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Sahai Pty, Ltd. v. Sassy

September 20, 2010

SAHAI PTY, LTD., PLAINTIFF,
v.
SASSY, INC., DEFENDANT.



The opinion of the court was delivered by: Judge Blanche M. Manning

MEMORANDUM AND ORDER

Babies love gnawing on chew toys developed by defendant Sassy, Inc. In this country, Sassy is one of the leading developers of baby products, but in 2002 its sales in Australia were not what it had hoped. To boost sales, Sassy entered into distributorship agreements with plaintiff Sahai Pty, Ltd., first a five-year agreement in 2002, superseded by a five-and-a-half-year agreement in 2006. But by 2009, the parties' relationship had soured and Sassy purported to terminate the 2006 agreement, after which Sahai sued Sassy for breach of contract and wrongful termination.

Before the court is Sassy's motion for judgment on the pleadings and Sahai's motion to amend its complaint. For the reasons that follow, the motions are granted in part and denied in part.

BACKGROUND

The following facts are taken from the allegations of the complaint and deemed to be true for purposes of resolving the pending motions. Reger Dev. LLC v. Nat'l City Bank, 592 F.3d 759, 763 (7th Cir. 2010). Sahai began distributing Sassy products in Australia after the parties entered into a Distributorship Agreement in 2002. Sahai invested substantial time and resources into growing the Sassy brand in Australia and, as a result, Sassy became a well-known line of products and sales grew year after year. In fact, Sahai was the runner-up for Sassy's "Highest Percentage Sales Increase for 2004" award. As a result of Sahai's performance, it and Sassy entered into a new Distributorship Agreement one year before the old agreement had been set to expire. The new Distributorship Agreement began on July 13, 2006, and was to continue through at least 2011, and could be extended for successive three-year periods by mutual agreement.

The 2006 Distributorship Agreement included several provisions that are now at issue in this case. First, in paragraph one, Sassy represented that "it is possessed of all right, title, and interest in and to the Products, free and clear of all liens, encumbrances, security interests, restrictions, and claims thereover." Id. ¶ 1. Next, in paragraph 14, Sassy agreed to make its entire line of developmental toy and bath products available to Sahai, update the list of products that were available yearly, and Sahai agreed to purchase minimum quantities of toys:

DISTRIBUTOR agrees to expend its best efforts in purchasing, marketing, promoting, advertising, distributing, and selling, wholly within the Territory, the Products supplied to it by Sassy, Inc. under this Agreement. DISTRIBUTOR will from the year starting 01/01/2006 buy a yearly minimum of $580,000 for the territory. The items in schedule A shall include all available products in Sassy, Inc.'s Developmental Toy line and Bath line, and will be updated yearly in accordance with Sassy, Inc.'s product development in these two product lines. DISTRIBUTOR will increase the minimum to $638,000 for year 2007, $700,00 for year 2008, $770,000 for year 2009, $847,000 for year 2010 and $932,000 for year 2011. It is further agreed that the Distributor and Sassy, Inc. will renegotiate the contract to set new minimums for year 2012 and thereafter.

Distributorship Agreement (attached as Exhibit A to the Complaint [3-1]) ¶ 14.

Paragraphs 24 and 26 describe the circumstances under which the Distributorship Agreement could be terminated. Under paragraph 24, Sassy could terminate "with cause, upon ninety (90) days written notice, at which time all payments and obligations of DISTRIBUTOR, if any, shall become automatically due and payable within thirty (30) days." Id. ¶ 24. Additionally, under paragraph 26:

Material breach of this Distributorship Agreement by either party constitutes grounds for termination by the other party of the terms of the Distributorship Agreement, and its responsibilities thereunder, without waiving its respective rights to recover incurred damages. Upon occurrence of a material breach, the non-breaching party shall have the duty to notify the breaching party of the occurrence of same, and permit that party to correct or otherwise resolve the basis for breach within thirty (30) days of the receipt of said notification.

Id. ¶ 26. Finally, the Distributorship Agreement contained a non-waiver clause:

Failure or delay of either party at any time to require performance or otherwise enforce its rights under this Agreement shall not be construed to be a waiver of such rights.

Id. ¶ 32.

Sahai's sales of Sassy products continued to grow after the parties entered into the 2006 Distributorship Agreement. Sales during the fiscal year ending June 2006 totaled $1.5 million, while sales during the fiscal year ending June 2007 grew to $2 million. In 2007, Sassy awarded Sahai its "Largest Sales Increase for Sassy Distributors 2007" award.

However, beginning in 2007, Sahai alleges that Sassy stopped developing new developmental toys and bath items. At the same time, Sahai's biggest retail customers grew disinterested in the old Sassy items and stopped ordering them. As a result, Sahai's sales of Sassy products dropped dramatically. While it had purchased $736,588 of products from Sassy in 2007, it purchased just $344,134 of products in 2008, well below the $700,000 minimum purchased required under the terms of the Distributorship Agreement. In addition, Sahai found itself stuck with a large inventory of Sassy products that retailers no longer want and which are, essentially, unmarketable.

Despite Sahai's difficulties selling Sassy products, it nevertheless purchased about $350,000 of additional inventory from Sassy in 2009, and spent another $350,000 on overhead incurred in marketing Sassy products. It also worked with Sassy to acquaint major Australian retailers with new ...


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