Lawsuit between Federal Pants and D-S Enterprises: Breach of Agency Agreement and Contract, Study Guides, Projects, Research of Law

Download Lawsuit between Federal Pants and D-S Enterprises: Breach of Agency Agreement and Contract and more Study Guides, Projects, Research Law in PDF only on Docsity! FEDERAL PANTS, INC., & HAROLD FOONBERG, Plaintiffs-Appellants-Cross-Appellees, v. DANIEL STOCKING, et al., Defendants-Appellees-Cross-Appellants Nos. 84-1690, 84-1745 UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT 762 F.2d 561; 1985 U.S. App. LEXIS 27419; 41 U.C.C. Rep. Serv. (Callaghan) 110 January 14, 1985, Argued May 22, 1985, Decided PRIOR HISTORY: [**1] Appeal from the United States District Court for the Eastern District of Wisconsin. 82-C-1494-Terence T. Evans, Judge. DISPOSITION: We also affirm the court's decision to award judgment in favor of D-S Enterprises on its breach of contract claim and to order Federal Pants to pay $79,531.20 to D-S Enterprises. COUNSEL: Arthur M. Moglowsky, Bass, Goldstein, Moglowsky, Milwaukee, Wisconsin, for Plaintiffs. Michael A. Bowen, Foley & Lardner, Milwaukee, Wisconsin, for Defendants. JUDGES: Cummings, Chief Judge, Bauer and Flaum, Circuit Judges. OPINIONBY: FLAUM OPINION: [*562] FLAUM, Circuit Judge. The plaintiffs Federal Pants, Inc. and Harold Foonberg brought this diversity action against the defendants Daniel Stocking, D-S Enterprises, and others, alleging that the defendants breached an agency [*563] agreement, engaged in unauthorized competition, and misused confidential information. The defendants counterclaimed against the plaintiffs, alleging breach of contract, tortious interference with advantageous economic relations, and unlawful restraint of trade. The district court granted the defendants' motion for summary judgment in part, thereby dismissing all of the plaintiffs' [**2] claims, awarding the defendants $79,531.20 on their breach of contract claim, and dismissing the defendants' remaining two claims. For the reasons stated below, we affirm. I. The plaintiffs Federal Pants, Inc. and its sole stockholder Harold Foonberg (collectively referred to as "Federal Pants") and the defendants D-S Enterprises and its partners (collectively referred to as "D-S Enterprises") were each engaged in the diversion business when the events leading up to this lawsuit transpired. This business involves acquiring well-known, name-brand products from a manufacturer and reselling the merchandise to discount stores and other outlets that have not been designated as authorized dealers by the manufacturer. D-S Enterprises had obtained the right to buy sports shoes and other athletic apparel from the Nike Corporation. Federal Pants, however, was not an authorized Nike dealer and thus could not purchase goods directly from Nike. In May 1982, D-S Enterprises placed future delivery orders with Nike in the sum of several hundred thousand dollars or more each month for the period from June 1982 through January 1983. When D-S Enterprises found in June 1982 that it could not on [**3] its own post the security of $1 million required by Nike to guarantee the future delivery orders, it negotiated with Federal Pants to combine resources. Federal Pants was to post a $1 million letter of credit for the benefit of The Standard Chartered Bank Limited of Chicago. The Standard Chartered Bank would then post a back-to-back $1 million letter of credit for the benefit of Nike. On June 23, 1982, Jay Foonberg, the brother of and attorney for the president of Federal Pants, sent D-S Enterprises an agreement stating that Federal Pants was to guarantee up to $1 million in D-S Enterprises' purchases from Nike while D-S Enterprises would resell these purchases to Federal Pants or to persons designated by Federal Pants. On behalf of D-S Enterprises, Daniel Stocking and his wife signed the agreement and returned it to Federal Pants. For a period of two months, D-S Enterprises purchased over $1 million in Nike merchandise and resold it to Federal Pants or to another buyer designated by Federal Pants. D-S Enterprises never drew on Federal Pants' letter of credit, but rather paid Nike directly for all of its purchases. In late August or early September 1982, Nike discovered that D-S [**4] Enterprises was reselling Nike merchandise to an unauthorized wholesaler and immediately terminated the future delivery orders contract. In September, D-S Enterprises informed Federal Pants of Nike's decision to terminate the orders and proceeded to sue Nike for breach of a dealership agreement under the Wisconsin Fair Dealership Act. In November 1982, Nike began settlement negotiations with D-S Enterprises. Nike offered to make a one-time, final sale to D-S Enterprises of $8 million worth of shoes that Nike had on hand. Nike insisted that D-S Enterprises would have to secure the sale with a letter of credit or other security in the amount of the sale plus the amount that D- S Enterprises still owed to Nike. Nike refused to allow D-S Enterprises to rely on Federal Pants' $1 million letter of credit, required D-S Enterprises to post a new letter of credit before the settlement sale, and insisted that delivery on the sale begin by the end of November 1982. Throughout November, D-S Enterprises attempted to find immediate buyers for the Nike merchandise in order to raise the necessary financing. Federal Pants contacted D-S Enterprises and demanded that the Nike merchandise be sold to [**5] it. D-S Enterprises offered to sell $3.2 million worth of merchandise to Federal Pants if it would [*564] put up a letter of credit in that amount. Federal Pants did not have enough credit to obtain a letter of credit for $3.2 million. D-S Enterprises proceeded to sell the Nike merchandise to two buyers who committed to post letters of credit in the requisite amounts before the deadline imposed by Nike. At the end of November 1982, Federal Pants proceeded to stop payment on a $79,531.20 check that it had sent to D-S Enterprises in payment for goods already received. Federal Pants also filed this lawsuit against D-S Enterprises. In its complaint, Federal Pants alleged four causes of action: (1) D-S Enterprises' breach of an agency agreement with Federal Pants under which D-S Enterprises was to act as Federal Pants' purchasing agent in obtaining Nike goods, (2) D-S Enterprises' breach of an exclusive agency agreement under which D-S Enterprises agreed to obtain Nike goods exclusively for Federal Pants, (3) D-S Enterprises' unauthorized use of confidential information and unauthorized competition, and (4) D-S Enterprises' breach of its contract with Federal Pants. In its counterclaim [**6] to plaintiffs' suit, D-S Enterprises alleged: (1) Federal Pants' breach of its sales contract with D-S Enterprises by stopping payment on the $79,531.20 check that it had issued to D-S Enterprises, (2) Federal Pants' tortious interference with advantageous economic relations between D-S Enterprises and its bank as a result of the stop payment order, and (3) an unlawful restraint of trade under the Sherman Act. On D-S Enterprises' motion for summary judgment, the district court dismissed the plaintiffs' four causes of action and the defendants' second and third counterclaims. The district court granted D-S Enterprises' motion for summary judgment on its first counterclaim and awarded D-S Enterprises $79,531.20 for goods that Federal Pants had purchased from it. On appeal, the plaintiffs continue to claim that D-S Enterprises was not free to sell the Nike settlement goods to other buyers, but rather had an obligation to buy goods on Federal Pants' behalf. II. A. Agency Relationship between Federal Pants and D-S Enterprises In its complaint, Federal Pants alleged that D-S Enterprises had breached an exclusive agency agreement or merely an agency agreement with Federal [**7] Pants under either of which D-S Enterprises was to act as Federal Pants' purchasing agent in obtaining Nike goods. In addressing this allegation, the district court noted that there was not much evidence presented on the existence of an agency relationship and that even if such a relationship existed, it did not survive Nike's termination of D-S Enterprises as an authorized dealer. Furthermore, the district court noted that even if D-S Enterprises had an obligation to offer to Federal Pants the merchandise that it had acquired in its settlement negotiations with Nike, D-S Enterprises did not have to decline to accept this merchandise when Federal Pants was unable to finance the settlement. According to the Restatement (Second) of Agency, an agency relationship is the "fiduciary relation which results from the manifestation of consent by one person [the principal] to another [the agent] that the other shall act on his behalf and subject to his control, and consent by the other so to act." Restatement (Second) of Agency § 1(1) (1958); Krueger v. State, 39 Wis. 2d 729, 732, 159 N.W.2d 597, 599 (1968). [**8] An element of the agency relationship is the understanding of the parties that the principal is to be in control of the undertaking and that the agent shall serve as a fiduciary subject to the directions of the principal. Restatement (Second) of Agency § 1 comment b; Alexopoulos v. Dakouras, 48 Wis. 2d 32, 40, 179 N.W.2d 836, 840 (1970). In addition to generally defining an agent, the Restatement (Second) distinguishes an agent from a supplier: "one who contracts to acquire property from a third person and convey it to another is the agent of the other only if it is agreed that he is to act primarily for the benefit of the other and not for himself." Restatement (Second) of Agency § 14K. The Restatement (Second) [*565] enumerates several factors relied upon in determining whether the one who is to acquire the property and transfer it to the other is a supplier selling to, and not acting as an agent for, the other: (1) whether the person is to receive a fixed price for the property, [**9] irrespective of the price paid by him (the most important factor); (2) whether the person acts in his own name and receives title to the property which he thereafter is to transfer; and (3) whether the person has an independent business in buying and selling similar property. Id. comment a. In the present case, there are several facts suggesting that an agency relationship did exist between Federal Pants and D-S Enterprises. n1 The June 23, 1982 letter evidencing the agreement between Federal Pants and D-S Enterprises provided that "Federal Pants, Inc. and Harold Foonberg are guaranteeing up to One Million Dollars (1,000,000.00) of purchases of D-S Enterprises, Inc. from Nike. These are purchases which may be re-sold by D-S Enterprises to Federal Pants, or to such persons