Efco Importers v. Halsobrunn

• Decision Date: 22 October 1980
• Docket Number: Civ. A. No. 80-1728.
• Citation: 500 F. Supp. 152
• Parties: EFCO IMPORTERS v. Ab Ramlosa HALSOBRUNN.
• Court: U.S. District Court — Eastern District of Pennsylvania

500 F. Supp. 152

EFCO IMPORTERS v. Ab Ramlosa HALSOBRUNN.

Civ. A. No. 80-1728.

United States District Court, E. D. Pennsylvania.

October 22, 1980.

LeRoy E. Perper, James J. Donohue, Brent S. Gorey, White & Williams, Philadelphia, Pa., for plaintiff.

Theodore R. Mann, Barry E. Ungar, Philadelphia, Pa., Larry H. Spector, New York City, Mann & Ungar, Philadelphia, Pa., Demov, Morris, Levin & Shein, New York City, for defendant.

OPINION

JOSEPH S. LORD, III, Chief Judge.

I. INTRODUCTION

This is a contract action to recover damages for alleged violations of a distribution agreement. Pursuant to Fed.R.Civ.P. 12(b)(6), defendant has moved to dismiss the complaint for failure to state a claim upon which relief can be granted. For the reasons which follow, defendant's motion is granted.

II. FACTS

On April 10, 1970, defendant named plaintiff as his exclusive sales agent for the United States to sell and distribute Ramlosa Mineral Water. Complaint, ¶ 7. This agreement was to run for five years. Id. at ¶ 8. The contract had an automatic renewal clause; unless notice of intent not to renew was given one year or more before the end of the five year period the contract was automatically renewed for another five year period. On March 18, 1974, defendant wrote plaintiff and stated that it intended to cancel the agreement on the date of the expiration, April 10, 1975. Id. at ¶ 9. This letter, of course, was written more than one year before the date of expiration.

During the final year of the contract, the parties negotiated regarding a new agreement. In September 1974, defendant delivered a draft of a new agreement to plaintiff. Id. at ¶ 10. The draft proposed that plaintiff would be exclusive sales agent for the sale and distribution of Ramlosa Mineral Water solely in Pennsylvania. However, this was not agreeable to plaintiff because it desired to be the exclusive sales agent for the entire United States, and not just Pennsylvania. During the ensuing months the parties continued to discuss a new agreement, exchanging proposals and counterproposals. Id. at ¶¶ 11-14. Apparently negotiations came to a halt in May, 1975, for it was at that time that plaintiff expressly rejected defendant's proposed agreement. Id. at ¶ 15.

In February, 1978, defendant once again offered plaintiff the exclusive sales agency for Ramlosa Mineral Water in Pennsylvania. Id. at ¶ 16. This precipitated an exchange of letters, id. at ¶¶ 17-22, none of which, however, directly dealt with the new proposal. Thus in March, 1978, plaintiff reminded defendant that both parties had been operating since 1975 under the terms of the original 1970 agreement. Id. at ¶ 17. Defendant responded apparently by offering yet another draft proposal. In June and October of 1978, defendant informed plaintiff that it had been directly shipping its product to other distributors throughout the United States. Id. at ¶ 19.

Such information should not have caught plaintiff off guard, for it is consistent with the September, 1974 draft agreement in which defendant informed plaintiff that after expiration of the initial five year period he could be the exclusive sales agent for Pennsylvania only. Indeed all proposals offered an exclusive agency for Pennsylvania alone. Id. at ¶¶ 13-16. Finally, in December, 1978, defendant informed plaintiff that the Pennsylvania market could no longer be reserved for it in light of the fact that plaintiff had never accepted the exclusive sales agency for Pennsylvania which defendant had continually offered. Id. at ¶ 21. Negotiations remained alive, however, for defendant did propose a special two year commission policy. Id. Plaintiff did not respond. Finally, in April, 1979, defendant wrote plaintiff informing it that an agreement had been reached with the Joseph Schlitz Brewing Company for the exclusive distribution of Ramlosa Mineral Water throughout the United States. Defendant told plaintiff that it could buy Ramlosa Mineral Water from Schlitz. Id. at ¶ 22.

Plaintiff asserts three counts in its complaint. First, it alleges a breach of contract. It argues that the agreement of April 10, 1970 continued to govern the rights and obligations of the parties; therefore defendant's sale of products to other distributors, in June and September, 1978, constituted a breach of this agreement. Second, under equitable principles, plaintiff alleges that even if the contract did terminate in 1975, it is entitled to restitution and reimbursement for expenses incurred in connection with its distribution of defendant's product. Third, plaintiff alleges tortious interference with contractual relations.

III. DISCUSSION

A. Breach of Contract Count

Plaintiff's breach of contract count assumes that defendant did not effectively terminate the original April 10, 1970 agreement. Rather, plaintiff argues, this original agreement "continues to govern the rights and obligations of the parties," id. at ¶ 26, despite defendant's clear written notice of his intention to terminate.

Notice of intent to terminate a contract "must be clear and unambiguous, and where the conduct of one having the right to terminate is ambiguous, he will be deemed not to have terminated the contract." Maloney v. Madrid Motor Corp., 385 Pa. 224, 228, 122 A.2d 694, 696 (1956). Plaintiff argues that defendant's termination notice was rendered ineffective because the parties continued to act in accordance with the terms of the exclusive distribution agreement after the date of intended cancellation. Thus, plaintiff contends, the original five year contract was automatically renewed for an additional five year term.

The Maloney case is controlling. Indeed the facts in the present case are less favorable to a finding of "ambiguous" conduct.

Maloney was an action in assumpsit by a former employee against his employer to recover commissions allegedly due under an employment contract. The contract was to run for five years, but it would be automatically renewed for one year periods until either party gave ninety days written notice of intention to terminate. Four months before the expiration of the original five year term, defendant-employer wrote plaintiff-employee:

"In accordance with the agreement which we made several years ago, we do not wish to continue this agreement, in the future, when it expires next September. As you probably know, we have done considerably better under our arrangements with you than we agreed in the agreement and, of course, would like the privilege of doing that again. However, I do think that we should try to arrive at your compensation a little differently than provided for in this agreement, and I think you will agree with us in that respect. This is merely a notice as called for under the agreement, but we do not wish to renew it."

Id. at 226, 122 A.2d at 695. Some weeks after plaintiff received this notice, defendant orally stated that, "`"we will continue on just the same."'" Id. Plaintiff therefore continued in defendant's employ. For two years the parties periodically discussed a different method of compensation. But they never reached a final agreement. In the meantime, however, plaintiff received his same salary and, for four months, he also received commissions as provided in the contract. When defendant stopped paying these commissions, plaintiff brought suit, alleging that the notice of termination was insufficient or, alternatively, that the subsequent conduct of the parties nullified the notice. The Pennsylvania Supreme Court disagreed and held that defendant's termination notice was clear. Moreover, stated the court, "there was no evidence from which a nullification or a retraction of the notice could be inferred." Id. at 229, 122 A.2d at 696. Therefore, although the parties continued on the same basis, "since the offer to continue `under the same basis' did not specify a definite time or prescribe conditions which would determine the duration of the relation, the contract is presumed to be terminable by either party at will." Id.

In the present case, plaintiff admits that the March 18, 1974 letter of termination was clear. Complaint, ¶ 9. The letter did qualify this termination notice, for it explained that "the agreement needed rewriting on several points." Id. This perhaps suggested that the old contract simply needed some retouching. But this is not significant: the termination letter in Maloney likewise noted that things should be done "a little differently."

In Maloney, after the original contract's term ran out, the parties acted as if it still controlled. This lasted for approximately four months. In the instant case, the parties also acted as if the contract still controlled. This lasted for approximately three years. It is immaterial that this is a longer time period, for in the instant case defendant continually stated-and insisted-that the original agreement needed modification; this occurred both before the original contract ran out, see Complaint, ¶¶ 10 & 11, and afterwards, see id. at ¶¶ 14, 16 & 22. Thus any reliance on plaintiff's part caused by this longer passage of time is irrelevant, for defendant's dissatisfaction with the original contract had been repeatedly communicated.

Maloney, then, demonstrates that post-termination behavior identical with pre-termination behavior is an insufficient basis to support an automatic renewal of a contract-assuming communication of a clear notice to terminate. Maloney goes further, however, for plaintiff had been orally assured that, notwithstanding the written termination notice, things would "continue on just the same." Despite such an unambiguous expression of intent to continue under the contract, the court relied on the formal termination notice. By contrast, in the present case, plaintiff did not receive such "conflicting signals." Rather, defendant consistently manifested expressions of dissatisfaction-both before and after the notice of termination. It is therefore quite...