Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—2d Cir.: No fiduciary relationship between Italian pasta manufacturer and importer, (Feb 12, 2016)

By Edward L. Puzzo, J.D.

In a case brought by a food importer against a foreign manufacturer, the federal district court did not err in applying New York law instead of that of a federal trade agreement, nor in ruling that the importer had failed to raise an issue of triable fact regarding the existence of a fiduciary relationship and a joint venture, the U.S. Court of Appeals in New York has ruled (Rienzi & Sons, Inc. v. N. Puglisi & F. Industria Paste Alimentari S.p.A., February 10, 2016, Per Curiam).

Rienzi & Sons (Rienzi) is an American importer and distributor of Italian foods. N. Puglisi & F. Industria Paste Alimentari (Puglisi) is an Italian manufacturer of pasta products. Rienzi brought breach of contract and breach of fiduciary duty claims against Puglisi. On February 17, 2015, the federal district court in New York granted summary judgment in favor of Puglisi. Rienzi appealed the district court's ruling. After reviewing the record, the appellate court affirmed the judgment of the district court.

Application of New York law. Rienzi first argued that the lower court erred in applying New York law, rather than the Convention on the International Sale of Goods (CISG), to the parties’ contract claims. Rienzi contended that Puglisi would not have been entitled to summary judgment under the CISG.

The CISG is an agreement between the United States and other signatories, including Italy, the court explained. As federal law, it preempts local contract law unless the parties agree otherwise. The lower court concluded that Rienzi had opted out of the CISG during this litigation by consenting to the application of New York law.

Upon review, the appellate court noted that Rienzi made no mention of the CISG during the period of 2008-2011 when this litigation was in its initial stages. More importantly, in answering a counter-claim, Rienzi asserted a statute of frauds defense inconsistent with an application of the CISG but cognizable under New York law. The appellate court concluded that Rienzi had consented to the application of New York law to its contract claims.

Existence of fiduciary relationship. Rienzi next argued that the lower court erred in ruling that it had failed to raise an issue of triable fact regarding the existence of a fiduciary relationship and a joint venture. Rienzi stated that it purchased its pasta exclusively from Puglisi, making it economically dependent on Puglisi and arguably creating a fiduciary relationship. The appellate court noted that, while a fiduciary relationship can exist between a manufacturer and a distributor, the inherent dominance stemming from a distributor’s reliance on a manufacturer is not itself sufficient to establish such a relationship. Under New York law, de facto control and dominance are also required to establish a fiduciary relationship, but the evidence failed to demonstrate such control or dominance by Puglisi over Rienzi. Instead, the evidence indicated that Rienzi had assured the U.S. Department of Commerce that it could locate a new pasta supplier with little disruption in its business, and it did in fact secure a replacement manufacturer less than two weeks after terminating its relationship with Puglisi. Thus, the lower court properly concluded that Rienzi had failed to raise an issue of triable fact regarding a possible fiduciary relationship.

Existence of joint venture. Similarly, the appellate court stated, there was no genuine issue as to whether a joint venture existed between the parties. During an investigation by the U.S. Department of Commerce, Rienzi and Puglisi had become joint clients of a law firm with the intention of sharing information, legal costs, and potential duty fee benefits of the investigation. Rienzi could not simultaneously claim that it entered a joint venture with Puglisi whereby they agreed to share profits and losses, the appellate court stated, while and also claiming that Puglisi breached that joint venture by failing to reimburse Rienzi for 100 percent of the legal fees. If, as Rienzi contends, its advance of legal fees was a loan to Puglisi and Puglisi was to be responsible for all legal fees, then their relationship was that of a lender and borrower, not a joint venture. There was also no agreement between the parties to share responsibility for customs duties, a cost typically paid by importers. Therefore, the lower court properly concluded that Rienzi had failed to raise an issue of triable fact regarding a possible joint venture.

The case is Civil Action No. 15-791-cv.

Attorneys: Michael J. Sheppeard (Ballon Stoll Bader & Nadler, PC) for Rienzi & Sons, Inc. Evan Mandel (Mandel Bhandari LLP) for N. Puglisi & F. Industria Paste Alimentari S.p.A.

Companies: Rienzi & Sons, Inc.; N. Puglisi & F. Industria Paste Alimentari S.p.A.

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