Dictiomatic, Inc. v. U.S. Fid. & Guar. Co., 93-2123-CIV.

• Decision Date: 21 January 1997
• Docket Number: No. 94-1692-Civ.,No. 93-2123-CIV.,93-2123-CIV.,94-1692-Civ.
• Court: U.S. District Court — Southern District of Florida
• Parties: DICTIOMATIC, INC., a Florida corporation, and Domingo Linale, an individual, Plaintiffs, v. UNITED STATES FIDELITY & GUARANTY COMPANY, a Maryland corporation, Defendant.

958 F.Supp. 594

DICTIOMATIC, INC., a Florida corporation, and Domingo Linale, an individual, Plaintiffs, v. UNITED STATES FIDELITY & GUARANTY COMPANY, a Maryland corporation, Defendant.

No. 93-2123-CIV.

No. 94-1692-Civ.

United States District Court, S.D. Florida, West Palm Beach Division.

January 21, 1997.

John J. Pappas, Butler, Burnette & Pappas, Tampa, FL, for defendant.

Joseph R. Buchanan, Wampler, Buchanan & Breen, Miami, FL, for plaintiff.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

PAINE, District Judge.

Jurisdiction

This court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332 and 28 U.S.C. § 2201.

Background

Prior to trial, this court bifurcated the bad faith and fraud claims from the breach of contract claims. Thereafter, Dictiomatic's Breach of Contract claims in Case No. 93-2123 (Count I and II) and USF & G's Declaratory Judgment Action in Case No. 94-1692 were tried before the court from December 2, 1996 through December 13, 1996. Upon consideration of all of the evidence presented in the Plaintiff's case in chief, as well as the applicable authority, pursuant to Federal Rule of Civil Procedure 52(c), the court concluded at the end of Plaintiff's case in chief that the Plaintiff failed to carry its burden of proof by a preponderance of the evidence that Dictiomatic incurred expenses or suffered actual loss of business income during any of the proposed restoration periods¹ as a result of the suspension of operations due to Hurricane Andrew. Pursuant to Rule 52(c), the court enters the following Findings of Fact and Conclusions of Law in support of its ore tenus ruling. Because the court found that Plaintiff failed to carry its burden of proof, the court makes no further findings of fact as to any of the Defendant's affirmative defenses, including the defense of fraud.

FINDINGS OF FACT

1. Dictiomatic, which was incorporated in 1987, was a developer of consumer electronic products. Domingo Linale ("Linale") was the founder, president and sole shareholder of the company.

2. From June, 1989 to 1991, Dictiomatic enjoyed economic success with the development and sale of its Hexaglot T-427 translator product, a hand held unit that offered cross translation of words into six different languages. From 1989-1991, over 120,000 T-427 units were sold through distributors in markets outside of the United States, mostly in Europe.

3. In 1990, Dictiomatic began developing its second generation of hand-held multilingual electronic translators, the Hexaglot T-150. The T-150 offered translation of five basic languages (English, Spanish, French, German, and Italian) and one additional language as selected by distributors to open up new markets, from among Turkish, Icelandic, Portuguese, Swedish or Hungarian. Approximately 80,000 T-150 units were sold in 1990 and 1991.²

4. In late 1990 and early 1991, Dictiomatic began development of its third generation of hand-held electronic translators, the T-1200 and T-1500. Because Dictiomatic sold the right to use the name "Hexaglot," the T-1200 and T-1500 products did not carry the same name as Dictiomatic's prior successful products. Further unlike the prior products, the T-1200 and T-1500 were the first generation of talking translators. In addition to providing translation of a word in writing, the user heard the word or phrase pronounced via a built in speaker. The in-court demonstration of the product revealed that the sound quality of the speaker was poor and that the pronunciation was not clearly discernible. The T-1200 was an English to Japanese translator. The T-1500 series contained the T-1501 which included English, French, and Spanish; the T-1502 which included English, French and Italian, and the T-1503 which included English, French and German. These products had a retail list price of $199. Like the prior Dictiomatic products, the T-1200 and T-1500 products were manufactured by Singatronics, Ltd. of Singapore. In the Fall of 1991, Singatronics manufactured 20,000 of these products.

5. At a consumer electronics show in the Fall of 1991, Linale learned that the distributors to whom he presented the T-1200 and T-1500 series product for sale in Europe and Latin America were unhappy with it. It was not a six language translator as Linale had promised when he presented a preliminary proof of concept at a prior show in January, 1990. The distributors also concluded that the product, which contained only 2,700 words per language, was not sufficient to serve educational needs. Because the buyers had no confidence in their ability to sell the T-1200 and T-1500 products, they did not want to buy the product which Dictiomatic had already developed and manufactured. Accordingly, the method of distribution and sale previously employed by Dictiomatic to sell its Hexaglot T-427 and T-150 products was not successful. By mid-1992, Dictiomatic had approximately 17,000 T-1200 and T-1500 units stored at Singatronics and was incurring monthly interest charges thereon. All of Dictiomatic's projections of sales for the T-1200 and T-1500 from the time it was introduced through August, 1992, were wrong and, due solely to the lack of demand for the product at the stated price, the anticipated sales of this product were never realized during the period through August 24, 1992.

6. Due to only minimal sales of the T-1200 and T-1500 and the debt from the product development and storage of the unsold products, by mid-1992, Dictiomatic was not receiving any business income and only minimal revenue from sales. In fact, in order to pay operating expenses and overhead, Dictiomatic was relying on capital investments from Warren M. Ross, a business man from New Jersey who, in reliance upon Linale's projections of sales, invested $100,000 in Dictiomatic through August, 1992 in order to keep Dictiomatic operating.

7. Dictiomatic admits that there was never a proven successful market for the T-1200/1500. It had more than 17,000 T-1200/1500 talking translators in inventory and ready for sale for more than ten (10) months before Hurricane Andrew occurred, and Dictiomatic admits that its sales prior to August 24, 1992 were minimal; supply outweighed demand for the product. Dictiomatic admits that the market simply was not interested in purchasing its T-1200/1500 talking translators from October 1991 through August 23, 1992 (the day before Hurricane Andrew hit). In the summer of 1992, in an attempt to move the T-1200 and T-1500 products which were largely rejected by the intended European market, from Singatronics, Dictiomatic decided to target the sale of this disappointing product to American overseas travelers at the time they purchased their ticket to travel. Having decided that the most direct form of marketing the product to this consumer market was through travel agencies and computer on-line reservation systems, Dictiomatic was, at the time of the Hurricane, implementing a new way of marketing its only product, the T-1200/1500 talking translators. Dictiomatic hoped that the new marketing system would have resulted in substantial sales before December 31, 1992. Dictiomatic's new marketing plan consisted of a combination of advertisements in newspapers, trade journals, an endorsement by the American Society of Travel Agents (ASTA), and a program instituted with travel agencies and their travel agents throughout the United States where these agents could receive a $40 commission for each sale of a T-1200/1500 talking translator to a traveler they persuaded to buy over the telephone, and an on-line computer reservation system where such sales could be communicated to Dictiomatic. Additionally, prior to the Hurricane, Dictiomatic sought and ultimately received the endorsement of ASTA, another element in its planned implementation of the new marketing scheme. There was no evidence presented that such an endorsement indicated any kind of quality evaluation of the product or any kind of prediction of likelihood of sales. In preparation for the ASTA convention in September, 1992, Dictiomatic had prepared artwork for display at the convention in an attempt to decorate its display booth and attract people to examine the product. Although Dictiomatic hoped and projected that the new marketing system would create sales of the T-1200 and T-1500 products, there was no competent corroborative evidence presented that this type of telephone marketing system was ever successful in selling high-priced electronic products. On August 10, 1992, the first of these reservation systems was installed. The second reservation system was to be installed on August 24, 1992.

8. While the Plaintiff presented evidence through Linale that Dictiomatic's future research and development of new products was dependant upon the revenue expected to be realized from the sales of the T-1200 and T-1500 products to the newly targeted American overseas traveler, the court finds that such profits were far too speculative and not sufficiently established to make this a reasonable expectation. First of all, at the time the new marketing strategy was implemented, the T-1200 and T-1500 products were not new products. The Plaintiff's own evidence established that the shelf-life of even new technology is limited. Second, this product was proven to be a poor seller even at the time of its advent. Third, although the exact cost of the product was between $91 and $150,³ in order to effect the new promotional scheme, Dictiomatic was selling many of the few products it actually sold at an amount at or under the actual cost of the product, with the hope that this loss-leader would generate future sales. In addition, the payment of commission to the selling agent further eroded the expected profits from the T-1200 and T-1500 products, thereby making it less likely that Dictiomatic would realize significant profits, even in the event this alternate marketing scheme was successful. Accordingly, to the extent that Dictiomatic's...