Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—S.D. Tex.: Fact issues precluded summary judgment in distributor’s breach of contract counterclaim, (Oct 5, 2015)

By Linda O’Brien, J.D., LL.M.

In an action by a South African baby seat manufacturer against a U.S. distributor, seeking to enforce an oral distributorship agreement, genuine issues of material fact precluded the grant of summary judgment on the distributor’s breach of contract counterclaim, the federal district court in Houston, Texas has ruled (Jonibach Management Trust v. Wartburg Enterprises, Inc., September 30, 2015, Harmon, M.).

Jonibach Management Trust, a South African company trading as Bumbo International, manufactures Bumbo brand baby seats and accessories. Pursuant to an oral agreement, from 2003 to 2010, Bumbo sold plastic baby seats to U.S. distributor, Wartburg Enterprises, for resale to retailers such as Wal-Mart, Toys “R” Us, and Babies “R” Us. The parties’ relationship soured after Wartburg failed to timely pay for products sent to it by Bumbo on credit and Bumbo’s decision to hire another distributor.

In February 2010, Bumbo filed suit against Wartburg, alleging breach of the distribution agreement and seeking a preliminary injunction requiring Wartburg to continue to distribute its supply of Bumbo baby seats to the three major retailers. The court granted the preliminary injunction, finding a “clear course of dealing over several years” strongly suggesting an enforceable oral agreement. Wartburg responded by filing counterclaims for breach of contract, fraud, and quantum meruit.

In February 2011, the court dismissed all of Bumbo’s claims, lifted the preliminary injunction, and dismissed Wartburg’s fraud and quantum meruit counterclaims, leaving only Wartburg’s counterclaim for breach of contract. Wartburg alleged that Bumbo breached the parties’ agreement by demanding that Wartburg sell its inventory only to certain retailers. Bumbo moved for summary judgment on the breach of contract counterclaim.

The court found there were genuine issues of material fact as to whether, under the oral agreement, Wartburg was required to distribute the Bumbo products first to the three major retailers to the exclusion of Wartburg’s other customers at the time the preliminary injunction was granted. Bumbo contended that having the three retailers’ inventory needs met was a material requirement of the distributorship agreement and it was Wartburg’s primary responsibility as Bumbo’s distributor to ensure those needs were met. Wartburg responded that it was free to sell the products to whomever it chose through its own marketing efforts and Wartburg controlled all aspects of the distribution among retailers.

There was a genuine issue of material fact as to which party terminated the agreement first. In February 2010, Bumbo sent an email to Wartburg notifying the distributor of its decision to use an additional distributor to market Bumbo products in the U.S. and Wartburg was expected to cooperate. Wartburg responded by refusing Bumbo’s demand to pay on a timely basis and provide assurances of security. Thus, those issues precluded summary judgment on the surviving counterclaim, the court concluded.

The case is No. 4:10-cv-00600.

Attorneys: Phillip Robert Brinson (LeClairRyan) for Jonibach Management Trust. Adam Q. Voyles (Lubel Voyles LLP) and Lewis William Jost (Adair Myers PLLC) for Wartburg Enterprises, Inc.

Companies: Jonibach Management Trust; Wartburg Enterprises, Inc.

Cases: FranchisingDistribution TexasNews