Bohler-Uddeholm America, Inc. v. Ellwood Group, Inc.

Facts

[The Broun 7^th casebook omitted all of these facts] D relied on outside manufacturers to supply it with steel ingots for its steel-forging business. D decided to construct an ingot mill in order to produce its own supply of steel, which it did under the name Ellwood City Forge Steel Company (ECF). Uddeholm (P) decided that it wanted to set up a manufacturing plant in the United States in order to avoid quotas on imports of tool steel from Sweden, deliver steel more quickly, and avoid currency fluctuations. The two companies looked to form a joint venture in which P would provide its steelmaking expertise and some funding for D's new mill, while D would provide P with a U.S. source of tool steel as well as most of the financing of the mill. They entered into a joint venture agreement consisting of several contracts executed in April and June 1985. D became an 80% shareholder and P a 20% shareholder in ECF, which changed its name to the Ellwood Uddeholm Steel Company (EUS). D continued to run the daily operations of EUS. EUS would sell steel ingots to P and D at cost plus a percentage of this cost to cover overhead, which was set in the original contracts at 35%. Overhead included all interest, depreciation, selling, general and administrative costs and all other costs and expenses which are not included as part of the 'base costs' [of the ingots].' P had the right to purchase up to 10% of the ingots produced by EUS, and D had the right to purchase the rest. The Agreement included a rebate provision in case one of the partners paid more than its allotted share of EUS's overhead, which was based on each partner's percentage control of EUS: 80% for D, 20% for P. If D's steel purchases that went to EUS's overhead D was entitled to a rebate of the amount it paid in excess of this 80%. The same held true for P, but at 20%. If either partner's contributions to EUS's overhead totaled less than its percentage control of the company that partner had to make payments to EUS in order to bring its share of the overhead paid to the level equivalent to their percentage control. D was to pay exactly 80% of EUS's overhead, and P was to pay exactly 20%, no matter how much steel each was buying from EUS. Either party could cause EUS to buy P's 20% stake in EUS at book value. The Agreement contained non-compete provisions that went into effect if this purchase option was exercised; the Agreement granted EUS an exclusive license for P's 'know how,' but prohibited EUS from using such know-how for three years after the end of the joint venture. D proposed a draft Business Plan which indicated that D desired to sell EUS's ingots to third-party purchasers in the general market. D rejected these proposed alterations as it did not want EUS's production to go to anyone but the shareholders. D agreed to delete from the Business Plan all language to the effect that the secondary purpose of EUS was to sell tool steel to third parties, though there is evidence in the record that the parties came to an understanding that perhaps marginal amounts of ingots would be sold by the shareholders to third parties if EUS's financial circumstances so required. EUS sold a substantial amount of steel ingots that ended up going to third parties in unchanged form, i.e., not as forged steel products but as raw steel ingots. D asserts that it bought the ingots from EUS and resold them to the third parties so that it properly received a rebate on all these 'purchases.' P counters that the ingots were essentially sold directly by EUS to the third parties at D's direction and that D was not entitled to rebates on these sales because they were not 'purchases' as defined in § 2.3 of the Steel Purchase Agreements. P's manager, Rydstad, wrote a memo stating that he understood that D was free to resell the ingots bought from EUS. At trial, the District Court ordered this language redacted from the memo before the memo was admitted into evidence because these statements involved a 'legal interpretation by a nonlegal person,' and because the statements did not address the relevant issue of interpretation of the Agreement, namely, whether Ellwood was entitled to receive rebates for its ingot sales to third parties. D notified P of its intention to exercise its right under the Agreement to have EUS buy P's shares at their December 31, 1990, book value. P objected to the calculated book value because it was about half of the book value determination that D had related to P in November 1990. D insisted that P accept the calculated book value from Deloitte for the stock without retaining any such right to a legal claim. P then brought suit in the District Court, contending that the Deloitte book value calculation was understated because the profits that D collected on the ingots that were sold to third parties should have gone to EUS rather than directly and solely to D. It claimed that D had violated § 2.3 of the Steel Purchase Agreements by claiming rebates on these sales when the sales were not 'purchases' as the term is used in that section. D did not pay P for approximately $345,000 worth of steel. The parties disagreed over the interest to be charged. The District Court found that the Agreement was ambiguous as to whether D could properly claim rebates for the steel ingots sold to third parties, and it, therefore, sent the issue of the correct interpretation of the Agreement to the jury. D had the burden to prove by a preponderance of the evidence that these transactions were in accord with the terms of the Agreement. The jury returned a special verdict finding D had breached the Agreement by including third party ingot sales in its rebate calculations and awarded P $4.1 million in compensatory damages and interest. Further damages were awarded for other issues against D as well. D appealed.

[This part was in the casebook] The District Court admitted into evidence portions of an affidavit of Bo Jonsson, a former President of P, under Federal Rule of Evidence 807, the catchall exception to the hearsay rule. Jonsson attested to the affidavit in 1994 and died in 1996, before the trial. P used the affidavit to counter assertions by D about what transpired at certain directors meetings that Jonsson attended in a representative capacity for P.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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