Court Opinion

ID: 1010130
Source: CourtListenerOpinion
Date Created: 2013-07-04 20:06:49.581558+00
Date Added: 2024-06-11T09:36:58.545968
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT

SARA LEE CORPORATION,                  
                Plaintiff-Appellee,
                 v.
QUALITY MANUFACTURING,                           No. 02-1565
INCORPORATED; QUALITY DE SABINAS,
S.A. DE C.V.,
              Defendants-Appellants.
                                       
            Appeal from the United States District Court
       for the Middle District of North Carolina, at Durham.
                William L. Osteen, District Judge.
                         (CA-00-1234-1)

                      Argued: February 26, 2003

                      Decided: March 27, 2003

      Before WIDENER, KING, and SHEDD, Circuit Judges.

Affirmed by unpublished per curiam opinion.

                             COUNSEL

ARGUED: Amiel J. Rossabi, FORMAN ROSSABI BLACK,
Greensboro, North Carolina, for Appellants. Kristin Moore Major,
KILPATRICK STOCKTON, L.L.P., Winston-Salem, North Carolina,
for Appellee. ON BRIEF: Mark A. Stafford, KILPATRICK STOCK-
TON, L.L.P., Winston-Salem, North Carolina, for Appellee.
2                SARA LEE v. QUALITY MANUFACTURING
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

                               OPINION

PER CURIAM:

   Quality Manufacturing, Inc. and Quality de Sabinas, S.A. de C.V.
("Quality") appeal the district court’s entry of summary judgment in
favor of Sara Lee Corporation ("Sara Lee") on Quality’s claim for
unfair or deceptive trade practices pursuant to N.C. Gen. Stat. § 75-
1.1 (2002) ("Chapter 75"). We affirm.

                                     I

   This case arises from the business relationship that existed between
the parties for nearly a decade. Sara Lee manufactures and sells
apparel through its unincorporated division, Hanes Printables. From
the early 1990s until December 2000, Quality operated a garment
assembly operation in Mexico. The parties began working together in
the early 1990s pursuant to a series of written agreements that each
lasted for 12-18 months. Under these agreements, Sara Lee would
acquire and ship "cut parts" and related textile materials to Quality;
in turn, Quality would assemble the materials into blank sports shirts
for Sara Lee to sell. Although not required by the agreements, assem-
bling shirts for Sara Lee was Quality’s only line of business.1

   In January 1998, Sara Lee became contractually bound to purchase
cut parts and related materials from National Textiles for all of its
self-owned production plants and for its contractors, including Qual-
ity. Quality contends that after January 1998, it began receiving an
insufficient quantity of cut parts and materials, which caused it to
have shortfalls in its production output.
    1
   Besides sports shirts, Quality also produced a line of T-shirts for Sara
Lee (discussed below). Although Quality began a prototype production
of an outside line of sweater-jackets in 1998, it shut down this line at
Sara Lee’s request.
                 SARA LEE v. QUALITY MANUFACTURING                    3
   In 1997, 1998, and 1999, Quality signed agreements and returned
them to Sara Lee. However, Quality contends that it received no indi-
cation that Sara Lee also signed these agreements. Regardless, the
parties continued their business relationship during this period and, in
the spring of 1999, Sara Lee expressed its intent to enter into another
agreement with Quality.

   In mid-1999, the parties entered into discussions about Quality
beginning a T-shirt product line for Sara Lee. Sara Lee agreed to sell
the necessary equipment to Quality for approximately $39,000, and
Quality agreed to begin producing T-shirts during the first part of
2000.

   In January 2000, Quality requested a loan of $200,000 from Sara
Lee in order to avoid closing its plant. At that time, Quality was pro-
ducing approximately 75% of Sara Lee’s sports shirts. Sara Lee
agreed to lend Quality $100,000, but it began to have concerns at this
point about its relationship with Quality, and it began to explore plac-
ing more of its shirt production with other suppliers.

   The parties entered into their final agreement (the "2000 agree-
ment") in March 2000. Sara Lee had presented a draft of this agree-
ment to Quality in November 1999, and eventually informed Quality
that if Quality did not sign it, Sara Lee would terminate the parties’
relationship. This agreement was similar in most respects to the par-
ties’ prior agreements. Among other things, this agreement required
Sara Lee on a monthly basis to provide Quality with a production
schedule containing the production requirements for the next three
months. The production schedule was subject to review and revision
each month at Sara Lee’s sole discretion. This agreement further pro-
vided that Sara Lee was under no obligation to use Quality on an
exclusive basis or to purchase a minimum number of products from
Quality. The agreement’s scheduled termination date was December
31, 2000.

   Shortly after the parties entered the 2000 agreement, Quality asked
Sara Lee for a gift of $250,000 and threatened to close its plant unless
Sara Lee obliged. Sara Lee refused, but as an alternative proposed an
increase in the assembly price it paid to Quality as a means to supple-
ment Quality’s revenue. Quality presented Sara Lee with a plan in
4                SARA LEE v. QUALITY MANUFACTURING
accord with Sara Lee’s proposal, and Sara Lee agreed to the new
price schedule on May 31, 2000. The following day Quality wrote
Sara Lee a letter stating that it was Quality’s goal to build sports shirt
production to 10,000-12,000 dozen per week. Throughout the parties’
relationship, Quality was rarely able to produce more than approxi-
mately 8,000 dozen sports shirts per week.

   By the late summer of 2000, Sara Lee determined that because of
a weakening in the sports shirt market, it no longer needed the shirts
produced by Quality. Thus, in August 2000, Sara Lee informed Qual-
ity that upon the expiration of the 2000 agreement, it would not renew
its relationship with Quality. As a result of the non-renewal, Quality
shut down its plant in mid-December 2000.

   In December 2000, Sara Lee commenced this litigation seeking a
declaratory judgment that it had no liability to Quality arising from
their business relationship and asserting claims against Quality for
breach of contract and unjust enrichment. Quality answered the com-
plaint and also filed counterclaims for breach of contract, breach of
the covenant of good faith and fair dealing, breach of fiduciary duty,
and constructive fraud. Quality subsequently added a counterclaim for
a Chapter 75 violation.

   Both parties moved for summary judgment. Sara Lee sought sum-
mary judgment on its claim for declaratory relief and all of Quality’s
counterclaims. Quality sought summary judgment on Sara Lee’s
breach of contract and unjust enrichment claims. The district court
granted both motions by memorandum opinion and entered judgment
accordingly. Quality appeals only the dismissal of its Chapter 75
claim.

                                    II

   Federal Rule of Civil Procedure 56(c) provides that a summary
judgment "shall be rendered forthwith if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any mate-
rial fact and that the moving party is entitled to a judgment as a matter
of law." We review a district court’s grant of summary judgment de
novo, viewing all facts and inferences in a light most favorable to the
                  SARA LEE v. QUALITY MANUFACTURING                        5
nonmoving party. Haulbrook v. Michelin North America, 252 F.3d
696, 702 (4th Cir. 2001).

   Chapter 75 prohibits "[u]nfair methods of competition in or affect-
ing commerce, and unfair or deceptive acts or practices in or affecting
commerce." N.C. Gen. Stat. § 75-1.1(a). The Supreme Court of North
Carolina recently discussed the requirements for a Chapter 75 claim:

      In order to establish a prima facie claim for unfair trade
      practices, a plaintiff must show: (1) defendant committed an
      unfair or deceptive act or practice, (2) the action in question
      was in or affecting commerce, and (3) the act proximately
      caused injury to the plaintiff. A practice is unfair if it is
      unethical or unscrupulous, and it is deceptive if it has a ten-
      dency to deceive. The determination as to whether an act is
      unfair or deceptive is a question of law for the court.

Dalton v. Camp, 548 S.E.2d 704, 711 (N.C. 2001) (citations omitted).
Chapter 75 only applies where the plaintiff pleads and proves some
type of "egregious" or "aggravating" circumstances. 548 S.E.2d at
711.

   In rejecting Quality’s Chapter 75 claim, the district court noted that
it had already ruled as a matter of law against Quality on the claims
for breach of contract, violation of the covenant of good faith and fair
dealing, breach of fiduciary duty, and constructive fraud,2 and it then
found that Quality had not offered any evidence of aggravating cir-
cumstances that would amount to a Chapter 75 violation.3 Our review
  2
     The district court expressly found, among other things, that Sara Lee
did not breach the 2000 agreement because that agreement did not bind
Sara Lee to purchase a guaranteed number of shirts from Quality. The
district court also found that Sara Lee did not violate the duty of good
faith and fair dealing because Sara Lee provided Quality with sufficient
cut parts to meet the production schedules and because Sara Lee was
under no obligation to disclose to Quality its future production plans. The
district court further found that the parties’ mutual interdependence did
not give rise to a fiduciary duty on Sara Lee’s part.
   3
     In light of this ruling, the district court was not required to consider
the commerce and proximate cause elements of the Chapter 75 claim,
and those matters are not before us.
6                SARA LEE v. QUALITY MANUFACTURING
of the record leads us to conclude that the district court’s ruling is cor-
rect.

                                    III

   Quality’s Chapter 75 claim centers on its theory that despite the
parties’ agreements, Sara Lee acted in a manner that was destined, if
not designed, to cause Quality’s ultimate failure. Quality asserts that
it produced evidence of a scheme by Sara Lee to ensure Quality’s
high level of production until Sara Lee’s self-owned facilities were at
full capacity, as well as evidence that Sara Lee deliberately steered
non-defective cut parts and materials to its own facilities at the
expense of Quality’s production. Quality’s general theory appears pri-
marily to encompass three specific categories of alleged unfair or
deceptive conduct by Sara Lee.

                                    A.

   Quality first points to the nature of the relationship between the
parties, asserting generally that the agreements between the parties
were "onerous and one-sided," and that Sara Lee constantly involved
itself into, and even directed, Quality’s activities. Specifically, Qual-
ity contends that Sara Lee: (1) assisted in the creation of Quality, (2)
regularly provided equipment and materials to Quality, (3) provided
personnel to oversee Quality’s manufacturing process, (4) conducted
frequent operations meetings and quality reviews, (5) demanded
exclusivity from Quality, (6) required Quality to receive all cut parts
and materials from, or at the direction of, Sara Lee, (7) dictated one-
sided agreements that afforded little protection to Quality, and (8)
threatened to terminate the parties’ entire relationship if Quality did
not sign the 2000 agreement. Quality states that its "economic fate"
was therefore tied to Sara Lee.

   Although there can be little doubt that Quality’s economic fate
was, under the circumstances, tied to Sara Lee,4 we find nothing in
the record to substantiate Quality’s contention that Sara Lee’s overall
    4
   This is particularly true when consideration is given to Quality’s
demands for a loan and a gift of money, both of which Sara Lee con-
sented to in a manner that appears to have been satisfactory to Quality.
                 SARA LEE v. QUALITY MANUFACTURING                     7
relationship with Quality was somehow unfair or deceptive. Quality’s
assertions that Sara Lee may have had significant involvement with
Quality’s operations reveal nothing more than the fact that Sara Lee
worked with Quality in an effort to ensure that the parties’ agreement
would be successful. Quality’s assertion that Sara Lee demanded
exclusivity is contrary to the evidence in the record (notably the 2000
agreement) and, in any event, is not unfair. The fact that Quality was
required to obtain its cut parts through Sara Lee simply reflects the
term of the agreements the parties entered, and it is not unfair or
deceptive. Finally, Quality’s assertion that Sara Lee dictated the par-
ties’ agreements and threatened to terminate their relationship if Qual-
ity did not sign the 2000 agreement simply does not, under the
circumstances of this case, constitute conduct that is unfair or decep-
tive for purposes of Chapter 75.

                                   B.

   Quality next points to Sara Lee’s alleged failure to ensure that
Quality received sufficient non-defective cut parts. Quality asserts
that after January 1998, when Sara Lee became contractually bound
to purchase all cut parts and related materials from National Textiles
for Sara Lee’s self-owned plants as well as for Sara Lee’s contractors
(including Quality), Sara Lee controlled the output of materials com-
ing from National Textiles, and Sara Lee ensured that its internal
manufacturing facilities received sufficient non-defective cut parts
and materials. Quality argues that Sara Lee did not provide it with the
same protection, and Sara Lee’s failure to do so led to Quality’s pro-
duction problems.

   We find this contention to be without merit. Sara Lee produced evi-
dence establishing that Quality had sufficient cut parts in its inventory
to meet the production schedules throughout the calendar year 2000.
Despite having this inventory, Quality was unable to meet the produc-
tion levels listed on the production schedules. Quality has not directed
us to any evidence to establish that Sara Lee either requested or
instructed National Textiles to send (or cause to be sent) insufficient
cut parts to Quality.

                                   C.

   Finally, Quality contends that Sara Lee’s termination of the parties’
relationship was unfair and deceptive. Quality argues that while Sara
8                SARA LEE v. QUALITY MANUFACTURING
Lee was secretly increasing its sports shirt production in its self-
owned plants with the goal of replacing Quality, it nonetheless
induced Quality to begin production of T-shirts in Spring 2000 and
to purchase equipment and invest capital to organize and train produc-
tion lines.

   Again, we find Quality’s contention to be meritless. The evidence
shows that as early as 1998, Quality was aware that Sara Lee was
increasing its in-house sports shirt operation. By the summer of 2000,
following Quality’s successful demands for a loan and price conces-
sions from Sara Lee, the demand for sports shirts had dropped precip-
itously. At that point, Sara Lee exercised its contractual right and
chose not to renew the parties’ agreement. Other than Quality’s asser-
tion, there is nothing to suggest that the parties’ T-shirt agreement or
Sara Lee’s decision to terminate the parties’ relationship was part of
any scheme to injure Quality, and we find nothing to support Quali-
ty’s assertion that Sara Lee acted unfairly or deceptively.

                                   IV

  In summary, we conclude that the district court correctly deter-
mined that Quality failed to present sufficient evidence to support its
Chapter 75 claim. Accordingly, we affirm the judgment of the district
court.5

                                                             AFFIRMED
    5
    Like the district court, we do not reach Sara Lee’s alternative argu-
ment that Chapter 75 is inapplicable because Quality did not suffer an in-
state injury.