Oberlin v. Marlin American Corp.

• Decision Date: 24 April 1979
• Docket Number: No. 78-1147,78-1147
• Citation: 596 F.2d 1322
• Parties: 4 Fed. R. Evid. Serv. 1422 Rose Marie OBERLIN, Administratrix of the Estate of William W. Oberlin, Deceased, Plaintiff-Appellant, v. The MARLIN AMERICAN CORPORATION (formerly The Marlin Corporation), SCM Corporation, and Melabs, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1322

596 F.2d 1322

4 Fed. R. Evid. Serv. 1422

Rose Marie OBERLIN, Administratrix of the Estate of William

W. Oberlin, Deceased, Plaintiff-Appellant, v. The MARLIN AMERICAN CORPORATION (formerly The Marlin

Corporation), SCM Corporation, and Melabs, Inc.,

Defendants-Appellees.

No. 78-1147.

United States Court of Appeals, Seventh Circuit.

Argued Oct. 25, 1978.

Decided April 24, 1979.

Donald A. Schabel, Indianapolis, Ind., for plaintiff-appellant.

David W. Mernitz, Indianapolis, Ind., for defendants-appellees.

Before FAIRCHILD, Chief Judge, and CUMMINGS and PELL, Circuit Judges.

PELL, Circuit Judge.

The plaintiff appeals from a final judgment entered against her after the district court directed the verdict for the defendants. On appeal she challenges the district court's finding that the evidence was insufficient to go to the jury and the district court's ruling on various evidentiary issues.

This lawsuit arises from an unsuccessful marketing effort several years ago of a product called the Melabs Attache Phone. This was a portable electronic telephone designed to fit within an attache case and to operate on the same airwaves available to fixed telephone installations in vehicles.

Melabs of California, the manufacturer of the telephone, entered into a contract with the Marlin American Corporation pursuant to which Marlin undertook to distribute the Attache Telephone. During this time, SCM Corporation purchased the assets of Melabs of California and created a wholly-owned subsidiary, Melabs, Inc.

The agreement between Melabs and Marlin gave Marlin the exclusive right to market the Attache Phone in all but a few states, expressly providing that Marlin was an independent contractor and not an agent of Melabs. Melabs, as manufacturer, obligated itself to issue a standard electronic manufacturer's warranty and to provide service contractors and replacement parts in all territories covered by Marlin. Marlin obligated itself

to put forth its best efforts to establish a sales and marketing program throughout its territory on a basis that will realize the full sales potential of the area in the least possible time.

Marlin was also obligated to

develop and be responsible for all brochures, sales aids, forms, advertising materials, mats, franchise presentations, etc., necessary in the sale of the product, both from the standpoint of the franchise sales as well as point of purchase or end user sales.

We shall describe other provisions of the agreement when pertinent to our discussion of the issues.

With the assistance of the Charles Friedlander Advertising Agency, Marlin established a franchising plan for marketing the Attache Phone nationwide. One of the results of the franchising plan was an advertisement in the Wall Street Journal in February 1969. The plaintiff's husband, William Oberlin, saw this advertisement, filled out the coupon, and sent it to Marlin. Marlin then sent Oberlin a letter informing him of a meeting at the Indianapolis Holiday Inn on June 12, 1969. Mr. Oberlin attended the meeting, during which a Marlin representative gave a slide presentation and distributed brochures praising the investment potential of an Attache Phone franchise. On the day following this presentation, William Oberlin read and signed a contract with Marlin as zone distributor of Attache Phones for central Indiana. On the same day Oberlin paid $28,000 to the Marlin representative, as required by the agreement. By November of 1969, Oberlin learned that Indiana Bell Telephone Company had no numbers available for these telephones and that sale of them without numbers was difficult, if not impossible, despite his vigorous efforts.

William Oberlin brought this diversity action against Marlin, Melabs, Inc., and SCM Corporation. Count I of the complaint charged that Marlin had fraudulently induced him to accept the distributorship. In the first count, the liability of SCM and Melabs was based on an alleged agency relationship between each of these defendants and Marlin. Count II alleged that Marlin breached the distributorship agreement with Oberlin. Count III alleged a conspiracy between the three defendants.

Prior to trial William Oberlin died on February 15, 1976, and his widow was substituted as plaintiff. The district court dismissed Marlin as a defendant prior to trial for lack of personal jurisdiction. ¹ After the plaintiff presented her evidence against the remaining defendants to a jury, the district court directed the verdict.

The plaintiff argues on appeal that the evidence of an agency relationship between Marlin and the two defendants was sufficient to go to the jury ² and that the trial court therefore erred in directing the verdict. The plaintiff also raises two evidentiary arguments. According to the plaintiff, the trial court erroneously excluded portions of William Oberlin's deposition and the deposition of a Marlin executive made during a different lawsuit in which Melabs was a defendant. We shall now consider the merits of these arguments.

I. Sufficiency of the Evidence

The plaintiff sought to hold SCM and Melabs liable for Marlin's allegedly fraudulent conduct on the basis of an alleged principal-agent relationship between them. We hold that the trial court correctly directed the verdict against the plaintiff on this issue. ³

When the district court directs a verdict, we test the correctness of the ruling by considering only the operative facts favorable to the plaintiff, disregarding conflicting unfavorable testimony, and drawing all inferences most strongly in her favor. Gunning v. Cooley, 281 U.S. 90, 50 S.Ct. 231, 74 L.Ed. 720 (1930); Hohmann v. Packard Instrument Co., 471 F.2d 1132 (7th Cir. 1973); Kish v. Norfolk & Western Ry., 426 F.2d 815 (7th Cir. 1970).

As an initial matter we are giving no significance for the purpose of this appeal to the fact that the contract between Melabs and Marlin expressly designated Marlin as an independent contractor and stated that it was not an agent. We instead look at the evidence as to what the relationship was and not what the parties called it. While there probably is no hard and fast rule on the subject it appears generally that the status is determined by an examination of factors such as the extent of control exercised, whether this is just as to the result of the relationship or also as to the means of reaching the result, and the intent and functioning of the parties in their relationships with each other.

The plaintiff's brief emphasizes certain matters submitted in evidence as proof of an agency relationship between Marlin and the defendant Melabs sufficient to withstand a motion for directed verdict. The marketing agreement gave Melabs the right to approve all contract forms and established that uniform terms, conditions, and prices would be offered to ultimate distributors. The marketing agreement also transferred to Melabs the ownership of the distributorships established by Marlin in the event of Marlin's default or bankruptcy. Finally, the plaintiff offered evidence that, in practice, Melabs exercised approval rights over the use of the SCM trademark in advertising materials.

Manufacturers have exercised control over the pricing and contract forms of their distributors, and this practice has not affected the status of distributors as independent contractors. Smith v. Cities Service Oil Co., 346 F.2d 349 (7th Cir. 1965); Coe v. Esau, 377 P.2d 815 (Okla.1963); Hancock v. Minneapolis-Moline, Inc., 482 P.2d 426 (Colo.App.1971); Burkhalter v. Ford Motor Co., 29 Ga.App. 592, 116 S.E. 333 (1923); Seavey, Agency § 84, at 145. The provision in the agreement transferring ownership of the distributorships in the event of Marlin's bankruptcy or default applied only in extraordinary circumstances, and the control of advertising was confined to the discrete area of use of the SCM trademark. Neither the contract nor the evidence of the advertising practice demonstrates the elements of constancy or detail characteristic of the control a principal exercises over his agent. Western Adjustment & Inspection Co. v. Gross Income Tax Division, 236 Ind. 639, 142 N.E.2d 630 (1957); Gross Income Tax Division v. Fort Pitt Bridge Works, 227 Ind. 538, 86 N.E.2d 685 (1949).

Because Marlin used the SCM trademark in its advertising, the plaintiff argues that federal trademark law imposed upon SCM a duty to supervise Marlin's operations sufficient to create an agency relationship between SCM and Marlin. According to the plaintiff the source of this agency relationship is the Lanham Act, 15 U.S.C. §§ 1051 et seq. ⁴ The Lanham Act requires supervision of trademark licensees at the expense of abandonment of the trademark. The licensor must control the operations of its licensees to ensure that the trademark is not used to deceive the public as to the quality of the goods or services bearing the name. See Turner v. HMH Publishing Co., 380 F.2d 224 (5th Cir.), Cert. denied, 389 U.S. 1006, 88 S.Ct. 566, 19 L.Ed.2d 601 (1967); Dawn Donut Co. v. Hart's Food Stores, Inc., 267 F.2d 358 (2d Cir. 1959). The purpose of the Lanham Act, however, is to ensure the integrity of registered trademarks, not to create a federal law of agency. Furthermore, the scope of the duty of supervision associated with a registered trademark is commensurate with this narrow purpose. The duty does not give a licensor control over the day-to-day operations of a licensee beyond that necessary to ensure uniform quality of the product or service in question. It does not automatically saddle the licensor with the responsibilities under state law of a principal for his agent. Smith v. Cities Service Oil Co., 346 F.2d 349 (7th Cir. 1965); Murphy v. Holiday Inns, Inc., 216 Va. 490, 219 S.E.2d 874 (1975). See Drexel v. Union Prescription Centers, Inc., 428 F.Supp. 663 (E.D.Pa.1977); McLaughlin v. Chicken Delight, Inc., 164 Conn. 317, 321 A.2d 456 (1973); Coe v. Esau,377 P.2d 815 (Okla.1963); Arthur Murray,...