Motor Terminals v. National Car Co.

• Decision Date: 12 December 1949
• Docket Number: Civ. A. No. 1094.
• Citation: 92 F. Supp. 155
• Parties: MOTOR TERMINALS, Inc. v. NATIONAL CAR CO. et al.
• Court: U.S. District Court — District of Delaware

92 F. Supp. 155

MOTOR TERMINALS, Inc. v. NATIONAL CAR CO. et al.

Civ. A. No. 1094.

United States District Court D. Delaware.

December 12, 1949.

COPYRIGHT MATERIAL OMITTED

Richard F. Corroon, Wilmington, Del. (Southerland, Berl & Potter, Wilmington, Del.), and R. Randolph Hicks, of New York City, for plaintiff.

James R. Morford, Wilmington, Del. (Marvel & Morford, Wilmington, Del.), and Carl H. Richmond, of Washington, D. C., for defendants.

RODNEY, District Judge.

Plaintiff is an Ohio corporation, and both defendants are Delaware corporations. The amount in controversy is alleged in the complaint to exceed $3,000 in value. Both the plaintiff, Motor Terminals, Incorporated, and the defendant, National Car Company, have moved for summary judgment under Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C.A. In addition National Car Company has moved to dismiss the complaint under Rule 12 of the Federal Rules of Civil Procedure, upon a variety of grounds, including want of jurisdiction in this court and improper venue.

The facts of this case, although somewhat voluminously presented, do not result, as is agreed by the parties, in any substantial issue of fact. On February 13, 1940, Motor Terminals made a contract with National Car Company and Fruit Growers Express Company, of which National Car is or was a subsidiary, in which it was agreed that a new corporation, to be known as National Fitch Company, would be organized with a view to the exploitation of certain patents covering devices designed for coordinated railroad and truck use, referred to in the contract as the Fitch patents. Motor Terminals and the Car Company were to hold an equal number of the shares of the new corporation. This contract contained many other provisions which are not now relevant, inasmuch as they were substantially incorporated in a further contract of March 1, 1940, which was entered into by Motor Terminals, the Car Company, and the newly organized National Fitch Corporation. The latter agreement is divided into three parts.

Part I of the agreement carries out the provisions of the earlier agreement, in so far as it provides for the transfer of half of the issued shares of National Fitch to the Car Company, while the other half is retained by Motor Terminals, and for the transfer by Motor Terminals to National Fitch of all its present and future patents relating to the business of coordinating rail and truck transportation.

Part II of the agreement defines the rights and obligations of the Car Company and National Fitch. Essentially it provides that National Fitch grants to the Car Company an exclusive right (except as to an installation at Cincinnati, Ohio) to make, use and vend the inventions under the assigned patents, for their full term; that National Fitch shall be "the perpetual, exclusive sales organization for negotiating contracts with shippers, receivers, railroads and others for their use of cars, tanks, other containers, and car and truck fixtures and appliances and cranes and other interchange devices, which contracts for the use of all the foregoing except truck fixtures and appliances and cranes and other interchange devices shall be in the name of National Car Company and subject to its prior approval (which approval shall not be unreasonably withheld);" that the contracts in the name of the Car Company shall secure to it the right to collect car mileage and other charges from railroads and shall provide that user-contractors will pay to the Car Company for the use of equipment and for services agreed amounts per day to be determined by the Car Company and National Fitch and to be payable to the Car Company monthly; that National Car shall at its own cost build, buy, lease, or otherwise acquire the use of such railroad cars, tanks, and other appliances, as distinguished from interchange devices, as may be required to fulfill the contracts made in its name and approved by it; that it will likewise build interchange devices necessary in the coordinated use of railroad and trucks, which latter devices National Fitch shall buy or lease from the Car Company at cost, so that National Fitch may sell or lease them in its own name to shippers, etc., on terms to be agreed on between National Fitch and the Car Company. Paragraph 7 of this part of the contract is the one most directly involved in this case. It provides as follows: "In full payment for all services of National Fitch Corporation hereunder, National Car Company shall pay to National Fitch Corporation said Car Company's collections from railroads for mileage and the like, and also its collections from the user-contractors as above provided, after deducting from the total of said collections (with respect to each of said user contracts severally) for itself its cost of ownership and of supplying cars, tanks and other containers and appliances supplied hereunder, which said costs shall include, as they may respectively apply, expense of maintenance, accounting, car operation, insurance, taxes (other than income taxes), rental, depreciation on cost of cars and car equipment at 4% per annum and on tanks and containers at 7% per annum (except that other rates of depreciation may hereafter be mutually agreed upon by National Car Company and National Fitch Corporation) and interest at 6% on the cost to National Car Company of said cars, tanks and other containers and appliances, provided, however, that such cost of cars, tanks and other containers and appliances shall not include any costs arising out of or attributable to defective workmanship or materials. The cost of equipment which is idle through no fault of the National Car Company or of National Fitch Corporation will be borne equally by said companies for such period of idleness. Standby equipment shall not exceed 5% of the amount of equipment in active service, and shall not be deemed idle through the fault of either party."

Part II of the agreement also provides that the Car Company shall keep the books and records, including those of National Fitch. It contains in addition an arbitration clause (paragraph 10) which requires the Car Company and National Fitch to submit differences between them to arbitration.

Part III of the agreement provides, inter alia, that in the event of default by the Car Company, such default having continued for more than 30 days after written notice given the Car Company by Motor Terminals, all right, title and interest in the assigned patents shall revert to Motor Terminals.

The undisputed facts, as revealed by the pleadings and affidavits attached to the motions for summary judgment, show that, superficially at least, there has never been any substantial dispute between National Fitch and the Car Company regarding the construction and operation of the contract of March 1, 1940. National Fitch proceeded to obtain contracts with shippers which, in so far as they concerned the use of tanks, cars and similar equipment, were executed in the name of the Car Company, and the Car Company built or acquired the tanks, cars, interchange devices which were needed for the railroad-truck co-ordination business that thus came into being. The interchange devices were sold to National Fitch by the Car Company at cost. It is also shown that the rates charged by the Car Company under these contracts were arrived at by agreement between it and National Fitch, and that they were based substantially on suggestions made originally by Mr. Fitch, the then president of Motor Terminals. Such rates included among the elements incorporated in them, the items specifically set out in the contract of March 1, 1940, including interest and depreciation on the original cost of the cars, tanks, etc., built by the Car Company, and used in this business. These items and others mentioned in the agreement were subsequently deducted by the Car Company from its collections from the shipper-users and the balance remitted from time to time to National Fitch.

Such had been the uniform practice under this contract, at least up to the time of the institution of this suit. It appears that dissatisfaction with the operation of the contract, in so far as it affected the sums of money paid over by the Car Company to National Fitch out of collections from shipper-users, was first clearly expressed at a meeting of the board of directors of Motor Terminals in November, 1946. In March, 1947, it was moved at a meeting of the board of directors of National Fitch by one of the directors acting in the interest of Motor Terminals that the board adopt a resolution demanding that the Car Company submit to arbitration the disagreement between it and Motor Terminals regarding the proper interpretation of paragraph 7 of Part II of the contract. The resolution failed of adoption by a tie vote of the directors of National Fitch. Subsequently, negotiations took place between representatives of Motor Terminals and the Car Company looking to an amendment or clarification (as the plaintiff would prefer to designate it) of the contract, and more particularly to a cessation or modification of the practice of the Car Company's withholding from the sums remitted by it to National Fitch the items of interest and depreciation mentioned in paragraph 7 of Part II of the contract. The negotiations came to nothing, and this suit was then instituted by plaintiff, in which suit the plaintiff contends that the Car Company has improperly withheld items of interest and depreciation from its remittances to National Fitch because of its erroneous interpretation of paragraph 7 of the contract of March 1, 1940. A declaratory judgment interpreting paragraph 7 and damages are sought.

Before this case can be decided on its merits, there are some preliminary questions which require consideration. The defendant, National Car Company, objects on the ground that this court is without jurisdiction because of a lack of the necessary diversity of citizenship...