United States District Court, E.D. Pennsylvania
March 29, 2004.
AMCO UKRSERVICE & PROMPRILADAMCO
AMERICAN METER COMPANY
The opinion of the court was delivered by: STEWART DALZELL, District Judge
Plaintiffs Amco Ukrservice and Prompriladamco. are Ukrainian
corporations seeking over $200 million in damages for the breach of two
joint venture agreements that, they contend, obligated defendant American
Meter Company to provide them with all of the gas meters and related
piping they could sell in republics of the former Soviet Union.
After extensive discovery, American Meter and Prompriladamco. filed the
cross-motions for summary judgment now before us. American Meter asserts
that it is entitled to judgment against both plaintiffs as a matter of
law because the joint venture agreements are unenforceable under both the
United Nations Convention on Contracts for the International Sale of
Goods ("CISG") and Ukrainian commercial law. Prompriladamco. claims that
its agreement is enforceable, that there is no genuine issue of material
fact as to whether American Meter is in breach of that agreement, and
that the only remaining issue is the extent of the damages it has
Upon consideration of this complex web of law, we conclude that
American Meter is not entitled to summary judgment because the CISG does
not apply to the joint venture agreements
and because, under Pennsylvania's choice of law regime, Pennsylvania
law, and not Ukrainian law, governs the plaintiffs' claims.
We further find that Prompriladamco. is not entitled to summary judgment
on the liability issue because there remains a genuine issue of material
fact as to whether C. Douglas Prendergast, the American Meter employee
who signed the Prompriladamco. joint venture agreement, had actual or
apparent authority to make the momentous commitments on the corporation's
behalf that have occasioned this suit.
I. Factual and Procedural History
The origins of this action lie in the collapse of the Soviet Union and
the newly-independent Ukraine's fitful transition to a market economy.
American Meter began to explore the possibility of selling its products
in the former Soviet Union in the early 1990s, and in 1992 it named
Prendergast as Director of Operations of C.I.S. [Commonwealth of
Independent States] Projects. See Pl.'s Reply (Pl's Mot. S.J.)
Ex. A. Sometime in 1996, a Ukrainian-born American citizen named Simon
Friedman approached Prendergast about the possibility of marketing
American Meter products in Ukraine.
Ukraine was a potentially appealing market for American Meter at that
time. During and immediately after the Soviet era, Ukrainian utilities
had not charged consumers for their actual consumption of natural gas but
instead had allocated charges on the basis of total deliveries to a given
area. That system penalized consumers for their neighbors' wastefulness
them with the cost of leakage losses. In 1997, the Ukrainian government
enacted legislation requiring utilities to shift toward a usage-based
billing system. Prendergast's early prediction was that implementation
of the legislation would require the installation of gas meters in
millions of homes and apartment buildings. See Mem. from
Prendergast to Skilton of 11/10/97, at 1-2 (Pls.' Resp. (Def.'s Mot.
S.J.) Ex. 22).
After some investigation, Prendergast and his superiors at American
Meter concluded they could best penetrate the Ukrainian market by forming
a joint venture with a local manufacturer. To this end, American Meter
Vice-President Andrew Watson authorized Friedman*fn1 on June 24, 1997 to
engage in discussions and negotiations with Ukrainian organizations, and
the corporation also hired a former vice-president, Peter Russo, to
consult on the project. Mandate of 6/24/97 (Pls.' Resp. (Def.'s Mot.
S.J.) Ex. 14); Russo Dep. at 9 (Pls.' Resp. (Def.'s Mot. S.J.) Ex. 7).
Prendergast, Russo, and Friedman began to identify potential joint
venture partners, and by late 1997, they had selected Promprilad, a
Ukrainian manufacturer of commercial and industrial meters based in
Ivano-Frankivsk, the industrial capital of western Ukraine. On December
11, 1997, Prendergast (representing American Meter), Friedman
(representing his firm, Joseph Friedman & Sons, International, Inc.),
and representatives of Promprilad and American-Ukrainian Business
("AUBC") met in Kyiv (the current preferred transliteration of "Kiev")
and entered into the first of the agreements at issue here.
The agreement provided for the establishment of a joint venture
company, to be called Prompriladamco, in which the four signatories would
become shareholders. Prompriladamco. would work in conjunction with its
principals to develop the market for American Meter products in the
former Soviet Union and, most important for the purposes of this action,
the agreement committed American Meter to the following obligations:
9. AMCO shall grant Joint Venture PrompryladAmco
exclusive rights to manufacture and install Meters
within the former Soviet Union. . . .
10. AMCO shall grant Joint Venture PrompryladAmco
exclusive rights to distribute the products
manufactured by PrompryladAmco. and all products
manufactured by AMCO in the former Soviet
Union. . . .
13. AMCO will deliver components and parts for
Meters taking into account 90% assembly.
14. PrompryladAmco. (at the first stage) shall
perform 10% of the work required to assembl[e] the
Meters using components and parts delivered by
15. AMCO will deliver the components and parts for
Meters by lots in containers, payments for the
delivery being subject to at least a 90-day grace
16. The number of the components and parts for
Meters to be delivered to Ukraine shall be based
on demand in the former Soviet Union.
17. Orders for the components and parts for
Meters, with the quantities and prices according
to paragraph 16 above shall be an integral part of
Agreement of 12/11/97 (Def.'s Mot. S. J. Ex.
After executing the agreement, the parties incorporated Prompriladamco
in Ukraine, and Friedman became its Chief Executive Officer. The new
corporation set out to obtain Ukrainian regulatory approval for American
Meter products, which required bringing Ukrainian officials to the United
States to inspect American Meter's manufacturing process, and it
sponsored a legislative measure that would give those products a
competitive advantage in the Ukrainian market.
On April 20, 1998, Friedman*fn3 and a representative of AUBC executed
a second joint venture agreement for the purpose of marketing the gas
piping products of Perfection Corporation, a wholly-owned subsidiary
of American Meter. Again, the parties agreed to create and fund a
corporation, this one to be called Amco. Ukrservice, and American Meter
committed itself to deliver, on credit, a level of goods based on demand
in the former Soviet Union. Agreement of 4/29/98 (Def.'s Mot. S.J. Ex. B).
The parties duly formed Amco. Ukrservice, and Friedman became its Chief
By early summer, Prompriladamco. and Amco. Ukrservice had begun
submitting product orders to American Meter. In late June or early
July, however, American Meter President Harry Skilton
effectively terminated the joint ventures by stopping a shipment of
goods that was on its way to Ukraine and by refusing to extend credit to
either Prompriladamco. or Amco. Ukrservice. See Skilton Dep. at
123-24 (Pls.' Resp. (Def.'s Mot. S.J.) Ex. 5) (admitting that, as a
result of his decisions, the project "died a natural death from then on
out"). Finally, at a meeting on October 27, 1998, American Meter
Vice-President Alex Tyshovnytsky informed Friedman that the corporation
had decided to withdraw from Ukraine "due to unstable business conditions
and eroding investment confidence in that country." Letter from
Tyshovnytsky to Friedman of 10/29/98 (Pls.' Resp. (Def.'s Mot. S.J.) Ex.
On May 23, 2000, Prompriladamco. and Amco. Ukrservice filed parallel
complaints claiming that American Meter had breached the relevant joint
venture agreement by refusing to deliver the meters and parts that the
plaintiffs could sell in the former Soviet Union. Prompriladamco's
complaint alleges that the breach caused it to lose $143,179,913 in
profits between 1998 and 2003, and Amco. Ukrservice claims lost profits
of $88,812,000 for the same period. We consolidated the actions on August
II. American Meter's Motion for Summary Judgment
American Meter argues that summary judgment is warranted here because
the joint venture agreements are invalid under the CISG and Ukrainian
law. It also contends that it is entitled to summary judgment because the
plaintiffs' claims for damages are based on nothing but "rank
speculation." Def.'s Mem.
(Mot. S.J.) at 28. We consider each of these arguments in turn.
A. The CISG
The United States and Ukraine are both signatories to the CISG, which
applies to contracts for the sale of goods where the parties have places
of business in different nations, the nations are CISG signatories, and
the contract does not contain a choice of law provision. Fercus,
S.R.L. v. Palazzo, 2000 WL 1118925, at *3 (S.D.N.Y. Aug. 8, 2000).
American Meter argues that the CISG governs the plaintiffs' claims
because, at bottom, they seek damages for its refusal to sell them goods
and that, under the CISG, the supply provisions of the agreements are
invalid because they lack sufficient price*fn4 and quantity terms.
Apart from a handful of exclusions that have no relevance here, the
CISG does not define what constitutes a contract for the sale of goods.
See CISG art. 2, reprinted in 15 U.S.C.A. App., at
335 (West 1998). This lacuna has given rise to the problem of the
Convention's applicability to distributorship agreements, which typically
create a framework for future sales of goods but do not lay down precise
price and quantity terms.
In the few cases examining this issue, courts both here and in Germany
have concluded that the CISG does not apply to such contracts. In
Helen Kaminski Pty. Ltd. v. Marketing Australian Products,
Inc., 1997 WL 414137 (S.D.N.Y. July 23, 1997), the court held that
the CISG did not govern the parties' distributorship agreement, but it
suggested in dictum that the CISG would apply to a term in the contract
that addressed specified goods. Id. at *3. Three years later,
Judge DuBois of this Court followed Helen Kaminski and held
that the CISG did not govern an exclusive distributorship agreement, an
agreement granting the plaintiff a 25% interest in the defendant, or a
sales commission agreement. Viva Vino Import Corp, v. Farnese Vini
S.R.L., No. 99-6384, 2000 WL 1224903, at *1-2 (E.D. Pa. Aug. 29,
2000) (DuBois, J.). Two German appellate cases have similarly concluded
that the CISG does not apply to distributorship agreements, which they
termed "framework agreements," but does govern sales contracts that the
parties enter pursuant to those agreements. See OLG
Düsseldorf, UNILEX, No. 6 U 152/95 (July 11, 1996), abstract
http://cisgw3.law.pace.edu/cases/960711g1.html; OLG Koblenz,
UNILEX, No. 2 U 1230/91 (Sept. 17, 1993), text available at
American Meter argues that this line of cases is inapplicable here
because the plaintiffs do not claim damages for breach of what it terms
the "relationship" provisions of the joint venture agreements,*fn5 but
instead seek to enforce an obligation to sell goods. In other words,
American Meter claims that the supply and credit provisions are severable
and governed by the CISG, even if the Convention has no bearing on the
remainder of the two agreements.
There are a number of difficulties with this argument, both in its
characterization of the plaintiffs' claims and its construction of the
CISG. To begin with, Prompriladamco. and Amco. Ukrservice are not seeking
damages for American Meter's refusal to fill particular orders. Instead,
they are claiming that American Meter materially breached the joint
venture agreements when it refused to sell its products on credit, and as
the ad damnum clauses of their complaints make clear, they seek damages
for their projected lost profits between 1998 and 2003. See
Compls. ¶¶ 6-7.
American Meter's construction of the CISG is equally problematic. It is
premised on an artificial and untenable
distinction between the "relationship" and supply provisions of a
distributorship agreement after all, what could be more
central to the parties' relationship than the products the buyer is
expected to distribute? American Meter's rhetorical view would also
render it difficult for parties to create a general framework for their
future sales without triggering the CISG's invalidating provisions. Such
a construction of the Convention would be particularly destabilizing, not
to mention unjust, in the context of the joint venture agreements at
issue here. On American Meter's reading of the CISG, it could have
invoked ordinary breach of contract principles if the plaintiffs had
failed to exercise their best efforts to promote demand for its products,
all the while reserving the right to escape its obligation to supply
those products by invoking Article 14's price and quantity requirements.
The CISG's provisions on contract formation do not compel such an
We therefore join the other courts that have examined this issue and
conclude that, although the CISG may have governed discrete contracts for
the sale of goods that the parties had entered pursuant to the joint
venture agreements, it does not apply to the agreements themselves.
B. Ukrainian Law
In the alternative, American Meter argues that the joint venture
agreements are unenforceable because they violate a number of Ukrainian
laws on the form of contracts for the sale
and supply of goods. To resolve this question, we must first
determine whether Ukrainian law indeed controls the validity of these
agreements under Pennsylvania's choice of law rules, which are applicable
here pursuant to Klaxon Co. v. Stentor Electric Mfg. Co., Inc.,
313 U.S. 487 (1941).
1. The Pennsylvania Choice-of-Law Regime
In Griffith v. United Air Lines, Inc., 203 A.2d 796, 805,
(Pa. 1964), the Pennsylvania Supreme Court adopted a flexible choice of
law rule that "permits analysis of the policies and interests underlying
the particular issue before the court." Our Court of Appeals has
explained that the Griffith "methodology combines the approaches
of both [the Restatement (Second) of Conflict of Laws] (contacts
establishing significant relationships) and `interest analysis'
(qualitative appraisal of the relevant States' policies with respect to
the controversy)." Melville v. American Home Assurance Co.,
584 F.2d 1306, 1311 (3d Cir. 1978).
In applying Griffith's hybrid approach, we begin with an
"interest analysis" of the policies of all interested states and then,
based on the results of that analysis, proceed to characterize the case
as a true conflict, false conflict, or unprovided-for case.*fn6
Lacey v. Cessna Aircraft Co., 932 F.2d 170, 187 & n.15 (3d
Cir. 1991); see also LeJeune v. Bliss-Salem, Inc.,
85 F.3d 1069, 1071 (3d Cir. 1996). A true conflict exists
"when the governmental interests of both jurisdictions
would be impaired if their law were not applied." Lacey, 932
F.2d at 187 n.15. On the other hand, there is a false conflict "if only
one jurisdiction's governmental interests would be impaired by the
application of the other jurisdiction's law." Id. at 187.
When interest analysis identifies a false conflict, resolving the
choice-of-law issue becomes relatively straightforward because we apply
the law of the only interested jurisdiction. See,
e.g., Kuchinic v. McCrory, 222 A.2d 897, 899-900
(Pa. 1966) (applying Pennsylvania law where Georgia was not a "concerned
jurisdiction"); Griffith v. United Air Lines, Inc.,
203 A.2d 796, 807 (Pa. 1964) (applying Pennsylvania law where Pennsylvania
had an interest in having its law applied but Colorado had no such
The resolution of a true conflict is a more complex process. In an
action for breach of contract, we both weigh the competing governmental
interests and apply Sections 6 and 188 of the Restatement (Second).
Melville, 584 F.2d at 1313-14.
2. Sources of Law
While the plaintiffs and American Meter agree that ordinary breach of
contract principles would govern the plaintiffs' claims under
Pennsylvania law, they dispute whether the joint venture agreements are
invalid under Ukrainian law and, if so, what governmental interests any
invalidating laws would serve. We therefore begin with a discussion of
Pennsylvania's interest in this action and then turn to the more
problems that Ukrainian law presents, first examining the statutes
that American Meter has identified and then predicting whether a
Ukrainian court would apply them in this case. Finally, after we have
isolated any applicable statutory provisions, we will consider Ukraine's
interest in their enforcement.
(a) Pennsylvania Law
At the threshold, we note that American Meter has disputed whether
Pennsylvania has any interest at all in the enforcement of the
joint venture agreements because they were negotiated in Ukraine, written
in the Ukrainian language, and provide for the creation of Ukrainian
corporations. This argument does not withstand close scrutiny because the
record amply demonstrates the important contacts between Pennsylvania and
both the parties to the joint venture agreements and the obligations
those agreements created. All of the American Meter employees who hatched
the Ukrainian project worked from corporate headquarters in Horsham,
Pennsylvania, and most important of all, the parties to the joint venture
agreements contemplated that American Meter would oversee the project,
extend credit, and arrange for the shipment of goods from its offices
here. See Restatement (Second) of Conflict of Laws § 188(2)
& cmt. e (1971) (describing contacts with the transaction and the
parties that are relevant in identifying jurisdictions with an interest
in the case).
Not only does Pennsylvania have significant contacts
with both the parties and the joint ventures, but enforcement of
the joint venture agreements would advance the Commonwealth's general
interests. As American Meter grudgingly concedes, the vindication of
contractual parties' legitimate expectations creates a stable business
environment and thereby helps the Commonwealth achieve its commercial
potential. Myers v. Commercial Union Assurance Co.,
485 A.2d 1113, 117 (Pa. 1984). Finally, although American Meter asserts that
the plaintiffs' claims for damages are too speculative, it does not dispute
that, as an abstract proposition, the joint venture agreements create
enforceable obligations under Pennsylvania law.
(b) Ukrainian Law
In the years since it achieved independence, Ukraine has developed a
complex and, from an outsider's perspective, exceptionally murky body of
law governing the form and content of international commercial
agreements.*fn7 American Meter contends that the joint venture
agreements are invalid under three separate statutory schemes and that
each advances identifiable and significant state interests.
1. "Regulations on the Supply
of Industrial Goods" (1988)
On July 25, 1988, the USSR Council of Ministers
promulgated "Regulations on the Supply of Industrial Goods," which
remained effective in Ukraine after the collapse of the Soviet
Union pursuant to a general reception statute that the Verkovna Rada, the
Ukrainian Parliament, enacted in 1991. Under Paragraph 19 of the
Regulations, a contract for the supply of goods must identify the goods
to be delivered, the time of delivery, and their price, quantity, and
quality. Regulations ¶ 19 (Gusyev Aff. App. Ex. 2). American Meter's
Ukrainian legal expert has opined that the Regulations were still in
force in 1998 and that the joint venture agreements are invalid because
their supply provisions lack the terms detailed in Paragraph 19. The
plaintiffs' legal expert, however, contends that the Regulations have no
relevance here because they were enacted to regulate the Soviet Union's
internal market and, in any event, never applied to joint venture
agreements. In support of this interpretation, the plaintiffs' expert
points to Paragraph 2, which provides that the Regulations cover "the
relations among state-owned and cooperative and other social
organizations regarding the supply of goods (including the supply of
. . . imported products in the internal market, unless otherwise
provided by law). . . ." Batyuk Decl. Ex. 9 ¶ 2.
Although American Meter solicited a supplemental affidavit from its
Ukrainian expert, he declined to challenge the plaintiffs' expert's views
on the Regulations. In view of the fact that the plaintiffs' contentions
appear to have textual support and in the absence of a
counter-argument from American
Meter we must conclude that the plaintiffs' view carries
the day on this issue and that the Regulations are inapplicable here.
2. "Provisions on the Form of
Foreign Economic Agreements" (1995)
American Meter's legal expert has also brought to our attention the
"Provisions on the Form of Foreign Economic Agreements," which the
Ukrainian Ministry of Foreign Economic Relations and Trade enacted in
1995. The Provisions' preamble states that they "are applicable when
concluding sale (purchase) agreements on goods (services, performance of
work) and barter agreements among Ukrainian and foreign economic subjects
irrespective of their property form and type of activities."
Agreements governed by the Provisions must, inter alia,
identify the goods to be sold and specify their quantity and quality.
Provisions § 1.3 (Gusyev Aff. App. Ex. 6). American Meter contends
that the joint venture agreements are invalid under the Provisions
because they manifestly do not satisfy these requirements. However, as
the plaintiffs' legal expert has contended, the Provisions offer no
textual support for American Meter's position. Indeed, the text of the
Provisions suggests that they do not regulate joint venture agreements
and were instead enacted to regularize contracts for the sale of goods
and provision of services. Not only does the preamble state that the
Provisions are applicable to sale and barter agreements, but several
sections of Part One clearly contemplate that its requirements will apply
to contracts for goods and services.
See, e.g., § 1.3 (providing that the
"Subject of Agreement" section of a contract must "define what goods
(services, works) one of the counterparts is required to supply"; §§
1.5 & 1.8 (mandating that a contract specify "basic conditions of
goods supply (acceptance of performed works or services)" and "conditions
of acceptance (handing-over) of goods (works, services)").
Finally, the plaintiffs' construction of the Provisions gains support
from the framers' apparent intention that they be read in pari
materia with Ukraine's Foreign Economic Activities Law ("FEAL").
See Preamble (providing that foreign economic agreements must
be made pursuant to the FEAL); § 3 (listing the FEAL among "legal and
normative acts of Ukraine, which regulate the form, procedures of
conclusion and performance of foreign economic agreements (contracts)").
Because the FEAL recognizes joint venture agreements, see FEAL
art. 6 para. 12 (Gusyev Aff. App. Ex. 4) (providing that "[a] foreign
economic agreement (contract) on joint venture creation shall be governed
by the law of the country in which the joint venture is created and
officially registered"), it is improbable that the Foreign Ministry
intended the 1995 enactment to invalidate such agreements, which create
long-term relationships and are unlikely to contain price, quantity, and
delivery terms that would be sufficiently precise to satisfy the
In view of this textual evidence, we conclude that although the
Provisions would likely govern a particular sales
contract executed pursuant to a joint venture agreement, they do not
bear on the validity of the joint venture agreement itself.*fn8
3. Foreign Economic Activity Law (1991)
Finally, American Meter invites us to consider whether the Ukrainian
courts would invalidate the joint venture agreements under Article 6 of
the FEAL. At the time the parties entered into these agreements, Article
6 required any contract between a Ukrainian entity and a foreign entity
to be executed by two representatives of the Ukrainian signatory, and
neither Promprilad nor AUBC complied with this rule.
Ukraine's two-signature rule was the final incarnation of a policy with
deep roots in the history of the Soviet command economy. According to a
Stalin-era decree, any contract between a foreign entity and a Soviet
foreign trade organization ("FTO") that was executed in Moscow required
the signatures of the FTO's chairman or deputy as well as a person
possessing the chairman's power of attorney. Contracts executed abroad
required the signatures of two persons with powers of attorney. The
government published the names of FTO officials with the power to sign
such agreements in a foreign trade journal. See Anthony
Gardner, Note, The Doctrine of Separability in Soviet Arbitration
Law: An Analysis of Soiuzneftexport v. JOC Oil Co.,
28 Colum. J. Transnat'l L. 301, 322 & n.104 (1990); Batyuk
Decl. ¶ 19. A 1978 enactment of the USSR Council of Ministers, "On
the Procedure for Signing Foreign Trade Transactions," retained the
two-signature rule, and according to a late Soviet court decision,
failure to comply with the rule rendered the contract voidable at the
instance of the FTO. See Gardner, supra, at 322
n.104, quoting Sojuzneftexport v. JOC Oil Co., 40 Int'l Arb.
Rep. B-44 (1989).
One writer has suggested that the purpose of the two-signature rule was
"to protect foreign trade organizations from being bound by improvident
contracts concluded by junior officials in return for kickbacks."
Gardner, supra, at 322 n. 104. The plaintiffs' legal expert has
offered the more sinister, but not incompatible, explanation that "the
role of the second signatory generally was to exercise control over the
first signatory in the interests of the KGB." Batyuk Decl. ¶ 19.
Whatever its purpose may have been, one might have thought that the
two-signature rule would have disappeared after 1990 along with the other
legal trappings of the Soviet economy. In 1991, however, the Verkovna
Rada enshrined the two-signature rule in the FEAL:*fn9
In the event that the foreign economic agreement
is signed by an individual, signature of such
individual shall be required. The foreign economic
shall be signed on behalf of other subjects of
economic activity by two persons: one person who
is authorized to sign by virtue of his/her
position, in accordance with his/her founding
documents, and another person who is solely
authorized to sign on the basis of the power of
attorney issued under the hand of the directors of
the subject of foreign economic activity, unless
otherwise provided by founding documents.
FEAL art. 6 para. 2 (Gusyev Aff. App. Ex. 5) (as amended and restated
on March 14, 1995 but before amendment of October 21, 1999).
Ukrainian businesses, however, did not always comply with the
two-signature rule, and a dispute between a Ukrainian pharmaceutical firm
and its American trading partner soon forced the courts and Verkovna Rada
to clarify the rule's place in Ukrainian commercial law. Armor
Pharmaceutical filed a claim in the Ukrainian Arbitration Court against
Lubnipharm for the return of partially unpaid Pharmaceuticals. On
November 22, 1996, the Supreme Arbitration Court of Ukraine ("SACU")
invalidated the original contracts on the ground that two representatives
of Lubnipharm did not execute them, but on January 11, 1997 the
Arbitration Board of the SACU declared that failure to comply with the
two-signature rule was not automatic grounds for invalidation and
overturned the decision of November 22nd. The Plenary Meeting of the
SACU upheld the Arbitration Board's decision, and the dispute ultimately
landed in the Constitutional Court of Ukraine. See Const. Ct.
Ukraine, No. 1767, Case No. 1-17/98, at 2-3 (Nov. 26, 1998) (Gusyev Aff.
App. Ex. 8) (providing procedural history of the case). In a decision
dated November 26, 1998, the Court somewhat ambiguously stated that the
two-signature rule was "obligatory" but also held that
failure to comply "may be the basis for invalidation of the foreign
economic agreement in court as not meeting the requirements of laws or
international agreements of Ukraine." Id. (emphasis added).
The Verkovna Rada and SACU swiftly acted to blunt the Constitutional
Court's ruling. The Deputy Prosecutor General of Ukraine filed a
submission in the Supreme Arbitration Court to review the Lubnipharm
case, but in a ruling issued June 11, 1999, the SACU affirmed its earlier
decision to uphold the Lubnipharm contracts. Seizing upon the
Constitutional Court's statement that failure to comply with the
two-signature rule may be a basis for invalidating a contract,
the Court concluded that it retained the discretion to affirm
non-conforming contracts and that invalidation would be inappropriate in
the Lubnipharm case because both parties had actually performed under the
contracts. The Court also noted that, in any event, the Constitutional
Court's decision did not state whether it had retroactive effect. SACU,
No. 04-0/1-7/28, at 2-3 (June 11, 1999) (Batyuk Decl. Ex. 14).*fn10 Four
months later, the Verkovna Rada at last repealed the
two-signature rule. See Amend. of Art. 6 (Oct. 21, 1999)
(Batyuk Decl. Ex. 13).
Apparently, however, neither the SACU's narrow construction of the
Constitutional Court's ruling nor the amendment to Article 6 has dimmed
the lower court's willingness to invoke the two-signature rule in cases
involving contracts executed before the repeal. In 2001, for example,
Judge Zyrnov of the Kyiv City Commercial Court*fn11 relied upon the rule
to nullify a lease and credit agreement between a Ukrainian corporation
and Fortis Bank of the Netherlands, despite the fact that the Bank had
rendered performance. See Kyiv City Commercial Ct., No.
9/188-01 (Aug. 31, 2001) (Gusyev Suppl. Aff. Ex. A).
Predicting another judicial system's resolution of an issue is always a
perilous business,*fn12 but we must conclude there is at least a
possibility that a Ukrainian court would invalidate the joint venture
agreements on the ground that the Ukrainian parties did not comply with
the two-signature rule. The Constitutional Court has confirmed that the
courts may invalidate
a contract for failure to comply with the rule, and while the SACU has
shown its willingness to uphold contracts where (as here)
there has been performance, the Fortis Bank decision shows that the lower
courts are still prepared to enforce the rule even in circumstances where
the SACU might demur.
3. Characterization of the
Conflict of Law Problem
Our conclusion that the courts of Pennsylvania and Ukraine might
diverge in their treatment of the joint venture agreements merely poses
the conflict of law problem without resolving it. In order to determine
whether this case involves a false or true conflict, we must first
determine what, if any, governmental interests the two-signature rule
American Meter contends that Ukraine has an interest in the retroactive
enforcement of the rule because it protects Ukrainians who enter into
contracts with foreigners and promotes certainty, predictability, and
uniformity in commercial relationships. Def.'s Reply (Def.'s Mot. S.J.)
at 18. American Meter's "argument from paternalism" would bear close
scrutiny if we were resolving this conflict of law problem in 1992. After
all, the plaintiffs' legal expert had stated that the Verkovna Rada
included the rule in the FEAL as a sop to legislators who opposed
economic liberalization, and perhaps its proponents believed that
requiring two signatures on contracts would protect Ukrainian naïfs
from more commercially sophisticated (and
capitalism-hardened) foreigners.*fn13 Now that the Verkovna Rada
has repealed the two-signature rule, however, we cannot conclude on
the record before us that its continued enforcement advances
any current social, political, or economic interest of Ukraine.
Turning to American Meter's "argument from commercial certainty," we
note that this articulation of Ukraine's interest in the rule remains
plausible despite the repeal. A hard-and-fast policy that all foreign
economic agreements executed between the enactment of the FEAL and the
statute's 1999 amendment must comply with the two-signature rule would
like any bright-line rule have the advantage of letting
parties know exactly where they stand. But as the recent decisions of the
SACU and Kyiv Commercial Court underscore, the difficulty with this
argument is that the two-signature rule is not so much a bright-line rule
as it is a controversial repository of judicial discretion that allows
courts to invalidate contracts for any reason or perhaps for no
reason at all. Under these circumstances, we cannot discern how the
two-signature rule advances any of the procedural or commercial
advantages that Ukraine would derive from a predictable body of law
governing the validity of contracts.
To summarize, we have concluded that Pennsylvania and Ukraine both have
significant relationships with the parties and
the transactions. Moreover, we have found that Pennsylvania has a general
interest in the enforcement of contracts, and it goes without saying
that this interest would be compromised if a Pennsylvania corporation
could defeat the expectations of its trading partners in the manner
American Meter has proposed here. Finally, we have concluded that
American Meter has not identified any governmental interest of Ukraine
in the continued enforcement of the repealed two-signature rule.*fn14
Because our analysis reveals that Pennsylvania's interest would be
harmed by applying Ukraine's law, but that no identified Ukrainian
interest will be impaired by enforcing these contracts, this case
presents a false conflict. Under the Pennsylvania choice-of-law regime,
Pennsylvania law therefore governs the plaintiffs' claims, and American
Meter is not
entitled to summary judgment on the ground that the contracts are
invalid under Ukrainian law.
C. Compensatory Damages
American Meter finally argues that, even if the joint venture
agreements are enforceable, the plaintiffs' claims for damages are too
speculative to warrant submission to a jury because they are nothing more
than extrapolations from sales agreements that were never valid under
In Pennsylvania, a plaintiff seeking damages for anticipated lost
profits must offer evidence providing a basis for estimating them "with
reasonable certainty." Exton Drive-In, Inc. v. Home Indemnity
Co., 261 A.2d 319, 324 (Pa. 1969); see also Jahanshahi v.
Centura Devel. Co., 816 A.2d 1179, 1184 (Pa. Super. 2003) (damages
for future lost profits "may not be awarded when the evidence leaves the
trier of fact without any guideposts except his or her own speculation").
Although a new business with no record of profitability cannot usually
satisfy this standard, see, e.g., Exton,
261 A.2d at 324-325, the Pennsylvania Superior Court has carved out an
exception for a new business that can show a "significant interest" in
its product or service before the contract breach occurred.
Delahanty v. First Pa. Bank, N.A., 464 A.2d 1243, 1260 (
Pa. Super. 1983), citing Gen'l Dynafab, Inc. v. Chelsea Indus.,
Inc., 447 A.2d 958, 960 (Pa. Super. 1982). Moreover, the Superior
Court has cautioned that "it is better that the jury hear the evidence of
future lost profits and decide its weight than allow the court to exclude
evidence entirely." Id.
There is no question that Prompriladamco. and Amco. Ukrservice were new
businesses operating in an unstable commercial environment, but for
summary judgment purposes the record sufficiently shows that Ukrainian
purchasers demonstrated their interest in American Meter's products
during the brief lifespan of the joint ventures. Russo and
representatives of Prompriladamco. attended an industrial trade show in
Kyiv in July of 1998, and Prendergast reported that interest in American
Meter's products at the trade show was "overwhelming." Mem. of
Prendergast to Diasio of 7/30/98, at 5007 (Pls.' Resp. (Def.'s Mot. S.J.)
Moreover, the plaintiffs entered into six sales contracts with
Ukrainian municipalities and gas companies in June and July of 1998.
American Meter argues that these agreements have no evidentiary value
because they violated a 1997 decree of the Ukraine Cabinet of Ministers
granting a state firm, Ukrgas, the exclusive right to purchase and
produce gas meters. However, the plaintiffs' legal expert has declared
that on July 30, 1998, the Council of Ministers rescinded the decree,
thereby making it possible for purchasers and suppliers to re-execute any
agreements entered during the pendency of the decree. Batyuk Decl. ¶¶
Viewing this record in the light most favorable to the plaintiffs, we
conclude that summary judgment would be premature because there remain
material issues of fact concerning the
demand for American Meter's products and the extrapolative value of
the six sales contracts.*fn15
III. Prompriladamco's Partial Motion for Summary Judgment
American Meter's president, Harry Skilton, has candidly acknowledged
that he terminated the Ukrainian project in 1998 after refusing
to extend credit or ship goods. Skilton Dep. at 125, 159-63, 172-73
(Pls.' Resp. (Def.'s Mot. S.J.) App. Ex. 5). On the basis of this
admission, Prompriladamco. contends that it is entitled to summary
judgment on the issue of liability because there is no genuine issue of
material fact as to whether American Meter breached the joint venture
agreements. American Meter responds that even if its conduct would
constitute a breach of the agreement there remains a genuine issue of
material fact as to whether Prendergast had actual or apparent authority
to execute such a contract in his capacity as the corporation's agent.
A. Prendergast's Actual Agency Authority
We begin with Prendergast's actual agency authority. Pennsylvania law
recognizes two forms of actual authority: express and implied. Express
actual authority is "directly granted by the principal to bind the
principal as to certain matters," while implied actual authority exists
where the agent's
acts "are necessary, proper and usual in the exercise of the agent's
express authority." Bolus v. United Penn Bank,
525 A.2d 1215, 1221 (Pa. Super. 1987).
While it is true that Prendergast was actively identifying and then
negotiating with potential Ukrainian partners in 1997, Harry Skilton has
averred that he never approved or was even aware of the Prompriladamco
agreement. He also claims that, pursuant to a longstanding resolution of
the Board of Directors, neither Prendergast nor Watson (Prendergast's
immediate supervisor) could have made the multimillion dollar commitment
contemplated in the agreement without Board approval. Skilton Aff. ¶¶
2-7 (Def.'s Resp. (Pl.'s Mot. S. J.) Ex. E). At his deposition,
moreover, Skilton stated that he had only authorized Watson and
Prendergast to secure certification for American Meter's products and
create "standby" or "cubbyhole" joint ventures with local companies that
could have become active if the corporation had decided to move forward
with the Ukrainian project. Skilton Dep. at 44-45, 90 (Def.'s Resp.
(Pl.'s Mot. S.J.) Ex. B).
Jim Diasio, who gradually assumed Watson's responsibilities as Chief
Financial Officer in 1998, acknowledges that he was aware of Friedman's
and AUBC's lobbying and marketing efforts and that he knew Promprilad and
American Meter had created a "standby" joint venture company. However, he
denies any knowledge of the joint venture agreement, and he claims that
there was not even a copy of the agreement in Watson's files.
Diasio Aff. ¶¶ 6-7, 10, 14 (Def's Resp. (Pl.'s Mot. S.J.) Ex. C).
Finally, American Meter's Assistant Secretary and custodian of
corporate seals, C. Kelsey Brown, avers that the rubber stamp Prendergast
used to authenticate his signature on the agreement is not an official
corporate seal, that he never issued it to Prendergast, and that he has
never even seen it. Brown Aff. ¶ 4-7 (Def.'s Resp. (Pl.'s Mot. S.J.)
Viewed in the light most favorable to American Meter, this record shows
that there is a genuine issue of material fact as to whether Prendergast
had actual authority to enter into the joint venture agreement.
B. Prendergast's Apparent Agency Authority
American Meter also argues that there is a disputed question of fact as
to whether Prendergast had apparent authority to execute the
Prompriladamco. agreement. Apparent authority exists under Pennsylvania
where a principal, by words or conduct, leads
people with whom the alleged agent deals to
believe that the principal has granted the agent
the authority he or she purports to exercise. The
third party is entitled to believe the agent has
the authority he purports to exercise only where a
person of ordinary prudence, diligence and
discretion would so believe. Thus, a third party
can rely on the apparent authority of an agent
when this is a reasonable interpretation of the
manifestations of the principal.
Joyner v. Harlevsville Ins. Co., 574 A.2d 664, 667-668 (
Pa. Super. 1990) (citations omitted).
Whether the doctrine of apparent authority applies in a given case is
almost never suited for summary judgment because it
closely turns on both the principal's manifestations and the
reasonableness of the third party's beliefs. Gizzi v. Texaco,
Inc., 437 F.2d 308, 310 (3d Cir. 1971). The only person involved in
this action who conceivably could have been deceived into thinking that
Prendergast could sign the joint venture agreement was Simon Friedman,
and what he knew about Prendergast's authority is very much an open
question. Prendergast testified that he told Friedman he had authority to
negotiate and execute the joint venture agreements, but American Meter
plausibly counters that Friedman's own correspondence with Diasio betrays
his awareness that Prendergast was not unilaterally calling the shots at
American Meter. Prendergast Dep. at 44-45 (Pl.'s Suppl. Reply
(Pl.'s Mot. S.J.) Ex. A); Letters from Friedman to Diasio of
1/22/98 & 8/12/98 (Def.'s Resp. (Pl.'s Mot. S.J.)
Exs. K & L) (notifying Diasio that he was awaiting American Meter's
decisions on various matters).
On this record, therefore, summary judgment would be inappropriate
because Prendergast's apparent authority is a highly consequential
question of disputed fact that must await trial.
We therefore conclude that American Meter is not entitled to summary
judgment. The CISG does not govern the joint venture agreements, and even
though it is possible a Ukrainian court would refuse to enforce these
agreements, Pennsylvania law governs their validity because this case
presents a "false
conflict" under Pennsylvania's well-settled choice of law rules.
Finally, the plaintiffs have presented sufficient evidence in support
of their claims for projected lost profits to withstand summary judgment.
We also deny Prompriladamco's motion for summary judgment because there
is a genuine issue of material fact as to whether C. Douglas Prendergast
had actual or apparent authority to sign the joint venture agreement on
American Meter's behalf.
An Order embodying these holdings follows.
AND NOW, this 29th day of March, 2004, upon consideration of
defendant American Meter Company's motion for summary judgment
(docket entry # 62) and plaintiffs Amco. Ukrservice and
Prompriladamco's response thereto, and Prompriladamco's motion for
partial summary judgment (docket entry # 66) and American Meter's
response thereto, and in accordance with the accompanying Memorandum, it
is hereby ORDERED that:
1. Defendant's motion for summary judgment is DENIED;
2. Prompriladamco's motion for summary judgment is DENIED; and
3. By April 12, 2004, the parties shall CONFER and JOINTLY REPORT on
(a) what discovery, if any, remains to be completed before trial and (b)
when counsel would be available
for trial after September 1, 2004.