Foodbuy, LLC v. Gregory Packaging, Inc.

• Decision Date: 01 February 2021
• Docket Number: No. 19-1692,No. 19-1613,19-1613
• Citation: 987 F.3d 102
• Parties: FOODBUY, LLC, Plaintiff – Appellant, v. GREGORY PACKAGING, INC., Defendant – Appellee. Foodbuy, LLC, Plaintiff – Appellee, v. Gregory Packaging, Inc., Defendant – Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

987 F.3d 102

FOODBUY, LLC, Plaintiff – Appellant,

v.GREGORY PACKAGING, INC., Defendant – Appellee.

Foodbuy, LLC, Plaintiff – Appellee,

v.Gregory Packaging, Inc., Defendant – Appellant.

No. 19-1613

No. 19-1692

United States Court of Appeals, Fourth Circuit.

Argued: September 8, 2020

Decided: February 1, 2021

ARGUED: William Clifford Wood, Jr., NELSON MULLINS RILEY & SCARBOROUGH, LLP, Columbia, South Carolina, for Appellant/Cross-Appellee. Thomas Russell Ferguson, WOMBLE BOND DICKINSON (US) LLP, Charlotte, North Carolina, for Appellee/Cross-Appellant. ON BRIEF: Fred M. Wood, Jr., Ariel E. Harris, Evan M. Sauda, NELSON MULLINS RILEY & SCARBOROUGH, LLP, Charlotte, North Carolina, for Appellant/Cross-Appellee. Kurt E. Lindquist II, Emily C. Doll, Charlotte, North Carolina, Samuel B. Hartzell, WOMBLE BOND DICKINSON (US) LLP, Raleigh, North Carolina, for Appellee/Cross-Appellant.

Before NIEMEYER and AGEE, Circuit Judges, and Thomas S. KLEEH, United States District Judge for the Northern District of West Virginia, sitting by designation.^*

Affirmed in part, vacated in part, and remanded by published opinion. Judge Agee wrote the opinion, in which Judge Niemeyer and Judge Kleeh joined.

AGEE, Circuit Judge:

Foodbuy, LLC ("Foodbuy") and Gregory Packaging, Inc. ("GPI") cross-appeal from the district court's judgment after a bench trial. For the reasons discussed below, we affirm the district court's judgment in part, vacate it in part, and remand it for further proceedings.

I.

GPI manufactures juice cups, which it supplies to institutions like schools and hospitals. Foodbuy is a Group Purchasing Organization ("GPO"), which pools institutional purchasers so that their aggregated buying power can be used as leverage to negotiate favorable pricing with manufacturers. From 2011 through 2015, GPI and Foodbuy were engaged in a non-exclusive commercial relationship, which was memorialized in a supplier agreement (the "Agreement"). That Agreement lies at the heart of this dispute. Before turning to its scope and application, however, we first provide a rudimentary overview of the juice business as it relates to this case.

A.

GPI—like most juice cup manufacturers—sells its products in one of three ways. The first is a straightforward "traditional sale" in which the manufacturer sells juice to a distributor who, in turn, resells that juice to a customer at whatever price the market will bear.

The second sales method is known as a "direct deal." For institutional customers that purchase large volumes of juice, the manufacturer negotiates directly with that customer for special pricing. This type of sale typically occurs where manufacturers submit bids to a potential customer (for example, a school system), which accepts one of those bids for its juice supply for the year. These types of sales are often referred to as "school bids." In a direct deal, the customer still orders and receives the juice from a distributor, but the distributor does not set the price. Instead, the customer pays the distributor the direct-deal price it negotiated with the manufacturer, which is usually less than the amount the distributor paid for the product. To account for this difference, the distributor "deviates" to that price and then recovers the difference from the manufacturer the next time it buys juice.

The third way GPI (and similar manufacturers) sells its products—which is the most relevant here—is known as a "GPO sale." As with a direct deal, the customer pays the distributor directly, but does so at the GPO-negotiated price rather than a price negotiated directly with the manufacturer. When supplying the customer, the distributor deviates to that price. The GPO then invoices GPI for a "volume allowance" rebate for each case of juice sold. The GPO passes along some—but not all—of that allowance to the customer. As a result, the customer's net price is the GPO-negotiated price minus the portion of the volume allowance that GPO passes along to it.

Because all three scenarios involve an intermediary distributor, the pricing system is fairly complex. While different customers buy the same products at different prices, distributors place only one order with a manufacturer for their supply. Typically, manufacturers sell all of their products to a distributor at one up-front price, known as the "landed cost." The distributor may then sell those products to traditional sale customers at one price, direct-deal customers at another, and GPO customers at yet another.

B.

Consistent with this industry practice, Foodbuy and GPI negotiated the Agreement in 2011.¹ Under its terms, GPI agreed to pay Foodbuy a volume allowance based on the quantity of its products purchased "through the Foodbuy program at the Foodbuy price" by Committed Customers² through Foodbuy Distributors.³ GPI also contracted to pay Foodbuy various "growth incentives" based on incremental increases in GPI's products purchased by Committed Customers through Foodbuy Distributors. Under the Agreement, Foodbuy invoiced GPI for the allowance due each month based on data it received from Foodbuy Distributors.⁴

Unsurprisingly, the Agreement was extensive. Rather than delineating its terms in their entirety, we will highlight the provisions most relevant to our analysis of the issues presented. Section 2 of the Agreement sought to establish its scope and application:

This Agreement contains the terms and conditions for the sale of products specified on Attachment "A" attached hereto (the "Products"), at the prices specified on Attachment "A" (the "Prices"), by [GPI] to Foodbuy Distributors ... purchasing on behalf of Committed Customers. The Parties agree that this is a non-exclusive relationship, and there are no quantities committed by Foodbuy, the Committed Customers or the Foodbuy Distributors in either dollar value or Product items.

J.A. 1559. To that end, Attachment A included a "market list price," which was the price Foodbuy sent to distributors so they knew the cost of a case of juice sold under the Foodbuy program. In other words, that price was the amount to which the distributor would deviate when the product was sold to a Foodbuy customer purchasing at the negotiated price. Foodbuy incorporated a right to audit GPI's records in Section 15 of the Agreement to verify GPI was honoring the pricelist set forth in Attachment A.

Section 6 of the Agreement provided that GPI would "pay to Foodbuy allowances calculated and payable in accordance with the terms of Attachment ‘D’ " and that "[a]ll allowances are calculated based on Foodbuy Distributor reporting and tracking of such Foodbuy Distributor dollar volume with [GPI] on behalf of Committed Customers[.]" J.A. 1559. Attachment D defined "allowance" as a monthly "amount equal to the number of cases ordered by Foodbuy Distributors on behalf of Committed Customers multiplied by the ‘Allowance per Case’ amounts listed on Attachment ‘A.’ " J.A. 1572.

The Agreement also contained a non-solicitation provision in Section 18, which provided:

During the term of this Agreement, absent prior written consent from Foodbuy, [GPI] will refrain from (i) soliciting any Foodbuy Committed Customer to procure products from [GPI] outside of the Committed Customer's relationship with Foodbuy, or (ii) otherwise arranging any procurement relationship, directly, with any Committed Customer, wherein [GPI] procures products for such Committed Customer.

J.A. 1561–62. At trial, one of Foodbuy's witnesses testified that it included the solicitation ban because it did not want GPI "going directly to the Committed Customer without Foodbuy's written consent and engaging them directly and excluding Foodbuy from the commercial relationship." J.A. 821.

Finally, the Parties included a merger clause in Section 19 of the Agreement, which stated:

This Agreement and the Attachments attached hereto constitute the entire agreement and understanding between the Parties relating to the subject matter hereof, and supersede all other agreements between the Parties with respect thereto .... Unless otherwise agreed to by both Parties in writing, this Agreement shall apply to all invoices, purchase orders and other documents of purchase which Foodbuy or a Foodbuy Distributor purchasing on behalf of a Committed Customer may place with [GPI], or which [GPI] may generate as a result of the Product request, for the Products or other items purchased from [GPI] on behalf of Committed Customers (each an "Order"). The terms and conditions of this Agreement shall apply to any Order whether or not this Agreement or its terms and conditions are expressly referenced in the Order. This Agreement shall apply to any purchase and sale transaction between [GPI] and Foodbuy, a Committed Customer or a Foodbuy Distributor purchasing on behalf of Foodbuy or a Committed Customer.

J.A. 1562.⁵

C.

GPI initially viewed its relationship with Foodbuy as "successful," J.A. 1185, and sought to continue it. As a result, the Parties amended the Agreement in 2013 (the "Amendment") to extend it until June 30, 2015. The Amendment included many of the original terms from the Agreement, including the same price-per-case and volume allowance. The Amendment also incorporated a "net price per case" valuation, calculated by subtracting the volume allowance from the product base. J.A. 1510.

GPI continued to monitor and review Foodbuy's monthly invoices and regularly submitted minor adjustments for things like the amount of allowance due and whether a distributor or customer was a Foodbuy Distributor or a Committed Customer under the Agreement. As the district court found, whenever GPI learned

about cases of juice sold through other programs that were either: (i) not a listed product; (ii) not sold by a listed Foodbuy Distributor; (iii) not sold to a listed Committed Customer; or (iv) were sold through a different program, i.e. at a different price—Foodbuy would accept a deduction or issue a credit each and every time.

Foodbuy, LLC v. Gregory Packaging,...