On Appeal from the United States District Court For the District of New Jersey - Newark (Civil Action No. 85-3966)
BEFORE: SLOVITER and STAPLETON, Circuit Judges and LONGOBARDI, District Judge*fn*
STAPLETON, Circuit Judge.
This is an appeal from a preliminary injunction restraining appellants from selling, distributing, or otherwise disposing of certain products manufactured by appellees and i appellants possession. Because we conclude that the district court committed an error of law and that the present record will not support a resolution of the legally relevant issue in appellees favor, we will vacate the preliminary injunction.
Appellants are Quality King Manufacturing, Inc. and Quality King Distributors, Inc., both New York corporation ("Quality King"). Quality King is an independent distributor or national brand health and beauty aids. Its customers include large wholesalers and retail chains. Quality King participates in the so-called "gray market," where imported products are sold in the United States outside the manufacturer's distribution system, often contrary to the wishes of the manufacturer.
Appellees are Johnson & Johnson Products, Inc. ("J&J"), a New Jersey corporation, Johnson & Johnson, Ltd. ("J&J Ltd."), a corporation organized under the laws of Great Britain, and Johnson & Johnson Baby Products Company, a New Jersey corporation. Appellees are all operating subsidiaries of Johnson & Johnson, Inc., a New Jersey corporation.
Appellees claimed in the district court that J&J Ltd., which has its place of business in Great Britain, was fraudulently induced to sell 80,000 dozen toothbrushes and certain baby products to Dal International Trading Company, an instrumentality of the Polish People's Republic (hereinafter "Dal"). The alleged fraud consisted of an oral misrepresentation by Dal in February of 1985 that it intended to distribute the products in Poland only. but for this fraudulent assurance, say appellees, J&J Ltd would not have entered the transaction.
In March of 1985, Dal ordered the products from J&J Ltd. No written contract was entered. However, J&J Ltd. did execute, in April of 1985, a written contract related to the Dal transaction with Wendexim Trading Company, Ltd., a British firm. The reasons for the inclusion of Wendexim in the Dal transaction was the weakness of Polish currency, which necessitated an intermediate barter trade. This intermediate step involved an agreement under which Dal shipped a quantity of wood to Wendexim in return for Wendexim's transmittal of the payment for the wood to J&J Ltd., in satisfaction of Dal's obligation to pay J&J Ltd. for the toothbrushes and baby products.
At the end of June, 1985, J&J Ltd. delivered the toothbrushes to Dal at a J&J Ltd. factory in West Germany. The baby products were shipped from Great Britain at the beginning of June, 1985. Subsequently, J&J Ltd. learned that some or all of these goods had been diverted from their intended destination of Poland and were en route to the United States.
J&J Ltd. investigators followed the goods to the United States, where they came into the possession of Quality King. The goods were packaged in cartons, some of which bore J&J Ltd. shipping labels. The production codes on these labels corresponded to those of the products designated for Dal.
The route by which the J&J Ltd. products came into Quality King's hands was not fully documented below. In early 1985, a British firm called Cubro Trading Company, ltd. somehow learned of the availability of the J&J Ltd. products and passed this information to Morris Greenfield, the proprietor of Tereza Merchandise Corporation in New York. Greenfield was not interested in the products but advised Glenn Nussdorf, the vice president of Quality King, of the availability of the goods. Nussdorf prepared a purchase order for 75,000 dozen toothbrushes in February of 1985, about the time when Dal and J&J Ltd. were negotiating the sale of 80,000 dozen toothbrushes. Later, Nussdorf added baby products to this purchase order.
Nussdorf had never done business with Cubro before this transaction, so he used Greenfield as an intermediary. The details of the transaction are unclear due to discrepancies in the record as to the disbursements made by Quality King. What is clear is that Quality King purchased and received the goods.
Before the goods arrived at Quality King's warehouse, the J&J Ltd. shipping labels had been stripped from most of the shipping cartons. Greenfield and Nussdorf testified that this was a common gray market practice designed to obscure the identity of supply sources. The protection of these sources is important to gray market middlemen, Nussdorf and Greenfield testified, ...