Kaepa, Inc v. Achilles Corporation ( 2000 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 98-50559
KAEPA, INC.,
Plaintiff-Appellant-Cross-Appellee,
versus
ACHILLES CORPORATION,
Defendant-Appellee-Cross-Appellant.
Appeal from the United States District Court
for the Western District of Texas, San Antonio
May 17, 2000
Before POLITZ, GARWOOD and DAVIS, Circuit Judges.
GARWOOD, Circuit Judge:*
Plaintiff-appellant-cross-appellee Kaepa, Inc. (Kaepa), a United
States shoe manufacturer, brought this action against its Japanese shoe
distributor, defendant-appellee-cross-appellant Achilles Corporation
(Achilles), alleging, inter alia, breach of the parties’ distributorship
agreement–executed April 30, 1993 to be effective June 1, 1993--and
fraudulent inducement by Achilles to enter into the agreement. In
response, Achilles filed several counterclaims, including breach of
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that this
opinion should not be published and is not precedent except under the
limited circumstances set forth in 5TH CIR. R. 47.5.4.
contract and fraud. After the parties presented their evidence, the
district court entered judgment as a matter of law against Kaepa on its
fraudulent inducement claim. The jury then found that Achilles had
breached its distributorship agreement with Kaepa, but that Kaepa had
waived any breach. Based on the verdict, the district court entered a
take-nothing judgment and ordered each party to bear its own costs.
Kaepa moved for a new trial on the ground that the jury’s finding of
waiver was against the great weight of the evidence and that the
evidence was legally insufficient to constitute waiver. The district
court denied this motion. Kaepa now appeals the district court’s grant
of judgment as a matter of law on its fraudulent inducement claim, as
well as the denial of its motion for a new trial based on the jury’s
waiver finding. Achilles appeals the district court’s denial of its
motion for costs. We affirm.
Discussion
I. Kaepa’s Fraudulent Inducement Claim
Kaepa argues that the district court erred in entering judgment as
a matter of law in favor of Achilles on Kaepa’s fraudulent inducement
claim. At trial, Kaepa’s theory in support of this claim had been that
Achilles fraudulently induced it to enter into the distributorship
agreement by promising to market Kaepa shoes in Japan as a full-line
product, including men’s and women’s shoes, all the while secretly
intending to position Kaepa as only a women’s “niche” product. Having
reviewed the record and briefs, we conclude that the district court did
2
not err in granting judgment as a matter of law on this claim.
We review the grant of judgment as a matter of law de novo. See
Hidden Oaks Ltd. v. City of Austin, 138 F.3d 1036, 1042 (5th Cir. 1998).
Under Boeing Co v. Shipman, 411 F.2d 365 (5th Cir. 1969) (en banc),
judgment as a matter of law is appropriate “[i]f the facts and
inferences point so strongly and overwhelmingly in favor of one party
that the Court believes that reasonable men could not arrive at a
contrary verdict.” Boeing, 411 F.2d at 374. “There must be a conflict
in substantial evidence to create a jury question.” Id. at 375. In
considering the grant of judgment as a matter of law, we will view all
evidence “in the light and with all reasonable inferences most favorable
to the party opposed to the motion.” Id. at 374.
The elements of fraudulent inducement under Texas law (which
the parties and the district court have treated as controlling)
are: (1) a material representation was made; (2) the representation
was false when made; (3) the speaker knew it was false, or made it
recklessly without knowledge of its truth and as a positive
assertion; (4) the speaker made it with the intent that it should
be acted upon; (5) the party acted in reliance; and (6) the
misrepresentation caused injury. See Formosa Plastics Corp. USA v.
Presidio Engineers and Contractors, Inc., 960 S.W.2d 41, 47 (Tex.
1998). “A promise to do an act in the future is actionable fraud
when made with the intention, design, and purpose of deceiving, and
with no intention of performing the act.” Spoljaric v. Percival
3
Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986). In order to survive
Achilles’s motion, Kaepa had to present evidence that Achilles made
representations with the intent to deceive and with no intention of
performing. Formosa, 960 S.W.2d at 48. Moreover, the evidence
presented had to be relevant to Achilles’s intent at the time the
representations were made. Id. The element of intent is crucial
in distinguishing fraudulent inducement cases “from situations in
which a party has made a promise with an existent intent to fulfil
its terms and who then changes his mind and refuses to perform;
otherwise, every breach of contract would involve fraud.” Oliver
v. Rogers, 976 S.W.2d 792, 804 (Tex. App.–Houston [1st Dist.] 1998,
pet. denied).
The evidence that Kaepa relies on to show that Achilles never
intended to market its shoes as a full line but instead only as a
women’s niche dissipates in light of the fact that from the
beginning Kaepa knew very well what Achilles was doing. In fact,
Kaepa was affirmatively in favor of focusing its marketing efforts
in Japan primarily, though not exclusively, on its “niche”
products–cheerleading, volleyball, and tennis–which were largely
women’s shoes. Kaepa hoped this strategy would enable it to
establish a new foundation in Japan for its flagging product line
and position it for an eventual expansion as a significant player
in all areas of the Japanese athletic shoe market. According to
Kaepa, the following items, individually and collectively, at least
4
create a jury issue about whether Achilles ever intended to keep
its promises that it would not limit Kaepa to being a “niche”
product in Japan; we will address them seriatim.
1. The February 16, 1993 meeting between Kaepa and Achilles
officials at Achilles’s offices in Tokyo. During the meeting,
Achilles Senior Manager Takeshi Yagi (Yagi) drew several diagrams
to illustrate Achilles’s vision for its marketing and distribution
of Kaepa shoes in Japan. In one of these diagrams, Yagi depicted
Kaepa as Achilles’s women’s brand and Spalding as its men’s brand.
Kaepa President Frank Legacki (Legacki) objected to this
characterization because Kaepa intended to be a full-line product
in Japan, not merely a niche product. Yagi corrected the diagram
accordingly. Without more, this episode evidences merely a
preliminary negotiation and does not demonstrate an intent by
Achilles to undercut Kaepa’s plan for the Japanese athletic shoe
market.
2. The March 16, 1993 letter from Legacki to Achilles
President Sadao Nakagima (Nakagima), in which Legacki expressed
concern about Yagi’s initial diagram and the possibility that
Achilles would position Kaepa as its “female” brand. Legacki
stated that it was Kaepa’s intent to become “a large, dominant top-
quality, performance brand” and that the only way for Kaepa “to
develop to its full potential” was to remain flexible to enter all
segments of the athletic shoe market, including men’s shoes. On
5
March 17, 1993, Nakagima wrote back and assured Legacki that
Achilles would be “more than happy to cooperate” with Kaepa’s
vision for its product line “if Kaepa will be strongly developing
[sic] in the [men’s] basketball and cross training field.”
What Kaepa fails to note is that in correspondence a week
earlier, Legacki outlined for Nakagima his vision for Kaepa’s
strategy in Japan that was explicitly premised on a primary
emphasis on the women’s brand niche products. Kaepa had been
declining as a brand in Japan before it entered the distributorship
agreement with Achilles. In its relationship with its former
distributor, Diawa Corporation (Diawa), Kaepa had gone from a peak
of 1.2 million shoes sold to Diawa in 1988 to 566,000 pairs in
1992, and in the first three months of 1993, orders were down an
additional seventy percent. On March 8, 1993, Legacki wrote to
Nakagima and told him that Kaepa needed to enter a “transition
period” during which its Japanese strategy would “coordinate more
closely” with its strategy in the United States. In the United
States, Kaepa had aimed at a stable market niche of cheerleading,
tennis, volleyball, and aerobics shoes. Its primary target
audience had been high school girls and female college students.
Currently, Legacki explained, Kaepa’s Japanese business was
“broader” and “more fashion-oriented” than in the United States;
for 1994, he envisioned Kaepa’s Japanese strategy to come more in
line with its U.S. strategy, with “more emphasis . . . on Kaepa
cheerleading and volleyball.” According to the minutes of the
6
March 23, 1993 meeting between Achilles and Kaepa, Legacki
reiterated this strategy, expressing his desire to “excite the
Japanese market” with cheerleading shoes.
In light of these statements, it is clear that Kaepa intended
to move toward more emphasis on its niche brand positioning in
Japan, while hoping to maintain some presence in the men’s brand
markets (though its Japanese sales in all product areas had been
down in recent years). There is no evidence that Achilles intended
to diverge from this strategy.
3. The March 17, 1993 meeting between Kaepa Vice-President
John Holsinger (Holsinger), who was in charge of Kaepa’s Asian
operations, and various Achilles officers at Achilles’s offices
regarding the selection of Kaepa products to be marketed in Japan
by Achilles. According to Holsinger, the Achilles officers
expressed the most interest in marketing women’s shoes; Holsinger
objected and pointed out that Kaepa had historically been
successful selling men’s tennis and basketball shoes. The Achilles
officials then assured Holsinger that they would market a broader
range of products.
Whatever inference of fraudulent intent on Achilles’s part
that this episode might suggest evaporates in light of the fact
that on March 24, 1993, Kaepa and Achilles officials jointly
selected seventeen models of shoes to be marketed in Japan, twelve
of which were women’s models. Kaepa and Achilles conducted
extended meetings in Tokyo on March 23-25, 1993. This selection
7
signaled a clear move away from the strategy Kaepa had employed
with Diawa, in which sixty-seven percent of its shoes in the
Japanese market were men’s. Legacki and Holsinger, among other
Kaepa executives, attended this meeting and made no objection to
the selection. Indeed, on April 6, 1993, Legacki wrote to Yagi to
discuss the March 23-25 meetings, and noted that “the transition
plan essentially reflects the model line-up that we agreed upon in
our meeting.” To illustrate the transition plan, Legacki included
replicas of the charts that he presented at the meetings. The
“Kaepa Global Strategies Japanese Transition” chart noted that in
Japan, Kaepa would move away from its “fashion” oriented line
toward a line with “more emphasis on U.S.A. products,” including
“cheerleading, volleyball, tennis.” From these charts, it is clear
that Kaepa wanted to streamline its strategies in both Japan and
the United States, so that in both markets Kaepa would use its
predominantly women’s “niche” shoes to obtain a “critical mass” and
then expand into a more full-range product line. The only
perceptible difference reflected by these charts between Kaepa’s
Japanese and Untied States strategies appears to be that in Japan,
Kaepa would maintain something of a “broad line,” which presumably
would include some men’s shoes. Achilles’ actions–selecting some
men’s shoes and marketing them–is consistent with this strategy.
4. Achilles’s representations during the negotiation period
that it was an experienced company which knew the Japanese athletic
8
shoe market well and would achieve better results for Kaepa than
Diawa. Achilles’s puffery about its expertise in the Japanese
market were not misrepresentations of material fact and thus do not
demonstrate fraudulent intent. See, e.g., Prudential Ins. Co. v.
Jefferson Assocs., Ltd., 896 S.W.2d 156, 163 (Tex. 1995) (finding
that statements that a building was “superb,” “super fine,” and
“one of the finest little properties in the City of Austin” were
not misrepresentations of material fact, but instead expressions of
opinion that could not constitute fraud); Dyer v. Caldcleugh &
Powers, 392 S.W. 2d 523, 530 (Tex. Civ. App.–Corpus Christi 1965,
writ ref’d n.r.e.). Statements that are merely predictions, such
as outselling Diawa, are similarly not actionable. See Presidio
Enters., Inc. v. Warner Bros. Distrib. Corp., 784 F.2d 674, 680
(5th Cir. 1986) (applying Texas law to hold that a prediction of
film’s box office success was an opinion only and not actionable as
a fraudulent misrepresentation).1
5. The March 26, 1993 meeting of the Achilles board of
directors, at which Yagi stated that Achilles would concentrate on
Kaepa’s “ladies goods for the present.” As discussed above,
shifting Kaepa’s focus in Japan to concentrate primarily on the
1
We also observe that the distributorship agreement contained
no requirement that Achilles purchase a set minimum number of shoes
from Kaepa; Achilles agreed only to work toward projected “target
purchases.” In the event that Achilles did not achieve its
“targeted purchases,” Kaepa would have the option of terminating
the agreement but could not hold Achilles liable for any damages
for not achieving these figures.
9
women’s niche products was exactly the strategy that Legacki
outlined at various points during the negotiation process. Kaepa
also points to Yagi’s statement at this meeting that Achilles would
sell 200,000 pairs in the first year as evidence that Achilles
intended to breach the distribution agreement before ever signing
it. Achilles was to purchase 1,440,000 pairs of shoes from Kaepa
during the first forty-two months. However, it does not follow
from projections for the first twelve months that Achilles intended
not to meet its targeted figure for the first forty-two months.
Moreover, the fact that Achilles was planning to sell 200,000 in
the first year, followed by 550,000 “in an early period” (as Yagi
stated) is not inconsistent with the agreement’s target figures.
If Achilles had sold 200,000 the first year, and 550,000 per year
for the following years (assuming that is what the “early period”
meant), it would have exceeded that figure.2
6. The “Yamada Report,” an Achilles marketing report that
Kaepa believes demonstrates Achilles’s intent to relegate Kaepa to
a women’s only niche brand by listing Kaepa’s main categories as
“Cheer, Volleyball, Tennis.” This “report” does not help Kaepa’s
cause. First, it is not shown to be anything more than a mere
reprint of an independent trade publication journal article, which
2
Shoe sales of 200,000 pairs for year one, 496,000 pairs for
years two and three, 248,000 pairs for the first six months of year
four would equal the 1,440,000 figure for the first forty-two
months. If Achilles sold 550,000 pairs in year two, it would be
54,000 pairs ahead of schedule.
10
had been received by an Achilles executive. Second, the content of
this report is inconclusive because in another section it lists as
Kaepa’s main categories of shoes “men’s tennis, lady’s fitness, and
men’s basketball.”
7. The “Asatsu” plan, an unsolicited advertising proposal
from the Asatsu advertising agency that suggests, among other
things, a decidedly feminine Kaepa logo. Like the Yamada report,
this evidence does not support any possible finding of fraudulent
intent on the part of Achilles. First, the proposal was the
unsolicited work of a third party. Second, the proposal itself
contains many possible marketing plans, including running ads in
men’s magazines.
8. The June 2, 1993 press conference in Tokyo announcing the
formation of the Kaepa-Achilles distribution agreement. Yagi sent
to Legacki a copy of Achilles’s proposed press release, which
discussed launching the “New Kaepa” with a focus on “promising
categories such as cheerleader and volleyball.” The release also
stated that Achilled would “enrich especially [the] ladies[’]
field” through its marketing of Kaepa. In response, Legacki did
not object to this characterization of Achilles’s strategy for
Kaepa, even though he made a suggestion regarding the release’s
mention of an air intake system. In his remarks for the press
conference, Legacki included a history of Kaepa’s success in the
United States market, noting its primary focus on tennis and
cheerleading models. This statement is telling in light of Keapa’s
11
stated plan to refocus its Japanese strategy to mirror,
essentially, its U.S. strategy.
In light of this evidence, it is clear that Achilles’s actions
were no surprise to Kaepa. Any disagreement, as evidenced by
Legacki’s March 16 letter, apparently revolved around Kaepa’s
concern that Achilles was going to market Kaepa as a women’s brand
forever, not just in the short-term. However, there is no
indication that Achilles ever intended to thus relegate Kaepa only
to a women’s brand niche. It did order significant quantities of
men’s shoes and advertised them accordingly. While the overall
focus of their activities for 1993-94 was directed at women’s
shoes, that strategy comports with the strategy mutually agreed on
by Kaepa and Achilles. The breakdown in communications between the
parties appears to have resulted from a disagreement over the
length of the transition period, or how closely Achilles was to
mirror in Japan Kaepa’s United States strategy (where Kaepa was a
niche brand), particularly while both parties were attempting to
dispose of the residual, heavily discounted inventory from Diawa.
In sum, we agree with the district court that, considering the
record as a whole, no reasonable jury could find that Achilles
fraudulently induced Kaepa to enter into the distributorship
agreement. We therefore affirm the district court’s entry of
judgment as a matter of law on that claim.
II. Kaepa’s Motion for a New Trial
12
In its second point on appeal, Kaepa argues that the district
court erred in denying its motion for a new trial. In its brief,
Kaepa asserts that the jury’s finding that Kaepa waived any breach
of contract by Achilles was “against the great weight of the
evidence.” As such, Kaepa urges this Court to find that the
district court abused its discretion in not granting a new trial
under FED. R. CIV. P. 59. Kaepa argues that Achilles’s evidence
demonstrated only mutual agreement to modify the contract, not any
waiver by Kaepa of Achilles’s contractual obligations. According
to Kaepa, this evidence was thus not “factually sufficient” to
support the jury’s finding of waiver. However, a Rule 59 motion
addresses the weight, not the sufficiency, of the evidence. See,
e.g., Conway v. Chemical Leaman Tank Lines, Inc., 610 F.2d 360, 367
(5th Cir. 1980) (finding a trial court abused its discretion by
granting a new trial because the jury’s conclusions were at least
as likely to be true as any other and were not against any great
evidentiary weight). An argument about the sufficiency of the
evidence is more akin to a Rule 50(a) motion for judgment as a
matter of law. A court may grant a Rule 50(a) motion if it
determines that a reasonable jury could draw inferences from the
evidence to support a finding in favor of one party only. See
Burch v. Coca-Cola Co., 119 F.3d 305, 313 (5th Cir. 1997), cert.
denied, 118 S.Ct. 871 (1998). Kaepa appears to be arguing that
Achilles failed to adduce any evidence that would allow a
13
reasonable jury to conclude that Kaepa waived the breach by
Achilles. Having reviewed the briefs and record, we cannot agree
that there was no evidence to support the jury’s finding of waiver.
Specifically, we note the numerous instances in which Kaepa acted
in concert with Achilles’s focus of its initial marketing efforts
on Kaepa’s women’s niche shoes.
Achilles argues that since Kaepa was essentially moving for
judgment as a matter of law, and since Kaepa failed to file a Rule
50(a) motion before the close of evidence, this Court should
evaluate the district court’s ruling under the more deferential
“clear error” standard of review. See United States ex rel.
Wallace v. Flintco, 143 F.3d 955, 963 (5th Cir. 1998). Kaepa
contends that it only wanted a new trial under Rule 59, and this
Court should instead apply the abuse of discretion standard of
review. This point is ultimately irrelevant. Even if this Court
construed Kaepa’s motion as a Rule 59 motion, and reviewed the
district court’s denial for an abuse of discretion, Kaepa has not
overcome the very high standard that would allow this Court to find
both the jury and the district court in error on an issue of
evidentiary weight. See 12 JAMES WM. MOORE ET AL., MOORE’S FEDERAL
PRACTICE § 59.54[4][a] (2d ed. & Supp. 1999) (“[W]hen the trial
court denies a Rule 59 motion based on the claim that the verdict
is against the clear weight of evidence, that determination is
virtually unassailable on appeal.”).
14
We note that Kaepa has not brought forward any complaint of
the jury charge or verdict form.
Kaepa has not demonstrated that the district court erred in
refusing to grant it’s motion for a new trial.
III. Court Costs
On its cross-appeal, Achilles challenges the district court’s
determination that each party bear its own costs. Despite the fact
that it was unsuccessful on its counterclaims, Achilles contends
that because Kaepa did not prevail on its claims, Achilles was, for
all intents and purposes, the prevailing party under FED. R. CIV. P.
54(d)(1)3, and is therefore entitled to its costs. We review the
decision to award costs for abuse of discretion. See Soderstrum v.
Town of Grand Isle, 925 F.2d 135, 141 (5th Cir. 1991).
We conclude that the district court did not abuse its
discretion in ordering each party to bear its own costs. Rule
54(d) directs that “costs other than attorneys’ fees shall be
allowed as of course to the prevailing party unless the court
otherwise directs.” Under this rule, “the decision to award costs
turns on whether the party, as a practical matter, has prevailed.”
Schwartz v. Folloder, 767 F.2d 125, 130 (5th Cir. 1985). Achilles
3
FED. R. CIV. P. 54(d)(1) provides in relevant part:
“Except when express provision therefor is made either in a
statute of the United States or in these rules, costs other
than attorneys’ fees shall be allowed as of course to the
prevailing party unless the court otherwise directs.”
15
cites cases that support the proposition that under certain
circumstances “successfully avoid[ing] a potentially multi-million
dollar judgment” can amount to “prevailing” for the purpose of
awarding costs. See O.K. Sand & Gravel, Inc. v. Martin Marietta
Techs., Inc., 36 F.3d 565, 571-72 (7th Cir. 1994); see also
Scientific Holding Co., Ltd. v. Plessey Inc., 510 F.2d 15, 28 (2d
Cir. 1974). Unlike the present case, however, those cases affirmed
the district court’s cost awards. In other words, under our
deferential standard of review, these reviewing courts simply found
that there was not such a “clear abuse of discretion” as to require
overturning the award. See In re Nissan Antitrust Litig., 577 F.2d
910, 918 (5th Cir. 1978). Similarly, this case does not present
such an egregious abuse of discretion that this Court must overturn
its cost award. Achilles failed to obtain a favorable judgment on
its breach of contract counterclaim. “A trial judge has wide
discretion with regard to the costs in a case and may order each
party to bear his own costs.” Hall v. State Farm Fire & Cas. Co.,
937 F.2d 210, 216 (5th Cir. 1991). Courts of appeals have found no
abuse of discretion by district courts that have ordered each party
to bear its own costs when, as here, the cases end in a “draw.”
See Allen & O’Hara, Inc. v. Barrett Wrecking, Inc., 898 F.2d 512,
517 (7th Cir. 1990) (finding that “[b]oth Barrett and A&O prevailed
in part, and therefore we cannot say that the district court abused
its discretion” in making each party bear its own costs); In re
16
Corrugated Container Antitrust Litig., 756 F.2d 411, 418 (5th Cir.
1985) (“The jury found for the plaintiffs in part and for the
defendants in part. The trial court acted within its discretion in
its assessment of costs.”). We similarly find that in this case,
in which both Kaepa and Achilles survived each other’s claims, that
the district court did not abuse its discretion in ordering each
side to bear its own costs.
Conclusion
AFFIRMED.
Costs on this appeal adjudged as follows: three-fourths
against Kaepa; one-fourth against Achilles.
17