Opinion ID: 551885
Heading Depth: 2
Heading Rank: 3

Heading: The Fraud Claim Arising From the Rail Car Exchange

Text: 144 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.
145 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 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. 146 Traver testified that he then dictated a memorandum in the presence of Wiley and Jecha. Id. That memorandum provides, in relevant part, as follows: 147 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. 148 .... 149 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. 150 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: 151 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. 152 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. 153 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: 154 Shortly after you left, we received a phone call from Kurby, who advised me as follows: 155 1.) The material which we tested here in our plant and liked very much, namely lot # 103 8 and lot # 154008, were never available in hopper car quantities. 156 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 48cents. 157 3.) There was a hopper car available with an impact strength of 260, classified as off-grade at 38cents. This is the material for which we have placed purchase order # 670, and for ease of identification we designated the resin as 4100-260. 158 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. 159 Kurby also explained that you expect to make a new run in July. 160 In view of the above, I see the situation like this: 161 1.) At this time, Allied has no prime resin with the properties we are looking for. 162 2.) We are again placing an order for splity (sic) resin, which we will need to blend off with a competitive material. 163 3.) We need to wait til (sic) after the July run to know what resin properties we can expect from Allied. 164 4.) Your price for prime, when available, will be 48cents. 165 Plaintiff's Ex. 1586, Addendum to Appellant's Br., Doc. 32. 166 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 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. 167 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. 168
This court has previously recognized that 169 [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. 170 Mackey v. Burke, 751 F.2d 322, 328 (10th Cir.1984) (quoting Modern Air Conditioning, Inc. v. Cinderella Homes, Inc., 226 Kan. 70, 78, 596 P.2d 816, 824 (1979)). In Mackey, 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 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. 171 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. 172 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 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 up. 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 less 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. 173