Philips Business Systems, Inc. v. Executive Communications Systems, Inc.
| Citation | 744 F.2d 287 |
| Decision Date | 12 September 1984 |
| Docket Number | Nos. 1371,1372 and 1777,s. 1371 |
| Parties | 1984-2 Trade Cases 66,196 PHILIPS BUSINESS SYSTEMS, INC., Plaintiff-Appellant-Cross-Appellee, v. EXECUTIVE COMMUNICATIONS SYSTEMS, INC., trading as Executive Communications Systems, Charles McGuire and Cornelius Fitzsimons, Defendants-Appellees-Cross-Appellants. PHILIPS BUSINESS SYSTEMS, INC., Plaintiff-Appellant-Cross-Appellee, v. Don A. CARLOS, d/b/a D and S Business Systems, D and S Word Processing Systems, and Diskriter, Defendants-Appellees-Cross-Appellants. to 1780, Dockets 83-7842, 83-7959, 84-7236, 84-7238, 84-7240 and 84-7242. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
John T. Morin, New York City (Gifford, Woody, Palmer & Searles, New York City, of counsel), for plaintiff-appellant-cross-appellee.
Dennis C. Fleischmann, New York City (Emmett, Marvin & Martin, New York City, of counsel), for defendants-appellees-cross-appellants.
Before FRIENDLY, VAN GRAAFEILAND and WINTER, Circuit Judges.
Philips Business Systems, Inc. ("PBSI") appeals from a judgment dismissing its claims brought under the Robinson-Patman Act against two of its distributors, Executive Communications Systems, Inc. ("Executive") and Don A. Carlos ("Carlos"). PBSI also appeals from an order awarding $59,342 in attorney's fees to Executive and Carlos. Executive and Carlos cross appeal, seeking attorney's fees for time spent litigating the fee issue. We affirm the dismissal of the actions but reverse the attorney's fee award. We affirm on the cross-appeal.
This appeal is the latest chapter in the overly long history of litigation between PBSI and two of its distributors, a saga that has entailed three lawsuits and three appeals but that has yet to reach a trial on the merits.
Until July, 1981, PBSI marketed NORELCO office products through an organization comprised of 55 Exclusive Distributors ("ED's") and 90 Independent Retail Outlets ("IRO's"). Each ED was assigned a Primary Area of Responsibility ("PAR"), and PBSI agreed neither to appoint another ED nor to compete directly for sales within the PAR. Other ED's, however, were free to enter the PAR on their own initiative. The IRO's, established by PBSI in 1979, were designed to replace failed ED's or to cover areas not already assigned to an ED.
Within this marketing system, IRO's and ED's served similar functions. Both sold NORELCO products to wholesale dealers and to retail consumers. ED's, however, provided customer service and received more favorable marketing terms from PBSI than did IRO's. Pursuant to Exclusive Distributor Agreements running from July 1, 1978 to June 30, 1981, ED's: (1) were allowed to purchase merchandise from PBSI at a discount 16.6% greater than that offered IRO's; and (2) were given 60 days to pay for inventory purchased, rather than the 30 days allowed the IRO's. PBSI also had a longstanding practice of allowing ED's to purchase individual Yellow Pages advertisements characterizing themselves as exclusive area distributors of NORELCO products. PBSI would pay one-half the cost of these advertisements.
On July 1, 1981, the day the ED agreements expired, PBSI attempted to change its marketing system by eliminating the distinction between ED's and IRO's. Under the new plan, all NORELCO distributors would henceforth receive the same discount rate (one more favorable than that formerly offered ED's), the same 30 day payment terms, and the same advertising privileges. Additionally, PBSI would have the right to sell inventory to multiple vendors (former customer-dealers for example) and to compete directly within a PAR. Executive and Don Carlos, both ED's, sued separately to enjoin PBSI from putting its new marketing system into effect.
On June 26, 1981, before the marketing changes went into effect, Executive filed suit in the Eastern District of New York pursuant to The New Jersey Franchise Practices Act, N.J.Stat.Ann. Secs. 56:10-1 to :10-15 (West Supp. 1984). Executive On July 30, 1981, Judge Bramwell issued a preliminary injunction. See Executive Business Systems v. Philips Business Systems, No. CV-81-2075 (E.D.N.Y. July 23, 1981). He found that the loss of the Exclusive Distributorship would cause Executive irreparable harm by forcing it to compete with PBSI directly. He further found that Executive was likely to succeed on its claim under the New Jersey Franchise Act since it qualified as a franchise and PBSI had failed to continue the identical prior relationship without either the required 60 day written notice or the necessary "good cause." NJSA Sec. 56:10-5. 1 The preliminary injunction ordered PBSI not to cancel, terminate or otherwise amend the July 1, 1978 Distributorship Agreement with regard to Executive and not to communicate with anyone now engaged, or about to be engaged, in buying, selling, or dealing with Executive concerning products covered under that agreement.
sought damages and an order enjoining PBSI from terminating, cancelling, or otherwise amending the Exclusive Distributor Agreement of 1978 so far as it applied to Executive. Jurisdiction was based on diversity of citizenship.
The preliminary injunction was upheld by this court on November 27, 1981 in a summary order stating, inter alia, that that alteration of the distributorship relationship might force Executive into ruinous competition with PBSI and that the injunction merely maintained the status quo by preserving "Executive's exclusive distributorship and protect[ing] its existing clientele from any interference which did not exist prior to the lawsuit." Executive Business Systems v. Philips Business Systems, 679 F.2d 872 (2d Cir.1981). We considered no federal legal issue.
Executive moved in the district court to have PBSI adjudged in contempt for violating the preliminary injunction. Executive alleged, inter alia, that, (1) PBSI's attorney had contacted two of Executive's customers to procure affidavits from them detailing their business relationship with Executive; (2) PBSI was not giving Executive the additional 16.6% discount it had enjoyed over the former IRO's; (3) PBSI was not allowing Executive 60 days for payment of inventory purchased; and (4) PBSI would not allow Executive separate Yellow Pages advertising but listed it in advertisements as one of advertising but listed it in advertisements as one of several NORELCO representatives.
Judge Bramwell found PBSI in contempt on January 14, 1982 and ordered sanctions. Executive Business Systems v. Philips Business Systems, 539 F.Supp. 76 (E.D.N.Y.1982). Immediately after the contempt decision, PBSI moved to modify the preliminary injunction so as to permit Executive to receive only the discount all other former IRO's and ED's were currently receiving rather than the additional discount mandated by the district court. PBSI maintained that the pre-July 1981 status quo could be continued simply by enjoining it from selling within Executive's PAR. PBSI also moved to amend its answer by asserting a counterclaim charging Executive with inducing discriminatory prices in violation of the Robinson-Patman Act. Judge Bramwell denied both motions.
In a separate action, Carlos, another former ED, sued PBSI on August 6, 1981, again in the Eastern District. Carlos claimed that PBSI's marketing change violated Finding that loss of the Exclusive Distributorship would cause Carlos irreparable harm and that it was likely that PBSI had violated the New Jersey and Connecticut Franchise Acts, Judge Bramwell granted a preliminary injunction similar to the order entered in the Executive action. Carlos v. Philips Business Systems, 556 F.Supp. 769 (E.D.N.Y.1983). PBSI is prohibited from terminating or modifying the July 1, 1978 Distributorship Agreement with regard to Carlos. This court affirmed on the grounds that Judge Bramwell had not abused his discretion. Carlos v. Philips Business Systems, 742 F.2d 1432 (2d Cir.1983). We noted, but neither discussed nor resolved, the existence of a claim by PBSI that the state franchise acts, as construed, were invalid as inconsistent with the Robinson-Patman Act. Thus, Carlos, like Executive, continues to receive an additional 16.6% discount which is apparently enjoyed by no other NORELCO distributor purchasing from PBSI.
both the New Jersey Franchise Practices Act and the Connecticut Franchise Act, Conn.Gen.Stat.Ann. Secs. 41-133e to -133h (West Supp. 1982), and requested that PBSI be enjoined from cancelling or amending the 1978 Distributorship Agreement with regard to it. Jurisdiction was again based on diversity of citizenship.
On March 28, 1983 PBSI commenced the present lawsuits against Executive and Carlos, again in the Eastern District, alleging that they were violating Sections 2(a) and (f) of the Robinson-Patman Act by inducing and receiving a discriminatory 16.6% discount. PBSI sought injunctive relief and treble damages.
Executive and Carlos moved to dismiss and for attorney's fees. Judge Bramwell granted both motions. Philips Business Systems v. Executive Business Systems, 570 F.Supp. 1343 (E.D.N.Y.1983). PBSI's actions, he stated, sought to use the Robinson-Patman Act to mount a collateral attack on the injunctions granted in the franchise cases. He believed such an action to be prohibited by the injunction bond rule which limits a suit for damages sustained because of a wrongful injunction sought in good faith to the security posted. Id. at 1347-49. Because he found the bringing of the instant cases was part of a "pattern of obdurate and obstinate behavior," id. at 1350, Judge Bramwell awarded $59,342 in attorney's fees to Executive and Carlos.
PBSI appeals from both rulings. Carlos and Executive cross appeal from the denial of attorney's fees for the effort of litigating the motion for attorney's fees.
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