Hannex Corp. v. GMI, Inc.

Decision Date25 March 1998
Docket NumberDocket No. 96-9521
Citation140 F.3d 194
PartiesHANNEX CORPORATION, Plaintiff-Appellant, v. GMI, INC.; G.M.I. Photographic Inc.; Robert Brockway; Joe Gallen and Sea & Sea Products Ltd, a Japanese Corporation, Defendants-Appellees.
CourtU.S. Court of Appeals — Second Circuit

Michael H. Smith, New York City (Ronald J. Offenkrantz, Spitzer & Feldman, P.C., New York City, of counsel), for Plaintiff-Appellant.

Edward T. Dangel, III and Alexander T. Bok, Boston, MA (Susan N. Granoff, Dangel, Donlan and Fine, LLP, Boston, MA, of counsel), for Defendants-Appellees.

Before: CALABRESI, CABRANES and PARKER, Circuit Judges.

PARKER, Circuit Judge:

Plaintiff-Appellant Hannex Corporation ("Hannex") is a nonoperating Florida corporation whose sole business was the distribution of underwater photographic equipment manufactured by Defendant-Appellee Sea & Sea Products Ltd., a Japanese corporation ("S & S Japan"). Hannex asserts two causes of action. First, Hannex alleges that Defendants-Appellees GMI Inc. 1 , G.M.I. Photographic Inc., a Delaware corporation ("GMI"), Robert Brockway, GMI's Chairman ("Brockway"), Joe Gallen, GMI's President ("Gallen") and S & S Japan (collectively "Defendants") tortiously interfered with the fiduciary duties owed to Hannex by its former employee, Lawrence Salvo ("Salvo"). Hannex alleges that Salvo breached those duties by actively soliciting the business of its former supplier, S & S Japan, on behalf of a competitor, GMI. Second, Hannex alleges that GMI, Brockway, and Gallen tortiously interfered with contractual and prospective business relations, including a prospective distribution agreement Hannex was negotiating with S & S Japan.

The United States District Court for the Eastern District of New York (Nicholas Tsoucalas, Judge) 2 granted Defendants' motion for judgment as a matter of law pursuant to Rule 50(a) on both of Hannex's causes of action at the conclusion of the presentation of evidence concerning liability at trial before a jury, and prior to closing arguments and a jury verdict. Hannex argues that it established a sufficient factual basis at trial from which a reasonable jury could find for it on both causes of action, and that the district court therefore improperly granted Defendants' Rule 50(a) motion.

We affirm in part, vacate in part, and remand.

I. BACKGROUND
A. Factual background 3

1. Jack Hannes's Business Dealings with S & S Japan

In 1980, S & S Japan began to distribute its products in the United States through Hanimex USA, Inc. ("Hanimex USA") pursuant to unwritten agreements, prior to which S & S Japan had terminated a series of prior distributors for failing to obtain adequate financing. Hanimex USA was a subsidiary of Hanimex, Inc., an Australian corporation ("Hanimex"). At the time, Hanimex was a large publicly traded company whose business was the manufacture and worldwide distribution of camera equipment. Jack Hannes, now the chairman of Hannex, founded Hanimex in 1947, and was its chief executive officer until 1982.

S & S Japan distributed two underwater cameras, a 110mm and a 35mm, through Hanimex. The design, manufacture and distribution of these cameras were in part the result of collaborative efforts and agreements between S & S Japan and Hanimex, which in turn were the product of meetings between S & S Japan's chief executive officer, Masaoki Yamaguchi ("Yamaguchi"), and Jack Hannes. Hanimex committed to purchase and distribute a specific number of each camera, and also provided engineering assistance in the design of the 35mm camera. Through these arrangements, Hanimex became the primary worldwide distributor of the 35mm camera. However, S & S Japan also distributed the 35mm camera in the United States through an independent dive shop.

In 1985, S & S Japan terminated the distributorship with the dive shop for failure to obtain adequate financing. S & S Japan then entered into a distribution agreement, dated June 13, 1985, with a new company formed by Salvo, Al Bernard ("Bernard") and Bayard Moffit ("Moffit"), named Sea & Sea USA, Inc. ("S & S USA") (the "1985 Agreement"). Bernard, who had formerly worked with Jack Hannes at Hanimex, had introduced Salvo to Yamaguchi in early 1985. Salvo and Bernard assured Yamaguchi that they would be able to secure adequate financing for the venture through a line of credit available to Moffit. The 1985 Agreement granted S & S USA the "exclusive" right to sell and distribute S & S Japan's products in the United States, but explicitly provided that S & S Japan could continue to distribute its products in the United States through Hanimex. The 1985 Agreement was assignable by either party with the consent of the other, which consent could not be unreasonably withheld.

S & S USA had no employees. Salvo's small photographic manufacturing and supply company, Graflex Sub-Sea Corporation ("Graflex Sub-Sea"), handled the distribution of the imported cameras. In early 1986, soon after S & S USA began importing the cameras, it became evident to Yamaguchi that S & S USA could not obtain the financing necessary to be an effective distributor. Bernard approached Jack Hannes in an effort to secure additional financing. Jack Hannes agreed to invest $50,000 in S & S USA.

Despite this investment from Jack Hannes, S & S USA continued to experience problems funding the purchase of products from S & S Japan. Yamaguchi threatened to terminate the distributorship unless S & S USA could obtain additional financing. Bernard then approached Jack Hannes again seeking additional financing. In communications with Bernard and Yamaguchi, Jack Hannes stated that he would provide additional financing, but only to a new company which would be under joint control and free of S & S USA's and Graflex Sub-Sea's debts. Between September 1986 and early 1987, Jack Hannes communicated several times with Salvo, Moffit, Bernard, and Yamaguchi concerning a proposal to form a new company that would, in conjunction with S & S USA and Graflex Sub-Sea, import and distribute S & S Japan's products under the 1985 Agreement. Having obtained the general agreement of Moffit, Salvo and Bernard to such an arrangement, Jack Hannes proceeded to establish letters of credit through his Australian holding company, Hanset Proprietary, Ltd. ("Hanset") for the benefit of S & S USA. Under this arrangement, Hanset would provide financing and collect receivables, while Graflex Sub-Sea and S & S USA were responsible for operation, sales, marketing, and administration of the distribution business. 4

In January 1987, at a Las Vegas trade show, Jack Hannes informed Yamaguchi of the new arrangement, stating that a new company would be formed as soon as possible which would "act solely as distributors for [S & S Japan's] product." He also told Yamaguchi that Moffit, Salvo and Bernard would be given the opportunity to obtain equity in the new company. According to Jack Hannes, after this discussion, Yamaguchi introduced him to S & S Japan's international distributors as S & S Japan's "distributor for the United States."

On June 17, 1987, Jack Hannes entered into an agreement with Moffit, Salvo and Bernard formalizing the new arrangement. Jack Hannes agreed to provide letters of credit on behalf of S & S USA until a new company, Hannex, could be established. On behalf of S & S USA, Moffit, Salvo and Bernard agreed to assign "all product lines, agencies, and other rights, and ... use their best efforts to maintain these product lines, rights, and agencies, in particular, the agency with [S & S Japan]." The parties agreed that the distribution would be handled through Graflex International Corporation ("Graflex"), formerly known as Graflex Sub-Sea, of which Salvo, Moffit and Bernard were shareholders, and of which Salvo was president. This arrangement was to last at least two years. In return, Graflex received shares in Hannex. Moffit, Salvo and Bernard received options to buy shares in Hannex. The agreement provided that until Hannex became fully operational, the existing arrangement between Hanset, Graflex, and S & S USA would continue.

Jack Hannes incorporated the new company, Hannex, on June 18, 1987, and on July 28, 1987, the parties executed a new agreement largely restating the terms of the June 17 agreement. Subsequently, S & S USA was merged into Graflex, leaving Graflex as the surviving corporation, and Jack Hannes incorporated a new corporation with the name Sea & Sea USA ("New S & S USA") as a wholly-owned subsidiary of Hannex. This was done primarily to allow the Hanneses to continue using the name "Sea & Sea USA" in the distribution of S & S Japan's products. Finally, on April 1, 1988, Salvo executed a covenant not to compete with Hannex.

After formally reorganizing the distribution arrangement in the United States, Jack Hannes and his son, Martin, met with Yamaguchi in Japan to discuss the situation. The Hanneses and Yamaguchi discussed the existing United States distribution business and the structure of the new organization, as well as the prospect of extending distribution into Central America and the Caribbean. Specifically, the Hanneses told Yamaguchi that a new company, Hannex, had been formed, and that it would be able to secure adequate financing, free of the debts of the companies Yamaguchi had previously been dealing with. Finally, they also discussed with Yamaguchi the possibility of obtaining accreditation from the Japanese Ministry of Trade and Industry for Hannex, which accreditation would allow S & S Japan to obtain export insurance for shipments to Hannex.

2. Hannex's Attempts to Obtain S & S Japan's Consent to the Assignment

After S & S USA agreed to assign its distribution rights under the 1985 Agreement to Hannex in the June and July 1987 agreements, the Hanneses endeavored to obtain S & S Japan's written consent to the assignment as required by the 1985 Agreement. To this end, Salvo agreed to...

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