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Grand Light & Supply Co. v. Honeywell Inc.

September 10, 1985

GRAND LIGHT & SUPPLY CO., INC., PLAINTIFF-APPELLEE CROSS-APPELLANT,
v.
HONEYWELL, INC., MICRO SWITCH, DEFENDANTS-APPELLANTS CROSS-APPELLEES



Appeal and cross-appeal from a judgment of the United States District Court for the District of Connecticut, Brieant, J., of the Southern District of New York, sitting by designation, awarding plaintiff damages totaling $141,692.55 plus attorney's fees for violations of the Connecticut Franchise Act, Conn. Gen. Stat. § 42-133e et seq. (1985), and Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. § 42-110a et seq. (1985), and for breach of contract.

Author: Meskill

Before: OAKES, MESKILL and PIERCE, Circuit Judges.

MESKILL, Circuit Judge:

This appeal and cross-appeal present a number of questions arising out of the termination of a distributorship arrangement between a manufacturer and one of its authorized distributors. The United States District Court for the District of Connecticut, Brieant, J., of the Southern District of New York, sitting by designation, held the defendant's termination of its distributorship with plaintiff violated the Connecticut Franchise Act, Conn. Gen. Stat. § 42-133e et seq. (1985) (Franchise Act), and the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. § 42-110a et seq. (1985) (CUTPA). The court also concluded that the termination breached the parties' contract. The award included damages of $116,692.55, punitive damages of $25,000 and attorney's fees. Plaintiff's allegations of antritrust violations were rejected.

We reverse that portion of the judgment holding that the relationship between the parties was a franchise and we therefore reject the court's conclusion that damages may be awarded for a violation of Connecticut's Franchise Act. We also reverse the court's conclusion that defendant breached the distributorship contract. The portion of the judgment holding that defendants' action violated CUTPA is vacated; the cause is remanded for a new trial on the CUTPA issues. Finally, the district court's conclusion that no antitrust violation was proved is affirmed.

BACKGROUND

Plaintiff Grand Light & Supply Co., Inc. (Grand Light) is a Connecticut corporation doing business in New Haven. As an independent, multi-line distributor of electrical equipment and supplies, plaintiff sells the products of some 250 manufacturers on both a retail and a wholesale basis. Defendant Micro Switch is an unincorporated division of defendant Honeywell, Inc.; both defendants do business in Freeport, Illinois. Honeywell is incorporated in Delaware.

Micro Switch manufactures a wide variety of electrical switches. Its "core" line, J. App. at 664, including basic subminiature and miniature switches, is well established in the national marketplace. Its more recently developed "venture" line, id., consists of such products as photo-electric and proximity devices, oil-tight pushbuttons and limit switches and relays.

Grand Light, which first served as an authorized distributor for Micro Switch in or around 1947, was in the late 1970s one of six such distributors in Connecticut. During much of this time plaintiff was an authorized distributor for approximately 150 manufacturers. Among the other suppliers was Allen-Bradley Corporation, a Micro Switch competitor in certain venture line products.

Plaintiff's relationship with Micro Switch, apparently informal in earlier years, became subject to guidelines in 1975 when the "Authorized Distributor Performance Expectations" guide was issued by Micro Switch. J. App. at 134. This guide attempted to delineate manufacturer and distributor responsibilities and discussed selection and termination of distributors; it did not, however, specify any grounds for termination.

In 1977 Micro Switch issued the "Micro Switch Authorized Distributor Policy," J. App. at 144; this policy was in force in 1978 when Grand Light was terminated. Here, for the first time, Micro Switch stated, "termination may be made by either party with 30 days written notice." Id. at 147.

Grand Light began to perceive problems in its relationship with Micro Switch in early 1975. A Grand Light officer was then told by a Micro Switch official that performance expectations were being increased and that other distributors were being terminated because of inadequate sales and promotional efforts. Plaintiff was urged to increase its efforts to sell the new venture line products. Grand Light agreed to continue stressing the core line and was enthusiastic about the new photoelectric products, but, believing that the Allen-Bradley Corp.'s line of pushbuttons, limit switches and relays was superior, it was reluctant to stock Micro Switch's competing lines of those products.

In 1976 Micro Switch personnel expanded the schedule of joint sales calls and Grand Light hired a salesman to work exclusively with Micro Switch products. As a result, Grand Light's Micro Switch sales doubled. However, in 1977 Micro Switch informed Grand Light that it would not continue these special sales efforts. Grand Light was also told that its sales figures were below projections. In 1977 and early 1978 Grand Light and Micro Switch personnel met to discuss the situation; the subject of termination was apparently raised at one or more of these meetings.

In June 1978 Grand Light received a letter from Richard Rudig, Branch Sales Manager, stating that Rudig planned to recommend termination of Micro Switch's arrangement with Grand Light. J. App. at 129-30. Rudig cited as reasons for his decision, the absence of sales increases in 1977 and 1978 and Grand Light's failure to involve Mircro Switch in "sales opportunities."

This termination recommendation was approved by the Regional Sales Manager, Alex Garner, who offered to meet with Grand Light to discuss the pending termination. After a meeting, Garner wrote another letter to Grand Light summarizing the contents of the meeting. J. App. at 132. Garner stated that the reasons for termination were "a lack of sales growth and a lack of aggressive support of Micro Switch by Grand Light." Id. Garner suggested that Grand Light submit a distributorship application as if no prior relationship had existed. Grand Light complied, submitting a lengthy letter outlining its qualifications for the distributorship. Micro Switch officials considered the matter and determined that termination was the proper course. In a letter dated August 25, 1978, Micro Switch informed Grand Light that the termination would become effective on September 27, 1978. Id. at 133.

Grand Light filed suit in Connecticut state court in September 1978, seeking an injunction preventing Micro Switch from terminating its contract with Grand Light. Plaintiff asserted that Micro Switch's actions violated the Franchise Act and constituted a tortious interference with business relations and a breach of contract. The state court granted a temporary injunction and scheduled a hearing. Defendants then removed the action to federal court on the ground of diversity of citizenship and plaintiff amended its complaint to include federal and state antitrust claims and an allegation that defendants' use of plaintiff's customer lists constituted an unfair trade practice.

Plaintiff's request for a preliminary injunction was denied because plaintiff failed to show irreparable harm. See Grand Light & Supply Co. v. Honeywell, Inc., 80 F.R.D. 699 (D. Conn. 1978). A bench trial occurred in July 1983 and the parties filed post-trial briefs in February 1984. In a lengthy opinion, the court held that the arrangement between the parties constituted a franchise under the Franchise Act, that defendants' termination of plaintiff violated that Act because it was not based on good cause, that defendants acted in bad faith and that the termination constituted a violation of CUTPA because of that bad faith. The court also concluded that defendants breached the contract, both because the sixty day limitation period of the Franchise Act overrode the contract's thirty ...


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