Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Pa.: Baked goods distributor’s Maryland franchise law claim time-barred, (Oct 30, 2013)

By Peter Reap, J.D., LL.M.

A claim brought by Kirk Robins, a distributor of fresh bakery products, against baked goods manufacturer Bimbo Foods Bakeries Distribution, Inc., for wrongful termination under the Maryland Franchise Registration and Disclosure Law (MFRDL) was barred by the statute’s three-year statute of limitations, the federal district court in Philadelphia has decided (Robins v. Bimbo Foods Bakeries Distribution, Inc., October 28, 2013, Baylson, M.). In addition, Robins’ claim for breach of the parties’ distribution agreement was barred by the release of claims he signed. Thus, Bimbo’s motion to dismiss Robins’ Second Amended Complaint was granted.

Background. In 2009, the parties entered into a distribution agreement that provided the distributor with exclusive distribution rights to certain specified baked products in a geographic area designated by the Agreement. Under the terms of the agreement, Bimbo would supply the distributor with certain types of baked products and the distributor would distribute those products to stores and outlets in the specified geographical area.

The distributor alleged that Bimbo breached the agreement by failing to honor its obligations. The distributor specifically alleged that Bimbo invaded the distributor’s exclusive right to sell products in the designated area, failed to appropriately fill the distributor’s product orders, and improperly set prices, all in violation of its contractual obligations.

According to the distributor, when he tried to sell his distribution rights, Bimbo improperly frustrated his sales attempts by, among other things, requiring him to sign a Release of Rights before finalizing the sale. The distributor claimed his supervisor informed him that the only effect of the release would be to transfer his rights to the route, but that he must sign the release to complete the sale. The distributor alleged that he requested the chance to have counsel review the release but that the request was denied. The distributor claimed that he then signed the release in reliance on those representations, although he affixed the words “signed in duress” to his signature on the release to show that he was signing against his will and based on the misrepresentations.

The distributor filed a complaint against Defendant on September 20, 2012, alleging breach of contract and wrongful termination under the MFRDL.

MFRDL claim. The MFRDL provides that “[a]n action under this section must be brought within 3 years after the grant of the franchise.” Md. Code Ann., Bus. Reg. § 14-227(e). Bimbo contended, and the distributor did not contest, that the action fell outside the statute of limitations period. However, the distributor argued that the court should toll the statute of limitations period because he alleged that Bimbo concealed its violation of the MFRDL and because the distributor encountered difficulty when attempting to find counsel to pursue his claim. These allegations did not warrant tolling of the statute of limitations period and the distributor’s claim was therefore time barred, the court ruled.

Fraudulent conduct on the part of a defendant could equitably toll the statute of limitations, the court noted. Pennsylvania courts do not require fraud in the strictest sense encompassing an intent to deceive, but rather fraud in the broadest sense which includes an unintentional deception. Nevertheless, the defendant must have done something amounting to an affirmative inducement to plaintiff to delay bringing the action.

Moreover, fraudulent concealment must be demonstrated by an affirmative independent act of concealment upon which the plaintiff justifiably relied. Fraud claims based on a failure to disclose information that forms the basis for the underlying cause of action do not constitute an independent act of concealment.

The distributor alleged in his complaint that “[b]y misleading the Plaintiff into believing he had purchased exclusive territorial rights and concealing its actions, Defendant equitably tolled the statute of limitations period.” Those alleged concealments and misrepresentations formed the basis of the distributor’s underlying claims. They did not constitute an independent act of concealment, according to the court, and thus they did not warrant the tolling of the statute of limitations period.

Nor did the distributor’s failure to find legal representation warrant tolling of the limitations period. Because the distributor failed to allege sufficient facts in support of equitable tolling of the statute of limitations period, his MFRDL claim was time-barred, the court explained.

Breach of contract claim. Under Pennsylvania law, a signed release is binding upon the parties unless executed and procured by fraud, duress, accident, or mutual mistake. The distributor’s breach of contract cause of action was barred by the Release, which he signed on May 23, 2011, the court determined.

In seeking to avoid the effect of the Release, the distributor alleged that Bimbo obtained his signature by fraud and/or duress. These allegations failed as a matter of law because, under Pennsylvania law, duress is not established merely by showing that the release was given under pressure.

Courts will not find duress where a party is free to consult with counsel or to take the agreement home and review it further, and the party acknowledges that no one physically forced him or threatened him in any way if he failed to sign, the court observed. The distributor did not allege sufficient facts showing that he signed the Release under duress. The distributor made no allegation of any physical threat on the part of Bimbo or its representatives. Rather, the distributor alleged merely that Bimbo refused to complete the sale of the distribution route until the distributor signed the Release and that Bimbo continued to run the distribution route at the distributor’s expense during the time that the distributor refused to sign the Release.

The distributor also alleged that Bimbo’s representatives refused to allow him to confer with counsel with regards to the Release. However, the distributor also stated that he refused to sign the Release for two weeks, during which time he could have consulted counsel, according to the court.

Nor did the distributor allege sufficient facts showing that Bimbo or its representatives fraudulently induced him to sign the Release. The distributor alleged that Bimbo’s representatives falsely informed him that the sole effect of the Release would be to transfer his rights in the distribution route and that the distributor could only complete the sale of his distribution route by signing the Release. However, the distributor did not allege that Bimbo’s representatives knew their statements were false or acted recklessly as to whether the statements were false.

Nor did the distributor’s allegations demonstrate that he justifiably relied on those statements, the court held. In fact, the distributor alleged that he affixed the phrase “signed in duress” to his signature on the Release in part because he believed Bimbo’s statements to be false. Moreover, the distributor could not demonstrate justifiable reliance on Bimbo’s statements that the Release would only transfer his distribution rights where the plain terms of the Release contradicted that statement, the court decided.

The case is No. 12-5392.

Attorneys: J. Edward Mccain, III (Law Office of Edward Mccain) for Kirk Robins. Michael Jonathan Puma (Morgan Lewis & Bockius LLP) for Bimbo Foods Bakeries Distribution Inc.

Companies: Bimbo Foods Bakeries Distribution, Inc.

Cases: FranchisingDistribution PennsylvaniaNews