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Bender v. Hearst Corp.

decided: February 11, 1959.


Author: Lumbard

Before CLARK, Chief Judge, and HINCKS and LUMBARD, Circuit Judges.

LUMBARD, Circuit Judge.

These are cross appeals from a judgment of the District Court for the District of Connecticut, Anderson, J., (1) awarding plaintiff $87,500 on his claim advanced in counts 1 and 2 of the complaint that the defendant tortiously induced one Reidl to commit a breach of an exclusive distributorship contract with plaintiff, and (2) awarding judgment to defendant on plaintiff's claim for treble damages under the antitrust laws for alleged violations growing out of the same transaction. The primary question presented on the defendant's appeal is whether and to what extent a distributor under the law of Wisconsin may recover damages from a third party who buys out his supplier with knowledge of a resulting breach of the exclusive distributorship agreement. There are subsidiary questions of the validity of the distributorship contract under the governing substantive law of Wisconsin. We hold that the facts as found by Judge Anderson, in his excellent opinion below, are supported by the record, and that under the law of Wisconsin the defendant's acts constituted an unprivileged invasion of the plaintiff's interest in the protection of his contract.

The third and fourth counts of the complaint alleged claims for treble damages under § 4 of the Clayton Act, 15 U.S.C.A. § 15 based separately on §§ 1 and 2 of the Sherman Act, 15 U.S.C.A. §§ 1, 2, and § 7 of the Clayton Act, 15 U.S.C.A. § 18. The primary question presented by the plaintiff's appeal on the Sherman Act claims is whether the district court correctly defined the relevant market to determine the existence of an unreasonable restraint of commerce. We hold that the market was correctly defined and that the record supports the findings upon which Judge Anderson rested the conclusion that there was no unreasonable restraint. We do not reach the issues presented by the defendant's contention on the claim under § 7 of the Clayton Act that Crash Book Sales, Inc., the transferor of assets to the defendant Hearst Publishing Co., was not a corporation within the meaning of that statute, because we find that the plaintiff has failed to show that private injury resulted from the merger even if it was unlawful.

I - The Facts

The facts stated in the opinion below are amply supported by the record. We repeat here only so much as is necessary to our disposition. Until 1953 the plaintiff, Bender, was an automobile damage appraiser. In December of that year he became a part-time distributor of a loose-leaf reporting service known as Crash Book Service which provided insurance companies, damage appraisers and automobile repair shops with data on the current costs of automobile repairs conveniently displayed in loose-leaf form. The copyright covering the book was held by one Reidl, who traded under the name Crash Book Service. In October 1954 the plaintiff was persuaded by Reidl to give up all other employment and enter an agreement to act as a full-time exclusive distributor of Crash Book Service in an area of the United States generally comprised of the New England and Middle Atlantic States. By October 10, 1956 when this agreement was terminated by the acts of Reidl and the defendant, plaintiff employed three fulltime and twenty part-time assistants in the distribution of Crash Book Service.

The distributorship agreement was partly established by letters and partly by oral conversations. It was primarily drafted by Reidl, who, by a letter in September 1955 attempted to integrate it. It included representations by Reidl that by plowing back into the distributorship the commissions on initial sales the plaintiff would profit, in the manner of insurance salesmen, from renewal commissions after a base of initial sales had been established in the first few years. The plaintiff acted upon these representations so that by September 30, 1956, after two years of full-time work, he had sustained a cash loss of a few hundred dollars, but had accounted for more than 3,000 sales, about one half of all sales of Crash Book Service.The agreement also provided prices to the distributor and for resale and certain wholesale discounts. Under it the plaintiff secured a commission of $10 on most initial sales and $5 on renewals, with smaller amounts on bulk sales.

The plaintiff's territory was defined, and it was provided that the agreement would continue in force so long as the distributor remained active in the territory, with activity measured by the maintenance of a reasonable number of subscribers. On the distributor's wrongful conduct all of Reidl's obligations under the contract were to cease, but if the distributor withdrew voluntarily and without wrongful behavior provision was made for him to receive the benefits of the contract for one year. If the distributor died payments were to be made to his family for two years. There was no express provision for the withdrawal of Reidl.

Crash Book Service competed with four previously established publications, three of which were distributed nationally and the fourth primarily in the western states. One of the national publications was defendant's Motors Body Shop Flat Rate and Parts Manual (Motors Manual). Because of certain novel advantages of the display of information provided by Crash Book Service, and because of its monthly supplementation, it proved to be highly saleable. By October 1, 1956 the national circulation of Crash Book Service, the sole publication offered by Reidl, was approximately 7,000 as against 58,000, 10,000, 10,000 and 7,500 for its competitors, which were sold as part of lines consisting of a number of publications of use to the automotive trade.

In March of 1956 Reidl, from motives not here material, formed a corporation under the laws of Wisconsin known as Crash Book Sales, Inc., to act as sole sales agent for Crash Book Service. However, the corporation's agency did not overlap the plaintiff's, and he continued to act as Reidl's sole distributor in his exclusive territory.

In March 1956 the defendant Hearst determined that its publication, Motors Manual, was no longer adequate. It decided to discontinue publication for the two years that would be required to revamp the publication in order to incorporate the advantages that had been suggested by Reidl's design. To avoid the undesirable competitive consequences of a withdrawal of part of its multiple line of publications from the market for so long a time, the defendant, a publisher with large resources, finally decided to attempt negotiations with Reidl looking to the purchase of his Crash Book Service and its incorporation in the defendant's line in place of Motors Manual.

At about the same time Reidl became concerned over the future of Crash Book Service because of seemingly reliable rumors that the defendant and others were undertaking revisions of their manuals to incorporate the Crash Book Service advantages, and because these competitors, with their national distribution systems and multiple publications, might prove too much for the small new organization handling Crash Book. The negotiations commenced in May 1956 and resulted in the execution of a written contract for the sale of Crash Book Service to Hearst, executed at Milwaukee, Wisconsin on September 25, 1956, under which Reidl received $42,500 in cash, a contract of employment as editor of the service, and a royalty of 50 cent on all future sales of Crash Book for ten years up to $100,000.

Defendant knew of Reidl's contract with the plaintiff and was familiar with its terms as well as with the sales and renewals achieved by plaintiff in his territory. Defendant, as part of the inducement held out to Reidl, agreed to defend him against any suit that Bender might bring, and to reimburse him for any recovery up to $2,500. By this and other inducements Hearst persuaded the reluctant Reidle to repudiate his contract with plaintiff. By the terms of its contract with Reidl, defendant became entitled to receive the profit on subsequent renewals of outstanding subscriptions, and on October 11, 1956 the defendant took steps to protect this interest by notifying plaintiff's customers that they were thereafter to deal only with its salesmen. After August 31, 1956 the plaintiff was neither paid nor credited with any of the profit due him on renewals, which averaged 80% of original sales.

II - The Tort Claim

As this cause of action arises under state law, the district court was obliged under the rule of Klaxon Co. v. Stentor Elec. Mfg. Co., 1941, 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477, to apply the law that would have been applied by the Connecticut courts. Under the conflict of laws rules of Connecticut, the substantive law of Wisconsin, the place where the tort occurred, was properly applied, see, e.g., Commonwealth Fuel Co. v. McNeil, 1925, 103 Conn. 390, 130 A. 794, since it was there that the defendant approached Reidl to purchase Crash Book Service, and it was there that the contract of sale was signed.

As to the tort claim, three questions are presented. (1) Was there a contract between Reidl and the plaintiff? (2) If a contract existed, was it breached by Reidl's sale of the business including the right to receive renewal commissions upon renewals of prior subscriptions? (3) If a valid ...

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