'The arbitral tribunal's holdings of law

A. Validity and interpretation of the Agreement

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3. Section 1.1 of the Agreement is not ambiguous

a) [Claimant]'s argument

223. [Claimant] argues that Section 1.1 of the Agreement is ambiguous ([Claimant's] Post-Hearing Brief …).

b) Section 1.1 is unambiguous

224. Section 1.1 contains the definition of "Products". It contains three sentences: The first one states that the term "Products" encompasses the items listed on Exhibit B. The second sentence states that [Respondent] has the right "to modify, add to or discontinue any or all of the Products". The third sentence states that [Claimant] "shall have no claim for compensation for Products deleted from Exhibit B". In other terms, Section 1.1 defines the starting point, i.e. the definition of Products falling under the Agreement. The second sentence stipulates the right of [Respondent] to alter the list of Products. The third sentence provides that, in such event, [Claimant] has no claim for compensation.

225. The intention of the Parties is obvious and the Arbitral Tribunal does not see how this intention could have been drafted in clearer terms. It cannot be said that this provision of the Agreement is ambiguous.

226. If [Claimant], in support of its argument, cites the questions by the Chairman at the Hearing whether this provision would have allowed [Respondent] to remove 50% or even 100% of the Products ([Claimant's] Post-Hearing Brief …), this is of no avail: Obviously, the wording of Section 1.1 "any and all of the Products", allows [Respondent] to withdraw even the totality of the Products. In that regard, the clause is absolutely clear. Whether or not [Respondent] is allowed, by asserting its right under Section 1.1, to terminate the Agreement otherwise than provided for by the termination clause in Section 7.1 (Term of the Agreement) is another matter. In such case it would have to be determined whether such disguised unilateral termination under the circumstances is abusive and should therefore not be allowed. However, this theoretical possibility need not be examined as only 6% of the [Claimant]'s sales were indeed affected by the Products removed.

c) [Claimant], in fact, has understood the meaning of Section 1.1

227. The evidence has shown that [Claimant] was not confused about the meaning of this provision. …

d) [Claimant]'s ambiguity argument to be rejected

228. Section 1.1 is of the required clarity. [Claimant] has rightfully interpreted Section 1.1 to mean that it can assert "no claim for compensation" for products deleted from the Agreement. Accordingly, if the Tribunal were to rule that [Claimant] - as it petitions the Arbitral Tribunal to do - can seek compensation for the Products discontinued by [Respondent], such a ruling would contradict not only the unambiguous language of the Agreement, but also the explicit understanding of this section by [Claimant].

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5. No implied best efforts clause in the Agreement

a) [Claimant]'s argument

248. The Agreement does not contain any language obliging [Respondent] to exert "best efforts" in providing Products to [Claimant]. [Claimant] has nonetheless argued that [Respondent] was subject to an implied duty of best efforts pursuant to Section 2-306(2) of New Jersey's Uniform Commercial Code (the "UCC"). UCC Section 2-306(2) reads as follows (italics added): "A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale."

b) Implied duty of best efforts in New Jersey law

249. As quoted above, UCC Section 2-306(2), by its plain language, applies only to exclusive distribution arrangements. More specifically, courts have interpreted UCC Section 2-306(2) to impose a best efforts duty only on the beneficiary (or grantee) of the exclusivity right, not on the party that is granting the exclusivity right. For example, where a manufacturer (such as [Respondent]) grants a distributor (such as [Claimant]) the exclusive right to sell products in a specified territory, the distributor owes the manufacturer an implied duty to use its best efforts in selling the products. See, e.g., Tigg Corp. v. Dow Corning Corp., 962 F.2d 1119, 1125 (3d Cir. 1992); HML Corp. v. General Foods Corp., 365 F.2d 77, 80 (3d Cir. 1966).

250. The rationale for imposing a best efforts duty on the beneficiary, rather than on the grantor, of the exclusive right is obvious. The beneficiary of an exclusive right has monopoly power, inasmuch as the beneficiary has the exclusive right to buy (or sell) the products in question. A best efforts obligation is therefore imposed on the beneficiary to prevent it from abusing its monopolist position at the expense of the party granting the exclusivity right. As the Third Circuit Court of Appeals (covering the District of New Jersey) explained in a 1992 decision (Tigg. Corp., 962 F.2d at 1125 (applying N.Y. law) [italics added]): "In a non-exclusive arrangement the buyer's [i.e. distributor's] efforts in reselling the product may have little effect on the original seller [i.e. manufacturer]. If the buyer does not resell the product, the seller, without breaching the contract, may solicit orders from potential buyers. By contrast, in an exclusive dealing arrangement the seller has only one outlet for its goods. It is obligated not to sell anyone except the buyer. In such a situation, the seller's interests are inextricably bound up with the success of the buyer in reselling the product. The obligation placed on the buyer to use best efforts reflects its monopoly power; the exclusivity arrangement makes the seller as subject to the decisions of the buyer as a subsidiary within the buyer's firm."

c) No exclusivity obligation of [Claimant], hence no best efforts duty of [Respondent]

251. Because, as shown above, para. 206 et seq., [Respondent] was not the beneficiary of any exclusivity obligation on the part of [Claimant], [Respondent] owed no best efforts duty to [Claimant]. In other words, because [Respondent] did not have the right to require [Respondent] to distribute its products exclusively, [Respondent] had no implied duty to use its best efforts in providing [Claimant] with products.

d) Lack of best efforts net [sic] shown by [Claimant]

252. Even assuming, arguendo, that [Respondent] was subject to a "best efforts" obligation, which it was not, [Claimant] has not shown that [Respondent] has not abided by that standard. New Jersey courts have defined the "best efforts" standard as a "form of good faith and sound business judgment". Martin v. Monumental Life Ins. Co., 240 F.3d 223, 234 (3d Cir. 2001). Thus, in order to determine whether [Respondent] exercised its best efforts in providing the products to [Claimant], one question before the Arbitral Tribunal is whether [Respondent] exercised good faith and sound business judgment in deciding what products it would not sell to [Claimant].

253. As [Respondent]'s witnesses have attested, [Claimant] discontinued the product lines in question because it was losing market share and profits on those products. Rather than continue to lose market share and profits competing with [competitors], [Respondent] decided to cut its losses and sell the product lines to its competitors … Thus, [Respondent]'s decision to discontinue the product lines was a good-faith business judgment based on economics. It affected [Claimant] the same as the rest of [Respondent]'s 150-plus distributors, including all of its Master Distributors …

254. [Claimant] has not contested the good faith business motive underlying [Respondent]'s decision to sell the product lines. Nor has [Claimant] even speculated as to - much less proved - a different ulterior motive. Thus, the record on this point is uncontested.

255. The best efforts rule does not, as a matter of law, compromise a contracting party's right to exercise independent business judgment. For example, in Martin v. Monumental Life Ins. Co., the Third Circuit Court of Appeals interpreted a contract under which defendant, an insurance underwriter, agreed to use its best efforts in marketing plaintiff's insurance products to a defined group of elderly people (Martin, 240 F.3d at 228-29). Plaintiff claimed that defendant breached this best efforts obligation by marketing the insurance products only to members of the elderly group "that could meet [defendant's] profit goals", rather than to all members of the group. Id. at 234. In rejecting plaintiff's claim, the Third Circuit held as follows (id. at 235 [italics added]): "No reasonable reading of 'best efforts' compels [defendant] to market to all, or substantially to all … members, regardless of age. [Defendant] did not compromise its right to exercise sound business judgment in its marketing programs."

256. See also Trecom Bus. Sys., 980 F. Supp. at 776 ("The law does not require that a party act in vain or incur unreasonable costs and efforts in an attempt to sell what it concludes to be a unmarketable product.").

257. The holding in Martin applies equally here: "best efforts" did not require [Respondent] to "compromise its right to exercise sound business judgment". Nor did "best efforts" require [Respondent] to continue selling products to the marketplace where [Respondent] determined that it is no longer profitable to do so.

6. No violation of the covenant of good faith and fair dealings implied in the Agreement

a) [Claimant]'s argument

258. [Claimant] argues that: "A covenant of good faith and fair dealing is implied in every contract in New Jersey" ([Claimant's] Post-Hearing Brief, p. 15) and that such implied covenant was violated by [Respondent].

b) Implied covenant of good faith and fair dealing under New Jersey law

259. The Arbitral Tribunal agrees with [Claimant] that there is a covenant of good faith and fair dealing implied in every contract governed by New Jersey law.

c) No override of express and unambiguous contract terms by implied covenant

260. However, under long and well-settled precedent, this implied covenant of good faith and fair dealing cannot override the express and unambiguous terms of a contract. See, e.g., Northview Motors, Inc. v. Chrysler Motors Corp., 227 F.3d 78, 91, (3d Cir. 2000) (dismissing an implied covenant claim and holding that the implied covenant "is not divorced from the specific clauses of the contract and cannot be used to override an express contractual term").

261. In other words, the implied covenant of good faith and fair dealing cannot be utilized to obliterate express and unambiguous contractual terms. "After all, if contracting parties cannot profitably use their [express] contractual powers without fear that a jury will second-guess them under a vague standard of good faith, the law will impair the predictability that orderly commerce requires". Duquesne Light Co., 66 F.3d at 618 (quoting Burton, 35 Wm. and Mary L. Rev. 1533, 1550 [1994]).

262. Because Section 1.1 of the Agreement is an express and unambiguous contractual term, it cannot be overridden by the implied covenant of good faith and fair dealing. In particular, because Section 1.1 expressly gave [Respondent] "the right to modify, add to or discontinue any or all of the Products", no possible or contrived application of the implied covenant can take that right away from [Respondent]. Nor can any application of the implied covenant give [Claimant] the right to seek compensation for products deleted from the Agreement when Section 1.1 expressly states that [Claimant "shall have no claim for compensation for Products deleted from [the Agreement]".

c) No bad-faith motive asserted, let alone proved by [Claimant]

263. Even assuming, arguendo, that the implied covenant could be used to override the express language of Section 1.1 - which, as a matter of law, it cannot - [Claimant] still cannot prevail on its implied covenant claim. This is because, under New Jersey law, [Claimant] cannot succeed on an implied claim unless it proves that [Respondent] acted out of a "bad faith" motive toward [Claimant]. Wilson v. Amerada Hess Corp., 168 N.J. 236, 251, 773 A.2d 1121, 1130 (N.J. 2001). "Without bad motive or intention, discretionary decisions that happen to result in economic disadvantage to the other party are of no legal significance." (Id.)

264. [Claimant] has not even alleged (much less proved) that [Claimant] acted out of any particular bad faith motive …

265. Thus, the uncontested testimony (and documentary record) show that there was no conspiracy to withhold information about sales of the product lines from [Claimant].

d) Conclusion

266. In conclusion, [Claimant] has failed on its implied covenant claim because: (i) the implied covenant of good faith and fair dealing cannot, as a matter of law, override an express and unambiguous contractual term such as Section 1.1; (ii) [Claimant] has failed to allege or prove any specific bad faith motive underlying [Respondent]'s actions; and (iii) all the evidence shows that [Respondent] acted in good faith based on legitimate business considerations.

7. The Agreement, in particular Section 1, to be interpreted as written

a) [Claimant]'s argument

267. [Claimant] argues that Section 1.1 of the Agreement can be "supplemented by the business relationships of the parties, as well as by trade usages and practices" ([Claimant's] Rejoinder …). In particular, [Claimant] has argued that the alleged course of conduct and dealing between [Respondent] and [Claimant], as well as alleged trade practices in the … industry, show that [Respondent] and [Claimant] intended Section 1.1 to permit [Respondent] to discontinue products only if "these products would be replaced by newer ones" (Id. …).

b) No extrinsic evidence or trade usages to vary clear and unambiguous Agreement

268. [Claimant]'s argument cannot be sustained [as] a matter of law:

269. First: where, as here, a contractual provision is clear and unambiguous on its face, New Jersey law is well settled that evidence extrinsic to the contract - such as course of conduct and trade usage evidence - may not be used to vary or modify the provision. See, e.g., Zylla, 2003 U.S. App. LEXIS 1730, at *16-17 ("[I]f the plain language of the contract is clear, courts must not look to other evidence") (quotations omitted); Dun & Bradstreet Software Servs. v. Grace Consulting, Inc., 307 F.3d 197, 211-12 (3d Cir. 2002), cert. denied sub nom., No. 02-1307, 2003 LEXIS 3713 (U.S. May 19, 2003) ("Custom and usage may not be invoked… Extrinsic evidence may not be used to nullify or modify the terms of a valid, unambiguous… agreement"). Section 1.1 unambiguously permits [Respondent] to "discontinue any or all of the Products". It also unambiguously states that [Claimant] "shall have no claim for compensation for Products deleted from [the Agreement]". These unambiguous terms cannot, as a matter of law, be altered by extrinsic "course of conduct" or "trade usage" evidence.

270. Second: if the Arbitral Tribunal were to rule that [Respondent] was required to "replace" discontinued Products with "newer ones", as [Claimant] urges, it would be adding a new term to the Agreement. In effect, the Tribunal would be imposing an additional contractual obligation on [Respondent - i.e. the obligation to replace discontinued Products with newer ones - that does not exist anywhere in the Agreement.

271. Third: as UCC Section 2-202 makes clear, a court may not supplement a contract with "additional terms" if the parties intended the written contract to encompass the "complete and exclusive statement of the terms of their agreement". UCC § 2-202(b) (Exh. 3 to [Claimant]'s Rejoinder). Here, [Respondent] and [Claimant] did intend the Agreement to encompass the complete and exclusive terms of their agreement. Section 8.4 of the Agreement, which is an integration clause, reads as follows: "This Agreement constitutes the entire agreement between the parties hereto". See, e.g., Telecom International America Ltd., 280 F.3d at 191 ("[U]nder New Jersey law, the presence of an unequivocal and conspicuous integration clause further strengthens the presumption of completeness and is nearly dispositive").

c) Conclusion

272. Because the "entire" agreement between [Respondent] and [Claimant] did not include an obligation to "replace" discontinued Products with "newer ones", the Tribunal may not, as a matter of law, find that such an obligation exists.

B. No breach of the agreement by [Respondent]

1. Section 1.1

a) Cause of action only if breach of an affirmative contract obligation

273. In order to successfully assert a claim for breach of contract, [Claimant] must demonstrate that a "breach" occurred. "Breach of contract" is defined as the "[f]ailure, without legal excuse, to perform any promise which forms the whole or part of a contract". Black's Law Dictionary at p. 98 (West Publishing Co., 1983) (italics added). See also In re Columbia Gas Sys. Inc. 50 F. 3d 233, 229 n.10 (3d Cir. 1995) (explaining that a breach of contract is the failure by a party to perform its "obligations" under the contract); Medivox Prods., Inc. v. Hoffmann-LaRoche, Inc., 107. N.J. Super. 47, 58-59, 256 A.2d 803, 809 (N.J. Super. Ct. 1969) ("If… during the course of performance one party fails to perform 'essential obligations under the contract', he may be considered to have committed a material breach") (citations omitted) (italics added).

274. In short, [Claimant]'s breach of contract claim can only be granted if [Claimant] shows that [Respondent] failed to perform an affirmative promise or obligation under the Agreement.

b) [Claimant]'s argument

275. [Claimant] alleges that [Respondent] "failed to observe" Section 1.1 of the Agreement, when in 2001 [Respondent] discontinued certain product lines that it sold to [competitors] ([Claimant's] Reply …).

276. Section 1.1 of the Agreement provides as follows:

Products. The term "Products" shall mean [Respondent's] … supplies and devices, which are specifically listed on Exhibit B, attached hereto, identified by product and code number, as it may be amended from time to time. [Respondent] shall have the right to modify, add or discontinue any or all of the Products. [Claimant] shall have no claim for compensation for Products deleted from the Exhibit B.

c) No breachable obligation of [Respondent] in Section 1.1

277. Section 1.1 does not impose any contractual obligation or promise on [Respondent] that can be breached. To the contrary, Section 1.1 provides [Respondent] with a right to do something - namely, the right to modify, add to or discontinue any or all of the products under the Agreement. For this reason alone, the Tribunal cannot, as a matter of settled law and simple logic, rule that [Respondent] "breached" Section 1.1 of the Agreement.

d) Unambiguous right of Respondent] to discontinue any or all of the Products

278. Even assuming, arguendo, that Section 1.1 imposed a breachable promise or obligation on [Respondent], which it did not, [Respondent] could not have violated this provision when it discontinued product lines as a result of its sales to [competitors]. As set forth above, the unambiguous wording of the Section 1.1 gave [Respondent] the right to "discontinue any or all of the Products". Thus, Section 1.1, by its plain language, gave [Respondent] the right to discontinue any of the Products covered by the Agreement. Section 1.1 also states, unambiguously, that "[Claimant] shall have no claim for compensation for Products deleted from [the Agreement]".

2. Section 7.1

a) [Claimant]'s argument

279. [Claimant] claims that [Respondent] also "failed to observe" Section 7.1 of the Agreement ([Claimant's] Reply, p. 2). Section 7.1 of the Agreement provides as follows:

Term of Agreement. Unless earlier terminated pursuant to the terms herein, this Agreement shall commence upon the execution of this Agreement by the Manufacturer and the Master Distributor and shall continue in effect for a period of three (3) years from the date of such execution (the "Initial Term"). Following such Initial Term, this Agreement shall automatically extend for successive periods of one (1) year unless either party provides the other party written notice of termination at least 120 days prior to the expiration of such Initial Term or any one (1) year extension period. Any such termination should be effective as of the expiration of the Initial Term or such extension period.

b) No breachable obligation of [Respondent] in Section 7.1

280. Section 7.1 does not impose any obligation or duty of performance upon [Respondent]. To the contrary, Section 7.1 gives both parties the elective right to terminate the Agreement on 120-days' written notice, a right that [Respondent] properly exercised. Id. Accordingly, like Sections 1.1 and 7.3, [Respondent] could not have "breached" Section 7.1. The contrary conclusion is impossible as a matter of law.

3. Section 7.3

a) [Claimant]'s argument

281. [Claimant alleges that [Respondent] breached Section 7.3 of the Agreement when it sold the product lines to [competitors] in 2001 ([Claimant's] Reply …). Section 7.3 of the Agreement provides as follows:

Termination of the Agreement may be initiated when the legal structure and/or ownership of either of the parties have changed in such a fashion as to seriously affect the results that could reasonably expect from the Agreement.

b) No breachable obligation of [Respondent] in Section 7.3

282. Section 7.3 does not impose any obligation of any kind upon [Respondent]. Rather, it gives both [Respondent] and [Claimant] the right to terminate the Agreement in the event there is a change in "the legal structure and/or ownership" of the other Party that "seriously affects the results that could reasonably be expected from the Agreement." As discussed above, [Claimant] cannot as a matter of law or logic claim that [Respondent] "breached" - i.e. failed to perform - a contractual provision that does not impose any obligation of performance on [Respondent].

283. Even assuming, arguendo, that [Respondent] could breach Section 7.3, which is impossible, Section 7.3 is not applicable to the facts of this case. … the only assets that [Respondent] sold to [competitors] were certain specifically identified product lines … [None of the competitors] acquired any shares or ownership or controlling interests of any kind in [Respondent] itself …

284. Although [Claimant] has, throughout this arbitration, insisted that the 2001 transactions with [the competitors] led to a change in the ownership of [Respondent], there is no evidence in the record to support this allegation …

285. Because [Respondent]'s agreements with [the competitors] did not in any way change the "legal structure and/or ownership" of [Respondent], Section 7.3 is not applicable to the issues to be decided in this Arbitration. In this regard, [Claimant]'s argument that Section 7.3 applies to a change in the ownership of [Respondent]'s "activities" (see [Claimant's] Reply …) - as opposed to a change in ownership of [Respondent itself - must be rejected. Section 7.3. of the Agreement states, unambiguously, that "[t]ermination of the Agreement may be initiated when the legal structure and/or ownership of either of the parties have changed" (underlining added). Again: because the language of the contract is clear and unambiguous, New Jersey law obligates the Arbitral Tribunal to enforce the Agreement as it is written.

4. Section 8.1

a) [Claimant]'s argument

286. Section 8.1 of the Agreement provides that "[Respondent] shall be entitled to transfer, either wholly or in part, the specific rights and duties of this Agreement to a company under its control." [Claimant] argues that [Respondent] should be held liable for breach of Section 8.1 because, in connection with [Respondent]'s sales to [the competitors], "[Respondent] should have transferred not only the rights but also the contractual obligations of the Agreement" to [the competitors] ([Claimant's] Reply …).

b) No breachable obligation of [Respondent] in Section 8.1

287. Section 8.1, like the other contractual provisions identified by [Claimant], does not impose any obligations or duties on [Respondent]. Rather, it gives [Respondent] a right - i.e. the right to transfer the Agreement, in whole or part, to a company under its control. [Respondent] was free to exercise or not exercise this right at its own discretion. For this reason alone, [Claimant]'s claim that [Respondent "breached" Section 8.1 is deficient as a matter of law.

5. Section 8.4

a) [Claimant]'s argument

288. Section 8.4 of the Agreement provides as follows:

Entire Agreement; Modification. This Agreement constitutes the entire agreement between the parties hereto and supersedes all previous negotiations, arrangements and commitments with respect thereto, and shall not be released, discharged, changed or modified in any matter except by instruments signed by duly authorized representatives of each of the parties hereto. If any provision of this Agreement or the application thereof to any party or circumstance shall be declared void, illegal or unenforceable, the remainder of this Agreement shall be valid and enforceable to the extent permitted by applicable law. In such event, the parties shall use their best efforts to replace the invalid or unenforceable provision by a provision that, to the extent permitted by applicable law, achieves the purposes intended under the invalid or unenforceable provision.

289. [Claimant] has claimed that [Respondent] breached Section 8.4 for the following reason: "No documents signed by an authorized person at [Respondent] informed [Claimant] of any contractual changes, nor any modifications or arrangement or agreements were signed between [Claimant] and [Respondent in relationship to these changes." ([Claimant's] Reply …). [Claimant] appears to be arguing that [Respondent] amended the terms of the Agreement without first obtaining a written document signed by both parties endorsing such amendment.

b) No amendments to the terms of the Agreement

290. The fundamental problem with [Claimant]'s Section 8.4 argument is that there were no amendments to the rights and obligations set forth in the Agreement. Significantly, [Claimant] does not identify what contractual amendments it is even referring to.

291. To the extent that [Claimant] is suggesting that [Respondent]'s discontinuance of products sold under the Agreement was a contractual amendment requiring a writing signed by both parties, [Claimant] is incorrect: [Respondent]'s deletion of products did not in any way change the terms of the Agreement. To the contrary, as discussed above, [Respondent] discontinued products from the Agreement pursuant to the existing contractual terms set forth in Section 1.1.

292. In other words, [Respondent] did not need a written amendment giving it the right to discontinue products. That right was already included in the originally-executed Agreement.'