Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.

PAY TEL SYS. v. SEISCOR TECHS.

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK


April 26, 1994

PAY TEL SYSTEMS, INC., Plaintiff,
v.
SEISCOR TECHNOLOGIES, INC., and RAYTHEON COMPANY, Defendants. TRIDENT TECHNOLOGIES, INC., TRIDENT TELECOMMUNICATIONS SYSTEMS I, and TRIDENT TELECOMMUNICATIONS SYSTEMS II, Plaintiffs, v. SEISCOR TECHNOLOGIES, INC., and RAYTHEON COMPANY, Defendants.

The opinion of the court was delivered by: VINCENT L. BRODERICK

MEMORANDUM ORDER

 VINCENT L. BRODERICK, U.S.D.J.

 These cases brought pursuant to the diversity of citizenship jurisdiction of the court present issues concerning alleged defects in private pay telephones manufactured by defendant Seiscor Technologies, Inc. ("Seiscor"), an indirect subsidiary of defendant Raytheon Company ("Raytheon"). Defendants have moved for summary judgment dismissing the complaints in both cases. The motions are conditionally granted, and the complaint will be dismissed unless plaintiffs take the actions described below within forty-five (45) days to correct deficiencies in their claims and the evidence submitted in support of them outlined in this memorandum order.

 II

 Complete diversity of citizenship as required under 28 U.S.C. 1332 is lacking in 88 Civ 5676 (the "Trident case") because both plaintiff Trident Telecommunications Systems I ("Trident I") and Raytheon are citizens of Massachusetts. Trident I is a partnership, the general partner of which, and many of the limited partners of which reside in that state; Raytheon's principal place of business is in that state, making it a citizen of that state under 28 U.S.C. 1332(c). In order to avoid dismissal of the Trident case on that ground, plaintiffs must file an amended complaint dropping Trident I, Raytheon or both as parties. If plaintiffs elect to make such an amendment, they shall also show cause why they should not be required to pay defendants' legal costs in connection with the diversity of citizenship issue pursuant to 28 U.S.C. 1927 or Fed.R.Civ.P. 11, or both. *fn1"

 III

 Numerous assignments have been executed by plaintiffs with regard to claims at issue in these cases. Where complete assignments have been made, the assignee is the real party in interest and a necessary party under Fed.R.Civ.P. 19. To omit such parties would risk generating subsequent duplicative litigation. Assertion of residual overlapping claims by the assignor without joining the assignee or establishing waiver of such claims by an assignee is improper and their pursuit would be an abuse of the litigation process. In some cases it is not clear that all assignees are parties to the suits now pending. In order to be permitted to proceed, plaintiffs must:

 (a) Eliminate from the respective complaints all claims by an assignor with respect to rights assigned to another person or entity absent an express reservation of any claims retained;

 (b) Add as voluntary or involuntary plaintiffs any assignee or financing entity having or which may assert title to any claims asserted by plaintiffs in the case involved. This must be done regardless of whether or not existing plaintiffs have or claim to have a residual or reserved right of any kind to sue on a claim. In the alternative, plaintiffs may drop the claim involved. If additional necessary parties would destroy diversity of citizenship, one or more parties with the same citizenship must be omitted from the case or the relevant claims dropped from the complaint involved.

 Affidavits (subject to Fed.R.Civ.P. 11 and 28 U.S.C. 1927) must be submitted by a knowledgeable person that the steps called for by this part III have been taken with completeness.

 IV

 The defendant Raytheon has offered evidence that its indirect subsidiary Seiscor operates as an independent entity, but has not provided information concerning whether or not Seiscor is insolvent or undercapitalized. This is a relevant consideration where piercing the corporate veil is requested. See generally Lowen v. Tower Asset Management, 653 F. Supp. 1542, 1551-56 (SDNY), aff'd 829 F.2d 1209 (2d Cir 1987); Gelb, "Piercing the Corporate Veil - the Undercapitalization Factor," 59 Chi-Kent L Rev 1 (1982); Practising Law Institute, Responsibility of the Corporate Parent for the Activities of a Subsidiary (1990); 1 Fletcher, Cyclopedia of Corporations § 44.1 (perm ed 1983); Note 99 Harv L Rev 986 (1986).

 Plaintiffs have made arguments that when analyzed amount to implying that Seiscor is acting as an agent for Raytheon because customers were aware of or told of the connection between the two companies. Mention of Raytheon during negotiations between Seiscor and plaintiffs, forwarding of communications to and from Raytheon, references to Seiscor as part of the Raytheon family, and similar events are insufficient to make Raytheon responsible for Seiscor's contracts. Statements supported by the appearance of authority to speak for Raytheon, and which specifically purport to commit Raytheon would be sufficient to do so. See IBM v. United Home, 848 F. Supp. 495 (SDNY 1994), describing and vacating pursuant to settlement, IBM v. United Home, 1994 WL 86597 (SDNY March 3, 1994). No evidence of this kind has been set forth.

 In each case, plaintiffs must drop Raytheon as a defendant, provide information which would justify piercing the corporate veil, or specify discovery needed to establish a basis for such piercing. In the latter instance, plaintiffs must simultaneously serve and attach whatever discovery requests or notices are deemed necessary for that purpose.

 V

 Plaintiffs contend that open-ended damages can be recovered for lost profits because successes hoped for when the relevant contracts were entered into, did not materialize. Case law is to the contrary: "Contract law has long been held to preclude recovery for speculative damages." Roseburg Lumber Co v. Madigan, 978 F.2d 660, 667 (Fed Cir 1992); see Four Points Shipping & Trading, Inc v Poloron, 846 F. Supp. 1184, 1994 WL 96759 (SDNY 1994).

 On a motion for summary judgment challenging the existence of monetary injury, plaintiffs must provide specifics for their claims to survive. Celotex Corp v. Catrett, 477 U.S. 317, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). In order for their claims to meet this test, plaintiffs must show specific sales of defective goods and costs incurred because of the need to repair or replace those specific goods, or to refund monies received or accept nonpayment or reduced payments for those goods. Such events must be shown to lead to specific amounts lost because of defects in the products provided by defendants, or other equally clearly definable losses.

 In submitting such evidence, plaintiffs cannot rely on the assumption that they held requirements contracts with any of the defendants. Such a contract in writing does not exist, and it would be implausible absent evidence not provided that a commitment of this type would be made without a writing. See Durable, Inc. v. Twin County Grocers, 839 F. Supp. 257 (SDNY 1993); see also Wallace Oil Co v Michaels, 839 F. Supp. 1041 (SDNY 1993).

 To infer an open-ended commitment to supply plaintiffs with goods beyond any specific orders agreed to without a specific writing to that effect would be "implausible" and must be supported by more other evidence than would otherwise be needed for the claim to survive under Fed.R.Civ.P. 56. Matsushita Electric Industrial Co v. Zenith Radio, 475 U.S. 574, 587, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). A commitment of this scope, which would normally be expected to be in writing, must be rejected absent evidence to overcome the improbability. Durable, Inc v. Twin County Grocers, 839 F. Supp. 257 (SDNY 1993); Gr eystone Partnerships v. Koninklijke, 815 F. Supp. 745, 756-57 & n 13 (SDNY 1993); Adler & Shaykin v. Wachner, 721 F. Supp. 472, 478 (SDNY 1988).

 Absent such safeguards, the result would be to risk "trapping parties in surprise contractual obligations that they never intended." TIAA v. Tribune Co, 670 F. Supp. 491, 497 (SDNY 1987). See also Consarc v. Marine Midland Bank, 996 F.2d 568 (2d Cir 1993); Arcadian Phosphates v. Arcadian Corp, 884 F.2d 69, 72-73 (2d Cir 1989); Winston v. MediaFare, 777 F.2d 78 (2d Cir 1985); RG Group v. Horn & Hardart, 751 F.2d 69 (2d Cir 1994).

 Plaintiffs attempt to project their claim of an implicit commitment to supply unordered goods (to be of acceptable quality) into the future so far as to amount to an obligation to make it possible for plaintiffs to succeed in their business, even to the point of successfully going public and making that a profitable step. A series of assumptions concerning future events of this nature would amount to impermissibly requiring vendors of products selling to distributors to provide insurance that resulting potential pyramids of business gambles would be crowned with success.

 Even if a good product is made available to a distributor by a manufacturer, numerous other events may destroy the hoped-for profitability of the venture. For example, the public's need or taste for a product may dry up, regulatory initiatives may make it less profitable or even unprofitable, *fn2" rival distributors *fn3" or rival industries may take the place of the item in the marketplace, financial markets may prove uninterested in the offering at the time proffered, *fn4" or investors may be dissatisfied with management's efforts or disclosures of problems encountered. *fn5" See generally American List Corp v. US News & World Report, 75 N.Y.2d 38, 549 N.E.2d 1161, 550 N.Y.S.2d 590, 592 (1989); Manniello v. Dea, 92 A.D.2d 426, 429, 461 N.Y.S.2d 582, 585 (3d Dept 1983); Robert T. Donaldson, Inc v. Aggregate Surfacing, 47 A.D.2d 852, 366 N.Y.S.2d 194, 196 (1975); Four Points v. Poloron, 846 F. Supp. 1184, 1994 WL 96759 (SDNY 1994).

 VI

 Plaintiffs rely on claims of fraud and misleading conduct, but have not explained how deliberate fraud or misleading behavior has been shown or inferred. Such evidence must be specified or such claims dropped from the complaints. The court may insist on such evidence regardless of whether specifically requested by the moving party. Celotex Corp v. Catrett, 477 U.S. 317, 326, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Jacobson v. Cohen, 151 F.R.D. 526 (SDNY 1993).

 VII

 Defendants' contention that summary judgment should be granted based upon Seiscor's Coinphone Product Warranty accepted by plaintiff Trident Technologies, Inc. lacks merit but warrants discussion here because plaintiffs may seek to satisfy the deficiencies set forth above.

 Seiscor's warranty purports to disclaim any unspecified "warranty, express or implied . . . to any dealer, customer, owner, or user." With regard to consumers, such a blanket disclaimer violates the Consumer Product Warranty Act, 15 U.S.C. 2308, as it relates to implied warranties of merchantability. Where a document contains illegal and misleading provisions such as this one, it would be inappropriate to grant summary judgment on the basis of its existence without full inquiry concerning whether or not those protected by the statute involved were injured and if so what recompense was provided. See generally Note, Misrepresentation of Law, 32 Colum L Rev 1018 (1932); Kulkin, On the Knowing Inclusion of Unenforceable Contract and Lease Terms, 56 U Cinc L Rev No 3 at 845 (1988); see also Ryon v. John Wanamaker, 116 Misc. 91, 190 N.Y.S. 250 (Sup Ct 1921), aff'd 202 A.D. 848, 194 N.Y.S. 977 (1922), aff'd 235 N.Y. 545, 139 N.E. 728 (1923); Special Committee on Consumer Affairs, Consumer Products Warranty Fulfillment, NYLJ Nov 28, 1980 at 1..

 The warranty of merchantability is a cornerstone of commercial law in dealings between merchants as well as with consumers, and hence cannot be disclaimed unless the disclaimer is both clear and conspicuous and agreed to by the customer. See Prosser, The Implied Warranty of Merchantable Quality, 27 Minn L Rev No 2 at 117 (1943). A disclaimer of warranty coverage is consequently ineffective to avoid the implied warranty of merchantability created by Uniform Commercial Code 2-314 unless the disclaimer specifically mentions "merchantability." Uniform Commercial Code 2-136(2). Seiscor's disclaimer did not do so. See Zicari v. Joseph Harris Co, 33 A.D.2d 17, 304 N.Y.S.2d 918, 924 (4th Dept 1969).

 The warranty at issue states that "SPECIFICALLY EXCLUDED" are "any consequential damage resulting directly or indirectly from the use of the products." This would appear to embrace, for example, damages caused by a telephone call placed but received by an unintended party. Consequential damages resulting from inability to use or sell the product are not mentioned, but defendants appear to construe the warranty as excluding them despite this. *fn6"

 An interpretation limiting a warranty contrary to the plain meaning of the text, thus unduly favoring the position of a sophisticated party preparing a standard form document, would be inappropriate. See generally Rau v. Cavenaugh, 500 F. Supp. 204 (DSC 1980); N.Y. Gen. Obligations Law § 5-702; Practising Law Institute, Drafting Documents in Plain Language (1981); see also Rakoff, Contracts of Adhesion, 96 Harv L Rev 1173 (1983).

 VIII

 Defendants claim accord and satisfaction with respect to a "Product Improvement Agreement" signed by plaintiff Trident Technologies, Inc. and Seiscor, embracing repair or replacement of existing components with improved reliability. The information before the court is insufficient to determine with reliability whether or not that agreement was intended to replace other obligations and whether or not it was breached and hence claims under it or preceding agreements may be pursued.

 IX

 Given the rulings made in this memorandum order, the parties may wish to revisit the option of settlement of these cases prior to incurring further legal expense. If direct negotiations are unsuccessful, resort to the mediation services of the court or assistance in developing other means of settlement may be requested.

 SO ORDERED.

 Dated: White Plains, New York

 April 26, 1994

 /s/ Gerard L. Goettel, USDJ in the absence of

 VINCENT L. BRODERICK, U.S.D.J.


Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.