Entertainment Publications, Inc. v. Goodman

• Decision Date: 04 October 1999
• Docket Number: No. Civ.A. 98-11689-WGY.,Civ.A. 98-11689-WGY.
• Parties: ENTERTAINMENT PUBLICATIONS, INC., Plaintiff, v. Robert S. GOODMAN, an individual, Pinnacle Enterprises Corp., a Massachusetts corporation, David S. Sigal, an individual, Alan Kawadler, an individual, and John Does 1-100,<SMALL><SUP>1</SUP></SMALL> Defendants.
• Court: U.S. District Court — District of Massachusetts

67 F.Supp.2d 15

ENTERTAINMENT PUBLICATIONS, INC., Plaintiff, v. Robert S. GOODMAN, an individual, Pinnacle Enterprises Corp., a Massachusetts corporation, David S. Sigal, an individual, Alan Kawadler, an individual, and John Does 1-100,¹ Defendants.

No. Civ.A. 98-11689-WGY.

United States District Court, D. Massachusetts.

October 4, 1999.

Shepard M. Remis, Margaret A. Crouse, Goodwin, Procter & Hoar, Boston, MA, for Entertainment Publications, Inc., plaintiff.

Arthur M. White, Bikofsky & White, Framingham, MA, for Robert S., defendant.

Rodney E. Gould, Rubin, Hay & Gould, Framingham, MA, Barry Roberts, Roberts & Hundertmark, Chevy Chase, MD, for David S. Sigal, defendant.

Richard E. Gentilli, Bartlett, Hackett, Feinberg, Gentilli, Boston, MA, for Alan Kawadler, defendant.

MEMORANDUM AND ORDER

YOUNG, Chief Judge.

While the laws of supply and demand are widely regarded as immutable and inexorable, their smooth and effective operation depends in large measure on brokers who match sellers and buyers in myriad ways. This case concerns a broker who has run amok.

Among other activities, the plaintiff here, Entertainment Publications, Inc. ("Entertainment"), prepares and distributes books of discount coupons to corporations as promotional giveaways and to charitable organizations which sell them to consumers who can use the coupons to obtain various discounts on certain goods and services. Both Entertainment and the recipient organizations earn a small profit on such consumer sales. In turn, the entities which supply the discount coupons do so as a marketing device in order to place their goods and services before individual consumers who, by purchasing the discount coupon book, have indicated a willingness to buy. One of the more attractive discounts was provided by Continental Airlines, Inc. ("Continental"), which issued to Entertainment a coupon for reduced fare air travel on Continental. It was essential to Continental's marketing strategy that its coupon get into the hands of a prospective purchaser who had indicated a willingness to buy. Accordingly, Continental's contract with Entertainment prohibited any resale other than to entities who would put the books in the hands of the ultimate consumer, Entertainment's form contracts with the distributing entities contained like restrictions, and Entertainment's coupon books themselves — and the Continental discount coupon in particular — prohibited transfer of the coupon book or the Continental discount coupon. The enforcibility of these provisions is at the heart of this case.

Enter the defendant David S. Sigal ("Sigal"), a "travel consultant" whose business consists of reselling discount airline coupons (in direct contravention of the terms printed thereon) to travel agencies specializing in reduced fare air travel. Sigal began to find his niche in 1992. During that year, Sigal spoke to an Entertainment employee named "Dennis" and inquired about purchasing airline coupons for resale.

"We have excess books," said Dennis. "We're looking to get some revenue from these books."

The excess books, that is, the books returned unsold by the charitable organizations, were sold to Sigal. Sigal next spoke with "Arnie," an Entertainment employee in its San Francisco office, and repeated the same process. Arnie introduced Sigal to a third Entertainment employee named Ron Steel. Steel set up with Sigal a timetable for the purchase of excess coupon books. Steel also warned Sigal not to sell the airline coupons in such books to certain travel agencies.

By August, 1993, Sigal's expanding business brought him into contact with the following Entertainment employees, from all of whom he solicited discount airline coupons or the Entertainment books in which they were found: "Greg" in Salt Lake City; "Carl" in Minneapolis; Ben Johnson in Seattle; and "John" in Kansas City who had no excess books for sale but who referred Sigal to Entertainment's Phoenix office to see if he could make a purchase.

By 1994, however, Entertainment — under pressure from the airlines with which it dealt — began tightening up its own internal procedures. Ron Steel, who had been promoted in the meantime, now told Sigal to purchase excess coupon books only from Entertainment's higher level "distributors." Significantly, Steel never told Sigal he could not resell the coupons to travel agencies apart from those certain agencies that Steel identified earlier.

Nevertheless, Sigal well knew by 1994 that the resale of the discount airline coupons was contrary to the written terms in the coupon books and on the coupons themselves. The resale of discount airline coupons was proving quite lucrative to Sigal, however, and with his supply drying up while demand kept ever growing, he went underground and began buying coupon books surreptitiously, using third parties as intermediaries to disguise the fact that he was the ultimate purchaser. Demand for Sigal's services continued to mount among discount travel agencies. In 1997, Sigal grossed approximately $147,000.00 from his "business" of reselling discount airline coupons to travel agencies who were now pre-selling discounted seats on Continental in reliance on Sigal's efforts. Among the agencies that purchased discount coupons from Sigal during this period were Travel Discounters of Maryland, Air for Less, Call Jaws — defendant in a very similar case, see Continental Airlines, Inc. v. Weiner, CV 99-10334-DT, order denying motion to dismiss (C.D.Cal., March 29, 1999), — Cheap Seats, C.L. Thompson, and Travel Associates in Los Angeles, and the Joseph Stephens Group in San Diego.

Sigal's undercover activities were ultimately revealed in July, 1997, when he engaged in a clandestine agreement with the defendants Goodman and Kawadler to obtain nearly 6,000 discount coupon books which Entertainment thought were destined for an insurance seminar. Instead, the actual destination was revealed when an alert motel manager called the police because he suspected wrongdoing arising out of a number of teenage boys congregating in one of his motel rooms. When a police officer investigated, she found the boys busily extracting the Continental coupons from the Entertainment coupon books and bagging them for resale while watching a pornographic movie ordered for them by Sigal.

The notoriety of this event came to Entertainment's attention and, prodded by Continental, it brought this action in which it now seeks only permanent injunctive relief against Sigal's further resale of its coupon books or any of the Continental coupons.

Sigal makes no real attempt to dispute these findings, instead arguing that the Continental-Entertainment agreement is an illegal restraint on alienation and violates federal statutes and regulations regarding air commerce and safety.

The restraint on alienation argument is next to frivolous. This Court has little hesitancy in ruling that, unless otherwise illegal, the contractual terms may be enforced against those who interfere with the mutually advantageous contractual relationship between Continental and Entertainment.

In a final effort to escape liability, however, Sigal argues that the contract is unenforceable because it is illegal. This argument is far from frivolous.

A contract that violates state or federal law is void and unenforceable as against public policy. See, e.g., Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 77, 102 S.Ct. 851, 70 L.Ed.2d 833 (1982); Kiely v. Raytheon Co., 105 F.3d 734, 736 (1st Cir. 1997). The burden of establishing illegality is on the defendant. See Town Planning & Eng'g Assoc. Inc. v. Amesbury Specialty Co. Inc., 369 Mass. 737, 744, 342 N.E.2d 706 (1976).

The threshold issue in an illegality analysis is whether the contract calls for illegal conduct. See Kaiser Steel, 455 U.S. at 83, 102 S.Ct. 851; Hastings Assocs., Inc. v. Local 369 Bldg. Fund, Inc., 42 Mass.App.Ct. 162, 175, 675 N.E.2d 403 (1997). Illegality per se, however, does not automatically render the contract unenforceable. See Starr v. J. Abrams Constr. Co. Inc., 16 Mass.App.Ct. 74, 78-79, 448 N.E.2d 1311 (1983). Rather, the Court must determine whether recovery may be had upon the illegal contract in light of all relevant circumstances. See United States v. Mississippi Valley Generating Co., 364 U.S. 520, 563, 81 S.Ct. 294, 5 L.Ed.2d 268 (1961); Town Planning & Eng'g Assoc., 369 Mass. at 745, 342 N.E.2d 706.

Sigal contends that the contract violates federal statutes and regulations regarding air commerce and safety.² The statutory framework, 49 U.S.C. § § 40101-46316 (1998), requires air carriers to file with the Secretary of Transportation ("the Secretary") and keep open to the public "tariffs showing the prices for foreign air transportation...." 49 U.S.C. § 41504(a).³ In addition to price information, the tariff must contain "other information the Secretary requires by regulation." Id. at § 41504(a)(1)(C).⁴ The Secretary may reject a tariff that is inconsistent with these requirements. See id. at § 41504(c). A tariff that has been rejected is void. See id.

After filing tariffs, an air carrier must maintain prices and policies consistent with the information contained in the tariffs. The carrier may not:

(1) charge or receive compensation for foreign air transportation that is different from the price specified in the tariff of the carrier that is in effect for that transportation;

(2) refund or remit any part of the price specified in the tariff; or

(3) extend to any person a privilege or facility, related to a matter required by the Secretary of Transportation to be specified in a tariff for foreign air transportation, except as specified in the tariff.

Id. at § 41510(a).⁵

The Continental coupons at issue in this case provide discounts to passengers for both domestic and international travel. Thus, as Sigal argues, the coupon program must conform to the tariff requirements for foreign air travel as set forth in 49 U.S.C. §§ 41504 & 4...