Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—CalAppCt: Distributor Could Not Show Termination Breached Agreement , (May 14, 2013)

By Jody Coultas, J.D.

Pepperidge Farm, Inc. did not breach a distributorship agreement with a Pepperidge Farm cookie and cracker distributor when it terminated the agreement for cause, a California appellate court has held (Guiboa v. Pepperidge Farm, Inc., May 13, 2013, Epstein, P.).

The distributor purchased a Pepperidge Farm distributorship route from a third party and entered into a consignment agreement with Pepperidge Farm. Pepperidge Farm received complaints about the distributor from customers about poor service, and eventually terminated the agreement for cause. Pepperidge Farm marketed the territory for sale, as a single route, broken into five separate territories. All five pieces of the territory were sold and all sale proceeds went to the distributor.

A trial court granted Pepperidge Farm nonsuit on the breach of the implied covenant of good faith and fair dealing claim and for punitive damages, while a jury found that Pepperidge Farm was not required to pay the distributor the fair market value of his distributorship following the termination of the consignment agreement for cause. The trial court also held that the distributor was not entitled to equitable relief under the California Unfair Competition Law.

Nonsuit on the breach of implied covenant cause of action was proper, according to the court. The distributor argued that the territory had a market value since he had the exclusive right to distribute within that geographic area and that, upon termination for cause, Pepperidge Farm should have paid him the fair market value of the territory immediately, and then sold it when able to do so to offset the sum paid to him. However, Pepperidge Farm acted reasonably in marketing and selling the territory, within a reasonable time after the termination of the agreement. The distributor failed to present evidence to support the implied covenant theory related to the marketing and timing of the sale of the territory. Also, the claims were undercut by the distributor’s concession Pepperidge Farm had cause to terminate the agreement. The distributor cannot attempt to impose liability on Pepperidge Farm for taking action expressly within the terms of the agreement.

The jury did not err in finding that Pepperidge Farm was not required to pay fair market value of the distributorship following termination for cause. The distributor received payment for the territory by Pepperidge Farms, despite the jury‘s finding that there was no obligation to make it. Therefore, there was no basis for reversal.

The case is No. B235102.

Attorneys: Todd D. Thibodo (Law Offices of Todd D. Thibodo) for James M. Guiboa. Anthony J. Oliva (Allen Matkins Leck Gamble Mallory & Natsis LLP) for Pepperidge Farm, Inc.

Companies: Pepperidge Farm, Inc.

Cases: FranchisingDistribution CaliforniaNews