Bright v. QSP, Inc.

• Decision Date: 05 April 1994
• Docket Number: Nos. 93-1001,93-1081,s. 93-1001
• Citation: 20 F.3d 1300
• Parties: 23 UCC Rep.Serv.2d 871 William T. BRIGHT; Ed King; Dee Barwick; Lowell Lawson; Frank Jorgensen; Bright of America, Incorporated, a West Virginia corporation, Plaintiffs-Appellees, v. QSP, INCORPORATED, Defendant-Appellant. William T. BRIGHT; Ed King; Dee Barwick; Lowell Lawson; Frank Jorgensen; Bright of America, Incorporated, a West Virginia corporation, Plaintiffs-Appellants, v. QSP, INCORPORATED, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1300

20 F.3d 1300

23 UCC Rep.Serv.2d 871

William T. BRIGHT; Ed King; Dee Barwick; Lowell Lawson;

Frank Jorgensen; Bright of America, Incorporated, a West Virginia corporation, Plaintiffs-Appellees, v. QSP, INCORPORATED, Defendant-Appellant.

William T. BRIGHT; Ed King; Dee Barwick; Lowell Lawson;

Frank Jorgensen; Bright of America, Incorporated, a West Virginia corporation, Plaintiffs-Appellants, v. QSP, INCORPORATED, Defendant-Appellee.

Nos. 93-1001, 93-1081.

United States Court of Appeals Fourth Circuit.

Argued Dec. 8, 1993.

Decided April 5, 1994.

ARGUED: John Morgan Callagy, Kelley, Drye & Warren, New York City, for appellant. Gerard Ray Stowers, Bowles, Rice, McDavid, Graff & Love, Charleston, WV, for appellees. ON BRIEF: Robert E. Crotty, Jonathan K. Cooperman, Kelley, Drye & Warren, New York City, Michael A. Brizel, The Reader's Digest Ass'n, Pleasantville, NY, Larry A. Winter, Charles L. Woody, Barbara A. Allen, Spilman, Thomas, Battle & Klostermeyer, Charleston, WV, for appellant. F.T. Graff, Jr., Benjamin L. Bailey, Elizabeth B. Elmore, Bowles, Rice, McDavid, Graff & Love, Charleston, WV, for appellees.

Before PHILLIPS and WILKINSON, Circuit Judges, and BUTZNER, Senior Circuit Judge.

OPINION

WILKINSON, Circuit Judge:

This case presents the question whether plaintiff-supplier may recover expenditures incurred in performing supply contracts with defendant-distributor by claiming that those expenditures unjustly enriched the defendant. Here it is clear that the expenditures benefitted the plaintiff by enhancing its own contractual performance, and that the defendant did not receive any benefits beyond the scope of its express agreements with the plaintiff. We therefore hold that the plaintiff has failed to demonstrate that the defendant-distributor received benefits it was not entitled to receive. Accordingly, we must reverse the verdict for plaintiff on the count of unjust enrichment and remand the case with directions that judgment be entered for defendant.

I.

Both parties in this case are in the business of assisting organizations in their fund-raising activities. Defendant QSP, Inc., a wholly-owned subsidiary of Readers' Digest Association, Inc., purchases products from other companies and distributes them to youth organizations for use in fund-raising projects. Plaintiff Bright of America ("BOA") manufactures and purchases gift products, and then supplies them to QSP and other fund-raising distributors.

In August 1986, QSP and BOA entered into a written supply contract. Under the supply contract, QSP would solicit orders for BOA products, and BOA would package the products and distribute them directly to the customers. The contract provided that BOA would receive thirty percent of the retail price of each product sold. In September 1988, BOA sent a letter to QSP stating that it would also provide free prizes to QSP customers as an incentive to buy BOA products. After receiving the letter, QSP extended the 1986 supply contract through June 1990.

A.

In November 1988, Bill Bright--BOA's founder, majority shareholder, and chairman--began looking for a partner for BOA. In the next few months, Bright met with QSP executives to discuss the possibility of what BOA now terms a "joint venture" between BOA and QSP, and what QSP calls a sale of stock. On February 10, 1989, BOA submitted a written proposal to QSP. Later in February, QSP and BOA executives held discussions on BOA's proposal, under which QSP would buy about fifty percent of BOA's stock for at least six million dollars. QSP and BOA executives met again in May 1989 at the Greenbrier Resort; this time, a price of 7.5 million dollars for eighty percent of BOA stock was discussed.

Operating under an assumption that QSP and BOA had formed a definite agreement at the Greenbrier meeting, Bright sent a letter to QSP on August 4, 1989, purporting to "memorialize" that agreement. Ten days later, QSP's president, Thomas Belli, sent a letter to BOA adamantly denying that QSP had agreed to any specific terms regarding the purchase of BOA's stock. Belli stressed that any discussions were preliminary, and that the "magnitude and complexity" of the contemplated acquisition necessitated that any agreement be approved by the legal departments of both BOA and QSP. In January 1990, after receiving information that BOA was deeply in debt, QSP decided not to enter into any agreement with BOA.

B.

During the course of the negotiations, QSP learned that one of its other suppliers of food and gift products, Allegro, Inc., was going out of business. In February 1989, QSP executives asked BOA to fulfill Allegro's supply contract with QSP. BOA agreed to assume the Allegro contract, and began fulfilling Allegro orders by storing Allegro's food and gift inventory, distributing the products, and providing free prizes to customers as an incentive to buy Allegro products. As established by the Allegro supply contract, BOA received thirty cents per product sold. ¹

In the days following BOA's assumption of the Allegro contract, BOA undertook to improve its ability to perform that contract. For example, BOA constructed a cold storage unit to store Allegro's food products, which QSP had transferred to BOA's warehouse. BOA also upgraded its computer system in order to improve its inventory and order tracking systems. In addition, QSP hired Neil Arnold, Allegro's computer programmer, to work at BOA on data processing projects related to the 1986 supply contract and the Allegro contract. BOA reimbursed QSP for Arnold's salary and also hired Judy Denney, Arnold's former assistant at Allegro, to help Arnold. BOA contends that it assumed the Allegro contract and made the operations changes only because it believed that a joint venture agreement had been formed and that the Allegro contract was a part of that joint venture. QSP, on the other hand, maintains that the Allegro undertakings were entirely separate from the joint venture negotiations, and that BOA changed its operations on its own accord in order to improve its performance under the Allegro contract and its 1986 supply contract.

C.

In January 1990, after QSP informed BOA of its decision not to enter into an agreement, BOA and its shareholders brought suit against QSP seeking compensatory and punitive damages based on six claims: breach of oral contract to buy eighty percent of BOA stock, promissory estoppel, fraud and misrepresentation, interference with prospective contractual relations, unjust enrichment, and conversion.

Despite its initiation of this lawsuit, BOA continued to perform its obligations under the 1986 supply contract and the Allegro contract. In June 1990, the 1986 supply contract expired. Three months later, BOA sold its assets to Russ Berrie, Inc. for approximately nine million dollars, which BOA estimated to be seven million dollars less than the value of the QSP-BOA deal.

On August 28, 1992, the district court granted QSP's motion for summary judgment on the breach of oral contract claim. 798 F.Supp. 360. At the close of BOA's case at trial, the court also granted QSP's motion for judgment as a matter of law on the interference with contractual relations and conversion claims. The remaining counts were submitted to the jury. The jury reached its conclusions only after a lengthy process necessitating the use of four different verdict sheets. The trial court rejected the first verdict because of uncertainty among the jurors as to what it represented. It rejected the second verdict because the jury awarded punitive damages against QSP without awarding any compensatory damages. On the third verdict sheet, the jury awarded BOA two million dollars in compensatory damages on the unjust enrichment claim, but failed to make any specific findings on the remaining claims. Finally, on the fourth verdict sheet, which addressed only the issues of promissory estoppel and fraud, the jury found for QSP. The court entered judgment for QSP on those two claims, but denied QSP's post-trial motion for judgment as a matter of law or for a new trial on the unjust enrichment claim.

QSP now appeals the district court's denial of its motion for judgment as a matter of law or for a new trial on the unjust enrichment claim. BOA cross-appeals the court's summary judgment ruling for QSP on the breach of oral contract claim and various other rulings regarding its promissory estoppel and fraud claims. We first address BOA's claims.

II.

We note at the outset a general weakness in BOA's position in this case. BOA has been unable to prove any breach of contract, promissory estoppel, or fraud on the part of QSP. These theories offered BOA what was arguably a more straightforward avenue of relief than unjust enrichment, and yet BOA failed to prevail on any of them.

As to fraud and promissory estoppel, the jury found squarely against BOA. When the jury failed to make any findings on these claims on its third verdict sheet, the court submitted a special interrogatory asking the jury whether its silence indicated that it was hung on those issues or was returning a verdict for QSP on those claims. The jury answered that BOA had failed to prove the two claims. BOA now contends that the interrogatory unfairly omitted the option that the jury found for BOA on those claims, and that it effectively coerced the jury into returning a verdict for QSP. There was no reason, however, for the judge to include that option in the special interrogatory because it was clear that the jury's silence on the third verdict form did not indicate a finding in favor of BOA. The verdict form plainly indicated that a finding in favor of the plaintiff required an affirmative response, and the jury showed its understanding of this requirement by making an affirmative finding for BOA on the unjust enrichment claim. As BOA's own counsel stated during his request for an interrogatory, the confusing aspect of the jury's silence was whether it was hung or...