Werner v. Xerox Corp., s. 83-1386

• Decision Date: 18 April 1984
• Docket Number: Nos. 83-1386,83-1407,s. 83-1386
• Parties: John A. WERNER & W & D Services, Inc., Plaintiffs-Appellants, Cross-Appellees, v. XEROX CORPORATION, Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 580

732 F.2d 580

John A. WERNER & W & D Services, Inc., Plaintiffs-Appellants, Cross-Appellees, v. XEROX CORPORATION, Defendant-Appellee, Cross-Appellant.

Nos. 83-1386, 83-1407.

United States Court of Appeals, Seventh Circuit.

Argued Oct. 18, 1983.

Decided April 18, 1984.

Thomas A. Bailey, Fricker & Bailey, Milwaukee, Wis., for plaintiffs-appellants, cross-appellees.

William A. Stearns, Quarles & Brady, Milwaukee, Wis., for defendant-appellee, cross-appellant.

Before BAUER and COFFEY, Circuit Judges, and DUMBAULD, Senior District Judge. ^*

BAUER, Circuit Judge.

Plaintiffs John A. Werner and W & D Services, Inc., appeal the decision of the district court awarding them $19,600 in damages on their promissory estoppel claim against defendant Xerox Corporation. Xerox cross-appeals. We affirm.

I. FACTS

This promissory estoppel action arises from the business relationship between W & D and Xerox. John A. Werner is a consulting engineer with considerable experience in the design and manufacture of special metal working machinery. During the twelve years preceding the trial in this case, Werner had been doing business principally through W & D Services, a corporation which he formed to build special metal working machinery and of which he is the sole owner.

Xerox Corporation, which manufactures photocopying machines, sought to improve the process used in manufacturing metal rollers for its machines. Acting generally through Frank Wolf, a Manufacturing Technology Specialist at Xerox, Xerox conducted a world-wide search for a manufacturer that would produce the machines capable of making these improved rollers. When Wolf completed the search in October 1978, he had discovered only four manufacturers, one of which was W & D, who were capable of producing the machines and rollers.

From April 1978 to November 1979, W & D made prototype rollers and performed developmental work for Xerox on an old lathe which W & D previously had assembled. Although the lathe could not produce rollers to Xerox's specifications, Xerox was sufficiently encouraged by the results to request a price quotation from W & D for designing and building a similar machine. In November 1978, Xerox issued a purchase order to W & D for a new machine. In March and November, 1979, Xerox ordered two additional machines, even though the first had not yet been qualified as meeting Xerox's specifications. During 1980, W & D delivered all three machines to Xerox for installation.

Xerox planned to use these three machines to produce the improved rollers at its plant in Rochester, New York. With regard to these three machines, many of the dealings between Xerox and W & D were expressly covered by a series of agreements embodied in quotations and invoices. The district court found that Xerox fully performed its obligations under these agreements. Neither party contests this finding on appeal.

The basis of this appeal is what, if any, additional obligations Xerox may owe to W & D. Xerox contends that these agreements encompass its entire relationship with W & D, that it has fulfilled all its obligations to W & D, and that W & D has sustained no damage. W & D contends that Xerox is liable for damages which W & D sustained through reliance on Wolf's representations to W & D.

The district court agreed in part with W & D. The district court found that Xerox, through Wolf, offered to make W & D the principal off-load producer of Xerox rollers. At the time Xerox was looking for a company to manufacture the machine that would produce its new rollers, Xerox also was searching for an off-load producer for its improved rollers. Establishing an off-load produce would allow Xerox to meet demands for relatively small quantities of rollers without changing its in-house machines to accommodate the specifications of smaller runs.

The court based its conclusion regarding Wolf's offer to establish Werner as the principal off-load supplier on representations that Wolf made to Werner, two of which were specifically cited by the district court in its order. First, in early 1978, Werner and Wolf visited the Church Metals Spinning Company, which was owned by Don and Gene Verhein. Werner there showed Wolf a machine that Werner had designed for Church Metals, which Werner exhibited as a prototype of the machine he could build for Xerox for its in-house production of the rollers. During this meeting Wolf proposed both that Werner build a machine to manufacture rollers for Xerox and that "if they were 'smart' they would build a machine for themselves and run off parts for Xerox." The district court concluded that Wolf "painted a rosy picture of Werner's future as a off-load supplier of parts for Xerox."

Second, in November 1978, Werner and the Verheins formed the Q.E.D. Corporation, which leased a facility for manufacturing the machines for Xerox. At the same time, Q.E.D. leased additional space for producing off-load rollers. Manufacturing the machines required a facility with heavy equipment, whereas producing rollers required space for raw materials, a machine to produce the parts, inspection equipment, and shipping facilities. According to the district court, Wolf visited Q.E.D., "saw the space that was leased and thought it adequate for a production facility and reassured Werner that producing parts would be a 'nice little business' to get into, and one that would 'really pay.' "

In July 1979, Dr. Charles Downey, the manager of Wolf's department at Xerox, visited the Q.E.D. Corporation. Werner testified at trial that Downey told him and the Verheins that they "would never make parts for Xerox at this facility." Werner further testified that he and the Verheins were astounded by Downey's statement. After Downey's visit, Werner contacted Wolf, who told him to disregard Downey's statements and that Downey "didn't know what he was talking about." On other occasions Wolf continued to reassure Werner that he would be an off-load supplier. Nevertheless, the Verheins sued Werner for a refund of their investment in Q.E.D., basing their suit on misrepresentations and deceit by Werner. Werner, however, used W & D to continue preparing the new facility to be an off-load supplier. In October 1980, after W & D delivered the third machine to Xerox, Xerox prepared to run off-load parts in its own plant and terminated its relationship with Werner.

Werner and W & D sued Xerox to recover damages based on theories of breach of contract, promissory estoppel, and deceit. The court rejected the plaintiffs' claims of breach of contract and deceit, but entered judgment in favor of the plaintiffs for $19,600 based on promissory estoppel. The court found that Werner reasonably had relied on Xerox's representations through July 1979, but that he "had no basis for relying on Wolf after the Downey statements were made." The court thus refused to award Werner damages for expenses he incurred after July 1979.

II. PROMISSORY ESTOPPEL

In the landmark case of Hoffman v. Red Owl Stores, Inc., 26 Wis.2d 683, 133 N.W.2d 267 (1965), the Wisconsin Supreme Court established three conditions for application of promissory estoppel:

(1) Was the promise one which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee?

(2) Did the promise induce such action or forbearance?

(3) Can injustice be avoided only by enforcement of the promise?

Id. at 698, 133 N.W.2d at 275.

The first two conditions are questions of fact and we will not set aside the court's findings unless clearly erroneous. F.R.C.P. 52(a). 26 Wis.2d at 698, 133 N.W.2d at 275. The third condition requires the...