Court Rejects Safeguard’s Interpretation Of Its Distributor Agreement And Grants Partial Summary Judgment In Favor of Distributor, Finding Safeguard Violated The Distributor’s Contractual Rights
By Mulcahy LLP on November 09, 2016
BOISE, IDAHO -- In a decision that should have significant contractual implications for more than 300 Safeguard distributors throughout the United States, on October 21, 2016, a state court in Boise, Idaho found that Safeguard Business Systems, Inc. had breached the account protection rights of its Idaho distributor.
Account protection rights are provided for in the distributor agreements of all Safeguard’s distributors throughout the U.S. and grant distributors the exclusive right to commissions on all sales to their “protected customers.”
Safeguard’s Idaho distributor filed suit in August 2014 against Safeguard in Boise, Idaho for breach of the account protection rights by paying commission to others on sales to the distributor’s protected customers. Safeguard refuted the distributor’s interpretation of the account protection rights and has since argued that the distributor agreement – drafted by Safeguard – is “ambiguous” and provides much narrower rights to commissions on sales to protected customers.
On October 21, 2016, Judge Steven Hippler entered partial summary judgment in favor of the distributor upholding the distributor’s interpretation of the account protection rights in the distributor agreement. The court found that, in the event one of the distributor’s protected customers purchased Safeguard products “from another source, commissions would continue to be paid to [the distributor] indefinitely.” According to the court, Safeguard products includes the sale of “‘any and all’ products and services offer through Safeguard and its Preferred Suppliers, including [Safeguard’s parent company] Deluxe.”
The court found the language of the distributor agreement to be “unambiguous,” and rejected Safeguard’s interpretation of account protection rights – i.e., “product-specific and account specific” – as unreasonable and “unavailing.”
Judge Hipper explained that, “under the plain language of the [distributor agreement], [the distributor] is entitled to commissions on the sale of such products to any customer in its territory to whom [the distributor] first sold any Safeguard [product] and which was credited to [the distributor] by Safeguard.” By failing to pay or rotate commissions to the distributor on any sales of Safeguard products to the distributor’s protected customers, Safeguard was found to have breached the distributor agreement, thereby causing the distributor damages.
The matter will proceed to trial in Boise on November 28, 2016. The distributor – along with another Boise distributor – seek damages for Safeguard’s breach of the distributor agreement and punitive damages against both Safeguard and its $2 billion parent company, Deluxe Corporation, for their alleged wrongful conduct.
A copy of the order granting partial summary judgment in favor of the distributor can be viewed by clicking the link below.
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Disclaimer: While every effort has been made to ensure the accuracy of this article, it is not intended to provide legal advice as individual situations will differ and should be discussed with an experienced franchise lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.