Midamerican Distribution, Inc. v. Clarification Tech., Inc., Civil Action No. 09–96–DLB–JGW.

• Citation: 807 F.Supp.2d 646,75 UCC Rep.Serv.2d 420
• Decision Date: 10 August 2011
• Docket Number: Civil Action No. 09–96–DLB–JGW.
• Parties: MIDAMERICAN DISTRIBUTION, INC., Plaintiff v. CLARIFICATION TECHNOLOGY, INC., et al., Defendants.
• Court: United States District Courts. 6th Circuit. United States District Court of Eastern District of Kentucky

75 UCC Rep.Serv.2d 420
807 F.Supp.2d 646

MIDAMERICAN DISTRIBUTION, INC., Plaintiff
v.
CLARIFICATION TECHNOLOGY, INC., et al., Defendants.

Civil Action No. 09–96–DLB–JGW.

United States District Court,E.D. Kentucky,Northern Division,at Covington.

Aug. 10, 2011.

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Kevin L. Murphy, Lynda Hils Mathews, Graydon, Head & Ritchey, LLP, Ft. Mitchell, KY, for Plaintiff.

Gail M. Langendorf, Busald, Funk & Zevely PSC, Florence, KY, Jason Charles Kuhlman, Jeffrey C. Mando, Adams, Stepner, Woltermann & Dusing, PLLC, Covington, KY, for Defendants.

MEMORANDUM OPINION & ORDER DAVID L. BUNNING, District Judge.

This is an action for breach of contract and unjust enrichment under Kentucky law brought by Plaintiff representative/distributor, MidAmerican Distribution Inc., against Defendant distributor, Clarification Technology, Inc. (CTI).

This matter is before the Court on cross motions for summary judgment by Defendant CTI (Doc. # 74) and Plaintiff MidAmerican (Doc. # 97). The motions have been fully briefed and, at the Court's request, supplemented. (Docs. # 118, 125, 126, 131, 133). Upon review of the briefs, the Court finds oral argument unnecessary. For the reasons that follow, Defendant CTI's motion for summary judgment is granted.

Cross motions for summary judgment are also pending between Defendant CRS Holdings, AG (Doc. # 77) and Plaintiff MidAmerican (Doc. # 98) on Plaintiff's alter ego claim. Those two motions have been held in abeyance pending disposition of Plaintiff's underlying claims against Defendant CTI. (Docs. # 106, 121). Because dismissal of the underlying claims against Defendant CTI also disposes of Plaintiff's claims against Defendant CRS, the abeyance is lifted and Defendant CRS's motion for summary judgment is granted.

I. FACTUAL BACKGROUNDA. DRG Marketing, Inc. agreed to represent CTI's products

Defendant CTI, which does business under the trade name “Filtercorp,” sells and distributes products used to filter and maintain frying oil in the food service market.¹ (Doc. # 1–6 at 9). DRG Marketing, Inc., a nonparty to this suit, was created by Dave Goble, Sr. to represent companies in the food service industry. (Doc. # 58 at 13–14). In 1996, CTI ² and DRG entered a manufacturer's representative agreement which obligated DRG to represent Filtercorp

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products in exchange for a commission on each sale within its specified territory. (Docs. # 58 at 24–25, 32; 58–3). The agreement was to remain in effect for three years and continue thereafter for one-year periods unless terminated by either party. (Doc. # 58–3 at 3).

Sometime around the beginning of 2001, CTI presented DRG with a proposed agreement, which would have altered DRG's role to that of a “licensed regional stocking distribution warehouse.” (Doc. # 58–4). This proposed agreement represented a fundamental change in CTI's business model to a regional distribution warehouse (RDW) program. (Docs. # 7 at 15; 74–1; 74–2; 74–3). Under the new model, DRG (and other RDWs) would actually buy Filtercorp products, own the products, and sell them in the marketplace for a markup. (Doc. # 58 at 32). The RDW would receive exclusive distribution rights to Filtercorp products within its region. (Docs. # 74–1; 74–2; 74–3).

The evidence does not establish whether DRG executed the 2001 agreement. At his 2010 deposition, Goble stated that DRG “never signed it”—though he was unable to remember why. (Doc. # 58 at 26–27). The copy of the agreement in the record is unsigned. (Docs. # 1–6 at 19; 58–4). In response to Defendant CTI's request that Plaintiff “[a]dmit that an Agent for DRG Marketing, signed the ‘Licensing and Distribution Agreement,’ ” Plaintiff responded, “Cannot admit or deny.” (Doc. # 1–3 at 44–45). Plaintiff further represented that it had “made reasonable inquiry and the information known or readily obtainable is insufficient to enable an admission or denial.” (Doc. # 1–3 at 45). By contrast, CTI's President, Robin Bernard, stated in a 2007 affidavit that “[o]n January 1, 2001, Filtercorp contracted with DRG Marketing (hereinafter DRG), a Kentucky company located in Florence, Kentucky.” (Doc. # 1–6 at 9). Later, however, Bernard conceded that CTI has been unable to locate the document, though he stated that CTI's former President, Don Eskes, said that CTI and DRG executed the agreement. (Doc. # 6 at 33). Whether the agreement was signed or not, DRG and CTI continued to do business with DRG operating at an RDW under the Filtercorp trade name as Filtercorp MidAmerica (FCMA).³ When asked about the terms of DRG's relationship with CTI, Goble explained that “the deal was always fluid; we operated in compliance with their (CTI's) direction. (Doc. # 58 at 28).

B. The companies' initial involvement with Wendy's

CTI first targeted Wendy's as a potential customer sometime between 1998 and 2000 after hiring an employee, Rick Gibson, who was working for a competitor at the time and was familiar with the Wendy's and McDonald's accounts. (Docs. # 7 at 14–15; 97–3 ¶ 5). CTI was unable to secure the account at this time, so it terminated Gibson and shifted its focus away from marketing to the largest national chains (e.g., McDonald's and Burger King). (Doc. # 7 at 16). CTI continued to work on Wendy's “to a degree” because of the investment it had already made toward securing it as a customer. (Doc. # 7 at 16).

In the early 2000s, Robin Bernard showed Goble a product and “said we need to take this into Wendy's.” (Doc. # 58 at 47). About that time, Goble reached out to Mike Landis, who served as a liaison between

[807 F.Supp.2d 651]

operations and research and development at Wendy's. (Docs. # 6 at 12; 97–3 ¶¶ 2, 6). According to Landis, Goble was the first CTI representative who had contacted him for some time after his initial interaction with Gibson.⁴ (Doc. # 97–3 ¶¶ 5, 6). Landis stated that from that point until Wendy's ultimate acceptance of CTI's product, Goble and Goble, Jr. (Goble's son and DRG's Filtercorp product specialist) ⁵ “worked exceptionally hard to sell Wendy's a filter pad product.” (Doc. # 97–3 ¶ 7).

By July 2003, DRG's efforts began to show dividends as Landis agreed to test Filtercorp's product, even though the product was not a high priority of Wendy's executives at the time. (Docs. # 6 at 14; 97–3). The field tests were conducted in several Northern Kentucky Wendy's locations and supervised by Goble, Jr. (Docs. # 58 at 55–56; 63 at 9). The testing involved considerable effort on the part of DRG, as detailed in a letter from Robin Bernard to Mike Landis recommending a nine-step test implementation and evaluation program. (Doc. # 97–3 at 6–8). As Landis documented in a later email, these tests lasted for over two-and-a-half years and yielded “positive results,” which led to expanded testing in June and July 2006. (Docs. # 58 at 55; 58–5).

C. Plaintiff alleges that the “initial terms of the Wendy's deal” were laid out in a September 2003 email and subsequently supplemented

According to Plaintiff, it was shortly after Wendy's began testing Filtercorp's filter in July 2003 that CTI “formed the initial terms of the Wendy's deal.” (Doc. # 97–1 at 7). This came in the form of an email from Robin Bernard to all the RDWs on September 2, 2003, which provided “the notes and minutes of the [2003 Mid–Year] Council Meeting.” (Doc. # 69–14).⁶ In the email, Bernard explained that the “National Account Program” ⁷ would be structured as follows:

Basic split; 40% Distribution Region, 40% Specifying territory, 20% Destination territory. Distribution Region will receive a $5.00 per box minimum or 10% gross margin whichever is greater on pallet quantity shipments. ⁸

The paragraph concluded with the qualification, however, that “payout is determined by the final negotiated price and gross margin available on a case by case basis for each national account.” (Doc. # 69–14).

Sometime in the summer or fall of 2004, Goble determined that another of his companies, MidAmerican Distribution, Inc.,

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which he had started in 2001 to import shelving products to be used in the food service industry, would be a more effective RDW than DRG, which was primarily a marketing and representation business. (Docs. # 58 at 18–19, 31; 58–2 at 96; 1–5 at 21–22). Accordingly, Goble shifted CTI's business with DRG to MidAmerican. (Doc. # 58 at 31). He communicated the change to CTI verbally, “and there didn't seem to be a problem with that at all.” (Doc. # 58 at 33). CTI's President, Robin Bernard, has stated that CTI never executed a contract with MidAmerican and “DRG never requested assignment of its rights to MidAmerican Distribution Inc[.] and Filtercorp never authorized assignment.” (Docs. # 1–6 at 10; 6 at 4).

Robin Bernard sent an email to Goble nearly a year later, in July 2004, that Plaintiff contends “reinforc[ed] the initial terms set out in the previous year.” (Doc. # 97–1 at 7). The email explained that “[t]here are modifications to the earlier financial profiles we discussed through the earlier months” because “[q]uoting Wendy's a delivered price complicated the quotations.” (Doc. # 66–7 at 37). It continued on to state that “[t]he purpose for creating this final financial model below for MidAmerican & the other 3 RDW's is to take into consideration any information that affects costs before publicizing final price sheets. Please look at the MidAmerica model below:” (Doc. # 66–7 at 37). The email detailed:

Specifically, we were anticipating a $5.00 per carton margin for each RDW—on a weighted basis MidAmerica will now enjoy a $6.75 gross sales in the [sic] both the MidAmerica & Northeast Regions in the final model. This is the good news—the bad news is: in the other RDW's the only way Filtercorp could provide a gross sales margin of $5.00 per carton was to reduce the specification fee to $2.00 per carton.

A month later, in August 2004, Bernard sent Goble an email with a “Revised Price Performa” that showed MidAmerican receiving an...