstrate cause before terminating an at-will, non-exclusive relationship. See, e.g., Fed. Express Corp. v. Dutschmann, 846 S.W.2d 282, 283 (Tex. 1993) (discussing the parameters of the at-will doctrine in Texas); see also Corenswet Inc. v. Amana Refrigeration, 594 F.2d 129, 138-39 (5th Cir.1979) ("We seriously doubt... that public policy frowns on any and all contract clauses permitting termination without cause... Indeed, when, as here, the power of unilateral termination without cause is granted to both parties, the clause gives the distributor an easy way to cut the knot should he be presented with an opportunity to secure a better distributorship from another manufacturer."); W.G. Pettigrew Distrib. Co. v. Borden, Inc., 976 F.Supp. 1043, 1054 (S.D.Tex.1996) ("The longstanding rule in Texas provides for employment at will, terminable at any time by either party, with or without cause, absent an express agreement to the contrary."); Perez v. Vinnell Corp., 763 F.Supp. 199, 200 (S.D.Tex.1991) (stating that a party may terminate an at-will relationship in Texas for a good reason, a bad reason, or no reason at all).

This is not to say that the manner in which Kohler terminated the relationship cannot give rise to breach of contract damages. Here, Coburn's breach of contract claim is based on whether the 105-day notice given by Kohler to Coburn constitutes a breach of an implied obligation to provide reasonable notice.

(1) Implied Term of Reasonable Notice

No contractual term expressly controls the issue of notice here. Before analyzing whether there is sufficient evidence to support the jury's finding that the 105-day notice here is not reasonable, we thus must first address whether the notice issue is controlled by Texas common law or § 2.309(3) of the Uniform Commercial Code ("UCC"), codified as § 2.309(c) of the Texas Business & Commerce Code.

In Texas, distributorship agreements are generally controlled by the UCC. See, e.g., Glenn Thurman, Inc. v. Moore Const., Inc., 942 S.W.2d 768, 771 (Tex.App.—Tyler 1997, no pet.) ("When parties enter into a contract for the sale of goods, [the UCC] controls the conduct of the parties. Where the U.C.C. applies, it displaces all common law rules of law regarding breach of contract and substitutes instead those rules of law and procedure set forth in the U.C.C."); see also Continental Casing Corp. v. Siderca Corp., 38 S.W.3d 782, 788 (Tex.App.—Houston [14th Dist.] 2001, no pet.) (joining "the overwhelming majority of jurisdictions ... [in holding] that distributorship agreements are subject to the UCC"). In Coburn's response to Kohler's motions for summary judgment and in its response to Kohler's motions for judgment as a matter of law (but not in its complaint, amended complaint or in the proposed joint pre-trial order), Coburn argued that, consistent with this case law, the UCC's "gap filler" provisions should be interpreted to imply a term of "reasonable" notice here. In contrast, Kohler maintained that in the absence of an express contractual term controlling notice, Texas common law should be looked to in determining whether to imply a term of "reasonable" notice.

On June 26, 2002, the district court allowed Coburn to amend its pleadings and file its second supplemental complaint, nunc pro tunc as...