Laurence J. Gordon, Inc. v. Brandt, Inc.

• Decision Date: 14 January 1983
• Docket Number: No. C81-627C.,C81-627C.
• Citation: 554 F. Supp. 1144
• Parties: LAURENCE J. GORDON, INCORPORATED; Advanced Money Processing Systems, Incorporated; and Laurence J. Gordon, Plaintiffs, v. BRANDT, INC., a foreign corporation, and Brandt Systems, Inc., a foreign corporation, Defendants.
• Court: U.S. District Court — Western District of Washington

554 F. Supp. 1144

LAURENCE J. GORDON, INCORPORATED; Advanced Money Processing Systems, Incorporated; and Laurence J. Gordon, Plaintiffs, v. BRANDT, INC., a foreign corporation, and Brandt Systems, Inc., a foreign corporation, Defendants.

No. C81-627C.

United States District Court, W.D. Washington.

January 14, 1983.

COPYRIGHT MATERIAL OMITTED

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Jerry B. Edmonds, Robert L. Williams, Williams, Lanza, Kastner & Gibbs, Seattle, Wash., for plaintiffs.

Jon W. MacLeod, Douglas C. Ross, Roberts & Shefelman, Seattle, Wash., for defendants.

MEMORANDUM OPINION

COUGHENOUR, District Judge.

On May 5, 1981, Laurence J. Gordon was terminated as a district manager for Brandt money processing equipment. On May 22nd, he filed suit alleging federal and state antitrust and state franchise investment protection act violations. Brandt answered and asserted a counterclaim for breach of contract. After three weeks of trial and a week of deliberations, the jury was unable to reach a unanimous verdict and a mistrial was declared. The parties stipulated that the case would be treated as a bench trial on the record developed before the jury.

Plaintiffs are Laurence J. Gordon and his two wholly-owned Washington corporations: Laurence J. Gordon, Inc. and Advanced Money Processing Systems, Inc. The defendants are Brandt, Inc., a Wisconsin corporation with its principal place of business in Watertown, Wisconsin, and Brandt Systems, Inc., a wholly-owned corporation now merged into Brandt, Inc. The parties shall hereinafter be referred to as "Gordon" and "Brandt."

FACTS:

The dispute between the parties concerns the sale and service of Brandt money processing equipment. Brandt manufactures and sells money processing equipment capable of counting, sorting and wrapping coins and currency. Brandt also sells paper products (such as coin wrappers and bill straps), accessories and repair parts for its equipment. Brandt products are sold throughout the United States through a network of "district managers."

A district manager is not a Brandt employee. He is an independent salesman who solicits orders for Brandt on a commission basis. He has his own sales force and is responsible for his own operating expenses. Brandt restricts each district manager from selling outside an assigned territory, dealing in products of Brandt's competitors and charging other than Brandt's specified prices.

Some district managers are permitted by Brandt to operate an "authorized" service and repair business. Under the standard service agreement, the district manager is free to set his own prices for service and is not limited to any geographic territory, although Brandt will not pay for warranty work done outside the territory. The only restrictions imposed by Brandt on the service businesses are that all service personnel must be factory trained by Brandt, and that the district managers cannot service equipment manufactured and sold by Brandt's competitors. In some parts of the country, Brandt directly services equipment through its own field service offices.

The parties' relationship began in 1975 when Gordon became a salesman for the Brandt district manager in Oregon. On March 6, 1976, Gordon replaced the Oregon district manager. A series of contracts regarding the sale and service of Brandt equipment have been entered into between the parties, the last being signed in January of 1978. Under that agreement, plaintiff became the district manager for most of Oregon and Washington. The relevant portion of this standard district manager's contract provided that Gordon would: (1) devote his entire time to the sale of Brandt money processing equipment, except for operating an authorized Brandt service business; (2) sell the equipment at the prices set by Brandt; (3) not deal in used equipment and return all trade-ins received to Brandt; (4) solicit orders only on Brandt order forms or forms approved by Brandt; (5) be unable to bind Brandt for any order he solicited; (6) return Brandt's demonstrator inventory upon termination as a district manager; (7) not compete in the manufacture and sale of money processing equipment for three years after termination; and (8) be terminated as a district manager upon commission of any act of dishonesty or gross misconduct in connection with his relationship with Brandt.

Plaintiff operated a successful sales and service business until his termination on May 5, 1981. The stated reasons for the termination were that Gordon bought equipment under fictitious customer names, purchased equipment and paper products for resale, solicited orders for equipment outside his territory, engaged in price negotiations with customers, dealt with a Brandt competitor and diverted monies belonging to Brandt.

The evidence established that plaintiff did breach his contract with Brandt. Gordon "formed" Portland and Oregon Publications for the sole purpose of buying Brandt equipment for resale. He used the fictitious names of Dave Standard and M. Taylor as signators on the order forms and forged purported signatures as purchasers. Plaintiff received volume discounts from Brandt for these sales, to which he would not otherwise have been entitled. He then resold some of this equipment at a profit. Through AAccurate Coin Systems, Inc., a company created by plaintiff's brother Mike Gordon, Brandt paper products were purchased for resale. Gordon admits that he has, on occasion, varied the prices set by Brandt on its equipment. He also admitted to "signing" customers' names to Brandt order forms. On at least one occasion, plaintiff sold outside his territory. Finally, there is evidence that Gordon had legitimate Brandt customers increase their orders to Brandt so that plaintiff could receive equipment for resale.

While conceding that he may have violated the terms of his contract, Gordon claims that his actions were with the knowledge and consent of Brandt and that Brandt's stated policy, as manifested by the contract, was different from Brandt's actual policy. He contends that Brandt knew he was purchasing equipment and paper products for resale, negotiating price, signing customers' names to the Brandt order forms, and ordering equipment through Portland and Oregon Publications. The weight of the evidence is to the contrary.

Employees and officers of Brandt testified that they did not authorize plaintiff to operate in violation of the contract and that they did not know that plaintiff was so operating. The Court notes that although Gordon claims defendant permitted and perhaps encouraged him to order equipment for resale, when he completed the order form, he carefully contrived the signature of the "purchaser" to appear different from the remainder of the handwriting on the form, although both were in his handwriting. Plaintiff went so far as to use different colored pens and slanting the handwriting in different directions to highlight the "differences." Gordon paid for these orders with certified checks for the obvious purpose of masking the fact that he was the true purchaser. When asked about AAccurate Coin Systems, plaintiff refused to reveal that AAccurate was owned by his brother or that plaintiff participated in its management. Plaintiff's diligent efforts at concealment are inconsistent with his contention that defendant approved of his tactics.

The testimony and weight of the evidence supports defendant's position that it did not know that Gordon was violating the contract. Plaintiff's testimony that Brandt had a stated policy different from its actual policy is not believable. Although Gordon clearly wanted Brandt to vary the terms of the contract and may have in fact believed that Brandt permitted him to do so, such a conclusion in light of the clear language of the contract and vigilant efforts by Brandt to ensure that the district managers were abiding by the contract would be unreasonable. The record contains examples demonstrating that whenever Brandt was alerted to a violation of the contract by a district manager, it not only disapproved of the violations but sought to remedy them. Whatever challenges plaintiff may have to defendant's practices must therefore be tested on the basis of the contract being fully enforced.

GORDON'S CLAIMS:

Plaintiff's claims concern the federal and state antitrust laws and the Washington Franchise Investment Protection Act. First, the restrictions imposed by the contract allegedly constitute unreasonable restraints of trade in violation of Section 1 of the Sherman Act and Section 3 of the Clayton Act. Second, plaintiff asserts that Brandt is or is attempting to be a monopolist in the sale and service of money processing equipment in violation of Section 2 of the Sherman Act. Third, Gordon asserts that he was a Brandt franchisee and that his termination was in contravention of the Washington Franchise Investment Protection Act. After considering all the evidence, the Court finds that plaintiff has failed to prove any of these allegations.

SHERMAN 1:

Section 1 of the Sherman Act, 15 U.S.C. § 1, prohibits "(e)very contract, combination ..., or conspiracy, in restraint of trade ...." See RCW § 19.86.040 (identical language in the Washington statute). Plaintiff alleges that Brandt, in violation of Section 1, engaged in: (1) price fixing; (2) restrictive territorial allocations; (3) exclusive dealing; (4) tying; and (5) group boycotts. Plaintiff's third and fourth claims raise the additional issue of Section 3 of the Clayton Act, 15 U.S.C. § 14, which prohibits the leasing or sale of a good on condition that the purchaser not deal in or use the goods of a competitor where the effect of such lease or sale "may be to substantially lessen competition or tend to create a monopoly ...."

In examining plaintiff's allegations, three issues must be addressed. First, considering the relationship between Gordon and Brandt, can the restrictions imposed by Brandt violate the antitrust laws?...