Foodmark, Inc. v. Alasko Foods, Inc.

Filing 47

Judge Douglas P. Woodlock: MEMORANDUM AND ORDER entered granting 30 Motion for Summary Judgment as to damages. The Clerk is directed to enter judgment for the Plaintiff in the amount of $1,101,275.45 with prejudgment interest from January 15, 2012. (Woodlock, Douglas)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
FOODMARK, INC.,
Plaintiff,
v.
ALASKO FROZEN FOODS, INC.,
Defendant.

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CIVIL ACTION NO.
12-10837-DPW

MEMORANDUM AND ORDER
September 12, 2013
Foodmark brought this action for breach of contract under
Quebec law alleging that Alasko Frozen Foods has refused to pay
fees it owes for terminating the parties’ Agreement.

I have

granted Foodmark summary judgment as to liability, Foodmark, Inc.
v. Alasko Frozen Foods, Inc., 2013 WL 1285539 (D. Mass. Mar. 26,
2013), and directed the parties to submit further briefing on the
remaining issues of damages and the proper meaning of Section
10(f) for calculating the termination fee under the Agreement.
Id. at *9.

Section 10(f) entitles Foodmark to a termination fee

calculated as a certain percentage of the annualized net invoice
sales for the last 13-week period of the term of the agreement
for accounts that Foodmark manages.
First, Foodmark argues that it managed Alasko’s relationship
with Sam’s Club, whose invoice sales are the basis for
termination fees.

Second, it argues that the relevant time

period for calculating the annualized damages under the Agreement

is the 13-week period preceding the effective date of
termination, January 15, 2012.

Ultimately, it contends that the

appropriate damages calculation based on this time period amounts
to $1,101,275.45.
Alasko’s opposition challenges only the first argument that the Sam’s Club account qualifies as an “account[] managed by
[Foodmark].”

It does not challenge either Foodmark’s proposed

interpretation of “the last 13-week period of the term” or
Foodmark’s methodology for calculating damages based on that
interpretation.

But Alasko does argue Sam’s Club invoice sales

should not be included in the formula.

It further argues in the

alternative that requested damages should be reduced based on
partial performance.
I will grant Foodmark’s motion for summary judgment.
I.

BACKGROUND

Foodmark and Alasko entered into a Sales Management
Agreement on June 20, 2007, under which Foodmark would provide
private label sales management for Alasko in the United States in
exchange for a management fee and broker commission, both based
on percentages of total net sales of Alasko products in the
United States.

The Agreement provides that it “will be governed

by the laws of the Province of Quebec,” (Agreement § 15), and
Massachusetts choice of law rules permit parties to choose the
law governing their Agreement, see, e.g., Morris v. Watsco, Inc.,

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433 N.E.2d 886, 888 (Mass. 1982) (“Massachusetts law has
recognized, within reason, the right of the parties to a
transaction to select the law governing their relationship.”).
will continue to honor that Agreement here.

I

See Foodmark, 2013

WL 1285539 at *7-9.
Section 1 of the Agreement states that “[Alasko] agrees to
engage and establish [Foodmark] as its exclusive private label
sales management team” for the United States territory.
(Agreement § 1.)

In relevant part, the Agreement assigns

Foodmark responsibility for “manag[ing] and/or appoint[ing]
brokers and insur[ing] that the product line is presented to the
specified Target Accounts.”

(Agreement § 5 (c).)

It assigns

Alasko responsibility for “pay[ing] to all brokers, the Broker
Commissions.”

(Agreement § 7(f).)

As originally agreed upon,

the management fee was 5% of net invoice sales and the broker
commission was 3% of net invoice sales.

(Agreement § 7(a)-(b).)

Foodmark identified TBG, a broker with connections to Sam’s
Club, and introduced it to Alasko.

In late July 2009, Alasko

entered into its first agreement for distribution in the United
States through Wal-Mart/Sam’s Club.

As of one month later, in

August 2009, Alasko contracted directly with TBG as broker for
its relationship with Sam’s Club, calling the contract a
“Brokerage Agreement.”

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The parties dispute the extent of Foodmark’s role in
obtaining this arrangement with Sam’s Club.

Foodmark contends

that it actively managed Alasko’s relationship with TBG and Sam’s
Club, including reviewing agreements, reviewing packaging for the
product, and mediating a dispute involving TBG.

Alasko contends,

and TBG agrees, that Foodmark played no role in the Sam’s Club
account whatsoever other than to introduce Alasko to TBG.

In any

event, on October 10, 2009, Foodmark and Alasko executed an
amendment to their Agreement, reducing the amount of Foodmark’s
management fees.

(Foodmark 56.1 ¶ 12.)

That amendment reads,

As per discussions between Lee Gavris and Frank Scarfo,
we have agreed to a combined 5% management and broker
commission for Sam’s. This is contrary to the original
agreement of %5 management and 3% broker commissions as
stated in Sections 7a and 7b.
Foodmark has agreed to pay the broker 3% for the first
year. This is the extent of the contract [Alasko] has
with TBG. However, at the start of year 2 (i.e. the
end of TBG’s first year contract), [Foodmark] has the
right to change TBG’s commission structure, per Frank
Scarfo’s and Lee Gavriss [sic] discussion.
After a private equity firm acquired Alasko in 2010, Alasko
advised Foodmark not to perform any further work under the
agreement pending Alasko’s reevaluation of its U.S. strategy.
Foodmark accordingly ceased all work under the Agreement after
July 2010.

On October 17, 2011, Alasko notified Foodmark by

letter that it would terminate the Agreement.

The effective date

of that termination was January 15, 2012 as dictated by the
Agreement’s 90-day notice requirement.
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(See Agreement § 11.)

Section 10(f) of the Agreement governs termination during
the third term of the Agreement - the term relevant to this
action.

The termination fee provision reads,

[Alasko] will be obligated to pay to [Foodmark] fees
based on the net invoice sales for the last 13-week
period of the term, annualized, for accounts managed by
[Foodmark]; the fee schedule is as follows:
Sales
#$10 million
>$10 million - #$25 million
>$25 million
(Agreement § 10(f) (emphasis added).)

Percentage
10%
8%
6%

The Agreement does not

specifically define “accounts managed by [Foodmark]” or the term
“manage.”

However, it does distinguish between management

services and broker services, including separate responsibilities
for compensating each.

(See, e.g., Agreement § 7(a)-(b).)

Alasko continued to pay Foodmark the contractual management
fee through the effective termination date, January 15, 2012.
The amount of the undisputed net invoice sales that Alasko
obtained from Sam’s Club and management fees that Alasko paid to
Foodmark during the last 13 weeks of the Agreement are as
follows:

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Time Period

Net Invoice Sales to
Sam’s Club

Management Fee Paid
to Foodmark

10/16/11 - 10/29/11

$515,311.55

$10,306.23

10/30/11 - 11/26/11

$690,358.75

$13,807.18

11/27/11 - 12/24/11

$1,189,885.42

$23,797.71

12/25/11 - 01/15/12

$420,930.05

$8,418.60

TOTAL

$2,816,485.77

$56,329.72

According to the applicable formula set out in Section 10(f),
Foodmark would be entitled to a percentage of the annualized net
invoice sales for this 13-week period.

The annualized value -

found by multiplying the 13-week total ($2,816,485.77) by four equals $11,265,943.08.

Foodmark is entitled to 10% of the first

$10 million - amounting to $1 million - and 8% of the balance up
to $25 million.

In this case, 8% of the $1,265,943.08 balance

equals $101,275.45.

Thus, according to Foodmark’s undisputed

calculation of the termination fee, if applicable, Alasko owes
Foodmark $1,101,275.45 plus interest.

To date, Alasko has not

paid Foodmark the termination fee under any calculation.

Whether

the termination fee is applicable turns on whether the Sam’s Club
business constitutes “an account managed by [Foodmark].”
II.

STANDARD OF REVIEW

Although the parties have agreed that Quebec substantive
contract law should govern the Agreement, federal law governs the
procedural aspects of this case.

Servicios Commerciales Andinos,
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S.A. v. General Elec. Del Caribe, Inc., 145 F.3d 463, 479-80 (1st
Cir. 1998).

Under federal law, a movant is entitled to summary

judgment when “there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a).

“A dispute is genuine if the evidence

about the fact is such that a reasonable jury could resolve the
point in the favor of the non-moving party,” and “[a] fact is
material if it has the potential of determining the outcome of
the litigation.”

Farmers Ins. Exch. v. RNK, Inc., 632 F.3d 777,

782 (1st Cir. 2011) (citation omitted).
I “view the facts in the light most favorable to the party
opposing summary judgment.”
10 (1st Cir. 2011).

Rivera–Colón v. Mills, 635 F.3d 9,

However, “conclusory allegations, improbable

inferences, and unsupported speculation” are insufficient to
create a genuine issue of material fact to survive summary
judgment.

Sullivan v. City of Springfield, 561 F.3d 7, 14 (1st

Cir. 2009) (quotation and citation omitted).
III. DISCUSSION
In its summary judgment briefing regarding liability and at
the summary judgment motion hearing, Alasko hinted that it might
not agree with Foodmark’s interpretation of which time period the
Agreement contemplates when it states that the termination fee
will be based on “net invoice sales for the last 13-week period
of the term.”

(Agreement § 10(f).)
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However, Alasko does not

oppose Foodmark’s current summary judgment motion as to damages
on this basis, nor does Alasko dispute any of the damage
calculations Foodmark included in its Rule 56.1 statement in
support of this motion.

I will therefore treat these facts as

admitted, the argument as undisputed, and I turn directly to the
crux of the dispute on this motion - whether Alasko’s
relationship with Sam’s Club constitutes an “account[] managed by
[Foodmark].”
A.

“Managed” Under § 10(f)
Both parties offer extrinsic authority for the definition of

“managed,” which the Agreement does not expressly define.
However, the issue is not so complicated.

It is neither

necessary nor appropriate to resort to extrinsic evidence to
construe the meaning of “accounts managed by [Foodmark]” because
the contract is sufficiently clear regarding Foodmark’s
responsibilities.

See St. Lawrence College of Applied Arts &

Tech. v. Canada, 2009 CarswellNat 1735, 2009 FC 545 at 16.
“Extrinsic evidence of the parties’ intentions is not relevant to
interpreting a contract where, when viewed objectively, the
language of the agreement is sufficiently clear.”

Id. (citing

Gilchrist v. Western Star Trucks Inc., 2000 BCCA 70, 73 B.C.L.R.
(3d) 102, at 108).
The Agreement states that Foodmark will be the “exclusive
private label sales management team” for Alasko.
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(Agreement §

1.)

One of its six enumerated responsibilities is “[t]o manage

and/or appoint brokers and insure that the product line is
presented to the specified Target Accounts.”

(Agreement § 5(c).)

There is no dispute that Foodmark introduced the broker, TBG, to
Alakso in order to insure that Alasko’s products would be
presented to Sam’s Club - one of the accounts the Agreement
targeted.

Whatever else the definition of management might

include, the contract specifically contemplates broker
appointments as part of Foodmark’s managerial responsibilities.
Because this kind of introduction is one of Foodmark’s
specifically enumerated responsibilities under its “Sales
Management Agreement,” the Sam’s Club account that resulted from
the introduction is logically one under Foodmark’s management,
regardless of the level of Foodmark’s subsequent involvement.
The fact that Alasko contracted directly with TBG after the
introduction neither alters this conclusion nor is it surprising
given the language and responsibilities under the Agreement.

The

Agreement specifically assigns Alasko responsibility for paying
the broker.

(Agreement § 6(f).)

Therefore, the direct payment

and contractual relationship between Alasko and TBG is consistent
with the Foodmark Sales Management Agreement and is not evidence
that the broker arrangement falls outside the ambit of the
Management Agreement.

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In fact, the direct contract between Alasko and TBG provides
further support for the proposition that the Sam’s Club account
falls under Foodmark’s management.

Under the Civil Code of

Quebec, S.Q. 1991 c.64 § 1427, “[e]ach clause of a contract is
interpreted in the light of the others so that each is given the
meaning derived from the contract as a whole.”

The agreement

between Alasko and TBG is titled “Brokerage Agreement” and never
once uses the terms “manage” or “management.”

This is consistent

with and corroborates the division of authority that the Foodmark
Agreement contemplates between management (by Foodmark) and
brokering (by whatever broker Foodmark appoints, in this case:
TBG).

Because the Foodmark Agreement specifically contemplates

separate managers and brokers, the presence of a separate
brokerage agreement with TBG cannot and does not - as Alasko
contends - vitiate Foodmark’s position as the manager.
Moreover, the addendum that Foodmark and Alasko executed in
October 2009 is consistent with Foodmark’s management of the
Sam’s Club account and inconsistent with the idea that TBG’s
presence and activities take the arrangement outside the ambit of
the Foodmark Agreement.

Although Alasko argues that this

amendment is evidence that the Sam’s Club account was not under
Foodmark’s management, the plain language of the addendum
indicates otherwise.

It states that the parties had originally

“agreed to a “5% management and 3% broker commission[],” but

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during subsequent negotiations agreed to change that arrangement
to

“a combined 5% management and broker commission for Sam’s

[Club],” part of which Foodmark would pay to TBG.

Thus, the

parties agreed that Foodmark would be entitled to management fees
for the Sam’s Club account.

Although Alasko argues that the

addendum reduces Foodmark’s fee in recognition of its more
limited role,1 it nevertheless confirms that the Sam’s Club
account falls under its management responsibilities.

Foodmark

disputes Alasko’s characterization of the motivation for the
addendum, arguing that the parties altered the management and
broker commissions to accommodate Alasko’s tighter-than-expected
margins.

Foodmark offers an email in which Lee Gavris of

Foodmark wrote to Frank Scarfo of Alasko stating “I said we’d try
to work on 5% for both [Foodmark] and broker, not the quoted 8%
(5+3) since you told me margins are tighter . . . .”

However,

this dispute over motivation is not material to this motion for
summary judgment because the undisputed plain language does not
contradict Foodmark’s management role, as Alasko argues.
The addendum also forecloses any argument that TBG’s
expanded brokerage role vitiates Foodmark’s role as manager.
Under the addendum, Foodmark bears responsibility for paying TBG
and retains the right to change TBG’s commission at the end of

1

Alasko offers no evidence for this purported motivation behind
the addendum other than the evidence it offers for the general
proposition that Foodmark had no role in managing the account.
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the first year.

Thus, the addendum underscores the continuation

of Foodmark’s managerial position, even if the reduction in
commission reflects a corresponding reduction in actual
operational responsibilities.
Finally, and perhaps most notably, Alasko consistently paid
Foodmark the contractual management fees based on the same net
invoice sales from the Sam’s Club account that are also the basis
for the termination fee calculation.

Section 7(a) of the

Agreement requires Alasko to pay Foodmark a percentage of net
invoice sales for all products.

Alasko does not dispute that it

continued to pay the Section 7(a) “management fee” throughout the
course of the Agreement based on sales to Sam’s Club.

Section

10(f) also sets forth its fee as a percentage of net invoice
sales, describing them as “accounts managed by [Foodmark].”

The

parties’ course of dealing indicates that the Sam’s Club account
falls within the Foodmark Agreement.

See Civil Code of Quebec,

S.Q. 1991 c.64 § 1426 (“In interpreting a contract, the
circumstances in which it was framed, the interpretation which
has already been given it by the parties or which it may have
received and usage, are all taken into account.”).

A consistent

reading of the word “manage” in its various iterations including
as “management fee” counsels in favor of treating the management
activities of Foodmark for purposes of the termination fee the
same as for receipt of compensation for management services.

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The

Sam’s Club account therefore also falls within the Agreement for
purposes of the termination fee, based on the same net invoice
sales.
Although Alasko argues that the management fees under
Section 7(a) of the Agreement are not limited to accounts that
Foodmark managed as the 10(f) termination fee is, but rather also
include net invoices for U.S. accounts that Foodmark did not
manage, this position cannot be reconciled with the Agreement as
a whole.

See Civil Code of Quebec, S.Q. 1991 c.64 § 1427.

Section 1 of the Agreement provides that Foodmark will be
Alasko’s exclusive manager in the U.S. territory.

Any U.S.

accounts would fall under its management or else be a breach of
the Agreement.

Therefore, the distinction Alasko attempts to

draw between accounts for which it paid management fees to
Foodmark and accounts Foodmark managed does not comport with the
plain meaning of the Agreement, taken as a whole.
B.

Reduction for Partial Performance
The law of Quebec permits a court to reduce the amount of

recovery under a liquidated damages clause if the clause is
abusive or for partial performance.

Civil Code of Quebec, S.Q.

1991, c. 64, s. 1623 (“A creditor who avails himself of a penal
clause is entitled to the amount of the stipulated penalty
without having to prove the injury he has suffered.

However, the

amount of the stipulated penalty may be reduced if the creditor

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has benefited [sic] from partial performance of the obligation or
if the clause is abusive.”).

Foodmark provided no response to

Alasko’s request for a reduction in damages in its briefing,
after the discussion of the motion hearing in which I raised this
issue, however, I conclude that no reduction is appropriate.
Alasko argues that I should reduce the amount of the
liquidated damages to reflect the approximately $200,000 Alasko
has already paid to Foodmark in management fees.

However, this

kind of reduction is unrelated to any partial performance of the
termination fee itself.

The Agreement separately provides for

the management fees and the termination fee and the separate
formulae for calculating each.

Alasko apparently urges the court

to reduce the penalty, not because the creditor has benefitted
from partial performance, but because the debtor asked the
creditor to stop performing.
support of this position.

It has offered no authority in

Nor, except in service of an illusory

mathematical parity, is there any grounds for reducing the
termination fee pro tanto to reflect the parties’ amendment
regarding reduction in management fees.

The two formulae are not

linked under the original agreement and the amendment to the
management fees calculus did not link them either.
Considered more broadly, it is evident the Agreement
automatically renews for successive three-year terms unless one
party elects to terminate as Alasko did in this case.

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The

management services and management fees are, of course, part of
the consideration under the Agreement, but the office of the
renewal provision is to make the prospect of renewal a
distinguishable aspect of the consideration.

The termination fee

not only compensates Foodmark for lost revenue under the existing
term, but also for lost revenue it might have received but for
Alasko’s decision not to renew the contract.

The termination fee

provides Alasko the opportunity to end the Agreement and prevent
future successive terms in exchange for a termination fee.
Alasko undertook obligations in exchange for Foodmark’s
management of the Sam’s Club account, but it has not performed in part or in whole - its obligation to pay a termination fee
arising from its election not to renew the Agreement.
When Alasko terminated the Agreement effective January 15,
2012, the then-current term was set to expire on May 9, 2012,
leaving nearly four months of the contact unperformed.

Although

Foodmark may have received appropriate partial performance for
the management fees generated on the then-existing three year
term, it has not received any payment for damages incurred as a
result of the Agreement’s non-renewal for the then-current and
potentially further terms, which the Termination Fee is designed
to address.

I decline to reduce the amount of the Termination

Fee.

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IV.

CONCLUSION

For the foregoing reasons, I grant Plaintiff’s motion for
summary judgment (Dkt. 30) with respect to damages.

I direct the

Clerk to enter judgment for the Plaintiff in the amount of
$1,101,275.45 together with prejudgment interest from January 15,
2012.

/s/ Douglas P. Woodlock
DOUGLAS P. WOODLOCK
UNITED STATES DISTRICT JUDGE

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