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General Foam Fabricators Inc. v. TENNECO Chemicals Inc.

decided: December 8, 1982.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 76 C 4048 -- James B. Moran, Judge.

Posner and Coffey, Circuit Judges, and Campbell, Senior District Judge.*fn*

Author: Coffey

COFFEY, Circuit Judge.

This is an appeal from the district court's order granting the defendant's motion for a judgment notwithstanding the verdict. The plaintiff-appellant, General Foam Fabricators, Inc., sued the defendant-appellee, Tenneco Chemicals, Inc., for breach of an alleged oral confidentiality agreement between General Foam and the International Foam Division of Holiday Inns, Inc., a corporation subsequently acquired by the defendant. It was reported that the oral confidentiality agreement provided that International Foam would not disclose or use in the conduct of its foam business any internal information gained from General Foam regarding customer orders, correspondence files, production records, etc. At the end of the trial, the jury returned a verdict and judgment was entered in favor of the plaintiff in the amount of $183,468.74. Some year and three months thereafter, the Honorable James B. Moran, the trial judge, denied the defendant Tenneco's motion for judgment notwithstanding the verdict, but did grant the defendant's alternative motion for a new trial. Three months later, the court reversed its prior rulings, and not only granted the defendant's motion to reconsider, but also granted the defendant's motion for judgment notwithstanding the verdict, a motion the court had denied just ninety days earlier, and further included a caveat granting the defendant a new trial in the event the judgment n.o.v. was reversed. Reverse and remand.

General Foam Fabricators, Inc. buys bulk polyurethane foam from various suppliers and cuts this foam into the shapes specified by its furniture and bedding manufacturing customers. In July, 1974 Warren Levins and Samuel Ekstein, the principal officers and the sole shareholders of General Foam, began buying bulk foam from the International Foam Division of Holiday Inns, Inc. Along with their purchase of cut foam, later that year Levins and Ekstein established a small line of credit for General Foam with International. Some months later, seeking to increase General Foam's business volume, Ekstein and Levins requested an increased line of credit from Vito Piccirillo, the sales representative for International Foam, who in turn relayed this request to his superior, Pitt Harris, the general manager of International Foam. According to Piccirillo, Harris was reluctant to increase General Foam's line of credit without examining the company's records. Thereafter, in order to satisfy himself that General Foam was a good credit risk, Harris met with Piccirillo, Levins and Ekstein at General Foam's offices. The parties to this lawsuit allegedly entered into the oral confidentiality agreement at this meeting.

Ekstein and Levins testified at trial, that Harris stated he wished to examine General Foam's books, records and files in order to "satisfy ourselves that you really know how to run a business. . . . So we have to get into the inside of your business to know and satisfy ourselves whether or not you can make a profit." Ekstein and Levins testified that they expressed grave reluctance and concern over showing representatives of International Foam this type of information, stating "You are asking us to tell you all about our company and if we tell you that information, you can, whenever you want, turn around and use that information against us." Both Ekstein and Levins reported that Harris and Piccirillo agreed they would never let anyone see the information they had obtained from General Foam and that such information would be considered private and confidential. Indeed, Piccirillo is alleged to have stated "I take an oath on my kids. I swear I'll never hurt you."

Piccirillo, on the other hand, at trial related a somewhat different account of the events which took place at that meeting, testifying that he did not recall having examined any books or records of General Foam, in fact none were produced during that first meeting. In contrast to the testimony of Ekstein and Levins, it was Piccirillo's impression that the meeting was concluded when Harris told Ekstein and Levins that despite his having not looked at the books or records, he would do everything he could to increase their line of credit.

Several weeks later, a second meeting was held in General Foam's office to discuss the requested increase in General Foam's line of credit, and at the suggestion of Harris and Piccirillo, Ned Mukhar International's comptroller was also in attendance. Levins and Ekstein testified that again they expressed their sincere misgivings about sharing "confidential information" with a potential competitor, and further reported that Mukhar stated the information gained from General Foam's books and records would never be used for sales purposes by International Foam. Ekstein and Levins also testified that after he gave this promise, Mukhar made a thorough examination of the same material earlier shown to Harris and Piccirillo, including but not limited to General Foam's customer lists, correspondence files, information relating to book costs, production records, and packaging procedures. Mukhar, when testifying, contradicted this testimony and stated that the only information or documents he requested from General Foam were their financial statements in order to determine whether they (General Foam) were a good credit risk. Mukhar further stated that he did not examine any papers, documents, books or records during this meeting, nor was he ever privy to any information concerning General Foam's customers, customer lists, methods of manufacture, etc.

After the alleged investigation of General Foam's books, records, etc., International increased General Foam's line of credit to $40,000.*fn1 Using this line of credit, General Foam increased the volume of its business with International. Ekstein testified that during this period he continued to divulge confidential information to International through Mukhar and that Mukhar again reportedly stated "I will never tell anybody. I'm only interested in looking at your books and records to satisfy myself from a credit standpoint. You have my word I will never use the information against you." In 1975, at General Foam's request International Foam again increased General Foam's line of credit from $40,000 to $100,000, but shortly thereafter International increased its prices for bulk foam, forcing General Foam to cease doing business with International.

On March 1, 1976 Tenneco Chemicals, Inc., the defendant-appellee herein, acquired the International Foam Division of Holiday Inns. Shortly after Tenneco's acquisition of International Foam, Piccirillo, who remained with Tenneco after the transition and who had now been promoted to sales manager of Tenneco's Chicago Division, contacted Levins and Ekstein at General Foam and reassured them that "nothing drastically was going to change in our working relationship." Thereafter, Ekstein and Levins met with representatives of Tenneco in an attempt to work out a revised pricing agreement acceptable to all parties. The parties' latest working relationship lasted for approximately two months, but because of another round of price increases by Tenneco, General Foam again discontinued its business dealings with Tenneco.

Ekstein testified that on May 19, 1976 a luncheon meeting was held to discuss the problems between the two companies, with Ekstein and Levins representing General Foam and Piccirillo and Mersch*fn2 representing Tenneco and that before sitting down to lunch Mersch stated:

"Before we sit down, I've got to tell you something. I've got to give you a 12 1/2 percent price increase across the board and get 80 percent of your business or I have been given instructions to use everything that I have in my files to go directly to your customers and take your accounts away from you."

Ekstein immediately canceled all orders General Foam had placed with Tenneco. In response to a plea by Frank Lowell, a Tenneco vice president, General Foam again placed an order at the higher price to "try to keep the relationship between us going." However, because Tenneco failed to deliver the bulk foam on the prescribed date, General Foam discontinued the business relationship with Tenneco.

In August of 1976, Mersch and Piccirillo called on one of General Foam's major accounts, Douglas Furniture, and asked for an opportunity to "quote a price" because "we [are] going after business . . . in general." After receiving patterns and blueprints and specifications to aid in the preparation of price quotations for cut foam, Mersch and Piccirillo formulated a quotation. The quotation was submitted to a buyer at Douglas, but was rejected as being too high. After this initial rejection, Piccirillo was forced to revise the original quotation downward in order to sell Douglas the cut foam. Tenneco next made a "low ball quote" to Joaine Fabino, the buyer for another of General Foam's major accounts, Brody Seating ...

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