The Franchise Memorandum

A federal court in Illinois recently dismissed a distributor’s claim that a competitor committed tortious interference by encroaching on the distributor’s exclusive distribution territory because the distributor failed to demonstrate—through draft agreements and other communications with the manufacturer—valid exclusive distribution rights. Midland Distrib., Inc. v. Zest US Wholesale, Inc., 2021 WL 4745265 (N.D. Ill. Oct. 12, 2021). Relying on several draft agreements and communications between the parties, Midland claimed that it had entered into an exclusive distribution agreement with manufacturer Haddad & Sons Co. to sell Haddad’s snack chips throughout much of the US. Midland sued Zest for intentional interference with a prospective economic advantage after it became aware that Zest was selling Haddad’s chips within Midland’s allegedly exclusive territory.

For its claim to survive, Midland had to plead facts sufficient to establish that it and Haddad had agreed on all of the essential terms of an exclusive distribution agreement, which under Illinois law include a durational term, sales quota, and territory. Although draft agreements and other communications between the parties demonstrated some understanding as to the essential terms, no single draft or communication encapsulated the entire agreement. The court refused to “string together” communications to create a contract. Furthermore, the court found that, based on their communications, the parties intended and expected to enter into a formal written agreement to finalize their understanding—yet no such agreement was signed. Without an enforceable exclusive distribution agreement, Midland’s claim against Zest failed.