H & W INDUSTRIES, INC. v. Formosa Plastics Corp., USA, EC87-382-NB-D.
| Decision Date | 13 May 1988 |
| Docket Number | No. EC87-382-NB-D.,EC87-382-NB-D. |
| Citation | 687 F. Supp. 271 |
| Court | U.S. District Court — Northern District of Mississippi |
| Parties | H & W INDUSTRIES, INC., Plaintiff, v. FORMOSA PLASTICS CORPORATION, USA, Formosa Plastics Corporation Texas and J-M Manufacturing Company, Defendants. |
John M. Edgar, Ronald L. Holt, Kansas City, Mo., James R. Moore, Jr., Jackson, Miss., H. Scot Spragins, Oxford, Miss., for plaintiff.
Thomas J. Suszek, Oxford, Miss., for defendants.
Comes now before the court the motion of the plaintiff, H & W Industries, Inc. ("H & W"), seeking a preliminary injunction against the defendants, Formosa Plastics Corporation, USA and Formosa Plastics Corporation, Texas ("Formosa"). Having considered the evidence, the parties' memoranda, and being otherwise fully advised of the premises, the court is in a position to rule on the merits.
In 1978, Randy Heath began H & W Industries in Booneville, Mississippi to produce PVC pipe. H & W made the pipe by taking resin it purchased, adding materials to it, and forming pipe by a plastic extruding machine. Soon after Heath built the plant, H & W established another facility in Springfield, Kentucky.
In 1981, Heath traveled to the Formosa Plastics headquarters in Florham Park, New Jersey to discuss a resin supply contract. Heath met with the chairman and vice-president of Formosa, Y.C. Wang and Robert Chou. At the meeting Heath agreed that H & W would purchase a portion of its resin needs from Formosa.
On August 17, 1983, Formosa and H & W signed an "evergreen" contract in which Formosa agreed to supply H & W 4,000,000 pounds of resin each month. The contract contained a provision which stated the contract could only be modified by an agreement signed by both parties. It also included a clause which provided the contract could be cancelled 120 days after receipt of written notice.
In 1983, Formosa formed a subsidiary, J-M Manufacturing ("J-M") which purchased eight PVC pipe plants from Johns-Manville Corporation. Initially, J-M had the capacity to produce 300,000,000 pounds of PVC pipe each year. Formosa supplied J-M with most of its resin requirements.
According to Heath, at the time J-M entered the market the PVC pipe market was highly competitive. The market had numerous pipe producers and had an overabundance of resin selling at low prices. He testified that Formosa could not sell all the resin it produced.
In 1984, Robert Chou called Heath and asked him to purchase more resin from Formosa. According to Heath, Chou wanted Heath to run his plant at full capacity and to expand his business. Heath testified that he agreed to purchase more resin if Formosa would extend H & W's credit terms. Heath said Chou agreed to this, and H & W began to purchase 4,000,000 to 8,000,000 pounds of resin each month from Formosa.
In the summer of 1985, Robert Chou asked Heath to come to New Jersey to meet with Y.C. Wang. Heath and Wayne Hamilton, H & W's vice-president, went to Florham Park, New Jersey on August 22, 1985. According to Heath and Hamilton, Wang wanted H & W to purchase all of its resin supplies from Formosa and wanted H & W to run its plants at optimum capacity. Hamilton and Heath testified that Heath agreed to purchase 80% of the resin requirements for the Booneville and Springfield plants. In return, Heath said Wang agreed to sell resin at a competitive price and promised not to curtail H & W's resin supplies during a time of shortage. After returning to Booneville, Hamilton wrote a letter to Bob Chou setting forth his understanding of the parties' agreement. The letter indicated that Formosa would supply 80% of H & W's resin needs and Formosa would charge H & W the same price Formosa's competitors charged for resin. (Plaintiff's Exhibit 1.) Hamilton testified that after the August meeting he believed Formosa and H & W had entered a longterm contract which could only be terminated by a mutual agreement.
Between September, 1985 and March, 1986, H & W purchased between 88% and 174% of H & W's resin requirements from Formosa. (Plaintiff's Exhibit 37.) According to Heath and Hamilton, H & W accommodated Formosa by purchasing more resin than the Springfield and Booneville plants needed. In March, 1986, Heath refused to purchase resin from Formosa because their price was too high. (Plaintiff's Exhibit 4.)
On April 1, 1986, H & W began to operate the Hunter PVC pipe plant in Lincoln, Alabama and started shipping resin there in June. In November, 1986, Hamilton formed Southern Louisiana Plastics and leased a PVC plant in Slidell, Louisiana. H & W began shipping resin there too.
According to Heath, in the fall of 1986, there was less resin available in the U.S. market. In December, 1986, Formosa began to cut H & W's resin supply. Heath said he continually asked Formosa for 11,000,000 pounds per month and tried to purchase resin from other suppliers, but the market was tight and prices were high.
In early 1987, J-M purchased PVC pipe manufacturing plants in Horton, Texas and Fontana, California. While J-M was expanding, Formosa increased its supply of resin to J-M and decreased its supply to H & W. In February, 1987, Formosa began charging H & W more for resin than it charged J-M. (Plaintiff's Exhibit 56.)
On February 1, 1987, H & W owed Formosa $13,700,000 for resin of which $6,600,000 was overdue. On February 10, 1987, Gordon Miller, Formosa's new assistant credit manager, wrote Heath and asked that H & W pay its overdue account to get it within 90-day payment terms. (Plaintiff's Exhibit 7.)
In early February, Robert Chou told H & W that Formosa would reduce H & W's resin shipments. Hamilton sent a mailgram objecting to the reduction and demanding more resin. (Plaintiff's Exhibit 9.) Ben Chein, Formosa's coordination manager, wrote Hamilton asking that H & W get its account in order. Chein explained that Formosa was concerned about releasing a resin shipment when H & W's account was $4,784,382.61 overdue. (Plaintiff's Exhibit 8.) On March 2, Ben Chein wrote Hamilton that Formosa would send only four rail cars. He told Hamilton that Formosa would not fill H & W's entire order because of a price disagreement and because H & W owed $5,178,280.38 which was past due. Chein warned Hamilton that if H & W failed to pay, Formosa would stop making any shipments. (Plaintiff's Exhibit 11).
The same day, Hamilton responded to Chein's February 24 letter. In his letter, Hamilton disagreed with the amount H & W owed and demanded that Formosa ship twenty-one rail cars to make a 10,000,000 pound per month quota he claimed Formosa agreed to. (Plaintiff's Exhibit 10.)
On March 3, Hamilton and Heath met with Ben Chein, Bob Chou and Gordon Miller to arrange a payment schedule for H & W. At the meeting H & W agreed to accept 4,500,000 pounds of resin per month until June and promised to pay Formosa to get its account within 90-day payment terms. During the meeting, Heath invited Miller to Booneville to examine H & W's records. (Plaintiff's Exhibits 12 & 14.)
Miller went to Booneville on March 10 and examined H & W's inventory and accounts receivable. Miller testified that he asked Heath for an audited financial statement. Miller said Heath told him H & W did not have an audited statement but claimed H & W was worth between $22,000,000.00 and $27,000,000.00. A financial statement introduced into evidence indicated that H & W was worth $5,159,901.05 in March, 1987. (Defendant's Exhibit 1A.)
On June 3, 1987, Ben Chein wrote Heath in reply to an order for 8,000,000 pounds of resin. Chein told Heath he could only ship 6,800,000 pounds in June because of production problems. (Plaintiff's Exhibits 15 & 17.) On June 30, 1987, Chein wrote Heath explaining that he could only ship 6,000,000 pounds of resin in July due to Formosa's production problems. (Plaintiff's Exhibit 19.) Heath objected to these reductions. (Plaintiff's Exhibit 18.)
On August 25, Occidental Chemical Corporation sent J-M notice of cancellation of "a resin supply contract" with J-M. (Defendant's Exhibit 915.) On August 21, Formosa sent H & W notice of cancellation of the resin supply contract and told Heath that Formosa wanted to operate under a new contract with H & W. (Plaintiff's Exhibits 20 & 22.) On December 16, 1987, Formosa sent Heath the new contract in which Formosa agreed to supply H & W 4,500,000 pounds of resin each month. Formosa asked Heath to sign the contract and return it by December 31, 1987. (Plaintiff's Exhibit 27.)
Instead of signing the new contract, H & W sought relief from this court by way of a temporary restraining order. On December 31, 1987, this court entered an ex parte temporary restraining order on the representation of counsel that Formosa had a contractual obligation to supply 11,000,000 pounds of resin to H & W each month. H & W asks the court to keep that order in effect by way of a preliminary injunction and asserts that H & W also is entitled to an injunction because Formosa's resin reduction would enable J-M to succeed in monopolizing the PVC pipe market, contrary to federal law.
To secure a preliminary injunction, H & W must show:
Canal Authority of the State of Florida v. Callaway, 489 F.2d 567, 576 (5th Cir.1974). H & W asserts six causes of action against Formosa, namely: breach of contract; fraud; misappropriation of trade secrets; defamation; wrongful interference with business relations; and antitrust violations. Initially, the court will ascertain whether H & W has a breach of contract claim against Formosa.
At trial and in its briefs, H & W claims the parties agreed to a new contract on August 22, 1985....
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H & W Industries, Inc. v. Formosa Plastics Corp., USA
...counts I and VI of H & W's complaint (the breach of contract and attempted monopolization claims). H & W Industries, Inc. v. Formosa Plastics Corp., U.S.A., 687 F.Supp. 271 (N.D.Miss.1988). Neither party had prior notice that the court would rule on the merits after the preliminary injuncti......