Gulf Coast Fans, Inc. v. Midwest Electronics Importers, Inc.

• Decision Date: 10 September 1984
• Docket Number: 83-3455,Nos. 83-3303,s. 83-3303
• Citation: 740 F.2d 1499
• Parties: GULF COAST FANS, INC., Plaintiff-Appellant, v. MIDWEST ELECTRONICS IMPORTERS, INC., Defendant-Appellee. GULF COAST FANS, INC., Plaintiff-Appellant, v. CHAN KAN PING and Cheung Yick Yee, as partners, d/b/a Pax & Company, & Midwest Electronics Importers, Inc., Defendants-Appellees. GULF COAST FANS, INC., Plaintiff, v. MIDWEST ELECTRONICS IMPORTERS, INC., Defendant. GULF COAST FANS, INC., Plaintiff-Appellee, v. CHAN KAN PING and Cheung Yick Yee, as partners, d/b/a Pax & Company, Defendants-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1499

740 F.2d 1499

39 Fed.R.Serv.2d 1391

GULF COAST FANS, INC., Plaintiff-Appellant, v. MIDWEST ELECTRONICS IMPORTERS, INC., Defendant-Appellee.

GULF COAST FANS, INC., Plaintiff-Appellant, v. CHAN KAN PING and Cheung Yick Yee, as partners, d/b/a Pax &

Company, & Midwest Electronics Importers, Inc.,

Defendants-Appellees.

GULF COAST FANS, INC., Plaintiff, v. MIDWEST ELECTRONICS IMPORTERS, INC., Defendant.

GULF COAST FANS, INC., Plaintiff-Appellee, v. CHAN KAN PING and Cheung Yick Yee, as partners, d/b/a Pax &

Company, Defendants-Appellants.

Nos. 83-3303, 83-3455.

United States Court of Appeals, Eleventh Circuit.

Sept. 10, 1984.

As Amended on Denial of Rehearings Nov. 19, 1984.

T. Paine Kelly, Jr., Tampa, Fla., for plaintiff-appellant.

Steven D. Merryday, Robert B. Glenn, Tampa, Fla., for Midwest Electronic Importers.

Appeals from the United States District Court for the Middle District of Florida.

Before HILL and ANDERSON, Circuit Judges, and TUTTLE, Senior Circuit Judge.

TUTTLE, Senior Circuit Judge:

We are presented here with consolidated appeals from two related cases, which, although sharing the same set of facts, present quite different issues. For the reasons set forth below, we affirm in part and vacate in part the judgment based on the jury verdicts in No. 83-3303, and vacate the judgment in No. 83-3455.

I. BACKGROUND

A. Facts

The jury had before it evidence from which it could find the following facts. The three major players in this case are Gulf Coast Fans, Inc. ("Gulf Coast"), a Florida based distributor whose principal is Wilmer Barrett, Midwest Electronics Importers, Inc. ("Midwest"), a Chicago based importer headed by Nessim Bechar, and PAX & Company ("PAX"), a Hong Kong based export company run by Chan Kan Ping and Cheung Yick Yee.

In 1975, PAX entered into a written renewable contract with Din Wai Electrical Manufacturing Company, Ltd. of Hong Kong (DEMC), under the terms of which DEMC made PAX its exclusive agent for the export of DEMC ceiling fans to the United States. The contract was renewed annually and was in force during the period of time relative to this action.

At about the same time DEMC and PAX entered into their agreement, William Wallo, a Florida businessman, discovered a DEMC fan in a neighbor's house in Florida. The fan had been brought over from Hong Wallo incorporated Gulf Coast Fans, Ltd. and entered into written agreements with PAX and Bechar whereby PAX made Gulf Coast, Ltd. its exclusive distributor for DEMC ceiling fans in the continental United States, and Gulf Coast, Ltd. made Midwest its exclusive importer of fans from PAX. PAX and Midwest also agreed that Gulf Coast would place all orders for fans placed through Midwest to PAX. Thus, upon receiving an order from Gulf Coast, Ltd., Midwest would contact PAX and place an order for the fans. Midwest would take delivery of the fans in Hong Kong. All fans were purchased f.o.b. Hong Kong. After delivery, PAX would invoice Midwest for the purchase price of the fans and Midwest would then invoice Gulf Coast, Ltd. for the purchase price plus a five percent (5%) import commission. Additionally, Midwest charged Gulf Coast, Ltd. another one percent because Midwest was providing Gulf Coast, Ltd. with the credit it needed to pay for the fans.

Kong by an airline pilot as a novelty item. The DEMC fan rekindled a previous interest in ceiling fans developed by Wallo during a trip to Brazil. Curious about the cost and quality of the DEMC fan, Wallo contacted Bechar, a business acquaintance from Chicago who happened to import electronic devices from the Far East. Bechar agreed to obtain six DEMC fans for Wallo on his next trip to the Orient. After contacting DEMC, Bechar was referred to PAX, which supplied him with several fans for Wallo. Wallo was pleased with the initial shipment of fans, and amazed at the low price he paid for them. After importing a gross (144) more fans through PAX and Bechar, Wallo decided to go into business selling DEMC ceiling fans on a full-time basis.

On the other hand, Gulf Coast, Ltd. received a six percent discount from PAX to be applied to advertising of DEMC fans. The six percent advertising allowance was based on a formula set forth in the contract between PAX and Gulf Coast, Ltd., whereby PAX agreed to pay six percent for all advertising done by Gulf Coast, up to maximum of six percent of the total invoice price of each shipment of fans. Because Gulf Coast, Ltd. was expected to exceed the maximum advertising allowance on each shipment, however, PAX automatically deducted the six percent allowance "up front." Nevertheless, PAX did require Gulf Coast, Ltd. to provide proof of its use of the advertising allowance at a later date. Wallo testified that he submitted his proof of advertising to PAX every six months to a year, or "whenever I got a little worried that they [PAX] weren't going to give me the discount."

Wallo's business grew steadily and rapidly throughout 1976, 1977 and the beginning of 1978, and everyone seemed happy with the arrangement. Then, in May 1978, Wallo sold Gulf Coast, Ltd. to Wilmer Barrett, a former businessman who had become bored with his Florida retirement. Although Wallo did not inform Midwest or PAX of the pending sale until the week the sale was closed, they approved the sale and an assignment of Gulf Coast, Ltd.'s contracts to Barrett's new entity, Gulf Coast Fans, Inc.

Immediately upon taking over Gulf Coast, Barrett began making changes in the marketing of DEMC fans. Barrett also took little time to make it clear to Bechar that he believed Bechar was an unnecessary middleman in the operation. Bechar, on the other hand, believed that he was worth more than just a five percent commission. Bechar testified that he agreed to the five percent figure with Wallo only because they were friends and the new business was at the time of the agreement by no means assured of success. Nevertheless, the ceiling fan market continued to grow rapidly, and Barrett and Bechar, believing themselves contractually bound to each other anyway, were able to put aside their differences for the time being.

Many of the changes Barrett made at Gulf Coast were made with the knowledge, approval and cooperation of DEMC, PAX and Midwest. For example, Barrett sought to get Underwriters Laboratories (UL) to "list" DEMC's fans, which meant that the fans would be approved by UL and carry a UL label. To get the UL listing Barrett Barrett also changed the method that Gulf Coast's predecessor used to market ceiling fans. Rather than simply marketing the "DEMC 36 inch fan" and the "DEMC 45 inch fan," Barrett gave the fans catchy names like "Seabreeze" and "Showboat." Barrett informed PAX that he was marketing his fans under these names, and PAX voiced no objections to the new marketing scheme. Barrett did not, however, inform PAX or Midwest that at the same time he was dropping the DEMC name from all advertising and even packaging of the fans. Thus, the DEMC fans became the "Gulf Coast Seabreeze" and the "Gulf Coast Showboat" in all promotional materials distributed by Gulf Coast.

had to persuade DEMC, through PAX, to make several adjustments in the manufacturing process. Those adjustments were made, and by mid-1979 DEMC was shipping UL approved fans to Gulf Coast. Another Barrett innovation was to develop a four-blade fan using the motor and the components of the DEMC three-blade fan. The new four-blade fan was then manufactured by DEMC.

Beginning in October, 1978, Bechar informed Barrett that PAX wanted to know how Gulf Coast was spending its advertising allowance. Barrett promised to provide Gulf Coast's proof of advertising, which would have shown his elimination of the DEMC name, within a short time. The proof of advertising was not forthcoming, however, despite numerous requests over the next few months. Those requests became demands, and finally threats as PAX and Midwest sought some proof that Gulf Coast was spending the six percent advertising allowance in an approved manner. Still, Barrett continued to put off providing such proof. By June or July of 1979, Bechar, acting on behalf of PAX, had informed Barrett that the advertising allowance would soon be discontinued. Barrett responded that he was simply "so gosh-darned busy" that he had not gotten around to compiling the proof, and pleaded for Bechar to "bear with me" on the issue. Of course, Midwest, PAX and DEMC remained in the dark about Barrett's gradual elimination of the DEMC name during this period.

Meanwhile, relations between Bechar and Barrett became even more strained following a meeting between Barrett, Bechar, and the partners of PAX in Hong Kong in December, 1978. The meeting was designed to help plan production goals and sales strategies for 1979. Bechar left Hong Kong on other business after several days, while Barrett stayed and continued his negotiations with PAX. After Bechar left, Barrett proposed a new contract with PAX. The new contract acknowledged that Midwest was the importer for Gulf Coast, but made it possible for Gulf Coast to drop Midwest without cause and deal directly with PAX. PAX telexed Bechar that Barrett had proposed a new contract that might be unfavorable to Bechar. Bechar returned to Hong Kong and accused Barrett of dealing behind his back. After further discussions all the parties agreed to stick with their original agreements, but by that time the well had been poisoned. As a result of the Hong Kong meeting, PAX appointed Bechar as its United States agent, thereby strengthening their relationship. PAX informed Barrett of its appointment of Bechar as agent.

One other action by Barrett contributed to the breakdown in relations between Gulf Coast and PAX/Midwest. That was Barrett's decision to use plastic shafts to hang fans from ceilings, rather than the steel shafts used by Gulf Coast's predecessor. Barrett's predecessor, Wallo, explained the history of the shafts used to hang DEMC...