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Hilord Chemical Corp. v. Ricoh Electronics Inc.

decided: May 15, 1989.

HILORD CHEMICAL CORPORATION, PLAINTIFF-APPELLEE-CROSS-APPELLANT,
v.
RICOH ELECTRONICS, INC., DEFENDANT-APPELLANT-CROSS-APPELLEE



Appeal and cross-appeal from a judgment of the United States District Court for the Eastern District of New York (Leonard D. Wexler, Judge), awarding plaintiff-appellee consequential damages in the amount of $960,498. Affirmed in part, vacated in part and remanded with instructions.

Pierce and Altimari, Circuit Judges, and Robert J. Kelleher,*fn* District Judge.

Author: Altimari

ALTIMARI, Circuit Judge

Defendant-appellant Ricoh Electronics, Inc. ("REI") appeals from a judgment entered in the United States District Court for the Eastern District of New York (Wexler, J.), awarding plaintiff-appellee Hilord Chemical Corp. ("Hilord") contract damages in the amount of $960,498. In conjunction with its appeal from the judgment, REI seeks review of the court's denial of several of its trial and post-trial motions. Hilord cross-appeals from the denial of its post-trial motion for prejudgment interest. Hilord commenced the underlying action for breach of an oral distributorship agreement. REI moved for summary judgment on the ground that the oral agreement was unenforceable under the New York Statute of Frauds, N.Y.U.C.C. § 2-201(1). Its motion was denied. REI also requested and was denied a jury instruction that in order to obtain consequential damages, Hilord was required to seek a covering contract pursuant to § 2-715. After trial, REI moved under Fed.R.Civ.P. 50 for judgment notwithstanding the verdict or, in the alternative, a new trial under Rule 59. Subsequent to the entry of the money judgment Hilord moved under Rule 60 for prejudgment interest. The posttrial motions of both parties were denied. For the reasons set forth below, we affirm the denial of REI's motions for summary judgment and j.n.o.v. However, we vacate the judgment in the amount of $960,498, and remand for a new trial on the issue of damages. In light of this disposition, we vacate the order denying Hilord's motion for prejudgment interest.

BACKGROUND

In order to understand the instant dispute, some background information will be necessary. REI is a California corporation owned by parent Ricoh Co., Ltd. ("Ricoh"), a Japanese firm. REI manufactures liquid transfer toner products specifically formulated for use in certain photocopiers which are made by Ricoh, but sold in the United States by Savin Corporation as the Savin 700 and 800 series copiers. At the time of the instant dispute, Savin 700/800 series copiers were the largest group of photocopiers sold in the United States.

The manufacturing contract between Ricoh and Savin contains an exclusivity agreement under which Ricoh -- and by extension, REI -- may sell 700/800 series liquid toner only to Savin. Savin, however, is not prevented by the agreement from purchasing its toner from other suppliers. At the time the instant dispute arose, approximately 30% of the 700/800 series toner directly supplied to Savin was sold by REI. Two other firms, the Phillip A. Hunt Chemical Co. ("Hunt") and the Synfax Co. ("Synfax"), supplied an additional 50%. The remaining 20% of Savin 700/800 toner was not supplied directly to Savin. Instead, retailers sold finished toner dispersant packs in the "aftermarket" to photocopy machine users.

In 1985, REI's direct sales of toner products to Savin began to decline. In order to recapture some of its sales, REI sought to make an end run around the Ricoh-Savin exclusivity agreement. REI's strategy was to pretend to act as a "subcontractor" for aftermarket suppliers. Aftermarket retailers would secretly be supplied by REI with toner concentrate and product specifications. The retailers would formulate finished toner dispersant packs according to the supplied specifications, then sell the products in consumer quantities under private label. In order not to jeopardize the Savin-Ricoh manufacturing agreement, it was important that Savin not find out about REI's plan.

Hilord is a Hauppauge, New York company which manufactures and distributes toner dispersant packs in the photocopy aftermarket. Hilord has developed liquid toners for many types of copiers, including some Savin models. Prior to the instant dispute, however, Hilord had been unable to develop a commercially successful toner for use in Savin 700 and 800 series machines. Because it could not develop a product for the 700/800 series machines, Hilord could only sell Savin toner for use in older model copiers. In August 1985 Eric Louie, REI's sales and marketing manager, telephoned Terry Sickle, a Hilord salesman and an old friend. Louie asked Terry Sickle if Hilord would be interested in selling REI's 700/800 series liquid toner. After conferring with Paul Sickle, Hilord's president, Terry Sickle responded that Hilord would be "very interested" in such an arrangement.

From August through early October 1985, REI and Hilord discussed the arrangement under which REI would supply Hilord with bulk quantities of toner concentrate for Savin 700/800, and Landa series copiers. The parties held a meeting at Hilord's Long Island plant on October 16, 1985. At the meeting, according to Paul Sickle, Eric Louie promised to make Hilord REI's primary United States distributor of Savin toner products. Hilord would be supplied with all the concentrate it required for as long as REI continued to manufacture it. The price for concentrate would be $11.00 and $14.50 per gallon for the 700/800 and Landa series copiers, respectively. In addition, REI would provide Ricoh's product specifications, plus safety and quality control data. Freight terms were to be F.O.B. REI's California plant, and billing was to be net 30 days. Hilord was to execute a confidentiality agreement regarding the existence and terms of the arrangement. At the close of the meeting, Eric Louie shook hands with the Sickles, saying "[we] have a deal."

Although Hilord executed its confidentiality agreement, no written contract for the distributorship agreement was ever signed by the parties. However, the terms arrived at during the October 16 meeting were documented in a series of letters and memoranda between the companies. Four documents in particular are important. A letter from Eric Louie to Terry Sickle on November 6, 1985 recited key terms of the agreement, including Hilord's "projected first year requirements" of 19,800 gallons of toner concentrate, price, freight, and billing. At a second meeting on November 20, 1985, Terry Sickle handed Eric Louie a document captioned "Agreement Between Hilord Chemical and Ricoh." The document stated, inter alia, "Hilord will purchase [liquid transfer toner] concentrate from Ricoh. . . . Ricoh will supply Hilord with all necessary technical information."

In addition, an internal memorandum dated December 3, 1985 alerted REI's production department that Hilord would be ordering 1,584 gallons of concentrate each month for 12 months, beginning January 1986. Finally, on December 30, 1985 Paul Sickle sent a letter to REI referring to Louie's "assurances that [the parties] had an agreement" to distribute liquid toner. The letter complained about REI's failure to perform its end of the agreement.

At some point between October 16 and December 30, 1985, Savin discovered REI's scheme to divert toner concentrate to aftermarket suppliers. In order to protect its manufacturing agreement with Savin, Ricoh scuttled REI's plan. REI did not inform Hilord of this development until sometime after December 30. Meanwhile, Hilord had discontinued research and development of its own Savin 700/800 series toner. It had begun preparing advertisements for its private label product, and ordered finished 700/800 series toner dispersant packs from its competitors for study. It had also purchased a small supply of REI concentrate for use in making customer samples. However, its efforts to create customer samples was thwarted by REI's failure to send quality control data on the concentrate.

Hilord commenced the underlying action in the district court on January 21, 1987, alleging that REI had breached the oral agreement reached at the October 16 meeting. In its answer, REI denied the existence of a contract. It asserted as an affirmative defense Hilord's failure to mitigate its damages as required by N.Y.U.C.C. § 2-715. Shortly before trial, REI moved for summary judgment on grounds that even if an agreement had been made, enforcement of the agreement was barred by ...


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