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Click Corp. of America v. Redco Foods

March 24, 2006

CLICK CORPORATION OF AMERICA, PLAINTIFF,
v.
REDCO FOODS, INC., DEFENDANT.



The opinion of the court was delivered by: Simandle, District Judge

OPINION

This matter comes before the Court upon Defendant Redco Foods, Inc.'s motion to dismiss the Second Amended Complaint filed by Plaintiff Click Corporation of America. Plaintiff's original complaint arises out of a business dispute between the parties involving a long-standing license and distributorship agreement. For the reasons expressed below, Defendant Redco Foods, Inc.'s motion to dismiss will be granted and all four of Plaintiff Click Corporation of America's claims will be dismissed.

I. BACKGROUND

Redco Foods, Inc.'s ("Redco") is in the business of manufacturing, distributing and selling various tea products, including extracts for use in the preparation of ready-to-drink iced tea, under the trademark RED ROSE. (Second Amended Compl. ("SAC") ¶ 5.) Plaintiff Click Corporation of America ("Click") and Redco's predecessor (Brook Bond Foods, Inc.) entered into a license and distributorship agreement ("Agreement") on October 1, 1982, under which Click was licensed to make, bottle, distribute and sell Red Rose Iced Tea and was appointed the exclusive distributor of that product for the entire geographical region east of the Mississippi River. (SAC ¶ 6-7.) The parties subsequently agreed that Click could distribute and sell Red Rose Iced Tea throughout the remainder of the U.S. on a non-exclusive basis. (Id. ¶ 8.)

A. The Distributorship Agreement

For the past 23 years, Click has been making, distributing and selling Red Rose Iced Tea. (Id.) Under the terms of the Agreement Redco is to sell Click the extract with which Red Rose Iced Tea is made and Click is to make, bottle, market, distribute and sell the tea. (Id. ¶ 10.) A number of specific provisions of the Agreement are implicated in this action. First, Section 3(a) states that, in consideration for the Agreement, Redco agrees:

To sell to Click during the term of this Franchise Agreement its requirements of the said Extract at [Redco's] regularly established list prices for Red Rose Iced Tea Extract Kits. Kits and Extracts may not be sold, loaned or delivered to any other bottler without written permission of the Redco. [Redco] will not withhold approval without providing reasonable and written cause. Such sales shall be on the same terms and conditions as are extended to other bottler customers. Nothing in this contract shall prohibit the Company from discontinuing the distribution and sale of Extract. (Def.'s Br. at Ex. A, Agreement § 3(a))(emphasis added).*fn1 In addition, the Agreement contains a termination provision which states that the Agreement "shall continue in full force and effect, subject to the termination privileges...provided for, so long as [Click] shall faithfully perform the obligations imposed upon it by the terms hereof." (Id. at § 5.) Moreover, the Agreement contains an assignment clause stating:

No contracts will be made with sub-bottlers, agents or distributors or anyone having to do with the bottling or wholesale selling of the Product except upon and with the prior written consent of the Company. The Company will not withhold approval without providing reasonable and written cause. This Franchise Agreement or any portion of the territory assigned hereunder, shall not be transferable or assignable by [Click] except upon and with the prior written consent of [Redco.] (Id. at § 7(a).) Finally, the Agreement states that it is to be construed in accordance with New York law. (Id. at § 7(d).)

B. Redco's Actions After Click's Business Begins to Decline

Click and Redco had many profitable years of Click selling Red Rose Iced Tea under the Agreement. (SAC ¶ 15.) However, according to Click, the market for ready-to-drink iced tea changed when large beverage manufacturers such as Coca-Cola began distributing such teas. (Id.) Click was not able to compete with the prices, incentives and services offered by large beverage manufacturers. (Id.) Thus, sales of Red Rose Iced Tea declined. (Id.)

In February of 2005, Redco's new General Manager, Douglas Farrell, expressed to Click that Redco wanted to end the Agreement in exchange for paying Click a nominal sum. (Id. ¶ 18.) Click declined this offer and instead advised Redco that it sought $10 million to end the Agreement. (Id. ¶ 19.) By letter dated February 18, 2005, Redco responded, asserting that Click had breached the Agreement and a letter of termination would be forthcoming. (Id. ¶ 20.) No such letter was sent, however, and, instead, Redco stopped responding to Click's purchase orders. (Id. ¶ 21.) Click maintains that Red Rose Iced Tea is the only product that it sells. (Id. ¶ 12.)

On May 11, 2005, Redco sent Click a letter stating that the Agremeent will terminate effective May 25, 2005 on the grounds that Click allegedly failed to comply with the terms and conditions of the Agreement. (Id. ¶ 24.) Click alleges that, shortly prior to June 22, 2005, Redco informed Click for the first time that (a) Redco had decided to discontinue the distribution and sale of extract pursuant to Paragraph 3(a) of the Agreement, and (b) Redco's position was that invoking that provision of Paragraph 3(a) would effect termination of the Agreement. (Id. ¶ 28.) According to Click, Redco then abandoned its strategy of seeking to eliminate Click in a manner that would preserve Redco's right to continue selling and distributing extract so, on July 7, 2005, Redco sent Click a letter stating that it was discontinuing the distribution of Red Rose Iced Tea Extract pursuant to the last sentence of Paragraph 3(a) of the Agreement. (Id. ¶ 29.)

C. Procedural History

On May 25, 2005, Click filed an Amended Complaint and a Renewed and Amended Motion for a Temporary Restraining Order seeking an Order enjoining the termination of the Agreement to preserve the status quo pending a preliminary injunction hearing. (Id. at ¶ 25.) After a hearing on Click's Renewed and Amended Motion for a Temporary Restraining Order on June 3, 2005, the Court granted a Temporary Restraining Order and scheduled a Preliminary Injunction hearing for July 28, 2005. (Id. ¶ 26.)

At the conclusion of the July 28, 2005 hearing, in an extensive oral opinion addressing the substance of Plaintiff's claims, the Court found, among other things, that Click did not have a probability of succeeding on the merits in establishing that invoking Paragraph 3(a) of the Agreement did not effect termination of the Agreement, and issued an Order dissolving the Temporary Restraining Order. (Id. ¶ 31; Tr. July 28, 2005 at 72-85.)

On August 8, 2005, with limited permission from the Court, Click filed its Second Amended ...


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