Mac Sales, Inc. v. E.I. du Pont de Nemours & Co.

                 United States Court of Appeals,

                          Fifth Circuit.

                           No. 93-3500.

              MAC SALES, INC., et al., Plaintiffs,

          Kenneth P. Choina, Sr., Plaintiff-Appellant,

                                v.

     E.I. du PONT de NEMOURS & COMPANY, Defendant-Appellee.

                          July 5, 1994.

Appeal from the United States District Court for the Eastern
District of Louisiana.

Before POLITZ, Chief Judge, DAVIS and WIENER, Circuit Judges.

     WIENER, Circuit Judge:

     Louisiana Civil Code article 2054 provides that "law, equity,

or usage" are presumed to furnish the contractual terms when a

contract is silent as to a particular situation.     In the instant

case, Defendant-Appellee E.I. du Pont de Nemours & Company ("du

Pont") claimed—and the district court agreed—that under article

2054 Plaintiff-Appellant Kenneth Choina's ability to choose a

garment fabricator should be restricted to those approved by du

Pont as an implied term in du Pont's contract with Choina, which

contract was silent on the matter.   As we conclude that du Pont has

failed to establish either that such a restriction is mandated by

law or equity, or that it qualifies as a "usage" within the

intendment of article 2054, we reverse and remand on this one

issue.   In all other respects, however, the judgment of the

district court is affirmed.

                                I

                                1
                             FACTS AND PROCEEDINGS

     In     the     early   1980's,   Choina       was   employed   in   product

development by CPR Industries ("CPR").              He discovered that one of

CPR's     clients    was    interested       in   light-weight   fire-resistant

protective coveralls for use in welding. Choina contacted du Pont,

a maker of fire-resistant fabrics including Nomex Woven, a fairly

heavy fabric used in coveralls, and Nomex Spunlaced, a far lighter

and less expensive, though less durable, fabric.                    Du Pont had

successfully developed a market for Nomex Woven but had failed to

do so for Spunlaced products. Choina was already buying—for CPR—du

Pont-developed materials from a garment fabricator (referred to in

the trade as a "cutter").        He directed that fabricator to make up

some sample Spunlaced coveralls, then began to work with du Pont's

marketing and technical personnel to develop potential markets for

this Spunlaced product.

     In 1985, Choina left CPR and began doing business as Mac

Sales.1     Concerned that the cutters might usurp his market by

selling garments directly to end-users, Choina sought exclusive

rights from du Pont to market protective wear made from Spunlaced

fabric.     In May 1987, Choina received this authority by way of a

letter from du Pont, which granted him the right to acquire "on an

exclusive basis through December 1988, the ... spunlaced aramid for

     1
      In the complaint and in the style of this case, MAC Sales
is shown as being an incorporated entity. During trial Choina
acknowledged, however, that MAC Sales was his unincorporated sole
proprietorship. As neither party attaches significance to or
contests this matter, we do not address it further. For
convenience only, we refer to Choina as the relevant actor
throughout this opinion.

                                         2
use in limited wear protective apparel applications...."                         In

reliance on that contract, Choina hired four salesmen and began to

market the product.

       Three operational problems arose shortly after the confection

of this letter agreement, which is totally silent as to each of the

three problem areas.         The first such problem related to du Pont's

assertion that Choina could only choose a cutter approved by du

Pont.       The cutter restriction became an issue as a result of raw

material modifications by du Pont.                These modifications led the

cutter originally chosen by Choina to raise the cost of fabricating

Spunlaced       coveralls    significantly,       which    in   turn   effectively

lowered the price spread between Nomex Spunlaced garments and the

more       durable   Nomex   Woven    garments,    thereby      reducing   Choina's

competitive advantage.         When Choina attempted to protect his price

advantage by switching to a lower-cost cutter, du Pont nixed the

deal, claiming that Spunlaced products could safely be fabricated

only by du Pont-approved cutters.2            Although Choina continued to

insist that he had a contractual right to use the cutter of his

choice, du Pont as the sole manufacturer of Spunlaced fabric had de

facto control over access to that fabric.                  Hence, Choina had no

choice but to continue to use du Pont-approved cutters if he wished

to obtain and market Spunlaced garments.

       The     second   problem      implicated    the    geographic    limits   of

       2
      As du Pont points out, if a cutter made an error in
fabrication—such as by using regular, non fire-resistant thread
to stitch together a garment—then the garment might fail when
used. Such failure would, of course, expose the wearer to
danger.

                                          3
Choina's exclusive contract.     Choina attempted to market Spunlaced

products to, inter alia, a contact in Japan.               This contact,

however, questioned Choina's claim of having the exclusive rights

to market such products world-wide, including in Japan.                When

Choina sought to have du Pont verify that he had such rights, he

was informed by du Pont that his exclusive rights were limited to

the United States.

     The   third    problem   concerned   purported     disparagement    of

Choina's products by du Pont personnel.         As Choina had limited

technical knowledge about the Spunlaced protective garments, he

referred all of his customers' technical questions to du Pont.

Choina claims that when such calls were received by du Pont's

employees, they disparaged the durability and effectiveness of his

product.

     Choina sued du Pont, claiming breach of contract for this

disparagement as well as for du Pont's efforts to impose geographic

limitations   and    cutter   restrictions,   neither     of   which    were

mentioned in or alluded to in the agreement.      First, the district

court granted judgment as a matter of law for Choina on the issue

of geographic limitations, but found that Choina had failed to

prove damages resulting from du Pont's assertion of such limits.

Next, the court granted judgment as a matter of law for du Pont on

the issue of cutter restrictions, relying on Louisiana Civil Code

article 2054 to conclude that this restriction should be implied

from "law, equity, or usage."     After thus ruling on the geographic

limits of the agreement and the implied cutter restriction, the


                                    4
court submitted the disparagement claim to the jury, which rendered

a verdict for du Pont.          Choina timely appealed.

                                          II

                                     DISCUSSION

A. Implied Restriction on Cutters

          Du Pont interprets its contract with Choina to require Choina

to   use    only   du    Pont-approved     cutters   to   fabricate    Spunlaced

garments.      The district court agreed and entered judgment as a

matter of law for du Pont on this issue.                  We review a district

court's interpretation of a contract de novo.3

          The starting point in contractual interpretation is the

language of the contract itself.4              Here, the contractual language

provides no support for du Pont's position.                  Specifically, the

operative language of the contract between Choina and du Pont is

set forth in a letter agreement, which provides that:

      Du pont has agreed to provide you on an exclusive basis
      through December 1988 the heavier weight 4 oz./sq. yd. E-89
      spunlaced aramid for use in limited wear protective apparel
      applications ...

          Although      this   contract   is   absolutely    silent   as   to    any

restrictions       on    how   and   by   whom    Choina's    garments     may    be

fabricated, du Pont nonetheless relies on Louisiana Civil Code

article 2054—as did the district court—for the proposition that

      3
      E.g., American Totalisator Inc. v. Fair Grounds Corp., 3
F.3d 810, 813 (5th Cir.1993); USX Corp. v. Champlin, 992 F.2d
1380, 1384 (5th Cir.1993).
      4
      See LA.CIV.CODE ANN. art. 2046 (providing "[w]hen the words
of a contract are clear and explicit and lead to no absurd
consequences, no further interpretation may be made in search of
the parties' intent").

                                          5
such a restriction must be implied from "law, equity, or usage."

Article 2054 provides that:

     When the parties made no provision for a particular situation,
     it must be assumed that they intended to bind themselves not
     only to the express provisions of the contract, but also to
     whatever the law, equity, or usage regards as implied in a
     contract of that kind or necessary for the contract to achieve
     its purpose.5

     Initially, we observe that the restriction on cutters was an

incidental, not a necessary, term of this contract.       Simply put,

this restriction was not essential to give effect to du Pont's

grant of exclusive marketing rights to Choina.6     Thus, this is not

the type of contractual term—such as price—that had to be added so

that Choina and du Pont would have a functional contract.     Rather,

the issue presented here is whether such a restriction should be

added to this contract, or, to use the words of the Civil Code,

whether such a restriction ought to be "regard[ed] as implied" from

"law, equity, or usage."

         Du Pont has not shown how "law, equity, or usage" justify

incorporation of this restriction.      Du Pont points to no "law"—and

we know of none—that would require Choina's choice of cutters to be

limited to those approved by du Pont.     An appeal to "equity" by du

Pont fares no better.      Du Pont drafted this contract and was

     5
      LA.CIV.CODE ANN. art. 2054.
     6
      Acceptance of du Pont's reformulation of purpose as the
marketing of "safe" fire-resistant protective wear would not
change this result. In sum, even if using only du Pont-approved
cutters was helpful in ensuring the fabrication of safe garments,
it certainly was not necessary to achieving that purpose. To
give just one obvious example, du Pont could have provided Choina
with technical specifications so that he could have checked the
quality of the fabricated garments.

                                    6
certainly     in        a    position     to   have       its   wishes    regarding    any

restriction        on       cutters     expressed      in    the   written      agreement.

Instead, the contract itself explicitly provides that "[d]u Pont

has agreed to provide you" (Choina) with the Spunlaced fabric.

     Such contractual language offered Choina no clue that he could

obtain garments fabricated from Spunlaced fabric only from cutters

approved     by     du       Pont.       Indeed,    Choina's       awareness     of   this

practice—if he was aware at all7—could come only from his previous

dealings with du Pont as buyer for CPR and later as owner of MAC

Sales.     But even if Choina had such knowledge, neither Choina nor

du Pont had a reasonable expectation that the multifarious terms of

those     various        dealings—including           the    cutter      restriction—were

incorporated        sub       silentio     into     his     contract     with   du    Pont.

Accordingly, we conclude that, under these circumstances, our

"regretting" du Pont's invitation to insert a cutter restriction

into the agreement in the face of contractual silence would not be

inequitable;        that is, it would not work an "unfair advantage" in

favor of Choina.8

         Finally, du Pont failed totally to adduce evidence that its

cutter restriction represented a "usage."                       "Usage" is defined in

the Civil Code as "a practice regularly observed in affairs ...



     7
      Du Pont and Choina hotly contest whether Choina knew that
du Pont distributed Spunlaced fabric only through approved
cutters.
     8
      See LA.CIV.CODE ANN. art. 2055 (defining "equity" in terms of
preventing one contracting party from having an "unfair
advantage" over another).

                                               7
similar to the object" of the contract at issue.9        The appropriate

reference   for   determining   whether   a   practice   is   "regularly

observed" is the industry or trade involved.10           Here, the only

evidence offered by du Pont is that du Pont—not the entire industry

or trade—unilaterally required that all protective wear garments be

fabricated by an approved cutter.11     We conclude that this evidence

is insufficient in itself to show that a "usage" existed in the

relevant industry or trade.12

     Du Pont has failed to establish that "law, equity, or usage"


     9
      LA.CIV.CODE ANN. art. 2055.
     10
      See, e.g., Foods & Services, Inc. v. SHRM Catering
Services, Inc., 486 So.2d 290, 292 (La.App. 3d Cir.1986) (looking
to practices in the offshore catering industry to determine
whether a discount from "actual cost" to "actual value" applied);
Fontenot's Rice Drier, Inc. v. Farmers Rice Milling Co., 329
So.2d 494, 499 (La.App. 3d Cir.) (looking to practices in the
rice industry to determine when buyer had to notify seller of
alleged deficiencies in purchased rice), cert. denied, 333 So.2d
239 (La.1976); Baton Rouge Sash & Door Co. v. Saale, 298 So.2d
115, 116-18 (La.App. 1st Cir.1974) (looking to practices in the
construction industry to determine whether prices quoted for
millwork implicitly included sales tax).
     11
       These facts suggest that this practice may have been part
of a prior "course of dealing" between Choina and du Pont. But a
"course of dealing"—while possibly relevant to equitable
considerations—does not provide a separate and independent basis
for adding a contractual term when a contract is silent. See
LA.CIV.CODE ANN. art. 2054 (providing that "law, equity, or usage"
may be used to supply terms when a contract is silent );
LA.CIV.CODE ANN. art. 2053 (providing that doubtful provisions of
the contract should be interpreted in light of, inter alia, the
course of dealings between the parties). Obviously, the concept
of total silence eschews the existence of a contractual
provision, doubtful or otherwise.
     12
      See, e.g., Foods & Services, 486 So.2d at 292
(uncorroborated testimony by seller of practice in industry
insufficient to establish a custom or usage); Baton Rouge Sash &
Door, 298 So.2d at 118 (same).

                                    8
support insinuation of a term restricting Choina's ability to chose

cutters to only those approved by du Pont.                     We thus reverse and

remand so that Choina may have an opportunity to prove the quantum

of   damages,       if    any,   he    suffered    from   du   Pont's     unjustified

imposition of such a restriction.

B. Geographic Limits and Damages

       When queried by Choina, Du Pont responded that his exclusive

contract extended only to the United States.                    The district court

ruled on this geographic limitation—as we have ruled on the cutter

restriction—that du Pont was unjustified in insisting on such a

limitation and in so doing breached the contract.                  Du Pont does not

contest that ruling on appeal.              Additionally, however, the court

ruled that du Pont was not liable for damages, concluding that the

expert testimony on damages adduced by Choina was inadmissible for

lack    of    a    proper     foundation,   and    that   Choina    had    failed   to

introduce         any    other   legally    sufficient     evidence       of   damages

resulting         from   du   Pont's    improper    geographic     restriction      of

Choina's rights.

            In the exercise of its discretion a district court may

exclude expert testimony that lacks an adequate foundation.13 Here,

the report of the expert, Dr. Elstrott, flatly states that he did

no research on foreign markets:

       Addressed in this valuation were the domestic market segments
       outlined in Section IV. Several markets were not addressed in
       this report, among them is the international fire-resistant

       13
      See, e.g., Brown v. Parker-Hannifin Corp., 919 F.2d 308,
311 (5th Cir.1990); Viterbo v. Dow Chemical Co., 826 F.2d 420,
422 (5th Cir.1987).

                                            9
      apparel market. Because of the limited amount of information
      available, no itemized market information could be presented
      in a reliable fashion.    And so, to maintain this report's
      conservative posture, it was decided that only the domestic
      market should be addressed.

At deposition, Dr. Elstrott reiterated that he had only analyzed

the domestic market.        We cannot say that the district court abused

its discretion in concluding that Dr. Elstrott lacked a proper

foundation from which to testify on foreign markets.

           Neither   did   the   district    court     err   in   concluding    that

Choina's other evidence of damages arising from the improperly

imposed geographic limitation was legally insufficient.                  Louisiana

law   is    well-settled     that    lost    profits    "must     be   proven   with

reasonable      certainty    and    cannot    be     based   on   conjecture    and

speculation."14       Here, the only evidence Choina offered regarding

damages was that he communicated with one party in Japan—who

inquired inter alia about the nature of the product and about

Choina's exclusive rights—and that he sent a letter to another

party in Australia, who never responded.               Choina acknowledged that

both of these solicitations were "cold calls" and that he never

followed up to ascertain why they did not result in sales.                       Of

course, such evidence could suggest many things, ranging from lack

of interest in the Spunlaced product to an aversion to dealing with

unknown distributors.            Only speculation or conjecture could tie

such evidence of lack of foreign sales to du Pont's efforts to

      14
      Guy T. Williams Realty, Inc. v. Shamrock Constr. Co., 564
So.2d 689, 695 (La.App. 5th Cir.1990), cert. denied, 569 So.2d
982 (La.1990); see also, e.g., Guidry & Swayne v. Miller, 47
So.2d 721, 723 (La.1950) (same); Folds v. Red Arrow Towbar Sales
Co., 378 So.2d 1054, 1059 (La.App. 2d Cir.1979) (same).

                                        10
limit Choina's exclusive rights to this country.                Thus, as the

district court correctly concluded, this evidence was legally

insufficient to create a fact issue for the jury.15

C. Product Disparagement

          The jury found that du Pont did not disparage Choina's

products.     Choina moved for a new trial on this issue, which the

district court denied.16 As Choina concedes, we review such denials

under a highly deferential standard of review, reversing only if

the district court abused its broad discretion in concluding that

the verdict was not against the great weight of the evidence.17

     Here,    the    evidence   was   at   most   inconclusive.         Du   Pont

employees testified that no disparagement took place and that they

merely     offered   objective,   neutral    information   on     the    proper

applications for Spunlaced products. Du Pont also pointed out that

it had much to gain if Choina had been able to develop a market

niche for Spunlaced products, so that disparagement would be

against du Pont's own interests.             Choina did not rebut this


     15
      See FED.R.CIV.P. 50(a)(1) (providing that "[i]f during a
trial by jury a party has been fully heard on an issue and there
is no legally sufficient evidentiary basis for a reasonable jury
to find for the party on that issue, the court may ... grant a
judgment as a matter of law").
     16
      Choina also moved for judgment as a matter of law on this
issue. As Choina fails to satisfy the lesser standard for new
trials, a fortiori this claim must fail.
     17
      E.g., Shows v. Jamison Bedding, Inc., 671 F.2d 927, 930
(5th Cir.1982) (observing that "[w]hen the trial judge has
refused to disturb a jury verdict, all of the factors that govern
our review of his decision favor affirmance"); see also, e.g.,
Pagan v. Shoney's Inc., 931 F.2d 334, 336-37 (5th Cir.1991)
(same).

                                      11
testimony   with    concrete     instances   of   disparagement.    Instead

Choina—who conceded that he had no technical knowledge regarding

fire-resistant safety wear—simply argued that du Pont's views as to

proper use constituted disparagement.             He tried to couple this

argument with a "conspiracy" inference, that somehow du Pont wanted

him out of the market, even though he offered no evidence other

than lack of sales for this inference, and even though such an

inference makes little sense in light of du Pont's uncontested

statements of its own profit motivations.

     From the foregoing, it is clear that the jury's verdict was

not against the great weight of the evidence.             Accordingly, the

district court did not abuse its discretion in refusing to grant a

new trial on the disparagement issue.

                                     III

                                  CONCLUSION

     Choina   and    du   Pont    entered    into   a   skeletal   exclusive

distributorship agreement which left unaddressed any number of

essential and nonessential terms and conditions.           As often happens

in such circumstances, problems arose between the parties when they

reached the performance stage of this contract.           And, as too often

happens, such problems produced "a federal case."

     Concluding that the district court erred in entering judgment

as a matter of law for du Pont on the "cutter" issue, we REVERSE

and REMAND that part of the court's judgment so that a jury may

have the opportunity to determine whether Choina suffered any

damage from the unjustified imposition of such a restriction by du


                                      12
Pont, and, if so, in what amount.      The remainder of the judgment of

the district court is, however,

     AFFIRMED.




                                  13