Opinion ID: 449646
Heading Depth: 1
Heading Rank: 2

Heading: Teleflex's Contentions

Text: 13 Zippertubing filed suit on June 19, 1981. Surf filed its action on August 14, 1981, and the cases were consolidated for trial. Both sought compensatory and punitive damages. The trial resulted in the judgment described above. Teleflex contends that it is entitled to a judgment notwithstanding the verdict on the entire case; that the court's charge misstates New Jersey laws; that the plaintiffs' disgorgement of profits theory of recovery cannot be sustained; that it is at least entitled to a judgment notwithstanding the verdict with respect to punitive damages; that prejudgment interest should not have been awarded; and that trial errors warrant a new trial. 14
15 a Prospective Advantage 16 Having made a firm quotation to Surf, which was by its terms to remain open for thirty days and which would have produced a $715,205 profit if accepted, Teleflex was asked by Surf and Zippertubing to permit their customer Nab, until then undisclosed, to inspect its facilities. Teleflex agreed to the inspection. It contends that in these circumstances New Jersey law would not impose any obligation on it to refrain from taking actions which would interfere with the prospective contract between Zippertubing and Nab, even when those actions amount to Teleflex's making false representations to Nab with respect to its relationship with Zippertubing and Surf, and Teleflex's resort to deceit in its dealings with Zippertubing and Surf with regard to its intention to make the extrusions. 17 The law of New Jersey is otherwise. Tort liability for interference with a prospective advantage has been a settled feature of that state's law for many years. The cause of action was recognized years ago for inducing the termination of an at-will employment relationship. E.g., Frank v. Herold, 63 N.J.Eq. 443, 52 A. 152 (Ch. 1901), appeal dismissed, rehearing denied, 64 N.J.Eq. 371, 51 A. 774 (1902); Jersey City Printing Co. v. Cassidy, 63 N.J.Eq. 759, 53 A. 230 (Ch. 1902); George Jonas Glass Co. v. Glass Bottle Blowers' Ass'n, 77 N.J.Eq. 219, 79 A. 262 (1911). The cause of action was available against third parties even on behalf of an at-will employee who could not recover in contract against his former employer. Brennan v. United Hatters of North America, Local No. 17, 73 N.J.L. 729, 65 A. 165 (1902). These at-will employment cases, however, are examples of a more general principle. In Van Horn v. Van Horn, 56 N.J.L. 318, 28 A. 669 (1894) the tort was recognized in favor of a retailer whose supplier was induced to withhold favorable credit terms. In that well known case the Court of Errors and Appeals cited with approval two famous cases from other jurisdictions, Lumley v. Gye, 118 Eng.Rep. 749 (1853) and Walker v. Cronin, 107 Mass. 555 (1871) dealing with interference with prospective employment. 56 N.J.L. at 322, 28 A. at 670. The Van Horn court observed: 18 The rule to be deduced from these cases, and one which has most ample support, is that while a trader may lawfully engage in the sharpest competition with those in like business, by holding out extraordinary inducements, by representing his own wares to be better and cheaper than those of others, yet when he oversteps that line, and commits an act with the malicious intent of inflicting injury upon his rival's business, his conduct is illegal, and, if damage results from it, the injured party is entitled to redress. Nor does it matter whether the wrongdoer effects his object by persuasion or by false representation. The courts look through the instrumentality or means used to the wrong perpetrated with malicious intent, and base the right of action on that. 19 Id. at 323, 28 A. at 670. Consistent with its roots in cases dealing with at-will employment, moreover, the cause of action in New Jersey does not depend upon the existence of a legally enforceable relationship. The mere fact that a contract is unenforceable between the parties affords no justification for the act of a third person, who, for his own purposes, takes steps which prevent its performance by one of the parties to it, who, although not bound to execute it, is willing and anxious to do so. Aalfo Co. v. Kinney, 105 N.J.L. 345, 347, 144 A. 715, 716 (1929). 20 The leading New Jersey case dealing with the tort of interference with a prospective advantage is Justice Heher's opinion in Kamm v. Flink, 113 N.J.L. 582, 175 A. 62 (1934). In that case the Guarantee Building and Loan Association owned a theater which it desired to sell. Kamm, a broker, aware that the theater was for sale and that his prospect, Levin, a theater operator, might buy it, disclosed the name of the customer to Flink, the president of the association. Flink disclosed Levin's name to his brother, who was also a broker. The sale to Levin was consummated without Kamm's participation, and a commission paid to Flink's brother. Reversing a dismissal of Kamm's complaint at the pleading stage, Justice Heher wrote: 21 If the challenged action were taken for the indirect purpose of doing injury to appellant, or of benefiting respondents at the former's expense, it is a wrongful act, unless done in the exercise of an equal or superior right, and therefore a malicious act, and actionable. But the case made by appellant clearly negatives the existence of an equal or superior right. The identity of its customer was disclosed, under the seal of confidence, for the legitimate use of the loan association only, and an obligation was thereby imposed upon Flink not to make an unfair use of the information thus given. Appellant had a property interest therein which the law will protect against unjust use by one who has gained it by virtue of a confidential relation. And this obligation may, in certain circumstances, be implied.... Where the duty is imposed, either expressly or by implication, its breach is tortious, and therefore actionable. 22 Id. at 588-89, 175 A. at 67 (citations omitted). Kamm v. Flink is significant in two respects. First, it reiterates the rule that the relationship interfered with need not be an enforceable contract, but only must be such that there is a reasonable expectation that a contract would have been entered into but for the interference. Id. at 590, 175 A. at 68. Second, it recognizes that no prior relationship need exist between the victim and the tortfeasor, and that no express undertaking of confidentiality is required. 1 Id. at 590, 175 A. at 67. The duty of confidentiality may arise by implication from the circumstances in which disclosure is made to the wrongdoer. Id. 23 The circumstances held in Kamm v. Flink to give rise to a cause of action for wrongful interference are largely replicated in the record before us. Just as Kamm had no prior relationship with the Association or Flink and no contract with Levin, Zippertubing had no prior relationship with Teleflex and no contract with Nab. While the facts in Kamm v. Flink itself dealt with an express assurance of confidentiality, Justice Heher, writing for a unanimous court, left no doubt that the circumstances surrounding a transaction can give rise to an implied duty of confidentiality. Id. The circumstances providing the basis for the relationship between Zippertubing/Surf and Teleflex as it had developed by the time of the meeting of February 11 is an example of what the Kamm court meant. The jury could have found that all participants were aware that Zippertubing's business was to design, procure extrusion of, and resell closeable insulators; that Teleflex issued to Surf a quotation, firm for 30 days, for the extrusions: that when the quotation was issued Teleflex was not in the business of manufacturing and selling closeable insulators; that Teleflex did not know Zippertubing's customer, but did know that Zippertubing had a customer; that Zippertubing maintained the identity of that customer in confidence until satisfied that Teleflex was ready and willing to go forward with the extrusions at the price indicated in the quotation; that the only purpose of the disclosure was to facilitate the inspection of facilities requested by the purchaser. The New Jersey courts would hold, we confidently predict, that Teleflex received the name of Nab under an implied duty of confidentiality. 24 Teleflex urges that the tort recognized in Kamm v. Flink is confined to the real estate brokerage context. While the tort has received widespread recognition in that context, 2 it has historically been applied, as noted above, in other contexts. New Jersey continues to impose liability for interference with forms of prospective advantage other than brokerage commissions. E.g. Zelenka v. Benevolent and Protective Order of Elks, 129 N.J.Super. 379, 324 A.2d 35 (App.Div.1974) (interference with membership in a fraternal order); Association Group Life, Inc. v. Catholic War Veterans, 120 N.J.Super. 85, 293 A.2d 408 (App.Div.1971) (Conford, J.) (interference with expectancy of commissions on insurance policy renewals); Mayflower Industries v. Thor Corp., 15 N.J.Super. 139, 83 A.2d 246; 15 N.J.Super. 337, 83 A.2d 366 (Ch.Div.1951) (Francis, J.), aff'd, o.b., 9 N.J. 605, 89 A.2d 242 (1952) (interference with proposed distributorship agreement by threats of groundless litigation); Di Cristofaro v. Laurel Grove Memorial Park, 43 N.J.Super. 244, 128 A.2d 281 (App.Div.1957) (fee requirements imposed by cemetery constituted interference with business of independent monument sellers); Newark Hardware & Plumbing Supply Co. v. Stove Mfrs. Corp., 136 N.J.L. 401, 56 A.2d 605 (Sup.Ct.), aff'd 137 N.J.L. 612, 61 A.2d 240 (1948) (accepting misdelivery of a consignment intended for a competitor an interference with competitor's business). We therefore are convinced that New Jersey has not in the past, and would not in the future restrict the boundaries of this tort to a real estate context. However, even if the New Jersey Supreme Court in the future would desire limiting the expansion of this cause of action, we do not doubt that it would apply the Kamm v. Flink rule in circumstances such as those disclosed in the present record where Zippertubing's role as a subcontractor, designing and procuring the manufacture of closeable insulators is factually analogous to the role of a broker in facilitating real estate transactions. 25 Teleflex also urges that the evidence of a prospective advantage was insufficient to go to the jury. We disagree. From the testimony the jury could have found that Nab would have contracted with Zippertubing if it was satisfied that Zippertubing had an extruder with sufficient production capacity available. It could have inferred from the quotation issued by Teleflex to Surf, and Teleflex's subsequent delivery of extrusions to Nab, that until Teleflex's tortious conduct, the plaintiffs had a reasonable expectation that such an extruder was available. As noted in Part II B, infra, this was the factual theory on which the case was submitted to the jury. Certainty of economic advantage need not be shown; reasonable probability of that advantage, absent interference, suffices. Myers v. Arcadio, Inc., 73 N.J.Super. 493, 180 A.2d 329 (App.Div.1962).
26 In submitting the case to the jury the trial court gave a lengthy instruction on the elements of the tort of interference with a prospective advantage. Carefully and repeatedly the court instructed that if Teleflex and the plaintiffs were competitors, both seeking to obtain Nab as a customer, absent a contract, there would be no prohibition against Teleflex getting to Nab first. App. 2625. The court charged: 27 Now, in order for the plaintiff to recover damages for unlawful interference with prospective economic advantage, it must be found that the defendant interfered with a reasonable expectancy of economic advantage and benefit on the part of the plaintiff. 28 Thus, the plaintiff must prove the following elements: First, the existence of a reasonable expectation of economic advantage or benefit belonging to it; Second, that the defendant had knowledge of that expectation of economic advantage; Third, that the defendant wrongfully and without justification interfered with the plaintiff's reasonable expectation of economic advantage or benefits; Fourth, that in the absence of the wrongful act of the defendant, it is reasonably probable that the plaintiff would have realized its economic advantage or benefit; And fifth, that the plaintiff sustained damages as a result of this activity. 29 App. 2626-27. Teleflex does not contend that the foregoing misstates the elements of the tort under New Jersey law. The court enlarged on each element separately. 30 On the first element, reasonable expectation of economic benefit, the jury was instructed: 31 Now, the plaintiffs contend here that at the time of Teleflex's allegedly wrongful conduct there existed an expectancy that Teleflex, Surf and Zippertubing would all be involved in the sale of insulation to the Nab Construction Company. You must determine, first, whether there existed such an expectancy. In other words, it is Zippertubing's position that they had come to a meeting of the minds or so close thereto as to be virtually the same thing with the Nab Construction Company and that this was their economic expectancy. They do not contend that they actually had a contract. 32 .... 33 Now, Teleflex, on the other hand, contends that while Nab and Zippertubing had discussions, they never reached a point where the prospect of a contract between the two of them was so close that there was such a reasonable expectancy, and, therefore, nothing for Teleflex to deprive Zippertubing of. That is an issue of fact and only you can determine it. 34 You must determine whether or not, as a result of their negotiations with Nab, the plaintiff in this case had a reasonable expectancy of a contract with Nab. If they did, then you should find that there was a reasonable expectancy. If not, then not, and that's the end of this case. 35 App. 2627-29. After calling the jury's attention to the testimony that the last impediment to a contract between Zippertubing and Nab was Nab's desire to make an inspection, the court then related Teleflex's contention that it never led Zippertubing and Surf to believe that it would be part of the deal as envisioned by Zippertubing and Surf. The court charged: 36 [Teleflex argues] they never led Zippertubing and Surf to believe they would be part of any deal and regarded them at all times not as co-venturers in respect to Nab, but as competitors. If you find that the plaintiff has not proven that this is not true, then your verdict should obviously be for the defendant, as I told you. 37 App. 2631. Teleflex objected that in the charge the court said nothing at all about the obligation of the plaintiffs to establish that they would have had a product in order to be able to make a delivery in order to be able to achieve an economic benefit.... App. 2639. The court responded: 38 What I said to them was something much more important. I said to them they would have to find that you people, Teleflex, gave Zippertubing to understand that you would supply the product.... Of course, if they do prove that, then they proved everything that you have suggested, right? Because they would have had that supplier. 39 Id. We hold that the court's charge on reasonable expectation of economic benefit gave Teleflex all it was entitled to and perhaps more. 40 On the third element, wrongful interference without justification, the jury was instructed: 41 [The plaintiffs] contend they went to Teleflex to arrange for the quotation of prices looking towards the signing of a contract which would ultimately involve Teleflex, Zippertubing, Surf and Nab. They contend that because Teleflex led them to believe that they would, in fact, enter into the deal, Zippertubing gave to Teleflex information which Teleflex would not otherwise have been given; namely, the name of the ultimate contractor here, Nab. 42 App. 2629-30. Teleflex objected. Well, the problem that I had and that I thought your Honor touched on, the subject of a confidential relationship but did not amplify it in any way. App. 2639. The court responded: 43 I said something more important. I said they would have to prove that the only reason they gave you the name of the customer was because you had assured them that you would, in fact, do this job with them. If they prove that, then I think they have proven the case. 44 App. 2639-40. As with the charge on expectation of an economic benefit, we hold that the charge on wrongful conduct, by misuse of information received in confidence, gave Teleflex all it was entitled to under New Jersey law. Teleflex contends on appeal that the charge should have been to the effect that the information disclosed must be secret and not publicly available. Appellant's brief at 35. No such objection was made to the charge in the district court. See Fed.R.Civ.P. 51. Moreover under New Jersey law, liability for interference with a prospective advantage may be imposed on the basis of information, confidential as between the parties, but otherwise available to the public. Kamm v. Flink, supra. Thus, even if the point had been preserved, the court should not have charged that plaintiffs had to establish the equivalent of a trade secret.C. Disgorgement of Profits 45 The plaintiffs presented evidence from which the jury could reasonably have inferred that Zippertubing and Surf lost anticipated profits. They did not attempt, however, to establish the amount of their lost profits. Instead they proved the amount of profits made by Teleflex as a result of its wrongdoing. 46 Teleflex urges that even assuming a jury question and a proper charge on liability, it is entitled to a judgment notwithstanding the verdict because the plaintiffs' evidence on damages was presented on a theory which New Jersey would not countenance. 47 It is undoubtedly so that in most instances in which a New Jersey plaintiff has established liability for interference with a prospective advantage the judgment has been for the plaintiff's lost profits. Probably that is because in most instances the amount of plaintiff's loss and defendant's gain is the same. In the one case dealing with the question in New Jersey, however, the Court of Errors and Appeals held that an accounting for profits is an appropriate remedy for interference with a prospective advantage. Schechter v. Friedman, 141 N.J.Eq. 318, 57 A.2d 251 (1948). That holding is consistent with the New Jersey law respecting the analogous business tort of misappropriation of a business name, L. Martin Co. v. L. Martin & Wilckes Co., 75 N.J.Eq. 257, 72 A. 294 (1909), and that of misuse of trade secrets. A. Hollander & Son, Inc. v. Imperial Fur Blending, 2 N.J. 235, 66 A.2d 319 (1949). Teleflex points out that these accounting for profits cases were suits in equity, and urges that such a remedy is unavailable in an action at law. That simply is not the case. In a diversity suit the distinction between cases at law or in equity is significant only with regard to the respective roles of judge and jury. Fed.R.Civ.P. 1; Goodman v. Mead Johnson & Co., 534 F.2d 566 (3d Cir.1976). The equitable or legal nature of the relief does not relieve the federal forum of the obligation to afford the same relief which a state court would afford with respect to state law claims. Guaranty Trust Co. v. York, 326 U.S. 99, 105, 65 S.Ct. 1464, 1467, 89 L.Ed. 2079 (1945). Moreover the plaintiff in Schechter v. Friedman, supra, proceeded in equity because he sought injunctive relief as well as money damages. No New Jersey case has been called to our attention suggesting that if the victim of a tort who has suffered actual damages cannot or does not elect to seek injunctive relief he may not seek an accounting for profits. Certainly Red Devil Tools v. Tip Top Brush Co., Inc., 92 N.J.Super. 570, 224 A.2d 336 (App.Div.1966) modified, 50 N.J. 563, 236A.2d 861 (1967), on which Teleflex relies is not such a case. In Red Devil the owner of a common law trademark, who neither made nor sold paint brushes, successfully enjoined the use of the trademark for paint brushes. An accounting for profits was denied, not because profits of a tortfeasor cannot be recovered at law, but because the trademark owner, not in the brush business, lost no prospective business advantage of its own. Here, plainly, the plaintiffs lost a prospective advantage. 48 The remedy applied in Schechter v. Friedman, supra, is consistent with constructive trust principles, and it is possible to think of the accounting for profits in this kind of case as simply a special form of constructive trust. D. Dobbs, Remedies 253 (1973). The constructive trust is, of course a familiar remedy in the New Jersey courts. Clark v. Judge, 84 N.J.Super. 35, 200 A.2d 801 (Ch.Div.1964), aff'd o.b., 44 N.J. 550, 210 A.2d 415 (1965); D'Ippolito v. Castoro 51 N.J. 584, 242 A.2d 617 (1968). The Schechter v. Friedman remedy is, moreover consistent with the election of remedies available in New Jersey to the victim of a conversion of personal property. Kaplan v. Cavicchia, 107 N.J.Super. 201, 257 A.2d 739 (App.Div.1969). All of these closely related damage rules are consistent with the policy of discouraging tortious conduct by depriving the tortfeasor of the opportunity to profit from wrongdoing. Consistent with that policy, the trial court properly permitted the plaintiffs to prove as damages the amount of Teleflex's profits. The court charged:The law says that when one has unlawfully deprived another of a contract or a business opportunity and has made that opportunity his own, he is not to be permitted to retain any of the profits, any of the benefits of his unlawful conduct. 49 Therefore, if you were to find that the plaintiff has met its burden of proof as I have defined it to you on each and every one of the elements of the case, it would be your job to award such damages as would deprive the defendant of any unlawful benefit of its unlawful conduct. 50 App. 2633. This charge was correct, and the jury's verdict, consistent with it, must stand. D. Calculation of Profits 51 (1) Overhead 52 As to the calculation of profits which might be recovered the court charged: 53 In determining the amount of Teleflex's profits, I instruct you that profits equal the total amount of money that Teleflex earned as a result of the Nab contract, less any direct expenses that were incurred with respect to this particular conduct [contract]. Thus, any direct costs of this project should be subtracted from Teleflex's gross receipts in computing Teleflex's profits. 54