Ross-Simons of Warwick, Inc. v. Baccarat, Inc.

• Citation: 66 F.Supp.2d 317
• Decision Date: 31 August 1999
• Docket Number: C.A. No. 96-062L.
• Parties: ROSS-SIMONS OF WARWICK, INC., Ross-Simons, Inc., Ross-Simons of Barrington, Inc., Ross-Simons of Atlanta, L.L.C., and Ross-Simons of North Carolina, L.L.C., Plaintiffs, v. BACCARAT, INC., Defendant,
• Court: United States State Supreme Court of Rhode Island

66 F.Supp.2d 317

ROSS-SIMONS OF WARWICK, INC., Ross-Simons, Inc., Ross-Simons of Barrington, Inc., Ross-Simons of Atlanta, L.L.C., and Ross-Simons of North Carolina, L.L.C., Plaintiffs, v. BACCARAT, INC., Defendant,

C.A. No. 96-062L.

United States District Court, D. Rhode Island.

August 31, 1999.

COPYRIGHT MATERIAL OMITTED

Steven E. Snow, Partridge, Snow & Hahn, Thomas R. Noel, Providence, RI, for Plaintiffs.

John H. Blish, Joseph V. Cavanagh, Jr., Blish & Cavanagh, Providence, RI, Jeffrey A. Oppenheim, Jane Kessler, P.C., New York City, for Defendants.

DECISION AND ORDER

LAGUEUX, Chief Judge.

After a long journey through the federal judicial system, this case has at last reached its denouement. This Court is now prepared to render its decision on the merits following a bench trial. Plaintiffs (collectively, "Ross-Simons") allege that defendant Baccarat, Inc. ("Baccarat") breached the terms of a settlement agreement that disposed of an antitrust lawsuit filed by plaintiffs in 1993. To remedy these disputed contract violations, plaintiffs seek equitable relief requiring Baccarat to live up to the terms of its promise. For the reasons outlined below, this Court rules in favor of three plaintiffs and against the two others. The successful plaintiffs are entitled to a permanent injunction enforcing the bargain they made with defendant.

I. Standard of Law for Bench Trials

Pursuant to Federal Rule of Civil Procedure 52(a), this Court may enter judgment following a trial without a jury. See Fed. R.Civ.P. 52(a). In crafting a decision following a bench trial, the Court "shall find the facts specially and state separately its conclusions of law thereon." Id. It is within the purview of the trial court to weigh the credibility of witnesses for the purpose of making findings of fact. See id. The following findings of fact are based upon the evidence presented during the three days of trial conducted before this Court without a jury.

II. Findings of Fact

In 1992 Baccarat and Ross-Simons settled an antitrust suit filed by Ross-Simons. The suit alleged that Baccarat, the nonpareil manufacturer of French lead crystal, improperly refused to deal with Ross-Simons, a Rhode Island-based retailer of luxury items. In addition, Ross-Simons implicated two producers of fine French dinnerware and alleged that all three were conspirators in a horizontal pricing arrangement. The president of Baccarat at the time, Francois-Hugues de Montmorin ("de Montmorin"), explained that Baccarat's refusal to sell its products to Ross-Simons was motivated by the manufacturer's dislike of the retailer's marketing and pricing policies. According to the terms of this agreement ("1992 Agreement"), titled "Agreement of Compromise and Settlement" and dated November 24, 1992, the pact was intended by the parties to resolve once and for all the business dispute between the manufacturer and retailer. Accordingly, the document explained that the parties "desire to reach a compromise and settlement of the aforementioned legal action."

The 1992 Agreement called for Ross-Simons to dismiss its lawsuit without prejudice in exchange for business concessions from Baccarat. Baccarat agreed to recognize Ross-Simons as an authorized dealer of Baccarat products, a status that entitled the retailer to "purchase and resell such products at such prices and upon such terms as are available to other authorized dealers."

Significantly, Baccarat agreed to subject its relationship with Ross-Simons to several negative covenants included in the settlement document. The most important provision stipulates that Baccarat "will not terminate Ross-Simons' status as an authorized dealer, nor otherwise discriminate against Ross-Simons in any manner, as a result of any failure or refusal by Ross-Simons to adhere to suggested resale prices or due to Ross-Simons' marketing through direct-mail catalogs." Finally, Baccarat promised to keep an open mind if Ross-Simons sought authorized dealer status for new retail branches: "Baccarat ... will in the future consider all applications by Ross-Simons for appointment and authorization of additional store locations not expressly covered by this Agreement under the same standards generally applied to other authorized dealers ...."

The 1992 Agreement stated no term of duration. However, several witnesses at trial indicated that the parties intended to establish a long-term relationship. De Montmorin testified that Baccarat always entered into partnerships with retailers for the long haul and that the arrangement with Ross-Simons was no different from any other in this respect. In fact, the negotiators discussed expanding their relationship in the future and de Montmorin told Ross-Simons executives of Baccarat's long-term philosophy of doing business.

This new arrangement was a marked change from Baccarat's long-standing attitude towards Ross-Simons. De Montmorin testified that Baccarat had refused to sell its products to Ross-Simons for years because of Ross-Simons' discounting practices, which were regarded as too déclassé by the grande dame of French crystal. According to its president, Darrell Ross ("Ross"), Ross-Simons had developed a niche in the luxury goods market as a discount retailer of high-end goods. Furthermore, approximately eighty-five percent of the retailer's sales are generated by its catalog business, although it also operates several showrooms in Rhode Island and elsewhere. Each Ross-Simons catalog lists prices for nearly all items at below suggested retail along with "comparison" prices that show the manufacturers' suggested retail prices. In some cases, the discounts reach fifty percent. The strategy works. With gross sales of nearly $150 million annually, Ross-Simons has become one the nation's largest retailers of luxury goods such as jewelry, crystal, and dinnerware.

Yet for years before capitulating in 1992, Baccarat's management was unswayed by the success of the merchant they deemed a luxury goods parvenu. De Montmorin explained that discounting was an anathema to an image-conscious company like Baccarat. This faux pas by Ross-Simons motivated Baccarat's refusal to sell. The managers of the crystal maker thought that exposing its products to such resale tactics would cheapen the allure of the Baccarat name. Selling to Ross-Simons would also interfere with the "understanding" between Baccarat and its retail dealers on resale prices. De Montmorin testified that all retailers with whom Baccarat dealt in 1992 understood that abiding by the manufacturer's suggested resale prices was de rigueur for members of Baccarat's list of suitable merchants. Baccarat never opened an account with a dealer who was known to sell at a discount. Ross-Simons was left outside this exclusive club because Baccarat knew the retailer wouldn't play along. Ross-Simons tried to change the rules of Baccarat's game when it filed an antitrust lawsuit in 1992 alleging that Baccarat enforced an illegal resale price maintenance program.

With that history fresh in their minds, the parties executed the 1992 Agreement and began a more amiable relationship. Neither side expressed dissatisfaction with what soon became a financially fruitful relationship for both manufacturer and retailer. Sales of Baccarat crystal by Ross-Simons reached $1 million annually following the signing of the peace accord, making the discounter one of the largest sellers of Baccarat in the eastern United States. This detente was suddenly disrupted in the fall of 1994 when a new president took the helm of the crystal maker.

Jean Luc Negre ("Negre") replaced de Montmorin as president of Baccarat in October 1994. A veteran of the luxury goods business, he quickly decided that changes were necessary in the company's strategy. Negre believed that Baccarat products were overdistributed and when he saw Baccarat crystal in Ross-Simons' showroom in Atlanta, his suspicions were confirmed. Negre labeled this store a catalog showroom and considered Ross-Simons a mail-order company. Neither of these channels was an appropriate venue for Baccarat products in Negre's mind.

The new president of the crystal maker soon became aware of the 1992 Agreement. He was advised by counsel that the agreement was terminable at will. At trial, he testified that he couldn't believe that a distribution contract could be perpetual. Based on Negre's own trial testimony, it is clear that the new president believed that Ross-Simons was a drag on Baccarat's image and that he intended to sever Baccarat's relationship with the retailer as part of his overall goal of enhancing the company's image.

Negre revealed this hostile attitude toward the discounter at an industry meeting in New York at Baccarat's showroom in October 1994. It was the first-ever tête-à-tête between Ross and Negre. When Ross approached Negre, the latter quickly took aim at what had been bothering him. Negre's opening salvo: "Why does Ross-Simons discount?" Unsatisfied with Ross's explanations of a successful retail strategy, Negre pressed on with his attack, lecturing Ross about the inappropriateness of openly discounting luxury items and explaining that no one else in the business advertises such price departures. The two men reached no understanding regarding the future of their business relationship. The conflict deepened.

In the summer of 1995, Baccarat refused to approve an authorized dealership for a new Ross-Simons' store slated to open in Raleigh, North Carolina. Negre and Howard Hyde, Baccarat's vice-president for marketing, testified that the company decided to impose a moratorium on new dealership locations while it pared back its distribution system and developed the manufacturer's first official authorized dealer program. Although Ross and Hyde spoke in April of that year about the plans for the Raleigh store, there is no evidence in the record that Hyde guaranteed that the new store would be granted authorized dealer...