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June 27, 2000


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


Plaintiff Abernathy-Thomas Engineering Co. ("Abernathy") brought this action against defendant Pall Corporation and several of its subsidiaries (collectively, "Pall") alleging fraud, misuse of proprietary information, unfair competition, tortious interference with contract, breach of fiduciary duty, and a debt owed on a commission contract, all in connection with Pall's termination of an exclusive distribution agreement with Abernathy. In response, Pall asserted counterclaims against Abernathy for a debt owed and for breach of contract. After conducting discovery, Pall moved for summary judgment on all claims, and Abernathy moved for partial summary judgment on its commission contract claim and on Pall's counterclaims.


The facts of this case, viewed in the light most favorable to the non-moving party with respect to each claim, see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986); Ward v. Thomas, 207 F.3d 114, 119 (2d Cir. 2000), are as follows.


Pall is a large, publicly-held company that sells industrial filters. (Ellis Decl. of 9/9/99, ¶¶ 1-2 [hereinafter Ellis Decl. I].) Abernathy is a closely-held distributor of various industrial products, including filters. (Ellis Dep. at 9, 37.) From some time in the 1950s until March 12, 1993, Abernathy (and its predecessor, Equipment Sales Corporation) acted as the exclusive distributor of, and sales representative*fn1 for, Pall's filtration products in Tennessee, Kentucky, North Carolina, and South Carolina (the "Territory"). (Ellis Decl. I, ¶ 3; Festa Dep. at 43.) Prior to retaining Abernathy as its sales representative, Pall had little or no sales in this Territory. (Ellis Decl. I, ¶ 5.) By 1993, sales of Pall products secured by Abernathy's efforts in the Territory had grown to approximately $5,000,000 annually and were generated by numerous customers, all of which had been developed by Abernathy over forty years. (Id. ¶ 6.) In addition, Abernathy developed valuable information about these customers that has helped Pall to preserve and increase its sales in the Territory. (Id. ¶ 7.) This information included the types of filters used by each customer, the filter layouts at each customer plant, customer purchase projections, and plant development plans. (Id.; Festa Dep. at 45.)


By the 1990s, sales of Pall products constituted the bulk of Abernathy's total sales, giving Pall considerable influence over Abernathy and allowing it to impose a number of obligations on Abernathy through its Exclusive Distribution Agreement*fn2 with Abernathy. (Ellis Decl. I, ¶ 8.) Most pertinent to this action was a covenant under which

[t]he Distributor agree[d] to send the Company a monthly report of all shipments to customers of Products, indicating specific products, including quantity, in substantially the following manner: Customer State, City Part Number Quantity Date Shipped

(Ortego Affirm., Ex. C, § IV(f)). The Exclusive Distribution Agreement does not contain a confidentiality clause in the distributor's favor, and at no point in their relationship did Pall indicate to Abernathy that the information collected under Section IV(f) would not be disclosed to anyone else. (Ellis Dep. at 104, 114-15; Prevatte Dep. at 24.) On the contrary, the Agreement provided:

The Company [Pall] may use such information as it sees fit to aid in the distribution, marketing, sales, promotion, or manufacture of its Products.

(Ortego Affirm., Ex. C, § IV(f)). Moreover, Abernathy's vice president Deryl Prevatte ("Prevatte") could not recall any occasion on which Abernathy sought to modify the Agreement with a promise of confidentiality from Pall. (Prevatte Dep. at 48.)

Nonetheless, Abernathy assumed that the customer information supplied to Pall would be kept in confidence. (Ellis Dep. at 114 ("We had no reason to doubt that they would do otherwise.").) In this regard, it is should be noted that Pall's former senior vice-president Robert J. Festa ("Festa") conceded in deposition that the relationship between Pall and its distributors was a "close" one, akin to a "partnership," and that it involved an "element of trust." (Festa Dep. at 53-54.)

Accordingly, pursuant to Section IV(f) of the Agreement, Abernathy sent Pall copies of every invoice for every Pall product it sold, which Pall then entered into a computer database. (Prevatte Dep. at 27; Festa Dep. at 47-48.) Each invoice indicated the customer's name and address, and the quantity and part number(s) sold. (Id.) Prevatte stated that Pall began requiring Abernathy to supply this information in the 1980s, or maybe even as far back as the 1970s. (Prevatte Dep. at 30.)

Over the years, Pall gained further familiarity with Abernathy's customers by occasionally sending its own employees to accompany Abernathy sales representatives on visits to Abernathy's customers. (Prevatte Dep. at 30; Festa Dep. at 4345.) In addition, acting on the information obtained from Abernathy, Pall employees would from time to time directly contact Abernathy's customers by telephone, beginning sometime before 1990. (Ellis Dep. at 148-49; Prevatte Dep. at 32; Festa Dep. at 44.) Such direct contacts with Abernathy's customers were expressly authorized by the Exclusive Distribution Agreement, provided that Pall paid the distributor the appropriate commission on such sales:

The Company shall have the right to make direct sales of Products to customers in the Markets in the Territory. In the event that the Company makes any direct sales of Products to customers in the Markets, located in the Territory, the Company shall pay to the Distributor a commission on such sales according to the commission schedule. . . .

(Ortego Affirm., Ex. C, § VII(a).)

The final covenant relevant to this action was a best efforts clause that imposed certain manpower and training obligations on Abernathy:

The Distributor agrees to use its best efforts to distribute, market, sell and promote the Products in the Territory, which shall be the Distributor's primary responsibility. . . . The Distributor . . . agrees to acquire, develop, train and sustain sufficient sales and service personnel to distribute, market, sell and promote the Products. The Distributor will enroll all new sales personnel in a Pall training program as soon after being hired as the Company deems necessary.

(Id., § IV(a).)


Although the relationship between the two companies would appear to have been a satisfactory one for many years given its longevity, throughout the period from 1990 to 1993 Pall began to express dissatisfaction with Abernathy's performance in various respects. (Ellis Dep. at 60-64; Prevatte Dep. at 36.) Specifically, "[m]any people, various people" at Pall complained that Abernathy was not meeting the annual sales goals that Pall had set for Abernathy as part of the "Sales Action Plans" ("SAPs") developed by Abernathy and Pall each June or July. (Ellis Dep. at 61-63; see also Ellis Dep. at 16-17; Prevatte Dep. at 16-18; Festa Dep. at 20-22.)*fn3 Pall also complained about the knowledge and training of Abernathy's sales representatives. (Ellis Dep. at 62.) Finally, a recurring complaint voiced by Pall even before 1990 was that Abernathy did not have a sufficiently large sales force in place to market Pall's products effectively. (Ellis Dep. at 63-64, 126, 226; Prevatte Dep. at 20, 2223; see also Prevatte Dep. at 85, 87.)


Until 1992, Abernathy — and all of Pall's other distributors — distributed Pall's products pursuant to exclusive distribution agreements and sales representative agreements that were terminable without cause by either party on thirty days notice. (Ortego Affirm., Ex. C, § VIII(a); id., Ex. D, § VI(a).) Such thirty-day distributorship contracts are standard in the industrial products sector. (Ellis Dep. at 13-14, 46-47; Prevatte Dep. at 11-14.)

However, in November 1991, at an annual meeting with its various sales representatives and distributors, Pall hinted that it was considering granting some of its distributors longer term contracts. The theme for the meeting that year was "Renew in '92." At the Renew in '92 meeting, Pall's then-president and CEO, Maurice G. Hardy ("Hardy"), outlined various qualities that Pall was looking for in a distributor:

1) The distributor should be proficient at selling high value-added, leading edge technological products, and have an organization capable of partnering with the customer in order to satisfy the customers' needs for quality, of both product and service, and on-time delivery.
2) The distributor partner should be highly profitable and in so being, be able to sustain itself in business for an unlimited future period also, and provide the entrepreneurial management structure to ensure this.

(Ortego Affirm., Ex. H, at 8.) Hardy then intimated: "Providing that our distributor partner meets the criteria that I mentioned previously, Pall Corporation's management will have no problem — based on performance clauses being met — negotiating a long-term commitment with its distribution partners." (Id. at 9.)

Hardy, who had formerly been the head of Pall's distribution operation in Europe, had experienced success with the introduction of long-term contracts in Europe and felt that a similar practice would benefit sales in the United States. (Festa Dep. at 76; Rapone Dep. at 61.) However, at no point during the Renew in '92 meeting (or at any other time) did Hardy or any other Pall official expressly offer Abernathy a long-term contract or discuss the matter with any Abernathy officials personally. (Ellis Dep. at 75, 77, 88-91, 94.)

As a follow-up to Hardy's remarks on the possibility of negotiating long-term distribution contracts, Pall senior vice president Festa sent a memorandum to Abernathy and other distributors on January 27, 1992 (the "Festa Memo"), in which he noted that Hardy had "expressed his conviction that those distributors who establish a track record of meeting our requirements may be offered a two year contract." (Ortego Affirm., Ex. I, at 1.) In the memorandum, Festa explained that he was writing "to outline some of the criteria we will be using to determine who will be offered the extended term contract." (Id.) Festa then provided a list of factors that "at a minimum" would be considered before an award of a two-year contract would be made:

1) The distributor must provide for appropriate levels of manpower, training, and selling time. They must also hire Pall Product Managers, when requested by Pall Corporation. They must maintain a stable field sales organization.
2) The [Sales Action Plan] development and execution must be diligently pursued in a sincere effort to meet the sales targets arrived at in our joint SAP meetings.
3) The distributor must work with Pall in the implementation of a Quality Partnership between our companies. They must also pursue, with Pall's help, ISO 9002 (stocklist) Certification.*fn4
4) The distributor must maintain satisfactory levels of inventory, and report stock sales and inventory levels to Pall Corporation in a timely and complete manner.
5) The distributor must participate in our EDI network for order entry, as soon as it is in place.
6) The distributor will promptly follow up on all qualified leads provided by Pall Corporation, and report results in a timely manner.
7) The distributor will also be rated on other more subjective but equally important factors, including but not limited to, establishing a proper succession plan, preparing and sharing with us their yearly business plans, maintaining a willingness to commit resources to new market areas identified by Pall, and in general maintaining an attitude of loyalty towards, and a willingness to be a partner with Pall Corporation.

(Id. at 1-2.) Festa added that Pall expected to meet "over the next few months" with those distributors who qualified for the two-year contract. (Id. at 2.)


Abernathy claims that it took various actions over the course of 1992 to meet the enumerated criteria. (Ellis Decl. I, ¶ 12.) Since the late 1980s, Pall had been requesting that Abernathy hire or designate one of its employees, preferably one with technical expertise, to be a "Pall Product Manager," that is, an employee dedicated exclusively to managing the distributor's sales efforts for Pall products. (Prevatte Dep. at 87; Festa Dep. at 57.) At some point after Renew in '92, Abernathy finally responded to Pall's request by appointing Roger Ellis, the son of Abernathy's then-president Jim Ellis ("Ellis"), as its Pall Product Manager.*fn5 (Ellis Decl. I, ¶ 10; Prevatte Dep. at 87-89; Festa Dep. at 57-58.) In addition, Abernathy — which already had four of its employees enrolled in ISO 9002 training courses at its own expense before Renew in '92 — switched its employees to an ISO 9002 training course that Pall was to give in February of 1993 at a discounted rate. (Ellis Dep. at 78, 184-85, 193; Ortego Affirm., Ex. K, at 4; id., Ex. O, at 2.) Abernathy's management also reviewed whether Abernathy met the remaining requirements specified in the Festa Memo. (Ellis Dep. at 78.)*fn6


Despite the designation of Roger Ellis as Pall Product Manager, Pall's disenchantment with Abernathy appears to have grown. At some point in the fall of 1992, Deryl Prevatte heard through "the grapevine" that Pall was in some way dissatisfied with Abernathy's performance. (Prevatte Dep. at 34-35.) As a result, during a dinner meeting in Long Island with Festa and Pall's senior vice president in charge of distribution, Vincent Rapone ("Rapone"), on or about September 23, 1992, Prevatte asked whether they had any dissatisfaction with Abernathy's performance. (Prevatte Dep. at 36; see also Ellis Dep. at 155.) According to Prevatte, neither Rapone nor Festa indicated that Pall had any problem with Abernathy. (Prevatte Dep. at 37; see also Ellis Dep. at 155.)*fn8 Nonetheless, Prevatte continued to hear "rumors" about Pall's dissatisfaction with Abernathy from salespeople who had spoken to Pall regional representatives. (Prevatte Dep. at 35.)

On October 13, 1992, Abernathy's Jim Ellis called Rapone to inquire about what Pall's concerns were, if any. (Ellis Dep. at 156.) After speaking with other members of Pall's management, including Festa, Rapone called Ellis back on October 16, 1992, and indicated that Pall had four concerns with Abernathy's performance: (1) that Abernathy's accounts payable were 42 days behind; (2) that Abernathy had not met the sales goals specified in its first quarter Sales Action Plan; (3) that Roger Ellis was not spending all of his time on the Pall account, despite the fact that Abernathy had designated him to be the Pall Product Manager; and (4) that Abernathy did not have enough sales. (Id. at 156-159.) At his deposition in this action, Ellis could not recall whether he followed up with anyone from Pall regarding any of these four items. (Id. at 159.)


Contemporaneously with these events, in 1992 Pall began to develop a new sales tracking program called "SITES." (Ellis Dep. at 105.) (The name appears to be an acronym, but neither of the parties has indicated what it stood for.) All of Pall's distributors were required to implement the new program. (Ellis Dep. at 107.) SITES was based on a computer program that allowed distributors to create a database of information on their customers. (See Pall Corp., SITES Database System: Technical Reference and Users' Guide 1-1 (n.d.), attached as exhibit to Letter from Defendant's Counsel to Chambers of 5/8/00 [hereinafter SITES Manual].) The SITES database was to contain much of the information that Pall had already obtained through customer invoices and direct contacts, including the customers' names, addresses, contact people, and the number and types of filter housings and filter elements used at each location. (Ellis Dep. at 106-07, 109; Prevatte Dep. at 79; Festa Dep. at 172; Rapone Dep. at 38-39, 197; SITES Manual at 3-1, 4-4.) SITES, however, allowed the distributor and Pall to compile this information in a much more efficient and readily accessible form. (Ellis Dep. at 109-10; Festa Dep. at 172.)

In addition, each distributor's salespeople were to enter information on their customers' filter "change-out" dates into the SITES database. (Festa Dep. at 8586; Rapone Dep. at 19-20, 39-40; SITES Manual at 4-4 to -8.) Industrial filters generally consist of a filter housing, which has a relatively long useful life, and a filter element, which has a much shorter useful life. (Festa Dep. at 86; Rapone Dep. at 26.) By keeping track of the dates on which a particular customer was likely to need a replacement filter element, Pall and its distributors could gain an advantage over competitors in the lucrative replacement filter market. (Festa Dep. at 13132; Rapone Dep. at 19-20, 40.) One of the functions of the SITES program was to generate a report indicating which customers were approaching a change-out date for their filter elements. (SITES Manual at 1-1, 4-8, 6-1.) These reports allowed Pall's distributors to make anticipatory sales calls to those customers and thus beat their competitors to the sale. (Ellis Dep. at 110.) All of the information entered into each distributor's database, including customer change-out dates, was to be copied onto a computer disk and sent to Pall periodically. (Festa Dep. at 174; Ortego Affirm., Ex. E; SITES Manual at 7-1.)

Neither party's deposition witnesses could recall precisely when the SITES program was introduced. Abernathy's Jim Ellis testified only that it was begun sometime after Renew in '92, i.e., after November of 1991. (Ellis Dep. at 106.) As for Pall, Rapone testified that as of June 17, 1992 the SITES computer program had not been completed, (Rapone Dep. at 124), while Festa testified that it was operational by January 23, 1993, (Festa Dep. at 150-51). The documentary evidence produced to the court suggests that the SITES program was not implemented at Abernathy until January of 1993. Specifically, a letter from Abernathy to Pall dated June 4, 1992, indicates that, at that point, Pall had only just inquired as to the type of computer hardware used by its distributors. (Ortego Affirm., Ex. P.) Seven months later, on January 18, 1993, Abernathy signed an amendment to the Exclusive Distribution Agreement requiring Abernathy to participate in the SITES program (the "SITES Amendment"). (Ortego Affirm., Ex. E.) Finally, in a letter to Pall dated January 21, 1993, Abernathy indicated it was "moving along with [its] Sites Program" and "expect[ed] to start getting the[] reports back from the salesmen by the end of January." (Id., Ex. 0, at 2 (emphasis added).)


In the same January 21st letter, Abernathy's Ellis and Prevatte provided Pall's Festa with a monthly management report. (Id.) At the end of the letter, Ellis and Prevatte asked:

Bob, [Abernathy] is interested in a long term contract with Pall. How can we get a long term contract? What do we need to do and who do we need to contact to be considered for the long term contract?

(Id. at 2.) As far as Prevatte could recall, this letter was the first and only time that Abernathy had broached the subject of the long-term contract with Pall. (Prevatte Dep. at 60.)


Abernathy claims that after Pall terminated its distributorship, some of its industrial filter customers terminated blanket supply contracts they had with Abernathy. (Ellis Dep. at 272-73.) In deposition, Abernathy's Jim Ellis could only recall one such customer by name, DuPont, but stated that Abernathy had documents that would show that there were others. (Id. at 273-74.) Nonetheless, in papers submitted ten months later on the instant motions, Abernathy has still not named these additional lost customers.

Abernathy's asserted damages do not rest solely on having lost its supplier of filtration products, however.*fn10 Abernathy claims that it lost additional business as a result of unfair competition from Pall and its new distributor in the Territory, Fluid Flow. Specifically, Abernathy claims that Pall gave Fluid Flow the customer information that Abernathy had compiled for Pall over the course of their forty-year relationship. (Ellis Dep. at 115-17.) As evidence that Pall had, through Fluid Flow, used this customer information to Abernathy's disadvantage, Ellis testified in deposition that:

[I]mmediately after . . . Fluid Flow was appointed, a few of our customers told us that they got flyers from Fluid Flow telling them they were the new distributor for Pall.
And at least one of those gave me a copy of the announcement that he received from Fluid Flow.
And in this particular case, the individual said that he had been called by Fluid Flow.
. . . [I]mmediately they were calling on the key individual that buys filters and so forth.
And to my knowledge, Fluid Flow did not have at least this type of filter prior to taking on the Pall line and had no reason to call any [of the] individuals [who] told us that they had not been called on by Fluid Flow prior to this.
(Id. at 115-17; see also Prevatte Dep. at 45-46.) Ellis estimates that it would have taken Fluid Flow two years to compile this information by its ...

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