980 F. Supp. 2d 400
E.D.N.Y2013Background
- NPN (formerly Benevo) entered a written sole-distributorship agreement with NOI in Dec 2007 making NPN exclusive distributor of Nature’s Plus products in Scandinavia for 2008–2018; Dermagruppen (parent) was not a signatory.
- The Agreement required NPN to purchase/pay a minimum of $600,000 in 2008, provided a 17.5% price reduction, and obligated NPN to spend at least 5% of net purchases on advertising each year as partial consideration for the discount.
- NPN paid $718,648.10 to NOI in 2008, but the parties dispute whether three categories (2007-delivered products paid in 2008; private-label/selling aids; and freight) count toward the $600,000 minimum; if excluded, NPN’s recognized payments were $597,031.02 (~99.5% of the minimum).
- NOI terminated the Agreement in August 2009 for alleged failure to meet 2008 minimums and then designated Lundestad/HON as new distributor; NOI did not give the 30-day written notice and cure period specified in the Agreement for most breaches.
- Plaintiffs (NPN and Dermagruppen) sued for breach of contract, Lanham Act claims, NYFSA violation, and related claims; NOI counterclaimed for NPN’s breach. Defaults were entered as to other defendants; only NOI remained contested on these motions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing: Can Dermagruppen sue on the Agreement? | Dermagruppen claims successor status and argues acquisition/assimilation of NPN confers rights. | NOI says Dermagruppen is non-signatory parent with no contract rights. | Dermagruppen lacks standing; its breach claim dismissed. |
| Did NPN satisfy the $600,000 2008 minimum? | NPN says disputed items should count (including some 2007 deliveries, private-label/selling aids, freight) and that it substantially performed (~99.5%). | NOI says those items do not qualify and NPN failed the minimum. | Court: even adopting NOI’s view, NPN substantially performed (99.5%); material breach not established as matter of law. |
| Was NOI’s termination wrongful for lack of 30-day notice/cure? | NPN: termination was wrongful and lacked required notice; cure opportunity was owed. | NOI: minimum was a condition precedent; breach was incurable so notice/cure not required. | Court: because NPN substantially performed, termination on that basis was wrongful; court did not need to resolve cure requirement for that basis. |
| Damages: Are NPN’s lost-profits provable with reasonable certainty? | NPN offers expert Keegan projecting ~$13M lost profits using comparables (Solaray) and market assumptions. | NOI contends profits are speculative given NPN’s lack of historical profits and reliance on assumptions. | Court: triable issue exists; lost-profits not resolved on summary judgment (expert testimony preserved for trial). |
| NYFSA: Does Agreement create a franchise under NY law? | Plaintiffs say the 5% advertising obligation functions as an indirect franchise fee. | NOI says no franchise fee; purchases at wholesale are not a franchise fee; ad payment was partial consideration for discount. | Court: NYFSA claim dismissed — the 5% advertising was partial consideration for a price discount, not a franchise fee. |
Key Cases Cited
- Nnebe v. Daus, 644 F.3d 147 (2d Cir. 2011) (summary judgment evidence and materials considered)
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment burden rules)
- Topps Co., Inc. v. Cadbury Stani S.A.I.C., 526 F.3d 63 (2d Cir. 2008) (contract ambiguity standard at summary judgment)
- Schonfeld v. Hilliard, 218 F.3d 164 (2d Cir. 2000) (lost profits must be proven with reasonable certainty)
- Kenford Co. v. County of Erie, 67 N.Y.2d 257 (N.Y. 1986) (damages must be reasonably certain and directly traceable to breach)
- Yusuf Ahmed Alghanim & Sons v. Toys "R" Us, Inc., 126 F.3d 15 (2d Cir. 1997) (past losses do not necessarily preclude recovery of future lost profits)