Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—DNJ: Bakery Products Distributors Alleged New Jersey Places of Business for Franchise Practices Act Claims, (Mar 15, 2013)

By Tobias J. Gillett, J.D., LLM.

Bakery products distributors could proceed with New Jersey Franchise Practices Act claims against a wholesale bread company because the distributors adequately alleged that they actually maintained places of business in New Jersey, and that their distribution agreements with the wholesaler “contemplated” that they would maintain those places of business, the federal district court in Camden, New Jersey has ruled (Strassle v. Bimbo Foods Bakeries Distribution, Inc., March 12, 2013, Kugler, R.).

However, the distributors could not obtain lost profit damages to the extent that they sought recovery for profits they intended to earn from selling goods purchased from the wholesaler to third parties.

Background. The plaintiff bakery products distributors had distribution agreements with Bimbo Foods Bakeries Distribution, Inc., giving them the exclusive right to buy and resell in specific territories certain brands of bread and roll products. The agreements also provided that, when retail stores elected to accept delivery of products “by any method other than store door delivery,” the distributors had “the first right to effect such alternative service.” The parties also agreed not to be liable to each other for “any consequential, incidental, indirect, or special damages, including lost profits and punitive damages.”

The distributors filed suit against Bimbo, alleging that Bimbo breached its obligations under the agreements by refusing to allow the distributors to buy and resell the branded bread products. They asserted claims for breach of contract and for violations of the New Jersey Franchise Practices Act (NJFPA).

New Jersey Franchise Practices Act. The court first addressed Bimbo’s argument that the NJFPA did not apply to the distribution agreements. The court explained that the NJFPA only applies to a franchise if “the performance of [that franchise] contemplates or requires the franchise to establish or maintain a place of business within the state of New Jersey.”

Bimbo contended that this provision required the distributors to actually maintain places of business in New Jersey, and that they failed to allege that they did so. The distributors had alleged that they “do, in fact, maintain such fixed places of business,” but Bimbo dismissed this as “a legal conclusion couched as factual allegations.” The court disagreed, finding it to be “a simple fact that either does or does not exist in the world,” one that the court had to accept as true on a motion to dismiss.

Bimbo also argued that the distribution agreements did not “contemplate or require” that the distributors would establish or maintain places of business in New Jersey. Although the distributor alleged that the agreements required them “to maintain fixed places of business in New Jersey,” they failed to allege any facts “that would explain why performance of their contractual duties required them to maintain such places of business,” nor did they covenant to maintain such places of business. Thus, the plaintiffs did not show that the agreements required them to maintain places of business in New Jersey.

However, the court observed that the distributors’ claims could survive the motion to dismiss if they could show that the performance of the agreements “contemplated” that they would maintain such places of business. The court explained that the distributors would have to show that the parties “reasonably anticipated that the franchisee would establish a New Jersey place of business.”

Here, the distributors retained “the first right to effect such alternative service” when retail stores elected to accept delivery of products “by any method other than store door delivery” under the distribution agreements. The court found that this provision anticipated that the distributors would not be going to their customers stores, but rather that “the customers would be coming to pick up their bread at some fixed place of business.” The court determined that this was “just enough” to show the agreement “contemplated” the distributors maintaining places of business in New Jersey. Therefore, the court denied Bimbo’s motion to dismiss the NJFPA claim.

Lost profit damages. The court then took up Bimbo’s argument that the distributors were barred by the distribution agreements from seeking lost profit damages. Although the distributors acknowledged that the distribution agreements barred them from seeking “consequential, incidental, indirect or special” lost profit damages, they contended that the lost profits they sought were a form of direct damages. Bimbo responded that the distribution agreement was covered by the New Jersey Uniform Commercial Code (UCC), rather than the common law, and that the nature of the distributors’ franchises meant that they could only seek consequential lost profits.

The court agreed with Bimbo that New Jersey’s UCC applied to the distribution agreements. Under the UCC, if a seller contracts with a buyer for the sale of goods and fails to deliver them, the buyer may recover “any incidental and consequential damages provided” under the UCC, including lost profit damages. Therefore, “lost profit damages appear[ed] to fall within the exclusive province of consequential, rather than direct, damages” under the UCC, in the court’s view.

The court noted that the distributors had only referred to their lost profit damages in “generalities,” leaving the court “to speculate about exactly what lost profit damages they seek.” However, the court found such damages to be barred to the extent that the distributors sought lost profit damages that they intended to earn from selling the branded bread products to retailers in their distribution territories.

The case is No. 12-3313 (RBK/AMD).

Attorneys: Joseph A. Osefchen (Shabel & DeNittis, P.C.) for George A. Strassle. James P. Walsh, Jr. (Morgan, Lewis & Bockius LLP) for Bimbo Foods Bakeries Distribution, Inc.

Companies: Bimbo Foods Bakeries Distribution, Inc.

Cases: FranchisingDistribution NewJerseyNews