Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D.N.Y.: Failure to request interest on delinquent account did not waive LoJack’s right to recovery, (Jul 16, 2015)

By Michael Menzhuber, J.D., LL.M.

A car security system manufacturer’s failure to request interest on a former distributor’s delinquent account did not waive or modify its contractual entitlement to recover interest on late payments, according to the federal district court in Brooklyn. However, the court determined that the manufacturer’s post-dealership agreement communications, along with the parties’ course of conduct, extended the agreement’s 60-day payment deadline to 90 days. Consequently, the calculation of interest accrued 90 days, rather than 60 days, after invoice (G.L.M. Security & Sounds Inc. v. LoJack Corp., July 15, 2015, Chen, P.).

Background. In 2002, G.L.M. Security & Sounds Inc. (GLM), a wholesale distributor of auto electronics and car security systems and LoJack Corp.(LoJack), a car security system manufacturer, entered into a distributorship agreement, whereby GLM would purchase, resell, and install LoJack’s “Stolen Vehicle Recovery Units” (SVRUs). Under the written terms of the agreement, payments would be considered late after 60 days and the interest rate on late payments would be one and one-half percent per month until paid. The agreement also specified that it could only be modified or amended by a written instrument signed by both GLM and LoJack.

After entering into the agreement, LoJack delivered SVRUs to GLM accompanied by a series of invoices. GLM believed that it was entitled to receive a “best price” from LoJack. In the absence of receiving a “best price”, it failed to pay numerous invoices that it received. LoJack made repeated requests for payments but did not ask for interest pursuant to the agreement’s interest provision. LoJack also indicated in an e-mail, and in five of the invoices that it sent GLM, that the term for payment was 90 days.

LoJack terminated the agreement and GLM filed suit, alleging that: (1) LoJack breached the distribution agreement: (2) breached its duty of good faith and fair dealing, and (3) engaged in unfair competition. The court, however, granted summary judgment in favor of LoJack on its breach of contract counterclaim based, in part, on: (1) a finding that LoJack did not breach any purported “best price” promise; and (2) GLM’s undisputed failure to pay for a substantial portion of the SVRUs that it received from LoJack.

LoJack brought a motion for damages on its breach of contract counterclaim for the outstanding balance owed by GLM and a 1.5 percent monthly interest rate accruing after the payment deadline of 60 days after invoice. GLM did not dispute that LoJack was entitled to recover the unpaid balance on the invoices but argued that: (1) LoJack could not recover interest because it waived or modified the agreement’s interest provision; or (2) the amount of any interest owed should be reduced because the parties extended the 60-day payment deadline to 90 days.

Waiver of Interest Provision. GLM contended that, despite the agreement’s non-waiver clause, LoJack waived its right to enforce the agreement’s interest provision by failing to indicate its intent to do so. The court disagreed. It determined that, given LoJack’s repeated request for GLM to bring its delinquent account current, the mere failure to indicate that interest was due did not meet the “clear, decisive, and unequivocal” evidence standard required to establish waiver under Massachusetts law (the governing law for the agreement), particularly in light of the agreement’s express non-waiver clause.

Modification of Interest Provision. GLM contended that the invoices that LoJack sent were written modifications to the agreement’s interest provision because they failed to charge interest. The court noted that the agreement required that modifications by made by written instrument signed by both parties. Because the invoices LoJack sent were not signed by GLM, the court found that they did not meet the signature requirements for modifying the agreement’s interest provision so at to entirely eliminate it.

GLM also argued that the agreement’s interest provision was orally modified. The court noted that, under Massachusetts law, an oral modification of a contract is not automatically barred by a provision requiring amendment to be made by a written instrument. However, evidence of an oral medication “must be of sufficient force to overcome the presumption that an integrated and complete agreement, which requires consent to modification, expresses the intent of the parties.” Cambridgeport Sav. Bank v. Boersner, 597 N.E.2d 1017 (1992). The court determined that Lojack’s failure to reference interest on past-due invoices to GLM did not meet this standard to support the complete elimination of the agreement’s interest provison.

Modification of 90-Day Payment Term. The court determined that LoJack’s post-agreement communication with GLM, along with the course of conduct between the parties, was sufficient to establish an oral modification to the agreements payment term from “60 days of invoice” to “90 days of invoice.” LoJack argued that the payment due deadline could not be orally modified because of the court’s prior summary judgment ruling that there had been no modification of the agreement’s price terms. However, the court noted that, unlike with respect to the agreement’s price terms, there was substantial evidence regarding modification of the payment due deadline. Specifically, the court noted: (1) LoJack e-mail to GLM which stated the payments terms were net 90 days; (2) five of the invoices sent to GLM had Net 90 under the “Payment Terms” section; and (3) LoJack referred to the fact that it provided GLM with “90 day terms” in an internal memo.

The case is No. 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 M. Harrington (Law Offices of Robert W. Harrington, PC) for LoJack Corp.

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

Cases: FranchisingDistribution NewYorkNews