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BUSINESS INCENTIVES CO. v. SONY CORP. OF AMERICA

June 4, 1975

BUSINESS INCENTIVES CO., INC., Plaintiff,
v.
SONY CORPORATION OF AMERICA, Defendant



The opinion of the court was delivered by: KNAPP

MEMORANDUM AND ORDER

 KNAPP, D.J.

 Defendant in this diversity breach of contract action has moved for a Rule 12(b)(6) order dismissing seven counts of the nine count complaint -- or in the alternative for summary judgment on such counts -- on the ground that they fail to state claims upon which relief may be granted. Plaintiff cross moves for partial summary judgment on the remaining two counts, on the ground that defendant's failure to move or answer as to these counts entitles it to judgment thereon. Defendant's motion is granted, except as to Count VII, and Counts I - IV and VIII - IX are dismissed. Plaintiff's motion is denied, defendant's time to answer having automatically been extended by its Rule 12(b)(6) motion.

 On July 12, 1965, plaintiff -- a small family owned New Jersey corporation -- entered into a contract with defendant Sony -- a large publicly held New York corporation -- whereby it agreed to interest industrial concerns located in the New York metropolitan area in the purchase, direct from Sony, of Sony electronic products for use as prizes and awards in their employee incentive and customer premium programs. Serving as an intermediary between Sony and such industrial concerns, plaintiff was, in effect, an independent salesman for SONY goods. It had been performing similar services for many other manufacturers -- including several of Sony's major competitors. *fn1" However, plaintiff claims that by the time this lawsuit was commenced it had developed its Sony business to such an extent that 75% of its income was derived from commissions earned on the sale of SONY products alone. Under the terms of its initial agreement with Sony, plaintiff's rate of commission was set at 5% of all sales effected by it between Sony and third parties. Sony reserved the right to accept or decline orders by customers procured by plaintiff and to determine the price, terms and conditions of such sales. Their contract also had a provision entitling plaintiff to buy representative samples of Sony's products at a 15% discount, for use in soliciting customers for Sony. Finally, the contract had a termination clause, empowering either party to terminate the Agreement, on 15 days notice. That clause made no provision requiring either party to justify such termination.

 Although plaintiff was in the business of soliciting orders for the products of its clients, such as Sony, there is no indication in the papers before us that its contracts with clients other than Sony were in any way similar to its arrangement with Sony. Nor is it suggested that Sony itself had entered into similar contracts with salesmen other than plaintiff.

 Two years later, having successfully built up the "territory" of New York, plaintiff was told by Sony to restrict its operations to the less lucrative "territory" of New Jersey. Plaintiff was advised that unless it agreed to this change, Sony would exercise its rights under the termination clause. Accordingly, on September 1, 1967, the parties entered into an Agreement which modified and superceded the 1965 contract, by limiting plaintiff's "territory" to New Jersey. This Agreement also eliminated the 15% product discount, but left unchanged both the rate of commission and the termination clause. The complaint does not specify what percentage of plaintiff's business was devoted to Sony at this juncture. On March 22, 1972, this second Agreement was modified, again at Sony's insistence, by a downward revision of the commission rate schedule. Subsequently, by letter dated November 2, 1973, Sony elected, in accordance with the termination clause, to terminate the Agreement, effective December 31, 1973.

 On January 17, 1975, plaintiff commenced the instant action for damages arising out of what it claims to have been the unlawful termination of its contract, and for recovery of allegedly earned but unpaid commissions. Plaintiff's contention is that by virtue of Sony's disproportionately superior bargaining position, it was able to and did dictate to plaintiff grossly unfair conditions. But for this allegedly coercive situation, plaintiff contends, it would have never agreed to a contractual clause providing for termination regardless of cause. Nor would it have agreed to any downward revision of its commission rate. Sony's response to this contention is that plaintiff voluntarily entered into the Agreement with it, knowing full well that either party could terminate the relationship without cause; that plaintiff was not then at its mercy, as it already had many other product lines which it sold and could develop; and that, despite the existence of these other income producing opportunities, plaintiff chose to concentrate its efforts on the build-up of its business with Sony -- because that seemed (and proved) to be the most economically advantageous to plaintiff.

 Since Sony's motion to dismiss addresses itself to the complaint on a count by count basis, we shall briefly summarize the several counts. Specifically, plaintiff requests the following relief:

 
Count I. Damages for Sony's unilateral act of reducing plaintiff's commission by alleged threats of "economic duress". (Adopting principles of notice pleading, this Count will be interpreted to claim any relief obtainable at common law).
 
Count II. Damages for Sony's unilateral reduction of commissions, on the ground that under the New Jersey Franchise Practices Act (N.J.S.A. 56:10-1 et seq.), the 1967 Agreement between the parties constitutes a "franchise" within the meaning of the Act and plaintiff is therefore entitled to the protection afforded by the Act.
 
Count III. Damages for Sony's unilateral act of cancelling the Agreement without cause, allegedly due to the "economic duress" referred to in the first Count.
 
Count IV: Damages for Sony's unilateral act of cancelling the Agreement without cause in violation of the N.J. Franchise Practices Act.
 
Count V: Damages for commissions earned on orders placed by customers procured by plaintiff prior to December 31, ...

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