Federal Pants, Inc. v. Stocking (762 F.2d 561, 1985)

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 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’ 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 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