2022

Pella Corporation Successfully Moves to Dismiss Claims in Dispute With Former Distributor

United States - Maryland

Pella Corporation, a family-owned company that manufactures windows and doors, engages Faegre Drinker on matters related to Pella’s network of authorized distributors, including in litigation arising with distributors.

The plaintiff in a current case was a long-time distributor under four agreements with Pella that gave either party the right to terminate at will with one year notice. Pella's dealership network is mature, and a number of the longer-term dealers are quite large and have moved into a mode of “harvesting profits” rather than growth. As a result, in about 2015, Pella went through a strategic process that caused it to conclude that its territories should be smaller with individual distributors focused on their local markets. Against this backdrop, it started to work to move larger dealers out of the network through sales and/or to reduce territory size through splitting territories and having incumbents sell. Plaintiff was such a dealer.

As part of the strategy, Pella had informed this dealer that if the territory was not split and sold off, Pella would exercise its right to terminate the agreement with one year notice. The parties then entered into a memorandum of understanding with respect to the sale of the newly constituted territories. Plaintiff hired a broker to market the part of the territory located near D.C. And, shortly before the date by which plaintiff agreed it would sell, showed up with a buyer that failed to meet Pella’s qualifications. Pella refused its consent to the sale, as was permitted under the dealer agreements. Eventually, plaintiff sold its business to a qualifying buyer, but for less money than the nonqualifying buyer offered. After the dealer sold its other territory back to Pella, this litigation ensued. Plaintiff asserted claims for breach of contract, fraud and negligent misrepresentation arising from Pella’s refusal to approve the sale of the plaintiff’s assets to a buyer.

We successfully moved to dismiss the claims sounding in tort. The court adopted all of our arguments, including imposition of a heightened pleading standard and our framing of the dispute, and dismissed the inducement and misrepresentation claim. Discovery has concluded and Pella’s motion for summary judgment on the remaining claims is fully briefed and pending decision by the court.

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