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Rubinger v. International Telephone and Telegraph Corp.

November 27, 1962


Author: Lumbard

Before LUMBARD, Chief Judge, and MOORE and HAYS, Circuit Judges.

LUMBARD, Chief Judge.

This is an appeal from a judgment of the United States District Court for the Southern District of New York, 193 F.Supp. 711 (1961), entered in two actions consolidated below. In No. 27205, the plaintiffs appeal from the dismissal of their complaint. In No. 27234, the defendants appeal from an award to plaintiffs in the amount of certain commissions claimed to be due them under an agreement between the parties. Jurisdiction is based on diversity of citizenship; the parties have stipulated that New York law is applicable. We affirm the judgment in No. 27205. We agree that the judgment as to the first order in No. 27234 should be affirmed. Judge Moore agrees with Judge Hays' view, stated in a separate opinion, that the judgment as to the second order should likewise be affirmed. As to this, I dissent, and state my reasons therefor later in this opinion.

Early in 1956, the plaintiffs, David Rubinger and William McAllister, entered into discussions with the defendant, International Telephone & Telegraph Corporation, concerning a merchandising arrangement for the Capehart-Farnsworth Company, a separate division of the defendant, which manufactured such products as radios, television sets, and phonographs. On March 15, 1956, Capehart entered into an agreement, effective as of March 8, with the Rubinger-McAllister Corporation, established by the plaintiffs for that purpose, whereby Rubinger-McAllister became Capehart's regional merchandiser for the New York City area. The contract, titled "Regional Merchandiser's Agreement," gave Rubinger-McAllister an "exclusive franchise" to merchandise most of the Capehart products in the territory covered. Rubinger-McAllister agreed to devote its best efforts "to the promotion of the sale and use of the Capehart products * * * and to the marketing thereof through retail dealers directly franchised by the Company"; to maintain and stock a showroom for the display of Capehart products; to maintain an office and pay its own business expenses; to employ a sales force which would call on retailers at frequent intervals; to supervise retailers' service facilities; to solicit retailers and recommend them to Capehart for a franchise; and generally to assist Capehart in its local business. Capehart agreed to make shipment on all orders received directly from retailers or transmitted by Rubinger-McAllister and accepted by Capehart subject to the usual exceptions for war, strikes, etc. It retained the right "to allocate and allot its production, sales and shipments in such manner as it shall deem best"; in addition, it was privileged to "make shipments in part or no shipment against any order of the Regional Merchandiser or of any franchised Retail Dealer within his territory." Capehart was to pay Rubinger-McAllister a specified "override" (commission) for all filled orders placed by retailers in the area. The contract provided also that: "Any orders placed by the Regional Merchandiser for his own account, if accepted by the Company, shall also carry the override on a like basis." The contract was terminable by either party on ten-days notice.

Rubinger-McAllister opened an office and commenced doing business, the plaintiffs acting as its entire staff. In the first two months of operation, about $300,000 worth of Capehart products were sold. On May 11, 1956, Capehart mailed to Rubinger-McAllister a termination notice to become effective in ten days.

Capehart's termination followed the successful conclusion of negotiations between the defendant and the Ben Gross Corporation for the sale of the entire business of the Capehart division to Gross. Preliminary negotiations had begun in February and March, 1956, and became serious in mid-April. On May 1, Capehart and Gross signed a contract whereby Gross purchased most of the assets of Capehart, including plant, machinery, copyrights, plans, goodwill, etc. On May 10, a second contract was signed whereby Gross purchased the entire merchandise inventory of Capehart and agreed to carry out Capehart's existing warranty arrangements with purchasers. Capehart agreed to send termination notices to its distributors and regional merchandisers. The effect of the two contracts with Gross was to put Capehart entirely out of business.

No. 27205

In the first action, the plaintiffs seek damages in excess of $1,000,000, alleging that the sale of merchandise inventory to Gross violated rights which their assignor, Rubinger-McAllister, had under its contract with Capehart. The amount claimed is based on the profits which Rubinger-McAllister supposedly would have realized if it had purchased and resold the merchandise sold to Gross. It is easier to say what plaintiffs' legal theory is not than to say what it is. They do not seek to recover commissions on merchandise sold to Gross by Capehart or later resold by Gross. They do not sue for damages alleging Capehart's fraud or deceit. They do not make any claim of injury to reputation based on the way in which Capehart terminated the agreement.

What the plaintiffs apparently do claim is that Rubinger-McAllister had an exclusive franchise covering the New York area; that by the terms of its agreement with Capehart, it was entitled to purchase for its own account and resell at a profit to retailers within its area; that it was Capehart's duty to advise Rubinger-McAllister of merchandise available for sale and the terms of sale, and to give Rubinger-McAllister an opportunity to purchase on those terms; that Rubinger-McAllister was given no opportunity to purchase the inventory sold to Gross; that since Rubinger-McAllister was ready, willing and able to make such purchase, Capehart's breach caused Rubinger-McAllister to lose the profits which it would have realized on resale of the products; and that since Gross was a New York corporation, doing business largely in the New York area, the entire inventory sold to Gross was in effect allocated to the plaintiff's area, so that the loss should be measured on the basis of the entire inventory.

Despite the prolixity of the plaintiffs' brief, which covers thirty-one "Points" in 120 pages, the above states the substance of their claim. It is an essential premise of their theory of recovery that the agreement between Capehart and Rubinger-McAllister entitled the latter to purchase merchandise for resale; i.e., that it was not merely a sales agent, deriving its income from commissions on sales which it promoted, but it was also a distributor, purchasing for its own account and reselling at a profit. Since we reject this premise, it is unnecessary for us to consider the plethora of legal and factual objections which the plaintiffs raise to the opinion below.*fn1

The plaintiffs base their contention that Rubinger-McAllister acted in a dual capacity as both sales agent and distributor on various phrases in the agreement. Primarily, they rely on Paragraph 7, which refers explicitly to purchases which Rubinger-McAllister might make on its own account. In addition, they point to the distinction drawn in Paragraph 4 between orders "of the Regional Merchandiser" and orders "of any franchised Retail Dealer within his territory"; to a provision in Paragraph 9 for shipments "to the Regional Merchandiser sight draft order bill of lading attached"; and to Paragraph 10, which gave Capehart the right on termination of the agreement to repurchase from Rubinger-McAllister any products which it had purchased from Capehart.

Although these provisions do show that Rubinger-McAllister was expected to purchase some products from Capehart, they say nothing about a right to resell. An examination of the agreement establishes that Rubinger-McAllister was entitled to purchase only such products as it needed for its own use; e.g., for display and demonstration purposes. As the district judge said, the agreement "merely provided for a rather usual form of sales agency in a limited designated territory." 193 F.Supp. at 717.

Glaringly absent from the agreement are any of the provisions which one would expect to find in a contract which a manufacturer customarily makes with a distributor. Nowhere does it refer to resales by the merchandiser. Indeed, nowhere, except incidentally in connection with other provisions, does it even refer to sales by Capehart to the merchandiser. If Rubinger-McAllister were expected to make more than incidental purchases on its own account, some arrangement for payments would surely have been made; yet nothing is said about the terms of payment, except that the merchandiser shall "maintain his credit" and pay his obligations and indebtedness promptly. Capehart was authorized to retain $1,000 of earned commissions as protection against loss, protection which would scarcely be sufficient if substantial purchases were contemplated.*fn2

These omissions cannot be explained as the avoidance of elaborate provisions in a contract which the parties preferred to keep simple. The provisions normal to a sales agency are spelled out with care. The merchandiser must maintain a show room and a sales force; he must supervise, not provide, service facilities; he must seek out desirable retailers for Capehart's products. Commissions are specified and the dates for payment of accumulated commissions stated. Of special significance is the fact that Rubinger-McAllister was to receive a commission even on purchases for itself. Such an indirect, almost casual, specification of sales price would be very curious if the purchases involved were expected to be substantial, as they would be in the case of a distributorship; it is a sensible convenience if purchases were expected to be only those ...

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