Saturday, 30 September 2006 17:00

Body shop breaks contract with jobber, ordered to pay up

A lawsuit brought against a body shop in San Francisco by a distributor of DuPont and Spies Hecker paints sheds some interesting light on current practices in the automotive paint distribution business. It may also serve as a warning to body shop owners that if you have a contract to buy paint from a particular jobber, think twice before you break that contract. 

A judge in San Francisco awarded $124,800 against Sun Jib Corporation, dba 19th Avenue Auto Body Center in San Francisco (19th Avenue) for breaching its contract to buy paint from Nicolosi Distributing, Inc., a family-owned and operated paint jobber.

According to court papers, 19th Avenue had been a paint customer of Sherwin-Williams for about seven years until, on October 29, 2003, it signed a five-year agreement "to purchase only and exclusively from Nicolosi all DPC (DuPont Corporation) product for all refinishing work performed for the period of 60 months."

In return for its business, 19th Avenue was to get a 25% discount off the Spies Hecker refinishing price schedule, technical training and support, and a paint mixing system valued at $18,495. The contract noted that this was a "binding contract" and a "confidential agreement."

In its complaint, Nicolosi asked for $144,000 in damages, computing them as follows:

Sales per month to 19th Avenue: $15,000.

Profit Margin: 20%

Further discounts from DuPont: 4%

Total Profit Margin: 24%

Profit per month (.24 x 15,000) 3,600

Total loss (40 mo. X 3,600) 144,000

Loan is part of the deal

So why did 19th Avenue switch to DuPont after such a long relationship with Sherwin-Williams? It may have to do with a large loan to 19th Avenue. Not included in the contract but set out in a separate agreement with DuPont was a $500,000 loan to 19th Avenue, to be arranged by DuPont, that would allow 19th Avenue to upgrade its facilities. The principal owner of defendant 19th Avenue, Jay Lee, told San Francisco Superior Court Judge Diane Elan Wick that he had discussed such a loan with Sherwin-Williams "but later determined that the products made by Spies Hecker were superior to Sherwin-Williams."

Jay Lee testified that, one day after signing the five-year deal with Nicolosi, he signed a "DuPont Term sheet proposal" in which DuPont proposed to facilitate the $500,000 loan in return for 19th Avenue entering into an exclusive five-year contract with an authorized Spies Hecker jobber. The DuPont agreement did not specify any particular Spies Hecker jobber, but in a seeming acknowledgment of the Nicolosi contract, DuPont later notified Tony Nicolosi that it would provide the additional five percent discount to him that Nicolosi had given to 19th Avenue. Nicolosi had originally offered only a 20 percent discount to 19th Avenue but at the last minute authorized his sales manager to hand-write "based on 25% Discount" on the contract in order to close the deal. When he agreed to the higher discount to close the deal, Nicolosi says he had no guarantee that DuPont would pick up that extra five percent.

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The $500,000 loan was provided as promised and Nicolosi began selling paint and non-paint supplies to 19th Avenue. Then, on June 30, 2005, the orders stopped coming. Nicolosi learned that 19th Avenue was buying from another DuPont jobber, Finishmaster. Nicolosi sent a letter to 19th Avenue advising that it was in violation of its five-year contract, but allegedly got no response.

Nicolosi also sent a letter to FinishMaster at its Indianapolis headquarters, advising that company of the five-year contract between Nicolosi and 19th Avenue, noting "If you did not know about our contract before, you know about it now. We ask that you stop all sales to 19th Ave Auto Body. Please advise us immediately if you will honor this request." Again, contends Nicolosi, there was no response.

Left with no alternative, Nicolosi hired an attorney, Herman Franck of Sacramento, and sued both 19th Avenue and Finishmaster in separate lawsuits (It's interesting to note that Franck's father is a former paint jobber). Finishmaster was sued in Federal Court for interfering in Nicolosi's contractual relationship with 19th Avenue. That action is still ongoing.

Shop says bad training and support

19th Avenue, sued in State Court for breach of contract, says it had a right to break the contract. The body shop contended that Nicolosi had first breached both the express and implied warranties under the contract by failing to provide technical training and support on all Spies Hecker products. 19th Avenue contended that because it didn't get after-sales support, it had to find some other company for that service. It also accused Nicolosi of price gouging. For these reasons, 19th said it was justified in terminating its contract with Nicolosi and buying its paint elsewhere.

The judge at the trial - by agreement there was no jury - decided there was insufficient evidence to prove that 19th Avenue was justified in terminating the contract. The judge noted that "the evidence supports that technical support was provided to 19th Avenue Auto Body on-site and that it declined to accept offers that its employees attend training at the Southern California Spies Hecker Training Center." The judge then ruled for Nicolosi on its claim of breach of contract. In addition to the proposed $124,800 damages awarded to plaintiff Nicolosi, the court may issue an order awarding costs, including any attorneys fees awarded as costs.

 

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