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David Funa, Michael Ferraro, Eugene L. Allegre, Jerome L. v. Pepperidge Farm

March 11, 2011


The opinion of the court was delivered by: Joy Flowers Conti United States District Judge


On November 30, 2007, plaintiffs David Funa ("Funa"), Michael Ferraro ("Ferraro"), Eugene L. Allegre ("Allegre"), Jerome L. Strittmatter ("Strittmatter"), and Robert May ("May," together with Funa, Ferarro, Allegre, and Strittmatter, collectively, "plaintiffs," "distributors" or "consignees") commenced this lawsuit in the Court of Common Pleas of Allegheny County, Pennsylvania, by filing a complaint. (See Notice of Removal (ECF No. 1). On December 21, 2007, the case was removed to the United States District Court for the Western District of Pennsylvania. (Id.) Pending before the court is a motion for summary judgment (ECF No. 43) filed on April 1, 2010 by defendant Pepperidge Farm, Inc. ("Pepperidge Farm," the "Bakery," or "defendant"). Pepperidge Farm‟s motion requests the court grant summary judgment with respect to plaintiffs‟ claims for breach of contract under Pennsylvania law (count 1), breach of the implied covenant of good faith and fair dealing under Pennsylvania law (count 2), and injunctive relief (count 5).*fn1

After considering Pepperidge Farm‟s motion for summary judgment, plaintiffs‟ brief in opposition (ECF No. 48), the joint concise statement of facts ("J.S.") (ECF No. 59), and the parties‟ other submissions, Pepperidge Farm‟s motion will be granted in part and denied in part for the reasons set forth herein.

I. Factual background

A. The consignment agreements

Plaintiffs entered into multiple consignment agreements with Pepperidge Farm on several occasions between 1976 and 2003. (J.S. ¶¶ 1-6.) The consignment agreements permit plaintiffs to "distribute Consigned Products to retail stores" within a particular territory, subject to various limitations and exceptions. (J.S. ¶ 7.)*fn2 All plaintiffs except May continue to operate as "consignees" under their consignment agreements. (J.S. ¶ 6.)

A plaintiff‟s right to distribute Pepperidge Farm‟s products in its territory is exclusive under the consignment agreements, "except in connection with temporary sales programs, . . . sales to direct customers," and "retail facilities owned or operated by the Bakery or by any corporation controlled by the Bakery." (Consignment Agreement (ECF No. 45), Tab 3 ¶ 1.) The right of exclusivity under the consignment agreements is subject to a few exceptions not relevant to the issues before this court. (J.S. ¶ 7.)

B. Distribution activity with respect to chain accounts

All chain accounts, as that term is defined in the consignment agreements, are direct customers of Pepperidge Farm if they request direct billing from Pepperidge Farm. (Id. ¶ 10.)

With respect to those "direct" accounts and any other chain account, Pepperidge Farm consigns product to plaintiffs for delivery to retail stores in plaintiffs‟ territories and plaintiffs solicit sales and deliver consigned products on Pepperidge Farm‟s behalf at bulletin prices.*fn3 (Id.) Plaintiffs assert they cannot purchase product they handle in the normal course of business at the lowest price offered by Pepperidge Farm to various accounts. (Id. ¶ 38b.)

In or about 1988, Pepperidge Farm introduced handheld computers that all distributors were required to use. (Id. ¶ 8.) The handheld computers enabled Pepperidge Farm and its distributors to track and manage inventory. (Id.) When plaintiffs deliver Pepperidge Farm product to a chain account, plaintiffs use the handheld computer to generate a delivery ticket reflecting the products delivered. (Id. ¶ 11.) Using the information transmitted on the handheld computer, Pepperidge Farm bills directly all chain accounts that have requested direct billing. (Id.) Plaintiffs receive a 20% commission on product sold to chain accounts at bulletin prices. (Id.) Plaintiffs earn the commission regardless whether the chain account receives a discount on the product due to a temporary sales program. (Id. ¶ 12.) In other words, if Pepperidge Farm offers to chain accounts a dollar off the wholesale price reflected in a particular price bulletin in connection with a temporary sales program, Pepperidge Farm will pay plaintiffs a 20% commission on the undiscounted bulletin price. (Id.) Defendant asserts and plaintiffs dispute that distributors have been receiving commissions consistent with this process since at least 1988. (Id. ¶ 13.)

C. Distribution activity with respect to cash accounts

Plaintiffs deliver consigned product to "cash accounts" at prices chosen by plaintiffs. (Id. ¶ 14.) To that end, Pepperidge Farm does not set prices plaintiffs charge cash accounts for consigned product. (Id.) A cash account is understood to be any retail store that has a direct billing relationship with a distributor (including plaintiffs) and not with Pepperidge Farm. (Id.) Pepperidge Farm does not bill cash accounts because they are plaintiffs‟ customers. (Id.) When plaintiffs deliver Pepperidge Farm product to cash accounts, plaintiffs generate a delivery ticket and Pepperidge Farm charges plaintiffs 80% of the bulletin price for each product. (Id. at 15.) Pepperidge Farm contends, and plaintiffs do not dispute, that plaintiffs can charge cash accounts any price they choose subject to the customer‟s willingness to pay. (Id. ¶ 16.) Plaintiffs, therefore, could realize more than a 20% profit from the sale of product if they charged cash accounts a price in excess of the bulletin price. (Id.) Plaintiffs have been receiving commissions consistent with this process since at least 1988. (Id. ¶ 18.)*fn4

D. Retail prices

Pepperidge Farm does not set retail prices charged for product; rather, Pepperidge Farm may print "suggested retail prices" on products. (Id. ¶¶ 19-20.) Chain accounts, however, have discretion to charge whatever price they deem appropriate; indeed, chain accounts place "shelf tags" or stickers on product in stores that display prices different from Pepperidge Farm‟s suggested retail prices. (Id. ¶ 20.)

E. Pepperidge Farm's Pallet Delivery Program and temporary sales program

Some chain accounts, including BJ‟s, Costco, and Sam‟s Club (collectively, "club stores"), refuse direct store delivery from plaintiffs; instead, Pepperidge Farm delivers product on pallets to a central or district warehouse designated by the club store. (Id. ¶ 22.) Club stores take product from their central or district warehouses and deliver it to retail stores in a distributor‟s territory. (Id.) In plaintiffs‟ territories specifically, Pepperidge Farm delivered product on pallets only to Sam‟s Club and Walmart. (Id. ¶ 29.) Under the pallet program, Pepperidge Farm pays distributors 20% commission less a pallet assessment to cover a portion of the palletizing and delivery costs. (Id. ¶ 22.) The current assessment fee is $35.00 for large pallets and $20.00 for small pallets. (Id. ¶ 24.) Plaintiffs allege they do not receive commissions on products sold to Big Lots by Pepperidge Farm, even though that product is not distressed, out of code, or stale. (Id. ¶ 38c-d.) Pepperidge Farm asserts that all product sold to Big Lots is "distressed" product that is not presentable for sale to retail customers and not covered under the consignment agreements. (Geraghty Decl. (ECF No. 56), Ex. 2 ("Grasky Dep.") at 24.)

Pepperidge Farm provides a company-leased warehouse to plaintiffs at no charge. (Id. ¶ 31.) If Pepperidge Farm does not provide a company-leased warehouse, Pepperidge Farm may give a distributor an allowance to cover the cost of maintaining his or her own warehouse to store consigned Pepperidge Farm products. (Id.)

From time to time, chain accounts run promotions, or temporary sales programs, on Pepperidge Farm products sold in their retail stores. (Id. ¶ 23.)*fn5 With respect to temporary sales programs, Pepperidge Farm delivers products on pallets to the chain account‟s central or district warehouse for redistribution to retail stores. (Id.) At the insistence of any particular club store or chain account, Pepperidge Farm delivers product via pallet to central or district warehouses, either for temporary sales programs or when a club store refuses direct store delivery. (Id. ¶ 24.) Pepperidge Farm charges chain accounts the same bulletin price regardless whether the product is delivered via direct store delivery or by pallets to a central warehouse. (Id. ¶ 26.) For temporary sales programs, the retail price for a Pepperidge Farm product at one retail store may be lower than the retail price for the same product at a different retail store in the same territory. (Id.)

II. Standard of Review

Federal Rule of Civil Procedure 56 provides in relevant part:

(a) Motion for Summary Judgment or Partial Summary Judgment. A party may move for summary judgment, identifying each claim or defense -- or the part of each claim or defense -- on which summary judgment is sought. The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a ...

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