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