Muglia v. Kaumagraph Corp.
| Decision Date | 16 August 1995 |
| Docket Number | Nos. 93-1986,94-1156,s. 93-1986 |
| Citation | 64 F.3d 663,1995 WL 492933 |
| Parties | NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit. Edward MUGLIA, Plaintiff/Counterdefendant-Appellee, v. KAUMAGRAPH CORPORATION, Defendant/Counterplaintiff-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Before: MERRITT, Chief Judge; BATCHELDER, Circuit Judge; and BERTELSMAN, Chief District Judge. 1
This appeal concerns Kaumagraph Corporation's ("Kaumagraph's") counterclaim for relief against Edward Muglia for breach of a duty to disclose certain business information. Kaumagraph seeks forfeiture of all commissions earned by Mr. Muglia after the breach and to offset this amount against commissions already found to be owed to Mr. Muglia and not at issue here. The District Court held that Kaumagraph must pay Mr. Muglia all commissions accrued within 60 days of his termination as well as prejudgment interest on that and other amounts owed. For the reasons set forth below, we affirm the holdings of the District Court.
This case comes before this Court from two consolidated appeals. The procedural history and facts are somewhat lengthy and will be briefly reiterated here only to the extent necessary to understand the limited issues before this Court.
Kaumagraph is a Delaware company that provides instrument panel components, referred to as decals, appliques and filters, for trucks and cars. AC Spark Plug Division ("AC"), located in Flint, Michigan, is the division of General Motors responsible for subcontracting with vendors such as Kaumagraph for the manufacture of these components. In 1981, AC was doing a limited amount of business with Kaumagraph and suggested to Kaumagraph that it hire a representative based in Flint to facilitate business between Kaumagraph and AC. An employee of AC recommended to Kaumagraph that Kaumagraph hire Edward Muglia. At that time, Mr. Muglia was representing several other manufacturers in their business dealings with AC.
Kaumagraph and Mr. Muglia entered into a Sales Agency Agreement on January 28, 1982 whereby Mr. Muglia was to be the exclusive sales agent for certain identified products. (J.A. at 100) 2 Mr. Muglia's "territory" was exclusively AC. Id. The original sales agreement was for a term of one year with each party reserving the right to terminate without cause with 60 days' notice or, in the case of Kaumagraph, immediately for cause. Sales Agreement at 4, J.A. at 103. The original commission rate was set relatively high (10% of the value of parts sold to AC) to compensate Mr. Muglia for low volumes of sales in the beginning of his tenure.
By 1983, sales by Kaumagraph to AC had increased to well over one million dollars from only about $20,000 in 1981. Due to the increase in sales volume, in early 1984 Kaumagraph began attempts to renegotiate Mr. Muglia's commission rate down to 7.5% for certain products and to fix the absolute value of commissions on other products. In addition, the term of the contract was increased from one year to three years. After several months of negotiations, the parties agreed to these terms by a signed amendment dated May 22, 1984 to the original Sales Agency Agreement. J.A. at 113-14.
In October 1984, Kaumagraph was awarded contracts to produce all the required instrument panel components for four different lines of GM vehicles. These awards ultimately resulted in $30 million worth of business to Kaumagraph and lucrative commissions for Mr. Muglia. District Court Opinion at 3-4. Due to the high level of compensation Mr. Muglia was receiving, Kaumagraph again attempted to renegotiate Mr. Muglia's commission rates in late 1984. Mr. Muglia resisted these attempts and Kaumagraph terminated its relationship with Mr. Muglia in June 1986. At the same time, Mr. Muglia sued Kaumagraph for breach of contract for failure to pay commissions and for wrongful termination in an effort to avoid payment of commissions, including commissions for the "life of the part." 3 In November 1986, Kaumagraph countersued, bringing various tort, contract and federal statutory claims.
The district court bifurcated the issues and ordered the parties to try the contract issues only, reserving any findings on damages, before a magistrate judge. Bifurcation Order filed April 20, 1984 (J.A. at 161-62). A trial was held in 1987 before the magistrate judge that resulted in dismissal of several of Mr. Muglia's contractual claims and reduced the time frame under which Mr. Muglia could receive commissions. Report and Recommendation dated June 15, 1988 (J.A. at 181); District Court Order accepting Report on April 25, 1989. (J.A. at 217) As directed by the District Court, damages were not assessed at that time.
The only issue before us from this first trial concerns a statement made by Mr. Muglia during the trial before the magistrate judge. Mr. Muglia testified that while he was negotiating his new commission rate in early 1984, he was aware that Kaumagraph would be receiving contracts from AC to produce all the panels for four of GM's new vehicle lines. This statement resulted in Kaumagraph amending its counterclaim after the first trial to include a claim that Mr. Muglia deliberately withheld this information from Kaumagraph. The exact nature of this claim is in dispute, but it is clear that the claim alleges that Mr. Muglia committed a breach of duty to Kaumagraph by his failure to disclose this information. In essence, Kaumagraph contends that Mr. Muglia withheld the information because he knew that the contracts would result in a significant increase in the volume of Kaumagraph's business from AC and that based on this increased sales volume the company would seek to lower his commission rate below the 7.5% that the two parties were negotiating at the time. Kaumagraph alleged injury resulting from Mr. Muglia's failure to disclose the information.
A second trial was held before Judge Newblatt on this claim and the other remaining counterclaims brought by Kaumagraph. At this second trial evidence was presented that AC had generated an internal memorandum dated May 1, 1984 that "summarized [AC's] review of all the suppliers of appliques for the instrument panel clusters and rated the suppliers' abilities to meet AC's requirements ...." August 17, 1992 Opinion at 11-12 (J.A. at 63-64). The memorandum indicated that Kaumagraph was ranked number one for providing some of the parts and was listed as the only supplier capable of meeting AC's quality criteria. Testimony was also presented that a representative of AC told Mr. Muglia in the spring of 1984 that Kaumagraph had a "lock" on the award of the four programs. 4
The question before the court below was when this information became available to Mr. Muglia and whether he was under a duty to disclose it to Kaumagraph as soon as he learned it. Mr. Muglia denies that he had any definitive information about the awarding of the contracts prior to actual notification. Kaumagraph asserts that by withholding this information injury to the company was two-fold: (1) it would not have agreed to the 7.5% commission rate in the May 1984 amendment to its contract with Mr. Muglia and therefore consequently paid Mr. Muglia more than it otherwise would have and (2) it would have started preparing its facilities earlier for the contract awards and would not have wasted time on other projects that later prevented the company from fulfilling all the AC requirement contracts in a timely manner. Kaumagraph seeks to recover the commissions that exceed the reasonable commission rate to which Kaumagraph would have agreed had it been aware that increased sales volume was imminent and for the monetary losses it suffered through its inability to produce all the parts required under the contracts.
We review the District Court's factual findings for clear error and review legal conclusions de novo. Due to the very fact-intensive nature of this case, our scope of review is particularly narrow.
The legal issues take some sorting out here. We must determine what claim Kaumagraph brought against Mr. Muglia and if that claim has been preserved for our review, what state's law should be applied in resolving the claim and finally we must resolve the merits of the claim as to Mr. Muglia's conduct.
Mr. Muglia claims that Kaumagraph did not plead or argue below that he breached a fiduciary duty and that the remedy of forfeiture of compensation for an agent's breach cannot be raised before this Court. Kaumagraph labeled its claim one for fraud, not one for breach of fiduciary duty. The facts as alleged in the counterclaim, however, could be construed to make a claim for breach of fiduciary duty. It appears as though the breach of fiduciary duty claim is subsumed within the general fraud claim because the liability is premised either on a breach of fiduciary duty or the breach of a duty to disclose, either of which can be used to prove a fraud claim. In making its fraud claim and alleging the necessary facts to support that claim, Mr. Muglia was on notice that Kaumagraph might try to frame the relationship as a fiduciary one and claim that the relationship was breached. It is certainly clear that Kaumagraph was alleging that the relationship between it and Mr. Muglia created a duty to disclose the information at issue here. Furthermore, it was not necessary for Kaumagraph to detail the exact remedy it sought where, as here, the District Court did not ask it to do so. This is particularly true where it was necessary for the District Court to exercise its equitable powers to fashion an appropriate remedy. As discussed further below, while...
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