Dubarry Internat., Inc. v. Southwest Forest Industries, Inc.

• Decision Date: 12 June 1991
• Docket Number: No. B045330,B045330
• Court: California Court of Appeals Court of Appeals
• Parties: DuBARRY INTERNATIONAL, INC., Plaintiff and Respondent, v. SOUTHWEST FOREST INDUSTRIES, INC., Defendant and Appellant.

Page 181

282 Cal.Rptr. 181

231 Cal.App.3d 552

DuBARRY INTERNATIONAL, INC., Plaintiff and Respondent, v. SOUTHWEST FOREST INDUSTRIES, INC., Defendant and Appellant.

No. B045330.

Court of Appeal, Second District, Division 3, California.

June 12, 1991.

Sidley & Austin, William F. Conlon, Cynthia A. Gray and William C. Ryan, for defendant and appellant.

Nathan B. Hoffman, Michael B. Geibel, and Daniels, Baratta & Fine, for plaintiff and respondent.

CROSKEY, Associate Justice.

Defendant and appellant Southwest Forest Industries, Inc. (Southwest) appeals the judgment entered following a jury verdict, awarding plaintiff and respondent DuBarry International, Inc. (DuBarry) ¹ $1,502,604 in damages for breach of an exclusive agency agreement, $1,502,604 for bad faith denial of the existence of such agreement, and $3,800,000 in punitive damages.

While the damage award for breach of contract must be affirmed, we conclude that (1) a duplicative award of compensatory damages was made and (2) the award of punitive damages was improper because there was no legal or factual basis for concluding that tortious misconduct had occurred. In reaching this latter conclusion we necessarily examine the tort recognized by the Supreme Court's decision in Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 769-770, 206 Cal.Rptr. 354, 686 P.2d 1158, and find that its limited scope will not support DuBarry's claim. We therefore will modify the judgment by striking both the duplicative compensatory damages and the entire award of punitive damages. As so modified, the judgment will be affirmed. ²

FACTUAL AND PROCEDURAL BACKGROUND

The record, when viewed in accordance with settled principles of appellate review (Kruse v. Bank of America (1988) 202 Cal.App.3d 38, 44, 248 Cal.Rptr. 217), establishes the following facts.

In the fall of 1981, Southwest was a producer of linerboard, pulp and newsprint. Castle & Cooke owned Dole Packaged Foods and was a substantial purchaser and consumer of linerboard such as that produced and sold by Southwest. Castle & Cooke utilized that product to make the corrugated boxes in which its food products were shipped. It was Castle & Cooke's practice to purchase linerboard from at least two different suppliers.

Southwest, eager to become a supplier to Castle & Cooke, decided to retain DuBarry as a broker. Southwest was aware that DuBarry had a close relationship with Henry Cassity ("Cassity"), Castle & Cooke's director of purchasing. After some initial discussions, James M. Russell ("Russell"), Southwest's linerboard sales manager, and DuBarry, on September 3, 1981, exchanged several telexes which the trial court ultimately determined to constitute the exclusive agency contract. As found by the court, the agreement provided that DuBarry would be the exclusive representative of Southwest for all Kraft linerboard sales to Castle & Cooke for up to one year on spot shipments and for the period covered by any contract between Southwest and Castle & Cooke. DuBarry would receive a three per cent commission based on FAS value of all sales which DuBarry consummated with Castle & Cooke, without deduction for freight, handling or transportation charges. ³

On the same date, September 3, 1981, upon authorization by Russell, DuBarry telexed to Castle & Cooke an offer for a long-term contract to supply linerboard as follows:

"Term of contract: Five (5) years.

"Quantity: Up to 60,000 tons/year.

"Pricing: FAS Gulfport (yellow sheet ⁴ less $20/ton). FAS Panama City (yellow sheet less $35/ton)."

After some further exchanges and discussions, DuBarry, in December 1981, relayed additional proposals to Castle & Cooke as requested by Southwest. Castle & Cooke indicated it was only interested in delivery at Gulfport, while Southwest preferred Panama City. Pursuant to Southwest's instructions, DuBarry requested a response from Castle & Cooke to the various proposals by January 8, 1982. At Cassity's request, DuBarry telexed a duplicate copy of the September 3, 1981 offer, counterdated January 8, 1982. This offer was submitted with the consent of Southwest.

On January 8, 1982, Castle & Cooke accepted the September 3 offer, stating, "Castle & Cooke accepts in principal [sic] your offer on behalf of Southwest Forest Industries a five-year contract with tonnages up to 60,000 tons/year with pricing as indicated in your letter dated Sept. 3, 1981 and counter-dated Jan. 8, 1982. [p] Although C & C may require some spot tonnage in the first quarter of 1982, ⁵ it would be C & C's intent to purchase at reasonably even increments under the proposed agreement beginning April 1, 1982." DuBarry communicated this acceptance to Southwest the same day.

The parties (DuBarry; Russell and Russell's superior, Mike Fallaw ("Fallaw"), of Southwest; and Cassity and Paul Sink of Castle & Cooke), met on February 9, 1982, and finalized the details of the agreement. Delivery was to be at Gulfport. The quantity the first year would be "approximately 20,000 S. Tons with following years to be accelerated as C & C's volumes increase." Pricing would be FAS Gulfport, "yellow sheet" less the discount of $20.00 a ton. Other details were agreed upon. Southwest was to draft a contract in accordance with the "offer/acceptance agreement."

However, instead of drafting a contract in accordance with those discussions, Fallaw, shortly thereafter, wrote Cassity a letter, stating, "Based on your letter [setting forth the terms, there could be some misunderstanding, and I would like to clarify." The letter explained that Southwest had believed it could "work an arrangement with Castle and Cooke that would permit shipment from ... Panama City, Florida. Since this is not possible we are attempting to secure long term fixed rate committments [sic] to move tonnage to Gulfport...." The letter also stated that Southwest's contracts all specify "SWF announced price" not "Yellow Sheet."

On March 31, 1982, Cassity, who apparently regarded this as an indication that Southwest was trying to renegotiate the deal agreed to on February 9, 1982, sent the following communication to Fallaw: "Due to material changes in the original proposal that you have made and the length of time lapsed in bringing together an agreement, Castle and Cooke terminates this matter as submitted and considers all previous correspondence 'null and void'...." As a result, there was no long term contract entered into between Southwest and Castle & Cooke.

On June 2, 1983, DuBarry filed a complaint against Southwest for breach of written contract and for interference with prospective economic advantage. In its verified answer, ⁶ Southwest denied the material allegations, including the allegation that Southwest employed DuBarry to act as its exclusive agent to sell Kraft linerboard to Castle & Cooke. DuBarry responded with an amended complaint in which he added a cause of action for bad faith denial of contract.

Both parties filed motions for summary judgment and summary adjudication. The trial court made the following adjudication of issues: (1) A valid agency contract existed between DuBarry and Southwest; (2) DuBarry was Southwest's exclusive agent for linerboard sales to Castle & Cooke from September 3, 1981 until after March 1, 1982; (3) On or about January 8, 1982, DuBarry transmitted an offer on behalf of Southwest to sell linerboard to Castle & Cooke; and (4) Southwest did not tortiously interfere with any business relationship between DuBarry and Castle & Cooke or any prospective economic advantage of DuBarry. ⁷

After a trial of the remaining issues, the jury returned a special verdict, finding that "by its telex of January 8, 1982, Castle and Cooke intended to accept the offer transmitted by DuBarry on behalf of [Southwest]." The special verdict form stated, "If you answer 'yes' to Question No. 1 [regarding acceptance], then you shall find that a contract existed between Castle and Cooke and [Southwest]." The form then stated, "2. What amount is DuBarry entitled to recover as damages for breach, if any, of the agency agreement between [Southwest] and DuBarry?" The jury awarded DuBarry $1,502,604. It also found that Southwest had denied in bad faith the existence of the agency agreement and that "the denial of the contract [was] the legal cause of loss or damages" in the amount of $1,502,604. Finally, after further proceedings, the jury deliberated on the issue of punitive damages, and rendered a verdict in the amount of $3,800,000.

Southwest filed a notice of intention to move for judgment notwithstanding the verdict and a new trial or, in the alternative, for a remittitur. However, due to a scheduling error by the court clerk, the motion was never heard and was deemed denied by operation of law because it was not resolved within the required 60-day period (Code Civ.Proc., § 660).

ISSUES

Although we do not articulate the issues in the same manner as the parties, our perspective does reach the essential substantive claims of error which have been presented and argued. In our view, the issues upon which this appeal turns can best be analyzed in the context of the damages awarded by the trial court and they are three in number.

1. Did the trial court properly conclude that an exclusive agency agreement existed and that DuBarry was entitled to damages for its breach?

2. Were duplicative compensatory damages awarded to DuBarry?

3. On the evidence presented, was there any legal or factual basis for an award of punitive damages to DuBarry?

DISCUSSION

1. There Was An Exclusive Agency Agreement and DuBarry Was Entitled to Compensatory Damages for Its Breach

Although Southwest does not here contest the existence of the agency agreement, ⁸ it does dispute the meaning and construction of its terms. Southwest contends that the trial court "committed reversible error in instructing the jury to find for DuBarry 'if there was a contract between Castle & Cooke and Southwest for...