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Sandler v. Lawn-A-Mat Chemical & Equipment Corp.

Decided: May 10, 1976.

JOSEPH J. SANDLER AND LAWN-A-MAT OF PENN-JERSEY, INC., PLAINTIFFS-RESPONDENTS,
v.
LAWN-A-MAT CHEMICAL & EQUIPMENT CORP., ET AL., DEFENDANTS-APPELLANTS, V. HANNAH SANDLER, ET AL., THIRD-PARTY DEFENDANTS



Lynch, Larner and Horn. The opinion of the court was delivered by Larner, J.A.D.

Larner

[141 NJSuper Page 441] Defendant Lawn-A-Mat Chemical & Equipment Corp. (Lawn-A-Mat) established a business based on a method of promoting sales of lawn care products consisting of seed, fertilizer and chemicals through a combination machine which could apply these products and aerate a lawn in one operation. The incentive to the consumer was keyed to the sales approach that the lawn would be rolled and aerated free of charge as it was fed with the purchased ingredients. Lawn-A-Mat did not sell directly to consumers but conducted its business through a two-tier network of franchisees consisting of distributors and dealers. The dealers dealt directly with the purchasing public and performed the services, whereas the distributors acted as the

middlemen between Lawn-A-Mat and the dealers by providing the lawn supplies and requisite training and assistance.

Dealers paid license and royalty fees to Lawn-A-Mat for the franchise, benefits of management assistance, use of the trade name and national advertising. Distributors derived their income from an override profit on the products purchased from Lawn-A-Mat for sale to the dealers and a percentage of the franchise fees paid by the dealers.

In 1963 Joseph J. Sandler became both a Lawn-A-Mat distributor and dealer. He entered into distributor agreements for exclusive territories in portions of Pennsylvania and New Jersey and Rockland County, New York. In addition, he undertook dealership franchises in Pennsylvania and New Jersey. His enterprise grew and prospered with development of new dealerships so that sales skyrocketed from $78,000 in 1963 to $670,000 in 1967. In building his business Sandler also created subdistributorships although his distributor franchise with Lawn-A-Mat did not specifically authorize the same. Among these were five subdistributorships created by Sandler which became a substantial focus of controversy between the parties to this litigation and resulted in further adjustments in their financial relationship. The evidence at trial relating to the understanding as to the respective benefits to be derived from these five distributorships was in sharp conflict.

In any event, on May 12, 1967 the parties entered into a new arrangement under a "Master Distributor Agreement" which designated Sandler as a master distributor with an exclusive license in the designated territory to offer and sell franchises to dealers and distributors for a period of 50 years with an option to renew for another 50 years. The agreement provided for the financial participation of both parties in the franchise fees of dealers and the proceeds received by distributors from the sale of franchises. It also set forth the duties of Sandler as Master Distributor in promoting the sales and establishment of distributorships and dealerships. In addition, Sandler agreed to devote his "full

time and attention to the business" and covenanted that he would not engage in any business in direct or indirect competition with Lawn-A-Mat or the master distributor.

With the consent of Lawn-A-Mat Sandler assigned the Master Distributor Contract to a newly formed corporation known as Lawn-A-Mat of Penn-Jersey, Inc. (Penn-Jersey). The new corporation continued to prosper under the new contract so that its sales volume nearly doubled between 1967 and 1970. However, during these years many disputes arose between the parties in the implementation of the contract.

The major breach in their relations occurred in 1968 when Sandler, who had been instrumental in building up the business of Lawn-A-Mat, sought to acquire 30,000 shares of stock from David Dorfman, the president of the company, in return for his successful sales efforts. Around this time Dorfman suffered a heart attack, and Sandler continued pressing for a stock interest in the company. However, Dorfman apparently did not agree to such a stock participation by Sandler. A suit instituted by Sandler in February 1969 to specifically enforce such an alleged agreement resulted in a judgment in favor of Dorfman in December 1969.

This litigation and the friction which developed produced a severe deterioration in the relationship between Sandler and Dorfman. On July 8, 1969 Lawn-A-Mat dispatched a letter to Penn-Jersey in which it pointed out that it refused to make further regular monthly payments to Penn-Jersey for moneys due on the five distributorships created prior to Master Distributor Agreement because Penn-Jersey had failed to remit the proportionate share of franchise fees due to these distributors. The letter also threatened to terminate the agreement between the two companies unless Penn-Jersey complied with its obligation to remit the appropriate payment due to these distributors. Sandler's testimony at trial denied that there was any breach in this connection and posited that the moneys due to these distributors

had been credited to them toward moneys due to Penn-Jersey in accordance with their standard practice.

Efforts to settle all these problems proved fruitless and the relationship worsened. After October 30, 1969 Lawn-A-Mat discontinued making payments to Penn-Jersey for its share of the fees remitted by distributors and dealers.

In February 1970 Lawn-A-Mat asserted that Penn-Jersey was not properly performing its advertising function in its capacity as master distributor. This assertion was disputed by Sandler and he convened a meeting of dealers to discuss the advertising budget and the determination of the media to be utilized for advertising. Lawn-A-Mat was advised of these activities and the decisions which had been made at the meeting. In March 1970 Lawn-A-Mat refused to supply chemicals or seed to Penn-Jersey, and finally on March 16 Lawn-A-Mat "suspended" Penn-Jersey as a master distributor, notified the dealers of this action and instructed them to deal directly with it instead of Penn-Jersey.

On May 20, 1970 Penn-Jersey filed a complaint for declaratory judgment seeking specific performance of the Master Distributor Agreement and particularly requesting a declaration that Lawn-A-Mat was obligated to supply seed and chemicals or, in the alternative, that Penn-Jersey could obtain like products from others and distribute them to its dealers and distributors. At the same time it circulated the complaint to the dealers and distributors and convened a meeting of these franchisees for May 27, 1970. The minutes prepared by Sandler stated that the purpose of the meeting "was to clear the air of all the vicious charges being made against me by the President of Lawn-A-Mat to prove once and for all that Mr. Dorfman by his own admission is an unmitigated liar and to explain the intent of my law suit against the company." In response to the calling of this meeting, Lawn-A-Mat forwarded a notice to Sandler terminating the Master Distributor Agreement because of breaches alleged in the letter, which included: arrears in payments

to dealers and distributors, instructions to them to purchase chemicals from others, advocating that franchise fees be paid directly to Penn-Jersey, acting in competition with the company in the sale of chemicals and withholding of payment of franchise fees collected from five dealers. An exchange of self-serving letters to and from the respective parties and attorneys failed to resolve their differences and the termination became finalized by its terms on June 28, 1970.

At the aforesaid meeting of dealers and distributors on May 27 Sandler addressed the group, reviewing the subject matter in controversy between them and accusing Dorfman of lying. He also advised that he had arranged for the purchase of identical chemicals from another supplier at a reduced price. He asked the persons present to stand at his side "in this battle for our business." He further noted that some of the dealers had stopped paying their franchise fees altogether. It was Sandler's version that he instructed the dealers to pay these fees in any event either to Lawn-A-Mat or to him. Other witnesses at the meeting testified that Sandler requested that the fees be paid only to him.

I

The foregoing represents a bare outline of the operative facts in the course of dealing between the parties. In light of our view as to the factual determination by the trial judge on the issue of liability, it is unnecessary to delve further into the lengthy presentation of testimonial and documentary evidence in the record. Suffice it to say that the trial record depicts highly disputed versions as to the identification of the party who breached the contract.

It should be noted that amended pleadings were filed during this litigation which transformed the case into an action by Penn-Jersey against Lawn-A-Mat for damages for its alleged breach of contract, and a counterclaim by Lawn-A-Mat for damages and injunctive relief against Penn-Jersey

on an allegation of a breach of contract and tortious interference with contracts and unfair competition. Lawn-A-Mat also sought judgment on several counts for moneys due from Penn-Jersey for chemicals and improperly collected franchise fees, and for moneys due from Sandler individually and members of his family pursuant to an arbitration award.

The trial judge in an oral opinion concluded that Lawn-A-Mat breached the contract between the parties. He determined that the suspension and termination of the Master Distributor Agreement were not justified and that as a consequence Lawn-A-Mat was guilty of the breach rather than Sandler or Penn-Jersey. He also found that the unjustified termination by Lawn-A-Mat excused further adherence to the contract by Penn-Jersey and that Penn-Jersey's actions as a consequence did not give rise to a claim for damages or other relief on the allegations of Lawn-A-Mat's counterclaim. Judgment was entered in favor of Penn-Jersey for compensatory damages in the sum of $45,000 and punitive damages amounting to $30,000. By way of offset, judgment was entered on the counterclaim arising out of Lawn-A-Mat's money claims in the total sum of $28,338.34, resulting in a net judgment in favor of Penn-Jersey for $46,661.66.*fn1

It is significant that a major underpinning of the trial judge's factual findings is the credibility factor in weighing the divergent testimony offered by the two protagonists and the inferences to be drawn from the documentary evidence in the record. The judge pointed out:

On the whole, I thought Mr. Sandler's testimony was forthright and direct. I think Mr. Dorfman's testimony was not so, although I am not pointing out that Mr. Dorfman deliberately said anything to me that wasn't ...


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