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HomeMy WebLinkAbout2007-6783BIOTEST LABORATORIES, LLC, : IN THE COURT OF COMMON PLEAS OF Plaintiff : CUMBERLAND COUNTY, PENNSYLVANIA V. : CIVIL ACTION RITE AID CORPORATION, Defendant : No. 07 — 6783 CIVIL TERM\ IN RE: DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT BEFORE OLER and MASLAND, JJ. OPINION and ORDER OF COURT OLER, J., April 11, 2011. In this civil action for breach of contract arising out of an agreement for Defendant to distribute Plaintiff's merchandise, Defendant has filed a motion for partial summary judgment against Plaintiff.' The motion requests that the court enter summary judgment in Defendant's favor against Plaintiff on the issue of liability for breaching a Guaranteed Sales Agreement by Plaintiff's refusal to accept the return of unsold product and to settle the account. Plaintiff has filed an answer opposing the motion.3 Argument was held on Plaintiff's motion on January 14, 2011. For the reasons stated in this opinion, the motion will be granted to the extent that it seeks a determination that Plaintiff was obligated to accept the return from Defendant of its unsold product. STATEMENT OF FACTS ' Rite Aid Corporation's Motion for Partial Summary Judgment, filed November 22, 2010 (hereinafter "Def 's Mot. for Part. Sum. Judg., filed Nov. 22, 2010"). 2 Def 's Mot. for Part. Sum. Judg., filed Nov. 22, 2010. ' Answer with New Matter of Plaintiff, Biotest Laboratories, LLC to the Motion for Partial Summary Judgment of Defendant Rite Aid Corporation, filed December 17, 2010 (hereinafter "Pl.'s Ans. to Mot. for Part. Sum. Judg., filed Dec. 17, 2010"). 1 Reduced to the simplest terms, the facts of this case which do not appear to be in dispute may be summarized as follows: Plaintiff, Biotest Laboratories, LLC, is a Colorado company with a principal place of business at 1850 Reliable Circle, Colorado Springs, Colorado ,4 and is a marketer and supplier of sports and diet supplements .5 Defendant, Rite Aid Corporation, is a Delaware corporation with a principal place of business at Hunter Lane, Camp Hill, Cumberland County, Pennsylvania ,6 and is a national drugstore chain .7 On October 5, 2005, Plaintiff and Defendant entered into a Guaranteed Sales Agreement$ for the distribution and retail sale of two dietary supplements, "Hot Rox" and "Fahrenheit,"9 both of which were to be supplied by 4 Plaintiff's Complaint, ¶1, filed November 7, 2007 (hereinafter "Pl.'s Compl. , filed Nov. 7, 2007") s Def's Mot. for Part. Sum. Judg., ¶2, filed Nov. 22, 2010; Pl.'s Ans. to Mot. for Part. Sum. Judg., ¶2, filed Dec. 17, 2010. 6 Pl.'s Compl., ¶2, filed Nov. 7, 2007; Amended Answer with New Matter and Counterclaim, ¶2, filed February 9, 2009 (hereinafter "Def's Am. Ans., , filed Feb. 9, 2009"). Defendant filed an original Answer with New Matter and Counterclaim on December 18, 2007, through which it admitted, inter alia, that it had purchased $108,936 in merchandise, which was allegedly in error. See Motion of Defendant Rite Aid Corporation for Leave To Amend Answer with New Matter and Counterclaim Pursuant to Pa. R.C.P. 1033, ¶4, filed October 7, 2008. On October 9, 2008, this court issued a rule upon Plaintiff to show cause why the relief requested should not be granted, to which Plaintiff failed to respond. See Docket, Civ. 2007-7683 - Civ. Term. On January 26, 2009, this court made absolute the October 9, 2008 rule, and granted Defendant leave to file its amended answer. Order of Court, dated January 26, 2009. The only difference between Defendant's December 18, 2007 Answer and its February 9, 2009 Amended Answer is the amount allegedly purchased from Plaintiff. Compare Defendant's Answer with New Matter and Counterclaim, filed December 18, 2007 with Def's Am. Ans., filed Feb. 9, 2009. Def's Mot. for Part. Sum. Judg., ¶1, filed Nov. 22, 2010; Pl.'s Ans. to Mot. for Part. Sum. Judg., ¶1, filed Dec. 17, 2010. s Plaintiffs Exhibit A, attached to Plaintiffs Complaint, filed November 7, 2007; Defendant's Exhibit A, attached to Defendant's Amended Answer with New Matter and Counterclaim, filed February 9, 2009; Defendant's Exhibit C, attached to Defendant's Motion for Partial Summary Judgment, filed November 22, 2010; Exhibit B, attached to Answer with New Matter of Plaintiff, Biotest Laboratories, LLC to the Motion for Partial Summary Judgment of Defendant Rite Aid Corporation, filed December 17, 2010 (hereinafter "Guaranteed Sales Agreement"). 9 Def's Mot. for Part. Sum. Judg., ¶5, filed Nov. 22, 2010; Pl.'s Ans. to Mot. for Part. Sum. Judg., ¶5, filed Dec. 17, 2010. 2 Plaintiff to Defendant, and distributed to the public by Defendant.10 The Guaranteed Sales Agreement stated, in pertinent part: 1. Vendor [Plaintiff] will guarantee the sale of Vendor's product(s) to Rite Aid [Defendant] at both Customer Service Centers (i.e. distribution centers) and retail locations. 2. The initial stocking order will consist of about 7,500 units of each SKU [stock -keeping unit]. Payment will be due 90 days from receipt of product by Rite Aid net of applicable discounts. Any replenishment or subsequent orders will be paid 2% 30/Net 31 days from receipt by Rite [A]id. Allowable discounts consist of advertising allowance and other allowances that Vendor will from time to time agree to. Advertising allowance may be taken as per the Rite Aid's CO-OP Agreement. 3. If Rite Aid determines it wishes to discontinue to sell Vendor's product(s) and to return unsold product, Rite Aid may return product based on Rite Aid's Disposition Announcement Form signed by Biotest. 4. Upon Settlement of Vendor's account, all outstanding invoices will be paid promptly less advertising allowance or other debit amount due to Rite Aid. Should Vendor owe money to Rite Aid, payment will be sent by check within 30 days of settlement. 5. The terms and conditions of this Agreement are in addition to and in no way limit, Rite Aid's rights and remedies under Rite Aid's Vendor Profile, standard terms and conditions or purchase orders. In the event of inconsistency between the terms and conditions of the Agreement and any of the foregoing documents, this Agreement will govern. 7. All returns are at the risk of the vendor.' 1 It was the deposition testimony of Darryl W. Boehmer, Biotest's Chief Financial Officer, that he signed the Guaranteed Sales Agreement, despite his unhappiness with Rite Aid's 10 Guaranteed Sales Agreement, ¶¶1-5, 7; Def 's Mot. for Part. Sum. Judg., ¶5, filed Nov. 22, 2010; Pl.'s Ans. to Mot. For Part. Sum. Judg., ¶5, filed Dec. 17, 2010. " Guaranteed Sales Agreement, ¶¶1-5, 7. 3 having the right to return unsold product. 12 In regard to Paragraph Three of the Guaranteed Sales Agreement, Mr. Boehmer testified as follows: Q . . . Paragraph 3 [of the Guaranteed Sales Agreement] deals generally with the right of Rite Aid to return product, correct? A It does. Q Were you indicating that as a business decision you didn't want to agree to those terms? A I didn't want to agree to these terms as written here. Q But you still ultimately ended up agreeing to guarantee the sale of Biotest's product, correct? A Yes. Q And that Rite Aid could return the product if it discontinued it, could return the product to Biotest? A That's what the current agreement says, yes. Q So even though you weren't happy with those terms, you made a business decision that you could accept it. Is that correct? A We made a business decision to go forward with a deal with Rite Aid, yes. 13 In late 2005, Biotest began supplying its products to Rite Aid. 14 Rite Aid was invoiced $24 for each unit of Hot Rox and $18 for each unit of Fahrenheit. 15 During the first year of the parties' relationship, Biotest heavily advertised, with advertising 12 See Deposition of Darryl W. Boehmer, Chief Financial Officer of Biotest Laboratories, page 111-12, taken June 4, 2009, attached to De£'s Mot. for Part. Sum. Judg., Exhibit B, filed Nov. 22, 2010; Pl.'s Ans. to Mot. for Part. Sum. Judg., Exhibit A, filed Dec. 17, 2010 (hereinafter "Biotest Depo. at " Biotest Depo. at 111-12. 14 Biotest Depo. at 50; De£'s Mot. for Part. Sum. Judg., ¶13, filed Nov. 22, 2010; Pl.'s Ans. to Mot. for Part. Sum. Judg., ¶13, filed Dec. 17, 2010. is See Exhibit C (1)-(28), attached to Pl.'s Compl., filed Nov. 7, 2007 (hereinafter collectively "Invoices"); Def 's Mot. for Part. Sum. Judg., ¶13, filed Nov. 22, 2010; Pl.'s Ans. to Mot. for Part. Sum. Judg., ¶13, filed Dec. 17, 2010. 4 expenses of approximately $8 million, 16 however, during the following year, the vendor significantly decreased the amount expended on advertising to approximately $1 million. 17 In early 2007, Rite Aid's nutritional category manager noticed a significant decline in sales of Fahrenheit and Hot Rox in its stores. 18 Despite the reduction of sales of Biotest's products, of Rite Aid's discovery that Biotest had discontinued the use of brokers in the marketplace, and of "a lack of advertising on behalf of [Biotest],"19 Rite Aid continued to create purchase orders for more Biotest product.20 Although new orders for Fahrenheit and Hot Rox were being ordered by Rite Aid and shipped by Biotest, delivery of which was accepted by Rite Aid, it was the testimony of Rite Aid's nutritional manager that a "hold" was placed on the Biotest account in January of 2007.21 At his deposition, when questioned about the effect of putting the Vendor's account on hold, Rite Aid's nutritional manager testified as follows: Q Taking a look at what was — what appeared to be happening was that very possibly we could have a manufacturer that might have been in trouble. We could have had an issue relative to an account getting upside down should the company go out of business and or should sales continue to decline at the rate they were declining. So I was protecting my company's liability as well as the manufacturer's liability. 16 Biotest Depo. at 25-26. 17 Biotest Depo. at 26; Def 's Mot. For Part. Sum. Judg., ¶19, filed Nov. 22, 2010. " Def 's Mot. for Part. Sum. Judg., ¶18, filed Nov. 22, 2010; Deposition of Richard Clarke, Nutritional Category Manager of Rite Aid Corporation, page 35, 50, taken February 9, 2010, attached to Def's Mot. for Part. Sum. Judg., Exhibit A, filed Nov. 22, 2010 (hereinafter "Rite Aid Depo. at "). 19 Rite Aid Depo. at 50. 20 Rite Aid Depo. at 51-52. 21 Rite Aid Depo. at 49-50. 5 Q Well, when you say you put the account on hold, what you really did was you put any payments by Rite Aid for products purchased to Biotest on hold? A That is correct. Q But you didn't put on hold purchasing new products. A I continued to create purchase orders. That is correct. Q ... So the only ... detriment on the hold was Biotest was not getting paid for the product that Rite Aid continued to order and receive? A That is correct.22 Rite Aid's nutritional manager testified that the purpose of placing a payment hold on the Biotest account was to mitigate the vendor's liability if sales continued to decline and the account became "upside down, ,23 as the Guaranteed Sales Agreement permitted Rite Aid to return unsold product to the vendor.24 It is uncontroverted that Biotest did in the past accept the return of its product by Rite Aid pursuant to the Guaranteed Sales Agreement .25 At his deposition, Mr. Boehmer testified that Biotest would accept returns of product and permit the deduction of the dollar amount of those returns from the amount of payment owed to Biotest.26 zz Rite Aid Depo. at 51-52. 23 Rite Aid Depo. at 51. According to Mr. Clarke, the term "upside down" refers to a situation in which, as a result of declining sales for a product that is guaranteed by a vendor, the vendor owes money to Rite Aid. 24 Guaranteed Sales Agreement, ¶3. 25 See Biotest Depo. at 112. 26 See Biotest Depo. at 112-13. At his deposition, Mr. Boehmer testified as to the following: Q ... [P]rior to that time Biotest had been accepting the return of product? A Prior to that time we had been accepting it. 6 Despite the hold placed on the Biotest Account, Biotest continued to fulfill purchase orders submitted to it by Rite Aid. In 2007, Rite Aid acquired approximately 1750 Eckerd/Brooks stores .27 In April of 2007,28 Rite Aid sought to increase Biotest's advertising contribution, sought to change certain payment terms of existing agreements with Biotest,29 and requested from Biotest promotional product, which were to be sold at each of its 1750 newly acquired stores.30 These requests were refused by Biotest.31 In July of 2007, Rite Aid discontinued the sale of Biotest's products .32 Rite Aid contacted Biotest for direction regarding the desired disposal method of Biotest's unsold product .33 In response, Biotest informed Rite Aid that Biotest would not accept return of the unsold products,34 and demanded payment on all of the outstanding invoices.35 Q And when I say accepting the return, you were also compensating Rite Aid, reimbursing them for - - A ... Rite Aid was deducting the dollar amount of those returns from payments to us. Q So essentially you were compensating Rite Aid, reimbursing them for the product? A That's one way to say it, yes. Q And that was because of the guaranteed sales provision in the [Guaranteed Sales Agreement]? A That's correct. 27 Rite Aid Depo. at 39-41. 28 Biotest Depo. at 62-64. 29 Rite Aid Depo. at 39; Biotest Depo. at 62-64. so Rite Aid Depo. at 40-41. Mr. Boehmer testified that Rite Aid requested approximately $613,000.00 in free product. Biotest Depo. at 60. 31 Rite Aid Depo. at 40-41; Biotest Depo. at 60-61, 63. 12 Rite Aid Depo. at 20-22. " Biotest Depo. at 104. 34 Biotest Depo. at 74, 104. " Pl.'s Compl., ¶7, filed Nov. 7, 2007. 7 Biotest's complaint 36 alleges that Rite Aid is in breach of the contract, due to Rite Aid's failure to pay for product it ordered from Biotest, and that, due to such breach, the Guaranteed Sales Agreement is "out the window. ,37 Rite Aid's Motion for Partial Summary Judgment contends that the Guaranteed Sales Agreement is valid and effective, and that Biotest's guarantee of its product requires Biotest to accept return. DISCUSSION Summary judgment principles. Pennsylvania Rule of Civil Procedure 1035.2 makes summary judgment available to a party when the pleadings, depositions, answers to interrogatories, admissions on file and supporting affidavits considered together reveal no genuine issue of material fact, and the moving party is therefore entitled to judgment as a matter of law, or when, after discovery, the party bearing the burden of proof has failed to produce evidence of essential facts which would warrant submission of the issue to a jury. Pa. R.C.P. 1035.2; Toy v. Metro Life Ins. Co., 593 Pa. 20, 928 A.2d 186 (2007). Essentially, the rule pertaining to a motion for summary judgment encompasses two concepts: (1) the absence of a dispute as to any material fact; or (2) the absence of evidence sufficient to permit a jury to find a fact essential to the cause of action or defense. See Pa. R.C.P. 103 5.2, explanatory comment. Summary judgment is appropriate in only the clearest of cases, where it is certain that the moving party is entitled to judgment as a matter of law. See Boyer v. Walker, 714 A.2d 458, 459 (Pa. Super. 1998). 36 Pl.'s Compl., filed Nov. 7, 2007. 37 Biotest Depo. at 83-84; see Pl.'s Compl., ¶9, filed Nov. 7, 2007. 8 If a defendant is the moving party, he or she may make the showing necessary to support the entry of summary judgment by pointing to materials which indicate that the plaintiff is unable to satisfy an element essential to his or her cause of action; correspondingly, the non-moving party must adduce sufficient evidence on an issue essential to his or her case, and on which that party bears the burden of proof, such that a jury could return a verdict favorable to the nonmoving party. Rauch v. Mike Mayer, 2001 PA Super 270, ¶14, 783 A.2d 815, 824. When making a determination as to the existence of a dispute as to a material fact sufficient to permit a jury to find an essential element to the cause of action or defense, the court must view the record in the light most favorable to the nonmoving party. Pa. R.C.P. 1035.2. However, unsupported assertions or conclusive accusations cannot create genuine issues of material fact. Blumenstock v. Gibson, 811 A.2d 1029 (Pa. Super. 2002). After a properly supported motion for summary judgment has been filed, the burden falls upon the nonmoving party, if it has the ultimate burden of proof in the case, to show why summary judgment is inappropriate. Ertel v. Patriot -News Co., 544 Pa. 93, 674 A.2d 1038. The nonmoving party may not merely rely on its pleadings or answers to survive summary judgment. Manzetti v. Mercy Hosp. of Pittsburgh, 565 Pa. 471, 482, 776 A.2d 938, 945 (2001). Breach of contract. The necessary material facts required for a breach of contract claim are that there was a contract, that the defendant breached it, and that the plaintiff suffered damages from the breach. McShea v. City of Philadelphia, Pa. , 995 A.2d 334 (2010); Lackner v. Glosser, 2006 PA Super 14, ¶23, 892 A.2d 21, 30. When the 9 terms of a contract are clear and unambiguous, the intent of the parties is to be ascertained from the document itself. Hutchinson v. Sunbeam Coal Corp., 513 Pa. 192, 519 A.2d 385 (1986). It is well settled that, when the language of a contract is clear, unequivocal, and unambiguous, the court must interpret it as a matter of law, and its meaning must be determined by its contents alone. See Insurance Adjustment Bureau, Inc. v. Allstate Ins. Co. 588 Pa. 470, 905 A.2d 462 (2006); East Crossroads Center, Inc. v. Mellon -Stuart Co., 416 Pa. 229, 230, 205 A.2d 865, 866 (1965). The general duty of good faith and fair dealing has been recognized in this Commonwealth in connection to the performance of a contract. See Creeger Brick and Building Supply, Inc. v. Mid -State Bank and Trust Co., 385 Pa. Super. 30, 35, 568 A.2d 151, 153 (1989); Ash v. Continental Ins. Co., 593 Pa. 523, n.2, 932 A.2d 877, n.2 (2007). However, a party cannot breach an implied duty of good faith merely by exercising its contractual rights. See Creeger, 385 Pa. Super. at 36-37, 568 A.2d at 154; Baron v. Pritzker, 52 Pa. D. & C.4th 14, 36 (C.C.P. Phila. 2001). Parties are free to enter into bargains they may later regret, and bad deals are as enforceable as good ones, provided the agreement is free of fraud, duress or another invalidating factor. It is well settled in Pennsylvania that the failure to perform a contractual obligation within a certain time will not necessarily destroy or otherwise wholly invalidate a contract. See Gorzelsky v. Leckey, 402 Pa. Super. 246, 254, 586 A.2d 952, 956 (1991). Unless expressly indicated, the time specified in a contract for payment of money is never an essential part of an agreement in the sense that a breach thereof destroys the contract. Meehan v. Connell Anthracite Mining Co., 318 Pa. 481, 489, 178 10 A. 833, 836 (1935); Bogojavlensky v. Logan, 181 Pa. Super. 312, 124 A.2d 412 (1956). While failure to make a timely payment may be sufficient reason to withhold fulfilling subsequent purchase orders and adequate grounds for seeking damages, the failure to make payments cannot be seized as a reason to cancel the entire contract, especially when the vendor continues to fulfill purchase orders from purchaser. See generally American Tube & Stamping Co. v. Erie Iron & Steel Co., 281 Pa. 10, 125 A. 304 (1924). Where the relevant facts are undisputed, and the intention of the parties is clear and unambiguous in the contract, the court must decide the question of materiality of buyer's nonpayment as a matter of law. Such is the situation presented by this record. Application of law to facts. In this case, the Guaranteed Sales Agreement expressly permitted Rite Aid to discontinue the sale of Biotest's products and return that product to Biotest.38 Although Biotest was reluctant to guarantee the sale of its products, it made a business decision to do so.39 Further, the Guaranteed Sales Agreement explicitly provided " Guaranteed Sales Agreement, ¶¶I,3,4. s9 Biotest Depo. at 110-12. At his deposition, Mr., Boehmer testified to the following in regards to his reluctance to guarantee Biotest's products: Q [Y]ou still ultimately ended up agreeing to guarantee the sale of Biotest's product, correct? A Yes. Q So even though you weren't happy with those terms, you made a business decision that you could accept it. Is that Correct? A We made a business decision to go forward with a deal with Rite Aid, yes. 11 that, if Rite Aid wished to discontinue selling Biotest's product, Rite Aid could return unsold product.40 Although Biotest explicitly agreed to guarantee the sale of its product and settle its account, it refused to accept return of unsold product from Rite Aid. Rite Aid has demonstrated the existence of a contract, Biotest's breach thereof for failure to accept returns as provided, and damages suffered due to the breach. Further, the Guaranteed Sales Agreement defeats Biotest's breach of contract claim, as the Agreement requires Biotest to accept returns. Courts will enforce the clear intention of the parties by the express language of the contract, and Rite Aid's authority to discontinue sale and return of Biotest's products was clearly expressed in the Guaranteed Sales Agreement. Accordingly, Rite Aid's actions do not provide grounds for establishing a breach of contract. Biotest argues that Rite Aid breached the Guaranteed Sales Agreement by failing to pay for product ordered, and that Rite Aid's nonperformance relieved Biotest of the express duty to guarantee its products and accept return of such. Rite Aid admits that the company decided to discontinue sale of Biotest products, and that Rite Aid did not pay for unsold products it had ordered and received from the Vendor. However, there is nothing in the Guaranteed Sales Agreement that expresses or implies an understanding by the parties that (a) a failure on Rite Aid's part to promptly pay for unsold product was to 40 Guaranteed Sales Agreement, ¶3; Biotest Depo. at 112. At his deposition, Mr. Boehmer testified to the following in regards to his understanding of what the Guaranteed Sales Agreement provided: Q ... Rite Aid could return the product if it discontinued it, could return the product to Biotest? A That's what the current agreement says, yes. 12 be deemed the equivalent of a decision on its part to buy it and/or (b) the ordering of additional product by Rite Aid from Biotech while some product remained unsold represented a waiver of the right of Rite Aid to return merchandise it did not sell. Nor does it appear that any such interpretation was advanced by Biotech when it continued to furnish Rite Aid with product notwithstanding Rite Aid's failure to promptly remit money for goods previously supplied. Plaintiff obviously received a substantial benefit from the parties' agreement in terms of placement of its product in Defendant's stores, albeit upon conditions that it preferred did not exist. Bearing in mind the burden of proof that rests upon a plaintiff in a contract action, the court is unable to agree with the proposition that the evidence adduced by Plaintiff of record would support a conclusion that events rendered the obligation of Plaintiff to accept a return of unsold merchandise from Defendant "out the window." The following order of court will therefore be entered. 13 ORDER OF COURT AND NOW, this 11th day of April, 2011, upon consideration of Defendant's Motion for Partial Summary Judgment, following oral argument held on January 14, 2011, and for the reasons stated in the accompanying opinion, the motion is granted to the extent that it seeks a determination that Plaintiff was obligated to accept the return from Defendant of its unsold product. Stephen L. Banko, Jr., Esq. 3510 Trindle Road Camp Hill, PA 17011 Attorney for Plaintiff Justin G. Weber, Esq. Brian P. Downey, Esq. 100 Market Street, Suite 200 P.O. Box 1181 Harrisburg, PA 17108 Attorneys for Defendant BY THE COURT, s/ J. Wesley Oler, Jr. J. Wesley Oler, Jr., J. 14 BIOTEST LABORATORIES, LLC, : IN THE COURT OF COMMON PLEAS OF Plaintiff : CUMBERLAND COUNTY, PENNSYLVANIA V. : CIVIL ACTION RITE AID CORPORATION, Defendant : No. 07 — 6783 CIVIL TERM IN RE: DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT BEFORE OLER and MASLAND, JJ. ORDER OF COURT AND NOW, this 11th day of April, 2011, upon consideration of Defendant's Motion for Partial Summary Judgment, following oral argument held on January 14, 2011, and for the reasons stated in the accompanying opinion, the motion is granted to the extent that it seeks a determination that Plaintiff was obligated to accept the return from Defendant of its unsold product. BY THE COURT, J. Wesley Oler, Jr., J. Stephen L. Banko, Jr., Esq. 3510 Trindle Road Camp Hill, PA 17011 Attorney for Plaintiff Justin G. Weber, Esq. Brian P. Downey, Esq. 100 Market Street, Suite 200 P.O. Box 1181 Harrisburg, PA 17108 Attorneys for Defendant