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From Antitrust Law Daily, October 20, 2017

Suit against bakery for sabotaging distribution contract barred by statute of limitations

By Robert B. Barnett Jr., J.D.

A breach of contract and tortious interference suit alleging that a Pennsylvania bakery engaged in a scheme to sabotage a distribution contract so that it could sign a cheaper agreement with a different distributor was dismissed in its entirety, where the individual owner’s claims were dismissed because he was not the real party in interest and the corporate distribution entity’s claims were barred by the statute of limitations, a Chicago federal district court has ruled. Although Illinois has a 10-year statute of limitations for written contracts, an exception to that rule—a four-year statute of limitations for "transactions in goods"—applied because a distribution contract is primarily one for goods rather services (Heiman v. Bimbo Foods Bakeries Distribution Co., October 18, 2017, Shah, M.).

Background. In October 2000, John Heiman, an Illinois resident, entered into a contract with Bimbo Food Bakeries Distribution Company f/k/a Bestfoods Baking Distribution Co., a Pennsylvania company, to distribute Bimbo’s baked goods in the Chicago area. Heiman then assigned his contract to JTE, Inc., a company that he founded and owned. JTE, therefore, would actually distribute the baked goods. The distribution contract distinguished between curable and non-curable breaches. Non-curable breaches (criminal conduct, fraud, etc.) permitted the non-breaching party to terminate the contract. Under the contract, repeated curable breaches could be treated by the non-breaching party as a non-curable breach.

In 2008, according to JTE, Bimbo began fabricating a series of curable breaches, such as by making false reports of poor service and out-of-stock product at stores. For example, at one point, a Bimbo employee was caught pushing Bimbo products aside on a store shelf and then photographing the now-empty shelf to make it appear as if JTE had failed to supply sufficient product. According to JTE, Bimbo was fabricating these curable breaches in order to intimidate distributors into selling their distribution routes to new distributors, who would accept an 18 percent commission rather than the 22 percent commission that the existing distribution contracts allowed. In January 2011, after JTE refused to sell its distribution rights, Bimbo terminated the contract, citing multiple curable breaches. As a result, JTE ultimately sold its distribution rights at (according to JTE) below fair market value, and, in 2014, JTE was dissolved. On May 30, 2017, Heiman and JTE filed suit in Illinois federal court against Bimbo alleging breach of contract and tortious interference. Bimbo filed a motion to dismiss, arguing that the individual lacked standing and that JTE’s claims were barred by the statute of limitations.

Standing. Bimbo’s argument that the individual lacked standing, the court said, was misplaced. The real issue was not whether he satisfied the Article III requirements but rather whether he was the real party in interest. Federal Rules of Civil Procedure Rule 17 requires that an action be prosecuted in the name of the real party in interest. An individual who owns the corporation may sue in his personal capacity only if he suffers a "distinct persona injury," which did not occur in this case. JTE, therefore, because the contract was assigned to it, was the real party in interest. The fact that JTE was dissolved in 2014 was irrelevant. Under Illinois law, a dissolved corporation may sue and be sued (805 ILCS 5/12.30). All claims, therefore, brought in the individual’s name were dismissed.

Statute of limitations. JTE argued that the statute of limitations began to run when it discovered the extent of Bimbo’s allegedly underhanded actions in 2013 or 2014. The court, however, rejected that argument, noting that the discovery in 2013 or 2014 involved only the extent of the breach not the existence of it. The statute of limitations began to run, the court said, in January 2011 when Bimbo terminated the contract. The complaint alleged one count in contract (breach) and one in tort (tortious interference). Taking the contract claim first, the court noted that Illinois has a 10-year statute of limitations for breach of written contracts (735 ILCS 5/13-206). An exception exists, however, for "transactions in goods," which are governed by the UCC"s four-year statute of limitations (810 ILCS 5/2-725). Where a contract involved both goods and services (JTE was also contractually obligated to market products, develop customer relationships, and provide customer service), the court will look to the contract’s predominant purpose to determine whether it is a contract for goods or a contract for services. Under these facts, the court concluded that the contract’s predominant purpose was the sale of goods. The services that JTE provided were merely centered around selling the goods. Thus, the four-year statute of limitations applied. Because the action was filed more than six years after the action arose, the contract claim was dismissed.

Turning to the tort claim, the court noted that tortious interference claims in Illinois are subject to a five-year statute of limitations (735 IFCS 5/13/205). Under Illinois law, the claim arises when the plaintiff knew or should have known that he was injured. A reasonable person, the court said, under these facts would have realized that he was injured on the date that Bimbo terminated the contract in January 2011. As a result, the tort claim was also time-barred because it was filed more than six years after the claim arose.

The court, therefore, granted Bimbo’s motion to dismiss with prejudice.

The case is No. 17 CV 4065.

Attorneys: Peter Joseph Evans (Patterson Law Firm LLC) for John Heiman and JTE, Inc. Stephanie L. Sweitzer (Morgan, Lewis & Bockius LLP) for Bimbo Foods Bakeries Distribution Co. d/b/a Bestfoods Baking Distribution Co.

Companies: JTE, Inc.; Bimbo Foods Bakeries Distribution Co. d/b/a Bestfoods Baking Distribution Co.

MainStory: TopStory FranchisingDistribution IllinoisNews

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