Bmk Corp. v. Clayton Corp.

Decision Date05 June 2007
Docket NumberNo. ED 87110.,ED 87110.
Citation226 S.W.3d 179
PartiesBMK CORPORATION, Respondent, v. The CLAYTON CORPORATION, Appellant.
CourtMissouri Court of Appeals

Joe D. Jacobson, Clayton, MO, for appellant.

Theresa A. Phelps, for respondent.



The Clayton Corporation ("Clayton") appeals from the trial court's judgment entered after a jury verdict in favor of BMK Corporation ("BMK") on its claims for breach of contract, tortious interference with a business expectancy and intentional misrepresentation. Clayton argues that the trial court erred in submitting all three claims to the jury — or in failing to grant its Motions for JNOV and a New Trial — and in entering damage awards on all three claims. We affirm.

Facts and Procedural History

In 2000, Jay-Max Sales ("Jay-Max"), an equipment supplier to coal mines in Colorado, Utah and Wyoming, received repeated requests from its mine customers for an alternative to the prevailing underground mine foam1 product, Versi-Foam, which had become increasingly expensive because of its dominant market share. As a result of this demand, Jay-Max saw an opportunity to sell and market a new product to its existing client base and began searching for an alternative mine foam supplier. In the course of its research, Jay-Max discovered BMK2 through a mutual acquaintance in the market. After some initial discussion, Jay-Max and BMK began studying the current and potential market demand for an alternative mine foam formulation, with James Fletcher, the Vice-President of Jay-Max, contributing his contacts in the region's mines and Jim Boehm, the CFO of BMK, contributing his technical knowledge of the mine foam product. Fletcher, Boehm and Todd Keske, BMK's Marketing Manager, developed a marketing plan, based in part on a list of Jay-Max customers in Colorado and Utah and then met in Colorado to discuss the logistics of distributing an alternative mine foam product to the various Western mines. They conducted surveys of Colorado and Utah mines, obtained oral reports of mine foam usage and pricing information and acquired information about upcoming events — such as shaft closings — that might increase demand for mine foam.

As a result of its research, BMK projected gaining approximately 10% of the market share in the mines where Jay-Max currently did business during its first year, with a second year sales target of between $1 and $1.5 million and a third year target of between $2 and $2.5 million in sales. BMK also intended to sell mine foam outside of the Jay-Max region to Peabody Coal, at which both Keske and Boehm had close contacts, setting a sales target of $100,000.

Jay-Max and BMK initially used FOMO Products, a mine foam manufacturer, to supply their product. In September 2000, after concluding their market study and research, BMK and Jay-Max entered into a two-year written distributorship agreement whereby Jay-Max became BMK's representative to sell and market FOMO mine foam at a price of $180 per kit. After securing its distributorship contract with Jay-Max, however, BMK did not enter into a supply agreement with FOMO for its mine foam formulation, because, at the last minute, FOMO refused to agree to a long-term, exclusive agreement to sell to BMK, expressing its intent, instead, to bypass BMK and sell directly to Jay-Max.

BMK then contacted Clayton, whose IBM division had begun manufacturing its own mine foam product in the late 1990s but had yet to distribute it in the Western mine market, to discuss a possible long-term distributorship agreement with exclusivity provisions. During the course of their negotiations, BMK explained that it intended to sell Clayton's mine foam through a "two-tier connected distribution" arrangement, but, as a result of its experience with FOMO, refused to disclose the name of its "second tier" distributor, Jay-Max, to Clayton until just before the parties executed their agreement.

In early November, the parties settled upon the terms of the "Agreement of Joint Cooperation" ("Agreement"). The Agreement had a four-year duration, with early termination "for cause" provisions. Under the Agreement, Clayton pledged to supply mine foam products and accessories to BMK, and BMK undertook to distribute the products and develop further markets for Clayton. Pursuant to the Agreement, BMK provided Clayton with a confidential list of its customers and/or suppliers and Clayton promised not to sell to certain companies and mines, including those set forth in the confidential lists, for twelve months.3 The Agreement also provided that BMK and/or its distributors would not sell to any active mine accounts of Clayton during the term of the Agreement. The Agreement required BMK to sell $400,000 (with $50,000 variance) of mine foam to the mining industry in Colorado and Utah within twelve months of the date of execution.

On November 13, 2000, Michael Sites, Director of Sales for Clayton's IBM division, sent an unsigned copy of the Agreement4 to Boehm for his signature and the inclusion of BMK's protected customer and target list. On November 14, 2000, Boehm called Sites to place an initial order, disclosed Jay-Max as BMK's distributor, and two days later, faxed a signed copy of the Agreement back to Sites. On November 16, however, May Ellen Hoffman, IBM's National Sales Manager, faxed Jay-Max an offer for a four-year mine foam supply contract at $150/kit. While Clayton did not offer Jay-Max exclusivity, it did require Jay-Max to market only Clayton's mine foam. Hoffman claimed that she faxed the offer because a Clayton sales representative had told her "Fletcher wanted it now," not because Sites had directed her to send it. On November 20, 2000, however, when Sites realized the offer did not contain a signature line for Jay-Max to sign and accept, he faxed a "revised" letter to Jay-Max with an "acceptance" signature line and then forwarded a copy of the revised letter to Mueller via email.

When Fletcher received the offer, he contacted Boehm and faxed him a copy because "it didn't feel right for somebody to make another offer when we already had a contract in place." Boehm then immediately protested to Sites, who had yet to sign the agreement. Sites told Boehm that he did not know Mueller had sent the offer to Jay-Max, and immediately revoked it. On November 21, 2000, Sites signed the Agreement with BMK. As a result of Clayton's offer to Jay-Max, BMK was forced to lower its $180/kit price to match the $150/kit price offered by Clayton.

Almost immediately following the execution of the contract, BMK experienced several problems and delays. Despite a previous recommendation from several experts in the field, Clayton had failed to have its mine foam product atomization tested by the U.S. Mine Safety and Health Administration ("MSHA").5 As a result, until it acquired the MSHA letter, BMK was forced to halt sales. BMK immediately initialized the atomization testing process and procured the MSHA letter on its own initiative and without assistance from Clayton.6

In early 2001, BMK discovered that Clayton was attempting to sell its product to BMK's distributors and customers at a price lower than that quoted by BMK. Specifically, Mueller was offering Clayton's mine foam kits to Clayton distributors in BMK's exclusive territory — by selling to BMK's mines — at prices higher than the Agreement required BMK to pay, but lower than BMK/Jay-Max were offering to their customers.

On April 17, 2001, BMK sent a letter to Clayton requesting that: (1) Clayton agree to extend the time necessary to meet the target sales volumes by six months; and (2) Clayton offer BMK some relief in the pricing under the Agreement. On April 19, 2001, Clayton sent a letter to BMK assenting to BMK's request for a six-month extension to the Agreement, but rejecting any price relief.

On April 30, 2001, MSHA issued an atomization test letter for Clayton's mine foam. BMK resumed its sales attempts and, over the next two months, sold sufficient volumes of mine foam to satisfy the Agreement's first-year sales targets. The MSHA letter was so significant to the sale of Clayton's mine foam that it immediately highlighted portions of the letter on its packaging, product brochures, and marketing materials.

On June 28, 2001, Sites made an unplanned and unannounced visit to the Jay-Max offices in Colorado, and informed Fletcher that Clayton had terminated BMK as its distributor. While at the Jay-Max offices, Sites made three days of direct sales calls to mines and distributors in BMK's protected territory. On July 19, 2001, approximately three months after it had agreed to extend BMK's first-year sales target by an additional six months, Clayton notified BMK of its intent to terminate the Agreement and cease performing its obligations thereunder. Although Sites based termination on BMK's "failure to meet targeted sales goals," under the original Agreement, BMK had four months remaining and, under the Agreement's extension, ten months remaining. Initially, BMK continued to buy Clayton's mine foam and service its mine customers, but in November, 2001, Clayton cancelled BMK's purchase order, because BMK had "past-due" unpaid invoices. At that time, BMK did not have any past-due purchase orders. After canceling BMK's order, Sites contacted Jay-Max and informed Fletcher that if he wanted to order mine foam, he should order it "direct" from Clayton. In late 2001, Jay-Max stopped buying mine foam from BMK, and began buying it from Clayton.

BMK subsequently filed suit against Clayton, alleging breach of contract, tortious interference with a business expectancy, intentional misrepresentation and breach of an implied covenant of good faith and fair dealing. Clayton counterclaimed for goods accepted, suit on account and quantum meruit. Following a jury trial, the trial court directed a verdict in favor of Clayton on BMK's breach of implied covenant of good...

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