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AMERICAN HEARING AID ASSOCIATES v. GN RESOUND NORTH AMERICA

March 22, 2004.

AMERICAN HEARING AID ASSOCIATES, INC., Plaintiff,
v.
GN ReSOUND NORTH AMERICA, t/a GN ReSOUND CORPORATION, Defendant



The opinion of the court was delivered by: ROBERT KELLY, Senior District Judge

MEMORANDUM

Presently pending before this Court is the Motion for Summary Judgment of

Defendant GN ReSound North America, t/a GN ReSound Corporation ("GN"). For the following reasons, GN's Motion will be granted.

 I. BACKGROUND

  American Hearing Aid Associates, Inc. ("AHAA") filed a Complaint against GN

  on October 25, 2001. The eight-Count Complaint set forth claims for breach of contract (Count I), breach of the implied covenant of good faith and fair dealing (Count II), intentional interference with existing contractual relations (Count III), intentional interference with prospective economic advantage (Count IV), negligent interference with prospective economic advantage (Count V), improper interference with contract (Count VI), unjust enrichment (Count VII) and conversion (Count VIII). At this stage in the litigation, the only Counts remaining are the claims for breach of contract (Count I), breach of the implied covenant of good faith and fair dealing (Count II) and conversion (Count VIII). AHAA's claims are based on a business relationship between the parties that soured over a competition for customers.

  AHAA is a national hearing health care network of associates that is comprised of independent hearing health care professionals (i.e. audiologists, hearing aid dispensers, otolaryngologists, etc.). AHAA offers a variety of services and incentives to AHAA Associates in order to maintain its extensive network. For example, AHAA has developed business relationships with manufacturers and suppliers of hearing equipment and devices in order to provide valuable benefits to AHAA Associates. "Once affiliated with [AHAA], Associates are eligible to purchase hearing health care equipment and devices through AHAA at substantial price discounts due to AHAA's ability to purchase such equipment and devices in significantly greater volumes than the Associates would be able to purchase independently." (Compl. ¶ 10).

  In order to obtain volume discounts, AHAA contracts with manufacturers and suppliers of hearing equipment and devices. The manufacturers and suppliers benefit from these contracts because they obtain, through AHAA, access to AHAA's national network of associates. Along with the volume discounts, manufacturers and suppliers often offer bonuses and other incentives to AHAA based on the number of purchases these AHAA network members make through AHAA. These contractual incentives encourage AHAA to persuade AHAA Associates to order equipment and devices from these network affiliated manufacturers and suppliers in large volumes.

  Outside of a membership fee of $150, AHAA does not charge its members for many of the consultative and guidance services it provides. AHAA Associates pay for services by making purchases through the AHAA network. In turn, AHAA is compensated through the deep discounts (AHAA retains a portion of any discount as profit) and other incentives it receives from contracting manufacturers and suppliers.

  GN is a global manufacturer of hearing health care equipment and devices. Specifically, GN is one of the world's largest manufacturers of hearing aids. GN sells its products through two different avenues. First, GN maintains its own sales force throughout the United States and sells its products directly to health care professionals. Second, GN works with "buying groups," such as AHAA, to enhance product sales to these professionals. The claims in the instant case center around these two sales routes.

  AHAA has contracted with GN (or it predecessor) since 1998 through a series of agreements that have ranged from one year to three years in duration. Each contract gave GN the right to sell its products through AHAA to AHAA Associates. Morever, each contract compensated AHAA through discounts on the purchase of GN products by AHAA Associates. Finally, by offering financial rewards, the contracts encouraged AHAA to utilize its sales force to meet certain volume sales targets in relation to GN products.

  This current lawsuit arises out of a contract that GN and AHAA entered into in May 2000 and amended in May 2001 (collectively the "Contract"). The Contract outlines that "[GN] manufactures and distributes a number of different models of hearing instruments" and that AHAA "is in the business of distributing and/or selling hearing instruments." (Pl.'s Mem. Opp. Summ. J., Ex. 4). In terms of the relationship of the parties established by this Contract, the agreement states that "the parties to this [Contract] are independent contractors, and nothing in this [Contract] is intended to create any relationship of partnership, joint venture, employment, franchise, or agency between the parties." (Id.). The Contract states that the parties purpose is "to enter into an agreement pursuant to which [AHAA] may purchase hearing instruments from [GN] for resale." (Id.). The agreement specifically acknowledges that AHAA is a "member-based organization" and that AHAA Associates "are entitled to purchase from [GN] through [AHAA]." (Id., Ex. 5). As previously described, the Contract also outlines the compensation that AHAA would receive from the arrangement through discounts on GN products and volume-based sales incentives (i.e. rebates). (Id.).

  In June and July 2001, the relationship between GN and AHAA began to deteriorate. Specifically, GN began to formulate a plan that would allow it to bypass AHAA and the AHAA network when making future sales to health care professionals. GN came to the conclusion that it would make better economic sense for it to sell its health care equipment and devices directly to health care professionals rather than through AHAA. This formulated plan was called the "AHAA Exit Strategy" by upper-level GN employees. (Jackson Dep. at 148). The plan called for the GN sales force to approach AHAA Associates and encourage them to begin to purchase GN products directly from GN rather than through AHAA. Notably, many of these members had previously purchased products directly from GN. The foundation of GN's plan to change the purchasing method of AHAA Associates was to undercut the prices that AHAA was offering for GN products and to offer other various promotions to these buyers. This "AHAA Exit Strategy" was to be coordinated from GN headquarters in Minnesota and the entire plan was to be kept secret from AHAA. As conceded by GN, the ultimate goal of the "AHAA Exit Strategy" was to "take as many accounts away from AHAA as possible." (Pl.'s Mot. Opp. Summ. J. at 26).

  In September 2001, GN put the "AHAA Exit Strategy" into action. The GN sales force approached AHAA Associates and numerous AHAA Associates switched to a direct purchasing line with GN. Thus, these customers began bypassing the AHAA network when they made their purchases from GN. AHAA alleges this conduct resulted in a substantial loss of ...


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