Gemco Latinoamerica, Inc. v. Seiko Time Corp.

• Decision Date: 14 October 1987
• Docket Number: No. 86 Civ. 6329 (WK).,86 Civ. 6329 (WK).
• Citation: 671 F. Supp. 972
• Parties: GEMCO LATINOAMERICA, INC., Plaintiff, v. SEIKO TIME CORPORATION, Hattori Seiko Co., Ltd., and Hattori Corporation of America, Defendants.
• Court: U.S. District Court — Southern District of New York

671 F. Supp. 972

GEMCO LATINOAMERICA, INC., Plaintiff, v. SEIKO TIME CORPORATION, Hattori Seiko Co., Ltd., and Hattori Corporation of America, Defendants.

No. 86 Civ. 6329 (WK).

United States District Court, S.D. New York.

October 14, 1987.

James D. Fornari, Jarblum, Solomon & Fornari, P.C., New York City, for plaintiff.

John M. Newell, Whitman & Ransom, New York City, for defendants.

MEMORANDUM & ORDER

WHITMAN KNAPP, District Judge.

Plaintiff Gemco Latinoamerica ("Gemco"), which served from 1974 to 1986 as the exclusive distributor in Puerto Rico of Seiko brand watches and clocks imported by defendant Seiko Time Corporation ("Seiko Time"), alleges that Seiko Time and its corporate parent Hattori Corporation of America ("Hattori-U.S."), and grandparent, Hattori Seiko Company ("Hattori-Japan") engaged in unfair competition and violated antitrust laws as well as Puerto Rico's Law 75 ("Law 75"), 10 L.P.R.A. § 278 et seq., which protects distributors from wrongful termination of distribution agreements by their suppliers. Defendants move to dismiss the Amended Complaint on the ground that Gemco's claims are barred by a prior arbitration award, or in the alternative for summary judgment. Finally, again in the alternative, Hattori-Japan seeks a dismissal for lack of personal jurisdiction. Both sides move for sanctions.

For the reasons stated below, we dismiss all claims against Seiko Time, but only the breach of contract claims against Hattori-U.S. and Hattori-Japan. We invite further briefing on defendants' motions for alternative relief, and reserve decision on the requests for sanctions.

FACTS

Hattori-Japan, a Japanese corporation, markets an array of products, including Seiko brand watches and clocks. It is a trading company, not a manufacturer (Affirmation of Ronald N. Rutolo ¶ 4). Its subsidiary, Hattori-U.S., functions both as a holding company performing cash management services for its subsidiaries, and as a diversified operating company which sells, services, markets and distributes watches, clocks, optical lenses and consumer electronics (Rutolo Aff. ¶ 5). Seiko Time, a wholly owned subsidiary of Hattori-U.S., purchases Seiko brand watches and clocks from Hattori-Japan. Seiko Time sells these products through distributors in the United States, including Puerto Rico.

For purposes of this motion to dismiss, we must accept as true the factual allegations of the Amended Complaint. We here summarize those allegations. Needless to say, we express no view as to the accuracy or reliability of any of them.

On October 13, 1974, Seiko Time appointed plaintiff Gemco as the exclusive distributor of Seiko products in Puerto Rico. The agreement, by its terms, expired on March 31, 1976, but was extended by further written agreement to March 31, 1978. Although no subsequent extensions were executed, the parties continued their relationship.

One of the contractual terms of the relationship was that Gemco would be assigned a yearly quota of Seiko products to sell. Gemco's quota gradually increased, reaching over 140,000 units for 1985. With the defendants' encouragement, Gemco purchased a new building to house a modern computerized distribution center as well as a new computer system specifically designed for the sale of Seiko products. Defendants then allegedly embarked upon a course of conduct designed to take Gemco out of the market.

Beginning in 1980, defendants caused similar quality and grade Seiko products to be shipped into Puerto Rico by other distributors. These parallel imports, also called "gray market" goods, sold at prices lower than the cost of the watches Gemco purchased from Seiko Time and had a dramatic effect on Gemco's sales, reducing the number of its retail accounts from 350 in 1978 to less than 15 in 1985. To compensate for the losses suffered due to the competing gray market goods, Gemco began selling to catalogue showrooms in the mainland United States. Seiko Time objected to these sales because the showrooms discounted suggested retail prices by 20 to 25 percent. In retaliation for defying Seiko Time's prohibition of sales outside of Puerto Rico and to catalogue showrooms, defendants threatened to terminate Gemco as a distributor and used other means — including failing to ship, delaying or cutting back orders — to pressure Gemco into changing its practices.

In 1985, defendants, in conjunction with Seiko distributors, modified their policy concerning catalogue showrooms in a manner allegedly designed to injure Gemco. Seiko Time announced that sales would be authorized to two lucrative showroom accounts which had previously purchased a substantial volume of goods from Gemco. At the same time, the new policy provided that distributors could sell only to catalogue showrooms in their own assigned territories. Since the two showrooms in question had no outlets in Gemco's assigned territory of Puerto Rico, Gemco was precluded from pursuing the market which it had created and serviced.

In early 1985, Seiko Time reduced Gemco's annual quota of watches and clocks from 140,000 units to 50,000 units. At that point, Gemco had already sold 40,000 units, which left only 10,000 units available for the remainder of the year. Due to this restricted supply, Gemco was forced to turn down confirmed purchase orders and decline new accounts. As a further result, Gemco suffered cash flow problems which rendered it unable to pay its debts to Seiko. Defendants have ceased further shipments of products to Gemco and have told Gemco's remaining customers not to purchase any Seiko products from Gemco.

The Amended Complaint does not distinguish between the actions of specific defendants, but refers to them always as a unit. The theory of the Amended Complaint is that "Hattori-Japan, Hattori-U.S. and Seiko Time operate as one entity in their dealings with Gemco and in all matters relevant to this action. Hattori-Japan and Hattori-U.S. are responsible for the acts of Seiko Time." Amended Complaint ¶ 11.

Procedural History

On September 17, 1985, Seiko Time filed a demand for arbitration against Gemco for goods sold and delivered in the amount of $2.85 million. Gemco's answer in the arbitration asserted, upon identical factual allegations, four affirmative defenses and six counterclaims against the present defendants for breach of contract, breach of duty to deal in good faith and violation of Puerto Rico's Law 75. Hattori-U.S. and Hattori-Japan objected to participating in the arbitration on the ground that they were not signatories to the Distribution Agreement between Gemco and Seiko Time. Gemco then moved to compel Hattori-U.S. and Hattori-Japan to join in the arbitration under the theory that Seiko was their alter ego. By Memorandum and Order dated February 26, 1986, we declined to pierce the corporate veil and dismissed Gemco's petition. In the Matter of the Petition of Gemco Latinoamerica, Inc. for an Order Directing Hattori Seiko, Ltd. and Hattori Corporation of America to Proceed to Arbitration, 86 Civ. 307 (WK).¹

The arbitration commenced in February 1986 and concluded in October 1986 after six day-long hearing sessions. Seiko Time's claim occupied only the first session; the remaining hearing days were devoted to Gemco's counterclaims and affirmative defenses. The arbitrators made no factual findings, but substantially awarded Seiko Time all the relief it had demanded, granting it approximately $2.85 million plus interest for goods sold and delivered; and dismissed Gemco's counterclaims on the merits. The award was confirmed by Judge Lasker and judgment upon it was entered, without opposition from Gemco. Seiko Time has since registered the judgment in Puerto Rico and begun execution proceedings.

The Issues Before the Arbitrators

In its opening brief before the arbitrators (Def. Ex. 8 at pages 1-2), Gemco framed the issues as follows:

This case centers on conduct by Seiko in early 1985, when Seiko abruptly made it impossible for Gemco to operate profitably. In March 1985, Seiko suddenly cut Gemco's quota for the year by almost two-thirds, from 140,000 to 50,000 units, leaving Gemco (which had already ordered and resold a large part of the 140,000 unit quota) unable to meet the needs of its customers for the remainder of the year. This cutback occurred before, and was the cause of, Gemco's failure to make a $2.8 million payment to Seiko in July 1985.

The apparent motive for Seiko's 1985 cutback was Gemco's refusal to obey a Seiko policy which Seiko had no right to enforce — a policy prohibiting Gemco, and other Seiko distributors, from selling outside their prescribed territories. We will demonstrate that, in punishing Gemco for violating this policy, Seiko violated Gemco's statutory and contractual rights.

Gemco argued that the cutback of shipments to Gemco in March-June 1985 without just cause violated both Law 75 and the contract between the parties. Id. at 18.

In its post-arbitration Memorandum dated August 25, 1986 (Def. Ex. 10), Seiko Time challenged the applicability of Law 75 because the distribution agreement provided that New York law would govern, and because Seiko Time took no action affecting Gemco's Puerto Rico activity, but only its mainland United States market. Assuming that Law 75 did apply, Seiko Time further contended that its reduction in shipments to Gemco in March 1985 was justified by Gemco's abandonment of the Puerto Rican market for the U.S. catalogue market. Seiko Time also argued that its refusal to ship more merchandise to Gemco in July 1985 was justified by Gemco's default on a $2.6 million debt, as well as Gemco's sale of competing products.

In response to Seiko Time's purported defenses to the counterclaims, Gemco argued in its post-hearing brief, submitted September 8, 1986, (Def. Ex. 9 at page 33) that "the antitrust laws furnish an independent reason for rejecting Seiko's attempt to justify its conduct." Gemco there contended that the testimony of Seiko Time's...