Coastal Distributing Co., Inc. v. NGK Spark Plug Co., Ltd.

• Decision Date: 02 January 1986
• Docket Number: No. 84-2368,84-2368
• Citation: 779 F.2d 1033
• Parties: COASTAL DISTRIBUTING COMPANY, INC., Plaintiff-Appellant, v. NGK SPARK PLUG CO., LTD., and NGK Spark Plugs , Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1033

779 F.2d 1033

COASTAL DISTRIBUTING COMPANY, INC., Plaintiff-Appellant, v. NGK SPARK PLUG CO., LTD., and NGK Spark Plugs [U.S.A.] Inc., Defendants-Appellees.

No. 84-2368.

United States Court of Appeals Fifth Circuit.

Jan. 2, 1986.

Susman, Godfrey & McGowan, Stephen D. Susman, Evelyn Jo Wilson, Houston, Tex., for plaintiff-appellant.

Fulbright & Jaworski, Layne E. Kruse, Rufus Wallingford, Houston, Tex., for defendant-appellees.

George J. Delaney, Houston, Tex., for other interested parties.

Appeal from the United States District Court for the Southern District of Texas.

Before GARZA, POLITZ, and HILL, Circuit Judges.

ROBERT MADDEN HILL, Circuit Judge.

Coastal Distributing Company, Inc., (Coastal) appeals from the adverse entry of judgment by the district court in its suit against NGK Spark Plugs (U.S.A.), Inc., (NGK-USA) and NGK Spark Plug Company, Ltd., (NGK, Ltd.) (collectively referred to as NGK). ¹ Because the district court properly applied the correct statute of limitations to bar Coastal's claims of fraud and unfair competition, and because the district court properly applied the jury finding of illegality to bar enforcement of the oral contract, we affirm the judgment in favor of NGK.

I. FACTS AND PROCEDURAL HISTORY

NGK has sold spark plugs in the United States since the 1960's through a network of distributors. One of its early distributors was Coastal, a Louisiana corporation with its place of business in New Orleans. Coastal's president and sole shareholder was Wayne Ryon. By 1972 NGK had contracted with approximately ten distributors.

Under the terms of Coastal's first distributorship agreement in 1972, NGK granted Coastal the exclusive right to promote NGK spark plugs in Louisiana and Arkansas. Other NGK distributors elsewhere signed similar agreements, thus dividing up the country into several exclusive territories. Thereafter, Coastal signed yearly agreements with NGK.

In 1976 Coastal signed a distributorship agreement with NGK which significantly differed from prior agreements. The restriction on NGK to refrain from appointing new distributors in Coastal's area was deleted. A similar agreement was signed for 1977, and it continued in effect from 1977 to 1982 without formal renewal. In 1982 Coastal signed another agreement which also had no provision for exclusivity.

A short time before NGK decided to delete the exclusivity provisions of the distributorship agreements, NGK also established a rebate system for its distributors. NGK rebated a few cents for each spark plug sold by a distributor to qualifying companies. Before NGK would pay the rebates, it required proof of sales by the submission of invoices which included information about each distributor's customers. Coastal provided NGK with such information and received rebates.

By 1978 NGK had decided to expand its distribution program by selling directly to its distributors' customers. NGK used information obtained from its rebate program to determine who these new distributors should be. In the fall of 1978 NGK began signing up new distributors, the first being a wholesale distributor in Oregon.

In January 1979 Ryon met with Shozo Uemachi, president of NGK-USA. According to Ryon, Uemachi told Ryon that he would never sell to any of Ryon's customers. Uemachi's version of the meeting was that no such promise was made. NGK in 1979 began signing direct distribution agreements with Coastal's larger customers, and many more were signed up later. In December 1979 Ryon accepted NGK's offer of a consulting position with NGK, but this agreement expressly stated that it did not alter any prior commitments between Ryon and NGK.

On June 3, 1981, Coastal filed suit against NGK. Although Coastal later abandoned its various antitrust claims, it proceeded on the common law counts of fraud, unfair competition, and breach of contract. NGK raised several defensive issues, including the statute of limitations for fraud and unfair competition, waiver of fraud, and illegality of the oral contract. The case was submitted to the jury on special issues.

The jury found that NGK had fraudulently represented to Coastal that it would never sell directly to Coastal's customers and that Coastal relied on such representations by delivering its customer information to NGK and by selling NGK's as its only brand of spark plug. The jury also found that NGK had orally contracted with Coastal, under the terms of which NGK agreed never to sell directly to Coastal's customers. Moreover, the jury found that the customer information Coastal supplied to NGK constituted trade secrets and that NGK had engaged in unfair competition by wrongfully using this information to injure Coastal.

However, the jury answered several defensive issues favorably to NGK. The jury found that Coastal waived the acts which constituted fraud, and that the oral agreement was an unreasonable restraint of trade. Furthermore, on statute of limitations issues, the jury found that Coastal was aware that NGK was going to sign up Coastal's customers prior to June 3, 1979, which was two years before suit was filed.

The district court found that the jury's answers to the defensive issues were dispositive of Coastal's claims and entered judgment in favor of NGK. Coastal now appeals.

II. UNFAIR COMPETITION AND FRAUD

Coastal now ² claims the district court erred in holding that its causes of action for unfair competition and fraud had accrued by the time it became aware that NGK was going to sign up its customers. Coastal further asserts that the district court erred in applying the two-year statute of limitations to bar recovery on these two claims rather than the four-year statute of limitations. The parties do not challenge the district court's determination that Texas law controls regarding the limitations issues although California provides the substantive law of the state-based claims. ³ See Guaranty Trust Co. of New York v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945); Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941).

A. Accrual of the Causes of Action.

Because the district court applied a two-year statute of limitations to the claims for fraud and unfair competition, the jury finding that Coastal was aware two years before filing suit of NGK's intentions to sign up Coastal's customers will bar these claims if this awareness marked the accrual of these causes of action. See Tex.Rev.Civ.Stat.Ann. art. 5526 (Vernon Supp.1985).

Coastal argues that its unfair competition claim, based on NGK's wrongful acquisition and use of its customer information, did not accrue until damage resulted to Coastal. Coastal claims that its cause of action instead accrued when NGK "caused legal injury" to Coastal by signing up Coastal's customers beginning in late 1979. Thus, Coastal argues, its unfair competition claim is not barred by even a two-year statute of limitations.

A leading Texas case has summarized the accrual determination:

The general rule is that a cause of action sounding in tort accrues, in the absence of a statute to the contrary or fraudulent concealment, when the tort is committed. This rule obtains notwithstanding the fact that the damages, or their extent are not ascertainable until a later date.... A legal injury must be sustained, of course, before a cause of action arises.

Atkins v. Crosland, 417 S.W.2d 150, 153 (Tex.1967) (citations omitted). The Atkins court approved the following test from 54 C.J.S. Limitations of Actions Sec. 168 (1948) (footnotes omitted):

The test to determine when the statute of limitations begins to run against an action sounding in tort is whether the act causing the damage does or does not of itself constitute a legal injury, that is, an injury giving rise to a cause of action because it is an invasion of some right of plaintiff. If the act is of itself not unlawful in this sense, and plaintiff sues to recover damages subsequently accruing from, and consequent on, the act, the cause of action accrues, and the statute begins to run, when, and only when, the damages are sustained; and this is true although at the time the act is done it is apparent that injury will inevitably result.

If, however, the act of which the injury is the natural sequence is of itself a legal injury to plaintiff, a completed wrong, the cause of action accrues and the statute begins to run from the time the act is committed, even where little, if any, actual damage occurs immediately on commission of the tort, and the statute will operate to bar a recovery not only for the present damages but for damages developing subsequently and not ascertainable at the time of the wrong done, for in such a case the subsequent increase in the damages resulting gives no new cause of action. A fortiori, where the doing of an act is attended immediately by resulting actual damage, the statute begins to run at once.

Id.

A Texas court has more recently clarified the importance of the time when the breach of duty or wrongful act occurred:

As a general rule, the statute of limitations commences to run upon a cause of action in tort from the time that the duty owing to the plaintiff was breached by the wrongful or negligent acts of the defendant, even though, in some cases, the plaintiff is ignorant of the existence of his cause of action, or although damage was not sustained until after the commission of the tort. A cause of action ordinarily arises, and the statute of limitations commences to run, immediately upon the commission of the wrong about which the complaint is made, and the running of the statute is not postponed until damage results from the wrong.

Dotson v. Alamo Funeral Home, 577 S.W.2d 308, 311 (Tex.Civ.App.--San Antonio 1979, no writ) (citation omitted). See also Fusco v. Johns-Manville Products Corp., 643 F.2d 1181, 1183 (5th Cir.1981) (interpreting Texas law).

The district court held, and we agree, that...