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PERMA RESEARCH & DEV. CO. v. SINGER CO.

April 11, 1975

PERMA RESEARCH & DEVELOPMENT COMPANY, Plaintiff,
v.
THE SINGER COMPANY, Defendant



The opinion of the court was delivered by: DUFFY

This case has had a long and tortured history. It was instituted on March 9, 1966, and the operative facts go back several years prior to that time. The trial spanned eight months and included many thousands of pages of exhibits.

 Basically, it is a breach of contract action, plaintiff and defendant having entered into two contracts, one on June 18, 1964, the other on December 21, 1964. By judicial curtailment of the issues, only the breach of the December 21, 1964 contract was the subject of the trial but in order to put into perspective all of the claims, counterclaims and defenses of the parties it is necessary to review the negotiations leading to the June 18, 1964 contract, the relationship of the parties while operating thereunder, and particularly the knowledge gained by the defendant during the period starting with the negotiations leading to the June 18, 1964 contract and ending with the December 21, 1964 contract; and also the performance by the defendant under the December 21, 1964 contract.

 Both contracts *fn1" involve an anti-skid device for automobiles invented by the president of the plaintiff, Frank Perrino (hereinafter "Perrino"); patented by him and the patents assigned first to the plaintiff corporation and thereafter pursuant to the December 21, 1964 contract to the defendant. It should be remembered that anti-skid devices for automobiles were not generally marketed prior to 1964, and that there is no attack whatsoever on the patents which underlie this suit.

 This action started as one to set aside the December 21, 1964 contract and to enforce certain provisions of the June 18, 1964 contract. That complaint was dismissed by Judge Frederick vanPelt Bryan of this Court except that Judge Bryan found that a cause of action lay in the "Wherefore" clause of the complaint that the defendant may have not used its "best efforts to market and manufacture" the invention assigned to it under the December 21, 1964 contract. Civil No. 66-665 (S.D.N.Y., filed March 29, 1968), aff'd 410 F.2d 572 (2d Cir. 1969).

 Thereafter, Judge MacMahon of this Court, in denying another motion for summary judgment, further delineated the issue of "best efforts" as follows:

 
". . . we think that 'best efforts' here means that Singer was required to continue collaborating with Perma for a reasonable length of time in a good faith effort to solve the problems then preventing marketing of the product."
 
* * *
 
"For example: (1) Did Singer use its best efforts for a reasonable time . . . to perfect the product under all the circumstances? (2) In view of the fact that the device was not 'fail-safe,' was Singer justified in abandoning the contract either because it was impossible to make the device ' fail-safe' or because it could not be made ' fail-safe' without unreasonable, unwarranted or impractical efforts and expenditures of time and money out of all proportion to engineering and economic realities?" 308 F. Supp. 743, 748-49 (S.D.N.Y. 1970)

 While I defined the issues at the start of trial in a somewhat similar manner to that of Judge MacMahon, I permitted extraordinary latitude to the defense to prove all that it could and to make any arguments it wished as to its defenses and its counterclaim. Since the case was tried without a jury I permitted certain evidence to be received which is of questionable probative value. All of this was done with a view that this trial would mark an end to this litigation.

 In summary, I find for the plaintiff on the claim that was tried. I also find that the counterclaim advanced by defendant was totally sham as a matter of fact.

 This opinion is to be considered findings and conclusions as required by Rule 52 of the Federal Rules of Civil Procedure.

 I.

 BACKGROUND OF THE PARTIES

 Frank Perrino, although a person without formal engineering training, has been a "tinkerer" all his adult life. After being discharged from the Air Force, where he received training as an airplane mechanic, he returned to his native New England where he invented an accelerator brake and filed for a patent in 1959. An anti-skid control was part of this accelerator brake patent application. In 1962, a separate patent application was filed for the anti-skid invention. Thereafter, the anti-skid was separated into five patent applications representing different aspects of the device. These applications matured into five separate patents between 1966 and 1969 after the assignment of them to the defendant.

 Perrino founded the plaintiff corporation, Perma Research & Development Company (hereinafter "Perma") under Delaware law and has been its president at all relevant times. Perma has its principal place of business in North Attleboro, Mass.

 The Singer Company (hereinafter "Singer") is a New Jersey corporation with its headquarters in Rockefeller Center, New York, N. Y. While originally started as a manufacturer of sewing machines, it has become a widely diversified manufacturing concern. The 1965 annual report for the Singer Corporation shows sales of $980 million from manufacturing and sale of heating and air conditioning equipment, technical products, business machines and computers, and a variety of other devices, of course including sewing machines. During 1965 alone, Singer spent $18 million on its various research and development activities.

 Both parties acknowledge that this Court has jurisdiction over this action based on diversity of citizenship. 28 U.S.C. § 1332.

 II.

 BACKGROUND TO THE NEGOTIATIONS LEADING TO THE JUNE 18, 1964 CONTRACT

 After the invention of the accelerator brake and the recognition that the anti-skid control could be separated from it, Perrino tried to interest various people in the automotive industry in the devices. Of particular note is the fact that he took the anti-skid device to the Bendix Corporation in 1960, where it was considered by Stanley I. MacDuff, who tested it once by driving it home and who recommended that Bendix decline any interest in the device. (As we will see later, this was the same Stanley I. MacDuff whom the defendant Singer employed as an expert when it became apparent that this case would go to trial and who was permitted to give "expert" testimony at trial.) Perrino, on behalf of Perma, was apparently unable to interest anyone in the anti-skid device but continued working on it at North Attleboro, Mass.

 Perma also arranged to have tests made of its anti-skid device by certain automotive companies and by the Motor Vehicle Research of New Hampshire (hereinafter "M.V.R.N.H."), apparently a private organization owned by one Andrew White. M.V.R.N.H. agreed to do the testing for a portion of the capital stock of Perma and White became a member of the Board of Directors of Perma. M.V.R.N.H., thereafter, issued a glowing report on the Perma anti-skid device. Much of the report, however, only hints at conclusions and little firm test data is contained therein. Armed with this report and a promotional film, Perrino, on behalf of Perma, set out again to sell some manufacturer on the anti-skid control device. Apparently this effort was again unsuccessful although Perma had put together a number of hand-tooled, hand-finished prototypes.

 Apparently in late 1963 or early 1964, Perma had arranged for a distribution agreement of the anti-skid device with a small number of automotive equipment distributors and new car dealers and had entered into a contract for the manufacture of the device by the Worcester Stamp Metal Company of Worcester, Mass., which in turn had sub-contracted with others for the manufacture and assembly of some of the components of the device.

 Perma, through Perrino, continued to try to interest safety officials, highway patrols, insurance companies and others in the device. Apparently some officials of the Singer Company (Canada) Ltd. saw the promotional film, the M.V.R.N.H. bulletin and advised the management of the Elizabeth, N. J., Singer plant of the device.

 During the period of the early 1960s, imports of cheaper sewing machines (particularly Japanese made models) had cut into Singer's share of the sewing machine market. Singer had already started to diversify its product line and yet much of Singer's Elizabeth plant, which had been engaged principally in the manufacture of sewing machines, stood idle.

 III.

 THE NEGOTIATIONS FOR THE JUNE 18, 1964 CONTRACT

 In February 1964, representatives of Singer's Elizabeth, N. J., plant traveled to North Attleboro, Mass., to meet with Perrino and other representatives of Perma. Perrino apparently told the Singer people at that time that the Perma anti-skid device was "fail-safe" (or in plaintiff's version, "had fail-safe features") and "that in case of a failure, that the car would revert back to its normal braking". The Singer representatives were also assured that in the event of some internal failure "the unit in effect deactivated and reverted back to the original brake system on the car". The Singer people were also shown the Perma promotional film which stated "The Perma anti-skid control . . . includes a fail-safe feature which will automatically revert to the standard braking system in case of failure." These statements or ones similar to them allegedly were reiterated by Perma officials in the months leading to the June contract.

 Similarly, Singer was told that the device was "perfected" and that Perma had "had testing done by an independent laboratory." In connection with this latter assertion Perma supplied the Singer officials with copies of the M.V.R.N.H. report.

 It is on the basis of these asserted "false misrepresentations" that the defendant asserts its counterclaim and its affirmative defense since the device was neither perfected nor fail-safe.

 At the initial meeting in North Attleboro, the Singer personnel present were Messrs. Kloby, Morris and Sprague. Kloby was to be the man in charge of the Perma anti-skid program for Singer. He admitted that he had no background in engineering. Morris at the time was the assistant general manager of the Elizabeth facility and after June 1964, became the general manager of the facility. Sprague was the chief engineer of the Elizabeth plant. Each was a witness to a demonstration of the Perma product at this February meeting. First a Perma employee drove a car equipped with the anti-skid device on a test track behind the Perma offices. Then the representatives of Singer were given a demonstration ride in a car equipped with a Perma anti-skid device over country roads. A number of stops were made under panic conditions. Some of these were made while the car was driven with two wheels on dry road and the other two on the wet, snow-covered shoulder.

 Singer had immediately after the initial meeting in February been given a set of plans and specifications, along with three anti-skid controls and a cutaway of the device. These were necessary for Singer to work out the cost to build the anti-skid control. In return, the Singer officials left with Perma a brochure which was boastful about the engineering and quality control expertise of Singer.

 While it is clear that Singer sought out Perma to beef up production in its Elizabeth, N.J., plant, it is similarly clear that Perma was anxious to have Singer take over the manufacturing of its anti-skid device since the Worcester Stamped Metal plant was on strike and Perma was dissatisfied with the quality control of the units being delivered by Worcester.

 Prior to signing the June 18, 1964 contract, Perrino and his cohorts from Perma visited the Elizabeth plant and displayed to the top Singer officials the entire device with all of its components spread out on conference tables. The promotional film was shown and the M.V.R.N.H. report was distributed. Among the many Singer representatives present at the presentation were the top officials of the Elizabeth plant along with the top engineers assigned to that facility. This fact becomes important as we will see because one of the "experts" who testified on behalf of the defendant at trial indicated that any engineer worth his salt would, on inspection, have rejected the Perma device as totally unmarketable. I must assume that this was a damning of the Singer engineering capabilities, which is a strange defense and one which I will not rule on.

 IV.

 THE JUNE 18, 1964 CONTRACT AND THE EXPERIENCE OF THE PARTIES THEREUNDER

 On June 18, 1964, the parties entered into a Patent Licensing Agreement by which Perma granted Singer the exclusive right to manufacture the device in the United States. In order to oust the Worcester Stamped Metal Company, Singer agreed to buy the inventory then being held by Worcester. This cost over a million dollars.

 It is undisputed that, after the Elizabeth plant acquired the inventory and started production, many defects were found in the mass-produced device. During this period from mid June to December 1964, officials from Perma visited the Elizabeth plant quite often and the parties redesigned a number of the components of the device, including many of the so-called "fail-safe features".

 Rather than attempt to describe the entire device, I am appending hereto a copy of one of the patents which most fully discloses its configuration and operation. (Appendix A) From this the reader should note that anti-skid control consists of a flexible cable attached to the speedmeter cable, which drives a set of weights in the sensor; the weights spin in a centrifugal fashion which, when suddenly slowed or stopped, collapse in such a fashion on one side to force a cam gear to actuate a micro switch which permits electricity to pull back a solenoid on the other side of the sensor; which in turn permits a rotary valve to introduce vacuum into the system. This vacuum draws back a diaphragm in the "Perma-Vac", which in turn pulls back a plunger which takes hydraulic fluid from the brake system and thus relieves pressure on the brakes. A pressure switch is included in the device at this point so that when pressure is reduced the electricity flowing to the solenoid is cut off and the vacuum stopped at the diaphragm, thus permitting full brake pressure to be exerted. In this manner the brakes are "pumped" in a "panic stop", thus lessening the chance for a locked wheel skid.

 During the period of June through December 1964, the pressure switch was redesigned with Singer's chief engineer on the project so deeply involved in the redesign that he made some of the parts by himself in the tool room at the Elizabeth plant.

 Similarly, it was discovered that the cam gear which activated the micro switch was not operating properly. Singer's chief engineer on the project concluded that this feature was "marginal" and suggested that it be redesigned. Instead, a temporary solution was worked out whereby the cam gear was polished.

 Other difficulties with the device were recognized by the Singer staff. They noted that the sensing unit could become packed with contaminants in ordinary usage; that the rotary valve could and did "bind" on occasion; and that the Perma-Vac spring should be strengthened.

 On September 17, 1964, Singer's chief project engineer confided his fears about the reliability of the anti-skid control to management in a memorandum which reads in part:

 "I am deeply concerned about the reliability of this device in general. My cause for alarm stems from the fact that the performance testing does not detect some defects which could cause malfunction of the unit during operation on a car . . . I feel it would be advisable to get a detailed specification from Perma listing all the possible causes for failure so we may incorporate tests to detect deficiencies before sending units out of the plant. I strongly recommend that the legal aspects of responsibilities be thoroughly investigated so that we may be fully covered for what is sold before the confidence level is determined to be satisfactory."

 Whether, in fact, Singer asked Perma for such "detailed specification" is unclear but it is clear that none was forthcoming.

 During the period from June through December 1964, Singer conducted a number of tests on the anti-skid controls that it was producing. These were done on test stands acquired from Perma. A device was also installed on a Singer vehicle. These tests, however, were not exhaustive, but that was a choice by Singer management and in no way now bolsters its counterclaim and affirmative defense.

 Because of the problems recognized by Singer, few of the anti-skid controls were marketed prior to the December contract, thus leaving Perma financially distressed. Both parties recognized the need for further engineering on the device and this situation led to the negotiations for the December 21, 1964 contract.

 V.

 NEGOTIATIONS FOR DECEMBER 21, 1964 CONTRACT BETWEEN THE PARTIES

 The exact genesis of the negotiations leading to the December 21, 1964 contract between the parties is unclear but it is clear that Perma entered the negotiations with a negative balance sheet and the recognition that it could not perfect the anti-skid device for market on its own. Singer offered to Perma its engineering skills and purported expertise.

 But, before entering the December 21, 1964 contract, Singer, although it had done its own marketing surveys and had seen Perma's estimates, commissioned William E. Hill & Co., Inc. to do another market survey. The report of the Hill organization delivered to Singer management at least a week prior to the December 21, 1964 contract with Perma totally demolishes the counterclaim and affirmative defense advanced by Singer. It so dramatically proves that the management of Singer could not have relied on any alleged false representation by Perma that it is set forth in full in Appendix B hereto. *fn2"

 Among the "Principal findings and conclusions" of the report are the following:

 
"The Perma antiskid control falls short of meeting requirements of automotive engineers and does not provide the improvement possible in theory. The consensus of many engineering tests that have been run on the unit indicate that the Perma control, as compared to a panic or locked wheel stop, gives improved steering control but requires a greater stopping distance to come to a complete stop. The automotive brake and safety engineers who have reviewed its performance do not agree on the value of the Perma anti-skid control . . ."
 
* * *
 
"The General Motors Research Center, the Ford Advanced Design Group and the Chrysler Brake Laboratory are against use of the control."
 
* * *
 
"Based on evaluation by major automobile manufacturers the Perma anti-skid control does not meet established requirements."

 In an appendix to the Hill report is a summary of the results of tests which representatives of Singer, at trial, claimed were concealed from Singer by Perma prior to the December 21, 1964 contract. Apparently this claim has now been abandoned.

 Singer, however, still presses its claim that Perma falsely misrepresented that the device was "fail-safe" and that it was fully "perfected" and "tested" and that Singer relied upon these representations in entering the December 12, 1964 contract. I hold as a matter of fact that there was no such reliance. Without reliance any misrepresentation is not cognizable at law either as a counterclaim or as an affirmative defense. In the situation presented only an ostrich could make the claim defendant does. It is clear to me that both the counterclaim and the affirmative defense raised by Singer are sham.

 VI.

 THE DECEMBER 21, 1964 CONTRACT BETWEEN THE PARTIES

 On December 21, 1964, the parties entered into a contract whereby Perma assigned its patent applications to Singer. It is clear that the parties knew at that time that the anti-skid device was not fully perfected and that Singer would have to do work to make the device a marketable one. In consideration for the assignment of these rights Singer paid off all the outstanding debts of Perma and agreed to pay royalties on each Perma anti-skid control marketed. No minimum royalty was agreed to in the contract, a somewhat unusual arrangement.

 It is true that both parties to the contract were looking for the anti-skid control to be quickly marketed, for both had expectations of deriving profits from it, but these expectations do not give credence to Singer's argument that the contract did not call for any engineering work by Singer on the device. That promised engineering work is the total foundation upon which the December 21, 1964 contract is based. It is true that the expected engineering work is not spelled out in the contract. And it is for that reason that we must consider whether Singer made its best efforts in collaboration with Perma for a reasonable length of time in a good faith effort to solve the problems then preventing the marketing of the product.

 In this connection it must be noted that the December 21, 1964 assignment of Perma's patent rights to Singer was accompanied by a Technical Services Contract of the same date. This Technical Services Contract required Perma to collaborate with Singer in any engineering efforts which Singer required the inventor to do to make the device marketable. The very existence of the Technical Services Contract gives the lie to Singer's contention that no further engineering work was contemplated by the parties as of December21, 1964, the date they entered the patent assignment contract.

 VII.

 SINGER'S PERFORMANCE UNDER THE CONTRACT

 To properly evaluate Singer's performance under the patent assignment contract it is necessary to look first at Singer's capability. In 1965, Singer had 15 research and development laboratories and employed more than 2,200 scientists, engineers and technicians. Singer's net earnings in 1965 were $44 million.

 Singer chose to leave in charge of the Perma project after December 12, 1964, those who had worked on production under the prior June contract: Robert Kloby and Albert Romel. Kloby was given the title Manager, Perma Anti-Skid Program. His education and experience were concentrated in marketing, market evaluations and sales projections. He had no engineering background whatsoever. Albert Romel was an engineer graduated from the Newark College of Engineering in June 1964, which he attended while working for Singer at the Elizabeth plant. Virtually for his entire adult life Romel had been employed at the Elizabeth plant where he had been engaged in the manufacture of sewing machines. Prior to working on the Perma device, he had no employment experience in automotive or brake industries. Until he started to work on the Perma device he had never worked on brake systems.

 Both Kloby and Romel testified at trial. Romel, the engineer in charge assigned to the project by Singer, took 22 minutes on the witness stand to compute the relative proportion of one circle to another after being given pencil and paper and the relevant equations which require merely squaring one number. At the point this exercise was called for, Romel had been on the stand for a number of days. He did not appear nervous. Yet his computations were totally wrong. The history of the project shows that Romel was not an innovator but merely followed his instructions. He testified that although he had worked on the Perma device starting in June 1964, and had been exposed to it in February 1964, he had not analyzed the invention prior to the contract of December 21, 1964.

 Romel's staff consisted of three graduate engineers, one engineering student and various others who were given grandiose titles which seem to have been invented solely for this litigation. One engineer from Singer's Denville research laboratory was also assigned to the project for a period of about one month.

 Kloby and Romel were under orders to keep expenses down. The manager of the Elizabeth plant received a memorandum from corporate headquarters dated January 7, 1965, which stated in part:

 
"It is of the utmost importance that we spend no additional moneys and generate cash flow as quickly as possible . . ."

 To this the following response was made:

 
"Every additional expenditure for the Perma product line is being scrutinized thoroughly by this office. No additional moneys are being spent unless absolutely necessary in order to control our total investment."

 One Singer official estimated that during the year 1965, the project cost $190,000 including salaries of all assigned to the project, allocation of normal expenses to run the Elizabeth plant, etc. This figure appears inflated although Singer at trial tried to prove an even more bloated figure. In this attempt the witnesses for the defendant contradicted themselves and each other in many respects. For example, Kloby testified that in September 1965, he was removed from the Perma project and returned to "Forward Planning" at the Elizabeth plant; yet his salary for the entire year is attributed to the Perma project.

 In any event, it is clear that Singer gave inadequate funding to the entire program and staffed it with inept and inexperienced people who were unable to even understand the problems, much less cope with them. At one point Singer advertised for an automotive engineer who specialized in brake systems. He was not hired.

 Shortly after undertaking the December 21, 1964 contract, Singer attempted to set up "liaison" with automotive and brake manufacturers. This consisted of one trip for Kloby and Romel to the Detroit area early in 1965, and conversations with various people there. It is astounding that Kelsey-Hayes, a well-known brake manufacturer, at that time offered to analyze and do tests on the device, (apparently without cost to Singer) but that the offer was rejected out of hand, at least until Singer recognized that this litigation was impending.

 In March 1965, Singer received from E.I. duPont deNemours & Co. (hereinafter "duPont") an analysis of a 1963 vintage Perma device. This analysis set forth a number of potential failure modes in the device which could cause an unsafe condition and loss of brakes. No independent analysis of the device was made at this time by Singer. Romel thereafter concentrated the efforts of his staff in attempting to resolve the problems posed by the duPont report and those obviously required by the changes made in braking systems introduced by the automotive manufacturers.

 Some of the 1965 model automobiles had for the first time self-adjusting brakes and disc brakes. For the Perma device to work with these new features required greater fluid displacement and higher hydraulic pressure. Pursuant to the Technical Services Contract, Perma proposed to change the device by changing the piston bore and the spring in the Perma-Vac. This, however, would have rendered worthless much of Singer's inventory and in February 1965, Perrino, at Romel's direction, designed a transfer valve whereby vacuum would be introduced to the front of the Perma-Vac diaphragm to assist in pumping the brakes. The device thus became totally vacuum dependent with this change and introduced more failure modes into its operation. If there was a loss of vacuum for any reason (e.g. an engine stall), the brakes might not be fully reapplied.

 In order to meet the demands of the new braking systems Singer also experimented with a "restrictor valve" which was devised by Romel and those working for him. The "restrictor valve" is a simple device which permits hydraulic fluid to run more freely in one direction than in the other. It appears that there are serious questions as to the efficacy of this addition and these questions are of real substance.

 It is clear to me that Romel and his staff did not have a full understanding of the dynamics of the device or of an automobile to which it was to be attached.

 Romel tested various models of the Perma Anti-Skid throughout the period from June 1964 through December 1965, on test stands basically supplied by Perma at the Elizabeth Singer plant. He also arranged for road tests at the Linden, N.J., airport.

 It is of some interest that the officials of Singer spurned Perrino and the other officials of Perma during most of the period after the December 21, 1964 contract. While the Perma people were at the Elizabeth plant, conferring with Singer at least two or three times a week under the June 18, 1964 contract, this liaison almost totally ceased after Singer entered the December 21, 1964 contract even though under the Technical Services Contract Perrino and Perma remained obligated (at no extra cost) to confer with Singer about the development of the anti-skid unit. When the Technical Services contract expired it was not renewed but thereafter Perrino continued to make technical suggestions to Singer.

 In June 1965, Singer through Romel and his staff were conducting road tests on the Perma device. These tests were conducted on a completed but unused section of Interstate Highway 295.

 VIII.

 SINGER'S DECISION TO ABANDON THE CONTRACT

 At about this time, corporate politics inside Singer called for a shakeup in management. Apparently there had also been some grumbling from corporate headquarters about the non-profitability of the Perma project. Finally, Alfred DiScipio was named as corporate vice-president in charge of Consumer Products. Among the many product lines under Mr. DiScipio's direction was the Perma Anti-Skid Device program.

 DiScipio, with some of his staff, visited the Elizabeth plant to review production of all product lines manufactured there. In connection with the review the group from corporate headquarters went to view the road tests of the Perma device being conducted at the Interstate Highway.

 A car was driven down the highway and subjected to a "panic" stop, first with the Perma device inactivated and then allegedly twice with the anti-skid control in operation. On all three runs the car swerved and skidded dangerously out of control.

 DiScipio and his group immediately got into their own vehicles and drove away, surprisingly without even checking to see if the anti-skid had been operative or ascertaining what caused its failure.

 At a meeting following the abortive demonstration, DiScipio announced that the anti-skid control was not fail-safe. He told the group that Singer would not market a product which "could leave the purchaser . . . less safe than if he hadn't elected to purchase it . . ." It must have been as clear to DiScipio's subordinates as it was to me on trial that DiScipio was enunciating an impossible standard yet apparently none of his subordinates dared to question their boss. It is my belief that DiScipio had determined to get rid of the Project on the very day he first saw it demonstrated and that he communicated this decision to his subordinates although not in so many words.

 In any event, a few days later DiScipio set up a "Task Force" to study the Perma project which was chaired by Burton Person, DiScipio's assistant, and, significantly, included an attorney from the staff of house counsel. Person thereafter circulated a memorandum setting out the guidelines for the work of the Task Force. The memorandum questions whether manufacturing and marketing an anti-skid device for automobiles was the type of business which was appropriate for Singer and outlined certain areas for study, including Singer's legal exposure and possible costs if the project was terminated. Technical evaluation of the device was first sought from Kloby and Romel. Romel's report dated July 22, 1965, declares "due to cost and limited personnel available, it was decided to restrict extensive experimentation to short range projects." This admission in and of itself gives a fair insight into the real efforts used by Singer under the December contract with Perma.

  Within days after getting the Romel report, Person, on August 10, 1965, circulated the first report of the Task Force. Basically, it recommended the withdrawal of the device from the market; the retrieval of units already sold and in use; the termination of distributorship contracts; and an approach to Perma to "provide flexibility for Singer in regard to divestiture". Significantly, the report also directed that all letters and strategy were to be reviewed by outside counsel to Singer. At the time of the preparation and circulation of this first report, no outside engineering evaluation of the device was considered by the Task Force although it is clear that the members of the group had at the outset contemplated getting such an evaluation from the Cornell Aeronautical Laboratories and at least from Singer's own Denville Research and Development Laboratories.

  The August 10, 1965 First Report of the Task Force sounded the death knell of any real effort by Singer to perfect and market the Perma anti-skid device. Much of what occurred thereafter was merely a charade staged in contemplation of the possibility of litigation.

  On August 30, 1965, Person and Singer's attorney Boriss went to North Attleboro to meet with Perrino and other representatives of Perma. Person announced that the Perma program had been stopped since the device was not "fail-safe", which he defined as being so designed and made "so that no matter what, it must revert to the conventional braking system". Person also stated Perma had to solve the problems.

  On September 9, 1965, Person wrote a letter to Perrino asserting that Singer had legal claims against Perma. This letter also stated that Singer proposed "to procure the evaluation of a qualified, independent laboratory and have in fact initiated discussion with the Cornell Aeronautical Laboratory". The letter failed to state that Singer had decided against having Cornell do such an evaluation.

  In fact, Person had, on September 3, 1965, requested from Singer's own Denville Research and Development Laboratory a report on whether the anti-skid device was fail-safe. The device as submitted to the Denville scientists and engineers contained the transfer valve. The Denville report as finally submitted is dated November 9, 1965. The contents of that report are extremely significant but they will be outlined below.

  Meanwhile, Romel and his staff at the Elizabeth Singer plant kept searching for a quick solution to the problems of the anti-skid device. I can characterize these efforts only as being abysmally inept. The proposals generally ignored fundamental engineering concepts. For example, to minimize hysteresis (sticking) in the rotary valve, Romel experimented with a larger rotary valve, thus increasing the area where friction would occur with concomitant aggravation of the fundamental sticking problem.

  At the same time, Perrino had also attacked the "fail-safe" problem and by early November had come up with a set of proposals including a bleeder hole to the back of the Perma-Vac which would restore brakes if vacuum was present longer than a pre-determined time; a variable displacement piston to increase output pressure; and a vacuum time delay device which would turn off the device after a pre-determined time. Perrino called the last proposal a fail-safe for the fail-safe.

  On November 4, 1965, Perrino called Person and gave him a brief description of his proposals and agreed to send him a schematic of the devices. He also called Romel and described the proposals to him and likewise agreed to send Romel a schematic.

  Without seeing the drawings, Romel, in a conversation with Person, stated his opinion that the proposals advanced by Perrino would not work.

  Romel did not get the drawings until November 10, 1965, although Person, who could not judge the devices on his own, did receive the schematics on November 9, 1965. On November 9, 1965, Person also received the report of the engineering analysis from Singer's Denville Research and Development Laboratory. This report described the work by Singer at Elizabeth as "modest", and concluded that the device was not fail-safe because of its vacuum dependence caused by the transfer valve (induced by Romel to save inventory). The report further stated that a redesign program estimated to cost $30,000 could overcome this problem. The defendant did nothing to implement this proposed redesign program.

  On the same day as Person received the Denville report and Perrino's proposal, he submitted a Task Force report to DiScipio which formally recommended the divestiture of the Perma program. That night DiScipio and Person met and DiScipio orally agreed to the divestiture. Two days later, DiScipio gave formal approval to the Task Force Report but noted that a reserve of $2,000,000 should be set up instead of the $1,500,000 recommended in the report.

  Person then set up a meeting with Perrino on November 22, 1965, in Providence, R.I. There he handed Perrino a letter dated the same day which basically rejected Perrino's ideas to make the anti-skid device more "fail-safe". Person, when questioned about Singer's real purpose, told Perrino, "Very bluntly, Frank, we do not want to be in the brake business -- our people at Elizabethport should not have gotten into the brake business." Person tried to get Perrino to change the December 21, 1964 contract but Perrino refused and threatened to bring this lawsuit.

  After the November 22, 1965 meeting, this litigation loomed and nothing much of what was done by Singer is of much import. Of course, Singer tried to cut its losses by attempting to sell the device. For some reason, perhaps as an attempt to cloak what Singer recognized was a breach of its contractual obligations, Romel continued working on the Perma project with his curtailed staff. He spent most of his time until January 26, 1966, prototyping the device for new model cars, i.e., measuring the lengths of vacuum hose, speedometer cable, etc., for the changed models.

  On January 26, 1966, Singer finally abandoned all pretense and abandoned any effort to perfect the device.

  IX.

  THE COUNTERCLAIM AND AFFIRMATIVE DEFENSE OF FRAUDULENT MISREPRESENTATION

  Although the Post Trial Brief submitted by the defendant lacks definition of exactly what it relies on in support of its counterclaim and affirmative defense, it is clear that the claims may be broken into the following three categories: (1) perfection and testing; (2) performance; and (3) fail-safety.

  Singer claims that Perma and its representatives misrepresented each of these areas in inducing the defendant to enter the December 21, 1964 contract.

  Before turning to the specific allegations, it may be well to set out the elements required to prove fraudulent misrepresentation. Basically they are: (1) that material representations were made by one party to a contract; (2) which representations were false; (3) and were made with the requisite degree of scienter (or knowledge of their falsity); and (4) which were relied upon at the time of entry into the contract by the other party thereto. Daly v. Wise, 132 N.Y. 306, 30 N.E. 837 (1892); Becker v. Colonial Life Insurance Company, 153 App. Div. 382, 138 N.Y.S. 491 (2d Dept. 1912).

  (1) Perfection and Testing

  It cannot be disputed that the promotional movie shown to Singer executives at the Perma plant in February 1964 and then again at the Singer Elizabeth facility in April 1964 represented that the Perma Anti-Skid device was a "perfected, patented device". Such representations were apparently repeated by Perrino to Romel during the period from June 1964 to December 21, 1964, the date of the contract.

  Perrino, on the other hand, claims that he meant that the device was "workable, useable and marketable".

  It is clear to me that the statement in the movie was mere "puffing" and was accepted as such by the executives of Singer. Singer, by its experience manufacturing and testing the device under the June 18, 1964 contract, certainly cannot claim reliance on this statement nor on the representations by Perrino. I have already detailed ...


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