Advanced Exports, LLC v. Seabrook Wallcoverings, Inc., CIVIL ACTION NO. 18-830
| Decision Date | 03 January 2019 |
| Docket Number | CIVIL ACTION NO. 18-830 |
| Parties | ADVANCED EXPORTS, LLC v. SEABROOK WALLCOVERINGS, INC. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Advanced Exports, LLC ("Advanced") brought this action against defendant Seabrook Wallcoverings, Inc. ("Seabrook") for wrongful termination of the parties' business relationship. It claims it suffered damages as a result of Seabrook's unilateral cessation of an exclusive distributorship agreement. Seabrook moves for summary judgment on all of Advanced's claims and on its counterclaim for breach of contract, arguing there was no contract granting Advanced rights as an exclusive distributor.
After reviewing the record and drawing all inferences in favor of Advanced, we shall grant the motion in part and deny it in part. Material factual disputes preclude summary judgment on Advanced's claim for breach of contract. With respect to the remaining causes of action, we shall grant Seabrook's motion. We shall also deny Seabrook's motion for summary judgment on its counterclaim for breach of contract.
Seabrook manufactured and distributed wallpaper products nationally andinternationally.2 It manufactured collections of individual patterns of wallpaper.3 Seabrook manufactured each collection for three to five years depending on the popularity of the collection.4
Seabrook used distributors to sell its products in the international market. Typically, Seabrook granted exclusive rights to a distributor to sell its products in a defined territory.5 Seabrook required each distributor to purchase sample books to market collections.6 From 2013 through September 21, 2017, Advanced exclusively distributed Seabrook wallpaper products in the former Soviet Union and other Eastern European countries.7 Advanced succeeded Textiles to the World ("Textiles") as Seabrook's distributor in that territory.
In 2010, Textiles became the exclusive distributor of the Seabrook "Classic Elegance" collection in Russia, Ukraine, and Kazakhstan.8 Textiles bought 409 sample books of Classic Elegance and 1,896 bolts for $33,180.9 Although "standard business procedure" was payment within 30 days, Seabrook agreed to a 60-day window forpayment of Textiles' initial orders.10
Seabrook granted exclusive distributorship rights to Textiles for four additional collections.11 Textiles purchased over 350 to 400 sample books for each of these four collections. It also purchased between 960 and 1,944 bolts of each collection, totaling between $15,940 to $29,160, of initial inventory.12
Seabrook later memorialized the oral agreements for these five initial collections in letters to Textiles in February 2011.13 The letters confirmed that Textiles was Seabrook's "exclusive distributor" in several countries for these five collections, each with a "life of 3 to 4 years."14
Between 2011 and 2013, Textiles distributed additional Seabrook collections.15 There were no written agreements.16 For each collection, Seabrook required an initial purchase of books and inventory, the amounts of which varied by collection, but generally in quantities similar to the 2010 and 2011 initial collections.17
Seabrook did not require Textiles to meet a sales quota.18 Instead, Seabrook monitored performance and "if sales decline[d] the discussion was that [Seabrook] gotto do something about this."19 Textiles was further required to "service the line," "work the territory," "get books out," and pay for the products.20
In 2013, Seabrook stopped dealing with Textiles after hearing rumors that Textiles was having financial difficulty.21 James Allen ("Allen"), Seabrook's Vice President and COO at that time, informed Vladimir Shrayber ("Shrayber"), a Textiles' representative, that Seabrook would only do business with him if it was through another company that would agree to pay Textiles' outstanding balance of $500,000.22
Shrayber and Tatyana Romanova ("Romanova") formed Advanced.23 Shrayber and Textiles agreed that Advanced would take over Textiles' Seabrook business in exchange for Advanced's assuming responsibility to pay Textiles' account balance of approximately $500,000.24 Shortly thereafter, Seabrook made Advanced the exclusive distributor for Textiles' unexpired collections and granted Advanced exclusive rights to additional collections.25
Textiles and Advanced sold Seabrook products—at a "marked [ ] up" price—to New Line 2000 ("New Line"), a separate Russian company, which sold and distributed the products in Russia and Ukraine.26 Seabrook had no contract or dealings with NewLine. Shrayber testified there was because it was Advanced's and Textiles' market.27
Shrayber stated, in his declaration, that he and Allen had discussed "many times New Line and its role in connection with [Advanced's] marketing and sale" of products.28 Allen believed New Line was Shrayber's distributor in Russia. He did not know whether New Line was a part of Advanced or a separate entity. He dealt only with Shrayber and Romanova.29
Between 2014 and 2017, Advanced's purchase of sample books, wallpaper, and sales declined.30 Advanced purchased little or no inventory of some collections. Allen recalled Shrayber "could not afford to buy" stock or books for some collections and the parties "tried to work with the situation for a while . . . ."31
Shrayber does not dispute the decline in sales, which he attributes to the downturn in the Russian wallcovering market caused by sanctions imposed after Russia's invasion of Crimea in 2014.32 The parties agreed to delay book purchases andreduce quantities of stock for at least one collection.33
Of the four most recent collections available prior to September 2017, Advanced requested three sample books for each.34 Seabrook gave Advanced three sample books for two of the four collections and none for the two other collections.35 Seabrook offered to make more books for these collections, provided Advanced placed orders of 250-300 for each.36 Advanced did not place the orders.
Allen advised Advanced that it was not "investing in these books at an appropriate level," and that Seabrook's board had instructed him to move forward only with distributors "fully committed for their market."37 The board also required that accounts be current.38 As a result, Advanced was ultimately unable to obtain exclusivity on the two collections for which Advanced had purchased three sample books each.39
Allen discussed these concerns during his deposition:
[Seabrook was] banking some on a turnaround that we often discussed with Vladimir when we were together. And we would get promises of payments to clear up things and investment in lines and books. But we wanted it to work and we went out of our way to try to get it to work. But our ship started to sink as I told Vladimir in a letter of July 17 that Advanced had put Seabrook out of business in Russia. Weweren't getting any new lines in the marketplace. And the general rule of thumb 50 percent of the sales you're going to get out of a line is in the first year. So we got two years of almost no books going in the territory . . . .40
Throughout the relationship, Advanced did not make timely payments for the products purchased, resulting in holds being placed on Advanced's accounts.41 In April 2017, because Advanced was delinquent in its payments, Seabrook required Advanced to pay 150% of the purchase price of new orders, applying 50% to past due invoices.42 The next month, to reduce the outstanding balance, Shrayber agreed to make additional weekly payments of $5,000 or $6,000, increasing to $10,000 in July.43 Shortly thereafter, Seabrook imposed a 200% payment policy on new orders.44 Advanced ceased making weekly payments.45 When Seabrook inquired about the lack of payments, Shrayber gave two reasons: "[t]he first is the impossibility of acquiring new collections and the second is the impossibility of buying new rolls, on a double payment basis."46
By April 2017, Seabrook began searching for a distributor to replace Advanced, sending sample books showcasing the four newest collections to prospectivedistributors.47 During discussions with potential distributors, Seabrook acknowledged that Seabrook would fill orders for collections that Advanced placed.48 However, Allen specifically stated Seabrook would only fill those orders "as long as [Advanced is] able to comply with the payment policy for past due accounts."49
On September 21, 2017, Seabrook ended its relationship with Advanced.50 Allen wrote in an email that the payment "plan of action [Shrayber] proposed in May was the last opportunity . . . ."51 He observed that the summer had "not gone as well as" hoped and Advanced's account "ha[d] not improved over the last 18 months . . . ."52 Allen concluded that "there [wa]s no forward movement."53 The Seabrook board instructed him to consider other potential distributors. After a search, Seabrook selected a distributor to replace Advanced.54 Prior to the termination of the relationship, Seabrook had given sample books to other distributors, but it had not sold any products to them.55
At the time of termination, Advanced had twelve active lines.56 Advanced hadpurchased books for all, but inventory of only five.57
On October 4, 2017, Seabrook demanded that Advanced pay the account balance of $81,568.88.58 Advanced did not contest the amount due. Instead, its counsel responded that Seabrook had "materially breached its contract with Advanced and otherwise caused Advanced to incur substantial damages . . . ."59
Advanced then filed this action. Advanced asserts six causes of action: (I) breach of contract, (II) breach of implied contract, (III) promissory estoppel, (IV) equitable estoppel, (V)...
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