Sometime around March 22, 1973 Dick Zimmerman of C & S met with Stephen Freed ostensibly to examine Keystone's financial condition. The results were apparently negative because on March 28, 1973 Beattie received a Telex from C & S indicating that due to Keystone's deteriorating financial condition and losses C & S declined to continue factoring Keystone's account.
By letter dated April 25, 1973
Beattie terminated the Keystone distributorship. Beattie's asserted reasons for termination were the reduction of Keystone's sales of Beattie products, disproportionate claims submitted by Keystone to Beattie, the imminent change in ownership, the worsening condition of plaintiff's business and Keystone's failure to obtain adequate factoring. In short, it was Beattie's position that continuation of the distributorship would have been injurious to it and, thus, it claimed that in March 1973 it began looking for an alternative method of distribution in the Philadelphia area.
Beattie, however, failed to afford Keystone sixty days notice. It abruptly cut off Keystone's credit and immediately began distribution in Keystone's territory. Albert Levenkron, formerly an employee of Keystone who left shortly before termination and went with Beattie, admitted that by May 1, 1973 Beattie was in direct distribution in Philadelphia. George Sherenian, a Keystone salesman, testified that several of his retail outlet customers had been solicited by Beattie salesmen in April 1973. He cited Modern Carpet as an example. At Modern Carpet, Keystone's price list
had been modified by Herb Sulkin of Beattie, showing Beattie's new, lower prices. In addition, Robert Levin, a warehouse equipment salesman, testified that he had sold Beattie storage racks for its new warehouse in Philadelphia and that he was first contacted about the transaction on April 18, 1973.
The abrupt manner in which the distributorship was terminated and the fact that Beattie immediately began to compete caused Keystone a number of problems. First, because Beattie was offering its carpet at lower prices, Keystone could not sell its inventory of Beattie merchandise. Second, as Richard Freed testified, the purpose of the sixty day notice provision was to provide the distributor with some continuity and to protect it from a quick change in the relationship. However, under the circumstances, it took Keystone until October 1973 to get another major supplier, Stephen Lee, and until December 1973 to get a second, Roxbury Carpet Mills.
A third consequence of the abrupt termination concerned Keystone's samples of Beattie products which remained with Keystone's retail outlet customers. Samples are basically swatches of carpet taken from various rolls and placed among the distributors' customers. Each sample is labeled by brand name. Testimony showed that the use of samples is important in this industry.
Testimony also showed that when a distributor ceases a relationship with a manufacturer, one of the first measures taken by the distributor is to withdraw all samples of that manufacturer's goods that have placed with its customers. In this instance Keystone's customers were unwilling to release Keystone's Beattie samples. There was testimony to the effect that the reluctance was due to the fact that Keystone's customers knew that Beattie was in direct distribution in the territory. It seems equally clear, however, that Keystone's salesmen knew the samples could be pulled because, technically, they were the property of Keystone but that they chose not to pull them in order to preserve customer relations.
The testimony pertaining to damages varied greatly. Keystone believed that one aspect of damage was the value of samples. Stephen Freed testified that Keystone placed Beattie samples in approximately 1500 to 2000 retail outlets at a cost to Keystone of, depending upon the exhibit considered, either $51,589.30
John Reilly also testified that the samples were worth as much as nine times what they cost Keystone. Hence, Keystone maintained that by using the lower of the two cost figures the samples were worth some $464,303.70. There was also the testimony of Lawrence Schwarz of Keystone, however, that perhaps as much as $10,000.00 worth of the samples at Keystone's cost remained in Keystone's warehouse.
Based on interrogatories and answers thereto
Keystone established through the testimony of Richard Freed that from April 1973 to April 1975 Beattie's gross sales in the Keystone territory exceeded $6,000,000.00. Based on the fact that Keystone's gross mark-up on the sale of Beattie's products was twenty-five (25%) percent, Keystone maintained that its lost profits amounted to $1,554,882.45.
Keystone claimed that Beattie made sales to David Hockstein from January 1971 to June 1973 totalling $162,702.20
and that Beattie's pre-termination sales in Keystone's territory totalled $43,895.93. Since Keystone's mark-up on Beattie carpet was 25%, the latter figure yielded a damage claim of $10,973.98.
Keystone also claimed that because Beattie's gross sales in the 60 days following termination totalled $82,559.70 considered, again, in light of the 25% mark-up entitled it to a separate damage claim of $20,639.99.
Through the testimony of Martin Parelman, a certified public accountant, Keystone endeavored to establish the economic consequence of the breach to Keystone.
He testified that he considered financial data for a five year period starting with February 1, 1970. In reviewing the financial data he found that for the fiscal year ending January 31, 1971, there was a gross sales volume of approximately $2,400,000.00; for 1972 it was $3,377,000.00; and for 1973 it was $3,400,000.00. For the fiscal year ending January 31, 1974, the year of termination, Keystone's sales volume dropped to $2,000,000.00.
Based on the figures for the years prior to termination Parelman determined that a conservative estimate of growth was a yearly increment of 7 1/2% which he testified took into consideration the move to the new warehouse and the strike. He also found that Keystone's average gross profit was 25.5% over the five year period. In his opinion Keystone should have shown net income of $50,045.00 in the fiscal year ending January 1, 1974, and $97,692.00 in the fiscal year ending January 1, 1975. Actual figures for 1974 were a loss of $174,115.00, translating to a swing of $224,160.00, and for 1975 actual income was a net positive figure of $22,872.00, translating to a swing of $74,820.00. By adding the two swing figures Parelman calculated damages caused by business disruption to be $298,980.00.
Finally, Keystone attempted to establish a number of credits, adjustments and unpaid commissions as follows: (1) credit for defective product and inspection charges totalling $32,811.74;
(2) credit for damages and shortages totalling $4,314.05;
(3) credit for miscellaneous chargebacks totalling $10,616.91;
(4) credits claimed for adjustments totalling $2,063.95;
(5) bill and hold claim for merchandise paid for but not received totalling $14,376.83;
(6) cancellations following termination totalling $57,692.31;
and (7) credit claimed for undetermined commissions totalling $5,977.37.
II. POST-TRIAL MOTIONS
Defendant's specific grounds in support of its post-trial motions are:
(1) Plaintiff failed to establish any rational basis on which the jury could have concluded that defendant breached the distributorship agreement;