Ms. Liberty Inc. v. Eyelematic Manufacturing Co.

Citations: 931 F. Supp. 264; 1996 U.S. Dist. LEXIS 9960Docket: No. 95 CV 10950

Court: District Court, S.D. New York; July 10, 1996; Federal District Court

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The case revolves around the interpretation of the termination clause in a sales representative contract between Ms. Liberty Inc. and Eyelematic Manufacturing Company, Inc. The court, under Fed. R.Civ. P. 42(b), conducted a trial focused solely on this contract interpretation issue, with findings of fact and conclusions of law to follow under Fed. R.Civ. P. 52(a).

Eyelematic, a Connecticut corporation led by President Henry Seeback and Vice-President AI Velicka, sought to hire independent sales representatives, leading to negotiations with Diane Elliot, the sole officer of Ms. Liberty, a New York corporation. These negotiations in 1988 included discussions about commission rates, employment with other companies, and termination conditions. Historically, Eyelematic allowed contract termination after one year.

A draft agreement sent by Velicka to Elliot before October 1, 1988, stipulated that the contract would be effective for one year and could be terminated thereafter with 30 days written notice. Importantly, it also provided for commission payments on residual business for six months post-termination. Elliot emphasized the necessity of this commission protection, believing that termination could only occur during a specific annual window, ensuring she would receive commissions until the contract anniversary and for an additional six months thereafter.

In contrast, Velicka claimed that the termination clause was miswritten and intended to allow termination at the original expiration date or any date thereafter with proper notice. This discrepancy in understanding regarding the contract's terms is central to the case.

Velicka intended to use language from a previous contract with other sales representatives for the agreement with Elliot and claimed to have sent her a draft prior to the October 1, 1988 contract, which she did not recall receiving. Velicka later drafted the final version on his home computer, incorporating language from prior contracts but inadvertently omitting an underscored line. After the contract was executed, it initially proved profitable for both parties. However, by 1992, Eyelematic faced economic pressures and concerns regarding increasing commission payments to Elliot, prompting discussions about terminating the contract. On October 5, 1992, Velicka notified Elliot of the termination, but after discussions, this termination was rescinded when Elliot agreed to reduce her commission rate.

In November 1994, Eyelematic decided to reduce its reliance on outside sales representatives, offering Elliot a full-time position with a fixed salary, which she resisted. Velicka confirmed the termination of their arrangement in a letter dated December 19, 1994. Elliot responded on December 20, asserting that the termination did not comply with the October 1988 contract, claiming it required a 30-day written notice and could only be effective as of October 1, 1995. Eyelematic argued that this claim was raised for the first time in late December and had not been mentioned in prior discussions. The governing law for the agreement is determined to be Connecticut law, as the contract was negotiated and executed there, with significant interactions occurring within the state.

Paragraph 7 of the contract presents ambiguity regarding whether termination is allowed only at the 'original date' with 30 days written notice or at a subsequent date. Under Connecticut law, ambiguous contract terms can be clarified with parol evidence, which does not contradict but aids in understanding the written contract. The court referenced the principle that when contract language is unclear, evidence of prior conversations or circumstances can help ascertain the parties' intent. The interpretation put forth by Elliot suggests that cancellation can only occur at the 'original date,' which is not clearly defined but assumed to be October 1, 1988. Both parties agree that termination was not permitted during the first year, yet it is also recognized that termination could not occur on the 'original date' itself.

The plaintiffs argue that 'original date' should be understood as the 'anniversary date,' allowing termination only on October 1 of subsequent years after the first year. However, the court found no credible evidence supporting this interpretation, concluding instead that the parties intended for the contract to be terminable on 30 days notice after the first year. This interpretation aligns with both paragraphs 7 and 8 of the contract, the latter allowing for commission collection for six months post-termination. The court emphasized that contracts should be interpreted to give effect to all provisions, avoiding any contradictory interpretations. Consequently, the court determined that Elliot's termination on December 20, 1994, complied with the contract's termination provisions. The court noted that the outcome would remain unchanged under New York law.