HGB Mktg Inc v. Pomeroy Computer

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 05a0719n.06
Filed: August 17, 2005
No. 04-5923
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
HGB MARKETING, INC., )
)
Plaintiff-Appellant, )
) ON APPEAL FROM THE UNITED
v. ) STATES DISTRICT COURT FOR
) THE EASTERN DISTRICT OF
POMEROY COMPUTER RESOURCES, ) KENTUCKY
INC., )
)
Defendant-Appellee. ) OPINION
Before: BATCHELDER, GIBBONS, and McKEAGUE, Circuit Judges.
DAVID W. McKEAGUE, Circuit Judge. HGB Marketing, Inc. (“HGB”) brought suit
against Pomeroy Computer Resources, Inc. (“Pomeroy” or “PCR”) alleging that Pomeroy breached
a contract to pay HGB commission on profits earned by Pomeroy on sales of certain computer
equipment purchased from a third party, EMC Corporation. In the alternative, HGB sought recovery
on a theory of unjust enrichment or quantum meruit. The district court granted summary judgment
in favor of Pomeroy on all claims. HGB appeals, arguing that there are genuine issues of material
fact regarding whether Pomeroy breached its contract with HGB, whether Pomeroy breached the
implied duty of good faith, and whether HGB is entitled to recover on a theory of unjust enrichment
or quantum meruit. For the reasons set forth below, we affirm the judgment of the district court.
I. BACKGROUND
In June of 2001, Hildegarde Gutman-Beyor, CEO of HGB, contacted representatives from
Pomeroy and offered to use her existing relationship with EMC, a corporation she knew was looking
for companies to buy its computer equipment, to help Pomeroy enter into such an arrangement with
EMC. Pomeroy expressed interest in HGB’s overtures and Gutman-Beyor began introducing
representatives from Pomeroy and EMC and coordinating discussions. On June 28, 2001, HGB and
Pomeroy signed a Commission Agreement which detailed the remuneration HGB was to receive
from Pomeroy for these efforts. The Commission Agreement provides as follows:
1. As compensation for HGB originating, introducing and assisting in managing the
Customer Agreement executed between PCR and EMC Corporation. PCR agrees to
pay HGB a commission(s) computed as described below.
2. The commission(s) will be one-third (1/3) of the net proceeds of the fees and
monies earned by P[CR] as a result of managing the Customer Agreement with
EMC. Commission structure to be negotiated if average quarterly gross profit
margin falls below 10%, to be mutually agreed upon by both parties.
3. The net proceeds will be defined as the gross profit earned by PCR less any
interest expense associated with financing the costs of the equipment in the Customer
Agreement and all Exhibits associated.
a. All costs associated with the administrations of the Customer Agreement
(billing, postage, telephone, etc.) will be borne by PCR and will not be
included as part of the “net proceeds”.
b. A 1.5% fee will be assessed against gross profit for all handling, shipping
warehousing interest expenses to determine “net proceeds”.
c. Payment to HGB will be made on a quarterly basis 30 days from the final
payments to PCR of the total buy in a dollar amount.
4. The agreement shall remain in full force for a period of twelve (12) months from
the date of signature by both parties.
5. HGB unconditionally agrees to purchase 20% or THREE MILLION DOLLARS
($3,000,000) of the EMC products referenced on Exhibit A of the Customer
Agreement with EMC should such product not be sold by September 28, 2001. HGB
shall remit payment COD to PCR or its designated common carrier for any and all
EMC products it is obligated to purchase hereunder on September 29, 2001.
On the same day the Commission Agreement was signed, EMC and Pomeroy signed a
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Customer Agreement which provided that Pomeroy would purchase $15 million worth of equipment
from EMC. EMC and Pomeroy ultimately cancelled the Customer Agreement without transacting
any business according to its terms. However, in the year after the Customer Agreement was signed,
they did engage in several transactions separate from the Customer Agreement. During this time
Pomeroy purchased approximately $32 million worth of computer equipment from EMC. In
contrast to the terms of the cancelled Customer Agreement, each of these transactions occurred after
Pomeroy received an order from a consumer. The Customer Agreement contemplated Pomeroy
buying a large quantity of computer equipment and bearing the risk that it would not be able to resell
it.
In December of 2001, HGB contacted Pomeroy to ask when HGB would begin receiving
its commission payments pursuant to the Commission Agreement. Pomeroy informed HGB that
EMC had cancelled the Customer Agreement due to declining economic conditions and, therefore,
Pomeroy did not owe HGB any commissions. HGB, in turn, communicated its position that the
Commission Agreement entitled it to a portion of the substantial profits Pomeroy garnered as a result
of its business contacts with EMC, regardless of whether they were earned under the Customer
Agreement. Pomeroy and HGB were unable to come to an understanding and litigation ensued.
On April 11, 2003 HGB filed suit against Pomeroy in the United States District Court for the
Eastern District of Kentucky alleging breach of contract or, in the alternative, seeking damages on
a theory of unjust enrichment or quantum meruit. The district court granted Pomeroy’s motion for
summary judgment. It concluded that the Commission Agreement only entitled HGB to a
percentage of the net proceeds of one transaction between Pomeroy and EMC, the Customer
Agreement. Because that agreement was never performed, no commission was due. The district
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court also determined that both unjust enrichment and quantum meruit recovery were unavailable
under Kentucky law because an express contract existed which governed what HGB would be paid.
HGB filed a timely notice of appeal.
II. ANALYSIS
A. Standard of Review
This court reviews an order granting summary judgment de novo. Johnson v. Karnes, 398
F.3d 868, 873 (6th Cir. 2005); Daniels v. Woodside, 396 F.3d 730, 734 (6th Cir. 2005);
Valentine-Johnson v. Roche, 386 F.3d 800, 807 (6th Cir. 2004). Summary judgment is proper "if
the pleadings, depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); accord Johnson, 398 F.3d
at 873; Daniels, 396 F.3d at 734; Leadbetter v. Gilley, 385 F.3d 683, 689 (6th Cir. 2004). When
deciding a motion for summary judgment, the court must view the evidence and draw all reasonable
inferences in favor of the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 587 (1986); Johnson, 398 F.3d at 873; Daniels, 396 F.3d at 734; Valentine-Johnson, 386
F.3d at 807. Any direct evidence offered by the plaintiff in response to a summary judgment motion
must be accepted as true. Muhammad v. Close, 379 F.3d 413, 416 (6th Cir. 2004). Nevertheless,
the "mere existence of some alleged factual dispute between the parties will not defeat an otherwise
properly supported motion for summary judgment; the requirement is that there be no genuine issue
of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in
original); accord Leadbetter, 385 F.3d at 689-90; Weaver v. Shadoan, 340 F.3d 398, 405 (6th Cir.
2003).
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B. Breach of Contract
The district court did not err when it granted summary judgment in Pomeroy’s favor on
HGB’s breach of contract claim. HGB asserts two errors in the district court’s analysis of this issue,
but neither argument is persuasive. First, HGB maintains that it is entitled to the inference that the
Commission Agreement obligated Pomeroy to pay commissions on the profits it garnered on all of
its transactions with EMC for twelve months, not just the profits it garnered from the Customer
Agreement. HGB points to three provisions in the contract which it claims support its view. The
contract states that it is in force for a period of one year and makes references to quarterly payments
and assessment of quarterly profits. HGB asserts that these provisions indicate that the parties
contemplated a series of transactions between Pomeroy and EMC taking place over a span of time.
Therefore, HGB argues, it is reasonable to infer that Pomeroy and HGB intended commissions to
be paid on profits garnered from a series of transactions, not solely the Customer Agreement.
Consequently, HGB urges that the district court was required to give it the benefit of this reasonable
inference at the summary judgment stage.
HGB is certainly correct that it is entitled to all reasonable inferences supported by the
evidence at the summary judgment stage. However, given the terms of the Commission Agreement,
the inference HGB posits is not reasonable. HGB avoids discussing the core provisions of the
contract, which state that HGB will be paid commission for “introducing and assisting in managing
the Customer Agreement” and calculate that commission based on a percentage of the profits
Pomeroy would earn “as a result of managing the Customer Agreement.” There are no references
anywhere in the contract to profits which might arise from other transactions between Pomeroy and
EMC. HGB criticizes the district court’s construction of the contract as being a product of “myopic
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focus on isolated phrases,” but HGB’s alternative construction suffers from the very deficiency it
alleges. In fact, HGB urges this court to turn a completely blind eye to the core provisions of the
contract which identify the Customer Agreement as the basis for computing HGB’s commissions
and to narrowly focus on a few ancillary provisions and extrapolate the terms of the contract from
a nebulous sense created by those provisions. The district court did not err by rejecting this
approach.
Although the district court did not explicitly discuss the contract provisions HGB focuses
on, those provisions do not undermine its conclusion that the Commission Agreement only provided
for commissions based on profits earned from the Customer Agreement. The contract provisions
HGB cites do tend to indicate that the parties contemplated that commissions under the agreement
would be paid over a period of time. However, this does not necessarily mean that the parties
intended the underlying transactions between Pomeroy and EMC to take place over time. The
commission payments were not due until after Pomeroy resold the equipment it purchased from
EMC and was paid by its customers. Fifteen million dollars worth of computer equipment would
take at least some period of time to resell and obtain payment. Since the district court’s construction
of the Commission Agreement is the only one which gives meaning to all of the provisions of the
contract, it is the only reasonable construction. There is no basis in the text of the contract or any
other facts to reasonably infer that the scope of the contract covered a broad range of Pomeroy–EMC
transactions, as HGB maintains.
HGB goes on to argue that even if the district court’s construction of the Commission
Agreement is upheld, there is a triable issue regarding whether the Customer Agreement between
Pomeroy and EMC was actually cancelled. However, HGB is unable to point to any evidence which
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creates such an issue. HGB points out that different individuals involved cited different reasons for
cancelling the Customer Agreement, but all agreed that the Customer Agreement had been
cancelled. HGB cites the testimony of Richard Jackman, Pomeroy’s vice-president of sales, who
initially stated that he thought goods were shipped from EMC to Pomeroy pursuant to the Customer
Agreement. Jackman clarified his testimony, however, admitting that he merely assumed that to be
the case and that he had no personal knowledge of the shipment. Moreover, Jackman testified that
the Customer Agreement had been cancelled. Finally, HGB notes that there was no documentation
of the cancellation until it contacted Pomeroy in December of 2001 to inquire about its commission
payments. This also fails to create a genuine issue of fact. There is documentation in the record
establishing that the Customer Agreement was, in fact, cancelled. Representatives of both parties
to the Customer Agreement testified that the agreement was cancelled. HGB has not pointed to any
evidence in the record which disputes this testimony and documentation. The district court did not
err by concluding that there was no genuine issue of material fact on this issue. Summary judgment
was properly awarded to Pomeroy on the breach of contract claim.
C. Breach of the Implied Duty of Good Faith
HGB maintains that it was entitled to a jury trial on its claim that Pomeroy breached its
implied duty of good faith by cancelling the Customer Agreement. Below HGB only briefly raised
this issue in the context of its breach of contract claim. The district court observed that while there
might be an issue concerning exactly why Pomeroy and EMC cancelled the Customer Agreement,
the reason was not material to determining whether Pomeroy breached its contract with HGB. On
appeal, HGB goes beyond its initial argument to the district court and asserts that Pomeroy violated
the duty of good faith which Kentucky law implies in every contract.
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This court generally will not review issues raised for the first time on appeal. Barner v.
Pilkington N. Am., 399 F.3d 745, 749 (6th Cir. 2005); Lepard v. NBD Bank, 384 F.3d 232, 236 (6th
Cir. 2004); United States v. Ninety-Three (93) Firearms, 330 F.3d 414, 424 (6th Cir. 2003). The
appellate court’s function is “to review the case presented to the district court, rather than a better
case fashioned after a district court’s unfavorable order.” Barner, 399 F.3d at 749.
Neither will this court consider a claim which was not pled in the complaint. Vaughn v.
Lawrenceburg Power Sys., 269 F.3d 703, 714 (6th Cir. 2001). There is no language in HGB’s
complaint which could be construed as asserting a distinct claim for breach of the implied duty of
good faith. Since the claim was neither pled in the complaint nor otherwise properly presented to
the district court in the first instance, it is not properly before us on appeal. The district court did
not err by failing to address this theory of relief, and HGB’s claim that there is a genuine issue of
material fact concerning whether Pomeroy breached the implied duty of good faith will not be
further considered.1
D. Unjust Enrichment/Quantum Meruit
HGB’s final argument is that it should have been able to submit to the jury the issue of
whether it was entitled to recover based on a theory of unjust enrichment or quantum meruit. HGB
acknowledges that Kentucky law does not allow such claims where “there has been an explicit
contract which has been performed.” Tractor & Farm Supply, Inc. v. Ford New Holland, Inc., 898
1
Although not reaching this issue, the Court notes that it is far from clear that there is
sufficient evidence in the record to support the contention that Pomeroy was responsible for
cancelling the Customer Agreement with EMC and that it did so with the specific purpose of
circumventing its duty to pay HGB commissions pursuant to the Commission Agreement. Instead,
the weight of the evidence indicates that EMC was responsible for cancelling the Customer
Agreement.
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F. Supp. 1198, 1206 (W.D. Ky. 1995). HGB contends that unjust enrichment and quantum meruit
are viable theories of recovery because Pomeroy did not perform its obligations under the
Commission Agreement. This assertion is based entirely on HGB’s view that the Commission
Agreement obligated Pomeroy to pay commissions on the net profits resulting from all of its
transactions with EMC over the course of one year. This construction has been discussed and
rejected. The only reasonable construction of the Commission Agreement is that the cancellation
of the Customer Agreement between Pomeroy and EMC relieved Pomeroy of any duty to pay HGB
a commission. Since Pomeroy was under no obligation to pay HGB, there is no aspect of the
Commission Agreement which Pomeroy failed to perform. The factual predicate of HGB’s
argument–that Pomeroy did not perform its obligations under the Commission Agreement–is invalid.
The district court did not err in granting summary judgment in favor of Pomeroy on these claims.
III. CONCLUSION
The district court did not err when it granted summary judgment in favor of Pomeroy on all
claims. Accordingly, the judgment of the district court is AFFIRMED.
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