Universal Electric Products Co. v. Emerson Electric Co.

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 10a0459n.06
No. 08-2533 FILED
Jul 27, 2010
UNITED STATES COURT OF APPEALS LEONARD GREEN, Clerk
FOR THE SIXTH CIRCUIT
UNIVERSAL ELECTRIC PRODUCTS )
CO., INC., )
)
Plaintiff-Appellant, )
) ON APPEAL FROM THE UNITED
v. ) STATES DISTRICT COURT FOR THE
) EASTERN DISTRICT OF MICHIGAN
EMERSON ELECTRIC CO., )
)
Defendant-Appellee. )
)
Before: BOGGS, and COOK, Circuit Judges; and COLLIER, Chief District Judge.*
CURTIS L. COLLIER, Chief District Judge. Plaintiff Universal Electric Products Co., Inc.
(UEP), a distributor, sued Defendant Emerson Electric Co. (Emerson), a manufacturer, alleging that,
by selling directly to UEP’s customers, Emerson breached the parties’ distributorship agreement and
tortiously interfered with UEP’s business relationships. The district court granted summary
judgment to Emerson, and finding no error in the court’s judgment, we AFFIRM.
I. Relevant Facts
*
The Honorable Curtis L. Collier, Chief United States District Judge for the Eastern District
of Tennessee, sitting by designation.
No. 08-2533
Universal Elec. Prod. Co., Inc. v. Emerson Elec. Co.
UEP is a distributor of motors and related products to automotive original equipment
manufacturers and suppliers (OEMs) throughout the Midwest. Emerson is a manufacturer of
electrical products, including motors, gears, and drives. A broad-line distributorship agreement
(Agreement) governed UEP and Emerson’s business relationship. Under the Agreement’s terms,
UEP was appointed as a “non-exclusive authorized Distributor” of certain products manufactured
and/or sold by Emerson. UEP agreed to “actively and aggressively promote the sale and
distribution” of these products and to fulfill all “terms and conditions of sale including payment
terms.” Emerson reserved the right to “revise the price of Products,” and “its terms and conditions
of sale.” The parties further agreed “any such action shall not form the basis of any claim” by UEP.
Either party could terminate the Agreement by giving sixty (60) days’ written notice, or, in the event
UEP violated the Agreement, Emerson could terminate it immediately with written notice. The
Agreement contained an integration clause, which contains language relevant to this litigation:
This Agreement supersedes and cancels all previous written or verbal quotations,
arrangements, understandings, or agreements. Other than as expressly stated herein,
nothing in this Agreement shall be construed as granting exclusive distributorship or
rights to the Distributor [UEP] in the Market Area or any rights in any other
geographical area or preventing [Emerson] from freely operating or appointing other
Distributors in the Market Area . . . . The parties agree that (I) nothing in this
Agreement or performance of this Agreement by Distributor shall be construed to
give Distributor any vested or proprietary rights in the Market Area concerning the
Products . . .
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Universal Elec. Prod. Co., Inc. v. Emerson Elec. Co.
Finally, the Agreement provided that it “may not be altered or modified except in writing and duly
executed by authorized representatives of both parties.” The Agreement remained in effect until
Emerson terminated it in November 2006.
Tensions in the parties’ business relationship began in 2001 when Emerson made a direct sale
to Mann & Hummel, an OEM whose business UEP had cultivated. Jeffrey Beaton, UEP’s president
and CEO, described this conduct as violating the Agreement by improperly taking advantage of
“strategic pricing and customer information that UEP’s personnel had conveyed to Emerson and
undercut[ting] UEP’s ability to operate as Emerson’s distributor.” In response to UEP’s objection,
Emerson’s Director of Sales, Gary Sajewich, issued a letter crediting UEP with a percentage of the
Mann & Hummel order and asking UEP to supply Emerson with a listing of OEMs to which UEP
supplied significant Emerson products. Emerson planned to review this list to “assess [its]
commitment not to pursue these accounts on a direct basis.” UEP never sent the list.
Despite its increased costs, which Emerson passed along to other distributors, UEP continued
to receive more favorable pricing than was given to Emerson’s other distributors. Around May 2005,
Emerson entered discussions with UEP regarding the need to raise prices. It suggested that UEP
develop a more profitable end-user business and offered to help UEP transfer its OEM business to
another distributor, thereby allowing UEP to sell Emerson products at a higher margin to end-users.
In February 2006, Emerson executives advised UEP that prices would increase to the level paid by
its other distributors, effective March 20, 2006. Emerson explained that it was not making enough
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Universal Elec. Prod. Co., Inc. v. Emerson Elec. Co.
money on the sales to UEP and that it needed to match the price increases already extended to other
distributors. UEP did not accept Emerson’s offer to help explain the price increase to UEP’s
customers and instead sent its own letter to its existing clients. The letter attributed the increase to
Emerson’s “need to increase profitability rather than maintaining competitive pricing.” In response,
two of UEP’s customers approached Emerson to purchase products directly, complaining that UEP’s
pricing was “way beyond competitive,” and that UEP was pushing Emerson’s competitors’ products
and making it difficult to buy Emerson motors. Emerson sold directly to both companies, sometimes
at prices lower than those it offered UEP.
The business relationship continued to deteriorate following the price increases. The parties
attempted to negotiate a new distributorship agreement around May 2006, but did not succeed.
Emerson sent a letter in November 2006 terminating the Agreement based on UEP’s violation,
namely “cessation of actively promoting the sale and distribution” of Emerson products, “failure to
timely pay for product purchased,” and “failure to make payments against the past due receivable
balance.” UEP responded by filing suit, alleging breach of contract, tortious interference with
business relationships, and antitrust violations.1 Emerson counterclaimed that UEP’s failure to pay
for goods received constituted a breach of the parties’ consignment agreement and demanded
payment on account and the value of motors on consignment. UEP does not dispute it owed
Emerson $276,073.78, which remains unpaid.
1
UEP subsequently dismissed the antitrust claim with prejudice.
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Universal Elec. Prod. Co., Inc. v. Emerson Elec. Co.
Emerson later moved for summary judgment on UEP’s claims and on its counterclaim,
arguing that the plain language of the Agreement allowed it to make direct sales and to increase
prices. The district court granted Emerson summary judgment on UEP’s claims and Emerson’s
counterclaims, in part,2and later denied UEP’s motion for reconsideration, entering partial judgment
for Emerson on its counterclaim in the amount of $276,073.78.
UEP now timely appeals, arguing that the district court erred in granting summary judgment
on its breach of contract and tortious interference claims and that Emerson should not be entitled to
recover on its counterclaims, as it breached the Agreement first. We, like the district court, hold that
the clear language of the Agreement did not preclude Emerson from making direct sales or from
increasing prices. Accordingly, Emerson’s actions constitute neither a contract breach nor tortious
interference with business relationships, and Emerson is entitled to the amount it counterclaimed.
II. Standard of Review
We review de novo the district court’s order granting summary judgment and its denial of
UEP’s motion for reconsideration of that order. Med. Mut. of Ohio v. K. Amalia Enters. Inc., 548
F.3d 383, 389–90 (6th Cir. 2008). We review a summary judgment decision “using the same Rule
2
The district court denied summary judgment as to Emerson’s request for attorney’s fees and
for $9,530.15 of consigned goods in disputed condition upon return. However, the parties
subsequently stipulated to increasing the original judgment by this amount to resolve Emerson’s
remaining counterclaims and an amended judgment was entered on November 5, 2008, in the
amount of $276,073.78.
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Universal Elec. Prod. Co., Inc. v. Emerson Elec. Co.
56(c) standard as the district court.” Moldowan v. City of Warren, 578 F.3d 351, 373 (6th Cir. 2009).
Summary judgment is proper “if the pleadings, the discovery and disclosure materials on file, and
any affidavits show that there is no genuine issue as to any material fact and that the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). In making this determination, we
view the evidence and draw all reasonable inferences in favor of the nonmoving party. Ciminillo
v. Streicher, 434 F.3d 461, 464 (6th Cir. 2006).
III. Analysis
Because the parties’ Agreement provides that Missouri law governs all claims, we proceed
by applying Missouri law to evaluate UEP’s claimed errors.
A. Breach of Contract
UEP argues that the district court improperly granted Emerson summary judgment on its
breach of contract claim because: (1) Emerson’s direct sales to UEP’s customers violated the
Agreement; (2) even if the Agreement allowed direct sales, there exists a triable issue of fact as to
whether the parties modified the Agreement; and (3) Emerson’s conduct violated the implied
obligation of good faith and fair dealing inherent in every contract. But UEP fails to demonstrate
a genuine issue of material fact to support overturning summary judgment on any of these grounds,
and, given the available facts, UEP’s arguments fail as a matter of law.
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No. 08-2533
Universal Elec. Prod. Co., Inc. v. Emerson Elec. Co.
With respect to the first grounds, we agree with the district court that the language in the
Agreement is unambiguous. Where a “contract’s language is clear, we discern the parties’ intent
from the document alone” and do not apply rules of construction. Bailey v. Federated Mut. Ins. Co.,
152 S.W.3d 355, 357 (Mo. Ct. App. 2004). The Agreement clearly stated that nothing in it shall be
construed “as granting any exclusive distributorship or rights” to UEP or as preventing Emerson
from freely operating in the market area. Emerson was also free to revise the price of its products
per the plain language of the Agreement. UEP argues the conflict between Emerson’s ability to sell
directly to UEP’s customers and UEP’s contractual obligation to actively and aggressively promote
the sale of such products make the terms “freely operate” ambiguous. We disagree. Emerson’s
ability to make direct sales to UEP customers does no greater violence to UEP’s obligation to sell
Emerson products than does “appoint[ing] other distributors in the Market Area,” conduct the
Agreement explicitly authorized. Having determined there is no ambiguity within the four corners
of the Agreement itself, there is no need to resort to construction of the contract based on parties’
conduct. See Eisenberg v. Redd, 38 S.W.3d 409, 411 (Mo. 2001). We accordingly hold that the
Agreement allowed Emerson to make direct sales and to increase its prices, and that Emerson did
not, therefore, breach the Agreement.
UEP further asserts there is an issue of fact as to the subsequent modification of the
Agreement, pointing to the August 2001 letter from Gary Sajewich as evidence of modification. But
although Missouri law allows oral modifications even when a contract specifically requires a writing,
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Universal Elec. Prod. Co., Inc. v. Emerson Elec. Co.
to be effective, these modifications must possess all the elements necessary to form a new contract.
Peterson v. Cont’l Boiler Works, Inc., 783 S.W.2d 896, 902 (Mo. 1990) (citing Zumwinkel v.
Leggett, 345 S.W.2d 89, 94 (Mo. 1961)). Faced with a record lacking any evidence of consent to
modify on Emerson’s part or of consideration given by either party, the district court correctly
concluded that no modification occurred.
Finally, UEP argues even if Emerson’s conduct was authorized under the Agreement, its
conduct constituted a violation of the implied obligation of good faith and fair dealing inherent in
every contract. This duty prevents a contracting party from exercising a right conferred by an
agreement “in a manner that evades the spirt of the transaction or denies the other party the expected
benefit of the contract.” Finova Capital Corp. v. Ream, 230 S.W.3d 35, 45 (Mo. Ct. App. 2007).
But this argument also fails because the implied covenant of good faith cannot displace the parties’
actual agreement. Schell v. LifeMark Hosps. of Mo., 92 S.W.3d 222, 231 (Mo. Ct. App. 2002). In
other words, Missouri law does not allow this covenant to be “an everflowing cornucopia of wished-
for legal duties” imposing an obligation not otherwise contained in the contract’s terms.
Comprehensive Care Corp. v. RehabCare Corp., 98 F.3d 1063, 1066 (8th Cir. 1996) (citing Glass
v. Mancuso, 444 S.W.2d 467, 478 (Mo. 1969)). Because the Agreement authorized all of Emerson’s
actions, its activities failed to interfere with the spirit or benefit of the transaction, and accordingly
Emerson did not breach its duty of good faith and fair dealing.
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Universal Elec. Prod. Co., Inc. v. Emerson Elec. Co.
B. Tortious Interference
In addition to its breach of contract claim, UEP asserts that issues of fact preclude summary
judgment on its claim for tortious interference. UEP argues that Emerson’s price increase in March
2006 to “break even” and subsequent conduct of selling to UEP’s customers at prices below what
Emerson charged UEP constituted tortious interference with UEP’s business relationships with
existing customers. Emerson counters that it was justified in making direct sales due to its legitimate
interest in protecting its own relationships with customers buying Emerson’s products, and the
Agreement permitted all of its conduct. Because UEP cannot demonstrate that Emerson used
improper means, as required by Missouri law, we conclude the district court correctly granted
summary judgment to Emerson on this claim.
Under Missouri law, tortious interference with a contract or business relationship requires
a plaintiff to prove: (1) a valid contract or business relationship; (2) defendant’s knowledge of the
contract or relationship; (3) a breach induced or caused by defendant’s interference; (4) absence of
justification; and (5) damages. Clinch v. Heartland Health, 187 S.W.3d 10, 14 (Mo. Ct. App. 2006)
(citing Rice v. Hodapp, 919 S.W.2d 240, 245 (Mo. 1996)). But “[i]f the defendant has a legitimate
interest, economic or otherwise, in the contract or expectancy sought to be protected, then the
plaintiff must show that the defendant employed improper means in seeking to further only his own
interests.” Nazeri v. Mo. Valley Coll., 860 S.W.2d 303, 317 (Mo. 1993). By contrast, “no liability
arises if the defendant had an unqualified legal right to do the act complained of.” Id.
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Universal Elec. Prod. Co., Inc. v. Emerson Elec. Co.
Because Emerson has legitimate interests in UEP’s relationships with its customers—UEP
distributed Emerson’s products, after all—UEP must demonstrate that Emerson employed improper
means. But, as we already concluded, all of Emerson’s actions fall within the ambit of its contractual
rights. Thus, though UEP argues “when Emerson told UEP that it needed to raise prices to UEP to
break even . . . but then turned around and began secretly selling products to UEP’s customers for
prices that were less than what it claimed was the breakeven price, it crossed the tortious interference
line,” we disagree. Without breaching the Agreement, Emerson could not have employed improper
means, and thus could not have tortiously interfered with UEP’s business relationships.
Moreover, none of the cases cited by UEP supports its improper-means argument. Unlike
in Western Fireproofing Co. v. W.R. Grace & Co., 896 F.2d 286 (8th Cir. 1990), a case upon which
UEP heavily relies, UEP sold the products of several manufacturers, and Emerson did not unfairly
join former UEP employees to drive UEP out of business. Also misplaced is UEP’s reliance on
Machine Maintenance & Equipment Co. v. Cooper Industries, Inc., 661 F. Supp. 1112 (E.D. Mo.
1987), in which some of plaintiff’s salespeople left to form a competing distributor and the defendant
improperly terminated its agreement with the plaintiff in order to work with the new distributor,
using information from the former salespeople to contact customers prior to the agreement’s
termination. Id. at 1114. In this case, Emerson took actions consistent with its contractual
obligations. UEP provides no evidence Emerson intended to drive it out of business or improperly
contacted UEP employees to interfere with UEP’s ongoing business relationships. Thus, because
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Universal Elec. Prod. Co., Inc. v. Emerson Elec. Co.
Emerson’s conduct falls far short of the egregious conduct in these cases, we hold that the district
court properly granted summary judgment to Emerson on UEP’s tortious interference claim.
C. Counterclaim
UEP appeals the district court’s judgment in favor of Emerson for $276,073.78. Although
UEP does not dispute its obligation to Emerson for this amount, it contends that Emerson’s material
breach of the Agreement suspended its payment obligations. Finding that Emerson complied with
the Agreement, we conclude the district court correctly entered judgment on Emerson’s
counterclaim.
IV. Conclusion
For these reasons, we affirm.
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