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CARLOS v. PHILIPS BUS. SYS.

February 16, 1983

Don A. CARLOS, d/b/a D & S Business Systems, D & S Word Processing Systems and Diskriter, Plaintiff,
v.
PHILIPS BUSINESS SYSTEMS, INC., Defendant



The opinion of the court was delivered by: BRAMWELL

BRAMWELL, District Judge.

 On August 14, 1981, July 14, 1982, and September 14, 1982, this court convened a hearing upon plaintiff's application for a preliminary injunction. The plaintiff, an exclusive distributor of Norelco office machine products, has sued to enjoin what it perceives to be an illegal termination of its business by defendant. Today, pursuant to Rule 52(a) of the Federal Rules of Civil Procedure the court disposes of that application.

 The court shall also dispose of plaintiff's application for a contempt citation of defendant for violating paragraphs (i) & (iv) of the temporary restraining order entered in this action on August 6, 1981 as well as defendant's application to vacate that order.

 FINDINGS OF FACT

 1. The plaintiff, Don A. Carlos, (hereinafter referred to as Carlos) is a sole proprietor doing business as D & S Word Processing Systems, D & S Business Systems, and Diskriter with places of business in Trenton, New Jersey; Hartford, Connecticut; and Ohio, respectively. (Complaint para. 1, A26, J5-6) *fn1"

 2. The defendant, Philips Business Systems, Inc., (hereinafter referred to as PBSI) is a Delaware corporation with its principal place of business at 810 Woodbury Road, Woodbury, New York. PBSI markets Norelco dictating equipment. (Complaint para. 3)

 3. Carlos first began selling Norelco dictation equipment in 1970 as a salesman for D & R Word Processing Systems, the then distributor for PBSI in Hartford, Connecticut. (A27, J5)

 4. In June 1973, Carlos was offered a Norelco dealership by PBSI for the Trenton, New Jersey area and opened a place of business there. (A27, J5) At that time PBSI had a two tier marketing system consisting of dealers and exclusive distributors. Under that system exclusive distributors had certain competitive advantages over PBSI's dealers with respect to price, terms, and advertising. (A28, J18)

 5. By letter dated December 20, 1974, PBSI offered to convert Carlos from a dealer to a distributor and appoint him an authorized exclusive distributor of Norelco dictating equipment effective January 1, 1975 for eight counties in southern New Jersey. (Pl.Ex. 1, A28, 30, J5) *fn2"

 6. In that same letter PBSI advised Carlos that it was making a marketing change as a result of which some former dealers, such as Carlos, were being offered exclusive distributorships while other former direct dealers would be referred to distributors for future business. (Pl.Ex. 1)

 7. On or about January 1, 1975, Carlos entered into the first of two exclusive distributorship contracts with PBSI. (Pl.Ex. 1 and 2)

 8. Shortly thereafter, in the early part of 1975, Carlos' former employer, D & R Word Processing Systems in Hartford, Connecticut, offered to sell Carlos the exclusive distributorship for the Hartford, Connecticut area. (A29, J5-6) After discussions with Arthur L. Hanrahan, President of PBSI, Carlos purchased the exclusive distributorship for the counties of Tolland and Hartford, Connecticut from his former employer in April 1975 with the approval of PBSI. (A29, J6) As a condition to that approval, PBSI required Carlos to maintain his office in New Jersey, which he did. (J8)

 9. On July 1, 1978, Carlos and PBSI entered into a successor agreement which gave Carlos the exclusive right to use the Norelco trademark and to sell and service Norelco dictating products in eight counties in southern New Jersey and two counties in Connecticut. (Pl.Ex. 2, A35)

 10. During the period covered by his distributor contracts Carlos successfully developed his business to the point that, in October 1980, Carlos began negotiations with Jerry I. Eichelsbacher of Diskriter, Incorporated to acquire the exclusive distributorship for Norelco dictation products in sixteen counties in Ohio. After obtaining approval from PBSI, Carlos acquired the Ohio portion of the Diskriter exclusive distributorship for Norelco dictation products in November 1980. (Pl.Ex. 17-18, A36, J6, J39)

 11. Carlos conducts his Norelco dictation franchise in the states of New Jersey, Connecticut and Ohio pursuant to a written arrangement in which PBSI granted him a license to use the trademark "Norelco", in which there is a community of interest in the marketing of Norelco dictation products. (Pl.Ex. 2, A46-49, J23, J103)

 12. Carlos maintains a place of business at 2561 Yardville, Hamilton Square Road, Trenton, New Jersey where he displays and offers to sell and sells Norelco dictation products. Carlos' place of business in New Jersey was approved by PBSI and reflects the normal business characteristics of a distributor of dictation equipment. (J7)

 13. The gross sales of Norelco dictation equipment between PBSI and Carlos covered by his franchise exceeded $35,000 for the twelve months next preceding the commencement of this action. (Pl.Ex. 11-14, J9) His total purchases from PBSI during that period exceeded $450,000. (Pl.Ex. 11, J9)

 14. More than 20% of Carlos' sales are intended to be and are, in fact, derived through his franchise. (J9) Overall, approximately 90% of his sales are of Norelco dictation products. (J10) Carlos' sales in New Jersey alone for the twelve month period immediately preceding the commencement of this lawsuit were approximately $150,000. (Pl.Ex. 13, J13-15)

 15. Under PBSI's marketing plan and system, Carlos, as a distributor, was required to send representatives of his business to sales meetings (J17), including training at Norelco University (J22, S13), to maintain proper coverage of his territories with salespeople (Pl.Ex. 15, J19), to maintain proper office facilities to demonstrate Norelco dictation products (J20) and to service, with factory trained technicians (J21), the Norelco dictation equipment that he sold. PBSI set quota requirements and Carlos was required to provide periodic sales reports to PBSI. (Pl.Ex. 2, J21) Carlos was also required to maintain an adequate inventory of parts. (J21) The format for yellow page advertising was dictated by PBSI (Pl.Ex. 7, A49, J23) and on at least one occasion Carlos was compelled to advertise a Norelco dictation product at a substantially reduced price in order to prevent PBSI from selling directly in his exclusive New Jersey territory. (Pl.Ex. 16, A52-53, J24) PBSI also directed Carlos to increase his sales staff in the Hartford office. (Pl.Ex. 15, J19)

 16. Carlos was also required from time to time to provide financial information and statements to PBSI and to submit 4-I cards. (J26, 94) Under the 4-I reporting system, Carlos was required to fill out a card for each dictation machine he sold and provide PBSI with the name of the customer to whom it was sold. (J28)

 17. In 1979, PBSI began to establish direct dealers known as Independent Retail Outlets ("IRO's"). (S148) They were designed to replace failed distributors or to cover areas not already covered by an exclusive distributor. IRO's received less favorable prices, terms and advertising than did exclusive distributors, such as Carlos. (Pl.Ex. 23-24, J53-58)

 18. On or about May 1, 1981, Carlos received a memo from PBSI advising him that a new agreement designed to "address the marketplace as it exists today" would be sent to him in the near future. All fifty-five of PBSI's exclusive distributors received this letter. (Pl.Ex. 8, A51)

 19. While Carlos thought that this new agreement referred to by PBSI would be a renewal of his existing distributorship agreement, it was ...


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