The opinion of the court was delivered by: BROTMAN
OPINION ON PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION
This case requires the Court to insert itself into the most fundamental business relationships in the Atlantic City casino gambling industry. One of the mainstays of modern-day games of chance is unquestionably the slot machine. Once crude, mechanical contraptions, slot machines, like everything else in life, have become technologically advanced and computerized. Just as the machines have changed over time, defendant IGT claims the casino industry has changed along with them. IGT now also seeks to change the nature of relationships in Atlantic City and the way slot machines are bought, sold, leased, and serviced in that city.
In most other gaming jurisdictions nationwide, IGT deals directly with its customers - the casinos. For the last 15 years, however, Atlantic City Coin & Slot Service Company, Inc. ("A.C. Coin") has been IGT's exclusive distributor and service company in Atlantic City. Following many years of financial success, IGT contends that a now dynamic gaming industry necessitates the freedom to sell directly to its customers. IGT has thus invoked its contractual right to terminate A.C. Coin's Exclusive Distributorship Agreement executed on June 12, 1993 ("the 1993 Agreement"), in what has been characterized as a pure "business" or "economic" decision. A.C. Coin, and its president, Mac Seelig, have made tens of millions of dollars and, alleging that they have enhanced IGT's image in the process, seek to prevent termination of their agreement. Presently before the Court is plaintiffs' motion for a preliminary injunction pursuant to FED. R. CIV. P. 65(c), seeking to preserve the status quo pending a final adjudication on the merits.
Plaintiffs bring this case pursuant to the New Jersey Franchise Practices Act ("the NJFPA" or "the Act"), N.J.S.A. 56:10-1 et seq. Their motion also alleges, inter alia, that IGT has tortiously interfered with their contractual relations and defamed them in their business.
On March 19, 1998 this Court entered an Order to Show Cause and for related relief requiring IGT to show cause on May 20, 1998 why a preliminary injunction should not issue. Following entry of this Order, the parties' engaged in expedited discovery. By way of stipulation, the parties agreed to present no witness testimony at the hearing and instead presented oral argument on the injunction motion. See May 14, 1998 Letter of Guy S. Michael, Esquire. At the conclusion of the hearing and with the consent of the parties, the Court extended the life of the 1993 Agreement for an additional month. The expiration date is now July 12, 1998. The matter being ripe for disposition, the Court enters the following findings of fact and conclusions of law based on the affidavits, deposition testimony, documents and exhibits presented.
A.C. Coin is a New Jersey corporation which has its principal place of business at 201 West Decatur Avenue in Pleasantville, New Jersey. Seelig Aff. P1; Am. Compl. P1. It is engaged in the business of distributing and servicing slot machines and related equipment for the casino industry. Seelig Aff. PP2-4; Am. Compl. P1. Mac Seelig, who resides in Absecon, New Jersey, is the President of A.C. Coin. Seelig Aff. P1; Seelig Reply Aff. P1; Am. Compl. P2. Mac Seelig's sons Jeffrey and Jerald work for A.C. Coin, as Corporate Finance Manager and General Manager, respectively. J. Seelig Reply Aff. P1; Jerald Seelig Dep. 28:2-10. Jeffrey Seelig has been A.C. Coin's Corporate Finance Manager since May of 1994. J. Seelig Reply Aff. P2. He commenced working for A.C. Coin during his teenage years, performing a variety of functions, and began working as Senior Accounting Manager for the company after his college graduation. Id. Jerald Seelig has served as A.C. Coin's General Manager for the past five to six years, Jerald Seelig Dep. 28:2-10, and was an Assistant General Manager for approximately two years prior to this time, id. 16:13-14. He, too, worked for the company during his teenage years. Id. 28:2-10.
Defendant IGT is a wholly owned subsidiary of International Game Technology. Seelig Aff. P3; Am. Compl. P3; Answer P3. IGT's principal place of business is in Reno, Nevada, id., and IGT is in the business of designing and manufacturing electronic gaming devices, id. For the past 15 years, A.C. Coin has distributed slot machines and electronic gaming devices manufactured by IGT pursuant to various distributor agreements. Seelig Aff. P4.
The first written agreement between the parties was signed in April of 1983, pursuant to which A.C. Coin began operating as IGT's agent with the exclusive right to distribute IGT products in New Jersey ("the 1983 Agreement"). Seelig Aff. P5, Exh. 1, 1983 Agreement.
Under the 1983 Agreement, A.C. Coin agreed to sell, lease, distribute and promote the sale of IGT products. Id. P6. A.C. Coin received commissions from IGT on each sale, and was entitled to increased commissions if it exceeded established sales thresholds or quotas. See id. and Exh. 1, 1983 Agreement, § J and Exh. 2, March 19, 1985 Letter from IGT President J. George Drews to Mac Seelig. The 1983 Agreement required A.C. Coin to use its best efforts in selling and leasing IGT's products. Id. P7. The 1983 Agreement also required A.C. Coin to limit its sales exclusively to IGT products and expressly prohibited A.C. Coin from selling competitor products of IGT. McMonigle
Dep. 86:19-24; Bittman
Dep. 63:17-64:7. Mac Seelig himself agreed to abide by the restrictions on selling competitive products. Seelig Aff. P7 and Exh. 1, 1983 Agreement, P1B. At IGT's insistence, A.C. Coin hired two IGT employees, Anthony Sicari
and Michael Hiltebrand
at the same level of pay and benefits, because of their specific knowledge of and experience servicing IGT products and to effectuate a smooth transition. Id. P7; Sicari Reply Aff. P4; Hiltebrand Reply Aff. P4. Both Sicari and Hiltebrand remain employed at A.C. Coin today. Sicari Reply Aff. P4; Hiltebrand Aff. P5.
The 1983 Agreement was extensive and detailed, and required A.C. Coin to:
(1) Sell or lease IGT products and parts at IGT's then current list price and/or standard terms as provided by IGT to A.C. Coin (Seelig Aff., Exh. 1, 1983 Agreement, P11);
(2) Display advertising material as directed by IGT (id. P1O);
(3) Display a selection of IGT products, as determined by IGT, at A.C. Coin's sales/marketing facility in New Jersey (id. P1N);
(4) Stock an inventory of IGT parts at A.C. Coin's sales/marketing facility in New Jersey (id. P2A);
(5) Make available repair service for all IGT products at competitive rates (id. P2B);
(6) Use its best efforts to sell and lease IGT products (id. P1B);
(7) Keep accurate accounts, books and records and to make reports as required by IGT (id. P5A);
(8) Provide IGT with a written inventory of consigned machines and/or parts together with accounting records as to sales and service at the end of each quarter (id. P4);
(9) Make collections for IGT, as directed by IGT, and to forward all monies collected on IGT's behalf to its account (id. P5D);
(10) Pay IGT for the sales value of all IGT products and parts that were missing or stolen from stock, damaged or rendered unusable from any cause after the products had reached A.C. Coin's custody (id. P4);
(11) Provide IGT access to its premises at all reasonable times for the purpose of checking machine samples, parts in inventory and the sales and service records of A.C. Coin (id. P4);
(12) Act as liaison between IGT and governmental authorities at no cost to IGT (id. P9B); and
(13) Pay all costs of licensing proceedings, governmental investigations and approvals required by law (id. P9C).
In accordance with its contractual obligations, A.C. Coin immediately began promoting IGT's name, selling its products, and developing a customer base which began identifying A.C. Coin with IGT. Seelig Aff. P9.
In a few years, IGT sales flourished in New Jersey due largely to plaintiffs' efforts. A.C. Coin expanded its sales force, marketing facility and lines of business to accommodate that growth and to enhance IGT's sales. Seelig Aff. P10; Seelig Reply Aff. P12; Sicari Reply Aff. P7. As a result of the success of IGT's and A.C. Coin's joint efforts, IGT in 1985 expanded A.C. Coin's territory to include Puerto Rico and the Caribbean. Seelig Aff. P10. Shortly thereafter, IGT officially appointed A.C. Coin as its "authorized dealer for sales and service" in Puerto Rico. Id. and Exh. 3, Nov. 12, 13 1985 letters from William S. Redd, IGT Chairman of the Board, to Seelig. William S. Redd's November 12, 1985 letter recognized that A.C. Coin's efforts with IGT "have been a great success." Id. In 1986, the parties altered their method of selling and promoting IGT's products. Seelig Aff. P13. A.C. Coin agreed to purchase products directly from IGT and to resell them in A.C. Coin's newly expanded territory. Id. and Exh. 5, 1986 Agreement.
Before A.C. Coin became IGT's exclusive distributor in April 1983, IGT gaming machine sales represented less than 15 percent of the Atlantic City market and its product line was limited to video poker games. Seelig Aff. P11. In 1983, Bally Gaming dominated that market with approximately 70 percent of the product sales. Id. By 1992, however, IGT's market share of 37 percent had surpassed that of Bally's reduced 35-percent share. Id. Today IGT sales represent 62 percent of the Atlantic City market, whereas Bally's share is 22 percent. Id.; Exh. 4, June 1992 and Jan. 1998 Market Studies; J. Seelig Reply Aff., Exh. A, April 1998 Market Study.
On June 12, 1993, the parties entered into the 1993 Agreement, the subject of this litigation. Seelig Aff. P14; Exh. 6, 1993 Agreement. IGT gave official notification of termination on September 3, 1997. See G. Thomas Baker Letter of Sept. 3, 1997. Like previous agreements, the 1993 Agreement contemplated renewal on an annual basis. Id. Upon IGT's specific demand, and as a material consideration for the 1993 Agreement, Mac Seelig agreed to participate substantially in the day-to-day control and operation of A.C. Coin, thereby foregoing other commercial opportunities. Id.; Exh. 6, 1993 Agreement, PP 1A and 1B. Although A.C. Coin specifically requested that the provision requiring Mac Seelig's substantial participation be deleted from the Agreement, IGT refused. Thomas McCormick Reply Aff. P5.
Paragraph 1A of the 1993 Agreement granted to A.C. Coin the sole and exclusive, non-transferable license to purchase for resale, sell, promote and distribute IGT products in New Jersey, Maryland, and the Caribbean. Seelig Aff. P15; Exh. 6, 1993 Agreement. In addition, paragraph 1C(ii) of the 1993 Agreement provided for the servicing of IGT's progressive-linked systems games and other slot machines. Id. A.C. Coin was also granted exclusive distribution rights to service and sell IGT's replacement proprietary mechanical parts in paragraph 3 of the 1993 Agreement. Id.
The 1993 Agreement requires A.C. Coin to perform as follows:
(1) To use its best efforts in selling and distributing IGT products (id. P 1);
(2) To purchase IGT products at IGT's then current retail price list, less 25 percent plus tax, shipping and all other costs attendant to delivery (id. P1Hi);
(3) To submit all orders in writing on IGT-provided forms and to pay reasonable expenditures incurred by IGT in connection with any canceled order (id. PHii);
(4) To pay for all orders in full within 45 days from the date of their delivery to A.C. Coin (id. P1Hiii);
(5) To refrain from directly or indirectly soliciting orders for, selling, leasing, promoting the sale of or otherwise dealing in certain products that competed with or were similar to IGT systems or products (id. P1B);
(6) To establish and maintain places of business satisfactory to IGT within the territory, i.e., New Jersey (id. § 1L);
(7) To display advertising material supplied by IGT (id. P1N);
(8) To maintain an inventory of spare parts at its cost to meet customer needs (id. P2A).
(9) To make repair service available to customers within its territory at competitive rates (id. P2B);
(10) To keep and provide IGT with access to its accounts, books and records to facilitate IGT monitoring (id. P5A);
(11) To furnish IGT with monthly estimates or forecasts of A.C. Coin's requirements for ensuing months (id. P1I);
(12) To forward immediately every customer complaint, governmental order, advice or communication regarding IGT or its products (id. P5B);
(13) To act as liaison between IGT and governmental authorities, to coordinate and facilitate governmental investigation and location testing for IGT products (id. P10B);
(14) To have all persons employed by A.C. Coin properly covered by worker's compensation or employer's liability insurance (id. P1K);
(15) To indemnify and hold IGT harmless from any and all loss, damage, and costs IGT may sustain by reason of claims against IGT on account of acts of employees or agents of A.C. Coin (id. P1K).
The 1993 Agreement also authorized A.C. Coin, in Paragraph 1M, to use the IGT and International Game Technology registered trademarks and trade names in connection with the lease, operation, service and repair of IGT machines. Id. P16.
(i) A.C. Coin's New Jersey Place of Business
With regard to IGT's requirement that A.C. Coin maintain a New Jersey place of business, there is no dispute that A.C. Coin has met this requirement. The 1993 Agreement clearly states, in relevant part, as follows:
L. Dealer Operating Requirement: To provide appropriate representation, and facilitate proper sale and servicing of IGT products, Dealer shall establish and maintain places of business satisfactory to IGT, in its reasonable judgment, as to appearance, sales and service operations, parts inventory, and trained personnel and capital equipment. Such facilities shall be sufficiently established within the territory or area as set forth above to adequately meet, within IGT's reasonable judgment, the needs of customers within each area for which IGT products are located within the said territory ... IGT agrees that [A. C. Coin's] existing facility meets IGT's standards for the Atlantic City casino market."
Exh. 6, 1993 Agreement, P1L (emphasis added). A.C. Coin employs approximately 132 people, 108 of which are employed at A.C. Coin's Pleasantville facility. Seelig Aff. P26.
(ii) A.C. Coin's License to use IGT's Trademarks and Name
For nearly 15 years, IGT has referred to A.C. Coin as its exclusive distributor in its own brochures, advertising, and other media such as trade magazines and newspaper articles. Id. P27; Exh. 11, April 24, 1987 IGT Press Release; July 1996 Mission Statement. Morro Dep. 32:18-21.
The 1993 Agreement authorizes A.C. Coin to use IGT and International Game Technology registered trademarks and trade names in connection with the sale, lease, operation, service, and repair of IGT machines. Seelig Aff. P28; Exh. 6, 1993 Agreement, P1; Rivera
Dep. 139:12-22. IGT also granted A.C. Coin a separate license to use IGT's trademarks, copyrights and designs on outside billboards, in media communications and other similar or related advertising venues. Id. This license has been periodically renewed and amended to include new IGT trademarks and copyrights as new gaming devices developed. Id.; Exh. 12 (and Trademark and Copyright Licenses and amendments or extensions thereto). With IGT's knowledge, and pursuant to the various contractual provisions authorizing and obligating A.C. Coin to advertise that it is IGT's exclusive distributor, A.C. Coin uses and displays IGT's name in a number of ways:
(1) A.C. Coin's reception area prominently displays the IGT trade name and logo (Seelig Aff. P29; Exh. 7, photographs; Hanlon
Dep. 18:6-19; Perskie Aff. P7);
(2) A.C. Coin's company brochure contain IGT's trade name (Seelig Aff. P29C; Exh. 13, brochure; Hanlon Dep. 18:6-19);
(3) A.C. Coin advertises in, among other sources, the Yellow Pages and gaming industry trade publications that it is the exclusive distributor for IGT in New Jersey. These advertisements contain both the IGT and A.C. Coin marks and logos (Seelig Aff. P29C; Exh. 14, Yellow Pages advertisements from 1983 to 1996 and exemplar advertisement; Morro Dep. 152-21-153:8; 153:24-154:18);
(4) Trucks and vans used to transport shipments from A.C. Coin's warehouses to customers prominently display the IGT name and logo and advertise A.C. Coin as the "Exclusive Distributor for IGT" (Seelig Aff. P29D, Exh. 15, photographs; Hanlon 18:6-19; Perskie Aff. P7; Morro Dep. 152:21-153:8, 153:24-154:18);
(5) A.C. Coin's letterhead, as well as stationery and business cards combine the A.C. Coin and IGT names and logos (Seelig Aff. P29E, Exh. 16 letterhead and business cards; Hanlon 18:6-19; Perskie Aff. P7; Morro Dep. 152:21-153:8, 153:24-154:18);
(6) A.C. Coin distributes various advertising and promotion materials from IGT, including IGT shirts and bags (Seelig Aff. P29F, Exh. 17, photographs);
(7) A.C. Coin has ordered and distributed as gifts various other items containing the IGT trade name (Seelig Aff. P29G);
(8) Technician carts, service manuals, testing machines and numerous other items used in A.C. Coin's sales/marketing facility display the IGT trade name and logo (Seelig Aff. P29H, Exh. 18, photographs);
(9) The uniforms worn by A.C. Coin's field service people, technicians and in-house employees display the IGT trade name and logo (Seelig Aff. P29I, Exh. 9, photographs; Perskie Aff. P7; Morro Dep. 158:8-17);
(10) A.C. Coin has participated in numerous trade shows in which it has prominently displayed the IGT mark, trade name, logo and products in conjunction with A.C. Coin (Seelig Aff. P29J, Exh. 20, photograph in March 1987 Casino Gaming Magazine; Perskie Aff. P7); and
(11) A.C. Coin has hosted many customer events on IGT's behalf and has used IGT's trade name in connection therewith (Seelig Aff. P29K; Perskie Aff. P8; Robbins
Aff. P15F; Sutor
Dep. 24:14-25:2; Tjoumakaris
Dep. 89:24-90:8; Jonas
Dep. 22:16-23:11; Morro Dep. 82:3-85:3, 144:1-146:21).
A.C. Coin is additionally required to display advertising materials supplied by IGT and to use its service manuals, product brochures, payout percentage sheets and other sales tools provided by IGT to promote the IGT name and the sales of its products. Seelig Aff. P30; Exh. 6, 1993 Agreement, P1N; Sicari Reply Aff. P14. IGT, moreover, has provided A.C. Coin employees with name tags bearing both the IGT and A.C. Coin names which they were required to wear at the Las Vegas Gaming Exposition. Seelig Aff. P30; Exh. 21, photocopy of pin. IGT has included A.C. Coin's name in its own advertisements; one in particular congratulated the Showboat casino on its grand opening and included A.C. Coin's name in the advertisement. Id.; Exh. 22, advertisement. IGT has also recognized A.C. Coin's efforts and their close relationship. Seelig Aff. P39; Exh. 55, Sept. 3, 1997 Baker Letter.
Since 1983, A.C. Coin's reputation throughout New Jersey and other territories has been exclusively as a distributor of IGT games or as IGT's agent. Seelig Aff. P49; Sutor Dep. 12:14-23; Tjoumakaris 75:5-11; Jonas Dep. 16:2-14; Perskie Dep. 29:17-30; Hanlon Dep. 13:11-14:22. A.C. Coin, in fact, has been referred to as IGT's "Eastern distributor." Exh. 26, July 31, 1986 IGT Press Release; Exh. 27, Dec. 27, 1984 Letter from D. Garcia, IGT Sales Director to Showboat Casino; March 19, 1987 IGT Press Release, Casino Gaming Magazine article; Nov. 17, 1988 IGT letter to Hyatt Hotels.
This reputation has been confirmed by several present and former Atlantic City casino executives. No less than IGT's former President, David P. Hanlon, who was once an executive in Atlantic City before becoming IGT's President, testified as follows:
Q: During your years as an executive in Atlantic City, did you view A.C. Coin as acting interdependently with IGT in connection with slot machine products?
Q. What is your understanding of the term "interdependently"?
A: They sort of worked hand in glove. They provided the product in the sense that Mac Seelig, he made whatever adjustments were necessary on that, and he was responsible for the sates of those products and was, in fact, the representative of IGT in the Atlantic City market.
Q: Thank you. Now, during your time and tenure as president of IGT, would that same thing be true, that is, did you view A.C. Coin as acting interdependently with IGT? ...
A: Yes, that was my view at that time, also.
Hanlon Dep. 16:12-17:7. Edward J. Sutor, Vice President of Finance at Caesars, testified similarly:
Q: Would you view them as one and the same in connection with the sale of I.G.T. gaming products?
A: In a way. When we think about buying I.G.T. slot machines, it's Mac's name comes up [sic]. I don't know how else to answer it.
Q: You testified earlier that you thought that A.C. Coin and I.G.T. were interdependent where slots were concerned. What do you mean by interdependent?
A: Well, I thought them the same way [sic]. I mean, if you think about buying I.G.T. slot machines, I could picture Mac's face. I mean, that [sic] who you get your I.G.T. machines from. That's ...