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PAPER CORP., U.S. v. SCHOELLER TECH.

March 26, 1991

PAPER CORPORATION OF THE UNITED STATES, PLAINTIFF,
v.
SCHOELLER TECHNICAL PAPERS, INC., DEFENDANT.



The opinion of the court was delivered by: Sweet, District Judge.

OPINION

Plaintiff Paper Corporation of the United States ("Paper Corporation") has moved pursuant to Rule 15, Fed.R.Civ.P. to amend its complaint in its action against defendant Schoeller Technical Papers, Inc. ("Schoeller") as well as to compel discovery from Schoeller pursuant to Rule 37, Fed.R.Civ.P. The instant motions mark another round in the litigation between the sales representative, Paper Corporation, and the manufacturer, Schoeller, that arose out of an alteration in their relationship. For the reasons set forth below, the motion to amend is denied, and the motion to compel is granted in part and denied in part.

PRIOR PROCEEDINGS

The motion to amend comes in response to the court's opinion of July 10, 1990, (the "Amended Complaint Opinion"), granting in part and denying in part Schoeller's motion to dismiss Paper Corporation's amended complaint.

The Amended Complaint Opinion dismissed all claims except the breach of contract claim as it related to Hallmark, and the quantum meruit claim based on the Hallmark account.*fn1 The Amended Complaint Opinion noted:

  While it is unlikely that further discovery will
  change the position of the parties, such a change
  is possible. In the event of additional
  information, a further amendment may be proposed
  by motion.

Paper Corporation of United States v. Schoeller Technical Papers, 742 F. Supp. 808, 814 (S.D.N.Y. 1990) ("Schoeller II"). This court had previously granted and part and denied in part Schoeller's motion to dismiss the original complaint in an opinion of October 11, 1989, (the "Opinion"). Paper Corporation of United States v. Schoeller Technical Papers, Inc., 724 F. Supp. 110, 117 (S.D.N.Y. 1989) ("Schoeller I").

Since the filing of the Amended Complaint Opinion, discovery proceeded until the cut-off date of November 30, 1990. On November 19, 1990, Paper Corporation filed its motion for leave to file a second amended complaint. Oral argument on the motion to amend was heard on December 7, 1990, and the motion was considered fully submitted as of that date.

On February 19, 1991, Paper Corporation moved to compel discovery. The court heard oral argument on the discovery motion on February 22, 1991. The court will address both motions in this opinion.

THE FACTS

Familiarity with the background of this dispute is assumed, as the court has previously set forth the history of the market conditions and the relationship between Paper Corporation and Schoeller in the Opinion. The following factual recitation assumes the facts as alleged by Paper Corporation in its proposed second amended complaint as submitted in connection with this motion. This statement of facts will therefore be limited to placing in context only those facts as alleged by Paper Corporation that are new.

Paper Corporation — a division of Paper Corporation of America — is a Delaware Corporation with its principal place of business in Valley Forge, Pennsylvania. Paper Corporation is an independent distributor of paper products. Among the companies for which Paper Corporation serves as a distributor is Schoeller. Paper Corporation has been distributing Schoeller products to manufacturers of "every day greeting cards" (the "greeting card business") since 1964. Among Paper Corporation's accounts in the greeting card business is Hallmark Cards, Incorporated ("Hallmark").

In 1979, Paper Corporation began distributing Schoeller polycoated paper products in markets other than the photographic paper market (the "polycoated business"). Among Paper Corporation's accounts in the polycoated business is Avery International Fasson Division ("Fasson").

Schoeller is a wholly-owned subsidiary of Felix Schoeller, Jr. Gmbh ("FSG"), a German corporation. Before February 1986, FSG had only a 50% interest in Schoeller, with Mead Corporation ("Mead") owning the other half. In February, 1986, Mead sold its interest in Schoeller to FSG (the "acquisition").

At a management meeting held shortly after the acquisition, Hans Michael Gallenkamp ("Gallenkamp"), the chief executive officer of FSG as well as the chairman of the board of Schoeller, called a meeting of Schoeller's management. Present at the meeting were, among others, Arlon King ("King"), a member of Schoeller management. King and Gallenkamp agreed and decided that Schoeller would terminate Paper Corporation as a sales agent.

Anticipating, however, that such termination might harm Schoeller if Paper Corporation, knowing of the termination, went ahead and found other suppliers for its customers, King and Gallenkamp devised a plan to avert such harm. They decided to keep secret Schoeller's intention to terminate its relationship with Paper Corporation pending management's resolution of various issues relating to the acquisition, until such time as Schoeller management could ascertain that, in the event that Paper Corporation continued to secure price and volume commitments from customers, such customers would continue to honor such commitments despite the termination of Paper Corporation.

One of the issues which Gallenkamp and King sought to resolve was the termination of STP's then president, Richard O. Gall ("Gall"). Gall supported Schoeller's relationship with Paper Corporation, and so Gallenkamp and King took the decision not to inform Gall of their plans for Paper Corporation's termination, and, moreover, to engineer his departure.

THE GREETING CARD BUSINESS

In 1986, at a meeting following the Schoeller management meeting, Gallenkamp assured Robert F. Fitzgerald ("Fitzgerald"), the President of Paper Corporation, that Schoeller would continue to sell greeting card paper through Paper Corporation for a minimum of eight to 10 more years. Gallenkamp did not at this time disclose to Fitzgerald his intent to terminate Paper Corporation once it had secured from customers future commitments for Schoeller products.

In the spring of 1987, Gallenkamp and FSG became aware of increased demand for the photographic paper produced by FSG. To fill that demand, FSG management determined to commit Schoeller to producing photographic paper rather than greeting card paper. Gallenkamp accordingly asked Gall to arrange for Paper Corporation to announce to customers that Schoeller intended to stop producing greeting card papers. When it later became clear that Schoeller would not be experiencing as much increased demand in the photographic paper business as anticipated, Schoeller management decided that Schoeller would have to attempt reentry in to the greeting card business. Schoeller asked Paper Corporation to effect reentry.

In March of 1988, Paper Corporation negotiated with its customer Hallmark a price increase on Schoeller's behalf. The following month, Fitzgerald warned Gary Richmond of Schoeller that the recent price increases were endangering the Hallmark account. Schoeller accordingly revised its procedures for filling Hallmark's orders.

In May 1988, Gallenkamp requested Gall's resignation. Gerald Kempner ("Kempner") replaced Gall as President of Schloeller.

On approximately June 29, 1988, Schoeller wrote to Paper Corporation enclosing an internal memorandum of Schoeller confirming Schoeller's guarantee to sell to Hallmark through Paper Corporation 4,000 tons in 1988, 6,000 tons in 1989, and 5,000 tons per year "in 1990 and beyond." The letter requested discussions with Paper Corporation regarding Schoeller's proposed pricing structure through April 1989.

At a meeting between Kempner, King, and Robert Bishop ("Bishop"), manager of production services for Schoeller, and Fitzgerald, Fitzgerald advised the Schoeller representatives that Hallmark wanted Schoeller's five year commitment expressed in writing. On approximately August 18, 1988, Kempner wrote to Fitzgerald "to reiterate our commitment to supply Hallmark with greeting card paper in the following quantities . . .".

In anticipation of a meeting between Paper Corporation and Hallmark on September 30, 1988, Fitzgerald requested that Schoeller outline areas of discussion. In a letter to Fitzgerald responding to Fitzgerald's request, King reiterated the commitment made by Kempner on August 18, 1988, and stated that Schoeller looked forward to "the continuation of ...


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