Tri-State Commodities, Inc. v. GSO America, Inc. , 18 F. App'x 737 ( 2001 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS SEP 5 2001
TENTH CIRCUIT PATRICK FISHER
Clerk
TRI-STATE COMMODITIES, INC., a Kansas
Corporation,
Plaintiff-Appellant and Cross-Appellee, No. 99-3117
No. 99-3168
v. (D.C. No. 96-CV-1100-MLB)
(District of Kansas)
GSO AMERICA, INC.,
Defendant-Appellee and Cross-Appellant.
ORDER AND JUDGMENT*
Before HENRY, PORFILIO, Circuit Judges, and WEINSHIENK, District Judge.**
INTRODUCTION
This diversity breach of contract case involves issues concerning the nature of a
contract to supply mulch. Appellant Tri-State Commodities, Inc., (Tri-State) believed it
had signed a minimum requirements contract with appellee GSO America, Inc., (GSO)
*
This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. This court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.
**
The Honorable Zita L. Weinshienk of the United States District Court for the
District of Colorado, sitting by designation.
guaranteeing that GSO would purchase all of its mulch from Tri-State over a five-year
period. GSO believed that it merely was a one-year contract, renewable for additional
one-year periods, that required GSO to purchase certain minimum amounts if the contract
was to renew automatically for another year. GSO also came to believe that Tri-State
fraudulently had induced it into signing a contract by misrepresenting Tri-State’s
relationship with its suppliers.
Tri-State brought suit in the District of Kansas for breach of contract. The district
court granted partial summary judgment to GSO, finding that the contract was only for
one year, and that GSO was required only to purchase certain limited amounts of mulch
from Tri-State. The district court also granted GSO’s motion in limine to limit damages
to lost profits. Finding for Tri-State on the breach of contract claim, the jury awarded Tri-
State damages less than the maximum allowable lost profit figure. GSO then moved for a
judgment as a matter of law, which was denied. Tri-State appeals from the district court’s
partial summary judgment in favor of GSO, and from the ruling granting GSO’s motion
in limine. GSO cross-appeals from the district court’s denial of its motion for judgment.
We assert jurisdiction pursuant to 28 U.S.C. § 1291, and, for the reasons stated below,
affirm the district court’s rulings.
BACKGROUND
Tri-State historically has been in the transportation business. In early 1995, Tri-State
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became aware that Munson Trucking (Munson) had mulch for sale at its facilities in
Washington State. Tri-State then approached GSO, a manufacturer of mulch and other
gardening products, about supplying mulch to GSO. As GSO was concerned about a
possible shortage of mulch, it expressed interest. Tri-State then contracted with Munson
to purchase mulch, and, after exchanging a variety of oral and written proposals, signed a
contract on May 4, 1995, to supply GSO with mulch.
Initially, the contract between Tri-State and GSO functioned well. GSO set up a
bagging facility at Tri-States’ depot in Nebraska and shipped the bagged mulch to GSO’s
commercial facilities. However, in July, 1995, after a trip to Washington State where
representatives met with Munson, GSO began to suspect that it had been fraudulently
induced into signing the contract with Tri-State. Specifically, GSO claims that it had
been led to believe that Tri-State had exclusive supply contracts with over forty lumber
mills on the west coast.
Relations between Tri-State and GSO went downhill rapidly, and GSO stopped
purchasing mulch from Tri-State. On December 20, 1995, GSO removed its bagger from
Tri-State’s facility, and on February 20, 1996, GSO sent a letter to Tri-State terminating
their contract, claiming that Tri-State had misrepresented that it had exclusive supply
contracts with over forty mills on the west coast, and characterizing Tri-State’s pricing as
unreasonable and unconscionable. After the February 20, 1996, letter, GSO began
purchasing mulch directly from Munson. Tri-State ceased purchasing mulch from
Munson, and was sued for breach of contract by Munson. In turn, Tri-State sued GSO for
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breach of contract.
Tri-State’s amended complaint against GSO alleged, among other claims, that
GSO had agreed to purchase all of its Grade A cedar bark mulch from Tri-State for a
period of five years, in the following quantities: 10,000 cubic yards for inventory as well
as a minimum of 70,000 cubic yards the first year, 140,000 cubic yards during the second
year, and 190,000 cubic yards during the third, fourth and fifth years. GSO denied
liability, and claimed the contract was procured by fraud. In GSO’s view, the contract
required GSO to purchase only 10,000 cubic yards during the first year. After that point,
the contract continued only if GSO satisfied a condition precedent, the minimum purchase
of at least 70,000 additional cubic yards of mulch within the first year. Another provision
of the contract gave either side the right to terminate the contract upon notice at least 90
days in advance of the contract’s anniversary.
The district court, in granting GSO’s motion for partial summary judgment, found
that the contract required GSO to purchase unconditionally 10,000 cubic yards, and
required GSO to purchase an additional 70,000 cubic yards only if it wished to renew the
contract for another year. However, during the term of the contract, GSO was obligated
to purchase all of its mulch requirements from Tri-State. GSO then filed a motion in
limine, granted by the district court, which limited the measure of damages to lost profits
of $6.20 per cubic yard, not the full contract price of $18.50 per cubic yard as sought by
Tri-State.
The jury found that GSO had breached the contract by purchasing mulch during
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the first year directly from Munson, rather than through Tri-State, and awarded Tri-State
$32,132.60 in damages, based on lost net profits of $4.03 per cubic yard for 7,973.35
cubic yards of mulch purchased by GSO directly from Munson. Following the jury
verdict, GSO moved for judgment as a matter of law under Fed. R. Civ. P. 50(b); the
motion was denied. Tri-State appeals the district court’s partial summary judgment in
favor of GSO concerning the interpretation of the contract, and the district court’s ruling
granting GSO’s motion in limine with respect to contract damages. GSO cross-appeals
the district court’s denial in part of its motion for summary judgment, arguing that Tri-
State presented no evidence that GSO processed any mulch in violation of the contract
during its term, and also arguing that the district court’s instruction to the jury during
testimony of a GSO witness in effect granted Tri-State a directed verdict with respect to
the volume of mulch at issue.
DISCUSSION
This Court reviews grants or denials of summary judgment de novo. Butler v. City
of Prairie Village, Kansas, 172 F.3d 736, 745 (10th Cir. 1999). The methodology of
calculating a damage award is a question of law, and thus reviewed de novo, while the
amount of a damage reward is a question of fact, and thus is reviewed for clear error.
Southern Colorado MRI, Ltd. v. Med-Alliance, Inc., 166 F.3d 1094, 1100 (10th Cir.
1999). The standard of review for evidentiary rulings is abuse of discretion. Mitchell v.
Gencorp, Inc., 165 F.3d 778, 780 (10th Cir. 1999).
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I. The Contract:
The May 4, 1995, signed contract between Tri-State and GSO contained, in part,
the following language (Appendix to Appellant’s Brief at 439):
2. Term. The Term of the contract shall be for a
period of five years; provided however, that the term shall
automatically be extended for one additional year on each
anniversary date so as to create an ongoing five (5) year term,
unless either party, at least ninety (90) days prior to the
anniversary date, gives written notice to the other party
canceling the contract or unless Buyer fails to purchase the
minimum quantities of Mulch as described in Section 3 . . . .
3. Quantity. Seller shall sell and Buyer shall buy a
minimum of 10,000 cubic yards of the Mulch for Buyer’s
inventory during the first year of the Term. As a condition to
the annual continuation of this Agreement, Buyer must
purchase minimum requirement of Grade “A” Cedar Mulch as
follows: 70,000 cubic yards the first year; 140,000 cubic yards
the second year; and 190,000 cubic yards for each of the third,
fourth, and fifth years and each year thereafter. If Buyer does
not purchase the minimum requirements for each year, Seller
may, but is not required, to unilaterally terminate this contract,
without penalty or claim to or by either party, and find a new
market for the mulch. These are minimum requirements and
the parties may agree to greater amounts for any one year.
....
6. Supply. For each of the first six (6) months of this
Agreement, Seller shall supply Buyer with 3,000 cubic yards
of Mulch upon Buyer’s request. In the event Seller does not
supply the Mulch as requested by Buyer, Seller shall
reimburse Buyer the sum of a non-refundable, Five Thousand
Dollar ($5,000.00) payment to offset Buyer’s lease costs for
Buyer’s facility at its McCook, Nebraska facility, and the
costs incurred by Buyer to disassemble, transport and
reassemble its McCook, Nebraska facility’s equipment to its
Nahunta, Georgia facility.
....
8. Buyer’s Exclusive Marketing and Distribution
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Rights. During the Term of this Agreement, including
renewal terms, Seller grants to Buyer the exclusive right to
market and distribute its bagged and bulk Mulch products for
the United States east of the Rocky mountains . . . .
....
10. Non-Competition. During the Term Buyer agrees
not to compete with Seller by purchasing raw, all-bark, Grade
“A” cedar mulch and processing it for resale, or selling all-
bark, Grade “A” cedar mulch provided by someone other than
Seller . . . .
11. Miscellaneous. This Agreement contains the
entire understanding of the parties with respect to the subject
matter. There are no restrictions, agreements, promises,
warranties, covenants of undertaking other than those
expressly set forth herein. This Agreement supercedes all
other prior agreements and understandings between the
parties with respect to the subject matter. This Agreement
may only be amended by written instrument executed by all
the parties.
....
The district court, relying on the parol evidence rule, found that the contract was
unambiguous and contained a complete integration clause, and thus refused to consider
extrinsic evidence interpreting the contract. Appellant objects to the district court’s
interpretation of the contract, arguing: (1) under Kansas law, a contract may be
supplemented by certain extrinsic evidence, and (2) that the provisions of the contract
need to be harmonized.
First, Tri-State argues that Kansas Statutes Annotated (K.S.A.) § 84-2-202
provides that the terms of a contract may be supplemented by a course of dealings, trade
usage, or a course of performance. Tri-State characterizes the contract as a minimum
requirements contract. The contract, in Tri-State’s view, calls for increasing minimum
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purchases, which indicates that the intent of the parties was for GSO to use its best efforts
to expand the mulch market. As K.S.A. § 84-2-306, which governs requirements
contracts, requires both parties to exercise their best efforts, Tri-State believes the
contract best resembles a minimum requirements contract.
Second, Tri-State claims that when the various sections of the contract are
harmonized, GSO’s only option to terminate the contract is by notifying Tri-State in
writing, while Tri-State had the option of terminating if the minimum purchase was not
made. To read the contract any other way, according to Tri-State, is to render
meaningless the language giving Tri-State the option of terminating the contract.
Tri-State points to prior negotiations to show that the parties contemplated a
70,000 cubic yard minimum purchase for the first year of the contract. To support this
argument, Tri-State claims that the contract’s provisions for making appellee exclusive
distributor east of the Rockies envisioned a strong commercial tie between the parties,
consistent with a 70,000 cubic yard minimum purchase instead of a 10,000 cubic yard
minimum purchase, and that the requirement that Tri-State supply 3,000 cubic yards a
month or pay a penalty also is inconsistent with a 10,000 minimum purchase. Tri-State
claims its own subsequent conduct, specifically Tri-State’s entering into a minimum
requirements contract with Munson to purchase 100,000 cubic yards of mulch per year, is
consistent with its interpretation of the contract. (See Appendix to Appellant’s Brief at
439).
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Tri-State points to its dealings with Munson as a “course of performance” intended
to support its interpretation of the contract, arguing that it would not enter into a
minimum requirements contract with Munson without being confident that it had a
similar arrangement with its own customer, GSO. Despite this argument, the Court
cannot reform contracts to match one party’s intent. It is clear from K.S.A. § 84-2-208
that the course of performance mentioned in K.S.A. § 84-2-202 refers to the course of
performance between the parties to the contract, not between one of the parties and a third
party, in this case, Munson.
The Kansas Supreme Court has interpreted K.S.A. § 84-2-202 as meaning that
parol evidence is to be used only when the agreement is ambiguous, or silent on a matter.
Barbara Oil Co. v. Kansas Gas Supply Co., 827 P.2d 24, 34 (Kan. 1992). As a general
rule, if the language is clear, there is no room for rules of construction. Marquis v. State
Farm Fire and Cas. Co., 961 P.2d 1213, 1219 (Kan. 1998). Analogizing to other states’
interpretations of the Uniform Commercial Code, the Tenth Circuit has held that under 2-
202 of Oklahoma’s Commercial Code, evidence of prior agreements, course of dealing,
and course of performance cannot be used where they contradict the terms of the
agreement. C.F.Braun & Co. v. Oklahoma Gas & Elec. Co., 603 F.2d 132, 133 (10th Cir.
1979). In the instant case, where the terms of the contract are unambiguous and there is a
complete integration clause, the district court was correct to reject intrinsic evidence as to
the intent of the parties or the nature of the contract.
Admittedly, this contract is not the finest example of draftsmanship. It appears to
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reflect conflicting intentions of the parties. Tri-State claims that the district court’s
reading of the contract would render its power of termination meaningless. However, the
district court’s interpretation does not render the language granting Tri-State the right to
terminate meaningless, it merely strips the language of the power that Tri-State apparently
believes it was to hold: the unilateral right to determine whether the contract continues or
terminates. To read the contract in that light, the district court would have to completely
ignore the provision making the purchase of a certain quantity of mulch a condition
precedent for the continuation of the contract. Under these circumstances, the district
court’s interpretation of the contract was reasonable. When reading a contract, it is the
intent expressed by the parties, not the actual intent of the parties, which controls.
General Surgery, P.A. v. Suppes, 953 P.2d 1055, 1057 (Kan. 1998).
II. Damages:
Tri-State appeals the district court’s granting of GSO’s motion in limine which
restricted Tri-State’s recovery of damages to net profits lost, rather than a full recovery of
the contract price. Tri-State argues that a lack of a market for its mulch dictates that it
should recover the entire contract price. Recovery of the contract price is possible under
some circumstances under Kansas law; such recovery, however, only applies “[w]hen the
buyer fails to pay the price as it becomes due.” K.S.A. § 84-2-709. In the instant case,
GSO did not refuse to pay for mulch it purchased from Tri-State. After sending Tri-State
the February 20, 1996, termination letter, GSO simply refused to purchase its mulch from
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Tri-State as mandated by the non-compete provision of the contract. In essence, GSO
either did not accept or repudiated its purchase requirement under the non-compete
provision. Damages for repudiation are covered by K.S.A. § 84-2-708, which provides:
“ . . . the measure of damages for nonacceptance or repudiation by the buyer is the
difference between the market price at the time and place for tender and the unpaid
contract price together with any incidental damages . . . .” K.S.A. § 84-2-708.
It appears that Tri-State actually is seeking to recover the costs incurred by its
entry into a true minimum requirements contract with Munson. Tri-State’s costs incurred
as a result of its misconstruction of the contract are unfortunate, but are not incidental
damages recoverable from GSO, and consequential damages are not recoverable under
K.S.A. § 84-2-710. Tri-State’s losses attributable to GSO’s breach of contract consist
solely of the lost net profit on the mulch purchased improperly from Munson. The district
court found that as a matter of law, the maximum lost net profit was $6.40 per cubic yard.
The jury found that the actual lost net profit was $4.03 per cubic yard. Under K.S.A. §
84-2-708, that was the appropriate measure of Tri-State’s damages due to GSO’s breach.
III. GSO’s Cross-Appeal:
Tri-State objects to the cross-appeal, arguing that it is untimely. It argues that the
claim properly is made under Fed. R. Civ. P. 50(b), which is timely made only at the close
of evidence. Jackson v. City of Cookeville, 31 F.3d 1354, 1358 (6th Cir. 1994). GSO
claims that the relief requested is available under Fed. R. Civ. P. 59 and at common law,
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and thus is timely made. Furthermore, GSO points out that Tri-State failed to assert the
timeliness defense at the district court level, nor did the trial court rely on such a bar in
denying GSO’s motion, so such a defense should be considered waived. As a general
rule, issues not raised before the lower court are waived on appeal. Yapp v. Excel Corp.,
186 F.3d 1222, 1230 (10th Cir. 1999). As Tri-State failed to object to the timeliness of
GSO’s Fed. R. Civ. P. 50 motion in the lower court, GSO’s cross-appeal may be
considered.
GSO appeals from the district court’s denial of its motion for judgment pursuant to
Rule 50(b), arguing that the contract with Tri-State only prohibited it from purchasing
AND processing mulch from another supplier. While it may have purchased mulch from
Munson, GSO claims that no evidence was introduced that GSO processed the mulch.
This argument is baseless. In the Revised Pretrial Order, GSO stipulated to purchasing
and processing 3,693.34 cubic yards of mulch from Munson. In addition, there was
evidence at trial that GSO moved its bagging equipment from Tri-State’s Nebraska
facility to Munson’s Washington State facility in December, 1995. A representative of
Munson testified at trial that he processed and bagged the mulch ordered by GSO using
GSO’s equipment. The jury was charged with deciding at what point GSO had
“purchased and processed” mulch, and decided the point against GSO. There was
sufficient evidence introduced at trial to support the jury’s finding that GSO purchased
and processed mulch in violation of the contract.
GSO also appeals on the basis that the district court confused the jury by
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instructing it to ignore certain evidence. During the testimony of Craig Lehmkuhl, GSO’s
chief financial officer, evidence was presented to the jury demonstrating that GSO had
purchased only 3,693.34 cubic yards of mulch from Munson. GSO claimed that credits
received from Munson showed that several sales occurred after the term of the Tri-State
contract ended. GSO also attempted to introduce additional documents showing that
other mulch GSO allegedly purchased was not actually purchased or received until after
the term of the contract had expired. Tri-State objected to the introduction of the latter
documents, and the district court instructed the jury to disregard the testimony concerning
“credits”. Although Jury Instruction 12 stated that GSO claimed to have purchased only
3,693.34 cubic yards of mulch in violation of the contract, GSO believes that the jury may
have been misled into believing that they were to ignore all evidence of credits. This
confusion would have extended to the jury instructions, in GSO’s view, and thus the
instructions were prejudicial and should be corrected. Royal College Shop v. Northern
Ins. Co. of N.Y., 895 F.2d 670, 681 (10th Cir. 1984).
The jury instructions themselves are clear and unambiguous. The only possibility
of confusion arises from the admonishment to the jury to ignore the evidence concerning
credits during Lehmkuhl’s testimony. GSO could have requested clarification from the
trial judge, but chose not to do so. The jury was presented evidence supporting GSO’s
claim and Tri-State’s claim concerning the amount of mulch purchased in violation of the
contract. The jury apparently found Tri-State’s evidence more persuasive. The Court
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finds no evidence of error or prejudice.
AFFIRMED.
ENTERED FOR THE COURT
Zita L. Weinshienk
Senior District Judge
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