Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Pa.: Pet food distributor secures partial summary judgment on breach of contract claim against Freshpet, (Mar 26, 2025)

By Justin Marcus Smith, J.D.

The court did not find that the unequivocal conduct of the parties after a certain email exchange showed mutual intent to abrogate their entire agreement, but it may be a Pyrrhic victory for the plaintiff after losing its set-off claim.

Parties to a pet food distribution contract did not modify contract term or termination provisions when they modified certain other terms about order size and delivery fees, found the federal district court in Allentown, Pennsylvania, in awarding summary judgment to Phillips Feed Service, Inc. (Phillips) on its breach of contract claim against Freshpet, Inc. There was no clear and convincing evidence in the summary judgment record of contract rescission. The court held unmodified contract termination provisions remained effective, and there was no genuine dispute of material fact that defendant Freshpet breached them. The court also held that Pennsylvania case law did not support a finding of the right of set-off in situations where a buyer has withheld payment for goods in response to breach of a distribution agreement. The court accordingly denied Phillips’ motion for partial summary judgment on its claim for set-off of the contract termination fee against potentially much larger amounts it may owe Freshpet for pet food received (Phillips Feed Service, Inc. v. Freshpet, Inc., No. 5:22-cv-01393-JMG (E.D. Pa. Mar. 14, 2025)).

Background. Pet food distributor Phillips alleged that pet food manufacturer Freshpet breached their 2018 letter of intent distribution agreement in 2022 by terminating the agreement without requisite 90-day notice and payment of the termination fee. Phillips argued the 2018 letter of intent was still effective in 2022 because it provided for automatic renewals absent advance written notice of termination. Freshpet answered that the parties mutually agreed to abandon their 2018 agreement by email exchange in mid-2021. Freshpet argued the parties formed a new contract in 2021, as Phillips had proposed, which did not include an automatic renewal term, a termination provision, a termination notice requirement, or termination fee. Freshpet also counterclaimed for breach of contract alleging that Phillips withheld payments for products received.

Phillips moved for partial summary judgment on its breach of contract claim. Phillips also moved for partial summary judgment on its claim for offset of the amount it owed Freshpet, about $8 million, by the amount it said Freshpet owed for breach of the distribution agreement, about $5 million. The court granted Phillips’ motion for partial summary judgment on the breach of contract claim but denied summary judgment for set off.

No rescission. The court held that Freshpet’s evidence was not sufficient to prove that the parties agreed to mutual rescission of the 2018 letter of intent before the alleged breach in February 2022. The court did not find positive and unequivocal party conduct showing intent to rescind. The court said it could decide the issue as a matter of law because the facts were beyond dispute. The parties at most engaged in negotiations and reached an agreement in June 2021 to restructure some of the terms about payment and deliveries.

Freshpet’s strongest piece of evidence for rescission was a February 2022 email exchange suggesting that the parties agreed to abandon the 2018 letter of intent in June 2021. However, the court found the parties’ conduct from late 2021 to 2022 outweighed the email because the conduct was more consistent with a continuing business relationship and did not show intent to terminate rights and duties under the 2018 letter of intent. Both parties admitted they continued to do business as usual until April 2022.

Even if Freshpet mistakenly believed the contract would expire and not automatically renew at the close of 2021, an email between senior executives in early December 2021 confirmed, in the court’s estimate, “an understanding on their part that the original contract was still in effect as of that time, rebutting the argument that it was abandoned back in June.” Self-serving party affidavits were insufficient on their own to establish a genuine dispute of fact about rescission or contract abandonment.

The court construed new or different terms negotiated by email in June 2021 as modifications to the existing contract. The court noted that, in Pennsylvania, parties may modify written contracts, but any unmodified terms remain effective. Here, the evidence showed that the parties agreed to modify minimum order size, delivery fee and subsidy, and refrigerated trailer fee, but the remaining terms, including the term and termination provision, remained “untouched” without any clear evidence of intent to rescind.

Accordingly, the court found the 2018 letter of intent automatically renewed and was operative at the time of the alleged Freshpet breach in February 2022.

Breach. Next, the court found Freshpet breached the unmodified notice of termination and termination fee terms of the original 2018 letter of intent. Neither party challenged the ambiguity of the notice requirement, and the court found Freshpet did not pay the termination fee.

Set-off. The court held that Phillips was not entitled to a right of nearly $5 million in set-off for the unpaid Freshpet termination fee against the more than $8 million Phillips owed Freshpet in unpaid invoices. Although the 2018 letter of intent set forth terms for shipment, delivery, and payment, the individual invoices created a right to payment in varying amounts depending on order size. The court agreed with Freshpet that the debts between the parties in this case did not involve the same contract. The court did not agree with Phillips that set-off could serve as a separate cause of action. The court dismissed Phillips’ claim for set-off because the parties’ respective debts were not under the same contract.

Lost profits. The court agreed with the parties that disputed issues of material fact pertained to the question of lost Phillips profits, if any, as damages for Freshpet’s breach of contract. Phillips also clarified it was not seeking summary judgment on this point to the extent it involved facts about the extent of its losses requiring trial.

The Case is No. 5:22-cv-01393-JMG.

Judge: Gallagher, J.

Attorneys: Joshua A. Gildea (Fitzpatrick Lentz & Bubba PC) for Phillips Feed Service, Inc. d/b/a Phillips Feed and Pet Supply. Christopher C. Muvdi (Masano Bradley LLP) and Samuel R. Diamant (King & Spalding, LLP) for Freshpet, Inc.

Companies: Phillips Feed Service, Inc. d/b/a Phillips Feed and Pet Supply; Freshpet, Inc.

Cases: FranchisingDistribution PennsylvaniaNews GCNNews