Antitrust Law Daily Grocery stores breached contract with distributor, their counterclaims tossed (2)
Friday, February 1, 2019

Grocery stores breached contract with distributor, their counterclaims tossed

By Peter Reap, J.D., LL.M.

The owners of 13 grocery stores breached their agreement with a distributor by terminating the contract early. In addition, the common law counterclaims asserted by the owners were without merit.

Six companies that own and operate 13 grocery stores in Kentucky breached their distribution agreement with a wholesaler under which they purchased groceries and supplies, the U.S. Court of Appeals in Cincinnati has decided. In addition, five counterclaims asserted by the companies including breach of contract, fraud, and estoppel, were without merit. Thus, a decision by the federal district court in Lexington, Kentucky, was affirmed (Nash-Finch Co. v. Casey’s Foods, Inc., December 20, 2018, White, H.).

Nash-Finch Co., and its wholly-owned subsidiary Super Food Services, Inc. (collectively, Nash-Finch), distribute wholesale groceries and supplies to independent grocery stores. Nash-Finch entered into a distribution contract with the companies, who were owners of 13 affiliated IGA grocery stores in Kentucky. The contract was a ten-year Retail Sales and Service Agreement (RSSA) effective February 27, 2008, under which Nash-Finch supplied groceries and the companies were obligated to purchase a certain amount of their annual retail sales volume. Pursuant to the RSSA, Nash-Finch extended loans to several of the companies. The agreement’s rebateable loan arrangement allowed the companies to pay off certain amounts of certain loans through rebates on their purchases from Nash-Finch. The RSSA also required Nash-Finch to provide certain services and programs. To that end, Nash-Finch developed and implemented a total merchandising program, the "Every Day Value Program" or "EDV."

By letter to Nash-Finch dated February 27, 2015, the companies advised that as of March 4, 2015, they were switching suppliers, that is, ending their participation in the RSSA. Believing that the companies wrongfully terminated the RSSA three years early, Nash-Finch filed this breach-of-contract action, seeking liquidated damages and the balance it claimed the companies owed under the rebateable loan arrangement. The companies asserted eight counterclaims, three of which they abandoned on appeal.

The district court rejected the companies’ argument that Nash-Finch breached the RSSA first and granted Nash-Finch summary judgment on its breach-of-contract claim. The district court also dismissed the companies’ counterclaims, and later denied their motion to vacate, alter or amend the judgment. The companies appealed.

Nash-Finch’s breach of contract claim. On appeal, the companies contended that the district court erred in granting summary judgment to Nash-Finch on its claim because issues remained as to whether the distributor breached the RSSA first, excusing the companies’ failure to perform. The appellate court disagreed.

The companies were unsatisfied with the EDV implemented by Nash-Finch and argued that the EDV program existed in name only. However the companies presented no evidence showing that, and Nash-Finch submitted deposition testimony from its employee who oversaw the EDV indicating that the EDV remained in place after the companies terminated the RSSA in 2015, the appellate court noted. Further, the RSSA did not obligate Nash-Finch to guarantee the success of the EDV or to change the EDV if the companies were dissatisfied with it. Also without merit was the assertion by the companies that Nash-Finch failed to accurately disclose a key component of EDV. Finally, the claim by the companies that Nash-Finch’s proposed interpretation of the RSSA was unconscionable because Nash-Finch believed that it could "sculpt a contract for which they cannot be held liable for breaching" was unsupported by citation to authority or citation to the record. Thus, the district court’s determination that the companies failed to establish that Nash-Finch was the first to breach the RSSA was affirmed.

Breach of contract counterclaim. The companies’ breach-of-contract counterclaim based on untimely deliveries was properly dismissed, the Sixth Circuit ruled. The companies submitted no evidence to support their claim that when the warehouse from which they received deliveries was changed from Cleveland to Lima, Nash-Finch’s deliveries were untimely or damaged. Moreover, the RSSA required the companies to provide written notice of delayed or damaged deliveries, and the companies provided no evidence of such notice.

Economic loss doctrine. The companies asserted that the district court erred in dismissing their counterclaims for fraud in the inducement, constructive fraud, and negligent misrepresentation because of the economic-loss doctrine. The companies were correct in observing that Kentucky courts have discussed the economic-loss rule in limited contexts, including product liability and construction claims. However, because the companies’ fraud and misrepresentation counterclaims failed on the merits without regard to the economic-loss rule, the dismissal was affirmed on an alternative basis, the appellate court explained. Because the companies submitted no evidence that Nash-Finch made a material misrepresentation, or false or fraudulent statement about the EDV to induce the companies to participate in the program, their counterclaims of fraud in the inducement, constructive fraud, and negligent misrepresentation were properly dismissed.

Unjust enrichment counterclaim. The doctrine of unjust enrichment has no application in a situation where there is an explicit contract which has been performed, the court noted. Therefore, the district court correctly dismissed the companies’ unjust-enrichment counterclaim because the RSSA governed the relationship and the claim.

Promissory estoppel counterclaim. Although Kentucky courts have not addressed the question, this court, applying Kentucky law, has held that promissory estoppel "cannot be the basis for a claim if it represents the same performance contemplated under a written contract." The district court dismissed the companies’ promissory estoppel counterclaim in light of the RSSA.

Regardless of whether the existence of the RSSA barred this counterclaim, the counterclaim failed on the merits, the appellate court held. Promissory estoppel involves a promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee and which does induce such action or forbearance and is binding if injustice can be avoided only by enforcement of the promise, the court noted. The companies argued that a question of fact remained whether Nash-Finch "either promised results or otherwise made false representations . . . regarding the requirements and benefits of the EDV Program." But the companies presented no evidence that they relied to their detriment on any representation Nash-Finch made regarding the EDV program. Thus, Nash-Finch was entitled to summary judgment.

Equitable estoppel counterclaim. The district court correctly dismissed the companies’ equitable-estoppel counterclaim because it rested on the proposition that Nash-Finch misrepresented or failed to inform them of the necessity to decrease labor costs, a claim the appellate court had already rejected (as explained in a redacted portion of the opinion).

This case is No. 17-5975.

Attorneys: David M. Wilk (Larson & King, LLP) for Nash-Finch Co. and Super Food Services Inc. Paul R. Boggs, III (Wallace Boggs, PLLC) for Casey's Foods, Inc., KCR Ltd., Inc., C&S Foods, Inc., Manchester, Inc., CDM Foods, Inc. and J&L Cox, LLC.

Companies: Nash-Finch Co.; Super Food Services Inc.; Casey's Foods, Inc.; KCR Ltd., Inc.; C&S Foods, Inc.; Manchester, Inc.; CDM Foods, Inc.; J&L Cox, LLC

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