Norris v. Grosvenor Marketing Ltd.

• Decision Date: 27 October 1986
• Docket Number: No. 24,D,24
• Citation: 803 F.2d 1281
• Court: U.S. Court of Appeals — Second Circuit
• Parties: Crawford S. NORRIS and Kathleen Norris, Plaintiffs-Appellants, Cross-Appellees, v. GROSVENOR MARKETING LIMITED and R. Twinings & Co. Ltd. (U.S.A.) and R. Twining and Company, Ltd., Defendants-Appellees, Cross-Appellants. ockets 86-7344, 86-7372.

Page 1281

803 F.2d 1281

6 Fed.R.Serv.3d 109

Crawford S. NORRIS and Kathleen Norris, Plaintiffs-Appellants, Cross-Appellees, v. GROSVENOR MARKETING LIMITED and R. Twinings & Co. Ltd.

(U.S.A.) and R. Twining and Company, Ltd.,

Defendants-Appellees, Cross-Appellants.

No. 24, Dockets 86-7344, 86-7372.

United States Court of Appeals, Second Circuit.

Argued Sept. 9, 1986.

Decided Oct. 27, 1986.

Christopher R. Belmonte, New York City (Lane & Mittendorf, New York City, Linda K. Singer, of counsel), for plaintiffs-appellants, cross-appellees.

Martin Frederic Evans, New York City (Debevoise & Plimpton, David W. Rivkin and Weisman, Celler, Spett, Modlin & Wertheimer, New York City, Steven L. Cohen, of counsel), for defendants-appellees, cross-appellants.

Before LUMBARD, KEARSE, and WINTER, Circuit Judges.

LUMBARD, Circuit Judge:

Crawford Norris and his wife Kathleen Norris, plaintiffs in this diversity action, appeal from the entry of an order in the Southern District, Charles H. Tenney, Judge, granting summary judgment for defendants Grosvenor Marketing Limited (Grosvenor), R. Twinings & Co. Ltd. (U.S.A.) (Twinings (U.S.A.)) and R. Twining and Company, Ltd. (Twining). In a decision reported at 632 F.Supp. 1193 (S.D.N.Y.1986), the district court held the Norrises' claims had been fully adjudicated in an arbitration proceeding between Norris and a third party not involved in this action. The Norrises therefore were collaterally estopped from reasserting those claims. On appeal, the Norrises contend that summary judgment was improperly granted because the arbitrator did not unambiguously decide issues dispositive of the claims presented in this action. Defendants argue that the grant of summary judgment may be upheld either on the grounds relied upon by the district court or on the alternative ground that plaintiffs' claims were time barred. They also cross-appeal, claiming that the district court erred in denying their motion for attorneys' fees under Fed.R.Civ.P. 11. ¹

We affirm Judge Tenney's grant of summary judgment for defendants on both theories argued by defendants on appeal. However, we agree with defendants that plaintiffs' claims were "destined to fail;" accordingly, we remand the case for determination of appropriate sanctions under Rule 11.

The parties do not dispute the basic facts. Twining, a British corporation, prepares and sells a well-known brand of tea worldwide. Crawford Norris distributed Twining Tea in the United States from the 1930s until 1969. In the late 1960s, Robert R. Cooper began assisting Norris in the operation of his business and eventually became a director of the Norris Agency. In 1968, Twining approached Cooper about becoming its United States distributor, indicating that it had decided not to renew Norris' license when it expired in 1970. Cooper accepted Twining's proposal. In June, 1969, Twining informed Norris that his agency would not be renewed when it expired.

Subsequently, Norris agreed to sell his distribution system to Cooper. In a December, 1969 agreement, Norris transferred to Cooper his distributorship agreement with Twining, his inventory and customer lists, his unfilled sales orders, and the lease for his midtown Manhattan offices. Norris further agreed not to compete in the tea or coffee business in the United States for six years, to resign from Twining's board of directors and renounce all claims against Twining, and to assist Cooper's new corporation by providing consultative services and below-market financing. In return, Norris was to receive a specified percentage, eventually 25%, ² of the "after-tax operating profits" of Cooper's agency during the term of its distributorship agreement with Twining, including any renewals and extensions. These payments were to be made for Norris' lifetime and, in the event he predeceased his wife, for his wife's lifetime. The contract finally required any controversies arising under it to be submitted to arbitration. Cooper made payments to Norris under this agreement from 1970 until the fall of 1979.

In 1976, Twining renewed Cooper's distributorship. The renewal agreement provided that either party could terminate the agency on or after December 31, 1981, by giving the other party two years notice. In December, 1979, Twining gave such notice to Cooper. On March 31, 1980, Cooper authorized Grosvenor, an affiliate of Twining which has been distributing tea in the United States since the end of the Cooper distributorship, to accelerate the two-year notice provision. The distributorship therefore was terminated effective January 1 1980. In exchange, Cooper received a $3 million payment "for the cancellation of the distributorship agreement" and a $40,000 payment for signing a covenant not to compete.

In the fall of 1979, Cooper stopped making payments to Norris under the 1969 agreement. After repeatedly requesting that Cooper resume making payments, Norris instituted arbitration proceedings against him on January 20, 1981. The notice of intention to arbitrate read:

Whether or not you, Robert R. Cooper, have breached the provisions on your part to have been performed in the [December, 1969] agreement with respect to the payment to Crawford S. Norris of an agreed portion of the annual profits of the business of R.R. Cooper, Ltd.

In a memorandum submitted to the arbitrator prior to the hearing, Norris delineated three claims: $29,694 for the payments that Cooper had not made during 1979, $775,000, representing 25% of the payments received by Cooper under the agreement with Twining to cancel his distributorship, and finally, $948,259 in general contract damages. Norris calculated this last figure by multiplying $189,652, the average annual share of profits received by Norris under the 1969 agreement during the final four years of the Cooper distributorship, by a five year life expectancy for Norris and his wife. Norris based his final claim on the theory that Cooper had breached the 1969 agreement by inducing Twining to terminate his distributorship, thereby depriving Norris of his 25% share of the distributorship's future profits.

Norris and Cooper presented evidence on these claims during a five-day arbitration proceeding. Although Twining was not a party to the arbitration, Sam H.G. Twining, Twining's export director, and F. James McGilloway, Twining's chief operating officer, testified on Cooper's behalf regarding the distributorship. However, each refused to answer questions about the operations of Twining's United States distributorship after it was taken over by Grosvenor in April, 1980, claiming that such information was privileged to Twining and not relevant to the arbitration proceeding. Prompted by repeated requests for such information, the arbitrator ruled that he would not "permit any introduction at this time of any financial information on the operation" of the distributorship after 1980. After the hearing, Norris submitted a memorandum to the arbitrator in which he asserted that the evidence supported recovery of each of his three claims against Cooper.

The arbitrator finally awarded Norris $26,694 for the missed payments from 1979, and $750,000 as Norris' share of Twining's $3 million payment to Cooper for disposition of assets. ³ The award stated that it was "in full settlement of all claims and counterclaims submitted to the arbitration." After the New York Court of Appeals affirmed the arbitrator's decision in In re Arbitration between Silverman and Benmor Coats, Inc., 61 N.Y.2d 299, 473 N.Y.S.2d 774, 461 N.E.2d 1261 (1984) (consolidated case), Cooper paid the award in full.

The Norrises commenced this suit against Grosvenor, Twining, and Twining (U.S.A.) in the Southern District on April 25, 1985, stating three causes of action. Their first claim alleged that defendants knowingly participated in Cooper's breach of his fiduciary duties under the 1969 agreement, thereby depriving the Norrises of their right to receive 25% of the "after-tax operating profits" of Twining's United States distributorship for the remainder of their lives. The second claim asserted that defendants tortiously interfered with Cooper's performance of his contractual obligations under the 1969 agreement, similarly depriving the Norrises of their lifetime payments. In their third claim, the Norrises argued that Twining wrongfully converted their "life interests" in a 25% share of the profits of the United States distributorship. Apparently, the Norrises' theory was that their interest in the distributorship arose from the 1969 agreement between Norris and Cooper. Plaintiffs demanded $20 million in actual damages and an additional $10 million in punitive damages.

Before answering, the defendants moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b) and also requested sanctions under Fed.R.Civ.P. 11. On April 7, 1986, the district court, treating the motion as one for summary judgment, granted the motion and dismissed the complaint. Judge Tenney ruled that plaintiffs' claims were barred by the doctrine of collateral estoppel. He did not consider defendants' argument that plaintiffs' claims were time barred; he denied without discussion defendants' request for sanctions. The Norrises appeal the grant of summary judgment. Defendants cross-appeal the denial of sanctions.

On appeal, plaintiffs argue that summary judgment was inappropriate because the arbitration did not unambiguously resolve the liability issue presented in the instant case. ⁴ We disagree. All of the plaintiffs' claims raise but a single issue: the right of the Norrises to participate in the continued profits of Twining Tea's United States distributorship. That issue has already been decided at the Norris-Cooper arbitration proceeding.

The parties agree that New York law determines the applicability of the doctrine of collateral estoppel in this diversity action. See Ritchie v. Landau, 475 F.2d 151, 154 (2d Cir.1973). New York has adopted a two-prong...