Paper Corp. of US v. Schoeller Technical Papers

• Citation: 742 F. Supp. 808
• Decision Date: 10 July 1990
• Docket Number: No. 89 Civ. 2504 (RWS).,89 Civ. 2504 (RWS).
• Parties: PAPER CORPORATION OF the UNITED STATES, Plaintiff, v. SCHOELLER TECHNICAL PAPERS, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

742 F. Supp. 808

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.

July 10, 1990.

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. to dismiss the amended complaint of plaintiff Paper Corporation of the United States ("Paper Corporation"). This is yet another round in the litigation between the sales representative, Paper Corporation, and the manufacturer, Schoeller, arising out of an alteration in the relationship between them. Both parties are well advised, and based upon the prior proceedings, the submissions of the parties' and the reasons set forth below, the motion to dismiss is granted in part and denied in part.

Prior Proceedings

By an opinion of October 11, 1989 (the "Opinion") Schoeller's prior motion to dismiss the complaint of Paper Corporation was granted in part and denied in part. 724 F.Supp. 110. The Opinion described the parties, the facts, and the controversy, and those matters need no repetition or alteration here. Familiarity with the Opinion is assumed.

Since the filing of the Opinion, discovery has proceeded and on January 11, 1990 Paper Corporation filed its Amended Complaint. Schoeller moved to dismiss by the instant motion which was heard and submitted on April 13, 1990.

The Amended Complaint

The Amended Complaint sets forth eight claims for relief. The First alleges that Schoeller breached its agreement to sell greeting card papers and nonphotographic "polycoated" paper exclusively to and through Paper Corporation so long as such customers continued purchasing such products and/or so long as Schoeller continued to manufacture such products. The second and third claims allege that Schoeller breached a contract to supply Hallmark and Fasson, respectively, exclusively through Paper Corporation. The fourth claim alleges fraud in the inception and performance of the alleged contracts. The fifth claim seeks relief under the quasi-contract theory of quantum meruit. The sixth cause of action sets forth promissory estoppel. The seventh alleges tortious interference with business relations, and the eighth alleges unfair competition.

The First and Third Breach of Contract Claims Are Barred by the Statute of Frauds

The Opinion dismissed the original complaint's breach of contract claim (except insofar as it related to Hallmark) on the ground that Schoeller's alleged agreement to deal exclusively through Paper Corporation as long as customers introduced to Schoeller by it continued to place orders, came within the prohibitions of the New York Statute of Frauds, G.O.L. § 5-701(a)(1), and that none of the writings attached to plaintiff's pleading (other than those referred to Hallmark) satisfied the statute's writing requirement, citing North Shore Bottling Co. v. C. Schmidt & Sons, Inc., 22 N.Y.2d 171, 292 N.Y.S.2d 86, 239 N.E.2d 189 (1968) and noting that North Shore was inapplicable because:

There, the defendant retained the power to terminate the contract within one year by ceasing to distribute beer in the New York metropolitan area.

Paper Corporation now asserts:

Paper Corporation and Schoeller are parties to a binding and enforceable contract whereunder Schoeller undertook contractual commitments, inter alia, to sell all of its greeting card paper to Paper Corporation, and to continue to sell its products, including both "greeting card" and nonphotographic "polycoated" paper, through Paper Corporation to customers secured by Paper Corporation for such products so long as such customers continued purchasing such products and/or so long as Schoeller continued to manufacture such products.

Schoeller could have terminated the contract at any time prior to making specific commitments for specific quantities to specific customers, by ceasing to manufacture the paper products purchased by Paper Corporation. However, under the express and implied terms of the contract, and in accordance with the implied covenant of good faith and fair dealing, Schoeller was prohibited from selling its products directly to Paper Corporations' existing customers absent Paper Corporation's consent.

Notwithstanding this allegation, both the original and Amended Complaint, in virtually identical language, contend that:

In or about 1986, Michael Gallenkamp, at that time the President of Schoeller Kg, promised Paper Corporation that Schoeller would continue to sell products in the greeting card market through Paper Corporation for a minimum of an additional eight to ten years.

¶ 17 of the original complaint; ¶ 36 of the amended complaint.

The significant aspect of North Shore for these purposes is that the alleged agreement for the distributorship, which took the arrangement out of the Statute of Frauds, itself contained the reservation that Paper Corporation now seeks to establish by the custom and practice of the trade, namely, that the manufacturer reserved the right to go out of business.

That distinction is critical here. Were the position taken by Paper Corporation adopted, the Statute of Frauds would effectively be gutted, for particularly in today's world every company faces the possibility of discontinuing some or all of its business. The Paper Corporation argument does too much, and the Amended Complaint fails to come within the North Shore exception.

Under its third claim, Paper Corporation alleges that Schoeller breached an agreement "to supply Fasson, through Paper Corporation exclusively, with nonphotographic polycoated paper sufficient to fill Fasson's orders." (Amended Complaint, ¶ 81).

After reviewing the documents attached as exhibits to the original complaint, the Opinion stated that none sufficed to memorialize an agreement between Schoeller and Paper Corporation relating to Fasson, because:

no writing sets forth key terms such as duration, price or volume regarding Fasson's purchases. Indeed, Schoeller's internal memorandum of June 16, 1988 indicates that the parties plan to "review" the Fasson project.

Opinion, p. 17.

The only additional writing incorporated in the Amended Complaint is new Exhibit C, a July 14, 1988 Schoeller internal memorandum concerning a July 12, 1988 meeting with Paper Corporation, the second page of which relates to Fasson. In paragraph 30 of the Amended Complaint, Paper Corporation alleges:

As evidenced by an internal Schoeller memorandum signed by Schoeller, at a meeting between Paper Corporation and Schoeller on July 12, 1988, Gerhard Kemper of Schoeller reaffirmed this agreement by stating to Robert Fitzgerald of Paper Corporation that although there was pressure from Schoeller Kg and Fasson to eliminate Paper Corporation as an agent of Schoeller, Schoeller would not consider doing so as long as Paper Corporation continued to work "within a reasonable margin, such as 5%."

However, the next sentence of the memorandum states:

Bob Fitzgerald said that he disagreed, considering that it was Paper Corporation that gave STP Schoeller the idea for this product.

The writing thus fails to establish an agreement.

Exhibit C also fails to satisfy the other deficiencies noted in the Opinion, namely "price or volume regarding Fasson's purchases." While the memorandum refers to "a new price/volume matrix was presented (attached)," the attachment is not included in the exhibit and the Amended Complaint does not supply its terms. Moreover, the memorandum goes on to state that "Paper Corporation will present the matrix to Fasson with the possibility of a follow-up meeting with STP Schoeller personnel," indicating that the matrix was merely a proposal, which is not alleged to have been accepted by Fasson.

Consequently, the Amended Complaint fails to cure the defects that previously led this court to hold that Paper Corporation's allegations relating to Fasson are barred by the statute of frauds.

The Fraud Claim is Dismissed

While it is actionable in New York to make a promise without intent to perform, Channel Master Corp. v. Aluminum Ltd. Sales, Inc., 4 N.Y.2d 403, 176 N.Y.S.2d 259, 151 N.E.2d 833 (1958), it is insufficient merely to allege lack of intent; one "must allege facts to show that the defendant, at the time the promissory representation was made, never intended to honor or act on its statement." Roney v. Janis, 77 A.D.2d 555, 557, 430 N.Y.S.2d 333, 335 (1st Dept.1980), aff'd, 53 N.Y.2d 1025, 442 N.Y.S.2d 484, 425 N.E.2d 872 (1981); Carlucci v. Owens-Corning Fiberglas Corp., 646 F.Supp. 1486, 1491 (E.D. N.Y.1986).

No facts are set forth in the Amended Complaint to show Schoeller did not intend to honor its alleged commitments. In addition, it is not alleged that the purported promises were made with the intent to deceive Paper Corporation, an essential element of any common law fraud claim.

Paper Corporation also alternatively alleges a failure to disclose a subsequent change of intent. Where the alleged fraud concerns the performance of a contract, as it does here, the claim is treated in New York as one sounding in contract rather than tort. Trusthouse Forte (Garden City) Management, Inc. v. Garden City Hotel, Inc., 106 A.D.2d 271, 483 N.Y.S.2d 216 (1st Dept.1984); see Vista Co. v. Columbia Pictures Industry Inc., 725 F.Supp. 1286, 1294 (S.D.N.Y.1989); Airlines Reporting Corp. v. Aero Voyagers, Inc., 721 F.Supp. 579, 582 (S.D.N.Y.1989).

Further, Paper Corporation fails to plead with the required specificity. The Court of Appeals has stated that "allegations, which fail to specify the time, place, speaker, and sometimes even the content of the alleged misrepresentation, lack the `particulars' required by Rule 9(b)." Luce v. Edelstein, 802 F.2d 49, 54 (2d Cir.1986).

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