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Joiner Systems Inc. v. Avm Corp.

June 3, 1975



Author: Van Dusen

Before VAN DUSEN, GIBBONS and HUNTER, Circuit Judges


VAN DUSEN, Circuit Judge.

The defendants, AVM Corporation, Inc. and AVM of Maryland (hereinafter collectively referred to as AVM), and the plaintiff, Joiner Systems, Inc. (hereinafter "Joiner"), respectively appeal and cross-appeal from a judgment entered by the district court on April 3, 1974, on a jury verdict in favor of the plaintiff. Motions by the defendants for a new trial, for judgment n.o.v., and for a remittitur were denied in an opinion and order of the district court filed June 4, 1974.

Our disposition of the appeals requires only an abbreviated statement of the facts. AVM was in the business of outfitting ships and manufacturing some of the necessary materials for such business. Joiner had a process for the manufacture of fire retardant panels used on ships. On October 29, 1970, Joiner and AVM entered into two agreements.*fn1 Under the first agreement*fn2 AVM agreed to use Joiner's process to manufacture the panels. The contract also provided that all of the panels manufactured by AVM would be sold to Joiner, and, conversely, all of Joiner's panel purchases would be from AVM. The second agreement, styled "an open contract to purchase fire retardant panels for five years," regulated the details of Joiner's purchase of panels from AVM. Although it did not set the quantity, it did attempt, with considerable obscurity, to set the price for a period of three years, leaving the price for the last two years "to be negotiated." There was no specific requirement either that Joiner place orders with AVM or that AVM purchase completed panels from Joiner.

Between the inception of the contract and December 20, 1971, AVM manufactured, sold to Joiner, and then repurchased 218,336 square feet of paneling. On December 20, 1971, AVM repudiated the agreements in a letter sent to Joiner. Thereafter, and until January of 1973, AVM manufactured 171,308 square feet of panel for its own account without first selling to Joiner, and then, if it chose, repurchasing, as the contracts required it to do.

On April 14, 1972, Joiner sued AVM in the New Jersey courts. AVM removed the case to the United States District Court for the District of New Jersey on June 16, 1972. The case went to trial before a jury, which awarded Joiner damages in the amount of $64,978.63. Judgment was entered on this verdict and, in the above-mentioned "Opinion and Order," the district court denied AVM's motions for a new trial, for judgment n.o.v., and for a remittitur. AVM timely appealed, and Joiner filed a cross-appeal.

One of AVM's charges of error in the trial is meritorious. At trial, Joiner introduced evidence that under the contracts it was entitled to a profit of $.20 per square foot on any paneling it purchased from and then resold to AVM. AVM, on the other hand, introduced evidence that Joiner actually made a profit of $12,950.17, or slightly less than $.06 per square foot, on the 218,336 square feet which Joiner had purchased from and resold to AVM prior to December 20, 1971. This $12,950.17 had been received by Joiner prior to trial. Contending that the issue was neither raised by the complaint nor tried with the consent of the parties, AVM asserts that it was error for the trial judge to charge the jury that they could grant damages not only on the 171,308 square feet manufactured after the December 20, 1971, repudiation, but also on the difference between $12,950.17 and any greater profit to which they found Joiner to be entitled on the 218,336 square feet manufactured prior to December 20, 1971. Although the court's charge is not completely clear on this issue,*fn3 there can be no doubt that the jury granted both pre- and post-repudiation damages.*fn4

The jury's verdict will stand either if the issue of pre-repudiation damages was raised in the complaint or if it was tried with the consent of the parties. See Smith v. Ellerman Lines, Ltd., 247 F.2d 761, 766 (3d Cir. 1957); cf. Rosenberg v. Hano, 39 F. Supp. 714, 715-16 (E.D. Pa. 1940), aff'd, 121 F.2d 818 (3d Cir. 1941). Joiner contends that its complaint stated a cause of action for breach of contract generally, and should therefore have been understood by AVM to encompass damages incurred both before and after repudiation. Any ambiguity which AVM found in the complaint, says Joiner, should have been resolved by AVM through the medium of discovery.

We cannot agree. The complaint should give the defendant fair notice of the claim asserted. Conley v. Gibson, 355 U.S. 41, 47, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); Continental Collieries, Inc. v. Shober, 130 F.2d 631, 635 (3d Cir. 1942); 2A J. Moore, Federal Practice, [*] 8.13 at 1695. Joiner's complaint, reproduced here,*fn5 nowhere mentions underpayment by AVM prior to repudiation. Paragraph 7 of the first count, paragraph 6 of the second and third counts, and paragraph 7 of the fourth count, appear to predicate recovery on profits lost subsequent to repudiation. This predicate is particularly apparent in the references to "business which would have otherwise been derived by defendant's continued contractual relationships," in counts 1, 3 and 4.

The district court would have been well within its discretion in granting a Rule 15(a) motion to amend the complaint to include pre-repudiation damages, but Joiner never filed such a motion. Similarly, a Rule 16 (F.R. Civ. P. 16) conference and pre-trial order would have exposed and corrected the latent misunderstanding with respect to the claims asserted, but the district court failed to avail itself of this salutory procedure. This court has consistently emphasized the importance and controlling nature of pre-trial procedures. See, for example, Ely v. Reading Company, 424 F.2d 758, 763-64 (3d Cir. 1970); Basista v. Weir, 340 F.2d 74, 85 (3d Cir. 1965); Payne v. Nabob, 302 F.2d 803, 806-07 (3d Cir. 1962). Under the circumstances presented here, namely a contract action involving the interpretation and application of two incomplete, written contracts, we believe the district court should have held a pre-trial conference pursuant to F.R. Civ. P. 16 in this case.

For the foregoing reasons, we conclude that Joiner's complaint did not provide the defendant sufficient notice of the pre-repudiation claim to justify the court's charging the jury on that issue. We must, therefore, turn to the question whether the issue was actually tried with the consent of the parties. See Smith v. Ellerman Lines, Ltd., supra; F.R. Civ. P. 15(b).

Joiner relies on the testimony of one Davis that prior to repudiation Joiner was paid less than the contracts required. N.T. 3.6-3.7. This testimony in itself is not dispositive of the issue; the question remains whether the testimony was received for the purpose of proving the proper measure of profits lost after repudiation or whether it was received for the purpose of proving damages incurred prior to repudiation. After Davis had testified to the underpayment prior to repudiation, Mr. Brennan, counsel for AVM, objected that this issue was not raised by the complaint:

"THE COURT: You should have gotten more money?

"THE WITNESS: We should have gotten more money and their payments were of a nature when they would make payments it was hard for us to discern what the actual payment was for and they would lump payments of Joiner Systems and Systems Sales together and so on.

"THE COURT: Did you ask them at any time to separate those?

"THE WITNESS: I most assuredly did. I was advised by their people, by Mr. Kolbacker and J. T. Lyons, that... it is all one company. You disburse it the way you want to.

"MR. BRENNAN: Your honor, this is an issue. I gather that from what Mr. Davis has said in his remarks to your honor that the plaintiff is now complaining that they were not paid enough for the work which they did.

"Your honor, there is not a whisper of that in the complaint.

"MR. DAGGETT: We are not talking about that. We are establishing a quantum of damages here."

N.T. 3.8-3.9 (397A-398A).

Although Mr. Daggett, counsel for Joiner, responded that they "were not talking about that," in his direct examination of Mr. Davis, he returned again to the topic of damages prior to repudiation, and Mr. Brennan again objected:

"Q. Now, Mr. Davis, are you able, based on your figures and the overall contract price that you spoke about, to break out an average of the profit ...

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