Terry Crouch v. Pepperidge Farm, Inc.

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 11a0353n.06
Nos. 09-6041, 09-6043
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
May 24, 2011
TERRY CROUCH, )
) LEONARD GREEN, Clerk
Plaintiff-Appellant, )
)
v. ) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR
PEPPERIDGE FARM, INC., THE KROGER CO. , ) THE WESTERN DISTRICT OF
) TENNESSEE
Defendants-Appellees, )
)
and )
)
SCHNUCK MARKETS INC., )
)
Defendant )
Before: KEITH, MCKEAGUE, and KETHLEDGE, Circuit Judges.
KETHLEDGE, Circuit Judge. Terry Crouch delivered Pepperidge Farm bread products to
retail stores around Memphis. When Kroger suspected Crouch of theft through improper billings,
it banned Crouch from its stores. Crouch later sold his distributorship, and Pepperidge Farm
deducted Kroger’s losses from the proceeds of the sale. Crouch sued Pepperidge Farm, Kroger, and
another regional grocer alleging breach of contract, conversion, and interference with his business
relationships. The district court granted the defendants summary judgment on all of Crouch’s
claims. We reverse as to Crouch’s conversion claim but affirm as to the rest.
Nos. 09-6041, 09-6043
Crouch v. Pepperidge Farm
I.
Crouch was an independent Pepperidge Farm distributor in the Memphis area from 1993 to
2007. On January 17, 2005, Crouch and Pepperidge Farm signed a consignment agreement that
granted Crouch the exclusive right to deliver products to thirteen stores, including five Krogers and
three Schnuck Markets. Crouch was responsible for delivering new product, removing stale or
damaged product, verifying the quantity of outgoing and incoming product with each store’s
receiving clerk, and crediting or billing the store accordingly. Crouch received a commission for
product delivered, and an offset for product removed.
In the fall of 2006, Kroger began reviewing inventory-difference reports throughout the
region where Crouch worked. Kroger discovered that store #430, which is on Crouch’s delivery
route, was billed for significantly more Pepperidge Farm products than a comparable store, #405,
in another county. Kroger then compared the amount of Pepperidge Farm product each store
received to the amount purchased by customers. Store #430 paid for $38,367 more product than it
sold, while store #405 had just $91 variance in the same product during the same period. Kroger
then conducted surveillance and manual inventories to find the source of the discrepancies.
On January 25, 2007, Kroger analyst Ronny Joyner inventoried Pepperidge Farm products
at store #430. The next morning, several Kroger risk-management employees monitored the security
cameras as Crouch made his delivery. These employees testified by deposition that the Kroger
receiving clerk, Galvester Sanders, never verified the quantity of products taken in or out, as required
by Kroger procedure. They also testified that Crouch did not leave a delivery ticket. Kroger says
it has video evidence that supports its position. Both Crouch and Sanders dispute Kroger’s
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allegation. They each testified that Sanders verified the product counts, that Crouch drafted a
handwritten ticket because his computer was not functioning, and that Sanders signed the ticket that
day. Crouch acknowledges that these actions are not seen on the video, but suggests that they
occurred outside the camera’s sight. After the delivery, Joyner again inventoried the Pepperidge
Farm product. On January 30, 2007, during his next delivery, Crouch generated a computer ticket
for the January 26 delivery. On that ticket, Crouch claimed to have delivered 288 more loaves of
bread (at a cost of approximately $548) than Joyner’s manual inventory reflected.
On March 16, 2007, Kroger risk-management personnel met with Crouch and asked him to
explain the inventory discrepancies. When Crouch offered no explanation, Kroger’s risk manager,
Tim Davey, banned Crouch from servicing any Kroger store. During the meeting, Crouch called his
Pepperidge Farm regional contact, Fred Sala, and told him of Kroger’s accusations. Sala also spoke
with Davey, who confirmed that another distributor would need to service Kroger. Around March
20, 2007, Schnuck Markets, a regional grocer on Crouch’s route, learned of Kroger’s accusations
against Crouch and prohibited Crouch from servicing its stores.
Crouch believed that without Kroger and Schnucks, his distributorship was no longer viable.
He negotiated the sale of his route to another distributor, and set the price at $55,000. The parties
signed a contract of sale around March 22, 2007. Under that contract, Pepperidge Farm was entitled
to retain funds from the sale proceeds to repay any debts Crouch owed to Pepperidge Farm.
On May 30, 2007, Pepperidge Farm authorized Kroger to withhold $38,367, the amount
Kroger believed it had been overcharged, from its next invoice payment. Then, to repay itself,
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Crouch v. Pepperidge Farm
Pepperidge Farm withheld the same amount from the proceeds of the sale of Crouch’s
distributorship.
Crouch thereafter filed suit against Pepperidge Farm, alleging that it converted his property
by improperly retaining his money and breached the consignment agreement by prohibiting him from
servicing stores within his territory. Crouch also sued Kroger and Schnucks, alleging that each
tortiously interfered with his contract or business relationship with Pepperidge Farm by banning him
from its stores. The defendants moved for summary judgment, and the district court granted their
motions. Crouch now appeals from the judgment in favor of Kroger and Pepperidge Farm, arguing
that genuine issues of material fact exist on his claims.
II.
We first address an evidentiary issue. Crouch argues that both Kroger and Pepperidge Farm
rely upon an unauthenticated hearsay document in support of their motions for summary judgment.
Specifically, Kroger auditor Frank Nahlen created the spreadsheet detailing the inventory shortages
in Pepperidge Farm product at stores #430 and #405. Nahlen never gave a deposition or provided
an affidavit authenticating the spreadsheet. Kroger and Pepperidge Farm respond that Crouch
waived this argument by not properly raising it in the district court, and that, in any event, the
document meets the business-record hearsay exception under Federal Rule of Evidence 803(6).
We need not resolve this dispute. In this case, the spreadsheet does not state that Crouch is
responsible for Kroger’s losses, so it cannot be used to establish his culpability. Instead, the
document merely demonstrates that Kroger and Pepperidge Farm—the readers of the
spreadsheet—believed that Kroger #430 suffered vast and disproportionate losses in Pepperidge
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Crouch v. Pepperidge Farm
Farm products. We therefore consider the document only for the non-hearsay purpose of evaluating
its effect on Kroger and Pepperidge Farm. See Anthony v. DeWitt, 295 F.3d 554, 563 (6th Cir. 2002).
We find the document was adequately authenticated for this purpose by Kroger analyst Ronny Joyner
and Kroger risk manager Tim Davey, who testified to their knowledge of the spreadsheet and the
inventory losses it substantiates. See Fed. R. Evid. 901(a).
III.
A.
We review the district court’s grant of summary judgment de novo, drawing all reasonable
factual inferences in favor of Crouch. See Dowling v. Cleveland Clinic Found., 593 F.3d 472, 476
(6th Cir. 2010). Summary judgment is appropriate when “there is no genuine issue as to any material
fact.” Fed. R. Civ. P. 56(c)(2) (2009). A genuine issue of material fact exists when there is sufficient
evidence “such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
B.
1.
Crouch claims that Pepperidge Farm breached the consignment agreement by preventing
Crouch from servicing the Kroger and Schnucks stores in his territory, “even though this was done
at Kroger’s and Schnucks’ request.” According to Crouch, Pepperidge Farm’s enforcement of its
customers’ demands resulted in an anticipatory breach of the consignment agreement. In Tennessee,
an anticipatory breach occurs when one contracting party voluntarily commits an act rendering it
unable to perform under the contract, or, through its words and conduct indicates its “total and
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Crouch v. Pepperidge Farm
unqualified refusal to perform the contract.” UT Med. Grp., Inc. v. Vogt, 235 S.W.3d 110, 120
(Tenn. 2007) (internal quotation marks omitted). Here, Pepperidge Farm never indicated any
unwillingness or inability to perform under the contract; it was Crouch who could not meet his
delivery obligations.
Crouch attempts to shift responsibility back to Pepperidge Farm by citing Allen v. Elliott
Reynolds Motor Co., 230 S.W.2d 418 (Tenn. Ct. App. 1950). He argues that Pepperidge Farm was
required to provide him with an exclusive distributorship, and that Pepperidge Farm’s inability to
obtain consent from Kroger or Schnucks does not excuse that obligation. Allen held that where a
contract does not specifically allocate the risk of failure to obtain necessary consent from a third
party, the risk lies with the party responsible for obtaining consent, and that the responsible party is
not excused from its contractual obligations by its inability to do so. See id. at 423-24.
Our case is different. The consignment agreement here includes two relevant paragraphs:
If, by reason of illness or vacation or any other cause, [Crouch] shall be
unable at any time to provide or maintain the efficient distribution service
contemplated by this Agreement, [Crouch] will make other suitable arrangements at
his/her own expense . . . but if [Crouch] is unable or fails to do so, [Pepperidge Farm]
is authorized in its discretion to provide and/or maintain such service as [Crouch’s]
agent and at [Crouch’s] expense and risk.
If [Crouch] fails for any reason to provide or maintain satisfactory distribution
to any segment of the Territory or to any retail store within the Territory, and such
failure is not remedied within five days after written notice thereof from [Pepperidge
Farm], [Pepperidge Farm] . . . may make other arrangements, on either a permanent
or temporary basis, in the discretion of [Pepperidge Farm], for the service of such
store or segment of the Territory, as the case may be. If such arrangements for
service are made on a permanent basis, the retail store or segment of the Territory
involved shall be deemed to be no longer included in the Territory . . . all without
compensation or remuneration to [Crouch].
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This language expressly authorizes Pepperidge Farm to service any store that Crouch cannot
service for any reason. Thus, unlike in Allen, the contract here contemplates Crouch’s inability to
obtain consent to distribute within his territory, assigns that risk to Crouch, and grants Pepperidge
Farm the discretion to provide substitute service without compensation to Crouch. We therefore
conclude that Allen does not apply to this case.
We also agree with the district court’s conclusion that Pepperidge Farm did not terminate the
consignment agreement, with or without cause. As the district court found, the parties mutually and
voluntarily terminated the contract when Crouch sold his distributorship. As a result, Pepperidge
Farm committed no breach, and the district court properly dismissed this claim.
2.
To establish a claim for conversion under Tennessee law, Crouch must demonstrate that
Pepperidge Farm exercised control over his property, without his consent, for Pepperidge Farm’s
benefit. See Mammoth Cave Prod. Credit Ass’n v. Oldham, 569 S.W.2d 833, 836 (Tenn. Ct. App.
1977). Pepperidge Farm’s good faith is generally immaterial. Id.
Crouch contends that Pepperidge Farm improperly withheld $38,367 from the sale of his
route. Pepperidge Farm responds that Crouch failed to present “affirmative evidence . . . to refute
Kroger’s losses.” The appropriate question, however, is not whether Kroger suffered losses—there
is no real dispute that it did—but why. As the district court stated and both parties concede, if
Crouch caused Kroger’s losses, Pepperidge Farm was entitled to retain the money. But if Crouch
did not cause the losses, Pepperidge Farm converted Crouch’s funds.
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Crouch v. Pepperidge Farm
The district court held that Crouch’s mere claim that he did not cause Kroger’s losses was
insufficient to rebut Kroger’s evidence that he did. We disagree. Crouch offers his own deposition
testimony denying any wrongdoing, which we must accept as true. See Schreiber v. Moe, 596 F.3d
323, 333 (6th Cir. 2010). At his deposition, Crouch did more than just deny wrongdoing; he
affirmatively testified that he followed the proper procedures in delivering and removing product
from store #430. That testimony, even if it was the only evidence disputing Kroger’s claims, is
sufficient to create a genuine issue of material fact and avoid summary judgment. See id; Fed. R.
Civ. P. 56(c)(2) (2009).
But we have more than Crouch’s word on the matter. First, Crouch provides a copy of the
January 26, 2007, handwritten invoice that Kroger claims he never created. The invoice shows the
signature of Sanders, the Kroger receiving clerk on duty, who confirmed through deposition
testimony that he counted the product and signed the invoice that day. Pepperidge Farm counters
that Crouch should have produced the invoice earlier, and that Sanders is not credible because he
was implicated as an accomplice in the theft. But those are fact issues. Second, Crouch offers
testimony from both receiving clerks at Kroger #430, who state that Crouch always complied with
the check-in procedures, and neither had knowledge that would implicate Crouch in the inventory
discrepancies. Pepperidge Farm counters that “[t]he witnesses’ lack of knowledge on the subject is
not affirmative proof rebutting Kroger’s claimed losses.” But again, the fact of the losses is not the
issue here. And third, Crouch offers evidence that Kroger’s inventory-loss calculation did not
account for other factors (such as shoplifting, reshopping, and other Pepperidge Farm product
deliveries) that theoretically could have contributed to the discrepancies.
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When reviewing a summary judgment motion, we may not weigh the evidence or make
credibility determinations. Schreiber, 596 F.3d at 333. That is what Pepperidge Farm asks us to do
here. The district court erred in granting summary judgment on this claim.
C.
1.
Crouch claims that Kroger caused Pepperidge Farm to breach the consignment agreement
by banning him from Kroger stores. Tennessee recognizes a common-law tort for inducement of
breach of contract. See Freeman Mgmt. v. Shurgard Storage Ctrs., 461 F. Supp. 2d 629, 637 (M.D.
Tenn. 2006). To succeed on this claim, Crouch must establish that Kroger’s actions caused
Pepperidge Farm to breach the consignment agreement. See id. But we have already found that
there was no breach, so there can be no inducement of a breach. The district court properly granted
summary judgment on this claim.
2.
Crouch also claims that Kroger, by improper means or with improper motive, interfered with
“his business relationship with Pepperidge Farm.” Tennessee recently recognized the tort of
intentional interference with business relationships. See Trau-Med of America, Inc. v. Allstate Ins.
Co., 71 S.W.3d 691, 701 (Tenn. 2002). But this tort protects non-contractual business relationships,
so we will not apply it to the contractual relationship between Crouch and Pepperidge Farm. See id.
at 698-701 & n.4.
We also agree with the district court’s determination that Crouch has not established that
Kroger intended to interfere with his business relationship, or that Kroger acted with improper
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motive or means. The court’s analysis on these factors was thoroughly reasoned, so we see no
reason to repeat it here. The district court properly granted summary judgment on this claim.
The district court’s judgment is reversed with respect to Crouch’s conversion claim against
Pepperidge Farm; that claim is remanded to the district court for further proceedings consistent with
this opinion. The district court’s judgment is otherwise affirmed.
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