Weco Supply Company, Inc. v. The Sherwin-Williams Company

Filing 73

ORDER on Supplemental Motion For Summary Judgment 47 70 , signed by Chief Judge Anthony W. Ishii on 8/6/2012. (IT IS HEREBY ORDERED that: 1. Summary judgment on the First Amended Complaints Sixth Cause of Action for breach of the implied contra ct of good faith and fair dealing is GRANTED in favor of Sherwin-Williams; 2. Summary judgment on the First Amended Cross-Complaints First Cause of Action is GRANTED in favor of Sherwin-Williams; 3. Sherwin-Williams shall file proof of its damages, f ees, costs, and interest at the legal rate under Ohio law, along with a proposed order within twenty (20) days of service of this order. Weco shall file its objections, if any, within ten (10) days of service of Sherwin-Williams proposed order. The Court will thereafter enter a final award of damages in favor of Sherwin-Williams; 4. The pretrial conference and trial dates are hereby VACATED.)(Gaumnitz, R)

1
2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT FOR THE

7

EASTERN DISTRICT OF CALIFORNIA

8
9
10
11
12
13
14
15
16

WECO SUPPLY COMPANY, INC., a
California corporation

)
)
)
Plaintiff,
)
)
v.
)
)
THE SHERWIN-WILLIAMS
)
COMPANY,
)
)
Defendant.
)
____________________________________)
)
AND RELATED CROSS-ACTION
)
____________________________________)

1:10-CV-00171 AWI BAM
ORDER ON SUPPLEMENTAL
MOTION FOR SUMMARY
JUDGMENT
(Docs. 47, 70)

17
18
INTRODUCTION
19
This is a business dispute between Plaintiff Weco Supply Company, Inc. (“Weco”) and
20
Defendant The Sherwin-Williams Company (“Sherwin-Williams”). On May 25, 2012, the Court
21
granted in part and denied in part Sherwin-Williams’ Motions for Summary Judgment, or, in the
22
alternative, Summary Adjudication of Issues. See Court’s Docket, Doc. No. 66. However, the
23
Court gave the parties leave to file a supplemental dispositive motion on the issue of whether
24
summary judgment on the alleged breach of a contract’s express terms automatically requires
25
dismissal of a breach of contract claim premised on the implied covenant of good faith and fair
26
dealing. On June 29, 2012, Sherwin Williams filed a Supplemental Memorandum of Points and
27
Authorities in Support of Motions for Summary Judgment. See id., Doc. No. 70. Weco filed a
28

1

memorandum in opposition, and Sherwin-Williams filed a reply. See id., Doc. Nos. 71, 72. For

2

the reasons set forth below, the Court will grant Sherwin-Williams’ supplemental motion.

3

BACKGROUND

4

The background of this action has been described in a prior order. See id., Doc. No. 66.

5

To sum up, Weco and Sherwin-Williams entered into a written agreement for the distribution of

6

Sherwin-Williams paint products, referred to as a Direct Jobber Agreement (the “Jobber

7

Agreement”). The First Amended Complaint (“FAC”) alleges in part that Sherwin-Williams

8

breached the Jobber Agreement by discontinuing a certain product line. The FAC further alleges

9

Sherwin-Williams breached the implied covenant of good faith and fair dealing by selling

10

directly to two end users who were Weco’s customers. Sherwin-Williams filed a First Amended

11

Cross-Complaint (“FACC”) alleging, among other things, that Weco breached the Jobber

12

Agreement by refusing to pay for an order of paint totaling $135,083.27.

13

With respect to Weco’s breach of contract claims, the Court granted summary judgment

14

on the FAC’s Fifth Cause of Action for breach of contract, but denied summary judgment on the

15

Sixth Cause of Action for breach of the implied covenant of good faith and fair dealing. Id. The

16

Court also denied summary judgment on the FACC’s First Cause of Action for breach of contract

17

finding that there was a genuine factual dispute as to whether Sherwin-Williams breached the

18

implied covenant of good faith and fair dealing. Id. The Court’s findings were based upon an

19

assumption that, under Ohio law, summary judgment on the claim for breach of the Jobber

20

Agreement’s express terms did not preclude Weco’s claim for breach of the implied covenant of

21

good faith and fair dealing. The instant supplemental motion challenges that assumption and

22

seeks reconsideration of the Court’s denial of summary judgment on the FAC’s Sixth Cause of

23

Action and the FACC’s First Cause of Action.

24
25
26

LEGAL STANDARD
Summary judgment is appropriate when it is demonstrated that there exists no genuine
issue as to any material fact, and that the moving party is entitled to judgment as a matter of law.

27
28

2

1

Fed. R. Civ. P. 56(c); Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Poller v.

2

Columbia Broadcast System, 368 U.S. 464, 467 (1962); Southern California Gas Co. v. City of

3

Santa Ana, 336 F.3d 885, 888 (9th Cir. 2003). A fact is material if it could affect the outcome of

4

the suit under the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

5

(1986); Miller, 454 F.3d at 987.

6

If the moving party meets its initial responsibility, the burden then shifts to the opposing

7

party to establish that a genuine issue as to any material fact actually does exist. Matsushita Elec.

8

Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986); First Nat'l Bank of Arizona v. Cities

9

Serv. Co., 391 U.S. 253, 288-89 (1968); Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Companies,

10

Inc.,210 F.3d 1099, 1103 (9th Cir. 2000). In attempting to establish the existence of this factual

11

dispute, the opposing party is required to tender evidence of specific facts in the form of

12

affidavits, and/or admissible discovery material, in support of its contention that the dispute

13

exists. Rule 56(e); Matsushita, 475 U.S. at 586 n.11; First Nat'l Bank, 391 U.S. at 289; Miller,

14

454 F.3d at 987.

15

In the endeavor to establish the existence of a factual dispute, the opposing party need not

16

establish a material issue of fact conclusively in its favor. It is sufficient that “the claimed factual

17

dispute be shown to require a jury or judge to resolve the parties' differing versions of the truth at

18

trial.” First Nat'l Bank, 391 U.S. at 290; Giles v. General Motors Acceptance Corp., 494 F.3d

19

865, 872 (9th Cir. 2007). Thus, the “purpose of summary judgment is to ‘pierce the pleadings

20

and to assess the proof in order to see whether there is a genuine need for trial.’” Matsushita, 475

21

U.S. at 587 (quoting Fed. R. Civ. P. 56(e) advisory committee's note on 1963 amendments);

22

International Union of Bricklayers v. Martin Jaska, Inc., 752 F.2d 1401, 1405 (9th Cir. 1985).

23

In resolving the summary judgment motion, the Court examines the pleadings,

24

depositions, answers to interrogatories, and admissions on file, together with the affidavits, if

25

any. Rule 56(c); Poller, 368 U.S. at 468; Price v. Sery, 513 F.3d 962, 965 n.1 (9th Cir. 2008);

26

Lockett v. Catalina Channel Exp., Inc., 496 F.3d 1061, 1064 (9th Cir. 2007). “[I]n ruling on a

27
28

3

1

motion for summary judgment, the nonmoving party's evidence ‘is to be believed, and all

2

justifiable inferences are to be drawn in that party's favor.’” Hunt v. Cromartie, 526 U.S. 541,

3

552 (1999) (quoting Anderson, 477 U.S. at 255); Miller, 454 F.3d at 987; Stegall v. Citadel

4

Broad, Inc., 350 F.3d 1061, 1065 (9th Cir. 2003). Finally, to demonstrate a genuine issue, the

5

opposing party “must do more than simply show that there is some metaphysical doubt as to the

6

material facts. . . . Where the record taken as a whole could not lead a rational trier of fact to find

7

for the nonmoving party, there is no ‘genuine issue for trial.’” Matsushita, 475 U.S. at 587

8

(citation omitted).

9

DISCUSSION

10

A.

11

Sherwin-Williams contends it is well-settled law in Ohio that a claim for breach of the

12

implied covenant of good faith and fair dealing must be anchored to a breach of contract claim

13

and cannot stand alone. In support of this, Sherwin-Williams cites Dawson v. Blockbuster, Inc.,

14

in which the Ohio Court of Appeals dismissed the plaintiff’s claim for breach of the implied

15

covenant of good faith and fair dealing because the complaint failed to allege a breach of

16

contract. See No. 86541, 2006 WL 1061769, at *5 (Ohio Ct. App. Mar. 16, 2006). The Court of

17

Appeals observed:

18
19

Breach of Implied Covenant of Good Faith and Fair Dealing

Parties to a contract are bound toward one another by standards of good faith and fair
dealing. However, this does not stand for the proposition that breach of good faith exists
as a separate claim. Instead, good faith is part of a contract claim and does not stand
alone.

20
Id. (citing Wauseon Plaza, Ltd. Partnership v. Wauseon Hardware Co., 156 Ohio App.3d 575,
21
807 N.E.2d 953 (Ohio Ct. App. 2004)). For example, in Wauseon, the Court of Appeals held
22
that a commercial landlord could not be liable for breaching the implied covenant of good faith
23
and fair dealing by failing to maintain the anchor stores or foot traffic in a shopping center where
24
the lease imposed no such obligation. See 156 Ohio App.3d at 587, 807 N.E.2d at 962.
25
Weco’s claim for breach of the implied covenant of good faith and fair dealing is based
26
27
28

4

1

on its allegation that Sherwin-Williams breached an implied duty not to sell directly to end users,

2

except in its retail stores. Weco contends that although the Jobber Agreement expressly provides

3

that Sherwin-Williams “may sell Products directly to any Jobber and/or to any End User in any

4

geographical area including the same geographical area that is serviced by Jobber,” the contract

5

as a whole indicated that Sherwin-Williams could sell to end users only at its stores. There is no

6

express contract term limiting Sherwin-Williams’ direct sales to in-store sales. Rather, Weco

7

argues that other terms of the contract1 suggest that the parties intended for Weco to have a direct

8

relationship with end users and for Sherwin-Williams to provide support to Weco, rather than

9

compete with it. The Ohio Court of Appeals rejected a similar argument in Wauseon. In that

10

case, the plaintiff argued a term of the lease that provided the tenant with relief if its business

11

suffered due to the closing of an anchor store also created a duty on the part of the landlord to

12

retain and replace anchor tenants. Wauseon, 156 Ohio App.3d at 586, 807 N.E.2d at 961. The

13

Court of Appeals held that the provision did not create an affirmative obligation to maintain

14

anchor stores, and noted that if such an obligation had been intended it could have been added to

15

the language of the contract. Id. Here, the Court finds that the Jobber Agreement provisions

16

cited by Weco do not create an obligation to restrict Sherwin-Williams’ sales to end users to in-

17

store sales. “When the terms included in an existing contract are clear and unambiguous, we

18

cannot create a new contract by finding an intent not expressed in the clear and unambiguous

19
20
21
22
23
24
25
26

1

Specifically, Weco points to the following sections of the Jobber Agreement:
Paragraph 1b: “The appointment of Jobber as a distributor of
the Products is for the purpose of distribution of the Products by Jobber
to commercial customers for consumption and/or end use by such
customers (“End Users”).
Paragraph 2c: “Jobber shall exercise its best efforts to market
the Products to End Users and to promote the goodwill and market
reputation of SW and the Products.”
Paragraph 3b provides: “SW’s sales and technical representatives will
assist Jobber, on a non-exclusive basis, relating to the sales of Products
to End Users in Jobber’s geographical vicinity.”

27
28

5

1

language of the written contract.” Hamilton Ins. Servs. v. Nationwide Ins. Cos., 86 Ohio St. 3d

2

270, 273, 714 N.E.2d 898, 901 (Ohio 1999). Thus, even if Weco were to plead its breach of the

3

implied covenant claim as a breach of contract claim, it would fail.

4

As stated in the Court’s prior order, the Ohio Court of Appeals held in Littlejohn v.

5

Parrish that “a party can be found to have breached its contract if it fails to act in good faith.”

6

163 Ohio App. 3d 456, 463, 839 N.E.2d 49, 54 (Ohio Ct. App. 2005). However, further review

7

of Ohio law makes clear that, “outside of the context of insurance contracts, ‘the breach of the

8

duty of good faith does not exist as a separate cause of action from a breach of contract claim.’”

9

See Ireton v. RTD Realty, 162 Ohio Misc. 2d 1, 22, 944 N.E.2d 1238, 1255 (Ohio Com. Pl.

10

2010) (quoting Walton v. Residential Fin. Corp., 151 Ohio Misc 2d 28, 2009-Ohio-1872, 905

11

N.E.2d 1307, ¶ 10 (Ohio Com. Pl. 2009)). In other words, a claim for breach of the implied

12

covenant of good faith and fair dealing must be based on a specific contractual obligation. Here,

13

there is no contractual requirement that prohibits Sherwin-Williams from selling directly to any

14

of Weco customers. On the contrary, there is a specific provision permitting Sherwin-Williams

15

to do precisely that. Thus, the Court will reconsider its prior order and will grant summary

16

judgment in favor of Sherwin-Williams as to the FAC’s Sixth Cause of Action.

17

B.

18

The FACC’s First Cause of Action for breach of contract is based on two theories. First,

First Amended Cross-Complaint

19

Sherwin-Williams contends, and Weco does not dispute, that Weco refused to pay for an order of

20

paint totaling $135,083.27. Second, Sherwin-Williams alleges Weco breached the Jobber

21

Agreement by failing to use “best efforts” to market Sherwin-Williams’ products. Sherwin-

22

Williams states it will “forego the claim for the best efforts breach” if the Court grants summary

23

judgment on the contract claim for $135,083.27. See Court’s Docket, Doc. No. 72 at 8. In its

24

prior order, the Court denied summary judgment finding that there was a genuine factual dispute

25

as to whether Sherwin-Williams breached the implied covenant of good faith and fair dealing.

26

Because the Court now finds that Ohio law precludes Weco’s claim for breach of the implied

27
28

6

1

covenant, there is no factual dispute or defense to Sherwin-Williams’ allegation that Weco

2

ordered $135,083.27 worth of paint and has refused to pay for it. Thus, the Court will reconsider

3

its prior order and grant summary judgment in favor of Sherwin-Williams as to the FACC’s First

4

Cause of Action for breach of contract based on Weco’s refusal to pay.2

5

Sherwin-Williams acknowledges that it makes no argument in support of the two

6

remaining claims in the FACC for misappropriation of trade secrets and unfair competition. In

7

its supplemental briefing, Sherwin-Williams states it “is prepared to dismiss those claims, if

8

summary judgment is entered in its favor on its breach of contract and common count claims for

9

recovery of monies in the amount Weco concededly owes, $135,083.27, which would bring this

10

action to a close.” See Court’s Docket, Doc. No. 70 at n.3. Accordingly, the Court leaves it to

11

Sherwin-Williams to dismiss its remaining counterclaims based on this order.

12
13

CONCLUSION AND ORDER

14

Accordingly, IT IS HEREBY ORDERED that:

15

1.

Summary judgment on the First Amended Complaint’s Sixth Cause of Action for

16

breach of the implied contract of good faith and fair dealing is GRANTED in

17

favor of Sherwin-Williams;

18

2.

19
20

Summary judgment on the First Amended Cross-Complaint’s First Cause of
Action is GRANTED in favor of Sherwin-Williams;

3.

Sherwin-Williams shall file proof of its damages, fees, costs, and interest at the

21

legal rate under Ohio law, along with a proposed order within twenty (20) days of

22

service of this order. Weco shall file its objections, if any, within ten (10) days of

23

service of Sherwin-Williams’ proposed order. The Court will thereafter enter a

24
25

2

27

As noted in the Court’s prior order, the FACC also asserts counterclaims for “Goods
Sold and Delivered” and “Account Stated.” These claims are based on the same facts and seek
the same damages as the breach of contract counterclaim. Accordingly, the Court finds that these
counterclaims are subsumed within the breach of contract counterclaim.

28

7

26

1
2
3

final award of damages in favor of Sherwin-Williams;
4.

The pretrial conference and trial dates are hereby VACATED.

IT IS SO ORDERED.

4
5

Dated:
0m8i78

August 6, 2012
CHIEF UNITED STATES DISTRICT JUDGE

6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

8