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Abel v. American Art Analog Inc.

filed: February 1, 1988.

JOEL S. ABEL
v.
AMERICAN ART ANALOG, INC. AND MICHAEL D. ZELLMAN AND PHILIP COHEN, AMERICAN ART ANALOG, INC. AND PHILIP COHEN, APPELLANTS



Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civil No. 85-5292.

Weis, Higginbotham, and Rosenn, Circuit Judges.

Author: Rosenn

Opinion OF THE COURT

ROSENN, Circuit Judge.

This diversity action raises interesting questions of partnership law growing out of an unusual business arrangement between the plaintiff-appellee, Joel S. Abel, and his co-partners, on the one hand, and the defendants-appellants, Philip Cohen and his wholly owned corporation, American Art Analog, Inc. (American), on the other. Abel brought suit against the defendants charging them with tortious interference with his partnership arrangements. After a trial to a jury in the United States District Court for the Eastern District of Pennsylvania, Abel obtained a judgment in the sum of $677,483 against both defendants. The district court denied defendants' motions for a directed verdict, for judgment notwithstanding the verdict (judgment NOV), for a new trial, and for dismissal for lack of federal jurisdiction. The defendants appeal and we reverse.

I.

In December 1983, Michael Zellman, Stephen Jacobs, and Joel Abel (the Partners or Group) entered into an oral partnership agreement to create and develop the American Art Analog, a three-volume reference book encompassing nineteenth and twentieth century American canvas art.*fn1 The Group agreed to divide any profits from the venture equally, with Zellman receiving an additional ten percent of any proceeds derived from the Analog's first five thousand sales. Moreover, each of the Partners undertook discrete responsibilities for the book's completion with Zellman serving as technical and research director, Jacobs as project director, and Abel as marketing director. At no time did the parties reduce the terms of their agreement to writing.

To attract outside investors, the partnership produced a ten page prototype of the Analog in September 1984. The prototype contained an explanation of the art valuation techniques utilized in the Analog, biographical depictions of the represented artists, and color photographs of the relevant art works. Additionally, the partnership produced a "blue book," or prospectus, consisting of a budget for producing and marketing the Analog, and a five-year projection of revenues and profits.*fn2 Soon after the completion of the prototype and the blue book, the Partners had several disagreements culminating in a substantial modification of Jacobs' partnership role.

In September 1984, the three partners met with Philip Cohen at the Philadelphia offices of their mutual accounting firm, Laventhol and Horwath, to discuss Cohen's potential investment in the Analog.*fn3 As a consequence of that and subsequent meetings, Cohen formed American Art Analog, Inc., a company whose sole function was the production, sale, and distribution of the Analog. Cohen invested in excess of $900,000 in American and became the sole owner of its capital stock. Under the terms of their arrangement with Cohen, the Partners had no ownership position in American, but would receive thirty percent of the corporation's profits; Cohen would be entitled to the remaining seventy percent. The Partners were not, however, required to share in American's losses. Finally, as part of the agreement, Zellman and Abel were hired as salaried employees of American.*fn4 At no time were the terms of Cohen's agreement with the Partners reduced to writing.

In December 1984, Cohen directed Zellman to terminate Abel's salaried employment at American.*fn5 Cohen additionally induced Zellman to breach the oral agreement entitling Abel to his share of the thirty percent profit position.*fn6 In February 1986, Cohen's counsel informed Zellman that he too had been terminated. The Analog went on sale in March 1986.

Abel filed a complaint against Cohen, American, and Zellman on September 12, 1985.*fn7 On April 3, 1986, a jury found Cohen and American liable for wrongful interference with the Abel, Zellman, and Jacobs partnership agreement. In response to specific interrogatories, the jury found that: (1) in 1983, plaintiffs Abel, Zellman, and Jacobs entered into a partnership agreement to develop the project known as American Art Analog; (2) about December 1984, defendant Cohen directed that plaintiff Abel not participate in the American Art Analog project knowing that Abel and Zellman continued to be partners in the project; (3) before December 1984, the partnership of Abel, Zellman, and Jacobs entered into a partnership with Cohen to finance, publish, and market the American Art Analog; (4) under the terms of the "second partnership" agreement with Cohen, Abel and Zellman were to receive thirty percent and Cohen was to receive seventy percent of the profits. After a separate trial on damages, a jury awarded Abel $622,500 for pecuniary losses of benefits of contract rights resulting from wrongful interference, $6,500 for consequential losses for which wrongful interference was a substantial causal factor, and $48,483 for emotional distress. Judgement was entered for $677,483.

II.

Initially, the defendants challenge the jurisdiction of the district court arguing that Abel's non-joinder of indispensable parties Zellman and Jacobs mandates dismissal pursuant to Fed. R. Civ. P. 19(b). Because Zellman and Jacobs are citizens of ...


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