Summary of a Recent
Judicial Development in
Commercial Transactions

Plaintiff Allowed to Amend Pleadings to Establish Fiduciary Relationship
and Distributorship Agreement

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In D & M Edwards, Inc. v. Bio-Cide International, Inc., No. 3:08-CV-0670-L, 2009 WL 102732 (N.D. Tex. Jan. 14, 2009), the United States District Court for the Northern District of Texas held that the plaintiff had failed to establish the existence of a written distributorship agreement or a confidential fiduciary relationship between the parties, but because the defects in the plaintiff's petition could be easily remedied, the court granted the plaintiff leave to amend.

Background

D & M Edwards, Inc. (D & M) entered into an agreement with Bio-Cide International (Bio-Cide) to develop and market Bio-Cide's products for use in the food processing industry. Id. at *1. Bio-Cide agreed that D & M was its master distributor and could recruit other distributors and receive a five percent commission on their purchases. Id. However, Bio-Cide refused to acknowledge such in writing, and never paid commission to D & M. Id. D & M subsequently brought claims for breach of contract and breach of fiduciary duty against Bio-Cide, and Bio-Cide moved for dismissal. Id.

Arguments

Bio-Cide argued that D & M had failed to state a claim upon which relief could be granted because the alleged distributorship agreement was never reduced to writing and therefore did not comply with the statute of frauds provision of the UCC. Id. at *2. Bio-Cide also argued that the claim for breach of fiduciary duty should be dismissed because a supplier-distributor relationship does not give rise to a fiduciary duty. Id. at *4.

D & M responded that the distributorship agreement was evidenced by an e-mail from Bio-Cide's president and CEO. Id. at *3. D & M also acknowledged that a supplier-distributor relationship does not give rise to a fiduciary duty, but argued that its breach of fiduciary claim was based upon a confidential relationship between the parties. Id. at *4.

Analysis and Holdings

The court determined that D & M could not rely on the e-mail to defeat Bio-Cide's motion to dismiss because it was not attached to D & M's petition, and without attachment of the e-mail, the allegations in the petition were insufficient to state a valid breach of contract claim. Id. at *3. However, the court reasoned that the deficiency could be easily corrected and allowed D & M to do so by amending its pleadings. Id. The court also found that the allegations did not demonstrate the creation of a fiduciary relationship between D & M and Bio-Cide because the petition did not include allegations regarding the president of D & M's relationship with Bio-Cide's sales manager, but it gave D & M an opportunity to correct the defects in the petition. Id. at *4. The court therefore denied Bio-Cide's motion to dismiss without prejudice. Id. at *5.

The case was decided on January 14, 2009.