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COURT OF APPEALS OF THE STATE OF NEW YORK - - - - - - - - - - - - - - - - - - - - - -x ROBERT BRIAN'ASSOCIATES, INC., Plaintiff-Respondent, -against- LOEWS THEATRES, INC., Defendant-Appellant. - - - - - - - - - - - - - - - - - - - - - -x N.Y. Co. Clerk's Index No. 6859-77 MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT-APPELLANT'S MOTION FOR LEAVE TO APPEAL Preliminary Statement This is a motion for-permission to appeal by defendant-appellant Loews Theatres, Inc. from so much of an order of the Appellate Division, First Department as unanimously affirmed a final judgment of the Supreme Court, New York County, Klein, J., after a six day jury trial, in favor of plaintiff-respondent, on its second cause of action, in the amount of $10,000, plus interest. This.appeal is sought to rectify a fundamental mis- carriage of justice: The judgment below awards plaintiff a (Z CJ $10,000 commission for services it concededly never performed, O H+ and the commission is calculated under a contract term which, p %J as found by the Appellate Division, entitled plaintiff to a M percent of outside purchases made by plaintiff on defendant's

2 behalf even though it is undisputed that the purchases involved were made by defendant -- not plaintiff. Lorillard, one of the operating divisions of appellant Loews Theatres, Inc., produces several brands of cigarettes, including True, Golden Lights, Newport, O1d Golds, Max, and Kent, its best-known brand.* This motion concerns one specific program -- the Kent Castle Contest -- used to promote Kent cigarettes, a promotion created by respondent Robert Brian Associates, Inc. ("Robert Brian"), a sales promotion agency which performed certain promotional work on behalf of Kent cigarettes between June 1970 and February 1972, when it was fired for cause. (R711**). In partially affirming the lower Court judgment for $10,000 on plaintiff's second cause of action, the Appellate Division held that there was evidence to support a jury finding that ". .. an agreement between the parties gave plain- p tiff an exclusive right to supply finished art work ~W on its approved programs at usual industry rates plus ~ an override of 25 percent on [plaintiff's] outside N purchases. . . ." (Emphasis supplied.)*** 0 -1 ~ * Throughout this brief, except as the context otherwise requires, Lorillard appellant will be variously referred to as Loews, and Kent. ** References to the Record'herein are indicated by the pre- fix "R". *** Opinion of the Appellate Division, First Department, filed July 10, 1979, appended as Exhibit C to the Affidavit of Sidney S. Rosdeitcher ("Rosdeitcher Aff."), submitted herewith.

3 The jury did indeed find such an agreement, but it could not have based its verdict on such a finding since the $10,000 Robert Brian was awarded here represents a 25% commission not on its outside purchases but on defendant Lorillard's expenses in making outside purchases. It is undisputed that plaintiff Robert Brian refused to have anything to do with those pur- chases and incurred no costs in connection with them. Appeal is sought to reverse this fundamental miscar- riage of justice, which could only have been the result of an oversight by the Courts below. There is no dispute that plaintiff Robert Brian has already received a 25% commission on all of the outside purchases it ever made for Lorillard while associated with Lorillard. There is no contractual predicate for a 25% commission on work which Lorillard arranged and paid for directly -- work, indeed, with which Robert Brian refused to have any involvement. (R277-279.) Hence, there could!have been no basis for awarding Robert Brian $10,000 on its second cause of action. ..In 1974, Robert Brian launched a lawsuit against Lorillard stating two separate causes of action. For its first cause of action, Robert Brian sought to recover on four different contract claims arising from Lorillard promotions other than the Kent Castle contest.* f'or its * The first cause of action will soon be retried. Since there is no final judgment on that cause of action, we could not seek leave to appeal fr=that aspect of the judgment at this time.

Q second cause of action, Robert Brian sought to recover a 25% 4 commission on the amount paid by Lorillard to an independent judging agency to rejudge the Kent Castle contest -- in this case $10,000. After a six day trial before the Honorable Alvin Klein, a jury returned a verdict in favor of Robert Brian on both causes of action. The Appellate Division subsequently reversed and remanded as to the first cause of action for a new trial on damages, but unanimously declined to disturb the $10,000 judgment on the second cause of action. Unless this Court is persuaded to accept an appeal with respect to this second cause of action, that judgment will stand -- notwithstanding the fact that according to the Appellate Division's finding as to the contract.term involved and the only record descriptions of the contract from which this claim derives Robert Brian was plainly not entitled to recover anything, since it never performed the services or made the expenditures on which its override was to be cal- culated~. At trial, and on appeal, the bulk of the proof related entirely to the first cause of action. The second cause of action was perhaps lost in the shuffle of exhibits and~ testimony irrelevant to it. Judges and jury alike failed to focus upon the fact that even if the contract which Robert0 W Brian described were accepted as binding, that contract -- J O O ~ CD

5 the only contract relevant here -- did not support an award to Robert Brian on the second cause of action. It is hoped that in the isolation of this limited motion it will be obvious that there was literally no evidence in the record to sustain this portion of the total judgment, and that an appeal will be allowed to correct this fundamental error. QUESTIONS PRESENTED 1. May plaintiff recover a commission equal to 25% of defen- dant's costs in retaining an outside agency to rejudge a certain sales promotion contest where it is undisputed that defendant had only agreed to pay plaintiff a commis- sion of 25% of plaintiff's outside purchases and where it is admitted that plaintiff did not make such purchases? The trial Court refused to direct a verdict on this claim, and allowed the jury to award a verdict in plain- tiff's favor; the Appellate Division affirmed this judgment. 2. Did plaintiff prove by competent evidence that it suffered any lost net profits as a result of any actionable wrong by defendant? The trial Court below allowed the jury to award damages although there was no evidence establishing that plain- tiff suffered any lost net profits; the Appellate O Division refused to reverse this judgment. ~ O N O m. 0

6 THE FACTS On or about June 1, 1970, Lorillard retained Robert Brian to develop new and different sales promotion ideas for its Kent brand. Robert Brian remained under retainer to Lorillard until February, 1972, with the exception of a four- month hiatus at the end of 1971. (R65-66, R141-143). The agreement between Robert Brian and Lorillard was never reduced to executed written form. However, Robert Sandleman, the President of Robert Brian, testified at length as to his understanding of the terms of the oral agreement between the parties: Robert Brian was to be paid a $6,000 a month retainer fee. With respect to the new and original sales promotion idea suggested by Robert Brian and sub- sequently employed by Lorillard, Robert Brian was to prepare the finished art work at standard industry costs, and was to have a right to bid on actual physical production of the promotion. In addition, Sandleman testified that Lorillard agreed to reimburse Robert Brian at cost plus 25% for any expense Robert Brian might incur in purchasing goods or services from third parties for Lorillard's benefit. The Appellate Division so found. (P: 2; supra; Rosdeitcher Aff. Ex. C.) It is undisputed that Lorillard did in fact pay ~' W ~ Robert Brian an extra 25% on every single purchase Robert O N O 0D 1•+

7 Brian ever made on Lorillard's behalf. The $10,000 judgment on the second cause of action, however, awards Robert Brian a 25% commission on payments by Lorillard on Lorillard's own behalf -- payments made after Robert Brian refused to assist Lorillard further. The Kent Castle Contest promotion was derived from a proposal Robert Brian presented to Lorillard on September 15, 1970. (R862, R868). It developed into the greatest sales promotion debacle in Lorillard's history. In this promotion, contestants were invited to construct as many words of four or more letters as they could, using the fourteen different letters contained in the phrase "KENT MICRONITE FILTER CIGARETTES." The fifty contestants with the highest number of eligible words were promised a week's vacation for two in England, with a side trip to a castle in Kent. (R1138). An independent judging firm, Blue Ribbon Productions, Inc., was retained to judge the entries. The agreement retaining Blue Ribbon was signed by Robert Brian and Blue Ribbon (R251) after prior approval of its terms by Lorillard. The Blue Ribbon/Robert Brian contract provided that Blue Ribbon would perform the necessary judging for a $4,000 fee. (R881). Later, it became apparent that the scope of the O 4"1 judging effort would be much greater than originally antici- W O N O ()p N

8 pated; in consequence, the fee for Blue Ribbon was increased by $12,750, to a total of $16,750. Lorillard paid Robert Brian a 25% commission, or $4,187.50, on this total amount. .(R945, R251). It is undisputed that Lorillard paid Robert Brian 25% of the entire amount spent to judge the contest. It is the subsequent, unanticipated cost of rejudging the contest that gives rise to this lawsuit. The Kent Castle Contest initially appeared to be a grand success. Consumer response was substantial. (R109). In due course, Blue Ribbon announced the winners who, in the summer of 1971, went off on their English holiday. Soon thereafter, disaster struck. First, com- plaints were received from attorneys for disgruntled contest- ants. Then, inquiries were initiated by the New York Attor- ney General and the Federal Trade Commission, which led in turn to formal investigations by each of culminating in a formal complaint by the Lorillard, Robert Brian, Blue Ribbon and Jagoda. (R321-324, R1053 et se .). The publicized charges was that Robert Brian Lorillard had sponsored, and Blue Ribbon lent contest. those agencies, FTC against Loews, its principal, Don essence of the had conceived, well- had judged a fraudu- On investigation, it turned out that Blue Ribbon had failed to anticipate the enormity of the judging job it

c 9 had assumed: it was inundated with thousands of entries, many containing thousands and thousands of words, which words the contest rules did not even require to be submitted in alphabetical order. Unable, as a practical matter, to verify the correct total of eligible words in each entry, Blue Ribbon tried to solve its problem by judging the entries on the basis of what proved to be a statistically inadequate sampling technique. As a result, Blue Ribbon overlooked many contestants who should have won. (R109-112, R321-325). After the true facts of this fiasco began to emerge in early 1972, Robert Brian washed its hands of the entire mess. Notwithstanding the fact that Robert Brian had been paid $4,187.50 by Lorillard for "supervising Don Jagoda,"* Sandleman insisted that Robert Brian had had nothing to do with writing the rules** or judging the contest and therefore would have nothing to do with resolving the resulting prob- lem. (R107-108). * An early invoice sent to Lorillard by Robert Brian was identified with the phrase, "Contract for supervision 'Don Jagoda."' (R1140). ** Defendant's Exhibit K is a set of Kent Castle rules on Robert Brian letterhead which states, on its face: "Pre- pared by Robert Brian Associates." Sandleman testified that these rules were not in fact prepared by Robert Brian, but that Robert Brian simply (and falsely) claimed credit for Blue Ribbon's work. (R264-265).

10 Lorillard did not have the option of that sort of irresponsibility. It negotiated a consent agreement with the Federal Trade Commission, providing, inter alia, that the entire contest would be rejudged by means of a scientific sampling technique, with the entire rejudging effort super- vised by outside experts acceptable to the Federal Trade Com- mission. After searching for the most efficient way to effect this rejudging in a manner acceptable to the Attorney General and the FTC, Blue Ribbon was retained to do the work. The new agreement covering the rejudging -- which in no way involved Robert Brian -- provided that this time Blue Ribbon would be adequately supervised and paid on an hourly rate basis with a maximum fee of $100,000. (Def's Ex. 0 for identification R1063 et seq.).* After the contest was rejudged, only two of the original 50 winners remained on the corrected winners' list. The total out-of-pocket costs to Lorillard in connection with the FTC settlements were approximately $180,000 (R324); Blue Ribbon's eventual fee for the rejudging was approximately $40,000. Robert Brian, by its own insistence, had no in- volvement whatsoever with the rejudg,ing. It is undisputed O * For the reasons explained below, this exhibit was wrongly .1 excluded from evidence. ~ N O Gb C1t