Thomas J. Kline, Inc. v. Lorillard, Inc.

Citation878 F.2d 791
Decision Date14 September 1989
Docket NumberNo. 88-3011,88-3011
Parties1989-1 Trade Cases 68,650, 9 UCC Rep.Serv.2d 61, 28 Fed. R. Evid. Serv. 323 THOMAS J. KLINE, INC., Plaintiff-Appellee, v. LORILLARD, INC., Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

Franklin Poul (Debra Klebanoff, Stanley R. Scheiner, Wolf, Block, Schorr and Solis-Cohen, Philadelphia, Pa., Fenton L. Martin, James R. Chason, Whiteford, Taylor & Preston, Baltimore, Md., on brief), for defendant-appellant.

Louis Burton Price (Holly N. Lindeman, David R. Sonnenberg, Melnicove, Kaufman, Weiner, Smouse & Garbis, P.A., Baltimore, Md., on brief), for plaintiff-appellee.

Before WINTER, SPROUSE, and CHAPMAN, Circuit Judges.

CHAPMAN, Circuit Judge:

On January 15, 1986, Lorillard, Inc., a tobacco products manufacturer, agreed to sell tobacco products to Thomas J. Kline, Inc. and granted Kline certain credit. In early February, 1986, it abruptly informed Kline that future orders would be filled only if accompanied by cash. A jury in the District of Maryland found that Lorillard's revocation of credit was both a breach of contract and a violation of the Robinson-Patman Act, 15 U.S.C. Sec. 13 (1982). The verdict awarded Kline $2,053,466 in compensatory and punitive damages, and the court set attorney's fees of $306,727.80, and issued a permanent injunction against future Robinson-Patman violations. Lorillard appeals the breach of contract and Robinson-Patman verdicts. Alternately, it submits that the damages awarded were improper. We reverse.

I.

Events relative to this dispute commenced long before 1986. From 1977 to 1980 Thomas J. Kline was the owner of William B. Merrey and Sons, Inc., an Elkton, Maryland tobacco distributor. In late 1980 Kline sold Merrey to M. Paolella and Sons, a large Philadelphia tobacco wholesaler. Over the next five years, Kline served as manager of Merrey, which had become a subsidiary of Paolella. Primarily because of his good relations with Paolella, Kline was able to repurchase Merrey in December 1985. In January 1986 Paolella went into bankruptcy, resulting in substantial losses to its cigarette suppliers, including Lorillard.

The enormous cost of Kline's purchase of Merrey, and the immediate business necessity of establishing purchasing agreements with leading tobacco manufacturers, required that Kline obtain operating funds. Kline first acquired from Maryland National Industrial Finance Corporation (MNIFC) a $3.75 million letter of credit backed largely by future inventory and accounts receivable. Kline also arranged to purchase cigarettes at wholesale prices from each of the six major cigarette manufacturers, including Lorillard. In December 1985 Lorillard granted Kline certain credit terms orally. A January 15, 1986 letter was written by Lorillard to Kline explaining credit, regular terms and discounts for prompt payment. Briefly stated, the letter allowed Kline to order goods without immediately wiring cash and provided discounts if payments were either mailed or received within 15 days of invoice.

In late January 1986, the Lorillard-Kline arrangement underwent considerable change. The primary reason was Maryland National Industrial Finance Corporation's January 30 foreclosure of Paolella. Paolella's demise impacted on Kline and Lorillard for several reasons. First, because MNIFC maintained the first lien on Paolella's inventory, including a large quantity of Lorillard brand cigarettes, Lorillard lost about $700,000 in the MNIFC seizure. Second, Paolella's collapse was a cue for tobacco distributors, including Kline, to begin a scramble for business left unserviced by Paolella's bankruptcy. This resulted in Kline submitting an unusually large $30,000 order to Lorillard on January 31. Kline acquired another tobacco distributorship in anticipation of increased business. Third, Lorillard believed that Paolella's creditor, MNIFC, was a "nervous lender." This raised Lorillard's fears that MNIFC might also foreclose on Kline. More seriously, Lorillard felt that Kline's last minute purchase of Merrey suggested a fraudulent collusion with Paolella. Although the parties disagree as to which of these factors was determinative, on either January 31 or February 3, when Lorillard received Kline's $30,000 order, it suspended the previous credit arrangement and required Kline to wire cash for its purchases. Within a few weeks Kline produced and Lorillard accepted a letter of credit and renewed 15 day terms for Kline's purchases. Kline argued at trial that in the period before he could obtain a letter of credit he was prevented from enjoying a unique opportunity to expand into the Philadelphia tobacco market.

II.

Appellant Lorillard contends that Kline's breach of contract claim is barred by Maryland's Statute of Frauds. Md.Comm.Code Ann. Sec. 2-201 (1975). 1 There is no disagreement that the statute applies to this transaction, and that the only writing evidencing the deal is a confirmatory memorandum sent to Kline by Lorillard on January 15, 1986. The question is whether the Maryland Statute of Frauds bars recovery for breach of contract. The entire text of this writing states:

January 15, 1986

Mr. Thomas J. Kline

President

Thomas J. Kline, Inc.

D/B/A W.B. Merry & Sons

555 Blueball Road

Elkton, Maryland 21921

Dear Mr. Kline:

We are pleased to inform you that your request to purchase Lorillard products on a direct basis has been approved by our New Accounts Committee, and you have been added to our direct list of customers for Full Line as successor to W.B. Merry & Sons, Inc.

Our terms are:

REGULAR TERMS: 2% cash discount on invoices if payment is mailed no later than the 15th day after invoice date.

ANTICIPATORY DISCOUNT: 1.25% cash discount (total discount 3.25%) is available if payment is RECEIVED at our remittance address no later than the 15th day after invoice date.

Enclosed is our price list No. 61, dated July 22, 1985 with supplements.

Each of our customers is assigned an individual computer processing number to be included when submitted phone or mail orders.

YOUR NUMBER IS: 159-378-000-2

Please mail your remittances to:

LORILLARD, INC.

P.O. Box 6390

Church Street Station

New York, NY 10249

In Maryland it is well established that a writing satisfies the requirements of the Statute of Frauds if (1) it evidences a contract for the sale of goods, (2) it is signed by the party against whom it is to be enforced, and (3) it specifies the quantity of goods to be sold. Cavalier Mobile Homes v. Liberty Homes, Inc., 53 Md.App. 379, 395, 454 A.2d 367, 376-77 (1983). Because the writing obviously evidences the sale and was signed by Lorillard's agent, the issue becomes whether the memorandum adequately "specifies the quantity of goods to be sold." More precisely, the requirement in Maryland is that there must be "some writing which indicates ... the quantity to be delivered." Cavalier Mobile Homes, 53 Md.App. at 395, 454 A.2d at 377.

Kline's position is that the memorandum's references to "direct basis" and "Full Line" satisfactorily prove the quantity term. Even Kline, however, admits that these terms are not in themselves clear as to Lorillard's contractual obligation. As a result, Kline testified as to the meanings of "direct basis" and "Full Line." Normally, such supplementation of a written memorandum should be permitted. Md.Comm.Code Ann. Sec. 2-202 (1975). In fact, Maryland expressly allows parol evidence of "course of dealing," "usage of trade" or "course of performance" to explain written memoranda, so long as such evidence does not contradict the plain language of an agreement.

In submitting parol evidence appellee contended that the words "direct basis" created an obligation to supply Kline with all of his tobacco requirements, and that they required Lorillard to provide Kline with credit for his requirements on 15-day terms. Kline also introduced testimony suggesting that such arrangements were traditional in the tobacco distribution business, and had always been the manner of business between himself and Lorillard. Conversely, Lorillard contended that such terms created neither a requirements contract nor unlimited credit. It argued that "direct basis" and "Full Line" merely entitled Kline to buy Lorillard products directly from the manufacturer.

Before evaluating whether this course of dealing evidence is sufficient, we must consider whether there is any language in the memorandum itself which might satisfactorily indicate "the quantity to be delivered." This initial inquiry is plainly required by Maryland's requirement of a written quantity term. The general rule is that "when quantity is not precisely stated, parol evidence is admissible to show what the parties intended as the exact quantity ... but where the writing relied upon to form the contract of sale is totally silent as to quantity, parol evidence cannot be used to supply the missing quantity term." Alaska Independent Fishermen's Marketing Assn. v. New England Fish Co., 15 Wash.App. 154, 159-60, 548 P.2d 348, 352 (1976). Accord: Great Northern Packaging, Inc. v. General Tire & Rubber Co., 154 Mich.App. 777, 399 N.W.2d 408 (1986); In the Matter of Estate of Warren Bert Frost, 130 Mich.App. 556, 344 N.W.2d 331 (1983); Cox Caulking & Insulating Co. v. Brockett Distributing Co., 150 Ga.App. 424, 258 S.E.2d 51 (1979).

A review of decisions on this point reveals that there is not a single Maryland case where terms similar to those used in Lorillard's memorandum have been found to be sufficient written evidence of quantity. In Cavalier Mobile Homes, the Court of Special Appeals held that even where extant writings included a series of individual contracts there was insufficient written evidence to prove the alleged quantity. Cavalier, 53 Md.App. at 395, 454 A.2d at 377. Other courts have come to identical conclusions. For example, Georgia's Court of...

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    ...Experience as an expert standing alone does not qualify a person as an expert. The court in Thomas J. Kline, Inc. v. Lorillard, Inc. 878 F.2d 791, 800 (4th Cir. 1989) commented that although it would be incorrect to conclude that the witness’s occupation as a professional expert alone requi......
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