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LIBERTY SALES ASSOCS. v. DOW CORNING CORP.

March 17, 1993

LIBERTY SALES ASSOCIATES, INC., Plaintiff
v.
DOW CORNING CORPORATION, and HILTI INC.



The opinion of the court was delivered by: JOSEPH E. IRENAS

 IRENAS, District Judge

 Plaintiff, Liberty Sales Associates, Inc. ("Liberty"), has asked the court to reconsider its previous decision dismissing Liberty's claim for wrongful termination under the New Jersey Franchise Practices Act, N.J.S.A. 56:10-1 to 29 (the "Act"). *fn1" For the reasons set forth below, this motion will be denied.

 I. Procedural History

 This action involves, inter alia, a contract dispute between plaintiff, Liberty, and one of the two defendants, Dow Corning Corporation ("Dow"), over the interpretation of a distributor agreement (the "contract") in which Dow appointed Liberty as a "Master Distributor" of certain "fire stop" products used in construction to retard the spread of fires.

 It is undisputed that the contract gave Liberty the exclusive right, in a defined geographic area, to sell fire stop products bearing Dow's identifiable trademark or trade name. The parties hotly contest whether the contract permitted Dow to sell unbranded or private label fire stop products, which are chemically similar or identical to the branded products, to another distributor competing with Liberty in the same territory.

 The dispute surfaced when Liberty learned in 1988 that Dow was selling unbranded fire stop products to defendant, Hilti, Inc. ("Hilti"), who was competing for business in Liberty's territory. As a result of this dispute, Dow later refused to renew its contract with Liberty.

 Liberty filed this action on August 2, 1991 asserting claims against Dow for breach of contract, breach of implied obligations of good faith and fair dealing, tort, and a claim for wrongful termination under the Act. The original complaint contained five counts against Dow. On May 13, 1992, plaintiff amended the complaint adding counts six and seven to assert claims for fraudulent and negligent misrepresentation respectively.

 Shortly thereafter, Dow moved for summary judgment on all counts. On August 7, 1992 this court filed an opinion and order granting defendant's motion in part, and specifically granting defendant's motion to dismiss plaintiff's claim under the Act. That decision was based largely on the absence of evidence that Dow had granted Liberty the license required as a predicate to the Act's applicability. Liberty Sales Associates Inc. v. Dow Corning Corporation, Civ. No. 91-3507, at 9 (D.N.J. Aug. 7, 1992).

 In dismissing the franchise claim the court relied in part upon Finlay & Associates, Inc. v. Borg-Warner Corp., 146 N.J. Super. 210, 369 A.2d 541 (Law Div. 1976) aff'd 155 N.J. Super. 332, 382 A.2d 933 (App. Div. 1978), and Instructional Systems Inc. v. Computer Curriculum Corp., 243 N.J. Super. 53, 59-61, 578 A.2d 876 (App. Div. 1990), both of which had held that the distributor contracts in question had not created a license within the meaning of the Act. Liberty Sales Associates Inc., at 10.

 On October 19, 1992, the New Jersey Supreme Court reversed the Appellate Division's decision in Instructional Systems Inc. and found that the Act did apply to the distribution contract in that case. Instructional Systems Inc. v. Computer Curriculum Corp., 130 N.J. 324, 614 A.2d 124 (1992). In light of this decision the court agreed to reconsider its initial grant of summary judgment on this claim.

 II. Factual Background

 On June 5, 1986, Liberty Sales and Dow Corning entered into a distributor agreement whereby Liberty became Dow's "sole Master Distributor" of fire stop foam and sealant *fn2" in Pennsylvania, Delaware, and designated portions of southern New Jersey and western New York. *fn3" The initial contract term ran from April 1, 1986 until December 31, 1987, although the termination clause provided that either party could terminate the agreement with or without cause upon 30 days prior written notice. Plaintiff's Exhibit 11, 1986 Master Distributor Agreement, at 5. Two letter agreements dated December 18, 1987 and December 20, 1988, extended the contract through December 31, 1989. Id., at 5. *fn4"

 This litigation focuses on the interpretation of the contract's "Appointment and Acceptance" clause:

 
Dow Corning appoints Distributor as the sole Master Distributor of Distributor Products to the Market in the Territory for the Fire Stop Foam and Sealant segment of the Dow Corning Elastomers and Engineering Industries Business. Dow Corning agrees that, so long as this Agreement is in force, it will not appoint any other Master Distributor of Distributor Products to service the Market in the Territory.

 Id., at 2. Liberty asserts that in its territory it was the exclusive distributor of Dow manufactured fire stop products, whether branded or unbranded. Dow argues with equal fervor that Liberty was a Master Distributor only for goods bearing the Dow name and mark.

 On July 1, 1987 Dow entered an agreement whereby Hilti became a distributor of Dow manufactured fire stop products which were chemically similar to the branded products sold by Liberty. This agreement authorized Hilti to sell these products under its own private label. Dow's agreement with Hilti specifically prevented Hilti from representing to customers or to third parties that Dow was the manufacturer of the goods or that Hilti was in any manner affiliated with Dow.

 Hilti's sales were not geographically restricted, although there is some indication that Dow did not intend for Hilti to compete directly with Liberty and its other Master Distributors. Nonetheless, Liberty alleges that that is precisely what happened.


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