Innovative Sales and Machine Services, LLC v. Maier USA, LLC

Filing 78

ORDER: See attached memorandum of decision after bench trial. The Clerk is directed to enter judgment in favor of the defendant and to close this case. Signed by Judge Donna F. Martinez on 3/31/16. (Brierley, K.)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
INNOVATIVE SALES AND MACHINE
SERVICES, LLC,
Plaintiff,
v.
MAIER USA, LLC
Defendant.

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CASE NO. 3:11cv1472(DFM)

MEMORANDUM OF DECISION
Plaintiff, Innovative Sales and Machine Services, LLC
(“ISMS”), brought this breach of contract action against
defendant, Maier USA, LLC (“Maier”).

After a two-day bench trial

on December 16 and 17, 2015, I make the following findings of
fact and conclusions of law pursuant to Rule 52 of the Federal
Rules of Civil Procedure.1
I.

Findings of Fact
A. Parties & Background
This case involves a dispute between a manufacturer of

Swiss-style screw machines and one of its distributors.

The

individuals involved came to know one another through many years
in the industry working for different manufacturers and
distributors.

Two of them entered into an oral agreement on

behalf of the parties.
1

For nearly two years, they carried on

The parties consented to the jurisdiction of a magistrate
judge pursuant to 28 U.S.C. § 636(c) and Fed.R.Civ.P. 73. (Doc.
#55.)

without incident, but the relationship eventually fell apart,
leading to the instant lawsuit.
Plaintiff ISMS, a distributor of Swiss-style screw machines,
is a limited liability company in which John Schuld is the only
member. (Tr. 12/17/15 AM, pp. 4, 7.)
Defendant Maier USA is a limited liability company owned by
Michael Maier, who lives in Germany and also owns Maier Germany.
(Tr. 12/17/15 PM, pp. 71-72, 80.)

Maier USA was founded in 2008

to import and distribute Maier Germany products in the United
States. (Tr. 12/17/15, pp. 71-72.)

Before 2008, Maier imported

and distributed its machines through Methods Machine Tools
(“Methods”), the “largest importer of machine tools privately
owned” in the United States. (Tr. 12/16/15 AM, p. 18.)

James

Kucharski was the product manager of the Maier line at Methods.
(Tr. 12/16/15 AM, p. 19.)

He later became the national sales

manager at defendant Maier.2 (Tr. 12/16/15 AM, pp. 17-19; Tr.
12/17/15 PM, p. 72.)
Schuld and Kucharski met in or around 1999.
AM, p. 20; Tr. 12/17/15 AM, p. 6.)

(Tr. 12/16/15

At the time, Schuld worked

for Rudel Machinery Company (“Rudel”), which distributed screw
machines manufactured by another company called Tornos, where
Kucharski was the regional sales manager. (Tr. 12/16/15 AM, p.
2

Maier fired Kucharski in August 2012. (Tr. 12/16/15 AM, p.
47; Tr. 12/17/15 PM, p. 72.) He currently works for Methods.
(Tr. 12/16/15 AM, p. 93.)
2

20; Tr. 12/17/15 AM, p. 6.)

Schuld and Kucharski became friends

and socialized. (Tr. 12/16/15 AM, p. 22; Tr. 12/17/15 AM, p. 6.)
In 2001, Schuld left Rudel to work for his father’s company
rebuilding, manufacturing, and selling screw machine tooling and
replacement parts. (Tr. 12/17/15 AM, pp. 6-7.)

Schuld remained

in contact with Kucharski. (Tr. 12/17/15 AM, pp. 7-8.)

After

four years at his father’s company, Schuld left to start ISMS.
(Tr. 12/17/15 AM, pp. 4, 7.)

Schuld hired two independent

contractors, Jeff Judd and Barry Ertel. (Tr. 12/17/15 AM, pp. 9,
10, 22, 58, 68-9, 71, 98.)
After forming ISMS, Schuld contacted Kucharski, who at the
time was working as the regional sales manager of Tornos, to ask
if Kucharski was satisfied with Tornos’s New England distributor,
Rudel. (Tr. 12/17/15 AM, p. 8.)
8.)

He was not. (Tr. 12/17/15 AM, p.

In or around 2005, Rudel “fell apart,” and Kucharski asked

ISMS to become the regional distributor of Tornos products. (Tr.
12/16/15 AM, pp. 22-23; Tr. 12/17/15 AM, pp. 8-9.)
By 2008, Kucharski was working for defendant Maier as its
national sales manager. (Tr. 12/16/15 AM, pp. 17-19; Tr. 12/17/15
PM, p. 72.)

ISMS still was distributing Tornos products. (Tr.

12/16/15 AM, pp. 24-27; Tr. 12/17/15 AM, pp. 11, 13.)

Kucharski

approached Schuld to discuss ISMS becoming a distributor of Maier
products. (Tr. 12/16/15 AM, pp. 24-27; Tr. 12/17/15 AM, pp. 11,
13.)
3

B. The Agreement
In or around April 2008, Schuld and Kucharski, on behalf of
the parties, entered into an oral distribution agreement.

The

material terms included: (i) services; (ii) territory; (iii)
exclusivity; (iv) commission; and (v) duration and termination.
1.

Services

Under the contract, ISMS was to serve as Maier’s
distributor.

ISMS would market, promote, and sell Maier machines

and ancillary equipment. (Tr. 12/16/15 AM, pp. 25-26, 73, 106-07;
12/17/15 AM, pp. 12, 26-27, 90.)

ISMS was to pay its own

marketing expenses. (Tr. 12/16/15 AM, pp. 97-98; Tr. 12/17/15 PM,
pp. 54-56.)
2.

Territory

Schuld and Kucharski agreed that ISMS would distribute Maier
machines in the six New England states.3 (Tr. 12/16/15 AM, p. 29;
Tr. 12/16/15 PM, pp. 7-8; Tr. 12/17/15 AM, pp. 18, 89-90.)

They

discussed the area east of the Hudson River in New York because
ISMS had several customers there, but Kucharski advised that
Maier already had a New York distributor.
8; Tr. 12/17/15 AM, pp. 18, 102.)

(Tr. 12/16/15 PM, p.

During the time ISMS sold

Maier machines, it made only one sale in New York, for which it
3

The six New England states are Connecticut, Maine,
Massachusetts, New Hampshire, Rhode Island, and Vermont. This
was the same territory in which ISMS had sold Tornos products.
(Pl. Ex. 2, p. 7; Tr. 12/16/15 AM, p. 29; Tr. 12/16/15 PM, pp. 78; Tr. 12/17/15 AM, pp. 18, 89-90.)
4

shared the commission with Maier’s New York distributor. (Tr.
12/16/15 PM, p. 10.)
3.

Exclusivity

ISMS was the exclusive distributor of Maier machines in the
New England territory, with the exception of Maier’s “house
account”4 with a Massachusetts company called Alpha Grainger
Manufacturing, Inc. (“Alpha Grainger”).5 (Tr. 12/16/15 AM, p. 36;
Tr. 12/17/15 AM, pp. 21, 89, 94-95; Tr. 12/17/15 PM, p. 79.)
4.

Commission

The parties agreed that ISMS would receive commissions for
selling Maier machines and ancillary items.6

The parties intended

their agreement to be similar to the one ISMS had with Tornos.
(Pl. Ex. 2; Tr. 12/16/15 AM, pp. 27-28; Tr. 12/17/15 AM, p. 88.)
Under the Tornos agreement, ISMS received 12% commission on the

4

Kucharski explained that a house account is “an account that
in the case of Maier and/or Tornos would be called on and taken
care of by Tornos or Maier directly without any outside
participation from a contracted distributor.” (Tr. 12/16/15 AM,
p. 37.)
5
Alpha Grainger had long been a house account of Maier. (Tr.
12/16/15 PM, pp. 27, 37.) Michael Maier is a close friend of the
owner, Jake Grainger, who was Maier’s first customer. (Tr.
12/17/15 PM, p. 79.) In 2009, when Maier Germany declared
bankruptcy and “nobody was buying machines,” Jake Grainger bought
a machine, at cost or less, to provide Maier with cash flow to
continue operating the business. (Tr. 12/17/15 PM, pp. 79-81.)
6
Maier calculated ISMS’s commission payments using an order
acknowledgement form, a copy of which was sent to ISMS. (Tr.
12/16/15 AM, p. 61.) Maier paid distributors’ commissions 30
days after customers paid in full. (Tr. 12/16/15 AM, p. 101.)
5

net sales price7 of Tornos-supplied products and 5% on the net
sales price of ancillary items. (Pl. Ex. 2, pp. 2, 8.)

ISMS’s

commission with Tornos did not include house accounts, spare
parts, freight and special packing, set-up, labor, or extended
warranties. (Pl. Ex. 2, p. 3.)
Between August 2008 and October 2010, Maier paid ISMS a
total of $140,308.56 in commissions.8 (Pl. Ex. 27.)

ISMS never

complained that the commission payments were incorrect. (Tr.
12/16/15 AM, p. 110; Tr. 12/17/15 AM, pp. 106-08, 113-14, 117;
Tr. 12/17/15 PM, pp. 13-14.)
5.

Duration and Termination

There was no term to the agreement and either party could
terminate it at any time. (Tr. 12/16/15 AM, pp. 36, 112-13; Tr.
12/17/15 AM, p. 54.)

In the event of termination, ISMS would

have between 30 days (the industry standard) and 60 days to close

7

The Tornos agreement defined net sales price as “the final
selling price to the customer net of discounts, taxes, freight,
trade-ins, interest or currency adjustments, financing charges,
etc.” (Pl. Ex. 2, p. 2.)
8
Maier often gave customers discounts, which affected the
distributor’s commission. (Tr. 12/16/15 AM, pp. 27-28, 106-08;
Tr. 12/16/15 PM, pp. 5, 13, 22, 27-30, 32-33, 106-08; Tr.
12/17/15 PM, pp. 13-14.) Kucharski testified that Maier and ISMS
agreed to share any discounts on a “two-thirds one-third basis.”
He explained that “when you calculate the percentage that the
discount was of the total sale . . . Maier would take two-thirds
of that percentage . . . and then one-third of that percentage
would be applied to the commissions for [ISMS].” (Tr. 12/16/15
PM, pp. 18-20.) Schuld was involved in this process. (Tr.
12/16/15 AM, pp. 111-12; Tr. 12/16/15 PM, pp. 22, 30, 42.)
6

any outstanding deals. (Tr. 12/16/15 AM, p. 113; Ertel Depo., 9 pp.
72-73.)
On February 19, 2010, Schuld and Kucharski had a “heated
discussion,” after which Kucharski opened ISMS’s exclusive
territory to other distributors.10 (Tr. 12/16/15 AM, pp. 114-17;
Tr. 12/17/15 AM, pp. 45-47.)

ISMS continued making sales in the

territory,11 but eventually decided in May 2010 to stop selling
Maier products altogether. (Tr. 12/17/15 AM, pp. 51, 59.)
II.

Conclusions of Law

ISMS makes five claims against Maier: (1) breach of
contract; (2) breach of the implied covenant of good faith and
fair dealing; (3) violation of the Connecticut Unfair Trade
Practices Act, Conn. Gen. Stat. §§ 42-110a et seq. (“CUTPA”); (4)
promissory estoppel; and (5) unjust enrichment.

I make the

following conclusions of law.

9

Ertel did not testify as a live witness at trial. The
parties agreed to admit his testimony as evidence by way of
deposition designations.
10
Kucharski explained that opening a distributor’s exclusive
territory means that if a distributor had a potential sale, it
could contact Kucharski, who would check to see if the account
had been declared by any other distributor. If it had not, the
distributor would have the right to put the customer on a
protected list, preventing other distributors from soliciting
sales there. (Tr. 12/16/15 PM, p. 37.)
11
ISMS received commissions for two sales it made after
February 2010. (Pl. Ex. 25, 27.) Schuld testified that ISMS did
not receive commission payments for three additional sales that
were made directly by Maier after February 2010. (Tr. 12/17/15
PM, pp. 20-26, 35-39.)
7

A. Breach of Contract
“The elements of a breach of contract action are the
formation of an agreement, performance by one party, breach of
the agreement by the other party and damages.”

Chiulli v. Zola,

97 Conn. App. 699, 706-07 (2006) (internal quotation marks
omitted).

ISMS’s breach of contract claim is based on its

contention that Maier agreed
ISMS would be paid a 10% across the board commission on
every Maier machine and ancillary machine part sold to
any customer in the ISMS exclusive territory including
sales to Maier house accounts.
[Maier] further agreed
that such commission would not be reduced by any
discount provided by Maier to any customer on any such
sale and, in the event their agreement was terminated,
ISMS would be given 6 months to register and close
deals.
(Pl.’s Proposed Stmt. Facts, Doc. #75, ¶ 12.)
ISMS has failed to meet its burden of showing that the
parties agreed to terms as ISMS describes them.

See Elec.

Contractors, Inc. v. Pike Co., No. 3:11-CV-01449 (JAM), 2015 WL
3453348, at *13 (D. Conn. May 29, 2015) (citing Madigan v. Hous.
Auth. of Town of E. Hartford, 156 Conn. App. 339 (2015))
(“[Plaintiff] bears the burden to prove its breach of contract
claim by a preponderance of the evidence.”).
Considering the evidence presented at trial, I find that the
parties entered into an oral agreement whereby ISMS would market,
promote, and sell Maier machines and ancillary equipment in the
six New England states.

ISMS would be the exclusive distributor
8

in this territory, with the exception of Maier’s house account
with Alpha Grainger.12

ISMS would receive commission at a rate of

10% of the sales price of Maier-supplied products and 5% of the
sales price of ancillary equipment, net of any discounts given to
the customer.13

There was no term to the agreement and either

party could terminate it at any time.

Maier paid ISMS

commissions in accordance with this structure and ISMS never
complained that the payments were incorrect.
insufficient evidence to prove otherwise.

There is

Based on the

foregoing, ISMS has failed to prove by a preponderance of the
evidence that Maier breached the terms of the parties’ agreement.
B. Breach of Implied Covenant of Good Faith and Fair
Dealing
“[E]very contract imposes upon each party a duty of good
faith and fair dealing in its performance and its enforcement.”
De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn.
12

Schuld testified that despite being a house account, Maier
agreed to pay ISMS 10% commission on any direct sales Maier made
to Alpha Grainger. (Tr. 12/17/15 AM, pp. 25, 40, 100-01.) The
court finds Maier’s testimony more credible that he “was very
clear” that “nobody got anything from Alpha Grainger” because of
Maier’s longstanding relationship with the owner. (Tr. 12/17/15
PM, pp. 74-75.)
13
Despite the parties’ intention to model their agreement on
the Tornos contract, Schuld testified that Kucharski agreed ISMS
would receive a 10% straight commission on all sales, including
ancillary items, and that ISMS would not “share in the
discounting” of machines. (Tr. 12/17/15 AM, pp. 19-20, 90, 104.)
Schuld admitted that this is inconsistent with the Tornos
agreement. (Tr. 12/17/15 AM, pp. 88, 105, 108.) The evidence is
insufficient to support Schuld’s contention that Maier agreed to
this commission structure.
9

424, 432 (2004) (internal quotation marks omitted).

The covenant

of good faith and fair dealing requires that “neither party do
anything that will injure the right of the other to receive the
benefits of the agreement.”
(1992).

Habetz v. Condon, 224 Conn. 231, 238

To recover on a claim of breach of the implied covenant

of good faith and fair dealing,
the plaintiff must plead: (1) that the plaintiff and
the defendant were parties to a contract under which
the plaintiff reasonably expected to receive certain
benefits; (2) that the defendant engaged in conduct
that injured the plaintiff’s right to receive benefits
it reasonably expected to receive under the contract;
and (3) that when committing the acts by which it
injured the plaintiff’s right to receive under the
contract, the defendant was acting in bad faith
Capitol Food Mart, Inc. v. Capital Donuts, LLC, No. HHD-CV116022952, 2012 WL 432526, at *1 (Conn. Super. Ct. Jan. 18,
2012).
ISMS argues that Maier acted in bad faith by making direct
sales to customers in ISMS’s exclusive territory, which deprived
ISMS of the commissions it expected to receive under the
agreement.

Specifically, ISMS contends that it is owed

commission payments for Maier’s two direct sales to Alpha
Grainger, as well as three other direct sales Maier made to New
England companies after Kucharski opened ISMS’s exclusive
territory.

ISMS has failed to prove its claim.

Maier’s direct

sales to Alpha Grainger were excluded from ISMS’s exclusive sales
territory and thus, Maier was not required to pay ISMS
10

commissions for the sales Maier made there.

As for the three

direct sales Maier made after February 2010, ISMS has offered no
persuasive evidence that it is entitled to commissions.14
ISMS additionally argues that Maier breached the implied
covenant by terminating ISMS’s exclusive territory without notice
or cause.

The evidence shows, however, that either party could

terminate the agreement at any time.
C. CUTPA
“[A] violation of CUTPA may be established by showing either
an actual deceptive practice or a practice amounting to a
violation of public policy.”
Conn. App. 810, 819 (1992).

Vezina v. Nautilus Pools, Inc., 27
When determining whether a practice

violates CUTPA, Connecticut courts consider
(1) whether the practice . . . offends public policy as
it has been established by statutes, the common law, or
otherwise . . . (2) whether it is immoral, unethical,
oppressive, or unscrupulous; [or] (3) whether it causes
substantial injury to consumers . . . . [A] violation
of CUTPA may be established by showing either an actual
deceptive practice . . . or a practice amounting to a
violation of public policy.
Kosiorek v. Smigelski, 138 Conn. App. 695, 711 (2012) (internal
quotation marks omitted).
ISMS argues that Maier violated CUTPA by (1) failing to
disclose to ISMS that it made direct sales of its machines to
14

Schuld testified that ISMS was not involved in making these
sales, nor did Schuld know the dates they were made. (Tr.
12/17/15 PM, pp. 20-26, 35-39.) ISMS never registered leads with
these companies, nor did he ask Kucharski to place them on a
protected list. (Tr. 12/16/15 PM, pp. 38-40, 47, 49.)
11

customers in ISMS’s exclusive territory; (2) intentionally
withholding from ISMS copies of purchase orders, price quotes,
order confirmations, and invoices for the sales ISMS made; and
(3) opening ISMS’s exclusive territory to other distributors
based on Kucharski’s personal sentiments toward Schuld.
ISMS has failed to prove that Maier engaged in any conduct
violative of CUTPA.

First, the parties agreed that ISMS would

not receive commission on Maier’s direct sales to Alpha Grainger.
As to sales after Kucharski terminated ISMS’s exclusive
territory, ISMS could register leads and add customers to a
protected list, preventing any other distributors from soliciting
sales there.

ISMS did not do so.

ISMS also has failed to show

that Maier intentionally withheld purchase orders, price quotes,
order confirmations, and invoices in order to prevent ISMS from
calculating commissions.

Lastly, because either party could

terminate the agreement at any time, ISMS has not established
that Maier violated CUTPA by opening ISMS’s exclusive territory
based on Kucharski’s personal feelings toward Schuld.
D. Promissory Estoppel
“Under the doctrine of promissory estoppel, [a] promise
which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and
which does induce such action or forbearance is binding if
injustice can be avoided only by enforcement of the promise.
12

A

fundamental element of promissory estoppel . . . is the existence
of a clear and definite promise which a promisor could reasonably
have expected to induce reliance.”

D’Ulisse-Cupo v. Bd. of Dir.

of Notre Dame High Sch., 202 Conn. 206, 213 (1987) (internal
quotation marks omitted).

“[P]romissory estoppel serves as an

alternative basis to enforce a contract.”

Torringford Farms

Ass’n, Inc. v. City of Torrington, 75 Conn. App. 570, 576 (2003).
ISMS asserts that it relied to its detriment on Maier’s
promises that ISMS would be the exclusive distributor of Maier
machines in the New England territory; that it would receive a
straight 10% commission on the sale of every Maier machine and
ancillary part sold in the territory; that it would be reimbursed
for marketing expenses; and that it would not be terminated as an
exclusive distributor except upon reasonable notice and for just
cause.

ISMS has not offered sufficient evidence to support a

finding that Maier made any such clear and definite promises.
E. Unjust Enrichment
“Unjust enrichment applies whenever justice requires
compensation to be given for property or services rendered under
a contract, and no remedy is available by an action on the
contract.”

Gagne v. Vaccaro, 255 Conn. 390, 401 (2001) (internal

quotation marks omitted).

“Plaintiffs seeking recovery for

unjust enrichment must prove (1) that the defendants were
benefited, (2) that the defendants unjustly did not pay the
13

plaintiffs for the benefits, and (3) that the failure of payment
was to the plaintiffs’ detriment.”

Hartford Whalers Hockey Club

v. Uniroyal Goodrich Tire Co., 231 Conn. 276, 283 (1994)
(internal quotations omitted).

“Proof of a contract enforceable

at law precludes the equitable remedy of unjust enrichment . . .
at least in the absence of a breach of contract by the
defendant.”

Polverari v. Peatt, 29 Conn. App. 191, 199, 614 A.2d

484, 489 (1992) (citations omitted).
ISMS argues that Maier has been unjustly enriched by not
paying ISMS a straight 10% commission on sales made to customers
in ISMS’s exclusive territory.

The evidence reflects that the

parties had an enforceable contract pursuant to which Maier paid
ISMS for the benefits Maier received.

As such, ISMS’s unjust

enrichment claim fails.
III. Conclusion
Judgment shall enter in favor of defendant Maier on all
counts.

This is not a recommended ruling.

The parties have

consented to trial before a magistrate judge pursuant to 28
U.S.C. § 636(c) and Fed.R.Civ.P. 73. (Doc. #55.)
SO ORDERED at Hartford, Connecticut this 31st day of March,
2016.
_________/s/___________________
Donna F. Martinez
United States Magistrate Judge

14