The lawsuit was filed in U.S. District Court, Eastern District of Texas, Beaumont Division in January 2000, but did not go to trial until April 2002. The trial lasted four days. At press time, U.S. District Court Judge Howell Cobb had not yet entered his final judgment.
Kohler Co. stated its intention to mount a "vigorous appeal," asserting that the judge in the case provided incorrect instruction to the jury regarding Texas law as it pertains to terminating manufacturer/distributor relationships. The Texas Supreme Court ruled in 1977 and again in 2000 that such relationships which are indefinite in duration can be terminated at the will of either party, Kohler said in a statement. Also, Kohler will contend that the judge did not insist that required rules of evidence be followed during the presentation of the case against Kohler, the company said.
"Kohler terminated our relationship in September 1999, giving us 105 days notice, but they had been in negotiations over a two-year period with another wholesaler to replace us as their distributor," said Don Maloney, president of Coburn Supply. The other distributor was LCR-M Corp., which operates Jahns Supply Co., Fort Worth, Texas; The Plumbing Warehouse/LCR, Baton Rouge, La.; and Moore Supply, Conroe, Texas. LCR-M reports its financials as part of Hajoca Corp.
"We estimated our damages at more than $1.9 million and lost profits were in the range of $300,000 to $800,000," Maloney said.
Coburn had carried Kohler products as its "premier" line since 1939, he said, adding, "We were like family." The wholesaler had to quickly transform its Kohler-registered showrooms, in some cases undergoing renovation when the Kohler products were removed. Coburn began selling American Standard products, which had been carried by the other distributor, Maloney said.
"Essentially, we swapped," he said. "Our showroom business is fine. The people at American Standard have been very helpful."
During the trial, a videotaped deposition featuring the testimony of David Kohler, group president/kitchen and bath group, was played in court, and both Don Maloney and his brother, A.J. Maloney took the stand, according to Larry Veselka of Smyser, Kaplan & Veselka, the Houston-based law firm that represented Coburn.
Kohler testified that its new distributor needed 18 to 24 months to transition from its previous supplier, which helped to establish that 105 days' notice was unreasonable, Veselka said.
In the Amended Joint Pre-Trial Order in which the contentions of the parties were described, Coburn said that Kohler had encouraged the wholesaler to increase its promotion of Kohler products and to expend money to increase its promotion of Kohler products through the years 1997, 1998 and the spring of 1999. Coburn also said that Kohler reconfirmed its distributorship in writing in May 1999. After the termination of the relationship with Kohler, Coburn was left with signs, displays, inventory and other materials that it could not use or sell profitably and suffered a loss of profits in having to make a transition to another major manufacturer in such a short time frame, Coburn said in the court documents.
"As is common in this industry, Coburn and Kohler did not have a written contract and either party could terminate the relationship at any time, for any reason," Kohler said in the document. "Kohler believed that Coburn was not adequately representing Kohler in the sale of Kohler's products. During the economic boom of the 1990s, Coburn's sales of Kohler products declined," Kohler said.
The manufacturer reported that Kohler's market share in Coburn's territory had shrunk from 12.9% in 1992 to 7.6% in 1997 and that while Kohler's market share was declining, Coburn's overall sales of non-Kohler products were dramatically increasing.
"In 1997 Kohler started negotiations with a distributor named LCR-M which at that time represented American Standard," Kohler said in the documents. "After nearly two years of discussions, Kohler and LCR-M entered into a distributor relationship and LCR-M ended its relationship with American Standard."
The jury found that Kohler Co. had breached its contractual obligations to Coburn in the manner in which it terminated the distributorship agreement and that Kohler had knowingly made untrue statements to Coburn in the course of their business dealings, causing damages to Coburn from its reliance on those statements.
"Kohler Co. strongly believes the decision was wrong and will be reversed on appeal," said Ron Pace, president of the company's North American plumbing business. "Unlike many cases in which the decision to appeal is a tactical step, Kohler's appeal rests purely on the laws of the State of Texas."
Kohler is confident the Appeals Court in New Orleans, La., will reverse the decision, the manufacturer said in a statement.
"The third generation of Coburns was dealing with Kohler, and they were almost into the third generation of Kohler," Veselka said. "After the trial, a juror commented that Coburn was given 105 days' notice to terminate a relationship that had lasted more than 20,000 days."