447 F.3d 1115 (8th Cir. 2006), 05-2122, Margolies v. McCleary, Inc.

Docket Nº:05-2122, 05-2123.
Citation:447 F.3d 1115
Party Name:Dan MARGOLIES; Movant Below, Matthew Headley Holdings, LLC, doing business as Heartland Snacks, formerly known as Incito Capital Group, Plaintiff-Appellee, v. MCCLEARY, INC.; Charles Patrick McCleary; Jerry Stokely; Defendants-Appellants. Dan Margolies; Movant Below, Matthew Headley Holdings, LLC, doing business as Heartland Snacks, formerly known
Case Date:May 19, 2006
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

Page 1115

447 F.3d 1115 (8th Cir. 2006)

Dan MARGOLIES; Movant Below,

Matthew Headley Holdings, LLC, doing business as Heartland Snacks, formerly known as Incito Capital Group, Plaintiff-Appellee,


MCCLEARY, INC.; Charles Patrick McCleary; Jerry Stokely; Defendants-Appellants.

Dan Margolies; Movant Below,

Matthew Headley Holdings, LLC, doing business as Heartland Snacks, formerly known as Incito Capital Group, Plaintiff-Appellant,


McCleary, Inc.; Charles Patrick McCleary; Jerry Stokely; Defendants-Appellees.

Nos. 05-2122, 05-2123.

United States Court of Appeals, Eighth Circuit

May 19, 2006

Submitted: March 15, 2006.

Appeals From the United States District Court for the Western District of Missouri.

Page 1116

[Copyrighted Material Omitted]

Page 1117

Martin M. Meyers, argued, Kansas City, KS (Andrew H. McCue, on the brief), for appellant.

Michael P. Healy, argued, Kansas City, KS (Tim E. Dollar, Kansas City KS and Edward D. Robertson, Jr., Anthony L. DeWitt, and Mary D. Winter of Jefferson City, MO. on the brief), for appellee.

Before COLLOTON, HEANEY, and GRUENDER, Circuit Judges.

Page 1118

HEANEY, Circuit Judge.

This case involves an agreement to distribute Guy's brand snacks gone bad. McCleary, Inc. (McCleary), appeals from a judgment in the amount of $6.45 million rendered in favor of Matthew Headley Holdings, LLC (hereinafter Heartland), on Heartland's fraud and breach of contract claims. McCleary raises numerous issues on appeal, only three of which require resolution: (1) whether the district court erred in admitting testimony and exhibits from Heartland's expert witness on damages, (2) whether the verdict and the jury instructions correspond to the state of Missouri contract law on the issue of substantial performance by the plaintiff, and (3) whether the fraud verdict can stand against the corporation, where the jury assessed no damages against its agents. Heartland cross-appeals the district court's vacation of the $2.15 million damages verdict on its claims of breach of an implied covenant of good faith and fair dealing. Because the fraud verdict is inconsistent with Missouri law, we have no alternative but to reverse that part of the judgment. We affirm in all other respects.


In 1938, Guy Caldwell started Guy's brand snack foods, a business he built into "the primary regional snack food manufacturer in the country." (Trial Tr. Vol. I at 42.) The business changed hands through the years, but maintained strong regional sales for its products. For instance, in 1997,1998, and 1999, Guy's brand sales were approximately $100 million per year. In 2000, Guy's parent company filed for bankruptcy protection, and Guy's brand products were off the market for a short time. Siefert Company purchased Guy's and the brand reentered the market. Soon, however, Siefert Company also floundered, and it filed for bankruptcy in 2001. Guy's products again left the market. Then, in the summer of 2001, Heartland acquired Guy's brand name, trade names, recipes, and packaging. According to Tom Price, president of Heartland's Kansas City sales, Heartland's intent was to return Guy's brand products to their former strong market position.

Shortly after Heartland became owner of Guy's, McCleary, which was also in the snack food business, approached Heartland and expressed interest in pursuing a partnership. On September 28, 2001, Heartland and McCleary reached a written agreement "whereby McCleary will act as the exclusive distributor of Guys branded snack food products" throughout Kansas, Missouri, and southern Illinois. (J.A. at 450.) The products included in the agreement were described as "substantially all of the product classes and/or categories previously sold under the Guys Brand," specifically including "Potato Chips, Extruded Cheese Products, Peanuts, Popcorn, Pretzels, Tortilla Chips, Pork Rinds, and Can or Jar Salsa and/or Dips." (Id.) According to the agreement, McCleary was responsible not only for the distribution of Guy's brand products, but also was bound to "coordinate the manufacture of all Guys branded products from the date of signing of this agreement until such time as [a Heartland] owned manufacturing facility is completed and capable of producing Guys branded products in such quantities and at such quality that meets or exceeds demand in the defined geographic territory." (Id at 450-51.) The agreement was written for a five-year term, renewable for another five years at the written request of either party.

Within thirty days of signing the agreement, McCleary had entered the Kansas City market with a portion of the Guy's brand product line. Because McCleary had previously been distributing its own Pajeda's brand snacks, it substituted Guy's brand products in much of the shelf space

Page 1119

formerly occupied by Pajeda's. By so doing, McCleary was not required to engage stores in negotiations for shelf space; it simply filled its own products' space with Guy's brand snacks.

In late October or early November of 2001, Mark Stisser, the managing director of Heartland, met with Pat McCleary, president of McCleary. Stisser shared his concern that McCleary's manufacturer was not using the correct recipe in producing Guy's brand products. At the same meeting, Pat McCleary shared some potential marketing programs with Stisser. Stisser expressed his excitement at using these programs to gain share in the Saint Louis market. In response, Pat McCleary explained that he was not ready to enter Saint Louis. McCleary had a business relationship with Jay's, another snack food manufacturer and major competitor of Guy's. According to Stisser, Pat McCleary stated, "Well, Jay's, one of my biggest customers, owes me $3 million and you've got to give me a little bit of time in St. Louis." (Trial Tr. Vol. I at 80.) Neither Pat McCleary nor anyone other at McCleary had informed Heartland of its business association with Jay's prior to signing the agreement.

Over the next few months, the relationship between McCleary and Heartland eroded significantly. When McCleary put forth its projections for Kansas City sales-the only area that McCleary had entered with Guy's brand products - Heartland found the projections exceedingly modest and asked for reconsideration. Heartland attempted to reach agreement with McCleary on other marketing and sales goals and strategies, but found it difficult to communicate with McCleary. Despite Heartland's insistence that McCleary expand its distribution ring, McCleary continued to distribute Guy's products only in Kansas City. The product that it did distribute continued to be substandard, at least in the eyes of Heartland.

On February 8, 2002, Stisser wrote to McCleary, demanding that McCleary put forth a timetable for entering the Saint Louis market. McCleary did not respond. By letter dated April 22,2002, Stisser again wrote to McCleary to inform McCleary that Heartland considered McCleary to be in default of the agreement. Heartland detailed numerous issues surrounding McCleary's nonperformance of its obligation to produce and distribute Guy's brand products throughout the three-state region referenced in the agreement. Nonetheless, McCleary still refused to introduce Guy's brand products anywhere other than Kansas City. In July of 2002, Heartland sent written notice to McCleary that it was terminating the contract.

Heartland then filed suit in district court, making numerous claims related to the Guy's agreement. Four of those claims proceeded to trial on August 9, 2004, including one alleging breach of contract, one alleging breach of an implied covenant of good faith and fair dealing, and a fraud claim.1 While the former two claims pertained only to McCleary, the fraud claim named McCleary, as well as Pat McCleary and Jerry Stokely, president of McCleary's Snack Food Division, personally, as defendants.

At trial, Heartland introduced the expert testimony of Ed Crumm. He was hired to testify as to the extent of Heartland's damages related to the Guy's agreement. Crumm testified that he was a certified public accountant with twenty-seven years of experience, much of that time dedicated to forecasting and projecting future business performance. He was intimately familiar with the historical performance


To continue reading