National Merchandising Corp. v. Leyden

• Decision Date: 09 June 1976
• Parties: , 5 A.L.R.4th 1266 NATIONAL MERCHANDISING CORP. v. Edward J. LEYDEN. NATIONAL MERCHANDISING CORP. v. COMMUNITY SUBSCRIBERS, INC., et al. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 771

348 N.E.2d 771

370 Mass. 425, 5 A.L.R.4th 1266

NATIONAL MERCHANDISING CORP.

v. Edward J. LEYDEN.

NATIONAL MERCHANDISING CORP.

v. COMMUNITY SUBSCRIBERS, INC., et al. ¹

Supreme Judicial Court of Massachusetts, Middlesex.

Argued April 7, 1976.

Decided June 9, 1976.

Savino J. Basile, Springfield, for Community Subscribers, Inc. and another.

Gael Mahony, Boston (Timothy J. Dacey, Boston, with him) for plaintiff.

Before REARDON, QUIRICO, BRAUCHER, and KAPLAN, JJ.

KAPLAN, Justice.

These cases, consolidated for trial in the Superior Court, were (1) a proceeding by National Merchanding Corporation (Namco) to hold Edward J. Leyden in civil contempt of a consent decree in Namco's favor to which Leyden, among others, was subject, and (2) an action by Namco against Community Subscribers, Inc. (CSI), and Samuel H. Schrom for inducing breach of, or interfering with Namco's rights in the consent decree viewed as an agreement, and seeking injunctive relief and damages. ² Namco succeeded in both proceedings and the respective defendants appealed. We took the cases for direct appellate review on our own motion (see G.L. c. 211A, § 10A). We affirm.

We outline the cases, reserving some details to the subsequent discussion. Namco's business has consisted of sending its salesmen into given localities in various parts of the country to sell advertising to the merchants; the advertisements are printed on plastic covers for telephone directories; the covers are manufactured by or for Namco and distributed by it without charge to the telephone subscribers. In 1972, a number of persons working in one or other capacity for Namco broke away and thereafter commenced to work for a newly organized, competing corporation called Creative Marketing Associates, Inc. (CMA). Namco sued some nineteen such persons and CMA in Superior Court, grounding the action, apparently, on breach by he individuals of noncompetition agreements with Namco, in which breach CMA had taken a knowing part, and the upshot was a decree of January 26, 1973, specifically consented to by CMA and each of the twelve individual defendants enjoined. The substance of the decree was that the defendants were enjoined 'from soliciting or selling advertisements for telephone directory covers, from planning, supervising or managing such solicitations or sales, and from engaging in the manufacture or distribution of telephone directory covers, either on his or its own behalf or as an agent or employee of any person, firm or corporation' in a prohibited territory consisting of fourteen named States, including the New England States. The injunction was stated to run to September 30, 1974.

Schrom had been an executive of Namco. He withdrew from Namco in May, 1971, but evidently did not work for CMA, and was not a party to the consent decree or the action in which it was entered. In January, 1972, Schrom organized CSI, which he served as president and treasurer. CSI engaged in the same business as Namco in New England and other places; in addition, to the extent of perhaps twenty per cent of its sales, it was developing a 'paper products' business including the promotion of certain novelties.

In September, 1973, George F. Stevens, one of the defendants enjoined by the consent decree, and known to Schrom from the period when they were both working for Namco, had a conference with Schrom at the CSI office in East Rochester, New York. An oral understanding or agreement was then reached between Stevens and CSI (through Schrom). Stevens was to undertake managerial responsibilities for CSI in the New England States and to receive an 'override' commission on sales by the salesmen working that territory who might be hired after Stevens joined CSI. According to Stevens and Schrom, Stevens was to act as manager only of the paper products division for New England, and was not to concern himself with the directory cover business. The trial judge, however, concluded that this was a pretense: he found that, with knowledge of the consent decree, Schrom agreed with Stevens that Stevens would supervise and manage the directory cover business, and that Stevens in fact did so until about September, 1974, after the commencement of the present action. It is clear that Stevens himself made some direct sales of directory cover advertising for CSI in New England during this period, and that Leyden and some others enjoined by the consent decree also sold such advertising on commission for CSI in New England. The judge charged CSI and Schrom with guilty knowledge of the substance of these activities also.

Upon findings of fact and order for decree the judge: (1) in the contempt proceeding, assessed damages of $5,784 against Leyden (representing his commissions received from CSI) and enjoined him from soliciting advertising for directory covers in New England until January 1, 1976; (2) in the action for interference with contractual relations, entered judgment against CSI and Schrom for $27,462 (roughly ten per cent of CSI's gross sales of directory covers in New England during Stevens's managership), and enjoined them until January 1, 1976, from employing certain of the defendants named in the consent decree, including Leyden and Stevens, to solicit advertising on directory covers or to manage or supervise such solicitation in the New England States. ³ (There were ancillary injunctive provisions. ⁴)

On his appeal, Leyden, admitting as he did in his pleadings that he was in contempt of the consent decree, argues that the damages imposed on him, payable to Namco, are excessive. On their appeal, CSI and Schrom dispute the judge's findings, in effect, that they interfered with Namco's contractual interests, or did so consciously; they contend that the measure of damages applied to them is erroneous; and they raise a question about the judge's use of an accountant as an impartial expert in collating and analyzing certain records of CSI.

1. We need spend but a moment on the contention that the judge was wrong in his central findings that CSI and Schrom consciously subverted the consent decree, or, otherwise stated, acted in knowing concert with Stevens and others in their violation of the agreement which formed the basis of the consent decree. All the testimony is reproduced in the record and it requires no studied reading to see that the judge's findings, far from being 'clearly erroneous,' as the defendants would have to establish for reversal (see Mass.R.Civ.P. 52(a), 365 Mass. --- (1974)), are strongly supported. Namco had no ready means of proving its case except by calling Stevens and Schrom and 'emptying' them. Even so it was shown that Schrom was aware as early as February, 1973, that a consent decree had been entered covering former members of Namco's staff. As to the assertions by Stevens and Schrom that Stevens was to steer clear of the directory cover business, these were confounded by the fact that Stevens was paid 'override' commissions of $23,199 on directory cover advertising sold by salesmen working in New England; such overrides were a customary method of compensating regional managers in respect to business brought in by the salesmen they supervised. Add to this that direct sales of directory cover advertising were made for CSI by persons under the consent decree: this was established with particular detail out of the records of CSI regarding Stevens ($1,487 direct commissions) ⁵ and Leyden ($5,784) and two others, John Rotondo ($10,339), and Sanford L. Griff ($2,740). A nice touch was supplied by the fact that Leyden, while soliciting directory cover advertising and nothing else for CSI, carried a business card in which he was represented as in the paper products division, his pretense thus matching Stevens's.

2. CST and Schrom argue that under a 'tort' measure of damages to be applied to them, the judgment of $27,462 was excessive. For interference with contractual relations, cases in this jurisdiction have awarded to plaintiffs an approximation of their lost profits, evidently on a tort basis. ⁶ As was said in H. D. Watts Co. v. American Bond & Mortgage Co., 260 Mass. 599, 613, 157 N.E. 634, 639 (1927), quoting from Walker v. Cronin, 107 Mass. 555, 565 (1871), 'the damage for which recovery is had is 'the loss of advantages . . . which, but for such interference, the plaintiff would have been able to attain or enjoy. '' See Gentile Bros. v. Rowena Homes, Inc., 352 Mass. 584, 591--592, 227 N.E.2d 338 (1967). It is recognized that 'an element of uncertainty in the assessment of damages is not a bar to their recovery,' see the H. D. Watts case on later appeal, 267 Mass. 541, 554, 166 N.E. 713 (1929); and that where, as here, ⁷ 'the difficulties in determining damages arise in large part from (the defendant's conduct),' Air Technology Corp. v. General Elec. Co., 347 Mass. 613, 627, 199 N.E.2d 538, 548 (1964), '(a) reasonable approximation will suffice.' Ibid. See Godin v. Niebuhr, 236 Mass. 350, 353, 128 N.E. 406 (1920).

The award of $27,462 made here corresponds, roughly, to ten per cent of something less than the sales of directory cover advertising by CSI in New England from October, 1973, (after Stevens became manager) to September, 1971--sales that can be taken as infected by violations of the consent decree. ⁸ The ten per cent may be regarded on this record as an approximation of the margin of profit of Namco, and of CSI as well, on this line of business. ⁹ There is nothing unreasonable, in our view, in the judge's taking the gross tainted sales of CSI as not exceeding the sales of which Namco was capable, had the interference not occurred. See Dean v. Emerson, 102 Mass. 480, 485 (1869); Annot., 127 A.L.R. 1152, 1152--1155 (1940). ¹⁰ Thus the recovery against CSI and Schrom on a so called 'tort' basis appears fair and not extravagant.

If, alternatively, the award is viewed as a recovery by Namco of an amount representing CSI's profits, roughly equating with...