Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-88-01762/USCOURTS-ca10-88-01762-0/pdf.json

Parties Involved:
Allied Corporation
Appellee
Eric C. Rajala
Appellant

Document Text:

I 'I \·. 

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUI'l' 

ERIC C. RAJALA, 

Trustee in Bankruptcy for 

GENERAL POLY CORPORATION, 

Plaintiff/Appellee 

and Cross-Appellant, 

) 

) 

) 

) 

) 

) 

FILED 

United Stara cr:oo,, of Ap,Ptils 

Tenth C1reuit 

NOV £ 1990 

.ROBERT L. HOECKER 

Clerk 

v. . ) 

) 

) 

) 

) 

) 

) 

Nos. 88-1727 

88-1762 

ALLIED CORPORATION, 

Defendant/Appellant, 

and Cross-Appellee. 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE ·DISTRICT OF KANSAS 

(D.C. NO. 82-2282-K) 

Brian D. Forrow (Thomas D. Kent, Anthony J. Stewart, AlliedSignal, Inc., Morristown, New Jersey; Byron J. Beck, W. Dennis 

Cross, Morrison, Hecker, Curtis, Kuder & Parrish; and Harry L. 

Hobson, Elizabeth A. Phelan, Charles M. Johnson, Holland & Hart, 

Denver, Colorado, on the briefs), for Appellant. 

Charles W. German (Matthew J. Verschelden, Stinson, Mag & Fizzell, 

Kansas City, Missouri; Roger D. Stanton, Stinson, Mag & Fizzell, 

Overland Park, Kansas; and Brent L. Brown, Stinson, Mag & Fizzell, 

Dallas, Texas, with him on the briefs), for Appellee and Cross.-

Appellant. 

Before HOLLOWAY, SEYMOUR and EBEL, Circuit .Judges. 

EBEL, Circuit Judge. 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 1 
INTRODUCTION 

Because of the complex factual history of this action, the 

evidence relevant to each issue is set forth in the subsection 

addressing that particular issue. The following is simply a brief 

summary of the events which preceded this litigation. 

Plaintiff-appellee General Poly Corporation ("General Poly") 

was a manufacturer of plastic films used to manufacture products 

such as merchandise bags and rubbish can liners. Defendantappellant Allied Corporation ("Allied") is a chemical company 

which produces, among other things, the resins used by 

manufacturers of plastic films such as General Poly. 

Prior to the formation of General Poly, representatives of 

the yet unincorporated company met with Allied executives to 

discuss the development of certain high molecular weight ("HMW") 

resin products. HMW resins are desirable because their greater 

strength allows for production of a thin film comparable in 

strength to thicker films produced from other resins. At that 

time, there was no domestic producer of HMW resins. 

The two companies entered into several agreements concerning 

the HMW resin. Allied proceeded wit.h its development efforts, but 

its resin development did not meet General Poly's expectations. 

General Poly purchased substandard ("off-grade") HMW resin from 

Allied in order to fill some of its needs, although the majority 

of its resin was obtained from other sources. 

General Poly ultimately was unable to operate as a profitable 

company. General Poly filed for protection in bankruptcy and the 

trustee in bankruptcy brought a variety of tort and contract 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 2 
claims against Allied in this action. The district court 

dismissed most of the claims by directed verdict and summary 

judgment. However, General Poly prevailed on its claim for breach 

of fiduciary duty, obtaining a jury verdict in its favor for just 

over $70 million dollars in compensatory and punitive damages. 

Allied appeals that jury verdict and the denial of its motion for 

j.n.o.v. General Poly cross-appeals the unfavorable directed 

verdicts on its other claims. 

DISCUSSION 

I. The Fiduciary Duty Claim 

The only claim brought by General Poly which survived 

Allied's motions for summary judgment and directed verdict was the 

claim for breach of fiduciary duty. The jury returned a verdict 

in favor of General Poly, ruling that Allied owed General Poly 

fiduciary duties and that Allied had breached those duties. 

Allied moved for judgment notwithstanding the verdict, arguing 

that the jury instructions misinterpreted Kansas' law of fiduciary 

duties and that General Poly had presented insufficient evidence 

to demonstrate either that Allied owed General Poly fiduciary 

duties or that Allied breached any such duties. 

On appeal, Allied challenges the district court's denial of 

its motion for judgment notwithstanding the verdict on each of the 

grounds asserted below. In subpart one of this section, we set 

forth our understanding of the law of fiduciary relationships in 

Kansas. In subpart two, we review the evidence presented below 

and hold that Allied's motion for judgment notwithstanding the 

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I 

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I 

verdict was improperly denied because there was insufficient 

evidence of a fiduciary relationship. 

A. Fiduciary Duty Law in Kansas 

In Denison State Bank v. Madeira, 230 Kan. 684, __ , 640 P.2d 

1235, 1241 (1982), the Supreme Court of Kansas summarized the law 

of fiduciary relationships as follows: 

It may be said that generally there are two types of 

fiduciary relationships: (1) those specifically created 

by contract such as principal and agent, attorney and 

client, and trustee cestui que trust, for example, and 

those created by formal legal proceedings such as 

guardian and/or conservator and ward, and executor and 

administrator of an estate, among others, and (2) those 

implied in law due to the factual situation surrounding 

the involved transactions and the relationship of the 

parties to each other and to the questioned 

transactions. 

Here, as in Denison, it is the second type of fiduciary 

relationship with which we are concerned. 

Determination of whether this second type of fiduciary 

relationship '"exists depends on the facts and circumstances of 

each individual case. [The Supreme Court of Kansas] has refused, 

for that reason, to give an exact definition to fiduciary 

relations.'" Id. (quoting Curtis v. Freden, 224 Kan. 646, --' 

585 P.2d 993, 998 (1978)). Although such fiduciary relationships 

cannot be defined with precision, the Supreme Court of Kansas has 

prescribed "certain broad principles which should be considered in 

making the determination of whether a fiduciary relationship 

exists in any particular factual situation: 

A fiduciary relationship imparts a position of 

peculiar confidence placed by one individual in another. 

A fiduciary is a person with a duty to act primarily for 

the benefit of another. A fiduciary is in a position to 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 4 
have and exercise, and does have and exercise influence 

over another. A fiduciary relationship implies a 

condition of superiority of one of the parties over the 

other. Generally, in a fiduciary relationship, the 

property, interest or authority of the other is placed 

in the charge of the fiduciary. 

Id. (emphasis in original). 

The court in Denison made clear that each of the general 

considerations listed above need not be present in every case in 

which a fiduciary relationship is alleged. However, the court 

emphasized that an overriding consideration in the law of 

fiduciary relationships was that "one may not abandon all caution 

and responsibility for his own protection and unilaterally impose 

a fiduciary relationship on another without a conscious assumption 

of such duties by the one sought to be·held liable as a 

fiduciary." Denison, 230 Kan. at __ , 640 P.2d at 1243-44 

(emphasis added). The court went on to state that "[t]his is 

particularly true when one. 

protect his own interests." Id. 

is fully competent and able to 

A fiduciary relationship whereby both parties assume 

fiduciary obligations to each other or to a common entity 

similarly requires a conscious assumption of fiduciary obligations 

by the parties. For example, in Paul v. North, 191 Kan. 163, 380 

P.2d 421 (1963), the Supreme Court of Kansas stated that fiduciary 

relationships 

"may arise out of conduct of the parties 

evidencing an agreement to engage in a joint 

enterprise for the mutual benefit of the 

parties. • But they necessarily spring 

from an attitude of trust and confidence and 

are based upon some form of agreement, either 

expressed or implied, from which it can be 

said that the minds have met in a manner to 

create mutual obligations." 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 5 
Id. 191 Kan. at __ , 380 P.2d at 426 (citations omitted) (emphasis 

added). Although a fiduciary relationship may arise out of an 

agreement to act together for the mutual benefit of the parties, 

such a relationship cannot be established by accident or 

inadvertence. 

"Mere concert of action without more, does not 

establish a fiduciary relationship .•.. 

Undoubtedly, parties may deal at arm's length 

for their mutual profit. It is only when, by 

their concerted action, they willingly and 

knowingly act for one another in a manner to 

impose mutual trust and confidence that a 

fiduciary relationship arises." 

Wolf v. Brungardt, 215 Kan. 272, __ , 524 P.2d 726, 736 (1974) 

(emphasis added). 

This court has also recognized that conscious assumption of 

the alleged fiduciary duty is a mandatory element under Kansas 

law. See Hotmar v. Lowell H. Listrom & Co., Inc., 808 F.2d 1384, 

1387 n.3 (10th Cir. 1987); cf. 36A C.J.S. Fiduciary, 385 (1955) 

("As a general rule, a fiduciary relationship is established only 

when it is shown that the confidence reposed by one person was 

actually accepted by the other, and merely reposing confidence in 

another may not, of itself, create the relationship") (footnotes 

omitted). 

Although the courts of Kansas have suggested that a somewhat 

more protective approach may be used when one party is under a 

disability or disadvantage, Cornett v. Roth, 233 Kan. 936, _._, 

666 P.2d 1182, 1186 (1983), Wedman v. Home Nat. Bank of Arkansas 

City, No. 88-1439-K (D. Kan., Jan. 25, 1990) (WESTLAW, 1990 WL 

7501), this more protective approach will ordinarily not be 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 6 
utilized as between two or more business people or business 

entities who each possess the capacity to protect themselves. See 

Ritchie Enterprises v. Honeywell Bull, Inc., 730 F. Supp. 1041, 

1054 (D. Kan. 1990) (holding that a seller's superior knowledge of 

a product does not justify imposition of a fiduciary relationship 

in the absence of a conscious assumption of fiduciary duties). 

The Supreme Court of Kansas has cautioned against an approach 

which would unfairly "convert ordinary day-to-day business 

transactions into fiduciary relationships where none were intended 

or anticipated." Denison, 230 Kan. at __ , 640 P.2d at 1243. 

B. Sufficiency of the Evidence Showing a Fiduciary Duty 

Allied made a motion for directed verdict at the end of 

plaintiff's case and again following presentation of its own 

evidence, both of which were denied as to the fiduciary duty 

claim. Following the trial, Allied moved for judgment 

notwithstanding the verdict, arguing that General Poly had 

presented insufficient evidence to establish the existence of a 

fiduciary duty. See R. Vol. 2, Doc. 729 at 22. The district 

court denied the motion, see id. at 27, and Allied appeals that 

ruling. 

1. Standard of Review & Burden of Proof 

We review de nova the denial of a motion for judgment 

notwithstanding the verdict applying the same standard of review 

as that used by the district court. See Guilfoyle v. Missouri, 

Kansas & Texas R. Co., 812 F.2d 1290, 1292 (10th Cir. 1987). 

"Although we have often used different phraseology to express this 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 7 
standard," the inquiry is best summarized as "whether there is 

evidence upon which the jury could properly find a verdict for the 

party (against whom the motion is directed]." Hurd v. American 

Hoist & Derrick Co., 734 F.2d 495, 498-99 (10th Cir. 1984) 

(footnote omitted) (quoting 9 C. Wright & A. Miller, Federal 

Practice and Procedure, § 2524 at 543 (1971)). In making that 

determination, we are obligated to view "evidence and inferences 

most favorably to the nonmoving party." Zimmerman v. First Fed. 

Sav. & Loan Ass'n, 848 F.2d 1047, 1051 (10th Cir. 1988). 

Because the directed verdict/judgment notwithstanding the 

verdict inquiry asks whether there was evidence such that the jury 

could have properly found for the party against whom the motion is 

made, we must necessarily frame our analysis in terms of the 

underlying burden of proof. See Anderson v. Liberty Lobby, Inc., 

477 U.S. 242, 252 (1986) ("we are convinced that the inquiry 

involved in a ruling on a motion for •.. directed verdict 

necessarily implicates the substantive evidentiary standard of 

proof that would apply at the trial on the merits"). Under Kansas 

law a party seeking to establish the existence of a fiduciary 

relationship must prove it by clear and convincing evidence. "For 

the plainest of reasons, agreements establishing fiduciary 

relationships, if not in writing, must be clear and convincing •• 

. . A confidential relationship is never presumed, and the burden 

of proof is on the party asserting it." Wolf v. Brungardt, 215 

Kan. 272, __ , 524 P.2d 726, 736 (1974) (quoting Paul v. Smith, 

191 Kan. 163, 170, 380 P.2d 421, 426 (1963)). 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 8 
2. Evidence of a Fiduciary Relationship Presented At Trial 

General Poly maintains that the alleged fiduciary 

relationship was formed at the meeting of General Poly and Allied 

representatives held on January 10, 1979. See Appellee's Br. at 

10. However, the jury was instructed that: "Plaintiff claims this 

relationship was formed in late January, 1979, when the parties 

began to pursue their joint development efforts in confidence and 

secrecy. Plaintiff contends the written contract signed in 

September of 1979 merely memorialized the parties' agreement to 

jointly develop resin and maintain secrecy, but that it did not 

change the nature of the parties' fiduciary relationship." 

R. Vol. 2, Doc. 660 (emphasis added). Because there is some 

discrepancy between the jury instruction and General Poly's 

position on appeal, we will not restrict ourselves to evidence of 

the January 10, 1979 meeting. What follows is a representative 

summary of the evidence presented at trial relating to the 

question of whether Allied consciously agreed to assume fiduciary 

obligations to General Poly. 

Events Prior To The January 10, 1979 Meeting 

The earliest contact between Al'iied and anyone involved in 

General Poly predates the formation of General Poly. Clayton A. 

Walker, who would later become chairman of the board and treasurer 

of General Poly, testified that sometime prior to October 10, 

1978, he contacted George Jecha, an Allied resin sales 

representative. R. Vol. 10 at 601. Walker testified that he 

asked Jecha "has Allied got anything, are they moving in any 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 9 
direction in high molecular weight high-density polyethylene and 

George told me yes. He said, as a matter of fact, he was 

aware, he didn't know exactly where they stood, but he knew that 

they were definitely interested in looking at developing high 

molecular weight high-density polyethylene product." Id. A 

meeting was scheduled in Houston between Allied representatives 

and Walker and his associates, Hans Traver and Edward Podolak. 

Id. at 603. 

On or about October 11-12, 1978, a meeting was held at 

Traver's home in Houston. Id. Jecha attended the meeting on 

behalf of Allied, and Walker, Traver, and Podolak represented the 

then-unincorporated General Poly company. Id. Another Allied 

representative, technical specialist Pat Snell, was unable to 

attend the meeting but participated by telephone. Id. Walker 

testified that he and his associates "told George [Jecha] that we 

had to have a domestic source [of high molecular weight resin] and 

I further told George without belaboring the issue, that the 

reason I had called him is that I knew he would, that he would, 

within the realm of his knowledge, tell me the truth about exactly 

what Allied was doing." Id. at 605. Traver testified that Jecha. 

did not tell him anything about Allfed's plans for high molecular 

weight (HMW) resin but said "that to the best of his knowledge 

Allied was involved in the Baton Rouge group in developing such a 

high molecular weight resin; but he did not give me any great 

details." R. Vol. 24 at 2219. After the meeting, in a letter to 

Allied's high-density polyethylene (HDPE) national accounts 

manager, W.D. Singleton, Jecha wrote the following: 

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Having known Bud Walker for so many years and now 

meeting Hans Traver, there's little doubt in my mind 

that if they put this new company together, our being in 

on the ground floor will be of great benefit as this 

first eight million pound requirement will be a drop in 

the bucket compared to what they will be using in years 

to come. My only concern at the moment is whether or 

not we can put together a suitable sample for the Lima, 

Peru operation to get this thing started. 

R. Vol. 9 at 401; Plaintiff's Ex. 99 (First Addendum to 

Appellant's Br., Doc. 1). 

In early November of 1978, Allied's technical specialist, Pat 

Snell, telephoned Traver to discuss HOPE resins. See id. In that 

conversation, "Traver indicated his willingness to offer the 

PeruPlast plant1 for testing." R. Vol. 20 at 1478. After the 

phone conversation with Traver, in a handwritten note drafted on 

Jecha's memo, Snell stated that "[t]his would be a great 

opportunity to test the B5920F2 [Solvay resin], test an Allied 

version of the same, and make an entry into the HOPE film market 

in the U.S." Plaintiff's Ex. 99 at 2. 

In November 1978, Walker, Traver, and Podolak met with 

Allied's Singleton at a trade meeting in Chicago. R. Vol. 10 at 

608. Podolak testified that when Traver mentioned to Singleton 

that the German Hoescht Company soon planned to open a resin plant 

to produce HMW HOPE in Texas, Singleton replied "Allied Chemical 

will have a product ready before the Germans have that plant up 

and running." R. Vol. 38 at 4190. According to both Podolak and 

1 The PeruPlast plant was an extrusion operation run by Traver 

in Lima, Peru. 

2 The type of resin referred to as B5920F was a European brand 

of HMW HOPE produced by the Solvay company. The use of B5920F was 

licensed to Allied. 

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Traver, Singleton further stated that Allied would sell its HMW 

resin at one or two cents a pound above the price for injection 

grade resin, an established HOPE resin. Id.; R. Vol. 24 at 2221. 

According to Walker, Singleton agreed to arrange a meeting between 

the promoters and Allied's "decision makers." R. Vol. 10 at 609. 

The January 10, 1979 Meeting 

A meeting took place at Traver's home in Houston on January 

10, 1979. R. Vol. 24 at 2227-28. Traver and Walker represented 

the new venture--General Poly. Jecha, Singleton, and Snell 

attended on behalf of Allied, as well as Donald J. Bonin, Allied's 

vice-president and general manager for.HOPE products, and Paul 

Heath, Allied's HOPE marketing director. Id. at 2228. 

Walker told the Allied representatives of the planned venture 

and the need for a domestic supply of HMW resin. R. Vol. 11 at 

635. Walker testified that he told Bonin that it was necessary 

"to determine if [Allied] had a high molecular weight high-density 

poly material that was equal to or better than Hoescht. That was 

the whole basis of the project." Id. at 647. "I told Mr. Bonin 

that we had to have a domestic source of raw material and that 

that was essential to our project, that we couldn't, we could not 

rely on imported material and that was the only material that was 

available at that point in time." R. Vol. 37 at 3967. According 

to Walker, "Pat Snell and Don Bonin both confirmed that they had 

been working for some time on a high molecular weight high-density 

product and that the project was in super shape and they were 

moving right ahead; that they had anticipated that they would be 

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the first in the business in the United States and that they had a 

time table and that they were moving toward that time table." Id. 

at 633. "Don Bonin told me and Pat Snell sat there and confirmed 

that all he had to do to develop that material, they had the 

reactors, they had just put in a new large reactor in Baton Rouge 

in anticipation of this and all they had to do was fool with the 

catalyst -- 'tinker with the catalyst' were the exact words, and 

they would have a high molecular weight that was equal to the 

Hoescht material." Id. at 634; R. Vol. 37 at 3968. 

Traver testified similarly, recalling that in response to 

inquiries about the status of Allied's HMW development project 

Bonin had responded "[w]ell we're working on it; we already have a 

catalyst, now we have to play with that." R. Vol. 24 at 2231. 

Traver further testified that Bonin said "the way it looks today 

we can have -- we expect to have a resin out by the fourth quarter 

of the year, towards the end of the year." Id. According to 

Traver, Bonin asked him about General Poly's timetable and he 

replied "after the money had been raised and I was in a position 

to issue purchase orders, it would take me six months to get the 

main pieces of equipment in. So it would take, let's say, three 

months to get the money together .. 

Allied time schedule." Id. at 2231-32. 

I could thereby meet the 

Walker testified that during the January 10 meeting he 

told Don Bonin that we had to accomplish the hurdle of 

financing the long-term financing on the equipment and 

the building and that in order to do that, I had used in 

the past -- had used revenue bond issue as a vehicle to 

accomplish that financing. And that I anticipated that 

we would use the same method of financing of the General 

Poly plant in this case. I asked Don Bonin if Allied 

would guarantee or preferably buy the bonds on the bond 

issue as their financial contribution to the joint 

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venture .... Don Benin's response was that Allied 

would participate financially in some manner but that 

... he would have to visit with his associates ... 

(and] get back to me as quickly as possible and see what 

could happen. 

R. Vol. 11 at 656; see also R. Vol. 8 at 252. 

At the same meeting, the two groups discussed plans to 

conduct a test of resin at Traver's plant in Lima, Peru. Walker 

testified that: 

I can recall that when Hans (Traver] went over the 

specifications on the equipment that he had in Peru and 

the type of equipment, it was German equipment, not any 

of that equipment available in the United States at that 

time, and Don Bonin was delighted to find out that that 

equipment was available and he asked Hans if they could 

utilize that equipment in some manner to further their 

technology in testing resins in Peru. Because he 

pointed out that one of the things they had, they had 

everything in place, they had everything from a 

manufacturing standpoint but they had no pilot plant or 

they had no equipment in their laboratory to actually 

make film.· And that was -- the proof of the pudding was 

to make film. So, he was delighted to find out that 

Hans had that equipment and Hans made it clear that he 

would make (available] that equipment and that 

technology, which included not only equipment, it 

included trained people, trained personnel, experienced 

force and technology. 

R. Vol. 11 at 638. Walker explained that Bonin told Traver that 

he wanted to use Traver's extrusion technology "to test Allied's 

resins." R. Vol. 11 at 639. "Mr. Bonin told me that he wanted to 

test his material that they had recently run tests and he .wanted 

to test his material to see also if it was equal to the Hoescht 

material. So that they'd know what they had. 11 R. Vol. 12 at 755. 

According to Walker, "Bonin, Singleton, all of the people said 

that they had an experimental high molecular weight high-density 

poly product and they wanted to test it." Id. at 639-40. 

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Traver testified similarly, indicating that "the question was 

whether we could send experimental resins for testing to Lima." 

R. Vol. 24 at 2232. "[Bonin] asked me if he could use our 

facilities in Lima for that purpose, and I said, 'Well, of course, 

delighted to, anything to speed the project along." Id. "[H]e 

wanted to test the Allied resins. He wanted to see how the resins 

were doing." Id. 

Other topics of discussion at the January 10 meeting were the 

quantity of HMW resin which Walker and Traver anticip~ted General 

Poly would need from Allied and the price at which Allied would 

sell HMW resin to General Poly. Traver explained the method by 

which he calculated General Poly's expected resin needs and said 

"I put down a capacity figure of six hundred thousand pounds a 

month." Id. at 2234. 

And then after we had those figures, well, Paul Heath 

says, "Well, Hans, how much you. gonna buy from us?" And 

I said "Well, obviously at least fifty percent or we 

wouldn't be here with that many people, and if you want 

to, we can go a hundred percent but that's something we 

need to talk about. Depends on how good you're gonna be 

to me." ... That's about as far as we went in the 

meeting .... Of course, it was understood it was 

going to be high molecular weight high-density 

polyethylene; but the specific quality of that resin was 

brought out during the meeting and the specific quality 

was a resin like the Hoescht 9255 F. 

Id. at 2235. 

Walker testified that the price of the HMW resin to be 

purchased from Allied was also discussed at the January 10th 

meeting. "Don Bonin told me that they had to get a premium price 

over the injection molding grade resin and that their price would 

be what Singleton had said, depending on the market conditions, 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 15 
one to no more than two cents a pound over injection molding grade 

resin." R. Vol. 11 at 637; id. at 658. Walker testified that: 

[W]e agreed that we would buy our material -- I agreed 

that we would buy -- Hans and I were there. Hans agreed 

also we would buy our material from Allied, once 

developing the product, once having a resin and knowing 

that we had a resin, we would go ahead with the project, 

we would buy one hundred percent of our requirements 

from Allied. And we would buy it at a benchmark price 

of one to two cents a pound over injection molding grade 

resin; that I told Mr. Bonin that. 

Id. at 658-59. 

Communications After the January 10, 1979 Meeting 

Although General Poly contends that Allied assumed fiduciary 

obligations at the January 10, 1979 meeting, it also argues that 

communications with Allied after the meeting further demonstrated 

the formation of a fiduciary relationship on January 10, 1979. 

Walker testified that Bonin called him within a week of the 

meeting in Houston. R. Vol. 11 at 660. 

as follows: 

Walker further testified 

Mr. Bonin told me .•. that Allied would not undertake 

contingent liabilities of a financial nature without 

approval from the board of directors ..•. He had a 

counterproposal as far as financial help from Allied and 

their financial assistance in the joint venture and that 

was within the realm of his aut.hority as general 

manager, he said: We will give you extended trade terms 

as a portion of our financial contribution .... Mr. 

Bonin told me when we first started buying the material 

that we would set it up to start with on ninety day 

terms and that these terms could be adjusted, depending 

on how the project progressed ..•• And that was 

agreeable with me because when we did our cash flows and 

ninety day terms on eight million pounds of product 

would have been the same thing as giving us an injection 

of capital or working capital that would have amounted 

to about 5 hundred thousand dollars. 

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Id. at 660-62. According to Walker, Bonin also said, "I'm going 

to forward you •.. the secrecy agreement that we talked about in 

our meeting of January the 10th." Id. at 664. 

As discussed in his phone conversation with Walker, on 

January 23, 1979, Bonin sent Walker a letter containing the 

following statements: 

It is our intention, as stated to you in our recent 

meeting in Houston, to pursue the development of 

competitive polymers to satisfy (the] market. As you 

know we already supply some resins for the film market 

but feel that additional new resins are needed and can 

be developed to meet specific requirements such as 

yours. 

As discussed at our meeting with you and Mr. Hans 

Traver, we would like to have you evaluate these new 

resins as they are developed. 

We, therefore, are proposing that we enter into a joint 

technical development program with your commitment to 

test new resins at the Peru Plant in Lima, Peru. To 

this end we will be forwarding under separate cover a 

secrecy agreement required to insure the confidentiality 

of our joint effort. 

Plaintiff's Ex. 139 (First Addendum to Appellant's Br., Doc. 3); 

R. Vol. 11 at 665. The next day, in a letter to more senior 

Allied management, Bonin wrote: 

Attached for your files is a review of all activities 

concerning General Poly to date. We are pursuing this 

matter in some detail because of the complexities 

involved in acquiring technical skills to penetrate the 

film market. In the absence of the pilot plant 

equipment for development work, we must develop a plan 

of "pulling ourselves up by the bootstraps" in this 

area. 

I believe that General Poly Corporation, if formed, 

offers us an opportunity for ground floor participation 

in a plant designed specifically for processing high 

density polyethylene film. 

Plaintiff's Ex. 141 (First Addendum to Appellee's Br., Doc. 8). 

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On February 14, 1979, a draft of the agreement Bonin and 

Walker had discussed was sent to Walker. After a series of 

proposed changes and revisions and lengthy delays, a final copy 

was signed by the authorized representatives of both General Poly 

and Allied and dated September 21, 1979. That agreement [the 

"September 1979 Agreement"] provides, in relevant part: 

WHEREAS, Allied Chemical is a manufacturer of high 

density polyethylene resin; 

WHEREAS, General Poly desires to manufacture high 

density polyethylene films for which high density 

polyethylene resins having special characteristics may 

be required; 

WHEREAS, Allied Chemical and General Poly desire to 

enter into a period of joint cooperation aimed at 

developing and evaluating high density polyethylene 

resins having the characteristics required for the 

manufacture of such high density polyethylene films; 

NOW, THEREFORE, in consideration of the mutual 

understanding hereinafter set forth, it is agreed as 

follows: 

1. Joint Cooperation. Upon execution of this 

agreement there shall commence a one (1) year period of 

joint cooperation in the performance of which Allied 

Chemical and General Poly shall cooperate with each 

other to develop high density polyethylene resins and 

films prepared therefrom. 

1.1 During this period of joint cooperation, 

Allied Chemical shall have the royalty-free, exclusive 

right and license to use extrusion technology developed 

by General Poly. After this period of joint cooperation 

or extended period as provided for in Section 4.2 

herein, Allied Chemical shall have a perpetual, royalty 

free, non-exclusive right and license to use such 

extrusion technology. 

1.2 For a period commencing with the production by 

Allied Chemical of a semi-commercial or commercial scale 

of any new high density polyethylene film grade resin 

developed and terminating three (3) years thereafter, it 

is agreed that General Poly shall have the first right 

to purchase such high density polyethylene film grade 

resin from Allied Chemical up to a maximum of 500,000 

pounds per month. General Poly's first right to 

18 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 18 
purchase film grade pursuant to this Section 1.2, 

however, shall be contingent upon General Poly giving 

Allied Chemical at least thirty (30) days' prior written 

notice of its requirements for each calendar month in 

which General Poly chooses to exercise its first right 

to purchase. With respect to each calendar month for 

which Allied Chemical receives no written timely notice, 

as provided for herein, Allied Chemical shall be 

relieved of any obligation to General Poly. 

2. Secrecy. For a period of five (5) years from 

the date hereof, General Poly shall maintain in 

confidence all information disclosed to it in writing 

hereunder by Allied Chemical and Allied Chemical shall 

maintain in confidence all information disclosed to it 

in writing by General Poly relating to extrusion of high 

density polyethylene film. Each party shall take all 

reasonable steps and measures necessary to prevent 

disclosure of such information to third parties; 

provided, however, that the foregoing obligations shall 

not apply to any such information if and to the extent 

that: 

(a) at the time of disclosure or subsequent 

thereto, through no fault of the receiving 

party, it was or it becomes known to the general 

public; or 

(b) it had been independently perfected by the 

receiving party or was otherwise in the receiving 

party's lawful possession prior to disclosure, as 

shown by written records; or 

(c) after such disclosure it is acquired from a 

third party which did not~acquire the information 

under an obligation of confidentiality from or 

through the disclosing party. 

Nothing herein shall prevent the use of such information 

in conjunction with the prosecution of patent 

applications, or as deemed necessary in conjunction with 

the sale of resin or film products. 

3. Patentable Inventions. 

3.1 Patentable inventions conceived or reduced to 

practice during and as a result of the joint cooperation 

provided in Section 1 hereof shall be treated as 

follows: 

3.11 Such inventions shall be owned by Allied 

Chemical when the invention is directed to high density 

polyethylene resins, or processes for manufacturing the 

same; 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 19 
3.12 Such inventions shall be owned by General 

Poly where the invention is directed to high density 

polyethylene film or processes for manufacturing the 

same; 

3.13 The party owning any such invention may 

elect, at its own option and expense, to apply for 

patent coverage thereon; 

3.14 No rights are hereby granted with respect to 

any inventions, patent applications or patents owned by 

either party other that those specifically provided for 

in this Section 3. · 

4. Term and Termination. 

4.1 The period of joint cooperation hereunder 

shall be one (1) year from the date of execution of this 

agreement unless sooner terminated by either party by 

giving thirty (30) days' written notice to the other 

party. Termination of the period of joint cooperation 

shall not relieve the parties of their obligations under 

Sections 1, 2 and 3 hereof. 

4.2 The period of joint cooperation hereunder may 

be extended by mutual agreement of both parties for such 

period or periods as the parties desife. 

5. Assignment. This agreement shall be binding 

upon and inure to the benefit of the parties hereto and 

the respective successors and assigns of the entire 

business relating to the subject matter hereof but shall 

not otherwise be assigned by either party without the 

written consent of the other, and except as so provided, 

any purported assignment shall be void. 

6. Law Governing. This agreement shall be 

governed by and construed in accordance with the 

internal laws of the State of New York without regard to 

conflict of laws. · 

Plaintiff's Ex. 420 (First Addendum to Appellant's Br., Doc. 

8). General Poly maintains that the above written agreement 

served to memorialize certain aspects of the January 10, 1979 

meeting in which Allied assumed fiduciary obligations. 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 20 
3. The Basis of the District Court's Denial of 

Allied's Motion For Judgment Notwithstanding the 

Verdict 

The district court denied Allied's motion for judgment 

notwithstanding the verdict, holding that "[t)he evidence 

presented at trial clearly supports the jury's verdict that a 

fiduciary relationship existed between the parties and that 

the fiduciary duties were breached by Allied." R. Vol. 2, 

Doc. 729 (Dist. Ct. Memorandum and Order, February 26, 1988, 

at 22). The court explained that "the evidence clearly 

shows, and the jury found, that a fiduciary relationship 

existed between these two parties from the beginning of their 

negotiations." Id. Although the district court concluded 

that the relationship was not a joint venture, the court 

nonetheless relied on joint venture principles for its 

conclusion. The district court explained its reliance upon 

joint venture principles as follows: 

Although I concluded at [the] summary judgment stage 

that a technical joint venture did not exist between 

these parties because they did not share profits, they 

did have a "joint cooperation agreement" very similar to 

a joint venture agreement. Thus, the type of fiduciary 

duties existing between these parties may be best 

understood by recognizing its analogy to a joint venture 

relationship .... In a joint venture situation, the 

fiduciary relationship arises when the parties begin 

their negotiations. In 46 Am. Jur. 2d on Joint 

Ventures, the following general statement is made as to 

when the fiduciary relationship arises: 

The fiduciary relationship upon which such 

obligations are consequent does not necessarily 

await the inception of the relationship as joint 

venturers. It may be predicated upon an 

arrangement to assume such a relationship. Thus, 

it is the plain and imperative duty of promoters of 

a syndicate, toward persons who are invited to 

cooperate in the enterprise, not only to abstain 

stating as a fact that which is not a fact, but not 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 21 
( 

to omit to state any circumstances within their 

knowledge the existence of which might in any way 

affect the extent of quality of the advantages held 

out as inducements to the others. 

46 Am. Jur. 2d Joint Ventures§ 50 (1969). 

By analogy, the fiduciary relationship began 

between General Poly and Allied at the January 10, 1979 

meeting when the parties agreed to enter a joint 

cooperation agreement and when Allied made certain 

representations about the extent of its resin 

development. Thus, at the time of the Peru test, Allied 

had a fiduciary duty to reveal the true source of the 

resin tested. 

Contrary to Allied's arguments, the evidence 

clearly shows that the parties did not have an ordinary 

buyer/seller relationship. When the parties' 

relationship began, Allied did not have a product to 

sell which General Poly could buy. In January of 1979, 

Allied represented to General Poly that it had developed 

an experimental resin but it still needed work. Allied 

needed General Poly's special equipment and specially 

trained people to help in this development •••. Of 

course, unbeknownst to General Poly, Allied had not in 

fact developed any type of resin at all. 

Id. at 23-25 (emphasis in original). 

In reaching its conclusion, the district court 

emphasized that Allied sought to benefit through its 

cooperation with General Poly by developing an HMW resin 

which it did not have at the time a fiduciary relationship 

was allegedly formed. See id. at 25·. The district court was 

persuaded that the written agreement "is highly unusual and 

not that of a typical buyer/seller." Id. The court also 

felt that evidence showing General Poly agreed to buy offgrade resin in part to assist Allied was indicative of a 

fiduciary relationship. Id. Finally, the district court 

pointed to the testimony by Allied's Jecha and Snell that the 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 22 
General Poly arrangement was a "unique" one as evidence that 

a fiduciary relationship was formed. 3 Id. at 26. 

The district court concluded its analysis of Allied's 

motion for judgment notwithstanding the verdict by 

reiterating the following statement made earlier in rejecting 

Allied's motion for directed verdict on General Poly's 

fiduciary duty claim: 

Mr. Traver's testimony just cries out as 

regards the parties' mutual trust and their mutual 

risk in finally reaching a commercial high 

molecular weight resin. I believe that his letter 

of July 8, 1981, says it all in [stating that such 

a relationship existed] between a party (sic). In 

my view, and given definition of a fiduciary, 

circumstances here are such that the jury may well 

find these parties were indeed fiduciaries .. 

R. Vol. 41 at 4592. 4 

3 The district court also mentioned the fact that Allied 

intended to send a non-Allied HMW resin to the test in Peru as 

evidence that a fiduciary relationship existed between the 

parties. Id. at 26. However, it is unclear from the district 

court's order whether the evidence relating to the Peru test was 

considered as part of the analysis of the alleged duty or of the 

alleged breach of that duty. 

4 The letter upon which 

to Mr. Heath by Mr. Traver 

relevant part as follows: 

the district court relied was written 

on July 8, 1981, and provides in 

Dear Paul: 

I believe that in the greatness (sic) of everyday 

business all of us concerned with the AlliedGeneral Poly relationship have lost sight of what 

we did set out to do jointly two years ago: To 

develop for both companies a noteworthy 

participation in the exciting growth of highdensity PE film. Allied's expertise in resin 

technology and its capital resources and GPC's 

efforts on the extrusion plant floor, as well as 

out in the marketplace, were to produce a film 

grade high-density resin equivalent to the best 

imported product. During these two years, as 

individuals and as companies, we all took 

[Footnote continued .•. ] 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 23 
4. Review of the District Court's Decision 

After carefully reviewing the evidence presented at 

trial, and viewing that evidence most favorably to General 

Poly (with all inferences drawn in its favor), we are unable 

to affirm the district court's ruling denying Allied's motion 

for judgment notwithstanding the verdict. Our review of the 

record does not disclose any sufficient evidence upon which a 

reasonable jury could properly conclude that General Poly had 

established the existence of a fiduciary relationship with 

Allied. Although we would reach this conclusion even if 

[ ..• footnote continued] 

substantial risk, suffered anxieties and failures, 

progressed and paid our dues for mistakes, as well 

as a success now in sight: An Allied film resin to 

be proud of .••. 

We went together through the extended phase of 

resin testing while you did not have an extruder of 

your own. Whether at PeruPlast or General Poly, 

our people were at your disposal when you needed 

them. My fellow workers at General Poly, ... 

struggled with your people, Pat Snell and the 

others, through extrusion trial after trial sharing 

disappointments and the joys of the achievement. 

Today success there is. You have arrived in the HD 

film resin markets and the industry knows it. You 

at Allied have reason to be proud of that, and 

while our contribution was minimal compared to your 

effort, we did do our bit. 

We also tried our best to live up to our promise to 

use the materials originating from last year's 

start-up runs in your plant. Never did we complain 

to you about the frustrating difficulties we went 

through when your resin simply wouldn't make a 

salable film ..•. 

R. Vol. 30 at 2821-25 (testimony of Hans Traver reading 

Plaintiff's Ex. No. 1621 into evidence). The rest of the letter 

details General Poly's dire financial state and requests Allied's 

assistance in saving the corporation. 

24 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 24 
General Poly was required only to show the relationship by a 

simple preponderance of the evidence under Kansas law, our 

holding is compelled all the more strongly because under 

Kansas law General Poly was obligated to prove the fiduciary 

relationship by clear and convincing evidence. 

None of the evidence reviewed above indicates that 

Allied ever consciously assumed fiduciary duties as to 

General Poly. As discussed in section one, a showing that 

Allied consciously accepted fiduciary duties is the sine qua 

non of General Poly's claim. The duties of a fiduciary are 

serious and many, and an agreement to assume such duties will 

not be presumed. See Denison State Bank v. Madeira, 230 Kan. 

684, _, 640 P.2d 1235, 1243-44 (1982). 

Relying on cases such as Paul v. North, 191 Kan. 163, 

380 P.2d 421 (1963), and Wolf v. Brungardt, 215 Kan. 272, 

__ , 524 P.2d 726, 736 (1974), General Poly argues that the 

evidence at trial demonstrated that Allied and General Poly 

willingly and knowingly acted for one another's benefit "in a 

manner to impose mutual trust and confidence." Wolf, 215 

Kan. at __ , 524 P.2d at 736. However, that argument ignores 

the central importance of the holding in Denison. Merely 

acting for one another's benefit will not give rise to 

fiduciary duties under Kansas law unless it is shown that the 

alleged fiduciary consciously assumed fiduciary 

responsibilities. Although the evidence at trial showed that 

Allied intended to act in a manner which would have 

consequential benefits for General Poly, nothing in the 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 25 
record suggests that any authorized representative of Allied 

ever intended to assume fiduciary duties on behalf of General 

Poly. 

Neither the testimony of the Allied and General Poly 

representatives, their written correspondence and internal 

memoranda, nor the written agreement itself support General 

Poly's assertion that a fiduciary relationship existed. 

Reviewing the evidence in a manner most favorable to General 

Poly, all that was shown was an arm's length commercial 

relationship. The General Poly representatives told Allied 

of their plans to enter the film market using HMW HDPE resin. 

The Allied representatives told the General Poly 

representatives of Allied's plans to develop and perfect such 

a resin. General Poly agreed to make available its extrusion 

equipment for Allied to test its product. In exchange, 

Allied agreed to sell its HMW resin, once developed, to 

General Poly on favorable credit terms with a first right to 

purchase a specified quantity. The-two corporations agreed 

that all disclosures between themselves made during this one 

year period of "joint cooperation" would be protected by a 

secrecy agreement binding for five years. Nothing in that 

course of conduct suggests that Allied ever intended to take 

on the many responsibilities of a fiduciary in its dealings 

with General Poly. 

Allied was not shown to be acting "primarily for the 

benefit of" General Poly. To the contrary, it was openly and 

unabashedly developing its own capacity to produce HMW resin. 

26 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 26 
Denison, 230 Kan. at --' 640 P. 2d 1241. Allied was not 

given and did not assume, any "influence over" General Poly 

other than the normal commercial arms length influence that 

suppliers and customers have over each other in the 

marketplace. Id. Allied did have superior knowledge of its 

own product and production capabilities, but that will be 

true of every supplier or potential supplier, and that is not 

sufficient to give rise to a fiduciary obligation. Ritchie 

Enterprises v. Honeywell Bull, Inc., 730 F. Supp. 1041, 1054 

(D.Kan. 1990). None of General Poly's "property, interest or 

authority" was placed in charge of Allied. Denison, 230 Kan. 

at __ , 640 P.2d at 1241. The parties did place confidence 

in each other, but once again, that was a confidence based on 

commercial self-interest in which both parties had the power 

contractually to protect their own interests however they 

chose. Here, General Poly did not choose to obtain the 

contractual guarantees and rights that it now wishes it had. 

But, it can not imply fiduciary duties that were not clearly 

and convincingly assumed by Allied in order to cure its 

contractual deficiencies. Wedman v. Home National Bank of 

Arkansas City, No. 88-1439-K ( D. Kan·. Jan. 25, 199 0) 

(WESTLAW, 1990 WL 7501) (J. Kelly) (citing Denison for the 

proposition that "when a person is competent and able to 

protect his own interests, he may not abandon all caution and 

responsibility for his own protection and unilaterally impose 

a fiduciary relationship on another without a conscious 

assumption of such duties by the other party."); Pizza 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 27 
Management, Inc. v. Pizza Hut, Inc., 737 F. Supp. 1154, 1184 

(D. Kan. 1990) (J. Crow) (refusing to impose fiduciary duties 

on a franchisor under Kansas law: "In the setting of a 

commercial contract between two equally sophisticated 

business entities, this court is not prepared to impose 

heightened legal duties on one of the parties simply because 

that party may have more powers and discretion under the 

express terms of the agreement. Defendants are entitled to 

summary judgment on plaintiff's breach of fiduciary duty 

claims."); Ritchie Enterprises v. Honeywell Bull, Inc., 730 

F. Supp. 1041, 1053-54 (D. Kan. 1990) (J. Crow) (refusing, 

under Kansas law, to find a fiduciary duty on behalf of a 

supplier of a computer system, even though the supplier has 

superior knowledge of his systems. "This court is unwilling 

to radically alter the given scheme of commercial dealings by 

the possible imposition of a fiduciary relationship upon a 

seller under these circumstances."); LNS Investment Company, 

Inc. v. Phillips 66 Company, No. 87-2215-0 (D. Kan. Aug. 29, 

1989) (WESTLAW, 1989 WL 103637) (C. J. O'Connor) (refusing, 

under Kansas law, to imply a fiduciary relationship on a 

major purchaser of bottled motor oil who terminated a 

relationship with its supplier because of supplier's 

inability to provide the needed quantities of product.); 

Adams Parker Furniture, Inc. v. Ethan Allen, Inc., No. 86-

2113-5 (D. Kan. Oct. 13, 1987) (WESTLAW, 1987 WL 56676) (J. 

Saffels) (refusing, under Kansas law, to imply a fiduciary 

duty on a furniture manufacturer who terminated a 

28 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 28 
distributorship even though the manufacturer had superior 

knowledge and power. "While [the manufacturer] certainly had 

a duty to meet any contractual obligations it owed to 

plaintiff, including a duty not to mislead plaintiff so it 

would detrimentally rely .•. it did not owe a duty to put 

[plaintiff's] interests before its own. It was not 

plaintiff's fiduciary, and therefore summary judgment . 

will be granted."). See also Gillespie v. Seymour, 796 P.2d 

10 6 0 ( Kan . App . 19 9 0 ) . 

The evidence upon which the district court relied in 

denying Allied's motion for judgment notwithstanding the 

verdict is similarly inadequate. There was testimony by 

Allied representatives that the relationship with General 

Poly was "unique." However, that characterization falls far 

short of demonstrating that Allied intended to increase its 

duties from those inherent in a commercial transaction to the 

level of those which are imposed in a fiduciary relationship. 

Likewise, the letter by Mr. Traver which the district court 

pointed to as evidence of the fiduciary relationship does no 

more than summarize the interactions of.the two corporations, 

interactions which we find inadequate to show Allied 

consciously accepted fiduciary duties. Therefore, we reverse 

the district court's order denying Allied's motion for 

judgment notwithstanding the verdict and order that judgment 

be entered in favor of Allied on this claim. 5 

5 Because of our holding with regard to Allied's motion for 

judgment notwithstanding the verdict, we need not reach the claim 

that the jury instructions on fiduciary duty were improper. 

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II. The Fraud Claim Arising From The Peru Test 

On cross-appeal, General Poly challenges the district 

court's ruling directing a verdict in favor of Allied on 

General Poly's claim for fraud arising from the test of resin 

in Lima, Peru. At trial, General Poly alleged that Allied 

knowingly misrepresented the resin sent to Peru in March 1979 

as its own, when in fact the resin was made by Solvay and 

Allied was using it pursuant to a licensing agreement. In 

directing a verdict against General Poly, the district court 

ruled that General Poly had failed to show Allied made a 

knowing misrepresentation with the intent to deceive and, in 

the alternative, that General Poly's claim was barred by 

Kansas' two-year statute of limitations because the claim was 

brought more than two years after the alleged fraud should 

reasonably have been discovered. R. Vol. 50 at 5682-83. We 

affirm the district court's order directing a verdict in 

favor of Allied. 

A. The Law of Fraud in Kansas 

The law of fraud is well-established in Kansas: 

Where one party to a contract or transaction has 

superior knowledge, or knowledge which is not within the 

fair and reasonable reach of the other party and which 

he could not discover by the exercise of reasonable 

diligence, or means of knowledge which are not open to 

both parties alike, he is under a legal obligation to 

speak, and his silence constitutes fraud, especially 

where the other party relies upon him to communicate to 

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Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 30 
him the true state of facts to enable him to judge of 

the expedience of the bargain. 

Wolf v. Brungardt, 215 Kan. 272, __ , 524 P.2d 726, 734 (1974). 

"actionable fraud includes an untrue statement of fact, 

known to be untrue by the party making it, made with the 

intent to deceive or recklessly made with a disregard 

for the truth, where another party justifiably relies on 

the statement and acts to his injury." 

K-B Trucking Co. v. Riss Int'l Corp., 763 F.2d 1148, 1156 (10th 

Cir. 1985) (quoting Lentz Plumbing Co. v. Fee, 235 Kan. 266, __ , 

679 P.2d 736, 742 (1984). 

An action for fraud must be brought within two years of when 

it accrues, "but the cause of action shall not be deemed to have 

accrued until the fraud is discovered." Kan. Stat. Ann. 

§ 60-513(a)(3) (1983). The Supreme Court of Kansas has 

interpreted discovery of the fraud under the statute of 

limitations to mean 

the discovery by the person defrauded of such facts 

indicating he had been defrauded as would cause a 

reasonably prudent person to investigate, and which, if 

investigated with reasonable diligence, would lead to 

knowledge of the fraud. 

Wolf, 215 Kan. at __ , 524 P.2d at 734. Because the "modern 

tendency is to restrict rather than to expand the immunity of one 

who gains an advantage over another by purposely misleading him," 

id., "[s]ome Kansas cases have rejected statute of limitations 

contentions when the plaintiff could have discovered the fraud, 

but the defendant lulled the plaintiff into confidence that 

nothing was amiss." Wolf v. Preferred Risk Life Ins. Co., 728 

F.2d 1304, 1306 (10th Cir. 1984); see,~, Augusta Bank & Trust 

v. Broomfield, 231 Kan. 52, _, 643 P.2d 100, 108 (1982). 

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B. The Evidence of Fraud 

The district court's directed verdict may only be sustained 

if viewing "the evidence most favorably to the party against whom 

the motion is made, and giv[ing] that party the benefit of all 

inferences," there is no "evidence upon which the jury could 

properly find a verdict for that party." Hurd v. American Hoist & 

Derrick Co., 734 F.2d 495, 498-99 (10th Cir. 1984) (quotations 

omitted). In making that determination, we must take into account 

the burden of proof for the underlying claim. See Anderson v. 

Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Under Kansas law, 

a claim of fraud "must be proven by clear and convincing 

evidence." Nordstrom v. Miller, 227 Kan. 59, _, 605 P.2d 545, 

552 (1980); see Mackey v. Burke, 751 F.2d 322, 328 {10th Cir. 

1984). The district court's alternative ground for directing a 

verdict in favor of Allied was the Kansas two-year statute of 

limitations. Therefore, we must also take into account Allied's 

burden of proof for the affirmative defense of the statute of 

limitations. 

[A] directed verdict for the party having the burden of 

proof may be granted only where he has established his 

case by evidence that the jury would not be at liberty 

to disbelieve. 

Hurd, 734 F.2d at 499. 

The evidence introduced at trial of the parties' original 

discussions concerning the shipment of experimental HMW resins to 

Traver's PeruPlast plant in Lima, Peru are set forth in the first 

subsection discussing General Poly's claim for breach of fiduciary 

duty. In addition, the following evidence relating to Allied's 

allegedly fraudulent misrepresentations of the PeruPlast test and 

32 

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the subsequent events which Allied contends should have reasonably 

caused General Poly to discover the alleged misrepresentations 

forming the basis of its fraud claim was introduced at trial. 

On October 28, 1978, Pat Snell added a handwritten note to a 

memorandum addressed to Singleton from Jecha in which he indicated 

that he had spoken with Traver about supplying a "developmental" 

resin. See Plaintiff's Ex. 99 (Addendu,m to Appellee's Br., 

Doc. 3). Snell further explained: 

(This of course would be the rebagged [Solvay] B5920F). 

The resin would be ideal. 

I've told George Jecha of my conversations and he's 

aware of all developments. 

This could be a great opportunity to test the 

BF920F, test an Allied version of the same, and make an 

entry into the HDPE film market in the U.S. 

Id; R. Vol. 20 at 1782. 6 

Pat Snell testified that in late January 1979, he contacted 

Traver's Houston office concerning the shipment of HMW resin to 

Traver's PeruPlast plant in Lima, Peru. See R. Vol. 20 at 1729. 

On February 16, 1979, Snell sent Traver a telegram requesting 

information on scheduling for the resin trials of the "new Allied 

resin."· Plaintiff's Ex. S-114 (Addendum to Appellee's Br., Doc. 

60). The shipping invoice which accompanied the five hundred and 

twenty-five pounds of resin shipped to Traver's PeruPlast plant 

indicated that the resin was "Paxon High Density Polyethylene." 

Plaintiff's Ex. S-116 (Addendum to Appellee's Br., Doc. 61). 

"Paxon" is a registered Allied trademark. See R. Vol. 20 at 1733. 

6 At trial, Mr. Snell explained that B5920F is "a Solvay high 

molecular weight high density film resin made in Europe. B5920F 

is their commercial designation for it." R. Vol. 20 at 1730. 

33 

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The resin shipped by Allied was tested at the PeruPlast 

facility on March 26-27, 1979. The actual resin which was tested 

at the PeruPlast facility was not an Allied manufactured resin, 

but was instead Solvay B5920F purchased by Allied in Europe. See 

Plaintiff's Ex. 167 (Addendum to Appellee's Br., Doc. 9); 

Appellant's Br. at 7. The resin packaging did not identify it as 

a Solvay-manufactured resin because Allied had repackaged it in 

plain wrappers and placed an Allied internal reference number on 

it. See R. Vol. 20 at 1735. On September 19, 1979, Snell sent 

Traver a letter with data from "our testing on the film made from 

Allied chemical's developmental resin 6-100 (7-392) at your plant 

in Lima, Peru." Plaintiff's Ex. 142 (Addendum to Appellee's Br., 

Doc. 14). 

Hans Traver testified that General Poly's executives were 

unaware that the resin tested at the PeruPlast plant was 

manufactured by Solvay until discovery in this litigation 

commenced. R. Vol. 25 at 2262. However, Allied maintains that 

General Poly should have known by September 1979, that Allied was 

at that time not yet capable of manufacturing a satisfactory 

Hoescht-quality HMW resin. 

Hans Traver testified that in August 1979, he and Pat Snell 

began to make arrangements for a test of Allied's resin (along 

with resins from other manufacturers) at an extrusion plant 

operated in Natick, Massachusetts, by Alpine (a Swiss company). 

R. Vol. 25 at 2266. A test was conducted at the Alpine plant on 

August 23, 1979. Id. at 2267. Two representatives of General 

Poly attended the test. Id. at 2267-68. In a memorandum -drafted 

34 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 34 
four days after the test, the two General Poly representatives 

stated: 

Began test on Allied Chemical HDPE # 6-412 97. Pat 

Snell of Allied Chemical was present and coordinated the 

test with Max Gmahle of Alpine. The HS65 extruder ran 

satisfactory but the test was a failure due to the melt 

instability of the test resin. Pat said that he would 

have to redesign the resin. 

Plaintiff's Ex. 386 (Addendum to Appellant's Br., Doc. 12). Peter 

Barber, an extrusion supervisor for General Poly, testified that 

after the disappointing Alpine test, Pat Snell of Allied explained 

the adjustments that Allied needed to make in order to improve the 

resin. See R. Vol. 33 at 3365. Snell told Barber that he thought 

it was possible for Allied to make the necessary adjustments, 

although he did not say how much time would be required. Id. 

In addition to the Alpine test, Allied points to the 

September 21, 1979 agreement's reference to a one-year development 

program as proof that General Poly was aware Allied did not yet 

have a commercially viable HMW resin developed. 

In February 1980, several Allied experimental HMW resins were 

tested using General Poly's extrusion equipment. R. Vol. 33 at 

3366-69. According to Peter Barber, the Allied resins performed 

better than the resin tested at the .Alpine plant in Massachusetts, 

but none were equal in quality to the industry standard Hoescht 

resin. Id. at 3369. Barber testified that Allied's Pat Snell 

told him Allied was "improving," getting "closer" and "near" to 

producing Hoescht-quality resin. Id. at 3369-70. Several other 

tests of Allied's resin samples were conducted at General Poly in 

1980 and 1981, including a test on June 9, 1980 and one on 

35 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 35 
September 18, 1980. See Appellee's Br. at 23, R. Vol. 33 at 3370, 

3379. 

General Poly placed its first orders for off-grade resin from 

Allied in June 1980. See Defendant's Ex. S-92 (Addendum to 

Appellant's Br., Doc. 83). A single rail car of resin mixed from 

several batches (the so-called "rainbow car") was shipped to 

General Poly by Allied and received by General Poly in July. 

R. Vol 12 at 778-79. On July 7, 1980, General Poly received an 

invoice from Allied for resin shipped June 16, 1980, which 

identified the resin shipped as "Paxon Solvay Experimental PW" 

resin. See id. Subsequent shipments of off-grade resin ordered 

by General Poly from Allied were of inconsistent quality and had 

to be blended with Hoescht resin in order to be used effectively. 

R. Vol. 33 at 3237-39. 

c. The District Court's Ruling 

The district court directed a verdict in favor of Allied on 

General Poly's fraud claim stating that: 

Solvay product was an Allied developmental product as 

Allied saw it. They did so knowing it was not true, a 

test of Nordstrom (v. Miller, 227 Kan. 59, _, 605 P.2d 

545, 552 ( 1980)], is not shown,. and they did so with an 

intent to deceive is not shown. I am convinced at this 

point in the case now, all parties rested, there is no 

showing nor evidence whatsoever that at any point in 

time Allied ever intended to deceive anyone. I make 

those findings as I would construe the relationship of 

the parties as prospective, probably buyer-sellers in 

the commercial context, that is, the traditional setting 

between the parties. 

Having said that, I needn't address the statute of 

limitation question, but it would appear to me that 

again in that setting, this event having occurred 

somewhere in March 1980 (sic), the parties were in 

concert with the reaching of some ultimate agreement. 

36 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 36 
The parties were in communication from time to time. 

The awareness of the state of affairs with regard to the 

resin was clearly known to representatives of General 

Poly before even the signing of the agreement, but 

surely the signing of the agreement itself puts in place 

the time frame for the statute to run. And if as of 

that moment General Poly at any time believed they had 

been misrepresented and that such misrepresentation was 

deceiving, they were duty bound to proceed. I am 

convinced as well then that the statute, even should 

this representation apply, has run. 

R. Vol. 50 at 5682-83. 7 Although some evidence was introduced 

from which fraud could be inferred with regard to the Peru test, 

it is doubtful whether such evidence ever approached a "clear and 

convincing" standard. The evidence of intent to defraud was only 

inferential at best and the evidence of falsity was ambiguous. 

Moreover, there was certainly evidence that Allied's labeling of 

the Solvay resin as its own experimental resin was within its 

rights under its license with Solvay; that the relabeling was 

within normal practices to ensure blind testing; and that there 

was no intent to deceive. However, we do not base our affirmance 

on this ground. Rather, we affirm the court's ruling directing a 

7 In an earlier statement made explaining that a ruling on the 

motion for a directed verdict on this claim would be taken under 

advisement the judge remarked, 

I have said in this case it struck me in either event, 

before this plant was ·opened, the plaintiffs were made 

aware that the Defendant was indeed not ready to deliver 

a product consistent with that which was shown to them 

or represented to them at Peru, and understanding this, 

I think I also said the statute of limitations probably 

has run, and certainly by the time they had signed off 

on the contract, even in the face of the 

misrepresentation, didn't the Plaintiffs know full well 

that whatever it was that was produced at Peru was not 

available for delivery then and hadn't the statute run. 

R. Vol. 41 at 4590. 

37 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 37 
verdict in favor of Allied because General Poly's claim is barred 

by the statute of limitations. 

This alleged fraud took place in.March 1979, when the 

rebagged Solvay resin was tested in Peru. The action for fraud 

was filed on August 17, 1982·. R. Vol. 1, Doc. 1 at 20. Because 

the statute of limitations runs from the time when the fraud 

reasonably should have been discovered, the action would only be 

barred if discovery of the fraud should have reasonably occurred 

on or before August 16, 1980. 

We believe that the disappointing results of the HMW resin 

tests conducted in August 1979, February 1980, and in June, 1980 

"would cause a reasonably prudent person to investigate," and "if 

investigated with reasonable diligence, would lead to knowledge of 

the fraud." Wolf, 215 Kan. at __ , 524 P.2d at 734. The 

subsequent tests of Allied's samples inescapably put General Poly 

on notice that Allied was as yet incapable of reproducing the 

resin tested in Peru, and the entire course of conduct between the 

parties made it clear that, throughout that time period, Allied 

had not developed for commercial production any successful HMW 

resin. Yet, there is no evidence in the record indicating that 

General Poly's executives or engineers ever inquired as to the 

reason for that significant disparity. 

This is not a case where the defendant "lulled the plaintiff 

into confidence that nothing was amiss" such that the failure to 

make inquiries is excusable. Wolf v. Preferred Risk Life Ins. 

Co., 728 F.2d 1304, 1306 (10th Cir. 1984); see,~, Augusta Bank 

& Trust v. Broomfield, 231 Kan. 52, _, 643 P.2d 100, 108 (1982). 

38 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 38 
Various Allied representatives made statements which 

optimistically characterized Allied's progress in its efforts to 

develop a Hoescht-quality HMW resin. However, General Poly's 

attempt to portray those statements as false assurances justifying 

its inaction ignores the fact that General Poly had knowledge of 

Allied's actual progress by virtue of the test results of Allied's 

resins. Therefore, this case is distinguishable from cases such 

as Dreiling v. Home State Life Ins. Co., 213 Kan. 137, __ , 515 

P.2d 757, 765 (1973), and Augusta Bank & Trust, 231 Kan. at , 

643 P.2d at 108, where the fraud went undetected because the 

defendant made affirmative misrepresentations such that the 

plaintiff had no independent reason to make further inquiries. 

General Poly contends that even though it made no inquiries 

into the reason for the inconsistent test results obtained from 

Allied's resin samples, Allied is unable to satisfy its burden of 

showing that no reasonable jury could conclude that General Poly 

did not learn of the allegedly fraudulent acts prior to August 

1980. See Wolf, 728 F.2d at 1306-07 (in an action for fraudulent 

representations concerning the coverage of an insurance contract a 

material factual dispute existed as to whether the fraud was 

discovered when plaintiff actually learned of the 

misrepresentations or when the plaintiff reasonably should have 

discovered the disparity in coverage). General Poly argues that 

because there is no evidence in the record indicating that Allied 

would have disclosed that the HMW resin tested in Peru was 

manufactured by Solvay if General Poly had inquired, 

discoverability may not be presumed. 

39 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 39 
In Waite v. Adler, 239 Kan. 1, __ , 716 P.2d 524 (1986), the 

Supreme Court of Kansas recognized that in certain circumstances 

knowledge of allegedly fraudulent acts may be presumed. In Waite, 

an action was brought against a bank officer for making allegedly 

fraudulent statements about the credit standing of an automobile 

dealership in which the plaintiff then invested. Id. at_, 716 

P.2d at 524-25. Although the jury returned a verdict for the 

plaintiff, the court reversed based on the statute of limitations. 

The court held that the plaintiff should have known of the 

dealership's precarious financial situation when, more than two 

years before the action was commenced, the bank took possession of 

the dealership inventory. Id. at_, ·116 P.2d at 528. Although 

the repossession of cars did not directly establish the falsity of 

the earlier statements made by the bank, the court concluded that 

the earlier statements all went to the general subject of the 

creditworthiness of the dealership and tended falsely to 

misrepresent such creditworthiness. The subsequent foreclosure 

put the plaintiff on notice that the general creditworthiness was 

not as implied by the earlier statements and, consequently, 

imposed upon him a duty to investigate the truth of the earlier 

statements. 

In this case, General Poly could not have helped but know by 

August 1980 that Allied was not able consistently to produce or 

even to reproduce for an isolated test high-grade resin such as 

that used in the Peru test. Viewing the evidence presented in the 

light most favorable to General Poly, we hold that no reasonable 

jury could have properly found that prior to August 1980, General 

40 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 40 
Poly was without knowledge of Allied's inability to produce resin 

of the quality of that tested in Peru on an ongoing basis. 

Because General Poly's action for fraud was based entirely on 

Allied's alleged fraudulent concealment of that information, we 

affirm the district court's ruling directing a verdict in favor of 

Allied based on the statute of limitations. 

III. The Fraud Claim Arising From the Rail Car Exchange 

General Poly also appeals the district court's ruling 

directing a verdict in favor of Allied on a separate claim of 

fraud. Essentially, General Poly alleged that Allied defrauded 

General Poly by taking return of two rail cars of off-grade resin 

which General Poly had pledged as collateral and then reneging on 

its commitment to replace the cars with two cars of premium grade 

(or at least better grade) resin before the time General Poly was 

obligated to report the status of its collateral to the bank. In 

analyzing General Poly's cross-appeal of the directed verdict on 

this claim, we apply the principles of Kansas' law of fraud and 

the standards for reviewing a directed verdict set forth in the 

previous subsection. 

A. The Evidence Presented 

According to General Poly, the following evidence presented 

at trial was sufficiently clear and convincing such that a 

reasonable jury could have properly ruled that Allied acted 

fraudulently. On June 3, 1981, Allied's George Jecha and Kurby E. 

Wiley met with General Poly's Traver and Walker at the General 

41 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 41 
Poly plant. See R. Vol. 27 at 2442; R. Vol. 29 at 2642. Wiley 

asked Traver's opinion of a batch of new Allied resin which had 

been tested at General Poly the month before. R. Vol. 27 at 2442-

43. Traver testified that when he expressed his satisfaction with 

that resin, Wiley asked "[h]ow would you like it if we would 

exchange those three hopper cars that you have sitting out there 

on your spur for this new material?" Id. at 2443. Traver agreed, 

remarking "[l]et's do it." Id. Traver testified that another 

General Poly employee informed him that one rail car had been 

partially used and suggested that only the two unopened cars be 

returned. Id. at 2444. Traver testified that Walker told the 

Allied representatives that those cars were pledged as collateral 

and that any exchange would need to be completed before the end of 

the month and that Wiley responded by stating "[w]e can do that." 

Id. Traver further testified that Wiley said "[l]et's exchange 

the cars. We will take them back and we'll send you new 

material." Id. at 2445. 

Traver testified that he then dictated a memorandum in the 

presence of Wiley and Jecha. Id. That memorandum provides, in 

relevant part, as follows: 

1. General Poly is to return hopper cars# GCX0945258 

and# GCX0945205, for a credit of $129,701. This credit 

is to be applied against the oldest outstanding 

invoices. The remaining debt payable will be between 

$170,000 and $180,000, none of which is due at this 

time. 

2. Allied will replace the two cars with two cars of 

the run 13103 and/or 154008, ETA June 22 to June 30 at 

IAK, at the same price as the two wide spec [(i.e., offgrade)] cars returned to Allied. 

42 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 42 
Plaintiff's Ex. 1545, Addendum to Appellee's Br., Doc. 34 

(emphasis added). However, Traver testified that Wiley had 

indicated he would have to secure his superiors' approval of both 

the price of the new resin and the particular invoices to be 

credited for the returned cars. R. Vol. 29 at 2644-45. On 

June 11, 1981, Traver wrote a letter seeking to confirm the 

agreement to Allied's Wiley, Heath and Jecha. See Plaintiff's Ex. 

1561, Addendum to Appellant's Br., Doc. 31. R. Vol. 29 at 2649-

52. That letter provides, in pertinent part, as follows: 

Dear George: 

This is to confirm our conversations when you visited 

our offices last week. You will take back hopper cars 

GCX945258 and GCX945205, invoices 0944-6198 and 0944-

7210 for $61,916.40 and $64,216.80. You will issue us 

corresponding credit memos, which we can apply to future 

purchases. 

I will issue to you a purchase order for the new 

material of the runs tested last month, and we shall 

specify on the order the arrival. At least one hopper 

car should be here by June 30. 

Plaintiff's Ex. 1561, Addendum to Appellant's Br., Doc. 31. 

Sometime after June 11, 1981, Allied's Kurby Wiley spoke with 

Traver by telephone and advised him that the resin tested at 

General Poly in June was not available for shipment to General 

Poly. On June 25, 1981, Traver wrote George Jecha the following 

letter: 

Dear George: 

Shortly after you left, we received a phone call 

from Kurby, who advised me as follows: 

43 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 43 
1.) The material which we tested here in our plant 

and liked very much, namely lot #1038 and lot #154008, 

were never available in hopper car quantities. 

2.) At this time, there is only one hopper car of 

prime material, impact strength 320, which would not 

meet our needs, in any event costing 48¢. 

3.) There was a hopper car available with an 

impact strength of 260, classified as off-grade at 38¢. 

This is the material for which we have placed purchase 

order #670, and for ease of identification we designated 

the resin as 4100-260. 

Kurby further explained that with the current 

impact test, those lots with an impact strength of 380-

420 were considered prime, but that no such resin was 

available in hopper cars at that time. I am still not 

quite sure what constitutes prime, but we will proceed 

on the assumption that prime signifies a dart impact of 

380 - 420 grams, with the exception of the above 

mentioned hopper car with an impact strength of 320. 

Kurby also explained that you expect to make a new 

run in July. 

In view of the above, I see the situation like 

this: 

1.) At this time, Allied has no prime resin with the 

properties we are looking for. 

2.) We are again placing an order for splity (sic) 

resin, which we will need to blend off with a 

competitive material. 

3.) We need to wait til (sic) after the July run to 

know what resin properties we can expect from Allied. 

4.) Your price for prime, when_ available, will be 48¢. 

Plaintiff's Ex. 1586, Addendum to Appellant's Br., Doc. 32. 

Allied's Paul Heath testified that although Wiley informed 

him that General Poly's representatives had said the two cars 

being returned were pledged as collateral, he did not believe that 

General Poly could have pledged assets not yet paid for as 

8 Apparently, this is either a typographical error or a 

shorthand reference to lot# 13103. 

44 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 44 
collateral. R. Vol. 31 at 2934. Heath further testified that 

prior to the time the two rail cars were picked up from General 

Poly it had already been decided that they would not be replaced. 

Id. at 2938. The two rail cars of resin were picked up at General 

Poly's facility on June 18, 1981 and June 26, 1981. R. Vol. 29 at 

2678. No replacement cars were ever delivered to General Poly 

from Allied. R. Vol. 27 at 2451. 

Timothy Stanton, who served as an officer of the Commerce 

Bank in 1981, testified that when Traver told him of the two cars 

of resin which had been returned to Allied and not replaced, the 

bank informed General Poly that it would extend the corporation no 

further credit and that receivables deposited at the bank would be 

marshalled in part for the payment of outstanding indebtedness. 

R. Vol. 35 at 3600, 3620-21. 

B. The Law Regarding Fraudulent Statements of Intent to Act 

in the Future 

This court has previously recognized that 

[u]nder Kansas law, "[w]hen alleged fraud relates to 

promises or statements concerning future events, the 

gravamen of such a claim is not the breach of the 

agreement to perform, but the fraudulent representation 

concerning a present, existing intention to perform, 

when such intention is in fact nonexistent." 

Mackey v. Burke, 751 F.2d 322, 328 (10th Cir. 1984) (quoting 

Modern Air Conditioning, Inc. v. Cinderella Homes, Inc., 226 Kan. 

70, _, 596 P.2d 816, 824 (1979)). In Mackeyf the plaintiff sold 

the defendants a number of Holstein heifers, many of which the 

defendants later learned were too ill to be exported to Korea when 

they attempted to ship them from Seattle, Washington. Mackey, 751 

45 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 45 
F.2d at 324. The defendants stopped payment on the check to the 

plaintiff, and the plaintiff called the Seattle Port Authority to 

prevent shipment of the cows. However, one of the defendants 

later persuaded the plaintiff to allow the shipment by promising 

to return to Kansas and straighten everything out. The defendant 

never returned to Kansas as promised. Applying Modern Air 

Conditioning, the court in Mackey held that the "plaintiffs failed 

to present any clear evidence at trial that [the defendant] did 

not intend to return to [Kansas] at the time that he made the 

promise." Id. at 328. Thus, the punitive damage award based on 

fraud was reversed. Id. at 328-329. 

In this case, the district judge entered a directed verdict 

against General Poly on its fraud claim without specifying the 

basis of his ruling. The court simply stated, "I see no basis for 

fraudulent misrepresentation." R. Vol. 41 at 4596. When 

defendant's counsel inquired further as to the court's ruling on 

"the hopper car replacement issue," the court answered, "I don't 

see that as fraudulent misrepresentation" and proceeded to direct 

a verdict in favor of Allied. Id. at 4597. Although the district 

court did not elaborate on its analysis,· we hold that the court 

reached the correct conclusion. 

General Poly asserts that on June 3, 1981, Allied's Wiley had 

no present intention to effect a swap when he proposed an exchange 

of off-grade rail cars for rail cars containing resin equivalent 

to that tested in the May test. However, even viewing the record 

in the light most favorable to General Poly, we find only a single 

46 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 46 
piece of evidence which even arguably supports that conclusion--

the statement by Hans Traver in his July 25, 1981, letter to 

George Jecha that Wiley had informed him that "[t]he material 

which we tested here in our plant and liked very much, namely lot 

#103 and lot #154008, were never available in hopper car 

quantities." Plaintiff's Ex. 1586, Addendum to Appellant's Br., 

Doc. 32. General Poly is unable to point to any evidence 

whatsoever in the record which would suggest that Wiley knew the 

promised upgraded resin was unavailable at the time he made the 

offer to exchange. The testimony that Allied's Heath had decided 

not to replace the two cars prior to the time they were picked up 

is unavailing because there was no evidence suggesting that Heath 

communicated that intent to Wiley before Wiley made 

representations concerning the exchange to the General Poly 

representatives. Furthermore, Heath only testified that he had 

decided not to provide replacement cars prior to the time the two 

off-grade railcars were picked YR· Nothing in his testimony 

suggests that he or anyone else at Allied had formulated such an 

intent as of the earlier time when Wiley told Traver that 

replacement cars would be shipped. Therefore, because General 

Poly presented no evidence, much les·s clear and convincing 

evidence, indicating that at the time Wiley suggested the exchange 

to General Poly he did not intend to carry through with his 

proposal, we affirm the district court's ruling entering a 

directed verdict in favor of Allied. 

47 

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IV. The Conversion Claim Arising From The Rail Car Exchange 

General Poly brought a separate claim against Allied for 

conversion based on Allied's allegedly wrongful appropriation of 

the two rail cars of off-grade resin which were returned. The 

district court directed a verdict in favor of Allied on this claim 

without any explanation of the basis for the ruling. See R. Vol. 

41 at 4596. 

In Kansas, as elsewhere, conversion is defined as "an 

unauthorized assumption and exercise of the right of ownership 

over goods or personal chattels belonging to another" resulting in 

some "actual interference with" the rightful owner's possession of 

property. Desbien v. Penokee Farmers Union Coop. Assoc., 220 Kan. 

358, __ , __ , 552 P.2d 917, 924, 926 (1976). However, as General 

Poly concedes, there is undisputed evidence that General Poly's 

representatives consented to Allied's acquisition of the two cars. 

Although generally "[o]ne who would otherwise be liable to another 

for •.. conversion is not liable to the extent that the other 

has effectively consented to the interference with his rights," 

Restatement (Second) of Torts§ 252 (1965), it is well-established 

that "[c]onsent to possession of a chattel obtained by fraud or 

duress is not effective to prevent r·ecovery . . . for conversion." 

Id. at§ 252A. 

General Poly argues that the Allied representatives 

fraudulently induced General Poly's consent to the return of the 

two rail cars. However, as discussed above, General Poly did not 

present sufficient evidence to withstand Allied's motion for a 

48 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 48 
directed verdict on the fraud claim. Consequently, General Poly's 

assertion of fraudulently induced consent must likewise fail. 9 

V. The Contract Claims 

A. Breach of the Written Agreement 

General Poly's next argument on appeal is that the district 

court improperly directed a verdict in favor of Allied on General 

Poly's claim for breach of their written agreement. In directing 

a verdict in favor of Allied, the district court explained his 

reasoning as follows: 

[A]s I listened to Plaintiffs' evidence, it seemed clear 

to me that if it was a claim for breach of contract, it 

was in part because the Plaintiffs had ordered and reordered time and again certain off-weight resins from 

Allied, received them, knowing they were off-weight, 

accepted them as off-weight, used them without any 

remonstration or complaint or attempts to set aside the 

terms of the agreement or to claim that the terms had 

been breached. I have always then been persuaded, if 

this case is premised in its commercial setting, that 

the provisions of Section 2-606 through 608 probably 

control this case, and as a consequence, Plaintiffs had 

no breach of contract. 

R. Vol. 41 at 4587-88. 

General Poly argues that the district court's ruling was 

erroneous because "[t]here was unequivocal evidence that Allied 

had commercial quantities of prime resin available in May-June 

1981, which it sold to others before offering [it] to General 

Poly. That conduct directly breached the written 'first 

9 Although it is not essential to our holding, we note that 

even if General Poly were able to establish fraud so as to 

invalidate its consent to return of the first car, Traver's letter 

of June 25, 1981, evidences his actual knowledge that Allied 

lacked prime resin such that consent to removal of the rail car 

picked up the very next day could not have been fraudulently 

obtained. 

49 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 49 
right to purchase' term of [the written agreement]." See 

Appellee's Br. at 86. 10 The first right of purchase provision 

provides as follows: 

1.2 For a period commencing with the production by 

Allied Chemical of a semi-commercial or commercial scale 

of any new high density polyethylene film grade resin 

developed and terminating three (3) years thereafter, it 

is agreed that General Poly shall have the first right 

to purchase such high density polyethylene film grade 

resin from Allied Chemical up to a maximum of 500,000 

pounds per month. General Poly's first right to 

purchase film grade pursuant to this Section 1.2, 

however, shall be contingent upon General Poly giving 

Allied Chemical at least thirty (30) days' prior written 

notice of its requirements for each calendar month in 

which General Poly chooses to exercise its first right 

to purchase. With respect to each calendar month for 

which Allied Chemical receives no written timely notice, 

as provided for herein, Allied Chemical shall be 

relieved of any obligation to General Poly. 

Plaintiff's Ex. 420, First Addendum to Appellant's Br., Doc. 14. 

Because the written agreement states that it "shall be governed by 

and construed in accordance with the internal laws of the State of 

New York without regard to conflict of laws," we must apply the 

law of New York. Id. 

10 Allied maintains that General Poly has waived this argument. 

See Reply/Answer Brief of Appellant at 65-66. However, in denying 

Allied's motion for summary judgment on the claims for breach of 

the written agreement, the district court stated that "plaintiff 

claims the first right to purchase provision in the September 21 

agreement was breached by Allied when it 'withheld resin ••. 

suitable for General Poly for months, while attempting to move 

such resin to General Poly's competitors.'" Rajala v. Allied 

Corp., 66 Bankr. at 597 (quoting Pretrial Order at 5). Thus, it 

is clear that the claim for breach of the first right of purchase 

provision was raised below and has not been waived on appeal. 

Nevertheless, we affirm on the ground that General Poly failed to 

present sufficient evidence of breach to withstand Allied's motion 

for a directed verdict. 

50 

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1. Sufficiency of the Evidence of Breach 

We believe the district court correctly entered its ruling 

directing a verdict in favor of Allied. The district court based 

its conclusion on Sections 2-606 through 608 of the Uniform 

Commercial Code ("U.C.C."), and we believe those provisions 

establish that General Poly has no breach of contract claim for 

the off-grade resin that was delivered to it and accepted by it 

under the contract. With regard to the claim that Allied was 

delivering prime grade resin to General Poly without making such 

resin available to General Poly, in May and June, 1981, we observe 

that the terms of the written agreement specify that unless 

General Poly gives Allied thirty days written notice of its needs 

for the calendar month, no first right of purchase shall inure for 

that month. We hold that General Poly's failure to supply such 

notice precludes General Poly from asserting this breach of the 

agreement. 

General Poly first argues that it was not required to give 

Allied written notice of its resin needs because Allied failed to 

notify General Poly of the available resins. In the alternative, 

General Poly suggests that its communications with Allied did 

constitute notice so as to satisfy its obligations under the 

written agreement. However, the record does not support either of 

those arguments. 

General Poly contends that it was not obligated to give 

Allied written notice until such time as Allied first notified 

General Poly that resin was available. This position is untenable 

51 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 51 
for two reasons. First, it is clear from the record that the AFK9 PAXSON 4100 resin which General Poly complains was sold to other 

companies in breach of the agreement was first tested at the 

General Poly facility. Although General Poly evidently was not 

satisfied with the quality of the resin from that run, it cannot 

now argue that it did not have notice of its existence. Second, 

even if the record were otherwise, we are unwilling to read into 

the written agreement an obligation on the part of Allied to 

notify General Poly of the availability of prime resin, because no 

such provision appears in the clear and unambiguous language of 

the agreement. See Meccico v. Meccico, 559 N.Y.S.2d 974, 76 

N.Y.2d 822, 559 N.E.2d 668 (1990) ("Where the contract is clear 

and unambiguous on its face, the courts must determine the intent 

of the parties from within the four corners of the instrument."); 

cf. Remetich v. Remetich, 110 A.D.2d 760, 488 N.Y.S.2d 49 (N.Y. 

App. Div. 1985) (plaintiff failed to exercise an option to 

purchase "in the clear and explicit manner stated in the 

separation agreement"). 

General Poly argues in the alternative that it did in fact 

notify Allied of its resin needs. However, General Poly does not 

call our attention to any evidence i'n the record suggesting that 

it gave Allied any kind of written notice for either of the months 

for which it now alleges breach (i.e., May and June 1981). The 

three exhibits which General Poly cites are unavailing. The first 

letter General Poly relies on is a letter from Traver to Heath 

written on September 19, 1980. Plaintiff's Ex. 1088, First 

Addendum to Appellee's Br., Doc. 20. The letter indicates that 

52 

Appellate Case: 88-1762 Document: 01019945169 Date Filed: 11/02/1990 Page: 52 
General Poly would be willing to purchase "(t]he two hopper cars 

which you have available" and requests a meeting to "work out with 

you a purchasing program for 1981." Id. The second exhibit 

General Poly relies on is an order for seven hopper cars of offgrade resin to be blended with Hoescht resin. Plaintiff's Ex. 

1276, First Addendum to Appellant's Br., Doc. 24. The proposed 

shipping dates for those cars are listed as between February 9, 

1981, and April 24, 1981. Id. The final exhibit referenced by 

General Poly is Traver's June 2, 1981 letter in which he inquired 

as to the availability of the resins which he found to be 

satisfactory but which contains no written statement of General 

Poly's requirements nor does it contain an order for material. 

Plaintiff's Ex. 1544, First Addendum to Appellee's Br., Doc. 33. 

None of these documents shows that General Poly ever gave Allied 

written notice of its resin needs for the months of the alleged 

breach--May and June 1981. "It is a basic tenet of contract law 

that before liability can arise on a promise qualified by 

conditions expressed or implied in fact, such conditions must be 

fulfilled." Morse v. Ted Cadillac, Inc., 146 A.D.2d 756, , 537 

N.Y.S. 2d 239, 240 (N.Y. App. Div. 1989) (quotations omitted). 

Because sufficient evidence was not ·presented such that a 

reasonable jury could properly have found that General Poly had 

fulfilled its notice obligations under the agreement, we hold that 

the district court properly directed a verdict in favor of Allied 

on General Poly's action for breach of the written agreement. 

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B. Breach of the Oral Contract 

The last of General Poly's arguments which we address is that 

the district court incorrectly directed a verdict in favor of 

Allied on the claim for breach of oral agreements. General Poly 

alleges that Allied and General Poly entered into an oral 

agreement whereby "Allied would: (i) deliver an HMW resin by the 

end of 1979; (ii) develop a Hoescht-quality resin by that time; 

(iii) sell the new resin to General Poly on 90-day credit terms; 

and (iv) sell it to General Poly for one to two cents over the 

price of injection molding." Appellee's Br. at 86. According to 

General Poly, Allied breached these agreements because "the prime 

resin was not ready for delivery by the end of 1979, Hoeschtquality was not reached until May 1981, and then Allied cut off 

all credit." Id. 

The text of the district court's ruling is set forth in the 

previous subsection. The district court concluded that because 

General Poly accepted the off-grade resin without notifying Allied 

that it considered delivery of such-goods to constitute breach, 

General Poly's claim for breach of the oral agreement was barred 

under sections 2-606 through 2-608 of the u.c.c. In addition, the 

district court stated, 

As to the oral contract, which is suggested here as 

terms reached in January of 79', and which go hand in 

glove with the written agreement, I have also said in 

this case, again in the commercial setting, that there 

is no showing here that Defendants, through their 

representatives, have accepted them, particularly that 

portion which would address price or time of delivery. 

Simply said: there has been no meeting of minds shown. 

R. Vol. 41 at 4588. 

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General Poly argues that the following evidence presented at 

trial constituted "direct evidence" of Allied's agreement to the 

terms of the oral contract. According to the testimony of General 

Poly's Hans Traver, Allied's Bonin stated that the ninety-day 

credit terms were deliberately omitted from the secrecy agreement 

to avoid the risk of other Allied customers discovering General 

Poly's favorable relationship with Allied. R. Vol. 11 at 664. On 

January 11, 1979, Allied's Bonin drafted a file memorandum in 

which he wrote that the General Poly representatives "indicated 

they would buy at least 50% and possibly all their resin 

requirements from Allied if we have a satisfactory product when 

they start up in October 1979. 11 Plaintiff's Ex. 129 (First 

Addendum to Appellee's Br., Doc. 6 at 2). On January 23, W.P. 

Prince, a technical manager at Allied, wrote an Allied internal 

memorandum in which he stated "General Poly has agreed to work 

with us in developing HDPE film resins. Indications are that we 

can obtain 50% of their business if we have a suitable material by 

the time they start up in late 1979. 11 Plaintiff's Ex. 138, 

Addendum to Appellee's Br., Doc. 9; see R. Vol. 11 at 650 

(testimony of Hans Traver); R. Vol. 24 at 2231-32 (same). 

Finally, a promotional article approved by Allied's Paul Heath 

claimed that "General Poly received a promise from Allied Chemical 

that a domestic supply of HMW HOPE would be available by the time 

the company began operation." Plaintiff's Ex. 1364, Addendum to 

Appellee's Br., Doc. 28; see R. Vol. 31 at 2981 (testimony of Paul 

Heath). 

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This evidence is not sufficient to establish specific terms 

of an oral argument, particularly with regard to price, terms of 

delivery, quality, and quantity, such that a jury could conclude 

that the parties had a meeting of the minds on an oral agreement. 

Further, the oral agreement that General Poly now asserts is 

contrary to the written agreement and the conduct of the parties. 

In addition, the district court's ruling may be affirmed because 

General Poly accepted the off-grade resin without notifying Allied 

that delivery of the nonconforming goods constituted a breach. 

The district court determined that General Poly "ordered and 

reordered time and again certain off-weight resins from Allied, 

received them, knowing they were off-weight, accepted them as offweight, used them without any remonstration or complaint or 

attempts to set·aside the terms of the agreement or to claim that 

the terms had been breached." R. Vol. 41 at 4587-88. The court 

concluded that such conduct barred General Poly's action for 

breach of the oral contract under u.c.c. provisions§§ 2-606, 

2-607 and 2-608. 

The U.C.C., as incorporated by Kansas, 11 provides: 

11 As discussed above, the written agreement contains a choice 

of law provision stipulating that the law of New York shall govern 

all disputes. In denying Allied's motion for summary judgment on 

the oral contract claim, the district court applied New York law 

in deciding the parole evidence questions. See Rajala v. Allied 

Corp., 66 Bankr. 582, 589-598 (1986). However, on appeal neither 

party has suggested that New York's law controls the independent 

oral contract claim. Rather, both parties have cited with 

approval the provisions of the u.c.c. incorporated in the Kansas 

statutes. See Appellant's Reply Br. at 67 n. 104; Appellee's Br. 

at 87, n.80. In any event, because the relevant provisions of the 

U.C.C. under the New York Statutes are identical to those of 

Kansas, we need not decide the choice-of-law question. See N.Y. 

U.C.C. Law§§ 2-607, 2-712 (Consol. 1990). 

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Where a tender has been accepted the buyer must within a 

reasonable time after he discovers or should have 

discovered any breach notify the seller of breach or be 

barred from any remedy. 

Kan. Stat. Ann. § 84-2-607(3)(a) (1983) (emphasis added). As the 

district court noted, General Poly repeatedly ordered the offgrade resin from Allied without ever suggesting that the failure 

to deliver prime resin on favorable terms by the fall of 1979 

breached the oral agreements. General Poly is unable to direct 

our attention to any evidence in the record demonstrating that it 

notified Allied that it regarded delivery of the off-grade resin 

to constitute a breach. Instead, General Poly argues that its 

acceptance of the off-grade resin was "cover" under Kan. Stat. 

Ann • § 8 4-2 - 7 12 ( 1 ) ( 19 8 3 ) . 

Although a buyer may obtain cover from the breaching seller, 

that in no way removes the buyer's obligation to notify the seller 

of the alleged breach after a tender. under Section 2-607(3)(a). 

Moreover, Section 2-712(1) states that a buyer may seek cover only 

after a breach under Section 2-711. A breach within Section 2-711 

only occurs where "the seller fails to make delivery or repudiates 

or the buyer rightfully rejects or justifiably revokes 

acceptance." Kan. Stat. Ann. § 84-2-711(1) (1983). General Poly 

is unable to point to evidence in the record upon which a 

reasonable jury could properly find that it rejected the off-grade 

resin tendered by Allied because it was in violation of the 

asserted oral contract or otherwise notified Allied that it 

regarded delivery of such goods as a breach of the asserted oral 

contract. For all these reasons, we affirm the district court's 

ruling directing a verdict in favor of Allied on this claim. 

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SUMMARY AND CONCLUSION 

We REVERSE the judgment in favor of General Poly on the claim 

for breach of fiduciary duty. We AFFIRM the district court's 

ruling directing a verdict in favor of Allied on General Poly's 

claims for fraud. We AFFIRM the directed verdict on the 

conversion claim. We AFFIRM the district court's ruling directing 

a verdict in favor of Allied on General Poly's claim for breach of 

the written agreement. Finally, we AFFIRM the directed verdict on 

the oral contract claim. We do not reach any of the other issues 

raised by the parties because the foregoing rulings and the 

subsidiary rulings contained therein are dispositive of these 

appeals. Accordingly, the case is REMANDED to the district court 

with orders that judgment be entered consistent with this opinion. 

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