739 F.2d 812 (2nd Cir. 1984), 1178, Ebker v. Tan Jay Intern., Ltd.

Docket Nº:1178, 1171 and 1177, Dockets 81-7854, 84-7032 and 84-7060.
Citation:739 F.2d 812
Party Name:Nancy EBKER, Plaintiff-Appellant, Cross-Appellee, v. TAN JAY INTERNATIONAL, LTD. and Peter J. Nygard, Defendants-Appellees, Tan Jay International, Ltd., Cross-Appellant.
Case Date:July 17, 1984
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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739 F.2d 812 (2nd Cir. 1984)

Nancy EBKER, Plaintiff-Appellant, Cross-Appellee,

v.

TAN JAY INTERNATIONAL, LTD. and Peter J. Nygard, Defendants-Appellees,

Tan Jay International, Ltd., Cross-Appellant.

Nos. 1178, 1171 and 1177, Dockets 81-7854, 84-7032 and 84-7060.

United States Court of Appeals, Second Circuit

July 17, 1984

Argued May 7, 1984.

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Debra A. Roth, Phillips, Nizer, Benjamin, Krim & Ballon, New York City, for plaintiff-appellant, cross-appellee.

John F. Triggs, Slade & Pellman, New York City, for defendants-appellees and cross-appellant.

Before FRIENDLY and WINTER, Circuit Judges, and LASKER, Senior District Judge. [*]

FRIENDLY, Circuit Judge:

This case is a further illustration, if one were needed, of the unwisdom of continuing diversity jurisdiction, 28 U.S.C. Sec. 1332, and particularly that portion of the diversity statute permitting such jurisdiction to be invoked by an in-state plaintiff. 1 There is no federal interest in this lawsuit except for that engendered by the disregard by trial counsel of a federal procedural rule; it is the kind of case that the New York courts handle regularly. It was pending in the district court for nearly six years and, after extensive pretrial proceedings, consumed eight days of trial time. It involves several troublesome points of New York law, on at least one of which the court seems to have been led into error by a proposal by one counsel to which no objection was made by the other. Worst of all, counsel treated the provisions of Fed.R.Civ.P. 50(b) with respect to a motion for judgment notwithstanding the verdict as if they did not exist and as if the practice concerning such a motion were governed by the less formal provisions of N.Y.CPLR 4404. See also N.Y.CPLR 4401. Many days of effort on our part have been required to disentangle the resulting confusion, at the cost of time that should have been devoted to our ever-mounting caseload of appeals where federal interests are implicated. Finally, as a result of our ruling

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there must be still further proceedings in the district court and perhaps a further appeal.

The Proceedings in the District Court

The complaint, filed in the District Court for the Southern District of New York on March 1, 1978, alleged that plaintiff Ebker had achieved a national and international reputation as a designer and merchandiser of women's wearing apparel. In 1976, she entered into an employment agreement with Genesco, Inc., to be president of its Susan Thomas Sportswear Division, the products of which included the Vivo and Susan Thomas sportswear labels and a newly created Sportswork-Nancy Ebker label. Her contract with Genesco provided for a salary of $152,500 for the period ending July 31, 1977, which was to increase annually up to a maximum of $187,500 until July 31, 1979, when the contract expired. If Genesco terminated the contract earlier, Ebker was to be compensated at the annual rate of $152,500 less any amounts received from a new employer.

About August 1977 Genesco decided to dispose of its apparel manufacturing operations and so advised Ebker. However, Genesco gave Ebker an opportunity to reap the benefits of her reputation by allowing her to purchase such assets of the Susan Thomas Division as were essential to the continued production of its labels. Ebker was thereafter contacted by Peter Nygard, the principal shareholder and chief executive officer of defendant Tan Jay International (Tan Jay), a Canadian corporation. He stated that Tan Jay had been attempting to enter the United States market and proposed that he and Ebker enter into negotiations for the acquisition and continuation of the Susan Thomas Division. The complaint, as amended by a pre-trial order nearly three years after its initial filing, alleged that the negotiations between Ebker and Nygard, who was said to be acting not only as the chief executive officer of Tan Jay but also on his own behalf, were concluded on or about November 26, 1977,

by the making of an agreement (the "Agreement") which provided, among other things, that they would enter into and undertake a joint venture as "FIFTY/FIFTY (50/50) partners," Ebker owning a one-half ( 1/2[ ) ] interest and Nygard and Tan Jay together owning a one-half ( 1/2) interest of said joint venture.

Jt. Pre-Trial Order p 3(2), 1 Jt.App. at 24. The alleged oral agreement included the organization of a new company, with Ebker as president, to carry on two labels of the Susan Thomas Division: the Vivo label, in the future to be known as Bianca (a Tan Jay label), and Sportswork-Nancy Ebker, in the future to be known simply as Nancy Ebker. Tan Jay was to provide the funds for the acquisition of the needed assets from Genesco. Ebker was to receive: (1) an annual salary of $50,000; (2) 50% of the net pretax profits from sales under the Nancy Ebker label; and (3) 5% of the Bianca label's net pretax profits from sales of the spring, summer and fall Vivo collections, and thereafter from sales of all 1979 to 1982 Bianca collections. The complaint charged that in early February 1978, Nygard and Tan Jay repudiated the agreement in various ways, including the exclusion of Ebker from the premises on which operations were being conducted. The defendants counterclaimed that after Ebker's discharge she had disrupted Tan Jay's business operations, and sought compensatory and punitive damages.

The appendix does not include any portion of the 362 page transcript of a four day pretrial hearing before the district judge, which had a vital bearing on the trial, and references to it in the briefs are few and without page citation. The judge was concerned, inter alia, about the term the alleged joint venture was to have. Plaintiff's counsel insisted that the term was for five years. 2 The judge warned

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that such a claim would be perilous in light of the one-year section of the New York Statute of Frauds, which we quote in the margin. 3 Plaintiff's counsel insisted that the New York Statute of Frauds did not apply to joint ventures at all. He conceded that if the statute applied, the five-year joint venture agreement would be treated as a partnership at will, but maintained that Ebker would still be entitled to an action at law for damages for its breach as well as an accounting. Defendant's counsel disputed plaintiff's ability to maintain such a damages action and argued that, in view of the concededly short duration of the alleged joint venture and its operation at a loss, an accounting would be pointless. Finally, the judge decided that a first trial should focus on the question whether there had been a joint venture between Ebker and Nygard or Tan Jay; all other issues would be reserved. Regrettably these directions were not embodied in an order.

Plaintiff's case rested primarily on her own testimony which, in view of the attack on the sufficiency of the evidence, we must set forth at tiresome length: Nygard called on Ebker at the Susan Thomas showroom on November 17, 1977. She explained some of her ideas to him, and they arranged a luncheon meeting for the following day. Over lunch, Nygard described "how Tan Jay was built up to a $30 million business", that he had $5 million to invest in the United States, and that he was interested in the Nancy Ebker label. Ebker declined to discuss a deal unless it also included the lower-priced Vivo line. Nygard said he already had a line in Canada called Bianca which was similar to Vivo and would be open to discussing the Vivo line in addition to the Nancy Ebker line. After returning to her office Ebker stressed that she would not consider less than a 50-50 partnership. Nygard replied, "Well, that's no problem," and "You can maintain your office exactly the way you've done, and the only difference would be that we move Tan Jay into the showroom and sell the three lines out of the showroom." Nygard also requested that Ebker stop negotiating with other potential backers. Although she believed herself to be within a day of striking a deal with one interested party, Ebker complied. Nygard then departed for Frankfurt and Ebker for California. It was later arranged that they meet again in London. Most of the conversations there, some attended by Ebker's associate, Leamond Dean, took place at the Inn on the Park, a luxury hotel where both Nygard and Ebker were staying. Ebker and Nygard discussed the capitalization that would be needed to finance the two lines. The parties discussed separating Ebker's label, which was produced under a union contract, from the non-union Tan Jay operation and converting the unionized Vivo label into the Bianca label, which was to be manufactured in Tan Jay's non-union California plant. The two would be 50-50 partners on the Nancy Ebker label, but Ebker was to have only five percent "of the pretax profits on Bianca because [Nygard] would be handling this production." 4

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Nygard agreed that Ebker's management people should remain.

In answer to questions by the court, Ebker repeated that they would be 50-50 partners in the "Nancy Ebker" label and "it was going to be a company." 5 There was a problem about a licensing contract between Genesco and a Canadian company called Marbrooke, giving Marbrooke an exclusive distribution arrangement on the Nancy Ebker label in Canada. For the time, this issue was "left up in the air." So also was the question of what price Genesco would ask for the inventory and other tangible assets necessary for continued production of goods under the Nancy Ebker label. Ebker was to be responsible for "completely running" her label, including "merchandising, designing, ordering piece goods, following through on production, fit, quality, sales, ... all the way through store seminars", but on "Bianca" she would be responsible only up to the point when designs...

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