Engine Specialties, Inc. v. Bombardier Limited

• Decision Date: 01 September 1971
• Docket Number: Civ. A. No. 71-16.
• Citation: 330 F. Supp. 762
• Parties: ENGINE SPECIALTIES, INC., Plaintiff, v. BOMBARDIER LIMITED, Defendant.
• Court: U.S. District Court — District of Massachusetts

330 F. Supp. 762

ENGINE SPECIALTIES, INC., Plaintiff, v. BOMBARDIER LIMITED, Defendant.

Civ. A. No. 71-16.

United States District Court, D. Massachusetts.

September 1, 1971.

Robert S. Frank Jr., Thayer, Fremont-Smith, Choate, Hall & Stewart, Boston, Mass., for plaintiff.

George H. Lewald, William L. Patton, Ropes & Gray, Boston, Mass., for defendant.

MEMORANDUM OF DECISION THAT PRELIMINARY INJUNCTION ISSUE

GARRITY, District Judge.

This matter comes before the court on plaintiff's motion for preliminary injunction. Plaintiff's complaint presents two tort claims and alleges violations by defendant of Section 7 of the Clayton Act, 15 U.S.C. § 18, and Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. Jurisdiction is founded upon diversity of citizenship under 28 U.S.C. § 1332 and upon 15 U.S.C. §§ 15 and 26. Affidavits, exhibits and an agreed stipulation of facts were filed, and the court heard oral argument. Memoranda of law have been filed by both parties.

Findings of Fact

1. Plaintiff, Engine Specialties, Inc. (ESI), is a Pennsylvania corporation with its principal place of business in Pennsylvania. At all times relevant to this lawsuit, plaintiff has engaged in the business of distributing recreational vehicles, including light weight motorcycles, mini-bikes, go-carts, scooters and snowmobiles.

2. Defendant, Bombardier Limited, is a Canadian corporation with its principal place of business at Valcourt, Quebec, Canada. Bombardier is the largest manufacturer of snowmobiles in the world, marketing its "Ski-Doo" snowmobile through an extensive distributor and dealer network in the United States and around the world.

3. During the spring of 1967, ESI entered into a written agreement with Agrati-Garelli (Agrati), an Italian corporation, whereby Agrati would manufacture mini-cycles and sell them to ESI for distribution in the United States, Canada and Mexico. ESI distributed these mini-cycles under the trade name "Broncco."

4. On May 20, 1968, ESI and Agrati entered into a further written agreement which provided for the manufacture and sale of "mini-bikes." Paragraph 10 of this agreement stated:

This Agreement shall remain in full force and effect for a minimum period of one year from the date hereof. Thereafter either party hereto shall have the right to terminate this agreement by giving * * * notice at least six (6) months prior to the date of expiration * * *. However, should AGRATI be the party terminating this Agreement * * * then insofar as the 917 "BRONCCO" and the "Mini-Bike" and any and all modifications thereof is concerned, AGRATI agrees that it shall not market, sell or supply, directly or indirectly, for and into the territories of the United States of America, Mexico and Canada the "BRONCCO" for a period of two (2) years and the "MINI-BIKE" for a period of one (1) year, after the date of termination of this contract.

5. On March 26, 1970, ESI and Agrati entered into a new agreement pertaining especially to ESI's obligation under a separate oral agreement to purchase other types of motorcycles not of the sizes and makes involved in this action. The 1970 agreement provided that if a default of the May 20, 1968 contract or of the March 26, 1970 contract should "continue for a period of 20 days, then, without further notice or action on the part of Agrati * * * the 1968 agreement shall terminate and Agrati shall be free to sell, market and supply all its vehicles, parts and equipment to any other parties for and into the * * * United States of America, Mexico and Canada * * * as if the 1968 agreement had never existed."

6. At various times during the course of business dealings between ESI and Agrati, issues arose as to shipping schedules and letters of credit, which might have indicated a default by one party or the other. These issues were amicably settled. In the spring of 1970, Agrati was delayed in its spring shipment due to strikes, difficulties in getting supplies, and a dispute with ESI over payment for certain full-size motorcycles which ESI had purchased. Officers of ESI and Agrati met in Pennsylvania in August 1970 and agreed that ESI's president, Carmen DeLeone, would meet with Agrati in Italy in September for the purpose of renegotiating shipping schedules.

7. Since early 1969, defendant Bombardier has actively investigated the prospect of developing its own mini-bike. On August 12, 1970, a meeting arranged by a neutral attorney named Owen Carter took place between officers of Bombardier and Agrati at defendant's offices in Canada. Possible business arrangements between Bombardier and Agrati were discussed, but no agreement was reached.

8. After an exchange of letters, officers of Bombardier and Agrati met again on September 16, 1970 at Agrati's factory in Italy. Bombardier's representatives offered to buy "Bronco type" mini-bikes for delivery between December 1970 and March 1971. Agrati's president, Antonio Agrati, expressed "much interest," but explained the limitations created by the ESI-Agrati contract. It was then mentioned that ESI's president, DeLeone, was also visiting the Agrati factory. DeLeone was summoned, and Beaudoin, Bombardier's president, expressed an interest "in obtaining his distribution"; Beaudoin also proposed that, in return for the cancelling of its distributorship, ESI would receive, among other things, investment capital from Bombardier. DeLeone heatedly refused. Beaudoin noted in a memorandum of the meeting that after DeLeone left Agrati agreed to send ESI the six-month termination notice and it was agreed that Owen Carter would meet with Agrati's lawyer "to study the means possible to get around the contract and the means available to Bombardier so as to obtain this season delivery of the mini-bikes (or from today to the date of the termination of the contract)."

9. The lawyers and officiers of Bombardier and Agrati met again on September 17. They concluded that after the termination date of Agrati's contract with plaintiff (May 19, 1971), Agrati would be able to sell parts to Bombardier for manufacturing "of mini-bikes or of BRONCO * * *" and that by June 1971 Bombardier and Agrati would form a partnership for this purpose. In the interim, it was decided that Bombardier would put out its own mini-bike, trade-named the FUNDOO.

10. Agrati mailed its termination letter to ESI on September 18.

11. On October 16, 1971 Agrati wrote ESI complaining that ESI had not sent letters of credit with respect to shipments which Agrati proposed to make in September and October and stating that Agrati considered ESI to be in default under the May 1968 agreement.

12. On October 19 an Agrati representative, one Della Croce, telephoned ESI and agreed to change the shipping schedule so that shipments would begin in mid-November.

13. By letter dated October 26, 1970, ESI's president DeLeone wrote Agrati contesting the October 16 default allegation and reciting in support of his position (a) the difficulties created by Agrati's spring shipping problems, (b) the superseding October 19 telephone conversation with Della Croce, and (c) DeLeone's own reading of ESI's purchase obligations under the contract.

14. By telegram sent November 6, Agrati demanded that ESI establish immediately letters of credit to cover shipments scheduled to be made between November 10 and 16.

15. On or about November 7, Bombardier's executive vice-president and counsel, Charles Leblanc, met with Attorney Carter and representatives and lawyers of Agrati, including Della Croce. At this meeting, the default provision in the ESI-Agrati contract was discussed, and the participants also discussed whether ESI had defaulted and whether the October 16 letter from Agrati operated to declare a default.

16. Bombardier and Agrati entered into an agreement on November 14. That agreement was drawn in the following manner: (a) the basic agreement was between Bombardier and a holding company called "Holdings"; (b) Bombardier and "Holdings" agreed to set up a third company as a joint venture for the manufacture and distribution of motorcycles; (c) an unnamed "European Corporation" was to provide both parts and completed vehicles to the newly created company and to Bombardier. Appended to the basic agreement was a statement by Agrati identifying itself as the "European Corporation," accepting the terms of the agreement, and agreeing "to deliver to the `Company' and/or `Bombardier' according to the said agreement, after this date, if and when ordered," mini-cycles and parts. Finally, by letter dated the same day, Bombardier agreed to indemnify Agrati to the extent of one-half of any damages "arising out of a contract dated May 20, 1968 between you and the said ESI."

17. An earlier draft of the Agrati statement appended to and incorporated into the November 14 contract would have provided for delivery of motorcycles to the new company "after May 20, 1971 if and when ordered * * * (save mini-bikes for a period of one year and a mini-bike designated `Broncco' for a period of 2 years from May 20, 1971) * * *." At the specific request of Beaudoin, based on his alleged understanding of Agrati's rights under the default clause, Agrati changed this language in the final agreement to provide for immediate delivery. It would appear that in making this change, Agrati relied on Beaudoin's representations.

18. On November 15, ESI cabled Agrati concerning the letter of credit request of November 6 and seeking to delay shipment for 10-15 days.

19. By letter dated November 25, Agrati declared the 1968 and 1970 agreements immediately terminated, citing ESI's failure to open letters of credit and meet schedules of delivery. Since November 25, 1970 Agrati has refused to make any shipments to ESI, including the shipment of parts.

20. On December 8, 1970 ESI opened a letter of credit respecting the November shipment and so informed Agrati by cable. Agrati cabled in reply that it confirmed its letter of November 25...