The Franchise Memorandum

A federal court in Maryland denied a manufacturer’s motion to dismiss claims for breach of contract and tortious interference brought by a former distributor. KVC Waffles Ltd. v. New Carbon Co., 2020 WL 6204303 (D. Md. Oct. 22, 2020). KVC was the exclusive distributor of New Carbon products in parts of Europe. During the initial term, the parties allegedly executed a revised distribution agreement. During a renewal term of the agreement, New Carbon informed KVC that it could not locate an executed copy of the agreement. New Carbon demanded that KVC agree to certain modifications to the agreement or New Carbon would terminate their relationship. Once KVC rejected the proposed terms, New Carbon sent a notice reiterating that there was no agreement in place and their relationship was terminated. KVC initiated suit against New Carbon alleging breach of contract and tortious interference, and New Carbon filed a motion to dismiss.

The court held that, at the current stage, the court must accept as true that the parties executed the revised agreement, and therefore the parties had a contract. The court rejected New Carbon’s argument that the statute of limitations had expired because KVC filed the action more than three years after New Carbon notified KVC that the agreement would be terminated if KVC did not agree to the modified terms. The court decided it could reasonably conclude that KVC was not on notice of the termination, and in turn the alleged breach of contract, until New Carbon sent the notice confirming termination, finding that the prior notice could have been construed as negotiation tactics. The court also rejected New Carbon’s argument that the limitation of damages provision in the agreement prohibited KVC from recovering any damages after termination of the agreement, concluding that when the agreement is read on the whole, the limitation of damages provision applies when a party terminates the agreement without breach. Finally, the court granted New Carbon’s motion to dismiss KVC’s request for punitive damages under the breach of contract claim, but not the tortious interference claims.