Trionic Associates, Inc. v. Harris Corp.
| Decision Date | 25 November 1998 |
| Docket Number | No. CV 97-1828(RJD).,CV 97-1828(RJD). |
| Citation | 27 F.Supp.2d 175 |
| Parties | TRIONIC ASSOCIATES, INC., Plaintiff, v. HARRIS CORPORATION, Parallax Sales, Inc. and Donald Ciardi, Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Charles E. Reuther, Kral, Clerkin, Redmond, Ryan, Perry & Girvan, Morristown, NJ, for Plaintiff.
Kathryn D. Kirmayer, Crowell & Moring, Washington, DC, Steven E. Garry, Costello, Shea & Gaffney, New York City, for Defendants.
Plaintiff, Trionic Associates Inc. ("Trionic"), brings this breach of contract action against its former supplier, Harris Corporation ("Harris"), and former salesman, Donald Ciardi. Trionic also asserts claims against Parallax Sales, Inc. ("Parallax"), a competitor hired by Harris to replace Trionic. The defendants move for dismissal of Trionic's claims under Federal Rule of Civil Procedure 12(b)(6) or in the alternative, for summary judgment under Rule 56. Because the parties have submitted supporting affidavits, this motion will be treated as one for summary judgment.
Harris is a Florida based manufacturer of semiconductors and integrated circuits. Harris sells its products in two ways. Harris has its own sales force that sells to manufacturers and to electronics distributors. These are called "in-house" accounts. Harris also contracts with outside companies, who act as Harris' sales representatives in a specific geographic region. These regional sales representatives are compensated through commissions.
A sales representative may become involved in the design of a new electronic product. A sales representative will often attempt to convince a manufacturer to incorporate a Harris semiconductor in design specifications. If the Harris part is ultimately "designed-in," the sales representative will reap commissions on the sales of the Harris part to the manufacturer once production begins. As part of the design process, the manufacturer may commission Harris to design a specialized "spec" semiconductor or circuit board for which the manufacturer would pay a one-time or "non recurring engineering expense" ("NRE").
There is no dispute that the process of designing a new electronic product may take months or years, and that the sales representative has no guarantee that the manufacturer will choose to use a Harris semiconductor in its new product, or even that it will proceed to production.
Trionic, a New York corporation, acted as a sales representative for Harris in New York and New Jersey from 1982 through November 1996. This relationship was formalized in successive sales representative agreements in 1986, 1989 and 1991. Trionic's sales of Harris products grew from approximately $4 million in the early 1980's to $17 million in 1995. By 1995 sales of Harris' products accounted for 50% of Trionic's total sales.
On August 22, 1994, Harris and Trionic entered into the Sales Representative Agreement at issue in this case (the "Agreement"). This three-year Agreement required Trionic to "exercise its best efforts to promote the sales of [Harris] [p]roducts through contacting, soliciting purchases from and servicing customers (existing and prospective) throughout the Territory." Agreement § 9(a), entitled Relationship, states that Trionic is an independent contractor.
The Agreement contains two termination provisions. Either party may terminate the Agreement for convenience "at any time upon 30 days written notice to the other."1 If Harris terminated the agreement for convenience, Trionic would earn full commissions on orders paid for during the notice period, and 80% commission on orders booked during the notice period and paid for during the next six months.
Harris could also terminate the Agreement for default if Trionic: "(i) [f]ails to perform any material obligation required by this Agreement; (ii)[m]akes an assignment for the benefit of creditors or a trustee in bankruptcy, or a receiver is appointed; (iii)[s]ubmits any false or fraudulent reports or statements concerning Harris or its [p]roducts to any [c]ustomer, the Government or to Harris; (iv)[v]iolates any applicable federal or state law...." In the event of default, Harris was required to give Trionic written notification of the default and thirty days in which to cure the default. If Trionic failed to cure within the thirty days, the Agreement terminated and Trionic earned commission only on those orders paid for during the notice period.
As part of the Agreement, Harris transferred two "in-house" accounts to Trionic, an AT & T account and an ITT Aerospace account. The AT & T account did not yet have any Harris products designed in. Despite this, Bruce Schwartz, Harris' Eastern Sales Director, told Trionic that projected revenues on the AT & T account were in the $8 million range.2 Soon thereafter, Trionic learned that potential revenues from the AT & T account would be $4 million. The ITT account, however, already had several "design in's" in place, so that Trionic immediately began receiving commissions for related sales to ITT.
In November, 1994, Trionic learned from actual figures produced by Harris that the AT & T account had produced $1.2 million in yearly revenues. Also in November, Anthony Nolletti, one of Trionic's owners, made initial contact with AT & T about using Harris semiconductor chips in new products. Over the next year, Mr. Nolletti worked intensively to promote the use of Harris chips in emerging AT & T products.
According to Bruce Schwartz's testimony, as early as January 1995, he complained to Donald MacKenzie, a principal of Trionic, that Trionic was too thinly staffed and requested that Trionic add more personnel to the Harris account. MacKenzie agreed, but did not act. He admits that Trionic and Harris engaged in "continual discussions regarding Trionic's sales force and the allocation of ... resources to Harris' business."
According to MacKenzie's testimony, "in the first full year after Trionic was given the AT & T and ITT accounts, its commissions ... from both accounts was ... $31,000 combined which was in Trionic's judgment, a marginal amount in the [sic] terms of hiring a new employee." In addition, Harris never suggested to Trionic that failure to increase its staff would be grounds for terminating the Sales Agreement.
On December 7, 1995, Anthony Nolletti's efforts appeared to be paying off. On that day, AT & T asked Harris to develop "spec" semiconductor chips for a newly designed product. AT & T paid Harris a "non recurring engineering expense" of $50,000. On December 19, 1995, AT & T paid a second NRE of $500,000.
In February, 1996, John Garrett, President of Harris Semiconductor, Ron Van Dell,3 Bruce Schwartz and Tom Ryan4 attended a meeting at AT & T which included high level AT & T employees involved in the development projects.
On August 8, 1996, Mr. Stoshack, a Harris employee, sent an e-mail to Bruce Schwartz and Anthony Nolletti, forecasting that potential revenues from the AT & T account would be $325,000 in 1997, from $6.5 million to $13 million in 1998, and up to $26 million in 1999. Mr. Stoshak noted that "[t]he forecast numbers are my best guess but the opportunity, like anything in the PC market, can be huge." According to Trionic, one of the spec semiconductors has become a standard Harris part, offered in Harris' catalogue at $14.95 per unit in quantities of 10,000 units. Although Trionic alleges that the "spec" semiconductors produced for AT & T "upon information and belief will develop ... into subsequent purchase orders for ... extensive sales of Harris products to AT & T and Lucent Technologies," Trionic has submitted no evidence of actual or impending sales.
On October 11, 1996, Trionic informed Harris that Mr. Nolletti was leaving the company for health reasons. According to MacKenzie, Harris insisted on interviewing Nolletti's replacement. However, Mr. MacKenzie insisted that he would personally take over the AT & T account, promised that Trionic would hire another employee to take over Mr. Nolletti's other responsibilities. He informed Harris that Donald Ciardi, who sold Harris products to distributors, would work on direct sales as well. Trionic hired a Carlos Gullien, a recent college graduate with an engineering degree, to work on the Trionic account.
Bruce Schwartz and Tom Ryan testified that they doubted MacKenzie's sales abilities, felt that Donald Ciardi was already overburdened, and were skeptical of a new hire with no sales experience. Harris began looking for a new sales representative. After considering several companies, Harris contacted Parallax, in late October 1996.
Parallax had represented a Harris competitor, Maxim, but had lost that account when Maxim switched to in-house sales exclusively. Because Parallax had handled Maxim's integrated circuit sales, Schwartz and Ryan believed Parallax had the experience necessary to handle Harris' account. On November 1, Parallax and Harris met for the first time; and following a presentation a few days later by Parallax's owner and president, Robert DeStephano, Harris decided to hire Parallax.
On November 26, 1996, Ron Van Dell wrote a letter to MacKenzie, giving him formal notice that Harris was terminating the Agreement with Trionic for convenience. The official termination date was 30 days later, on December 27, 1996. Harris assured Trionic that it intended to meet its contractual obligations regarding any commissions due, as specified in the Agreement. It is undisputed that Harris has paid all commissions due.
On November 26th, Harris offered its product line to Parallax. Parallax promised to add a Distributor Sales Representative ("DSR"), an engineer, and an additional sales person to the Harris account. Parallax and Harris executed the Parallax Sales...
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