Martin v. Bimbo Food Bakeries Distribution, Inc.

Filing 53

ORDER denying 46 Motion for Summary Judgment. Signed by Senior Judge W. Earl Britt on 4/23/2015. (Marsh, K)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
NO. 5:14-CV-17-BR
JOHN T. MARTIN,
Plaintiff,
v.
BIMBO FOODS BAKERIES
DISTRIBUTION, INC.; f/k/a
GEORGE WESTON BAKERIES
DISTRIBUTION, INC.,

ORDER

Defendant.

This matter comes before the court on defendant Bimbo Foods Bakeries Distribution,
Inc., f/k/a George Weston Bakeries Distribution, Inc.’s (“defendant” or “BFBD”) motion for
summary judgment. (DE # 46.) Plaintiff John T. Martin (“plaintiff” or “Martin”) filed a
response, (DE # 49), to which defendant replied, (DE # 50). This matter is ripe for disposition.
I. BACKGROUND
In 2006, for $108,000, Martin, as an “independent operator,” purchased a distribution
route which granted him exclusive rights to purchase bakery products from BFBD and sell those
products to grocery store chains and independent grocers in a designated area. (Compl., DE # 11, ¶¶ 6, 8.) 1 Around the same time, the parties entered into a Distribution Agreement
(“Agreement”) which governed their relationship. (Id. ¶ 5 & Ex. 1.)
As an independent operator (“IO”), Martin’s income was based on the difference —
referred to as the “margin” or “spread” — between the price at which he purchased and sold
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Plaintiff’s complaint is verified. Therefore, it may be considered in resolving defendant’s motion for summary
judgment. See Williams v. Griffin, 952 F.2d 820, 823 (4th Cir. 1991) (“[A] verified complaint is the equivalent of
an opposing affidavit for summary judgment purposes, when the allegations contained therein are based on personal
knowledge.” (citations omitted)).

BFBD’s bakery products. (Id. ¶ 8; Vickers Decl., DE # 24, ¶ 9.) In June of 2013, BFBD
informed Martin and other local IOs that it was increasing the price at which it sold them certain
products, which had the effect of decreasing the margins that IOs earned on the resale of those
products. (Compl., DE # 1-1, ¶ 10; Barnes Decl., DE # 20, ¶¶ 10, 14.) Martin and most of the
other IOs “united in an effort to fight the Defendant’s effort to unilaterally reduce margins.”
(Compl., DE # 1-1, ¶ 12.) A committee of six IOs was formed to communicate and negotiate
with BFBD about the reduced margins. (Id.) Martin was one of the committee members and
took an active role in the committee. (Id. ¶¶ 12, 18; Def.’s Mem., DE # 47, at 5 (defendant
stating, “It is undisputed that Plaintiff vocally disagreed with [the] change in pricing.”)). Various
forms of communication between the committee, its counsel, representatives of BFBD, and
defense counsel occurred. (Compl., DE # 1-1, ¶¶ 14-16.) The negotiations failed to produce the
result that Martin and the other IOs sought. (Id. ¶ 15.)
In the meantime, Martin continued to operate his distribution route. (Id. ¶ 20.) On 21
December 2013, Brant Vickers, BFBD’s sales representative, delivered to Martin a document
entitled “Notice of Termination of Distribution Agreement.” (Id. ¶ 24 & Ex. 5.) In that
document, BFBD informed Martin that it recently discovered that he had “engaged in a practice
of ‘flushing’ product by creating false sales and ‘buyback’ invoices,” for which he received
approximately $2,500 to which he was not entitled. (Id., Ex. 5.) According to the document,
such fraudulent conduct constitutes a “material and noncurable breach” of the Agreement. (Id.)
The document also refers to other “material violations” of the Agreement, which constitute a
“chronic breach” of the Agreement. (Id.) BFBD terminated the Agreement effective
immediately. (Id.)

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On 8 January 2014, Martin filed the instant complaint in state court, asserting claims for
breach of contract, fraud, and unfair and deceptive trade practices under Chapter 75 of the North
Carolina General Statutes. Martin sought injunctive and compensatory relief, including punitive
damages. On 9 January 2014, BFBD removed the action to this court. (DE # 1.) On 30 May
2014, the court denied Martin’s motion for a preliminary injunction. (DE # 40.) Subsequently,
the court granted in part BFBD’s Rule 12(b)(6) motion, dismissing Martin’s fraud claim. (DE #
41.) Now, BFBD moves for summary judgment on Martin’s two remaining claims: breach of
contract and unfair and deceptive trade practices.
II. LEGAL STANDARD
Summary judgment is proper only if “the movant shows that 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). The court must ask “‘whether reasonable jurors could find by a preponderance of the
evidence that the plaintiff is entitled to a verdict . . . .’” Maryland Highways Contractors Ass’n,
Inc. V. Maryland, 933 F.2d 1246, 1252 (4th Cir. 1991) (quoting Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 252 (1986)). Summary judgment should be granted only in those cases “in
which it is perfectly clear that no genuine issue of material fact remains unresolved and inquiry
into the facts is unnecessary to clarify the application of the law.” Haavistola v. Cmty. Fire Co.
of Rising Sun, Inc., 6 F.3d 211, 214 (4th Cir. 1993). “[T]he substantive law will identify which
facts are material. Only disputes over facts that might affect the outcome of the suit under the
governing law will properly preclude the entry of summary judgment.” Anderson, 477 U.S. at
248.
In considering a motion for summary judgment, the court is required to draw all
reasonable inferences in favor of the non-moving party and to view the facts in the light most

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favorable to the non-moving party. Id. at 255. The moving party has the burden to show an
absence of evidence to support the non-moving party’s case. Celotex Corp. v. Catrett, 477 U.S.
317, 325 (1986). The party opposing summary judgment must then demonstrate that a triable
issue of fact exists; he may not rest upon mere allegations or denials. Anderson, 477 U.S. at 248.
III. DISCUSSION
A. Breach of contract
Under Pennsylvania law, a breach of contract claim has three elements: “(1) the existence
of a contract, including its essential terms, (2) a breach of a duty imposed by the contract and (3)
resultant damages.” 2 CoreStates Bank, N.A. v. Cutillo, 723 A.2d 1053, 1058 (Pa. Super. Ct.
1999). In its motion, BFBD only challenges the second element, arguing that there is no genuine
dispute of material fact that it did not breach a duty imposed by the Agreement. It maintains that
Martin’s fraudulent activity was “the sole reason for the termination of Plaintiff’s Distribution
Agreement.” (Def.’s Mem., DE # 47, at 2.) In response, Martin contends that BFBD breached
the Agreement by terminating it in retaliation for his vocal participation in the group which
opposed BFBD’s June 2013 price increases and argues that defendant’s stated reason is
pretextual. (Pl.’s Resp., DE # 49, at 9.) 3
The Agreement permitted BFBD to terminate it in the event that Martin committed a
breach of the Agreement in a fraudulent manner. Section 8.2 of the Agreement states: “NON2

The parties included a choice of law provision in the Agreement which states, “The validity, interpretation and
performance of this Agreement shall be controlled by and construed in accordance with the laws of the
Commonwealth of Pennsylvania.” (Compl., DE # 1-1, Ex. 1, § 11.8.) Accordingly, plaintiff’s breach of contract
claim is governed by Pennsylvania law. See Tanglewood Land Co. v. Byrd, 261 S.E.2d 655, 656 (N.C. 1980)
(noting that the North Carolina Supreme Court “has held that where parties to a contract have agreed that a given
jurisdiction's substantive law shall govern the interpretation of the contract, such a contractual provision will be
given effect.”).
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Martin also contends that BFBD breached the Agreement by seizing and operating his route. (Compl., DE # 1-1, ¶
51(3).) BFBD seeks dismissal of this claim, arguing that the Agreement permitted it to operate Martin’s route upon
termination of the Agreement. (Def.’s Mem., DE # 47, at 20.) This claim is not independent of Martin’s claim that
BFBD improperly terminated the Agreement. Whether BFBD had the right to operate Martin’s route is dependent
upon whether it permissibly terminated the Agreement. Thus, these two claims rise and fall together.

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CURABLE BREACH: If the breach by DISTRIBUTOR involves . . . fraud, . . . [BFBD] may
terminate this Agreement immediately upon written notice and DISTRIBUTOR shall have no
right to cure.” (Compl., DE # 1-1, Ex. 1 (emphasis in original).)
BFBD presents evidence suggesting that Martin engaged in a fraudulent practice known
as “flushing,” which occurs in two steps. First, the IO submits a false invoice to BFBD to create
the impression that product which in fact remains on the IO’s truck was delivered and placed in a
store for sale to consumers. (Vickers Decl., DE # 24, ¶ 16.) Second, usually on the Monday of
the following week, the IO creates a false buyback invoice for the exact amount of product that
he allegedly sold. (Id. ¶¶ 16, 19.) 4 The IO can then sell that inventory to another store if it is
still fresh or return it to BFBD for full credit if it is stale. (Id. ¶ 14; Browning Decl., DE # 21, ¶
5.) At the end of each week, BFBD “settles up” with the IO and gives credit for deliveries made
and for returned products that did not sell by the “stale” date. (Vickers Decl., DE # 24, ¶ 13;
Vickers Decl., DE # 48, ¶ 8.) However, BFBD charges the IO for any unsold fresh inventory
remaining on the IO’s truck at the end of the week. (Vickers Decl., DE # 24, ¶ 14; Browning
Decl., DE # 21, ¶ 7.) Thus, “flushing” results in BFBD crediting the IO for deliveries that were
never made instead of charging the IO for fresh product that remained on the truck. 5 (Vickers
Decl., DE # 24, ¶ 25.) This practice also creates the risk that BFBD will refund the IO for a
returned stale product that was never offered for sale to consumers. (Id.; Vickers Decl., DE # 48,
¶ 16.)
On 7 December 2013, Martin generated a sales invoice and received credit for certain
products allegedly delivered to Food Lion # 1374. (Vickers Decl., DE # 24, ¶ 20 & Ex. F.)
4

BFBD permits IOs to “buy[] back fresh product from one customer to sell to another customer that has a need for
that product.” (Vickers Decl., DE # 24, ¶ 15.)
5
The grocery stores at issue in this case — known as “SBT customers” — do not pay for a delivered product until it
is bought by a consumer. However, BFBD purchases the “receivable” from the IO and credits the IO’s “settlement
account” after delivery is made. (Vickers Decl., DE # 48, ¶ 9.)

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Martin admits that he never actually placed the products at issue in that Food Lion. (Martin
Dep., DE # 50-1, at 80:17-19; 81:3-4; 90:23-91:4.) Instead, he testifies that he told his 17-yearold son to deliver the products to another Food Lion, but concedes that he does not know if his
son ever did so. (Id. at 79:19-25; 97:9-98:2.) BFBD presents evidence showing that at least
some of the inventory in question was never placed in another store. (Vickers Decl., DE # 48, ¶
17 & Ex. A.) It argues that there is no question of material fact that it terminated the Agreement
based on this fraudulent activity. (Def.’s Mem., DE # 47, at 19.) As further support for this
contention, BFBD notes that it has a “written policy that has been posted conspicuously in the
Raleigh Depot since 2009” which prohibits the practice of “flushing” product. (Id. at 17; Stanton
Dep., DE # 50-5, at 39:3-21; Vickers Decl., DE # 24, ¶ 17 & Ex. D.) Additionally, BFBD
establishes that it “has terminated at least three other Distribution Agreements in North Carolina
for the exact same practice of which Plaintiff is accused.” (Def.’s Mem., DE # 47, at 18; Vickers
Decl., DE # 24, ¶ 26 & Ex. I.)
Martin argues that there is a genuine dispute as to whether BFBD’s given reason was the
actual reason for the termination of the Agreement. (Pl.’s Resp., DE # 49, at 9.) In support of
his claim that BFBD terminated the Agreement in retaliation for his opposition to the price
increases, Martin presents two principal pieces of evidence. First, he points to the timing of the
termination. Martin notes that the Agreement was terminated “just weeks after a meeting at
which [he] fought the Defendant over its unilateral reduction in profit margins.” (Id. at 12.)
Martin testified that the meetings regarding the pricing changes ended around the beginning of
November [2013] and that the Agreement was terminated on 21 December 2013. (Martin Dep.,
DE # 49-4, at 223:11-22; Compl., DE # 1-1, Ex. 5.) Second, he notes that on 11 December 2013,

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BFBD terminated the Agreement of Richard Ramsey, who served on the same committee
opposing the price increases. (Compl., DE # 1-1, ¶ 29 & Ex. 6.)
Despite BFBD’s argument to the contrary, Martin’s evidence amounts to more than pure
speculation that BFBD’s given reason for terminating the Agreement was pretextual. While
alone the timing may not create a genuine dispute for trial, when coupled with the evidence of
the termination of Ramsey’s Agreement, a reasonable juror could find that BFBD terminated the
Agreement in retaliation for Martin’s opposition to the BFBD price increases. Cf. Hodak v.
Madison Capital Mgmt., LLC, 348 F. App’x 83, 91 (6th Cir. 2009) (denying summary judgment
where, even assuming plaintiff-employee breached a confidentiality agreement, a triable question
existed as to whether the breach was the actual reason for plaintiff’s termination); Clay v. Pa.
Coal Co., LLC, 955 F. Supp. 2d 588, 597-98 (N.D. W. Va. 2013) (applying Pennsylvania law
and denying motion to dismiss where defendants’ valid “for-cause” reason for terminating
plaintiff’s employment contract may not have been the actual reason). At the summary judgment
stage, the court will not weigh the competing evidence to determine the actual reason behind the
termination. Accordingly, it will deny summary judgment as to Martin’s breach of contract
claim. 6
B. Unfair and deceptive trade practices
For Martin to prevail on his North Carolina Unfair and Deceptive Trade Practices Act
(“UDTPA”) claim, he must prove that “(1) defendant committed an unfair or deceptive act or
6

In his brief, Martin argues that BFBD breached the implied covenant of good faith and fair dealing. (Pl.’s Resp.,
DE # 49, at 10-11.) To the extent Martin relies on this theory to support his breach of contract claim, the court will
not consider it. The court recognizes that under Pennsylvania law, Martin was not required to plead the breach of
good faith as a separate cause of action. See CRS Auto Parts, Inc. v. Nat'l Grange Mut. Ins. Co., 645 F. Supp. 2d
354, 369 (E.D. Pa. 2009) (“[A] claim for breach of a covenant of good faith and fair dealing may not be maintained
as an independent cause of action separate from the breach of contract claim.”). However, Martin impermissibly
sets out this theory in support of his breach of contract claim for the first time in response to BFBD’s summary
judgment motion. See Samosky v. United Parcel Serv., 944 F. Supp. 2d 479, 505 (S.D. W. Va. 2013) (“It is wellsettled that a plaintiff may not expand its claims to assert new theories in response to summary judgment or on
appeal.”) (internal quotation omitted).

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practice; (2) the action in question was in or affecting commerce; and (3) the act proximately
caused injury to the plaintiff.” Ellis v. Louisiana-Pac. Corp., 699 F.3d 778, 787 (4th Cir. 2012)
(internal quotation omitted). Whether an act rises to the level of unfair or deceptive is a question
of law for the court to determine. See, e.g., Tucker v. Boulevard at Piper Glen LLC, 564 S.E.2d
248, 250 (N.C. Ct. App. 2002). For an act to fall under the statute’s purview, it “must be
immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.” Kelly,
671 F. Supp. 2d at 798-99. It is well-settled that a simple breach of contract claim does not
amount to an unfair or deceptive act under the statute, “absent substantial aggravating
circumstances.” See, e.g., Gilbane Bldg. Co. v. Fed. Reserve Bank of Richmond, Charlotte
Branch, 80 F.3d 895, 903 (4th Cir. 1996) (internal quotation omitted). Aggravating factors may
be found “in the circumstances” of the breach of the contract. Bartolomeo v. S.B. Thomas, Inc.,
889 F.2d 530, 535 (4th Cir. 1989).
Martin’s UDTPA claim is based on the alleged retaliatory termination of the Agreement.
(Pl.’s Resp., DE # 49, at 17.) He contends that the termination was used to punish him and to
send a message to other IOs that any opposition to defendant’s price increases would be met with
termination of the distribution agreement. (Compl., DE # 1-1, ¶ 45.) BFBD argues that because
there is no question that it terminated the Agreement based on Martin’s fraud, his UDTPA claim
may be properly disposed of on summary judgment. (Def.’s Mem., DE # 47, at 22-23.)
Alternatively, it argues that even if plaintiff’s breach of contract claim survives, “there is
absolutely no evidence of[] any actions by BFBD that would rise to the level of a “substantially
aggravating circumstances [sic].” (Id. at 23.)
In its order granting in part BFBD’s motion to dismiss, the court found that the alleged
pretextual termination of the Agreement “may constitute a substantially aggravating

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circumstance attendant to the breach of contract.” (DE # 41, at 7.) Above, the court concluded
that a genuine dispute exists as to whether BFBD terminated the Agreement in retaliation for
Martin’s participation in the committee which opposed BFBD’s price increases. This dispute is
also central to Martin’s UDTPA claim, as it is determinative of whether substantially aggravating
circumstances attended the alleged breach of contract. Thus, summary judgment in favor of
BFBD on Martin’s UDTPA claim is improper.
IV. CONCLUSION
Based on the foregoing, defendant’s motion for summary judgment, (DE # 46), is
DENIED.
This 23 April 2015.

__________________________________
W. Earl Britt
Senior U.S. District Judge

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