616 F.2d 528 (3rd Cir. 1979), 78-2300, Franklin Music Co. v. American Broadcasting Companies, Inc.

Docket Nº:78-2300 to 78-2302.
Citation:616 F.2d 528
Party Name:FRANKLIN MUSIC COMPANY, Appellant, v. AMERICAN BROADCASTING COMPANIES, INC., ABC Record and Tape Sales Corp., WideWorld of Music, Inc. and Albert S. Franklin. FRANKLIN MUSIC COMPANY v. AMERICAN BROADCASTING COMPANIES, INC., ABC Record and Tape Sales Corp., WideWorld of Music, Inc. and Albert S. Franklin. Appeal of American Broadcasting Companies, I
Case Date:December 21, 1979
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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Page 528

616 F.2d 528 (3rd Cir. 1979)

FRANKLIN MUSIC COMPANY, Appellant,

v.

AMERICAN BROADCASTING COMPANIES, INC., ABC Record and Tape

Sales Corp., WideWorld of Music, Inc. and Albert

S. Franklin.

FRANKLIN MUSIC COMPANY

v.

AMERICAN BROADCASTING COMPANIES, INC., ABC Record and Tape

Sales Corp., WideWorld of Music, Inc. and Albert

S. Franklin.

Appeal of American Broadcasting Companies, Inc. and ABC

Record and Tape SalesCorporation.

FRANKLIN MUSIC COMPANY

v.

AMERICAN BROADCASTING COMPANIES, INC., ABC Record and Tape

Sales Corp., WideWorld of Music, Inc. and Albert

S. Franklin.

Appeal of Albert S. FRANKLIN.

Nos. 78-2300 to 78-2302.

United States Court of Appeals, Third Circuit

December 21, 1979

Argued Sept. 5, 1979.

As Amended Dec. 28, 1979, Jan. 8 and Jan. 9, 1980.

Page 529

[Copyrighted Material Omitted]

Page 530

[Copyrighted Material Omitted]

Page 531

David H. Marion (argued), Joseph F. Roda, Kohn, Savett, Marion & Graf, P. C., Philadelphia, Pa., for appellant and cross-appellee, Franklin Music Company.

Richard F. Stevens (argued), Butz, Hudders & Tallman, Allentown, Pa., for appellee and cross-appellant, Albert S. Franklin.

Daniel H. Margolis, Allentown, Pa. (argued), Michael D. Ridberg, William D. Appler, Matthew Weston-Dawkes, Ralph C. Thomas, III, Bergson, Borkland, Margolis & Adler, Washington, D. C., A. H. Wilcox, Pepper, Hamilton & Scheetz, Philadelphia, Pa., (of counsel), for American Broadcasting Companies, Inc. and ABC Record and Tape Sales Corp.

Before SEITZ, Chief Judge, and GIBBONS and SLOVITER, Circuit Judges.

GIBBONS, Circuit Judge, announcing decision of the court as to all issues except the civil conspiracy verdict and dissenting in Part II. B. as to the civil conspiracy claim.

This case is before us on an appeal by the plaintiff Franklin Music Company (FMC) and cross appeals by the defendants American Broadcasting Companies, Inc., ABC Record and Tape Sales Corp. (hereinafter collectively ABC), and Albert S. Franklin (Franklin) from a final judgment in favor of FMC following a jury trial. The complaint alleges violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2 (1976), section 7 of the Clayton Act, 15 U.S.C. § 18, and various contract and tort claims under Pennsylvania law. The trial court granted motions for partial summary judgment on the section 2 Sherman Act and section 7 Clayton Act claims, from which no appeal has been taken. At the close of the plaintiff's case the court directed verdicts on the section 1 Sherman Act claim and on a count alleging trade libel under Pennsylvania law. The case was submitted to the jury on special verdict interrogatories, and the jury returned a verdict in favor of FMC for $2,013,000 in compensatory damages and $1,025,000 in punitive damages. The verdict reflected the jury's conclusion that the defendants had conspired to injure and destroy plaintiff, that with ABC's inducement and assistance, Franklin had breached fiduciary duties to FMC, and that the defendants had improperly interfered with the business relationship between FMC and its employees. Motions for judgment notwithstanding the verdict followed, and the district court granted those motions in part. The court granted judgment notwithstanding the verdict on the jury's award of damages for interference without privilege in the relationship between FMC and its employees. This left standing an award of $25,000 for damages due to Franklin's breach of fiduciary duty, and an award of $1,311,000 for the defendant's civil conspiracy against FMC. Judgment was entered in these amounts and all parties appealed. The court affirms these awards, but reverses the civil conspiracy award and the judgment notwithstanding the verdict on the employee interference award. We announce herein the opinion of the court as to all issues except the civil conspiracy award, an issue as to which I dissent herein.

I. BACKGROUND FACTS

In 1973 FMC operated a chain of eight retail music stores. Franklin, FMC's president and manager, owned 15% of its stock and the remaining shares were owned by Raymond Rosen & Co., a corporation, whose president, Edward Rosen, was FMC's board chairman. During that year ABC decided to enter the retail music business and began a search for personnel knowledgeable in that field. Franklin, who had had five years of experience with the successful FMC chain and prior experience with the Sam Goody retail music chain, was approached by ABC. Beginning in September 1973, meetings took place between Franklin and ABC, during which his employment by ABC and ABC's possible acquisition of FMC

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were discussed. While these discussions progressed representatives of ABC visited certain FMC places of business and were shown FMC's point of sale (POS) data processing system, which was alleged to be confidential. Rosen was not informed of these discussions until January 15, 1974, when Franklin told Rosen he was leaving to join ABC and that ABC was prepared to make a purchase offer for FMC. Franklin's employment contract with FMC contained a covenant not to compete with FMC within 50 miles of City Hall, Philadelphia, for one year after Franklin terminated his at-will employment. He went to work in January 1974 at the headquarters for ABC's retail music venture in Cherry Hill, New Jersey, near Philadelphia, but no retail stores were operated by ABC within that fifty mile radius. Following his employment by ABC, Franklin approached various key employees of FMC and successfully induced them to leave FMC and join ABC. In the meantime discussions, which eventually proved to be unfruitful, were conducted with Rosen concerning ABC's acquisition of FMC. Franklin gave interviews to trade journals in which he disclosed ABC's plans and the negotiations for the acquisition of FMC, and predicted that ABC would be more successful than FMC. Following the departure of Franklin and other key people, FMC, which previously had been a profitable venture with an expanding business, began incurring losses. It lost $450,000 in 1974 and $426,000 in 1975. In July 1975, the Sam Goody chain purchased the FMC stores in the Philadelphia area at book value. FMC's Atlanta stores continued in business, incurring further heavy losses, until June 1977, when they were sold at book value to another retail chain.

II. DEFENDANTS' CONTENTIONS

The defendants contend that as to each claim on which FMC recovered, the judgment should be reversed and judgment entered in their favor. They further contend that, even if we find that there was sufficient evidence to warrant submission of those claims to the jury, various trial errors require that we order a new trial.

A. Breach of Fiduciary Duty by Franklin

The jury answered affirmatively the following special verdict interrogatories:

1. (a) Did Mr. Franklin while employed by (FMC) breach his fiduciary duty to that company?

(b) Did (ABC) induce Mr. Franklin to breach his fiduciary duty to (FMC)?

Under Pennsylvania law, Franklin, as president and a director of FMC, owed his undivided loyalty to that corporation. Lutherland, Inc. v. Dahlen, 357 Pa. 143, 151, 53 A.2d 143, 147 (1947). The trial court described the evidence relied on to support a finding that Franklin breached his fiduciary duty as "far from overwhelming," but nevertheless legally sufficient. In reviewing this evidence, the court noted that the record established: that while Franklin was president of FMC, he held several discussions with ABC's management without the knowledge of other FMC personnel, at least six of which meetings took place during FMC's normal business hours; that at ABC's request Franklin guided ABC executives through FMC's stores and instructed his assistant, Terrence Sukalski, to show ABC visitors "whatever they wanted to see" although prior to this instruction it had been the policy of FMC not to disclose certain aspects of its business, in particular its point of sale data processing system, to its competitors; that during his negotiations with ABC Franklin missed two scheduled appointments with Rosen; that in the year prior to his departure, Franklin worked somewhat shorter hours than he had previously, although exceeding forty hours per week; that while he was president ABC executives expressed an interest in acquiring FMC, which Franklin did not disclose to Rosen until January, 1974, when he had already obtained a commitment from ABC for new employment; that while he was negotiating with ABC, Franklin for the first time delegated to a subordinate the task of obtaining advertising rebates and failed to supervise this subordinate,

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resulting in losses to FMC; that when he did disclose that he was leaving FMC, his conversation with Rosen implied not merely an interest in obtaining employment with better prospects, but actual hostility and an interest in demonstrating his indispensability to the 85% owner of the business; and that while employed at FMC Franklin failed to train others to perform necessary business functions, and so concentrated responsibility in himself as to make it difficult for the business to survive his departure. Some of the evidence referred to was hotly contested. As the court observed, Franklin and Rosen displayed in their testimony a longstanding mutual antagonism. If the jury had credited Rosen, it could have found an intention on Franklin's part, while he was president, to harm Rosen. There was also evidence from which the jury could have inferred that while he was president of FMC he and representatives of ABC discussed the possibility of hiring away other key FMC employees in the event that the company could not be acquired at a price satisfactory to ABC, and that Franklin did not disclose this intention to Rosen, even...

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