705 F.2d 20 (2nd Cir. 1983), 514, Katz Communications, Inc. v. Evening News Ass'n

Docket Nº:514, Docket 82-7509.
Citation:705 F.2d 20
Party Name:The KATZ COMMUNICATIONS, INC., Plaintiff-Appellee, v. The EVENING NEWS ASSOCIATION and KTVY, Inc., Defendants-Appellants.
Case Date:April 01, 1983
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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705 F.2d 20 (2nd Cir. 1983)

The KATZ COMMUNICATIONS, INC., Plaintiff-Appellee,


The EVENING NEWS ASSOCIATION and KTVY, Inc., Defendants-Appellants.

No. 514, Docket 82-7509.

United States Court of Appeals, Second Circuit

April 1, 1983

Argued Dec. 17, 1982.

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Peter N. Wang, New York City (Friedman & Gass, P.C., and Bell, Kalnick, Beckman, Klee & Green, New York City, on brief), for defendants-appellants.

David Fleischer, New York City (Charles Burton, W. Bruce Johnson, and Battle, Fowler, Jaffin & Kheel, New York City, on brief), for plaintiff-appellee.

Before FRIENDLY and NEWMAN, Circuit Judges, and WYZANSKI, Senior District Judge. [*]

WYZANSKI, Senior District Judge.

The principal questions presented in this diversity jurisdiction case are whether KTVY, Inc. and The Evening News Association ["Evening News"] were "doing business" in New York State so as to be subject to personal jurisdiction under Sec. 301 of the New York Civil Practice Law and, if so, whether the damages for breach of contract were erroneously calculated by the district court, 514 F.Supp. 423.

Katz Communications, Inc. ["Katz"], a Delaware corporation, brought in the United States District Court a non-jury action for breach of contract against Evening News and its wholly-owned subsidiary, KTVY, Inc., both being Michigan corporations. The findings of the district court and other undisputed facts are to the following effect.

On June 23, 1954 Katz and WKY Radiophone Co. executed a written contract making

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Katz the exclusive national advertising representative for WKY's radio and television stations in Oklahoma City. The agreement provided that it could be "cancelled at any time by either party, on one year's written notice."

During the following two decades and more the parties left the contract unchanged except from time to time to make amendments altering commission rates.

On July 14, 1975, Evening News purchased station WKY from the corporation originally known as WKY Radiophone Co., and simultaneously became subject to the obligations of, and entitled to the rights of, the seller under its contract with Katz. Six months later Evening News assigned its rights under that contract to its wholly-owned subsidiary, KTVY, Inc., but this assignment was unknown to Katz which first learned of the corporate existence of KTVY, Inc. after this action began.

Evening News and its wholly-owned subsidiary, KTVY, Inc., have their principal offices in Detroit premises which they share. Parent and subsidiary have identical boards of directors. Although the subsidiary retains final authority over programming and advertising sales by station KTVY, the parent performs for the subsidiary preparation of tax returns, review of pension and insurance matters, and like financial services.

In performing the 1954 contract, Katz solicited advertising principally in New York, but to some extent in other parts of the United States. Between 1976 and 1979 about one third of KTVY, Inc.'s revenues from national advertising--that is, several million dollars in revenue--was derived from advertising solicited by Katz in the New York market and resulting from plans, strategies and tactics which appellants' representatives discussed regularly (although not exclusively) in New York with Katz's representatives.

During the quarter of a century that Katz was the exclusive national advertising representative for the station now known as KTVY, Katz and the officers and employees of the successive proprietors of that station had a close working relationship. Final authority to accept advertising orders was exercised by the station's proprietors, but Katz guaranteed the advertisers' orders, billed the advertisers, and collected from them. Katz and the station's proprietors jointly developed the station's marketing philosophy, strategy, techniques, and structure. They did this, inter alia, during periodic visits to New York by the station's representatives. In that connection, U. Nick Panos, KTVY's national sales manager, came to New York twice in 1976, twice in 1977, once in 1978, and once in 1979. During those visits he met not only employees of Katz, but also the advertising clients. Other KTVY employees made at least four similar trips in 1976 and 1978.

On December 19, 1978 an officer of KTVY, Inc., without referring to the name of the subsidiary, notified Katz of its cancellation of the contract, effective one year after the notice. On July 11, 1979 Evening News notified Katz that the contract was terminated as of August 27, 1979. On August 21, 1979 Evening News informed Katz that the latter's authority to act for KTVY would cease on August 24.

Katz vainly sought to persuade the proprietors of KTVY to reconsider the termination decision. Then Katz succeeded in getting for stations not located in Oklahoma City five advertising agency contracts in 1979 and an additional one, located in Oklahoma City, in 1980.

Katz, which was the advertising representative for more than 100 other television stations, did not, either because of the loss of the KTVY contract or for any other reason, reduce the size of its staff in 1979. No single employee of Katz, nor any group of such employees, had spent a significant amount of his individual time working specifically on the KTVY station account.

The district court expressly found that when the KTVY agreement was cancelled, Katz was unable to reduce its work force on that account. The court impliedly found that if there had been no cancellation of the KTVY contract, Katz, without increasing

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its staff or incurring additional overhead expenses or indirect or fixed costs, would have been able to perform its obligations under the five new 1979 contracts. 1 Furthermore, the district court expressly found that the only appreciable savings made by Katz as a result of being relieved of performing services for station KTVY in the period from August 27, 1979 through December 18, 1979 were the monthly Telex costs, amounting to about $640.

During the twelve months preceding the cancellation, the proprietors of KTVY paid to Katz an average monthly commission of $28,408.

In 1979 orders for broadcasting were solicited 60 to 90 days in advance of the station's performance. In that light, the district court found that it would be appropriate to calculate damages by taking into account KTVY's actual receipts from national advertising beginning September 1, 1979 (some seven days after cancellation of the Katz contract took effect) through February 29, 1980 (some two months and thirteen days beyond one year after the Katz contract was, under its provisions, terminable).

KTVY's total national advertising revenue from September 1, 1979 through February 29, 1980 was $2,486,461.36. Inasmuch as the contract commission rate was 7 1/2%, the court allowed Katz a recovery of $186,484.60 less the $640 which Katz saved by not having to pay Telex fees, or $185,844.60.

The first major question presented on appeal is whether the district court (applying the New York rule which, as the parties properly concede, governs this diversity jurisdiction case) correctly concluded that the subsidiary, KTVY, Inc., and the parent, Evening News, were "doing business" in New York so as to satisfy the tests which are implied by New York Civil Practice Act Sec. 301 which provides: "A court may exercise such jurisdiction over persons, property, or status as might have been exercised heretofore."

Obviously we are dealing with a question of state statutory law, not of New York's constitutional power under the "due process" clause of the Fourteenth Amendment to the United States Constitution--a point not raised nor even doubted by counsel or this court. See McGee v. International Life Ins. Co., 355 U.S. 220, 223, 78 S.Ct. 199, 201, 2 L.Ed.2d 223 (1957); International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945).

It is often loosely said, as though it were a rule enunciated in the text of the statute, that under the New York state law jurisdiction over a foreign corporation may not be founded on mere solicitation of business within New York. We do not agree that in New York by statute or decision the rule is as inflexible as that statement indicates. In the days of the giants of the law the approach was surely not so absolute. Shortly after he joined the New York Court of Appeals, Cardozo J., on behalf of a notably strong court, including Chief Justice Hiscock and Judge Cuthbert Pound,...

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