Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co. ( 2020 )

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Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2019
(Argued: September 27, 2019 Decided: September 29, 2020)
Docket No. 11-5458
COMPANIA EMBOTELLADORA DEL PACIFICO, S.A.,
Plaintiff-Counter-Defendant-Appellant,
v.
PEPSI COLA COMPANY,
Defendant-Counter-Claimant-Appellee.
Before: JACOBS, SACK, and HALL, Circuit Judges.
This appeal arises from a lengthy contract dispute between Pepsi Cola
Company ("PepsiCo") and one of its independent Peruvian bottlers, Compania
Embotelladora Del Pacifico, S.A. ("CEPSA"). CEPSA and PepsiCo had a fruitful
business relationship for approximately forty years, from 1952 until the 1990s.
The relationship then soured. PepsiCo terminated its contract with CEPSA.
CEPSA then filed suit in the United States District Court for the Southern District
of New York asserting, inter alia, breach of contract claims based on wrongful
termination and PepsiCo's alleged failure to protect CEPSA's rights as the
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Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co.
exclusive bottler and distributor of PepsiCo products in specified areas of Peru.
PepsiCo made a motion pursuant to Federal Rule of Civil Procedure 12(b)(6) to
dismiss the wrongful termination claim, which the district court (Jed S. Rakoff,
Judge) granted on the grounds that the contract was terminable at will. The case
proceeded to discovery on the remaining claims, after the close of which PepsiCo
moved for summary judgment on the breach of contract claim which was based
on PepsiCo's alleged failure to protect CEPSA's exclusive rights. The district
court granted the motion, concluding that CEPSA had failed to prove damages
and, in the alternative, that PepsiCo had no duty under the contract to
affirmatively protect CEPSA from third parties selling or distributing PepsiCo
products in CEPSA's territory. CEPSA appealed. We agree with the district
court that the contract was terminable at will and that PepsiCo had no
affirmative duty under the contract to protect CEPSA against the alleged harm to
its exclusive rights. Accordingly, the judgment of the district court is
AFFIRMED.
PETER D. ST. PHILLIP, JR. (Margaret C.
MacLean, on the brief), Lowey Dannenberg,
P.C., White Plains, NY, for Plaintiff-Counter-
Defendant-Appellant.
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LOUIS M. SOLOMON (Michael S. Lazaroff, on
the brief), Reed Smith LLP, New York, NY,
for Defendant-Counter-Claimant-Appellee.
MARCIA V. ANDREW, Taft Stettinius &
Hollister LLP, for Amici Curiae Pepsi-Cola
Bottlers' Association.
HUGH Q. GOTTSCHALK, (Webster C. Cash
III, on the brief) Wheeler Trigg O'Donnell
LLP, for Amici Curiae Independent Bottlers
Association.
SACK, Circuit Judge:
At issue in this case is an "Exclusive Bottler Appointment" contract
between Pepsi Cola Company, a Delaware corporation ("PepsiCo"), 1 and one of
its bottlers in Peru, Compania Embotelladora Del Pacifico, S.A. ("CEPSA").
Under the contract, PepsiCo granted CEPSA exclusive rights to bottle the
beverage Pepsi-Cola 2 in specified regions of Peru. Those regions collectively
1 The company's name has evolved over the years. See PepsiCo, Inc., Britannica,
https://www.britannica.com/topic/PepsiCo-Inc (last visited 8/13/20). In the contract at
issue, it was referred to as the Pepsi-Cola Company. See App'x at 121. But this suit was
initiated in October 2000 against "Pepsi Cola Company," and we therefore refer to it
either as that or as PepsiCo.
2The beverage has been known by at least three names, "Pepsi-Cola" (sometimes
spelled "Pepsi=Cola"), "Pepsi Cola," and "Pepsi." The first was used in connection with
the product at the time many decades ago when its famous jingles first appeared on the
radio, see Flickr, https://www.flickr.com/photos/dok1/7989107430 (last visited 8/13/20),
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constituted an exclusive sales territory in which CEPSA was responsible for
meeting consumer demand for Pepsi-Cola. The exclusivity of the contract drove
its value and in turn encouraged CEPSA's investment in equipment, facilities,
and more that were needed to fulfill the bottler's obligations under the contract.
CEPSA's business performed well under the contract for some forty years.
But in the 1990s, CEPSA began to experience financial difficulties and stopped
making payments to PepsiCo. PepsiCo responded by purporting to terminate
the contract.
CEPSA filed suit against PepsiCo in the United States District Court for the
Southern District of New York. It asserted breach of contract claims based on,
inter alia, wrongful termination of the contract, 3 and a claim based on PepsiCo's
and on the landmark sign that is still across the East River from the United Nations
building in New York City (as "Pepsi=Cola"), see David W. Dunlap, Pepsi-Cola Sign in
Queens Gains Landmark Status, N.Y. TIMES (Apr. 12, 2016),
https://www.nytimes.com/2016/04/13/nyregion/pepsi-cola-sign-in-queens-gains-
landmark-status.html; and the second was used in the original complaint in this matter.
It is currently referred to, at least in the United States, as "Pepsi." See PepsiCo, Product
Information, https://www.pepsico.com/brands/product-information (last visited 8/13/20).
For purposes of this opinion, the terms are interchangeable.
3 It is referred to in the First Amended Complaint as:
BREACH OF CONTRACT
(Wrongful Termination)
CEPSA First Amended Complaint dated Oct. 17, 2008, at 26.
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alleged failure to protect CEPSA's right to an exclusive sales territory. PepsiCo
moved to dismiss the wrongful termination claim.
The district court (Jed S. Rakoff, Judge) granted the motion on the grounds
that the contract was terminable at will under New York law, which the parties
agree governs this dispute. 4 The court observed that the contract had no definite
term of duration but included one paragraph that provided PepsiCo with an
optional right to terminate the contract upon the occurrence of one of five
enumerated events. Under New York law, a contract of indefinite duration is
generally terminable at will unless the contract states explicitly that the parties
intended to be bound perpetually. The district court concluded that the contract
was not explicit in that regard and therefore was terminable at will.
After the close of discovery, PepsiCo moved for summary judgment on the
breach of contract claim — the "transshipment" claim — premised on PepsiCo's
alleged failure to protect CEPSA's exclusive rights. The district court granted the
motion. It concluded that CEPSA had failed to prove damages on the claim and,
in the alternative, that the contract did not obligate PepsiCo to police CEPSA's
4The contract provides: "This Appointment shall be interpreted under and pursuant to
the laws of the State of New York of the United States of America." Exclusive Bottling
Agreement between PepsiCo and CEPSA, dated June 6, 1952, at ¶ 30.
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territory and protect its exclusive rights. This appeal followed.
On appeal, CEPSA argues that the district court erred in granting
PepsiCo's motion to dismiss the wrongful termination claim because the contract
expressed clearly the parties' intent to be bound perpetually unless and until one
of the events upon which PepsiCo was contractually permitted to terminate
occurred. CEPSA also argues that the district court erred by granting PepsiCo's
motion for summary judgment because, according to CEPSA, the evidence of
damages was sufficient and the contract imposed a duty on PepsiCo that
PepsiCo had breached. We disagree. For the reasons set forth below, we affirm
the judgment of the district court.
BACKGROUND
I. Facts
In 1952, PepsiCo and CEPSA entered into a contract known as an
"Exclusive Bottler Appointment" (the "EBA" or the "contract"). Under the
contract, CEPSA was appointed as PepsiCo's exclusive bottler of Pepsi-Cola in
specified regions of Peru, including Peru's largest city and capital, Lima. Under
its terms, PepsiCo agreed to sell "beverage concentrate" to CEPSA. CEPSA was
responsible for combining the beverage concentrate with filtered carbonated
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water to produce Pepsi. Pursuant to the EBA, CEPSA was obliged to bottle, sell,
and distribute Pepsi within its appointed territory, "and nowhere else." 5
The EBA had no definite term of duration. Paragraph 22 of the EBA
provided, however, that PepsiCo had the right to "cancel or terminate [the EBA]
by written notice" to CEPSA "[u]pon the happening" of five enumerated events:
CEPSA's (1) breach of the contract, (2) sale or transfer of all or part of its business
or stock without PepsiCo's permission, (3) failure to bottle for thirty consecutive
days, (4) insolvency, voluntary bankruptcy, or failure to vacate an involuntary
bankruptcy, or (5) loss of management or control of its business. EBA ¶ 22.
PepsiCo did not, however, have the obligation to terminate the EBA upon the
happening of any of these events. And CEPSA had no equivalent contractual
right to terminate the EBA.
According to CEPSA, its relationship with PepsiCo under the contract
grew "consistently" for approximately forty years. Appellant's Br. at 8–9. But
5The EBA provided further that PepsiCo would: retain control over all decisions
concerning its trademark; instruct CEPSA on how to prepare, bottle, sell, and distribute
the beverage; provide CEPSA with all relevant materials, including bottles, cartons, and
cases; decide how many bottling plants should be built; and furnish all advertising
materials. The EBA specified the price at which CEPSA initially sold Pepsi drinks to
retailers, but by the 1990s (the period relevant to this appeal), PepsiCo allowed CEPSA
to set its own prices.
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then, in the early 1990's, according to CEPSA, PepsiCo required CEPSA to switch
from bottling Pepsi in glass returnable bottles to plastic returnable bottles.
Implementing the change was costly and to meet the cost, CEPSA took on
substantial debt. For whatever reason, by 1996, CEPSA was allegedly
"experiencing difficult financial circumstances," CEPSA First Amended
Complaint dated Oct. 17, 2008, at 13, ¶ 46, and "fell behind in its . . . payments"
for beverage concentrate, 6 id. at 21, ¶ 89.
CEPSA alleges that PepsiCo's conduct beyond the change in bottles caused
or contributed to its financial distress and plummeting sales. Specifically,
CEPSA asserts that PepsiCo: (1) failed to provide CEPSA with a timely
marketing plan for 1997, (2) failed to prevent two other exclusive PepsiCo
bottlers in Peru from "transshipping," or selling outside their exclusive territory
— and inside CEPSA's, and (3) interfered with its business by, among other
things, sabotaging a potential merger.
In 1998, CEPSA's debts continued to increase. On August 12, 1998, one of
CEPSA's creditors filed an insolvency petition against the company in Peru.
Then, on March 12, 1999, PepsiCo notified CEPSA by letter that it was
6 CEPSA did not generate positive net income in any year from 1991 through 1998.
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terminating the EBA, effective April 24, 1999. The letter cited five grounds for
termination: CEPSA's alleged (1) failure to promote sales adequately, (2)
insolvency, (3) failure to pay for concentrate, (4) failure to provide marketing
funds, and (5) failure to vacate an involuntary bankruptcy petition. Following
the termination, CEPSA was placed into involuntary liquidation proceedings in
Peru.
II. Procedural History
On October 11, 2000, CEPSA filed a complaint in the United States District
Court for the Southern District of New York. It asserted three breach of contract
claims for: (1) failure to promote brand recognition, (2) failure to enforce
CEPSA's exclusive rights, and (3) wrongful termination of the EBA. PepsiCo
answered the complaint and asserted several counterclaims, including one for
failure to pay for beverage concentrate. Years of litigation followed, primarily on
the issue of whether the suit had been properly authorized by CEPSA's creditors.
In 2008, that issue was resolved in the affirmative, and the case was reassigned
from United States District Judge Richard Owen, to whom it had originally been
assigned, to District Judge Jed S. Rakoff.
On October 17, 2008, CEPSA filed an amended complaint. It reasserted its
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three breach of contract claims and added two tort claims for breach of fiduciary
duty and willful destruction of business. PepsiCo moved to dismiss the new tort
claims and the wrongful termination breach of contract claim pursuant to
Federal Rule of Civil Procedure 12(b)(6). On December 18, 2008, the district court
held oral argument on the motion and issued a ruling from the bench. The court
granted PepsiCo's motion to dismiss in its entirety and dismissed CEPSA's tort
claims and wrongful termination claim. Of those dismissals, only the district
court's dismissal of the wrongful termination claim is before us on appeal.
In granting PepsiCo's motion to dismiss the wrongful termination claim,
the district court noted that both parties agreed the EBA had "no definite term."
Oral Argument Transcript dated Dec. 18, 2008 at 49:6. The court explained that
under New York law — which all parties agree governs this dispute — "a
contract for an indefinite duration is terminable at will" unless "the parties intend
that the obligation be perpetual" and "expressly say so." Id. at 49:2–4. Paragraph
22 of the EBA provided PepsiCo "with an optional remedy upon the occurrence
of certain nonexclusive events," id. at 49:21–23, the "mere listing" of which, the
court concluded, "is not the kind of 'clear and unequivocal' demonstration that is
required under New York law to say that the parties intended to be perpetually
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bound." Id. at 50:7–10. Accordingly, the court dismissed CEPSA's wrongful
termination claim in addition to the tort claims not at issue on appeal.
The case proceeded to discovery on CEPSA's two remaining breach of
contract claims and on PepsiCo's counterclaims. After the close of discovery,
PepsiCo moved for summary judgment on CEPSA's breach of contract claim
based on PepsiCo's alleged failure to enforce CEPSA's exclusive rights by
allegedly failing to prevent transshipment into CEPSA's territory. 7
On September 4, 2009, the district court granted PepsiCo's motion.
Relevant here, the court concluded that CEPSA's claim that PepsiCo failed to
prevent other bottlers from "transshipping," or selling outside their exclusive
territory into CEPSA's territory, failed because CEPSA had not met the standard
of proof required for its alleged damages. And, in the alternative, the court
concluded that the transshipment claim failed as a matter of law because the EBA
imposed no duty on PepsiCo to prevent or police transshipment.
The court first addressed whether the damages that CEPSA sought for lost
profits due to transshipment were general damages that must be proved with a
7 In addition, though not relevant here, CEPSA filed a cross-motion for summary
judgment on PepsiCo's counterclaim for failure to pay for beverage concentrate, which
the district court granted.
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"reasonable estimate" or consequential damages that must be proved "with
reasonable certainty." Opinion and Order dated Sept. 4, 2009, Special App'x at 65
(quoting Tractebel Energy Mktg. v. AEP Power Mktg., 487 F.3d 89, 109–10 (2d Cir.
2007)). The court explained that "[a]s a general matter, 'lost profits' constitute
'general damages' when 'the non-breaching party seeks only to recover money
that the breaching party agreed to pay under the contract.'" Id. (quoting Tractebel,
487 F.3d at 109). Such damages are "precisely what the non-breaching party
bargained for." Id. at 10 (quoting Tractebel, 487 F.3d at 109–10). By contrast, lost
profits constitute consequential damages "when, as a result of the breach, the
non-breaching party suffers loss or profits on collateral business relationships."
Id. (quoting Tractebel, 487 F.3d at 109).
The court concluded that the damages CEPSA sought for lost profits due
to transshipment were consequential damages because they were "lost profits
from lost sales to third-parties that [were] not governed [by] the EBA." Id.
Accordingly, the court decided that CEPSA was required to prove damages
under the more exacting standard of "reasonable certainty." Id. at 11 (quoting
Kenford Co. v. Cty. of Erie, 67 N.Y.2d 257, 261 (1986)).
CEPSA, the court stated, was unable to do so because it had failed to
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proffer admissible expert testimony concerning damages. And the lay testimony
that it had offered — a declaration from Manuel Tirado, CEPSA's former general
manager and chief financial officer — was inadmissible because: (1) CEPSA had
never identified Tirado as a damages witness, and (2) the court could not
conclude that Tirado's testimony was (a) based on his own personal knowledge,
or (b) based on scientific, technical, or other specialized knowledge that would
permit him to proffer such "lay testimony masquerading as expert testimony."
Id. at 9 n.4.
But, the court said, even if CEPSA could "point to . . . admissible evidence
capable of proving damages to a reasonable certainty," id. at 11, its transshipment
claim would nonetheless fail because the EBA is unambiguous and "does not
contain any express language" obligating PepsiCo to "take affirmative steps to
prevent other bottlers and third-parties from selling [Pepsi] in CEPSA's
territory." Id. at 12. The court therefore declined to "read such obligations into
the EBA." Id. Similarly, it rejected the proposition that the implied covenant of
good faith and fair dealing gave rise to any such obligations. See id. at 13–16.
The parties voluntarily dismissed their remaining claims and judgment
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was entered. 8 CEPSA timely appealed the district court's decisions granting
PepsiCo's motions to dismiss the wrongful termination claim and for summary
judgment on the transshipment claim.
DISCUSSION
On appeal, CEPSA challenges the district court's grant of PepsiCo's motion
to dismiss the wrongful termination claim and the court's grant of summary
judgment in favor of PepsiCo on the transshipment claim. CEPSA argues that
the district court erred in granting PepsiCo's motion to dismiss the wrongful
termination claim because the EBA is a "perpetual" contract. According to
CEPSA, paragraph 22 expresses the parties' intent to continue to be bound
"unless and until" one of the events enumerated therein occurs "and [PepsiCo]
opts to terminate." Appellant's Br. at 19. CEPSA argues further that to the extent
that the EBA is ambiguous, the district court erred by failing to consider extrinsic
evidence of the parties' intent that, as CEPSA puts it, the EBA is to "continue in
perpetuity." Id. at 20.
CEPSA also argues the district court erred in granting PepsiCo's motion
8 CEPSA voluntarily dismissed its remaining breach of contract claim on July 17, 2009,
prior to the district court's decision on the motion and cross-motion for summary
judgment. PepsiCo voluntarily dismissed its remaining counterclaims after the court's
decision, on October 13, 2009.
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for summary judgment on the transshipment claim. CEPSA contends that under
the EBA, PepsiCo had a duty to "take steps to prevent other bottlers' product
from being sold in CEPSA's exclusive sales territory." Id. In addition, CEPSA
argues that the damages arising from transshipment were general, not
consequential damages, that CEPSA could prove with admissible evidence.
For the reasons that follow, we conclude that CEPSA's challenges are
without merit.
I. Standard of Review
We review de novo a district court's grant of a motion to dismiss, in this
case on the wrongful termination claim, for failure to state a claim. See Kelleher v.
Fred A. Cook, Inc., 939 F.3d 465, 467 (2d Cir. 2019). We also review de novo a
district court's grant of summary judgment, in this case on the "transshipment"
claim, "construing the evidence in the light most favorable to the non-moving
party and drawing all reasonable inferences in its favor." Mitchell v. City of New
York, 841 F.3d 72, 77 (2d Cir. 2016) (internal quotation marks omitted).
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II. Analysis
1. Wrongful Termination Claim
The district court granted PepsiCo's motion to dismiss CEPSA's wrongful
termination claim because the court concluded that the EBA was terminable at
will. On appeal, CEPSA contends that this conclusion was error.
CEPSA argues first that the text of the EBA is clear: It binds the parties in
perpetuity until one or more of the events enumerated in paragraph 22 occurs
and PepsiCo elects to terminate the contract.
We disagree. Under New York law, it is well settled that a contract of
indefinite duration is terminable at will unless the contract states expressly and
unequivocally that the parties intend to be perpetually bound. Warner-Lambert
Pharm. Co. v. John J. Reynolds, Inc., 178 F. Supp. 655, 661 (S.D.N.Y. 1959), aff'd on
opinion of the district court, 280 F.2d 197 (2d Cir. 1960) ("[I]f it appears that no
termination date was within the contemplation of the parties, or that their
intention with respect thereto cannot be ascertained, the contract will be held to
be terminable within a reasonable time or revocable at will . . . ."); Liberty Imports
v. Bourguet, 536 N.Y.S.2d 784, 786 (1st Dep't 1989) ("[C]ontracts of exclusive
agency and distributorship are terminable at will in the absence of an express
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provision of duration . . . ."); accord Haines v. City of New York, 41 N.Y.2d 769, 771–
72 (1977); Interweb v. iPayment, Inc., 783 N.Y.S.2d 468, 468 (1st Dep't 2004). In the
case at bar, the EBA contains no such clear statement of perpetuity. It therefore is
terminable at will subject to any reasonable duration requirement.
CEPSA argues that this conclusion is untenable because it would render
paragraph 22 — which provided that PepsiCo had the right to "cancel or
terminate [the EBA] by written notice" to CEPSA "[u]pon the happening" of
certain events, Appellant's Br. at 24 (quoting EBA ¶ 22) — meaningless and
therefore conflicts with New York law's preference against surplusage, see id.
(quoting LaSalle Bank Nat'l Ass'n v. Nomura Asset Capital Corp. 424 F.3d 195, 206
(2d Cir. 2005) ("An interpretation of a contract that has the effect of rendering at
least one clause superfluous or meaningless . . . is not preferred and will be
avoided if possible." (internal quotation marks and brackets omitted))); see also
Marx v. Gen. Revenue Corp., 568 U.S. 371, 385 (2013) (referring to the preference as
the "canon against surplusage"); Microsoft Corp. v. I4I Ltd. P'ship, 564 U.S. 91, 106
(2011) (referring to it as the "canon against superfluity"). Alternatively, CEPSA
argues that the inclusion of paragraph 22 in the EBA creates an ambiguity with
respect to the contract's duration that must be resolved by extrinsic evidence.
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We are unpersuaded. The Supreme Court made clear over a century ago,
as a general matter of contract interpretation, that provisions specifying grounds
for termination or abrogation in an at-will contract are not necessarily
surplusage. Willcox & Gibs Sewing Mach. Co. v. Ewing, 141 U.S. 627, 636 (1891).
Such provisions may serve a "caution[ary]" function, warning of conduct or an
occurrence that might prompt one party to terminate. See id.
Moreover, in the case at bar, paragraph 22 served a separate function
independent of any precaution. In some circumstances, New York law imposes a
reasonable-duration requirement on exclusive distribution agreements that are
otherwise terminable at will. See, e.g., Copy-Data Sys. v. Toshiba Am., 755 F.2d 293,
301 (2d Cir. 1985). Such a requirement may arise in circumstances such as these
where a distributor must invest in equipment, materials, and other assets to
perform its obligations under the contract. See id.; Colony Liquor Distribs. v. Jack
Daniels Distillery, 254 N.Y.S.2d 547, 549 (3d Dep't 1964). Against this backdrop,
paragraph 22 is not meaningless. It provides PepsiCo with grounds to terminate
without having to wait a reasonable duration before doing so.
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The cases that CEPSA relies upon do not affect our analysis.9 Rothenberg v.
Lincoln Farm Camp, Inc., 755 F.2d 1017 (2d Cir. 1985) and Chapman v. N.Y. State
Div. for Youth, 546 F.3d 230 (2d Cir. 2008) are inapposite because both concern
9Nor do the cases that amicus curiae, the Pepsi-Cola Bottlers' Association ("PCBA"),
principally rely upon for the proposition that the EBA was terminable only upon the
occurrence of an event listed in paragraph 22.
We have explained previously that, under New York law, "where the parties [to a
contract], while providing no fixed date for termination of the promisor's obligation . . .
condition the obligation upon an event which would necessarily terminate the contract,
no such presumption of perpetuity is justified and they will be deemed to have
accepted the obligation to continue until the condition occurs." Payroll Express Corp. v.
Aetna Cas. & Sur. Co., 659 F.2d 285, 292 (2d Cir. 1981) (emphasis added; internal
quotation marks omitted). Four cases PCBA cites involve just such a condition. See id.;
Nicholas Labs. Ltd. v. Almay, Inc., 723 F. Supp. 1015 (S.D.N.Y. 1989), aff'd 900 F.2d 19 (2d
Cir. 1990); Warner-Lambert Pharm. Co., 178 F. Supp. 655; Ehrenworth v. Stuhmer & Co., 229
N.Y. 210 (1920). By contrast, the EBA does not condition the parties' obligations upon
an event which would necessarily terminate the contract. Moreover, the events listed in
paragraph 22 do not necessarily terminate the contract, they merely provide PepsiCo
with an option to terminate. These four cases therefore do not control the analysis here.
The fifth case that PCBA cites, Ketcham v. Hall Syndicate, Inc., 236 N.Y.S.2d 206 (Sup. Ct.
1962), aff'd without opinion, 242 N.Y.S.2d 182 (1st Dep't 1963), involves a contract in
which an artist agreed to create and provide cartoons for syndication indefinitely. The
contract stated expressly that it would renew automatically from year to year, except
that both parties had the right to terminate if the artist's share of revenue fell below a
stipulated amount. The court held that the contract was not indefinite as to its duration,
even if it provided for perpetual performance, because "specific provision [was] made
for termination." Ketcham, 236 N.Y.S. at 213. We recognize that the provision for
termination in the contract in Ketcham, like the EBA, is voluntary, not automatic. The
provision in Ketcham, however, was mutual while the one in the EBA is not. It does not
follow that a contract with a voluntary, unilateral termination provision is one in which
"specific provision was made for termination" because, from the perspective of one
party, there is no such provision for termination and the contract is perpetual. PCBA
has pointed to no authority holding otherwise and we are aware of none.
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contracts with definite terms. At issue in both cases were contract provisions
that seemed to conflict with the end dates specified in the contracts. This conflict
gave rise to ambiguity that permitted us to consider extrinsic evidence. In
Rothenberg and Chapman, the contracts did not involve — nor did we consider —
an entirely optional right to terminate an indefinite contract.
Our conclusion that the EBA was terminable at will does not mean that
PepsiCo's termination rights were unrestricted. As pointed out above, even
without a provision limiting termination, such a contract may be subject to a
reasonable-duration requirement under New York law. We think that
requirement may, at least hypothetically, arise in circumstances where a
distributor must invest in special purpose equipment, materials, and other assets
in order to perform its obligations under the contract only to have the other party
pull the rug out from under the distributor by terminating the contract. But
CEPSA does not argue that in the present circumstances, forty years between
execution and termination was "unreasonable" for these purposes. The issue
does not arise here, and we therefore do not address it.
2. Transshipment Claim
The district court granted summary judgment in favor of PepsiCo on the
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transshipment claim on the grounds that CEPSA had failed to prove damages,
and, in the alternative, that PepsiCo had no duty to prevent or police
transshipment. 10 CEPSA argues that both conclusions were erroneous.
CEPSA asserts first that PepsiCo did in fact have a duty to police
transshipment under the EBA. However, as the district court observed, the EBA
is "unambiguous" on this point. Opinion and Order dated Sept. 4, 2009, Special
App'x at 68. It "prohibited PepsiCo from appointing another bottler to serve
10With respect to CEPSA's transshipment claim, amicus curiae, the IBA, urges us to
"address the district court's damages ruling and stop there." IBA Br. at 2. The IBA
contends that the district court's contract interpretation was "unnecessary to its
decision" and "stray[ed]" into "industry-critical contract issues that are unnecessary to
resolve this appeal." Id. We conclude that the IBA's assertion that we may decide this
appeal without considering whether the EBA imposed a duty on PepsiCo to prevent or
police transshipment is mistaken. Under New York law, nominal damages are always
available in a breach of contract action even if a party cannot prove general or
consequential damages. Kronos, Inc. v. AVX Corp., 81 N.Y.2d 90, 95 (1993) (stating that
"[n]ominal damages are always available in breach of contract actions"); see also Tradex
Europe SPRL v. Conair Corp., 2008 WL 1990464, at *5 (S.D.N.Y. 2008) (denying summary
judgment regarding breach of contract claim because defendant "fail[ed] to address
whether [p]laintiffs may . . . recover nominal damages" even though they failed to
produce evidence of any direct or consequential damages); Magu Realty Co. v. Spartan
Concrete Corp., 658 N.Y.S.2d 45, 46 (2d Dep't 1997) ("[A]lthough the plaintiffs have failed
to demonstrate that they incurred any actual damages resulting from the alleged breach
of contract . . . , they may still be entitled to nominal damages to vindicate their rights
arising from the alleged breach of contract."); Hirsch Electric Co. v. Comm. Servs., Inc., 536
N.Y.S.2d 141, 143 (2d Dep't 1988) ("[A]lthough the plaintiff has failed to demonstrate
damages which would be recoverable at trial with respect to the lost profits claim, it is a
well-settled tenet of contract law that even if the breach of contract caused no loss or if
the amount of loss cannot be proven with sufficient certainty, the injured party is
entitled to recover . . . nominal damages . . . .").
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Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co.
CEPSA's exclusive territory or selling PepsiCo product directly into that
territory," but it did not "obligate[] PepsiCo to take affirmative steps to prevent
other bottlers and third-parties from selling [Pepsi] in CEPSA's territory." Id.
Because the EBA is "straightforward and unambiguous," we may not consider
extrinsic evidence or the parties' course of dealing, nor may we read additional
requirements into unambiguous text in search of such an obligation. Id. at 67–68
(quoting Postlewaite v. McGraw-Hill, Inc., 411 F.3d 63, 67 (2d Cir. 2005)); see also id.
at 68 (citing Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 73 (2d Cir.
1979) (Mansfield, J., concurring)). We must interpret the EBA according to its
text and its text is clear — it imposed no such duty on PepsiCo.
CEPSA contends that, notwithstanding the clear text of the EBA, PepsiCo
had a duty to police transshipment under the implied covenant of good faith and
fair dealing. PepsiCo argues that the covenant does not apply to the EBA
because it is an at-will contract. Appellee's Br. at 50–51 (citing Coca-Cola N. Am.
v. Crawley Juice, Inc., 2011 WL 1882845, at *10 (E.D.N.Y. May 17, 2011)
(determining that under New York law, the covenant does not apply to an at-will
distribution contract)). But assuming arguendo that the covenant applies, our
conclusion remains the same.
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Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co.
We agree with the district court that under New York law, the covenant of
good faith and fair dealing does not give rise to new, affirmative duties on
contracting parties. See, e.g., Broder v. Cablevision Sys. Corp., 418 F.3d 187, 199 (2d
Cir. 2005) (concluding that the implied duty of good faith and fair dealing cannot
be used to "add[] to the contract a substantive provision not included by the
parties" (internal quotation marks omitted)); Vanlex Stores, Inc. v. BFP 300
Madison II LLC, 887 N.Y.S.2d 576, 581 (1st Dep't 2009) (stating that the "implied
covenant of good faith and fair dealing inherent in every contract cannot be used
to create terms that do not exist in the writing"). As noted, the EBA prohibited
PepsiCo from "appointing another bottler to serve CEPSA's exclusive territory or
selling PepsiCo product directly into that territory," but it did not "obligate[]
PepsiCo to take affirmative steps to prevent other bottlers and third-parties from
selling PepsiCo in CEPSA's territory." Opinion and Order dated Sept. 4, 2009,
Special App'x at 68. Because the duty to police or protect against transshipment
was not created or referred to in the writing, PepsiCo was not required to assume
such a duty under the covenant.
CEPSA argues that this conclusion conflicts with that of our sister circuit
addressing the same issue in Pepsi-Cola Bottling Co. of Pittsburg, Inc. v. PepsiCo,
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Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co.
Inc., 431 F.3d 1241 (10th Cir. 2005). In Pittsburg, the parties had entered into an
exclusive bottler appointment agreement for the beverage Pepsi in 1959. See id.
at 1248. From 1960 through 1998, they entered into nine additional such
agreements for other beverages. See id. At issue was whether PepsiCo had
breached the agreements by failing to protect against transshipment. See id. 1254.
The Tenth Circuit applied the New York Uniform Commercial Code ("UCC"),
which permits courts to consider parties' post-contract conduct, see N.Y.U.C.C.
§§ 2–202(a), 2–208, cmt. 1, to decide the issue. Id. at 1259. To the extent that our
sister circuit applied the UCC to bottler appointment agreements entered into
prior to the effective date of the UCC, we think, respectfully, that this was error.
The UCC became effective on September 27, 1964 and applies only to contracts
entered into on or after that date. See NYUCC §§ 13–101, 13–105.
In the case at bar, the EBA was entered into in 1952.11 The UCC therefore
does not apply, and we can ignore it.
We must therefore apply the New York common law of contracts. And
11CEPSA and PepsiCo entered into an additional EBA in 1993 for PepsiCo's Seven-Up
products. See First Amended Complaint ¶ 13. But the allegations in the complaint are
based only on the EBA; they do not refer to the "Seven-Up Appointment." See id. ¶¶ 35–
45, 112–118.
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Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co.
under New York common law, "[w]here a 'contract is clear and unambiguous on
its face, the intent of the parties must be gleaned from within the four corners of
the instrument, and not from extrinsic evidence.'" RJE Corp. v. Northville Indus.
Corp., 329 F.3d 310, 314 (2d Cir. 2003) (quoting De Luca v. De Luca, 751 N.Y.S.2d
766, 766 (2d Dep't 2002)). We already have concluded that the EBA is clear and
that we may not consider extrinsic evidence as the Tenth Circuit did in Pittsburg.
The Tenth Circuit's conclusion, based on such extrinsic evidence, therefore does
not guide our analysis or compel any particular result here. 12
Thus, CEPSA's assertion that PepsiCo's purported duty to police or
prevent transshipment fails because we conclude that PepsiCo had no such duty.
Accordingly, we need not reach CEPSA's third argument regarding damages and
12 In addition to the foregoing, there are salient factual differences between the case at
bar and Pittsburg. Specifically, in Pittsburg, PepsiCo's obligations pursuant to a
transshipment enforcement program (TEP), which protected the exclusive territories of
its U.S. bottlers, were at issue. See Pittsburg, 431 F.3d at 1250, 1258. We are not aware of
any such TEP program that protects bottlers in Peru.
The Independent Bottlers Association ("IBA"), a non-profit corporation that represents
PepsiCo's U.S. independent bottlers and amicus curiae in this case, contends that the
EBA in this case is identical or substantially similar to the agreements between PepsiCo
and IBA's member-bottlers. As a result, it warns, a decision affirming the district court
would 'threaten[] to disrupt the long held expectations and obligations between
PepsiCo and its [U.S. independent bottlers]." IBA Br. at 1. But agreements such as those
of the IBA's members are not before us, and we do not consider them here. We decide
this appeal on the basis of the specific agreement and circumstances before us.
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exclusion of evidence to affirm the judgment of the district court.
CONCLUSION
We have considered CEPSA's remaining arguments on appeal and
conclude that they are without merit. We therefore AFFIRM the judgment of the
district court.
26