Over the past two years, Foley has represented Everpure, Inc., a home water filtration device manufacturer in a breach of distribution contract dispute with the Water, Inc., a current competitor and former regional master distributor of Everpure’s products. On December 19, 2011, Chief U.S. District Court Judge Audrey B. Collins, in Los Angeles, issued an order granting in whole client Everpure Inc.’s Motion for Summary Judgment or in the alternative Motion for Judgment on the Pleadings, which sought dismissal of all sixteen claims asserted in the complaint.
The Complaint asserted claims based, among other things, on Everpure’s termination without prior notice of a provision in a settlement and distribution agreement, intended to resolve a prior contract dispute, between the parties. That provision permitted Water, Inc. to purchase replacement filter cartridges from Everpure at a set price, even after being terminated as the master distributor of Everpure’s products in the Southwest region. In addition to claims sounding in breach of contract, the complaint also asserted related tort claims including those for fraud, Lanham Act violations, tortious interference, defamation and violation of California’s Unfair Competition Law. Those claims were asserted based on the plaintiff’s contention that Everpure falsely informed Water, Inc.’s customers that Water, Inc. was no longer the authorized distributor of Everpure products.
The main issue before the court on summary judgment was the question of whether Everpure had the right to terminate the supply provision in the agreement without notice. The court also considered whether there was any disputed issue of fact that Everpure made false representations by informing the parties’ mutual customers that Water, Inc. was no longer an authorized distributor of Everpure products. In a forty-seven page opinion, Judge Collins first analyzed Everpure’s right to terminate the replacement cartridge supply provision, containing no specific term of duration. The Court held that under California law, absent any facial or extrinsic evidence of an intended duration, an agreement with no set duration is terminable at-will by either party after reasonable time and with reasonable prior notice. Because neither category of evidence indicated mutual intent of a set duration, the Court sought to determine what would have been a reasonable term and reasonable notice under the circumstances. The Court concluded that, based on the agreement’s express terms as well as undisputed extrinsic evidence, the reasonableness of the duration of performance and the amount of prior notice would be measured based on the amount of time needed for Water, Inc. to find a replacement supplier and for Everpure to find a replacement master distributor, thus permitting the parties to completely sever their previous business arrangement.
In an unprecedented application on summary judgment of California contract law governing reasonableness of termination, the Court held that, because each party had found its needed replacement by the time Everpure terminated, it was reasonable for Everpure to have terminated when it did without providing Water, Inc. with any prior notice. The Court also dismissed Water, Inc.’s tort claims on several grounds. First among them, the Court agreed with Everpure that the Complaint failed to allege the incidents of fraud with requisite particularity to comply with Federal Rule 9(b). The Court also held that even without dismissal on the pleadings, the undisputed evidence supported dismissal of many of the tort claims because, given that Everpure had successfully terminated the agreement, its statements that Water, Inc. was no longer a master distributor were, in fact, true. Therefore, Everpure could not be subject to any tort liability for communicating those statements to Water, Inc. customers.
The Foley team that worked on the matter consisted of partners Brian McGrath and Leila Nourani and associates Kate Spitz and Michael Lawrence. Water, Inc. was represented by the Clark Law Group of Los Angeles, CA.