Avon Prods. v. Berson

• Decision Date: 29 November 1954
• Parties: Avon Products, Inc., Plaintiff,<BR>v.<BR>Joseph Berson et al., Doing Business under the Name of B & B Pharmacy, Defendants.
• Court: New York Supreme Court

206 Misc. 900

Avon Products, Inc., Plaintiff,

v.Joseph Berson et al., Doing Business under the Name of B & B Pharmacy, Defendants.

November 29, 1954.

Bernard Weitzman for defendants.

Breed, Abbott & Morgan for plaintiff.

EDER, J.

Defendants move, under rule 106 of the Rules of Civil Practice, to dismiss the complaint for failure to state a cause of action.

This case presents the question of the limits of judicial intervention in our system of free enterprise. The problem involved is that of balancing the right of a manufacturer to have his method of sales distribution of products protected from wrongful interference as against the right of a retailer to buy and sell merchandise without restriction.

Plaintiff, a well-known manufacturer of cosmetics, seeks to enjoin defendants, operating a retail pharmacy in Brooklyn, New York, from purchasing or otherwise acquiring its products from sales representatives of plaintiff and then selling them. The complaint is directed solely to the wrongful acquisition of the goods and not to the manner or price of their resale by defendants to the public; it contains no charge of fraud or deception upon the public, of "passing off" or confusion of identity of the products sold, nor of resale below or above plaintiff's established price.

Since a motion under rule 106 concedes the factual allegations of the complaint, the following must be deemed admitted by defendants for the purpose of this motion:

That plaintiff and its predecessors have for more than sixty-five years sold the products manufactured by them exclusively through the medium of sales representatives assigned to specific territories, authorized to sell only to ultimate consumers, upon house-to-house calls, and not to wholesalers or retailers. That plaintiff's business, which transacted during the past ten years about $264,000,000 worth of sales and upon which it spent about $6,000,000 on advertising, depends upon the maintenance of such sales system. That said system was and is known to the entire trade, including defendants. Upon information and belief, that one or more of the sales representatives, whose identity is unknown to plaintiff, directly or indirectly has sold and is selling its products to defendants. Upon information and belief, that defendants induced and are inducing said representatives to sell its products to them or otherwise to be the means whereby defendants have been able to purchase those products for resale at their pharmacy. That these acts have injured and are injuring plaintiff by violating the sales system upon which its entire business structure depends; by encouraging other sales representatives and retailers to do the same and thus ultimately destroying said sales system; by causing a reduction in the sales which may then be effected by loyal representatives, and adversely affecting in other respects their relationship with plaintiff with consequent impairment of morale. That defendants have refused to furnish plaintiff with the identity of the representatives referred to and have also refused to desist from the acts complained of.

Defendants maintain that in the absence of any allegation of wrongful conduct on their part, such as fraud, deception or unfair resale price, the complaint is demurrable. They urge that no cause of action arises from the alleged purchase by them of plaintiff's products and their resale, the transaction being a normal incident of business ingenuity which did not cause pecuniary loss to plaintiff, no complaint being made either as to the price received therefor by plaintiff or the price at which resold by defendants.

Plaintiff's argument is that defendants are wrongfully interfering with its long-established system of selling direct to consumers only, the preservation of which is claimed to be entitled to greater consideration than the desire of defendants to make unearned profits out of the good will created by plaintiff. Its brief cites International News Service v. Associated Press (248 U. S. 215), a landmark in the field of unfair competition, and Metropolitan Opera Assn. v. Wagner-Nichols Recorder Corp. (199 Misc. 786, affd. 279 App. Div. 632). In these cases defendants unlawfully appropriated as their own the product in the form of news and music, respectively, of the labor, skill, expenditures, and reputation of the plaintiffs without paying therefor, and injunctions were granted on the theory of unjust enrichment. Wrongful exploitation of a competitor's effort, the core of those decisions, is, however, here involved only indirectly by way of argument or analogy.

Analysis of the complaint reveals more direct and persuasive reasons for sustaining it. It appears that defendants are charged with two distinct wrongful acts: (1) with knowledge of the limited authority of plaintiff's sales representatives to sell only to consumers, they bought plaintiff's products from one or more of them and resold them; (2) they knowingly induced one or more representatives to sell to them in violation of their agreement with plaintiff to sell only to consumers. The latter may be deemed the principal, and the former the alternative, claim upon which the right to relief is based; presumably, if plaintiff should fail to prove active inducement by defendants, reliance may be placed on the alternative ground that mere purchase with knowledge of limited authority is sufficient cause for enjoining the resale. In any event, if the complaint is sustainable on either ground, the motion must be denied.

I shall consider first the main charge of inducement. The tort of "inducing breach of contract," entitling the aggrieved party to injunctive relief and damages, is of comparatively recent origin. It was not announced as a definitive doctrine until 1853 (Lumley v. Gye, 23 L. J. [Q. B.] 112). It was applied at first only to employment agreements, the tort consisting of enticing away a valuable employee, and then only upon a showing of malice. It has since been extended to a variety of agreements, lost the connotation of "malice", and become established law in England and the great majority of the States of this country.

In this State it was originally held that, absent fraud or malice, inducement to breach of employment contract was not actionable (Ashley v. Dixon, 48 N.Y. 430). Later it was held that recovery for the tort was not to be confined to service contracts but to be deemed applicable to all contracts generally, and further, that malice was no longer an essential element (Posner Co. v. Jackson, 223 N.Y. 325; Lamb v. Cheney & Son, 227 N.Y. 418; Campbell v. Gates, 236 N.Y. 457). In the Campbell decision (supra), in discussing the nature of defendant's wrongful motive to be inferred from his intentional act of inducement, the court said, at page 460, "This does not necessarily mean actual malice or ill-will, but the intentional doing of a wrongful act without legal or social justification. The action is predicated not on the intent to injure, but on the intentional interference, without justification, with A's contractual rights, with knowledge thereof."

The tort itself thus appears to be the product of the conditions of modern industry and has been evolved and developed according to the trend of the influence of ethical standards upon the freedom in business and trade which underlies the competitive struggle in our system of free enterprise. Basically it is a question of "balancing interests", of the limits of one's common-law rights to buy and sell, to engage in competition, when they interfere with the contractual rights of others (Sayre:

"Inducing Breach of Contract", 36 Harv. L. Rev. 663). The tendency has been to extend the doctrine of liability and to broaden its scope to include "all culpable damaging invasions of contract relations" (Carpenter: "Interference with Contract Relations", 41 Harv. L. Rev. 728).

It has accordingly been held that it is not a justification for knowingly procuring a breach of a contract that defendant acted without an improper purpose but only to promote and advance his own economic interests. This principle has been stated and applied in numerous decisions in this country, such as Sorenson v. Chevrolet Motor Co. (171 Minn. 260, 214); R an W Hat Shop v. Sculley (98 Conn. 1); Monte Vista Potato Grower's Co-op. Assn. v. Bond (80 Col. 516), and California Grape Control Bd. v. California Produce Corp. (4 Cal. App. 2d 242). In the last two of this group the situation was somewhat analogous to the case at bar; an outside dealer who induced members of a co-operative marketing association to deal with him and thus violate their contract to market their entire crop with the association, was enjoined.

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