Goldwell of New Jersey, Inc. v. Kpss, Inc.
| Decision Date | 31 March 2009 |
| Docket Number | Civ. Action No. 07-3919 (KSH). |
| Citation | 622 F.Supp.2d 168 |
| Parties | GOLDWELL OF NEW JERSEY, INC., t/a Goldwell Mid-Atlantic, Plaintiff, v. KPSS, INC., d/b/a Goldwell, Defendant. |
| Court | U.S. District Court — District of New Jersey |
Jeffrey A. Zucker, Fisher & Zucker, LLC, Philadelphia, PA, for Plaintiff.
David S. Sager, Day Pitney, LLP, Morristown, NJ, for Defendant.
This contract dispute arose out of a series of exclusive regional distributorship agreements between a manufacturer of hair care products, defendant KPSS, Inc. ("KPSS"), and one of its distributors plaintiff Goldwell of New Jersey, Inc., d/b/a Goldwell Mid-Atlantic ("Mid-Atlantic"). The agreements, which by their terms would expire on December 31, 2007, granted Mid-Atlantic exclusive sales rights (and imposed corresponding obligations) for certain territories, one of which was the State of New Jersey. Six months before the agreements' expiration date, KPSS notified Mid-Atlantic that it would not renew the agreements, citing poor sales figures. Mid-Atlantic thereafter disavowed its obligation to perform under the not-yet-expired agreements, and eventually filed this action under the New Jersey Franchise Practices Act ("NJFPA"), N.J.S.A. § 56:10-5, et seq., claiming that KPSS unlawfully signaled its intent not to renew the distributorship agreements. KPSS counterclaimed, alleging, inter alia, breach of contract and trademark infringement. Now before the Court are the parties' cross-motions for summary judgment.
The Court has diversity and federal question jurisdiction. Mid-Atlantic is a corporate citizen of New Jersey and is headquartered in this state; its amended complaint alleges a claim in excess of $75,000 against KPSS, which is incorporated in Delaware and headquartered in Maryland. Am. Compl. ¶¶ 3-4 [D.E. # 16]; 28 U.S.C. § 1332. KPSS's amended counterclaim also invokes diversity jurisdiction and in addition alleges a federal cause of action under the Lanham Act. Am. Counterclaim ¶¶ 3 [D.E. # 17], 76-78; 28 U.S.C. §§ 1331; 15 U.S.C. § 1121. Venue is proper since a substantial part of the events giving rise to the claims asserted occurred in this district. 28 U.S.C. § 1391(a).1
KPSS is a domestic subsidiary of KPSS GmbH ("Goldwell Germany"), a German corporation that markets professional hair care and other beauty products around the world. Pl. Facts ¶¶ 3-4. Goldwell Germany, itself a subsidiary of a Japanese parent corporation ("KPSS Japan"), entered the United States hair product market in 1982, and established KPSS in 1986 in furtherance of that endeavor. Id. ¶ 4; Aff. of Aaron Frankel ("Frankel Aff.") ¶¶ 9-10; Def. Resp. ¶ 4. KPSS, through Goldwell Germany, has the exclusive right in the United States to use and license certain registered trademarks (the "Goldwell marks" or the "trademarks") related to the Goldwell brand name. Def. Facts. ¶ 5; Pl. Facts ¶ 5. The Goldwell name, created in 1948, is widely known to the public as a source of high-quality hair care products ("Goldwell products"), and the Goldwell marks carry with them a substantial amount of goodwill. Def. Facts ¶¶ 6-7; Pl. Facts ¶ 9. As of 2005, KPSS claimed to be the eighth largest provider (by revenue) of hair care products to North American salons and day spas, with revenues in 2006 of $102 million. Pl. Facts ¶ 13.
Mid-Atlantic was at all times relevant here an exclusive regional distributor of Goldwell products under a series of regional buying agreements ("RBAs"). Pl. Facts ¶ 6. It began selling Goldwell products under an RBA with Goldwell Germany in 1982, and thereafter entered into similar agreements with KPSS upon its 1986 formation. Pl. Facts ¶ 6; Frankel Aff. ¶ 12. Throughout most of its contractual relationship with KPSS (and before that, Goldwell Germany), Mid-Atlantic had sold Goldwell products only in the State of New Jersey. Pl. Facts ¶ 6; Frankel Aff. 17; Def. Resp. ¶ 6. More recently, however, KPSS and Mid-Atlantic expanded their relationship to cover a number of other territories, discussed below.
As briefly referenced above, KPSS and Mid-Atlantic entered into a series of exclusive RBAs in 1986. Most recently, the parties operated under three RBAs covering certain territories throughout the eastern seaboard. These agreements, known as the "New Jersey RBA," the "North Carolina RBA," and the "Multi-State RBA," granted Mid-Atlantic exclusive distributorship rights of Goldwell products in the territories covered by the agreements (the "covered territories"). Def. Facts. ¶¶ 10; Pl. Facts ¶ 8. Each RBA was comprised of a roughly 20 page standardized agreement, followed by two schedules explicating detailed prescriptions and covenants binding upon the parties. The material portions of the agreements are reproduced below.
The New Jersey and North Carolina RBAs granted exclusive distribution rights to Mid-Atlantic for those states, and the Multi-State RBA granted substantially similar rights in Delaware, Maryland, Virginia, Bermuda, North Carolina, Washington, D.C., and portions of West Virginia. Pl. Facts ¶¶ 6, 8; Frankel Aff. ¶ 17; Def. Facts ¶ 10; Decl. of Paul R. Marino ("Marino Decl.") Exhs. B, C, D.3 The parties executed the New Jersey RBA on January 1, 2003 and the North Carolina and Multi-State RBAs on January 1, 2005; all three RBAs would expire on December 31, 2007. Def. Facts ¶¶ 10, 21; NJ RBA at 1-2, 22.
Sections 2.1 and 2.2 of the RBAs prohibited Mid-Atlantic from selling (or seeking to sell) Goldwell products outside the respective territory, and prohibited KPSS from selling (or allowing anyone other than Mid-Atlantic to sell) its own products within the specified territories, except under limited circumstances appearing enumerated in the agreements. NJ RBA at 2, 4. These provisions state:
2.1 For the term of this Agreement, and subject to the terms and conditions hereof, [KPSS] agrees to sell [Goldwell] Products to [Mid-Atlantic] for the purpose of [Mid-Atlantic's] sale and distribution of [Goldwell] Products solely to Customers located in the Territory.
intentionally makes sales or intentionally allow others to makes sales of [Goldwell] Products to Customers located in the Territory, except as may otherwise be permitted pursuant to Section [3] of this Agreement, or as otherwise provided below
Section 3(b) of the New Jersey RBA specifies the operative term of the agreements; it states in full:
No later than six (6) months prior to the last day of the initial term or, if applicable, any subsequent term (the "Ending Date"), [Mid-Atlantic] shall notify [KPSS] in writing of whether or not [it] desires an extension of the term of this Agreement beyond the Ending Date. If [Mid-Atlantic] notifies [KPSS] that it desires such an extension and [KPSS] is willing to grant an extension, [KPSS] may propose to [Mid-Atlantic] the terms of an extension acceptable to [KPSS] and such extension shall be effective only if both parties, by their duly appointed officers, sign a written extension agreement providing for such an extension. If [KPSS] elects not to extend the term of this Agreement (which it may do at its sole and absolute discretion), or if the parties have not signed such a written extension agreement at least four (4) months prior to the Ending Date, this Agreement shall expire as scheduled on [December 31, 2007]. In such event, during the ninety (90) days immediately preceding the Ending Date (the "Transition Period"), [KPSS] shall have the right to sell and distribute, either directly or through its designee, Products in the Territory, notwithstanding that [Mid-Atlantic] shall have the (non-exclusive) right during the Transition Period to sell and distribute [Goldwell] Products in the Territory.
NJ RBA at 4 (emphasis added).5 This provision is self-explanatory: KPSS had the unfettered discretion under the contracts to renew or not renew the parties' relationship. If KPSS opted not to renew (or Mid-Atlantic did not request such a renewal), the agreements prescribe a transition period under which the parties each have the right to distribute Goldwell products until they go about their separate ways.
Section 4 of the RBAs enumerates certain restrictive covenants upon Mid-Atlantic. Relevant here, Mid-Atlantic was prohibited, without KPSS's prior written consent, from:
4.2 Mak[ing] or assist[ing] in any sale, exchange or other transfer of [Goldwell] Products to any other Goldwell distributor;
4.3 Seek[ing] any customers, establish[ing] any branch, or maintain[ing] any distribution facility, with respect to the [Goldwell] Products, outside of the Territory; . . .
4.5 Engag[ing] (either directly or indirectly) in any other line of business other than as permitted by and contemplated in th[e] Agreement, including, but not limited to the retail hair or beauty salon business;
4.6 Sell[ing] or market[ing] (either directly or indirectly) any goods in the Territory other than [Golwell] Products except to the extent, if any, specifically authorized [elsewhere in the RBA].
NJ RBA at 5. Section 4.6 of each RBA states that Mid-Atlantic would be permitted to sell non-Goldwell product lines as authorized in Schedule B (for the New Jersey RBA) and Schedule A (for the North Carolina and Multi-State RBAs). Specifically, § II on Schedule B to the New Jersey RBA permitted Mid-Atlantic to do the following with respect to marketing non-Goldwell items:
A. Notwithstanding section 4.5 of the Agreement, [Mid-Atlantic] may engage in the Territory in other lines of business that do not, in the reasonable judgment of [KPSS], reflect adversely on the name or reputation of Goldwell.
B. Notwithstanding section 4.6 of the Agreement, [Mid-Atlantic] (a) may sell and market in the territory...
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