L & M Enterprises v. BEI Sensors & System, 231 F.3d 1284, 10th Cir. (2000)

F I L E D
United States Court of Appeals

Tenth Circuit
PUBLISH
NOV 16 2000
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT
PATRICK FISHER
Clerk
L & M ENTERPRISES, INC.,

Plaintiff - Appellant,
v.
BEI SENSORS & SYSTEMS

COMPANY, Edcliff Instruments
Division,
No. 99-3146
Defendant - Appellee.
Appeal from the United States District Court
for the District of Kansas
(D.C. No. 98-CV-1100)
Christopher W. OBrien of Robbins, Tinker, Smith & Tinker, Wichita, Kansas, for
Plaintiff-Appellant.
Ronald K. Badger, Wichita, Kansas (Vince P. Wheeler of Kahrs, Nelson, Fanning,
Hite & Kellogg, Wichita, Kansas, with him on the brief) for Defendant-Appellee.
Before BALDOCK, MAGILL * and LUCERO, Circuit Judges.
LUCERO, Circuit Judge.
The Honorable Frank J. Magill, Senior Circuit Judge, United States Court
of Appeals for the Eighth Circuit, sitting by designation.
*
This case arises out of the termination of an exclusive distribution

agreement between defendant-appellee BEI Sensors & Systems Company (BEI)
and plaintiff-appellant L & M Enterprises, Inc. (L & M). L & M appeals the
district courts grant of summary judgment for BEI on claims under Kansas law
for breach of contract, as well as tortious interference with a contract and
prospective business advantage. Exercising jurisdiction pursuant to 28 U.S.C.
1291, we affirm.
I
The facts of this case for summary judgment purposes, as found by the
district court, are set forth in
L & M Enterprises, Inc. v. BEI Sensors & Systems
Co. , 45 F. Supp. 2d 879, 881-85 (D. Kan. 1999), and, because the parties do not
take issue with the district courts findings, we do not repeat those facts in detail
here. BEI manufactures, and L & M distributes, aircraft-related items.
In
September 1994, the parties entered into an agreement naming L & M as the
exclusive distributor of two BEI-produced repair kits for certain flight
instruments.
The agreement itself contained no payment terms; however, L & M
initially submitted purchase orders providing for payment net 30, whereas BEI
submitted invoices initially providing for payment net 30 but later net 45.
Id. at 882. Beginning in 1995, BEI became concerned with L & Ms nonpayment of bills, although the parties dispute the exact timing and nature of the
-2-
communications regarding late payments. In particular, L & M contends that BEI

shipped kits ahead of schedule to meet financial goals and, in return, agreed to
accept payment when L & M sold the kits, rather than under the invoice terms. It
is undisputed, however, that by October 31, 1995, L & M owed BEI more than
$400,000, over $200,000 of which was from accounts at least 91 days past
shipping.
In early November 1995, the parties reached an agreement regarding
L & Ms payments of the past due amounts, as well as payment for future
shipments. BEI claims these future shipments were to be paid within forty-five
days; L & M asserts there was oral discussion of a sixty-day time frame.
L & Ms only citation to the record on this point is to the district courts order
rejecting its claim that 60 days had been mentioned during the parties
negotiations. (Appellants Br. at 8 (citing Appellants App. at 309)
.) Our
review of the record indicates that both L & Ms treasurer, Larry Widmer, and
L & Ms president, Bill Lewis, testified that they were unsure whether the
November 1995 agreement had been for a forty-five or a sixty-day payment
period. In contrast to these uncertain recollections, the district court noted that
L & Ms purchase orders submitted after the parties November 1995 agreement
reflect that payment was due net 30. And, BEIs invoices indicate payment was
due net 45.
L & M Enters. , 45 F. Supp. 2d at 882-83. L & M does not dispute

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these findings. Because neither partys behavior subsequent to the November

1995 agreement comports with a sixty-day payment term, we agree with the
district court that L & M has failed to raise a material dispute as to the Net 45
Days term established by BEIs invoices.
In late December 1995 and mid-January 1996, BEI shipped fifty-five kits
to L & M. None of the total due was paid within forty-five days of shipment and
over half was still outstanding after sixty days. L & M argues that because the
kits were shipped ahead of its requested shipping date, it was not required to
make payment until it received payment from its customer.
Again, however,
L & M fails to identify in its brief the portion of the record allegedly supporting
this claim. Review of the record reveals that L & M relies on the testimony of
L & M President Lewis. Lewiss testimony on this point was [w]hen early
shipments were received most of the time they were received in pretty much open
ended terms. . . . [T]he invoices were due and payable at some time after those
parts shipped to our customer. (Appellants App. at 175.) However, further
id. ),
review of Lewiss testimony suggests that it refers to Cessna parts, (

which were not subject to the Distribution Agreement at issue,
L & M Enters. ,
45 F. Supp. 2d at 882 n.1. The relevance of this vague testimony as to an

alleged, apparently oral, agreement for open ended payment terms is
undermined both by the uncontroverted written payment terms of the invoices
-4-
and by Lewiss own testimony. At his deposition, Lewis agreed that the relevant
November 1995 agreement obligated L & M to pay within a
definite time period
that started running on the date of the BEI invoice. L & M thus fails to establish
a dispute of material fact as to the payment terms for early shipments after the
November 1995 agreement.
One of L & Ms customers was Tesco, which needed BEI kits for a
government contract.
In early February 1996, an L & M representative contacted
BEIs marketing director, Albert Hazan, regarding an order Tesco placed in midJanuary. According to L & M, Hazan stated he would not ship the kits unless
L & M agreed to pay $300 above the previously agreed upon price.
Ralph
Challoner, Tescos director of business operations, called L & M to ask why the
kits Tesco ordered were not being delivered. Challoner was told BEI was not
sending L & M kits due to problems at BEI.
Challoner then called BEI directly
and was led to believe BEI was trying to work with L & M to resolve BEIs and
L & Ms difficulties, not that BEI was terminating L & M as a distributor.
After
Challoners call to BEI in February 1996, a BEI representative called Lewis and
Larry Widmer of L & M, proposing that BEI sell the parts directly to Tesco and
pay the commission or work out the difference with L & M.
Id. L & M claims it
never authorized BEI to sell the kits to Tesco outside the Distribution Agreement.
-5-
L & M contends that Challoner again spoke by telephone with BEIs Hazan
in mid-February 1996 and that during this conversation Hazan stated that BEI
would fulfill any and all [of Tescos] requirements.
did not solicit Tescos business.
Id. at 884. BEI claims it
However, on February 22, 1996, Tesco issued a
purchase order directly to BEI for twenty kits, which were shipped the next day.
At some point in early 1996, L & Ms attorney prepared a Memorandum
of Understanding Between BEI and L & M Enterprises, Inc. that was different
from the November 1995 agreement.
Id. The 1996 memorandum stated that BEI
and L & M were seeking to maintain their business relationship, provided for
payment of amounts due to BEI with personal guarantees from L & M
Management, and indicated that a new Distribution Agreement would be
negotiated. Id. An Agreement to Repay Debt and a Guaranty Agreement for
Payment Under Agreement to Repay Debt were prepared and a new
Distribution Agreement was negotiated, all of which L & M faxed to BEI on
March 12, 1996.
Id. L & M officers had signed the Agreement to Repay Debt
and the Distribution Agreement, but one L & M officer had not signed the
Guaranty. On March 14, 1996, another Guaranty, which included all necessary
signatures, was prepared but never sent to BEI.
That same day, L & M sent a
letter to BEI stating that the documents faxed to BEI on March 12, 1996, were
withdrawn and of no further force and effect.
-6-
Id. L & M claims its change of
heart was due to its discovery that BEI had shipped items directly to Tesco in
violation of the Distribution Agreement.
After receiving the letter, BEI decided to discontinue doing business with
L & M and, on April 3, 1996, sent L & M a Notice of Cancellation canceling
the 1994 Distribution Agreement for failing to pay amounts due and a Notice of
Termination terminating the 1994 Distribution Agreement, effective 120 days
from the date of the notice.
Id.
II
We review[] the grant or denial of summary judgment de novo, applying

the same legal standard used by the district court.
Kaul v. Stephan , 83 F.3d
1208, 1212 (10th Cir. 1996) (citation omitted). That standard is set forth in Fed.
R. Civ. P. 56(c): Summary judgment is appropriate 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 material fact and
that the moving party is entitled to a judgment as a matter of law. In reviewing
a summary judgment motion, the court is to view the record in the light most
favorable to the nonmoving party.
Thournir v. Meyer , 909 F.2d 408, 409 (10th
Cir. 1990) (citation omitted). The purpose of a summary judgment motion,

unlike that of a motion to dismiss, is to determine whether there is evidence to
support a partys factual claims. Unsupported conclusory allegations thus do not
-7-
create a genuine issue of fact.
See United States v. Simons , 129 F.3d 1386,
1388-89 (10th Cir. 1997) (citing
Allen v. Muskogee, Okla. , 119 F.3d 837, 843-44
(10th Cir. 1997)). To withstand summary judgment, the nonmoving party must
come forward with specific facts showing that there is a genuine issue for trial.
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.
, 475 U.S. 574, 587 (1986)
(quoting Fed. R. Civ. P. 56(e)).

III
Kansas Stat. Ann. 84-2-703(f) provides that [w]here the buyer . . . fails
to make a payment due on or before delivery[,] . . . then with respect to any
goods directly affected and, if the breach is of the whole contract[,] . . . then also
with respect to the whole undelivered balance, the aggrieved seller may . . .
cancel. Unlike termination under U.C.C. 2-309, cancellation under 2-703(f)
for failure to pay does not require prior notice to a buyer.
Air Specialists, Inc. v. Jones
See, e.g. , Heating &
, 180 F.3d 923, 933 (8th Cir. 1999);
Therapeutics, Inc. v. McGraw-Edison Co.
International
, 721 F.2d 488, 492 (5th Cir. 1983).
The district court ruled that L & Ms breach of the distribution agreement
by failure to make timely payments justified BEIs cancellation of the agreement
under Kan. Stat. Ann. 84-2-703(f).
See L & M Enters. , 45 F. Supp. 2d at 885.
Although L & M concedes that the UCC allows for contract cancellation for
failure to make payment, it argues that additional facts apart from this failure
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make the issue of whether cancellation is justified a disputed issue of fact.

Specifically, it points to evidence concerning BEI & L & Ms agreements to
keep the contract in place, L & Ms payments after default, BEIs acceptance of
payments, and BEIs breach of the contract in February and March of 1996.
(Appellants Br. at 16.)
L & Ms citation to
Bills Coal Co. v. Board of Pub. Utils.
, 887 F.2d 242,
247 (10th Cir. 1989), in support of its argument is unpersuasive. In
Bills Coal
Co. , we stated that the question of substantial impairment under [U.C.C. 2612] presents a question of fact.
Id. (citations omitted). We agree that Kan.
Stat. Ann. 84-2-703 would appear to require substantial impairment under 2612(3) to establish breach of the whole contract and therefore justify cancellation
of the contract as to the undelivered balance.
Bills Coal Co. , however, involved
a factual question of whether non-conforming coal shipments substantially

impaired the value of the contract.
See 887 F.2d at 247-48. In the instant case,
L & M completely failed to make timely payments. We agree with the courts that
have held implicitly that an undisputed failure to pay for shipments establishes,
as a matter of law, substantial impairment justifying cancellation as to the future
undelivered balance of a contract.
See, e.g. , Heating & Air Specialists , 180 F.3d
at 933-34; Frigiking, Inc. v. Century Tire & Sales Co.

(N.D. Tex. 1978).
-9-
, 452 F. Supp. 935, 938
L & M argues that Frigiking is distinguishable from this case because of

L & Ms allegations of BEIs breach, efforts to reduce the debt, and a repayment
agreement. These distinctions do not persuade us of the existence of a material
dispute as to justification for cancellation. We fail to see how BEIs alleged
breaches of the contract in February and March 1996 are material to the question
of its justification for cancellation, a justification which arose prior to those
alleged breaches. As of February 12, 1996, L & M was already overdue as to
payments under the November 1995 agreement.
IV
The district court concluded L & Ms claims for tortious interference with
a contract and prospective business advantage require proof of malice under
Kansas law. See L & M Enters. , 45 F. Supp. 2d at 887 (Both tortious
interference with a contract and tortious interference with contractual
expectations or a prospective business advantage are predicated on malicious
conduct by the defendant. (quoting
Turner v. Halliburton Co. , 722 P.2d 1106
(Kan. 1986))). L & M disputes the district courts interpretation of Kansas law
and cites DP-Tek Inc. v. AT & T Global Information Co.
, 891 F. Supp. 1510 (D.
Kan. 1995), for the proposition that a plaintiff only needs to show malice when a
tortious interference claim is based upon defamation. Discussing the elements of
tortious interference under Kansas law, a footnote in
- 10 -
DP-Tek states:
This court does not believe that the Turner case supports an
interpretation that actual malice is required for a finding of wrongful
conduct sufficient to support a tortious interference claim. While the
Turner case does discuss an actual malice standard, that is only
because the plaintiff's tortious interference claim was based upon
alleged defamatory statements . . . .
Id. at 1520 n.14.
We disagree with DP-Tek s interpretation of Kansas law. The Kansas
Supreme Court has applied the
Turner malice requirement in a tortious

See Dickens v. Snodgrass Dunlap &
interference case not involving defamation.
Co. , 872 P.2d 252, 257 (Kan. 1994) (Tortious interference with a contract is
predicated on malicious conduct by the defendant. (citing
1106)). Dickens thus clearly indicates
Turner , 722 P.2d at
that malice is a predicate for tortious
interference and is not limited to cases involving allegations of defamatory

conduct. We follow the pronouncement of the states highest court rather than a
distinction urged in a federal district court footnote.
L & M does not point to specific facts showing malicious conduct by BEI,
instead basing this appeal on the argument that malice is not an element of
tortious interference claims. L & Ms failure to prevail on this point of law thus
ends its case as to its tort claims.
V
The judgment is AFFIRMED. The mandate shall issue forthwith.
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F I L E D

United States Court of Appeals

UNITED STATES COURT OF APPEALS

L & M ENTERPRISES, INC.,

BEI SENSORS & SYSTEMS

This case arises out of the termination of an exclusive distribution

L & M Enterprises, Inc. v. BEI Sensors & Systems

The agreement itself contained no payment terms; however, L & M

communications regarding late payments. In particular, L & M contends that BEI

L & M Enters. , 45 F. Supp. 2d at 882-83. L & M does not dispute

these findings. Because neither partys behavior subsequent to the November

review of Lewiss testimony suggests that it refers to Cessna parts, (

45 F. Supp. 2d at 882 n.1. The relevance of this vague testimony as to an

definite time period

In early February 1996, an L & M representative contacted

Challoner then called BEI directly

Id. L & M claims it

Id. at 884. BEI claims it

However, on February 22, 1996, Tesco issued a

Id. The 1996 memorandum stated that BEI

Id. L & M officers had signed the Agreement to Repay Debt

That same day, L & M sent a

Id. L & M claims its change of

We review[] the grant or denial of summary judgment de novo, applying

Kaul v. Stephan , 83 F.3d

Thournir v. Meyer , 909 F.2d 408, 409 (10th

Cir. 1990) (citation omitted). The purpose of a summary judgment motion,

create a genuine issue of fact.

See United States v. Simons , 129 F.3d 1386,

1388-89 (10th Cir. 1997) (citing

Allen v. Muskogee, Okla. , 119 F.3d 837, 843-44

, 475 U.S. 574, 587 (1986)

(quoting Fed. R. Civ. P. 56(e)).

See, e.g. , Heating &

, 180 F.3d 923, 933 (8th Cir. 1999);

Therapeutics, Inc. v. McGraw-Edison Co.

, 721 F.2d 488, 492 (5th Cir. 1983).

See L & M Enters. , 45 F. Supp. 2d at 885.

make the issue of whether cancellation is justified a disputed issue of fact.

Bills Coal Co. v. Board of Pub. Utils.

, 887 F.2d 242,

247 (10th Cir. 1989), in support of its argument is unpersuasive. In

Id. (citations omitted). We agree that Kan.

Bills Coal Co. , however, involved

a factual question of whether non-conforming coal shipments substantially

See 887 F.2d at 247-48. In the instant case,

See, e.g. , Heating & Air Specialists , 180 F.3d

at 933-34; Frigiking, Inc. v. Century Tire & Sales Co.

, 452 F. Supp. 935, 938

L & M argues that Frigiking is distinguishable from this case because of

Turner v. Halliburton Co. , 722 P.2d 1106

, 891 F. Supp. 1510 (D.

Turner malice requirement in a tortious

interference case not involving defamation.

Turner , 722 P.2d at

that malice is a predicate for tortious

interference and is not limited to cases involving allegations of defamatory

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