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KENNAMETAL, INC. v. SUBTERRANEAN EQUIP. CO.

July 23, 1982

KENNAMETAL, INC.
v.
SUBTERRANEAN EQUIPMENT COMPANY



The opinion of the court was delivered by: SIMMONS

Plaintiff, Kennametal, Inc. filed this civil action against Defendant, Subterranean Equipment Co. (SEC) alleging a breach of contract due to Defendant's failure to pay for certain mining machinery and related items. Plaintiff also alleged that certain other mining equipment was ordered by Defendant who now refuses to issue delivery instructions for or pay for the equipment.

Defendant, SEC, in answering the complaint filed a counterclaim alleging intentional interference with prospective contractual relations, intentional interference with business relations and a breach of contract. *fn1"

 SEC contends that Kennametal breached the contract between them, a distributorship agreement which made SEC a non-exclusive distributor of Kennametal products, specifically certain mining equipment and replacement cutters. The alleged breach occurred by Kennametal directly selling cutters to SEC's customers at a discount price that was less than the discount price originally offered SEC by Kennametal. SEC alleges that Kennametal, by selling cutters to SEC's customers at the lower discount price, intentionally interfered with the prospective relations between SEC and its customers.

 Kennametal has filed a motion for summary judgment on SEC's counterclaim on the grounds that:

 
1. Because SEC has a non-exclusive distributorship, Kennametal was privileged to sell the mining equipment therefore there was no tortious interference with a prospective contractual relationship, and
 
2. No breach of the contract occurred because SEC's distributorship agreement does not bar the sales by Kennametal to other buyers, which are the basis of the counterclaim.

 In reviewing a motion for summary judgment the Court must determine if there is a genuine issue as to any material fact that would preclude judgment being entered as a matter of law. Kennametal has the burden of clearly establishing the non-existence of any genuine issue of fact material to the granting of judgment in its favor. It must also show that SEC is not entitled to recover under any discernible circumstances.

 There being no dispute between the parties as to the material facts presented, the Court on June 17, 1982, after considering the record and arguments of both counsel, granted Kennametal's motion and dismissed SEC's counterclaim. *fn2" This opinion is to support the Court's dismissal of Defendant's counterclaim.

 On September 13, 1978, Subterranean Equipment Company (SEC) and Kennametal Inc. entered into a Distributorship Agreement wherein SEC was made a non-exclusive distributor for the sale and service of Kennametal's mining products, specifically Big Hole Cutters, Center Cutters, and Disc Cutters and spare parts shown in SEC's brochure B76-83(3)D7. (Schedule A of Agreement-Products) The Kennametal products were to be purchased by SEC at a "twenty-five percent (25%) discount from list price, less ten percent (10%)." (Schedule D of Agreement-Discount from List Price) SEC then sold the Kennametal products at list price to its customers with its profit being the difference between the discount price and list price.

 In the summer of 1980, Kennametal offered these same products to SEC's customers at a fifty percent (50%) discount price. Since the cutters for the mining equipment must be continually replaced, given their susceptibility to wear over a period of time, SEC alleges that Kennametal's direct selling to SEC's customers at a fifty percent (50%) discount caused SEC substantial losses in terms of commissions or profits not earned.

 SEC contends that "Kennametal intentionally and improperly interfered with its prospective contractual relationship with its customers by inducing the customers to purchase the cutters from Kennametal at a much lower price than would be available through SEC and thus discontinue that customer's relationship with SEC ...". SEC also claims that Kennametal's harmed the economic and business relationship it had with its customers by inducing them to purchase from Kennametal at the lower price.

 The Pennsylvania Courts have recognized the tort of intentional interference with a prospective contractual relationship as set forth in the Restatement (Second) of Torts ยง 766B. In order to properly establish a claim for this tort SEC must establish:

 
1. A prospective contractual relationship;
 
2. The intent of Kennametal to harm SEC by preventing that ...

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