Federal Court Dismisses Unfair Business Practice Claims Despite "Perhaps Unsavory" Conduct

For a good illustration of the line between an unfair business practices and the "essence of competition in a free market society," see Frank Brunckhorst Co., L.L.C. v. Coastal Atlantic, Inc., 2008 WL 276409, *9 (E.D.Va. 2008), which was published on January 29, 2008 and can be found here http://www.williamsmullen.com/files/upload/CoastalAtlanticDecision.pdf. In Coastal Atlantic, the national distributor of Boar’s Head Provisions Co. meat and deli products, Frank Brunckhorst Co., L.L.C. ("Brunckhorst"), was sued by its regional distributor for the Tidewater, Virginia area, Coastal Atlantic, Inc. ("Coastal"). In its decision, the court addressed the subjects covered in our first blog entry: what is an unfair business practice? See http://unfairbusinesspractices.blogspot.com/2007/12/what-is-unfair-business-practice_31.html.

Coastal filed seemingly every unfair business practice claim against Brunckhorst for the latter party's decision to terminate their twenty-three year oral "at-will" contractual relationship allegedly based on Coastal's problems with product integrity. Even though an at-will contract "may be terminated by either party at any time, with or without cause," Coastal argued the termination was actionable because it had been assured at the outset that it would have exclusive distribution rights as long as it "(1) promoted the Boar’s Head brand and, (2) built brand identification." Id. at 3. Brunckhorst allegedly terminated Coastal despite Coastal’s alleged compliance with those terms.

Coastal further alleged that after it was terminated and began distributing a rival's brand's products, Brunckhorst "threatened certain retailers that, if they bought [the rival’s] products from Coastal, they would not be able to purchase Boar’s Head products . . . ." Id. at 8.

Coastal filed the following claims against Brunckhorst: actual and constructive fraud, tortious interference with contract and with business expectancy, business conspiracy, breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. The court dismissed each of these counts.

Underlying the Court's decision, was its conclusion that Brunckhorst was legally permitted to terminate its distributor relationship with Coastal. And, as our blog previously discussed, fraud or any other tort must arise out of a duty beyond one arising out of a contract duty. See http://unfairbusinesspractices.blogspot.com/2008/02/when-is-breach-of-contract-unfair.html. Illustrative of the court's reasoning, it found that Brunckhorst's alleged threat to retailers "fails to rise to the level of improper interference," although "perhaps unsavory" because "Brunckhorst’s tactics . . . were within its legal rights." And, "this is the essence of competition in a free market society." Id. at 8. Using the same logic, the Court dismissed Coastal's business conspiracy claim.

This case is another warning to litigants to pay careful attention to the nature of the improper/unlawful action when considering a tortious unfair business practice claim.