Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—S.D. Fla.: Claims based on loss of master distributorship can proceed, (Dec 9, 2013)

By John W. Arden, J.D., LL.M.

A master distributor’s claims that another distributor and related parties were liable for fraud, civil conspiracy, unjust enrichment, and tortious interference in connection with the loss of its master distributorship withstood a motion for summary judgment, the federal district court in West Palm Beach, Florida has ruled (Bluesky Greenland Environmental Solutions, LLC v. 21st Century Planet Fund, LLC, December 4, 2013, Hurley, D.).

Bluesky Greenland Environmental Solutions, LLC is a Texas limited liability company, formed for the purpose of marketing and exporting environmentally-friendly products and services. In October 2007, it entered into a three-year “Master Distributor Agreement” with Rentar Environmental Solutions Inc., the manufacturer of a pre-combustion fuel catalyst device. The device was designed to enhance combustion, resulting in fuel efficiency and emissions reduction. Rentar markets its products worldwide through independent wholesale distributors, such as Bluesky.

The Master Distributor Agreement gave Bluesky the non-exclusive territory of the United Arab Emerites, Qatar, Pakistan, Bangladesh, and Saudi Arabia. The agreement stated: “It is not the intention of Rentar to assign these territories to another distributor, but the territories remain non-exclusive.” The agreement further contained a merger and integration clause, requiring that any amendment to the agreement be in writing. The agreement prescribed a term of three years, with provision for automatic annual renewal thereafter, subject to the ability of either party to terminate the agreement at will at any time with advance written notice.

While India was not originally within its designated sales territory, Bluesky contended that the agreement was amended, orally and by a continuing course of conduct between the parties, to add India to Bluesky’s non-exclusive territory. Thus, Bluesky’s complaint asserted that (1) Bluesky began focusing its marketing efforts on India as early as December 2007; (2) Rentar was aware of these efforts and encouraged them; (3) Rentar described Bluesky to prospective customers as “Distributor for India and the Middle East”; (4) Bluesky developed contacts in India which it identified on customer lists; (5) Bluesky provided Rentair with a list of Indian customers; (6) Bluesky complained to Retair that another distributor held himself out as Rentair’s “exclusive” Indian agent; and (7) Rentair’s senior vice president promised to ensure that all future requests from the Indian Market would be channeled to Bluesky.

Between October 2007 and October 2010, Bluesky expended $250,000 to develop a customer base in India, developing good will and brand recognition through one-the-ground field projects and free trial offers, it was alleged.

In March 2010, Gregory Georgas, a Florida business man, created 21st Century Planet Ltd., a Cayman Islands limited partnership, for potential foreign business and investment. Georgas offered his services and valuable political connections in the marketing for the Rentar fuel catalyst in the U.S. and around the world. In June 2010, Georgas individually purchased 100,000 common shares of Rentar at $1 per share, with an option to purchase an additional 400,000 shares by December 30, 2010 at the same price.

21st Century Planet entered into a “Reseller Agreement International” that authorized it to market and distribute Rentar products in the non-exclusive territory of the U.S. and Canada. Rentar introduced Bluesky’s managing member, Abid Ansari, to Michael Hoban of Edge Solutions, a consultant working with 21st Century. After a conversation regarding Indian distribution, Hoban reported the activities of Bluesky to 21st Century and referred 21st Century’s own business connections in India. Eventually, an agreement was entered between Bluesky and 21st Century regarding their working together on selling the Rentar equipment to an Indian bus company, agreeing to “share the profits on a fifty/fifty basis.” During this time, 21st Century was alleged to be discussing the potential exclusive agreement with Rentar regarding India. Eventually, Rentar executed a formal agency agreement with 21st Century, designating 21st Century as its exclusive marketing agent in India.

On October 4, 2010, Rentar issued a written notice of its intent not to renew Bluesky’s Master Distributor Agreement, effectively terminating the contractual relationship between the two parties. Bluesky initiated this lawsuit against 21st Century, Gregory G. Georgas, Michael Hoban, and other related parties. Georgas and 21st Century brought a motion for summary judgment, contending that (1) there was no evidence that Georgas engaged in any conduct that would support a claim against him personally for fraud by commission or omission; (2) there was no evidence of a civil conspiracy; (3) there was no evidence of tortuous interference with a contract, where Bluesky had a non-exclusive agreement; and (4) there was no evidence that Georgas or 21st Century were unjustly enriched by the marketing information that Bluesky voluntarily shared with Hoban and others regarding the bus venture.

Fraud claims. The court found sufficient evidence of material fact on whether the agreements between Bluesky and 21st Century were ancillary to or memorialized a joint venture, which gave rise to a special relationship between the parties and a corresponding fiduciary duty on the part of the co-venturers to disclose material information to each other. The court further found a genuine issue of material fact on the question of whether Georgas may be personally liable for breach of such fiduciary duty, on the theory that Georgas wrongfully withheld material information from Bluesky regarding (1) 21st Century’s status as a Rentar distributor with non-exclusive rights to distribute in India, with designs on acquiring an exclusive Rentar distributorship in India and (2) Georgas’ position as a Rentar stockholder with an open option to purchase 400,000 shares and possible designs on a Rentar takeover.

Tortious interference. Bluesky demonstrated a genuine issue of fact on the question of whether the Bluesky Master Distributor Agreement was effectively modified by a post-contract course of dealing and verbal communications between Bluesky and Rentar so as to expand Bluesky’s designated non-exclusive marketing territories to include India. In addition, there was sufficient evidence to create a genuine issue of material fact on the question of whether the defendants used improper means to compete against Bluesky.

Unjust enrichment. The elements of unjust enrichment are: (1) the plaintiff has conferred a benefit on the defendant, (2) the defendant has knowledge of the benefit, (3) the defendant has accepted or retained the benefit conferred, and (4) the circumstances are such that it would be unequitable for defendant to retain the benefit without paying fair value for it.

The court found that the evidence was susceptible to an inference that the defendants unjustly received valuable proprietary marketing data, customer lists, and the good will of Bluesky’s Indian customers—all valuable to 21st Century’s effort to turn its non-exclusive Indian distributorship into an exclusive one. While unjust enrichment will not lie when there is an express written contract governing the same subject matter, this general rule did not apply because the unjust enrichment claim hinged on the proprietary data rather than on the alleged breaches of the profit sharing agreement. There was no express contract covering the purchase of the proprietary data for value, the court noted.

Thus, Bluesky alleged the conferring of a benefit on 21st Century, Georgas’s knowledge of the benefit of the marketing data, the retention of the benefit, and the unquitable nature of the retention of the information without payment.

The case is No. 12-81234-CIV-HURLEY.

Attorneys: Stephen E. Menn (Law Office of Stephen E. Menn) and John Philip Hess (Law Office of John P. Hess) for Bluesky Greenland Environmental Solutions, LLC. Joseph Gregory Santoro (Gunster Yoakley & Stewart) for 21st Century Planet Fund LLC.

Companies: Bluesky Greenland Environmental Solutions, LLC; 21st Century Planet Fund LLC

Cases: FranchisingDistribution FloridaNews