Foodbuy, LLC v. Gregory Packaging, Inc.

• Decision Date: 04 August 2022
• Docket Number: 19-cv-00809
• Parties: FOODBUY, LLC, Plaintiff, v. GREGORY PACKAGING, INC., Defendant.
• Court: U.S. District Court — Western District of North Carolina

FOODBUY, LLC, Plaintiff,
v.
GREGORY PACKAGING, INC., Defendant.

No. 19-cv-00809

United States District Court, W.D. North Carolina, Charlotte Division

August 4, 2022

ORDER

Frank D. Whitney, United States District Judge.

THIS MATTER is before the Court on remand from the United States Court of Appeals for the Fourth Circuit, (Doc. No. 108), on Defendant Gregory Packaging, Inc.'s (“GPI”) counterclaim under the North Carolina Unfair and Deceptive Trade Practices Act (“UDTPA”) against Plaintiff Foodbuy, LLC (“Foodbuy”). Following remand, the Court ordered additional briefing, (Doc. Nos. 115-17), and heard from both parties during oral argument on October 5, 2021, (Doc. No. 119). For the reasons that follow, GPI's request for relief under the UDTPA is GRANTED.

I. Background

Following a bench trial, the Court issued findings of fact and conclusions of law on the parties' claims and counterclaims. (Doc. No. 85 (“Trial Order”)). Pursuant to the Trial Order, the Court entered judgment in favor of GPI on the breach of contract claim, awarding $7,057,882.52 in compensatory damages and $2,207,299.86 in prejudgment interest. The Court also entered judgment in favor of Foodbuy on GPI's cross-claim that Foodbuy violated North Carolina's Unfair and Deceptive Trade Practices Act (“UDTPA”). Both parties appealed.

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The Fourth Circuit affirmed this Court's ruling in favor of GPI's breach of contract claim and vacated and remanded the Court's decision denying GPI's UDTPA cross-claim. See Foodbuy, LLC v. Gregory Packaging, Inc., 987 F.3d 102 (4th Cir. 2021). In ordering remand on the UDTPA claim, the Court of Appeals noted that it reviewed “only [this Court's] legal determination” of that claim. Id. at 121. Notably, neither Foodbuy nor GPI appealed this Court's factual findings. Id. At 121 (“GPI seeks review only of the district court's legal determination.”). The Court therefore adopts and incorporates by reference all factual findings set forth in the Trial Order.

The Court finds the following summary of facts from the Fourth Circuit's decision to be helpful in framing the issue on remand.

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”)

. . . [In a GPO sale], 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 upfront 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. ....

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[Under the Agreement], 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 Customers through Foodbuy Distributors. 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.

....

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.

And when GPI was invoiced for customers that [were getting the benefit of two purchasing programs], Foodbuy agreed GPI should not be invoiced for that customer and assured GPI that Foodbuy would “scrub” its data going back years to ascertain and correct instances of GPI being invoiced by Foodbuy when a Committed Customer was receiving the benefit of another program.

That is because, if a volume allowance was paid on a case sold at school bid pricing, GPI would lose money on that sale.

In April 2014, Foodbuy added a new Committed Customer, IPS, which was a preexisting direct-deal customer of GPI. Soon thereafter, upon reviewing one of its monthly invoices, GPI contacted Foodbuy noting that 88,000 cases (92%) of the cases sold to IPS were “school bid” volume that should have been excluded from the Agreement. In response, Foodbuy agreed not to invoice for IPS's purchases in their entirety “because it was too difficult to isolate the 8% of cases that were purchased through Foodbuy.”

Unfortunately, the Parties' relationship soured in early 2015. Despite the representations and concessions outlined above, GPI discovered that throughout the duration of the Agreement, Foodbuy had been charging it a volume allowance for every case of juice its Committed Customers purchased, not just for those cases bought through the Foodbuy program. GPI was previously unaware of this data because Foodbuy's monthly invoices did not disclose which customer purchased the juice or the applicable purchase price. Indeed, GPI did not become suspicious

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of Foodbuy's invoices until it found that more cases were accounted for by deviations than were actually shipped into certain distribution centers.

At that point, GPI tried to obtain the relevant data directly from distributors. Once Foodbuy learned about the dispute, however, it prevented GPI from doing so. In response, GPI asked Foodbuy for detailed data regarding its invoices, but it did not receive a detailed response until after the Agreement expired. Once GPI eventually saw this pricing data, it discovered cases of GPI's juice for which Foodbuy claimed a volume allowance, but for which the ultimate price paid (i.e., the price to which the distributor deviated) was higher or lower than the Foodbuy contract price, indicating that it was purchased through another program. In total, GPI learned that it was charged a volume allowance for 4,489,367 cases it believes were purchased “off-contract,” resulting in a claimed overpayment by GPI of $6,042,431.^[1]

Foodbuy, 987 F.3d at 107-11 (cleaned up).

II. Standard of Review

The sole issue before the Court is whether GPI is entitled to recover on its claim that Foodbuy violated the UDTPA. In vacating and remanding the judgment on that issue, the Fourth Circuit held that this Court's prior order misapplied applicable law and instructed this Court to “consider GPI's UDTPA claim in the first instance through a fresh lens in conformity with the holdings of [the Fourth Circuit's] opinion.” Id. at 122. Accordingly, the Court does not simply rely on its previous ruling. Instead, the Court has taken a fresh view of the evidence and previous factual findings, considered supplemental briefing and argument from both sides on the UDTPA issue, and revisited applicable North Carolina law governing this claim. Furthermore, the parties agree that the basis for the breach of contract claim-overcharging-is insufficient on its own to establish a UDTPA claim, even if Foodbuy's breach was intentional.

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SciGrip, Inc. v. Osae, 838 S.E.2d 334, 348 (N.C. 2020) (adopting holding that “an intentional breach of contract, standing alone, simply does not suffice to support the assertion of an unfair and deceptive trade practices claim.” (citing Mitchell v. Linville, 557 S.E.2d 620, 623 (N.C. Ct. App. 2001)).

In remanding this case, the Fourth Circuit reiterated the applicable law governing reconsideration of this claim:

Under the UDTPA, commercial entities can pursue treble damages against parties who commit unfair and deceptive trade practices or unfair methods of competition. To succeed on such a claim, the plaintiff must show that the defendant committed: “(1) an unfair or deceptive act or practice, or an unfair method of competition; (2) in or affecting commerce; (3) which proximately caused actual injury to the plaintiff or to his business.” McLamb v. T.P. Inc., 619 S.E.2d 577, 582 (N.C. Ct. App. 2005). “A practice is unfair when it offends established public policy as well as when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.” Walker v. Fleetwood Homes of N.C., Inc., 653 S.E.2d 393, 399 (N.C. 2007). A practice is deceptive if it has a “tendency or capacity to deceive.” RD & J Props. v. Lauralea-Dilton Enters., LLC, 600 S.E.2d 492, 501 (N.C. Ct. App. 2004). Though a mere breach of contract, even if intentional, is not sufficiently unfair or deceptive to sustain an action under the UDTPA,

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