Welcome to The Franchise Memorandum by Lathrop GPM, formerly known as The GPMemorandum. Periodically, The Franchise Memorandum focuses on topics primarily of interest to companies that use distributors and dealers rather than manage a business format franchise system. The distribution-related topics in this issue include contract claims, preliminary injunctions, and terminations.
Second Circuit Affirms Dismissal of Distributor’s Breach of Contract Claims -
The Second Circuit Court of Appeals recently affirmed a lower court’s dismissal of a distributor’s breach of contract claims because the contract was terminable at will and the manufacturer had no duty to protect the distributor from competition. Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Company, 976 F.3d 239 (2d Cir. Sept. 29, 2020). In 1952, PepsiCo and Compania Embotelladora Del Pacifico, S.A. (CEPSA) entered into an exclusive bottler agreement (EBA) granting CEPSA the exclusive right to bottle and distribute Pepsi Cola in a protected territory in parts of Peru. PepsiCo agreed that so long as the EBA was in effect, it would not appoint another bottler to service the protected territory. The EBA had no expiration date, but did permit PepsiCo to terminate it for specific defaults, including breach of the EBA or insolvency. The parties had a successful relationship until the 1990s when CEPSA encountered financial hardship, including the inability to pay PepsiCo. In August 1998, one of CEPSA’s creditors filed an insolvency petition. In March 1999, PepsiCo sent CEPSA a notice of termination, citing multiple breaches, including CEPSA’s insolvency. In October 2000, CEPSA sued PepsiCo in a federal court in New York, alleging wrongful termination and failure to protect CEPSA from third parties transshipping Pepsi products into the protected territory. Years of litigation ensued and, in October 2008, CEPSA filed an amended complaint alleging two additional tort claims, which the district court eventually dismissed along with CEPSA’s wrongful termination claim.
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