Potter's Photographic Applications Co. v. Ealing Corporation

• Decision Date: 11 October 1968
• Docket Number: No. 67-C-398.,67-C-398.
• Citation: 292 F. Supp. 92
• Parties: POTTER'S PHOTOGRAPHIC APPLICATIONS CO., Inc., Plaintiff, v. The EALING CORPORATION and Popular Science Publishing Co., Inc., Defendants.
• Court: U.S. District Court — Eastern District of New York

292 F. Supp. 92

POTTER'S PHOTOGRAPHIC APPLICATIONS CO., Inc., Plaintiff, v. The EALING CORPORATION and Popular Science Publishing Co., Inc., Defendants.

No. 67-C-398.

United States District Court E. D. New York.

October 11, 1968.

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Joseph Goldberg, New York City, for plaintiff.

DeBevoise, Plimpton, Lyons & Gates, New York City, for defendant The Ealing Corp.; Robert M. Buchanan, New York City, of counsel.

Parker, Duryee, Zunino, Malone & Carter, New York City, for defendant Popular Science Publishing Co., Inc.; Stephen Charnas, New York City, of counsel.

ZAVATT, Chief Judge.

Plaintiff is engaged in the importation, manufacture, sale and distribution of photographic and audio visual equipment, film and supplies, and sells the same to industrial, governmental and educational users throughout the country. Defendant Ealing is engaged in the production, sale and distribution of educational films. At some unstated time, plaintiff and Ealing entered into an oral agreement pursuant to which Ealing appointed plaintiff its exclusive agent in the metropolitan New York area for the sale and distribution of its films. Ealing agreed to sell to and supply plaintiff with films for resale by plaintiff in the metropolitan New York area. Plaintiff agreed to purchase the films and to sell them in the said area, and also agreed to maintain a representative stock of Ealing-produced films in its warehouse. Ealing allegedly agreed that it would not terminate the agreement arbitrarily and that it was to continue "so long as plaintiff established a market for Ealing's films in the metropolitan New York area."

Plaintiff began selling Ealing films and alleges that, by the expenditure of time, effort and expense, it created a demand for Ealing films in the New York area. Defendant Popular Science was aware of the aforesaid agreement but, nonetheless, persuaded Ealing to repudiate the same, and Ealing did so by terminating the agreement by letter of October 14, 1966, effective January 17, 1967. Plaintiff also alleges that as a result of its efforts in inducing Ealing to breach its agreement with the plaintiff, Popular Science was granted the exclusive sales and/or distribution rights in the metropolitan New York area; that the termination of plaintiff's contract and the diversion of said agreement to Popular Science was accomplished by the defendants "acting in concert with another." Finally, plaintiff alleges that:

"In the course of the conduct of the business conducted by the defendants they have in the past, and are now in competition with other persons in the sale and distribution of films produced by defendant EALING, except as such competition has been substantially limited, reduced and lessened by the practices and conduct hereinabove described." (Emphasis added.)

The complaint states six distinct claims for relief:

1. against both defendants for unfair competition;

2. against Ealing for breach of contract;

3. against Popular Science for inducing the breach;

4. against both defendants for conspiring to interfere with plaintiff's property rights;

5. against Ealing for fraudulently inducing plaintiff to enter into the agreement; and

6. against both defendants for violation of the federal antitrust laws.

The defendants have brought on several motions addressed to the jurisdiction of the court and to the sufficiency of certain of these claims. Ealing has moved to dismiss the entire complaint on the grounds (1) that it is not subject to personal jurisdiction in this court; (2) that venue is improperly laid in the Eastern District of New York; (3) that the court lacks subject matter jurisdiction in that the amount in controversy does not exceed $10,000. It also (4) moves to dismiss the sixth claim for failing to state a claim under the antitrust laws; (5) the fourth claim and certain paragraphs of the first claim for failing to state claims under New York law; and (6) the fifth claim, for failing to comply with Rule 9(b) of the Federal Rules of Civil Procedure and also for failing to state a claim under New York law. Popular Science has moved (7) to dismiss the first, third and fourth claims on the ground that the court lacks subject matter jurisdiction in that there is no diversity of citizenship with respect to these claims; (8) the fourth claim on the additional ground that it fails to state a claim under New York law; and (9) the sixth claim for failing to state a claim under the antitrust laws.

Ealing's motions to dismiss the fourth and sixth claims are granted. Popular Science's motions to dismiss the first, third, fourth and sixth claims are likewise granted. All other motions are denied.

Personal Jurisdiction

Ealing was served with process in the Commonwealth of Massachusetts on May 24, 1967 by a Deputy United States Marshal for the District of Massachusetts. Such service is contemplated by Rule 4(e) of the Federal Rules of Civil Procedure, which provides:

"Whenever a statute or rule of court of the state in which the district court is held provides (1) for service of a summons * * * upon a party not an inhabitant of or found within the state * * * service may * * * be made under the circumstances and in the manner prescribed in the statute or rule."

The New York Civil Practice Law and Rules (CPLR) provides for service outside the State of New York.

"A person domiciled in the state or subject to the jurisdiction of the courts of the state under section 301 or 302 * * * may be served with the summons without the state, in the same manner as service is made within the state * * *." CPLR § 313. (Emphasis added.)

Service of the summons and complaint in this case was made upon Thomas Altman, Treasurer of Ealing, and therefore was made "in the same manner" as service within New York since CPLR § 311 permits corporations to be served by delivering the summons to an officer thereof. Ealing's motion to dismiss the complaint is predicated on its belief that it is not subject to the jurisdiction of the courts in New York under either CPLR § 301 or § 302. Those statutes, to the extent they are relied upon by plaintiff, read as follows:

CPLR § 301

"A court may exercise such jurisdiction over persons, property or status as might have been exercised heretofore."

CPLR § 302

"(a) As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary * * * who in person or through an agent:

1. transacts any business within the state * * *."

A hearing was ordered by the court, to clarify questions raised by the moving and answering papers with respect to the jurisdictional question, and was held on April 16 and 17, 1968. The following facts pertinent to the issue of jurisdiction and venue were developed. Ealing, a Delaware corporation,¹ maintains its principal business office in Cambridge, Massachusetts. Its total national sales volume in 1966 was $2,978,000, of which approximately $250,000 resulted from sales to New York State customers. Sales of film loops (the subject of the contract in this case) in this State for 1966 account for approximately $60,000 of the 1966 sales to New York customers. Ealing's General Manager estimated that the 1967 sales to New York State customers would be $325,000, of which $90,000 would represent sales of film loops. Ealing does not employ any salesmen in New York, or for that matter, anywhere in the country. It relies instead upon a catalog which it makes available to the trade (including businesses in New York) either at direct cost or without cost; advertisements in national trade journals which are distributed in New York; displays at trade shows, some of which are held periodically in New York. Orders are accepted or rejected by Ealing in Cambridge; shipments are F.O.B. Cambridge, Massachusetts; the goods are billed from Cambridge; payments are mailed to Cambridge.

Ealing does, however, maintain an office in New York, at 866 United Nations Plaza, New York City. This office is not a sales office of Ealing but, rather, is used solely by Mr. Richard Winslow, an Ealing employee not directly associated with their sales effort. Winslow was engaged by Ealing in November 1966 to explore the "soft ware" side of the business. He originally spent much of his time establishing contacts with New York publishers (he had been previously employed by Doubleday) while seeking to develop with them what he called "instructional packages," which contained film loops and various printed materials. Since the end of last year, Winslow has been devoting his time to developing a program for teacher training by the use of sound films and manuals. Winslow appropriately characterized his work as "product development" and he referred to himself as an "idea man." His job requires him to confer with educators, script writers, etc., from every part of the country, approximately one fifth of whom are in New York State. Winslow spends one half of his time in New York, one quarter in Cambridge, and the balance on business trips elsewhere. Although Ealing claims that none of Winslow's efforts have as yet generated income, they are undoubtedly important to Ealing's business prospects. Research and development of new products is a virtual necessity for any business with an eye towards future growth, and especially so in a relatively new field with much virgin territory to explore. In fact, Ealing's General Manager admitted that part of Ealing's business is to develop friendships with educators, because such friendships eventually stimulate sales. Ealing pays the rent ($295 per month) for the New York City office although Winslow signed the original lease (which has since expired). The name "Ealing" appears on the door to the office beneath Winslow's name with the same size lettering, but only Winslow's name appears on the building directory. The Manhattan telephone directory lists Ealing with...