Is It Actionable When a Manufacturer Drops a Retailer?

As we have seen with Pandora, it’s not uncommon for big brands to drop small jewelers from their network once their name grows. (And sometimes retailers will stop selling once-hot lines when they cool off.)

This rankles many jewelers, who complain they have spent time and money building a line in a local market only to have that line move to a competing retailer, or, more commonly, open a competing store, sometimes nearby. Most just lick their wounds and go on.

But this behavior could be actionable, according to Brian Manookian, a Nashville, Tenn., lawyer who last year sued local jeweler Genesis Diamonds for selling diamonds with EGL International reports. (Those suits have since been settled, and Genesis no longer carries those reports.)

Now, the onetime Genesis nemesis is representing Genesis Diamonds in a lawsuit against John Hardy that, if it prevails in court, could have repercussions for the future of jeweler-supplier relationships. (As far as representing his former adversary, Manookian says it is “not particularly uncommon,” and he considers it a compliment.)

According to the suit:

– Genesis had been the sole authorized local retailer for John Hardy since 2010 and had made “significant efforts” to promote the line locally with advertising.

– In June, John Hardy terminated its relationship with Genesis and moved it to a competitor, King Jewelers.

– It also removed Genesis from the list of authorized retailers on its site.

These things happen with brands. So where’s the lawsuit?

The complaint, filed Oct. 9 with the circuit court for Davidson County, Tenn., charges Hardy with the following:

– Unfair and deceptive trade practices for removing Genesis from its list of authorized retailers, thereby making consumers believe that Genesis is selling unauthorized John Hardy jewelry, no longer covered by its warranty.

– Promissory fraud, as the suit charges that John Hardy was working to transition the line to another retailer while its sales representatives “pressured Genesis to keep purchasing John Hardy jewelry based on the knowingly false promise” that the relationship would continue.

– Breach of contract, as John Hardy execs “actively encouraged Genesis to believe the relationship would continue indefinitely,” the suit says. John Hardy also did not give Genesis “reasonable notice” of the deal’s termination as defined by Tennessee law, it further alleges.

This charge is interesting, since the contracts it references—John Hardy execs’ alleged assertions—seem to be mostly verbal assurances.

 “Oral contracts are just as binding as written ones,” Manookian says. “You don’t have to have a written contract for these relationships to be enforceable.”

– Unjust enrichment, since John Hardy benefited from Genesis’ advertising, which the latter undertook in what the suit calls false pretenses.

As Manookian admits, we haven’t seen many cases of this type in the jewelry industry. He believes the sometimes-informal agreements between retailers and certain brands have “led to this imbalance of power where the brands can just jump ship at any time. The retailers have substantial rights based on course of conduct, expectations, and past business transactions.”

Of course, that’s just his argument. The courts may not agree. John Hardy declined comment.

JCK News Director