Petereit v. SB Thomas, Inc., Civ. No. 3:93CV 00865 (PCD)

• Decision Date: 25 October 1993
• Docket Number: Civ. No. 3:93CV 00865 (PCD),3:93CV 00957 (PCD).
• Citation: 853 F. Supp. 55
• Court: U.S. District Court — District of Connecticut
• Parties: Robert PETEREIT, et al. v. S.B. THOMAS, INC. Eric Carl AHLQUIST, et al. v. S.B. THOMAS, INC.

853 F. Supp. 55

Robert PETEREIT, et al. v. S.B. THOMAS, INC.

Eric Carl AHLQUIST, et al. v. S.B. THOMAS, INC.

Civ. Nos. 3:93CV 00865 (PCD), 3:93CV 00957 (PCD).

United States District Court, D. Connecticut.

October 25, 1993.

COPYRIGHT MATERIAL OMITTED

Robert A. Horowitz, Thomas H. Kukowski, Kelley Drye & Warren, Stamford, CT.

Paul Ruszczyk, Dice, Maloney & Lenz, Cheshire, CT.

Robert M. Decrescenzo, Updike, Kelly & Spellacy, P.C., Hartford, CT.

Richard S. Order, Kevin N. Reynolds, Updike, Kelly & Spellacy, P.C., Hartford, CT.

MEMORANDUM OF DECISION

DORSEY, District Judge.

The end of the era in which "handshake deal" relationships commence and then evolve from a mutuality of interests, motivation and good faith, is evident in the present dispute. Plaintiffs seek permanent injunctions. The cases were heard at the same time absent material distinguishing factual issues.

FACTS:

Plaintiffs distribute defendant's food products out of a Waterbury depot, and out of a Newington depot (until recently when defendant mandated use of its parent corporation's terminal). All have so functioned for long periods of time, some over twenty years. None claims the right to sell their route nor to have paid for it. Some, but not all, plaintiffs received letters from defendant which noted the assignments to be non-permanent and non-exclusive, as independent distributors, not as franchisees. Receipt of product for distribution was contingent on satisfactory performance. D.Ex. 16. Each was assigned specific stores, largely high volume chain food stores. In their respective areas plaintiffs are free to obtain other customers, usually smaller food outlets. Territories were not defined with precision, but were related to the areas of the stores assigned. Some towns had more than one distributor assigned. Routes crossed or intermeshed.

Though plaintiffs are free to set prices to other customers, they are effectively constrained by defendant's chain prices and the retail price defendant prints on each package. Price breaks below prices to chains are not allowed. At the chains, plaintiffs deliver and place on shelves a variety of defendant's products. Defendant arranges for shelf space with chains' central offices. Plaintiffs can seek to enhance the allocation, a rare case since store managers get their orders from central offices with which defendant deals. Defendant sets prices and maintains accounts for the chains based on plaintiffs' sales records, which must be submitted to defendant. E.g. Ex. 79. The balance on the account is paid directly to defendant. Plaintiffs collect from the smaller customers. Plaintiffs have distributed other food products but now distribute only and all defendant's products, as mandated by defendant. Defendant's supervisors regularly meet and counsel plaintiffs on marketing and customer service and ride with distributors. Defendant holds sales meetings in order to present marketing strategies regarding new products and disclose sales goals. Ex. 27. Attendance is required. Ex. 37.

One plaintiff has sub-distributors service part of his area, one of whom defendant required. Supervisors monitor plaintiffs' ordering, Ex. 49, depot operation (plaintiffs lease and maintain), customer servicing including amount and display of products and compliance with performance standards promulgated by defendant. E.g. Ex 45. The current sales manager contends distributorships are contingent on the purchase of new, specific delivery vans.

Plaintiffs order defendant's products they wish delivered to their respective depots. The supervisors occasionally increase orders unilaterally to stimulate sales. Defendant sets delivery days to the depots. All products are marketed under defendant's name, brand, trade-mark and packaging which also appear in advertising, displays and account sheets. Defendant requires chain stores to be serviced five times per week, specifying the days and delivery by 11 AM as required in turn by the chains. This requirement was part of defendant's marketing plan, intended to insure adequate product on shelves and its proper display and to increase sales, particularly of its new product. Because Thomas credits plaintiffs for unsold product, it has an interest in the timely placement of product to maximize its exposure for retail sale before it is removed for thrift shop sale at a lower return. See Defendant's Post-trial brief, p. 20 n. 11. In part, compliance with its concept of better service to stores through this requirement gave rise to the disputed store reallocations. Defendant determines products' shelf life. At each store, expired product is removed, fresh product is placed and the shelf arranged as defendant mandates to maximize sales. Plaintiffs are required to maintain a route book.

Defendant's products are largely impulse buys. It determines an optimum product display for plaintiffs to follow. It devises, arranges and pays for all advertising, merchandising programs which require plaintiffs' implementation and promotions which require their participation and expense. Between deliveries, stores' stock is depleted and disarranged. Plaintiffs must counter such by callbacks (revisiting) to stores. Defendant's supervisors inspect for maintenance of adequate shelf stock and proper display. Callbacks are not specified, but plaintiffs are called to account when stores are found to be deficient in product amount or display. Out of date product is disposed of through thrift stores, charity donation or other means dictated by defendant. Plaintiffs earn commissions on product sold, but not on out-of-date product.

Defendant paid toward and required a uniform, a non-standard set of clothing that sported defendant's trade-mark, but neither enforced nor disclaimed the requirement. A Plaintiff has been reprimanded for his dress. Plaintiffs' trucks can be, but are not universally marked with the brand. Defendant supplies materials used by plaintiffs but no financing. Plaintiffs arrange their own substitute drivers, though defendant has vetoed some substitutes.

Plaintiffs, supported by independent testimony and assurances of several district sales managers, were led to believe the stores to which they were assigned were assured so long as they serviced them properly. Defendant's claim that this did not preclude its unilateral right to alter store assignments is not credited. An earlier proposed unilateral realignment was not pursued in the face of distributor opposition. Other reallocations were made by agreement. An Independent Contractor Agreement, P. Ex. 24, A. Ex. 7 (ICA) came to be used with distributorships, starting in 1984. No plaintiff was requested to sign such out of concern that they would refuse to do so. Defendant thereby tacitly acknowledged that it could not unilaterally dictate the terms of its arrangements with its distributors. The letter, delivered to some plaintiffs, A. Ex. 6, did not purport to bind plaintiffs. Indeed by not calling upon them to sign an ICA suggests the contrary. No comment was invited. The attempts to bind plaintiffs by reading the letter to them and announcing that its terms would control their distributorships are unavailing to alter preexisting relationships. The provision in the ICA on which defendant relies is not an unambiguous reservation of a unilateral right to alter routes or store assignments, nor is a letter sent to some of plaintiffs. Def.Exs. 3, 4 and 5. The testimony of defendant's witness, Daley, that the right was subject only to a guarantee of plaintiffs' opportunity to make a living, nowhere defined or quantified, is not credited. It was conceded, however, that there was a limit to the right to alter routes, however unclear.

Defendant's occasional complaints have been satisfactorily resolved by defendant's managers with individual plaintiffs, though defendant's demands have been backed by termination threats. Ex. 34. Defendant announced its reallocation of plaintiffs' stores, in all cases reducing the number of stores and sales volume. Defendant claims the loss will be offset by higher sales from more effective service and from a new product. The stores taken from plaintiffs were to be reassigned with new distributorships created. Nardello's sub-distributorships would become new distributorships.

RELIEF SOUGHT:

On the basis that defendant's actions breached their contracts and violated Connecticut's Franchise Act, Conn.Gen.Stat. § 42-133e et seq, which applies to plaintiffs, they seek an injunction prohibiting store realignment, termination of the distributorships, and creation of new distributorships, a declaration that defendant violated the Connecticut Unfair Trade Practices Act ("CUTPA"), and award of costs, attorney fees and punitive damages.

Defendant asserts that there was no breach of contract, that the Franchise act does not apply because the distributorships were not franchises, the distributorships were not terminated and it did not violate the act, that it committed no unfair trade practice, that there was no tortious interference and that specific performance is an inappropriate form of relief.

CONCLUSIONS:

Between plaintiffs and defendant there was an understanding, an agreement, a contract. It was not written. It is not set forth in the ICA which obtained neither an explicit nor implicit assent thereto from any plaintiff. The absence of exception or objections by plaintiffs to the ICA is not found to constitute an acceptance or acquiescence to it by plaintiffs. "The contractual relationship must be shown by some intelligible conduct, act and words and not from an unexpressed intention." Hess v. Dumouchel Paper Co., 154 Conn. 343, 348, 225 A.2d 797 (1966). It is not necessary to determine all the terms of the understanding. Defendant did not retain an absolute right to terminate it nor to alter route/store assignments at will. Defendant knew, actually or as a reasonable understanding, such was the case. Previous store...