Abernathy-Thomas Engineering Co. v. Pall Corp.
| Decision Date | 27 June 2000 |
| Docket Number | Civil Action No. 96-CV-5315(DGT). |
| Citation | 103 F.Supp.2d 582 |
| Parties | ABERNATHY-THOMAS ENGINEERING CO., Plaintiff, v. PALL CORPORATION, Pall Ultra Fine Filtration Corporation, Pall Process Filtration Corporation, Pall Trinity Micro Corporation, Pall Puerto Rico Inc., Pall Micro Metallic Division, and Pall Advanced Separation Systems, Defendants. |
| Court | U.S. District Court — Eastern District of New York |
John B. Madden, Jr., Arent Fox Kintner Plotkin & Kahn, PLLC, New York City, for Plaintiff.
Joseph Ortego, James W. Weller, Nixon Peabody LLP, Garden City, NY, for Defendants.
Plaintiff Abernathy-Thomas Engineering Co. ("Abernathy") brought this action against defendant Pall Corporation and several of its subsidiaries (collectively, "Pall") alleging fraud, misuse of proprietary information, unfair competition, tortious interference with contract, breach of fiduciary duty, and a debt owed on a commission contract, all in connection with Pall's termination of an exclusive distribution agreement with Abernathy. In response, Pall asserted counterclaims against Abernathy for a debt owed and for breach of contract. After conducting discovery, Pall moved for summary judgment on all claims, and Abernathy moved for partial summary judgment on its commission contract claim and on Pall's counterclaims.
The facts of this case, viewed in the light most favorable to the non-moving party with respect to each claim, see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986); Ward v. Thomas, 207 F.3d 114, 119 (2d Cir.2000), are as follows.
(1)
Pall is a large, publicly-held company that sells industrial filters. (Ellis Decl. of 9/9/99, ¶¶ 1-2 [hereinafter Ellis Decl. I].) Abernathy is a closely-held distributor of various industrial products, including filters. (Ellis Dep. at 9, 37.) From some time in the 1950s until March 12, 1993, Abernathy (and its predecessor, Equipment Sales Corporation) acted as the exclusive distributor of, and sales representative1 for, Pall's filtration products in Tennessee, Kentucky, North Carolina, and South Carolina (the "Territory"). (Ellis Decl. I, ¶ 3; Festa Dep. at 43.) Prior to retaining Abernathy as its sales representative, Pall had little or no sales in this Territory. (Ellis Decl. I, ¶ 5.) By 1993, sales of Pall products secured by Abernathy's efforts in the Territory had grown to approximately $5,000,000 annually and were generated by numerous customers, all of which had been developed by Abernathy over forty years. (Id. ¶ 6.) In addition, Abernathy developed valuable information about these customers that has helped Pall to preserve and increase its sales in the Territory. (Id. ¶ 7.) This information included the types of filters used by each customer, the filter layouts at each customer plant, customer purchase projections, and plant development plans. (Id.; Festa Dep. at 45.)
(2)
By the 1990s, sales of Pall products constituted the bulk of Abernathy's total sales, giving Pall considerable influence over Abernathy and allowing it to impose a number of obligations on Abernathy through its Exclusive Distribution Agreement2 with Abernathy. (Ellis Decl. I, ¶ 8.) Most pertinent to this action was a covenant under which
[t]he Distributor agree[d] to send the Company a monthly report of all shipments to customers of Products, indicating specific products, including quantity, in substantially the following manner:
Customer State, City Part Number Quantity Date Shipped
(Ortego Affirm., Ex. C, § IV(f)). The Exclusive Distribution Agreement does not contain a confidentiality clause in the distributor's favor, and at no point in their relationship did Pall indicate to Abernathy that the information collected under Section IV(f) would not be disclosed to anyone else. (Ellis Dep. at 104, 114-15; Prevatte Dep. at 24.) On the contrary, the Agreement provided:
The Company [Pall] may use such information as it sees fit to aid in the distribution, marketing, sales, promotion, or manufacture of its Products.
(Ortego Affirm., Ex. C, § IV(f)). Moreover, Abernathy's vice president Deryl Prevatte ("Prevatte") could not recall any occasion on which Abernathy sought to modify the Agreement with a promise of confidentiality from Pall. (Prevatte Dep. at 48.)
Nonetheless, Abernathy assumed that the customer information supplied to Pall would be kept in confidence. (Ellis Dep. at 114 ().) In this regard, it is should be noted that Pall's former senior vice-president Robert J. Festa ("Festa") conceded in deposition that the relationship between Pall and its distributors was a "close" one, akin to a "partnership," and that it involved an "element of trust." (Festa Dep. at 53-54.)
Accordingly, pursuant to Section IV(f) of the Agreement, Abernathy sent Pall copies of every invoice for every Pall product it sold, which Pall then entered into a computer database. (Prevatte Dep. at 27; Festa Dep. at 47-48.) Each invoice indicated the customer's name and address, and the quantity and part number(s) sold. (Id.) Prevatte stated that Pall began requiring Abernathy to supply this information in the 1980s, or maybe even as far back as the 1970s. (Prevatte Dep. at 30.)
Over the years, Pall gained further familiarity with Abernathy's customers by occasionally sending its own employees to accompany Abernathy sales representatives on visits to Abernathy's customers. (Prevatte Dep. at 30; Festa Dep. at 43-45.) In addition, acting on the information obtained from Abernathy, Pall employees would from time to time directly contact Abernathy's customers by telephone, beginning sometime before 1990. (Ellis Dep. at 148-49; Prevatte Dep. at 32; Festa Dep. at 44.) Such direct contacts with Abernathy's customers were expressly authorized by the Exclusive Distribution Agreement, provided that Pall paid the distributor the appropriate commission on such sales:
The Company shall have the right to make direct sales of Products to customers in the Markets in the Territory. In the event that the Company makes any direct sales of Products to customers in the Markets, located in the Territory, the Company shall pay to the Distributor a commission on such sales according to the commission schedule....
(Ortego Affirm., Ex. C, § VII(a).)
The final covenant relevant to this action was a best efforts clause that imposed certain manpower and training obligations on Abernathy:
The Distributor agrees to use its best efforts to distribute, market, sell and promote the Products in the Territory, which shall be the Distributor's primary responsibility.... The Distributor ... agrees to acquire, develop, train and sustain sufficient sales and service personnel to distribute, market, sell and promote the Products. The Distributor will enroll all new sales personnel in a Pall training program as soon after being hired as the Company deems necessary.
(Id., § IV(a).)
(3)
Although the relationship between the two companies would appear to have been a satisfactory one for many years given its longevity, throughout the period from 1990 to 1993 Pall began to express dissatisfaction with Abernathy's performance in various respects. (Ellis Dep. at 60-64; Prevatte Dep. at 36.) Specifically, "[m]any people, various people" at Pall complained that Abernathy was not meeting the annual sales goals that Pall had set for Abernathy as part of the "Sales Action Plans" ("SAPs") developed by Abernathy and Pall each June or July. (Ellis Dep. at 61-63; see also Ellis Dep. at 16-17; Prevatte Dep. at 16-18; Festa Dep. at 20-22.)3 Pall also complained about the knowledge and training of Abernathy's sales representatives. (Ellis Dep. at 62.) Finally, a recurring complaint voiced by Pall even before 1990 was that Abernathy did not have a sufficiently large sales force in place to market Pall's products effectively. (Ellis Dep. at 63-64, 126, 226; Prevatte Dep. at 20, 22-23; see also Prevatte Dep. at 85, 87.)
(4)
Until 1992, Abernathy — and all of Pall's other distributors — distributed Pall's products pursuant to exclusive distribution agreements and sales representative agreements that were terminable without cause by either party on thirty days notice. (Ortego Affirm., Ex. C, § VIII(a); id., Ex. D, § VI(a).) Such thirty-day distributorship contracts are standard in the industrial products sector. (Ellis Dep. at 13-14, 46-47; Prevatte Dep. at 11-14.)
However, in November 1991, at an annual meeting with its various sales representatives and distributors, Pall hinted that it was considering granting some of its distributors longer term contracts. The theme for the meeting that year was "Renew in '92." At the Renew in '92 meeting, Pall's then-president and CEO, Maurice G. Hardy ("Hardy"), outlined various qualities that Pall was looking for in a distributor:
1) The distributor should be proficient at selling high value-added, leading edge technological products, and have an organization capable of partnering with the customer in order to satisfy the customers' needs for quality, of both product and service, and on-time delivery.
2) The distributor partner should be highly profitable and in so being, be able to sustain itself in business for an unlimited future period also, and provide the entrepreneurial management structure to ensure this.
(Ortego Affirm., Ex. H, at 8.) Hardy then intimated: "Providing that our distributor partner meets the criteria that I mentioned previously, Pall Corporation's management will have no problem — based on performance clauses being met — negotiating a long-term commitment with its distribution partners." (Id. at 9.)
Hardy, who had formerly been the head of Pall's distribution operation in Europe, had experienced success with the introduction of long-term contracts in Europe and felt that a similar practice...
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