Loyola Consumer Law Review

Volume 10 | Issue 3 Article 5

1998 Medical Buyer Fails to Prove that Letter Evidenced a Valid Requirements Karina Zabicki

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Recommended Citation Karina Zabicki Medical Buyer Fails to Prove that Letter Evidenced a Valid Requirements Contract, 10 Loy. Consumer L. Rev. 217 (1998). Available at: http://lawecommons.luc.edu/lclr/vol10/iss3/5

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And, part three required that the Unlike the defendant in EDIAS, companies in Arizona. Moreover, "exercise ofjurisdiction must be Cybersell FLs only contact with there was no that any reasonable." Arizona was the information it Arizonan had enlisted Cybersell FL's Cybersell AZ relied on several posted on its web page. As a result, web assistance. Essentially, cases for support, but the the court found EDIAS unpersuasive Cybersell FL's presence in Arizona found the cases unpersuasive for Cybersell AZ. was negligible. because the holdings were broader Instead, the Ninth Circuit The court concluded that posting than Cybersell AZ suggested. For determined that Cybersell FL took information on the Internet without example, Cybersell AZ relied on an no steps to "purposefully avail" taking steps to purposefully avail Arizona case where the court stated itself of Arizona's benefits, whereas oneself of the laws of the forum that a defendant should not "escape the defendant in EDIAS did. The state did not establish personal traditional notions of jurisdiction" court found that Cybersell FL did jurisdiction. Since the court con- because of modem technology. not conduct any commercial activity cluded that Cybersell FL's contacts EDIAS Software International, over the Internet in Arizona. with Arizona did not amount to L.L. C. v. BASIS InternationalLtd., Cybersell FL did not form purposeful activity in the state, the 947 F. Supp. 413 (D. Ariz. 1996). with anyone in the state. Moreover, court stopped its analysis without In EDIAS, Plaintiff claimed that the court found that the company did examining the second and third Defendant promulgated advertise- not actively encourage Arizona prongs of its test. The case did not ments and defamatory assertions via residents to use its site, there was no change any preexisting laws about the Internet. Defendant had a evidence that Cybersell FL pursued personal jurisdiction simply because contract with Plaintiff, and it business in Arizona, Cybersell FL this case involved an Internet. solicited business in the Arizona, the did not advertise in Arizona, and it Instead, the court demanded the forum state. Additionally, derived no any income from same level of minimum contacts that Defendant's employees traveled to Arizona. it would in other cases. Accordingly, Arizona for business engagements The court also noted that Arizona the court concluded that Cybersell with Plaintiff. Hence, Defendant's citizens had no interaction with FL did not establish the requisite contact with the forum state was not Cybersell FL's web page. Not one minimum contacts with Arizona, and limited to Internet correspondences. person in Arizona "hit Cybersell FL's affirmed the lower court's dismissal. The Ninth Circuit distinguished web site." Cybersell FL never sent this case from the present one. electronic messages to people or EUli

Medical Buyer Fails to Prove that Letter Evidenced a Valid Requirements Contract

by Karina Zabicki

In Orchard Group, Inc. v. and conclude contract negotiations Incorporated agent was not a valid Konica Medical Corp., 135 F.3d between the principal and third contract because it neither contained 421 (6th Cir. 1998), the United parties without further approval, the a quantity term in compliance with States Court of Appeals for the Sixth doctrine of apparent authority will the , nor met the Circuit reversed the decision of the bind the principal to the contract definition of a "requirements district court holding: (1) when a formed by its agent; (2) the letter contract" because nothing in the principal allows its agent to modify sent by the Konica Medical Corpo- letter indicated how a quantity term existing contracts, confirm contracts ration agent to an Orchard Group could be implied, and (3) the letter

1998 Loyola University Chicago School of Law • 217 did not evidence an exclusive OGI is an Ohio corporation In early April 1992, Ms. Hunter relationship between the two parties formed in order to act as a buying put the OGI representative in touch which would circumvent the need group whose goal was to obtain with Robert Weaver, Konica's for either an implied quantity group discounts on medical supplies Southwest Regional Manager. estimate, which could be derived for small non-hospital health care Regional managers were two tiers from the parties' prior dealings, or a providers. During March of 1992, an below the top position at Konica. real quantity estimate. OGI representative held discussions Mr. Weaver relayed to the OGI Orchard Group Incorporated with Barbara Hunter, a Konica sales representative that a 45% discount to ("OGI") commenced litigation representative, regarding the OGI customers for the x-ray film proceedings against Konica Medical Cleveland marketplace. The negotia- would be more competitive. Subse- Corporation ("Konica") on Septem- tions centered around Konica quently, Mr. Weaver told Ms. Hunter ber 3, 1992 in the United States possibly supplying x-ray film at a that he and the OGI representative District Court in the Northern discounted price to OGI members. had negotiated a 45% discount. Ms. District of Ohio Eastern Division, On March 31, 1992, Ms. Hunter, Hunter delivered these new terms in claiming and the agent for Konica, sent a written a letter dated April 13, 1992 to the fraudulent . On proposal to an OGI representative OGI representative "in return for a May 27, 1994, upon the close of which set forth Konica's agreement film commitment of 36 months." discovery, Konica filed a motion for to offer x-ray film to OGI members The OGI representative orally summary judgment, which the at a 40% discount. The two parties accepted this new offer and Ms. district court denied on January 8, orally agreed to the terms of the Hunter again informed the OGI 1996. The case proceeded to trial on letter and the OGI representative representative that the offer stood February 26, 1996 and culminated in asked whether OGI needed to sign without any need for further a $1,000,000 jury verdict in favor of off on any document. Ms. Hunter approval. OGI on its breach of contract claim claimed this was unnecessary, A few weeks following Ms. and a verdict in favor of Konica on stating that the letter was the written Hunter's April 1992 letter and with the fraudulent misrepresentation agreement. Ms. Hunter received her Ms. Hunter's knowledge, OGI began claim. OGI then filed a motion for boss's approval of this letter and soliciting group membership for the pre-judgment interest on March 12, subsequently relayed this informa- discounted price. During this time, 1996. On March 21, 1996, Konica tion to the OGI representative. Robert Weaver, the Konica regional filed a motion for judgment as a Previously, while employed by a manager who had initiated the 45% matter of law, which essentially different company, the OGI repre- discount, told a potential OGI repeated all of the claims made in its sentative had dealt with both Ms. member of the 45% discount that motion for summary judgment filed Hunter and her boss on similar Konica had agreed to offer OGI in 1994. The district court denied written proposals. These proposals members. Nonetheless, three weeks both the motions of OGI and Konica did not indicate that the OGI following the April 13 letter, Konica on May 13, 1996 without filing a representative needed approval for informed OGI that there was no written opinion. The Sixth Circuit the offered terms from anyone with deal- Konica did not enter into any Court of Appeals only reviewed the a higher position than Ms. Hunter such agreements and would not district court's denial of Konica's and no one at Konica had told the approve of this type of deal. Unable motion for judgment as a matter of OGI representative that Ms. Hunter to find another supplier, OGI was law filed in March of 1996, as it was had limited authority; in fact, forced to close its doors. based upon the complete trial Konica knew that Ms. Hunter was record. making such proposals. OGI Files Suit For Breach Of ContractAnd Fraudulent Konica Agrees To Sell X-Ray Konica Agent Sends A New Misrepresentation Film To OGIAt Discounted Letter To OGI Which Modi- Prices To OGI Members fies The PreviousDeal OGI initiated this lawsuit

218 - Loyola Consumer Law Review Volume 10, number 3 Recent Cases

claiming that Konica breached its requisite authority to bind the authority to bind it, just as Konica contract with OGI and that Konica principal. When these two factors never expressly informed OGI that had made fraudulent misrepresenta- are met, the agent binds its principal its agent's authority was limited. tions. Following the close of to a contract. A third analogous set of facts was discovery, Konica moved for The Court then proceeded to found in the contract modifications. summary judgment on these claims. analogize the facts of General Just as the manager in GE continu- Konica stated that the alleged Electric Co. v. G Siempelkamp ally signed contractual modifica- contract was invalid as it did not GmbH& Co., 29 F3d 1095 (6th Cir. tions throughout the parties' comply with the Statute of Frauds 1994), decided under the Master negotiations, Ms. Hunter had and was invalid as a requirements Consolidatedstandard, to the facts modified the originally negotiated contract. After this motion was in the present case. In General discount of 40% to 45% in the April denied and the trial completed, Electric, the Sixth Circuit Court of 13 letter she sent- an increase Konica reasserted these claims in its Appeals held that a manager bound negotiated by the OGI representative motion for judgment as a matter of his principal, GE, to a contract with and Konica's regional manager, not law, adding the argument that the a manufacturer because of his Ms. Hunter. Konica representatives that dealt apparent authority. In that case, a In holding that Ms. Hunter did with OGI lacked the authority to contract was evidenced by a pur- have the apparent authority to bind bind the corporation to the alleged chase order from GE to the manu- Konica, the court distinguished contract. The Sixth Circuit Court of facturer. The manufacturer submit- Dayton Bread Co. v. Montana Flour Appeals proceeded to resolve these ted a counter-offer, which the GE Mills Co., 126 F.2d 257 (6th Cir. issues. manager accepted by signing on the 1942), a case where the court found "accepted" blank. The parties had that a salesman lacked the apparent Konica Is Bound By Agent's followed this same procedure one authority to bind the company. In Actions Based On Doctrine Of year prior, with the same manager distinguishing Dayton from the case negotiating and concluding the at hand, the Court found that the ApparentAuthority contract. The court ruled that by Dayton decision was influenced by these actions, the principal held out an Ohio law which forbade selling In appealing its motion for the manager as possessing the commodities without an intent to judgement as a matter of law, OGI necessary authority to act as its deliver the commodities in order to used the doctrine of apparent agent. Relating the foregoing facts speculate on price fluctuations. In authority to claim that Konica's to the present case, the Court stated contrast, the Court reasoned that in agents bound Konica to the alleged that Ms. Hunter also had prior this case, the Konica agents were this contract with OGI. In deciding dealings with the OGI agent and in executing valid agreements under issue, the Court cited Master all of those dealings, Ms. Hunter had Ohio state law. v. BancOhio Nat'l Consolidated orally accepted OGI's proposals, When the jury decided the case at Bank, 575 N.E.2d 817 (Ohio 1991), assuring the OGI agent that no the trial court level, it did not to explain the doctrine of apparent further confirmation was necessary. specify whether apparent authority authority is authority. Apparent The Court cited another similar- or implied authority bound Konica determined by the actions of the ity between the facts of GE and the to the terms of the April 13 letter. principal, not the agent. It is created facts of the present case. In both The Court did not discuss whether if a principle either holds out an cases, there was an absence of any Konica's agent would have bound the agent to the public as having express direction from the principals Konica by implied authority, which authority to act or knowingly to the third parties that their agents is found when an agent, by his words acquiesces in the agent's acts lacked the authority to bind them. or conduct, induces a party to authority. In addition, demonstrating General Electric never expressly believe that the agent has the with the agent the person dealing informed the German manufacturer requisite authority to bind the must have a reasonable, good-faith that the manager did not have the principal. The Court stated that belief that the agent possessed the

1998 Loyola University Chicago School ofLaw • 219 while the elements of apparent under UCC 2-306(1). even though missing the quantity authority are factual matters that a A requirements contract derives terms, but distinguished those cases jury determines, apparent authority its name from the fact that one party from the present case. In O.N. Jonas, is a legal question and reasoned that supplies material to another party Inc. v. Badische Corp., 706 F.2d it was obvious that this case was for as much material as necessary to 1161 (1lth Cir. 1983), exclusivity decided under the doctrine of run its specific business. The Court was found on the basis of a memo apparent authority. set forth the standard for a require- which summarized the history of the ments contract, citing Cyril Bath Co. parties' prior dealings and stated, "A OGI Fails To Convince The v. Winters Industries, 892 F.2d 465, potential program utilizing our yam Court That The April 13 467-68 (6th Cir. 1989): was discussed in 1977 and we Letter Was A Requirements A term which measures the indicated that we would supply the quantity by the output of the yam if we were provided a Heller Contract seller or requirements of the guaranty on our form." Id.at 1164. buyer means such actual The Eleventh Circuit Court of The breach of contract that OGI output or requirements as Appeals held that the evidence alleged was evidenced by the April may occur in good faith, dispelled a need for a quantity term 13 letter from Ms. Hunter to the except that no quantity because both parties intended that OGI representative. The Court held unreasonably disproportion- their agreement be a requirements that, contrary to OGI's position, the ate to any stated estimate or contract and cited the appellant's April 13 letter did not evidence a in the absence of a stated good-faith need for the negotiated valid "requirements contract" estimate to any normal or product. The Third Circuit Court of because nothing in the letter otherwise comparable prior Appeals in Advent Systems Limited expressed how a quantity term could output or requirements may v. Unisys Corp., 925 F.2d 670 (3d be calculated or implied. Further- be tendered or demanded. Cir. 1991), relied on O.N Jonas and more, the contract did not indicate The April 13 letter did not meet found that an exclusive contract did exclusivity in the dealings between this definition because it lacked a not need a quantity term because the two parties in order to circum- stated estimate and because there "good faith performance itself vent the necessity for a stated or was no prior course of dealing supplies a sufficient notice of implied estimate so as to form a between the two parties from which quantity." In citing the foregoing valid requirements contract. to formulate an implied quantity cases, the Court reasoned that Under the Statute of Frauds term. Disposing of this argument, demanding strict compliance with provision in the Uniform Commer- the Court proceeded to resolve the the quantity term in the Statute of cial Code ("UCC"), codified in Ohio final issue. Frauds would undermine business as Ohio Revenue Code § 1302.04, a The Court rejected OGI's second reality and practices because a contract for the sale of goods for argument that the contract indicated purchaser often does not know the $500 or more is unenforceable an exclusive agreement between exact amount of goods he will need. unless there is some writing which Konica and OGI, which may have The Court found that unlike in evidences the contract between the allowed the enforceability of the O.N. Jonas, the April 13 letter did two parties. A necessary term for requirements contract without the not create an exclusive relationship enforceability is a quantity term. In necessary quantity term. A party because an intent to create was not the present case, there was no may forego a quantity term if it can apparent from the letter. The letter express quantity term, yet OGI demonstrate that the contract is merely stated that Konica "is pleased argued that the contract was none- exclusive between the two parties. to offer these terms in return for a theless enforceable because it met The Court cited two cases where film commitment for 36 months." the definition of a "requirements other circuit held that the The Court found that rather than contract". The court determined that exclusive agreements at issue were indicating exclusivity, the letter was the April 13 letter did not meet the enforceable requirements contracts actually open-ended because it definition of a requirements contract

220 ° Loyola Consumer Law Review Volume 10, number 3 Recent Cases

indicated that OGI would not have to In conclusion, the Court found quantity term could be derived and order any units and would still be in that although Konica's agent bound further the letter did not evidence an compliance with the terms of the Konica to the terms of the April 13 exclusive requirements contract letter. letter through her apparent authority, which would render the quantity nonetheless, the letter was not an term unnecessary. TheApril 13 Letter Was enforceable requirements contract NotA Valid Requirements because it did not indicate how a Contract

Third Circuit Finds TWA Insolvent

by Andrew Geier

In In re Trans WorldAirlines, TWA's breach of contract. See transfer of an interest of the Inc. Nos. 97-7037, 97-7082, 1998 TravellersInt 'l A. G. v. Robinson, debtor in property - (1) to WL 15848 (3rd Cir. Jan. 20, 1998), 982 F2d 96, 97 (3d Cir. 1992). The or for the benefit of a the Third Circuit affirmed a bank- following November, TWA depos- creditor; (2) for or on account ruptcy court's finding that Trans ited $13.7 million (which repre- of an antecedent debt owed World Airlines ("TWA") was sented a recalculation of the by the debtor before the insolvent under the formula pre- judgment amount plus an eleven transfer was made; (3) made scribed by 11 U.S.C. § 101(32)(A) percent interest factor) with the while the debtor was insol- because the face value of its clerk of the district court to obtain a vent; (4) made within 90 days liabilities exceeded the fair market stay of enforcement of the judgment. before the date of the filing value of its assets. The Third Circuit See In re Trans WorldAirlines, 180 of the petition; (5) that ruled that, because TWA was B.R. 389, 392 (Bankr. D.Del. 1994). enables such creditor to insolvent on the date it deposited In January, 1992, TWA filed a receive more than such $13.7 million with the clerk of the timely petition for reorganization creditor would receive if - district court, the deposit constituted under Chapter 11. TWA then (A) the case were a case a transfer which was a voidable attempted to prevent Travellers from under Chapter 7 of this title; preference under 11 U.S.C. § 547(b) making a claim to the deposit to (B) the transfer had not been and was therefore unreachable by satisfy its judgment by filing a made; and (C) such creditor TWA's creditors. complaint against Travellers in received payment of such bankruptcy court. TWA sought a debt to the extent provided by TWA Filed for Chapter 11 declaration that the $13.7 million the provisions of this title." Bankruptcy deposit was a voidable preferential transfer under 11 U.S.C. § 547(b) Travellers Makes a Claim to In October, 1991, the United and could not be reached by TWA's Deposit States District Court for the South- Travellers in satisfaction of its ern District of New York awarded judgment. See Robinson, 982 F.2d at Travellers contended that TWA's Travellers International A.G. 97. This section, commonly known deposit did not fall within the ("Travellers") $12.3 million for as the "preference statute", provides preference statute because not all damages it incurred as a result of in relevant part that: elements of the statute were satis- "[a] trustee may avoid any fied. Specifically, Travellers argued

1998 Loyola University Chicago School of Law • 221