Tension Envelope Corp. v. JBM Envelope Co.

• Decision Date: 08 December 2017
• Docket Number: No. 16-3728,16-3728
• Citation: 876 F.3d 1112
• Parties: TENSION ENVELOPE CORPORATION Plaintiff–Appellant v. JBM ENVELOPE COMPANY; Marcus G. Sheanshang; Daniel J. Puthoff Defendants–Appellees
• Court: U.S. Court of Appeals — Eighth Circuit

876 F.3d 1112

TENSION ENVELOPE CORPORATION Plaintiff–Appellant

v.JBM ENVELOPE COMPANY; Marcus G. Sheanshang; Daniel J. Puthoff Defendants–Appellees

No. 16-3728

United States Court of Appeals, Eighth Circuit.

Submitted: September 20, 2017

Filed: December 8, 2017

Kate O'Hara Gasper, Bernard J. Rhodes, Lathrop & Gage, Kansas City, MO, for Plaintiff–Appellant.

Curtis Calloway, Lewis & Rice, Saint Louis, MO, Scott Andrew Wissel, Lewis & Rice, Kansas City, MO, Amy L. Hunt, Richard Stuart Wayne, Strauss & Troy, Cincinnati, OH, for Defendant–Appellee JBM Envelope Company.

Richard Stuart Wayne, Strauss & Troy, Cincinnati, OH, for Defendants–Appellees.

Before WOLLMAN, MELLOY, and GRUENDER, Circuit Judges.

GRUENDER, Circuit Judge.

Tension Envelope Corporation sued a former supplier, JBM Corporation, for selling directly to its customers after promising not to do so. The district court¹ rejected one claim on the pleadings and the others on summary judgment. We affirm the district court's rulings.

I.

Tension and JBM manufacture and sell envelopes. In late 2000 or 2001, Tension began buying from JBM a special type of envelope—small, open-end envelopes² —to resell to customers. Three of Tension's customers accounted for a significant percentage of the sales.

According to Tension, JBM offered assurances that it would not sell directly to Tension's customers. On three separate occasions, however, JBM refused to sign a non-compete agreement. After these refusals, Tension continued to order envelopes from JBM with individual purchase orders. Tension even leased its manufacturing equipment to JBM to produce the envelopes.

Although JBM had sold some envelopes to end users since at least 2001, JBM's new management in 2011 decided to increase direct sales. By 2014, JBM decided to sell directly to Tension's customers. JBM hired a communications consultant to help with the strategy. The strategy worked, and by June 2014, JBM reached agreements with two of Tension's three large customers. JBM later tried to sell to the third large customer's customers. Tension learned of the agreements—though it earlier had suspected something was afoot—and struggled to find a new supplier.

Tension filed its complaint in June 2014. It later filed three amended complaints and named JBM and two of JBM's corporate officers (collectively "JBM") as defendants. The district court dismissed under Federal Rule of Civil Procedure 12(b)(6) a claim for misappropriation of trade secrets. After discovery, the district court granted JBM's summary judgment motion on every remaining claim. Tension appealed.³

II.

On appeal, Tension advances seven arguments. Six relate to the district court's summary judgment grant. Tension argues that the district court erred in granting summary judgment on its claim for (1) breach of contract, (2) promissory estoppel, (3) fraudulent misrepresentation, (4) fraudulent nondisclosure, (5) tortious interference, and (6) unfair competition. Tension's final argument relates to the district court's dismissal under Rule 12(b)(6) of its misappropriation of trade secrets claim.

We will address each claim in turn and review de novo the district court's rulings. See Turner v. Holbrook , 278 F.3d 754, 757 (8th Cir. 2002). In reviewing the motion to dismiss, we accept "well-pleaded allegations in the complaint as true" and draw "all reasonable inferences in favor" of Tension. See Schriener v. Quicken Loans, Inc. , 774 F.3d 442, 444 (8th Cir. 2014). In reviewing the grant of summary judgment, we ask whether "there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law." Turner , 278 F.3d at 757 (citing Fed. R. Civ. P. 56(c) ). The parties agree that the substantive law of Missouri governs the dispute. See Dannix Painting, LLC v. Sherwin-Williams Co. , 732 F.3d 902, 904 n.2 (8th Cir. 2013).

A. Breach of Contract

Tension first argues that JBM breached a requirements contract in selling directly to its customers. Under Missouri law, a requirements contract is "one in which one party promises to supply all the specific goods or services which the other party may need during a certain period at an agreed price, and the other party promises that he will obtain his required goods or services from the first party exclusively." Essco Geometric v. Harvard Indus. , 46 F.3d 718, 728 (8th Cir. 1995) (emphasis omitted) (quoting Kirkwood–Easton Tire Co. v. St. Louis Cty ., 568 S.W.2d 267, 268 (Mo. 1978) (en banc)). Tension contends that the purported contract required JBM "to use its best efforts to supply the envelopes" to Tension and provide "reasonable notice" before terminating the agreement. According to Tension, JBM breached both provisions when it started selling directly to Tension's customers.

The district court concluded that no enforceable requirements contract existed between the two companies, see Tension Envelope Corp. v. JBM Envelope Co. , No. 14-567-CV-W-FJG, at 19 (W.D. Mo. Aug. 22, 2016), and we agree. Under the Missouri statute of frauds, and with exceptions not relevant here,

a contract for the sale of goods for the price of five hundred dollars or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker.

Mo. Ann. Stat. § 400.2-201. Tension concedes that the purported contract involves a sale of goods for more than five hundred dollars. So Tension must proffer some writing "sufficient to indicate" that an agreement was reached. See id.

Tension attempts to do so with two documents. The first is a letter from JBM's president to a Tension representative stating that "Tension and JBM have a partnership in which Tension has shared machinery and knowledge with JBM." The second document is a promotional piece noting that "[o]ver the years, the relationship and trust between Tension and JBM has grown into a partnership."

These documents do not satisfy the statute of frauds. Recall that a requirements contract is "one in which one party promises to supply all the specific goods or services which the other party may need during a certain period at an agreed price, and the other party promises that he will obtain his required goods or services from the first party exclusively." Essco Geometric , 46 F.3d at 728 (emphasis omitted). Tension's proffered documents do "not contain any terms" referencing those elements. See Howard Const. Co. v. Jeff-Cole Quarries, Inc. , 669 S.W.2d 221, 230 (Mo. Ct. App. 1983). Tension points to testimony supporting its favored interpretation of the word "partnership," but we cannot consider oral evidence in determining "whether the statute of frauds requirements have been met." See id. at 229. Without that evidence and without any documents beyond those containing bare references to "partnership,"⁴ we cannot conclude that Tension has satisfied the statute of frauds. As a result, Tension and JBM have no enforceable requirements contract as a matter of law.

B. Promissory Estoppel

Tension next seeks relief under the doctrine of promissory estoppel, but the Missouri statute of frauds bars this claim as well. When the statute of frauds bars a contract claim, allowing recovery based on Missouri's promissory estoppel "would abrogate the purpose and intent of the legislature in enacting the statute of frauds and would nullify its fundamental requirements." Sales Serv., Inc. v. Daewoo Int'l Corp. , 770 S.W.2d 453, 457 (Mo. Ct. App. 1989). "In fact," one district court concluded, "no Missouri Court has revived a claim barred by the Statute of Frauds using the doctrine of promissory estoppel." Essco Geometric, Inc. v. Harvard Indus., Inc. , No. 90-1354C(6), 1993 WL 766952, at *4 (E.D. Mo. Sept. 30, 1993), aff'd sub nom . Essco Geometric v. Harvard Indus. , 46 F.3d 718 (8th Cir. 1995). An "extraordinary" circumstance could warrant an exception to this general rule, see Geisinger v. A & B Farms, Inc. , 820 S.W.2d 96, 99 (Mo. Ct. App. 1991), but these facts are not extraordinary. Tension voluntary outsourced its manufacturing to a company that repeatedly refused to sign a non-compete agreement.

C. Fraudulent Misrepresentation

Tension also brings a claim for fraudulent misrepresentation. That claim has nine elements under Missouri law:

(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) the speaker's intent that it should be acted on by the person in the manner reasonably contemplated; (6) the hearer's ignorance of the falsity of the representation; (7) the hearer's reliance on the representation being true; (8) the hearer's right to rely thereon; and (9) the hearer's consequent and proximately caused injury.

Freitas v. Wells Fargo Home Mortg., Inc. , 703 F.3d 436, 438-39 (8th Cir. 2013). "A plaintiff's failure to establish any one of the essential elements of fraud is fatal to recovery." Renaissance Leasing, LLC v. Vermeer Mfg. Co. , 322 S.W.3d 112, 132 (Mo. 2010) (en banc).

Tension focuses on three alleged misrepresentations. The first concerns JBM's 2012 statement that it would be a good partner because it was a "trade only manufacturer." Whether this statement qualifies as a misrepresentation depends on its meaning—about which some dispute exists. In its opening brief, Tension writes that "references to selling to the ‘trade’ refer to selling to ‘other envelope companies.’ " If Tension sold "only" to the trade, then presumably it would sell "only" to other envelope companies. Tension knew from the beginning of the relationship, however, that JBM sold directly to some end users. Tension's chief operating officer acknowledged that he "knew continuously from 2001 to 2014 that [JBM] sold to direct end users." So if "trade only manufacturer" has the meaning Tension apparently ascribed to it in the briefs, then Tension cannot...