Petition — Shakespeare Co. v. Fury Imports, Inc.

Supreme Court brief1981

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—_—

Supreme Court, U. S.

FILED

IN THE

Supreme Court of the Unites Hfdtes 8

OctToBER TERM 1980 MICHAEL RODAK, JR, CLERK

SHAKESPEARE COMPANY, a Delaware Corporation

Petitioner

vs.

FURY IMPORTS, INC., a New York Corporation

Respondent

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

JOHN C. HOWARD

HowarD & HOwaARD

407 Kalamazoo Building

Kalamazoo, Michigan 49007

616-382-1483

Counsel of Record for Petitioner

JAMES H. GEARY

LITTLE & GEARY

107 West Michigan-Suite 301

Kalamazoo, Michigan 49007

616-344-1575

Pandick Press Midwest, Inc., Chicago °* 454-7600

QUESTIONS PRESENTED FOR REVIEW

I. Whether a party’s admissions of damages in 1970 are

properly excluded under Federal Rule of Evidence 403 if

accrual of damages in 1970 bars the claim under the Statute of

Limitations, and where the Court’s exercise of discretion is

wholly unexplained.

I]. Whether Federal Rule of Civil Procedure 41(a)(2)

permits a party seeking to avoid a three year statute of

limitations to withdraw. over objection, contested claims for

damages suffered more than three years before the filing of its

Complaint.

II]. Whether under Federal law a Court may, in a

diversity action. refuse to consider applicable state choice of law

rules and foreign law, timely asserted before retrial, if consid-

eration was previously denied on the grounds that foreign law

had not been timely raised under Federal Rule of Civil

Procedure 44.1.

IV. Whether the failure of the United States Court of

Appeals to apply applicable state law in a diversity case

amounted to a refusal to follow this Court’s direction in Day &

Zimmerman, Inc. v. Challoner, 423 US 3 (1975).

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW. .......000000.00.....

REFERENCE TO OPINIONS BELOW......00000 occ eee

CONCISE STATEMENT OF JURISDICTION ..................

REFERENCE TO CONSTITUTIONAL AND STATU-

FOR Fry a Be FD yas icscsienscccccssscacccecseciane

REASONS FOR ALLOWANCE OF THE WRIT..............

I. MISUNDERSTANDING AND ABUSE OF

FEDERAL RULE OF EVIDENCE 403 IS A

RECURRING, IMPORTANT ISSUE OF

FEDERAL LAW WHICH SHOULD BE AD-

DRESSED BY THE SUPREME COURT ..........

(A) The Exercise of Wholly Unexplained Dis-

cretion To Exclude a Party’s Admissions of

Material Facts Is a Misapplication of FRE

403 and an Example of the Chronic Abuse

SEE NO as shhinscasesendbassact chiddamckanciectbinmabank:

(B) This Case is An Example Of The Mis-

application Of Rule 403 ............cc0ssscsccecscsseses

I]. PERMITTING A PARTY SEEKING TO AVOID

A THREE YEAR STATUTE OF LIMITA-

TIONS TO WITHDRAW, OVER. OBJEC-

TION, A CLAIM FOR DAMAGES SUF-

FERED MORE THAN THREE YEARS BE-

FORE THE FILING OF ITS COMPLAINT IS

A SIGNIFICANT DEPARTURE FROM THE

PURPOSE OF FED. R. CIV. P. 41(a)(2)..........

The Interpretation Of Rule 41(a)(2) In-

volves An Important Question Of Federal

Law Which Ought To Be Resolved By This

FN ii rales aia acho denenncnunencusiaedaalionaintaicdees

Ii]. REFUSAL TO CONSIDER STATE CHOICE OF

LAW RULES AND APPLICABLE FOREIGN

LAW, TIMELY ASSERTED BEFORE RE-

TRIAL, WHEN CONSIDERATION WAS

PREVIOUSLY DENIED BECAUSE OF UN-

TIMELY NOTICE UNDER FEDERAL RULE

OF CIVIL PROCEDURE 44.1, PRESENTS A

SIGNIFICANT QUESTION OF FEDERAL

AE creek icdisigabiha sles wshidenidaesewcraseteahameiouetead lee mike

iil

(A) Rejection Of Japanese Law On Retrial Was A

Misapplication Of The “Law of The Case”

EN viccaiicd- asia cdieses baaieas cuncsseedpliabipath vvennstss

(B) Proper Application of the ‘“‘Law of the Case”’

Rule Would Not Permit Perpetration of

Clear Error or Perpetuation of Manifest

Noo sel sneictintaalsasiniennsacleiniehsiies

IV. THE FAILURE OF THE COURT OF APPEALS

TO APPLY APPLICABLE STATE LAW IN A

DIVERSITY CASE AMOUNTED TO A

REFUSAL TO FOLLOW THE DIRECTION

OF DAY & ZIMMERMAN, INC. V. CHAL-

CAI Fa FEF As OTIS cssccsaisincricndysssvicienesinne

(A) The Court of Appeals Failed to Conform its

Decision to Intervening, Controlling State

DAUD hiss cisictuasskbsrsdensinatvarcucandAniceceeaiateserinnana

(B) The Court Refused to Follow Applicable Law

Because It Was Not Satisfied with the

Result that Would Be Reached ....................

See SET Gil tarsesvenrsiss eeciepb nanan ananeatieahaspniciennebinanens

INDEX TO APPENDIX

Fifth Circuit Opinion September 8, 1980.......... la

Fifth Circuit Opinion of December 3, 1980

RE TROD iain csiicssetencaciescsicaderasctiosenes 9a

District Court order of August 11, 1978

Denying Judgment 0.0.V. .............ccccceseseeeeeeees lla

Fifth Circuit Opinion of June 24, 1977.............. 13a

District Court Opinion and Order of April 21,

1975 Granting Judgment N.0.V. ................0008 40a

Excerpts from the Civil Code of Japan.............. 48a

Florida Statute Annotated § 95.10 ................... 49a

New York Civil Practice Law and Rules.

SIE BA TR ciniccili cated tle a scncxeanactienithnnsdasens 49a

Federal Rule of Evidence 403 ...............ceceeeeee 50a

Federal Rule of Evidence 801(d)(2)(B), (C)

NIE ee ictal esedla cdnstenitidseek weckensnchanshndpesadtons 50a

Federal Rule of Civil Procedure 44.1................ 50a

Judgment n.o.v. of April 21, 1975 oe Sla

pa | a, SR ne 52a

Shakespeare/Ohmori Contract.............:::cccseeeee 56a

Amendment to complaint ................ccceceeeeeeeeeees 60a

Letter of September 11, 1974................cccsscsseees 6la

Judgment Of June 9, 1978 ...........ccccocrcscssscscecceees 62a

Re Bac ee vetithantecinsedcencnprscesinchsistiedite 63a

Excerpts Direct Testimony William Ciaccia...... 64a

Excerpts Fury’s Counsel’s Comments to Court. 66a

Excerpts Direc: Testimony Jack Morganstern.. 67a

Proffer Re: Japanese Law ............cssscccccssesssesesees 68a

Excerpts Direct Examination Sumio Takeuchi. 70a

SEINE OE PUD vis cisniensnsicscanscisneretasierassnsss Tla

Excerpts of Instructions Conference .................. 73a

Excerpts Fury’s Motion for Directed Verdict.... 79a

Excerpts Instructions Conference .................00+ 8la

Excerpts Fury’s Final Argument........................ 85a

SP alco di tite irae chisel cetickeainitamsouneaperinbond 85a

Excerpt Fury’s Brief—Second Appeal............... 88a

Excerpt Fury’s Brief—First Appeal................... 88a

INDEX OF AUTHORITIES

Cases.

Alamance Industries, Inc. v. Filene’s, 29\ F.2d 142

( Ist Cir. ), cert. denied 368 U.S. 831 (1961 )........

Allison v. Mackey, 188 F.2d 983 (D.C. Cir. 1951) ..

Babcock v. Jackson, 240 N.Y.S.2d 743 (Ct. App.

Bankers Trust Co. v. Mallis, 435 U.S. 381 (1978) ..

Beasley vy. Fairchild Hiller Corp., 401 F.2d 593

I ets naniieaneninnin

Broderick Wood Products Co. v. U.S., 195 F.2d

GREET IRE ee Pe ck eT

Brown Machine Co. v. Merrow, 411 F. Supp. 1162

GS IY Ee A nn ee EOE a

Bryce v. Wilde, 333 N.Y.S.2d 614 (App. Div.),

aff'd. 340 N.Y.S.2d 185 (1972 )...............ccceeeeseeees

Burkett v. Shell Oil Co., 487 F.2d 1308 (Sth Cir.

Cochran v. M & M Transportation Co., 110 F.2d

EI NS SRT Ore

Connett v. City of Jerseyville, 110 F.2d 1015 (7th

ERR SEE on Net ee a OR

Day & Zimmerman, Inc. v. Challoner, 512 F.2d 77

EER Se ne

Day & Zimmerman, Inc. v. Challoner, 423 U.S. 3

I a lca sins niennisthtabiepeemnsdpaneaniendentnenat

Dior v. Milton, 155 N.Y.S.2d 443 (Sup. Ct. 1956),

aff'd. 156 N.Y.S.2d 996 (1956)... ecceseeeeeees

Dollar v. Long Mfg., N.C., Inc., 561 F.22 513 (Sth

5 IR ELE ee a aE

Doran v. Petroleum Management Corp., 576 F.2d

Be NR INT ah ncieninresneisnentngencththiciniaitedaieenetiionjpien

PAGE

14, 15

20, 27

19-20, 21,

23, 24, 25

21-22, 26

Finn v. American Fire & Casualty Co., 207 F.2d

SM ED © sicsincksatedntearbspracscnateeévisdasivuneese

Glus v. Brooklyn Eastern District Terminal, 359

USS. 231 (1959) ........ SIRE) RS LS A SO RO ee

Goodall v. Columbia Ventures, 374 F. Supp. 1324

SE ITE BL cas cacicensbabdcniadcedsnenasoudievevesencesores

Government of Virgin Islands v. Felix, 569 F.2d

I aii csicsasancntenbepsdauhesvescusesevecesees

Guard-Life Corp. v. S. Parker Hardware Mfg.

Corp., 428 N.Y.S.2d 628 (1980) ou... ..eeeceeeeeeeeeeee

Haire v. Miller, 447 F. Supp. 57 (N.D. Miss.

Hannigan v. Sears, Roebuck & Co., 410 F.2d 285

iiss k ics ciitienoccnndsienansunenatncconpestes

Hartford Life Ins. Co. v. Blincoe, 225 U.S. 129

I aisiicodessntabdendinecbareabiitassossentvisessestanse

Hartzell vy. Burdick, 398 N.Y.S.2d 649 (1977)........

H.B. Zachry Co. v. O’Brien, 378 F.2d 423 (10th

Nee. umeepenanbees

Hopkins v. Lockheed Aircraft Corp., 201 So. 2d 743

en ametnnncbnbsions

John McShain, Inc. v. Cessna Aircraft Co., 563

I PE is cccossssinanscnsecasusscnsavosoooses

Klaxon Co. v. Stentor Electric Mfg. Co., 313 US.

AREAS SSS SE Ce a

Long Island Ry. Co. v. Northville Industries Corp.,

393 N.Y.S.2d 925 (Ct. App. 1977) oo... eeeeeeeeeeeee

Mack vy. Clairol, Inc., 415 N.Y.S.2d 16 (App. Div.

Mignon v. Tuller Fabrics Corp., 148 N.Y.S.2d 605

I SIE Bosna cassandneensgcunnssnatapioatoemicersisere

Miller v. Poretsky, 595 F.2d 780 (D.C. Cir. 1978) ..

Mishkin v. Dormer, 395 N.Y.S.2d 452 (App. Div.

Morris v. Blume, 55 N.Y.S.2d 196 (Sup. Ct. 1945).

Mourning v. Family Publications Service, Inc., 411

a schiiaculiidcetesedvconsnehes pebesings

PAGE

21, 22, 26

8,9

6, 21, 22, 23,

25, 26

Vii

Neiman-Marcus Co. v. Lait, 14 F.R.D. 159 (1953)

Oliver v. Southern Ry. Co., 475 F.2d 895 (D.C. Cir.

Reed v. McCord, 160 N.Y. 330, 54 N.E. 737 (Ct.

Re Re set iiceints iasesinecsnessccdescsebapeinatiandeges

Sacks v. Stewart, 427 N.Y.S.2d 20 (App. Div.

State Farm Mut. Auto. Ins. Co. v. Peréix 186 F.2d

Ee PE ls SEIN Sas cnabauchcstndciphesenvendtndbagebocbensieeeny

Terry v. Pearlman, 42 F.R.D. 335 (1967) ..............

U.S. v. Dolleris, 408 F.2d 918 (6th Cir.

U.S. v. Dooley, 424 F.2d 1067 (5th Cir. 1970)........

U.S. v. Dwyer, 539 F.2d 924 (2d Cir. 1976) ............

U.S. v. Frick, 588 F.2d 531 (Sth Cir. 1979), cert.

I RI TUNE i cciiiiciicoceossectostouibedbiodiescsvetes

‘U.S. v. Long, 574 F.2d 761 (3d Cir. ), cert. denied

Ee TIT DB éci cbssvi cadindccdarcetassecdenceecensinedon

U.S. v. McClain, 593 F.2d 658 (Sth Cir. 1979),

EE I Ge tts PEO fhccinccpstssscesecnchedesdbdenesmseni

U.S. v. McDaniel, 574 F.2d 1224 (Sth Cir. 1978),

CREE, GRMIINEE GE Giiees DOS ainctbiccarsusnscsicsscicsscntsecesins

U.S. v. McRae, 593 F.2d 700 ( 5th Cir. 1979) .........

U.S. v. Tuschman, 405 F.2d 688 ( 6th Cir. 1969)...

Vandenbark v. Owens-Illinois Glass Co., 311 US.

Ee IE Diisas scons baiedabiceacdh’ laubadsetincennentepiadeamianiabiii

Wm. G. Roe & Co. v. Armour & Co., 414 F.2d 862

CE MEE I Ean cal das cotnssnsildivcéniceensssunsesraderdanudees

Vill

Other.

NG ee tack AOU © HE D strives nen cdasccadnnerssenes 1]

24 Am.Jur.2d, Dismissal, Discontinuance and Non-

RUT ETO GE So ea 13

BP PAE FUE. 2, BE URIIIOR, S GUD occcscnncscscccccccnccccssccosses 10

Te PSOE. 2G, SUPUMMEIIIR, FF ccs ccciecesecccsscceccessusnssens 19,21

i a escenhdbnninoendaiieision 6, 13, 15

es 2. ssibebsivensnhinn Abus 2, & 35, %6,

a vehi dunempenenesgnaeiicians y

SEATS Ee Ys Sg eT a a RO a 4 67,6

10, 11

12, 13

I a I Oe conkanenghontiaosan 9,11

F.R.E. 801(d)(2)(B), (C) and (D)................ccceeee 2,9

3 Moore’s Federal Practice J 15.11 ......cccccccccccceeeeeeees 17

6 Moore’s Federal Practice J 56.11 [6] .............:c006 10

Prosser on Torts, 4th Edition, § 129................ccc..eeee 21, 22

Restatement (second ) Torts § 766...............ccceeeeeees 6, 21

a sddudpueseniebiipevcns 2,6

Sn cll dled sti cecnasaninasuahmabonvedineene 2

1 Weinstein’s Evidence 4] 403[2 ] .............:cssseeeeeeees 7

1 Weinstein’s Evidence J] 403[ 3] 0.0... cecceeceeeseeeeee 11-12

Wright and Graham, Federal Practice Procedure:

I cpeiaiubinane 7

No.

Supreme Court of the Gnited States

OCTOBER TERM 1980

SHAKESPEARE COMPANY INC., a Delaware Corporation

Petitioner

VS.

FURY IMPORTS. INC., a New York Corporation

Respondent

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Petitioner, Shakespeare Company, a Delaware Corpo-

ration, prays for issuance of a writ of certiorari to review the

Judgment and Opinion of the United States Court of Appeals

for the Fifth Circuit entered in this proceeding on September 8,

1980, with rehearing denied December 3, 1980.

OPINIONS BELOW

The Opinion of the United States Court of Appeals for the

Fifth Circuit is an Opinion published at 625 F.2d 585 and

entered September 8, 1980. A copy of the Opinion is included

in the Appendix. The Fifth Circuit’s Opinion denying rehearing

was entered December 3, 1980, in Fifth Circuit Docket No. 78-

2962 and is as yet unpublished. A copy is in the Appendix.

The Opinions of the Fifth Circuit affirmed an Order of the

United States District Court for the Southern District of Florida

entered in its Case No. 74-49 on August 11, 1978. The District

Court’s Order was unpublished. A copy appears in the

Appendix.

A previous decision of the Fifth Circuit was entered June

24, 1977, with rehearing denied August 22, 1977. The Opinion

was reported at 554 F.2d 1376. A copy appears in the

Appendix. The Fifth Circuit’s previous Opinion reversed an

unpublished Opinion and Order of the United States District

Court for the Southern District of Florida entered on April 21,

1975, in its Case No. 74-49. A copy of the District Court’s

Opinion and Order is in the Appendix.

CONCISE STATEMENT OF JURISDICTION

The Supreme Court has jurisdiction to hear this case on

certiorari under 28 U.S.C. § 1254(1). A written Opinion was

issued by the United States Court of Appeals for the Fifth

Circuit on September 8, 1980. Petitioner, Shakespeare Com-

pany, Inc., filed a timely Petition for Rehearing. Rehearing was

denied on December 3, 1980.

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

Relevant portions of the New York statute of limitations,

the Florida borrowing statute, the Japanese civil code, Federal

Rule of Evidence 403, Federal Rule of Evidence

801(d)(2)(B), (C) and (D), and Federal Rule of Civil

Procedure 44.1 are set forth in the Appendix.

CONCISE STATEMENT OF THE CASE

On January 15, 1974, Fury Imports, Inc. (“‘Fury’’) filed a

28 USC § 1332 diversity action in the Southern District of

Florida. Shakespeare Company’ (‘Shakespeare’) and South-

ern Tackle Distributors (“STD”) were named as defendants.

Fury’s amended Complaint of May 17, 1974, claimed

Shakespeare “deliberately and willfully embarked upon a

course of conduct ... purposely designed to interfere with the

contractual rights” of Fury with Ohmori, a Japanese fishing reel

supplier. (60a).*

Fury and Ohmori had a written contract making Fury the

exclusive distributor of a certain fishing reel. (52a) On June 10,

1970, Ohmori contracted with Shakespeare to stop selling to

Fury within a year and to make Shakespeare his only customer

(56a, 584).

On September 10, 1974, the Fifth Circuit denied Shake-

speare’s interlocutory appeal seeking a stay pending Japanese

arbitration. On September 11, 1974, Shakespeare gave written

notice of its intention to raise Japanese law barring punitive

damages, the tort having been committed, if at all, in Japan

(61a).

Trial began September 19, 1974. Proofs showing the

unavailability of punitive damages under Japanese law were

received (43a, 69a) but on April 21, 1975, the District Court

held Shakespeare’s notice of foreign law untimely under Rule

44.1 (42a).

The Court held a stipulation of law, reflected in Shakes-

peare’s notice of applicable Japanese law, was an agreement to

apply New York law on punitive damages. (43a).

The statute of limitations was a defense. Fury originally

claimed that Florida’s statute of limitations applied (39a). All

parties now agree that New York’s three year statute of

limitations governs (4a).

‘Shakespeare Company is a wholly owned subsidiary of An-

thony Industries, Inc., a Delaware corporation.

* Parenthetical number references are to the appendix.

Tortious interference is not a continuing tort under New

York law. Fury’s claim was barred if the first tortious

interference occurred before January 15, 1971.

At the first trial, Fury claimed $9,327.24 in damages for

1970. The verdict included $35,278.88 for 1970 (32a).

The District Court found the suit timely under Florida’s

statute of limitations “‘as it was filed within four years of the act

of inducement which occurred on June 10, 1970... .” (43a).

A judgment n.o.v. was granted on April 21, 1975. (Sla)

The Fifth Circuit agreed that Fury’s proof of damages was

inadequate, but reversed and remanded for a new trial on all

issues (34a-35a).

The Appeals Court found punitive damages permissible

under New York law. It did not disturb the District Court's

interpretation of the stipulation of applicable law. No choice of

law rules, or Japanese law, was discussed.

The judgment in favor of STD was not appealed. STD is

no longer a party to the action ( 15a-16a).

On March 28, 1978, Shakespeare filed another Rule 44.1

written notice of its intent to raise Japanese law concerning

punitive damages (Record 653). The retrial began May 23.

1978.

The Court permitted Fury to withdraw, over objection, its

1970 damage claim (73a-8la). It refused to admit Fury’s

attorneys’ claims that Fury was damaged in 1970, saying that it

had authority to exclude the admissions under Rule 403

(84a-85a). The Court denied Shakespeare’s request to define

“damages” to the jury. It refused Shakespeare’s requested jury

instruction saying an “anticipatory breach” of contract by

Ohmori could be “damage” to Fury ( 76a-78a, 81a).

The Court’s instructions conveyed to the jury “that the

Plaintiff was suing for inducement to breach, not for making

performance more difficult” (8a). Through special inter-

rogations the jury was asked whether the first “breach” of the

Ohmori/Fury contract occurred after January 15, 1971. The

jury determined Fury’s damages for each year from 1971

onward ( 86a-87a).

Fury was awarded $931,391, including $600,000 in puni-

tive damages. Shakespeare’s motion for Judgment n.o.v., was

denied. The Court said “the relevant factual issues” on the

statute of limitations had been submitted to the jury. It again

held Shakespeare’s 1974 letter claiming Japanese law barred

punitive damages to be an agreement to apply New York law

on ptnitive damages. The Court also said that “even if New

York’s choice of law rules are applicable, that law would allow

the granting of punitive damages” (1la-12a).

Shakespeare sought reversal because punitive damages

were barred by application of Japanese law through the choice

of law rules of Florida (the forum) or New York (the forum by

stipulation ).

Shakespeare also claimed that Fury’s admissions of dam-

ages in 1970 were not properly withdrawn or suppressed and

that the cleim was barred by the statute of limitations.

The Court of Appeals acknowledged that its prior opinion

did not “expressly decide which body of law controlled punitive

damages,” (3a) but it refused to consider Japanese law or any

choice of law rules, saying that its prior opinion implicitly made

New York local law on punitive damages the “law of the case”

(3a).

The Appeals Court rejected consideration of all damages

caused by Shakespeare’s interference in 1970 because Fury did

not seek damages because Shakespeare made performance of

its contract more difficult” (7a).

The Court held that under New York law a “breach” or

complete severance of the contractual relationship was a neces-

sary element of the tort Fury sued on.

*-*

The Fifth Circuit upheld the exclusion of Fury’s claim of

damages in 1970, under FRE 403. The Court did not discuss

whether part of the claim for damages could be withdrawn over

objection under FRCP 41(a)(2). It did not discuss whether

Rule 44.1 permits a party to raise an issue of foreign law at

retrial if it was not considered before because of untimeliness.

Shakespeare petitioned for rehearing because the Court's

September 8, 1980. opinion ignored Guard-Life Corp. v. S.

Parker Hardware Mfg. Corp., 428 N.Y.S.2d 628 (1980), a May

1, 1980, decision of New York’s highest court. By adopting the

Restatement (second) Torts § 766. Guard-Life rejected the

dichotomy between “inducement to breach” and “interference

with contract” that formed the basis of the Fifth Circuit's

opinion.

The Fifth Circuit denied rehearing. It acknowledged that

no matter what name was applied. the tort was the same.

However. it still refused to consider whether the damages

claimed by Fury in 1970 commenced the running of the statute

of limitations. It did not modify its holding that interference

short of inducing a breach did not start the statute of limitations

running. (9a-10a)

Shakespeare now brings to this Court its Petition for

Certiorari under 28 USC 1254(1).

REASONS FOR ALLOWANCE OF THE WRIT

I. MISUNDERSTANDING AND ABUSE OF FEDERAL

RULE OF EVIDENCE 403 IS A RECURRING, IMPOR-

TANT ISSUE OF FEDERAL LAW WHICH SHOULD

BE ADDRESSED BY THE SUPREME COURT.

(A) The Exercise of Wholly Unexplained Discretion To

Exclude a Party's Admissions of Material Facts Is a

Misapplication of FRE 403 and an Example of the

Chronic Abuse of the Rule.

The Supreme Court has not decided a case dealing with

FRE 403 since the Federal Rules of Evidence were adopted.

Chronic abuse and misapplication of Rule 403 has been

described by respected Commentators and cautioned against by

courts.

In Wright and Graham, Federal Practice Procedure: Evi-

dence § 5223 it is said:

“Unhappily, it must be reported that some of the most

conspicuous abuses of R«le 403 discretion are to be found

in appellate opinions. Too often these opinions treat Rule

403 as a grant of unfettered discretion to the trial

judge—‘“‘great discretion” in the words of one such opin-

ion—rather than as a rule requiring a careful balancing of

factors so as to check discretion. Worse yet is the use of

discretion as a magic solvent for evidentiary issues on

appeal. The unstated line of reasoning in this issue-

ducking use goes something like this: the trial judge may

have erred in excluding this evidence on grounds that it

was hearsay, but since he could have excluded it under

Rule 403 in any event, it is not necessary to discuss the

hearsay error.

This loose usage of Rule 403 by appellate courts is

unfortunate for a number of reasons. First, it sets a bad

example for trial courts whose method of exercising dis-

cretion is substantially more important than any appellate

application of the rule. Second, if every challenged ruling

of the trial judge is to be buried beneath gobs of gooey

discretion, it is difficult to see how we will ever have any of

the ‘growth and development’ of the law of evidence that is

enjoined by Rule 102. Finally, such appellate treatment of

discretion, because of its visibility, may discredit the con-

cept even if trial judges are much more responsible in

exercising discretion and ultimately lead to efforts to

replace Rule 403 with something more like the mandatory

rule that was originally proposed.”

| Weinstein’s Evidence 9403[2] says:

*... Rule 403 should be applied infrequently and cau-

tiously by trial judges. When it is used, a clear statement

of the reason should be made for the record. . .”

U.S. v. Long, 574 F.2d 761, 766 (3d Cir. ), cert. denied 439

U.S. 985 (1978) held:

“Where an objection does invoke Rule 403, the trial

judge should record his balancing analysis to the extent

that his exercise of discretion may be fairly reviewed on

appeal.”

John McShain, Inc. v. Cessna Aircraft Co. 563 F.2d 632, 635

(3d Cir. 1977) held that:

“T]he balance required [by Rule 403] is not a pro forma

one. A sensitive analysis of the need for the evidence as

proof of a contested factual issue, of the prejudice which

may eventuate from admission, and of the public policies

involved is in order before passing on such an objection.

The substantiality of the consideration given to competing

interests can be best guaranteed by an explicit articulation

of the trial court’s reasoning.”

See also authorities cited in Miller v. Poretsky, 595 F.2d

780, 794 n.41 (D.C. Cir. 1978) (Robinson J. concurring ):

Government of Virgin Islands v. Felix, 569 F.2d 1274, 1280 (3d

Cir. 1978): and U.S. v. Dwyer, 539 F.2d 924, 928 (2d Cir.

1976).

In this case the District Judge used Rule 403 to keep from

the jury admissions of Plaintiffs counsel on a key issue of fact.

His exercise of discretion was wholly unexplained. The Court

of Appeals upheld, without requiring the trial court to explain

the exercise of its discretion. The Fifth Circuit thus implicitly

put itself in conflict with at least three circuits.

If Fury was damaged in 1970 as a result of Shakespeare’s

tortious interference, its claim was barred by the statute of

limitations. At the first trial Plaintiffs lawyer said that Fury

was “entitled to a directed verdict for the year 1970 beyond any

question... I feel that we are entitled to one on the issue of

breach of contract” (7la). He told the jury that: ‘We claim

our damages in the year 1970 were $9,327.24” (72a).

On retrial Shakespeare offered these statements under FRE

801(d)(2)(B)(C) & (D) (7la-72a, 82a-83a). Fury opposed

introduction saying that “nothing could be further from the

truth” than to say Fury was claiming damages in 1970-( 84a).

On retrial Fury claimed it didn’t suffer damages until 1973,

because it had “back-ordered” reels in 1970, 1971 and 1972

(80a). It told the second jury ‘“‘we haven’t asked for damages

in the year 1970 because we got our order that year” (85a).

The trial judge ducked the hearsay issue, saying: “It may

come under 801 or it may not” (84a). He avoided determining

relevancy, saying only: ““You are not permitted to argue in

terms of saying that [ Plaintiff's Counsel] at the last trial argued

this. I think that that is frocked with prejudicial aspects. And

even though it might be relevant, I think 403 would permit me

to exclude it” (84a-85a).

There was none of the careful, “delicate,” explicit balanc-

ing on the record of competing interests that would have been

required in the Second, Third or D.C. Circuits. See Government

of Virgin Islands v. Felix, 569 F.2d 1274, 1280 n.13 (3d Cir.

1978); U.S. v. Long, supra; U.S. v. Dwyer, supra and Miller v.

Poretsky, supra.

The Court of Appeals did no better. It did not mention

FRE 801. It demurred on the question of relevancy under Rule

401 and said:

‘“*{ T]he trial judge was within his discretion in excluding it

under Rule 403, which allows the exclusion of relevant

evidence if its probative value is substantially outweighed

by the danger of unfair prejudice, confusion of the issues,

or misleading the jury” (8a).

The Court cited as authority U.S. v. Frick, 588 F.2d 531

(Sth Cir. 1979), cert. denied 441 U.S. 913 and U.S. vy.

McDaniel, 574 F.2d 1224 (Sth Cir. 1978), cert. denied 441 U.S.

952, cases involving inflammatory evidence about the adverse

party’s possible involvement in sexual misconduct or member-

ship in an undesirable social group. By failing to require the

trial court to articulate its reasons for exclusion under Rule 403,

the Court implicitly held that no such explanation was required.

Certiorari should be granted to resolve the conflict among

the circuits and to exercise the Court’s power of supervision.

Lower courts should be directed to give sufficient indications of

the bases of their decisions under Rule 403 to make meaningful

appellate review possible and to assure that the Rule is applied

rationally and in keeping with its purposes. The question of the

proper application of Rule 403 “is important and recurring,”

Glus v. Brooklyn Eastern District Terminal, 359 U.S. 231, 232

(1959). Certiorari should be granted to finally resolve the

question.

(B) This Case Is an Example of the Misapplication of

Rule 403.

Arguments of Counsel made to a Court bind the client.

Courts act on the oral concessions and admissions of lawyers.

Bankers Trust Co. v. Mallis, 435 U.S. 381, 388 (1978); U.S. v.

Dooley, 424 F.2d 1067 (Sth Cir. 1970); Mourning v. Family

Publications Service, Inc., 411 U.S. 356, 362 n.16 (1973).

29 Am. Jur. 2d, Evidence § 615 says:

‘Judicial admissions are evidence against the party who

made them... and may constitute the basis of a verdict,

whether made in writing or orally by counsel, or informally

by the testimony of a party.”

If Fury’s lawyer had claimed damages for 1970 in his

opening statement, the Court could have considered his oral

admission in directing a verdict. Oliver v. Southern Ry. Co., 475

F.2d 895, 897 (D.C. Cir. 1972).

The admissions to be considered in deciding a Rule 56

Motion “may be established in any appropriate manner [in-

cluding] statements of counsel made in oral or written argu-

ment...” 6 Moore’s Federal Practice J 56.11[6]

The admissions would have been properly considered had

they been made in a pretrial statement (Broderick Wood

Products Co. v. U.S., 195 F.2d 433, 435 (10th Cir. 1952)) ora

pleading ( Allison v. Mackey, 188 F.2d 983 (D.C. Cir. 1951))

or a superseded pleading. State Farm Mut. Auto. Ins. Co. v.

Porter, 186 F.2d 834 (9th Cir. 1950); Annot., 52 A.L.R.2d 516,

523 (1959).

A lawyer’s statements made with the authority of his client

on a matter for which the lawyer has been retained are the

admissions of the client. U.S. v. Dolleris, 408 F.2d 918 (6th

Cir. 1969); U.S. v. Tuschman, 405 F.2d 688, 690 (6th Cir.

1969). Under FRE 801(d)(2)(C) & (D) these admissions are

not hearsay.

[A ]dmissions by a party of any fact material to the issue

are always competent evidence against him, wherever,

whenever, or to whomsoever made ...” Reed v. McCord,

160 N.Y. 330. 54 N.E. 737 (Ct. of App. 1889).

The admissions of a party have “considerable probative

value.” H.B. Zachry Co. v. O’Brien, 378 F.2d 423, 425 (10th

Cir. 1967). Evidence of great probative value should not be

“excluded in the absence of a significant showing of unfair

prejudice.”” U.S. v. Dwyer, 539 F.2d 924, 928 (2d Cir. 1976).

Rule 403 permits rejection of relevant evidence:

“If its probative value is substantially outweighed by the

danger of unfair prejudice, confusion of the issues, or

misleading the jury...”

The Advisory Committee’s note to Rule 403 says:

**Unfair prejudice’ within this context means an undue

tendency to suggest decision on an improper basis, com-

monly, although not necessarily, an emotional one.”

Weinstein’s Evidence 9 403[03] says:

“Evidence that appeals to the jury’s sympathies, arouses a

sense of horror, provokes its instinct to punish, or triggers

other mainsprings of human action may cause a jury to

base its decision on something other than the established

propositions in the case.”

Fury did not claim that admission of its lawyer’s claim of

damages in 1970 would arouse in the jury a sense of sympathy

or horror or that it might provoke an instinct to punish, or

trigger some other mainspring of human action. Fury argued

against admission because its theory of recovery had changed

from the first trial (80a). Fury’s denials of facts it had

previously admitted simply made “a case of conflict of testi-

mony” to be determined by a jury. State Farm Mut. Auto. Ins.

Co. v. Porter, 186 F.2d 834, 844 (9th Cir. 1950).

**|U)nfair prejudice’ as used in Rule 403 is not to be

equated with testimony simply adverse to the opposing

party. Virtually all evidence is prejudicial or it isn’t

material. The prejudice must be ‘unfair’”’. Dollar v. Long

Mfg., N.C., Inc., 561 F.2d 613, 618 (Sth Cir. 1977)

Neither Fury. the District Court nor the Fifth Circuit

described the “unfairness” of letting the jury hear admissions

that might have caused Fury to lose its case. If the evidence

was excluded simply because it was damaging, then Rule 403

was grossly misapplied.

“Unless trials are to be conducted on scenarios, on unreal

facts tailored and sanitized for the occasion, the application

of Rule 403 must be cautious and sparing. Its major

function is limited to excluding matter of scant or cumula-

tive probative force, dragged in by the heels for the sake of

its prejudicial effect.

* * *

“It is not designed to permit the court to ‘even out’ the

weight of the evidence, to mitigate a crime, or to make a

contest where there is little or none.” U.S. v. McRae, 593

F.2d 700. 707 (5th Cir. 1979).

The result of the misapplication of Rule 403 here was to

‘even out’ the evidence. Rather than preventing a trial

conducted “on unreal facts,” the Court’s decision encouraged it.

Suppression of highly probative, relevant admissions, in

the absence of substantial and unfair prejudice is a significant

departure from the accepted and usual course of judicial

proceedings. This departure, the absence a decision of this

Court explaining Rule 403 and likely continued misapplication

of the Rule urgently require the grant of Certiorari.

PERMITTING A PARTY SEEKING TO AVOID A

THREE YEAR STATUTE OF LIMITATIONS TO

WITHDRAW, OVER OBJECTION, A CLAIM FOR

DAMAGES SUFFERED MORE THAN THREE YEARS

BEFORE THE FILING OF ITS COMPLAINT IS A

SIGNIFICANT DEPARTURE FROM THE PURPOSE

OF FED. R. CIV. P. 41(a)(2).

The Interpretation Of Rule 41(a)(2) Involves An

Important Question of Federal Law Which Ought To

Be Resolved By This Court.

Rule 41(a)(2) prohibits withdrawal of a claim if an

answer has been filed, where prejudice to the Defendant will

result. Permission of the Court is required in any event. This

Court has never interpreted Rule 41(a)(2).

The general rule is that:

‘“{A] voluntary termination may be entered in actions at

law by a plaintiff as to part of the cause of action he alleges

where such a termination does not prejudice the rights of

other parties.” 24 Am. Jur. 2d, Dismissal, Discontinuance

and Nonsuit, § 10.

Fury withdrew its claim for damages for 1970. Its lawyer

called its damages in 1970 “insignificant,” saying that Fury

didn’t “want to get into an argument over that amount of

damages. . .”” (67a) Shakespeare objected to withdrawal of the

claim for damages for 1970.

[ Fury’s Counsel]: No sir, we do not have 1970 before the

jury. We, of course, withdraw that claim.”

The Court: “You don’t think that they can withdraw it if

they want to?”

| Shakespeare’s Counsel ]: 1 am objecting to it your honor”

(72a).

The Court permitted the withdrawal. In instructing the

jury the court tried ‘to eliminate any dispute regarding 1970,”

(76a) which was accomplished in part by asking the jury,

through a special verdict, to state the “damages sustained by

the Plaintiff in each” year from /97/ to 1978, (87a). The first

jury assigned damages in each year from /970 to 1974

(18a).

The purpose of Rule 41(a)(2) is to. prevent dismissals

which unfairly affect the defending party. Alamance Industries

Inc. v. Filene’s, 291 F.2d 142, 146 (1st Cir.), cert. denied 368

U.S. 831 (1961); Neiman-Marcus Co. v. Lait, 14 F.R.D. 159

(1953); Terry v. Pearlman, 42 F.R.D. 335 (1967).

Neither lower court made an effort to decide if Shakes-

peare was prejudiced by partial withdrawal of Fury’s claim,

which would have been barred had there been damages in

1970. By permitting withdrawal of a claim for damages in

1970, and suj _ressing admissions of damage in 1970, the Court

effectively took from the jury the question of whether or not

there had been any damages in 1970. Shakespeare was

prejudiced.

The withdrawal of the claim was made at trial. Shakes-

peare had no opportunity to adjust its trial strategy to respond

to the withdrawal. Shakespeare was unfairly affected because

Fury was permitted to conceal from the jury every indication of

its admissions and claims of damage in 1970.

The Fifth Circuit sanctioned a significant departure from

ordinary and accepted judicial practice. Its sub silentio holding

on Rule 41(a)(2) is in conflict with the holding of the First

Circuit in Alamance Industries, Inc. v. Filene’s, supra. This

Court should grant certiorari to resolve the conflict between the

Circuits, to remedy the serious departure from accepted practice

and to definitively interpret Rule 41(a)(2).

Ill. REFUSAL TO CONSIDER STATE CHOICE OF LAW

RULES AND APPLICABLE FOREIGN LAW, TIMELY

ASSERTED BEFORE RETRIAL, WHEN CONSID-

ERATION WAS PREVIOUSLY DENIED BECAUSE

OF UNTIMELY NOTICE UNDER FEDERAL RULE

OF CIVIL PROCEDURE 44.1, PRESENTS A SIGNIFI-

CANT QUESTION OF FEDERAL LAW,

(A) Rejection of Japanese Law on Retrial Was a Mis-

application of the “Law of the Case” Doctrine.

Shakespeare’s September 11, 1974, notice of intent to raise

an issue of foreign law was rejected as untimely (42a). The

notice was part of a letter from Shakespeare's lawyer to Fury’s

lawyer summarizing the parties’ agreement on applicable law

as follows:

“This will confirm our telephone conversation in which |

told you that if a question of choice of law arose between

New York and Florida, I believe that the New York law

would be applicable. You indicated to me that you were in

accord with this principle. I also mentioned to you that

Japanese law might be applicable. Accordingly, I want to

put you on notice, pursuant to Rule 44.1, that an issue of

foreign law may be involved in this case.”

“The precise issue of Japanese law involved is the absence,

under Japanese law, of a right to claim punitive damages”

(61a).

In its April 21, 1975, Order on post-trial motions the Court

said:

“The defendant, through a motion to strike filed Septem-

ber 11, 1975 [sic], just eight days prior to the com-

mencement of trial, and through a letter notice of the same

date, first informed the Court and the plaintiff respectively

of the possible application of Japanese law. This notice

was not reasonable within the intendment of Federal Rule

of Civil Procedure 41.1” (42a).

The District Court interpreted the stipulation as an agree-

ment by Shakespeare to apply New York law on punitive

damages (43a).

On the first appeal the Fifth Circuit refused to disturb this

interpretation of the stipulation. The Court did not then decide

the underlying question of whether Japanese law was properly

applicable to this case (39a). Although this was a diversity

action, it did not consider any state choice of law rules. The

Trial Court was not explicitly directed to apply New York local

law on punitive damages. Instead it was told that it “was not

bound to follow a stipulation as to a question of law” (39a).

Two months before retrial Shakespeare filed written notice

of its intent to raise Japanese law (R. 653). Fury did not

question the timeliness of this notice.

Proofs were again offered to show that Japanese law did

not permit punitive damages (48a-49a, 70a-7la). After trial,

Shakespeare's choice of law position was again rejected. The

Court found New York’s choice of law rules ““anomolous and

unjust” and that the parties agreed to apply New York law on

punitive damages. The Court held alternatively that Japanese

law would not be applicable under New York choice of law

rules (12a). “‘Law of the case” was not one of the reasons

given by the District Court for rejection of Japanese law.

The Court of Appeals sanctioned the refusal to consider

application of Japanese law saying:

“In our prior opinion we did not expressly decide which

body of law controlled punitive damages. However, we

implicitly adopted New York law as determinative.”

* + +

At the retrial, the district court again held that the stipula-

tion required the application of New York law to decide

whether or not punitive damages were allowable. In doing

so he correctly followed our opinion” (3a-4a).

Upholding the District Court’s refusal to apply applicable

foreign law on retrial was a misapplication of both Rule 44.1

and the law of the case doctrine.

Rule 44.1 was designed to prohibit unfair surprise or

prejudice to a party in raising of issues of foreign law. See

Committee Note of 1966 to Rule 44.1. “Prejudice” in this

context means inability to address the issues of foreign law.

Fury had over four years to address the issues of Japanese law.

It was not unfairly surprised at retrial by reference to Japanese

law.

Where an appellate Court

“remands the case to the district court for further

proceedings, new issues may be presented by amended

pleadings not inconsistent with the judgment of the appel-

late court, if the mandate of the appellate court does not

preclude amendment.” 3 Moore’s Federal Practice J 15.11.

Defendants may be dismissed after remand to preserve

jurisdiction. Finn v. American Fire & Casualty Co., 207 F.2d

113 (Sth Cir. 1953). A new theory of recovery may be

advanced after remand. See cases cited in 3 Moore’s Federal

Practice J 15.11, notes 13 & 15. Fury was permitted to change

its theory of the case and withdraw its claim for damages for

1970.

The case was remanded for a new trial “on all issues” to

give Fury a chance to correct the defects in its case which made

the first verdict unsupportable. Neither Fury, the District Court

nor the Court of Appeals advanced a rationale for following

inapplicable law because a since corrected defect led to the

application of the wrong law at the first trial.

This Court should resolve the undecided issues of Federal

law raised here.

(B) Proper Application of the “Law of the Case” Rule

Would Not Permit Perpetration of Clear Error or

Perpetuation of Manifest Injustice.

Law of the case is a rule of practice. U.S. v. McClain, 593

F.2d 658. 664 (Sth Cir. 1979) cert. denied 444 US 918. It “is

not an inexorable command. and must not be utilized to

accomplish an obvious injustice.” Cochran v. M & M Trans-

portation Co,, 110 F.2d S519, 521 (1st Cir. 1940) The decision of

the Court of Appeals in this case represents a significant

departure from previous lower court cases on “law of the case.”

Only those issues decided expressly or by necessary imphi-

cation become “law of the case.” Hartford Life Ins. Co. v.

Blincoe, 225 U.S, 129, 136 (1921). The law of the case “does

not include determination of all questions which were within

the issues of the case and which, therefore. might have been

decided.” Connett v. Ciny of Jerseyville, 110 F.2d OLS, 1O18

(7th Cir. 1940). A general remand does not preclude consid-

eration of issues not squarely addressed on appeal. Doran v.

Petroleum Management Corp., 576 F.2d 91 (Sth Cir. 1978).

The Fifth Circuit acknowledged that its first opinion did

not “expressly” rule on the choice of law questions involving

punitive damages (3a). A decision on applicable state choice

of law was not necessary to decision of the first appeal in light

of the holdings that rejection of the notice of foreign law as

untimely was proper and that the notice of foreign law was un

agreement to apply local state law.

Nevertheless. the Court of Appeals held that the law of the

case required it to reject consideration of applicable state choice

of law rules and foreign law. By extending the law of the case

rule to preclude consideration of issues not previously deter-

mined, the Fifth Circuit departed significantly from established

practice. Its holding should be reviewed. An important

question of federal law is presented since the law of the case

rule is involved in every case remanded for trial by a Court of

Appeals.

The finding that Shakespeare agreed to apply New York

local law on punitive damages was clear error. The letter

setting forth the stipulation (6la) said that Shakespeare was

urging application of Japanese law to the punitive damages

question.

‘“*{S]tipulations should receive a fair and liberal construc-

tion, consistent with the apparent intention of the parties,

the spirit of justice and the furtherance of fair trials upon

the merits, rather than a narrow and technical one calcu-

lated to defeat the purposes of their making. A stipulation

should be construed in light of the pleadings, and its terms

should not be so construed to extend beyond that which a

fair construction justifies.” 73 Am.Jur.2d, Stipulations § 7.

On the second appeal, even Fury conceded that previous

interpretation of the stipulation had been wrong, saying:

‘‘Under the parties’ stipulation, the conflict law of New

York would be applicable.” (88a)

The continued misapplication of the parties stipulation

resulted in a verdict against Shakespeare for $600,000 in

punitive damages. The Alice-in-Wonderland interpretation of

the stipulation and the Fifth Circuit’s refusal to depart from it

worked a manifest injustice.

“*[ Jjustice is better than consistency’... [A court] must be

free to determine whether the first decision was in error,

and if so, whether a different result should be reached ...

Where, as here, a party to the action raises serious

objections to the soundness of the first decision, the Court,

in all but special circumstances should re-examine the first

decision as a prerequisite to its implementation as the law

of the case.” Wm. G. Roe & Co. v. Armour & Co., 414 F.2d

862, 867-68 (Sth Cir. 1969) (Citations omitted). See also

Burkett v. Shell Oil Co., 487 F.2d 1308, 1313 0.1 (Sth Cir.

1973).

Had there been no stipulation, the Court would have been

obliged to apply Florida choice of law rules. Day & Zimmer-

man, Inc. v. Challoner, 423 U.S. 3 (1975). Florida looks to the

place where the wrongful act occurred in determining appli-

cable law. Beasley v. Fairchild Hiller Corp., 401 F.2d 593, 596

(5th Cir. 1968); Hopkins v. Lockheed Aircraft. Corp., 201 S$.2d

743, 752 (Fla. 1967) Since the interference complained of took

place in Japan, where Ohmori manufactured and sold the reels,

under Florida law, Japanese law would have governed the

question of punitive damages.

The lower courts considered New York law to be the law

of the forum by stipulation of the parties. New York follows

the rule of “most significant contacts.” Babcock v. Jackson, 240

N.Y.S.2d 743 (Ct. App. 1963). Under its choice of law rules,

Japan would have been the jurisdiction with the most signifi-

cant contact since the tortious conduct occurred there, the

contract allegedly interfered with was entered into there, Oh-

mori was a Japanese National operating only in Japan and the

breach or other interference caused by Shakespeare could have

occurred only in Japan. New York would have applied

Japanese law on punitive damages.

The lower courts evaded their obligation to apply state

choice of law rules in a diversity case by obdurately refusing to

reconsider their manifestly erroneous interpretation of a stipula-

tion of law not binding on them. Consideration of the law

properly applicable would have significantly changed the result.

By refusing to reconsider its previous decision when serious

objections were raised to its soundness, the Court departed

significantly from accepted practice.

IV. THE FAILURE OF THE COURT OF APPEALS TO

APPLY APPLICABLE STATE LAW IN A DIVERSITY

CASE AMOUNTED TO A REFUSAL TO FOLLOW

THE DIRECTION OF DAY & ZIMMERMAN, INC. v.

CHALLONER, 423 U.S. 3 (1975).

(A) The Court of Appeals Failed to Conform Its Decision

to Intervening, Controlling State Law.

In its September 8, 1980, Opinion the Court of Appeals

purported to apply New York law as the law applicable in this

diversity action.2 On May 2, 1980, Shakespeare called the

attention of the Court to Guard-Life Corp. v. S. Parker

Hardware Mfg. Corp., 428 N.Y.S.2d 628 (1980), the most

recent pronouncement of New York’s highest Court on the law

of tortious interference. (63a)

Guard-Life unequivocally adopted the Restatement (sec-

ond ) view of the tort of interference. 426 N.Y.S.2d of 634. It

established that New York recognizes no distinction between

“inducement to breach” and “‘inte:ference with a contract.”

Note c to the Restatement (Second) of Torts, § 766

(entitled “Intentional Interference with Performance of Con-

tract by Third Person”’) says, in part:

“The liability for inducing breach of contract is now

regarded as but one instance, rather than the exclusive

limit of protection against improper interference in busi-

ness relations.”

Note k to the same section says, in part:

‘*... It is not necessary to show that the third party was

induced to break the contract.”

Prosser on Torts, 4th Edition, § 129, says:

“Notwithstanding the name of ‘inducing breach of con-

tract’ which has been conferred on the tort since Lumley v.

Gye [118 Eng. Rep. 749, 1853], it does not require

inducement to action as a means or complete repudiation

as a result.”

Inducing a complete breach is only one of many ways in

which a contract can be interfered with. It is not the sine gua

non of the tort. See Goodall v. Columbia Ventur:s, 374 F. Supp.

1324, 1332 (S.D.N.Y. 1974); Dior v. Milton, 155 N.Y.S.2d 443

2 Even if the Court were not obligated by Day & Zimmerman Inc.

v. Challoner to apply New York law, its acceptance of a stipulation to

apply New York law prevented it from frustrating the expectations of

the parties by ignoring the stipulation and applying some other law.

73 Am Jr 2d, Stipulations § 7.

(Sup. Ct. 1956), aff'd 156 N.Y.S.2d 996 (1956): Morris v.

Blume, 55 N.Y.S.2d 196, 199 (Sup. Ct. 1945); and Sacks v.

Stewart, 427 N.Y.S.2d 20, 22 (App. Div. 1980).

The Fifth Circuit’s September 8 decision made no mention

of Guard-Life. The decision was based on a distinction

between “inducement to breach” and “tortious interference.”

The Court said that:

“Until there was a breach of the Fury-Ohmori contract,

Fury could not sue Shakespeare for inducing its breach.”

And:

‘Inducing another to break a contract does not become a

legal wrong upon which an action may be based until

damages are suffered as a result, and that occurs only when

the breach happens.”

The Court noted Goodall vy. Columbia Ventures, Morris v.

Blume, Dior v. Milton and Prosser on Torts but distinguished

them all saying:

“That, however, is not the claim made here. Fury did not

seek damages because Shakespeare made performance of

its contract more difficult. It sued because Shakespeare

induced Ohmori to break that contract.”

* * *

“It is, therefore, not decisive that Fury may have known in

August, 1970, that Shakespeare might be violating its

exclusive distributorship, for that would not have given

Fury a claim for inducing the breach of the contract to

supply reels, the basis on which it sought damages.”

The Fifth Circuit also said that the trial court’s

“instructions as a whole ... adequately conveyed that the

plaintiff was suing for inducement to breach, not for

making performance more difficult” (8a).

Even if the Court were right about the nature of Fury’s

claim, its first decision rested on a distinction between “in-

ducement to breach” and “interference with contract” not

drawn by New York courts.

In denying the application for rehearing, the Court de-

scribed Guard-Life as: ““A decision apparently reported after

the Opinion in this case was prepared...” (9a).

The Court acknowledged that the tort on which Fury sued

and the tort which Shakespeare said was barred were the same

no matter what name was applied. However, it did not

reconsider its previous ruling which said damages to Fury in

1970 as a result of Shakespeare’s interference were irrelevant.

The Court was obliged to consider and follow applicable

state law even if it became applicable while the appeal was

pending. Vandenbark v. Owens-Illinois Glass Co., 311 U.S. 538,

543 (1941). Having previously refused to consider whether

interference in 1970 barred the claim because the interference

did not cause a “‘breach,” the court was obliged to examine the

case in light of unequivocal, recent and controlling authority

holding that “breach” was not an element of the tort sued on.

The Fifth Circuit’s failure to follow Guard-Life, supra, was

contrary to Day & Zimmerman, Inc. v. Challoner, supra and

Vandenmark v. Owens-Illinois Glass Co., supra. Certiorari

should be granted to command adherence to this Court’s

precedents.

(B) The Court Refused to Follow Applicable Law Be-

cause It Was Not Satisfied with the Result that

Would Be Reached.

In Day & Zimmerman, Inc. v. Challoner, 512 F.2d 77, 82

(Sth Cir. 1975) the Fifth Circuit openly refused to apply state

choice of law rules in a diversity case because it was not happy

with the result that would be achieved.

This Court reversed preemptorily, saying:

“A federal cour. in a diversity case is not free to engraft

onto those state rules exceptions or modifications which

may commend themselves to the federal court, but which

have not commended themselves to the State in which the

federal court sits.”” Day & Zimmerman, Inc. v. Challoner

423 U.S. 3, 4 (1975).

In this case, both the District and Circuit Courts expressed

dissatisfaction with New York law before making holdings

directly at odds with controlling state precedent. Although

state law was not openly rejected as it was in Day & Zimmer-

man, “the fragrance of the rose” is the same. Certiorari should

be granted so that the Fifth Circuit can be told again to

conform its decisions to Day & Zimmerman, supra, and Klaxon

Co. v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941) by

adhering to state law in diversity cases.

The September 8 opinion held that “breach” of contract by

the non-suing third party was an element of the tort sued on by

Fury. Under New York law, the repudiation of an existing

contract is a “breach” even if the failure to perform under the

contract does not occur for some time after the repudiation.

Long Island Ry. Co. v. Northville Industries Corp., 393

N.Y.S.2d 925, 930 (Ct. App. 1977); Hartzell v. Burdick, 398

N.Y.S.2d 649 (1977); Mignon v. Tuller Fabrics Corp., 148

N.Y.S.2d 605 (App. Div. 1956). Ohmori’s June 10, 1970,

agreement with Shakespeare repudiated the contract with Fury.

Ohmori agreed to stop dealing with Fury within a year.

Although this repudiation was a “breach” under New York

law, the Court of Appeals refused to hold that Fury’s suit for

inducing a breach was barred by the statute of limitations. The

Court did not discuss or distinguish New York cases holding

anticipatory breaches of contract actionable. The Court instead

criticized the doctrine of anticipatory breach saying:

““A party who could be tempted to breach one contract

might change his mind and breach another.”

and that

“Ohmori breached its Fury contract for purposes of this

action only when in response to Shakespeare’s instigation it

failed to deliver reels... Ohmori signing a contract with

Shakespeare was not, per se, an anticipatory breach of the

Ohmori-Fury contract” (5a-6a).

That the Court of Appeals thought it strange that New

York would permit suit against a party who has breached his

contract but might yet “change his mind and breach another” is

not a reason to ignore state law controlling under Day &

Zimmerman Inc. v. Challoner, 423 U.S. 3 (1975). Certiorari

should be granted. The Fifth Circuit should be told to apply

the law that governs the case whether it finds it strange or not.

Fury’s contract was an exclusive distributorship contract.

Inducing a breach of the exclusivity provision by Ohmori was

actionable.

Fury’s witnesses testified that in 1970 Shakespeare inter-

fered with its exclusive distributorship rights by marketing its

reels, which could only be obtained from Ohmori ( 64a-66a ).

Fury’s only customer told it in 1970 that no more reels

would be purchased from Fury because of Shakespeare’s

marketing of the supposedly exclusive reel at a tackle show.

Fury was compelled to disadvantageously renegotiate its con-

tract with its only customer because of Shakespeare’s acts. Fury

was also compelled to renegotiate its contract with Ohmori. As

a result of these renegotiations, Fury sold fewer reels and made

less profit (66a).

Hannigan v. Sears, Roebuck & Co., 410 F.2d 285 (7th Cir.

1969) a case described by the Fifth Circuit as “very similar”

(37a) and by Fury as “on all fours,” (88a) held such inter-

ference with contractual rights actionable.

Sears Roebuck had applied economic pressure to coerce

third parties into modifying their contractual arrangements.

The Seventh Circuit said:

“To us, there is no legally significant distinction between

unabashed third party conduct which causes one party to

outrightly repudiate and breach its contract with another

and subtle third party conduct which achieves essentially

the same result through the equally questionable means of

coercing a contractual modification. Both approaches are

equally tortious in nature and similarly interfere with the

contractual relationship of others.” 410 F.2d at 291.

New York law is to the same effect. See Goodall v.

Columbia Ventures, Inc., 374 F. Supp. 1324, 1332 (S.D.N.Y.

1974); Bryce v. Wilde, 333 N.Y.S.2d 614, 616 (App. Div.) aff'd

340 N.Y.S.2d 185 (1972); Dior v. Milton, 155 N.Y.S.2d 443

(S.Ct. 1956) aff'd 156 N.Y.S.2d 996 (1956). Yet the Court of

Appeals refused to consider evidence of interference with the

exclusivity aspects of Fury’s contract as “breach” or damages.

It refused to consider Shakespeare’s claims that the jury was not

properly instructed as to what “damages” where actionable and

as to the nature of the tort. If the jury was “adequately”

instructed that Fury was suing for the inducement of a breach

of contract, it was inadequately instructed on the true nature of

the tort as defined in Guard-Life, supra.

The Court refused to consider “that Fury may have known

in August, 1970, that Shakespeare might be violating its

exclusive distributorship” because “that would not have given

Fury a claim for inducing a breach of the contract to supply

reels, the basis on which it sought damages.” Neither lower

court cited any authority ( because there is none) allowing Fury

to avoid the statute of limitations by withdrawing its claim for

damages in 1970 or by suing for only inducement of some

breaches of the contract with Ohmori. Under New York law,

Fury’s characterization of its claim was irrelevant. Sacks vy.

Stewart, 427 N.Y.S.2d 20, 22 (App. Div. 1980). Mishkin v.

Dormer, 395 N.Y.S.2d 452 (App. Div. 1977); Mack v. Clairol,

Inc, 415 N.Y.S.2d 16 (App. Div. 1979). The Court’s studied

refusal to apply controlling New York law was also a refusal to

obey the command of Day & Zimmerman, Inc. v. Challoner,

supra.

New York was, by stipulation, the law of the forum. The

situation was the same as it would have been if Fury had

moved for a change of venue to New York. Carson v. U-Haul

Co., 434 F.2d 916 (6th Cir. 1970); Brown Machine Co. v.

Merrow, 411 F. Supp. 1162 (Conn. 1976); Haire v. Miller, 447

F. Supp. 57, 62 (N.D. Miss. 1977).

New York’s choice of law rules apply the law of the

jurisdiction with the strongest interest in the particular issue to

be decided. New York sees no anomoly in applying one

jurisdiction’s law to one issue in a case and another jurisdic-

tion’s law to a separate issue. Babcock v. Jackson, 240

N.Y.S.2d 743, 752 (Ct. App. 1963).

After the first trial the District Court found this rule not to

his liking, saying:

“In order to apply Japanese law on the substantive issue of

punitive damages, it would be necessary to hold the

appropriate choice of law for the whole cause of action as

Japanese. This was neither argued or supported by the

defendant. The Court concludes that to recognize Japa-

nese law on a single issue which is favorable to the

proponent of that foreign law and not apply Japanese law

to other substantive issues which may not be so favorable

would be anomalous.” (43a)

The Court of Appeals did not discuss any choice of law

rules.

After retrial, Judge Atkins again refused to apply Japanese

law on punitive damages. This time he recognized that ‘New

York conflicts of law principles provide for the use of the law of

the jurisdiction with the strongest interest” (12a). However, he

also said that:

“[T]Jo recognize Japanese law on the single issue of

punitive damages would be anomalous and unjust, consid-

ering that other Japanese law might be less favorable to

SHAKESPEARE” (12a).

Judge Atkins offered other reasons for refusing to apply

New York law, including his interpretation of the parties

stipulation to be an agreement to apply “New York law of the

tort of inducement to breach ...” Judge Atkins also found,

without citation of any authority, that under New York’s choice

of law rules Japanese law would not govern punitive damages.

The Court of Appeals refused to consider New York choice

of law rules or whether they required application of Japanese

law on punitive damages. It sanctioned the District Court’s

refusal to apply applicable state law because it did not com-

mend itself to the Court. Certiorari should be granted. The

lower courts should be directed to apply state choice of law

rules in diversity cases even if the result is “anamolous.”

CONCLUSION

A writ of certiorari should issue to review the judgment

and opinion of the United States Court of Appeals for the Fifth

Circuit.

Respectfully submitted,

JOHN C. HOWARD

HowarD & HowarD

407 Kalamazoo Building

Kalamazoo, Michigan 49007

616-382-1483

Counsel of Record for Petitioner

JAMES H. GEARY

LiTTLE & GEARY

107 West Michigan-Suite 301

Kalamazoo, Michigan 49007

616-344-1575

APPENDIX

FURY IMPORTS, INC.,

Plaintiff-Appellee,

SHAKESPEARE COMPANY,

Defendant-Appellant.

No. 78-2962.

United States Court of Appeals,

Fifth Circuit.

Sept. 8, 1980.

Before RUBIN and POLITZ, Circuit Judges, and POINT-

ER*, District Judge.

ALVIN B. RUBIN, Circuit Judge:

This case comes before us for the second time. See Fury

Imports, Inc. v. Shakespeare Co., 544 F.2d 1376 (Sth Cir.

1977). We need not again recite the facts there set forth at

length, but we give a summary sufficient to clarify the issues

now before us.

William Ciaccia designed a fishing reel called the “Spin-

master” and formed a corporation, Fury Imports, to market it.

Fury contracted with a Japanese manufacturer, Omori, to

produce the reels. Omori was to sell the reels to its trading

agent, Shinei Company. Shinei would in turn sell reels to Fury,

which would be the exclusive distributor in the Western Hemi-

sphere.

For the 1970 retail season, Fury was required to and did

order 150,000 reels although a slightly smaller number was

actually delivered. In June, 1980 Omori entered into a contract

with Shakespeare, a competitor of Fury, agreeing to stop

making Spinmaster reels for Fury within one year and to start

* District Judge of the Northern District of Alabama sitting by

designation.

making a similar reel for Shakespeare. The Shakespeare-

Omori contract was not literally carried out, for Omori contin-

ued to make and deliver Spinmaster reels to Fury in 1971 and

1972, albeit in decreasing numbers. In 1973, Omori informed

Fury that it would stop making Spinmaster reels. Fury filed this

suit against Shakespeare on January 15, 1974.

The first appeal followed a jury trial, which resulted in a

verdict for Fury. Shakespeare successfully moved for a judg-

ment notwithstanding the verdict. We reversed the district

court’s judgment but remanded for a new trial on all issues

including the defense that the statute of limitations had run on

Fury’s claim. With regard to that issue we said:

If the district court were to decide that the New York

statute of limitation should have been applied, it will, of

course, have to decide when Fury’s cause of action accrued

under New York law, and whether any reason exists for

tolling the statute. Although the parties address much

argument to us on these issues, we think it would be

premature to pass on them at this point. This is especially

so because there may well be issues of fact upon which a

jury should pass as to just when the first breach occurred.

... We therefore do not rule on these issues.

554 F.2d at 1390.

The present appeal from the second jury verdict, awarding

both compensatory and punitive damages, involves primarily

two questions: (1) whether New York law or Japanese law

governs the question of punitive damages and (2) when the

statute of limitations began to run (that is, did it begin to run in

June 1970, when the Omori-Shakespeare contract was made, or

at a later time)?

I. Punitive Damages.

[1] Prior to the first trial, the parties entered into a

stipulation that New York law would generally apply. The

parties disagree over whether that stipulation extended to the

issue of punitive damages.

We need not linger over the merits of this dispute since it

has already been resolved. In our prior opinion we did not

expressly decide which body of law controlled punitive dam-

ages. However, we implicitly adopted New York law as

determinative. We said:

The district court, stating that under New York law

punitive damages may be recovered “where the wrong

complained of is morally culpable, or... actuated by evil

and reprehensible motives or a desire to harm the plaintiff,

or where an act is so reckless that its carelessness indicates

a heedless disregard of the rights of others,” App. 60,

nonetheless overturned the jury’s verdict. On the evidence

in this case, we think this was error.

554 F.2d at 1388. We then proceeded to discuss the New York

cases, and concluded that the district court “erred in setting

aside the jury award as to punitive damages,” saying:

Although we cannot be certain what the New York courts

would do in a case like this, we do know that federal courts

applying very similar law from other states have found the

evidence sufficient to support awards of punitive damages

in very similar inducement-to-breach cases. Hannigan v.

Sears, Roebuck and Co., 410 F.2d 285, 293-94 (7th Cir.

1969) cert. denied, 396 U.S. 902, 90 S.Ct. 214, 24 L.Ed.2d

178 (1969); ABC-Paramount Records, Inc. v. Topps

Record Distributing Co., 374 F.2d 455, 462-63 (Sth Cir.

1967). We think the same result should obtain under New

York law here.

554 F.2d at 1389 (emphasis supplied ).

At the retrial, the district court again held that the stipula-

tion required the application of New York law to decide

whether or not punitive damages were allowable. In doing so

he correctly followed our opinion. See Schwartz v. NMS

Industries, Inc., 575 F.2d 553, 554 (Sth Cir. 1978).

II. Statute of Limitations.

[2] The parties agree that the New York statute of

limitations controls. Under New York law, the period of

limitations for tortious interference with a contract is three

years. N.Y. Civ. Prac. § 214(4); Von Ludwig v. Schiano, 23

App.Div.2d 789, 258 N.Y.S.2d 661 (1965); see Rolnick v.

Rolnick, 29 App.Div.2d 987, 290 N.Y.S.2d 111 (1968), aff'd,

24 N.Y.2d 805, 248 N.E.2d 442, 300 N.Y.S.2d 586 (1969);

Hanrihan v. Parker, 19 Misc. 2d 467, 192 N.Y.S.2d 2 (1959).

Whether or not it has run depends on when the cause of action

accrued. The jury by special verdict found that “the first breach

by Omori proximately caused by defendant Shakespeare Co.’s

inducement” occurred after January 15, 1971, thus within three

years of the date Fury filed this suit. There was sufficient

evidence to support this finding.

Shakespeare nevertheless invites us to accept the simplistic

idea that, because the eventual breach of Omori’s contract with

Fury arose “out of a meeting in Japan on June 10, 1970,

between officials of Shakespeare’s wholly-owned overseas sub-

sidiary...and... [the] president of the Omori company,” 554

F.2d at 1378, the cause of action accrued then as a matter of

law. But neither life nor law is, fortunately, so simple. On that

date, Fury could not have sued Omori for breach of contract for

Omori had not yet failed in one iota of its contract obligations.

Until there was a breach of the Fury-Omori contract, Fury

could not sue Shakespeare for inducing its breach. As a recent

opiruon of the New York Court of Appeals states:

In order for the plaintiff to have a cause of action for

tortious interference of contract, it is axiomatic that there

must be a breach of that contract by the other party ( Jsrae/

v. Wood Dolson Co. 1 N.Y.2d 116, 120, 151 N.Y.S.2d 1, 5,

134 N.E.2d 97, 99; Campbell v. Gates, 236 N.Y. 457, 141

N.E. 914; Lamb v. Cheney & Son, 227 N.Y. 418, 125 N.E.

817; 32 N.Y.Jur., Interference, § 20), a situation not here

present.

Jack L. Inselman & Co. v. FNB Financial Co., 41 N.Y.2d 1078,

1080, 364 N.E.2d 1119, 1120, 396 N.Y.S.2d 347, 349 (1977);

accord, Torrey Delivery, Inc. v. Chautauqua Truck Sales and

Service, Inc., 47 App.Div. 279, 366 N.Y.S.2d 506 (1975).

Of course expressions can be found in New York opinions

addressing another point, that “[t]he act of inducing the

breach is the wrong ...” Conmar Products Corp. v. Universal

Slide Fastener Co., 172 F.2d 150, 156 (2d Cir. 1949). But

inducing another to break a contract does not become a legal

wrong upon which an action may be based until damage is

suffered as a result, and that occurs only when the breach

happens. See Israel v. Wood Dolson Co., 1 N.Y.2d 116, 120,

134 N.E.2d 97, 99, 151 N.Y.S.2d 1, 5 (1956). Shakespeare

cites as authority to the contrary Hagan Corp. v. Medical Society

of New York, 198 Misc..207, 96 N.Y.S.2d 286 (Sup. Ct. 1950),

aff'd 279 App.Div. 1058, 113 N.Y.S.2d 282 (App. Div. 1952),

and Hanrihan v. Parker, 19 Misc. 2d 467, 192 N.Y.S.2d 2( Sup.

Ct. 1959), but a closer reading reveals that in both of those

cases there had been a breach of the contract prior to the date

on which the court held the statute of limitations began to run.

[3] A party who could be tempted to breach one contract

might change his mind and breach another. Omori might have

disregarded its June 10th compact with Shakespeare and

continued to deliver Spinmaster reels to Fury for ten years. If

sc. Fury would have had no cause of action against Shakes-

peare (or, for that matter, Omori). Indeed, with Shakespeare’s

apparent consent (because it did not need all of Omori’s

production ), something akin to that happened: Omori did not

perform the Shakespeare contract according to its literal terms

since it did not terminate all shipments to Fury on the

scheduled date. Omori breached its Fury contract for purposes

of this action only when in response to Shakespeare’s in-

stigation it failed to deliver reels.’ For the same reason, Omori’s

signing a contract with Shakespeare was not, per se, an

anticipatory breach of the Omori-Fury contract.

In some instances, New York permits a claim for inter-

ference with contractual relations not constituting inducement

to breach. Thus, a feder.u district court in New York recently

said:

It is not necessary, as plaintiff erroneously argues, to allege

a breach of contract in order to state a valid claim for

interference with contractual relations. The tort extends to

cases in which performance of the contract is rendered

more difficult or a party’s enjcyment of the contract’s

benefits is lessened by the wrongdoer’s actions. In New

York, “an unlawful interference with a person in the

performance of his contract with a third ‘party is just as

much a legal wrong as is an unlawful inducement of a

breach of that contract by the third party.” :

Goodali v. Columbia Ventures, Inc., 374 F. Supp. 1324, 1332

(S.D.N.Y. 1974) (quoting Morris v. Blume, 55 N.Y.S.2d 196,

199 (Sup. Ct.), aff'd, 269 App. Div. 832, 56 N.Y.S.2d 414

1. Omori did not deliver ali the reels that Fury ordered for 1970.

There was, however, sufficient evidence that this failure was due to

production problems, rather than to Shakespeare’s promptings, to

allow the jury to find, as it did, that there was no breach induced by

Shakespeare in 1970. As we said in our prior opinion, “Shake-

speare can be held liable only for those breaches by Omori that it

induced,” 554 F.2d at 1388 n.16, and the trial judge so instructed

the jury. The limitations period did not begin to run until

Shakespeare’s liability began.

(App. Div. 1945); see Dior v. Milton, 9 Misc. 2d 425, 155

N.Y.S.2d 443, 460 (Sup. Ct.), aff'd, 2 A.D.2d 878, 156

N.Y.S.2d 996 (App.Div. 1956); W. Prosser, Handbook of the

Law of Torts 935 (4th ed. 1971).

[4] That, however, is not the type of claim made here.

Fury did not seek damages because Shakespeare made per-

formance of its contract more difficult. It sued because

Shakespeare induced Omori to break that contract. The

amendment to Fury’s complaint adding the claim now relevant

alleged that Shakespeare “‘purposely designed to interfere with

the contractual rights of plaintiff and ultimately to put the

plaintiff out of business,” and sought damages “for tortuous

[sic] interference of the [sic] contractual rights.” Fury’s accom-

panying memorandum of law supporting its amendment makes

clear that it sought damages for inducing Omori to cancel the

contract, not for making performance more difficult. The

memorandum alleges that Shakespeare’s actions had the effect

of “canceling out the plaintiffs contract with the Japanese

factory that manufactured these Spinmaster reels.”’ It is, there-

fore, not decisive that Fury may have known in August, 1970,

that Shakespeare might be violating its exclusive dis-

tributorship, for that would not have given Fury a claim for

inducing a breach of the contract to supply reels, the basis on

which it sought damages.?

2. The judge instructed the jury at one point: The breach of the

contract, however, does not have to be a breach in the legal sense.

Rather, the tort extends to situations in which the performance of

the contract is rendered more difficult. Where a party’s enjoyment —

of the contract’s benefit is lessened by the wrongdoer’s actions.

Nevertheless, since another element in the plaintiffs case is dam-

ages, the cause of action cannot accrue until the plaintiff has

suffered damages for which he may be compensated.

(Footnote continued on following page.)

[5] It was not reversible error for the trial court to exclude

from the second trial as evidence bearing on when the claim

arose the fact that Fury in the first trial claimed damages for

1970. Even if this legal theory of Fury’s counsel was evidence

having a tendency to make it more probable or less probable

that the claim indeed arose before January 15, 1971, and so

relevant under rule 401 of the Federal Rules of Evidence, the

trial judge was within his discretion in excluding it under rule

403, which allows the exclusion of relevant evidence if its

probative value is substantially outweighed by the danger of

unfair prejudice, confusion of the issues, or misleading the jury.

See, e.g., United States v. Frick, 588 F.2d 531, 537 (Sth Cir.

1979); United States v. McDaniel, 574 F.2d 1224, 1227 (Sth

Cir. 1978).

Shakespeare briefly raises other points of error, but they

are without merit. For these reasons, the judgment of the

district court if AFFIRMED.

(Footnote continued from preceding page.)

His instructions as a whole, however, adequately convey that the

plaintiff was suing for inducement to breach, not for making

performance more difficult. In any case, even if this instruction is

erroneous, it is erroneous in Shakespeare’s favor, since it could

possibly have persuaded the jury to find that the statute of

limitations began to run even before there was an actual breach.

Since the jury found for Fury on the limitations point, any error

was harmiess.

FURY IMPORTS, INC., a New York

Corporation, Plaintiff-Appellee,

SHAKESPEARE COMPANY, a

Delaware Corporation,

Defendant-Appellant.

No. 78-2962.

United States Court of Appeals,

Fifth Circuit.

Dec. 3, 1980.

* * * * *

Before RUBIN and POLITZ, Circuit Judges, and POINT-

ER*, District Judge.

ON PETITION FOR REHEARING

PER CURIAM:

The application for rehearing directs our attention to

Guard-Life Corp. v. S. Parker Hardware Manufacturing Corp.,

50 N.Y.2d 183, 428 N.Y.S.2d 628, 406 N.E.2d 445 (1980), a

decision apparently reported after the opinion in this case was

prepared, and urges that the Guard-Life opinion establishes a

rule of New York law that would require a different analysis

from the one made in our opinion.

It is unnecessary to set forth all of the facts and issues in

Guard-Life. The court there considered a claim for tortious

interference with contract rights, but did not deal with the

question of when the statute of limitations on such a claim

commences. Although it implies, apparently contrary to in-

* District Judge of Northern District of Alabama, sitting by designa-

tion.

10a

dications in some of the New York cases cited in our opinion,

that New York does not recognize a cause of action for

interference with contractual relations not constituting in-

ducement to breach, as distinguished from a cause of action for

inducing contractual breach, it does so under a rubric that

apparently embraces both concepts by adopting this definition

of the tort from the Restatement (Second) of Torts:

intentionally interfering with’ a contract or a prospective

contractual relation of another ...

Restatement (Second) of Torts § 766 (1977).

If we apply this concept to the present case, we come to the

same result. The cause of action for “intentionally interfering

with a contract” (sometimes called tortious inducement to

breach of contract in the prior New York cases, decided before

the Second Restatement was adopted in 1977) accrues only

when damage is suffered. A change of name alters neither the

fragrance of the rose nor the time when a cause of action

accrues for a tort whose name alone has been changed.

For these reasons, the application for rehearing is DE-

NIED.

lla

UNITED STATES DISTRICT COURT

Southern District of Florida

Case No.—Civ-CA

Filed August 11, 1978

Fury Imports, INC..

Plaintiff,

VS.

SHAKESPEARE COMPANY,

Defendant.

Defendant, SHAKESPEARE COMPANY, moves for a

judgment notwithstanding the verdict on the ground that

Plaintiffs (FURY IMPORTS, INC.) claim is barred by the

statute of limitations. SHAKESPEARE also argues that the

award of punitive damages is barred by the applicable law.

Statute of Limitations:

Both parties agree that the applicable statute of limitations

is the three year limit provided by New York law, since Florida

law “borrows” statutes of limitation in certain actions. See

F.S.A. § 95.10. The parties, however, disagree as to when the

cause of action arose.

The tort of inducement to breach a contract arises under

New York law when the breach and damage occurs. Jsrael v.

Wood Dolson Co., Inc., 1 N.Y.2d 116, 134 N.E.2d 97, 157

N.Y.S.2d 1 (1956). The jury was instructed on the statute of

limitations defense and asked in the special verdict form

whether the first breach occurred before or after January 15,

1971, the date three years prior to the filing of the action. The

court did consider the statute of limitations defense and sub-

mitted the relevant factual issues to the jury. The jury

determined that the breach giving rise to the cause of action

occurred less than three years prior to the filing of this action,

and the court feels that this factual determination is one about

which reasonable persons could differ. The cause was therefore

not barred by the applicable statute of limitations.

12a

Punitive Damages:

SHAKESPEARE argues that the law of Japan applies to

bar the granting of punitive damages since the parties have

agreed to use New York law, and New York conflicts of law

principles provide for the use of the law of the jurisdiction with

the strongest interest.

This Court has previously stated that to recognize Japanese

law on the single issue of punitive damages would be anoma-

lous and unjust, considering that other Japanese law might be

less favorable to SHAKESPEARE. The Court interprets the

vague stipulation of the parties as an agreement to apply New

York law of the tort of inducement to breach and damages, and

punitive damages are proper under that law.

Even if New York’s choice of law rules are applicable, that

law would allow the granting of punitive damages. Under a

balancing of the interests approach, Japan would have no

interests to protect. Neither of the parties is a Japanese citizen

and the parties have agreed that the cause of action arose, if at

all, under New York law. No Japanese citizen will be forced to

pay these punitive damages and therefore, Japan’s interest in

protecting its citizens from punitive damage awards is not

infringed or involved through application of New York law.

This action is transitory and Japan has no interest in barring

punitive damages. In contrast, New York has an interest in

providing punitive damages since a New York citizen has been

injured.

The Defendant SHAKESPEARE’S motion for judgment

N.O.V. is DENIED. SHAKESPEARE’S motion for oral

argument concerning this motion is also DENIED.

DONE AND ORDERED at Miami, Florida, this 10th day

of August, 1978.

/s/ C. CLYDE ATKINS

Chief United States District Judge

13a

FURY IMPORTS, INC., Plaintiff-Appellant Cross Appellee,

SHAKESPEARE COMPANY, Defendant-

Appellee Cross Appellant.

No. 75-2421.

United States Court of Appeals,

Fifth Circuit.

June 24, 1977.

Rehearing Denied Aug. 22, 1977.

Before COLEMAN, MORGAN and HILL, Circuit Judges.

LEWIS R. MORGAN, Circuit Judge:

In this diversity suit for tortious inducement to breach a

contract, plaintiff Fury Imports, Inc. appeals from a judgment

notwithstanding the verdict entered in favor of defendant

Shakespeare Company setting aside a jury verdict of

$2,946,872.35. Defendant cross-appeals. We reverse and

remand for a new trial.

I. FACTS AND PROCEEDINGS BELOW.

Although many of the facts and inferences to be drawn

from them are hotly disputed, the bare bones of this case are as

follows. William Ciaccia designed a new fishing reel called the

“Spinmaster” and, in 1969, he incorporated Fury Imports in

New York to market it. On December 15, 1969 Fury entered a

three-party contract with a Japanese manufacturing company,

Omori, and its trading agent, Shinei Company. Under this

contract, Omori was to produce the reels. Fury was to purchase

the reels from Omori through Shinei, which was to act as

Omori’s distributor. The contract provided that Fury would

have exclusive distributorship rights for the reel in the Western

Hemisphere, Omori in Japan, and Shinei in the rest of the

world.

l4a

Under the contract, Fury and Shinei were to place orders

for an aggregate of at least 150,000 reels during the first year of

the contract.! The period for which the contract was to be in

effect was set forth in the following paragraph:

This agreement shall remain in effect for a period of

one year from the date hereof and shall continue in effect

from year to year thereafter, provided that Fury and/or

Shinei shall place orders for at least 150,000 additional

units of the products during the first year hereof or any

renewal year, as the case may be, for delivery during the

succeeding year.

App. 1089. It is not disputed that Fury did, in fact, order

150,000 reels from Omori, through Shinei, during the first year

of the contract. Something less than this number was actually

delivered to Fury for the 1970 retail season.

Fury was not the only company for which Omori manufac-

tured fishing reels. Since 1963, it also had made reels for the

Shakespeare Company, a large sporting goods company in-

corporated in Delaware. Fury and Shakespeare were com-

petitors in at least some American markets to sell fishing reels.

1. The contract states:

Fury and, with respect to sales under Paragraph ‘THIRD’

hereof, Shinei shall place orders with Ohmori for such quantities as

in the discretion of Fury and Shinei each may require from time to

time. Fury and Shinei shall place orders for an aggregate of at

least 140,000 of the products during the first year hereof. The

purchase price, terms ©! payment terms of shipment and other

terms of sale shall be mutually agreed upon by Ohmori and Fury,

or by Ohmori and Shinei with respect to sales under Paragraph

‘THIRD’ hereof, as set forth in each separate confirmed purchase

order or sales order.

App. 1088-89. At about the same time Fury entered this contract

with Omori, it entered a contract with Southern Tackle Dis-

tributors, a Florida corporation, under which Southern agreed to

buy 150,000 Spinmaster reels per year from Fury.

lSa

There was evidence that Omori experienced financial

difficulty in 1969-70, although the cause of that difficulty was

disputed.

This case arises out of a meeting in Japan on June 10, 1970

between Officials of Shakespeare’s wholly-owned overseas sub-

sidiary, Noris-Shakespeare, and Mr. Omori, president of the

Omori company. At this meeting Shakespeare and the Omori’

company entered an agreement by which Shakespeare. bought

one-sixth of the stock in Omori for about $25,000 and was given

the right to place a Shakespeare representative on Omori’s

board of directors. Shakespeare also made a $200,000 interest-

free loan to the Omori company. The critical portion of this

agreement, as far as Fury is concerned, was a provision that

Omori would stop making Spinmaster reels for Fury within one

year and would start making a similar reel for Shakespeare.2

In the years after 1969-70, Omori delivered fewer and

fewer reels to Fury. Finally, in 1973, Omori informed Fury that

it would no longer make any Spinmaster reels at all for it.

On January 15, 1974 Fury filed this suit against Shake-

speare, alleging that Shakespeare had tortiously induced Omori

to breach its 1969 contract with Fury.? The theory of Fury’s

2. The agreement provided:

Omori currently manufactures a family of reels for the Japanese

export company Shinei under the brand ‘Diamond Spinmaster’. It

was agreed upon that within a year from now Omori will stop

further supplies to this outlet and give up the production of these

reels. To fill a possible production gap, the U.S. Shakespeare

company and Omori will start immediately to create, design and

develop a most up-to-date series of fishing reels similar to the

current Diamond Spinmaster to be distributed worldwide by NST.

App. 1030-31.

3. The complaint as originally brought was against Shakespeare and

Southern Tackle Distributors for an a¢counting on allegations that

Shakespeare had bought Spinmaster reels directly from Omori and

(Footnote continued on following page.)

—

l6a

case was that Shakespeare had bought into Omori and made it

a sizeable interest-free loan on the condition that Omori would

quit making Spinmaster reels for Fury, with the purpose of

eliminating Fury as a competitor to Shakespeare in the market

to sell fishing reels. Fury sought compensatory and punitive

damages.

Shakespeare’s trial defense had two main prongs. First, it

claimed that in the years after 1970 there was no contract in

existence between Fury and Omori, so that it could not have

induced any breach. This claim, in turn, rested on the theory

that the Omori-Fury contract had not been renewed for the

years after 1970. Shakespeare’s second line of defense was that

its purpose for buying into Omori, making it the loan, and

requiring that Omori stop supplying reels to Fury, was to save

Omori from bankruptcy and preserve it as a steady supplier of

reels to Shakespeare. This line of defense was put under

variations on the “privilege” or “justification” defense to an

inducement-to-breach suit.

The ease was tried to a jury under an unwritten stipulation

by the parties that New York law would apply. The jury

returned a special verdict, printed here in the margin.* After the

(Footnote continued from preceding page.)

sold them to Southern, in violation of Fury’s exclusive dis-

tributorship rights under the Omori Fury contract. Fury amended

the complaint to include the tortious inducement count after

discovery unearthed the tems of the June 10, 1970 agreement

between Omori and Shakespeare. Southern was dismissed as a

defendant, a ruling that Fury does not appeal. Neither do we have

before us any questions concerning the action for accounting

against Shakespeare.

1. Did the defendant Shakespeare know that the contract

among the plaintiff, Ohmori Corporation and Shinei Corporation

dated December 15, 1969, was in full force and effect in June,

1970?

Yes X No

(Footnote continued on following page.)

17a

verdict was returned, Shakespeare, which had moved for

directed verdicts at the close of plaintiff's evidence and at the

(Footnote continued from preceding page.)

2. Was the contract extended through the year 1971 by the

placing of orders for that year with the Ohmori Corporation for at

least 150,000 units of the spinning reel in question?

Yes _X No

3. Was the contract extended for the year 1972 by the placing

of orders for that year with the Ohmori Corporation for 150,000

units of the spinning reel in question?

Yes X No

4. Was the contract extended for the year 1973 by the placing

of orders for that year with the Ohmori Corproation for 150,000

units of the spinning reel in question?

Yes _X le

5. Did the Ohmori Corporation exercise a lawful right by

refusing to manufacture spinning reels for the plaintiff by reason of

the failure of the plaintiff to comply with the terms of the contract?

Yes No __X

6. Did the Ohmori Corporation breach its contract with the

plainuff by wrongfully refusing to manufacture the spinning reels in

question for the years in which the contract was in full force and

effect?

Yes _X No

7. If your answer to Finding 6 above is yes, was the breach by

the Ohmori Corporation of the said contract proximately caused by

the defendant, Shakespeare Company, inducing the Ohmori Cor-

poration to refuse to manufacture the reels?

Yes _X No

8. If your answer to Finding 7 above is yes, was the

defendant, Shakespeare Company justified in inducing the breach

of contract?

Yes X No

(Footnote continued on following page.)

18a

close of all the evidence, moved for judgment notwithstanding

the verdict on a number of grounds.

The district court granted Shakespeare’s motion in a

written order on the grounds (1) that the evidence did not

establish the existence of a contract between Fury and Omori

for the years 1971, 1972, or 1973; (2) that the jury’s finding of

no justification was against the manifest weight of the evidence

or was based on no evidence at all; (3) that compensatory

damages had not been proven with sufficient precision; and (4)

(Footnote continued from preceding page.)

9. If your answer to Findings numbered 1, 6, and 7, and any

of 2, 3, and 4 is yes, and your answer to numbers 5 and 8 is no,

state the amount of any compensatory damages sustained by the

plaintiff in each of the following years:

(a) 1970 $35,278.88

(b) 197] $42,376.67

(d) 1973 $423,523.20

(e) 1974

(thru September 25) $563,319.68

TOTAL: $1,271,317.35

10. If your answer to Findings numbered 1, 6, and 7, and any

of 2, 3, and 4 is yes and your answer to number 5 and 8 is no,

answer the following question. Was the defendant Shakespeare

Company guilty of wanton, willful misconduct in effecting such

breach?

Yes _X No

11. If your answer to nuinber 10 above is yes, please insert the

amount of punitive damages below.

$1,675,555.00

SO SAY WE ALL.

19a

that the evidence did not support an award of punitive dam-

ages. The court rejected Shakespeare’s argument that the

action was subject to the three-year New York statute of

limitations, rather than the four-year Florida statute of limita-

tions, and hence was barred. In addition to the grant of

judgment notwithstanding the verdict, the court recited that,

“Shakespeare’s motion for a new trial is granted in accordance

with the result reached in [the portion of the order dealing with

proof of compensatory damages ]—but this recital is, of course,

for purpose of the record only.”

Fury appeals, arguing that the district court’s grant of

judgment notwithstanding the verdict constitutes an unwar-

ranted invasion of the jury’s province as fact finders. Shake-

spear opposes this contention and, in addition, cross-appeals.

On its cross-appeal it argues that the district court erred in

holding Fury’s action was not barred by the statute of limita-

tions; that it erred in ordering that each party bear its own costs;

and that, if we reverse the district court’s judgment notwith-

standing the verdict, a new trial should be held on all issues.

For the reasons that follow, we have decided that.the

district court erred in granting judgment notwithstanding the

verdict on the issues whether the Fury-Omori contract was in

existence in the years 1971, 1972, and 1973, whether the

justification defense was available, and whether punitive dam-

ages were available. We also have decided that a new trial is

required on the issue of compensatory damages. Because that

issue is sO intimately intertwined with the issue of liability,

however, justice requires that a new trial be held on all issues.

Finally, because the record is not sufficient for us to decide the

statute of limitations issue, we remand that issue to the district

court for further consideration.

II. ISSUES CONCERNING LIABILITY.

As we have said, the district court granted judgment

notwithstanding the verdict on the issues whether the Fury-

Omori contract was in existence in the years 1971, 1972, and

20a

1973, and whether the justification or privilege defense was

available. In reviewing these holdings, we must

consider all ti.e evidence—not just that evidence which

supports the non-mover’s case—-but in the light and with

all reasonable inferences most favorable to the party

opposed to the motion.

Boeing Co. v. Shipman, 411 F.2d 365, 374 (Sth Cir. 1969) (en

banc). We hold there was sufficient evidence to present a jury

question on each of these issues.

[1] A. Proof of Continued Existence of the Fury-Omori

Contract. Under New York law, the elements of a cause of

action for inducement to breach a contract are (1) the existence

of a valid contract; (2) the defendant’s knowledge of that

contract; (3) the defendant’s intentional procuring of the

breach of that contract: and (4) damages. Jsrael v. Wood

Dolson Co., 1 N.Y.2d 116, 120, 151 N.Y.S.2d 1, 134 N.E.2d 97

(1956).5 In this case, the court instructed the jury that the Fury-

Omori contract was in existence for the period from December

15, 1969 to December 15, 1970. App. 1004. It gave to the jury

the question whether the contract was in existence in 1971,

1972, and 1973. This question turned on whether Fury had

renewed the contract for those years.

The contract’s renewal clause, quoted in its entirely in Part

I above, provides that the contract “shall continue in effect [for

years after 1970], provided that Fury... shall place orders for

at least 150,000 additional units of the product during [1970]

or any renewal year, as the case may be...” The district court

5. Under New York law, “Malice, in the sense of intending actual

harm because of spite or ill feelings is .. . not a requisite to the tort

of inducing breach of contract.... Knowledge of the existence of

the contract is enough and implies malice.”” American Cyanamid

Co. v. Elizabeth Arden Sales Corp., 331 F. Supp. 597, 608 (S. D. N.

Y. 1971), accord. e. g., A. S. Rampell, Inc. v. Hyster Co., 3 N. Y.

2d 369, 376, 165 N.Y.S.2d 475, 144 N.E.2d 371 (1957); Aljassim

v. SS South Star, 323 F. Supp. 918, 924 n. 12 (S. D. N. Y. 1971)

2la

instructed the jury, “that in order to find that a contract existed

during each of the succeeding years subsequent to December

15, 1970, you must find that orders were ... placed with the

Ohmori Corporation and accepted by such corporation in an

amount not less than 150,000 units for each of the years in

question.” App. 1005 (emphasis added). It also instructed

that, “the word ‘accepted’ as used in this instruction means an

agreement by Ohmori on the purchase-price, terms of payment,

terms of shipment and other terms of sale in the purchase

order.’’6

The evidence at trial showed that Fury customarily placed

its orders with Omori through Shinei. Ciaccia, president of

Fury, testified that some, but not all, of the orders were written.

He said that he did place orders with Shinei for 150,000 reels in

1970, 1971, 1972, and 1973, e. g., App. 683-86, and he

produced what he said were all the orders that had been in

writing. Mr. Kobayashi, president of Shinei, also testified that

Fury ordered 150,000 reels from Omori through Shinei each

year, that not all Fury’s orders to Shinei were written, and that

Shinei did not always pass these orders to Omori in written

form. App. 906-07. In its special verdict, the jury specifically

found that the contract had been extended in 1971, 1972, and

1973 by virtue of the fact that Fury had ordered at least

150,000 reels in each of those years. See note 4 supra.’

[2] The district court overturned the jury’s conclusion that

the contract was in existence in the years 1971, 1972, and 1973

6. It will be noted that the renewal clause of the contract contains no

explicit requirement that Omori “accept” Fury’s orders in the

manner defined by the district court before the contract would be

considered renewed. Fury has not argued to this court that the

district court’s construction of the contract was wrong in this

respect, however. See Baet for Appellant at 20.

7. It will be noted that the special verdict form, unlike the district

court’s instructions, does not refer to a requirement that Omori

“accept” Fury’s orders for the contract to be considered renewed.

22a

on the grounds that there was no documentary evidence that

Fury had ordered 150,000 reels from Omori in those years, and

that there was no documentary evidence that Omori had

accepted such orders, as the court had defined “accepted” in its

instructions. The court stated that “the absence of such records

is persuasive,” citing Fed. R.Ev. 803(7).8

We find defects in both grounds of the district court’s

holding. First, the question whether Fury did order 150,000

reels in each year remained one of fact for the jury, not the

court, to decide. As we have said, both Ciaccia and Kobayashi

testified that the required number of reels was ordered each

year and that the orders were not always in written form. Fury

could not be required to produce writings that never existed.

Cf. Fed.R.Ev. 1005. While the absence of written orders might

be a factor for the jury to take into account in deciding whether

Ciaccia and Kobayashi were telling the truth, it does not prove

conclusively that they were not. Insofar as the district court

based judgment notwithstanding the verdict on a lack of

evidence that Fury ordered 150,000 reels each year, it erred.

The second branch of the district court’s holding relied on

a lack of proof that Omori had accepted the orders in question

by agreeing on the terms of the orders. Because there was no

proof that Omori had agreed on the terms of the orders, the

court held, there was no proof that the underlying contract had

been renewed. There seem to us to be two problems with this

holding.

8. Rule 803(7) describes evidence admissible as an exception to the

hearsay rule:

Evidence that a matter is not included in the memoranda, reports,

records, or data compilations, in any form, kept in accordance

with the provisions of paragraph (6) [making ‘records of regu-

larly conducted activity’ admissible despite the hearsay rule], to

prove the nonoccurrence or nonexistence of the matter, if the

matter was of a kind of which a memorandun, report, record, or

data compilation was regularly made and preserved, unless the

sources of information or other circumstances indicate lack of

trustworthiness.

23a

First, Omori did, in fact, manufacture some reels for Fury

in 1971, 1972, and 1973. Hence, it is plain that Omori and Fury

did agree on the terms of an order for some number of reels. As

we have seen, there was evidence from which the jury could

have found that Fury ordered 150,000 reels each year. We

think the jury could infer, from the facts that Fury ordered

150,000 reels and that Omori shipped some portion of that

number, that Omori and Fury had agreed on terms to cover the

entire order. The fact that Omori did not actually ship the

number ordered does not necessarily mean that it did not agree

to the terms of such an order.

Second, there was evidence in the record that the parties to

the contract did not consider “acceptance” by Omori of Fury’s

enitre order, as the court defined “acceptance,” to be a

prerequisite to renewal of the contract. The court instructed the

jury that it could take the parties’ own practices under the

contract into account in determining the contract’s meaning and

in determining whether the contract had been modified by

implication.? Thus, the jury might have concluded from the

parties’ conduct that the contract had been renewed for the

years 1971, 1972, and 1973 by virtue of the fact that Fury had

9. ... I instruct you that words in a contract are to be construed

according to their ordinary meaning where nothing appears to

show that they were used in a different sense. However, words

and phrases used in particular contracts are to be interpreted in

accordance with the meaning ascribed to them by the parties.

Also most importantly, the practical conduct or practices of

the parties under a contract is a consideration of much importance

in ascertaining the meaning of terms of a contract and that

consideration is entitled to great, if not controlling, influence in

ascertaining the parties’ understanding of the terms and language.

This is so because the parties are in the best position to know what

was intended by the language employed.

Also, even if the terms of a contract are clear and unam-

biguous, those terms may be subject to modification by implication

from the acts of the parties.

App. 1007.

24a

placed the required 150,000 order, even if it was not shown that

Omori had “accepted” all the orders Fury placed.

The evidence from which the jury might so have concluded

consists of Omori’s own statements at the time it “‘cancelled”

the contract. On June 8, 1973 Mr. Omori wrote Shinei as

follows:

Gentlemen:

Concerning a contract signed between the notifying

party and your company as well as American Fury on

December 15, 1969 for the Diamond Spinmaster Fishing

Reels, we had notified Mr. Akira Kobayashi, the president

of your company and Mr. William Ciaccia, the president of

the Fury Company on or about December 10, 1972 that we

wished to cancel the above contract. We hereby confirm

this notification of the cancellation of the contract in

writing and as of this date. Under the above contract, it

had been agreed that there would be a purchase of 150,000

units each year, but because we were not able to fu!fill such

an agreement, it has become necessary to cancel the

contract.

App. 1165. Omori wrote Fury a similar letter the same day,

although that letter attempted to cast blame on Fury for the

termination of the contract. App. 1136. These letters carry an

implication that Omori himself considered the contract to have

been in effect up until he terminated it; for if the contract had

not been in effect, there would have been no need to cancel it.

In addition, it is undisputed that Omori did, in fact, produce

reels for Fury in 1971, 1972, and 1973, although not in the

quantity that Fury ordered. And finally, at no time during Mr.

Omori’s testimony at trial did he intimate that he did not

consider the contract not to have been renewed for those years.

From all this, we think the jury could have inferred that, in the

minds of the parties to the contract, the contract had been

renewed each year. We therefore hold that the district court

erred in granting judgment notwithstanding the verdict for

25a

Shakespeare on the ground that, because it was not shown

Omori “accepted” the full order placed by Fury in the years in

question, the contract was not still in effect.

[3] B. Justification or Privilege. We also think the district

court erred in granting judgment notwithstanding the verdict on

the issue of justification or privilege. In its fullest discussion of

the subject to date, the New York Court of Appeals has

recognized the general rule that, ‘“Procuring the breach of a

contract in the exercise of equal or superior right is acting with

just cause or excuse and is justifiable for what would otherwise

be an actionable wrong.” Felsen v. Sol Cafe Manufacturing

Corp., 24 N.Y.2d 682, 687, 301 N.Y.S.2d 610, 613, 249 N.E.2d

459, 461 (1969), quoting Knapp. v. Penfield, 143 Misc. 132,

134-35, 256 N.Y.S. 41 (Sup.Ct.1932). The cases finding

privilege or justification, cited with approval in Felsen, include

ones where the defendant and the plaintiff each had a contract

with a third party, and the defendant induced the third party to

breach its contract with the plaintiff, e. g., Knapp v. Penfield,

supra; and cases where the defendant was a stockholder in a

corporation, and the defendant induced the corporation to

breach a contract with the plaintiff, e. g., Morrison v. Frank, 81

N.Y.S.2d 743 (Sup.Ct.1948). Felsen itself was the latter sort of

case.

In both kinds of cases, an inducement to breach is ‘privi-

leged only if the defendant’s purpose is to protect his own

contractual or equity interest, upon which the privilege is based.

See, e.g., Felsen, supra, 24 N. Y. 2d at 687, 301 N. Y. S. 2d 610,

249 N. E. 2d 459; Knapp v. Penfield, supra, 143 Misc. at 135,

256 N. Y. S. 41; The Savage Is Loose Co. v. United Artists

Theatre Circuit, Inc., 413 F. Supp. 555, 560 (S. D. N. Y. 1976);

Restatement of Torts § 679(b) & Comment b (1939).10

10. § 769 of the Restatement states:

One who has a financial interest in the business of another is

privileged purposely to cause him not to enter into or continue a

relation with a third person in that business if the actor

(Footnote continued on following page.)

26a

In this case, Shakespeare argues that it had two kinds of

“existing economic interests” in Omori that justified its in-

ducement to breach the Fury-Omori contract. First, it relies on

its “permanent order” of reels from Omori, which predated

Fury’s contract with Omori, as creating a “contractor’s privi-

lege.”’ Second, it relies on its purchase of one-sixth of Omori’s

stock and $200,000 interest free loan to Omori as creating an

“‘owner’s privilege” or “‘investor’s privilege.” In order to protect

these ‘“‘existing economic interests,” Shakespeare tells us, it was

privileged to induce Omori to breach its contract with Fury.

The district court, recognizing the principle “that one who has a

financial interest in the business of another is privileged to

interfere with a contract between that business and a third

person provided that the purpo-. is to protect its own interest,”

App. 55, accepted the argument.

The difficulty with the argument, to our minds, is that the

jury had evidence before it from which it properly could have

found that Shakespeare’s purpose in inducing the breach was

not to protect either its “permanent order” with, or its “own-

ership interest” in, Omori. It may be, as Shakespeare has

argued throughout, that its purpose in buying equity in Omori

and loaning it money was to prop up a failing supplier. But it is

considerably less clear that requiring Omori to terminate a

contract that accounted for thirty percent of Omori’s total

production would go far toward strengthening Omori’s finan-

cial position. The jury could have found from the record a

(Footnote continued from preceding page.)

(a) does not employ improper means and

(b) acts to protect his interest from being prejudiced by the

relation.

By its terms, the privilege stated in § 769 applies only to inter-

ference with noncontractual business relations, and not to in-

ducements to breach an existing contract. See § 769, Comment d.

It appears, however, that the New York courts also have applied

this privilege to inducements to breach existing contracts. See

Morrison v. Frank, supra, 81 N.Y.S.2d at 744.

27a

belief on Shakespeare’s part that Omori would fail, despite

Shakespeare’s purchase of stock and loan, without the Fury

contract—unless Shakespeare mustered enough additional or-

ders to take up the slack that would be left by the ouster of

Fury. The jury also could have found that Shakespeare

experienced considerable difficulty producing enough addition-

al orders to keep Omori afloat, and that this was the reason

Omori did not terminate its contract with Fury altogether until

1973. From all this, the jury could have concluded that

Shakespeare’s efforts to induce Omori to cut off supplies to Fury

were in conflict with, and not in furtherance of, Shakespeare’s

professed purpose of keeping Omori in business so it could

continue to make reels for Shakespeare under Shakespeare’s

“permanent order.”

At the same time, it is far from clear that Shakespeare’s

purpose in inducing the breach was to protect its ownership

interest in Omori. The jury could have found, from the

testimony of one of Shakespeare’s own employees, that Shakes-

peare did not care whether Omori made any substantial profits.

App. 168-69. The jury also could have found that Shakespeare

wanted Omori to cut off Fury as soon as Shakespeare could

place enough orders to keep Omori afloat, even if Omori could

make more profit by also keeping the Fury business. From this,

the jury could have concluded that Shakespeare’s purpose in

inducing the breach was not to protect or enhance its equity

interest in Omori, but rather was in conflict with such a purpose.

The evidence from which the jury could have found that

Shakespeare’s purpose in inducing the breach was not to

protect either its source of supply or its equity interest in Omori

is buttressed greatly by a series of memoranda circulated

among Shakespeare executives. These memoranda would

support a finding that Shakespeare’s purpose in inducing the

breach was, in fact, to eliminate Fury as a competitor in the

market to sell reels. For instance, on July 9, 1971, Bert Rost,

28a

managing director of Shakespeare’s German subsidiary, wrote

Ben Hardesty, vice-president for marketing of Shakespeare:

The [Omori] factory is geared to make approx. 350,000

reels a year which is the minimum quantity for a moder-

ately profitable operation. 500,000 could be made without

any problems. As long as we cannot absorb the minimum

quantity the factory has to produce to exist we have to look

for business from our competitors even if we do not like it. I

am really trying hard to eliminate any other customer from

the Omori factory but I am afraid it might take another year

* * * * *

If you come to the conclusion that Mr. Omori should not

make reels any more for somebody else please get in touch

with Mr. Watanuki [the Shakespeare representative on

Omori’s board of directors] by phone or telex. J have the

feeling that there is still time to stop the order from Fury. By

doing this we commit ourselves for feeding the Omori

company with sufficient orders and permitting them to ship

the production right away or give financial help.

App. 1028 (emphasis added). On February 28, 1972 Rost

wrote Hardesty:

Let’s hope our sales will continue to be good and will

finally reach a volume which enables us to absorb Omori’s

full capacity to eliminate supplies to the one cther outlet left

to Omori [i. e., Fury] ... J think both, Clyde [Rickard of

Shakespeare’s marketing division] and Dick [?] would feel

much better if we could cut off FURY from Omori.

App. 1046-47 (emphasis added). On April 13, 1972 Rost

wrote Hardesty;

...Mr. Omori was approached by Shinei ( Fury’s Japanese

broker) to accept a fresh order for more than 100,000 reels

... Mr. Omori rejected but, if I understood correctly, left it

open to accept the order if the reels can be produced and

shipped from July and September as last year. During this

period last year he had no orders from us and was more

than happy to receive the Fury order at all. Jf we want to

29a

get Fury out already this year, immediate action must be

taken. I consider the risk very small even though I am

afraid 180,000 reels for Europe is a lot but feel almost

certain Clyde might be able to sell additionally in the

States what we will miss out. Jsn’t there a good chance for

Clyde to get the larger part of the Fury business if we cut

them off smartly?

App. 1054 (emphasis added). On April 17, 1972 Rickard

wrote Hardesty:

... 1am in a position to commit the Shakespeare Market-

ing Division for 185,000 Omori manufactured reels .... J

cannot commit for this quantity if we continue to allow

Omori to manufacture reels for Fury. Fury has, as you

know, a look alike reel to our import and they have caused

us a tremendous amount of problems in the market place

due to their pricing.

App. 1049 (emphasis added). And at about the same time,

Rickard telexed to Rost:

[1] can no longer live with [O]mori manufacturing reels for

[Flury.... [S]o lets make the move and get [F]ury out.

[1]¢ will save us a lot of heartaches in the states.

App. 1056 (emphasis added). Finally, there was evidence that

after Omori quit making Spinmaster reels for Fury, it made the

identical reel for Shakespeare, App. 504, as the June 10, 1970

agreement between Shakespeare and Omori appears to have

contemplated, see text and note at note 2 supra. We think this

evidence, together with that reviewed above, would support a

jury finding that Shakespeare’s sole purpose in inducing Omori

to cut off Fury was to eliminate a competitor in the market to

sell reels, and not to preserve Omori as a source of supply or as

an investment. If that were the case, Shakespeare would have

no valid claim of privilege.

To be sure, Shakespeare argued below, as it has argued

here, that it was necessary to cut off Fury in order to save

Omori, because of what it says were lapses on Fury’s part in

30a

dealing with Omori. But whether that was true also was for the

jury to decide. We therefore hold that the district court erred in

granting Shakespeare judgment notwithstanding the verdict on

the issue of privilege.

III. COMPENSATORY DAMAGES.

To prove actual damages caused by the breach induced by

Shakespeare, Fury introduced the testimony of its accountant.

Fury sold five different models of reels produced by Omori.

The accountant testified that he had taken a random sample of

Fury’s purchase and sales invoices for each year in which

damages were claimed. From this sample, he determined the

average cost to Fury for each model of reel each year, and the

average price that Fury sold each model for each year. By

subtracting the former from the latter, he determined the

difference each year between the average cost to Fury and the

average price that Fury sold each model for. He then

determined the average of the five models’ averages to arrive at

the overall average difference, for all five models, between cost

and sales price each year. This figure was meant to represent

the average gross profit per reel to Fury each year, for the five

models combined.'! The accountant testified that this method

11. The accountant used 1971 figures to give an example of his

method. In that year, he said, the average cost to Fury for Model

No. | was $3.34, No. 2, $3.60; No. 3, $4.10; No. 4, $4.52; and

No. 5, $5.05. App. 803-04. In the same year he said, Fury’s

average selling price for Model No. 1 was $5.08; No. 2, $5.52;

No. 3, $5.99; No. 4, $6.06; and No. 5, $7.40. App. 804. The

difference between the average cost and average selling price for

each model, then, was foliows:

No. 1 No. 2 No. 3 No. 4 No. 5

Selling price $5.08 $5.52 $5.99 $6.06 $7.40

Cost 3.34 3.60 4.10 4.52 5.05

Difference $1.74 $1.92 $1.80 $1.54 $2.35

The accountant then took a simple average of these five

figures, which he said came to $1.97. By our calculation, it

comes to about $1.89. The defendant, however, has not

complained of the apparent discrepancy.

3la

for determining the average gross profit represented standard

accounting procedure. App. 795-96.

The accountant was permitted to testify from his sum-

maries, which had been made available to the defendant along

with the records underlying them, as to what this average was

for each of the five years in question. 12 He also was permitted to

testify as to the difference between the number of reels actually

received and sold by Fury each year, and the 150,000 that Fury

supposedly had ordered from Omori each year.'3 The accoun-

tant agreed that increased expenses that would accompany

increased sales should be deducted from gross profits to arrive

at net profits, but he assigned no figuies for how much expenses

would have increased.

In final argument to the jury, Fury’s counsel requested, as

actual damages, an amount equal to the number of reels that

Omori should have supplied, but did not, times the average

gross profit per reel, for each of the five years in question. '4 The

assumption, for which there was support in the evidence, was

that Fury could have sold 150,000 reels each year if Omori had

12. The figures for each year were as follows, App. 801-07:

19701971 197219731974

$2.6 $1.97 $3.14 $2.91 $4.92

13. The figures for each year were, App. 802-08:

1970 = 1971 — «1972-1973 1974

35,874 77,136 131,244 113,844 150,000

14. Relying on the figures set out in notes 12 and 13 supra, he

requested:

1970 1971 1972

35,874 77,136 131,244

xX §.26 x $1.97 x $3.14

$9,327.24 $151,957.92 $412,106.16

1973 1974

113,844 150,000

x $2.91 x $.92

$331,286.04 $738,000.00

32a

shipped that many. Fury’s counsel told the jury that it should

reduce these figures by whatever amount of expense it thought

should be attributed to the lost sales, based on expense figures

appearing in Fury’s profit-and-loss statements that were in

evidence. He contended. though, that this amount would not

be great. App. 989.

The special verdict form given to the jury called for it to

enter a separate figure for actual damages for each year in

question. The figures requested by Fury, and those awarded by

the jury, compare as follows:

Requested Awarded

RTOS ici nnkniatcttisccchiineadeon $ 9,327.24 $ 35,278.88

id Sees Th ccegdaduaeteices $ 151,957.92 $ 42,376.67

bE ORR SE ER arial $ 412.106.16 $ 206,818.92

PF sepiccinnnsteenainesiiherncbass $ 331,286.04 $ 432,523.20

Ee A Mtetedicnsctaveaeoieactes $ 738,000.00 $ 563,319.68

OR So iiotisinibsisxtatoniateaan $1,.642,677.36 $1,271,317.35

It will be noted that for the year 1970, the jury awarded about

$26,000 more than Fury had requeste.*; and for 1973, it

awarded about $101,000 more than Fury had requested. Its

total award, however, was less than the total requested by Fury.

As we read the district court’s opinion, it found three

weaknesses in the proof and verdict on actual damages. First, it

objected to the method the accountant used to arrive at the

average gross profit per reel for each year, because that method

did not take into account the number of reels of each model

that were sold. That is, because the gross profit per reel varied

from model to model, the court thought the average gross profit

per reel for the five models combined should have been

weighted to take into account how many reels of each model

were sold. Second, the court thought the accountant’s testi-

mony as to lost profits was deficient because it did not take into

account increased operating expenses that would accompany

increased sales, and that should be subtracted from lost gross

33a

profits to arrive at lost net profits. And finally, the court

thought the discrepancy for the years 1970 and 1973 between

the amount Fury ha/4 requested and the amount the jury had

awarded demonstrated that the jury had gone outside the

evidence or had simply become confused. We agree, in

general, with the second and third points made by the district

court, and hold that a new trial is required.

[4] A. The Accountant’s Method of Estimating Gross Lost

Profits. We agree with Shakespeare that Fury was required to

prove the amount of its damages with a reasonable degree of

specificity. We disagree, however, that the accountant’s

method of calculating lost gross profits was so lacking in

probative value as to preclude an award based on his estimate.

As Judge Ainsworth recently had occasion to explain,

““[ T]he issue is whether the probative value of the expert’s

testimony was so slight that it should not have been submitted

to the jury. [cite] A jury’s award of damages ... may have

adequate support in the evidence even though an expert’s

assumptions and methodology may not have been the only

permissible ones for determining damages.” Eastern Air Lines,

Inc. v. McDonnell Douglas Corp., 532 F.2d 957, 999 (Sth Cir.

1976). In this case, the district court admitted the accountant’s

testimony over defendant’s objection based on the method of

calculation, stating, ““‘We have an expert on the stand and I

think he is subject to your cross examination. I am going to let

him testify about the averages. And of course, you have an

expert here listening, by the way.” App. 796. We think the

district court’s first impulse was correct. While it appears that

the estimate of lost gross profits might have varied if the

accountant had performed the operation contended for by the

defendant, the accountant testified that his method was an

accepted one. The defendant has not attempted to show that

this is not true, either below or in this court. Moreover, it was

open to the defendant, to whom the records upon which the

accountant based his tesiimony had been made available, to

34a

contradict the estimate with expert testimony and calculations

of its own. In these circumstances, we cannot say that the

probative value of the accountant’s testimony was so slight that

is should not have been submitted to the jury.

[5] B. Proof of Net Lost Profits. The district court’s

second point is well taken. Fury concedes that it was entitled

only to net, not gross, lost profits. Yet it made only the most

perfunctory gesture toward presenting the jury with a basis for

estimating how much its expenses would have increased if

Cmori had delivered 150,000 reels per year.'5 Ciaccia testified

that expenses connected with Fury’s sale of reels would have

included the cost of traveling expenses, printing catalogs and

price lists, booking orders, opening letters of credit, warehouse

insurance, and sales commissions; but at no point did he make

even a rough estimate as to the magnitude of these expenses.

App. 757—63. The accountant testified in similarly general

fashion. App. 843—48. The only evidence from-which the jury

might have begun to guess how much Fury’s expenses would

have increased were Fury’s profit-and-loss statements for 1970,

1971, and 1973, which show the expenses actually incurred by

Fury for those years. App. 1228, 1131, 1135. But the jury was

given no basis on which it could have extrapolated from these

historical figures to decide how much Fury’s expenses would

have increased, if more reels had been delivered. In short, there

was simply no evidence at all as to net, as distinguished from

gross, profits. See Cook Industries, Inc. v. Carlson, 334 F.Supp.

809, 816-17 (N.D.Miss. 1971).

In these circumstances, we ordinarily would reverse and

remand for a new trial limited to the issue of damages. See,

15. Although they argued the point below, neither party has taken a

clear position in this court on whether a portion of the expenses

that would not have varied with increased sales also should be

subtracted from gross lost profits to arrive at net lost profits. See

generally Annot., 3 A.L.R.3d 689 (1965). We therefore express

no opinion on this question.

35a

e.g., Nat Harrison Associates, Inc. v. Gulf States Utilities Co.,

491 F.2d 578, 588 (Sth Cir. 1974). In this case, however, “‘the

question of damages is so interwoven with that of liability that

the former cannot be submitted to the jury without confusion

and uncertainty, which would amount to a denial of a fair

trial.” Gasoline Products Co. v. Champlin Refining Co., 283 U.S.

494, 500, 51 S.Ct. 513, 515, 75 L.Ed. 1188 (1931); see, e. g.,

Howell v. Marmpegaso Compania Naviera, S. A., 536 F.2d

1032, 1035 (Sth Cir. 1976); Korbut v. Keystone Shipping Co.,

380 F.2d 352, 354 (Sth Cir. 1967). This is so because, among

other reasons, the question of causation is so intimately tied to

the question of damages.’® Moreover, as the district court

correctly pointed out the jury’s verdict on damages at the first

trial suggests some rather fundamental confusion, the source of

which is impossible to trace.17 In these circumstances, we hold

that the interests of justice require a new trial on issue of

liability as well as damages.

IV. PUNITIVE DAMAGES.

The district court instructed the jury that if it found Fury

was entitled to compensatory damages, and if it further found

that the act or omission of the defendant, which proxi-

mately caused actual injury or damage to the plaintiff, was

maliciously, or wantonly, or oppressively done; then the

jury may, if in the exercise of discretion they unanimously

16. Shakespeare can be held liable only for those breaches by Omori

that it induced. This is a substantial point on the facts of this

case. For instance, there was evidence that Omori was in

financial trouble in 1969-70, which might have affected its

capacity to produce reels. In addition, it is possible that Omori

breached the contract in pari even before it entered the agree-

ment with Shakespeare under which it agreed to stop dealing

with Fury.

17. At the retrial, if the district court again uses a special verdict, it

might consider Fury’s complaint that it is asking too much of a

jury to keep track of five years’ worth of damage calculations

without the benefit of pencil and paper.

36a

choose so to do, add to the award of actual damages such

amount as the jury shall unanimously agree to be proper,

as punitive and exemplary damages.

An act or failure to act is ‘wantonly’ done, if done in

reckless or callous disregard of, or indifference to, the rights of

one or more persons, including the injured person.

App. 1015. The court instructed the jury to bear in mind that

the purpose of punitive damages is “to punish the wrongdoer

for some extraordinary misconduct and to serve as an example

or warning to others not to engage in such conduct.” App. 1014,

1016. The jury found in its special verdict that Shakespeare

was guilty of “wanton, willful misconduct” in inducing the

breach, and it awarded substantial punitive damages.

[6] The district court, stating that under New York law

punitive damages may be recovered “where the wrong com-

plained of is morally culpable, or ... actuated by evil and

reprehensible motives or a desire to harm the plaintiff, or where

an act is so reckless that its carelessness indicates a heedless

disregard of the rights of others,” App. 60, nonetheless over-

turned the jury’s verdict. On the evidence in this case, we think

this was error.

The New York Court of Appeals has recognized that it

“may be difficult to formulate an all-inclusive rule or principle

as to what is an appropriate case for the recovery of punitive

damages.” Walker v. Sheldon, 10 N.Y.2d 401, 406, 223

N.Y.S.2d 488, 492, 179 N.E.2d 497, 499 (1961). As the district

court correctly noted, the New York courts have allowed

punitive damages “where the wrong complained of is morally

culpable, or is actuated by evil and reprehensible motives,”

Walker v. Sheldon, supra, 10 N.Y.2d at 404, 223 N.Y.S.2d at

490, 179 N.E.2d at 498, and where a tort “was committed

recklessly or wantonly, i.e., without regard to the rights of the

plaintiff, or of people in general,” Soucy v. Greyhound Corp., 27

A.D.2d 112, 113, 276 N.Y.S.2d 173, 175 (1967), quoting

Magagnos v. Brooklyn Heights R. R. Co., 128 App.Div. 182,

37a

183, 112 N.Y.S. 637 (1908); accord, e. g., Hamilton v. Third

Ave. R. R. Co.. 53 N.Y. 25, 30 (1873); Hayes v. State of New

York, 80 Misc.2d 498, 506, 363 N.Y.S.2d 986 (Ct. Claims),

rev'd on other grounds, 50 A.D.2d 693, 376 N.Y.S.2d 647

(1975); Da Cesta v. Technico Construction Corp., 74 Misc.2d

583, 584, 344 N.Y.S.2d 967 (Civ.Ct.N.Y.C.1973), aff'd, 78

Misc.2d 1100, 360 N.Y.S.2d 846 (Sup.Ct.1974). Moreover,

“The list of actions in which punitive damages have been

permitted in [ New York] is long... for..., ‘It is not the form

of action that gives the right to the jury to give punitory

damages, but the moral culpability of the defendant.’ ” Walker

v. Sheldon, supra, 10 N.Y.2d at 404 05, 223 N.Y.S.2d at 490,

179 N.E.2d at 498; quoting Hamilton v. Third Ave. R. R. Co.,

supra, 53 N.Y. at 30.

In this case there was evidence from which the jury could

have found that the defendant set out deliberately to destroy

plaintiff's business, and to take that business for its own. The

jury also could have found that to accomplish this end,

defendant’s executives, over a period of years, consistently

acted with complete disregard for known contractual rights of

the plaintiff. Although we cannot be certain what the New

York courts would do in a case like this, we do know that

federal courts applying very similar law from other states have

found the evidence sufficient to support awards of punitive

damages in very similar inducement-to-breach cases. Hannigan

v. Sears, Roebuck and Co., 410 F.2d 285, 293-94 (7th Cir.),

cert. denied, 396 U.S. 902, 90 S.Ct. 214, 24 L.Ed.2d 178 (1969);

ABC Paramount Records, Inc. v. Topps Record Distributing Co.,

374 F.2d 455, 462-63 (Sth Cir. 1967). We think the same

result should obtain under New York law here.'®

18. We do not think, as the district court may have thought, see App.

60, that the fact that defendant may have acted with the motive

of gaining greater profits would change the result. See Walker v.

Sheldon, supra, 10 N.Y.2d at 406, 223 N.Y.S.2d 488, 179 N.E.2d

497.

38a

Although we hold that the district court erred in setting

aside the jury verdict as to punitive damages, we also hold that

this issue must, in the interest of justice, be retried with the

other issues. Plaintiff is entitled to no punitive damages unless

the jury finds for it on liability and awards some actual

damages. Moreover, an award of punitive damages should rest

on the jury’s assessment of all the evidence in the case. Hence,

the issue of punitive damages is so intertwined with the other

issues that it should be retried with them. See Part III.B. supra.

[7] We also hold that evidence of defendant’s wealth is

admissible on the issue of the amount of punitive damages.

Rupert v. Sellers, 48 A.D.2d 265, 269, 272, 368 N.Y.S.2d 904

(App.Div.1975). It appears that no issue was raised below as

to whether a federal court applying New York law should

follow the procedure recommended in Rupert of not submitting

such evidence to the jury until after the jury finds that the

defendant is liable for punitive damages. We therefore express

no opinion on this question.

V. STATUTE OF LIMITATIONS.

Shakespeare argues that the district court erred in holding

Fury’s cause of action was no: barred by the appropriate statute

of limitations. This argument consists of three basic com-

ponents: first, that the district court erred in holding that

Florida’s four year statute, rather than New York’s three year

Statute, applied; second, that the cause of action accrued more

than three years before Fury filed suit; and third, that the

Statute was not tolled for any reason.

Because the case must be remanded for a new trial

anyway, and because the statute of limitations question may

raise issues that were not considered at the first trial, we do not

think we should pass on these questions at this time. Specific-

ally, it does not appear from the record whether the district

court took into account Florida’s “borrowing” statute, F.S.A.

§ 95.10, in deciding to apply the four year statute of limitations

39a

of F.S.A. § 95.11. Shakespeare argues here that the cause of

action “arose” in New York, and that Florida therefore would

“borrow” the three year New York Statute of limitation,

N.Y.Civ.Prac. § 214(4) (McKinney ).19 We cannot say on the

record before us where the cause of action “arose,” and think

this point should be considered in the first instance, if it has not

been already, by the court below.

If the district court were to decide that the New York

statute of limitations should have been applied, it will, of

course, have to decide when Fury’s cause of action accrued

under New York law, and whether any reason exists for tolling

the statute. Although the parties address much argument to us

on these issues, we think it would be premature to pass on them

at this point. This is especially so because there may well be

issues Of fact upon which a jury should pass as to just when the

first breach occurred, and whether fraudulent concealment

occurred. See Brief for Appellants at 26-28. We therefore do

not rule on these issues. We find it unnecessary to rule on any

of the other issues raised by the parties.

REVERSED.

19. Shakespeare also argues that the district court erred in holding

that the parties’ informal stipulation that New York law would

apply was not intended to extend to the statute of limitations

question. The district court, of course, was not bound to follow a

stipulation as to a question of law. Equitable Life Assurance

Soc). v. MacGill, 551 F.2d 978, 983 (Sth Cir. 1977). Moreover,

as the district court stated, “The vagueness of the stipulation

combined with the failure of the defendant to cearly advance its

conflicts-of-law position have posed some needless problems

throughout the trial and post-trial stages.” App. 56, rn. 3. In these

circumstances, we will not disturb the district covurt’s inter-

pretation of the stipulation.

Filed April 21, 1975

UNITED STATES DistTRICT COURT

Southern District of Florida

No. 74-49-Civ-CA

Fury Imports, INC.

Plaintiff

Vv.

SHAKESPEARE COMPANY and

SOUTHERN TACKLE DISTRIBUTORS

Defendants

In this action for tortious inducement of a breach of

contract, the jury returned a verdict against the Shakespeare

Company (Shakespeare) for $1,271,317.35 in compensatory

damages and $1,675,555.00 in punitive damages. Shakespeare

urges five grounds in support of its post-trial motions."

1. THE DEFENSE OF JUSTIFICATION

The defendant’s German subsidiary had been a substantial

customer of Omori corporation (Omori) since 1963. The latter

was the manufacturer of fishing reels which were the subject of

the breached contract signed by the plaintiff (Fury), Omori and

Shinei Corporation, dated December 15, 1969. At the request

of Omori, then in serious financial difficulty, Shakespeare

invested through its Japanese subsidiary approximately

$25,000.00 in the purchase of 16% of the capital stock of Omori.

As required by the memorandum between Shakespeare and

Omori, dated June 10, 1970, Shakespeare also made a

1. The asserted bases for post-trial relief include (a) legal justifica-

tion, (b) statute of limitations, (c) no factual or legal basis for

punitive damages, (d) insufficient evidence to support the com-

pensatory damages awarded, and (e) lack of jurisdiction over the

subject matter because of arbitration provisions in the contract

breached.

4la

$200.000.00 interest free loan to Omori.? Shortly thereafter

Shakespeare advanced another $50,000.00 to Omori at its

request to meet debts to suppliers because Fury failed to pay for

reels manufactured for it by Omori.

That Omori was in need of financial help is confirmed by

Fury’s President, Ciaccia. He wrote a letter to the President of

Southern Tackie Distributors on July 13, 1970 in which he

referred to the “Shakespeare/Omori deal,” stating that it “will

actually help us” since “it makes Omori financially strong which

will insure continued deliveries.” (Shakespeare’s exhibit 7). In

enother letter, dateu July 7, 1970, Ciaccia stated to Southern

Tackle, Fury’s only customer, “the situation with Omori is truly

serious, ... Omori could go into bankruptcy, or at the very

least, be so financially weakened, that he would cease to be an

effective producer.” (Shakespeare’s Exhibit 6).

It is thus apparent that Shakespeare had a present, existing

economic interest in Omori which Shakespeare had a right to

protect. This economic interest afforded Shakespeare a privi-

lege to induce termination of the December 1969 contract.

The New York courts have held that one who has a

financial interest in the business of another is privileged to

interfere with a contract between that business and a third

person provided that the purpose is to protect its own interest

and it does not employ improper means to effectuate its goal.

Felsen v. Sol Cafe Mfg. Corp., 301 N.Y.S.2d 610, 249 N.E.2d

459 (1964): Morrison v. Frank, 81 N.Y.S.2d 743 (Sup. Ct.

1948).

2. The memorandum also provided (a) that there would be close

cooperation between Omori and NST, Shakespeare's Japanese

distributor, (b) that the President of NST would become a

member of Omori’s board of directors, and (c) that within a year

or so, Omori would stop deliveries of “Diamond Spinmaster™

reels through Fury and would develop similar reels for NST and

Shakespeare to market worldwide.

42a

The jury was adequately instructed on the issue of justifica-

tion. (Tr. 1226, 1236-37). Their verdict on this issue, however,

was against the manifest weight of the evidence. Clearly, the

defendant had a viable existing economic interest in the affairs

of Omori. Also, the Court has combed the record and is unable

to find any evidence that the defendant was motivated by

actual malice toward the plaintiff or employed any illegal

means to protect its economic interests.

Moreover, the Court concludes that there was no evidence

presented upon which the jury could properly base a verdict for

the plaintiff on the issue of justification. Accordingly, judgment

must be entered on defendant’s motion for directed verdict

made at the close of all the evidence.

Il. THE STATUTE OF LIMITATIONS

Under New York law, the controlling statute of limitations

is three years. Hanrihan v. Parker, 19 Misc.2d 467, 192

N.Y.S.2d 2 (Sup. Ct. 1959). Florida’s applicable limitations

period is four years. While the parties stipulated that New

York law would apply.° This. agreement related only to

3 This stipulation is reflected in the transcript at p. 1053. See also

Exhibit A to defendant’s Motion to Strike filed September 11, 1974.

The vagueness of the stipulation combined with the failure of the

defendant to clearly advance and support its conflicts-of-law

position have posed some needless problems throughout the trial

and post-trial stages.

The defendant, through a motion to strike filed Setpember 11,

1975, just eight days prior to the commencement of trial, and

through a letter-notice of the same date, first informed the Court

and the plaintiff respectively of the possible application of Japanese

Law. This notice was not reasonable within the intendment of

Federal Rule of Civil Procedure 44.1.

It has been and still is the position of the defendant that application

of Japanese law bars an award of punitive damages in this case.

But the ramifications of this assertion would have had an impact on

the trial of this cause beyond the issue of punitive damages. For

underlying the contention that punitive damages cannot be

(Footnote continued on following page.)

geen ee eS ee ee

43a

substantive matters as distinguished from procedural matters.

In Florida, statutes of limitations are regarded as procedural.

Calhoun v. Greyhound Lines, Inc., (Fla. App. 1972), 265 So.2d

18. Under the appropriate conflicts principles, then, the law of

the forum is applicable to the limitations problem before the

Court. Hence, this action is not barred as it was filed within

four years of the act of inducement which occurred on June 10,

1970 in Tokyo at the New Otani Hotel.

| Ill. PROOF OF THE EXISTENCE OF THE UNDERLY-

ING CONTRACT

The jury was charged that the contract of December 15,

1969 established a contractual relationship among the three

entities—Omori, Fury and Shinei. It was, therefore, in full

force in 1970. The jury was further instructed that the contract

would only remain in effect during the succeeding years of

1971, 1972 and 1973, if it found that orders for not less than

150,000 reels were placed and accepted in each of those years.

(Footnote continued from preceding page.)

awarded under Japanese law is the assumption that Japanese law

on punitive damages applies. This point was argued by both sides

to some degree. The problem arises, however, in that the

defendant failed to proffer the appropriate Japanese law with

respect to the other issues in the cause. This failure is fatal to the

defendant’s contention that the punitive damages claim is barred

by Japanese law. For in order to apply Japanese law on the

substantive issue of punitive damages, it would be necessary to

hold that the appropriate choice-of-law for the whole cause of

action was Japanese. This was neither argued nor supported by the

defendant. The Court concludes that to recognize Japanese law on

a single issue which is favorable to the proponent of that foreign

law while not applying Japanese law to other substantive issues

which may not be so favorable would be anamolous and unjust.

The plaintiff urged the applicability of New York law to the

substantive matters of this cause of action. The defendant failed to

carry its burden to demonstrate that Japanese law controlled the

issues in the action. In view of this failure, it is appropriate to

adopt and apply the stipulation of the parties with respect to the

applicability of New York law to this cause. See, 9 Wright and

Miller, Federal Practice and Procedure, § 2447 (1971).

44a

The word “accepted” was defined to mean an agreement by

Omori on the purchase price, terms of payment, terms of

shipment, and other terms of sale in the purchase order. There

were five different models of reels with varying prices available

to Fury.

No documentary evidence was adduced at the trial estab-

lishing that Fury, through Shinei, ordered 150,000 reels from

Omori in 1971, 1972 or 1973. Nor was any such evidence

submitted showing that Omori accepted orders in the requisite

amounts, agreeing on the purchase price, terms of payment,

terms of shipment and other terms of sale in a purchase order.

The contract, by specific terms, required mutual agreement by

Omori and Fury on these precise terms. Both Omori and Akira

Kobayashi, the representatives of Shinei Corporation, testified

that some of the purchases were by written order.4* The absence

of such records is persuasive. See Rule 803(7) Federal Rules

of Evidence, effective July 1, 1975.

The evidence adduced fell far short of establishing the

existence of a contract between Fury and Omori in 1971, 1972

and 1973 as a prerequisite for the recovery of damages in this

case. It is fundamental that the underlying contract must exist

for Fury’s claim to be viable. See, Winer v. Glaser, 3 A. D. 2d

656, 158 N. Y.S.2d 1016 (1957). Thus, Fury’s failure of proof

in the above respect precludes an award of compensatory

damages.

4 TR. 953, 990

The evidence to support the required order of 150,000 reels

appeared in such statements as “I believe in excess of 90,000 were

ordered in 1971; I think Fury ordered 100,000 fishing reels for 1972

and 1973; I placed an order for 250,000 fishing reels for 1972 and

1973;" “The orders were sometimes by letter, sometimes by telex,

sometimes oral.” There was also a statement that some orders were

placed by telephone or brought in person to the Omori factory.

(Tr. 216, 236, 238, 953, 955).

45a

IV. PROOF OF DAMAGES

Fury also failed to prove with sufficient certainty a loss of

its profits in the amounts claimed as a proximate result of

Shakespeare’s wrong.

Damages cannot be merely speculative or conjectural. The

evidence must furnish data for a reasonably accurate estimate

of the amount of damages. Nat Harrison Associates, Inc. v.

Gulf States Utilities Co., 491 F. 2d 578, 587 (5 Cir. 1974).

Fury offered proof of its lost profits through its accountant

Morgenstern. This witness’ estimate of lost profits did not take

into account expense of commissions paid to manufacturers’

representative, the cost of letters of credit involved in the

purchase of the fishing reels, the expense of “booking” each

order, insurance, and other expense items shown on the finan-

cial statement of Fury as the cost of doing business. (Tr. 797,

798, 794-795, 799, 883, 884).

There was no showing of how many reels of each of the

five models were purchased, the price of which varied as much

as 61 cents for the year 1971. (Tr. 839-840). Morgenstern

used simple averages in each of the subject years. These could

not reflect the variation in price because it depended upon the

type or model of reels ordered and the quantities of such. The

jury did not have the benefit of this essential information.

In closing argument, Fury’s counsel claimed damages for

each of the years 1970, 1971, 1972, 1973 and 1974, in a specific

amount. The “loss” claimed was arrived at by multiplying the

number of fishing reels not shipped by Omori, based on the

asserted order of 150,000 reels each year, by an average

difference between Fury’s average purchase price and its aver-

age sale price for a// models of the reels.

Exemplary of the jury’s speculation is shown by its having

awarded $35,278.88 as damages for the year 1970 when Fury’s

counsel claimed only damages of $9,327.24. Likewise,

$423,523.20 was awarded by the jury for the year 1973 when

the maximum claimed by counsel was $330,704.04.

46a

The Court concludes, then, that the amount returned by

the jury as compensatory damages has no rational basis in the

evidence presented or rational connection to the exact amount

of the damages sought by Fury.

Vv. PUNITIVE DAMAGES

The New York decisions approve award of punitive or

exemplary damages where the wrong complained of is morally

culpable, or actuated by evil and reprehensible motives or a

desire to harm the plaintiff, or actuated by evil and reprehen-

sible motives or a desire to harm the plaintiff, or where an act is

so reckless that its carelessness indicates a heedless disregard of

the rights of others. Dupont Galleries, Inc. v. International

Magni-Tape, Ltd., 300 F.Supp. 1179, (S.D.N.Y. 1969); Walker

v. Sheldon, 10 N.Y.2d 401, 179 N.E. 2d 497 (1961).

Recovery of punitive damages requires facts tending to

show actual malice or so great an element of malice, fraud or

gross negligence that the Court feels the defendant must be

punished. Anthony v. George T. Bye, Inc., 243 A.D. 390, 277

N.Y.S. 222 (1935). Recovery can only occur where there is

actual malice directed against the plaintiff as distinguished from

the situation where acts are done on behalf of the defendant for

business reasons. O’Connor v. GLA Corp., 332 F.Supp. 1246

(S.D.N.Y. 1971).

As the jury was instructed, proof of actual malice is

necessary for an award of punitive damages. (Tr. 1233, 1238-

1240). Proof of legal malice sufficient to establish liability or

interference is insufficient by itself to create a basis for an award

of punitive damages. (Tr. 1233).

The evidence here does not establish that the conduct of

Shakespeare was such as to permit an award of punitive

damages.

VI. LACK OF SUBJECT MATTER JURISDICTION

Shakespeare urges that this Court lacks jurisdiction be-

cause the contract among Fury, Shinei and Omoni provided for

47a

arbitration in Japan of any controversy or claim arising out of

or relating to such agreement. It is clear that Shakespeare is not

in a position to invoke such arbitration provisions because it

was not a party to such agreement.

Vil. CONCLUSION

In light of the conclusions reached in Sections I, III and V,

Shakespeare’s motion for judgment notwithstanding the verdict

is granted. Shakespeare’s motion for a new trial is granted in

accordance with the result reached in Section IV—but this

recital is, of course, for purposes of the record only.

The Clerk will forthwith enter a judgment for the defend-

ant. Each party will bear its own costs.

ENTERED at Miami, Florida this 16th day of April, 1975.

/s/CLYDE ATKINS

United States District Judge

48a

THE CIVIL CODE

JAPAN

UNDER

AUTHORIZATION

THE MINISTRY OF JUSTICE

THE CODES TRANSLATION COMMITTEE

EIBUN-HOREI-SHA, INC.

TOKYO JAPAN

1966

49a

CHAPTER V UNLAWFUL ACT

( Unlawful act—compensation for damage )

Article 709. A person who violates intentionally or

negligently the right of another is bound to make compensation

for damage arising therefrom.

(Non-pecuniary damage )

Article 710. A person who is liable in compensation for

damages in accordance with the provisions of the preceding

Article shall make compensation therefor even in respect of a

non-pecuniary damage, irrespective of whether such injury was

to the person, liberty or reputation of another or to his property

rights.

F.S.A. Sec. 95.10 (in effect when complaint was filed)

When the cause of action has arisen in another state or

territory of the United States, or any foreign country, and by the

laws thereof an action thereon cannot be maintained against a

person by reason of the lapse of time, no action thereon shall be

maintained against him in this state.

NEW YORK CIVIL PRACTICE LAW AND RULES. SEC-

TION 214. ACTIONS TO BE COMMENCED WITHIN 3

YEARS: FOR NONPAYMENT OF MONEY COLLECTED

ON EXECUTION; FOR PENALTY CREATED BY STAT-

UTE; TO RECOVER CHATTEL; FOR INJURY TO PROP-

ERTY; FOR PERSONAL INJURY; FOR MALPRACTICE

OTHER THAN MEDICAL MALPRACTICE; TO ANNUL A

MARRIAGE ON THE GROUND OF FRAUD.

The following actions must be commenced within 3 years:

* * *

(4) An action to recover damages for an injury to property.

* * *

50a

Federal Rule of Evidence 403

Although relevant, evidence may be excluded if its proba-

tive value is substantially outweighed by the danger of unfair

prejudice, confusion of the issues, or misleading the jury, or by

considerations of undue delay, waste of time, or needless

presentation of cumulative evidence.

Federal Rule of Evidence 801(d)(2)(B), (C) and (D)

The following definitions apply under this article:

(d) Statements which are not hearsay. A statement is not

hearsay if—

(2) Admission by party-opponent. The statement is offered

against a party and is (B) a statement of which he has

manifested his adoption or belief in its truth, or (C) a

statement by a person authorized by him to make a

statement concerning the subject, or (D) a statement by

his agent or servant concerning a matter within the scope

of his agency or employment, made during the existence of

the relationship,

Federal Rule of Civil Procedure 44.1

A party who intends to raise an issue concerning the law of

a foreign country shall give notice in his pleadings or other

reasonable written notice. The court, in determining foreign

law, may consider any relevant material or source, including

testimony, whether or not submitted by a party or admissible

under the Federal Rules of Evidence. The court’s determina-

tion shall be treated as a ruling on a question of Jaw.

—_—

Sla

UNITED STATES DISTRICT COURT

Southern District of Florida

No. 74-49-Civ-CA

Filed April 21, 1975

Fury Imports, INc.

Plaintiff

“ vs.

SHAKESPEARE COMPANY, and SOUTH-

ERN TACKLE DISTRIBUTORS

Defendants

THIS ACTION came on for trial before the Court and a

jury, Honorable C. Clyde Atkins, District Judge, presiding, and

the issues having been duly tried and the jury having duly

rendered its verdict, and the Court, having deliberated upon

defendant’s post-trial motions and thereupon rendering a deci-

sion granting the defendant’s motion for judgment notwith-

standing the verdict,

IT IS ORDERED AND ADJUDGED that the plaintiff

take nothing, that the action be dismissed on the merits. and

that each party bear its own costs.

THIS 17th day of April, 1975.

JOSEPH I. BOGART, Clerk of Court

By /s/ MYRNA ROBBINS

Myrna Robbins

Deputy Clerk

APPROVED:

/s/ CLYDE ATKINS

United States District Judge

52a

Fury-Ohmori Contract—filed September 19, 1974

AGREEMENT made this 15th day of December 1969,

among KABUSHIKI-KAISHA OHMORI SEISAKUSHO, a

corporation organized and existing under the laws of Japan,

having its principal office at 7, Maeno-cho 5-chome, Itabashi-

ku, Tokyo, Japan (hereinafter called ‘“Ohmori”), SHINEI

INC., a corporation organized and existing under the laws of

Japan, having its principal office at Taimei Building, 32, 2-

chome, Kanda, Jinbo-cho, Chiyoda-ku, Tokyo, Japan (here-

inafter called ““Shinei”), and FURY IMPORTS INC., a corpo-

ration organized and existing under the laws of the State of

New York, having its principal office at 255 King Street, Staten

Island, New York 10312 (hereinafter called “Fury”’).

WITNESSETH:

WHEREAS, Ohmori wishes to appoint Shinei its exclusive

distributor throughout the world, except for Japan, for the sale

of fishing reels as per samples and descriptions, to be known as

“Diamond Spinmaster”, in various styles, designated style

numbers |, 2, 3, 4 and 5 (all of which are hereinafter called the

‘“‘products”) samples heretofore delivered by Ohmori to Fury;

and

WHEREAS, Fury desires to be the exclusive distributor for

the entire Western Hemisphere; and

WHEREAS, Ohmori and Shinei desire to have Fury be the

exclusive distributor for the Western Hemisphere and desire

that Shinei have the exclusive distributorship for the Eastern

Hemisphere except for Japan, which shall be the exclusive

territory of Ohmori.

NOW, THEREFORE, the parties hereto agree as follows:

53a

FIRST: A. Ohmori hereby appoints Shinei its exclusive

distributor of the products, throughout the world, with the

exception of Japan. Shinei hereby accepts such distributorship.

Shinei appoints Fury as the exclusive distributor for the West-

ern Hemisphere. Fury, Shinei and Ohmori have agreed upon a

trade name, trademark or brand name, to wit: “Diamond

Spinmaster”. In the event said name is not available a new

name will be selected which shall incorporate the word ‘“Dia-

mond”. Fury shall have the exclusive right to use the trade

name, trademark or brand name so selected in connection with

the products. Ohmori shall manufacture and package the

products with the name so selected. Except as to the name, all

shipments of products of Ohmori shall conform with the

samples heretofore delivered to Fury. Fury shall sell and

advertise the products on such terms and in such manner as it

deems best.

B. Fury may delegate or assign any or all of its rights

hereunder, in whole or in past, to any persons, firms or

corporations.

SECOND: Ohmori shall not, anywhere in the world with

the exception of Japan:

(a) directly or indirectly sell the products, alone, or as

a component of any fishing device, under the trade name

“Diamond Spinmaster” or any other trade name, trade-

mark or brand name selected, as provided in Paragraph

“FIRST”, or

(b) use the name “Diamond”, alone or in conjunction

with other words, in connection with any other fishing reel

or fishing device. ,

THIRD: A. Ohmori shall not sell the products directly or

indirectly, to any person, firm or corporation for resale directly

or indirectly, outside of Japan, except Ohmori may sell the

products to Shinei for export by Shinei to any part of the world,

except for the Western Hemisphere.

54a

B. Shinei shall not sell the products directly or indirectly,

in the Western Hemisphere or for export to the Western

Hemisphere.

FOURTH: A. All purchases by Fury hereunder for export

to the Western Hemisphere shall be made through Shinei as

distributor for Ohmori. Shinei shall not seek any compensation

for its services as such distributor from Fury.

B. Ohmori shall not hold Fury liable for any purchases

made by Shinei for export by Shinei in accordance with

Paragraph “THIRD” hereof.

C. In the event that a breach of this agreement occurs or

the agreement between Shinei and Ohmori terminates, it is

agreed by all parties that nothing will terminate Fury’s rights

hereunder and Ohmori agrees to continue this distributorship

just as if Ohmori had made the agreement in place of Shinei.

FIFTH: Ohmori represents that the products do not in-

fringe any patent rights of any other person, firm or corpo-

ration, and agrees to hold Shinei and Fury harmless from the

claim of any person, firm or corporation that the products do

infringe such person, firm or corporation’s patents.

SIXTH: Fury and, with respect to sales under Paragraph

“THIRD” hereof, Shinei shall place orders with Ohmori for

such quantities of the products as in the discretion of Fury and

Shinei each may require from time to time. Fury and Shinei

shall place orders for an aggregate of at least 150,000 of the

products during the first year hereof. The purchase price, terms

of payment, terms of shipment and other terms of sale shall be

mutually agreed upon by Ohmori and Fury, or by Ohmori and

Shinei with respect to sales made under Paragraph “THIRD”

hereof, as set forth in each separate confirmed purchase order

or sales order.

SEVENTH: This agreement shall remain in effect for a

period of one year from the date hereof and shall continue in

55a

effect from year to year thereafter, provided that Fury and/or

Shinei shall place orders for at least 150,000 additional units of

the products during the first year hereof or any renewal year, as

the case may be, for delivery during the succeeding year.

EIGHTH: This agreement shall be governed by the laws of

the State of New York, United States of America.

NINTH: Any controversy or claim arising out of or

relating to this agreement or the breach thereof shall be settled

by arbitration in Japan in accordance with the rules of the

Japan Commercial Arbitration Association. The award shall be

final and binding on the parties hereto.

TENTH: This agreement shall be binding upon the parties

hereto and their respective successors and assigns, and inure to

the benefit of the parties hereto and the successors and assigns

of Ohmori and Fury. It cannot be assigned by Shinei.

IN WITNESS WHEREOF, the parties hereto have caused

the

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