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Lithuanian Commerce Corp., Ltd. v. Hosiery

October 21, 1998

LITHUANIAN COMMERCE CORPORATION, LTD.,
PLAINTIFF,
V.
SARA LEE HOSIERY, SARA LEE HOSIERY INTERNATIONAL, SARA LEE INTERNATIONAL AND SARA LEE CORPORATION,
DEFENDANTS,
V.
ALGIS VASYS AND LAIMA ZAJANCKAUSKIENE,
ADDITIONAL
COUNTERCLAIMDEFENDANTS.



The opinion of the court was delivered by: Stephen M. Orlofsky United States District Judge

HON. STEPHEN M. ORLOFSKY

OPINION

ORLOFSKY, District Judge:

After eighteen days of trial, during which Plaintiff and Counterclaim Defendant, Lithuanian Commerce Corp., and Additional Counterclaim Defendants, Algis Vasys and Laima Zajanckauskiene (collectively, "LCC"), presented twelve witnesses and more than 200 exhibits to the jury, Defendants and Counterclaim Plaintiffs, Sara Lee Hosiery, Sara Lee Hosiery International, Sara Lee International, and Sara Lee Corporation (collectively, "Sara Lee"), have moved for judgment as a matter of law on all of LCC's claims, pursuant to Federal Rule of Civil Procedure 50(a). *fn1 This Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332, based on diversity of citizenship and the requisite amount in controversy.

This case involves a bitter and acrimonious dispute over the sale and distribution of L'eggs pantyhose in Lithuania. LCC had served as the exclusive Lithuanian distributor of L'eggs pantyhose for Sara Lee, the manufacturer of L'eggs pantyhose. LCC alleges that while it was Sara Lee's exclusive Lithuanian distributor, Sara Lee donated a large number of pantyhose to areas neighboring Lithuania, which created a black market for pantyhose in Lithuania and, allegedly, hampered LCC's sales of L'eggs pantyhose. After LCC complained about Sara Lee's so- called "dumping" of pantyhose in the Baltic, the two parties reached a settlement in which Sara Lee provided LCC with a large number of Mexican-made pantyhose at no cost. Vasys, on behalf of LCC, and Vereen Mizelle, on behalf of Sara Lee, signed a letter agreement, which released "Sara Lee Hosiery and any affiliated company, successor, assignee, officer, director, employee, or agent from any claim, demand, or cause of action LCC [might have had or] may have . . . in the future growing out of any matter or dispute whatsoever related to any act or event occurring up to or through the date of this letter." Pl.'s Ex. 99 (Letter from Vereen Mizelle, Assistant Marketing Manager for Sara Lee, to Algis Vasys, President of LCC, dated July 7, 1995). In exchange for this release, Sara Lee agreed to provide LCC with 34,835 dozens of L'eggs pantyhose manufactured by Manufacturas Mallorca de Mexico, at no charge other than shipping expenses. See id. LCC alleges that the Mexican pantyhose Sara Lee provided pursuant to this Letter Agreement were defective, or, at the very least, significantly different from the American versions of the L'eggs styles of pantyhose LCC had previously received from Sara Lee. LCC contends that, as a result of the poor quality of these Mexican-made pantyhose, LCC's business suffered both in terms of lost profits that it should have realized had the pantyhose been of standard quality, and in the goodwill that LCC lost with its customers.

In response, Sara Lee claims that LCC examined samples of the pantyhose and, therefore, LCC had full knowledge of the nature and quality of the Mexican-made pantyhose. Further, Sara Lee has asserted counterclaims, which allege that LCC and its principals, Algis Vasys and Laima Zajanckauskiene, made false claims in their advertisements for L'eggs pantyhose by claiming that L'eggs pantyhose have medicinal and therapeutic value, and that LCC failed to pay invoices due to Sara Lee.

During the eighteen-day trial of LCC's case, the jury heard the live or videotaped deposition testimony of twelve witnesses, including Vasys, President of LCC, Zajanckauskiene, the Vice-President of LCC, and Vereen Mizelle, who at the time worked for Sara Lee covering LCC's territory. LCC also introduced into evidence over 200 exhibits.

At the close of LCC's case, Sara Lee moved for judgment as a matter of law on the grounds that: (1) LCC failed to prove that it sustained compensatory damages as a result of Sara Lee's alleged breach of express warranty, breach of implied warranties of merchantability and fitness for a particular purpose, breach of contract, commission of common law fraud, tortious interference with LCC's business, and violation of the duty of good faith and fair dealing; (2) LCC did not present sufficient proof that it was a franchisee of Sara Lee, to support LCC's claim alleging a violation of the New Jersey Franchise Practices Act, N.J. Stat. Ann. § 56:10-1 et seq.; (3) LCC failed to prove at least one of the essential elements of its tortious interference claim; (4) LCC did not present the jury with sufficient evidence to permit a finding of fraud; and (5) LCC did not present sufficient evidence to enable the jury to award punitive damages.

For the reasons set forth below, Sara Lee's motion for judgment as a matter of law will be granted. I find that LCC has not presented sufficient evidence regarding lost profits to permit the jury to award compensatory damages without engaging in pure speculation. Accordingly, Sara Lee's motion will be granted on LCC's claims for compensatory damages resulting from breach of express warranty, breach of implied warranties of merchantability and fitness for a particular purpose, breach of contract, common law fraud, tortious interference, and a violation of the duty of good faith and fair dealing. Further, I find that LCC failed to prove one of the elements necessary to sustain a finding that LCC is a franchisee of Sara Lee, and, therefore, I will grant Sara Lee's motion for judgment as a matter of law on LCC's claims under the New Jersey Franchise Practices Act. Additionally, I find that under the New Jersey Punitive Damages Act, N.J. Stat. Ann. § 2A:15- 5.13.c. (West Supp. 1998), LCC cannot recover punitive damages without first recovering compensatory damages. Because I conclude that LCC has not presented sufficient evidence to permit a finding of compensatory damages, it cannot recover punitive damages as a matter of law and, consequently, I also will grant Sara Lee's Rule 50 motion on LCC's punitive damages claim.

I. Factual and Procedural Background

I have previously set forth the factual and procedural history of this case at length in my opinion of June 29, 1998, see Lithuanian Commerce Corp. v. Sara Lee, 179 F.R.D. 450, 455-56, 465-68 (D.N.J. 1998), and, therefore, I will not repeat it here. I will, however, summarize some of the more salient events in the tortuous procedural history of this case and update this history in light of the trial record, which the parties have developed.

LCC filed this action on April 29, 1996, claiming, inter alia, that Sara Lee violated numerous of its contractual obligations, the New Jersey Consumer Fraud Act, the New Jersey Franchise Practices Act, and the Lanham Act. See Complaint, filed Apr. 29, 1996; see also Amended Complaint, filed Apr. 15, 1997. LCC also alleged that Sara Lee had committed tortious interference and common law fraud. See id. Sara Lee denied these allegations, see Answer, filed April 23, 1997, and filed counterclaims, which alleged that LCC had failed to pay various invoices. See Counterclaim, filed Apr. 14, 1997. Sara Lee also asserted that LCC and its principals, Vasys and Zajanckauskiene, had made false claims in their advertisements for L'eggs pantyhose by suggesting that L'eggs had therapeutic and medicinal value for the treatment of varicose veins. See id.; Third-Party Complaint, filed Apr. 14, 1997.

On October 1, 1997, Sara Lee filed a motion in limine to exclude the testimony of six of LCC's expert witnesses. In particular, Sara Lee argued to United States Magistrate Judge, Joel B. Rosen, that LCC's expert on damages, Charles Cummiskey, should be excluded because his analysis was unreliable and speculative. See Lithuanian Commerce Corp., 179 F.R.D. at 458. Judge Rosen denied Sara Lee's motion with respect to Cummiskey, entering his opinion on December 4, 1997. See Lithuanian Commerce Corp. v. Sara Lee. 177 F.R.D. 245, 256-59 (D.N.J. 1997). Sara Lee appealled from this portion of Judge Rosen's decision and I considered the issue in my opinion of June 29, 1998. See Lithuanian Commerce Corp., 179 F.R.D. at 458-62.

In my June 29, 1998, opinion, I vacated Magistrate Judge Rosen's earlier opinion and held that Cummiskey's "analysis lacks the reliability required by Daubert and the reliability required by the Federal Rules of Evidence." See id. at 458. In particular, I determined that a "close examination of Cummiskey's opinion reveal[ed] its inadequate foundation, and I therefore [found] that Cummiskey's testimony with respect to the predicted length of damages is unreliable and inadmissible." Id. at 460. Accordingly, I granted Sara Lee's motion to exclude Cummiskey's testimony. *fn2

Despite the exclusion of the testimony of its only expert witness on damages, LCC failed to move to amend the Joint Final Pretrial Order to include such an expert, nor did LCC make any attempt to do so at trial. At no time did LCC seek to amend the Joint Final Pretrial Order to add a new witness, a new expert, or new documents with respect to its claims for lost profits. See Transcript of Oct. 5, 1998 ("10/5/98 Tr."), *fn3 at 1399, 1405.

Instead, LCC attempted to "transform" one of its fact witnesses, Laima Zajanckauskiene, the Vice-President of LCC and one of the Additional Counterclaim Defendants, into an expert on damages. While Ms. Zajanckauskiene was on the witness stand during her direct examination, counsel for LCC petitioned this Court to amend, or to ignore, the description of Ms. Zajanckauskiene's testimony set forth in the Joint Final Pretrial Order. See 9/23/98 Tr. at 938-39. The description of Ms. Zajanckauskiene's testimony contained in the Joint Final Pretrial Order provided: "Ms. Zajanckauskiene will testify concerning her . . . belie[f] that Sara Lee misrepresented the quality of the Mexican pantyhose and LCC lost business as a result." Joint Final Pretrial Order at 93-94. By contrast, on September 23, 1998, LCC's counsel stated that Ms. Zajanckauskiene would "testify as to the projections that she made as to the amount of stores that [LCC was] projecting to have at different points in time." 9/23/98 Tr. at 938. In response to the request of Sara Lee's counsel to exclude this testimony, I ruled from the bench that the description of Ms. Zajanckauskiene's testimony in the Joint Final Pretrial Order was:

different than making damage projections. I'll let her testify with respect to her understanding of the misrepresentation of the quality of the pantyhose, and that in her view that as a result of that they lost business. I'll let her testify as to that, but there is nothing in here that says she's going to testify about projections or lost profits. 9/23/98 Tr. at 941-42.

LCC moved for reconsideration of this Court's September 23, 1998, ruling, which excluded the testimony of Ms. Zajanckauskiene. LCC argued that the "testimony by Ms. Zajanckauskiene on lost profits and LCC's financial affairs is within the ambit of the Joint Final Pretrial Order." 10/5/98 Tr. at 1401; LCC's Memorandum of Law in Support of Motion for Reconsideration of court's Order Limiting the Testimony of Laima Zajanckauskiene ("LCC's Memorandum for Reconsideration"), at 3. Further, LCC contended that "[t]he lost business and day-to-day operations referred to in the description of Ms. Zajanckauskiene's testimony encompasses the lost profits and LCC's financial affairs." 10/5/98 Tr. at 1401-02; LCC's Memorandum for Reconsideration, at 4. On October 5, 1998, I ruled from the bench and held that LCC had not raised any overlooked facts or controlling decisions of law to warrant granting a motion for reconsideration, as required by Local Rule of Civil Procedure 7.1(g). See 10/5/98 Tr. at 1399-1400. In my bench opinion, I observed:

In my opinion of June 29, . . . I eschewed Mr. Cummiskey's testimony as overly speculative. See Lithuanian Commerce Corp. v. Sara Lee Hosiery, 179 F.R.D. 450 at 458-62. Thus, as of June 29, 1998, over two months before this trial commenced, LCC knew that it needed a new witness to testify about damages. Moreover, LCC moved to amend the Joint Final Pretrial Order to include additional documents as exhibits on August 17, 1998, a motion that was granted on August 21, 1998, but it did not seek to amend to add any witnesses to testify about damages. 10/5/98 Tr. at 1405.

After this ruling from the bench, LCC continued with its presentation of witnesses and evidence, concluding on October 15, 1998. Pursuant to the schedule that I established with the parties on October 8, 1998, see 10/8/98 Tr. at 2018, Sara Lee filed and briefed its motion for judgment as a matter ...


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