Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Colo.: Distributorship agreement might bind subsidiaries, (Feb 10, 2015)

By Dan Selcke, J.D.

Even though they were not parties to the contract in question, a group of subsidiaries of tile company Porcelanosa may still be liable for breaching a contract between Porcelanosa and a distributor because the subsidiaries had all done business under the trade name, had performed under the agreement, and an agent from one of the subsidiaries had signed the agreement. Specifically, the distributor brought claims for breach of contract, willful and wanton breach of contract, tortious interference with contract and with business advantage, and civil conspiracy. In the alternative, it brought claims for quantum meruit and unjust enrichment (Crew Tile Distribution, Inc. v. Porcelanosa Los Angeles, Inc., February 5, 2015, Martinez, W.).

Distributorship agreement. Porcelanosa Grupo was an international tile and stone company that sold and marketed its products in the U.S. It owned several subsidiaries spread throughout the country, all of which conducted business by and through the unregistered trade name “Porcelanosa USA.” Crew Tile Distribution, Inc. entered into an agreement with Porcelanosa USA under which it became the near-exclusive distributor of Porcelanosa products in Colorado. Under the agreement, which was signed and witnessed by agents from Porcelanosa LA, Crew Tile built a showroom and sold Porcelanosa products to Colorado residents without incident for several years.

Subsidiaries breach agreement. Several Porcelanosa subsidiaries—Porcelanosa LA, Porcelanosa New York, and Porcelanosa Texas—allegedly breached the agreement by selling Porcelanosa products in Colorado without using Crew Tile as a distributor. Porcelanosa Texas built a new showroom in Denver and told Crew Tile’s customers to place any future orders for Porcelanosa products with it. Porcelanosa New York sent Crew Tile a letter terminating the distributorship agreement, and the various subsidiaries agreed amongst themselves to block Crew Tile’s ability to place new orders for products. Crew Tile filed suit against the subsidiaries, and they brought a motion to dismiss.

Breach of contract. Regarding Crew Tile’s breach of contract claims, the subsidiaries argued they could not be held liable because they were not parties to the contract, which was between Crew Tile and Porcelanosa USA. However, Crew Tile alleged enough facts which, if taken as true, appeared to render the subsidiaries liable. Specifically, Crew Tile alleged that, although the distributorship agreement had been with Porcelanosa USA, it had been signed by an agent from Porcelanosa LA, that all of the subsidiaries had done business as Porcelanosa USA, and that they had all performed under the agreement. Crew Tile also cited Colorado statutes which made it unlawful to do business under an unregistered trade name.

The subsidiaries argued that Crew Tile should have alleged that they were the intended real parties in interest under the agreement, and to support this with evidence regarding why Porcelanosa USA, rather than the subsidiaries, had been named on the agreement. That kind of evidence might be needed for summary judgment, but Crew Tile’s allegations were sufficient at this stage of the litigation. Accordingly, the court denied the subsidiaries’ motion to dismiss Crew Tile’s breach of contract claims. It also denied their motion to dismiss Crew Tile’s claim for declaratory relief against Porcelanosa LA and Porcelanosa New York.

Tort claims. To combat Crew Tile’s claims of civil conspiracy and tortious interference with contract, the subsidiaries only argued that the claims could not go forward because they depended on the existence of a valid breach of contract claim. The court had decided that Crew Tile had such a claim, so it denied the subsidiaries’ motion to dismiss those two tort claims.

As for Crew Tile’s claim for tortious interference with business advantage, the court held that the company sufficiently identified contracts and other forms of business advantage that were interfered with as a result of the subsidiaries’ conduct. In particular, Crew Tile alleged that the subsidiaries began selling and distributing Porcelanosa products to Colorado customers who would otherwise have been customers for Crew Tile. It also alleged that Porcelanosa Texas created competition for customers by opening a showroom in Denver and sending letters to Crew Tile customers, asking them to place their orders elsewhere. By terminating the distributorship agreement, Porcelanosa New York withdrew Crew Tile’s ability to provide display racks to its affiliated retailers.

Equitable claims. Finally, the court considered Crew Tile’s equitable claims for quantum meruit and unjust enrichment, which it pleaded in the alternative if the court decided there was no enforceable contract. The subsidiaries’ argument that Crew Tile’s equitable claims depended on the existence of a valid contract was rejected and the court denied Porcelanosa’s motion to dismiss as to these claims as well.

The case number is: 13-cv-3206

Attorneys: David K. TeSelle (Burg, Simpson, Eldredge, Hersh & Jardine, PC) for Crew Tile Distribution Inc. James Nicholas Thomaidis (Gersh & Thomaidis, LLC) for Porcelanosa Los Angeles Inc., Porcelanosa New York Inc., Porcelanosa Texas Inc., and Porven Ltd.

Companies: Crew Tile Distribution Inc.; Porcelanosa Los Angeles Inc.; Porcelanosa New York Inc.; Porcelanosa Texas Inc.; Porven Ltd.

Cases: FranchisingDistribution ColoradoNews