George R. Darche Associates v. Beatrice Foods Co.

• Decision Date: 20 April 1981
• Docket Number: Civ. No. 80-1447.
• Citation: 538 F. Supp. 429
• Parties: GEORGE R. DARCHE ASSOCIATES, INC., Plaintiff, v. BEATRICE FOODS COMPANY, Defendant.
• Court: U.S. District Court — District of New Jersey

538 F. Supp. 429

GEORGE R. DARCHE ASSOCIATES, INC., Plaintiff, v. BEATRICE FOODS COMPANY, Defendant.

Civ. No. 80-1447.

United States District Court, D. New Jersey.

April 20, 1981.^*

Schenck, Price, Smith & King by Clifford W. Starrett, Morristown, N. J., for plaintiff.

Pitney, Hardin & Kipp by Marc S. Klein, Morristown, N. J., for defendant.

OPINION

BIUNNO, District Judge.

This case involves the economic and contractual relationships between a producer/manufacturer and its manufacturer's representative serving it for some years in a designated territory as an independent contractor. The legal question involves the applicability of state regulatory legislation dealing with "franchises", and their impact on the right of the producer to terminate the relationship because of its own decision, sound or unsound, about the most effective and efficient method of marketing its product line.

The case comes before the court on cross-motion for summary judgment on all issues except damages. All of the underlying evidential facts are undisputed, a point established on the record of the hearing on February 23, 1981, along with some historical background on general context which the parties agreed could be judicially noticed.

Suit was begun in the Superior Court of New Jersey and removed here for diversity of citizenship. For all practical purposes (except for details of federal procedure) the court sits for this case as the functional equivalent of the Superior Court.

The relationship began some 20 years ago on an informal arrangement with Modern Home Products, a company with a plant in Wisconsin that manufactured gaslight post lamps and gas-fired barbecue outdoor grills. At some stage gas-fired logs for fireplaces seem to have been added, and most recently, a device called a "bug zapper", evidently electrical, became part of the line. The products were marketed under the name "Charmglow".

In about 1967, Beatrice Foods acquired Modern Home Products, evidently as a subsidiary, followed by a merger after which the business was continued as the Charmglow Division of Beatrice Foods.

The product line, as noted, is a narrow one for what might be called gas based accessory appliances for household use. There are no major appliances in the line, such as gas cooking stoves, gas water heaters, gas furnaces, gas refrigerators, or the like. The gas appliances in the line could be used with either piped gas from a utility company, or with bottled gas such as propane and the like. Some items, such as barbecues, smokers and lamps, were later offered as electric versions. The line Darche handled was made up of barbecues, smokers and lamps.

Throughout the period before and after acquisition by Beatrice Foods, the marketing system used for this line employed three channels of distribution. One was by volume sales to gas utility companies, another was by volume sales to large retail chains and/or mail order houses, and the third was by sales to regular wholesalers who in turn served local retail outlets selling to ultimate consumers. All sales were made through these three channels of distribution at manufacturer's prices. No direct sales were made.

Darche's geographical territory, which appears not to have changed during its relationship, embraced the New England States (Maine, New Hampshire, Vermont, Massachusetts, Rhode Island and Connecticut), New York, New Jersey, Eastern Pennsylvania and one county in Delaware (10 States or parts of States in all).

Although there were letters memorializing the informal agreement, the earliest found being 1964, the relationship was not reduced to a formal written instrument until 1976. In 1977, another formal agreement was prepared but the record indicates it was signed by Darche and may not have been signed and delivered by Beatrice. The uncertainty is not significant since another formal agreement was prepared in late 1978, two copies sent to Darche and instructions given to sign one copy and return it by December 31, 1978, retaining the other. Darche's copy bears two signatures, one for Beatrice (undated) and the other for Darche dated December 18, 1978.

Over the entire period Darche's function was to solicit orders for items in the product line from buyers in its territory other than ultimate consumers. The prices were set by the manufacturer, and the orders sent to it. The manufacturer passed on the buyer's credit, and if the order was accepted shipped directly to the buyer. The responsibility to fill the orders and collect payment, as well as the risk, was the manufacturer's, although Darche may have provided some follow up to support collection efforts.

For a brief period, the products were sold to Darche and warehoused for resale, but this arrangement was soon discontinued and is not material to the case. Essentially, Darche had a New Jersey office location from which it supervised its own employees as they rode circuit through its territory soliciting orders.

Darche was compensated by payment of a commission on the sales it produced, at 5% for most of the period. There was no separate reimbursement or payment for expenses, such as travel or advertising.

Selling prices were at all times set by the manufacturer, and Darche had no authority to negotiate or set any different prices. During the two periods when State fairtrade laws were authorized, first by the Miller-Tydings Act (1937), and again after the McGuire Act (1952) minimum resale prices may have been set to prevent pricecutting at the retail level, but the record is silent on this point and it is now some years since those laws have had force, and that part of the history, whatever it was, is not pertinent or material here.

Identification of the functions of Darche and analysis of the relationship between the parties is as much a matter of the economics of marketing and of the law merchant as it is of pure law. The underlying structure must be described and understood before the law can be applied.

There are many methods of marketing and distribution to move products from manufacturer to ultimate consumer, and a wide variety of channels through which this trade is carried on. At one extreme there is the manufacturer who sells directly to the ultimate consumer. At the other end there is the manufacturer who relies wholly on a selling agent so as to be relieved, through necessity or choice, of performing any marketing function whatever. In between these two extremes there are countless arrangements and combinations of them.

From an economic and structural standpoint, it is common to classify these arrangements according to various elements, keeping in mind that the group as a whole comprises "middlemen" who in one way or another move the products of manufacture through the various channels of trade.

They are classified according to whether they take title or not. They are classified according to whether they physically store and ship. They are classified according to whether they can negotiate and set prices, or not. They are classified according to whether they provide financing assistance or not. They are classified according to whether a product line can be marketed by itself, or whether the products of others must be gathered and combined in order to effectuate sales.

For a brief description of the economic and functional characteristics of these different modes of marketing, see Lincoln Library of Essential Information, 34th Ed., 1971 (Frontier Press, Columbus, Ohio) in the section on Economics and the Useful Arts dealing with marketing and the wholesaling structure, at pp. 1242-1243. See Appendix.

In this case, as analysis of the written agreement shows, Darche's status as a manufacturer's representative acting as an independent contractor carries less authority than would a "sales agent."

"A sales agent or agency makes sales and performs other sales services on behalf of a principal in return for a fee or commission. As in any other agency relationship, the sales agent binds his principal by his actions within the scope of his authority. The principal sets the sales policies, determines the agent's responsibilities, and remains directly responsible to the customer with respect to the product." Bender, Business Organizations, Vol. 15 § 2.03(9) (1980).

In the language of the agreement, Darche was appointed "Sales Representative as representative for the solicitation of orders" for the designated territory. (Par.A). No deviations were to be made from the printed price list or standard terms and conditions of sale (Par. C). All orders "will be considered an offer to purchase until accepted by Charmglow", and could be accepted in whole or in part. "Acceptance will take the form of a shipment on the order." Shipment of less than an entire order was acceptance of that part actually shipped. (Par. C).

Commission percentage was not set by the agreement; rather, the rates would be stated on commission schedules published by the manufacturer from time to time, with changes effective on orders taken after notice of the change (Par. D).

The manufacturer could alter the territory on 30 days' notice, but the representative would be entitled to commissions on shipments made before the end of the 30 days (Par. E).

Either the manufacturer or the representative could cancel the agreement on 60 days' written notice to the other. In that event, the representative would be entitled to commissions before the effective date of termination (Par. F).

In sum, the relationship was the same, in a functional sense, as though the manufacturer's representatives, taken together, composed the sales department of the manufacturer itself, but not as employees or sales agents and without authority to bind the manufacturer to contracts for sale of the product. This is but one of the many and varied structures for marketing manufactured goods through various channels of trade, generally outlined above.

The term "franchise" nowhere...