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PAY TEL SYS. v. SEISCOR TECHS.

September 27, 1995

PAY TEL SYSTEMS, INC. and NATIONAL EXPERT ASSIST, INC., Plaintiffs, against SEISCOR TECHNOLOGIES, INC., and RAYTHEON COMPANY, Defendants. TRIDENT TECHNOLOGIES, INC. and TRIDENT TELECOMMUNICATIONS SYSTEMS II, Plaintiffs, - against - SEISCOR TECHNOLOGIES, INC., Defendant.


The opinion of the court was delivered by: CHIN

 CHIN, D.J.

 These related diversity actions arise from the sale of allegedly defective coin-operated telephones ("COTs") manufactured by defendant Seiscor Technologies, Inc. ("Seiscor"), a subsidiary of Switchcraft, Inc. ("Switchcraft"), which is a subsidiary of defendant Raytheon Company ("Raytheon"). The cases were consolidated for discovery, and before the Court are defendants' renewed motions for summary judgment in both cases.

 For the reasons stated below, the motions are granted in part and denied in part.

 Background

 A. The Facts

 1. The Pay Tel Case

 Plaintiff Pay Tel Systems, Inc. ("Pay Tel") is engaged in the business of purchasing and leasing COTs and providing coin-operated telephone services. It distributes COTs to other vendors for resale and also leases or sells COTs to "location owners," such as barber shops, hair salons and restaurants. (Pay Tel Cmplt. P 2; Tr. 27). *fn1" Plaintiff National Expert Assist, Inc. ("NEA") was added as a plaintiff in the third amended complaint, apparently because certain of Pay Tel's claims had been "completely assigned" to it. (Pay Tel Cmplt. P 6).

 Defendant Seiscor designs, manufactures and sells COTs. Plaintiffs allege that defendant Raytheon exercised "direct and complete control" over its subsidiaries, including Switchcraft, which in turn owns Seiscor. Pay Tel seeks to pierce the corporate veil to reach Raytheon by arguing, in effect, that Seiscor is the alter ego of Switchcraft and that, in turn, Switchcraft is the alter ego of Raytheon. (Pay Tel Cmplt. P 3). *fn2"

 In September 1985, Pay Tel and Seiscor entered into a "Dealer Agreement" whereby Pay Tel agreed to act as a "dealer" to sell Seiscor's COTs. (Fabrikant 6/22/94 Aff. Exh. A). The Dealer Agreement required Pay Tel, as the "Dealer," to issue a "blanket" written purchase order for a quantity of phones, which was to be the Dealer's "commitment" for six months. (Id.). At that time Pay Tel issued a blanket purchase order for 1,500 phones, which apparently was in addition to 500 phones that Pay Tel had previously ordered, for a total of 2,000 phones ordered. (DX J; Fabrikant 6/22/94 Aff. P 1 & Exh. G). Pay Tel received only 872 COTs directly from Seiscor, for which it paid some $ 665,000, but these phones purportedly turned out to be defective and began to malfunction. (Pay Tel Cmplt. PP 42-44). Seiscor refused to authorize the return of the phones, and instead induced Pay Tel to purchase replacement parts from it for some $ 400,000. (Pay Tel Cmplt. PP 47-48).

 Thereafter, in conjunction with another company, Phone Masters, Inc. ("PMI"), Seiscor manufactured a new and purportedly improved COT, which was warranted to be free from defects. (Pay Tel Cmplt. P 50). Pay Tel was persuaded to purchase some 352 of the new improved Seiscor-manufactured telephones through PMI, for some $ 422,400. (Tr. 6; Pay Tel Cmplt. P 57; see Fabrikant 6/22/94 Aff. PP 1, 2). The new COTs, however, also purportedly malfunctioned. (Pay Tel Cmplt. PP 58-59).

 In January 1987, Seiscor announced that it was withdrawing from the business of manufacturing and selling COTs, and repudiated its agreements with Pay Tel and others. (Pay Tel Cmplt. P 61).

 2. The Trident Case

 Plaintiff Trident Technologies, Inc. ("Trident") is engaged in the same business as Pay Tel. Certain of its activities were apparently conducted on behalf of two limited partnerships, plaintiffs Trident Telecommunications Systems ("TTS-I") and Trident Telecommunications Systems II ("TTS-II"), in which Trident was the general managing partner. (Trident Cmplt. PP 2-4). *fn3"

 Trident entered into a dealer agreement with Seiscor, similar to Pay Tel's, in October 1985. (Exh. 3 to Pl. Mem. in Opp. to Motion). Between November 1985 and May 1986, Trident purchased 725 COTs from Seiscor. (Trident Cmplt. P 39). These also were purportedly defective. (Id. PP 40-41). Seiscor refused to accept the return of the phones, and Trident was induced into purchasing replacement parts from Seiscor. (Id. PP 45-46). Eventually, Trident simply returned the COTs to Seiscor without Seiscor's approval. (Id. P 47). Thereafter, Seiscor developed and manufactured a new, purportedly improved COT, and Trident was induced to purchase some 185 of the new phones. (Id. PP 48-53). The new telephones, however, also purportedly turned out to be defective. (Id. PP 54-55).

 As noted, in January 1987, Seiscor announced that it was withdrawing from the business of manufacturing and selling COTs. It repudiated its agreements with Trident and others. (Trident Cmplt. P 57).

 B. Procedural History

 The Pay Tel case was commenced on March 25, 1988. Seiscor answered and asserted a counterclaim for goods sold and delivered. The Trident case was filed on August 12, 1988. Amended and ...


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