International Paper v. Madison Oslin

• Decision Date: 09 November 2007
• Docket Number: 1041299.
• Citation: 985 So.2d 879
• Parties: INTERNATIONAL PAPER COMPANY v. MADISON OSLIN, INCORPORATED.
• Court: Alabama Supreme Court

985 So.2d 879

INTERNATIONAL PAPER COMPANY v. MADISON OSLIN, INCORPORATED.

1041299.

Supreme Court of Alabama.

November 9, 2007.

Shady G. Robinson and Jarrod J. White of Cabaniss, Johnston, Gardner, Dumas & O'Neal, LLP, Mobile, for appellant.

Robert H. Rutherford and F.A. Flowers III of Burr & Forman, LLP, Birmingham, for appellee.

PARKER, Justice.

International Paper Company ("IP") appeals from a judgment entered on a jury verdict in favor of Madison Oslin, Incorporated ("Madison"), in a commercial breach-of-contract case. IP seeks a judgment as a matter of law in its favor or, alternatively, a reduction of the amount of damages to be paid to Madison. We affirm in part and reverse in part.

Background and Procedural Posture

This case involves a contract for a process that produces a corrugated box that, unlike the wax-coated box IP provides, is totally recyclable and sturdy enough for everyday use. Such a box would fill a large demand and would replace the wax-coated box IP currently provides the poultry market. IP had started in late 2000 to develop a wax-free box, but it had not yet succeeded when it became aware of Madison's process. It engaged a university research lab to test the Madison-coated container, and the lab determined the coating to be "the best wax-substitute product it had ever tested ...."¹ IP spent close to a year in "field trials" of the wax-free product satisfying itself of the probability of success for the product.

Madison, as the owner of rights to EvCote, a patented chemical coating manufactured by EvCo Research, L.L.C., and of the application process and the facilities required to apply the coating, entered into a contract with IP pursuant to which Madison would apply the coating exclusively to IP products used for corrugated containers for red meat and poultry products, i.e., MAP containers,² thereby giving IP exclusive control of the wax-free process. This exclusivity geographically included the United States, Canada, and Mexico, and was conditioned on IP producing a volume of materials to be coated at a rate of no less than 75,000 thousand square feet ("msf") per month by June 1, 2002. The term of the original contract was from January 1, 2002, to December 31, 2002. Extensions for succeeding one-year periods were to be automatic unless notice of termination of the contract was provided to the other party at least six months before the end of the current term. Pricing ranged from $6.00/msf to $6.75/msf depending on the volume IP provided for coating and was subject to renegotiation if IP did not meet and maintain the minimum 75,000 msf per month volume requirements. IP's brief, Exhibit A.

The contract designated Tennessee law as controlling. Neither party objected when the case was tried in Alabama, and the trial court applied Alabama law.

The contract was the result of months of negotiations; several drafts were considered before the final contract was signed. For months before and during those negotiations, Madison and an IP project team were involved in cooperative feasibility studies evaluating Madison's process. It was only after IP had concrete evidence that Madison's process provided a wax-free substitute that cost less to produce, that was environmentally friendly, and that performed as well or better than IP's existing product, that IP became serious about negotiating with Madison. The feasibility studies led IP to believe that Madison's coating process produced a cost-competitive container with performance attributes comparable to IP's waxed container. Because Madison had the exclusive rights to the coating that IP thought would best meet the needs of the ultimate users of the containers, IP entered into the contract with Madison.

For its part, Madison had worked with other potential customers. It had in fact coated materials for another customer sufficient to produce 10,000,000 cartons for a single poultry processor, demonstrating the existence of a market beyond the market provided by IP.

Once the contract between IP and Madison was in place, IP never met its commitment for the minimum volume established in the contract. Madison established at trial that IP had produced less than one percent of the contractually required volume from the effective date of the contract on January 1, 2002, until March 18, 2003, the date Madison brought its breach-of-contract and fraud action against IP and three individuals³ in the Jefferson Circuit Court. The complaint also alleged various related torts, some of which were dismissed by the trial court on December 13, 2004. The case went to trial on January 10, 2005, on three counts: one breach-of-contract count and two fraud counts.

The trial lasted nearly three weeks; more than a dozen witnesses testified. On January 28, 2005, after two days of deliberations, the jury returned a verdict for Madison in the amount of $8,900,000 on the breach-of-contract claim and a verdict for IP on the fraud counts. On February 25, 2005, IP filed a posttrial motion for a judgment as a matter of law ("JML") on the breach-of-contract claim or, alternatively, for a reduction of the jury verdict to an amount equal to net profit lost under the contract between IP and Madison. Madison also filed a motion for a new trial on February 28, 2005, on the fraud claims. The trial court denied both posttrial motions by order dated April 12, 2005. IP filed its notice of appeal on May 23, 2005, and Madison cross-appealed on June 1, 2005. Madison filed a motion to dismiss its cross-appeal on May 31, 2006, and the cross-appeal was dismissed on June 15, 2006 (No. 1041340). IP raises four issues on appeal:

1. Whether IP was entitled to a JML on Madison's breach-of-contract claim.

2. Whether the damages awarded by the jury on the breach-of-contract claim, which were based upon gross revenue rather than net profit lost, were recoverable as a matter of law.

3. Whether Madison's actual operating experience, rather than projections, should be used in determining the cost of performance under the contract in order to calculate Madison's net profit lost under the contract.

4. Whether there is substantial evidence supporting the award of damages under the contract for the periods after March 2003, given Madison's alleged anticipatory repudiation of the contract by its allegedly unilateral decision to suspend coating operations.

Legal Analysis

IP asks this Court to overturn a judgment based on a jury verdict.

"No ground for reversal of a judgment is more carefully scrutinized or rigidly limited than the ground that the verdict of the jury was against the great weight of the evidence. Rather, there is a strong presumption of correctness of a jury verdict in Alabama, and that presumption is strengthened by the trial court's denial of a motion for a new trial. An appellate court must review the tendencies of the evidence most favorably to the prevailing party and indulge such inferences as the jury was free to draw. The reviewing court will not reverse a judgment based on a jury verdict unless the evidence is so preponderant against the verdict as to clearly indicate that it was plainly and palpably wrong and unjust."

Christiansen v. Hall, 567 So.2d 1338, 1341 (Ala.1990) (citations omitted). Accordingly, in considering the evidence we must indulge a presumption of correctness of the verdict for Madison, and we must indulge any inferences the jury may have drawn in considering such evidence.

Motion for a JML

The trial court denied IP's postjudgment motion for a JML, in which IP claimed that the contract was not ambiguous and that there was insufficient evidence indicating that IP had breached the contract. The trial court found the contract to be ambiguous when it evaluated Madison's and IP's pretrial motions for a summary judgment. The trial court issued its order holding that the contract was ambiguous on November 2, 2004. IP argues that its failure to provide the volume of paperboard for coating that was agreed to in the contract was not a breach of the contract because, it argued, provision had been made in the contract for the eventuality that IP might not provide that volume. One such provision, section 3, established graduated pricing at lower volumes than the minimum monthly volume promised in section 2.⁴ The other section, section 1.2, bases IP's right to exclusivity on IP's meeting the volume requirements specified in section 2. IP argues that the three sections — 1.2, 2, and 3 — taken together unambiguously construct a contract that permitted IP to provide less than the minimum volume to Madison without breaching the contract. Madison argues that "[i]f the trial court determines that a contract `is ambiguous or uncertain in any respect, it becomes a question for the fact-finder to determine the true meaning of the contract.' Ex parte Harris, 837 So.2d [283, 290 (Ala.2002)]." Madison's brief at 28. The trial court determined that the contract was ambiguous, and it referred the breach-of-contract claim to the jury. It is from this decision that IP appeals.

"`"`A judgment as a matter of law is proper only where there is a complete absence of proof on a material issue or where there are no controverted questions of fact on which reasonable people could differ and the moving party is entitled to a judgment as a matter of law.'" Southern Energy Homes, Inc. v. Washington, 774 So.2d 505, 510-11 (Ala. 2000), quoting Locklear Dodge City, Inc. v. Kimbrell, 703 So.2d 303, 304 (Ala. 1997). In reviewing the denial of a motion for a judgment as a matter of law, this Court is required to view the evidence in a light most favorable to the nonmovant. Kmart Corp. v. Kyles, 723 So.2d 572, 573 (Ala.1998).'"

Wood v. Phillips, 849 So.2d 951, 957 (Ala. 2002) (quoting Liberty Nat'l Life Ins. Co. v. Daugherty, 840 So.2d 152, 156 (Ala. 2002)). See also Cochran v. Ward, 935 So.2d 1169 (Ala.2006); Thompson Props. 119 AA 370, Ltd. v. Birmingham Hide &amp Tallow, 897 So.2d 248 (Ala.20...