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CARL WAGNER & SONS v. APPENDAGEZ

January 22, 1980

CARL WAGNER AND SONS, A Partnership; CARLSON-SCHEFF CORP.; WAGNER BROS. HABERDASHERY, INC.; CARL'S, A Partnership, Plaintiffs, against APPENDAGEZ, INC., Defendant.


The opinion of the court was delivered by: HAIGHT

MEMORANDUM OPINION AND ORDER

The first and fourth named plaintiffs, Carl Wagner and Sons and Carl's, are New York partnerships. The second and third named plaintiffs, Carlson-Scheff Corp. and Wagner Bros. Haberdashery, Inc., are New York corporations. Plaintiffs operate four retail clothing stores in the greater New York City area. Defendant bAppendagez, Inc. is a Massachusetts corporation which, in 1976, manufactured and sold wholesale a line of jeans, tops and sweaters under the brand name "Faded Glory." Plaintiffs commenced this action in New York State Supreme Court, New York County, to recover compensatory and punitive damages arising out of defendant's alleged failure to fill and ship orders submitted by plaintiffs. Plaintiffs also asserted that defendant's failure to ship the goods ordered resulted from plaintiffs' refusal to sell at a fixed price as demanded by defendant, in violation of New York State's antitrust statute, referred to as the Donnelly Act, New York General Business Law § 340, and Fair Trade Law, § 369-a et seq. On this aspect of the case, plaintiffs claim treble damages.

 Defendant removed the case to this Court on the basis of diversity of citizenship. The parties waived a jury. Following bench trial, the Court enters the following Findings of Fact, Discussion, and Conclusions of Law.

 FINDINGS OF FACT

 1. Plaintiff Carl Wagner and Sons, a partnership, has maintained a retail clothing store at 65-46 Myrtle Avenue, Brooklyn, for over 20 years. Plaintiff Carl's, a partnership, has maintained a similar store at 5121 Fifth Avenue, Brooklyn, for 30 years. In 1960 plaintiff Carlson-Scheff Corp., a New York corporation, opened a similar store at 76 Main Street, Hempstead, New York, moving the store to Great Neck, New York about two years ago. Plaintiff Wagner Bros. Haberdashery Inc., a New York corporation, opened a store at 137 Cedarhurst Avenue, Cedarhurst, New York in April, 1976. The four stores are owned and operated by the three Wagner brothers, Aaron, Albert and Jacob, all of whom gave evidence at the trial.

 2. Defendant Appendagez, Inc., a Massachusetts corporation with its headquarters in Norwood, Massachusetts, and showrooms in several American cities, is a manufacturer and wholesale seller of jeans and related clothing items. In 1976 it marketed a line of jeans, tops, and sweaters under the brand name "Faded Glory."

 3. During 1976 the plaintiffs submitted a series of orders to Appendagez. Some of those orders were filled and the goods shipped; other orders were not filled. The trial testimony and exhibits cannot be completely reconciled as to the amounts involved. However, plaintiffs agreed to accept, for purposes of this litigation, Appendagez's calculations as set forth in its amended answer to plaintiffs' pre-trial interrogatory no. 9. Thus I find that in 1976, Appendagez received orders from the four plaintiffs totalling $ 25,089; filled orders totalling $ 5,484.50, the goods called for by such orders being shipped to plaintiffs; and refused to fill orders totalling the balance of $ 19,604.50. *fn1" The breakdown, per store, of orders filled and orders unfilled is as follows:

 TABLE

 4. The Wagner brothers first became aware of Appendagez's "Faded Glory" line when they observed it, in early 1976, on display at one of the numerous trade shows in New York City organized by the industry. They placed orders then and there. Aaron Wagner spoke to an Appendagez representative from New England, who waited on him because he was free at the time. Ordinarily orders are placed with salesmen who cover the particular geographic area. The initial orders were written for the Myrtle Avenue store, in the name of a salesman, a Mr. Segal, who was the salesman for the Brooklyn territory at that time. Segal's initial orders for the Myrtle Avenue store were dated January 14, 1976. Those orders were filled.

 5. Thereafter, plaintiffs planned the opening of the new store in Cedarhurst (which in point of fact opened in early April of 1976). The Wagners wished to feature the "Faded Glory" line at their new Cedarhurst location, which was in a high income, sophisticated area. Aaron Wagner telephoned the corporate offices of Appendagez, and asked to be placed in communication with the Appendagez salesman covering that area. This inquiry produced a visit, at the Cedarhurst location, from one Alan Friedman, who identified himself to Aaron Wagner as the Long Island salesman for Appendagez. Upon hearing of the other three stores, Friedman advised that he would write the orders for all four stores, billing them through the Wagner Bros. Haberdashery account in Cedarhurst, so that the Wagners could examine the entire line at one time, and there would be only one billing address. The Wagners agreed to this procedure. A number of orders were placed with Appendagez, through Friedman, for the four stores. To the extent that those orders were unfilled, they form the subject matter of this action.

 6. Orders were written up by Friedman on a printed order form prepared by Appendagez. A blank copy of the form then in use appears as DXC. The form consists of three identical copies, identified on the form itself as follows:

 
"OFFICE-WHITE CUSTOMER CONFIRMATION-CANARY SALESMAN'S COPY-PINK"

 The form contains columns for designating the style, color, description, and other information (including price) of the items desired. The form also provides boxes to fill in the "start ship date" and "cancellation date." In the lower left hand corner of the form, the following advice is given by Appendagez to the purchaser:

 
"Shipments are F.O.B. Norwood, and title passes to Buyer upon delivery to Buyer or to Carrier. The Seller will not issue credit for any allowances, reductions, or materials returned unless Buyer obtains the Seller's written consent of same within 14 days of receipt of goods. No returns will be accepted without written authorization from Appendagez."

 This is the sum total of Appendagez's advices to purchasers appearing on the order form. There is no statement to the effect that orders are subject to acceptance by Appendagez at Norwood before they become binding upon the seller.

 7. Several days after Friedman wrote up each order, plaintiffs would receive in the mail the yellow "CUSTOMER CONFIRMATION" copy. Those yellow copies, received by plaintiffs, appear as PX1. Several of them, dated in January, 1976, list Segal as the salesman. Orders dated in February, 1976 and thereafter, to the extent that the salesman is identified, refer to Friedman. On most, but not all, of the confirmation copies, the "start ship date" and "cancellation date" are filled in. Sometimes the notation opposite "start ship date" is "A/R," a notation which is not explained in the record. On one order, dated February 20, 1976, the following entry appears under "Special Comments," at the bottom of the form:

 
"Please start March 15-76. This is a new store opening."

 8. Friedman advised Aaron Wagner that the policy of Appendagez required plaintiffs to sell the "Faded Glory" line at "keystone" prices, an industry term meaning a 100% advance over the retailer's cost. The Cedarhurst store began to sell the line at keystone, but the Wagners observed that the line was being sold at discount elsewhere in the area. Concerned with the competitive effect upon their new venture, the Wagners began to sell "Faded Glory" items at a markup of only 80% over wholesale price. The Cedarhurst store featured the line, at discount prices, in its advertising and display windows. This produced a vehement objection from Friedman, who in the late spring came to the Cedarhurst store, photographed the windows in which "Faded Glory" items were displayed at discount, and then had a heated discussion with Albert Wagner and Robert Ernst, the assistant manager of the store. Friedman said that a number of other accounts had complained to Earl Nash, the northeast regional sales manager of Appendagez, about plaintiffs' discounting the "Faded Glory" line. Friedman stated that if plaintiffs did not sell the line at keystone, Appendagez would not fill their orders. Albert Wagner stressed the competitive necessity to discount. The discussion, described at trial by both Albert Wagner and Ernst, was heated. Jacob Wagner, who had seen his brother Albert, Ernst and Friedman go into the store's office, could hear voices raised in anger through the closed door. At about the time of this incident, plaintiffs began to encounter delays in receiving shipments.

 9. A rival store in Cedarhurst, "Ronnie's Slax'n Shirtails," was operated by Ronald Axelrod, who testified at trial. Axelrod carried the "Faded Glory" line, and conformed to the keystone pricing policy. He observed that plaintiffs' Cedarhurst store had opened, and was selling the line at discount. Axelrod complained to his Appendagez salesman, who replied in substance that if plaintiffs' Cedarhurst store did not put up the price, Appendagez would "cut them out." The salesman said he would take the matter up with his superiors. Axelrod could not remember the salesman's name. I find it was Alan Friedman.

 10. By mid-May, the Wagners had become increasingly restive over the cessation of shipments from Appendagez. The "Faded Glory" line was popular with buyers, and sold out quickly. The three Wagner brothers decided to beard the Appendagez corporate lion in its den at a trade show in New York on May 20. The Wagners bore down upon Nash, whom they had met amicably in March, as Nash was engaged at the Appendagez display area. The Wagners asked Nash, undoubtedly with some heat, what was holding up their outstanding orders. Nash replied, with equal heat, that the Wagners would have to sell the line at Appendagez's required full markup, or "you're through." The altercation became lively, and began to attract the attention of passers-by. William Colber, the national sales manager, came over, separated the Wagners and Nash, and drew the Wagners aside for what Albert Wagner described as a "lecture" about the necessity of selling at a full markup. The Wagners persisted in their demands that the outstanding orders be filled. The encounter broke up in an atmosphere of hostility and an exchange of uncomplimentary remarks. Plaintiffs retained counsel, who under date of May 27, 1976 wrote to Appendagez at Norwood to protest its decision "not to sell your merchandise to any and all of my clients' stores for the reason my client will not sell at your fixed price." *fn2"

 11. The Wagners' initial orders in January, 1976, in the name of Carl Wagner and Sons at the Myrtle Avenue address, were accompanied by a New Customers Credit Application form (DXD). That form identified the business as a partnership, and gave four credit references. The form came to the attention of Arnold Crocker, the comptroller of Appendagez. After conducting certain credit inquiries, Crocker assigned the Myrtle Avenue store a credit line of $ 2,000, with payment terms of "net 30." This appears on an internal Appendagez document (DXE). Appendagez never advised the Wagners that this credit limit had been set. There is no convincing proof that even the salesman on the account was informed.

 12. Friedman wrote up the first orders for Wagner Bros. Haberdashery, Inc. at Cedarhurst on February 20, 1976. On that date he also processed and forwarded to Appendagez a New Customer Credit Application for that company (DXG). Again acting internally, Appendagez listed Wagner Bros. Haberdashery as having a credit line of $ 2,000 and payment terms of "net 30" (DXH). Again, Appendagez did not advise the Wagners of the credit limitations.

 13. According to Appendagez's accounting department computer printout (DXL at p. 59), as of April 28, 1976 Wagner Bros. Haberdashery Inc. of Cedarhurst owed Appendagez a total of $ 3,443 *fn3" for goods shipped to Wagner. Of that total, only $ 59 had been owing for 30 days; the balance of $ 3,383 represented current charges, as to which Wagner Bros. was not in default. Nevertheless, Appendagez placed the Wagner Bros. account on its "Hold for Credit/Delinquency Report" dated April 29, 1976 (computer printout, DXM, pp. 207-208). Crocker testified this action was taken because Wagner Bros. had exceeded the $ 2,000 credit limit Appendagez had imposed internally upon Wagner Bros., but of which plaintiffs remained sublimely ignorant. When a customer exceeded its credit limit, all shipments were halted. There is a notation in pen on the "hold" printout, DXM, which says "Call O.L." Crocker testified that this reflected an instruction to someone in Appendagez's accounting department to telephone Wagner Bros. and advise plaintiff it was over its credit limit. However, Crocker did not make the call; did not know if anyone else did; and the Wagners testified that no such call was ever received. I find that no such call was ever made.

 14. Following the Wagners' heated exchange with Nash at the show on May 20, 1976, Nash recommended to his superiors in Norwood that no further shipments be made to the Wagners. In point of fact, Appendagez forwarded no shipments to plaintiffs subsequent to April 29. Crocker testified that the shipments were stopped for three reasons: a lack of inventory; plaintiffs having exceeded the $ 2,000 credit limit; and the Wagners' "harassment" of Nash, as reported by Nash to Crocker. I find, however, that the dominant cause of Appendagez's refusal to deal with plaintiffs was the latter's refusal to stop selling the "Faded Glory" line at a discount. That policy of Appendagez, insofar as it was applied to plaintiffs, was declared by Friedman, Nash, and Colber. The cessation of shipments represented the Norwood office's implementation of that policy.

 15. Appendagez's operations were of such nature that the Company made decisions, at its Norwood headquarters and warehouse, with respect to which orders it would fill. This was necessary to coordinate manufacture, inventory, and distribution. As a matter of internal corporate policy, the various salesmen in the field did not have authority to bind Appendagez to make delivery by the writing out and forwarding of an order. Appendagez reserved to itself, at the Norwood headquarters, the ability to determine which orders would be filled from inventory, and which would not. While this limitation upon a salesman's authority existed as part of Appendagez's internal procedures, it was never made known to the plaintiffs.

 DISCUSSION

 The foregoing Findings of Fact resolve, for the most part, issues of credibility in favor of the plaintiffs. On the central issue, I have found that representatives of Appendagez (Friedman on the salesman level, and Nash and Colber on the executive level) threatened the Wagners with a cutting off of shipments if the plaintiff stores did not adhere to a policy of keystone pricing. Defendant insists that it had no such policy; Nash testified at trial that he never communicated such a policy to the Wagners. However, to conclude that the plaintiffs have fabricated defendant's articulation of a price fixing policy, I must reject as unworthy of belief the testimony of all three Wagner brothers, as well as Ernst and Axelrod; and also disregard counsel's letter of protest of May 27, 1976 as a further device in a perjurious scheme. Having observed the demeanor of the witnesses, I do not believe that they swore falsely. I believe that they told the truth.

 While Axelrod's testimony does not bear upon my favorable impression of the credibility of the other witnesses called by plaintiffs, it is appropriate to observe that Axelrod had no apparent motive to color his testimony in plaintiffs' favor. Axelrod has no interest in the litigation. No basis appears for inferring that Axelrod bears Appendagez any animus. While the documents received in evidence in respect of the "Ronnie's Slax'n Shirtails" account with Appendagez (computer printout, PX6; invoice, DXN; cancelled checks, PX9) do not reveal a particularly active account, they do establish a commercial relationship between Axelrod's store and Appendagez at the pertinent times. To attack the credibility of Axelrod's testimony, Appendagez must argue that the Wagners somehow persuaded Axelrod to fabricate testimony which would corroborate their own. If that were the scheme, however, the Wagners would presumably have rehearsed Axelrod as to the name of the Appendagez salesman quoted by Axelrod in his testimony. On its surface, Axelrod's testimony would have had greater impact if he had identified Friedman as the salesman. The fact that Axelrod could not remember the name of the salesman may reduce the surface impact of his testimony, but in my judgment increases its credibility.

 It is also of some significance that neither Friedman nor Colber appeared as witnesses, by deposition or at trial, to dispute the accounts of plaintiffs and their witnesses. Friedman, Colber and Nash were the three Appendagez representatives who, according to plaintiffs, threatened them with reprisal if they did not adhere to the price fixing policy. Of the three, the role of Nash in this regard was the least significant; but he was the only witness produced by the defendant to give evidence on the point. I appreciate that, according to the testimony of Crocker and Nash, neither Colber nor Alan Friedman were in the employee of Appendagez at the time of the trial. Furthermore, Friedman might not have been a fully cooperative witness, since it appears that he filed suit against Appendagez over a dispute about sales commissions. But no showing was made by Appendagez as to its efforts to locate these witnesses to testify upon what was clearly the central issue in the case; and Crocker testified that Friedman's brother was still an employee of the company. Because Colber and Friedman were not employed by Appendagez at the time of trial, their non-appearance as witnesses does not require the inference that their testimony would have been adverse to the company. But the trier of the facts has fewer credibility conflicts to resolve. Nash was in no position to contradict plaintiffs' evidence in respect of what Colber said to the Wagner brothers, or what Friedman said to the Wagners and Axelrod.

 The decisive issues will now be considered.

 The Existence of a Contract between ...


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