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Day Distributing Co. v. Nantucket Allserve, Inc.: US District Court : FRANCHISE - start a business does not mean just add a line to a similar existing business

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
DAY DISTRIBUTING CO.,
a Minnesota corporation;
MARK VII DISTRIBUTORS, INC.,
a Minnesota corporation;
SANDSTONE DISTRIBUTING CO., INC.,
a Minnesota corporation;
NEEDHAM DISTRIBUTING CO., INC.,
a Minnesota corporation;
and ROHLFING OF DULUTH, INC.,
a Minnesota corporation,
Plaintiffs,
v.
NANTUCKET ALLSERVE, INC.,
f/k/a Stewarts Beverages, LLC and d/b/a
Cadbury Schweppes Americas Beverages,
Defendant.
Case No. 07-CV-1132 (PJS/RLE)
ORDER GRANTING DEFENDANTS
MOTION FOR SUMMARY JUDGMENT
Richard M. Dahl, Amy L. De Kok, and Michael D. Madigan, MADIGAN DAHL &
HARLAN, PA, for plaintiffs.
William L. Killion, Elizabeth L. Taylor, and Jacob R. Kraus, FAEGRE & BENSON
LLP, for defendant.
Defendant produces a line of upscale sodas. Plaintiffs distributed defendants sodas in
Minnesota. In December 2006, defendant took its distribution operations in-house and
terminated plaintiffs distributorship agreements. Plaintiffs sued, accusing defendant of
violating the Minnesota Franchise Act, and also bringing claims of breach of contract, unjust
enrichment, tortious interference with existing and prospective contractual relationships,
equitable estoppel, and breach of the implied covenant of good faith and fair dealing.
Defendant has moved for summary judgment on all of plaintiffs claims. For the reasons
set forth below, the motion is granted, and plaintiffs amended complaint is dismissed.
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I. BACKGROUND
Defendant Nantucket Allserve, Inc. produces a line of upscale sodas known as
Stewarts. Defendant does business under the family name of Cadbury Schweppes
Americas Beverages. Following the practice of the parties, the Court will refer to defendant and
its predecessors as Cadbury.
Plaintiffs are beverage distributors who distributed Stewarts sodas in Minnesota. Three
of the plaintiffs Day Distributing Co. (Day), Mark VII Distributors, Inc. (Mark VII), and
Needham Distributing Co., Inc. (Needham) began distributing Stewarts in the late 1980s or
early 1990s. Warner Dep. 22, 46; Ryan Dep. 12; Needham Dep. 27. These three plaintiffs did
not have written distributorship agreements with Cadbury. The remaining two plaintiffs
Sandstone Distributing Co., Inc. (Sandstone) and Rohlfing of Duluth, Inc. (Rohlfing)
began as sub-distributors of Stewarts. In other words, Sandstone and Rohlfing initially did
not get Stewarts from Cadbury, but instead from distributors of Stewarts. In the early 2000s,
though, Sandstone and Rohlfing started buying directly from Cadbury. Watrin Dep. 14, 17;
Spehar Dep. 21, 25, 28. Unlike the other plaintiffs, Sandstone and Rohlfing did have written
distributorship agreements with Cadbury. De Kok Aff. Exs. L, M.
Sandstones and Rohflings distributorship agreements provided that they could be
terminated without cause. De Kok Aff. Ex. L 2; id. Ex. M 2. At the end of the initial term,
Sandstones and Rohlfings agreements automatically renewed for one year, and the agreements
continued to renew each year unless either party provided at least thirty days written notice of a
desire to terminate the agreement. De Kok Aff. Ex. L 2; id. Ex. M 2. The agreements also
set minimum-purchase requirements; specifically, they required that, at the end of every quarter,
the distributor must have purchased at least one thousand cases of Stewarts during the previous
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twelve months. De Kok Aff. Ex. L 10(9); id. Ex. M 10(9). The other three plaintiffs did not
have minimum-purchase requirements, but they did have annual sales goals set by Cadbury.
Ryan Dep. 48-49.
As distributors of Stewarts sodas, plaintiffs participated in various promotional activities
in cooperation with Cadbury. Cadbury assigned an annual marketing budget to each distributor;
this represented the amount of money that Cadbury was willing to spend to market Stewarts in
that distributors territory. (Cadbury did not disclose the budgeted amount to the distributor.)
Cadbury then created a calendar of marketing activities, which included price discounts, print
advertising, and promotional displays. With respect to many of these programs, Cadbury would
offer to share (or co-op) the cost. For example, Cadbury would propose giving a particular
retailer a discount for a period of time, and Cadbury would offer to absorb of that discount
if the distributor would absorb the other . The expense incurred by Cadbury would be
deducted from the marketing budget assigned to the distributor.
The plaintiffs argue that, because Cadbury negotiated marketing plans (and, in particular,
price discounts) directly with retailers, the distributors as a practical matter had no choice about
participating. But it is undisputed that some of the distributors did refuse to participate in
discount programs when they thought that the discounts negotiated by Cadbury were too steep.
Ryan Dep. 55-57. When that happened, Cadbury would either cancel the program or absorb the
entire cost of the discount itself. Ryan Dep. 65; Warner Dep. 210. The parties agree that
Mark VII often acted as the bellwether for the Minnesota retailers; when Mark VII decided not
to participate in a program because it was too costly, the other distributors often followed suit.
Ryan Dep. 85. Cadbury also responded to Mark VIIs concerns about the impact of discount
programs on its profit margin by reducing the number of discount programs. Ryan Dep. 84-85.
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Sometime in 2003 (if not earlier), Cadbury began exploring the possibility of bringing its
distribution of Stewarts in-house. Gennarelli Dep. 75-78. In October 2006, after spending
about three years studying the issue, Cadbury decided that it would be more profitable for it to
distribute Stewarts directly rather than to rely on middlemen. Cadbury notified its outside
distributors including plaintiffs that their agreements with Cadbury would terminate as of
the end of 2006. Def.s Exs. 11-15; Gennarelli Dep. 87-88. Plaintiffs then commenced this
action in January 2007 in Minnesota state court. Cadbury removed the action to federal court
and now seeks summary judgment.
I. ANALYSIS
A. Standard of Review
Summary judgment is appropriate if the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any material fact
and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). A dispute
over a fact is material only if its resolution might affect the outcome of the suit under the
governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A
dispute over a fact is genuine only if the evidence is such that a reasonable jury could return a
verdict for either party. Ohio Cas. Ins. Co. v. Union Pac. R.R., 469 F.3d 1158, 1162 (8th Cir.
2006). In considering a motion for summary judgment, a court must view the evidence and the
inferences that may be reasonably drawn from the evidence in the light most favorable to the
non-moving party. Winthrop Res. Corp. v. Eaton Hydraulics, Inc., 361 F.3d 465, 468 (8th Cir.
2004).
1Plaintiffs evidence some confusion about the MFA when they argue that the businessopportunity
provision is a way to establish that they paid a franchise fee. The MFA defines
several alternative, stand-alone types of franchises. Payment of a franchise fee is necessary to
establish the existence of a franchise under subdivision 4(a)(1) (discussed below), but it is not
necessary to establish the existence of a franchise under the business-opportunity provision
(subdivision 4(a)(3)).
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B. Minnesota Franchise Act
The Minnesota Franchise Act (MFA) protects franchisees from being terminated
without good cause by franchisors. Minn. Stat. 80C.14, subd. 3(b). Cadbury does not argue
that it had good cause to terminate plaintiffs distributorship agreements. Instead, Cadbury
argues that it did not need good cause because it was not a franchisor and plaintiffs were not
franchisees for purposes of the MFA.
The MFA defines franchise in several alternative ways. Plaintiffs rely on two of those
definitions: They claim that they are franchisees because Cadbury sold Stewarts sodas to them
for the purpose of enabling them to start a business and because they paid an indirect
franchise fee to Cadbury. The Court considers each argument in turn.
1. The Business Opportunity Provision
Plaintiffs first contend that they are franchisees under the business opportunity
provision of the MFA. See Minn. Stat. 80C.01, subd. 4(a)(3).1 In relevant part, that provision
defines a franchise as:
the sale or lease of any products, equipment, chattels, supplies, or
services to the purchaser . . . for the purpose of enabling the
purchaser to start a business and in which the seller:
. . .
(iii) guarantees that the purchaser will derive
income from the business which exceeds the price
paid to the seller[.]
2Plaintiffs also argue that Cadbury guaranteed that they would earn a profit from
distributing Stewarts. The Court assumes that plaintiffs are correct for purposes of ruling on
Cadburys summary-judgment motion.
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Minn. Stat. 80C.01, subd. 4(a)(3) (emphasis added). Plaintiffs contend that they fall squarely
within this definition because Cadbury sold Stewarts sodas to them so that they could start a
new business. Specifically, plaintiffs argue that they were in the business of distributing beer,
but then Cadbury sold Stewarts sodas to them so that they could start the new business of
distributing premium, upscale sodas.2
Neither the parties nor the Court have found any case law interpreting the businessopportunity
provision of the MFA. In particular, neither the parties nor the Court has found any
opinion addressing the meaning of start a business for purposes of the MFA. But both sides
have cited cases from other jurisdictions interpreting similar business-opportunity statutes. A
review of these cases and consideration of the commonly understood meaning of start a
business suggest that start a business does not have the broad meaning claimed by
plaintiffs.
Plaintiffs cite a number of cases in which a purported franchisor was found to have sold
products or services to a purported franchisee for the purpose of enabling the franchisee to start a
business. In most of these cases, however, the purported franchisor advertised business
opportunities to the general public and, in response, persons who were not previously
established in that business (or, for that matter, in any business) paid money for products or
services to start a new business. Cf. Tousley v. N. Am. Van Lines, Inc., 752 F.2d 96, 99 (4th Cir.
1985); Martin v. Pilot Indus., 632 F.2d 271, 273 (4th Cir. 1980); Adams v. State, 443 So.2d
1003, 1003-04 (Fla. Dist. Ct. App. 1983). In other cases cited by plaintiffs, the new business
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involved products or services that were completely different from the products or services that
the plaintiffs were already in the business of selling for example, a case in which linoleum
distributors purchased the right to sell subscriptions to a monthly video marketing magazine,
Fineman v. Armstrong World Indus., Inc., 774 F. Supp. 225, 236-37 (D.N.J. 1991), revd in part
on other grounds, 980 F.2d 171 (3d Cir. 1992), and a case in which a group of ophthalmologists
purchased the right to distribute a computerized medical-billing system, Eye Assocs., P.C. v.
IncomRx Sys. Ltd. Pship, 912 F.2d 23, 25 (2d Cir. 1990).
The facts of this case are far removed from those cases. Plaintiffs were well-established
distributors of beer before Cadbury ever approached them. Plaintiffs already owned the facilities
(warehouses, refrigerators) and equipment (trucks, handcarts), and already employed the
personnel (drivers, warehouse workers, bookkeepers), needed to distribute beverages. Cadbury
did not offer plaintiffs an opportunity to start a business; Cadbury offered them an opportunity to
add a line of products to an already-existing business. Cadbury essentially told plaintiffs:
When your trucks are out delivering beer, they should also deliver Stewarts sodas.
True, there is language in some cases cited by plaintiffs suggesting that the addition of
somewhat similar product lines may be considered new business. See, e.g., Eye Assocs., 912
F.2d at 27 (noting a decision by the Connecticut Banking Commissioner that the purchase of the
right to sell aircraft was a new business even though the purchasers were already in the
business of selling other types of transportation vehicles). But whatever the ambiguities inherent
in the phrase start a business, the Court believes that it cannot be stretched to cover a situation
in which an already-established beer distributorship takes on the distribution of a line of sodas.
Cf. Bunting v. Perdue, Inc., 611 F. Supp. 682, 688-89 (E.D.N.C. 1985) (construction of second
poultry house was an expansion of an existing business, not the start of a new business).
-8-
Were the Court to hold otherwise, the scope of the MFA would be breathtakingly broad.
Any time a wholesaler or retailer added a new product that could be distinguished in a minor
way from its existing products for example, a distributor of regular sodas that added a line
of premium sodas, or a restaurant selling domestic beer that added a line of imported beer
that wholesaler or retailer would become a franchisee, and the supplier of the new product
would become a franchisor, as long as the supplier made some kind of representation that selling
the product would be profitable (hardly an uncommon representation). Even a tiny convenience
store could be deemed the franchisee of dozens of franchisors; a department store or grocery
store could find itself in literally thousands of franchisor-franchisee relationships, each
governed by the stringent requirements of the MFA. Surely the Minnesota Legislature did not
intend the business-opportunity provision to sweep so broadly.
The Court holds that when Cadbury sold Stewarts sodas to plaintiffs, Cadbury did not do
so for the purpose of enabling the [plaintiffs] to start a business. Minn. Stat. 80C.01,
subd. 4(a)(3). Plaintiffs were thus not franchisees under the business-opportunity provision of
the MFA.
2. Franchise Fee
Plaintiffs next argue that they are franchisees under Minn. Stat. 80C.01, subd. 4(a)(1),
which defines a franchise as follows:
a contract or agreement, either express or implied, whether oral or
written, for a definite or indefinite period, between two or more
persons:
(i) by which a franchisee is granted the right to
engage in the business of offering or distributing
goods or services using the franchisors trade name,
trademark, service mark, logotype, advertising, or
other commercial symbol or related characteristics;
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(ii) in which the franchisor and franchisee have a
community of interest in the marketing of goods or
services at wholesale, retail, by lease, agreement, or
otherwise; and
(iii) for which the franchisee pays, directly or
indirectly, a franchise fee[.]
Minn. Stat. 80C.01, subd. 4(a)(1) (emphasis added). Cadbury disputes only the third
requirement: that plaintiffs paid a franchise fee. The MFA defines a franchise fee as follows:
Franchise fee means any fee or charge that a franchisee or
subfranchisor is required to pay or agrees to pay for the right to
enter into a business or to continue a business under a franchise
agreement, including, but not limited to, the payment either in
lump sum or by installments of an initial capital investment fee,
any fee or charges based upon a percentage of gross or net sales
whether or not referred to as royalty fees, any payment for goods
or services, or any training fees or training school fees or charges;
provided, however, that the following shall not be considered the
payment of a franchise fee:
(a) the purchase of goods or agreement to purchase
goods at a bona fide wholesale price; . . . .
Minn. Stat. 80C.01, subd. 9.
Plaintiffs admit that they did not pay what would ordinarily be considered a franchise
fee that is, an upfront, direct fee for the right to distribute Stewarts sodas. Instead, plaintiffs
contend that they paid indirect franchise fees in the form of co-op advertising and marketing
fees, excessive minimum volume and sales requirements, and discount pricing programs.
Plaintiffs seem to suggest that the mere fact that they purchased supplies and marketing
materials and participated in marketing, advertising, and discount programs establishes that they
paid franchise fees. But Minnesota courts (and federal courts applying Minnesota law) have
long held that ordinary business expenses such as these are not considered franchise fees unless
they are unreasonable and lack a valid business purpose. See Twin Cities Galleries, LLC v.
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Media Arts Group, Inc., 476 F.3d 598, 601 (8th Cir. 2007) (Minnesota courts do not require a
fact-intensive inquiry into how much inventory a distributor would stock in the absence of a
minimum-purchase requirement, but instead apply an objective reasonableness standard);
R&A Small Engine, Inc. v. Midwest Stihl, Inc., No. 06-877, 2006 WL 3758292, at *4 (D. Minn.
Dec. 20, 2006) (one-percent fee for regional advertising was a reasonable and ordinary business
expense rather than a franchise fee); RJM Sales & Mktg., Inc. v. Banfi Prods. Corp., 546 F.
Supp. 1368, 1373 (D. Minn. 1982) (payments for wine samples and jackets, payments to outside
firms for advertising material, and receipt of a commission lower than the industry average were
ordinary business expenses rather than franchise fees); Upper Midwest Sales Co. v. Ecolab, Inc.,
577 N.W.2d 236, 242 (Minn. Ct. App. 1998) (reasonable minimum-purchase requirements and
payments for tangible and intangible business assets were not franchise fees); Banbury v.
Omnitrition Intl, Inc., 533 N.W.2d 876, 882 (Minn. Ct. App. 1995) (reasonable minimumpurchase
requirements were not franchise fees); Am. Parts Sys., Inc. v. T&T Auto., Inc., 358
N.W.2d 674, 677 (Minn. Ct. App. 1984) (evidence did not show that the inventory requirement
was unreasonable and therefore it was not a franchise fee); OT Indus., Inc. v. OT-tehdas Oy
Santasalo-Sohlberg AB, 346 N.W.2d 162, 166-67 (Minn. Ct. App. 1984) (minimum-purchase
requirements and required advertising fees were ordinary and valid business expenses rather than
franchise fees).
The record is devoid of evidence that any of the marketing and advertising expenses that
plaintiffs incurred were unreasonable or lacked a valid business purpose. At most, there is some
evidence that Mark VII occasionally lost money on discounts to retailers. Ryan Dep. 75-76. But
to say that a distributor lost money on a marketing program is not to say that the program was
unreasonable or lacked a valid business purpose. Not every marketing program produces
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immediate profits. Moreover, as already noted, Mark VII objected when it thought the discounts
were too steep. Ryan Dep. 55-57. When Mark VII agreed to participate in a discount program
at a loss, it did so in the hope that the discount would help promote brand awareness which, in
turn, would increase sales. Ryan Dep. 75-76. Based on this record, no reasonable jury could
find that the discounts and other marketing programs were unreasonable or that they lacked a
valid business purpose.
The record is similarly devoid of evidence that the minimum-purchase requirements and
sales goals were unreasonable or lacked a valid business purpose. The closest plaintiffs come is
evidence that, at the time Rohlfings distributorship agreement ended, Rohlfing still had several
hundred cases of Stewarts that it had not been able to sell. Spehar Dep. 30-31. That evidence,
standing alone, means almost nothing; it is certainly not sufficient to permit a jury to conclude
that the minimum-purchase requirement was unreasonable and lacked a valid business purpose.
That is particularly true in light of Rohlfings sales figures, which demonstrate that Rohlfing
generally sold more than one thousand cases per year (which was the minimum-purchase
requirement). Spehar Dep. 71-72. Thus, all of the indirect fees that plaintiffs allege they were
forced to pay were ordinary, reasonable business expenses, incurred for valid business purposes,
and therefore were not franchise fees.
In addition, with the exception of the minimum-purchase requirements that applied to
two of the five plaintiffs, there is no evidence that Cadbury ever told plaintiffs that they had to
participate in any of these programs for the right . . . to continue [the] business . . . . Minn.
Stat. 80C.01, subd. 9; cf. Coynes & Co. v. Enesco, LLC, No. 07-4095, 2007 WL 3023345, at
*3 (D. Minn. Oct. 12, 2007) (payment of fifty-percent markup for exclusive rights to market
products was not a franchise fee because the right to enter into the business relationship was not
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predicated on the payment of the markup); Hogin v. Barnmaster, Inc., No. C3-02-1880, 2003
WL 21500044, at *4-5 (Minn. Ct. App. July 1, 2003) (payment of eighty-percent markup for
training fee was not a franchise fee because training, although highly recommended, was not
mandatory); Bitronics Sales Co. v. Microsemiconductor Corp., 610 F. Supp. 550, 558-59 (D.
Minn. 1985) (training fees, minimum volume requirements, prices exceeding bona fide
wholesale prices, and failure to pay commissions were not franchise fees because there was no
evidence that the plaintiff agreed to those conditions for the right to enter into or continue the
business). To the contrary, the evidence is clear that plaintiffs did not have to participate in all
of these programs.
As noted, Mark VII would refuse to participate in the discounts when it thought that the
discounts were too steep. Ryan Dep. 56-57, 84-85. And every other plaintiff admitted that at
least some of the programs were not mandatory. Ryan Dep. 105 (Mark VII was not forced to
buy any point-of-sale materials); Warner Dep. 138, 206-07, 213-14 (Day could not say that any
of the co-op or other payments were made in exchange for the right to continue in business, Day
declined to sell to retailers at Cadburys suggested price on at least one occasion, and Day could
have declined to purchase the specialized promotional products); Needham Dep. 102-03
(admitting that Needham could have chosen not to participate in programs that it thought would
be bad for business); Watrin Dep. 66-67 (Cadbury never told Sandstone that it had to order
promotional products); Spehar Dep. 63-65 (Cadbury never told Rohlfing that it had to participate
in discount programs and Rohlfing agreed to participate because it thought they were good for
business).
Plaintiffs argue that even though Cadbury did not directly condition their right to
distribute Stewarts on participation in the various marketing and discount programs, Cadbury
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indirectly pressured them to participate by negotiating discounts directly with retailers before
presenting the discount programs to plaintiffs. As already noted, though, plaintiffs were capable
of resisting any indirect pressure; they refused to participate in discount programs when they
deemed those programs inadvisable. Plaintiffs further contend that the fact that they were
terminated soon after they began to refuse to participate demonstrates that participation was
mandatory. But the record belies plaintiffs argument that they were terminated for refusing to
participate in marketing programs and price discounts. Instead, the undisputed evidence is that
Cadbury began considering bringing the distribution of Stewarts in-house as early as 2003 and
that it spent years preparing for such a step. Gennarelli Dep. 75-78. (Indeed, plaintiffs complain
bitterly that Cadbury did not warn them of Cadburys plan to bring the distribution of Stewarts
in-house, even though Cadbury had worked on the plan for years.) Plaintiffs were terminated
because Cadbury decided that it could make more money by distributing its product directly and
cutting out the middlemen. The MFA did not lock Cadbury into forever using outside
distributors.
In sum, the Court holds that no reasonable jury could find that the co-op advertising and
marketing fees, minimum volume and sales requirements, or discount pricing programs were
unreasonable or lacked a valid business purpose. For that reason, the Court holds that none of
the five plaintiffs was a franchisee of Cadbury for purposes of the MFA. In addition, the Court
finds that no reasonable jury could conclude that plaintiffs right to distribute Stewarts was
conditioned on their payment of these fees or participation in these programs (with the exception
of the minimum-purchase requirements). For that additional reason, the Court holds that Day,
Mark VII, and Needham were not franchisees of Cadbury for purposes of the MFA. Cadbury is
entitled to summary judgment on plaintiffs MFA claim.
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C. Breach of Contract
Plaintiffs argue that Cadbury breached its contracts with them by terminating them
without good cause. With respect to Sandstone and Rohlfing the two plaintiffs who had
written contracts their contracts, which were fully integrated, explicitly permitted termination
without cause at the end of the initial term or any subsequent term on thirty days written notice.
There is no dispute that Cadbury provided thirty days written notice prior to terminating
Sandstone and Rohlfing. Their breach-of-contract claim must be dismissed.
With respect to the three remaining plaintiffs, plaintiffs argue that, under Minnesota law,
contracts will if possible be construed so as not to permit their termination at will. See Miller v.
O.B. McClintock Co., 297 N.W. 724, 729 (Minn. 1941). But that principle only applies to a
contract that is for a definite duration (e.g., through December 31, 2009) yet also includes a
clause that could be construed to permit termination at will. In such a case, the court will, if
possible, construe the contract as a whole so as not to permit termination prior to the end date
(e.g., December 31, 2009). For example, in Miller, the term of a license agreement was for the
life of the licensed patents. Id. at 726. The contract also permitted termination in the event of
either partys nonperformance. Id. The defendant rather boldly argued that, because it had not
performed under the contract, it could terminate the contract and avoid its obligation to pay
royalties. Id. at 728-29. Not surprisingly, the Minnesota Supreme Court rejected that argument
and held instead that the clause regarding nonperformance should be construed to benefit only
the nonbreaching party. Id. at 729.
Miller has no application to this case. Cadbury is not attempting to convert a contract for
a definite term into a contract that is terminable at will. There is no evidence that the unwritten
contracts were for anything but an indefinite duration or that Cadbury ever promised that the
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distributors would be terminated only for good cause. In these circumstances, the ordinary rule
that indefinite distributorship contracts are terminable at will upon reasonable notice applies.
See Elvgren Paint Supply Co. v. Benjamin Moore & Co., 948 F.2d 1082, 1084 (8th Cir. 1991)
(per curiam) (under Minnesota law, in the absence of express or implied agreement on the
duration of a distributorship, the distributorship is indefinite and is terminable at will on
reasonable notice). Plaintiffs do not argue that they did not receive reasonable notice.
Cadburys motion for summary judgment is therefore granted with respect to plaintiffs breachof-
contract claim.
D. Unjust Enrichment
Under Minnesota law, the elements of a claim for unjust enrichment are: (1) the plaintiff
conferred a benefit on the defendant; (2) the defendant knowingly accepted and appreciated the
benefit; and (3) the circumstances render it inequitable for the defendant to retain the benefit
without paying for it. Dahl v. R.J. Reynolds Tobacco Co., 742 N.W.2d 186, 195 (Minn. Ct. App.
2007), review granted (Minn. Feb. 27, 2008). A claim for unjust enrichment does not lie
simply because one party benefits from the efforts or obligations of others, but instead it must be
shown that a party was unjustly enriched in the sense that the term unjustly could mean
illegally or unlawfully. Id. at 196 (citation and quotations omitted).
With respect to the three plaintiffs that were Stewarts distributors for more than a decade
Day, Mark VII, and Needham it is patently obvious that they cannot maintain a claim for
unjust enrichment. As discussed above, plaintiffs have no evidence that any of the fees and
expenses they allegedly incurred were unreasonable or lacked a valid business purpose. These
expenses benefitted both Cadbury and the plaintiffs, and did so over many years. As also noted,
there is no evidence that Cadbury promised that the distributorships would not be terminated in
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the absence of good cause. No reasonable trier of fact could find, under the circumstances of
this case, that it is inequitable for Cadbury to retain the benefit of these plaintiffs efforts to
develop the Stewarts brand efforts from which plaintiffs themselves benefitted quite
handsomely.
The two plaintiffs that were Stewarts distributors for only a few years Sandstone and
Rohlfing argue that Cadbury brought them on as distributors while at the same time secretly
planning to bring its distribution in-house, and that this was an unfair attempt to exploit these
distributors to expand the market for Stewarts almost entirely to benefit Cadbury. The Court
need not address this argument, though, as Sandstone and Rohlfing were parties to fully
integrated, written contracts with Cadbury, and thus Sandstone and Rohlfing are legally barred
from bringing a claim for unjust enrichment. Sterling Capital Advisors, Inc. v. Herzog, 575
N.W.2d 121, 126 (Minn. Ct. App. 1998) (existence of an express contract between the parties
precludes recovery under unjust enrichment). Sandstone and Rohlfing merely performed their
obligations under the express contracts; in return, Cadbury performed its obligations under those
same contracts. No one was enriched unjustly.
E. Tortious Interference with Contract and Prospective Business Relations
Under Minnesota law, to prevail on a claim of tortious interference with an existing
contract, a plaintiff must show: (1) the existence of a contract; (2) that the defendant knew of the
contract; (3) that the defendant intentionally procured a breach of the contract without
justification; and (4) damages. Howard v. Minn. Timberwolves Basketball Ltd. Pship, 636
N.W.2d 551, 559 (Minn. Ct. App. 2001). To prevail on a claim of tortious interference with
prospective business relations, a plaintiff must show: (1) that it had a reasonable expectation of
economic advantage or benefit; (2) the defendant knew of that expectation; (3) the defendant
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wrongfully interfered with the expectation without justification; (4) causation; and (5) damages.
Lamminen v. City of Cloquet, 987 F. Supp. 723, 731 (D. Minn. 1997), affd as modified, 162
F.3d 1164 (8th Cir. 1998) (per curiam). In their sparse briefing on these claims, plaintiffs do not
identify any existing or prospective contracts with any specificity, and thus their claims must
fail. See R&A Small Engine, 2006 WL 3758292, at *4 (plaintiff must establish that wrongful
conduct affected a specific relationship; mere loss of unspecified business is not sufficient to
establish interference with prospective business relations); Sports & Travel Mktg., Inc. v.
Chicago Cutlery Co., 811 F. Supp. 1372, 1382-82 (D. Minn. 1993) (dismissing claim for tortious
interference with existing contract because plaintiff failed to identify any existing contract).
F. Equitable Estoppel
Plaintiffs argue that Cadbury should be equitably estopped from terminating its
relationships with them. An equitable-estoppel claim arises when
one by his acts or representations, or by his silence when he ought
to speak, intentionally or through culpable negligence, induces
another to believe certain facts to exist, and such other rightfully
acts on the belief so induced in such manner that if the former is
permitted to deny the existence of such facts it will prejudice the
latter.
Birch Publns, Inc. v. RMZ of St. Cloud, Inc., 683 N.W.2d 869, 873-74 (Minn. Ct. App. 2004)
(citation and quotations omitted). To prevail on a claim of equitable estoppel, a plaintiff must
establish that: (1) the defendant made a promise or inducement; (2) the plaintiff reasonably
relied on the promise or inducement; and (3) the plaintiff will be harmed if the defendant is not
estopped. Id. at 873.
Plaintiffs argue that Cadbury induced them into making significant investments on
Cadburys behalf and enticed them with promises of substantial profits while at the same time
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secretly planning to terminate them. But for estoppel to apply, plaintiffs must identify a specific
promise or inducement that led them to believe that they would not be terminated without good
cause and on which they actually relied in making a particular investment. Plaintiffs have not
identified any such promise or inducement, nor have they presented sufficient evidence of actual
reliance, and thus their claim must fail.
G. Breach of Good Faith and Fair Dealing
Under Minnesota law, every contract includes an implied covenant of good faith and fair
dealing. In re Hennepin County 1986 Recycling Bond Litig., 540 N.W.2d 494, 502 (Minn.
1995). Under that implied covenant, one party may not unjustifiably hinder the other partys
performance of the contract. Id. But the implied covenant cannot be used to prevent a party
from properly exercising its rights under the contract including its right to terminate an at-will
distributorship agreement. Cf. Vick v. Nw. Publns, Inc., No. C3-90-978, 1990 WL 152696, at
*2 (Minn. Ct. App. Oct. 16, 1990) (no breach of good faith in terminating distributorship
agreement pursuant to express terms of the contract). Cadbury had the right to terminate both
the written and unwritten distributorship agreements at will; Cadburys exercise of its rights
under the contracts therefore did not unjustifiably hinder plaintiffs performance. Cadburys
motion for summary judgment on plaintiffs good-faith claim is granted.
ORDER
Based on the foregoing, and on all of the files, records, and proceedings herein, IT IS
HEREBY ORDERED THAT:
1. Defendant Nantucket Allserve, Inc.s motion for summary judgment [Docket
No. 25] is GRANTED.
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2. Plaintiffs amended complaint [Docket No. 19] is DISMISSED WITH
PREJUDICE AND ON THE MERITS.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: July 25, 2008 s/Patrick J. Schiltz
Patrick J. Schiltz
United States District Judge
 

 
 
 

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