Auto-Chlor System of Minnesota v. Johnsondiversey
| Decision Date | 19 July 2004 |
| Docket Number | No. Civ. 02-535(RHK/SRN).,Civ. 02-535(RHK/SRN). |
| Citation | 328 F.Supp.2d 980 |
| Parties | AUTO-CHLOR SYSTEM OF MINNESOTA, INC.; Auto-Chlor System Incorporated of Denver; Auto-Chlor System of Albuquerque, Inc.; Auto-Chlor System of West Texas, Inc.; Golden Light Equipment Company; Auto-Chlor System of Jacksonville; Auto-Chlor System of Fresno, Inc.; and Auto-Chlor System of Kansas, Inc., Plaintiffs, v. JOHNSONDIVERSEY, a Delaware Corporation; Auto-C, LLC, a Delaware Limited Liability Company; and DLever, a/k/a and f/k/a DiverseyLever, a Delaware Corporation, Defendants. |
| Court | U.S. District Court — District of Minnesota |
Tucker K. Trautman, Nancy B. Smith, Van Aaron Hughes, Theresa K. Hankes, and Andrew J. Cosgrove, Dorsey & Whitney, LLP, Minneapolis, Minnesota, for Plaintiffs.
Scott W. Hansen and Kathleen S. Donius, Reinhart Boerner Van Deuren, SC, Milwaukee, Wisconsin, and William Killion and Craig P. Miller, Gray Plant Mooty Mooty & Bennett, Minneapolis, Minnesota, for Defendants Auto-C, LLC and JohnsonDiversey.
Alain M. Baudry, Michael C. McCarthy, and Haley N. Schaffer, Maslon Edleman Borman & Brand, LLP, Minneapolis, Minnesota, for Defendant DLever.
Plaintiffs are eight commercial dishwashing dealers who signed Dealer Contracts with the Auto-Chlor System in the 1970s and 1980s. Defendant Auto-C, LLC, ("Auto-C"), a subsidiary of Defendant JohnsonDiversey, Inc. ("JohnsonDiversey"), now owns the Auto-Chlor System, while Defendant DiverseyLever, Inc. ("DiverseyLever"), now known as DLever, owned the Auto-Chlor System from March 1999 until May 2002. Generally, the Dealer Contracts provide Plaintiffs with exclusive territories in which to use the Auto-Chlor System's trademarks and products.
Plaintiffs' principal claims are for breach of contract. They allege that Defendants have overcharged them for parts/equipment and chemical products and have violated their exclusive territory. They also allege claims of tortious interference with performance of contract, tortious interference with prospective contractual relations, trademark law violations, unfair competition, and promissory estoppel. Several motions are now before the Court seeking dismissal of all claims. For the reasons set forth below, the Court will grant the motions in part and dismiss all of Plaintiffs' claims except: (1) Claim I (breach of contract with respect to Plaintiffs' overcharging claims); and (2) Claim II (breach of the implied covenant of good faith and fair dealing with respect to Plaintiffs' overcharging claims).
In the 1930s, Tennessee businessman James Robinson developed an automated commercial dishwashing system using low-temperature water, chlorine, and other chemicals. (See Brenner Decl. Exs. 15 (Griesbeck Dep. Tr. at 34:8-11), 18 (Merrifield Dep. Tr. at 49:3-50:14).) Eventually, Robinson turned his system of "automatic chlorinization" into the Auto-Chlor System ("ACS"), a Tennessee partnership. (Id. Ex. 18 (Merrifield Dep. Tr. at 49:4-10); Cosgrove Decl. Exs. 1-7 (Dealer Contracts).)
Robinson began by installing Auto-Chlor dishwashing machines, along with Auto-Chlor dishwashing chemicals, in restaurants. (See Brenner Decl. Exs. 12 (Eastman Dep. Tr. at 34:24-35:15); 17 (Ivy Dep. Tr. at 73:8-19).) As business grew, Robinson sold Auto-Chlor products through company-owned branches and independent dealers. (See id. Ex. 13 (Fakes Dep. Tr. at 22:12-23:5, 105:9-106:10).) Robinson would sell his chemical products in a concentrate form to the branches and dealers. He kept the chemical make-up of the concentrates a secret, but provided the dealers with the formulas and specifications to mix the concentrates with raw materials to make the final products. No dealer ever received the formula of a secret Auto-Chlor concentrate.
Branches and dealers sold or leased dishwashing machines to restaurant or institutional customers, serviced the equipment, and also sold related products, such as glass cleaners, hand soaps, and floor cleaners. (Cosgrove Decl. Exs. 51 (Donnell Dep. Tr. at 18:9-19:6); 60 (Ivy Dep. Tr. at 74:9-17, 76:1-4); 65 (Northcutt Dep. Tr. at 49:18-50:1).) Under Robinson, ACS treated its branches and the dealers identically (see id. Ex. 59 (Harding Dep. Tr. at 24:6-26:1)) and during his tenure, ACS sold parts and chemical concentrates at 10-15% above cost (id. Ex. 55 (Fakes Dep. Tr. at 13-14, 16)). But because Robinson "didn't want [his business] to grow any faster than he wanted it to grow," fewer than a dozen new products were created during his lifetime (Brenner Decl. Ex. 18 (Merrifield 7/28/03 Dep. Tr. at 85:24-25, 234:11-14)), and he did little promotion or advertising, (id. Exs. 8 (Alsup Dep. Tr. at 108:6-11); 18 (Merrifield 7/28/03 Dep. Tr. at 195); 21 (Poole Dep. Tr. at 123:2-15, 126:21-127:23); 22 (Vertin 7/23/03 Dep. Tr. at 262:3-11)).
Plaintiffs are eight ACS dealers who signed "Dealer Contracts" with ACS.1 (Cosgrove Decl. Exs. 1-7 (Dealer Contracts).) Four signed 1971 Dealer Contracts: Auto-Chlor System Incorporated of Denver ("ACS-Denver"), Auto-Chlor System of Kansas, Inc. ("ACS-Kansas"), Golden Light Equipment Company ("Golden Light"),2 and Auto-Chlor System of Jacksonville ("ACS-Jacksonville"). (Cosgrove Decl. Exs. 2, 4, 5.) Two signed 1981 Dealer Contracts: Auto-Chlor System of Minnesota, Inc. ("ACS-Minnesota") and Auto-Chlor System of West Texas, Inc. ("ACS-West Texas"). (Id. Exs. 6, 7.) And two signed 1984 Dealer Contracts: Auto-Chlor System of Fresno, Inc. ("ACS-Fresno") and Auto-Chlor System of Albuquerque, Inc. ("ACS-Albuquerque"). (Id. Exs. 1, 3.)
The Dealer Contracts granted each Plaintiff an exclusive territory within which to use ACS's trademarks and products. The 1971 Dealer Contract provides:
The Company hereby grants to Dealer the exclusive right to use the Registered Trademarks and Trade Names and the Company's products within the boundary limits of the area herein specifically allotted as territory, but not elsewhere, and upon terms hereafter set forth....
(Cosgrove Decl. Exs. 2, 4, 5 (1971 Dealer Contract ¶ 1).) Similar language appears in the 1981 and 1984 Dealer Contracts. (Id. Exs. 1, 3, 6, 7 (1981, 1984 Dealer Contracts ¶ 1).)
In return, Plaintiffs agreed to develop business in their territory. The 1971 Dealer Contracts obligate Plaintiffs:
(a) To work and develop to the satisfaction of the Company the ... specified territory ...
(b) To faithfully and diligently serve the territory so granted and to put forth the necessary effort to secure contracts for the use and distribution of the Company's products.
(Id. Exs. 2, 4, 5) (1971 Dealer Contract ¶ 2.) Similar language also appears in 1981 and 1984 Dealer Contracts. (Id. Exs. 1, 3, 6, 7) (1981, 1984 Dealer Contracts ¶ 2.) Dealers must also "list in Dealer's local Telephone Directory", and at Dealer's expense, the name "`AUTO-CHLOR SYSTEM.'" (Id. Exs. 2, 4, 5 (1971 Dealer Contracts ¶ 2(e)).) Similar language appears in the 1981 and 1984 Dealer Contracts. (See id. Exs. 1, 3, 6, 7) (1981, 1984 Dealer Contracts ¶ 2(f).)
For its part, ACS agreed to
[A]t its own expense, continue its research for the purpose of advancing the art and improving the industry, but the Company shall be under no obligation to manufacture or distribute any article or product discovered, improved, or made, whether patented or not, or to sell such product to Dealer except that if the Company does discover, improve, or make an article or product not now in use in the field covered by this Contract, and desires to commercially market said article or product, Dealer shall have the right to represent the Company in Dealer's Territory upon such terms as Company offers to others.
(Id. Exs. 2, 4, 5 (1971 Dealer Contract ¶ 11).) A nearly identical provision exists in the 1981 and 1984 Dealer Contracts. (Id. Exs. 1, 3, 6, 7 (1981, 1984 Dealer Contracts ¶ 11).)
The Dealer Contracts also dictate the manner in which the dealers could purchase parts/equipment and chemical products from ACS for re-sale and provided that they pay royalties to ACS. The 1971 Dealer Contract provides:
3.(a) Company agrees to sell F.O.B. Memphis, Tennessee, and Dealer agrees to buy from the Company, all necessary and integral parts of apparatus, devices and basic equipment, including automatic dishwashing machines, as available, necessary to efficiently operate the Auto-Chlor System for sanitizing and cleansing eating utensils....
(b)(1) Dealer may purchase from the Company all products as offered by Company to be sold to its customers; provided, however, the Dealer will not directly or indirectly advertise, offer for sale, or sell any such products to any buyer at other than the price stipulated therefore by the Company, which price shall be established from time to time by written notice from the Company to the Dealer, taking into consideration geographic location and local conditions before establishing prices.
The Dealer agrees to pay the Company 5% of the Dealer's sales price on all such sales of Company's products to its customers and on the total income or rentals received from the Automatic dishwashing machines, and other basic equipment.
(b)(2) The Company agrees to furnish to Dealer its...
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