Western Fireproofing Co. v. W.R. Grace & Co.

• Decision Date: 07 February 1990
• Docket Number: No. 88-2396,88-2396
• Parties: WESTERN FIREPROOFING CO., Appellee, v. W.R. GRACE & COMPANY, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 286

896 F.2d 286

WESTERN FIREPROOFING CO., Appellee, v. W.R. GRACE & COMPANY, Appellant.

No. 88-2396.

United States Court of Appeals,

Eighth Circuit.

Submitted April 11, 1989.

Decided Feb. 7, 1990.

Thomas C. Walsh, St. Louis, Mo., for appellant.

William Sanders, Kansas City, Mo., for appellee.

Before FAGG, Circuit Judge, FLOYD R. GIBSON, and TIMBERS, ^* Senior Circuit Judges.

FAGG, Circuit Judge.

A jury found W.R. Grace & Company (Grace) liable on claims for fraudulent misrepresentation and tortious interference with business expectancies brought by Western Fireproofing Co. (Western). Grace appeals from the resulting judgment for $3.2 million actual and $10 million punitive damages. We affirm the jury's finding of liability and the actual damages award on the condition that Western remit the award of punitive damages; otherwise we vacate the entire judgment and remand for a new trial on all issues.

I. BACKGROUND

Beginning in 1934, Western sold and installed fireproof roofing structures for commercial and private buildings from its base in Kansas City, Missouri. Western also provided related architectural and engineering services. In connection with this business, Western became an "applicator" of a Grace roofing product known as "Zonolite." In late 1979, Grace announced its applicators would be required to enter into new license agreements covering the Zonolite product. Western was reluctant to sign the proposed agreement, primarily because it contained provisions that Western would not have an exclusive territory in which to promote Zonolite and that Western would be obligated to pay Grace a license fee each time it sold non-Grace products.

Early in 1980, Grace representatives attempted to persuade Western to sign the proposed agreement. A Grace vice president named Bruce Williams came to Kansas City to meet with Western's owner, Rodrick J. Cyr. According to Cyr, Williams said that if Western would sign the agreement, which by its terms established a nonexclusive arrangement, Western would nevertheless have an exclusive territory as long as it promoted Zonolite. Two other Grace employees corroborated Cyr's report of this meeting. Cyr also testified that Williams assured him Grace would not seek license fees under the agreement if Western sold non-Grace products. Williams denied making these representations and asserted that he neither intended for Western to have an exclusive Zonolite territory nor for Grace to waive the license fees. Western signed the agreement.

In 1983, two Western employees offered to buy the business from Cyr. When Cyr rejected their offer, they resigned and started a competing business in the Kansas City area. Grace immediately appointed the new company as a licensed Zonolite applicator. According to Western, Grace also assisted the new company in persuading customers and others to transfer roofing business, including the related architectural and engineering services, to the new company. Western also asserted Grace provided lower prices to the new company, enabling it to undercut Western's project bids.

Western then filed this action in state court. Western asserted that Grace fraudulently induced it to enter into the 1980 license agreement by representing that Western would, despite the agreement's contrary terms, have an exclusive territory for Zonolite. In addition, Western claimed Grace tortiously interfered with Western's business expectancies by licensing a competing Zonolite applicator within Western's exclusive territory and by assisting the competitor through preferential pricing and other improper tactics in obtaining Western customers. Grace counterclaimed for license fees under the agreement and removed the case to federal court based on diversity of citizenship. Before the case came to trial, Cyr sold Western's assets and two other businesses to the competing Zonolite applicator.

The jury returned a general verdict in favor of Western on its claims and on Grace's counterclaim. The district court denied Grace's motion seeking judgment notwithstanding the verdict, a new trial, or remittitur.

II. PAROL EVIDENCE AND FRAUDULENT MISREPRESENTATION

One of the most hotly contested issues on appeal concerns Grace's argument that evidence of Williams's oral statements was admitted in violation of the parol evidence rule. See, e.g., Emerick v. Mutual Benefit Life Ins. Co., 756 S.W.2d 513, 522 (Mo.1988) (en banc) (general statement of parol evidence rule). Grace contends that although Western asserted it was fraudulently induced to sign the license agreement by Williams's oral representations, those statements contradicted the express terms of the parties' later written agreement and, thus, were barred by the parol evidence rule. Based on this contention, Grace argues Western did not make a submissible case on its fraud claim. We disagree.

Under Missouri law, a party who is the victim of fraud in the inducement of a contract may choose among three avenues of relief. The party may: (1) rescind the contract and seek restoration of the status quo; (2) affirm the contract and pursue whatever contractual remedies may be available; or (3) bring an action seeking damages for the asserted fraud. See Dowd v. Lake Sites, Inc., 365 Mo. 83, 276 S.W.2d 108, 112 (1955). The particular avenue of relief chosen is critical to the application of the parol evidence rule.

When a party seeks rescission of the contract based on fraud, parol evidence is admissible--not for the purpose of varying the terms of the contract, but to avoid the obligations of the contract entirely and restore the status quo. See, e.g., Wallach v. Joseph, 420 S.W.2d 289, 294 (Mo.), cert. denied, 389 U.S. 953, 88 S.Ct. 335, 19 L.Ed.2d 362 (1967). An exception to this rule apparently exists in Missouri for fraud asserted as a defense to an action on a promissory note. See, e.g., Bank of Kirksville v. Small, 742 S.W.2d 127, 133 (Mo.1987) (en banc). But see Pinken v. Frank, 704 F.2d 1019, 1022-24 (8th Cir.1983) (decided before Bank of Kirksville ).

In contrast, if a party elects to pursue contractual remedies (for example, reformation), the parol evidence rule prevents the court from enforcing the written contract as varied or altered by the assertedly fraudulent statements. See, e.g., Dowd, 276 S.W.2d at 112-13; Stein v. Stein Egg & Poultry Co., 606 S.W.2d 203, 205-07 (Mo.Ct.App.1980); Ezo v. St. Louis Smelting & Ref. Co., 87 S.W.2d 1051, 1052-54 (Mo.Ct.App.1935). In this case, Western did not file the action either to avoid entirely its contractual obligations with Grace or to enforce the contract as varied by the fraudulent oral statements. Instead, Western chose to bring an action seeking damages for the asserted fraud. In this situation, "the submissibility of [Western's] case depends not on the content of the written agreement, ... but [on] whether [Western] has established the nine elements of fraud." Essex v. Getty Oil Co., 661 S.W.2d 544, 549 (Mo.Ct.App.1983); see also Smith v. Tracy, 372 S.W.2d 925, 937-38 (Mo.1963); Countess v. Strunk, 630 S.W.2d 246, 254 (Mo.Ct.App.1982); Forsythe v. Starnes, 554 S.W.2d 100, 110-11 (Mo.Ct.App.1977).

The district court recognized this distinction when it ruled on Grace's posttrial motion raising the issue. The court observed that here "[Western] was not trying to enforce the contract as varied by the oral representations." Addendum at 5. Accordingly, the court held the parol evidence rule did not bar evidence of the oral statements because Western was "us[ing] the evidence as a basis for its fraudulent misrepresentation claim to show that it was fraudulently induced into entering the contract by the oral representations of [Grace's] agent." Id.; see Essex, 661 S.W.2d at 549. Having studied the applicable authorities, we believe the district court correctly concluded Missouri law allowed introduction of the oral statements in the circumstances of this case. See Welbern v. Hunt, 874 F.2d 532, 534 (8th Cir.1989).

We now consider Grace's other contentions pertaining to Western's fraudulent misrepresentation claim. In Missouri, Western must establish nine elements to recover for fraud. See Emerick, 756 S.W.2d at 519. Grace contends Western failed to make a submissible case on two of these essential elements, namely: (1) the falsity of the representations at the time Western claims they were made; and (2) Western's right to rely on those representations. We have carefully reviewed the record in light of the standards applicable to the existing verdict in Western's favor. See Robertson Oil Co. v. Phillips Petroleum Co., 871 F.2d 1368, 1371 (8th Cir.1989) (submissibility standard generally); Craft v. Metromedia, Inc., 766 F.2d 1205, 1218 (8th Cir.1985) (standard for submissibility same under federal and Missouri law), cert. denied, 475 U.S. 1058, 106 S.Ct. 1285, 89 L.Ed.2d 592 (1986). This review convinces us that Western presented substantial evidence on the two challenged elements. This evidence properly permitted the fraud claim's submission, and it supports the jury's resulting finding of liability.

III. TORTIOUS INTERFERENCE

To recover for tortious interference with a business expectancy in Missouri, Western must show: (1) it had a valid business expectancy; (2) Grace knew of the business expectancy; (3) Grace intentionally interfered with that expectancy, inducing its breach; (4) Grace did so without justification; and (5) Grace's conduct damaged Western. See O'Connor v. Shelman, 769 S.W.2d 458, 461 (Mo.Ct.App.1989). Grace contends on appeal that for several reasons, Western also failed to make a submissible case on this cause of action.

Initially, Grace renews the essence of its earlier parol evidence argument and contends that "[r]eversal of the fraud verdict therefore also dooms the tortious interference judgment." Appellant's Brief at 27. We have already concluded the oral statements were properly admitted on Western's fraud claim. In addition, proof of...