Jaclyn, Inc. v. Edison Bros. Stores, Inc.

• Decision Date: 29 June 1979
• Citation: 406 A.2d 474,170 N.J.Super. 334
• Parties: JACLYN, INC., Bonnie International, and Empress Handbag Company, Inc., Plaintiffs, v. EDISON BROTHERS STORES, INC., Defendant-Counterclaimant, v. Abe GINSBURG, Howard Ginsburg, and Alex Chestnov, Additional Defendants on theCounterclaim.
• Court: New Jersey Superior Court

Page 334

170 N.J.Super. 334

406 A.2d 474

JACLYN, INC., Bonnie International, and Empress Handbag

Company, Inc., Plaintiffs, v. EDISON BROTHERS STORES, INC., Defendant-Counterclaimant, v. Abe GINSBURG, Howard Ginsburg, and Alex Chestnov, Additional

Defendants on theCounterclaim.

Superior Court of New Jersey, Law Division.

June 29, 1979.

Lowenstein, Sandler, Brochin, Kohl, Fisher & Boylan, Newark, for plaintiffs and additional defendants on the counterclaim (Matthew P. Boylan, Newark, appearing).

Hellring, Lindeman, Goldstein & Siegel, Newark, for defendant-counterclaimant (Jonathan L. Goldstein appearing, Richard K. Coplon, Newark, of counsel).

YOUNG, J. S. C.

The defense of commercial bribery interposed by Edison Brothers Stores, Inc., defendant-counterclaimant, to a claim of $436,000 for goods sold and delivered by Jaclyn, Inc., and its subsidiaries, plaintiffs, presents issues not previously decided in our civil reports. Defendant counterclaims against plaintiff corporations and the principals of Jaclyn for damages.

Jaclyn, Inc., together with its subsidiaries, Bonnie International and Empress Handbag Co., Inc., hereinafter collectively referred to as Jaclyn, a leading manufacturer of handbags, maintains offices and a factory in West New York, N. J. Edison Brothers Stores, Inc. (Edison) owns a chain of 650 shoe stores trading as Chandler's, Leed's, John Bari and Baker's. The parties stipulated that handbags were sold and delivered by Jaclyn to Edison between February and July 1976 at an invoiced price of $436,284.32.

The record, consisting of numerous exhibits, transcripts of depositions and trial testimony has been collated into five segments of proof.

The Role of Joseph Fingerhut

The business dealings between the parties may be divided into two chronological periods, pre-January 1975 and thereafter. Prior to 1975 Jaclyn and its subsidiaries sold to Edison relative modest quantities of merchandise, in dollar value $25,000 during 1972, $170,590 in 1973 and $125,800 in 1974. Edison points to a private meeting on January 10, 1975 at the Tuscany Hotel in New York City at which a "secret deal" was struck under the terms of which Jaclyn, through Abe Ginsburg, its president, promised covert compensation to Joseph Fingerhut, Edison's senior buyer, in exchange for placing orders. Edison relies upon the profile of purchases made during the ensuing 17 months, upon asserted declarations against penal interest by Fingerhut, and upon an analysis of Fingerhut's financial status following his discharge by Edison on May 10, 1976 to establish commercial bribery.

Following the initial meeting there was a sudden and conspicuous surge in purchases, which totaled $1,229,021 for 1975. The decision-making authority for placing orders assumed one of the central issues of the trial as between Fingerhut and the head of his division, Herbert Talcoff, vice-president and director of accessories of Edison. The court finds that although Fingerhut was responsible for placing many, if not most, of the orders, another buyer and associate buyers also placed orders. Moreover, the controlling judgment reposed in Talcoff, who monitored his buyers by a refined system of statistical controls and by weekly and bi-weekly conferences.

The increased volume of sales is attributable to a new manufacturing process flo-molding developed exclusively by Jaclyn in 1974. That technique enabled Jaclyn to produce facsimiles of leather handbags at a competitively low cost. The popularity of Jaclyn's entire flo-molded line exerted irresistible economic pressures upon Edison such that it would have paid the maximum asking price.

In December 1975 Talcoff received the first of several reports that Jaclyn was making kick-backs to Edison's buyers. Ed Rosen, associate buyer, reported that he had received four bank checks of $25 value each with a Christmas card from Kenneth Orr of Empress Handbag. In early January 1975 Rosen reported that Howard Ginsburg, son of Jaclyn's president, gave him $500 in cash. Talcoff promptly relayed these reports to Julian Edison, to whom it was also reported that Jaclyn paid Joe Fingerhut $25,000 recently. ¹ Additional inculpatory information was received by Talcoff in the same month that Olla Industries, another handbag manufacturer, had paid sums to Fingerhut and that currently a scheme was set up whereby money was being "laundered" through Fingerhut's son. Confirmatory evidence of the kick-backs took the form of a cancelled check which was passed on to Julian Edison, who decided not to confront his buyer with evidence of his disloyalty because "he wanted to get more information about the activities of our buyers." At the trial Julian Edison, as well as Eric Newman, Edison's legal counsel and executive vice-president, acknowledged that they had received reports of payments to their buyers which they considered to amount to "attempted bribery."

The highest officers of Edison formed a committee to investigate, and engaged outside counsel, Herbert Robinson, of New York City. On May 10, 1976 Fingerhut was summoned to an interview. Julian Edison testified that after persistent denials from Fingerhut, he was terminated. At that point in the interview the senior buyer acknowledged that he had received cash payments from several vendors, including "occasional $600" in cash from Jaclyn, as well as payments from other vendors. The court viewed a videotape of Fingerhut's deposition during which the senior buyer admitted only to have received "gifts." He did not recall having made the admissions during the interview in May 1976. Fingerhut's deposition was frustrated at every turn by the witness and his private counsel, from which this court draws the broadest adverse inferences.

An analysis of Fingerhut's bank and tax records disclosed that $35,415.91 was deposited in Fingerhut's personal and family accounts in the Mercantile Trust Company, N.A., St. Louis, between January 1975 and May 1976. On May 11, 1976 a search of Fingerhut's safe deposit box disclosed $35,000 in cash. At the trial Eric Newman qualified as an expert on the circulation of money and was permitted to express the opinion that 74.72% Of the currency, stored in three envelopes bearing the name of the Tuscany Hotel, New York City, issued out of and was in circulation in New York. This evidence supports the inference that Fingerhut received a substantial portion of the $35,000 while he was in New York City where Jaclyn was the main resource of his company. ²

This court finds that Jaclyn made payments of cash to Joseph Fingerhut during the months following the resumption of business relationships in January 1975 and that those payments were intended to influence the buying decisions of Edison's purchasing agent in favor of Jaclyn. This finding is supported by Fingerhut's admission of having received an "occasional $500 or $600," his earlier connotation of a bribe ascribed to payments of that size if received from a vendor, and by the large sums of unaccounted-for cash found in envelopes of the Tuscany Hotel in Fingerhut's safe deposit box.

This court also finds that Edison acquired reliable knowledge early in January 1976 of Jaclyn's practice of making pay-offs to purchasing agents. Lastly, the court finds that Edison was acutely aware of the steady surge in purchase orders placed by the "Fingerhut Group" of its buying staff, notwithstanding a slump in the market for Jaclyn's products as reflected in its statistical tools. Before describing the steps taken by Edison following Fingerhut's termination in May 1976, three other segments of proofs will be summarized.

Payments to Edward Rosen

The remaining three segments of proof require a prefatory description of the economic setting in the latter months of 1975 as viewed by Edison. The popularity of the "Gulf Stream" and "Windjammer" handbag models, introduced in 1974, began to wane. Edison's profit margins dropped from an average of 54% To approximately 42%. Edison suggests that these developments confirm its allegation that Jaclyn resorted to the payment of "gifts" to buyers in order to "perpetuate" the initial success of its flo-molded products, and points to two incidents testified to by Edward Rosen, an associate buyer. At Christmas 1975 he received by mail in St. Louis from Kenneth Orr, vice-president of sales of Empress Handbag, four bank checks of $25 each. Orr testified that the checks represented a token of appreciation for expediting the orders placed during the past year, not in expectation of future orders. Orr admitted, however, that he sent the gift certificates to buyers' homes so that their employers would not learn of them, well aware of the formal policy of many companies which enjoined the receipt of such gifts.

Rosen viewed the checks as a bribe, although he asked his superior, Talcoff, whether or not he should send them back or keep them. ³ On a trip to New York Rosen returned the checks without any reference to Edison's policy against the practice, a policy promulgated in 1957 and republished among Edison's vendors as late as November 1975.

A second incident occurred when Rosen came to New York on January 11, 1976 and had dinner with Howard Ginsburg, vice-president and son of Jaclyn's chief executive. Midway through the dinner Howard Ginsburg passed an envelope to Rosen with the words, "Better late than never," and described the contents as "Just a little token." The envelope contained ten $50 bills. When Rosen returned the envelope upon instructions from his superior, Howard is quoted as having said, "My father's going to kill me." At the trial, Howard Ginsburg recalled the dinner meeting with Rosen, but denied that he had passed any money, branding the statement about his father's anticipated ire as a lie.

Both incidents were contemporaneously reported to the president of Edison Brothers.

This court finds that the events of the dinner meeting and its sequel between Rosen and Howard...