Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D.N.Y.: Auto security systems distributor left with $1M bill after contract claims fail, (Sep 25, 2014)

By Greg Hammond, J.D.

A car security system manufacturer avoided breach of contract claims based on a purported oral agreement to provide a distributor with systems at the “best price” it could offer. In granting the manufacturer’s motion for summary judgment, the federal district court in Brooklyn determined that the distributor failed to set forth sufficient evidence demonstrating that the manufacturer agreed to orally modify a completely integrated distribution agreement that specifically precluded oral modification (G.L.M. Security & Sounds Inc. v. LoJack Corp., September 19, 2014, Chen, P.).

Background. LoJack Corp. manufactures, distributes, and sells car security systems in the auto industry, including the Stolen Vehicle Recovery Unit (SVRU). G.L.M. Security & Sounds Inc. sells wholesale auto electronics and car security systems. In 2012, LoJack and GLM entered into a LoJack Distributorship and Installation Agreement, whereby GLM would purchase, resell, and install LoJack’s SVRUs. The agreement contained an integration clause, and further stated that, “No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party.” Nevertheless, GLM alleged that the two companies made an oral amendment to the distribution agreement, whereby GLM would receive the “best price” from LoJack. GLM later became delinquent in its payments, owing LoJack over $1 million. After receiving a letter from GLM attempting to terminate the agreement for no-cause, LoJack sent its own for-cause termination letter due to the substantial overdue balance.

GLM filed suit, alleging that LoJack breached the distribution agreement, breached its duty of good faith and fair dealing, and engaged in unfair competition. LoJack moved for summary judgment and to strike certain GLM affidavits, and GLM moved to amend its complaint.

Summary judgment. The court first noted that all of GLM’s claims are based on the company’s contention that it was entitled to the “best price” at which LoJack offered its devices to dealers. However, given the plain language of the distribution agreement, which forbids amendments other than by “written instrument,” the court determined that GLM failed to present “evidence of sufficient force to overcome the presumption” that the parties did not intend to waive the written modification requirement in the fully integrated and complete distribution agreement. The court noted that GLM needed to show that both parties believed an oral modification was reached. However, there was no evidence of any memorialization of the agreement, action in conformity with the agreement, written communications recognizing the terms of the agreement, or other proof.

GLM offered other arguments in support of its breach of contract claims, including: (1) LoJack required GLM to pre-pay for any units it wanted to purchase, contrary to the terms of the distribution agreement; (2) that it was entitled to certain post-termination payments; and (3) LoJack improperly withheld credit for pre-paid incentive monies not claimed by dealership salespeople. The court rejected all three arguments, first finding that GLM’s material breach in failing to pay over $1 million for previously ordered products released LoJack from its obligation to supply GLM without advance payment. Second, LoJack was not required to make any post-termination payments to GLM, because it had properly terminated the distribution agreement for cause. Lastly, the court concluded that under the terms of the Rewards Policy, GLM was not entitled to unclaimed incentives.

The remaining breach of duty of good faith and fair dealing and unfair competition claims were also rejected. Specifically, the court determined that because GLM failed to prove an oral modification to the distribution agreement regarding best price, its breach of good faith and fair dealing and unfair competition claims, which depended on the “best price” promise, failed. Consequently, LoJack’s motion for summary judgment was granted, and its motion to strike was denied as moot.

LoJack’s counterclaims. In response to GLM’s complaint, LoJack asserted a number of counterclaims, arguing that: (1) it was owed over $1 million in compensation for products and services GLM ordered and received, and (2) GLM breached the duty of good faith and fair dealing. The court granted LoJack summary judgment on the compensation counterclaim, as GLM breached the contract by failing to pay the balance of over $1 million. However, summary judgment on LoJack’s breach of good faith and fair dealing counterclaim was denied, as LoJack’s arguments were either duplicative of its breach of contract claim, or it failed to offer evidence as to GLM’s motivation with regard to breaching the implied covenant.

GLM’s motion to amend. According to the court, GLM moved to amend its complaint one month after the motion for summary judgment was fully briefed, and seven months after the deadline. In support of its motion, GLM argued that the best price agreement was “distinct” from the distribution agreement. The court, however, rejected this argument, noting that it fails for the same reason the “oral modification” theory failed—insufficient evidence demonstrating that LoJack ever agreed to offer GLM the “best price.” Additionally, the motion was also denied for undue delay, as GLM should have brought its motion shortly after the close of discovery, not after reading LoJack’s summary judgment papers.

The case number is 10-CV-4701 (PKC) (ARL).

Attorneys: Arthur L. Pressman (Nixon Peabody LLP) for G.L.M. Security & Sound, Inc. James C. Rubinger (Plave Koch PLC) and Rachel H. Prindle (Law Offices of Robert W. Harrington, PC) for LoJack Corp.

Companies: G.L.M. Security & Sound, Inc.; LoJack Corp.

Cases: FranchisingDistribution NewYorkNews