In re Farrell Publishing Corporation

• Decision Date: 12 August 1958
• Citation: 165 F. Supp. 40
• Parties: In the Matter of FARRELL PUBLISHING CORPORATION, Bankrupt. In the Matter of W. J. SMITH PUBLISHING CORPORATION, Bankrupt.
• Court: U.S. District Court — Southern District of New York

165 F. Supp. 40

In the Matter of FARRELL PUBLISHING CORPORATION, Bankrupt In the Matter of W. J. SMITH PUBLISHING CORPORATION, Bankrupt.

United States District Court S. D. New York.

August 12, 1958.

Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for Cuneo Eastern, Press, Inc., of Pennsylvania. Samuel J. Silverman, William Josephson, New York City, of counsel.

Benedict Ginsberg, New York City. for trustee.

LEVET, District Judge.

Cuneo Eastern Press, Inc. of Pennsylvania (hereinafter referred to as "Cuneo") has petitioned this court for a review of substantially identical orders entered in each of the above-entitled proceedings on May 25, 1958, by the Hon. Herbert Loewenthal, Referee in Bankruptcy, insofar as these orders sustain the claim of the Trustee in Bankruptcy herein for damages against Cuneo. Bankruptcy Act, 30 Stat. 545 (1898), as amended, 11 U.S.C.A. § 11, sub. a(10) (1952).

Before the Referee it was stipulated that the claims of both Farrell Publishing Corporation (hereinafter referred to as "Farrell") and W. J. Smith Publishing Corporation (hereinafter referred to as "Smith") against Cuneo should be treated as one and that all of the evidence, both oral and written adduced, be considered in connection with both matters.

Under the orders above mentioned, Cuneo was subject to a total liability of $100,000 ($50,000 to Farrell and $50,000 to Smith) by virtue of Cuneo's allegedly tortious conduct in causing its attorneys to write a certain letter, dated February 3, 1954, to The Rumford Press (hereinafter referred to as "Rumford"). Against these sums, Cuneo was allowed the amount of $32,672.51 from Farrell and $23,191.25 from Smith. The letter written by Cuneo's attorneys to Rumford was as follows:

"We represent the Cuneo Eastern Press Inc. of Pennsylvania. Our client has entered into a contract with Farrell Publishing Corporation for the printing of the monthly magazine `The Woman', which covers the printing of all issues of that magazine from September, 1953 issue through the August, 1956 issue. A similar contract has been entered into between our client and W. J. Smith Publishing Corporation with respect to the monthly magazine `Everybody's Digest'.

"We have received information indicating that your Company is about to enter into contracts with the two corporations above named providing for the printing by your Company of `The Woman' and `Everybody's Digest'.

"We are therefore writing to inform you that any action on your part which induces, or which would induce a breach of our client's contracts with the above named corporations will be actionable interference with our client's contractual rights. In such event our client would hold your Company accountable for the damage and loss of profits that would inevitably result from such breach." (Exhibit 14.)

The general background with respect to this letter is as follows:

(1) On March 3, 1953, Cuneo entered into identical contracts with Smith and with Farrell in which contracts it was agreed that Cuneo would print "Everybody's Digest" for Smith and "The Woman" for Farrell for thirty-six consecutive months commencing September 1953. Cuneo printed the September through December 1953 issues and the January through May 1954 issues. (Referee's findings, p. 2; see Exhibits C and D.) By their terms these contracts were not terminable until each magazine's August 1956 issue had been printed.

Farrell and Smith were two closely allied corporations, controlled and dominated, it appears, by the same people and operated substantially as one business.

(2) From time to time the bankrupts complained to Cuneo about defective printing and late delivery and on January 22, 1954, Smith and Farrell sent substantially identical letters to Cuneo purporting to rescind these contracts because of Cuneo's alleged improper performance. (See Exhibit 13.)

(3) At substantially the same time Mr. Tom Farrell, the president of both bankrupts and of another corporation, "The Digest Group Inc.," entered into negotiations with Rumford for the printing by Rumford of "Everybody's Digest" and "The Woman."

(4) On January 26, 1954, Cuneo sent letters to Farrell for both Smith and Farrell corporations, among other things stating:

"Under the circumstances, we cannot recognize your attempted rescission of this contract and hereby notify you that we stand ready to fulfill the performance thereof.

"We shall, of course, hold you fully accountable for any damages and loss of profit that may be sustained in case you persist in this repudiation." (See Exhibit V, admitted by this court pursuant to Order 47 in Bankruptcy, August 11, 1958.)

On February 3, 1954, attorneys for Cuneo wrote and sent the letter (which is the subject matter of these claims) to Rumford. (See Exhibit 14.)

Farrell and Smith filed voluntary petitions in bankruptcy on May 24, 1954. Cuneo filed proofs of claim in the Smith case in the sum of $36,574.84, and in the Farrell case in the sum of $33,821.50. Subsequently, Cuneo received from Smith's and Farrell's distributor, The American News Company, credits which reduced the Smith claim to $23,191.25 and reduced the Farrell claim by credits to the sum of $32,672.51, or a total of both cases in the sum of $55,863.76. The Trustee moved to expunge both of these claims and counterclaimed against Cuneo for damages by reason of the letter hereinabove mentioned. (See Referee's findings, p. 2.)

The Trustee contended that Cuneo had breached its contract in certain respects. (See Referee's findings, p. 3.) After consideration of these claims of Cuneo, the Referee found that Cuneo was entitled to its full claim in the amount of $23,191.25 against Smith and the sum of $32,672.51 against Farrell, thus, in effect, concluding that Cuneo had not breached the Farrell or Smith contracts as the Trustee had contended.

On the claims of Farrell and Smith against Cuneo, the Trustee, apparently predicating his conclusions upon alleged interference by Cuneo with a contract between Farrell and Smith and Rumford, concluded that the letter (Exhibit 14) "was tortious in its nature to such an extent that it prevented Farrell and Smith from printing its magazines and forced them to suspend publication and virtually put them out of business." (Referee's findings, p. 7.)

Although the Referee found that the letter was a deliberate act on the part of Cuneo, he did state that: "I do not believe that it was written maliciously." He then found that "Smith was damaged in the sum of $50,000 by virtue of the tortious conduct of Cuneo and that Farrell was similarly damaged in the sum of $50,000 by Cuneo," (Referee's findings, p. 7) thus concluding that the Trustee in the Smith bankruptcy was entitled to $50,000 less $23,191.25, or $26,808.75 and that the Trustee in the Farrell bankruptcy was entitled to $50,000 less $32,672.51, or $17,327.49.

There is no finding by the Referee that on February 3, 1954, at the time when Cuneo sent the letter which is the basis of this claim (Exhibit 14) that it had no continuing contractual rights against the bankrupts. The only thing stated by the Referee in respect to this is: "There came a time when Farrell and Smith decided to act by letters terminating the contract between themselves and Cuneo (January 22, 1954, Tr. Ex. 13)" (Referee's findings, p. 5). What legal effect, if any, upon Cuneo's rights the Referee assumed these letters to have does not appear. However, the Referee, as stated, upheld the performance of the Smith and Farrell contracts by Cuneo, overruling all defenses of the Trustee based upon Cuneo's alleged breach of these contracts.

As to the status of any relationship between Farrell and Smith and Rumford which the letter in question may have interfered with, the Referee in his findings of fact states as follows:

"Farrell and Smith negotiated with Rumford Press of Concord, New Hampshire (S.M. 150).

"A copy of a letter from Rumford Press to Smith and Farrell was signed and returned to Rumford Press (S.M. 152, January 18, 1954 Tr.Ex. 54).

"Subsequent to the receipt of this letter by Rumford, Rumford Press actually started printing.

"Prior to the intervention by Cuneo, which I am about to describe Farrell and Smith sent to Rumford Press all of the editorial copy of `The Woman' and `Everybody's Digest' for the month of June, 1954, pursuant to the terms of the letter (Tr. Ex. 54) and Rumford Press billed their new customers Farrell and Smith for the work, labor, services, which they performed. They set all of the type and Rumford was ready for the presses." (P. 5.)

There is no express finding by the Referee as to whether or not Farrell and Smith had any binding contract with Rumford.

No legal basis is indicated to reveal what principles of law make Cuneo liable for sending the letter in question.

In order to consider the validity or invalidity of the result reached by the Referee, it is necessary, in my opinion, to examine into the fundamental question of the right of Cuneo to write the letter of February 3, 1954 under the circumstances existent at that time. Consequently, the first area of inquiry is: "What were the legal relationships of Cuneo with Farrell and Smith at that time?"

The pertinent facts as of February 3, 1954, were as follows:

(1) Cuneo's contracts with Smith and Farrell contained no provision for termination prior to completion of printing on the August 1956 issues of the magazines. (Exhibits C and D.)

(2) Cuneo had properly performed its obligations under the contracts. (Referee's findings, p. 4.)

(3) Smith and Farrell owed money to Cuneo for past performance. (Referee's findings, p. 7.)

(4) Smith and Farrell had given written notice of their intention to repudiate the contracts after completion of work on the May 1954 issues of the magazines. (Exhibit 13.)

(5) Cuneo had expressly notified Farrell and Smith of its refusal to acquiesce in a rescission of the contracts and had taken the position that it stood ready to...