Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—M.D.N.C.: Sara Lee and HanesBrands could have breached distribution agreement, (Sep 5, 2013)

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

There was a genuine issue of material fact as to whether Sara Lee Corporation and HanesBrands, Inc. (“Defendants”) knew or had a reason to believe that two of their customers were likely to resell or deliver products to customers in the exclusive territory of distributor Ada Liss Group (2003) Ltd. (“Plaintiff”), according to a magistrate judge of the federal district court in Durham, North Carolina (Ada Liss Group (2003) Ltd., v. Sara Lee Corp., September 3, 2013, Webster, J.). Thus, it was recommended that the court deny both parties” motions for summary judgment on the Plaintiff”s claim that the Defendants breached a 2004 distribution agreement.

Furthermore, summary judgment should be granted to the Plaintiff as to Count I of the Defendants” counterclaim for breach of the parties” 2004 Settlement Agreement and for breach of Count II of the Defendants” counterclaim to the extent that it alleged breach of paragraphs 3a, 4f, 5g, and 9b of the 2004 Distribution Agreement. The Defendants should be granted summary judgment on Count II of the Defendants” counterclaim to the extent it alleged breaches of paragraphs 5e, 7c, and 9c of the 2004 Distribution Agreement.

Background. Plaintiff filed suit alleging various claims arising from two distributorship agreements and a settlement agreement between the parties in which Plaintiff was given an exclusive distributorship to sell the Defendants” Bali-branded intimate apparel in Israel.

Defendants” breach of the 2004 Distributorship Agreement. Both sides moved for summary judgment as to Plaintiff”s claim that the Defendants breached the 2004 Distributorship Agreement. The core of those motions stemmed from the issue of whether the Defendants knew or had reason to know that two of their customers were likely to resell or deliver products to customers in Plaintiff”s exclusive territory in Israel, the court noted.

In an effort to refute Plaintiff”s claims of the parallel imports and establish that there was no reason to believe such allegations, the Defendants attempted to show that they investigated the Plaintiff”s complaints, were informed by their customers that they were not selling or delivering to Israel, and reiterated to their customers that they were not to sell Bali products in Israel.

A review of the evidence indicated that there was a genuine issue of material fact as to whether the Defendants knew or had reason to believe that two of its customers were sources of parallel imports in Israel, the court determined.

Count 1 of Defendants”counterclaim. Count 1 of the Defendants” Counterclaim asserted that the Plaintiff breached the 2004 Settlement Agreement by failing to purchase $300,000 in “first quality” product during fiscal year 2005, failing to grow its minimum “first quality” purchase amount in years 2006 and 2007, and failing to make minimum purchases in the years 2005-2007.

The Plaintiff alleged that it was entitled to summary judgment on Count 1 because the Defendants” breach of the “marking” provision excused the Plaintiff from further performance. The court already determined that the Defendants breached the 2004 Settlement by failing to mark Bali products in an earlier ruling, the court noted. The Plaintiff was correct, the court held.

The Defendants” contention that Plaintiff”s obligation to perform minimum purchases of Bali products was an independent promise not conditioned upon the marking provision, and thus Plaintiff”s nonperformance was not excused, was rejected, the court ruled. The plain language of the two provisions, along with the parties” intent, and nature of the circumstances surrounding the Settlement Agreement indicated that these promises were mutually dependent upon one another such that the Defendants” breach of the marking provision would excuse further performance by the Plaintiff as to its minimum purchase obligations.

Count 2 of Defendants” counterclaim. Both parties moved for summary judgment on Count 2 of the Defendants” counterclaim asserting that the Plaintiff breached the 2004 Distributorship Agreement regarding advertising strategies, annual statements, rolling forecasts, quarterly sales statements, and provisions related to termination procedures.

For several years of the agreement, the Defendants did not require reporting by the Plaintiff, the court noted. The Plaintiff failed to provide the reports in reliance on the Defendants” conduct, particularly in light of a statement by the Defendants” export manager indicating the Defendants” lack of concern for the matter. Thus, the Defendants were estopped from now claiming that the Plaintiff was required to provide rolling forecasts, and quarterly and annual statements. To the extent the counterclaim alleged breaches of paragraphs 3a, 4f, and 5g of the Agreement, summary judgment should be granted to the Plaintiff, the court held.

With regard to the requirement to provide a written inventory in Paragraph 9b, the Defendants” own conduct precluded any obligation for the Plaintiff to provide such a list, according to the court.

Both parties also asserted arguments as to additional post-termination provisions in the Agreement, but summary judgment as to those claims was inappropriate based on the court”s earlier finding that there was a genuine issue as to the Defendants” breach of the Agreement.

The case is No. 1:06CV610.

Attorneys: Heather Bell Adams (Alston & Bird, LLP) for Ada Liss Group (2003) Ltd. E. Danielle Thompson Williams (Kilpatrick Townsend & Stockton LLP) for Sara Lee Branded Apparel.

Cases: FranchisingDistribution NorthCarolinaNews