Distributors’ Claims Against Bimbo Survive

(CN) - Bimbo Bakeries cannot dismiss bread distributors' class claims that it violated the New Jersey Franchise Practices Act, a federal judge ruled.

U.S. District Judge Robert Kugler last week ruled that the plaintiffs have a plausible claim for relief under the Act, but not for "lost profit" damages.

The New Jersey Franchise Practices Act (NJFPA) was enacted in 1971 to curb franchisors' ability to profit unduly from their superior economic and bargaining positions when negotiating agreements with franchisees.

In this case, lead plaintiffs George A. Strassle and Timothy S. Carroll had contracts to buy Arnold's, Freihofer's and Thomas's fresh baked bread and rolls and resell them to certain New Jersey stores.

Bimbo in January 2010 acquired the company that hired Strassle and Carroll. Bimbo Foods Bakeries Distribution assumed all legal duties under the original contract, agreeing to sell and deliver products to the distributors, who would "develop and maximize sales" by "maintaining an adequate and fresh supply" at various stores.

Both parties agreed not to be liable for "any consequential, incidental, indirect, or special damages, including lost profits and punitive damages," under section 11.12 of the contract.

Strassle and Carroll sued Bimbo in Camden County Court on April 26, 2012, as lead plaintiffs in a class action on behalf of "approximately 60 New Jersey bread distributors who drive out of two depots maintained by defendant in Mt. Laurel and Pleasantville, N.J."

The complaint claimed that Bimbo breached the distribution agreement by refusing to allow distributors to buy and resell Arnold's, Freihofer's, and Thomas's bread products, in violation of the NJFPA. The plaintiffs sought punitive damages, compensatory damages and an injunction.

Bimbo removed the action to Federal Court, based on diversity jurisdiction, then sought dismissal for failure to state a claim.

Kugler was not persuaded by Bimbo's claim that it does not maintain a "place of business" in New Jersey, and found that the NJFPA does apply to it.

"Section 7.2 of the distribution agreement, called 'Change in Delivery Method,' states, in pertinent part, '[i]n the event any outlet makes an independent determination to accept delivery of the products by any method other than store door delivery, ... [plaintiffs] shall have the first right to effect such alternative service,'" Kugler wrote. "Thus, the distribution agreement specifically anticipates a situation in which plaintiffs provide bread products without actually going to their customers' (referred to here as 'outlets') particular locations. If plaintiffs are not going to their customers' stores, then presumably the customers would be coming to pick up their bread at some fixed place of business belonging either to plaintiffs or some third party. Regardless of what transpired in practice, the court finds that the inclusion of section 7.2 in the distribution agreement is just enough to show that the parties at least 'had in mind' that plaintiffs would establish or maintain places of business to exercise their rights under the franchise arrangement."

But the judge struck the distributors' request for damages for lost profits.

"To the extent plaintiffs seek recovery of profits which they planned to make (but for defendant's alleged breach) on the sale of individual Arnold's, Freihofer's, and Thomas's breads and roll products to retail clients within their distribution territory, the court holds that such recovery is barred under section 11.12 of the parties' distribution agreement," Kugler wrote.

He dismissed the distributors' request for an injunction, though they may seek such relief as part of their NJFPA or common law breach of contract claims.

Based in Horsham, Penn., Bimbo Bakeries USA - the corporate arm of Mexico's Grupo Bimbo - is America's largest bakery company. It owns six of the top 12 fresh bread brands in the country, and has annual revenue of $3.9 billion.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit