425 F.2d 892 (2nd Cir. 1970), 182, Koufakis v. Carvel

Docket Nº:182, 183, 33732, 33827.
Citation:425 F.2d 892
Party Name:John KOUFAKIS, Plaintiff-Appellee, v. Thomas CARVEL and Franchise Licensors, Inc., Defendants-Appellants.
Case Date:April 24, 1970
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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425 F.2d 892 (2nd Cir. 1970)

John KOUFAKIS, Plaintiff-Appellee,

v.

Thomas CARVEL and Franchise Licensors, Inc., Defendants-Appellants.

Nos. 182, 183, 33732, 33827.

United States Court of Appeals, Second Circuit.

April 24, 1970

Argued Oct. 29, 1969.

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George D. Marlow, Kew Gardens, N.Y. (Morris Marlow, Corona, N.Y., on the brief), for plaintiff-appellee.

Nicholas M. Pette, Jamaica, N.Y., (Leonard Toboroff, Yonkers, N.Y., and Joseph P. Napoli, Bayside, N.Y., on the brief), for defendants-appellants.

Before LUMBARD, Chief Judge, and MEDINA and FEINBERG, Circuit Judges.

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LUMBARD, Chief Judge:

The appellants Thomas Carvel and Franchise Licensors, Inc. appeal from a judgment against Franchise Licensors 1 for $126,000 awarded, after a jury trial in the Eastern District of New York, to the appellee John Koufakis for breach of his franchise contract to operate Carvel Store Number 184 in Queens Village as an ice cream dealer. The jury by special verdict found that the appellants committed a substantial breach of the contract by improperly terminating it, and awarded $187,500 in compensatory damages; it also found that no punitive damages should be awarded. The trial judge granted a motion for a new trial which was based in part on the improper and prejudicial arguments of plaintiff's trial counsel, unless the plaintiff agreed to a remittitur of.$61,500. Although both parties appealed, the appellee is now content with a verdict for $126,000. We reverse and order a new trial because of the numerous grossly prejudicial arguments made by plaintiff's counsel in summation and during trial, against which the trial judge's comments and charge gave little or no protection. As there must be a new trial, we also consider whether the question of punitive damages should have been submitted to the jury and whether the jury should have been allowed to evaluate the likelihood that the franchise would have been renewed after it expired.

I. THE FACTS

A summary of the record shows that there was sufficient evidence to leave to the jury the question whether the appellants had improperly terminated Koufakis' franchise contract.

On June 2, 1958, John Koufakis and Carvel Stores of New York, Inc., 2 entered into a Dealer's Franchise Agreement whereby Koufakis was to run Carvel Store Number 184 until July 31, 1968, a period of ten years. The preamble to this agreement, which emphasized the importance of maintaining the high quality standards of Carvel products, stated:

'This Frozen Dairy Product is made in accordance with a Carvel formula, consisting of high quality ingredients and is sold in fine sanitary stores, which are created in accordance with patented designs and specifications. The public has been accustomed to seek Carvel Frozen Dairy Products at these unique Carvel Stores * * *, and to purchase therefrom Carvel's Frozen Dairy Products manufactured in accordance with the Carvel formula and none other. The Dealer desires to operate a Carvel Store and Carvel is willing and agrees that the Dealer operate a Carvel Store in accordance with the terms of this agreement.'

A 'Standard Operating Procedure Manual' was expressly incorporated as 'an integral part' of the franchise agreement, which provided that the store was to be 'maintained and operated in accordance with the specific provisions of the Manual.' The agreement further provided that:

'During the term of this agreement, the Dealer agrees to sell at the Carvel Store, Carvel's Frozen Dairy Products solely in accordance with the Manual and will sell no other product except as hereinafter expressly otherwise provided. If at any time the Dealer fails to maintain and operate a Carvel Store in accordance with the definition

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contained in the agreement and in the Manual, then the Dealer's failure to do so shall be deemed to be a breach of a vital term of this agreement and shall entitle Carvel, upon giving written notice to the Dealer, to terminate this agreement.'

Carvel was also given the right to inspect the store 'at any and all times desired by Carvel.' Koufakis was obligated 'promptly (to) correct any errors or omissions found by (Carvel) inspectors and officers.' As regards the procedure for termination, the agreement stated:

'In the event that the Dealer should breach any of the terms of this agreement, or default in the performance of any of the obligations under the Manual, * * * and should such breach not be remedied to the satisfaction of Carvel within forty-eight (48) hours or such later time as Carvel may specify in a written notice to that effect mailed to the Dealer and then this agreement shall terminate fully and in all respects, and the Dealer shall then have no further rights hereunder.'

As to renewal of the franchise, the agreement specified a ten-year initial term and, in the following paragraph, recited that 'This agreement shall be automatically renewed for an additional period of -- 0-- years. * * *'

There was testimony that Koufakis was on the 'C.O.D. list' throughout the period of his dealership-- that is, that he was to pay cash for all supplies delivered to him. Inspections of Koufakis' store did take place, and minor defects in operation were called to his attention. In June 1962, Carvel inspectors discovered non-Carvel ices stored in his freezer. Koufakis' explanation was that these ices were being stored there for a short time before being served at an outing for a Little League team which he sponsored and that they were not there for sale to the public. Carvel's attorneys apparently accepted this explanation, but they did make it clear to Koufakis that the presence of non-Carvel items in the store was a serious matter; in fact, they had Koufakis sign a $5000 confession of judgment to apply to future instances of such behavior.

Koufakis called as a witness Salvatore Russo, who was credit manager and later head of the accounting department for the Carvel organization until his voluntary departure on April 2, 1963. Russo testified that Koufakis was considered a slow-paying account, an 'irritant,' and a nonconformist by the officials at the central offices of Carvel. Regarding such nonconforming dealers as a group, Russo further stated that he attended a staff meeting of Carvel officers in March 1963, at which time Thomas Carvel remarked 'Look, we are going to get a corporation set up, and put all these guys into that corporation. Eventually we will work them out of the Carvel system.'

The evidence showed that Koufakis, under subpoena, had testified on November 5, 1963 (after the above-described staff meeting), before a trial examiner of the Federal Trade Commission, which was then conducting an inquiry into Carvel's franchising practices. 3 One of Koufakis' contentions was that this testimony so angered Thomas Carvel and others in the organization that they determined to get rid of him.

On August 24, 1965, Koufakis was notified that an inspection of his store had revealed some operational deficiencies and he was given 48 hours' notice to correct them; Koufakis apparently corrected the defects and sent a letter to Carvel on September 1, 1965, stating that he had taken corrective action and thanking Carvel for the inspections which assisted him to 'judge my help.'

On July 17, 1966, Martin Mannino, a Carvel field representative, inspected Store Number 184. He took samples of the various products and product components

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on the premises; these samples were stored by him in an ice chest in the trunk of his car during that day, and in his home freezer overnight. They were delivered the following day to St. Lawrence Dairy Testing Laboratory, an independent testing firm which regularly made tests for Carvel. Mannino testified that he bought other samples of take-home products--primarily pre-packaged pints of various flavors of ice cream stored in three display freezers-- during 'a period of ten days, (or) two weeks' thereafter. The St. Lawrence laboratory reports introduced in evidence by Carvel indicate that such samples were taken July 15, 16, 22, 23, 24, 25, 26, 27, 28, 29, 30, and 31, 1966. On July 30, July 31, and August 1, 1966, samples were apparently taken from Koufakis' freezers from which ice cream cones were dispensed. All of these samples were also delivered to St. Lawrence, although there was no testimony concerning the conditions under which they were transported from the store to the lab. As to the samples taken on July 17, Mannino testified that he left duplicate samples, in sterile jars, at Store Number 184 for Koufakis. The laboratory reports on this two-week series of samples showed some degree of dilution, contamination, or both, of some or all of the various products tested. It was Koufakis' claim that the samples were improperly taken and kept, that the tests were not properly made and reported, and that Carvel falsified the test results.

Carvel sent a letter to Koufakis on July 21, 1966, stating that the company was concerned about the results of the tests which had been completed and reported as of that date. Carvel again gave Koufakis 48 hours' notice to correct the conditions or face termination. Koufakis testified that after receiving this letter and before he received the two telegrams effecting termination as of August 1, 1966, he called Leonard Toboroff, an attorney for Carvel who had signed the July 21 letter, to find out more precisely the nature of the contamination and dilution which the tests showed. 4 Toboroff gave no specific answer, but told Koufakis that he would check further and suggested calling back the next day. Koufakis did so, and still received no specific answers as to the locus of the problem. Then Koufakis

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called...

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