Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co.
976 F.3d 239
2d Cir.2020Background:
- In 1952 PepsiCo and CEPSA entered an Exclusive Bottler Appointment (EBA) granting CEPSA exclusive rights to bottle and sell Pepsi in specified regions of Peru; the EBA had no fixed term.
- Paragraph 22 gave PepsiCo an optional right to terminate on the occurrence of five enumerated events (e.g., insolvency, failure to pay) but did not obligate PepsiCo to terminate or give CEPSA a reciprocal right.
- CEPSA operated under the EBA for ~40 years, invested in facilities, then suffered financial distress in the 1990s; CEPSA alleged PepsiCo failed to provide marketing support, interfered with business, and did not prevent "transshipment" into CEPSA's territory.
- PepsiCo notified termination of the EBA in 1999; CEPSA sued in SDNY asserting wrongful termination and breach for failure to police transshipment (among other claims).
- The district court dismissed the wrongful‑termination claim as the EBA was terminable at will under New York law, and granted summary judgment on the transshipment claim because CEPSA failed to prove damages and the EBA imposed no duty on PepsiCo to police transshipment.
- The Second Circuit affirmed: the EBA was terminable at will (subject to any hypothetical reasonable‑duration rule), and no contractual or implied‑covenant duty required PepsiCo to police transshipment; damages analysis therefore unnecessary.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the EBA is a perpetual contract or terminable at will | CEPSA: Paragraph 22 shows parties intended to be bound "unless and until" an enumerated event occurred and PepsiCo chose to terminate (perpetuity). | PepsiCo: EBA has no definite term and New York law treats indefinite contracts as terminable at will absent an express perpetuity clause. | The EBA is terminable at will under New York law; paragraph 22 is not surplusage and gives PepsiCo optional grounds to terminate. |
| Whether PepsiCo had a contractual duty (or one under the implied covenant) to police transshipment | CEPSA: The EBA and parties' course of dealing imposed a duty on PepsiCo to prevent other bottlers from selling into CEPSA's territory. | PepsiCo: The EBA does not create an affirmative policing obligation; implied covenant cannot be used to add affirmative duties not in the contract. | The EBA is unambiguous and imposes no duty to police transshipment; the implied covenant cannot create new affirmative obligations. |
| Whether CEPSA proved damages from transshipment with required certainty | CEPSA: Lost sales were general contract damages that could be proved sufficiently by its evidence. | PepsiCo: Lost profits from third‑party sales are consequential and require proof with reasonable certainty; CEPSA failed to offer admissible expert proof. | Court accepted that lost profits from transshipment are consequential requiring reasonable certainty; CEPSA lacked admissible expert proof, so damages were not established. |
Key Cases Cited
- Warner-Lambert Pharm. Co. v. John J. Reynolds, Inc., 280 F.2d 197 (2d Cir. 1960) (indefinite‑duration contracts are terminable at will absent an express statement of perpetuity)
- Willcox & Gibbs Sewing Mach. Co. v. Ewing, 141 U.S. 627 (1891) (termination grounds in an at‑will contract are not necessarily surplusage)
- Copy-Data Sys. v. Toshiba Am., 755 F.2d 293 (2d Cir. 1985) (reasonable‑duration requirement may apply where distributor makes significant investments)
- Broder v. Cablevision Sys. Corp., 418 F.3d 187 (2d Cir. 2005) (implied covenant of good faith cannot be used to create substantive contractual terms not agreed to)
- Tractebel Energy Mktg. v. AEP Power Mktg., 487 F.3d 89 (2d Cir. 2007) (distinguishing general contract damages from consequential damages for proof standards)
- Kenford Co. v. County of Erie, 67 N.Y.2d 257 (N.Y. 1986) (consequential lost profits require proof with reasonable certainty)
- Kronos, Inc. v. AVX Corp., 81 N.Y.2d 90 (N.Y. 1993) (nominal damages available even where actual damages cannot be proven)
- Pepsi-Cola Bottling Co. of Pittsburgh, Inc. v. PepsiCo, Inc., 431 F.3d 1241 (10th Cir. 2005) (different circuit applying UCC/post‑contract conduct reached a different result on transshipment enforcement)