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Sahai Pty, Ltd v. Sassy

February 21, 2012

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



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

MEMORANDUM AND ORDER

Plaintiff Sahai Pty, Ltd. was Australia's exclusive distributor of baby products made by Sassy, Inc., an Illinois corporation. In 2009, Sassy purported to terminate the distributorship, which was to have continued through at least 2011. Sassy stated that it terminated the distributorship because Sahai's purchases had fallen below levels contemplated in the parties' written contract. Sahai alleges that Sassy's stated reason was merely pretext, and the real reason was to allow Sassy to begin distributing its own products through Kids Line, which is owned by the same parent corporation that owns Sassy.

Sahai has sued Sassy for breach of contract, the same claim Sassy makes against Sahai in its counterclaim. Before the court is Sassy's motion for summary judgment on the claims against it. For the reasons that follow, the motion for summary judgment is granted in part and denied in part.

BACKGROUND

The following facts are undisputed except where noted. Somewhere around 1999 or 2000, Jackel Australia began to distribute Sassy baby products in Australia. Jackel's efforts were unsuccessful, and its general manager for marketing, Sudhakar Rao, told Sassy that Jackel would no longer distribute its products. In mid-2001, Rao left Jackel, and his former contact at Sassy, Torjus Lundevall, suggested that Rao form his own company to distribute Sassy products in Australia. Rao took Lundevall's advice and formed Sahai Pty. Ltd. On May 4, 2002, Sahai and Sassy entered into a distributorship agreement under which Sahai was Sassy's exclusive distributor in Australia through 2007.

Two years before the contract was to expire and at the behest of its bank, Sahai asked Sassy for a long-term extension to ensure that Sahai would remain Sassy's exclusive distributor in Australia through at least 2010. Negotiations over extending the distributorship began in July 2005 and involved Rao acting on behalf of Sahai, and Tom Winters and Fritz Hirsch on behalf of Sassy. Over the course of the next ten months, Rao, Winters, and Hirsch exchanged numerous e-mails proposing terms for a new contract. Sassy at first preferred an extension through only 2008 or 2009, and proposed annual sales in the following amounts: $750,000 for 2006, $900,000 for 2007, $1,150,000 for 2008, and $1,400,000 for 2009. In his e-mail, Winters referred to those annual sales figures as goals. Winters also told Rao that failing to meet those goals "would not be used as a primary reason to terminate" the distributorship.*fn1 See Rao Deposition (attached as Exhibit A to Sahai's Statement of Additional Fact [135-1]) at A8 (Rao's recollection of Winter's statement).

Rao believed that Winters' proposed annual sales figures had just been pulled out of a hat and were unrealistic. He proposed setting the proposed annual sales figure for 2006 based on what Sahai purchased during 2005, with 10% annual growth for each year after that. Rao also continued to press for a contract through 2010, and asked for a "compensation clause," under which Sassy would be required to make a severance payment in the event it terminated the contract early. Sassy rejected the request for a compensation clause, but continued negotiating over the proposed sales figures and the term of the contract.

On May 1, 2006, the parties reached an agreement on the terms of a new contract (the "Distributorship Agreement"), which became effective on July 13, 2006. The Distributorship Agreement contained the following terms regarding sales figures and length of the contract:

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 Amended Complaint [77-1]) ¶ 14. The Distributorship Agreement also contained the following language regarding Sassy's interest in the goods that it would sell to Sahai:

Sassy, Inc. represents and warrants 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.

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 ...


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