807 F. Supp. 2d 646
E.D. Ky.2011Background
- This is a Kentucky breach of contract and unjust enrichment action by MidAmerican Distribution, Inc. against Clarification Technology, Inc. (CTI).
- CTI and MidAmerican relate via CTI’s Filtercorp brand and a regional distribution/representative framework involving DRG Marketing and later MidAmerican as RDWs; Wendy’s was the target customer.
- Over years, multiple emails, drafts, and meeting minutes discuss pricing models, discounts, and commissions for Wendy’s, with terms repeatedly described as fluid and subject to future negotiation.
- In 2006–2007, RDWs negotiated a new distribution agreement; Wendy’s approved CTI as a supplier, and discussions contemplated a ten-year term, but no final, signed Wendy’s-specific or RDW-wide agreement was produced by MidAmerican.
- CTI ultimately redirected Wendy’s rollout to direct shipments to Wendy’s distribution centers to absorb losses from a flawed rollout; RDWs sacrificed revenue, and CTI announced a 2008 transition back to RDW distribution for Wendy’s.
- MidAmerican filed suit in October 2007; CTI terminated MidAmerican in late October 2007; CRS later moved for bifurcation, and the court granted summary judgment for CRS after ruling underlying claims against CTI were resolved.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the Wendy’s Agreement governed by UCC Article II? | MidAmerican argues the arrangement is primarily a services/distributorship, not a sale of goods, so Article II does not apply. | CTI contends the agreement primarily involves sale of goods (pads) to MidAmerican, invoking Article II. | UCC Article II does not apply; Kentucky common law governs as the contract is predominantly for services. |
| Is the Wendy’s Agreement unenforceable for indefiniteness? | Eight documents memorialize terms; the agreement was definite in price, term, and structure. | Terms were open to future negotiations; pricing and term were fluid and not fixed. | Wendy’s Agreement is unenforceable for indefiniteness; terms were open and negotiations continued, lacking essential terms. |
| If enforceable, is the Wendy’s Agreement terminable at will due to lack of termination date? | The agreement or related conveyances purportedly set a ten-year term. | No clear termination date; contract terms were indefinite and subject to revocation at will with reasonable notice. | Even if enforceable, the Wendy’s Agreement lacked a termination date and was terminable at will; reasonable notice issues negate damages. |
| Do unjust enrichment and quantum meruit support recovery despite indefiniteness/dismissal of contract claim? | MidAmerican provided a valuable service and should be compensated for its efforts. | Under Kentucky law, recovery is barred where services are preliminary or provided in hope of obtaining a contract; no direct payment was agreed. | Unjust enrichment and quantum meruit claims fail; no compensation allowed for pre-contract or speculative efforts. |
Key Cases Cited
- Cinelli v. Ward, 997 S.W.2d 474 (Ky.Ct.App. 1998) (indefiniteness of preliminary agreements; terms open to future negotiations render unenforceable)
- Giverny Gardens, Ltd. P’ship v. Columbia Housing Partners Ltd. P’ship, 147 F.App’x 443 (6th Cir. 2005) (recognizes Cinelli as authoritative on preliminary agreements between sophisticated entities)
- Associated Warehousing, Inc. v. Banterra Corp., 2010 WL 2745981 (W.D. Ky. 2010) (terms letter not binding; continued negotiations indicate nonbinding nature)
- Leibel v. Raynor Manufacturing Co., 571 S.W.2d 640 (Ky.Ct.App. 1978) (distinguishes distributorships involving sale of goods from service-based arrangements)
- Buttorff v. United Elec. Labs., Inc., 459 S.W.2d 581 (Ky. 1970) (real nature of the agreement governs whether a contract is for goods or services)
- Shane v. Bunzl Distrib. USA, Inc., 200 F.App’x 397 (6th Cir. 2006) (terminable-at-will contract requires reasonable notice; termination after plaintiff’s suit affects damages)