Pamado, Inc. v. Hedinger Brands, LLC
785 F. Supp. 2d 698
N.D. Ill.2011Background
- Central Beverage distributed DAD'S® root beer in a Chicago-area territory under an exclusive distributorship; Monarch granted the initial rights and later sold them to Hedinger in 2007.
- Section 1.0(a) of the Agreement gave Central Beverage exclusive distribution in the territory, with an invasion fee of $1 per case for National Account Customers listed in Appendix D (Walgreens).
- Hedinger began selling DAD'S® products to Dahlstrom and Integrity, who resold to Jewel/Osco stores in Central Beverage's territory, despite the exclusivity.
- Jewel/Osco is a National Account Customer; Dahlstrom/Integrity are not, but Hedinger sold through them, raising breach concerns under §1.0(a).
- Central Beverage sued for breach of contract; Hedinger removed to federal court; discovery proceeded; motions for partial summary judgment were filed.
- The court determines Hedinger breached by selling through conduits to Jewel/Osco within the territory and resolves related damages and termination issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Hedinger breach by selling to Dahlstrom/Integrity for Jewel/Osco within the territory? | Central Beverage argues §1.0(a) exclusivity prohibits such sales, even indirectly. | Hedinger contends §1.0(a) allows National Account sales (Jewel/Osco) via conduits for a $1 invasion fee against Walgreens only. | Yes; Hedinger breached by indirect sales to Jewel/Osco through Dahlstrom/Integrity within the territory. |
| Measure of damages for the breach of the exclusivity provision | Central Beverage seeks lost profits based on its per-case margin for Jewel/Osco sales in the territory. | Hedinger argues lost profits are not proven or too speculative and would require direct sales figures. | Central Beverage may prove lost profits; damages must be proved at trial with evidence of cases within the territory and margins. |
| Whether Hedinger properly terminated the Agreement and the applicability of §7.3 | Central Beverage contends termination without cause triggers §7.3 liquidated damages. | Hedinger argues Central Beverage's refusal to pay a supplier (RCB) constitutes §7.2(d) valid termination; thus §7.3 does not apply. | Termination was proper under §7.2(d) for nonpayment to an approved source; §7.3 damages do not apply. |
Key Cases Cited
- TAS Distrib. Co. v. Cummins Engine Co., 491 F.3d 625 (7th Cir. 2007) (lost profits require reasonable certainty and foreseeability)
- Midland Hotel Corp. v. Reuben H. Donnelley Corp., 118 Ill.2d 306 (Ill. 1987) (damages must be proven with reasonable certainty; speculation not allowed)
- Belleville Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc., 199 Ill.2d 325 (Ill. 2002) (analysis of contract damages in exclusive distributorship context)
- Oakleaf of Illinois v. Oakleaf & Associates, Inc., 173 Ill.App.3d 637 (Ill. App. 1st Dist. 1988) (damages for breach of exclusive sales contracts can be based on lost territory sales)
- Inscero Mfg. Inc. v. Amsco Corp., 1985 WL 5078 (N.D. Ill. 1985) (cited for proper measure of damages in patent-like exclusive contexts)
- Everroad v. Scott Truck Sys., Inc., 604 F.3d 471 (7th Cir. 2010) (summary judgment and contract interpretation principles applied to ambiguity)
- Gallagher v. Lenart, 226 Ill.2d 208 (Ill. 2007) (contract interpretation using whole-document language and intent)
- Continental Cas. Co. v. Northwestern Nat. Ins. Co., 427 F.3d 1038 (7th Cir. 2005) (ambiguity and extrinsic evidence considerations in contract interpretation)
- Baker v. America's Mortgage Servicing, Inc., 58 F.3d 326 (7th Cir. 1995) (contract interpretation and summary judgment standards)