Sims Consol., Ltd. v. Irrigation & Power Equipment, Inc.

• Decision Date: 17 July 1975
• Docket Number: No. 74-1732,74-1732
• Citation: 518 F.2d 413
• Parties: SIMS CONSOLIDATED, LTD., Plaintiff-Appellee, v. IRRIGATION AND POWER EQUIPMENT, INC., a Colorado Corporation, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 413

518 F.2d 413

SIMS CONSOLIDATED, LTD., Plaintiff-Appellee, v. IRRIGATION AND POWER EQUIPMENT, INC., a Colorado Corporation, et al., Defendants-Appellants.

No. 74-1732.

United States Court of Appeals Tenth Circuit.

Argued May 20, 1975.

Decided June 24, 1975.

Rehearing Denied July 17, 1975.

Francis C. Browne, Washington, D. C. (of counsel, Edward T. Colbert, Washington, D. C. and W. David Pantle, Denver, Colo.), for appellee.

John R. Trigg, Denver, Colo., and James N. Johnson, A. O. Smith Corporation, Milwaukee, Wis., for appellants.

Before HILL, HOLLOWAY and BARRETT, Circuit Judges.

BARRETT, Circuit Judge.

Defendants below appeal from an adverse declaratory judgment order which upheld the validity of a contract and assessed royalty damages of $95,100.76. A summary of the pertinent facts will facilitate our review.

Plaintiff Sims Consolidated, Ltd. (Sims) is an Australian corporation based in Sydney, Australia. In 1970, via a merger, Sims became successor in interest to Consolidated Metal Products (CMP), an Australian corporation. Prior to its merger with Sims, CMP had purchased another Australian corporation, Grasslands Pty., Ltd. (Grasslands). After the merger Grasslands became a wholly owned subsidiary of Sims.

Defendant Layne and Bowler Pump Company (L & B) is a deep well turbine pump company which was acquired by defendant A. O. Smith Corporation (Smith) in 1969 pursuant to a stock buyout. In 1971, defendant Irrigation and Power Equipment, Inc. (I & P) purchased assets of L & B relating to the manufacture of L & B's irrigation system.

In 1960, R. S. Charles (Charles), President of L & B, visited Australia in an effort to extend L & B's business in foreign lands. As a result of this trip, L & B associated with Grasslands in their pump business. (At this time J. H. Broinowski, Managing Director of CMP, related to Charles that the letter of intent for the joint venture was subject to approval by the CMP board of directors). Although Charles observed portions of Grasslands' center pivot irrigation system during his visit, the joint venture related only to the manufacture and sale of pumps.

A year later, in 1961, L & B was contacted by one of its pump dealers who had become a dealer for a center pivot irrigation system. This system, however, was having operational problems and Charles contacted CMP for sales literature and other information which explained how Grasslands' "Rainline" center pivot system worked. Thereafter, L & B became a Grasslands dealer and ordered ten (10) "Rainline" units. At this time Charles told Grasslands that if it was more economical to manufacture their system in the United States, L & B would pay a royalty.

The first "Rainline" units imported by L & B did not work in the United States because the topography and soil composition within the States differed substantially from that of Australia. Also, a patent infringement suit against L & B by an American irrigation system manufacturer required that an electrical power drive be substituted for the hydraulic drive of the original "Rainline". Notwithstanding these problems, by 1966 L & B was marketing its own center pivot irrigation system under the name of "Raincat".

During L & B's patent infringement suit and again in 1963, CMP pressed Charles for a written royalty agreement. This contract, which is the basis of this action, was finally consummated on May 1, 1967 in Los Angeles, California. At that time two copies of the contract were executed with Broinowski signing on behalf of CMP and Charles and Bower (L & B's President) signing on behalf of L & B. Broinowski's copy was forwarded to Sydney for authentication by the CMP Board on May 16, 1967.

Under the contract L & B was to pay a 21/2% royalty to CMP on its "Raincat" sales in excess of its first $1,920,000 sales. In return, L & B was afforded: (1) the right to use all "improvements, developments and patented features and designs developed by CMP in connection with 'Rainline' equipment"; (2) an exclusive franchise for the manufacturing and sale of "Rainline" in the United States and Canada; and (3) the mutual exchange of research with CMP. The contract further provided that if CMP utilized any "Raincat" features in the development of its "Rainline", it would pay a 21/2% royalty to L & B.

In 1968 Charles sought relief from the contract which was denied by CMP. When Smith purchased control of L & B in 1969, Charles was requested to again confer with CMP relative to relief from the contract. Relief was denied.

In 1969 the exempted sales of $1,920,000 were reached. Thereafter, until June 30, 1970, L & B paid CMP royalties of $64,147.04. On October 28, 1970, general counsel for Smith, writing on behalf of L & B, notified CMP that L & B was rescinding and terminating the contract. Subsequent thereto, L & B sold its irrigation assets to I & P on October 12, 1971. Under the terms of the sale, L &amp B agreed to indemnify I & P against any liability on the May 1, 1967 contract with CMP. In 1972 Smith sold L & B to General Signal Corporation under a contract whereby Smith agreed to indemnify L & B against any liability arising from the May 1, 1967 contract with CMP.

Upon the repudiation of the contract, Sims filed suit on December 20, 1971, seeking: (1) declaratory judgment of enforceability of the contract; (2) an accounting for royalties; and (3) injunction for business tort. ¹ After considerable pre-trial "sparring", trial on the issue of liability was set for May 22, 1973. On May 17, 1973, counsel were notified that trial was being continued because no judge was available. At this time one witness had arrived from Australia, one was en route from Australia, and a third witness was about to depart from Australia.

Therefore, on May 17, 1973, counsel met informally with the Chief Judge and decided that the only alternatives to a continuance would be the appointment of a Master or the taking of all testimony via depositions. At this time, the parties, with the approval of the Chief Judge, agreed to present their evidence via videotaped depositions augmented by written transcripts of the depositions. The record clearly indicates that although both counsel were displeased and reluctant to proceed by depositions, both agreed to do so, and no formal objections were made or raised as to this procedure. Trial depositions were thereafter videotaped on May 21, through May 23, 1973.

On October 31, 1973, the Trial Court, after reviewing all the depositions, transcripts, evidence, and briefs, and after hearing oral arguments on the issue of liability, entered a Memorandum Opinion and Order upholding the contract and requiring an accounting of royalties due to date. Final judgment was entered for Sims on July 31, 1974.

In upholding the contract the Trial Court held that: (1) the contract was finalized in California and that the obligations of the parties were fixed as of that time; (2) the contract was valid under the laws of California; (3) the contract could be unilaterally terminated only after May 1, 1982; and that (4) Smith was liable to CMP for the royalty payments due from L & B under the contract.

On appeal appellants contend, inter alia, that: (1) compelling trial by deposition was error; (2) there was no contract because of lack of consideration; and that (3) Australian law controls and renders the contract void.

I.

Appellants contend that the Trial Court erred by compelling trial by deposition. Appellants contend that: docket conditions, not the parties compelled the trial by deposition; the videotape trial was undisciplined; the record is defective and prejudicial to the parties; videotaping of trial testimony should be undertaken only with proper safeguards; they did not waive the right to appeal the use of the depositions; and that the Trial Court's failure to consider all the evidence resulted in numerous erroneous findings of fact.

Appellants contend that they were compelled to trial by deposition and that such a trial should be undertaken only with proper safeguards. They contend that the subject trial was undisciplined. We cannot agree.

Initially, appellants were not compelled to trial by deposition. Rather, they were afforded the opportunity of having the case referenced to a Master or trial by deposition. Under Rule 53(b) Fed.R.Civ.P. 28 U.S.C.A. reference to a Master:

- - - shall be the exception and not the rule. - - - in actions to be tried without a jury, save in matters of account and of difficult computation of damages, a reference shall be made only upon a showing that some exceptional condition requires it.

Reference to the Master therefore was proper not only because the case involved an "accounting" and "difficult computation of damages", but also because of the "exceptional condition" that that one witness had arrived from Australia, one was en route, and a third was departing for the United States.

Appreciating that reference to a Master is a matter within the Trial Court's discretion, La Buy v. Howes Leather Co., 352 U.S. 249, 77 S.Ct. 309, 1 L.Ed.2d 290 (1957), Harrington v. Sorelle, 313 F.2d 10 (10th Cir. 1963), Bradshaw v. Thompson, 454 F.2d 75 (6th Cir. 1972), cert. denied 409 U.S. 878, 93 S.Ct. 130, 34 L.Ed.2d 131 (1972), reviewable by the Court of Appeals, Wilver v. Fisher, 387 F.2d 66 (10th Cir. 1967), we hold that under the facts of this case the Trial Court did not err in determining that reference to a Master was proper. Accordingly, the Trial Court did not err in affording the parties the opportunity of opting between reference to a Master and trial by deposition.

Trial by deposition, under the facts of this case, and in view of the mutual consent of counsel, was proper. Furthermore, contrary to appellants' contentions, appellants waived their right to challenge this issue on appeal, and they further waived their right to contest the manner in which the depositions were taken. They clearly failed to comply with Rule 30(c)...