Bioproducts, Inc. v. Ingredient Specialties, Inc.
| Decision Date | 18 October 1994 |
| Docket Number | 93-1109,Nos. 93-1059,s. 93-1059 |
| Citation | 37 F.3d 1492 |
| Parties | NOTICE: Fourth Circuit I.O.P. 36.6 states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit. BIOPRODUCTS, INC., Plaintiff-Appellant, v. INGREDIENT SPECIALTIES, INCORPORATED, Defendant-Appellee. BIOPRODUCTS, INC., Plaintiff-Appellee, v. INGREDIENT SPECIALTIES, INCORPORATED, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Appeals from the United States District Court for the District of South Carolina, at Charleston. Charles E. Simons, Jr., Solomon Blatt, Jr., Senior District Judges. (CA-90-2482-2)
Argued: G. Dana Sinkler, Warren & Sinkler, Charleston, SC, for appellant.
Argued: Saul Gliserman, The Richter Law Firm, P.A., Charleston, SC. On brief: Lawrence E. Richter, Jr., The Richter Law Firm, P.A., Charleston, SC, for appellee.
D.S.C.
AFFIRMED IN PART AND REVERSED IN PART.
Before MURNAGHAN and NIEMEYER, Circuit Judges, and HARVEY, Senior United States District Judge for the District of Maryland, sitting by designation.
Ingredient Specialties, Inc. marketed and sold pet food products produced by appellant, Bioproducts, Inc., for a period of ten years pursuant to an unwritten agreement. During that time, Bioproducts was purchased by Nutrius, a subsidiary of Mitsui, and the management of the company changed hands. Several years after the acquisition, Bioproducts terminated its arrangement with Ingredient Specialties. In response, Ingredient Specialties refused to forward approximately $220,000 that it owed to Bioproducts. Bioproducts brought suit alleging breach of contract to recover the money owed for goods sold and delivered and alleging breach of contract accompanied by a fraudulent act to recover damages. Ingredient Specialties filed counterclaims including one based on Bioproducts' unconscionable termination of its contract.
The district court granted summary judgment for Bioproducts on its breach of contract claim, awarding the company $219,452.93, but the court deferred entry of judgment until after a jury trial on the other claims and counterclaims. The jury returned a verdict of $10,000 in punitive damages in favor of Bioproducts on the fraud claim, and a $150,000 compensatory and punitive damages award for Ingredient Specialties based on Bioproducts' unconscionable termination of the contractual relationship. Both parties have appealed the judgments adverse to their own interests. Because we agree with the district court's reasoning on the breach of contract claim, we affirm the award of summary judgment in favor of Bioproducts. The $10,000 in punitive damages awarded to Bioproducts by the jury based on a finding of fraud is also affirmed. However, because the district court erred by failing to find as a matter of law that the agency was one terminable at will without notice or, in the alternative, that the notice given was reasonable, the jury verdict in favor of Ingredient Specialties must be nullified.
Bioproducts manufactures ingredients that are incorporated into pet food to enhance its palatability. Ingredient Specialties is an independent marketing agent which sells the ingredients produced by companies such as Bioproducts to pet food manufacturers such as Alpo. Ingredient Specialties, founded as a sole proprietorship by Joseph C. Leyh in 1980, became a Michigan corporation of which Leyh was the sole shareholder in mid-1982. 1
Prior to the time he established Ingredient Specialties, Leyh became familiar with Bioproducts while working for Quaker Oats and, later, for the Peterson Company, which represented Bioproducts and other pet food ingredient manufacturers. Contemplating striking out on his own, Leyh contacted James Corkill, one of the shareholder/officers of Bioproducts, about establishing a working relationship in 1980. Corkill expressed an interest in Leyh's new company, and, early in 1981, Bioproducts responded positively to a marketing proposal Leyh had submitted. Although Bioproducts and Ingredient Specialties did not execute a written agreement, Leyh began marketing and selling Bioproducts' products. Leyh testified that Bioproducts, a manufacturer of ingredients used in pet food formulation, did not have any sales or marketing forces in its organization that would allow the company to penetrate effectively the pet food industry in 1981. For the first few years of their relationship, Leyh was the sole marketing representative for Bioproducts. In late 1981, Leyh obtained the Alpo account, which provided a large portion of Ingredient Specialties' income from the relationship with Bioproducts. 2 Beginning in December 1982, Leyh made several attempts to obtain a written agreement with Bioproducts. None were successful.
For six of the ten years in which Ingredient Specialties marketed and sold Bioproducts' products, Bioproducts was primarily owned and operated by three individuals and their families--Richard Carruthers, James Corkill, and Michael Murphy. On December 31, 1986, Nutrius, an Ohio corporation and a subsidiary of Mitsui, purchased Bioproducts. Initially operated as a subsidiary of Nutrius, Bioproducts ultimately merged into Nutrius which then changed its name to Bioproducts. 3 Many changes occurred in the relationship between Bioproducts and Ingredient Specialties between 1980 and 1990 involving the nature of the work that Ingredient Specialties was doing for Bioproducts, the scope of Leyh's responsibilities, and Leyh's relationship to the customers.
The parties dedicated much of their briefs to a description of the role Leyh and Ingredient Specialties played with respect to Bioproducts in the pet food business. Bioproducts has described Leyh as a marketing agent who received money (either commission or profits on direct sales) for marketing Bioproducts' products. Ingredient Specialties has characterized Leyh's role as a far more expansive one including services far beyond those provided by the typical broker or agent. Bioproducts has attempted to draw a distinction between the role Ingredient Specialties played with the former Bioproducts and the role with post-acquisition Bioproducts. Acknowledging that Ingredient Specialties' role may have been more multi-faceted during the early years, Bioproducts has demonstrated the limited role that Leyh played in the post-acquisition organization. In any event, the record clearly shows that the inability to create and agree on a written contract began under the auspices of the old Bioproducts and continued after the acquisition.
Although Leyh was the sole marketing agent with Bioproducts from 1981 until June 1984, Bioproducts hired Bob Barricks, an in-house marketing and sales representative in 1984. In late 1984, after Bioproducts had hired Barricks, Bioproducts wrote a letter to Ingredient Specialties describing the services Bioproducts would expect from Leyh in 1985. Bioproducts requested advertising in a major pet food industry magazine, a marketing information service, and new sources and ideas for ingredients. In the same letter, Corkill said Bioproducts would pay for Ingredient Specialties' advertising costs and time and effort as well as a mark-up on any ingredient that Ingredient Specialties sold to Bioproducts. 4 Corkill made clear that Ingredient Specialties' biggest area of importance was the sales effort. Bioproducts outlined a billing plan for 1985 under which Ingredient Specialties would sell the product to the client, the client would pay Ingredient Specialties, Bioproducts would ship the product to the client and invoice Ingredient Specialties, and, finally, Ingredient Specialties would pay Bioproducts the cost of the product and keep a percentage of the sales price as profit.
In January 1985, Bioproducts implemented "Trio Management." While Corkill had been Leyh's primary contact prior to 1985, Trio Management entailed the more active participation and joint decision-making of the three owners of Bioproducts. In January 1985, Bioproducts adopted the method of paying Ingredient Specialties described in Corkill's letter. Prior to that time, Ingredient Specialties had been rewarded with commissions on sales of Biodigest to accounts within the area of Ingredient Specialties' territorial responsibility. For a period of time, Ingredient Specialties had also received commissions on house accounts not directly served by Ingredient Specialties. After January 1985, however, Leyh no longer received commissions for activity on in-house accounts which sales Ingredient Specialties was not making directly. All commissions were discontinued, and Ingredient Specialties began "jobbering" Biodigest only to those customers established by Ingredient Specialties.
In a letter to Barricks in April 1985, Leyh explained that the commissions Ingredient Specialties had received in the early years had filled the gap that otherwise existed between the services provided and the remuneration received. Leyh felt he provided a number of other services to Bioproducts besides sales which were not being compensated directly. With the eradication of the commission system, Leyh suggested that Bioproducts should reimburse Ingredient Specialties for technical consulting and other services associated with consulting. Leyh's suggestion led to a series of letters between the companies in an attempt to negotiate a written contract, but the agreement never materialized. Leyh continued to try to negotiate a written agreement acceptable to both Ingredient Specialties and Bioproducts throughout 1985 and 1986 but never met with success. Bioproducts never at any time agreed to pay a flat rate for Ingredient Specialties' marketing information system or technical support. All of the later negotiations involved some...
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