Congress Factors v. Malden Mills Incorporated

• Decision Date: 04 October 1971
• Docket Number: Civ. No. 1073-69.
• Citation: 332 F. Supp. 1384
• Parties: CONGRESS FACTORS, a Pennsylvania Corporation, Plaintiff, v. MALDEN MILLS INCORPORATED, a Massachusetts Corporation, Defendant.
• Court: U.S. District Court — District of New Jersey

332 F. Supp. 1384

CONGRESS FACTORS, a Pennsylvania Corporation, Plaintiff, v. MALDEN MILLS INCORPORATED, a Massachusetts Corporation, Defendant.

Civ. No. 1073-69.

United States District Court, D. New Jersey.

October 4, 1971.

Cole, Berman & Belsky by Bernard L. Belsky, Paterson, N. J., for plaintiff.

Lasser, Lasser, Sarokin & Hochman by H. Lee Sarokin, Newark, N. J., for defendant.

MEMORANDUM OPINION

LACEY, District Judge:

Congress Factors, a Pennsylvania corporation (Congress), sues for alleged breach of its written factoring agreement with American Velour Mills, Inc., a New Jersey corporation (American); and it claims as damages commissions it would have earned had American's accounts receivable been factored with it between November 30, 1968, and June 29, 1969.¹ Jurisdiction lies under 28 U.S.C. § 1332.

Malden Mills Incorporated, a Massachusetts corporation (Malden), is the named defendant because of its written agreement guarantying American's obligations under the aforesaid factoring agreement.

The principal issues are whether the factoring agreement was orally terminated; and whether the plaintiff's conduct, in November, 1968, and thereafter, estops it from prevailing on its claim.

A non-jury trial was had herein on September 22, 1971. This Memorandum Opinion will first detail the testimony. Thereafter, in opinion form, Findings of Fact and Conclusions of Law will be set forth, pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.

THE TESTIMONY

On June 29, 1967, Congress and American entered into a factoring agreement, under which Congress was to factor all of American's accounts receivables, for a term of one year, with an automatic renewal each year unless either party gave written notice of termination to the other party on or before sixty (60) days prior to the expiration date in any year.

At or about the time of the signing of the factoring agreement, American was merged into the defendant Malden; and Malden assumed liability for American's contractual obligations and liabilities and guaranteed American's performance under the aforesaid factoring agreement.

Harmony prevailed until November 30, 1968. Thereafter, American receivables went not to Congress, but to another company. Defendant contends that this change was with the knowledge and consent of Congress and followed an oral agreement terminating the factoring agreement. Plaintiff not only denies oral termination; it also maintains that New York law (which the parties agree applies) bars oral termination under the instant circumstances.

It is noted that the defendant, notwithstanding its assertion of the oral agreement, and presumably out of an abundance of caution, did by letter of April 18, 1969, formally terminate the factoring agreement pursuant to its terms.

Turning to the events which generated the dispute, the principals therein were the litigants' presidents, Mr. Goldman of Congress and Mr. Feuerstein of Malden, each of whom testified as the sole witness for his side. In substantial part their testimony was similar, or at least, reconcilable: That American had been or was being merged out of existence; that Malden, the surviving entity, had arranged for a $4 million loan from Boston First National Bank; that the Boston bank had demanded all of Malden's factoring business for its own factoring house; that Malden management had succeeded in having the American receivables excepted from this demand; that, out of a long standing friendship and business relationship, Aaron Feuerstein's father, obviously a strong force in Malden, wanted the American factoring business to go to another factor, Meinhard Commercial; and that it was to discuss these matters that Mr. Feuerstein initiated certain telephone conversations and conferences with Mr. Goldman.

The critical meetings were in November, 1968. Aaron Feuerstein met twice with Robert Goldman and the latter's father, once at lunch and thereafter on another day, in Congress' office.² These meetings were preceded, and possibly arranged by, a telephone call from Aaron Feuerstein to Robert Goldman, memorialized by Mr. Goldman in his file as follows (Ex. P-4):

Aaron Feuerstein called to ask if he could draw down the full amount of his credit balance with us, to which the writer agreed. He went on to say that Malden Mills is working out a banking relationship with First National Bank of Boston in conjunction with their present arrangement with New England Merchants. He mentioned that there is considerable pressure by First of Boston to pull the factoring business out of Meinhard and Congress and bring it into their own company. * * *

Mr. Goldman, in testifying, denied that Mr. Feuerstein had ever asked him, or that he had ever volunteered, to terminate the factoring agreement. While maintaining that termination had never been discussed, Mr. Goldman acknowledged that it was an "obvious implication that Feuerstein was contemplating termination." Mr. Feuerstein stated that termination was discussed in these terms: That because of his father, he had no alternative other than to attempt to obtain the Goldmans' consent to terminate the factoring agreement; that Robert Goldman said "he had no intention" of insisting upon literal compliance with the termination clause of their agreement,³ that he was "not that kind of a factor," that, the decision having been made, "it is wiser to terminate," that Mr. Feuerstein "should go forward immediately with the transfer," and that the attorneys "could work out the documents." Mr. Feuerstein then asked what "immediately" meant; and Mr. Goldman answered "tomorrow." On this note, the meeting ended.

Mr. Goldman testified that, even following their last meeting, he had no basis for believing Congress would after November 30, 1968, receive no more American receivables. He discovered in December, 1968, "when someone told him," that such was the case, and he then "assumed" the receivables were going to another factor. He spoke with Mr. Feuerstein on January 10, 1969, a conversation again preserved by a file memorandum (Ex. P-5):

Called Aaron Feuerstein inasmuch as our $400,000.00 real estate mortgage has not been paid off even though we stopped getting factored sales at the end of November. Feuerstein apologized for the delay and promised to get on to it promptly so that it will be cleared up in the next couple of weeks. In the meantime, Feuerstein once again promised that the next factoring business that is available out of the Malden complex will come our way.⁴

Mr. Goldman stated, concerning this conversation, his concern about the unpaid mortgage, which was "tied in" to the factoring agreement: "* * * we cross collateralize them;" and he added that the loan came due when "the account receivables terminate."⁵

Mr. Goldman again raised the question of the $400,000 loan, in a call to Mr. Langerman, counsel for Malden, on February 7, 1969. His file memorandum reads (Ex. P-6):

Spoke to Dick Langerman, attorney for Malden Mills and American Velour Mills, and advised him that if there is a substantially greater delay in cleaning up our fixed asset loan on American Velour Mills, that we will make demand for the factoring commissions being lost since we last got American Velour Mills sales. Langerman assured us that the loan will be paid off by the end of next week.

The $400,000 loan was paid in full in June, 1969.

Malden, following the November, 1968, Goldman-Feuerstein meetings, and, according to Mr. Feuerstein, as a result of Mr. Goldman's consent, transferred the American factoring business to Meinhard Commercial.

Malden's transferring of American's receivables was not evident immediately to Congress' top management because American's business was a relatively insignificant part of Congress' total volume of factored receivables. In fact, loss of the American business resulted in neither layoffs nor diminution of overhead costs at Congress. Of course, the corollary is true: Congress produced no proofs that it had been necessary to hire extra personnel or assume added costs, when it took on the American account; and thus there was no consequential loss to it when American's factoring ended. Plaintiff claimed as damages, therefore, the full amount of its lost commissions, without any deduction for handling expenses.

Following the second of the two November meetings, Mr. Feuerstein testified, he called company counsel, Mr. Langerman, to tell him Mr. Goldman had agreed to termination. Mr. Langerman wanted to confirm this in writing; however, Mr. Feuerstein directed otherwise because Mr. Goldman "had been a gentleman" and to have written him on this would, in Mr. Feuerstein's judgment, "have been insulting to Mr. Goldman."

The foregoing testimony must be construed in the light of a provision in the factoring agreement (¶ 15) that the agreement "shall be construed according to and be governed by the laws of the State of New York."

FINDINGS OF FACT AND CONCLUSIONS OF LAW

I

A court, in a bench trial, functioning as a trier of the facts, often must resolve conflicting testimony.⁶ Such is the case here. The unpleasant task of determining where the truth lies as between the Feuerstein and Goldman versions of their two conferences is unavoidable.

Both men were highly intelligent, articulate and poised. Mindful during their testimony of my ultimate duty of fact finding, I scrutinized carefully and searchingly not only what they said, but how they said it. I shall not enumerate here the tests for ascertaining credibility which courts can and do apply.⁷ Suffice it to say that, using these traditional tests, I have concluded that I must reject that version offered by Mr. Goldman, and accept that offered by Mr. Feuerstein.

In addition to the Court's subjective reaction to the witnesses' demeanor, the nature of their response to the same question when put first on direct and later on cross examination, their bearing on the witness stand, and the general...