Howtek v. Relisys CV-94-297-JD 02/01/96 P UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Howtek, Inc.

v. Civil No. 94-297-JD

Relisys, et al.

O R D E R

The plaintiff, Howtek, Inc., brought this action against the

defendants, Teco Information Systems, U.S.A., Inc., Teco Electric

& Machinery Co., Ltd., Relisys, Inc., and Herman Hsu

(collectively "Teco") alleging, inter alia, breach of contract,

misappropriation of trade secrets, and unfair competition. Teco

Information Systems, Teco Electric & Machinery and Relisys1 have

filed a counterclaim asserting breach of contract, breach of the

implied covenant of good faith and fair dealing, and violation of

the New Hampshire Consumer Protection Act. Before the court is

Howtek's motion for partial summary judgment on Teco's

counterclaims to the extent those claims are based on Howtek's

failure to negotiate with Teco in good faith (document no. 94).

1The court notes that Herman Hsu did not join in the counterclaim. However, for convenience the court refers to both the named defendants and the counterclaim plaintiffs as "Teco." Background2

In January 1989 Howtek and Teco entered into an agreement

under which Teco was to manufacture "Scanmaster III" color

scanners designed by Teco. The agreement, which was to last for

ten years and was renewable for additional five-year periods,

provided that if Howtek determined

to market products other than the [Scanmaster III] or determine[d] to market modified versions . . . which [were] improvements thereto, Howtek [would] negotiate in good faith for the manufacture by Teco of such other products for Howtek pursuant to the provisions of [the] [a]greement.

Manufacturing Agreement § 10.1.

At some point after the agreement was ratified, Howtek

decided to market other scanning eguipment. Specifically, Howtek

undertook to manufacture the "Scanmaster D7500," the "Scanmaster

D4500," and the "Scanmaster 2500" on its own, without contacting

or negotiating with Teco. Teco did not learn about the existence

of these scanners until after Howtek had manufactured them.

Howtek also entered into agreements with other companies for the

manufacture of the "Scanmaster D4000." Affidavit of Herman Hsu 5

6.3

2The court's recitation of the facts relevant to the instant motion are either not in dispute or have been alleged by Teco.

3It is unclear whether TECO was ever made aware of Howtek's plans to market the Scanmaster D4000.

2 Discussion

Assuming, arguendo, that it failed to negotiate in good

faith with Teco concerning the manufacture of products other than

the Scanmaster III, Howtek argues that partial summary judgment

is warranted on Teco's counterclaims because the provision in the

manufacturing agreement reguiring the parties to negotiate in

good faith is unenforceable under New Hampshire law. In the

alternative, Howtek contends that even if the clause is

enforceable, Teco waived its right to enforce it by failing to

object at an earlier date to Howtek's plans to market additional

products.

Summary judgment is appropriate when material facts are

undisputed and the moving party is entitled to judgment as a

matter of law. Rodriquez-Garcia v. Davila,

(1st

Cir. 1990) (citing Fed. R. Civ. P. 56(c)). The burden is on the

moving party to establish the lack of a genuine, material factual

issue, Finn v. Consolidated Rail Corp.,

(1st Cir.

1986), and the court must view the record in the light most

favorable to the nonmovant, according the nonmovant all

beneficial inferences discernable from the evidence. Caouto v.

Boston Edison Co.,

(1st Cir. 1991).

3 A. Enforceability of the Agreement to Negotiate

New Hampshire law, which governs the manufacturing agreement

between Howtek and Teco, is silent as to the enforceability of

agreements to negotiate. The modern view, and the view endorsed

by most scholars, is that agreements to negotiate in good faith,

unlike mere "agreements to agree," are not unenforceable as a

matter of law. See, e.g., Channel Home Ctr. v. Grossman,

, 299 (3rd Cir. 1986) (letter of intent obligating

landlord to negotiate with prospective tenant enforceable if it

comports with other reguirements of binding contract under

Pennsylvania law); Thompson v. Liguichimica of America, Inc.,

(S.D.N.Y. 1979) (clause obligating parties to

use best efforts to come to agreement may be enforceable if

parties intended clause to impose binding obligation); Itek Corp.

v. Chicago Aerial Indus., Inc.,

(Del. 1968)

(letter of intent reguiring parties to make reasonable effort to

agree upon contract for sale of goods enforceable under Illinois

law); J. Calamari & J. Perillo, Contracts § 2- 9 (a)(3) (3d ed.

1987); E.A. Farnsworth, Precontractual Liability and Preliminary

Agreements: Failed Dealing and Failed Negotiations,

, 266-67. But see, e.g., Ohio Calculating, Inc. v. CPT

Corp.,

(8th Cir. 1988) (deeming such

agreements invalid under Minnesota law due to the impossibility

4 of calculating damages); Candid Prods., Inc. v. International

Skating Union,

(S.D.N.Y. 1982) ("An

agreement to negotiate in good faith is amorphous and nebulous,

since it implicates so many factors that are themselves

indefinite and uncertain that the intent of the parties can only

be fathomed by conjecture or surmise."). Under the modern view,

the critical inguiry in evaluating the enforceability of an

express or implied agreement to negotiate in good faith is

whether the standard against which the parties' good-faith

negotiations are to be measured is sufficiently certain to

comport with the applicable body of contract law. See, e.g.,

Channel, 795 F.2d at 299; Reprosvstem, B.V. v. SCM Corp.,

(2d Cir.) (although party might have been bound by

agreement to negotiate in good faith, particular agreement was

too indefinite to be enforceable under New York law), cert.

denied,

(1984); Schwanbeck v. Federal-Mogul Corp.,

(Mass. 1992) (agreement to negotiate in

good faith not binding where parties did not manifest an

intention to be bound by agreement). As this approach allows the

court to apply specific principles of New Hampshire contract law,

the court will consider whether the terms of the agreement in

guestion are sufficiently definite to render them enforceable.

Under New Hampshire law, the terms of a contract need only

5 be reasonably certain to be enforceable. Sawin v. Carr,

,

(1974) ("pristine preciseness" not

required); accord Restatement (Second) of Contracts § 32(1)

(1981). According to the Restatement, "[t]he terms of a contract

are reasonably certain if they provide a basis for determining

the existence of a breach and for giving an appropriate remedy."

Id. § 32(2) .

The fact that an agreement grants a party some degree of

discretion in performing does not render the agreement

unenforceable. In such a situation, "the parties' intent to be

bound by an enforceable contract raises an implied obligation of

good faith to observe reasonable limits in exercising that

discretion, consistent with the parties' purpose or purposes in

contracting." Centronics Corp. v. Genicom Corp.,

,

(1989). Thus, assuming the parties'

intention to be bound, the implied covenant of good faith may

supply standards, based on the parties' expectations, against

which the exercise of discretionary authority under a contractual

provision may be measured.

A meaningful standard for measuring compliance with the duty

to negotiate in good faith will not always be easy or, in some

cases, even possible to draw. However, in the context of the

complex manufacturing agreement before the court, to which the

6 commercially sophisticated parties involved clearly have

manifested an intention to be bound, the court finds that the

parties' express agreement to negotiate in good faith for the

manufacture of additional products imposes at least some ground

rules. Although such an agreement does not reguire either party

to engage in an "unremitting effort[] to get to yes," Schwanbeck

v. Federal-Mogul Corp.,

(Mass. Ap p . C t .

1991), rev'd ,

(Mass. 1992), it is

"reasonably certain" that the agreement reguires the designing

party (1) to inform the manufacturing party of its intention to

market new items in a related field; and (2) to possess a genuine

willingness to entertain reasonable offers to manufacture new

products. C f . NLRB v. Reed & Prince Mfg. Co.,

(1st Cir.) ("The guestion is whether it is to be inferred from

the totality of the employer's conduct that he went through the

motions of negotiations as an elaborate pretense with no sincere

desire to reach an agreement if possible, or that it bargained in

good faith but was unable to arrive at an acceptable agreement

with the union."), cert, denied,

(1953).

Having found that the agreement to negotiate at issue

imposed some discernable standards on the parties, the court

turns to its ability to fashion a remedy. As Howtek was never

under any obligation to come to an agreement with Teco to

7 manufacture additional items, it may be difficult for Teco to

prove that Howtek's failure to negotiate was the cause of Teco's

detrimental reliance or lost profits. See generally Farnsworth,

supra, at 267 & n.210. However, Teco's damages are not

necessarily so speculative as to preclude the court from

considering evidence on this subject and fashioning an

appropriate remedy. See Bezanson v. Fleet Bank-NH,

(1st Cir. 1994) (damages based on chain of events that would have

occurred but for breach, though "guite speculative," may be

available under New Hampshire law if proven to a reasonable

certainty); Farnsworth, supra at 267 n.210 (reliance damages

should be available where breach and loss are clear).

Accordingly, the court finds that the parties' agreement to

negotiate is of a sufficiently definite nature as to be

enforceable under New Hampshire law and denies Howtek's motion

for partial summary judgment on this ground.

B. Waiver

Under New Hampshire law, "waiver reguires a finding of an

actual intention to forego a known right." Tothill v. Richey

Ins. Agency, Inc.,

,

(1977).

To support its theory of waiver, Howtek argues that Herman Hsu,

the special assistant to the chairman of Teco Information Systems, "has admitted he never cared one way or the other" about

Teco's right to manufacture additional products for Howtek.

However, the deposition testimony upon which Howtek relies

indicates only that Hsu did not regard the agreement to negotiate

as the cornerstone of the agreement between Howtek and Teco. As

Hsu's statements are insufficient to establish that Teco waived

its right to enforce the provision at issue under New Hampshire

law, the court declines to grant partial summary judgment to

Howtek on this ground.

Conclusion

Howtek's motion for partial summary judgment (document no.

94) is denied.

SO ORDERED.

Joseph A. DiClerico, Jr. Chief Judge February 1, 1996

cc: Steven E. Grill, Esguire Richard V. Wiebusch, Esguire Nigel Nien-Tsu Li, Esguire