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KAHN v. MASSLER

March 22, 1956

Irving B. KAHN and Peter G. Levathes, Plaintiffs,
v.
Abraham MASSLER, James Wilson, Glassy Finish Process Company and Bestway Products, Inc., Defendants



The opinion of the court was delivered by: MODARELLI

This action was removed to this court from the Superior Court of New Jersey. The plaintiffs, Irving Kahn and Peter Levathes, are citizens and residents of New York; there are two individual and two corporate defendants: Abraham Massler, James Wilson, *fn1" Glassy Finish Process Co., and Bestway Products, Inc., New Jersey corporations.

In their amended complaint, plaintiffs allege that on and before December 19, 1946, Massler and Wilson were engaged in a technical capacity in the manufacture of phonograph records by conventional compression or lamination methods, or both. *fn2" In December, 1946, plaintiffs jointly conceived a '* * * new and novel idea of applying a technical engineering process known and described as 'injection molding' to the manufacture and production of miniature or undersized phonograph records, that is to say, phonograph records of less than the standard ten and twelve inch sizes;' that process theretofore had not been successfully applied to the manufacture of phonograph records, nor had miniature injection molded records been commercially exploited. In February or March, 1947, plaintiffs confidentially disclosed to Massler and Wilson a plan and idea supporting the process. At that time plaintiffs also '* * * engaged and retained their services, for a valuable consideration, for the purpose of, and jointly with plaintiffs, designing or causing to be designed necessary tools and dies, and developing the necessary processes for the mass manufacture and production of miniature phonograph records, manufactured by the process of injection molding.' Massler and Wilson joined with plaintiffs in an effort to develop the processes to manufacture undersized phonograph records by injection molding. Plaintiffs paid the expenses of the operation, engaged in research with defendants, secured musical talent, literary and musical rights, and actively promoted the development and distribution of undersized injection molded records. 'The relation created was one of mutual trust and confidence among contributors to a joint venture * * *.'

 In April, 1947, Massler informed plaintiffs that he and Wilson on behalf of plaintiffs had perfected the process; thereafter, equipment, including tools and dies, for use in the process was acquired at plaintiffs' expense and placed in the possession of Massler. In July or August, 1947, it was agreed among plaintiffs and Milton Brown and Jack Weiss, and defendants, Massler and Wilson, that plaintiffs would license to Brown and Weiss the exclusive right to use the process and to sell throughout the world undersized injection molded records. It was also agreed that on August 22, 1947, Massler using the aforementioned equipment and facilities of Bestway or Glassy Finish would manufacture the records on behalf of plaintiffs and their licensees, Brown and Weiss. With the full knowledge and acquiescence of Massler and Wilson, plaintiffs and Brown and Weiss entered into a license contract. *fn3" Pursuant to the contract, Massler was paid by the licensees on behalf of themselves and plaintiffs further sums for the development of the equipment used in the process. In August and September, 1947, the licensees, acting on behalf of themselves and plaintiffs, contacted various persons, firms, and corporations for the purpose or marketing the records; one of the contacts was Simon and Schuster, Inc., a New York corporation. During the negotiations with Simon and Schuster, Massler was introduced to the officials of that firm as the person who would be responsible for and who would manufacture the records.

 Massler, acting individually and on behalf of Wilson, Glassy Finish, and Bestway for the purpose of defrauding plaintiffs of the profits of their ideas, represented to Simon and Schuster that he and Wilson, or the defendant-corporations were the owners of the process. Massler, Wilson, and Simon and Schuster having conspired to defraud plaintiffs caused a cancellation of the sales contracts for undersized phonograph records held by Brown and caused Brown to convey his interests in the records known as 'Golden Records' to Simon and Schuster; also, Massler and Wilson undertook to manufacture undersized records for Simon and Schuster for a consideration not known to plaintiffs, and Massler and Wilson profited and continue to profit thereby. Defendants' manufacture and sale of the undersized phonograph records manufactured by the injection molded process is a breach of the confidence and trust reposed in them by the plaintiffs during the time they entered in the joint venture, and was in fraud of the rights of ownership of plaintiffs.

 Defendants deny the essential allegations of the complaint; they admit, however, Bestway was reimbursed for its cost of having caused to be manufactured one 30-cavity 2 1/2 inch record mold by checks of Miniature Recording Company and plaintiff Levathes. Defendants also admit Massler informed plaintiffs that Bestway and Wilson could produce records by means of injection molding; Bestway was paid money through the agency of Milton Brown, Gimmicks, Inc., and Massler for designing and causing to be manufactured a 4-cavity 6-inch mold for the production of 6-inch records by means of injection molding; Bestway contracted with Simon and Schuster for the manufacture of 6-inch records.

 As separate defenses, defendants allege there was no secret process in which plaintiffs had any exclusive property rights, alone or in conjunction with defendants; any know-how was the property of Bestway exclusively or with Wilson; there was never any relation of trust and confidence between plaintiffs and defendants; under any agreement, defendants were entitled to all manufacturing profits; on April 11, 1947, and for some time prior thereto, Massler had demonstrated to plaintiffs that miniature records could be produced by injection molding. Plaintiffs, Massler, and others were issued shares of stock in Miniature Recording Corporation formed for the purpose of exploiting the records. Thereafter, Massler agreed to surrender his shares of stock in the corporation and he did with the consent of the plaintiffs terminate all relations with them for any joint enterprise for the promotion of the records. No person had any authority to bind Wilson or Bestway regarding the facts alleged in the complaint. There was never any relation of trust and confidence between Brown and Weiss and defendants, and all relations among then ended on or before March 30, 1948, or May 30, 1948. Any alleged contract between plaintiffs or their licensees and Massler is void and unenforceable in that it lacks consideration, is indefinite, oral, and in restraint of trade. Plaintiffs are barred by the statute of limitations regarding tortious interference with their business or contractual relation. Defendants were never under any legal disability to deal with Simon and Schuster.

 After plaintiffs completed the presentation of their evidence, defendants moved under Rule 41(b), 28 U.S.C., for a dismissal on the ground that upon the facts and the law the plaintiffs have shown no right to relief. The rule provides that 'In an action tried by the court without a jury the court as trier of the facts may then determine them and render judgment against the plaintiff or may decline to render any judgment until the close of all the evidence. * * *' This action was tried by the court without a jury.

 The first issue is whether on a motion under Rule 41(b), the facts and all inferences based thereon must be viewed in the light most favorable to the plaintiffs. The most recent pertinent pronouncement by the Court of Appeals for this Circuit is contained in Ettore v. Philco Television Broadcasting Corp., 3 Cir., 229 F.2d 481, 484: '* * * When an involuntary dismissal has taken place under Rule 41(b), F.R.C.P., all facts supplied by the stipulation or coming upon the record from any other source and all reasonable inferences therefrom must be viewed in the light most favorable to the plaintiff. * * *' And if that would be the appellate court's view of the facts, then it would be error for this court not to view the facts in the same light. Thus, even though this court might wish to follow what appears to be the plain meaning of the Rule and to agree with the interpretation of other courts, *fn4" it is bound by the Third Circuit's 'in the light most favorable' gloss upon the literal words of the amendment to the rule.

 What does the court determine to be the facts? Viewing them in the light most favorable to the plaintiffs and applying the law, have they shown a right to relief?

 Facts

 Irving Kahn was employed as an executive by Twentieth Century-Fox Film Corporation. While he was mainly connected with radio and television operations, he was also closely connected with the record industry. In November, 1946, he and one of his Fox associates, Peter Levathes, ate lunch together. Levathes was in charge of television and short subjects. He showed Kahn a gold charm in the shape of a record approximately 2 inches large, but which was not playable. Kahn, intrigued as to how it was possible to make a playable record of such small size, enlisted the aid of the head of a recording studio who produced some crude samples of playable 2 to 2 1/2 inch records. Subsequently, Kahn contacted Levathes and they decided to attempt commercially to produce miniature records. In November or December, 1946, Kahn contacted Harry Lockwood, who was the head of Station WOR recording studios. The result was a sample 2 1/2 or 3 inch vinyl record. Having learned that such small records could be manufactured, Kahn and Levathes began to work on the problem of mass production. Kahn's father, who had worked in the plastic industry, suggested the injection molding process. *fn5" To Kahn, '* * * it seemed like a very logical approach. So I called Pete Levathes and discussed this with him -- and he knew as much about it as I did, which was virtually nothing, I mean the technical parts of how you make it -- but I did start to explore where would you go to get injection molded records, or any records, made.' A business acquaintance told Kahn that Alfred Manovill could do injection molding. Kahn conferred with Manovill and his associate Herbert Merin. Subsequently, Kahn, Levathes, Manovill, and Merin joined together in a group attempt to produce the records. *fn6" Lockwood suggested to Kahn that he contact Massler. In December, 1946, or January, 1947, pursuant to Kahn's request, Massler went to Kahn's New York office, where, with Levathes they discussed the idea. Kahn '* * * asked him (Massler) if he had any idea how he could do this, was he planning to do this by lamination or would that be cheap enough or how would he do it, and did he think he would do it by injection molding or what.' There was no discussion regarding what relationship Massler would have to the group. He thought he could produce the records by injection molding, which was the cheapest method; he wanted to discuss the problem with a friend. When Massler left the conference he took the 'master stamper'. Within about two weeks he returned to Kahn's office and produced a fistfull of 2-inch records which had been manufactured by injection molding. The samples convinced Kahn that such records could be made even though their quality was not completely satisfactory. So, Kahn asked Massler to manufacture more samples and he agreed to try different materials. They agreed that if Massler could satisfactorily produce the records at an acceptable price, he would be the manufacturer. Kahn and Levathes also agreed to pay any reasonable bills submitted by Massler, although he never submitted any bills. Massler's 'friend' was Wilson, whose technical knowledge about injection molding was greater than Massler's. Although most of plaintiffs' subsequent contacts were with Massler, they knew that Wilson had the requisite technical knowledge and that he had manufactured the samples. When plaintiffs asked Massler about Wilson's relationship to the group Massler assured them that he would pay Wilson for his work.

 Massler continued to produce samples. In January, 1948, Kahn, Levathes, Manovill, and Merin conferred about Massler's relationship to the group. About February 1, 1947, the quartet, still not having any definite arrangement with Massler, explored the possible bases on which he should be made a part of the group. Levathes asked Massler '* * * under what circumstances and conditions would he be willing to manufacture these records, and asked him if he would begin the calculation of cost.' On March 13, 1947, Massler received a cost estimate for 500,000 circular, gummed labels. Subsequently, on March 25, 1947, Kahn and Levathes went to Charles Kieffer, an attorney, who on April 9, 1947, drafted an employment contract. In its draft form the parties to the contract are Miniature Recording Corporation and Massler; it provides that Miniature employ Massler to '* * * exercise his inventive faculties for the benefit of Miniature. * * * Miniature will pay to Massler and amount equal to % of the net sales of all products of Miniature and of all royalties * * *;' Miniature also was to issue to Massler Thirty shares of its capital stock. The quartet offered the contract to Massler, who rejected it because he disliked working for anyone.

 On April 9, 1947, Miniature Recording Corporation was incorporated under the laws of New York State. The certificate of incorporation recites the purpose of the corporation is to design, patent, manufacture, by, and sell phonograph records, discs, and other devices in connection with the reproduction of sound; to develop methods of manufacturing and of recording; to distribute, by, and sell records, discs, and other devices to retail dealers and at wholesale; and activities related to the recording business. The authorized number of capital shares is 200 without par value. None of the parties in this action is named as an incorporator. The first meeting of the directors was held April 11, 1947, at the New York City office of Levathes. Those present were Kahn, Levathes, Manovill, Merin, and Massler. Officers elected were Kahn, president; Levathes, executive vice-president and secretary; Manovill, vice-president; Massler, vice-president; and Merin, treasurer. The minutes of that first meeting contain a narrative of prior '* * * informal discussions among the present officers of the Corporation concerning the issuance of shares of stock to certain of such officers in consideration for labor done and property to be received for the use and lawful purposes of the Corporation.' According to the minutes, Kahn stated Massler had completed the successful demonstration of injection molding of phonograph records; Manovill had spent considerable time and effort in developing and manufacturing experimental records and had rendered services in connection with arrangements for the manufacture and development of records both by the Corporation and by others; Merin had successfully completed construction of a miniature phonograph which he had made available to the Corporation, and on behalf of it he had conducted research in connection with various devices for sound reproduction; Kahn and ...


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