The Franchise Memorandum

A federal court in New York recently dismissed claims brought by a former U.S. distributor of ORI legwear—an Italian hosiery brand—against ORI’s subsequent U.S. distributor. LuxSoma LLC v. Leg Res., Inc., 2018 WL 583119 (S.D.N.Y. Jan. 25, 2018). LuxSoma purportedly entered into a nonexclusive distribution agreement with ORI for distribution of ORI products in the U.S. in June 2011. LuxSoma struggled to sell ORI’s products, so ORI entered into an exclusive U.S. distribution agreement with Leg Resource in July 2012. LuxSoma sued Leg Resource for, among others things, tortious interference with contract, asserting that Leg Resource induced ORI to breach LuxSoma’s purported distribution agreement.

Leg Resource moved for summary judgment arguing that it had no knowledge of the purported distribution agreement between ORI and LuxSoma when it signed its exclusive distribution agreement with ORI in July 2012. The court agreed. The court observed that the record was devoid of any admissible evidence that Leg Resource knew of any relationship between LuxSoma and ORI before July 2012. Rather, there was compelling evidence that Leg Resource did not learn of LuxSoma’s existence—much less about its purported contract with ORI—before July 2012. Under Second Circuit precedent, it is only when there is knowledge of a contract, and a competitor takes an active part in persuading a party to the contract to breach it by offering better terms or other incentives, that there is unjustifiable interference. Therefore, the court dismissed the claim.