Opinion
Civil Action No. 00-12593-PBS
November 26, 2002
MEMORANDUM AND ORDER
I. INTRODUCTION
This dispute involves a contract for the distribution of Maui Jim sunglasses and accessories. Plaintiff Maui Jim Northeast ("MJNE"), a distributor of Maui Jim sunglasses, asserts that defendant Maui Jim, Inc. has distributed sunglasses in MJNE's exclusive sales territory. Both parties have filed cross-motions for summary judgment. Concluding that the contract is ambiguous and the course of performance disputed, I DENY the cross motions.
The amended complaint contains five counts: (1) breach of contract of the New England Distributorship Agreement; (2) breach of contract of the parties' New York and New Jersey Distributorship Agreement; (3) specific performance of the distributorship agreements; (4) breach of contract of the parties' intellectual property ("IP") Agreement; and (5) tortious interference with prospective business advantage.
II. BACKGROUND
The undisputed facts are as follows. Before January 1992, plaintiff Chris Maling, now the President of MJNE, was the sole owner of all the intellectual property rights of Maui Jim products. Maling, who was one of the co-owners of the original Maui Jim, Inc. before it went into bankruptcy in the late 1980's, was awarded the intellectual property rights by the Bankruptcy Court. In January 1992, Maling executed an Intellectual Property Agreement ("the IP Agreement") with Hester Enterprises, Inc., the predecessor in interest of the defendant, in which the intellectual property was transferred from Maling to Hester Enterprises. The IP Agreement gave Maling options to enter into two distributorship agreements with Hester Enterprises to distribute Maui Jim sunglasses. One of the potential distributorships covered the six New England states, the other covered New York and New Jersey.
Subsequent to the IP Agreement, Hester Enterprises changed its name to Maui Jim, Inc. ("Maui Jim"). Its Chairman and CEO is Walter Hester. Maui Jim is not the manufacturer of its upscale sunglasses, but it distributes the sunglasses worldwide. Plaintiff MJNE is currently the only other distributor of Maui Jim sunglasses. At the time that the IP Agreement was executed there were several other distributors of Maui Jim sunglasses, but Hester has since purchased their distribution rights. Throughout the period of negotiation of the IP Agreement and afterwards, while Maling was in prison, Hester distributed the sunglasses in Hawaii, New England, New York and New Jersey. Maling has assigned his distribution rights to MJNE.
Pursuant to the IP Agreement, Maling entered into distribution agreements for New England, New York, and New Jersey with Hester. Those agreements govern the present dispute. Paragraph 1 of the distributorship agreements iterate Maling's exclusive rights: "Hester grants Distributor the exclusive rights to distribute the Products in the [territory covered]." Paragraph 5 provides:
After the effective date of this agreement, Hester shall not appoint any other distributors or agents for the sale or distribution of products within the Territory, will not sell or distribute products to anyone it knows intends to sell or distribute products within the Territory, and will refer all orders and potential orders to Maling. (Emphasis added).
Paragraph 14, entitled "Protected Territories," says:
Hester agrees that it will use its best efforts to ensure that no other person, party or entity is allowed to infringe upon the protected Territory provided herein or to compete, directly or indirectly, as owner, agent, employee, lender, with Distributor in the Territory.
Paragraph 15, entitled "Relationships Between Distributors," states:
(1) Sales made by a catalog company shall be considered made in the territory in which the office of the catalog company is located.
(2) If the customer has retail outlets located in more than one territory, the sales should be considered made in the territory where the purchase orders originate.
(3) However, if a distributor has to provide significant warranty service in his territory to retail outlets whose sales originate in another territory, that distributor will be entitled to an allocation of the sales. Such allocation shall be determined by the distributors involved. If they cannot agree, Hester will determine the allocation.
(4) Any disputes between distributors regarding the distributorship agreements, including allocation of sales, customers and boundaries, shall be resolved by Hester and its decision shall be binding upon the distributors.
The agreements provide that Hawaiian law governs their interpretation.
Defendant Maui Jim sells its products to certain national chain stores that sell the sunglasses in plaintiffs' territories, including Sunglass Hut, Pearl Vision, Totes/Sunglass World, Lenscrafters, West Marine, Duty Free Shops, Solstice, and Sunglass Outlet. Sunglass Hut is Maui Jim's largest single customer. In the fall of 1995, Maui Jim's CEO Walter Hester orally discussed the Sunglass Hut business with Maling. Because Hester wanted Maling to be on board with obtaining increased Sunglass Hut business, Hester and Maling agreed that Maling would be paid a certain amount for each pair of sunglasses sold by Sunglass Hut in its retail stores in Maling's territories (though the amount of payment is in dispute).
Maui Jim has distributed to Sunglass Hut at least two exclusive colors/styles of sunglasses that were not made available, at least for some period of time, to plaintiffs. Maling agreed that one of these colors/styles could be made exclusively available to Sunglass Hut, but not the other.
III. STANDARD
"Summary judgment is appropriate when `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.'" Barbour v. Dynamics Research Corp., 63 F.3d 32, 36-37 (1st Cir. 1995) (quoting Fed.R.Civ.P. 56(c)), cert. denied, 516 U.S. 1113 (1996). "To succeed [in a motion for summary judgment], the moving party must show that there is an absence of evidence to support the nonmoving party's position." Rogers v. Fair, 902 F.2d 140, 143 (1st Cir. 1990); see also Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
"Once the moving party has properly supported its motion for summary judgement, the burden shifts to the non-moving party, who `may not rest on mere allegations or denials of his pleading, but must set forth specific facts showing there is a genuine issue for trial.'" Barbour, 63 F.3d at 37 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986)). "There must be `sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable or is not significantly probative, summary judgment may be granted.'" Rogers, 902 F.2d at 143 (quoting Anderson, 477 U.S. at 249-50). The Court must "view the facts in the light most favorable to the non-moving party, drawing all reasonable inferences in that party's favor." Barbour, 63 F.3d at 36.
IV. DISCUSSION A. Shades of Truth
The heart of the dispute is defendant Maui Jim's distribution of sunglasses to chain stores, such as Sunglass Hut, which purchase sunglasses outside of plaintiffs' sales territory and then sell them within it. Plaintiffs rely on Paragraph 5 of the distribution agreement which provides that "Hester . . . will not sell or distribute products to anyone it knows intends to sell or distribute products within the Territory . . . ." Defendant justifies its conduct with reference to Paragraph 15, particularly subsection (b), which states that "[i]f the customer has retail outlets located in more than one territory, the sales should be considered made in the territory where the purchase orders originate."
Defendant claims that Paragraph 15(b) covers the contested sales by defendant to the chain stores because the purchase orders by Sunglass Hut and other retail outlets originate outside MJNE's territory. Plaintiffs retort that Paragraph 15 should be read as a whole to exclude Maui Jim from ever distributing sunglasses to entities which resell in his territory. Referring to Paragraph 15(b), Paragraph 15(c) states:
However, if a distributor has to provide significant warranty service in his territory to retail outlets whose sales originate in another territory, that distributor will be entitled to an allocation of the sales. Such allocation shall be determined by the distributors involved. If they cannot agree, Hester will determine the allocation.
Why, plaintiffs query, would Maling ever have agreed to let Hester be the arbiter of distribution disputes if Hester was itself a distributor? Arguing that Paragraph 15(b) applies only to third-party distributors, Plaintiffs point to various internal memoranda in which defendant seeks to modify the wording of a caption to specify that Maui Jim is a distributor covered by Paragraph 15. Defendant makes the counter-point that Paragraph 5 anticipates that Hester will distribute sunglasses itself and not just distribute via third parties. In any event, Maui Jim argues that the debate over the wording of the caption is inadmissible parol evidence.
Under Hawaiian law, contract terms should be "interpreted according to their plain, ordinary, and accepted sense in common speech unless it appears from the [contract] that a different meaning is intended." First Ins. Co. of Hawaii, Inc. v. State of Hawaii, 66 Haw. 413, 423-24, 665 P.2d 648, 655 (1983). Moreover, "`[t]he court must respect the plain terms of the contract and not create ambiguity where none exists.'" Id. (internal citation omitted). The Supreme Court of Hawaii has said,
Where the `language of a contract is susceptible of two constructions, one of which makes it fair, customary and such as prudent men would naturally execute, while the other makes it inequitable, unusual, or such as reasonable men would not likely enter into, the interpretation which makes a fair, rational and probable contract must be preferred'.
Amfac, Inc. v. Waikiki Beachcomber Inv. Co., 74 Haw. 85, 110, 839 P.2d 10, 25 (1992) (internal citation omitted).
Paragraphs 5 and 15 conflict and it is unclear from the terms of the contract which is controlling. Plaintiffs point to a rule of interpretation providing that where terms in a contract conflict, "specific terms and exact terms are given greater weight than general language." Restatement (Second) of Contracts, § 203(c) (1981). While true as a general matter, that cannon of construction is not helpful here because both of the conflicting terms are specific. Because there is evidence that both parties are sophisticated business people, the rule of interpreting ambiguities against the drafter also does not control. See Amfac at 25, n. 5 ("When the contract has been negotiated between two parties of equal sophistication and equal bargaining power, the rule of interpreting ambiguities against the drafter has been held inapplicable.") (citing Falmouth National Bank v. Ticor Title Ins. Co., 920 F.2d 1058, 1062 (1st Cir. 1990)).
However, there may have been unequal bargaining power because Maling was apparently in prison at the time of the negotiation. That part of the record is unclear.
Since either of the competing constructions would represent a contract into which reasonable business-persons might enter, the Court, under Hawaiian law, must look to course of dealing between the parties to determine which interpretation should be applied. See Paulson, Inc. v. Bromar, Inc., 775 F. Supp. 1329, 1333 (D.Haw. 1991) (holding that under Hawaiian law, Hawaii's Uniform Commercial Code (the "Code") should be applied to distributorship agreements). The Code provides:
(1) Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement.
(2) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade.
Haw. Rev. Stats. Ann. Tit. 27, § 490:2-208(1) and (2). "Under this section a course of performance is always relevant to determine the meaning of the agreement." Id. at Comment 2.
The course of performance between the parties is hotly disputed. The parties dispute whether Maling lodged complaints before the year 2000 regarding the defendant's sales to the chain stores. The Sunglass Hut deal in 1995 between Maling and Maui Jim is an undisputed part of the parties' course of performance, but they dispute whether the deal ratified Maui Jim's interpretation of the agreements, or plaintiffs' view that such sales were ordinarily precluded without special permission. As for PearlVision, Maling claims that defendant and he worked out an arrangement similar to that which was reached for the Sunglass Hut business. While defendant has introduced substantial evidence concerning course of performance that demonstrates Maling's acquiescence in defendant's interpretation of the contract, the evidence is disputed. Maling contends that he did not protest because he did not know about it. The distributorship agreements themselves provide that "[f]ailure of either party at any time to require performance by the other party of any provision of this agreement shall not be deemed a continuing waiver of this provision or a waiver of any other provision of this agreement." There are fact disputes over the scope of the waiver in the Sunglass Hut agreement as well as the per-unit price that defendant agreed to pay.
For these reasons, the cross-motions for summary judgment on the breach of contract claims are DENIED.
B. Exclusive Styles/Colors for Sunglass Hut
Plaintiffs point to recital "A" and paragraph 1 of the distributorship agreements as evidence that the defendant is prohibited from withholding certain styles/colors of sunglasses that it provides to Sunglass Hut. The recital says,
Hester produces a sunglass, which will be sold under the trade name Maui Jim Sunglasses (Sunglasses), and other accessories. The Sunglasses and accessories, including improvements thereto and new products, may collectively be referred to herein as "Products."
Paragraph 1 states, "Hester grants Distributor the exclusive rights to distribute the Products in the [territories covered]."
Under these provisions, Maling has the right to distribute any sunglasses bearing the Maui Jim trade name.
Defendant does not dispute that it has distributed to Sunglass Hut colors/styles of sunglasses that were not made available, at least for some period of time, to plaintiffs, but asserts that plaintiffs waived this provision of the agreement. While Maling agreed to the exclusive provision of the tortoise color to Sunglass Hut, he disputes there was a waiver as to the others.
Because there is a dispute on the scope of the waiver, summary judgment is DENIED.
C. The IP Agreement (Count IV)
Plaintiffs allege that defendant's conduct, including defendant's breach of the distributorship agreements, is a breach of the IP Agreement.
Paragraph 7(d) of the agreement provides:
When a distributorship agreement for Maling comes into effect, Hester shall provide Maling with the available information it has in its custody, possession, or control which pertains to the respective Territory and Hester shall thereby discontinue operating in such Territory.
Paragraph 7 provides that Maling's distributorships shall be established "in accordance with" the distributorship agreements. The distributorship agreements each contain an integration clause which reads: "This agreement constitutes a final and complete statement of the agreement between the parties, and fully supersedes all prior agreements or negotiations, written or oral." Thus, while the IP Agreement may be admissible concerning the intent of the parties, the distributorship agreements are the governing documents.
ORDER
The cross-motions for summary judgment are DENIED (Docket Nos. 50, 51). The Court orders all filings unsealed. No further documents shall be filed under seal unless the parties submit an affidavit explaining why there is good cause for sealing. The blanket protective order is overbroad and not sufficient to justify the document sealing.
Plaintiffs also assert the tort of interference with prospective business advantage (Count V), which hinges, in part, on resolution of the contract claim.