Paulson, Inc. v. Bromar, Inc., Civ. No. 91-00226 HMF.

• Decision Date: 16 October 1991
• Docket Number: Civ. No. 91-00226 HMF.
• Citation: 775 F. Supp. 1329
• Parties: PAULSON, INC., George P. Corniotis and Marsha F. Corniotis, Plaintiffs, v. BROMAR, INC., Bromar Hawaii, Borden, Inc., and Doe Defendants 1-110, Defendants.
• Court: U.S. District Court — District of Hawaii

775 F. Supp. 1329

PAULSON, INC., George P. Corniotis and Marsha F. Corniotis, Plaintiffs, v. BROMAR, INC., Bromar Hawaii, Borden, Inc., and Doe Defendants 1-110, Defendants.

Civ. No. 91-00226 HMF.

United States District Court, D. Hawaii.

October 16, 1991.

COPYRIGHT MATERIAL OMITTED

Davis & Levin, Mark S. Davis, Michael K. Livingston, Honolulu, Hawaii, for plaintiffs.

Cades Schutte Fleming & Wright, C. Michael Hare, Ernest H. Nomura, Honolulu, Hawaii, Colleen K. Nissl, Borden, Inc., Columbus, Ohio, for defendant Borden, Inc.

Damon Key Bocken Leong Kupchak, Kenneth R. Kupchak, Joslyn V. Wood, Honolulu, Hawaii, for defendant Bromar, Inc.

FONG, Chief Judge.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT BORDEN, INC.'S MOTION FOR DISMISSAL OF CERTAIN CLAIMS AND FOR PARTIAL SUMMARY JUDGMENT AS TO OTHERS

INTRODUCTION

On September 16, 1991, the court held a hearing on defendant Borden, Inc.'s ("Borden's") motion for partial summary judgment, filed on June 24, 1991. Defendant Bromar, Inc. filed a joinder in this motion on August 29, 1991. Plaintiffs filed an opposition on August 30, 1991. Defendant Borden filed a reply on September 10, 1991.

BACKGROUND

On June 20, 1981, defendant Borden appointed plaintiff Paulson, Inc. ("Paulson") as Borden's "exclusive" distributor of certain products, pursuant to the terms of a Distributor Agreement ("Distributorship Agreement"). The parties also executed a Brokerage Contract whereby Paulson would act as Borden's broker for certain other products. The Brokerage Contract was to run concurrently with the Distributorship Agreement and was to automatically terminate in the event that the Distributorship Agreement terminated. This arrangement was maintained for eight years until terminated by Borden as of July 1, 1989.

One of Paulson's claims is that, during this time, Borden violated the Distributorship Agreement in numerous ways, including the use of other distributors in violation of the agreement, and violating Paulson's right of first refusal to distribute Borden food products to military outlets in Hawaii.

On May 26, 1986, Paulson and Defendant Bromar Hawaii entered into a Broker Agreement for the brokerage of certain Borden products within the State of Hawaii. This agreement precluded Bromar Hawaii from soliciting or contacting any manufacturer with whom Paulson had contracted. Paulson alleges that in 1989, in violation of this agreement, Bromar Hawaii began secretly negotiating with Borden to replace Paulson as distributor. On May 31, 1989, Borden gave notice of its intent not to further renew the Distributorship Agreement, effective July 1, 1989.

Paulson then brought suit against Borden and Bromar claiming violation of the Distributorship Agreement and the Broker Agreement, and wrongful termination of the Distributorship Agreement. In the instant motion, Borden seeks dismissal/summary judgment on the following issues: (1) Borden's right to refuse to renew the Distributorship Agreement absent good cause; (2) plaintiffs' request for tort and punitive damages arising out of the breach of the Distributorship Agreement; (3) whether breach of the implied covenant of good faith and fair dealing may constitute an independent cause of action; and (4) plaintiffs' standing to sue under Haw.Rev.Stat. § 480-2.

DISCUSSION

I. BORDEN'S RIGHT TO REFUSE TO RENEW THE DISTRIBUTORSHIP AGREEMENT.

Borden claims that there is no contested issue of material fact as to whether the Distributorship Agreement could be non-renewed absent good cause. Borden cites section 1.5 of the Distributorship agreement which states

this Agreement ... shall be for a period of two years from July 1, 1981, and is renewable from year to year thereafter upon agreement of the parties.

According to Borden, the plain language of the contract should control. Thus, after the initial term, either party had an unconditional right to refuse to renew the contract at the outset of each successive yearlong term.

A. Summary Judgment Standard.

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment shall be entered when:

... the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

The moving party has the initial burden of "identifying for the court those portions of the materials on file that it believes demonstrate the absence of any genuine issue of material fact." T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir.1987), citing Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). The movant must be able to show "the absence of a material and triable issue of fact," Richards v. Neilsen Freight Lines, 810 F.2d 898, 902 (9th Cir.1987), although it need not necessarily advance affidavits or similar materials to negate the existence of an issue on which the nonmoving party will bear the burden of proof at trial. Celotex, 477 U.S. at 323, 106 S.Ct. at 2553. But cf., id., 477 U.S. at 328, 106 S.Ct. at 2555-56 (White, J., concurring).

If the moving party meets its burden, then the opposing party may not defeat a motion for summary judgment in the absence of any significant probative evidence tending to support his legal theory. Commodity Futures Trading Comm'n v. Savage, 611 F.2d 270, 282 (9th Cir.1979). The opposing party cannot stand on his pleadings, nor can he simply assert that he will be able to discredit the movant's evidence at trial. See T.W. Elec., 809 F.2d at 630. Similarly, legal memoranda and oral argument are not evidence and do not create issues of fact capable of defeating an otherwise valid motion for summary judgment. British Airways Bd. v. Boeing Co., 585 F.2d 946, 952 (9th Cir.1978), cert. denied, 440 U.S. 981, 99 S.Ct. 1790, 60 L.Ed.2d 241 (1979). Moreover, "if the factual context makes the nonmoving party's claim implausible, that party must come forward with more persuasive evidence than would otherwise be necessary to show that there is a genuine issue for trial." California Architectural Building Products, Inc. v. Franciscan Ceramics, 818 F.2d 1466, 1468, (9th Cir.1987) citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (emphasis in the original).

The standard for a grant of summary judgment reflects the standard governing the grant of a directed verdict. See Eisenberg v. Insurance Co. of North America, 815 F.2d 1285, 1289 (9th Cir. 1987), citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986). Thus, the question is whether "reasonable minds could differ as to the import of the evidence." Id.

However, when "direct evidence" produced by the moving party conflicts with "direct evidence" produced by the party opposing summary judgment, "the judge must assume the truth of the evidence set forth by the nonmoving party with respect to that fact." T.W. Elec., 809 F.2d at 631. Also, inferences from the facts must be drawn in the light most favorable to the non-moving party. Id. Inferences may be drawn both from underlying facts that are not in dispute, as well as from disputed facts which the judge is required to resolve in favor of the non-moving party. Id.

B. Analysis of Distributorship Agreement.

1. Applicability of UCC.

Borden argues that the court should apply the Uniform Commercial Code ("UCC"), as adopted by Hawaii, in evaluating whether Borden properly refused to renew the Distributorship Agreement. Plaintiffs disagree, claiming that the issue has not been decided by the Hawaii state courts. Although this is true, there seems to be a clear precedent in most other jurisdictions that the UCC does apply to distributorship agreements. Borden has cited cases from sixteen jurisdictions holding that the UCC applies to distributorship agreements. These jurisdictions include Alabama,¹ California,² Indiana,³ Iowa,⁴ Kentucky,⁵ Maryland,⁶ Michigan,⁷ Mississippi,⁸ New Jersey,⁹ New Mexico,¹⁰ New York,¹¹ Pennsylvania,¹² Texas,¹³ Utah,¹⁴ West Virginia¹⁵ and Wyoming.¹⁶ Plaintiff, on the other hand, could only cite one state which has not so held,¹⁷ see Tile-Craft Products v. Exxon, Corp., 581 S.W.2d 886 (Mo.Ct.App.1979), and the logic of that case was seriously questioned by the 8th Circuit Court of Appeals in Vigano v. Wylain, 633 F.2d 522, 525 n. 3 (8th Cir.1980).

In light of the overwhelming precedent from other jurisdictions, it is the court's judgment that the Hawaii Supreme Court would find the UCC applicable to distributorship agreements in this state as well. Accordingly, this court will apply the UCC to distributorship agreements.

2. Character of the Distributorship Agreement.

Plaintiffs argue that this Distributorship Agreement is actually a hybrid distributorship/brokerage contract, and as a result, may not fall within the UCC. However, as Borden correctly points out, the Brokerage Contract is separate and distinct from the Distributorship Agreement, the only connection between the two being a mutual termination arrangement. At issue in the instant motion is only whether Borden had a right to refuse to renew the Distributorship Agreement absent good cause.

3. Terminability of Distributorship Agreement.

The Uniform Commercial Code states that

where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.

Haw.Rev.Stat. § 490:2-309(2). There is a strong public policy argument against restricting the right of termination of long term contracts. It is considered to be in society's best interest to allow parties to a long term contract to "end a soured relationship without litigation." Corenswet, Inc. v. Amana Refrigeration, Inc., 594 F.2d 129, 138...