Friendly and Winter, Circuit Judges, and Lasker, Senior District Judge.*fn*
This case is a further illustration, if one were needed, of the unwisdom of continuing diversity jurisdiction, 28 U.S.C. § 1332, and particularly that portion of the diversity statute permitting such jurisdiction to be invoked by an in-state plaintiff.*fn1 There is no federal interest in this lawsuit except for that engendered by the disregard by trial counsel of a federal procedural rule; it is the kind of case that the New York courts handle regularly. It was pending in the district court for nearly six years and, after extensive pretrial proceedings, consumed eight days of trial time. It involves several troublesome points of New York law, on at least one of which the court seems to have been led into error by a proposal by one counsel to which no objection was made by the other. Worst of all, counsel treated the provisions of Fed.R.Civ.P. 50(b) with respect to a motion for judgment notwithstanding the verdict as if they did not exist and as if the practice concerning such a motion were governed by the less formal provisions of N.Y.CPLR 4404. See also N.Y.CPLR 4401. Many days of effort on our part have been required to disentangle the resulting confusion, at the cost of time that should have been devoted to our ever-mounting caseload of appeals where federal interests are implicated. Finally, as a result of our ruling there must be still further proceedings in the district court and perhaps a further appeal.
The Proceedings in the District Court
The complaint, filed in the District Court for the Southern District of New York on March 1, 1978, alleged that plaintiff Ebker had achieved a national and international reputation as a designer and merchandiser of women's wearing apparel. In 1976, she entered into an employment agreement with Genesco, Inc., to be president of its Susan Thomas Sportswear Division, the products of which included the Vivo and Susan Thomas sportswear labels and a newly created Sportswork-Nancy Ebker label. Her contract with Genesco provided for a salary of $152,500 for the period pending July 31, 1977, which was to increase annually up to a maximum of $187,500 until July 31, 1979, when the contract expired. If Genesco terminated the contract earlier, Ebker was to be compensated at the annual rate of $152,500 less any amounts received from a new employer.
About August 1977 Genesco decided to dispose of its apparel manufacturing operations and so advised Ebker. However, Genesco gave Ebker an opportunity to reap the benefits of her reputation by allowing her to purchase such assets of the Susan Thomas Division as were essential to the continued production of its labels. Ebker was thereafter contacted by Peter Nygard, the principal shareholder and chief executive officer of defendant Tan Jay International (Tan Jay), a Canadian corporation. He stated that Tan Jay had been attempting to enter the United States market and proposed that he and Ebker enter into negotiations for the acquisition and continuation of the Susan Thomas division. The complaint, as amended by a pre-trail order nearly three years after its initial filing, alleged that the negotiations between Ebker and Nygard, who was said to be acting not only as the chief executive officer of Tan Jay but also on his own behalf, were concluded on or about November 26, 1977,
by the making of an agreement (the "Agreement") which provided, among other things, that they would enter into and undertake a joint venture as "FIFTY/FIFTY (50/50) partners," Ebker owning a one-half (1/2[)] interest and Nygard and Tan Jay together owning a one-half (1/2) interest of said joint venture.
Jt. Pre-Trial Order P3(2), 1 Jt.App. 24. The alleged oral agreement included the organization of a new company, with Ebker as president, to carry on two labels of the Susan Thomas Division: the Vivo label, in the future to be known as Bianca (a Tan Jay label), and Sportswork-Nancy Ebker, in the future to be known simply as Nancy Ebker. Tan Jay was to provide the funds for the acquisition of the needed assets from Genesco. Ebker was to receive: (1) an annual salary of $50,000; (2) 50% of the net pretax profits from sales under the Nancy Ebker label; and (3) 5% of the Bianca label's net pretax profits from sales of the spring, summer and fall Vivo collections, and therafter from sales of all 1979 to 1982 Bianca collections. The complaint charged that in early February 1978, Nygard and Tan Jay repudiated the agreement in various ways, including the exclusion of Ebker from the premises on which operations were being conducted. The defendants counterclaimed that after Ebker's discharge she had disrupted Tan Jay's business operations, and sought compensatory and punitive damages.
The appendix does not include any portion of the 362 page transcript of a four day pretrial hearing before the district judge, which had a vital bearing on the trial, and references to it in the briefs are few and without page citation. The judge was concerned, inter alia, about the term the alleged joint venture was to have. Plaintiff's counsel insisted that the term was for five years.*fn2 The judge warned that such a claim would be perilous in light of the one-year section of the New York Statute of Frauds, which we quote in the margin.*fn3 Plaintiff's counsel insisted that the New York Statute of Frauds did not apply to joint ventures at all. He conceded that if the statute applied, the five-year joint venture agreement would be treated as a partnership at will, but maintained that Ebker would still be entitled to an action at law for damages for its breach as well as an accounting. Defendant's counsel disputed plaintiff's ability to maintain such a damages action and argued that, in view of the concededly short duration of the alleged joint venture and its operation at a loss, an accounting would be pointless. Finally, the judge decided that a first trial should focus on the question whether there had been a joint venture between Ebker and Nygard or Tan Jay; all other issues would be reserved. Regrettably these directions were not embodied in an order.
Plaintiff's case rested primarily on her own testimony which, in view of the attack on the sufficiency of the evidence, we must set forth at tiresome length: Nygard called on Ebker at the Susan Thomas showroom on November 17, 1977. She explained some of her ideas to him, and they arranged a luncheon meeting for the following day. Over lunch, Nygard described "how Tan Jay was built up to a $30 million business", that he had $5 million to invest in the United States, and that he was interested in the Nancy Ebker label. Ebker declined to discuss a deal unless it also included the lower-priced Vivo line. Nygard said he already had a line in Canada called Bianca which was similar to Vivo and would be open to discussing the Vivo line in addition to the Nancy Ebker line. After returning to her office Ebker stressed that she would not consider less than a 50-50 partnership. Nygard replied, "Well, that's no problem," and "You can maintain your office exactly the way you've done, and the only difference would be that we move Tan Jay into the showroom and sell the three lines out of the showroom." Nygard also requested that Ebker stop negotiating with other potential backers. Although she believed herself to be within a day of striking a deal with one interested party, Ebker complied. Nygard then departed for Frankfurt and Ebker for California. It was later arranged that they meet again in London. Most of the conversations there, some attended by Ebker's associate, Leamond Dean, took place at the Inn on the Park, a luxury hotel where both Nygard and Ebker were staying. Ebker and Nygard discussed the capitalization that would be needed to finance the two lines. The parties discussed separating Ebker's label, which was produced under a union contract, from the non-union Tan Jay operation and converting the unionized Vivo label into the Bianca label, which was to be manufactured in Tan Jay's non-union California plant. The two would be 50-50 partners on the Nancy Ebker label, but Ebker was to have only five percent "of the pretax profits on Bianca because [Nygard] would be handling this production."*fn4 Nygard agreed that Ebker's management people should remain.
In answer to questions by the court, Ebken repeated that they would be 50-50 partners in the "Nancy Ebker" label and "it was going to be a company."*fn5 There was a problem about a licensing contract between Genesco and a Canadian company called Marbrooke, giving Marbrooke an exclusive distribution arrangement on the Nancy Ebker label in Canada. For the time, this issue was "left up in the air." So also was the question of what price Genesco would ask for inventory and other tangible assets necessary for continued production of goods under the Nancy Ebker label. Ebker was to be responsible for "completely running" her label, including "merchandising, designing, ordering piece goods, following through on production, fit, quality, sales, . . . all the way through store seminars", but on "Bianca" she would be responsible only up to the point when designs were sent to California for production. According to Ebker, "he [Nygard] kept relating to this as a partnership." Each was to take a $50,000 annual salary out of the Nancy Ebker label, but Ebker's was to be in the form of $40,000 a year plus a 10% bonus (apparently meaning a $10,000 bonus), so as "not to upset the applecart in Canada." In response to a question from the court, Ebker explained that Nygard insisted that "we should not tell anyone [in his] management team that we were 50-50 partners because they would be upset . . . he was planning to make managers partners of some sort in a couple of months. . . ." Also, no one in his company earned a salary of more than $40,000 a year. With respect to the duration of the arrangement, she testified as set forth in the margin.*fn6 One night in London, Ebker and Dean dined out with Nygard and two Tan Jay employees; Nygard picked up a wine glass and said, "Well, here is to your partnership."
Ebker and Nygard then returned to New York together in order to attend a meeting with a Genesco official. The court prevented Ebker from relating what was discussed. After he left, Nygard again raised a question about Genesco's insistence on an assumption of the Marbrooke contract. Ebker foresaw another problem, namely, that Genesco would demand as a condition to the purchase of the assets of the Susan Thomas division that Ebker forego her employment contract. This concerned Ebker for two reasons. First, although under the "joint venture partnership [Ebker and Nygard] would both be getting profit in the second year," she would earn only $50,000 in the first year rather than the $152,500 salary guaranteed her by the Genesco contract. Second, Ebker needed income to offset $40,000 in expenses she had personally incurred to keeep the Susan Thomas line operating until a backer could be found.
On the next day, November 27, there were several discussions, some with Genesco and some between Nygard and Ebker. Nygard proposed to put the Marbrooke contract in a shell corporation wholly owned by Ebker. She said she had "researched" a company, to wit, the Nanco Group. The "research" had evidently been with respect to trademark problems. Nygard suggested that the Marbrooke contract be "put" with the Nanco Group, which was not to have any profits and thus could not be sued successfully. Although she insisted that she intended to fulfill the contract, Ebker agreed with Nygard's suggestion and proposed they telephone Genesco to check if it would approve such an arrangement. After doing so, she said, "All right, Peter, I think it looks like we have a deal." Ebker then proposed that they "sit down and make sure that we do."
According to Ebker's testimony, at that point the parties began to outline the contours of their joint venture. Nygard's first item was that Ebker would "maintain her office." Ekber went on to explain, in a confirming way, that this was her existing office at the Susan Thomas Division, located at 1411 Broadway in New York City, "a 10,000 square foot space, with a showroom, design room, pattern room, and . . . a production chart which showed the whole workings of the system from beginning to end." Nygard said Ebker was to "maintain control . . . of all these aspects through production on the Nancy Ebker line," just as she had done with Genesco, and that she would "run [her] company as president of that line." He concluded with the statement, "Here we'll be 50-50 partners." Ebker called this operation the Nancy Ebker Company, see supra note 5, although there seems to have been no understanding as to what legal form it would take. They then reviewed Ebker's five-year projections which predicted that they would reach a break-even point within nine months. Nygard said "Yes, I will fund the company until the break even point." At this time, Ebker clarified her understanding that after the break-even point was reached they would divide the profits, to which Nygard added, "And of course the losses."
Turning to the Vivo line, Ebker said, "as far as Vivo goes, we will put it in your name, which we have discussed before, in your name, "Bianca". . . ." Inquiry by the court elicited that in fact the Bianca name was owned by Tan Jay; however, Ebker testified that "Mr. Nygard always told me that he owned Tan Jay." After reiterating that the Bianca line would be produced in California, Nygard stated, "[W]e will decide what your [Ebker's] title will be later on this." They confirmed that Ebker was to receive five percent of the Bianca label's pretax profits.
Nygard then asked that Ebker incorporate the Nanco Group immediately. The corporation was to assume the Marbrooke contract and to lease facilities where the union would work on the Nancy Ebker line so that Tan Jay could remain "completely separate from the union situation."
Ebker then said she was going to make a list of things that needed "to be done right now." First, Nygard wanted her to instruct his advertising agent to do an ad "on the two of us linking us together on our joint venture to show the world that we did it with the concept we have done it separately, now we're going to do it terrifically together." Second, Ebker volunteered to write letters explaining the transaction to her nation-wide network of buyers who had already ordered over $320,000 worth of goods; Nygard approved. Third, her management team and their salaries were to remain largely unchanged, except that, at Nygard's insistence, two members whose compensation exceeded $40,000 were to receive only $40,000 in salary and the remaining in a bonus at the end of the year. Fourth, Ebker was to work with Court Joel, Nygard's controller, to prepare budgets and projections for the line. Fifth, Nygard asked Ebker to call her press agent and set up a meeting for the next day "because we would like to send out a release on our joint venture."
Ebker then insisted that their agreement be put in writing. Nygard replied, "We are going to be partners. We must trust each other." He feared that if lawyers got involved "right now," they would just "mess everything up and take too long." Finally, after explaining that he had to leave the next day and promising to return in February to "get everything done," Nygard authorized Ebker to conduct all remaining negotiations with Genesco.
These negotiations resulted in Genesco's selling to Jan Tay the inventory and other assets needed to produce the Ebker line, with Tan Jay buying the piece goods at a 25% discount.*fn7 Prior to the closing on December 9, 1977, there was a speakerphone call between Nygard at his Winnipeg factory and Ebker, Court Joel and Nygard's attorney in New York. Ebker said her attorney, who was also present, was concerned because she was assuming the Marbrooke contract but "had no coverage" if Marbrooke sued her. Nygard said he would "cover" her but that "a year or two down the road when we are both making profits together, being 50-50 partners you are going to have to pay me back 50 percent of any liability I may suffer from this lawsuit." After the closing Ebker started designing the summer line; this required long hours of work to make up for the time that had been lost since Genesco had decided to discontinue operations. The flow of the testimony was then interrupted by an interlude which we quote in the margin.*fn8
Ebker went on to testify that Nygard had also insisted on bringing his Tan Jay line and two employees into "my showroom" but that "[t]hey would have nothing to do with the functioning of my company . . .," see supra note 5. In January Nygard's attorney "signed for" space on 37th Street for "Nanco"; apparently this was used for production and shipping. Ebker's testimony concluded with a description of a February 13, 1978 discussion between herself and Nygard, in the presence of Dean and two other employees, concerning a dispute over architectural plans for remodelling the showroom. Ebker said, "You can't do this, Pete. We're partners." Nygard responded, "Yes. But unfortunately for you I'm the partner with the money," see supra note 5. Ebker did not describe just how the venture ended, presumably because such evidence was not thought to bear on the issues framed at the pretrial conference.
Cross-examination brought out a number of facts working against Ebker's claim: Tan Jay paid the rent on the showroom at 1411 Broadway and had its sign on the door. The advertisement commissioned by Ebker and signed by her, which was published in Women's Wear Daily, recounted the history of the negotiation but made no mention of a partnership or joint venture; instead it said that Ebker would design her "heart out for both Nancy Ebker and for Bianca (Peter's American company)." Ebker sought to explain the lack of any reference to the partnership as advertising license and contended that there were other advertisements that referred to "Nancy's company." Ebker's tax return for 1978 showed receipt of a salary at the annual rate of $40,000, with a legend "Taxpayer entered into an employment agreement with Tan Jay International."
On redirect plaintiff's counsel introduced another advertisement signed by Nygard as president of Tan Jay, entitled "We did it!" This advertisement said that Ebker "is with us as a strong member of the "merchandising committee" for Tan-Jay, designing Bianca and running her Nancy Ebker division," and concluded, "We've been successful separately . . . WAIT TILL YOU SEE US TOGETHER!" Then Dean took the stand and corroborated parts of Ebker's story, notably her testimony concerning references to a "partnership" in statements Nygard made at the London restaurant and during the February 13 meeting. Plaintiff rested after reading the deposition of Attorney Joel Arnold regarding the preclosing speakerphone conversation with Nygard. Arnold, who represented Ebker at the meeting, urged that the agreement be reduced to writing but Nygard refused ostensibly because of ...