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ROYAL INDUS. v. KRAFT FOODS

May 21, 1996

ROYAL INDUSTRIES LIMITED, Plaintiff, against KRAFT FOODS, INC., Defendant.

CHARLES S. HAIGHT, JR., U. S. D. J.


The opinion of the court was delivered by: HAIGHT

HAIGHT, Senior District Judge:

 This action arises out of an alleged contractual arrangement, under which defendant, a U.S. food manufacturer, allegedly agreed to supply plaintiff, a food distributor in U.S. and abroad, with a specified quantity of assorted coffees. Plaintiff claims that defendant breached its supply obligations under the agreement, causing plaintiff monetary and reputational harm.

 Presently before the Court are defendant's motion to dismiss pursuant to Rule 19(b), Fed. R. Civ. P., for failure to join an indispensable party and on the ground of forum non conveniens, and plaintiff's cross-motion for partial summary judgment. For the reasons that follow, I deny both motions.

 I.

 Plaintiff, Royal Industries Limited (hereinafter "Royal"), is incorporated under the laws of the Republic of the Marshall Islands, and has its principal place of business in South Plainfield, New Jersey. According to the complaint, its business is "food brokerage": it purchases food products in bulk and resells them to U.S. and international customers.

 Defendant Kraft Foods, Inc. ("Kraft"), *fn1" a Delaware corporation with its principal place of business in Northfield, Illinois, is one of the largest manufacturers and marketers of food products in the United States. Several of its products are sold abroad. Kraft Jacobs Suchard, A.G. ("KJS"), a Swiss corporation wholly owned by Kraft, is responsible for marketing and selling Kraft products in Europe. *fn2" One of KJS's subsidiaries, an Austrian corporation named Suchard Schokolade Ges.m.b.h. ("Suchard"), markets Kraft products throughout Eastern Europe. *fn3" When a European buyer negotiates the purchase of a Kraft-branded product with KJS or one of its subsidiaries, Kraft Foods International ("KF International"), an unincorporated division of Kraft headquartered in Rye Brook, New York, supplies the product to the buyer.

 On five separate occasions between January 1993 and July 1994, Royal purchased Kraft products for subsequent resale in Eastern Europe. The mechanics of each purchase were, in large part, the same. After being informed by Suchard *fn4" of the availability of a Kraft product, Royal would place an order with Suchard for a specific quantity. Suchard would then forward the order to KF International's offices in New York. Upon receipt of the order, KF International would issue a "pro forma invoice," certifying the price and quality of the goods to be sold. Once Royal tendered payment, KF International would arrange for shipment of the product to Royal (or its customers in Russia).

 In August of 1994, Royal and Suchard once again negotiated for the sale of a Kraft product, this time, flavored coffee. The negotiations were accomplished via facsimile. In a fax dated August 23, 1994, an employee of Suchard, Olga Ladorenko, informed Royal that several flavors of Kraft-brand coffee were available for purchase, and requested a prompt response. A flurry of faxes were subsequently exchanged, in which Suchard and Royal discussed the quantity of each flavor that was available. Ultimately, Suchard and Royal settled upon an arrangement whereby Royal would purchase five containers *fn5" a month through the end of 1994 for a total purchase price of $ 1,600,000. Royal would then resell these containers to two of its Russian customers, J.V. Star Trading, Ltd. and Progress Co. According to the complaint, Royal expected to garner approximately $ 400,000 in profits from the resale transactions.

 In a fax transmitted on September 12, 1994, Suchard informed Royal that its order had been "processed and sent to the States," and that Suchard had requested pro forma invoices from KF International's offices in Rye Brook, New York. Suchard promised to send Royal the pro formas as soon as it received them. However, the present record indicates that Kraft did not send the pro forma invoices to either Suchard or Royal, as it had in the prior five transactions. In addition, Royal never tendered payment to Kraft, and Kraft never supplied the goods to Royal.

 Based on these facts, plaintiff commenced the present breach of contract action against Kraft, asserting diversity of citizenship as the basis for jurisdiction. The complaint alleges that the exchange of faxes bound Kraft to supply the requisite quantity of coffee to Royal; that Royal was "ready, willing and able to perform all of its obligations under the Sales Agreement, including payment of the full purchase price to defendant prior to shipment by defendant of the goods"; that Royal had commitments from purchasers in Russia to buy the goods at a substantial markup; and that Kraft breached the agreement by refusing to sell the coffee. Plaintiff requests compensatory damages in the amount of $ 400,000 to reimburse it for lost profits, and an additional unspecified amount to compensate it for reputational harm caused by the alleged breach. In addition, plaintiff seeks $ 500,000 in punitive damages.

 Kraft now moves to dismiss the complaint on forum non conveniens grounds, alternatively claiming that Suchard is an indispensable party under Rule 19(b) whose joinder would destroy this Court's diversity jurisdiction. Royal cross-moves for summary judgment on the issue of liability, asserting that there is no genuine issue as to either the existence of an agreement between Kraft and Royal.

 II.

 A. Partial Summary Judgment

 I consider Royal's motion for partial summary judgment at the outset, since it gives rise to issues that impact upon Kraft's motion.

 Under Fed. R. Civ. P. 56(c), the moving party is entitled to summary judgment if the papers "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." On such a motion, "a court's responsibility is to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party." Coach Leatherware Co., Inc. v. AnnTaylor, Inc., 933 F.2d 162, 167 (2d Cir. 1991) (citing Knight v. U.S. Fire Insurance, 804 F.2d 9 (2d Cir. 1986), cert. denied, 480 U.S. 932, 94 L. Ed. 2d 762, 107 S. Ct. 1570 (1987)) (citation omitted). The responding party "must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). "The non-movant cannot 'escape summary judgment merely by vaguely asserting the existence of some unspecified disputed material facts,'... or defeat the motion through 'mere speculation or conjecture.'" Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990) (citations omitted). While the party resisting summary judgment must show a dispute of fact, it must also be a material fact in light of the substantive law. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).

 In moving for partial summary judgment, Royal claims that there is no genuine issue as to a existence of a binding contract between itself and Kraft. In Royal's view, Suchard, the entity with whom it negotiated, is merely a sales agent, and Kraft its principal. Thus, all actions taken by Suchard were taken on behalf of Kraft, and Kraft was bound by the "sales agreement" memorialized in the exchange of faxes.

 Kraft resists summary judgment by distancing itself from Suchard. According to Kraft, Suchard is not a sales agent; it is an entity that negotiates the sale of Kraft goods on behalf of itself. Once Suchard negotiates a sale agreement, the order is forwarded to KF International. KF International supplies the goods to Suchard's customers, but only after it has independently expressed its willingness to do so by forwarding pro forma invoices to the buyer. In a sense, then, the pro forma invoice constitutes an offer to sell on the part of Kraft, which the buyer can accept by forwarding payment. Since no pro forma invoices were sent in this case, Kraft claims that it had no independent obligation to supply the coffee. If any obligation existed, it was owed by Suchard and Suchard alone.

 This dispute gives rise to a threshold issue: whether and in what circumstances a parent corporation may be held accountable for the acts of its subsidiary on an agency theory of liability under the law of New York. *fn6" Neither party addresses this question in its papers, but independent research has revealed that it requires attention.

 In Kashfi v. Phibro-Salomon, Inc., 628 F. Supp. 727 (S.D.N.Y. 1986), the district court held that "the test for determining whether a corporation is acting as an agent for a related corporation is the same as the test imposed under the doctrine of piercing the corporate veil." Id. at 735. Thus, in the court's view, for a claim styled in agency terms to lie against a parent corporation, the plaintiff must demonstrate that the parent dominated the subsidiary, and that such domination was used to commit a wrong or fraud against the plaintiff. See Morris v. New York State Dept. of Taxation and Finance, 82 N.Y.2d 135, 603 N.Y.S.2d 807, 623 N.E.2d 1157 (1993) (stating the standard for piercing the corporate veil). To apply a different standard, the Kashfi court reasoned, would "undermine the strong policy that exists concerning the presumption of [corporate] separateness." 628 F. Supp. at 735.

 Were I to apply the rule of Kashfi to the present case, it would warrant a sua sponte grant of summary judgment in favor of defendant. See Project Release v. Prevost, 722 F.2d 960, 969 (2d Cir. 1983) (district court has power to grant summary judgment sua sponte). Plaintiff has not alleged facts which tend to demonstrate that Kraft dominated KJS or Suchard or used their corporate shells to perpetrate a fraud. However, in my view, the Kashfi doctrine, which effectively precludes suit ...


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