638 F.2d 1061 (7th Cir. 1981), 80-1128, Contractor Utility Sales Co., Inc. v. Certain-Teed Products Corp.

Docket Nº:80-1128, 80-1245.
Citation:638 F.2d 1061
Party Name:CONTRACTOR UTILITY SALES CO., INC., an Illinois corporation, Plaintiff Counterdefendant-Appellant, v. CERTAIN-TEED PRODUCTS CORPORATION, a Maryland corporation, Defendant Counterplaintiff-Appellee. CONTRACTOR UTILITY SALES CO., INC., an Illinois corporation, Plaintiff Counterdefendant-Appellee, v. CERTAIN-TEED PRODUCTS CORPORATION, a Maryland corpo
Case Date:January 14, 1981
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
FREE EXCERPT

Page 1061

638 F.2d 1061 (7th Cir. 1981)

CONTRACTOR UTILITY SALES CO., INC., an Illinois corporation,

Plaintiff Counterdefendant-Appellant,

v.

CERTAIN-TEED PRODUCTS CORPORATION, a Maryland corporation,

Defendant Counterplaintiff-Appellee.

CONTRACTOR UTILITY SALES CO., INC., an Illinois corporation,

Plaintiff Counterdefendant-Appellee,

v.

CERTAIN-TEED PRODUCTS CORPORATION, a Maryland corporation,

Defendant Counterplaintiff-Appellant.

Nos. 80-1128, 80-1245.

United States Court of Appeals, Seventh Circuit

January 14, 1981

Argued Sept. 16, 1980.

Rehearing and Rehearing In Banc Denied Feb. 17, 1981.

Page 1062

[Copyrighted Material Omitted]

Page 1063

[Copyrighted Material Omitted]

Page 1064

[Copyrighted Material Omitted]

Page 1065

[Copyrighted Material Omitted]

Page 1066

Thomas F. Londrigan, Springfield, Ill., for plaintiff-counterdefendant appellant, plaintiff-counterdefendant appellee.

Geoffrey G. Gilbert, Chicago, Ill., for defendant-counterplaintiff appellee, defendant-counterplaintiff appellant.

Before CUMMINGS, SPRECHER and BAUER, Circuit Judges.

SPRECHER, Circuit Judge.

Plaintiff, Contractor Utility Sales Co., Inc. ("Cusco"), brought suit against Certain-teed Products Corporation ("Certain-teed"), 1 for alleged violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and for common law fraud and breach of contract. A ten day jury trial was held before Judge Harold A. Baker in the United States District Court for the Central District of Illinois. At the close of plaintiff's case, Judge Baker granted Certain-teed's motion for a directed verdict on the antitrust counts. The breach of contract and fraud counts remained and were submitted to the jury, which returned a general verdict for Cusco awarding $2,400,000

Page 1067

in compensatory damages and $7,383,000 in punitive damages. Cusco appeals the district court's directed verdict on the antitrust counts and the court's refusal to grant a new trial on the issue of compensatory damages. Certain-teed appeals several rulings of the court concerning liability and damages on the common law counts. We affirm the district court's directed verdict on the antitrust counts, but reverse and remand for a new trial the issues of liability and damages on the common law breach of contract and fraud counts.

I

Cusco is a closely held Illinois corporation based in Springfield, Illinois which sells and distributes polyvinylchloride ("pvc") pipe, asbestos cement ("a/c") pipe, and related accessory supply items to contractors involved in what is known as the federally funded rural water market. Ron Lance is Cusco's majority shareholder and key operating officer. Cusco has been a major force in the sale and distribution of pvc and a/c pipe in the Midwest, primarily in Illinois, Indiana, Missouri, Kentucky, Tennessee, Iowa, Nebraska, and Kansas.

Certain-teed, a Maryland corporation, manufactures, among other things, pvc and a/c pipe for use in the rural water market. Its corporate headquarters are in Valley Forge, Pennsylvania.

The rural water market consists of federally funded projects designed to supply drinking water to rural areas. Independent contractors compete in public bidding for construction of the projects. Pipe manufacturers and distributors generally submit price quotations to independent contractors for the contractors' use in preparing competitive bids. Actual purchases of pipe, either directly from the manufacturer or from independent distributors, occur only after a contractor has been awarded the project. Often, a successful contractor purchases pipe at prices lower than those originally quoted and from suppliers other than the one who provided the lowest quote in the bidding process. In other words, there is price competition among suppliers at the bidding stage and again at the purchase stage. Cusco and Certain-teed concede that the rural water market has been a very competitive market.

From 1965 to 1972, Cusco was a distributor/sales agent for Certain-teed's pvc and a/c pipe in the rural water market in parts of Illinois and Indiana. As an adjunct of its pipe business Cusco supplied contractors with a full line of pipe accessories and supplies manufactured by companies other than Certain-teed. During these years Cusco, primarily through the efforts of Lance, developed a lucrative business based upon a loyal clientele of independent contractors who consistently turned to Cusco as their supplier of competitive quotations and, ultimately, of pipe and accessories.

In 1972, Cusco terminated its status as sales agent for Certain-teed's pvc pipe and switched to a competing manufacturer, Robintech Inc., who offered Cusco a larger territory (eight states) and a higher commission rate (81/2%). Since Robintech did not manufacture a/c pipe, Cusco continued to sell and distribute Certain-teed's a/c pipe. Although the parties disagree as to Cusco's exact market share during its years with Robintech, Cusco apparently sold between 25% and 35% of all pvc pipe used in the rural water market in Cusco's market area.

Beginning in 1969, and finally terminating unsuccessfully in June, 1975, Certain-teed negotiated with Lance in hopes of purchasing Cusco as a company-owned supply house. The final offer of over $3,000,000 in cash and Certain-teed stock was rejected by Lance in June of 1975.

By the summer of 1975, Cusco, for a number of reasons, 2 had decided to terminate

Page 1068

its relationship with Robintech and to once again handle Certain-teed's pvc pipe, as well as continuing to handle Certain-teed's a/c pipe. Shortly after negotiations for the purchase of Cusco by Certain-teed terminated, the parties began negotiations for a new "Sales Agents Agreement." Lance met with Certain-teed representatives on July 7 and 8, 1975, at Certain-teed's corporate headquarters in Valley Forge. During the course of these negotiations, which produced a draft Sales Agents Agreement, Lance met with Bill Krivsky, head of the Utility Supply Group, Ray Blankenship, head of marketing, George Haufler, President of Certain-teed, and Fred Timpe, financial officer. According to Lance, during these negotiations, Krivsky and others repeatedly assured Lance that Certain-teed would keep Cusco "competitive" in the rural water market. 3

The proposed Sales Agents Agreement was reviewed by James Potter, Cusco's legal counsel; minor changes satisfactory to both parties were made. Lance, on behalf of Cusco, signed the Sales Agents Agreement in Potter's office during the last week of August, 1975. The contract was executed by Certain-teed officials in Valley Forge on September 2, 1975.

The Sales Agents Agreement was to begin November 1, 1975, and run through December 31, 1978. It was terminable only upon the mutual consent of the parties or upon the occurrence of certain specified events, such as the insolvency of Cusco or the departure of Lance from active participation in Cusco. Except for sales through existing agents or distributors of Certain-teed, Cusco was designated the exclusive Certain-teed agent for the eight state area Cusco originally had with Robintech. Certain-teed promised to supply Cusco with up to 50,000,000 pounds of pvc pipe per year and to pay Cusco a sales commission of 10% of the invoice price on pvc pipe and 81/2% on a/c pipe. Under the contract, Cusco was to submit to Certain-teed all information regarding projects prior to submitting any quotations or bids to contractors competing for the project contract. Cusco was to quote prices only as established and authorized by Certain-teed. Cusco was not to sell pipe of competing manufacturers without first submitting the bid or order to Certain-teed for its acceptance or rejection. The contract also contained an integration clause specifically stating that:

This Agreement contains the entire agreement of CPC (Certain-teed) and Sales Agent (Cusco). Any and all representations, inducements, promises or agreements, oral or otherwise, of CPC and Sales Agent which are not set forth herein, or in a written amendment hereof executed by CPC and Sales Agent, shall not be of any force or effect, and shall not be binding on either CPC or Sales Agent.

Shortly after the contract was executed, Certain-teed officials met in St. Louis with Lance, Cusco sales people, Certain-teed field representatives, and Certain-teed corporate officials to explain the contract and to begin the new business association. According to the testimony of Lance and several others, during the course of this meeting Krivsky and other Certain-teed officials again assured the Cusco representatives that Certain-teed intended to keep Cusco "competitive" in the rural water market.

The Sales Agents Agreement took effect November 1, 1975. Also during November, 1975, Krivsky, who had negotiated the Cusco agreement for Certain-teed, left the Utility Supply Group and became head of Certain-teed's Pipe Division. On December 31, 1975, Certain-teed announced incremental price increases, commencing January 1, 1976, totalling 25% on its pvc pipe. The immediate impact of this price increase was to price Certain-teed's pipe out of the highly competitive rural water market and to

Page 1069

reduce significantly the sale of pipe by Cusco and Certain-teed.

To understand the possible reasons for Certain-teed's price increase, a brief analysis of the conditions in the rural water market in 1974, 1975, and 1976 is necessary. 1974 was a boom year in the rural water market for manufacturers, agents, and distributors. The Arab oil embargo had created shortages of pvc pipe, an oil-based product, and had pushed prices and profits to new highs. By 1975, however, the market had reversed and sellers/distributors found themselves with an...

To continue reading

FREE SIGN UP