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Contractor Utility Sales Co. v. Certain-Teed Corp.

November 9, 1984


Appeal from the United States District Court for Central District of Illinois No. S-CIV-77-3086 -- Michael M. Nihn, Judge

Author: Dumbauld

Before PELL and COFFEY, Circuit Judges, and DUMBAULD*fn* Senior District Judge

DUMBAULD, Senior District Judge. Following lengthy and vigorously contested litigation, including a previous appearance before this Court,*fn1 plaintiff won a jury verdict of $802,000.00 compensatory and $3,000,000.00 punitive damages. Both parties appeal. We affirm. The basic facts are that defendant wished to replace plaintiff as an intermediary in selling defendant's polyvinylchloride pipe (PVCP) to contractors and to make direct sales to such customers. To accomplish this defendant (pursuant to its powers under its contract with plaintiff) obliged plaintiff to quote higher prices than defendant offered, after assuring plaintiff that it would be permitted to quote competitive prices. The trial judge moulded the verdict so as to award a single sum as compensatory damages, although separate claims had been submitted to the jury on breach of contract and fraud theories arising out of the same transactions. Defendant argues on appeal a variety of evidentiary and credibility issues, emphasizing inconsistencies in plaintiff's testimony, but we find that the jury's determination, under proper instructions, has resolved these questions and should not be disturbed.

For a full explanation of the course of the litigation it will be necessary to follow "a long, long trail a-winding" into the history of the relations and negotiations between the parties.

Plaintiff had been a distributor for defendant from 1965 to 1972, but then got a better deal from Robintech, a competitor. Later defendant found it needed the market share controlled by plaintiff, and plaintiff was displeased by Robintech's actions. Negotiations for takeover of plaintiff by defendant proved abortive.*fn2

Then on September 2, 1975, the parties at defendant's corporate headquarters at Valley Forge, Pennsylvania, entered into the contract involved in the case at bar.*fn3 Disharmony soon arose, however. In the fall of 1976 Ray Blankenship, a friend of plaintiff's president Roy Lance, left Certain-Teed for Robintech, and plaintiff clandestinely sold Robintech pipe. In May 1977 plaintiff held back over a million dollars it had collected as agent for defendant, and defendant terminated the 1975 contract with plaintiff on May 31, 1977. It would have expired by its own terms on December 31, 1978.*fn4

The contract of September 2, 1975 contained the customary integration clause, and also (without making any reference to a duty to ensure the "competitiveness" of prices) gave defendant the power to set prices. Defendant argues vigorously that the written contract does not mention the topic of competitiveness. But it seems clear that such omission is naturally to be expected in order to conform with the requirements of U.S. v. General Electric Co., 272 U.S. 476, 484, 71 L. Ed. 362, 47 S. Ct. 192 (1926), regarding the establishment of a genuine agency.*fn5 And the jury was expressly instructed that evidence of the oral promise that prices set by defendant would be competitive should be considered only with respect to the fraud and unfair dealing aspects of the case, as distinguished from interpretation of the integrated written contract.*fn6

The leading Pennsylvania case on the parol evidence rule (a doctrine strenuously argued by defendant) is Gianni v. Russell & Co., Inc., 281 Pa. 320, 323-24, 126 A. 791 (1924), which has been often cited and followed. See, e.g., United Refining Co. v. Jenkins, 410 Pa. 126, 134, 189 A.2d 574 (1963); Dunn v. Orloff, 420 Pa. 492, 495-96, 218 A.2d 314 (1966). However, the integration rule yields to a properly established demonstration of fraud inducing and vitiating the execution of the written agreement. Brentwater Homes v. Weibley, 471 Pa. 17, 23, 369 A.2d 1172 (1977).

In order to establish fraud, Pennsylvania, as many States do, requires proof of (1) false or fraudulent representation; (2) which defendant knew, or ought to have known, was false; (3) which is intended to be acted upon by plaintiff; (4) which in fact was acted upon and justifiably relied upon by plaintiff; (5) to his detriment. Emery v. Third National Bank, 314 Pa. 544, 548, 171 A. 881 (1934); Neuman v. Corn Exchange Bank, 356 Pa. 442, 450, 51 A.2d 759 (1947); Lake v. Thompson, 366 Pa. 352, 356, 77 A.2d 364 (1951); Scaife Co. v. Rockwell-Standard Co., 446 Pa. 280, 285, 285 A.2d 451 (1971); Weibley, supra, 471 Pa. at 23; Delahanty v. First Pennsylvania Bank, 318 Pa. Super. 90, 464 A.2d 1243, 1251-52 (Pa. Superior 1983). It is clear that under Pennsylvania law "A statement of present intention which is false when uttered may constitute a fraudulent misrepresentation of a fact." 471 Pa. at 23; Watercolor Group v. Newbauer, 468 Pa. 103, 115-16, 360 A.2d 200 (1976). As Bowen, L.J. observed long ago in Edgington v. Fitzmaurice, 29 Ch. Div. 459, 483 (1885): "The state of a man's mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man's mind, at a particular time, is, but if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man's mind is, therefore, a misrepresentation of a fact." Such is likewise the law of Pennsylvania.

The jury in the case at bar was likewise instructed that proof of fraud must be "clear, precise and convincing." This instruction comports with the law of Pennsylvania, where "It is well settled that fraud must be proved by clear and convincing evidence." Wagner v. Somerset Co. Memorial Park, 372 Pa. 338, 341, 93 A.2d 440 (1943); Gerfin v. Colonial Smelting & Refining Co., 374 Pa. 66, 67, 97 A.2d 71 (1953).*fn7 This test was met by plaintiff's testimony at the first trial and also at the second. Issues as to inconsistencies, conflicts, and credibility are for resolution by the jury.

With respect to evidentiary rulings, the trial court did not abuse its discretion. "We will reverse the court's ruling on the admissibility of expert testimony only upon a clear showing of abuse of discretion." Spray-Rite Service Corp. v. Monsanto Co., 684 F.2d 1226, 1241 (7th Cir. 1982). This court on the prior appeal left to the trial court the question whether the testimony of plaintiff's expert Dr. Roger Kormendi was admissible to prove damages (638 F.2d at 1085 n. 32). Judge Baker had excluded it at the first trial as too speculative, and Judge Morgan at a pretrial on remand had reached the same conclusion. Judge Mihm adhered to that ruling, but permitted plaintiff, which would otherwise have had no proof of damages, to introduce calculations based on comparable sales by Robintech during the period of time involved. This type of evidence of sales in the same market of the same product, under the circumstances, seems acceptable as a reasonable approximation of the amount of damages when the fact of damage is established but the precise amount is not ascertainable with certainty. Eastman Kodak Co. v. Southern Photo Materials Co., 273 U.S. 359, 379, 47 S. Ct. 400, 71 L. Ed. 684 (1927); Spray-Rite Service Corp. v. Monsanto Co., 684 F.2d 1226, 1242 (7th Cir. 1982); Darlington v. Bucks Co. Pub. Svce. Co., 303 Pa. 288, 293, 154 A. 501 (1931); Hahn v. Andrews, 182 Pa. Super. 338, 345, 126 A.2d 519 (1956); Macan v. Scandinavia Belting Co., 264 Pa. 384, 392-93, 107 A. 750 (1919); Scaife Co. v. Rockwell-Standard Corp., 446 Pa. 280, 291 n. 5, 285 A.2d 451 (1971). The liberal attitude of Pennsylvania courts on this issue is shown by a recent Superior Court case, Delahanty v. First Pennsylvania Bank, 318 Pa. Super. 90, 464 A.2d 1243, 1257-1261 (1983).*fn8 This accords with decisions of this Court. Canada Dry Corp. v. Nehi Beverage Co., Inc., 723 F.2d 512, 522-23 (7th Cir. 1983); Hannigan v. Sears, Roebuck & Co., 410 F.2d 285, 293 (7th Cir. 1969); B. Constantino & Sons Co. v. New Amsterdam Casualty Co., 234 F.2d 902, 903-904 (7th Cir. 1956).

Plaintiff also assails the evidentiary rulings of the trial court, in excluding the expert's testimony and defendant's internal projections as speculative. But we are disinclined to overrule the discretion of the trial court in a matter where considerable uncertainty is inherent in the estimation of future probabilities, and the trial court can better assess the reliability of the witnesses and the data and procedures they employ. This is particularly true in the case at bar, where the volatile fluctuations of the pipe market are plainly shown by the price levels of PVC pipe in consecutive years, which varied widely in accordance with the vicissitudes of OPEC control over oil prices. We shall sustain the trial judge's rulings, which though assailed by both plaintiff and defendant, were fair and reasonable, and worked no injustice to either party.

The most troublesome questions presented on this appeal relate to the award of punitive damages and of "pre-judgment interest"*fn9 under Pennsylvania law.

However, it is clear that punitive damages are not a mere automatic incident of victory in proving a defendant's wrongful action; there must be something aggravated and outrageous about the conduct, calling for a remedy which will both punish the wrongdoer and deter others from like transgressions. To ensure that the penalizing monetary exaction will have a painful effect ...

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