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Compass Technology, Inc. v. Tseng Laboratories

December 13, 1995

COMPASS TECHNOLOGY, INC., APPELLANT

v.

TSENG LABORATORIES, INC., WANG LABORATORIES, INC.



On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civil Action No. 93-cv-1934)

Before: BECKER, ROTH, Circuit Judges, and SHADUR, *fn1 District Judge.

SHADUR, District Judge.

Argued October 16, 1995

filed December 13, l995)

OPINION OF THE COURT

Compass Technology, Inc. ("Compass") appeals the district court judgment, following a bench trial, that accepted the position of defendant Tseng Laboratories, Inc. ("Tseng") in this contract dispute. Compass contends that the district court erred (1) by admitting extrinsic evidence to interpret the contract between Compass and Tseng and (2) by refusing to reopen the evidence after a key witness had first been located within a few days after the close of the 1-1/2 day bench trial.

Jurisdiction in the district court was invoked on diversity-of-citizenship grounds under 28 U.S.C. Section(s) 1332 (originally-named co-defendant Wang Laboratories, Inc. ("Wang") was dismissed by the district court for lack of jurisdiction). We have jurisdiction over this appeal from the district court's final judgment under 28 U.S.C. Section(s) 1291.

We hold that under any view of the evidentiary issues the district court erred in refusing to hear the newly-located witness. And because that alone requires us to reverse the district court's judgment and remand for a new trial, we then address the related evidentiary issues as a guide to the handling of that second trial.

Factual Background

This dispute arises out of a "Manufacturer's Rep Agreement" (the "Agreement") entered into between Tseng and Compass effective February 19, 1988. Under the Agreement Compass was to serve as the exclusive selling representative for Tseng, a manufacturer of computer graphics chips, in six New England states. In return Compass was to receive a commission on the Tseng products sold by Compass within the six-state region.

Tseng's then Director of Sales and Marketing John Ciarlante ("Ciarlante") prepared the form of Manufacturer's Rep Agreement based on his experience with a previous employer (Tseng not having previously used such agreements). It took the form of a standard printed document, with blanks left to be filled in as appropriate. While the Agreement is quite straightforward in most respects, its Paragraphs 3 and 4 give rise to the present controversy:

3. PRODUCTS -- The Representative shall sell the "products" of the manufacturer set forth herein which may be changed by the Manufacturer upon sixty (60) days prior notice, subject further to Addendum #1, attached hereto:

4. AMOUNT OF COMPENSATION -- Representative's compensation for services performed hereunder shall be 5% *fn2 of the "net invoice price" defined herein below, of the Manufacturer's product for which an order is taken by Representative. However, when engineering, execution of the order, or shipment involve different territories the Manufacturer will split the full commission among the Representatives whose territories are involved. The Manufacturer will make this determination and advise the interested Representatives at the time the order is submitted to the Manufacturer.

No Addendum #1 is in the record, and that has proved to be the focal point of the dispute between the parties. Even though Tseng was unable to produce a copy of any such addendum or to provide any witness who could testify to its claimed contents or could even recall seeing one, it nonetheless says that there was such an animal and that the addendum specified that Compass was to receive no commission whatever on any sales of Tseng products to Wang. For its part, Compass claims that no Addendum #1 ever existed and that the Agreement is clear that Compass was to receive a 5% commission on all sales within its territory, including sales to Wang. What is at stake, if Compass is indeed entitled to such a commission on sales to Wang during the time that the Agreement was in effect, is an amount close to $200,000 exclusive of prejudgment interest.

Like most such catch phrases, the Chinese proverb that "One picture is worth ten thousand words" is obviously not intended to be taken literally as a universal rule. In this instance, however, the relevant picture is of the words themselves--the Agreement's pages showing its standardized form, the placement of the blanks and the filling in of the blanks (or perhaps more importantly, the failure to fill in the blanks)--and that picture is worth a good many words in the context of this case. We have therefore annexed a photocopy of the Agreement's most relevant and most illustrative page, its page 1.

Ciarlante had been Tseng's sole participant in negotiating and signing the Agreement on its behalf, while Compass was represented by its President Donald Rheault ("Rheault"). At trial Rheault testified that he could not recall whether or not there was an Addendum #1 attached to the Agreement when he signed it. Because Ciarlante could not be located by either party before the trial, Tseng's only witness who spoke to the issue at all was John Gibbons, a founder, director and business consultant for Tseng, who testified that he had instructed Ciarlante to exclude sales to Wang from the Agreement. But Gibbons admitted on cross-examination that he did not actually see the Agreement until March 1989--more than a year after it was executed and delivered--and that he has never seen any Addendum #1.

Early in the trial the district court determined as a matter of law that the Agreement's reference to the missing Addendum #1 created an ambiguity (1994 WL 446853, at *1). Over Compass' objections the district court then allowed testimony about the parties' intent as to what commission was to be paid on sales to Wang.

Although the district court's comments during the short bench trial had reflected a healthy skepticism as to whether there had ever been an Addendum #1 (let alone what its terms were if it actually existed), the court ultimately reached the following conclusion (id. at *2): On the basis of the credible evidence presented by the parties the Court finds that Addendum #1 provided that Compass would receive no commission on the sale of Tseng Products to house accounts and that, at the time the Agreement was executed, Tseng's only house account was Wang. Compass knew and was aware that no commission was to be paid on house accounts and that Wang was Tseng's most substantial account and its only house account. Compass knew and was aware of the fact that a commission would not be paid on the Wang account.

That holding was based, according to the district court, on three strands of evidence presented at trial (id. at *2-3):

1. In addition to the stated awareness on Compass' part reflected in the last two quoted sentences, Compass was also aware that Tseng's previous manufacturer's representative had been dismissed for requesting commissions on the Wang account. *fn3

2. Compass received two small commission statements for periods during which substantial sales were made to Wang, yet did not question Tseng or complain when those statements did not cover those sales to Wang.

3. In November 1988 (six months after the contract became effective) representatives of Compass and Tseng met to discuss a commission for servicing the Wang account and agreed that Compass would receive a ...


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