Paper Corp. of US v. Schoeller Technical Papers, 89 Civ. 2504 (RWS).

• Decision Date: 11 October 1989
• Docket Number: No. 89 Civ. 2504 (RWS).,89 Civ. 2504 (RWS).
• Citation: 724 F. Supp. 110
• Parties: PAPER CORPORATION OF THE UNITED STATES, Plaintiff, v. SCHOELLER TECHNICAL PAPERS, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

724 F. Supp. 110

PAPER CORPORATION OF THE UNITED STATES, Plaintiff, v. SCHOELLER TECHNICAL PAPERS, INC., Defendant.

No. 89 Civ. 2504 (RWS).

United States District Court, S.D. New York.

October 11, 1989.

Montgomery, McCracken, Walker & Rhoads, Philadelphia, Pa., (Howard D. Scher, Stephen D. Ellis, of counsel), McCarter & English, New York City (Gita F. Rothschild, of counsel), for plaintiff.

Walter, Conston, Alexander & Green, P.C., New York City (Alan Kanzer, of counsel), for defendant.

OPINION

SWEET, District Judge.

Defendant Schoeller Technical Papers, Inc. ("Schoeller") has moved pursuant to Rule 12(b)(6), Fed.R.Civ.P., for an order dismissing the complaint of plaintiff Paper Corporation of the United States ("Paper Corporation"). For the reasons set forth below, the motion is granted in part and denied in part.

The Parties

Paper Corporation — a division of Paper Corporation of America, Inc. — is a Delaware corporation with its principal place of business in Valley Forge, Pennsylvania. Paper Corporation serves as an independent distributor of paper products. According to Paper Corporation, it expends its own resources to locate purchasers to buy its principals' products in exchange for its principals' commitment to supply the purchasers during a designated time period. Once it secures those commitments, Paper Corporation deals with the purchasers on its principals' behalf, places the purchasers' orders with its principals, arranges for its principals to ship the products directly to the purchasers, and charges the purchasers a mark-up over the price Paper Corporation pays to its principals.

Schoeller — a wholly owned subsidiary of Felix Schoeller Jr. Gmbh & Company Kg ("Schoeller Kg"), a West German corporation — is a business organization located in Pulaski, New York. Schoeller manufactures high quality specialty paper, primarily for the photographic and greeting card industries.

The Facts

A. The Greeting Card Business

Paper Corporation began distributing Schoeller products to manufacturers of "everyday greeting cards" (the "greeting card business") in 1964.

In 1986, Schoeller Kg allegedly promised Paper Corporation orally that it could continue to market Schoeller products in the greeting card business for a "minimum of eight to ten years." Despite that promise, Schoeller advised Paper Corporation in April 1987 that it was leaving the greeting card business immediately and would manufacture paper only for orders it already had acknowledged.

At the time, Paper Corporation had obtained approximately twenty-five accounts for Schoeller totalling $11,500,000 in annual sales. Of those customers, Hallmark Cards Incorporated ("Hallmark") bought about 6,000 tons of paper per year, generating approximately $5,500,000 in annual sales. Schoeller's decision to cease its greeting card business prompted Hallmark to find other suppliers.

In August 1987, Schoeller informed Paper Corporation that it wanted to resume marketing paper to greeting card companies, although on a smaller scale. According to Paper Corporation, Schoeller confirmed in writing its commitment to sell 2,000 tons to Hallmark in the second half of 1988, 4,000 tons in 1989, and 3,000 tons in 1990. Several months later, Paper Corporation recommended that Schoeller allocate its entire output to Hallmark and represented that Hallmark would buy Schoeller's entire tonnage within one calendar year. At that time, Schoeller allegedly promised to supply Hallmark for at least five years. In response, Paper Corporation secured Hallmark's commitment to buy Schoeller's output for the next five years.

In January or February 1988, Schoeller determined to increase its profit margin on greeting card paper by thirty percent. Paper Corporation negotiated this increase with Hallmark, and Hallmark agreed to pay the higher price over the five year period and future price rises occasioned by increases in the price of pulp. Hallmark also allegedly agreed not to terminate its commitment without giving Paper Corporation at least one year's notice.

In March 1988, Hallmark agreed to buy 4,000 tons of greeting card paper in 1988 and requested the right of first refusal on Schoeller's entire output of greeting card paper in future years.

In June 1988, Schoeller allegedly guaranteed that Paper Corporation would continue to handle the Hallmark account as long as Paper Corporation continued to take a five percent profit margin.

On June 29, 1988, Schoeller sent Paper Corporation a letter enclosing internal Schoeller correspondence regarding "Pricing Structure Hallmark Grades." According to that enclosure, Schoeller had committed to supply Hallmark greeting card paper amounting to 4,000 tons in 1988, 6,000 tons in 1989, and 5,000 tons in "1990 and beyond." In a letter to Paper Corporation dated August 18, 1988, Schoeller "reiterated its commitment to supply Hallmark with greeting card paper" amounting to 4,000 tons in 1988, 6,000 tons in 1989, and 5,000 tons in 1990, 1991, and 1992, respectively.

In October and November 1988, Hallmark agreed to buy 4,000 tons of Schoeller paper in 1989. At the same time, Schoeller advised Paper Corporation that it wanted to increase its volume to Hallmark by 2,000 tons in 1989 and asked Paper Corporation what would have to be done to increase Hallmark's purchases. Paper Corporation approached Hallmark and determined that Hallmark would consent to the increase if it received an eight percent price reduction on any purchases over 4,000 tons. Schoeller agreed to these terms and allegedly assured Paper Corporation that it would continue to sell greeting card paper through Paper Corporation. In November and December 1988, Hallmark increased its purchases for 1989 to 5,000 tons.

B. The Polycoated Business

In 1979, Paper Corporation began distributing Schoeller polycoated paper products in markets other than the photographic paper market (the "polycoated business"). Paper Corporation's accounts in the polycoated business included the Minnesota Mining and Manufacturing Company ("3M") and Avery International Fasson Division ("Fasson").

Sometime in 1981, Schoeller determined to deal directly with 3M. Following several conversations and letters, Schoeller sent Paper Corporation a letter dated June 18, 1981 setting forth "a policy which will avoid continued discussion of this subject." That policy included the following elements:

1. After August 1, 1981, all orders for the grade MQ would be directed to Schoeller by 3M Purchasing. A separate grade designation will be used to differentiate MQ being ordered for current MR end-use from present alternate uses. We will send you a copy of purchase orders relating to "Paper Corporation end use."

2. After each Traffic Control order has been completed and shipped, we will send you a check for your normal sales commission of 5.0%, as you suggested.

3. All marketing contact and future development work at 3M for any Schoeller products will be handled by Schoeller personnel.

4. Payment of a sales commission applies only to material purchased by the Traffic Controls Division of 3M for end uses which currently utilize MR.

5. This agreement would be subject to review on a three year basis, and would be renewable on August 1, 1984.

The letter concluded: "We look forward to your acceptance of this proposal so that we can continue with `business as usual,' which has benefitted both our companies in the past."

On August 3, 1981, Schoeller sent another letter concerning the 3M account. It set forth the policy "as altered through ... later discussions." That policy provided:

1. After August 1, 1981 all orders formerly designed by the Traffic Control Division of 3M as grade MR will be phased out with Schoeller MQ material replacing the MR grade. We will send you a copy of purchase orders relating to the release structure used by the Traffic Control Division for glass bead coating for their Reflective products. Orders coming into Schoeller for this end use will be involved with the Schoeller-Paper Corporation Agreement with the further stipulations as outlined below.

2. After each Traffic Control order has been completed and shipped, Schoeller will send a check for a sales commission of 5.0% to Paper Corporation.

3. All marketing contacts and future development work at 3M for any Schoeller products will be handled by Schoeller personnel.

4. Payments of a sales commission applies only to material purchased by the Traffic Control Division of 3M for the resin coated release liner for glass bead coating for their manufacture of reflective design products.

5. This agreement will terminate after a six year period starting August 1, 1981. A termination date will be August 1, 1987 with all product shipped prior to that date being a part of this agreement.

The concluding paragraph stated: "In order that we have no further delays in accomplishing the objectives as outlined, we would like your written agreement to our proposal as soon as possible."

Paper Corporation responded in a letter dated August 5, 1981. That letter set forth Paper Corporation's views as follows:

You will recall when you first installed poly-coating equipment, you asked us to try and develop industrial business other than photographic, and we did so. Our only mistake, apparently, was in developing business at 3M Company. We understand they have put severe pressure on you to buy direct and even threatened the loss of the photographic business if you did not comply. Our normal position with a source of supply is that we both experience the loss if a customer demands to buy direct under threat of loss of the business. However, this is complicated with the additional threat of the loss of the photographic business, and we, thus, reluctantly accept your offer of settlement as outlined in the above letter.

We do so with the understanding that should any of our other customers demand to buy direct, you would abide by our policy that we both experience the

...