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AUTO. ELEC. v. ASS'N OF AUTO. DIST.

September 28, 1990

AUTOMOTIVE ELECTRIC SERVICE CORP., PLAINTIFF,
v.
ASSOCIATION OF AUTOMOTIVE AFTERMARKET DISTRIBUTORS, MOTOR AGE, INC. AND MOTOR AGE EAST, INC., DEFENDANTS.



The opinion of the court was delivered by: Spatt, District Judge.

MEMORANDUM DECISION AND ORDER

In this case the plaintiff corporation, a member of a national trade organization, alleges that the organization terminated its membership as a result of "bad faith" on the part of the organization and a competitor-member. The plaintiff seeks to be reinstated as a member, among other remedies. There is one crucial issue before the Court: Has the plaintiff established that the trade organization acted in "bad faith" in terminating the plaintiff's membership so that judicial intervention is appropriate?

BACKGROUND

The plaintiff Automotive Electric Service, Corp. ("the plaintiff") is a warehouse distributor of automotive parts. This type of business purchases automotive parts from manufacturers and other suppliers, stores the parts in a warehouse and sells the parts to jobbers — mostly retail automotive parts stores and installers. This business is also referred to as an "automotive after market parts business".

The plaintiff is a close corporation owned by the Judelson family for over seventy years, which employs more than fifty persons and has its main office and warehouse in Woodside, Queens, New York. The plaintiff has approximately 400 accounts and its sales volume in 1989 was approximately $7,000,000. Its geographic territories are Queens, Brooklyn, Bronx, Manhattan, Westchester, Nassau and Suffolk Counties.

In November 1984, the plaintiff became a member of the defendant Association of Automotive Aftermarket Distributors ("AAAD" or "the Association"), a national trade organization of warehouse distributors. AAAD is an Illinois not-for-profit organization with its primary place of business in Memphis, Tennessee. There are a number of similar trade associations in the warehouse distributor industry. AAAD offers to its members volume discount purchasing and a national account merchandising program involving the supply of Goodyear Tire and Rubber Company ("Goodyear") company-owned retail automotive parts stores ("GASC stores" or "company-owed stores"). Although AAAD has been trying to develop several other national account programs, at the time of the relevant occurrences in this case, it had only one such viable national account, the Goodyear account. Under a contract with Goodyear, members of AAAD are principal providers of the Goodyear company-owned (GASC) stores.

AAAD is governed by a set of by-laws, an Executive Committee and a President. A principal feature of AAAD is their "Parts Plus" program. In the program, the members of AAAD attempt to persuade their jobbers to be Parts Plus jobbers, and operate their stores under the "Parts Plus" logo. AAAD employs the services of Marketing Resources, Inc. ("MRI"), an advertising and marketing agency. The members of AAAD are expected to use their best efforts to implement the Parts Plus program by advertising and active solicitation of Parts Plus jobbers with the object of developing a strong network of Parts Plus members. In August 1986, the membership unanimously adopted certain "Standards of Performance" including a requirement that each member had to vigorously promote and implement the Parts Plus program.

AAAD has thirty-five members of whom twenty-two do less than ten million dollars in sales and nineteen are smaller than the plaintiff. Each member has one vote irrespective of size. The largest member in AAAD is a firm called Parts, Inc., whose business comprises approximately 35% of the total sales of all AAAD members. The Executive Committee is made up of its officers and three members. Despite their membership in this trade organization, the AAAD by-laws do not grant any members exclusive territories or preclude any member from competing with other members in any territory.

Among the provisions in the AAAD bylaws and crucial to the determination to terminate the plaintiff, is the following provision set forth in paragraph 11 of the AAAD by-laws (Plaintiff's Exhibit 5), which permits termination of a member:

  ". . . if, in the opinion of the Executive
  Committee, a Member demonstrates a lack of
  sincere intent to be a bona fide, active and
  participating Member of the Association, or to
  commit to duly adopted Association programs or
  objectives. . . ."

AAAD contends that the plaintiff failed to meet the requirements of its Parts Plus program and, during the period 1987 through 1989, despite warnings and meetings, failed to improve its Parts Plus program. On November 16, 1989, the Executive Committee of AAAD voted to terminate the plaintiff's membership, which, of necessity, would mean that the plaintiff would no longer be permitted to sell to the Goodyear GASC stores under its contract with AAAD. As a result of the involuntary termination of its membership in AAAD, the plaintiff commenced this lawsuit.

In essence, the plaintiff contends in this action that it is the victim of a conspiracy to improperly terminate its membership in AAAD so that a larger and newer member, Motor Age, Inc. ("Motor Age") could take over the plaintiff's valuable Goodyear company-owned stores. This was accomplished, according to the plaintiff, by secret agreements, misrepresentations and a breach of the fiduciary duties and contractual obligations set forth in the by-laws.

The plaintiff further contends that its termination was part of an overall plan by which the larger members would advance their own interests at the expense of the smaller members, so that AAAD will have a cadre of larger, more financially powerful member companies. The plaintiff contends that it was terminated as a result of a conspiracy between the larger members, who control the Executive Committee and Motor Age, to take over the plaintiff's Goodyear accounts.

The plaintiff further contends that it relies upon the Goodyear accounts and will go out of business if it is forced to give up the Goodyear business as a result of its termination as a member of AAAD. It therefore asserts that it will be irreparably damaged unless the Court prevents AAAD from terminating its membership. To that end the plaintiff, among other requests for relief, seeks injunctive relief, reinstatement as a member of AAAD and damages. The complaint contains six causes of action, as follows:

1) Breach of fiduciary relationship;

2) Breach of the membership by-laws;

  3) Breach of the agreement between the plaintiff
  and AAAD specifically as to the Goodyear account;
  4) Wrongful interference with the plaintiff's
  contractual rights;
  5) Wrongful interference with the plaintiff's
  business opportunities; and
  6) Violations of the Sherman Act and New York's
  Donnelly Act.

PROCEDURAL SETTING

Following termination from AAAD, the plaintiff commenced this action in the Supreme Court of the State of New York, Queens County. At the time that the plaintiff filed in state court, a sweeping ex parte temporary restraining order ("TRO") was obtained requiring, inter alia, AAAD not to interfere with the plaintiff's membership. On December 22, 1989, the defendants removed this case to this Court pursuant to 28 U.S.C. § 1441 on the grounds of diversity (see 28 U.S.C. § 1332). The plaintiff not having requested an extension, the ex parte TRO expired on January 1, 1990 (see Fed.R.Civ.P. 65(b); see also Granny Goose Foods, Inc. v. Brotherhood of Teamsters & Auto Truck Drivers, 415 U.S. 423, 439-40, 94 S.Ct. 1113, 1124-25, 39 L.Ed.2d 435 [1974]).

On January 25, 1990, after oral argument by all sides, this Court granted a second TRO preventing AAAD from terminating the plaintiff's membership. The parties later stipulated to an extension of this last TRO, waived discovery and proceeded to a hearing on the plaintiff's application for a preliminary injunction. After commencement of the hearing, the parties agreed, and the Court ordered that the motion be converted to a full trial on the merits of the entire case pursuant to Fed.R.Civ.P. 65(a)(2). In the interim, the defendants moved to vacate the TRO on the grounds that it had expired by its own terms, or, in any event, by operation of law. On February 23, 1990, the Court denied that application and instead granted a temporary or interim injunction preventing AAAD from terminating the plaintiff's membership for the pendency of the trial. Thus, the plaintiff has at all times until the present continued as a member of AAAD and, as such, continued to service its Goodyear company-owned stores.

THE TRIAL AND FINDINGS

Since the determinations in this case are, of necessity, factually oriented, the Court is compelled to detail much of the evidence in connection with its findings of fact.

The Plaintiff's Case:

GARY W. DAVIS ("Davis") was the President and a shareholder and director of Matthews Auto Electric, Inc. ("Matthews"), a warehouse distributor operating in Oklahoma, Arkansas and Kansas, which was admitted as a member of AAAD in January 1987. The representative of AAAD with regard to recruitment of Matthews was one Joe Matlock, the Executive Vice President of AAAD. Matthews conducted an aggressive "Parts Plus" promotion and succeeded in converting all of their customers to Parts Plus jobbers. The Matthews promotional costs to convert its jobbers into Parts Plus jobbers was approximately $500,000. Six days after the "kick-off" promotional meeting by Matthews to convert jobbers to the Parts Plus program in 1987, Parts, Inc., the largest member of AAAD, purchased the business of Davis' chief competitor. This purchase placed Parts, Inc. directly in the territory of Matthews.

According to Davis, after he vigorously complained to Marvin Almy, the President of AAAD, and Paul Kachapis, the Chairman of the Executive Committee, about the Parts, Inc. intrusion into his territory, the Matthews Company was terminated by AAAD in June 1989 and eventually filed for bankruptcy under Chapter 11 in August 1989. The Matthews firm is still being operated under Chapter 11 procedures.

On cross-examination Davis conceded that the by-laws did not prohibit Parts, Inc. from operating in Matthews' territory or from acquiring another warehouse distributor in Matthews' market area. Further, Davis conceded that from December 1988 to June 1989 Matthews made no payments to AAAD for its purchases of auto parts and also stopped paying dues and promoting the Parts Plus program. Also, in May 1989, Matthews received a notice of possible termination from AAAD and declined to contest its termination.

RICHARD JUDELSON is the Vice-President, Director and a shareholder of the plaintiff corporation and was the plaintiff's principal factual witness. Plaintiff's first contact with AAAD was in 1984 when Joe Matlock contacted them and explained the advantages of joining the defendant-association. With regard to the purchases of auto parts, AAAD furnishes a "group sales allowance" ("GSA") which is a discount given to AAAD, which retains 20% of the amount of the discount and returns 80% of the discount to its members. In 1988 the plaintiff received in excess of $100,000 from the GSA plan. These discounts result from better pricing plateaus, group purchases and "entire truckload" prices.

The cost of joining and maintaining a membership in AAAD by the plaintiff included a $17,500 initiation fee and annual dues of $2,000 per year and marketing dues based on a percentage of annual net sales approximating a total of $12,000 per year.

In September 1984, the plaintiff decided to join AAAD and, by October 1984 they were voted in as a member. The plaintiff entered into a written agreement with AAAD with regard to the Goodyear business and plaintiff geared up to serve the Goodyear company-owned stores in their geographical territory. This process involved revising its computer program, purchasing an initial inventory, and adding a night crew to execute Goodyear orders and deliveries.

The plaintiff started its Parts Plus program in the summer of 1985 on advice from Alan Hunsaker, then a Vice-President of MRI. In 1985 the plaintiff's first Parts Plus program was printed and prepared by Hunsaker. Other plans or amendments were prepared annually with the assistance and advice of Hunsaker. The plaintiff arranged dinner meetings for its jobbers in the fall of 1986 to promote the program and within days fifteen customers agreed to enter the program.

At about the same time, the plaintiff got word of a prospective new member of AAAD, the defendant Motor Age, Inc. ("Motor Age"), a warehouse distributor competitor of the plaintiff which sold in plaintiff's territory. Apparently Motor Age was negotiating to purchase another AAAD member named Forshay-Gabriel, a warehouse distributor in Newark, New Jersey. The plaintiff strongly objected to membership by its competitor and so advised Matlock. Although Richard Judelson was told by President Almy in November 1987 that no Motor Age membership application was pending, two days later the plaintiff received a Motor Age application, dated November 18, 1987 and a ballot including a profile from Motor Age that was dated September 8, 1987. The application contained a statement by Almy and Kachapis, which reads, in part, as follows:

  "The application of this member was discussed
  with the AAAD Executive Committee prior to
  submission to the membership. We do have existing
  members in close proximity to Motor Age. It was
  the consensus of the Executive Committee,
  however, that we are not at a saturation point in
  the Metropolitan New York market and that the
  overall status of the Association would be
  enhanced by a larger presence in the largest
  market in the country.
  Existing national account business would remain
  with the current members who are serving Goodyear.
  The AAAD Executive Committee and President
  endorse the application of Motor Age and urge
  your favorable response on this application"
  (emphasis supplied).

The ballot itself was placed on the same sheet as a memorandum from Joe Matlock dated November 12, 1987, which stated, in part, as follows:

  "Motor Age, should it be accepted, would at once
  conform to the standards which our members
  adopted in Montreal last year. They would
  overnight create a strong Parts Plus presence in
  a very major autoparts consuming area where we
  have had no program success to date and so, in
  the interest of AAAD's increased market share, it
  is highly recommended that you vote favorably for
  the admission of Motor Age as a AAAD member."

The plaintiff voted "most strongly" to disapprove the application of Motor Age and contacted all of the members of AAAD and urged them to vote against such admission. On November 26, 1987, Almy called and advised the plaintiff that a meeting would be held on November 30, 1987 with regard to the plaintiff's request to be heard in opposition to the application of Motor Age. Jerry Judelson attended the meeting and, along with several other members, stated their reasons for opposing the Motor Age application. No vote was taken on the first ballot.

By application — memorandum dated December 21, 1987, a second ballot as to Motor Age's admission was circulated to the membership. As with the first ballot, Almy urged the members to vote "yes" on the second ballot. Contrary to prior practice as to the form of the ballots, the second ballot did not contain the option to vote to abstain, despite a request by the plaintiff to include a space to abstain. On January 18, 1988, the plaintiff was advised by Almy that the members approved the Motor Age application for membership.

In April-May 1988 there was a meeting at the plaintiff's office with representatives of the Standards Committee with regard to the Committee's concern about the lack of a viable Parts Plus program by the plaintiff. The Standards Committee advised the plaintiff that it was dissatisfied with the plaintiff's Parts Plus program and gave the plaintiff a deadline of October 1988 to submit a plan and to have a viable program underway by the end of 1988. Thereafter, the plaintiff purchased a Parts Plus sign for its warehouse, answered the telephone "Auto Parts Plus" and placed Parts Plus decals on its trucks, among other efforts. In addition, Al Schuttinger was made its Parts Plus program manager.

At this time Richard Judelson noticed certain changes in the relationship between the plaintiff and AAAD. Prior to the admission of Motor Age as a member, the plaintiff received approximately six leads from AAAD as to new customers. Subsequent to the admission of Motor Age the plaintiff received no additional leads. Prior to Motor Age's admission the plaintiff was consulted with regard to potential new national account business; that kind of consultation ceased upon the admission of Motor Age.

In addition, in September 1989 the John Deere Co. liquidated a large inventory of auto parts at substantial discounts to AAAD members. Although the plaintiff placed an early order, AAAD unilaterally cancelled the order due to the plaintiff's prospective termination. Since Motor Age was permitted to purchase these discounted products, it gained a competitive advantage. In 1989 there were two instances in which Motor Age purchased certain "Trust" products and plaintiff was not advised of this opportunity. According to Richard Judelson, Motor Age was given a competitive edge over the plaintiff with regard to the two Trust products. Also, Motor Age was provided the opportunity to participate in the new pilot national account program with the Firestone Company, while the plaintiff was denied that right.

In 1989, the Standards Committee initiated a series of steps that culminated in its request to the Executive Committee that plaintiff's membership in AAAD be terminated. A letter was sent by Almy to the plaintiff on April 27, 1989 stating that the Standards Committee recommended that "the termination of membership of Automotive Electric be considered" on the basis of a "lack of sincere intent to be a bona fide, active and participating member". The plaintiff was advised that this matter would be discussed at the Executive Committee meeting of May 23, 1989 to be held at Memphis, Tennessee and that plaintiff's representatives "may be heard at 1:00 p.m. that day." The plaintiff responded in writing and sent representatives to the Memphis Executive Committee meeting.

After an investigation by a delegation of the Standards Committee, the plaintiff received a letter from AAAD dated October 10, 1989 advising it that the matter of plaintiff's termination would be raised again at an Executive Committee meeting at which time plaintiff would be entitled to appear and have an opportunity to be heard. This letter was sent notwithstanding the fact that the plaintiff had, by then, signed up six new Parts Plus stores.

On November 16, 1989 the Executive Committee met, at which time Jerry Judelson and Al Schuttinger appeared and presented the plaintiff's defense to the accusation that it was not properly supporting the Parts Plus program. By letter dated November 17, 1989, plaintiff was notified that "it was the vote of the Committee to terminate the membership of Automotive Electric effective immediately". The letter stated that:

  "The grounds for termination were failure to
  commit to duly adopted Association programs and
  to demonstrate a sincere intent to be a bona
  fide, active and participating Member of the
  Association in that you have failed to establish
  a genuine and effective Parts Plus program in
  your marketing area."

As to the prospective results of termination of the plaintiff's membership in AAAD, Richard Judelson testified that the Goodyear business constituted 30% of the plaintiff's annual sales. The plaintiff's sales to Goodyear company-owned stores were as follows:

              1987          $2,266,805.80
              1988          $2,193,582.07
              1989          $2,152,019.95

He also stated that the combination of Goodyear company-owned stores and Trust sales constituted 33 1/3% of the plaintiff's gross sales. In addition, the plaintiff made additional changes in its financial structure in order to take on the Goodyear business. It placed a two million dollar mortgage on its warehouse. It entered into an arrangement with Milberg Factors to factor its receivables due to the need for additional capital created by the extended payment terms granted to Goodyear in its contract with AAAD. As to the impact of the loss of the Goodyear and Trust business as a result of its termination from AAAD membership, Richard Judelson testified that the plaintiff would not be able to pay its bills, its mortgage payments or its factor. In sum, Judelson testified that without the Goodyear and Trust business, plaintiff could not continue to operate as a warehouse distributor.

On cross-examination, Richard Judelson admitted that the plaintiff has no Parts Plus jobbers on Long Island and in Westchester County, even though both areas are significant markets. In 1985 when plaintiff initiated its Parts Plus program, it had 250 active jobbers and, as a result of its initial promotional efforts fifteen were converted to Parts Plus jobbers. Of these fifteen jobbers, fourteen have since dropped out of the program or gone out of business and only one is still a Parts Plus jobber. Judelson conceded that the plaintiff voted for promulgation of the Standards at the August 1986 membership meeting, that he knew that the plaintiff would have to comply with the standards and that the failure to comply with the standards could result in termination of the plaintiff's membership. Significantly, Richard Judelson conceded that in December 1986, prior to the admittance of Motor Age as a member, Hunsaker stated that the credibility of the plaintiff's Parts Plus program suffered because the plaintiff did not deliver the required elements of the program. This was clear evidence of a problem involving the plaintiff's Parts Plus program prior to the admission of Motor Age. Further evidence of this same problem was set forth in the MRI Service Report of January 19, 1987 which summarized a strategic planning meeting held in December 1986, and referred to the plaintiff's Parts Plus program as follows:

"II. The Parts Plus Program

  The Parts Plus Program has delivered less than
  the desired results i.e., the jobbers on the
  program not really supporting Automotive Electric
  Service or the program.
  The overall credibility of the program was
  mentioned as a concern. This is usually the case
  if the program deliverables are not delivered or
  there is a lack of long-range commitment on the
  part of the warehouse. While every attempt was
  made to deliver what was promised, the follow
  through by the jobber or his attitude was not
  supportive. The commitment was made by the
  warehouse, but when the support did not come, the
  commitment of the warehouse began to erode."

By the end of 1986, the number of the plaintiff's Parts Plus jobbers was reduced from fifteen to six. In an evaluation of the plaintiff's Standards and Objectives, dated March 16, 1987, it was stated that the plaintiff's "Parts Plus programs have made little progress in the market. Question management commitment to the program as well as abilities of the company to deliver on the program". In another evaluation of Standards and Objectives dated November 10-11, 1987, all the Parts Plus categories with regard to the plaintiff were answered in the negative including the telling comment that the plaintiff did not actively promote Parts Plus.

Despite warnings in 1988 by AAAD about the need to invigorate their Parts Plus program, the plaintiff did not sign up any jobbers in the program during the year 1988. In fact, the plaintiff agreed to increase its Parts Plus jobbers by the end of 1988 and did not do so even when threatened with termination of membership in AAAD. By the end of 1988 the plaintiff was down to one or two Parts Plus jobbers, a figure less than 1% of its customers. In September 1988, the plaintiff did develop a written Parts Plus Program involving twenty-seven separate elements, which plan was to be implemented prior to the end of 1988. In 1989 some progress was made when plaintiff added a total of six Parts Plus jobbers. In addition, during 1989 the plaintiff participated in another AAAD promotional program by selling seven "Repair America" kits and distributing 2800 "Repair America" booklets.

With regard to the plaintiff's claim of prospective financial ruin if it lost the Goodyear business, it was conceded by Richard Judelson that in 1984, prior to membership in AAAD, it had forty employees and sales of five million, while in 1989 it had fifty-five employees and sales of seven million. He further testified that the plaintiff added a staff to service the Goodyear stores at an annual cost of $200,000 or $30,000 per employee, but admitted that these employees did not work solely on the Goodyear stores. Further, Richard conceded that payment terms on the Goodyear sales were less favorable than other customers in that the Goodyear bills were not paid for an average 125 days. In fact, this late payment plan necessitated the plaintiff's use of a factor. Also, the contract between the plaintiff and AAAD contemplated a non-exclusive right to service the Goodyear company-owned stores, namely, Goodyear could purchase automotive goods from any other warehouse distributor. Also, Judelson conceded that the plaintiff could attempt to sell to the Goodyear stores even if its membership in AAAD was terminated.

In addition, contrary to the plaintiff's contention, the plaintiff's tenure as a member of AAAD does not appear to have been profitable. According to its financial statements, in 1984 the plaintiff had a net profit of $746,000; in 1985 a net profit of $15,000; in 1986 a net profit of $12,000; in 1987 a net loss of $112,000; and in 1988 a net loss of $32,000. Notwithstanding these figures taken from the plaintiff's financial statements, Richard Judelson testified that actually the plaintiff earned a gross profit of $585,000 on the 2.3 million in sales to Goodyear stores in 1987 and also obtains other benefits in purchase discounts of approximately $40,000 per year. Judelson also attempted to explain the substantial difference in the 1984 net profit as opposed to the later years while a member of AAAD, in that the 1984 figures included a net gain to the plaintiff as a result of real estate sold in Connecticut that year, while in 1987 the plaintiff suffered an extraordinary loss of $120,000 when it sold its Connecticut subsidiary. In sum, however, according to the financial statements, the plaintiff had a net operating loss in each of years 1986, 1987, 1988 and 1989.

GILBERT REYES was employed by the plaintiff as a sales representative. On a ruse, in April 1989 he answered a AAAD advertisement in an auto trade magazine which was promoting the Parts Plus program. Reyes filled out a card requesting Parts Plus jobber information giving his location as his home in Rosedale, Queens, New York and sent it to AAAD. He received a letter from AAAD with enclosures stating that the AAAD Parts Plus distributor for Rosedale, Queens was Motor Age.

JERRY JUDELSON is the Secretary, a Director and the majority shareholder of the plaintiff corporation. He testified that by the end of June 1989 the number of plaintiff's Parts Plus jobbers had increased to six. At the final November 16, 1989 Executive Committee meeting, he advised the members of the Executive Committee that his Deere order had been improperly cancelled and that his firm was no longer being given Parts Plus leads. He exhibited photographs of a Motor Age Parts Plus store without a sign and a Motor Age truck without a Parts Plus sign.

On cross-examination, Jerry Judelson conceded that on November 10, 1987 the plaintiff's Parts Plus program was "on hold" and that it continued "on hold" from the summer of 1987 to the fall of 1988; that at the May 1988 Standards Committee meeting he acknowledged that the plaintiff did not have a Parts Plus program in place and he agreed to do so before the end of 1988; that he was told that "termination" was a possible consequence; and that by September 1988 the plaintiff could not implement all of the 27 separate elements in his proposed Parts Plus program.

ROBERT BERKOWICZ is a certified public accountant who has been the accountant for the plaintiff corporation for only one year. He prepared a statement dated February 27, 1990 regarding the impact of the loss of sales of the Goodyear company-owned stores. In this regard, Berkowicz relied on the plaintiff's books and records. He did no audit nor did he conduct any full-fledged accounting review of the plaintiff's records. Berkowicz testified that, in his opinion, the plaintiff earned a gross profit (from sales less cost of goods) of 29% before operating and fixed expenses. Further, it was his opinion that if the plaintiff lost the Goodyear account, it could not pay its current expenses. Therefore, in that event, he would recommend that plaintiff's officers close down the business and go into bankruptcy.

The Court does not credit the testimony of the plaintiff's accountant. He performed no audit of the plaintiff's financial records; no books and records were produced; no financial statements were prepared for 1989; he has no other clients in the auto parts industry; he omitted key operating expenses such as delivery expenses; he assumed that the Goodyear business would not be replaced; he reviewed no original records; his calculation of the gross profit figures of $357,000 in 1988 and $300,000 in 1989 were contrary to the credible evidence; his report was based on assumptions and figures given to him by Richard Judelson; he accepted the "word" of Richard Judelson in arriving at the 29% gross profit figure; he admitted the 29% gross profit figure was an "educated guess"; he failed to calculate the substantial interest charges involved in factoring the Goodyear accounts receivable; and his covering letter states that "management's assumptions are not necessarily true".

The Court finds that the conclusions stated by Berkowicz were speculative and unsupported by the credible evidence. Indeed, in view of the net operating losses sustained by the plaintiff in 1987 ($25,000) and in 1988 ($94,000), his testimony is unworthy of belief.

HORACE MARVIN ALMY, also known as MARVIN ALMY, has been the President of the defendant AAAD since August 1, 1985. The total annual sales of AAAD members is approximately 640 million dollars per year. The plaintiff corporation had sales of seven million in 1988 and the defendant Motor Age, the second largest AAAD member, had sales of forty million. During the past years, Almy conceded that some larger members have purchased smaller members. In fact, three of the seven present members of the Executive Committee acquired other AAAD members. Almy stated that one of the goals of AAAD was to bring in one of the largest warehouses in each target area.

Almy testified that Joe Matlock retired on January 31, 1990 as the Executive Vice-President of AAAD. During his employment with the defendant Association, Matlock's two main duties were the solicitation of new members and the development of the Parts Plus program. In connection with his solicitation duties, he recruited both the plaintiff and Motor Age as Association members. It is significant that Matlock was an authorized representative of AAAD for the purpose of procuring new Association members.

Almy testified that the Goodyear company-owned stores were not available to Motor Age when it became a new member, and that there was no agreement with Motor Age or Paul Lehr, its President, for it to obtain the plaintiff's Goodyear accounts. Almy further testified that no such agreement was made by him, Matlock, or with anyone else at AAAD.

After the first "application" and ballot was mailed to the Association members on November 18, 1987, because of concerns raised by the plaintiff and others, the Executive Committee decided to terminate the ballot and investigate further. A second application and ballot was sent out on December 21, 1987. The ballot stated that each member should vote and return the ballot by January 15, 1988. Almy stated that the second balloting resulted in 29 affirmative votes and that only 26 were needed for an affirmative admission vote. On January 18, 1988 Almy advised the members of the results of the balloting — that Motor Age had been voted in as a member of AAAD.

Almy interpreted the crucial ¶ 11 of the by-laws as requiring a commitment on the part of members to successfully participate in the Parts Plus program. He stated that successful participation means "results", not merely good intentions. Almy did not believe that New York City was a difficult Parts Plus program market; certainly no more difficult than other urban areas where Parts Plus programs had greater success.

The by-laws of the Association provide that the members financial information shall be confidential, as follows:

"ARTICLE VII — MEMBER FINANCIAL INFORMATION

    Section 1. It shall be the obligation of each
  Member, within ninety (90) days after the end of
  its fiscal year, to submit to the Association
  copies of its balance sheet and statement of income
  as of the end of and for such fiscal year, for
  confidential review by the President, and to submit
  available interim financial information within ten
  (10) days after requested to do so by the
  President.
    Section 4. Members shall not have access to
  specific financial information submitted by other
  Members or prospective Members unless Member or
  prospective Member approves such access . . . that
  he considers essential in making such
  determination" (emphasis supplied).

With respect to a "working together — winning together" contest to obtain new Parts Plus jobbers in which the plaintiff was assigned a goal of one, the plaintiff's performance was fifth or sixth out of thirty-nine members. During this "contest", the plaintiff obtained two new Parts Plus jobbers when its assigned goal was only one and then had a total of six Parts Plus jobbers. Motor Age had a goal of eight jobbers and obtained none.

In April 1989, the first letter of termination was sent to the plaintiff. A meeting of the Executive Committee was held in May, 1989 and the plaintiff was afforded an opportunity to be heard. The Executive Committee tabled the Standards Committee recommendation to terminate the plaintiff's membership and sent out two representatives to make an inspection of the plaintiff's Parts Plus jobbers. The two representatives were Carl Molin, the Chairman of the Standards Committee, who had already recommended termination, and Joe Matlock, who, the Court later learned, was not impartial, and had already allegedly entered into a surreptitious agreement to obtain the plaintiff's Goodyear stores for Motor Age. The plaintiff was not afforded an opportunity to accompany the subcommittee members on their investigating rounds, nor was it given an opportunity to provide the subcommittee with a list of its new Parts Plus jobbers, nor was plaintiff provided with a copy of their report.

At the November 16, 1989 Executive Committee meeting at which a vote was taken to terminate the plaintiff's membership, after the plaintiff's representatives were heard and left the meeting, present at the meeting when the termination vote was taken were Marvin Almy and Joe Matlock. Not only did Matlock attend this final Executive Committee meeting but he alone reported to the Executive Committee the negative results of the investigation of the plaintiff's Parts Plus jobbers, which was directly followed by the vote to expel the plaintiff.

One day after the termination vote was taken, on November 17, 1989, letters were sent to the plaintiff, to all suppliers and manufacturers and to Goodyear, that the plaintiff was no longer participating in AAAD projects. At this point, by reason of the plaintiff's termination, Motor Age would have obtained the plaintiff's Goodyear stores.

On cross-examination, Almy emphasized that there were no exclusive geographic areas among AAAD members and that there were overlaps in territorial areas among many of the members including Central California, Dallas-Fort Worth, Birmingham, Chattanooga, Orlando, Albany, Newark and Pittsburgh.

After the first evaluations of the members' Parts Plus programs on March 16, 1987, Almy noted that the plaintiff had made little progress and its management's commitment to the program was questioned. Among the six problem companies to be further observed was the plaintiff. In the second evaluation by the Standards Committee on November 10-11, 1987, the plaintiff's Parts Plus program continued to rate poorly. In fact, the plaintiff had not even prepared an annual Parts Plus program.

The Standards Committee determined that satisfactory progress had not been made by the plaintiff and a delegation was requested to visit the plaintiff. If there was no improvement, the Standards Committee discussed a recommendation to the Executive Committee for possible termination. No new positive information was ascertained by the delegation and the matter of plaintiff's termination was referred to the Executive Committee. The Executive Committee met on May 23, 1989. The Executive Committee decided to table the question of the plaintiff's termination and to obtain additional information from Matlock, Almy and the AAAD staff.

Thereafter the "fact finding" trip described above was made by Matlock and Carl Molin of the plaintiff's Parts Plus jobbers resulting in an unfavorable report on June 12, 1989. Following this trip, Joe Matlock submitted a report to the Executive Committee and the Standards Committee dated June 7, 1989 and June 12, 1989 (see Defendant AAAD Exhibit O), including the following findings:

  "Neither Carl nor I saw or heard anything during
  our investigation of AESC's Brooklyn-Queens
  jobbers to indicate that satisfactory progress is
  being made here with Parts Plus no matter who's
  at fault. The conclusion to be drawn here is that
  other N.Y. warehouses have been effective, but AESC
  has experienced four years of failure to achieve
  Parts Plus objectives in their market."

All the evidence concerning the plaintiff's commitment to the Parts Plus program was not unfavorable. In his evaluation of May 31, 1988, Almy wrote that he believed the plaintiff was dedicated to the Parts Plus program and able to make it work. On October 4, 1988, Hunsaker reported to the Standards Committee that the plaintiff was recommitted and has developed a program. By the end of the second quarter of 1989, the plaintiff had six new jobbers. At the time of its termination, the plaintiff had a total of seven Parts Plus jobbers, all in New York City, of a potential 1,000 jobbers and had sent out 28,000 flyers in an attempt to obtain additional jobbers.

In addition to the plaintiff, the membership of another member, General Auto Parts Distributors of San Francisco, was terminated in April of 1989. However, this firm was in the process of either going out of business or reorganizing so that the termination was really a "formality". The plaintiff was the only member terminated solely because of a lack of commitment to the Parts Plus program.

PAUL LEHR was one of the two significant witnesses in this case. His testimony on direct examination consists of two different segments. Initially, on direct, Lehr was confident, responsive and believable. Then after he was shown certain "surprise" documents, his composure changed and his testimony became evasive and less credible.

Lehr has been in the automotive after-market industry since 1975 and is the President of the defendant Motor Age, Inc., a privately held New Jersey corporation incorporated in October 1980. He prides himself as being a "hands-on" Chief Executive Officer. He and his family jointly own 60% of the Motor Age shares. The defendant Motor Age East, Inc. ("Motor Age East"), was a New York corporation which was a subsidiary of Motor Age, being 80% owned by Motor Age. Motor Age East was merged with Motor Age in June 1989 and is no longer in existence.

Lehr first learned of the defendant Association in 1977 and had contact with it at that time, and, in particular, he discussed some matters with Joe Matlock. In the late 1970s, Lehr was a Vice President of a warehouse distributor known as Parts Group, which filed for Chapter 11 in 1980. Lehr was asked to stay on to oversee the orderly liquidation of the four companies constituting the Parts Group. In October 1980 he formed a new corporation called Motor Age, Inc. and made a successful offer for the assets of the four bankrupt corporations. He operated Motor Age from its old facility in Hackensack, New Jersey until 1985 when he moved to its present location in Bogota, New Jersey.

Lehr testified that his next contact with AAAD was in the Fall of 1986 when he contacted Matlock and Almy about his possible purchase of Forshay-Gabriel and whether he could then become a member of AAAD. This date of contact between Lehr and Matlock in the Fall of 1986 is significant because it was following this period that plaintiff's Parts Plus problems became a growing concern of AAAD, leading to the plaintiff's ultimate termination.

In January of 1987, Motor Age decided not to purchase Forshay-Gabriel. Eight months later, in July-August 1987, Matlock, Almy and Paul Kachapis, Chairman of the AAAD Executive Committee, visited him. He was given a "sales pitch" to join AAAD. Lehr was told that the New York metropolitan area was the largest market in the United States and that there was room for an additional member, such as Motor Age. He was asked to visit MRI and obtain additional data on AAAD.

In this early testimony by Lehr he stated unequivocally that the AAAD representatives made it very clear that the Goodyear company-owned stores in the Motor Age territory were already allocated to other members and that this arrangement would not be changed. In other words, Lehr clearly testified that in July-August 1987 he was told that if Motor Age became a member, it would not be able to service any of the Goodyear company-owned stores already allocated to the members in his geographical area, including, of course, the plaintiff. In sum, he testified that he was told and knew that if he became a member of AAAD, the Goodyear company-owned stores would remain with the existing members:

  "Q Was there any discussion with respect to the
  potential of Motor Age becoming a supplier to
  Goodyear stores in connection with prospective
  AAAD membership?
  A Yes. They made it very clear in the
  conversation that the Goodyear stores were
  already assigned to — in the territory I serviced,
  and the Goodyear stores were assigned to four,
  maybe five distributors depending again upon how
  you define the market place.
    Actually, in terms where I was distributing
  there were five other members who serviced
  Goodyear and they made it very clear in no case
  would any existing supply arrangement between an
  AAAD member and Goodyear store be modified or
  changed by virtue if I was to become a member.
  Q Was it always very clear it was unavailable to
  Motor Age and would not be taken from any of the
  then members of AAAD servicing Goodyear?
  A It was always clear there would be no changing
  in the existing supply match up were Motor Age to
  become a member. It was not available."

Motor Age decided to apply for membership in AAAD in November 1987 and, in January 1988, became a member. In September 1989, Lehr became a member of the Executive Committee. Other officers of Motor Age are also presently taking an active role in various committees of AAAD.

After admission to membership, Motor Age converted seventy-one or seventy-two jobbers to the Parts Plus program. However, by early 1989, its Parts Plus jobbers were reduced in number to fifty-five to sixty. (Plaintiff's Exhibit 31 shows fifty such jobbers for Motor Age as of September 1989.) Of these Parts Plus jobbers, however, only six were in the five boroughs of the City of New York, further evidence that New York City is a difficult market for the Parts Plus program.

According to Lehr, the first discussion with a representative of AAAD concerning the acquisition by Motor Age of Goodyear company-owned stores was in May 1989 in a telephone call from Almy:

  "Q There came a time as you described when you
  received word from Mr. Almy in approximately May
  of 1989 regarding the potential of Motor Age
  servicing Goodyear, is that correct?
  A You asked me when was the first time I had a
  conversation with anyone regarding Goodyear. I
  said it was a phone call form Mr. Almy in May
  1989, that's correct."

At that time, in May 1989, Almy called him with regard to "contingent planning", namely, if the plaintiff's membership was terminated would he be interested in servicing the Goodyear company-owned stores and if so, when could he do so. Not surprisingly, Lehr answered "Yes", and that he could do so within thirty to sixty days. In response, Almy said, "Okay, do nothing now, the matter is still under review".

In the summer of 1989, Lehr decided to solicit the independent non-company owned Goodyear stores, which were "fair game" for any member.

According to Lehr, the next Goodyear discussion was at a dinner with Almy in July 1989 when he asked Almy "whether there was anything new on the plaintiff's situation" and Almy said, "No, the matter was still under review".

Lehr testified, with specificity, that when he returned from a Phoenix AAAD meeting on September 26 or 27, 1989 he made a decision to take active steps to take over the plaintiff's Goodyear stores.

On November 16, 1989, the Executive Committee voted to terminate plaintiff's membership. Lehr was not present at this vote. Lehr testified that at that time, he knew for the first time that Motor Age would get the plaintiff's Goodyear stores. Motor Age was poised and ready to serve the plaintiff's Goodyear accounts as of December 17, 1989.

In answer to several pointed questions raised by the plaintiff's trial counsel, Lehr denied that he had any copies or printouts of the plaintiff's GASCs (Goodyear customers) prior to November 1989. In addition, Lehr unequivocally denied that Joe Matlock sent him copies of the plaintiff's sales data prior to 1989.

  "Q Did you have that specific information with
  respect to the ...

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