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Pella Products, Inc. v. Pella Corp.

United States District Court, M.D. Pennsylvania

June 7, 2018

PELLA PRODUCTS, INC., NATIONAL BUILDING PRODUCTS, INC., FENSTER ENTERPRISES, INC., and HUBERT KRIEGH, Plaintiffs,
v.
PELLA CORPORATION, Defendant.

          MEMORANDUM

          A. Richard Caputo United States District Judge

         Presently before me is the Petition for Preliminary Injunction (Doc. 3) filed by Plaintiffs Pella Products, Inc. (“PPI”), National Building Products, Inc. (“NBPI”), Fenster Enterprises, Inc. (“Fenster”), and Hubert Kriegh (“Kriegh”) (collectively, where appropriate, “Plaintiffs”). Kriegh is the President and sole shareholder of PPI, NBPI, and Fenster (collectively, where appropriate, “Distributorship Plaintiffs”). Distributorship Plaintiffs are independent distributors of products manufactured by Defendant Pella Corporation (“Pella”). Distributorship Plaintiffs each operate pursuant to the terms of trade/commercial “Sales Branch Agreements” and retail “Windows Made Easy Sales Branch Agreements.” On May 10, 2018, Pella informed Plaintiffs that it was terminating the contracts effective immediately as a result of their material breaches of the distribution agreements. The next day, Plaintiffs filed a Verified Complaint in Equity and a Petition for Temporary Restraining Order and Preliminary Injunction in the Luzerne County Court of Common Pleas. The state court granted temporary relief the same day. Pella removed the action to this Court. Pella now opposes Plaintiffs' request for preliminary injunctive relief, arguing, inter alia, that Plaintiffs are unlikely to succeed on the merits of their breach of contract claim and that they have an adequate remedy at law. I held a hearing on the preliminary injunction petition on June 4, 2018.

         The request for a preliminary injunction will be granted in part and denied in part. Because Plaintiffs are not likely to succeed on the merits of their breach of contract claim related to the termination of the retail agreements, Pella will not be enjoined from immediately terminating the Windows Made Easy Sales Branch Agreements. However, because Plaintiffs have demonstrated a reasonable probability that Pella breached the terms of the Sales Branch Agreements, that they are more likely than not to suffer irreparable harm in the absence of a preliminary injunction, and the balance of factors taken together weigh in favor of granting injunctive relief, Pella will be preliminary enjoined from terminating the Sales Branch Agreements.

         I. Background

         A. The Parties and the Distribution Agreements.

         Distributorship Plaintiffs are independent distributors of Pella products pursuant to “Sales Branch Agreements” and “Windows Made Easy Sales Branch Agreements.” (See Hr'g Exs. “2”-“7”, “A”-“B”).[1] PPI is an independent Pella distributor based in Pittston, Pennsylvania. NBPI is an independent distributor of Pella products with branches in Fort Wayne and South Bend, Indiana. Fenster is an independent Pella distributor operating a branch in Buffalo, New York. Kriegh is the President and sole shareholder of Distributor Plaintiffs.

         The Sales Branch Agreements govern Distributorship Plaintiffs' distribution of Pella products to general contractors and businesses, i.e, the trade/commercial business. The Windows Made Easy Sales Branch Agreements are for the Distributorship Plaintiffs' distribution of products directly to homeowners, i.e., the retail business.[2]

         The Agreements authorize Distributorship Plaintiffs to represent Pella as “authorized, independent member[ ] of the Pella Direct Sales Network.” (Agreements, 1). The Agreements provide that the relationship between Distributorship Plaintiffs and Pella “is subject to and limited by the terms and provisions of th[ese] Agreement[s] as well as any documents incorporated into th[ese] Agreement[s] by reference.” (Id.). Documents incorporated into the Agreements include “various documents, policies, price lists, and bulletins” “referred to as ‘Additional Documents'” “that will be specifically designated by Pella as Additional Documents being incorporated by reference into th[ese] Agreement[s].” (Id.). Under the Agreements, Distributorship Plaintiffs agree “to be bound by the terms and provisions of the Additional Documents, as they are currently in effect and as they may be established, amended, altered, or deleted by Pella from time to time.” (Id.).

         The “Windows Made Easy Trademark and Logo Usage Policy” “constitutes an ‘additional document' under the terms of the Windows Made Easy Sales Branch Agreement[s].” (Hr'g Ex. “E”). The policy is “subject to, and incorporated by reference into, the Windows Made Easy Sales Branch Agreement[s] . . . .” (Id.). That policy includes the following with respect to “Goodwill and Ownership”:

Sales Branch shall not harm, misuse or bring into disrepute the Pella Marks, their reputation or the reputation of Pella. Sales Branch shall comply with all laws and regulations relating or pertaining to the advertising and promoting of the Pella products. Sales Branch recognizes the value of the reputation and goodwill associated with the Pella Marks, and acknowledges that such goodwill belongs to Pella or its affiliates exclusively, any use of the Pella Marks by Sales Branch will inure to the benefit of Pella or its affiliates and the Pella Marks have acquired a secondary meaning in the mind of the purchasing public related to Pella or its affiliates. Sales Branch shall act in a manner intended to protect and preserve the goodwill and reputation associated with the Pella Marks.

(Id.). “Pella Marks” is defined in the Windows Made Easy Sales Branch Agreements as “all trademarks, service marks, trade names and logos owned or licensed by Pella or any of its affiliates.” (Windows Made Easy Sales Branch Agreements, Trademarks and Trade Names).

         The Agreements also govern “Conflicting Activities.” (See Agreements, Conflicting Activities).

In consideration of the rights granted herein, Pella expects that the Sales Branch will actively promote, sell, and service Pella Products throughout the Area. Accordingly, except as specifically allowed by any Additional Documents, the Sales Branch, and the person(s) signing this Agreement on behalf of the Sales Branch, agree not to actively or passively, directly or indirectly (e.g., through an affiliated company), engage in any business venture that is in direct competition with or would materially detract from Sales Branch's duties and responsibilities under this Agreement. . . .

(Id.). An “Additional Document” to the Agreements is the “Policy on Competitive Products, ” which notes that Pella distributors are prohibited “from engaging in activities that are in direct competition with or would materially detract from the promotion, sale, and service of Pella® products.” (Agreements, Policy on Competitive Products). That policy provides guidelines for competing products:

If a product could be purchased from Pella, it is considered “in competition with” Pella products when purchased from another manufacturer or supplier. A price differential does not alter the definition nor does a change in material of construction. For example, vinyl windows are considered in competition with Pella windows.
However, we recognize that, on occasion, limited usage of competing products together with Pella products can be beneficial in securing Pella business. Our primary concern is that this practice be limited and used only to secure business that is primarily Pella business. Therefore, sales of competing products up to 1% of a distributor's total sales of Pella products and competitive products in any fiscal year will not be considered a breach of the Distribution Agreement.

(Id.). Consistent with this provision, Kriegh testified that Distributorship Plaintiffs are exclusive Pella distributors.

         The Agreements all include identical “Termination or Expiration” provisions. (See Agreements, Termination or Expiration). Pella is permitted to immediately terminate the Agreements without notice under limited circumstances, including:

ii) Sales Branch operates its business in willful disregard of any material provision of this Agreement and current Additional Documents or Specific Performance Agreements;
iii) Sales Branch's conduct in connection with the entering into or performance of this Agreement is in bad faith, which shall include but not be limited to any material misrepresentation by Sales Branch in inducing Pella to enter into this Agreement; . . .

(Id.). The Agreements also contemplate “normal” termination:

The relationship between Pella and Sales Branch is an “at-will” relationship. Either party shall have the right to end the relationship, without any liability to the other party, for any reason or for no reason, by giving the other party a written notice which provides that this Agreement shall expire, without any right of renewal, on a specified date that is not less than one year after the date the notice is given.

(Id.).

         The Agreements provide the following with respect to “Conduct After Expiration or Termination”:

Following any expiration or termination of this Agreement, Pella and Sales Branch acknowledge that Pella (or a successor sales branch) and Sales Branch are each likely to continue to be engaged in the business of selling window, door, and other products. Sales Branch, Pella, and any successor sales branch are entitled to make use of information pertaining to the Sales Branch's prior sales and service activities in the course of carrying on their respective post-termination/expiration business activities.

(Id.).

         B. Termination of the Agreements.

         In April 2018, Lauren Haidon (“Haidon”), a former personal assistant to Kriegh, contacted Pella complaining that she had been the victim of sexual harassment by Kriegh while employed at Fenster. Pella conducted an investigation of those allegations. Counsel for Pella prepared a memorandum summarizing the information collected during the investigation. Annette Bravard (“Bravard”), Pella's Corporate Vice President of Sales, reviewed the memorandum and supporting documents and concluded that Kriegh was engaging in serious sexual misconduct in the course of his duties as an owner of the Distributorship Plaintiffs. Specifically, Bravard believed that Kriegh had engaged in sexual relationships with at least two of his personal assistants and had engaged in sexually inappropriate conduct in Distributorship Plaintiffs' workplaces.

         On May 2, 2018, Bravard contacted Kriegh to schedule an in-person meeting. Although she indicated that the meeting was serious, Bravard refused to further elaborate on the topic that would be discussed at the meeting. Feeling that refusing to meet was not an option, Kriegh agreed to travel to Iowa for the meeting.

         On May 4, 2018, Kriegh met with Bravard and Paul Parks (“Parks”), Pella's Director of Distribution Development and Shared Services. At the outset of the meeting, Bravard explained to Kriegh that Pella had received information that he had engaged in sexual relationships with at least two of his personal assistants and had engaged in sexually inappropriate conduct in the workplace. Bravard also advised that Pella was prepared to give Kriegh one of two options: (1) a “Transition Agreement” by which Pella would purchase Kriegh's distributorships; or (2) immediate termination of the Agreements for cause.

         At the May 4th meeting, Kriegh readily acknowledged that he had sexual relationships with Haidon and another former personal assistant. Kriegh explained that both were emotional relationships that were entirely consensual. Kriegh had with him at the meeting documentation reflecting that the relationships were consensual even though he had not been informed in advance of the meeting's purpose. The meeting lasted for three (3) hours or more. During the course of the meeting, Kriegh identified certain individuals (some who Pella interviewed and others Pella was not aware of) that he indicated would or would not be credible.

         A break was taken near the end of the meeting for Bravard and Parks to talk through their options and to review the information provided by Kriegh. Both agreed that Pella should proceed as planned with Kriegh having the option to execute the Transition Agreement or be immediately terminated. Kriegh did not execute that agreement.

         Pella provided Notice of Immediate Termination of the Agreements to Distributorship Plaintiffs by letters dated May 10, 2018. (See Hr'g Ex. “D”). Those letters all purport to terminate the Agreements immediately as a result of Plaintiffs' material breaches. (See id.). According to the termination letters, Plaintiffs violated the terms of Pella's Trademark and Logo Usage Policy, “which ...


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