Kelite Products, Inc. v. Binzel (224 F.2d 131, 1955)

TUTTLE, Circuit Judge.

This action was brought in a state court by Alvin J. Binzel, Jr., then doing business under the firm name of Kelite Products of Alabama, against Kelite Products, Inc., and R. C. Martin, and was duly removed by defendants to the United States District Court for the Northern District of Alabama, the requisite diversity of citizenship and amount in controversy being present. The original complaint was in three counts, a fourth count being added later by a supplemental complaint. Count 1 alleged that defendants maliciously and without probable cause occasioned the withholding and non-delivery of mail addressed to Kelite Products of Alabama by the Postmaster of Birmingham, Alabama. Count 2 alleged the conversion of a certain carload of merchandise, the property of the plaintiff. Count 3, relating to slander of title to the mail, was dismissed by order on pretrial hearing for failure to state a claim, and is no longer involved in the controversy. Count 4 alleged the continued withholding of mail as in count 1, up to the time of the supplemental complaint. The complaint demanded both compensatory and punitive damages. The answers asserted that the complaint failed to state a claim, admitted the allegations of residence of the parties and that the defendants issued written notice to the said Postmaster to deliver mail addressed to Kelite Products of Alabama to Kelite Products, Inc., and denied each and every other allegation of the complaint. The answer of Kelite Products, Inc., also asserted a counterclaim for wrongful use by plaintiff of a trade secret, namely a list of customers; maliciously interfering in the relations of Kelite Products, Inc., with its customers; wrongfully using a trade name and telephone number; and prayed for an injunction, an accounting, and damages. The reply to the counterclaim is not in the record.

By orders on pretrial hearings, Rule 16, Fed.Rules Civ.Proc. 28 U.S.C.A., the trial court deferred trial of the equitable counterclaim pending trial of the legal issues presented in the pleadings, in accordance with Rule 42(b), Fed.Rules Civ.Proc. The parties also agreed in these orders that defendant asserted as an affirmative defense to count 2, that the alleged- conversion was the rightful exercise of a power to rescind for mistake or fraud. These legal issues were then tried to a jury. Defendants moved for a directed verdict, which was refused. The jury returned a verdict for plaintiff in the amount of $15,000. Defendants then moved for judgment n. o. v. or in the alternative for a new trial. The court denied this motion, and, deeming that there was no just reason for delay because of the pendency of the counterclaim, entered final judgment for plaintiff on the verdict, as it was authorized to do by Rule 54(b), Fed.Rules Civ.Proc. The defendants have appealed from that judgment, asserting errors which we may restate concisely as follows:

1. Denial of motion to dismiss counts 1 and 4 for failing to state a claim.

2. Failure to direct a verdict on all counts for appellants.

3. Refusal to give requested charges relating to appellants’ defense of rescission on count 2.

4. Refusal to charge that only nominal damages could be recovered on counts 1 and 4, and that no punitive damages could be recovered on any count; and to give requested instructions as to the definition and allowance of punitive damages.

5. Failure to grant a new trial because the verdict was contrary to the weight of evidence and excessive in amount.

The following statement summarizes the evidence, which was undisputed except as otherwise stated:

Kelite Products, Inc., is a manufacturer of industrial cleaning compounds and machinery under the registered trade name “Kelite.” Binzel, the plaintiff, was first employed by Kelite in 1946 as a salesman on a salary basis and later on a commission basis. Over his term of service as a salesman the volume of sales of Kelite products in Birmingham alone was increased from $300 to $4000 a month. On October 28,1949, Binzel contracted in writing with Kelite to act as exclusive distributor of its products in Alabama, Mississippi, and northwest Florida.

Pursuant to this contract plaintiff conducted a business under the style of Kelite Products of Alabama and maintained a warehouse and stock of merchandise. The contract provided that Binzel might use the name Kelite so long as the contract remained in effect, and that he would have the right on termination of the contract to sell any inventory then on hand. The contract was to last for five years with options in Kelite to terminate at the end of any year that Binzel failed to attain specified quotas of gross sales. The quota for the year ending October 31, 1952, was $126,000, and Binzel failed to meet this quota. There had been certain parol modifications of the contract, granting Binzel a freight allowance on merchandise shipments from Kelite’s Los Angeles and New Jersey plants in addition to his usual 35% discount from list price. Louisiana was also at one time added to Binzel’s territory, and his quota was then increased. According to Binzel’s testimony, his relations with Kelite were not entirely harmonious for a year or two preceding their final breach. The freight allowance was a particularly sore subject and source of bickering. When Binzel began to lag. in sales, defendant R. C. Martin, then manager of Kelite’s Central Division at Dallas, came to Birmingham .in August, 1952, to discuss the matter. They agreed in writing that Binzel would give up his exclusive distributorship in Louisiana and Mississippi, but would continue to receive the freight allowance. Binzel testified positively that Martin also agreed that the contract would be continued for two more years, waiving the failure to sell the prescribed quota. Martin contradicted this testimony. Nothing appears to have been said there about diminishing the quota by reason of Binzel’s lost territory. On October 3, 1952, L. C. Sorenson, President of Kelite, came to Birmingham to discuss the renewal of the contract and the matter of freight allowances. Binzel told him he understood that the contract had already been renewed, but Sorenson replied that it had not, and gave Binzel three choices: to take a position as Division Sales Manager at $750 a month plus travelling expenses, to become a salesman on a 19% commission, or to continue the distributorship with changes in the ■ telephone listing, sales quotas, and freight allowance. Binzel said he was not interested in anything other than the present arrangement, which he had agreed with Martin to continue. No definite agreement was reached at this conference, and the evidence is conflicting whether Binzel was to submit a proposed sales quota to Sorenson, or Sorenson was to send a proposed new contract to Binzel for approval. Neither was done, and by letter of October 30, 1952, Kelite exercised, or purported to exercise, its option to terminate the contract. On November 2, Binzel telephoned Sorenson asking him what he meant by the letter of termination and saying he needed certain merchandise to fill orders anticipated or already accepted. At Binzel’s request' Sorenson agreed to send a new contract to Binzel for his approval, and also authorized him to order another carload of merchandise for which the freight allowance would be given him. Plaintiff ordered this carload on November 7, 1952, by air mail letter, and was advised that the goods would be shipped on November 13. Then he received a telegram reading: “Regarding stock car order No. 33 there will be no freight allowance wire acceptance.” Binzel wire: “Release stock order No. 33 to Kelite Products of Alabama.” About November 18, the car arrived in Birmingham consigned to Binzel, but the railroad had been instructed to hold it pending instructions from Martin. After several telephone conversations between Binzel and Martin in which the latter refused to release the car, Martin discussed the matter of the car at Kelite’s main offices in Los Angeles, and thereafter came to Birmingham and met Binzel on November 24. He informed him there that it was all over, that Kelite was giving him neither a new contract nor the carload of merchandise. Stock car 33 was then delivered to another warehouse to be held for Kelite Products, Inc. On November 24, Martin gave written notice to the Postmaster that the mail addressed to Kelite Products of Alabama be delivered to Kelite Products, Inc.

Meanwhile, starting in September, Binzel had received a visit and communications from Messrs. Greffoz and Watson, formerly associated with Kelite, relative to his becoming a distributor for a corporation they intended to organize to be named Greater Mountain Chemical Company. This company was to manufacture products in competition with Kelite. Initially, Binzel said he was not interested. He was given a list of comparative prices. Binzel did correspond with Greater Mountain in October concerning some wax and hydrochloric acid which Kelite did not sell. After receiving the letter cancelling the Kelite contract, Bin-zel informed Greffoz thereof and Watson offered Binzel a distributorship. Various correspondence followed, but Binzel did not place any orders for merchandise with Greater Mountain until November 24, immediately after Martin had informed him “it’s all over.” This first order was a duplicate of the order for stock car No. 33. Appellants admit that neither Kelite nor any of its agents had any notice of Binzel’s dealings with Greater Mountain until after the diversion of stock car 33, but they rely upon their subsequent learning of those dealings as justifying the diversion, as a rescission for fraud or mistake.

Pursuant to the notice to the Postmaster, several pieces of mail addressed to Kelite Products of Alabama were diverted to Kelite Products, Inc. Soon after the Postmaster received the change of address card on November 24, Binzel called on the Postmaster in person and! wrote a letter to him, protesting the diversion of mail. The Postmaster thereafter held up a considerable quantity of mail addressed to Kelite Products of Alabama, including checks, statements of account, and invitations to bid. The Postmaster held a conference with Martin, Binzel, and their attorneys. Martin stated that he did not want any personal letters of Binzel’s or any checks, but only future orders for Kelite products. The Postmaster suggested appointment of a receiver, to which proposal all but Binzel were amenable. Immediately thereafter this action was commenced, and all mail was handled subsequently by court order, whereby Binzel received the original mail and Kelite was furnished photostats'. No mail addressed to Bin-zel’s company was delivered to him for a period of days after the change of address card was filed by Martin.

The first specification of error as above restated is that counts 1 and 4 should have been dismissed because they ■do not state a claim. We find no merit in this conclusion or in any of the three premises relied upon to support it, which appellants state in the outline index of their brief as follows:

“The facts do not fit into any of the basic causes of action.

“The only cause of action is in the nature of malicious prosecution, and Ap-pellee has failed to allege and prove the necessary elements.

“The allowance of a cause of action results in the interference by a court in the orderly machinery of the Post Office Department.”

Appellants discuss a number of possible theories upon which tort liability might be predicated, and say that none applies to these counts. But our inquiry into Alabama tort law convinces us that that law is not as they state it. Since some dispute exists as to whether certain elements, particularly “malice,” are necessary to make appellants liable under the several possible theories, it is appropriate to enumerate the kinds of tort which may be involved, and to determine the constituent elements of some of them. We think the torts that may be comprehended in the transactions which form the basis for counts 1 and 4 include:

(1) Interfering with contractual relations ;

(2) Wrongful initiation of administrative proceedings;

(3) Intentional infliction of harm to the business of another without justification ; and

(4) Civil conspiracy.

Appellants say that (1) is not a recognized basis of tort liability in Alabama ; that (2) is res nova in Alabama, and that if such a tort should be recognized, the indispensable element of termination of the proceedings in plaintiff’s favor is missing; and they do not even comment on (3) and (4) except to beg the question by saying that appellants “had a right” to notify the Postmaster of a change of address. As pointed out in the margin, note 5, contrary to appellants’ contention, (1) is a theory which could be applied here. As for (2), we think it is inappropriate and unnecessary to discuss the matter, there being no Alabama law on the point. As for (3) and (4), the law is clear that such causes of action exist in Alabama, and that sufficient facts were proved to make out a prima facie case under either of these theories. Of the three theories made out by the proof, (1), (3), and (4), it appears that the parties and the court treated the case as one under (3); the complaint, proof, and instructions were all quite appropriate to that conception of the case. We have no doubt that the parties consented to trying all the issues involved in that theory of the case, Rule 15(b), Fed.Rules Civ.Proc., and that counts 1 and 4 were sufficient.

The tort alleged, then, was intentional harm to plaintiff’s business without justification. We think it clear that the evidence was sufficient to find every element existed, namely the intentional act, some consequential harm, that the harm was to plaintiff’s business, and that there was not sufficient justification. The only one of these elements requiring discussion here is that of justification. Such justification must naturally be one which the law will recognize. Advance Music Corp. v. American Tobacco Co., 296 N.Y. 79, 70 N.E.2d 401. Sometimes the justification for harmful conduct is the exercise of an obvious and recognized privilege, as that of excluding or ejecting trespassers from one’s land. Brooks v. Ingram, 186 Ala. 106, 65 So. 138. But more often the extent of the claimed privilege involves many complex variables and often legislation; it is often said that if the objective sought is illegal or the means used are improper the actor’s harmful conduct is not privileged. The principles stated in Restatement, Torts, § 767, “Factors in Determining Privilege,” and the comments thereto, we believe to be in full accord with the Alabama cases; applying’ these principles to the proof in the present case, there is no doubt that the jury could find that the conduct of appellants was not justified. It could certainly be inferred from the evidence that appellants made a fraudulent representation to the Postmaster that Kelite Products, Inc., was Kelite Products of Alabama or ¡had permission from the latter to order a change of address. This is true even though the change of address card was marked “firm mail only,” of course.

It must be remembered that this was not an open request by the Kelite Corporation of California to the Postmaster requesting him to stop delivering mail to Binzel, doing business as Kelite Products