Cooper Distributing Co., Inc. v. Amana Refrigeration, Inc.

• Decision Date: 28 September 1995
• Docket Number: 94-5570,Nos. 94-5569,No. 94-5569,94-5569,s. 94-5569
• Citation: 63 F.3d 262
• Parties: COOPER DISTRIBUTING CO., INC., a New Jersey Corporation, Appellant in 94-5570, v. AMANA REFRIGERATION, INC., a Delaware Corporation, Appellant in
• Court: U.S. Court of Appeals — Third Circuit

Page 262

63 F.3d 262

COOPER DISTRIBUTING CO., INC., a New Jersey Corporation Appellant in 94-5570, v. AMANA REFRIGERATION, INC., a Delaware Corporation, Appellant in No. 94-5569.

Nos. 94-5569, 94-5570.

United States Court of Appeals Third Circuit.

Argued May 5, 1995.

Decided Aug. 22, 1995.

Sur Petition for Rehearing Sept. 28, 1995.

Stephen J. Holtman, (argued), David A. Hacker, and Leonard T. Strand, Simmons, Perrine, Albright & Ellwood, Cedar Rapids, IA, for appellant and cross-appellee, Amana Refrigeration, Inc.

Franzblau Dratch, P.C., Roseland, NJ, Kenneth K. Lehn (argued), on brief (S.M. Chris Franzblau, of counsel), for appellee and cross-appellant, Cooper Distributing Co., Inc.

Bertram P. Goltz, Jr., Office of Atty. Gen. of New Jersey, Newark, NJ, for the Atty. Gen. of the State of N.J.

Before: SLOVITER, Chief Judge, ALITO, Circuit Judge and SCHWARZER, Senior District Judge. ^*

OPINION OF THE COURT

ALITO, Circuit Judge:

Defendant Amana Refrigeration, Inc. ("Amana"), a manufacturer of home appliances, appeals a judgment for $9,375,000 in favor of plaintiff Cooper Distributing Co., Inc. ("Cooper"), a distributor of Amana home appliances. After supplying Cooper with its products for approximately 30 years, Amana attempted to terminate its relationship with Cooper. Cooper sued, claiming that the termination and the circumstances surrounding it gave rise to a variety of state law claims. At trial, Cooper asserted four claims against Amana: (1) illegal termination of a franchise, in violation of the New Jersey Franchise Practices Act ("NJFPA" or "the Act"), N.J.S.A. Sec. 56:10-1 et seq.; (2) breach of contract; (3) breach of the implied obligation of good faith and fair dealing; and (4) tortious interference with prospective business advantage. At the conclusion of a five-week trial, the jury returned a verdict of liability on all four counts and awarded damages as follows: (1) $4.375 million on Cooper's NJFPA claim, (2) $2 million on Cooper's breach of contract claim, (3) $0 on Cooper's claim for breach of the obligation of good faith and fair dealing, (4) $0 in actual damages on Cooper's tortious interference claim, and (5) $3 million in punitive damages on Cooper's tortious interference claim. The district court upheld the entire $9,375,000 verdict and denied Amana's post-trial motions attacking the liability verdicts on Cooper's NJFPA, breach of contract, and tortious interference claims.

Amana appeals from the district court's denial of these motions, and Cooper cross-appeals from the district court's denial of its motion for prejudgment interest on its NJFPA claim. For the reasons discussed below, we (1) affirm the district court's denial of Amana's post-trial motions attacking the NJFPA claim, (2) reverse the district court's denial of Amana's motion for a new trial on NJFPA damages, remanding for a new trial on damages, (3) reverse the district court's denial of Amana's motion for judgment as a matter of law on the breach of contract claim, (4) reverse the award of punitive damages on Cooper's tortious interference claim, and (5) affirm the denial of Cooper's motion for prejudgment interest on its NJFPA claim.

I. FACTS AND PROCEDURAL HISTORY

Amana began to manufacture home appliances in the 1940's. App. 3954. Currently, Amana is a "full line" home appliance manufacturer: it offers for sale a full set of home appliances, including refrigerators, cooking and laundry appliances, dishwashers, and air conditioners. App. 680. For many years, Amana employed a two-step process in the distribution of its products. It would sell its products to a network of independent wholesale distributors, who, pursuant to agreements with Amana, would sell to retail dealers located in the wholesale distributors' contractually recognized sales regions. The retail dealers would then sell the products to consumers.

Cooper began operating as an independent wholesale distributor in 1931. App. 3954. In 1961, Cooper started to distribute Amana products. Cooper and Amana signed an agreement permitting Cooper to distribute Amana's products in New Jersey and New York and have periodically signed new agreements over the years. Their most recent Distribution Agreement (the "Agreement"), which was signed in 1990, allowed Cooper to distribute Amana products in New Jersey, New York, Connecticut, and Pennsylvania. App. 3978-3983. The Agreement stated that it was to be construed "in accordance with the laws of the State of Iowa." App. 3982.

Beginning in the late 1970's, the majority of Cooper's business (78% to 100%) was derived from the sale of Amana products. App. 644. Cooper also distributed other major brands of appliances, including Hardwick, In-Sink-Erator, and Dacor, App. 959, although During its relationship with Amana, Cooper operated a showroom/marketing center, first in Newark and subsequently in Englewood Cliffs, New Jersey. Cooper used this facility for Amana product demonstrations, App. 2005-08, dealer training in Amana products, App. 2006, and dealer open houses. App. 690. Cooper's sales managers studied the Amana product line, App. 2013-2017, and in turn gave Amana product training to retail dealers. App. 690-92. Cooper also placed Amana advertisements in the yellow pages and newspapers, App. 1021-22, advertised as an authorized Amana servicer, App. 4016-17, instructed its servicemen to wear Amana uniforms, App. 1963, distributed promotional items bearing the Amana name, App. 1023, and, pursuant to the Agreement, promised to "use its best efforts to promote sales" of Amana products. App. 3979. Cooper's dealers perceived Amana and Cooper as being one and the same. App. 1748.

Amana occasionally subjected Cooper to competitive restraints. App. 961-62.

In the early 1980's, the marketing of appliances began to change, and by the late 1980's most full-line manufacturers had eliminated the first step in the two-step distribution process. App. 1169, 1679-81. Instead of selling to wholesale distributors, the manufacturers sold directly to retail dealers. Consistent with this trend, Amana started to depart from its previous practice of selling its products to the wholesale distributors. Instead, Amana began to sell directly to certain retail dealers located in the wholesale distributors' sales regions. Amana first sold its appliances directly to "national" retail dealers like Sears. App. 988. The Agreement explicitly permitted Amana to make such sales to national retailers. App. 3981. Then, in the summer of 1991, Amana went further. Relying on a provision of the Agreement that reserved for Amana the "right to make sales directly," App. 3981, Amana began to deal directly for the first time with a non-national retail dealer in Cooper's region, P.C. Richard & Son ("P.C. Richard"). P.C. Richard had a chain of 20 retail stores and represented Cooper's largest account. App. 3955. Amana also sold its products directly to other smaller local retail dealers. Until Amana began selling to the national and local retailers, Cooper had been the exclusive distributor in its region for nearly 30 years. App. 988, 2504-06.

At the same time that the home appliance industry saw the elimination of two-step distribution, Amana's marketing responsibilities changed. Amana's parent company, Raytheon, which also sold other appliance brands such as Speed Queen and Caloric, decided to consolidate the distribution of its brands. App. 2322-23. The result was that several of the distributors that sold one but not all of Raytheon's brands were eliminated. In November 1991, Amana terminated its relationship with Cooper pursuant to a provision of the Agreement that allowed either party to terminate the Agreement on ten days written notice. App. 3981. At the same time, Amana also terminated its relationships with 20 of the other 23 remaining Amana wholesale distributors across the country. App. 2825.

In response to its termination, Cooper commenced this action in New Jersey state court alleging, among other things, that Amana had (1) violated section 5 of the NJFPA, N.J.S.A. Sec. 56:10-5, by terminating Cooper's franchise without good cause; (2) breached the 1990 Agreement by selling to the local retailers in Cooper's region; (3) breached the Agreement's implied obligation of good faith and fair dealing; and (4) tortiously interfered with Cooper's prospective economic advantage. App. 26-46. In November 1991, the state court issued a temporary restraining order prohibiting termination of or interference with Cooper's Amana distributorship. App. 2157. After the case was removed by Amana to federal court, ¹ a preliminary injunction was entered on February 10, 1992, enjoining Amana "from taking any action whatsoever to limit ... or in any way interfere with Cooper's activities as a distributor of Amana products." ²

] App. 100-54, 2157.

During the pendency of the injunction, Amana dropped Cooper from its mailing list, thereby allegedly leaving Cooper--and Cooper's retail dealers--unaware of Amana discounts and model changes. App. 1067-73. Additionally, Amana refused to support Cooper in its attempt to sell Amana air conditioners to Trader Horn, one of Cooper's larger retail dealers. App. 1047-61.

Trial commenced in February 1994, and after five weeks the jury returned a verdict for Cooper totalling $9.375 million. The jury first found that Cooper had proved that it possessed a franchise under the NJFPA and that Amana's attempted termination violated the Act. For this violation, the jury awarded Cooper $4.375 million in compensatory damages, a sum that corresponded to the value of the franchise in November 1991, as estimated by Cooper's expert. The jury also awarded Cooper $2 million on its breach of contract claim, finding that the Agreement had granted Cooper an exclusive regional distributorship and that Amana had violated the Agreement by selling directly to P.C. Richard and other local retailers. The jury likewise found for Cooper on its...