Facts

On March 6, 2000, plaintiff Safeway Inc., mailed a letter to Spar Group, the parent company of Pivotal Sales Co. (Pivotal) and PIA Merchandising Co Inc, (PIA) indicating that Safeway intended to terminate its merchandising contract with Pivotal/PIA effective May 1, 2000. The 1992 contract between Safeway, Pivotal and PIA required the defendants to provide in-store retail merchandising and marketing services for Safeway's private label products in Safeway stores across the country. Problems related to the contract first arose after Spar Group merged with PIA's and Pivotal's parent company in July 1999.

Safeway contended that the merger resulted in substantial changes to Pivotal's/PIA's leadership and business practices which negatively impacted the level of service it was receiving. Primary among Safeway's complaints was that Pivotal/PIA workers were dissatisfied with certain changes that had been made to employee compensation and benefits which caused high turnover and instability within the organization and resulted in Pivotal's/PIA's inability to provide adequate merchandising services in Safeway stores.

Following the termination of the contract, Safeway contacted all of the third-party manufacturers of its private label goods, who had also entered into contracts with Pivotal, and advised them to begin utilizing Pivotal's competitor RMS for merchandising services. Safeway further demanded that Pivotal turnover to Safeway approximately $2.5 million in its deferred spending account that Pivotal had received from third-party manufacturers to provide merchandising services in Safeway's stores.

PLAINTIFF'S CONTENTIONS:
Safeway contended that the money in the deferred spending account was not Pivotal's or PIA's money but rather was to be used solely for the purpose of providing merchandising services on Safeway's private label products.

Safeway's counsel argued that, once Pivotal/PIA breached the contract, the defendants were no longer entitled to retain the funds in the deferred spending account. When the defendants refused to turn over the money, Safeway filed a lawsuit against Pivotal, PIA, and Spar Group for breach of contract and breach of implied contract.

DEFENDANTS' CONTENTIONS:
Pivotal and PIA filed a cross-complaint against Safeway for breach of contract, interference with economic relationships, unfair trade practices and unjust enrichment. Pivotal and PIA denied they had failed to provide adequate merchandising services and contended that Safeway was the one that had breached the contract by failing to pay for merchandising services that had been rendered and by terminating the contract without proper notice. The defendants also argued that Safeway had engaged in unfair business practices by hiring away its managers and employees and continuing to use its software without payment after the termination of the contract. In addition Pivotal/PIA contended that Safeway had tortiously interfered with its contracts with third party manufacturers by contacting them and instructing them to use their competitor RMS instead of the defendants.

Damages

Safeway sought damages in the amount of $5 million, which represented the amount of money in the deferred spending account at the time of termination of the contract plus interest. Safeway argued that the money in the deferred spending account was the proper measure of damages because it represented the value of the services that the defendants had failed to provide when defendants breached the contract. Defendants Pivotal and PIA sought payment from Safeway for outstanding invoices that had not been paid at the time the contract was terminated and for damages for early termination of the contract. In addition, Pivotal requested over $9 million in damages for Safeway's interference with its contracts with third party manufacturers. Defense expert economist Randy Sugarman valued Pivotal's damages at $9,855,400 to $12,195,000 and explained that the company suffered irreparable damages when the third-party manufacturers terminated their contracts with Pivotal and began utilizing a direct competitor for merchandising services.

Result

The jury returned a verdict in favor of Safeway on its claim of breach of contract against Pivotal and PIA in the amount of $5,235,579.06. The jury also found that Spar Group was both the successor-in-interest, and the alter ego, of PIA and Pivotal. On the defendants' cross-complaint against Safeway, the jury awarded $782,400 to PIA and Pivotal for breach of contract and $5,760,879.70 to defendant Pivotal for intentional interference with contractual relations. The total amount awarded on the cross-complaint was $6,543,279.70. As a result of the jury's verdict, defendant Pivotal obtained a net recovery from plaintiff Safeway in the amount of $1,307,700.64. Due to the offset, Safeway recovered nothing from any defendant.

Other Information

Defendants Pivotal, PIA and Spar Group are planning to appeal the award of $5.2 million to Safeway, based on the argument that the amount of money in defendants' deferred spending account was an improper measure of contract damages and that the judge's rulings on the issue resulted in an impermissible award of liquidated damages.

Deliberation

three days

Poll

mixed

Length

three months