Petition — Lockewill, Inc. v. United States Shoe Corp.

_

~~ Supreme Court U.S,

FILED

APR 20 1977

WROWAEL RODAK, JR. CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

« 76-1452

LOCKEWILL, INC.,

Petitioner,

VS

ASSOCIATED DRY GOODS CORP., d/b/a STIX, BAER & FULLER,

THE UNITED STATES SHOE CORPORATION and

PAPPAGALLO, INC.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

To the United States Court of Appeals for the

Eighth Circuit

JOHN J. COLE

WALTER M. CLARK

WILLIAM J. TRAVIS

611 Olive, Suite 1950

St. Louis, Missouri 63101

(314) 621-5070

Attorneys for Lockewill, Inc.,

Petitioner

ARMSTRONG, TEASDALE, KRAMER & VAUGHAN

611 Olive Street, Suite 1950

St. Louis, Missouri 63101

Of Counsel

St. Louis Law Printing Co., Inc., 812 Olive Street 63101 314-231-4477

a.

TABLE OF CONTENTS

SRS oda pcacedand sasvecncactbenconsens

Ground of Jurisdiction of This Court ................

I a a a

Constitutaional Provisions Involved .................

3

2.

3.

i. nn he Wb dd sesebeanenkes

re ke St eee see us

Se ED coves cccecdeunspeenseunse

Basis for Federal Jurisdiction ......................

Reasons for Granting the Writ .....................

There is a widespread public interest involved in pre-

serving the integrity of a proven oral contract, par-

ticularly in the expanding area of distributorship ter-

minations. In reversing the case outright on a ground

or defense not presented to or passed upon by the

District Court and without evidence in the record

to support the ground, the Court of Appeals acted

contrary to the well established judicial principal that

questions not presented to or passed upon by the trial

court will not be the basis for reversal on appeal. The

decision therefore conflicts with controlling decisions

of this Court and other circuits including the Eighth

to

Circuit. In reversing outright without remand, the

Court of Appeals deprived plaintiff of due process

rights under the Fifth Amendment and its right to a

jury trial guaranteed by the Seventh Amendment ..

2. The action of the Court of Appeals with respect to the

matter of damages is also of considerable interest and

concern to the public and to the bar since despite

the jury award of compensatory damages, submitted

without objection below, the Court of Appeals held

that a different measure of damages (recoupment)

was solely applicable and that as a matter of law, Pe-

titioner was entitled to no damages since it had been

in business over eight years and this fact alone was

sufficient to establish reasonable opportunity for re-

coupment. A determination of whether an aggrieved

distributor/franchisee has had a reasonable opportu-

nity to recoup his initial investment and expenses on

termination by the franchisor prima facie involves a

consideration of other factors than mere length of

time in business.

Ferther, the issue of reasonable opportunity for

recoupment is a fact question for jury determination

and the Court of Appeals’ failure to remand has de-

prived Petitioner of a property right without due

process of law in contravention of the Fifth Amend-

ment and has further deprived Petitioner of its right

to a jury trial as guaranteed by the Seventh Amend-

WD. 56 6665404000046058060000000060060 0%

12

Table of Cases

Atlantic & Gulf Stevedores, Inc. v. Ellerman Lines, Ltd.,

: LF) PPP errr 17, 21

Ag-Chem Equipment v. Hahn, Inc., 480 F.2d 482, 488

SE. SPE vo cc vece cot enc cenceeugernseeetes 19

Beebe v. Columbia Axel Co., 117 S.W.2d 624 (Mo. App.

ED ccdhaccindensassnseeenededtnweseeseeeeas 20

Brinkerhoff-Faris Trust & Savings Co. v. Hill, 281 U.S.

BE ED oc ks cccvurcesecestsccvanseeseeeas 16, 21

Clausen & Sons, Inc. v. C. Hamm Brewing, 395 F.2d 388

GO GE, BG 6 cc dc cctvedscetasdeneescousses 19, 20

Duignan v. United States, 274 U.S. 195, 47 S.Ct. 566, 71

SR FO Pe eee 13

Hormel v. Helvering, 312 U.S. 552, 61 S.Ct. 719, 85 L.Ed.

1037 (1941) 20... cece cece cere reece ccc cccees 13, 14

McGinnis Piano & Organ Co. v. Yamaha International

Corp., 480 F.2d 474, 480 (8th Cir. 1973) .......... 18

P.S. & E., Inc. v. Selastomer Detroit, Inc., 470 F.2d 125

Ce, BFE occ ovncs ccc cesdoneseceseesvenées 20

Red-E-Gas v. Meadows, 360 S.W.2d 236 (Mo. App. 1962) 16

Risner v. Hubbert, 439 S.W.2d 5 (Mo. App. 1969) ...... 15

Schurtz v. Cushing, 146 S.W.2d 591 (Mo. 1940) ........ 16

Sisko v. McNutt, 209 F.2d 550 (8th Cir. 1954) ......... 13

Superior Concrete Accessories, Inc. v. Kemper, 284 S.W.

26 4B2 Go. 1955) cw crsccccccccvceees 10, 20, 21

Taussig, Day & Co., Inc. v. Poleman, 228 S.W.2d 722 (Mo.

ED dc cubedeueeucs osen6e Vececaneeteneeens 16

Zumwinkel v. Liggett, 345 S.W.2d 89, 94 (Mo. 1961).... 15

iv

Statutes and Miscellaneous Cited

Fifth Amendment, U.S. Const. ................... 3, 16, 21

Seventh Amendment, U.S. Const. .................. 3

Williston, § 1107a, p. 157, n.3 .................... 16

17 Am. Jur. 2d, Contracts, § 469 .................. 15

es 2

CE 11

IN THE

SUPREME COURT OF THE UNITED STATES

eae

LOCKEWILL, INC.,

Petitioner,

VS.

ASSOCIATED DRY GOODS CORP., d b a STIX, BAER & FULLER,

THE UNITED STATES SHOE CORPORATION and

PAPPAGALLO, INC..

Respondents.

PETITION FOR A WRIT OF CERTIORARI

To the United States Court of Appeals for the

Eighth Circuit

Petitioner prays that a writ of certiorari be issued to review

the judgment entered by the United States Court of Appeals for

the Eighth Circuit on December 28, 1976, which judgment be-

came final on January 21, 1977, by the denial of a petition for

rehearing on that date.

A panel of the Court of Appeals reversed the judgment of

the United States District Court for the Eastern District of Mis-

souri rendered on a jury verdict for the Petitioner in a suit

brought by Petitioner against Respondents for breach of an oral

franchise or distributorship contract granting Petitioner exclusive

rights to market Respondents’ products in the greater St. Louis,

Missouri area under the trade name and style, “Pappagallo” and

“The Shop for Pappagallo”.

OPINIONS BELOW

The opinion of the Court of Appeals is reported at 547 F.2d

1024, and is set forth as an appendix to this petition. The judg-

ment of the District Court is set forth in the appendix record

filed with this petition. *

GROUND OF JURISDICTION OF THIS COURT

1. The date of the judgment sought to be reviewed is De-

cember 28, 1976.

2. An order denying Petitioner's petition for rehearing was

entered on January 21, 1977.

3. The statutory provision conferring jurisdiction on this

Court to review the judgment by writ of certiorari is Title 28,

U.S.C., § 1254(1).

QUESTIONS PRESENTED

1. Where the sole issue, except damages, tried in the Dis-

trict Court was the existence and validity of an alleged oral

franchise agreement for the exclusive distributorship of certain

products of Respéndent U.S. Shoe Corporation (defendant offer-

ing no evidence at trial); whether the action of the Court of

Appeals in reversing outright the verdict and judgment in favor

of Petitioner on the ground that the contract was silent as to du-

ration and therefore terminable at will was error, because such

holding was (1) based upon grounds not raised and passed upon

by the jury or the trial court, and (2) not supported by the evi-

dence adduced at the trial; and whether such reversal, without

remand, deprived Petitioner of due process of law rights under

* The appendix record is cited herein as “Ap. R.”.

MN ee

—

the Fifth Amendment and the right to trial by jury guaranteed

by the Seventh Amendment.

2. Whether the Court of Appeals erred in holding that re-

coupment or quantum meruit was Petitioner’s only remedy (in-

stead of breach of contract), and whether Petitioner was de-

prived of its due process of law rights under the Fifth Amend-

ment and its right to trial by jury guaranteed by the Seventh

Amendment by the Court's further holding that as a matter of

law plaintiff was not entitled to damages since it had been in

business over eight years and by that fact alone had been af-

forded a reasonable opportunity to recoup its initial investment

and expenses.

CONSTITUTIONAL PROVISIONS INVOLVED

The relevant portions of the constitutional provisions involved

in this petition are as follows:

Article V

No person shall be . . . deprived of life, liberty or property

without due process of law . te

Article Vil

In suits at common law where the value in controversy shall

exceed twenty dollars, the right of trial by jury shall be pre-

served, and no fact tried by a jury shall be otherwise re-examined

in any court of the United States, than according to the rules

of common law.

STATEMENT OF CASE

1. Nature of Case and Its Dispos'tion.

This litigation was instituted by Vetitioner in three separate

causes of action. The first cause of action, breach of an exclu-

sive franchise agreement for the sale of women’s shoes, is di-

rected against Respondents The United States Shoe Corp. (“U.S.

Shoe”) and Pappagallo, Inc. Petitioner's second cause of action

tortious interference with contract—or conspiracy to breach

contract is brought against Respondents U. S. Shoe, Pappagallo,

Inc., and Associated Dry Goods Corp., d/b/a Stix Baer & Fuller

(“SBF”). Petitioner's third theory of recovery, the tort of unfair

competition, was directed solely against SBF. The case was

tried to a jury. At the conclusion of Petitioner's case, both sides

moved for directed verdicts. The motion of Respondent SBF

was granted and the motions of Petitioner and Respondents

U. S. Shoe and Pappagallo, Inc. were denied. U. S. Shoe and

Pappagallo, Inc., called no witnesses and renewed their motior

which was again denied. The District Court refused to submit

to the jury Petitioner’s claims for damages, including punitive

damages, based upon the alleged conspiracy among the Re

spondents, the alleged tortious interference by SBF with the con-

tractual relationship and the alleged unfair competition. The

District Court limited the jury’s consideration to Petitioner's

claims for compensatory damages for breach of an exclusive

franchise contract for the sale of women’s shoes. The jury found

in favor of Petitioner and assessed Petitioner's damages in the

amount of $150,000. Judgment was entered on the verdict.

Petitioner and Respondents U. S. Shoe and Pappagallo, Inc. ap-

pealed the judgment to the United States Court of Appeals for

the Eighth Circuit, which reversed the District Court as to Peti-

tioner’s claims for damages for breach of an exclusive franchise

or distributorship contract and affirmed the District Court as to

—

its judgment for Respondents on the claims of conspiracy, tor-

tious interference with contractual relations and unfair com-

petition.

2. Facts.

Pappagallo, Inc. is the manufacturer of high fashion women’s

footwear and, at the time it entered into the agreement with Pe-

titioner, was owned and operated by Maurice E. Bandler, Jr.

(Ap. R. 298-299, 315). It was the policy of Pappagallo, Inc. to

sell its shoes only for small, independent shops and not through

department stores and this policy was stated to the independent

shop owners with whom Pappagallo, Inc. negotiated agreements

(Ap. R. 312-313, 323; Pliner Depo. Ap. R. 488-489).

From 1963 to 1969, Bandler and his assistant, Elliott Pliner,

entered into verbal agreements on behalf of Pappagailo, Inc.

with some 34 independent Shops for Pappagallo, including

Petitioner, throughout the country (Ap. R. 300-301; Pliner

Depo. Ap. R. 480-481). In order to induce the independent

owners to set up a Shop for Pappagallo in their city, the shops

were granted exclusive licenses to sell Pappagallo shoes in their

respective areas (Ap. R. 307-308; Pliner Depo. Ap. R. 480-

481). While most of these independent shops, including Peti-

tioner, had verbal contracts, a few such shops, such as Rich-

mond, Nashville, and Memphis had some written confirmation

of their contracts (E-27, E-67, E-52; Ap. R. 329-33, 336-337;

Pliner Depo. Ap. R. 483-484, 498-494).

In March, 1965, W. Grant Williams, founder of Petitioner,

negotiated a verbal agreement on behalf of Petitioner with

Bandler in New York, the terms of which are as follows:

(a) Pappagallo, Inc. granted to Petitioner (through Wil-

liams) the exclusive rights to the name “The Shop for

Pappagallo” and to sell Pappagallo shoes and products in

the greater St. Louis area, and the right to purchase such

"we

products at the standard wholesale rates (Ap. R. 164, 307-

308), and

(b) In consideration for the above, Williams (on behalf

of Petitioner) agreed:

(1) To set up, maintain and operate in St. Louis,

Missouri “The Shop for Pappagallo” at his own ex-

pense, an initial investment of at least $100,000 (Ap.

R. 164, 304; Pliner Depo. Ap. R. 482);

(2) To sell no footwear which competed with Pap-

pagallo (Ap. R. 305); this requirement was modified

later on account of the strike at U. S. Shoe (Ap. R.

431, 179, 365), and for anti-trust reasons (Pliner

Depo. Ap. R. 492);

(3) To maintain a Pappagallo shoe inventory of

about 4,000 pairs, come to New York to order Pap-

pagallo shoes four times per year, and sell about

10,000 pairs of Pappagallo shoes per year, an inven-

tory turnover of 2% times (Ap. R. 304-305, 320;

Pliner Depo. Ap. R. 487-488);

(4) To operate a first-class “Shop for Pappagallo”

in accordance with the “oasis” Pappagallo marketing

concept (Ap. R. 164-165, 301-302, 311); and

(5) To advertise and promote Pappagallo shoes and

products at his own expense (Ap. R. 303, 205).

Williams sought a written contract but Bandler declined stat-

ing none was necessary and that their handshake was sufficient

to bind the deal (Ap. R. 165, 231).

It was Bandler’s intention that the agreement would continue

on an ongoing basis as long as Petitioner maintained the above-

mentioned Pappagallo standards and as long as Pappagallo, Inc.

was able “to serve up an attractive assortment” of shoes (Ap.

TE OS

= pe

R. 309-310). In the event that Williams violated Pappagallo,

Inc.’s standards, his shop could be terminated, and in the event

that Pappagallo, Inc. failed to supply the shop with adequate

shoes, Petitioner could terminate. Regarding the possibility of

Williams’ terminating the contract, Bandler stated, “the guy is

pretty well hooked. It's not too easy for him to do that.” (Ap.

R. 310).

Bandler further stated several times that Williams could not

partially terminate; he would have to “change the name of the

store”, “take down the sign”, and “get rid of the inventory”.

He “couldn't quit halfway” (Ap. R. 309-310).

According to Bandier, who left Pappagallo, Inc. in 1969,

and Pliner, who left in 1971, Petitioner operated an outstanding

shop at all times performing in accordance with the terms of its

exclusive agreement (Ap. R. 311-312, 313, 322, Pliner Depo.

Ap. R. 482, 484-485, 488). There was no evidence that Pe-

titioner had failed to perform its agreement in any manner.

In March, 1968, Bandler sold Pappagallo, Inc. to U.S. Shoe

and disclosed to Mr. Barach, President of U.S. Shoe, the

existence of the exclusive agreements with the numerous in-

dependent shops, including Petitioner (Ap. R. 315-316). Band-

ler stayed on as President of Pappagallo, Inc. until March, 1969

(Ap. R. 172). On March 27, 1968, Bandler sent a memo to

Petitioner and other independent “Shops for Pappagallo” as-

suring them of the continuation of the Pappagallo exclusive

distribution policy (E-2, Ap. R. 171).

Following its incorporation in 1965, Petitioner remained the

only store in the St. Louis area licensed to sell Pappagallo shoes

and products (Ap. R. 173). Si Shanker, women’s shoe buyer

for SBF, a large St. Louis department shore chain, had shopped

Petitioner's “The Shop for Pappagallo” several times prior to

June, 1970 and believed Pappagallo would be a good line of

shoes for SBF. His superiors, Messrs. Chesler and Leipsiger

shared his opinions (Ap. R. 397-398, 418). Shanker expressed

SBF’s interest in acquiring the Pappagallo line to U.S. Shoe in

June, 1970. In a letter to Shanker dated June 29, 1970, Mel

Braverman, then President of Pappagallo, Inc., refused to license

SBF to open a “Shop for Pappagallo” in its St. Louis stores.

Braverman told Williams the Pappagallo line would not be

given to SBF (Ap. R. 177).

In March, 1973, Shanker again expressed SBF’s interest in

obtaining the Pappagallo line from U.S. Shoe (Ap. R. 401-402).

On June 11, 1973, Chesler, a SBF Vice-President, wrote Flem-

ing, the new President of Pappagallo, Inc., stating, “I want Pap-

pagallo for SBF very much.” (E-6; Ap. R. 402). In the sum-

mer of 1973, Fleming telephoned Williams to tell him that

SBF would be given the Pappagallo line.

After obtaining full indemnification from U.S. Shoe, SBF

opened “The Shop for Pappagallo” in its downtown and West-

roads branches in February, 1974, copying Petitioner’s name and

decor (Ap. R. 186-188). The name of “The Shop for Pappa-

gallo” was advertised by SBF in the St. Louis newspapers (Ap.

R. 185-186; E-17), and shops were opened in three more St.

Louis area SBF branches in the summer of 1974 (Ap. R. 186,

188, 412-413). Since February, 1974, SBF has had profitable

sales of Pappagallo goods, mainly shoes, of over $300,000 (Ap.

R. 426-427). The largest volume “The Shop for Pappagallo” in

any St. Louis area SBF branch is at Westroads, located less than

one mile from Petitioner (Ap. R. 416, 393).

From August, 1965, when Petitioner opened its shop (Ap. R.

166) to the date of trial, Petitioner’s investment in “The Shop

for Pappagallo” consisted of $103,570 paid-in-capital, together

with $90,000 in bank loans and $32,000 in personal loans from

Mr. and Mrs. Williams, or a total of $225,570 (Ap. R. 170).

Petitioner spent $80,000 in advertising and promoting the Pap-

pagallo name in St. Louis (Ap. R. 205). In addition, Petitioner

—

lost about $24,000 in 1972 and 1973 principally on account of

strikes, design, style and distribution problems at Pappagallo,

Inc. (Ap. R. 182-183, 211). Prior to that, Pappagallo, Inc.

was experiencing service and delivery problems (E-4).

In 1971 one of Petitioner's best years, its net profit on Pappa-

gallo products was only $12,000 (Ap. R. 182). Sales of Pappa-

gallo shoes dropped in 1974 and 1975 after SBF entered the

picture, although the product line was better and Petitioner ex-

pected great years.

3. Decisions Below.

(a) District Court.

At the close of Petitioner's case, Petitioner and Respondents

U.S. Shoe, Pappagallo, Inc. and SBF moved for directed ver-

dicts. The motions of Petitioner, U.S. Shoe and Pappagallo,

Inc. were denied, but the motion of Respondent SBF was

granted. Respondents U.S. Shoe, Pappagallo, Inc. and SBF

rested, having called no witnesses and offered no exhibits (Ap.

R. 456). U.S. Shoe and Pappagallo renewed their motions for

directed verdicts which were again denied.

Notwithstanding the District Court's denial of motions for

directed verdicts made by Respondents U.S. Shoe and Pap-

pagallo, Inc., it refused to submit the case to the jury on Pe-

titioner’s tortious interference and unfair competition theories

and refused to instruct the jury on punitive damages on the

grounds that such damages are not proper in the context of

tortious interference with a verbal as opposed to written con-

tract (Ap. R. 453, 458, 121-123).

The issue of breach of an oral exclusive franchise agreement

by Respondents U.S. Shoe and Pappagallo, Inc. was submitted

to the jury on nine instructions (Ap. R. 464). On October 3,

=— 10 —

1975, the jury returned a verdict for Petitioner in the amount

of $150,000 (Ap. R. 470, 108). On October 10, 1975, Re-

spondents U.S. Shoe and Pappagallo, Inc. filed a Motion for

Judgment Notwithstanding the Verdict and Petitioner filed a

Motion for Judgment in Accordance with its Motion for Di-

rected Verdict. All such motions were denied by the District

Court on December 3, 1975. Respondents U.S. Shoe and

Pappagallo, Inc. appealed, and Petitioner cross-appealed.

(b) Court of Appeals.

The Court of Appeals for the Eighth Circuit, citing numerous

Missouri cases, stated the applicable law of Missouri to be that

where the parties to a franchise or exclusive agency or distribu-

torship agreement which is silent as to duration and which does

not deal specifically with termination begin to perform there-

under, the agreement is construed to be terminable at the will

of either party. However, the Court held that there is an

important limitation that the agent induced by his appointment

who has in good faith incurred expense and devoted time and

labor in the matter of the agency without having had a sufficient

opportunity to recoup such from the undertaking is required to

be compensated by the principal. Such recoupment or com-

pensation is on a quantum meruit basis rather than by way of

ordinary damages for breach of contract.

Then citing Superior Concrete Accessories, Inc. v. Kemper,

284 S.W.2d 482 (Mo. 1955), the Court held that by 1974, a

reasonable period had expired in which Petitioner could re-

coup its expenses and that U.S. Shoe and Pappagallo, Inc. had

the right to terminate their contractual relations with Petitioner

entirely. The Court went on to hold that, even though Re-

spondents U.S. Shoe and Pappagallo, Inc. did not terminate

their relations with plaintiff entirely, they had the right uni-

laterally to cancel the exclusivity feature of Petitioner’s distribu-

torship, which they did do. The Court then stated that the

—=—

District Court erred in submitting to the jury the claim of Pe-

titioner based on breach of contract.

Furthermore, even though stating in the opinion that large

department stores in various cities, including SBF in St. Louis,

attempted to induce U.S. Shoe to permit the opening of Pap-

pagallo shops in their stores, the Court held that Petitioner

did not make a submissible case against SBF on Petitioner's

claims of conspiracy, tortious interference with contract rela-

tions and unfair competition and that the District Court properly

directed a verdict in favor of SBF.

BASIS FOR FEDERAL JURISDICTION

Jurisdiction of this action was properly vested in the first

instance in the United States District Court for the Eastern

District of Missouri since Petitioner is a Missouri corporation

maintaining its principal office and business in the Eastern Ju-

dicial District of Missouri, Respondent SBF is a Virginia cor-

poration registered and qualified to do business in Missouri

within the Eastern Judicial District of Missouri, Respondent

U.S. Shoe is an Ohio corporation registered and qualified to

do business in Missouri within the Eastern Judicial District of

Missouri and Respondent Pappagallo, Inc. is a New York cor-

poration doing business in the Eastern District of Missouri.

The amount in controversy, exclusive of interest and costs,

exceeds Ten Thousand Dollars ($10,000.00), and, therefore,

the District Court below had jurisdiction under 28 U.S.C.,

$1332(a).

== {2 —

REASONS FOR GRANTING THE WRIT

1. There is a widespread public interest involved in preserv-

ing the integrity of a proven oral contract, particularly in the

expanding area of distributorship terminations. In reversing

the case outright on a ground or defense not presented to or

passed upon by the District Court and without evidence in the

record to support the ground, the Court of Appeals acted con-

trary to the well established judicial principle that questions

not presented to or passed upon by the trial court will not be

the basis for reversal on appeal. The decision therefore con-

flicts with controlling decisions of this Court and other cir-

cuits including the Eighth Circuit. In reversing outright with-

out remand, the Court of Appeals deprived plaintiff of due

process rights under the Fifth Amendment and its right to a

jury trial guaranteed by the Seventh Amendment.

This case was tried and submitted to the jury on the ex-

istence or nonexistence of a valid and enforceable oral con-

tract for an exclusive distributorship in the St. Louis market

area. Dealer/distributor terminations constitute a vexatious

and expanding field of litigation. The Court of Appeals af-

firmed the jury determination and District Court judgment that

there was in fact at least a quasi-contractual relationship be-

tween the parties which required Respondents not to interfere

with Petitioner’s exclusive distributorship in the St. Louis area

for a reasonable time after Petitioner opened its shop (Appen-

dix p. A-11). The Respondents offered no evidence in the Dis-

trict Court (Ap. R. 456). Respondents did not assert in their

post-trial motions any defense that there was in fact a con-

tract, terminable at will, which Respondents had terminated

without liability for the executory portion or prospectively (Ap.

R. 109-111). Respondents’ denial of the existence of any con-

tract between the parties was also the position taken by Re-

—

spondents before suit was filed (Ap. R. E-10, 11, PX-27; Ap.

R. E-16, PX-32).

On appeal, for the first time, Respondents asserted a new

theory of defense, to-wit: that they had effectively terminated

the contract without liability for the executory portion (Re-

spondents’ Brief, Point II-B, pp. 36-38). The Court of Appeals

recognized Respondents’ position to be that the “. . . agree-

ment . . . was never enforceable prospectively. . . .” (Ap-

pendix p. A-7), and proceeded to reverse the District Court on

this basis. In so doing, the Court of Appeals overlooked or

misapprehended the fact that this issue had not been presented

to or passed upon by the trial court, or alternatively, it over-

looked or misapprehended the well established law that such

issues should not be considered on appeal as a basis for reversal.

Duignan v. United States, 274 U.S. 195, 47 S.Ct. 566, 71 L.Ed.

996 (1927); Hormel v. Helvering, 312 U.S. 552, 61 S.Ct. 719,

85 L.Ed. 1037 (1941); Sisko v. McNutt, 209 F.2d 550 (8th

Cir. 1954).

The general rule, as stated in Duignan v. United States, supra,

is that questions of law not presented to or passed upon by the

trial court will be reviewed only in exceptional cases. This

rule should be adhered to except “where the obvious result

would be a plain miscarriage of justice.” Hormel v. Helvering,

supra, at p. 558. After stating these general rules, the Eighth

Circuit, in Sisko v. McNutt, supra, stated as follows:

“The application of the rule in this case will not produce

a plain miscarriage of justice. A departure from the rule

would not be justified. The defendant has his full day in

court. Having made no objection to the legal theory upon

which the issue of his liability was submitted to the jury,

either by asking for instructions or taking exceptions to

the instructions given, he is in no position to assert that the

District Court committed prejudicial error in not sub-

—

mitting the case upon a different theory.” /d. at pp. 553,

554.

The Eighth Circuit has applied this rule in a number of recent

decisions. Smith v. American Guild of Variety Artists, 368

F.2d 511, 514 (8th Cir. 1966); American General Finance

Corp. v. Parkway Bank & Trust Company, 520 F.2d 607, 608

(8th Cir. 1975), and Hinton v. CPC International, Inc., 520

F.2d 1312, 1314 (8th Cir. 1975). The Eighth Circuit, and

all other Appellate Courts including this one, adhere to the

general and almost invariable rule that questions not called to

the attention of or ruled upon by a trial court will not be re-

viewed on appeal.

In this case, Respondents expressly advised the trial court

that they had no objection to Petitioner's measure of damage

instructions submitting compensatory damages (Ap. R. 464—

reference to instruction No. 9). The jury was, therefore, faced

with the questions of whether there was, in fact, an enforceable

oral agreement between the parties for an exclusive distributor-

ship in the St. Louis area, whether Respondents had breached

such an agreement, and the extent to which Petitioner had been

damaged by such breach. By reversing the trial court upon a

theory not presented to the jury, the Eighth Circuit deprived

Petitioner of due process of law as guaranteed by the Fifth

Amendment to the Constitution of the United States.

This is not one of the exceptional cases where this general

rule should be abandoned. By confining the issues to the ques-

tions presented to the trial court, there would not be a “plain

miscarriage of justice”. Hormel v. Hulvering, supra. On the con-

trary, by basing its decision on questions not presented to the

trial court, the Court of Appeals has allowed a plain mis-

carriage of justice to take place.

The Eighth Circuit acknowledged that it was required to

view the evidence in the light most favorable to the Petitioner

—_—

and to give Petitioner the benefit of all inferences favorable to

it that are reasonably deducible from the evidence (Appendix pp.

A-3-A-4). However, the Court failed to view the evidence in

such light in holding that the contract was terminable at will.

As stated previously, Bandler indicated that Respondents’ right

to terminate the contract was conditioned upon an act of default

on the part of Petitioner as to violation of Respondents’ stand-

ards (requirements) or marketing concept. He also stated that

Petitioner had no right or recourse to partial termination (Ap.

R. 309, 310).

Even if the Court properly ruled as a matter of law that the

contract was terminable at will, the Court nevertheless acknowl-

edges the fact that Respondents have never terminated the

contract (Appendix p. A-12) but continue to enjoy its fruits.

Without citation of authority, however, the Court held that Re-

spondents had the right to terminate the exclusivity feature

alone and that, therefore, Petitioner's only remedy was in quan-

tum meruit for recoupment.

Respondents’ cancellation of the one unfavorable provision

as to exclusivity (a partial termination) constitutes a unilateral

modification of the agreement and the Court misapprehends the

law in holding defendants had the right to do so. The gencral

rule is that a modification is nothing but a new contract and

must be supported by consideration like any other contract, 17

Am Jur 2d, Contracts § 469. To be effective, modification of an

existing contract would have to encompass mutual consent and

new consideration which was clearly not the case here. The

applicable Missouri law is that for modification to be effective,

the new agreement must possess all the elements necessary to

form a new contract. Zumwinkel v. Liggett, 345 S.W.2d 89,

94 (Mo. 1961). Furthermore, modification is an affirmative

defense which must be affirmatively pleaded and proved. Risner

v. Hubbert, 439 S.W.2d 5 (Mo. App. 1969). The Missouri

cases do not support the Eighth Circuit's ruling that Respond.

— =

ents can affirm the contract in part and repudiate it in part,

thus accepting its benefits on one hand while shirking its dis-

advantages on the other. Schurtz v. Cushing, 146 S.W.2d 591,

594 (Mo. 1940).

As authority for its ruling, the Eighth Circuit relies on Red-E-

Gas v. Meadows, 360 S.W.2d 236 (Mo. App. 1962). In that

case, plaintiff gas company in 1957 changed one of the terms

of a written agreement, terminable at will, by requiring the de-

fendant distributor to purchase the propane gas cylinders in

addition to the gas (id. at p. 238). The Court held this was

not a partial termination but a breach of the contract and was

actionable by way of counterclaim for loss of profits from 1957

until the contract was entirely terminated in 1960. If that Court

had ruled as the Eighth Circuit did in the case at bar, then the

distributor would have had no actionable claim. Thus, the

opinion does not correctly apply Missouri law.

At the very least, Petitioners should be allowed a new trial

because the issue of whether a contract has been terminated is

a jury question even when the contract in question is terminable

at will. Taussig, Day & Co., Inc. v. Poleman, 228 §.W.2d 722,

727-728 (Mo. 1950), cited in WILLISTON, § 1107a, p. 157,

n. 3.

The Court of Appeals action discussed above deprived plain-

tiff of an opportunity to present its claims for loss and damage

to his business and his investment therein and effectively de-

prived him of property without due process of law within the

meaning and intendment of the Fifth Amendment to the Con-

stitution of the United States. See generally, Brinkerhoff-Faris

Trust & Savings Co. v. Hill, 281 U.S. 673, 681 (1929).

In addition, the decision of the Court of Appeals has effec-

tively and permanently barred plaintiff from asserting his claims

in Court and thus deprived him of his right to a trial by jury

—_

guaranteed by the Seventh Amendment to the Constitution of

the United States. See generally, Atlantic & Gulf Stevedores,

Inc. v. Ellerman Lines, Ltd., 369 U.S. 355, 358 (1962).

2. The action of the Court of Appeals with respect to the

matter of damages is also of considerable interest and concern

to the public and to the bar since despite the jury award of com-

pensatory damages, submitted without objection below, the

Court of Appeals held that a different measure of damages

(recoupment) was solely applicable and that as a matter of law,

Petitioner was entitled to no damages since it had been in busi-

ness over eight years and this fact alone was sufficient to estab-

lish reasonable opportunity for recoupment. A determination

of whether an aggrieved distributor/franchisee has had a rea-

scnable opportunity to recoup his initial investment and ex-

penses on termination by the franchisor prima facie involves a

consideration of other factors than mere length of time in busi-

ness.

Further, the issue of reasonable opportunity for recoupment is

a fact question for jury determination and the Court of Appeals’

failure to remand has deprived Petitioner of a property right

without due process of law in contravention of the Fifth Amend-

ment and has further deprived Petitioner of its right to a jury

trial as guaranteed by the Seventh Amendment.

The Court below held that the agreement between Petitioner

and Respondents was binding, at least Guasi-contractually, upon

Respondents for a reasonabie time after Petitioner had opened

its shop in 1965 “to the end that plaintiff might have a reason-

able opportunity to recover its initial investment and expenses.”

(Appendix p. A-11). The Court went on to hold, however, that

“reasonable men could not differ” that by early 1974 such a

reasonable time or period had expired and that therefore Peti-

tioner suffered no legal wrong when Respondent changed its

marketing policy. (Appendix p. A-12).

=

This holding overlooks material facts in the record. From

the time Petitioner opened its shop to the trial date, Petition-

er’s investment in the Shop for Pappagallo, consisting of paid-

in-capital, bank loans and personal loans, totalled $225,570

(Ap. R. 170). Petitioner spent $80,000 in advertising and pro-

moting the Pappagallo name in the St. Louis area (Ap. R.

205). Petitioner’s financial statements show that Petitioner's

original investment was about $100,000 and that the addi-

tional $125,000 was added in numerous increments over the

years. Thus, while the time period for recovery of the initial

$103,570 was almost 8% years, it had much less time to re-

cover the additional $125,000. In addition, Petitioner lost ap-

proximately $24,000 in 1972 and 1973 on account of strikes,

design, style, and distribution problems at Pappagallo, Inc.

(Ap. R. 182-183, 211). In one of Petitioner’s best years, 1971,

its net profit on Pappagallo products was only $12,000 (Ap.

R. 182). Furthermore, sales of Pappagallo shoes dropped in

1974 and 1975 after SBF entered the picture, although the

product line was better and plaintiff expected a great year (Ap.

R. 202). é'

As mentioned above, Respondents acquiesced in the sub-

mission to the jury below of an instruction (No. 9) awarding

compensatory damages (Ap. R. 464).

Notwithstanding the above-referenced evidence, the Court

ruled as a matter of law and without regard to the particular

facts of the case that reasonable men could not differ that

Petitioner had had a reasonable opportunity to recover its ini-

tial investment and expenses. In this regard, the Court has

utilized a time only standard which is unduly restrictive and

narrow and directly inconsistent with other Eighth Circuit de-

cisions and with the decisions of other Circuits.

In McGinnis Piano & Organ Co. v. Yamaha International

Corp., 480 F.2d 474, 480 (8th Cir. 1973), the plaintiffs fran-

— =

chise was found to be terminable at will, but the plaintiff was

awarded damages to recoup its investment. The plaintiff had

operated its franchise for six years, and the defendant argued

that this constituted a reasonable time for the plaintiff to re-

coup its investment. The Court held:

“We disagree, however, with Yamaha's contention that

Six years constituted a reasonable time, as a matter of law

for McGinnis to have recouped its investment. The evi-

dence with respect to the difficulty in building sales in

early years and the investment by McGinnis in time and

money in building the franchise was sufficient to require

that the question of reasonable duration be submitted to

the jury.” (emphasis added)

Ag-Chem Equipment v. Hahn, Inc., 480 F.2d 482, 488 (8th

Cir. 1973) (Appendix p. A-9), also involved a franchise which

was terminable at will. Again, this Court rejected defendant's

argument that a six or seven year period was sufficient to pre-

clude recoupment by the terminated franchisee:

“Hahn’s second argument . . . that Ag-Chem had had

_more than a reasonable opportunity to recover its invest-

ment prior to termination, presents a troublesome ques-

tion as Ag-Chem had enjoyed the franchise and the emol-

uments flowing therefrom from 1962 through 1968. None-

theless, in view of the fact that the distributorship required

a continual investment, we are not persuaded to rule as a

matter of law that it had endured for a reasonable time.”

(emphasis added )

As in Ag-Chem, Petitioner's investment in the case at bar was

a continual one.

The third case is Clausen & Sons, Inc. v. C. Hamm Brewing,

395 F.2d 388 (8th Cir. 1968). There the plaintiff had per-

formed from 1950 to 1963, a period of 13 years, under an

—=— =

oral exclusive distributorship contract. The Court denied the

defendants’ motion for summary judgment. Clausen certainly

indicates that a question of fact is presented as to a reasonable

opportunity to recoup a terminated dealer’s investment, even

though where that period is admittedly 13 years long.

In addition to conflicts with other Eighth Circuit decisions,

this opinion also conflicts with the other decisions of other cir-

cuits interpreting Missouri law. For example, in P.S. & E., Inc.

v. Selastomer Detroit, Inc., 470 F.2d 125 (7th Cir. 1972),

the Seventh Circuit followed the rule of Beebe v. Columbia Axel

Co., 117 S.W.2d 624, 629 (Mo. App. 1938). The Court

quoted the same language from Beebe as quoted in the opinion

of the Court below (Appendix p. A-10) for the proposition that

even where the contract is terminable at will, the franchisee

may recoup its investment on a quantum meruit basis. Notably,

the Seventh Circuit stated at p. 129:

“That in any event, the jury must determine, regardless

of whether the contract was terminable at will, whether

the plaintiffs suffered damages as the result of incurring

expense and devoting time and Jabor in the matter of the

agency without being afforded a sufficient opportunity to

recoup from the undertaking, as required by Fargo.”

The opinion of the Court below appears to base its holding

upon the following quoted language from Superior Concrete

Accessories, Inc. v. Kemper, 284 §.W:2d 482, 492 (Mo. 1955):

“In view of the return to Kemper under the agreement

shown by the record, and the fact that this agreement has

been in effect for more than 12 years at the time of the

trial of this case, we are of the opinion that the trial court

correctly found that Kemper has had a reasonable and

ample opportunity to recover the amounts invested by him

pursuant to the agreement... .”

6 eee eee we

=

Kemper was a declaratory judgment action tried to the Court

and there was a finding of fact that the terminated distributor

had earned the same amount in commissions equal to his total

investment. Thus, in Kemper there was recoupment in fact.

In the case at bar, recoupment has not been achieved. Since

recoupment can only come from profits, the loss of which the

jury found in the amount of $150,000, and since Respondents

have virtually conceded that the amount was reasonable, the

jury has already decided recoupment damages and the evidence

conclusively shows Petitioner’s recoupment damages to be at

least this amount.

Petitioner has thus been deprived of property rights contrary

to the due process requirements of the Fifth Amendment, Brink-

erhoff-Faris Trust & Savings Co. v. Hill, supra. Petitioner has

also been deprived of its right to a jury trial on the issue of dam-

ages, Atlantic & Gulf Stevedores, Inc., supra.

— —

CONCLUSION

For the reasons stated, a writ of certiorari should issue to

review the judgment and opinion of the Eight Circuit.

Respectfully submitted,

JOHN J. COLE

WALTER M. CLARK

WILLIAM J. TRAVIS

611 Olive, Suite 1950

St. Louis, Missouri 63101 A P P E N D | X

Attorneys for Lockewill, Inc.,

Petitioner

ARMSTRONG, TEASDALE,

KRAMER & VAUGHAN

611 Olive, Suite 1950

St. Louis, Missouri 63101

Of Counsel

— *

United States Court of Appeals

for the Eighth Circuit

No. 76-1099

Lockewill, Inc.,

Appellee,

Vv.

The United States Shoe Corp. and

Pappagallo, Inc.,

Appellants.

No. 76-1025

Lockewill, Inc.,

Cross-Appellant,

v.

Associated Dry Goods Corp., d/b/a

Stix, Baer & Fuller, The United

States Shoe Corp. and Pappagallo,

Ina.,

Cross-Appellees.

}

Appeals from the

United States Dis-

trict Court for the

Eastern District of

Missouri..

Submitted: October 12, 1976

Filed: December 28, 1976

Before Lay, Ross and Henley, Circuit Judges.

pa ~ an

Henley, Circuit Judge.

This is an appeal and cross-appeal from a judgment of the

United States District Court for the Eastern District of Missouri

which was in one respect favorable to the plaintiff but which in

other respects was favorable to the defendants. Jurisdiction of

the district court was properly based on diversity of citizenship

with the requisite amount in controversy. The case was tried to

a jury. At the conclusion of plaintiff's case both sides moved

for directed verdicts. The motion of plaintiff, Lockewill, Inc.,

was denied. The motion of the defendants, United States Shoe

Corp. (U. S. Shoe) and Pappagallo, Inc. (Pappagallo), was like-

wise denied. The motion of the defendant, Associated Dry

Goods Corp., Stix, Baer & Fuller Division, was granted. U. S.

Shoe and Pappagallo called no witnesses and renewed their mo-

tion which was again denied.

Although the motions of U. S. Shoe and Pappagallo were de-

nied, the district court refused to submit to the jury certain

claims of the plaintiff and limited the jury’s consideration to the

claim of plaintiff that it was entitled to compensatory damages

for breach of an alleged exclusive franchise or distributorship

contract for the sale of fashionable women’s shoes and other

items of apparel and ornament from an establishment known as

“The Shop for Pappagallo” located in or near the City of St.

Louis, Missouri. The district court refused to submit to the jury

plaintiff's claims for damages, including punitive damages, based

on an alleged conspiracy among the defendants, including Stix,

Baer & Fuller (SBF), alleged tortious interference by SBF with

the contractual relationship between plaintiff and the other de-

fendants and alleged unfair competition.

On the limited submission to it, the jury found in favor of

the plaintiff and assessed plaintiff's damages in the sum of

$150,000.00. Judgment was entered on the verdict. There-

after, U. S. Shoe and Pappagallo filed a motion for judgment

notwithstanding the verdict, or, in the alternative, for a new

trial. That motion was denied, and this appeal followed. .

Ak ate eee ete Bo -

—_ a

On their direct appeal U. S. Shoe and Pappagallo do not

complain of the amount of the verdict. They do contend that

their motions for a directed verdict should have been granted

or that the district court should have granted their motion for

judgment notwithstanding the verdict or should at least have

granted a new trial.

On its cross-appeal plaintiff contends that the district court

erred in directing a verdict in favor of SBF and in refusing to

submit to the jury its other claims that have been mentioned.!

Plaintiff also contends that the district court erred in excluding

in limine certain evidence that plaintiff claims was relevant in

connection with its claim of bad faith on the part of U. S. Shoe

and its claim for punitive damages. And plaintiff finally con-

tends that the district court erred in denying discovery with

respect to certain documentary material.

The position of SBF is simply that the district court acted

correctly when it directed a verdict in favor of SBF at the close

of plaintiff's case.

Although the contract in suit was made in New York, and

although the contract was to be performed partially in New

York, both sides proceeded in the district court and have

proceeded here on the theory that the rights of the parties are

governed by the substantive law of Missouri. We will accept

the parties’ choice of law which certainly is not an impermissible

one.

As far as the appeal of U. S. Shoe and Pappagallo is con-

cerned, we are required to view the evidence in the light most

favorable to the plaintiff and to give to the plaintiff the bene-

fit of all inferences favorable to it that are reasonably deducible

? One of plaintiff's claims that we have not mentioned was for

injunctive relief. The district court did not submit that claim to the

jury and did not grant that relief. of the district

court’s rulings in that regard is not questic ed here.

—- won

from the evidence. When that approach is taken, we think

that the jury could have found from the evidence and evidently

did find substantially the following facts:

As is well known, women’s shoes and other items of mer-

chandise designed and sold under the brand name “Pappagallo”

have been fashionable and much in demand. Prior to 1968

this merchandise was manufactured or distributed at wholesale

by Pappagallo, Inc., a New York corporation having its prin-

cipal place of business in the City of New York. For a number

of years all of the stock in the corporation was owned by its

president, Maurice Bandler. In 1968 all of the stock in the

corporation was acquired by U. S. Shoe, and thereafter Pappa-

gallo, Inc. became a division of U. S. Shoe. However, it has

retained its business identity. Mr. Bandler ceased to be con-

nected with the operation in 1969. He was succeeded as presi-

dent by Melvin Braverman; Mr. Braverman in turn was suc-

ceeded by Ben Ross; and Mr. Ross was finally succeeded by

Frank Fleming who was still in charge of Pappagallo’s opera-

tions when this suit was filed in 1974 and when it was tried in

1975.

Traditionally Pappagallo products have been sold to con-

sumers at retail from relatively small stores, each of which is

known as “The Shop for Pappagallo.” These stores are uniquely

and attractively designed, and in merchandising and advertising

much stress is laid on the word “Pappagallo.”

As long as Mr. Bandler owned the stock in Pappagallo and

for some years after he sold his stock to U.S. Shoe, the retail

outlets were separately owned and were non-competing; that

is to say, there was only one Pappagallo Shop in each city or

trade area. And it was the policy of Pappagallo not to permit

its products to be sold in large department stores like SBF.’

2 ae & ate oo Oe ee See om S > See Its

principal store is located on Washington Avenue in downtown St.

Louis, but it has a number of additional outlets in that city and in

shopping centers in the suburbs.

~ ee eenee cen oe ememne

— Y =

Plaintiff is a Missouri corporation which was organized in

the spring of 1965 by Grant Williams, a man experienced in

the shoe business, after he had made an oral contract with Mr.

Bandler in March, 1965. After that contract was made, the

rights and liabilities incident to it passed informally to the plain-

tiff corporation which Williams controls.

Williams first became interested in the Pappagallo operation

when he observed a Pappagallo shop in Washington, D. C. while

on a business visit to that city in late 1964 or early 1965. For

the purpose of obtaining a Pappagallo franchise for the St. Louis

area he met with Bandler in New York in March, 1965. Asa

result of that meeting, which was highly informal, Williams and

Bandler entered into the contract involved in this case and under

which Pappagallo and the corporate plaintiff performed for

nearly nine years.

The agreement was that if Williams would at his own expense

open and equip a Shop for Pappagallo in the St. Louis area,

and if he would maintain it and operate it satisfactorily, and if

he would purchase shoes in reasonable volume from year to year,

he would be given an exclusive right to market Pappagallo

products in that area and appropriately to make use of the Pap-

pagallo trade name and good will. In the course of the con-

versation between Williams and Bandler the former placed an

initial order for several thousand pairs of shoes.

Unfortunately, the agreement between the two men was not

reduced to writing. At one point in the conference Williams

inquired of Bandler about the propriety of a written contract,

but Bandler, although a lawyer, assured Williams that no writ-

ing was necessary, and that their handclasp was sufficient to

bind the deal.

The agreement was silent as to its duration and nothing was

said about the right of either side to terminate the arrangement

either with or without notice or with or without cause. More-

anion

over, it does not appear that either side covenanted to remain

in business permanently or for any particular period of time.

After the conference in New York, Mr. Williams returned to

St. Louis, formed his corporation, invested about $100,000.00

in the venture and opened for business in May, 1965. There-

after and down through the years plaintiff bought and paid for

large quantities of Pappagallo merchandise. Apparently, Pappa-

gallo was satisfied with the performance of plaintiff, and plain-

tiff was satisfied with the performance of Pappagallo.

By about 1970 and after Bandler had ceased to be connected

with Pappagallo, large department stores in various cities, in-

cluding SBF in St. Louis, began to try to induce U. S. Shoe to

permit the opening of Pappagallo shops in their stores. Naturally,

the operators of existing outlets, including plaintiff, protested,

contending that to permit the products to be sold by or in de-

partment stores would infringe upon their exclusive franchises

and also would destroy the very marketing concept which had

made the Pappagallo brand famous and dealings in merchan-

dise bearing that brand profitable.

For a substantial period of time U. S. Shoe-Pappagallo re-

fused to permit department stores to sell the merchandise in

question in competition with locally owned Pappagallo shops.

However, by the summer of 1973 an arrangement had been

made under the terms of which SBF would be permitted to open

Pappagallo shops in a number of its department stores in and

around St. Louis.

In September, 1973 counsel for plaintiff wrote a joint letter

to the president of SBF and to the president of Pappagallo warn-

ing them that the contemplated arrangement would violate the

rights of plaintiff, and that should the arrangement be imple-

mented, plaintiff would commence action to vindicate and pre-

serve its alleged rights.

—*

Pappagallo evidently had taken or took the position that plain-

tiff had no exclusive rights in the St. Louis area, or at least that

Pappagallo knew of no such rights. However, in view of the

letter from plaintiff's counsel, SBF refused to proceed further

unless the other defendants provided it with satisfactory indem-

nity should it turn out that the plaintiff was correct in its position.

SBF was provided with a satisfactory indemnity agreement,

and in February, 1974 SBF opened a number of Shops for Pap-

pagallo in its stores in and around St. Louis, and this suit was

promptly filed.

The SBF shops began to sell goods in direct competition with

plaintiff, and the jury was justified in finding that plaintiff sus-

tained substantial losses in sales and profits from the SBF com-

petition. Under the instructions of the district court, the jury's

award was based on lost profits, including future profits.

As far as the record shows, plaintiff has never ceased to oper-

ate its Shop for Pappagallo at the same location and under the

same name, nor has it ever ceased to sell Pappagallo products.

Plaintiff is not suing U. S. Shoe and Pappagallo for any breach

of that portion of the contract which involved sales of goods by

those defendants to plaintiffs. The position of the plaintiff is

that when U. S. Shoe and Pappagallo permitted SBF to open

Shops for Pappagallo in its stores, those defendants breached

the exclusivity provision of plaintiff's distributorship contract.

The position of the defendants is that for a number of reasons

the agreement between Williams and Bandler was never enforce-

able prospectively, and that plaintiff is not entitled to recover

anything on the basis of that contract or a breach thereof.

Contracts for exclusive franchises or distributorships have

been developed to meet the needs of modern manufacturing and

distribuuwn. Bendix Home Appliances, Inc. v. Radio Accesso-

ries Co., 129 F.2d 177, 181 (8th Cir. 1942). They are dis-

—_*

cussed in considerable detail in WILLISTON ON CONTRACTS, 3d

ed., § 1017A.* In one aspect, such a contract is one for the

future sale of goods; in another aspect, it is a contract of agency

or factorage. In view of the dual nature of such a contract it

is not necessary for its validity that it require the franchisee or

distributor to buy any particular quantities of goods; he is ex-

pected to order what he needs and can sell. WILLSTON, op. cit.,

pp. 139-40; C. C. Hauff Hardware, Inc. v. Long Mfg. Co., 136

N.W.2d 276 (la. 1965); Bendix Home Appliances, Inc. v.

Radio Accessories Co., supra.

Suits by franchisees against franchisors alleging wrongful

terminations or cancellations of franchises are by no means

rare and have produced a great number of reported decisions,

many of which are collected in an exhaustive annotation en-

titled “Termination By Principal of Distributorship Contract

Containing No Express Provision for Termination,” 19 ALR3d

196, and the protection of franchisees from improper termina-

tions by franchisors is the specific problem discussed in § 1017A

of WILLSTON.

As might be expected, the results reached by the courts have

not been harmonious. Results have been influenced by under-

lying concepts of contract law, by characterizations of par-

ticular contracts in suit, by the provisions, if any, of the contracts

with regard to termination, and the facts and circumstances of

particular cases. In some cases legal or equitable relief, or both,

has been granted; in other cases relief has been denid.

As the annotation cited above makes clear, relief has been

denied in some cases on the theory that the contracts before

the court were terminable at will from their inception, that the

promises, if any, of the distributors were illusory, and that the

manufacturers or franchisors were for that reason not required

on an earlier edition of WILLISTON that section appeared as

1027A.

ee et ee

—

to perform prospectively. In other cases the view has been taken

that the contracts although valid initially were terminable at

will by the distributor or by the manufacturer, or by either,

and that the manufacturer could exercise his right without in-

curring liability to the distributor.

In WILLSTON, supra, it is said that the problem may present

itself to a court in any one of five conventional situations: (1)

where the duration of the contract is fixed; (2) where a deter-

minable time is fixed on one side only; (3) where the contract

is completely silent as to termination; (4) where the contract is

definite as to duration but reserves to one side a right of prior

cancellation; and (5) where the contract fixes no definite period

of duration but specifies that one or both parties may cancel

at will or upon notice, or upon written notice, or for designated

cause, or for dissatisfaction.

We have here the third situation, and the view expressed in

WILLISTON is that the contract is binding on the manufacturer

for a reasonable period of time after which it may be cancelled

upon notice. The purpose of the notice is to allow the distributor

a reasonable opportunity to arrange his affairs. WILLSTON, op.

cit., pp. 150-52, and cases cited. See also C. C. Hauff Hard-

ware, Inc. v. Long Mfg. Co., supra; Ag-Chem Equipment Co.

v. Hahn, Inc., 480 F.2d 482 (8th Cir. 1973) (applying Minne-

sota law).

The law of Missouri, which we are undertaking to apply in

this case, appears to be that where the parties to a franchise or

exclusive agency or distributorship agreement which is silent as

to duration and which does not deal specifically with termina-

tion begin to perform thereunder, the agreement is construed

to be terminable at the will of either party. See Superior Con-

crete Accessories v. Kemper, 284 §.W.2d 482 (Mo. 1955);

Want v. Century Supply Co., 508 S.W.2d 515 (Mo. App.

1974); Red-E-Gas Co. v. Meadows, 360 S.W.2d 236 (Mo.

—_—~

App. 1962); Beebe v. Columbia Axle Co., 117 S.W.2d 624

(Mo. App. 1938).

That general rule, however, is subject to an important limita-

tion which was expressed in Beebe, supra, in the following

language (117 S.W.2d at 629):

The limitation is that, in any case of an indefinite agency

where it is revoked by the principal, if it appears that the

agent, induced by his appointment, has in good faith in-

curred expense and devoted time and labor in the matter

of the agency without having had a sufficient opportunity

to recoup such from the undertaking, the principal will be

required to compensate him in that behalf; for the law

will not permit one thus to deprive another of value with-

out awarding just compensation. The just principle acted

upon by the courts in the circumstances suggested requires

no more than that, in every instance, the agent shall be

afforded a reasonable opportunity to avail himself of the

primary expenditures and efforts put forth to the end of

executing the authority conferred upon him and that, if

such opportunity is denied him, the principal shall com-

pensate him accordingly. (Citations omitted. )

In a case to which the limitation of the general rule is ap-

plicable, the agent is entitled to recoupment or to compensa-

tion on a quantum meruit basis rather than by way of ordinary

damages for breach of contract. Gibbs v. Bardahl Oil Co., 331

S.W.2d 614 (Mo. 1960); Glover v. Henderson, 25 S.W. 175

(Mo. 1894); Want v. Century Supply Co., supra, 508 S.W.2d

at 516-17.

In Superior Concrete Accessories, Inc. v. Kemper, supra, the

parties entered into their contract in 1941, and it provided that

it should continue in effect until cancelled by mutual agreement.

The parties performed under the contract for a number of years

after which the manufacturer brought suit for a declaratory

ee a

a ee

NR A ne es tt wh a i ae

— A-ll —

judgment to the effect that it was entitled to cancel the agree-

ment at will. The manufacturer prevailed in the trial court,

and the franchisee appealed.

For reversal, the franchisee contended primarily that the con-

tract was of perpetual duration. Alternatively, it was contended

that the agreement should be held binding for a reasonable

period of time so that the franchisee could recover its invest-

ment. Both contentions were rejected.

In dealing with the franchisee’s alternative contention, the

court first recognized the limitation on the rule that a contract

of indefinite duration is terminable at the will of either party.

The court thereafter said (284 S.W.2d at 492):

In view of the return to Kemper under the agreement

shown by the record, and the fact that this agreement had

been in effect for more than twelve years at the time of

the trial of this case, we are of the opinion that the trial

court correctly found that Kemper has had a reasonable

and ample opportunity to recover the amounts invested by

him pursuant to the agreement in the promotion of the

business of respondent.

Applying to this case the principles of Missouri law that have

been mentioned, we hold that apart from any question of the

Statute of frauds, which was pleaded by the defendants, the

agreement between plaintiff and Pappagallo was binding, at

least quasi-contractually, on Pappagallo and later on U. S. Shoe

for a reasonable time after plaintiff had opened its shop in May,

1965, to the end that plaintiff might have a reasonable oppor-

tunity to recover its initial investment and expenses. During that

period of time Pappagallo and U. S. Shoe were required to sup-

ply goods to the plaintiff and to refrain from interfering with

his exclusive distributorship in the St. Louis area.

However, we are convinced that reasonable men could not

differ on the proposition that by late 1973 and early 1974 such

— A-12 —

a reasonable time or period had expired, and that U. S. Shoe and

Pappagallo had the right to terminate their contractual relations

with plaintiff entirely, which they did not do, or to cancel the

exclusivity feature of plaintiff's distributorship, which they did

do when they permitted SBF to open Shops for Pappagallo in its

stores.

And, we are convinced that plaintiff suffered no legal wrong

when U. S. Shoe and Pappagallo finally implemented a change

in marketing policy which had evidently been in contemplation

for some years.

It is true that plaintiff was not given any formal or written

notice of what the defendants intended to do. However, it is

evident that at least by late September, 1973 plaintiff had re-

ceived actual notice of what was in the wind, and there is noth-

ing to indicate that plaintiff sustained any loss or damage by

the fact that it was not given formal notice. It will be remem-

bered that the contract said nothing about termination and

naturally there was no requirement of formal notice of cancella-

tion.

It follows that the district court erred in submitting to the

jury the claim of plaintiff based on breach of contract. It should

have directed a verdict in favor of U. S. Shoe and Pappagallo on

all of the claims of the plaintiff and should have entered “judg-

ment in favor of those defendants on all of the claims.

Plaintiff's cross-appeal may be disposed of briefly. We are

satisfied that plaintiff did not make a submissible case against

SBF on plaintiff's claims of conspiracy, tortious interference

with contract relations, and unfair competition, and that the

district -ourt properly directed a verdict for and entered judg-

ment in favor of SBF.

Other issues raised by the cross-appeal do not survive our de-

termination of the principal appeal and our holding that a ver-

dict in favor of SBF was properly directed.

in i lk

—

As far as U. S. Shoe and Pappagallo are concerned, the judg-

ment of the district court is reversed and the cause remanded for

further proceedings not inconsistent with this opinion. The judg-

ment of the district court in favor of SBF is affirmed.

Reversed and remanded on direct appeal. Affirmed on cross-

appeal.

A true copy.

Attest:

Clerk, U. S. Court of Appeals, Eighth Circuit.

— A-14—

United States Court of Appeals

for the Eighth Circuit

76-1025 September Term, 1976

Lockewill, Inc., etc.,

Appellant,

VS.

Associated Dry Goods Corp., etc.,

et al.,

Appellees.

76-1099

Lockewill, Inc., etc.,

Appellee,

vs.

The United States Shoe Corp., etc.,

et al.,

Appellants.

Appeals from the

United States Dis-

trict Court for the

Eastern District of

Missouri

The Court having considered petition for rehearing en banc

filed by counsel for appellee-appellant Lockewille and, being

fully advised in the premises, it is ordered that the petition for

rehearing en banc be, and it is hereby, denied.

Considering the petition for rehearing en banc as a petition

for rehearing, it is ordered that the petition for rehearing also

be, and it is hereby, denied.

January 21, 1977