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July 5, 1990


The opinion of the court was delivered by: Irving Ben Cooper, District Judge.


Plaintiff Nancy Ebker ("Ebker"), a designer and merchandiser of women's apparel, commenced this action against defendants Peter J. Nygard ("Nygard") and Tan Jay International Ltd. ("Tan Jay"), alleging that defendants wrongfully repudiated an oral joint venture agreement entered into between Ebker and Nygard. Tan Jay is a corporation involved in the manufacture of women's sportswear, and Nygard is its chief executive officer and principal shareholder.

Plaintiff asserts that Nygard and Tan Jay breached and repudiated the oral joint venture agreement by, inter alia, firing and excluding Ebker from the newly formed venture and preventing her from performing her duties thereunder; announcing to the suppliers of the venture and others that Ebker was not authorized to make contracts and commitments on behalf of the venture and refusing to continue to supply the funds required for the operation of the venture; giving notice that the employment of key personnel, constituting Ebker's management team, was being terminated, and actively soliciting and seeking to transfer the loyalty of others to Tan Jay; and continuing to use Ebker's designs, name and likeness in connection with the sale of Tan Jay's merchandise without her approval.*fn1

Plaintiff seeks an accounting from defendants for their alleged wrongful acts, and the imposition of punitive damages.

Defendants deny the allegations of the complaint. Tan Jay asserts a counterclaim against Ebker, alleging that she wrongfully interfered with Tan Jay's business operations, thus causing it to miss crucial shipping dates, and is therefore liable to it for conversion, breach of bailment contract, tortious interference with contract, and tortious interference with prospective advantage. Additionally, Tan Jay seeks the imposition of punitive damages against Ebker.


Two years later, in October, 1983, trial of the counterclaim was held. Judge Lowe instructed the jury that "[S]ince the jury found that there was no joint venture relationship between Nancy Ebker and Tan Jay, the only relationship that can be asserted now vis-a-vis the counterclaim is that of employer, being Tan Jay, and employee, being Ebker." Ebker v. Tan Jay International, Ltd., 739 F.2d 812, 821 (2d Cir. 1984). The jury, governed by Judge Lowe's instruction that Ebker was an employee of Tan Jay, awarded Tan Jay $322,718 in compensatory damages.

Plaintiff appealed from both the entry of judgment notwithstanding the verdict in the first trial and the award of damages in the second trial. Tan Jay cross-appealed solely on the issue of Judge Lowe's refusal to instruct the jury as to punitive damages against Ebker. Our Circuit Court, in an opinion by the late Judge Friendly, held that Judge Lowe erroneously granted j.n.o.v. in favor of defendant Nygard. The Court directed that the case be remanded to the district court and the verdict in favor of Ebker in the first trial be reinstated, with appropriate further proceedings to be conducted with respect to what remedies Ebker might have. The Court of Appeals vacated the judgment entered in Tan Jay's favor on its counterclaim, in light of the fact that the trial had proceeded on the assumption that Ebker was an employee of Tan Jay, and not a joint venturer with Nygard, and remanded the counterclaim to the district court for a new trial on an assumption more favorable to Ebker. Tan Jay's cross appeal was dismissed without prejudice.

This action was reassigned to us on March 3, 1986. Trial to the Court was held on September 14-18, and concluded on October 6, 1987. At the conclusion of plaintiff's case, defendants moved for a directed verdict, which motion was subsequently denied. At the close of trial both plaintiff and defendants moved for directed verdicts and plaintiff moved to dismiss Tan Jay's counterclaim. We reserved decision on these motions.

Subsequently, on January 27, 1988, plaintiff moved to reopen the trial record to admit certain documentary and testimonial evidence which plaintiff had attempted to introduce at trial.*fn2 On September 1, 1988 we granted plaintiff's motion, and held a hearing on October 12, 1988, strictly limited to evidence and testimony with respect to the March 3, 1978 conference before Judge Ascione. Defendants objected to any of the evidence or testimony introduced at the hearing becoming a part of the trial record; we reserved decision on this motion.

The parties submitted all post-trial and post-hearing papers by the end of March, 1989. We base our holding on the findings of fact and conclusions of law hereinbelow.


In 1976 Ebker accepted a position with Genesco, Inc. ("Genesco"), a corporation consisting of more than eighty-eight divisions. (Tr. 27) Genesco hired Ebker to head its floundering "Susan Thomas" division, which consisted of two lines of women's apparel, the "Susan Thomas" line and the "Vivo" line. (Tr. 35) Ebker was appointed President of the "Susan Thomas" division and was given complete control over the design, merchandising, marketing and production of the two lines. (Ex. 2; Tr. 38) Ebker was the only woman president of a major apparel division at that time. (Tr. 38) Her employment contract with Genesco provided that she was to receive a salary of $125,000 as well as a guaranteed bonus of $25,000. (Ex. 2) The contract further provided that in the event it was terminated at any time by Genesco, without cause, Genesco would continue to pay Ebker compensation at a minimum rate of $152,500 per year until July 31, 1979, or until she accepted other employment, whichever occurred earlier; that if Ebker accepted employment with another employer prior to July 31, 1979, her compensation from Genesco would be reduced only to the extent of her earnings from her new employer; and that discontinuance by Genesco of the division would be construed as a termination without cause of Ebker's employment, entitling her to all of the termination rights and benefits. (Ex. 2; Complaint para. 6)

Ebker commenced her employment with Genesco on September 23, 1976 (Tr. 41) and immediately realized that the "Susan Thomas" division had been grossly mismanaged and was at that time generating only $4,000,000 in gross sales. (Tr. 41) Ebker decided to replace the ailing "Susan Thomas" apparel line with a new line entitled "Sportwork-Nancy Ebker," and to upgrade the "Vivo" line. (Tr. 51)

Within one year after Ebker's arrival at Genesco the "Vivo" line was generating over $9,000,000 in gross sales, which was three times more than it had been generating when she first joined Genesco. (Tr. 62) The "Sportwork-Nancy Ebker" line also achieved great success under Ebker's management; within a four month period it generated over $1,300,000 in sales. (Tr. 63) Ebker received numerous letters and telegrams from executives at Genesco and other persons in the fashion industry congratulating her on her success with the "Susan Thomas" division. (Ex. 5; Tr. 64)

In August, 1977, Ebker was advised by officers at Genesco that it wished to divest itself of all of its unprofitable apparel divisions. (Tr. 68-69; Ex. 10) At that time the "Susan Thomas" division, although performing extremely well under Ebker's direction, was approximately $700,000 away from being a profitable division. (Tr. 69; 80) Ebker was afforded the opportunity to purchase the assets of the "Susan Thomas" Division in order that the "Vivo" and "Sportwork-Nancy Ebker" lines could continue. Genesco listed the value of these assets on its books as approximately $1,000,000. (Tr. 74-75) Genesco was particularly concerned with the continued production of these two lines of apparel because of the existence of a licensing contract with the Marbrooke Corporation ("Marbrooke"), a Canadian corporation, which agreement gave Marbrooke the right to use the trademarks "Sportwork-Nancy Ebker" and "Vivo" in Canada. (Ex. 7) Genesco wanted Ebker to continue with the "Sportwork-Nancy Ebker" and "Vivo" lines in order that it would not be in breach of its licensing agreement with Marbrooke. As a result, Ebker's purchase of the assets of the "Susan Thomas" division was conditioned upon her assumption of the Marbrooke licensing agreement. (Tr. 78)

Ebker did not have the financial means to acquire the assets of the "Susan Thomas" division from Genesco (Tr. 80); accordingly, she sought potential backers for their acquisition; Ebker testified that approximately $700,000 was needed to fund the "Sportwork-Nancy Ebker" and "Vivo" lines until they would show a profit. (Tr. 80) She negotiated with both Morsley, Inc., and the Lynn Wear Corporation. Neither corporation was interested in acquiring the "Vivo" line (Tr. 80-81), which was burdened with union contracts. (Tr. 82) Ebker was particularly interested in continuing with the revamped "Vivo" line because she and her staff had expended considerable time and energy in revitalizing it. (Tr. 90-91)

On November 17, 1977, Genesco ceased selling the "Sportwork-Nancy Ebker" and "Vivo" lines of apparel. (Tr. 330) That same day, Ebker decided to accept the offer of a fifty/fifty partnership with Lynn Wear on the "Sportwork-Nancy Ebker" line of apparel, despite its refusal to continue with the "Vivo" line. (Tr. 85) Later that day, Ebker was contacted by the merchandise manager at Macy's, who asked her to meet with Nygard. Ebker had never heard of Nygard or his Canadian company, Tan Jay. (Tr. 86)

That afternoon, Ebker and Nygard met at Ebker's office, located at 1411 Broadway in New York City. (Tr. 88) Ebker informed Nygard that she had already decided to accept a partnership offer with another corporation. (Tr. 88) Nygard inquired whether Ebker would be interested in negotiating with him if he could continue the "Vivo" line, and Ebker answered in the affirmative. (Tr. 90-91) They met the following day and continued negotiations; Nygard informed Ebker that the "Vivo" line could be manufactured in California under a new name, thus obviating the necessity of honoring the union contracts that burdened the "Vivo" line. (Tr. 95) Ebker expressed her concern about using non-union employees to manufacture "Vivo", fearing the quality of the line would suffer. (Tr. 96) Nygard assured Ebker that he would "bring his people down from Canada" and work only with high quality California factories to manufacture the "Vivo" line. (Tr. 96)

During the course of their negotiations, Ebker explained the Marbrooke licensing arrangement to Nygard, and advised him that it was a condition precedent to obtaining the assets of the "Susan Thomas" division. (Tr. 98) Ebker also testified that Nygard understood that she would not consider any arrangement other than a fifty/fifty partnership, that she would continue to run the company in the same manner as she had while employed at Genesco, and that her management team would remain intact. (Tr 101) Ebker testified that Nygard agreed to all of her conditions and advised her that he would be strictly "absentee management." (Tr. 101)*fn4 In addition, Ebker and Nygard agreed that both she and Nygard would receive an annual salary of $40,000 plus a $10,000 bonus, based on profits. (Joint Pre-Trial Order, dated November 24, 1986, uncontested fact 18(a); Tr. 119).

On November 25, 1977 Nygard and Ebker met again in London and continued their negotiations. (Tr. 106) Ebker showed Nygard the five year projections for the "Vivo" and "Sportwork-Nancy Ebker" lines, which had been prepared by Ebker with the assistance of an accounting firm. The projections indicated that "Vivo" would generate $65,000,000-$70,000,000 of gross sales in five years, and "Sportwork-Nancy Ebker" would generate $40,000,000 in the same time period. (Tr. 109) Nygard advised Ebker that the projections were conservative. (Tr. 109-110)

In addition to their discussions with respect to five year projections for the two lines, Ebker testified that the following items were discussed: Nygard would fund the newly formed partnership until the "break-even" point, which it was estimated would occur in approximately nine months; Ebker testified that approximately $700,000 was necessary to fund the venture until it realized a profit (Tr. 139). The "Sportwork-Nancy Ebker" line would henceforth be known as simply "Nancy Ebker" and the "Vivo" line would be renamed "Bianca," the same name as a line of clothing that Tan Jay was currently manufacturing in Canada. (Tr. 117, 141)

Following Ebker's and Nygard's return from London, Ebker arranged for Nygard to meet with Everett Warren, Director of Operations at Genesco; both Ebker and Nygard were present at the meeting. (Tr. 147) Warren told Nygard that assumption of the Marbrooke contract was part and parcel of the acquisition of the assets of the Susan Thomas division. (Tr. 149)

On November 29, 1977 another meeting was held with Genesco executives. Nygard, Ebker, and Nygard's attorney attended this meeting. (Tr. 152) Ebker introduced Nygard to the Genesco executives and explained to them that Nygard had the funding to back the "Sportwork-Nancy Ebker" and the "Vivo" lines. (Tr. 154) During the course of this meeting, Nygard informed Genesco that he did not want to acquire the Marbrooke licensing agreement; Leonard Guiler, Vice-President in charge of the divestiture at Genesco advised Nygard that if they did not want to assume the Marbrooke contract then they had nothing further to discuss. (Tr. 157)

Nygard proposed a solution to the Marbrooke contract problem whereby Ebker would form a "dummy" corporation, which would assume the Marbrooke contract. This "dummy" corporation, which Nygard would fund, would have no assets and would be incorporated in Ebker's name. (Tr. 160) Ebker presented this solution to Genesco, who requested Nygard's guarantee that the "dummy" corporation would be fully funded and Ebker's guarantee that the Marbrooke contract would be fulfilled. (Tr. 164)

Subsequent to this meeting with Genesco, Nygard advised Ebker that "it looked like they had a deal." (Tr. 166) Ebker testified that the terms of the joint venture agreement were as follows: (1) Ebker and Nygard would be fifty/fifty partners in the Nancy Ebker company, which would continue with the apparel line formerly entitled "Sportwork-Nancy Ebker" (Tr. 166); (2) "Vivo" would thereafter be known as "Bianca", and Ebker would oversee the line, including designing it, until the point of actual production and for her services with respect to the Bianca line she would receive five percent of the pre-tax profits (Tr. 166-167); (3) Ebker would have complete control over the "Nancy Ebker" and "Bianca" lines (Tr. 167); (4) Ebker would remain at her offices at 1411 Broadway with the same staff (Tr. 167); (5) salaries would remain the same with the exception of those employees earning over $40,000 per year (Tr. 167); and (6) Tan Jay would handle all of the receivables and accounts payable in Canada. (Tr. 167) Additionally, Ebker agreed to contact all of her major accounts and advise them of the name change from "Vivo" to "Bianca." (Tr. 167)

Following their discussion of the terms of the joint venture arrangement, Ebker informed Nygard that they should put the terms of their agreement in writing. (Tr. 169) Nygard advised Ebker that they were partners and they would have to trust each other (Tr. 170); he did not want to involve lawyers at that point in time because he felt there was too much to do and that it would be a "big mess." (Tr. 169) Nygard persuaded Ebker to wait until February, 1978, when he would return to the United States, and assured her that at that time they would put their agreement in writing. (Tr. 170) Ebker agreed to this suggestion. (Tr. 171)

Following their oral agreement to enter into a fifty/fifty partnership, Nygard returned to Canada, and Ebker's attorneys prepared documents for the formation of the "Nanco Group, Inc." ("Nanco"), the "dummy" corporation proposed by Nygard for the assumption of the Marbrooke contract. Nanco was incorporated in December, 1977. (Ex. 12) Subsequently, Ebker notified Genesco that she had concluded a deal with Nygard. (Tr. 173) Thereafter Genesco entered into a purchase agreement with Tan Jay whereby Tan Jay was to acquire the assets of the "Susan Thomas" division and was also to assume the Marbrooke licensing contract and guarantee performance thereunder. (Ex. 13) Under the terms of this purchase agreement Tan Jay was obligated to acquire the leases for the showroom located at 1411 Broadway (hereafter "1411 Broadway showroom") and the showroom in Chicago. (Tr. 182; Ex. 16; Ex. 17) Additionally, Nanco was to acquire a lease on the warehouse premises located at 37th Street in New York City (hereafter "37th Street warehouse"), wherein the "Sportwork-Nancy Ebker" line was stored along with some piece goods of "Vivo." (Tr. 213; Ex. 22). Under the terms of the purchase agreement, Tan Jay guaranteed payment on the 37th Street warehouse lease. (Tr. 214)

On December 9, 1977 Genesco and Tan Jay consummated the transaction whereby Tan Jay acquired the assets of the Susan Thomas division (Ex. 13), although Nygard was not present at the signing of this agreement. (Tr. 183) The purchase price for the Susan Thomas division was $67,000. (Ex. 13; Tr. 173)

An advertisement was placed in "Women's Wear Daily" announcing the association of Ebker, Nygard, and Tan Jay. (Ex. 19) Ebker personally contacted all of her major clients on "Vivo" and explained the name change from "Vivo" to "Bianca," assuring them that the quality would be comparable to that of the former "Vivo" line. As a result of these efforts, no existing orders were cancelled. (Tr. 192) Ebker also notified the "Sportwork-Nancy Ebker" accounts that the name "Sportwork" was going to come off the label and the line would henceforth be known as simply "Nancy Ebker." No orders were cancelled as a result of this notification, either. (Tr. 193)

In mid-December, 1977, scarcely a week after the closing, Ebker testified that it became readily apparent that the newly formed partnership was not being operated in the manner in which she had anticipated. She and her staff were "bombarded" with memoranda from Nygard explaining the way in which the new company would be run. (Tr. 194) Nygard decided to remove the only water cooler in the 10,000 square feet of space at the 1411 Broadway showroom — for a savings of $30 per month. (Tr. 195) Nygard sent Ebker a memo advising her and her staff that any purchase they made had to be approved by Tan Jay before it was made; unauthorized expenditures would not be acceptable to Tan Jay. (Tr. 199)

Ebker testified that during December, 1977 and January, 1978, she spoke to Nygard, who remained in Canada, on an almost daily basis. (Tr. 206) She expressed her concern to Nygard that the "Bianca" line had not yet been cut and would not be completed by its scheduled shipping date. (Tr. 207) Nygard advised Ebker that he did not have the staff to cut the "Bianca" line in California, and insisted that she send Jerry Pepe, Ebker's production person on the "Nancy Ebker" line, to California to supervise the cutting of the "Bianca" line. (Tr. 207) When Ebker protested that by sending Pepe to California she would not be able to finish the "Nancy Ebker" line in time for its scheduled shipping date (Tr. 207), Nygard informed her he "didn't give a damn" about the "Nancy Ebker" line; that his paramount concern was the "Bianca" line. (Tr. 207) Ebker sent Pepe to California. Pepe telephoned her shortly after his arrival in California and advised her that it would be impossible for him to get the "Bianca" line up to the same quality level as it had been the year before, and that the "Bianca" line would be late for delivery. (Tr. 211) Ebker testified that in the fashion industry a late delivery is equivalent to an automatic cancellation of a customer's order (Tr. 211), and that timing in the fashion industry is critical. (Tr. 309)

Nygard sent Ebker various other memoranda which were directly at variance with her understanding of how the partnership would be conducted. (Ex. 23) Although Nygard had assured Ebker and her staff that they would receive the same salaries as they had prior to the inception of the joint venture, he attempted to decrease the salaries of her sales staff at the end of December (Tr. 219); as a result, three of Ebker's key salespeople decided to leave. (Tr. 219) When Ebker advised Nygard that some of the sales staff had resigned, he told her that his sales force would take care of "Bianca" and the "Nancy Ebker" line if necessary. (Tr. 220)

In addition to the changes Nygard was attempting to implement, Ebker was also concerned about certain advertising that Nygard had placed in Canada, which, according to Ebker, implied that Tan Jay had the right to use the "Nancy Ebker" name in Canada, in violation of the terms of the Marbrooke licensing agreement. (Tr. 202) When Ebker brought this fact to Nygard's attention and advised him that Marbrooke was threatening to sue, Ebker testified that Nygard informed her that he wanted her to "get rid of" the Marbrooke agreement. (Tr. 203)

Nygard sent a memo to Ebker dated January 16, 1978, in which he reneged on his promise that her staff would receive the same salary that they had prior to the inception of the joint venture. (Ex. 23; Tr. 221) Ebker advised her staff that Nygard had changed the terms of their agreement, and that she would take care of the situation when their agreement was reduced to writing in February, 1978. (Tr. 224)

Ebker complained to Nygard about the changes he was making. In response, he advised her that he was the director of all the companies and she was merely the manager, and that she had to follow his "orders." When Ebker protested that they were partners, she testified that Nygard "screamed" at her and would not listen to her protests. (Tr. 229) Ebker also testified that Nanco's bills were not being paid, and that she was using her own personal funds to pay Nanco's bills. (Tr. 240)

During this time period spanning December, 1977 through January, 1978, Nygard provided Ebker with a list of projections he had prepared for the southeast territory with respect to the "Bianca" and "Nancy Ebker" lines. (Ex. 24) This territory consisted of approximately twenty percent of the total market in the United States. (Tr. 250) The projections indicated that in the fifth year of the venture, the "Bianca" line would be generating approximately $8,600,000 worth of gross sales in the southeast territory, and the "Nancy Ebker" line would be generating $4,250,000. (Ex. 24; Tr. 251) Nygard advised Ebker that he believed the projections were conservative. (Tr. 249)

Ebker and Nygard's next meeting took place on February 13, 1978, at the 1411 Broadway showroom. (Tr. 252) Leamond Dean, Ebker's assistant designer, and Paul Saxe, the marketing vice-president, were present at the meeting. (Tr. 253) Nygard demanded to know if Ebker had sent his draft letter to Marbrooke, informing them that they would not be renewing the licensing agreement in Canada. (Tr. 252) Ebker told Nygard she had not sent the letter and Nygard demanded to know why she had not followed his orders. (Tr. 252) Ebker begged Nygard to calm down and told him that her architect, Philip Baldwin, was waiting outside the office with plans for the revision of the showroom. (Tr. 253) Nygard had previously agreed to a $50,000 budget for renovations. (Tr. 168) Baldwin presented his plans for the showroom renovation; Nygard told Baldwin be had not authorized the plans, and proceeded to show those persons present his set of plans for the renovation. Pursuant to Nygard's plans, Ebker's office was moved to the back of the showroom to an area which was at that time a storeroom. (Tr. 254) Ebker protested that they were partners, and that he could not do this; Nygard replied, "[u]nfortunately for you I'm the partner with the money." (Tr. 254) Leamond Dean corroborated the testimony of Ebker as to what transpired at this meeting. (Tr. 396) Ebker proceeded to give Baldwin a check out of her own personal funds to cover his expenses. (Tr. 255) She left the office that day and made an appointment with her attorney for the next day. (Tr. 254)

The following morning, February 14, 1978, while Ebker was at the office of her attorney, she received a call from Paul Saxe, who informed her that Nygard had gathered everyone together and told them Ebker was fired and that he was taking over "Nancy Ebker" and "Bianca." (Tr. 256) Ebker arrived at the 1411 Broadway showroom at approximately 11:30 a.m. that day; Leamond Dean and Christina Dabbs, Ebker's administrative assistant, were in the process of packing her personal belongings. (Tr. 257) Ebker and Nygard proceeded to have a conversation. (Tr. 257)

Ebker and Nygard relate dramatically different versions of their February 14, 1978 conversation. Ebker testified that Nygard confronted her in the showroom in the presence of Leamond Dean and Paul Saxe and told her that she was "fired," that he had ordered Leamond Dean and Christina Dabbs to pack her personal belongings, and that he wanted her "the hell out" of there by that afternoon. (Tr. 258) Ebker and Nygard then went into Ebker's office so that they could talk privately. (Tr. 258) Ebker testified as follows as to their conversation:

Q: What was the conversation? . . .

  A: I said to him, Peter, you are going to destroy
  three viable companies. What are you doing? He
  said, no one has ever disobeyed my orders and
  gotten away with it. I said, Peter, you must
  listen to reason, we are in the middle of
  designing Nancy Ebker and Vivo/Bianca fall. I
  said, if you get rid of me now, you are going to
  have nothing. He said, my line is designed
  already, you told me it is designed. I said, it is
  designed on paper, it is not designed, you do not
  have samples. If you do this now you will not have
  a Vivo/Bianca line and you will destroy Nancy
  Ebker and you will ultimately destroy Marbrook
  [sic] up in Canada. He said I never gave a damn
  about Marbrook [sic], I never intended to do
  Marbrook [sic] and I never intended to fund your
  highfalutin line. He said I have what I want, I
  have my $12 million Vivo line. He said it is
  already designed for the next four months. He
  said, I have the assets, I have a showroom here
  for less than $10 a square foot, I have all your
  patterns, I have everything. I own everything. I
  said, Peter, you can't do this, we're partners. He
  said, we have nothing in writing and I never
  intended to put anything in writing. I said, you
  can't do this, this is the United States and we
  are partners. He said, you have nothing, I am a
  millionaire. He said, if you want anything
  pertaining to Nancy Ebker, you are going to pay me
  a million dollars since I will no longer have the
  benefit of using your name. I said, Peter, you
  cannot do this. I said let's try to reason. I will
  finish designing Vivo/Bianca, I will finish
  designing my line, we will separate in an
  equitable way. Let me go out and find funding for
  Nancy Ebker. I can probably go back to Lynn Wear.
  He said, no, he said, you will pay me a million

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