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.
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