Canteen Corp. v. Former Foods, Inc.

• Decision Date: 28 October 1992
• Docket Number: No. 1-91-0437,1-91-0437
• Citation: 179 Ill.Dec. 342,606 N.E.2d 174,238 Ill.App.3d 167
• Parties: , 179 Ill.Dec. 342, 20 UCC Rep.Serv.2d 64 CANTEEN CORPORATION, Plaintiff-Appellee, v. FORMER FOODS, INC. (formerly Tommy Lasorda Foods, Inc.), Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 174

606 N.E.2d 174

238 Ill.App.3d 167, 179 Ill.Dec. 342,

20 UCC Rep.Serv.2d 64

CANTEEN CORPORATION, Plaintiff-Appellee, v. FORMER FOODS, INC. (formerly Tommy Lasorda Foods, Inc.) Defendant-Appellant.

No. 1-91-0437.

Appellate Court of Illinois First District, Third Division.

Oct. 28, 1992.

Torshen, Schoenfield & Spreyer, Ltd. (Jerome H. Torshen, Mark K. Schoenfield, James K. Genden, of counsel), Sugar, Friedberg & Felsenthal (Richard A. Sugar, Andrew B. David, of counsel), Chicago, for defendant-appellant.

Sidley & Austin, Chicago (James A. Hardgrove, John M. Breen, of counsel), for plaintiff-appellee.

Justice RIZZI delivered the opinion of the court:

Defendant, Former Foods, Inc., previously known as Tommy Lasorda Foods, Inc. (TLF), sought damages in an arbitration proceeding from plaintiff, Canteen Corporation (Canteen), for plaintiff's alleged breach of contract. The arbitration panel awarded defendant a $524,553.12 judgment and granted plaintiff a $16,151 set-off. On July 19, 1990, plaintiff filed an action in the circuit court to vacate the arbitration award pursuant to sections 12 and 15 of the Uniform Arbitration Act and the common law. Ill.Rev.Stat.1989, ch. 10, pars. 112, 115. Defendant subsequently moved to confirm the award pursuant to section 11 of the Uniform Arbitration Act. Ill.Rev.Stat.1989, ch. 10, par. 111. On January 18 1991, the trial court granted plaintiff's motion to vacate the award. Defendant now appeals. We reverse and grant defendant's motion to confirm the arbitration award.

The following issues are before this court for review: (1) whether the arbitration panel's refusal to hear evidence of defendant's actions subsequent to November 30, 1987, violated section 12(a)(4) of the Uniform Arbitration Act (Ill.Rev.Stat.1989, ch. 10, par. 112(a)(4)); (2) whether the trial court applied the correct standard of review for an arbitration award pursuant to section 12(a)(3) of the Uniform Arbitration Act (Ill.Rev.Stat.1989, ch. 10, par. 112(a)(3)); (3) whether the trial court erred in vacating defendant's arbitration award where an arbitration panel found that plaintiff breached a requirements contract with defendant by terminating its requirements purchase of popcorn from defendant, without giving defendant 30 days to cure, and where the panel then held that plaintiff's termination of the contract was proper; (4) whether the trial court erred when it held that the arbitration panel exceeded its authority and committed a gross error of law when by disregarding the 30-day written notice and opportunity to cure provision; (5) whether the trial court erred in ruling that the arbitrators committed a gross error of law when they disregarded the language of the contract by ignoring plaintiff's timely reinstatement of requirements purchasing, and defendant's actions which rendered its own performance impossible prior to the expiration of any cure period; and (6) whether the arbitration panel committed gross error by awarding damages to defendant which included expenses which defendant did not incur, and expenses which defendant saved by mitigating its damages.

On August 22, 1986, TLF and Canteen entered into a requirements contract whereby TLF was to be the exclusive supplier of microwaveable popcorn to be sold in vending machines owned or serviced by Canteen. In section 4 of the contract, TLF warranted that "Lasorda's microwave popcorn shall be of the same or better quality than that currently sold by Canteen and meet industry quality standards." Section 4 also provided that "[i]f Lasorda fails to provide a satisfactory product which meets Canteen's standards in quality and is competitively priced, Canteen may terminate this agreement in accordance with Section 12." Section 12 of the agreement provides as follows:

12. Termination for Cause and Right to Cure. Each party hereto reserves the right, in case the other party fails to carry out any conditions of this Agreement, to cancel the Agreement after due demand in writing addressed to the other party. If at the end of thirty (30) days from the date of the receipt of such demand, the other party has not complied with the demand, the Agreement shall immediately end, without necessity of any other steps being taken.

Section 16 of the contract provided that the contract "is to be * * * governed and construed according to the laws of the State of Illinois." Section 19 of the agreement provided that "[a]ny controversy or claim arising out of or related to this Agreement, or breach thereof, shall be settled by binding arbitration in Illinois * * *."

TLF and Canteen tested the popcorn before it was made available for sale to the public. Canteen began delivering the popcorn to its vending machines during the summer of 1987. Soon thereafter, Canteen learned from several of its customers that the popcorn supplied by TLF was defective. Canteen then informed TLF that it had received complaints from its clients concerning the quality of the popcorn. TLF maintained that any problems were not caused by the poor quality of its product, but by Canteen's failure to recalibrate the microwave ovens adjacent to its vending machines so that the ovens would heat the popcorn at an optimal temperature. Dan Krypan, a vice-president of Canteen responded to TLF by writing the following letter dated October 12, 1987, to Angelo Demetriou, president of TLF:

Dear Angelo:

We are finding it increasingly difficult to maintain and support the exclusive use of Lasorda popcorn in Canteen's vending operations.

The same complaints we've reviewed many times over the last six weeks continue to come in by phone and mail; leaking packaging, burned bags and product, unpopped kernels and general dissatisfaction.

Many clients have demanded that Lasorda popcorn be removed and the original competitive brand brought back. In every case, this followed complaints by client employees at the affected location. While we were able to delay or diffuse this situation in some cases, there is an undercurrent of resentment there that can erupt at any moment.

Specifically to the point, we find that our sales have declined from 20% to 40% where we carry Lasorda as the only popcorn. That figure truly understates the actual effect, since we have put Lasorda into our glassfront machines, where our tests show we would normally get a 26% lift.

In summary, while we wish to continue the program, client demands for removal and field operations reports of substantial sales losses, compels a re-evaluation of our position and requires that we no longer provide Lasorda exclusivity.

Canteen later recalibrated the microwave ovens adjacent to its vending machines. On October 12, 1987, Canteen unilaterally ceased to purchase popcorn from TLF.

TLF then telephoned Canteen to object to the termination of Canteen's requirements purchasing. On October 16, 1987, Krypan wrote to James Atsaves, the chief executive officer of TLF. Krypan's letter reiterated previous allegations that the popcorn supplied by TLF was poor in quality.

Later that month, Atsaves wrote to Krypan on behalf of TLF in response to Canteen's letters dated October 12, 1987, and October 16, 1987. In Atsaves' letter dated October 26, 1987, he reiterated his objection to Canteen's termination of requirements purchasing. Atsaves reminded Krypan that the contract provided that "Canteen was to buy Lasorda popcorn exclusively * * *."

Several days later, Atsaves wrote to Krypan again. The following letter written by Atsaves was dated November 3, 1987:

Dear Dan:

This letter is to inform you that [TLF] currently stands ready to continue to fulfill our exclusive contract with your company for microwave popcorn. It is our position that all of the problems which we are aware of and have control over (and are not your company's responsibility) detailed in your [letters dated] October 12th and October 14th have now been resolved. Therefore unless we are formally notified to the contrary, we stand ready to fulfill our part of the exclusive contract and in turn expect Canteen to support its end of the contract by retracting any information (verbal or written) which could be interpreted as rescinding [TLF's] exclusive contract.

In my letter to you dated October 26, 1987, I detailed all of your complaints and our response to them. It is our opinion that all of these complaints which you have permitted us to respond to have been answered and resolved. Based upon our telephone conversation on October 26, 1987, we did not view your letter to Angelo J. Demetriou--dated October 12 or your letter to me--dated October 14th as an official cancellation notice per Section 12 of our contract, because there was no reference to the contract, it was somewhat ambiguous and you told me these letters were to remain in Corporate and not be given to anyone outside of Chicago. Despite your assertion it has now come to my attention from various sources that Canteen has issued either a verbal or written cancellation of our exclusive contract with your company. We feel this is a direct violation of Section 12 of our contract which provides both parties with a period of 30 days to cure any violation of the contract prior to cancellation.

While we wish to avoid any legal avenues open to us, I must remind you that our 5 year contract with your company is the centerpiece of the business plan of our company. It was and remains, the major support for the success or failure of this company.

Canteen responded to Atsaves' letter by refusing to reinstate exclusive requirements purchasing of popcorn from TLF. Canteen, however, continued to purchase popcorn from TLF on a nonexclusive basis.

Upon hearing of Canteen's refusal to reinstate requirements purchasing, TLF notified its shareholders and Tommy Lasorda Advance Packaging Company (Advance Packaging), TLF's packer, that Canteen refused to purchase its requirements from TLF. Subsequently, TLF's shareholders refused to...