National Ass'n of Sporting Goods Wholesalers, Inc. v. F.T.L. Marketing Corp.

• Decision Date: 19 December 1985
• Docket Number: No. 84-1254,84-1254
• Citation: 779 F.2d 1281
• Parties: NATIONAL ASSOCIATION OF SPORTING GOODS WHOLESALERS, INC., Plaintiff-Appellee, v. F.T.L. MARKETING CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1281

779 F.2d 1281

NATIONAL ASSOCIATION OF SPORTING GOODS WHOLESALERS, INC., Plaintiff-Appellee, v. F.T.L. MARKETING CORPORATION, Defendant-Appellant.

No. 84-1254.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 13, 1984.

Decided Dec. 19, 1985.

Ronald S. Fishman, Fishman & Fishman, Ltd., Chicago, Ill., for defendant-appellant.

Michael T. Reid, Halfpenny, Hahn & Roche, Chicago, Ill., for plaintiff-appellee.

Before ESCHBACH and COFFEY, Circuit Judges, and DOYLE, Senior District Judge. ^*

ESCHBACH, Circuit Judge.

The primary question presented in this appeal is whether a trade association may, without cause, prohibit an associate member from exhibiting at the association's trade shows. The district court found in favor of the trade association. For the reasons stated below, we will affirm. ¹

I

The relevant facts are, for the most part, undisputed. The National Association of Sporting Goods Wholesalers, Inc., ("Association") is a business trade association that was incorporated in Missouri. Its office and sole employee (the executive director) are in Chicago. The primary purpose of the Association is to promote the interests of wholesalers in the sporting-goods industry. The Association's membership, for the purposes of this appeal, is divided into two categories: regular members and associate members. The 117 regular members are sporting-goods wholesalers. The 330 associate members consist of manufacturers, manufacturers' representatives, and importers. Unlike regular members, associate members can neither vote nor hold office. F.T.L. Marketing Corp. ("FTL") is an associate member of the Association.

The Association performs certain functions that primarily benefit the regular members. It, however, also publishes a newsletter and provides an automobile rental discount program. These activities benefit associate as well as regular members. ² The Association also sponsors an annual trade show, participation in which FTL contends is the primary benefit the organization provides to associate members. At the show, the exhibitors are the associate members. ³ Attendance is limited to the exhibiting associate members, regular members, manufacturers' representatives, ⁴ and invited guests. Retailers and the public are not allowed to attend. There has generally been 220 exhibitors at the shows, i.e., approximately two-thirds of the associate membership.

Until it was rejected as an exhibitor in 1983, FTL had exhibited at every show since 1978, the year it joined the Association as an associate member. FTL is a California corporation engaged in the manufacture of handguns and the distribution of several other products. From 1978 to 1981, the only item FTL manufactured was a 22-caliber automatic pistol, which was phased out of production in 1981. At the Association's 1981 trade show, FTL had a small number of the guns available, but did not actively solicit orders for them. It also marketed two other products, which proved to be unprofitable.

Following the phase out of its original pistol, FTL worked to develop an improved design. At the 1982 show, FTL displayed tool-shop prototypes of its new pistol. Although at that time it had no guns to sell, it exhibited at the show to let potential customers know it was an ongoing concern and to demonstrate the products it would have available in the future. By the time of the 1983 show, from which it was excluded, FTL had several thousand guns in production. FTL exhibits at no other trade shows, although a number of them exist.

To become an exhibitor at the Association's trade show, an associate member must apply on a form supplied by the Association. Rules pertaining to the show are set forth on the reverse side of the application. Rule Number 2 states that the Association "reserves the right to determine the eligibility of any company or product for inclusion in the Exhibit." Rule Number 6 provides in relevant part that the Association "reserves the right to reject, eject or prohibit any exhibit in whole or in part, or any exhibitor or his representatives, with or without giving cause." The Association's by-laws make no mention of the trade shows.

Following the 1982 show, FTL received a letter from the Association's executive director, Rebecca Maddy, stating that the Association was looking forward to FTL's participation in the 1983 show. In June 1983, however, counsel for the Association informed FTL by letter that the Association was exercising its right to reject FTL as an exhibitor at future shows. The stated reasons for the decision were that FTL does a substantial amount of retail business and that FTL representatives at the 1982 show spent the majority of their time trying to make wholesale purchases, an activity contrary to the interests of the Association's regular members (i.e., wholesalers). ⁵ In the letter, the Association also accused FTL of frequently leaving its booth unattended during the 1982 show. Prior to this letter, FTL had received no indication from the Association that FTL had done anything improper at the 1982 show.

FTL responded with a letter from its attorney denying the Association's allegations and inquiring as to what avenues of redress or appeal were available within the Association. The Association replied in a brief letter that it had determined there was no reason to change its decision to exclude FTL from future trade shows.

The Association initiated this litigation by filing a suit for a declaratory judgment that it had the legal authority to reject FTL as an exhibitor at the 1983 trade show. FTL counterclaimed and moved for injunctive relief requiring the Association to permit FTL to exhibit at the show. The district court held a hearing on FTL's motion for a preliminary injunction. FTL called two witnesses: Barry Kahn (president and half-owner of FTL) and Rebecca Maddy (executive director of the Association). At the close of the testimony, the Association moved for a directed finding that FTL had failed to carry its burden. The trial judge granted the Association's motion, and made findings of fact and conclusions of law from the bench. Although the court's oral findings were rather sparse, the key findings appear to have been that the primary purpose of the Association was to benefit its regular members (thus the associate members were only incidental beneficiaries), that the relationship between the Association and the exhibitors was contractual, and that the Association had unequivocally reserved the right to determine "arbitrarily" who the exhibitors would be. The district court concluded that associate members were accorded only the privilege of applying to be exhibitors, but not the right to exhibit at the trade shows. Because FTL had failed to show that there was a reasonable likelihood it would succeed on the merits, the district court denied FTL's motion for a preliminary injunction.

Both parties subsequently stipulated that at a trial on the merits FTL would offer the identical evidence presented at the first hearing. With this evidentiary record, the court reconfirmed its earlier findings of fact and conclusions of law and entered a final judgment for the Association on FTL's counterclaim. The Association stipulated to the dismissal of its declaratory-judgment claim.

II

The threshold issue in this diversity action is to determine which state's law applies. ⁶ In general, a federal district court sitting in diversity must apply the choice-of-law rules of the forum in which it sits. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 1021-22, 85 L.Ed. 1477 (1941). Before the district court and on appeal, the parties have apparently agreed that Illinois law governs this dispute. However, as the district court noted at the hearing on FTL's motion for an injunction, under Illinois choice-of-law rules, an Illinois court would apply the law of the state of incorporation (in this case Missouri). ⁷ See Kern v. Chicago & Eastern Illinois R.R. Co., 6 Ill.App.3d 247, 250, 285 N.E.2d 501, 503 (1972).

Although neither party cites law from the appropriate forum, a determination of the applicable state law is not required in this case, because "[w]here parties fail to raise a possible conflict of substantive laws ... the substantive law of the forum controls." Gonzalez v. Volvo of America Corp., 752 F.2d 295, 299 (7th Cir.1985). Stated in another manner, unless the parties argue otherwise, it is assumed that the law of the forum and the laws of the applicable jurisdiction are in substance the same. See Central Soya Co. v. Epstein Fisheries, Inc., 676 F.2d 939, 941 (7th Cir.1982). Similarly, unless the court's subject-matter jurisdiction is affected, parties may generally stipulate to the substantive law to be applied. See Casio, Inc. v. S.M. & R., Inc., 755 F.2d 528, 531 (7th Cir.1985). Here the parties failed to raise the choice-of-law issue. We deem them, therefore, to have stipulated to the application of Illinois law. ⁸

We agree with the district court that the relationship between the Association and FTL was a contractual one. The Association's by-laws say nothing about the trade shows. The exhibitor application form leaves no doubt that the Association reserved the right to refuse, without giving cause, an associate member's application. Thus, with reference to its contractual obligations, the Association acted within its rights in rejecting FTL's application. If FTL has a right to recovery, it must come from an extra-contractual source.

Under Illinois law, a court ordinarily will not review the actions of a voluntary association with respect to its members; when a court does intervene, the scope of its intervention is exceedingly narrow. See Charles O. Finley & Co. v. Kuhn, 569 F.2d 527, 542 (7th Cir.), cert. denied, 439 U.S. 876, 99 S.Ct. 214, 58 L.Ed.2d 190 (1978). The rule of nonintervention may not apply if: (1) the association has failed to afford members...