Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. N.C.: Former distributor’s unfair trade practices claims proceed against Bimbo Bakeries, (Apr 28, 2015)

By Linda O’Brien, J.D., LL.M.

An independent operator who purchased a bakery products distribution route could move forward with claims that a bakery company breached the distribution agreement and violated North Carolina’s Unfair and Deceptive Trade Practices Act (UDTPA), the federal district court in Raleigh, North Carolina has ruled. Thus, the bakery company’s motion to dismiss was denied (Martin v. Bimbo Food Bakeries Distribution, LLC, April 24, 2015, Britt, W.).

Background. In 2006, John Martin purchased a distribution route from George Weston Bakeries Distribution, Inc., the predecessor of Bimbo Foods Bakeries Distribution, Inc. The agreement provided Martin with exclusive rights to purchase bakery products from George Weston and to sell those products to grocery store chains in designated territorial areas. According to the agreement, Martin was paid a percentage of sales or a margin on the sale of a product. After Martin and other distributors received notice that Bimbo Foods was reducing the margins paid to them, they established a committee to negotiate with the company. Bimbo refused to negotiate, and Martin later received a notice of termination for allegedly creating false sales and buyback invoices.

Martin filed suit, challenging the agreement termination and seeking a preliminary injunction to enjoin the defendant from interfering with the operation of his distribution route. After the court denied his motion for preliminary injunction, Bimbo operated Martin’s distribution route on his behalf for eight months before selling the rights to his route without his approval. Instead of turning over to profits garnered from the operation of his route, Bimbo charged Martin over $26,000. In February 2015, Martin filed the current action, alleging—in part—breach of contract and violation of North Carolina’s Unfair and Deceptive Trade Practices Act. Specifically, Martin breached the agreement by charging him unreasonable expenses when operating his distribution on his behalf and failed to sell his distribution rights at the best price. The defendant moved for dismissal of the complaint.

Breach of contract. A breach of contract claim has three elements: (1) the existence of a contract, including its essential terms; (2) a breach of duty imposed by the contract; and (3) resultant damages, the court explained. Martin contended the he would have earned $56,000 during the time the defendant operated his route, Bimbo charged him over $26,000 for operating his route, and Bimbo’s failure to earn any profit was unreasonable. The facts alleged by the plaintiff made his claim plausible and amounted to more than mere conclusory statements, the court noted.

Furthermore, the plaintiff estimated the worth of his business to be in excess of $140,000; however, the bill of sale indicated that the defendant sold his distribution rights for $135,000. Under the terms of the agreement, Bimbo was obligated to sell the distribution rights “at the best price which can be obtained,” and not merely a fair or reasonable price. Assuming the accuracy of the plaintiff’s figures, the $5,000 difference between the estimated value and the actual sales price of his distribution rights was sufficient to allege that the sales price was not the “best price.”

Unfair trade practices. The court also determined that Martin stated a valid claim for relief under the UDTPA. Under the UDTPA, a plaintiff must show that (1) the defendant committed an unfair or deceptive act or practice; (2) the action affected commerce; and (3) the action proximately caused injury to the plaintiff. Martin contended that Bimbo terminated the distribution agreement in retaliation for his opposition to their abusive business practices towards its distributors and he was mistreated in order to intimidate other distributors who might oppose Bimbo’s change in sales margins. Therefore, the plaintiff sufficiently alleged a UDTPA claim to survive a motion to dismiss, according to the court.

Consolidation. Finally, the court concluded that dismissal of the instant action on the ground that it duplicated the prior case was unwarranted. Any risk posed by duplicative litigation will be cured by the consolidation of the instant case with the prior case.

The case is No. 5:15-CV-96-BR.

Attorneys: Edgar R. Bain (Bain, Buzzard & McRae, LLP) for John T. Martin. Deborah L. Edney (Parker, Poe, Adams & Bernstein, LLP) for Bimbo Foods Bakeries Distribution, LLC.

Companies: Bimbo Foods Bakeries Distribution, LLC

Cases: FranchisingDistribution StateUnfairTradePractices NorthCarolinaNews