546 F.3d 1 (1st Cir. 2008), 08-1048, New England Surfaces v. E.I. du Pont de Nemours and Co.

Docket Nº:08-1048.
Citation:546 F.3d 1
Party Name:NEW ENGLAND SURFACES, d/b/a Dion Distributors, Inc., Plaintiff, Appellant, v. E.I. DU PONT DE NEMOURS AND COMPANY, d/b/a Du Pont, and Parksite, Inc., Defendants, Appellees.
Case Date:September 23, 2008
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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546 F.3d 1 (1st Cir. 2008)

NEW ENGLAND SURFACES, d/b/a Dion Distributors, Inc., Plaintiff, Appellant,

v.

E.I. DU PONT DE NEMOURS AND COMPANY, d/b/a Du Pont, and Parksite, Inc., Defendants, Appellees.

No. 08-1048.

United States Court of Appeals, First Circuit.

September 23, 2008

Heard July 31, 2008.

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Paul F. Macri with whom William D. Robitzek and Berman & Simmons, P.A. were on brief for appellant.

Raymond Michael Ripple and John C. Wyman with whom Murtha Cullina LLP was on joint brief for appellees.

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Before BOUDIN, SELYA and DYK,[*] Circuit Judges.

BOUDIN, Circuit Judge.

E.I. du Pont de Nemours and Company (“ DuPont" ), based in Delaware, is a well-known maker of chemical and other products. In selling its solid surface materials, DuPont for a number of years franchised distributors, each with an exclusive marketing area or areas (referred to as the franchisee's “ GMA" ). One of these distributors-Maine based New England Surfaces (“ NES" )-held the exclusive franchise for much of New England. The present appeal follows DuPont's termination of NES, NES' law suit against DuPont and the district court's dismissal of NES' claims.

NES, in various corporate incarnations, had for many years distributed DuPont solid surface materials. Under its franchise agreements, NES purchased the raw DuPont materials and resold them, primarily to fabricators trained by NES, who made the final products-for example, countertops-and resold them to retailers or customers. In the last full year before being terminated, NES sold more than $31 million of DuPont products, $27 million of which were of Corian, DuPont's leading (and highly profitable) solid surface countertop material.

In 2000, DuPont entered into new franchise agreements with NES covering three main surface product lines, to continue indefinitely until terminated by either side, which was allowed “ with or without cause, upon at least thirty days prior written notice." The agreements were to be “ governed and construed in accordance with the laws of the state of Delaware without giving effect to the conflict or choice of law provisions thereof." Although not stated in the agreements, DuPont expected that franchisees would not carry products that competed with the DuPont lines carried by the franchisees.

The relationship between the parties began to deteriorate in 2002. NES then held the franchises for Maine, Rhode Island and two northern counties in Connecticut. In 2002, at DuPont's urging NES acquired the struggling Connecticut-based company Kilstrom, which had the DuPont franchise as distributor for the remainder of Connecticut as well as Western Massachusetts. The purchase included Kilstrom's 70,000 square foot office and warehouse in Wallingford, Connecticut; fifteen NES employees thereafter worked primarily in Connecticut.

Following the purchase, NES began to have difficulty meeting DuPont-determined sales goals, which had been amended to include Kilstrom's quota. The change in performance may have owed something both to Kilstrom's condition and to the expiration of DuPont's patent protection on Corian, which led to Asian producers offering identical solid surface products at lower prices. It also appears that public tastes were shifting towards surfaces like granite that DuPont did not offer.

Other DuPont franchisees also encountered difficulties and, in early 2003, a group of nineteen DuPont distributors (self-styled as the “ G-19" ) joined together, aiming to present a “ united front" in negotiations with DuPont. Three of these distributors (the “ G-3" ) were selected to deal directly with DuPont, the chairman being George Pattee, the president of Parksite, Inc., a large DuPont franchisee based in Illinois. But the negotiations did not bear fruit and DuPont began to express dissatisfaction

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with the performance of NES and certain other franchisees.

By Fall 2003, NES had been placed on “ critical review" by DuPont for failing to meet its revised sales goals. On December 5, 2003, DuPont required NES to create a “ corrective action plan" for its performance difficulties and provide monthly-updated purchase forecasts. On February 11, 2004, Charles Trapani, who would later become president of NES, recommended (unsuccessfully) that NES begin to develop a relationship with DuPont competitors. In Trapani's words, NES was on a “ slippery slope" with DuPont that was certain to end badly.

In April 2004, DuPont sent another warning to NES. By late 2004, DuPont's frustration with several distributors led it to explore a new approach to distribution, which DuPont called its “ Route to Market Study." Parksite agreed to participate so that the distributor point-of-view could be presented, but did not initially disclose its role to its fellow G-19 members. Parksite quickly became aware that the project was targeted at certain distributors and, fearing what would come next, initiated discussions with DuPont, hoping that DuPont would acquire it.

Although Parksite later revealed the study to other G-19 members, it kept its negotiations with DuPont secret. By mid-April 2005, DuPont was discussing terminating NES and replacing it with Parksite. Later that month, DuPont held meetings with NES, following up with a further critical letter to NES. Thereafter, Parksite refused to enter into a proposed G-19 agreement that distributor-members would agree not to accept any part of the GMA of a distributor terminated by DuPont without cause.

In October 2005, DuPont hosted a conference for fabricators, which NES also attended, and unveiled its “ Cool Deal" promotion for 2006, which included substantial Corian price cuts for both distributors and fabricators. NES held its own fabricator conference in January 2006, looking toward the “ Cool Deal" promotion. By then, DuPont had already told Parksite privately that NES would definitely be terminated. Nevertheless, in February 2006, DuPont invited all its distributors to participate in the “ Cool Deal" promotion-subject to conditions.

To participate, each distributor was required to submit data about the retailers that the distributor was targeting for the promotion, including the name, address, telephone number and contact name for the retailer; and the amount of sales that the distributor had made of a particular product series in 2005. In March, DuPont insisted that NES provide its complete customer list with sales figures, claiming that the data was needed to track results against the revised sales goals for distributors participating in the program.

One week later, Parksite and DuPont executed an agreement for Parksite to distribute Corian products in New England, providing that it would take effect upon the “ termination by DuPont [of NES]." On April 4, 2006, at one p.m., DuPont notified NES that it would be terminated as an exclusive distributor in thirty days and be unable to distribute DuPont products at all thirty days after that. Four hours later, DuPont sent a fax to fabricators, retailers and builders in what had previously been NES' GMA, announcing that NES was being terminated.

The next day representatives from both DuPont and Parksite began visiting NES' customers, focusing attention on NES' largest customers. NES alleges that several of its customers were told that NES would be going out of business, although at the time NES had no such plans. Customers

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were also informed that if they wanted to ensure a continued supply of DuPont products they would need to contract with DuPont and not NES.

In the six months following NES' termination, Parksite and DuPont generated $15,440,789 worth of sales in NES' old region. NES also attempted to acquire competing surface products but, with a limited supply of...

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