Marathon Enterprises, Inc. v. Schröter GMBH & Co. Kg

Citation: 95 F. App'x 364Docket: No. 03-7734

Court: Court of Appeals for the Second Circuit; January 22, 2004; Federal Appellate Court

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Marathon Enterprises, Inc. contracted with Briltech, Inc. and its affiliates (collectively, Bril-Tech) to purchase a ‘Continuously Conveyorized Wiener Processing System’ for hot dog processing. Bril-Tech failed to deliver the system, leading to a dispute where both parties accused each other of breaching the contract. Marathon sought damages from Bril-Tech and also sued Schroter GmbH and its related entities (collectively, Schroter), claiming Bril-Tech had authority to act on Schroter's behalf. The District Court denied summary judgment for both Marathon and Bril-Tech, partially granted Schroter’s motion by dismissing Marathon’s actual authority claim but allowing the apparent authority claim to proceed. The Court highlighted factual questions regarding Marathon's reasonable reliance on Schroter’s actions, which included past transactions and representations made by Bril-Tech suggesting agency. At trial, the jury found against Schroter, guided by an instruction on apparent authority, which stated that a principal is bound by an agent’s acts if the principal's conduct leads a third party to reasonably believe the agent has authority. On May 29, 2003, Schroter filed a motion for judgment and a new trial, arguing insufficient evidence of apparent authority and inadequacies in the jury instruction provided.

The District Court fully denied Schroter’s motion regarding the claims of insufficient evidence of apparent authority and inadequate jury instruction. The Court acknowledged the close nature of the apparent authority issue but found sufficient evidence to support a jury’s conclusion that Schroter's actions conferred apparent authority on Bril-Tech for the transaction. Regarding the jury instruction, the Court noted that Schroter's argument centered on Marathon's lack of reasonable action, which the jury rejected. The Court concluded that the argument about Marathon’s duty to inquire or to secure Schroter's signature on the contract had been adequately presented, and thus, a specific instruction on apparent authority was unnecessary. The standard for reviewing a motion for judgment as a matter of law is de novo, only reversing if the evidence does not permit a reasonable juror to find for the non-movant. Under New York law, to establish apparent authority, Marathon needed to show that Schroter created the appearance of authority in Bril-Tech and that Marathon's reliance on this appearance was reasonable. Evidence presented at trial indicated that Schroter authorized Bril-Tech to represent itself as Schroter’s exclusive sales agent, facilitated the sale of equipment to Marathon, and permitted Bril-Tech to use Schroter’s branding and send invoices under its name. Despite doubts about the reasonableness of Marathon’s inference of Bril-Tech's authority, the Court found no error in submitting the issue to the jury. Additionally, claims of jury instruction errors are reviewed de novo, with reversal only if the error is shown to be prejudicial in the context of the overall charge.

Schroter contends that the District Court erred by not instructing the jury that Marathon had a "duty to inquire" regarding Bril-Tech’s authority. The District Court declined this instruction, asserting that the proposed addition merely reiterated existing instructions, and emphasized that the key issue was whether Marathon had such a duty. The court referenced the Second Circuit's decision in FDIC v. Providence College, which states that a duty of inquiry arises only under specific conditions: when facts prompt suspicion, in extraordinary transactions, or when the novelty alerts the third party to potential fraud. Schroter claimed the sale of a custom-made smokehouse was extraordinary or novel, but the court found this argument unpersuasive, noting that such transactions fall within Schroter’s ordinary business activities. The court differentiated this case from FDIC, where the expectation involved more complex guarantees. Additionally, Schroter argued it was a prejudicial error for the court not to instruct the jury that actual agency did not exist as a matter of law. The District Court had clarified to the jury that the case involved only apparent authority, adequately addressing any confusion regarding actual authority claims. Ultimately, the appellate court found all of Schroter’s claims unmeritorious and affirmed the District Court's judgment.