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Interim Award of the Arbitrators

[1].
WE, THE UNDERSIGNED ARBITRATORS, having been designated by the above-named parties, and having been duly sworn, and having duly heard the proofs and allegations of such parties, do hereby issue this INTERIM AWARD, as follows:
[2].
On November 8, 2021, the above matter came on for hearing before the below arbitrators. Representing Dreamstyle were Chris Lilly, Benjamin Clements and Guy Bluff, and representing Renewal were Aaron Scott, Tami McKnew and Patrick Fenlon. The hearing continued through November 19, 2021, during which 22 witnesses, including expert damage witnesses, testified, and hundreds of exhibits were received, resulting in some 2,000 pages of record. In accordance with determinations by the arbitrators and understandings with the parties, the arbitrators would issue an Interim Award, continuing the hearing after such Interim Award to receive submissions on any award of attorney's fees and costs, and interest.
[3].
On November 23, 2021, a multi-hour post-hearing conference was held for the purpose of reviewing the issues and hearing argument of counsel. Subsequently, on December 6, 2021, extensive post-hearing submissions were received. Following the receipt of such submissions, party-in-interest issues were the subject of additional submissions and communications between counsel and the panel.
[4].
Prior to the hearing, Renewal made dispositive motions, some of which were ruled upon prior to the hearing, some of which were ruled upon during the hearing, and some of which have been ruled upon in this Interim Award, as described below.
[5].
Now, on the evidence at the hearing, the argument and extensive submissions of the parties, and the files and proceedings herein, the undersigned arbitrators, without dissent, make the following:

Interim Award

[6].
1. With respect to Renewal's dispositive motions, Dreamstyle's following claims are dismissed with prejudice: (a) violations of any franchise statute; (b) fraud; (c) interference with contract or economic advantage; and (d) rescission damages.

2. Renewal's counterclaim for damages associated with claims that Dreamstyle breached certain intellectual property provisions of the Retailer Agreements is dismissed with prejudice.

3. Except as provided in this Interim Award or the Final Award, all claims and counterclaims made in this arbitration are dismissed with prejudice.

4. No later than January 31, 2022, Dreamstyle shall complete the transfer of RbAFS.Com to Renewal.

5. Dreamstyle Remodeling Inc., a New Mexico corporation and Dreamstyle Remodeling LLC, a Delaware LLC, are awarded jointly against Renewal by Andersen, LLC: $5,935,635

(Consisting of $6,184,734 of damages awarded to Dreamstyle Remodeling, Inc., less or offset by $49,925, $62,544 and $136,630 damages awarded Renewal on its service restitution counterclaim, with interest to be determined as provided below.)

6. Dreamstyle Remodeling of San Diego, Inc., a California Corporation and Dreamstyle Remodeling of California LLC, a Delaware LLC, are awarded jointly against Renewal by Andersen, LLC: $418,929

(Consisting of $757,492 of damages awarded to Dreamstyle Remodeling of San Diego Inc., less or offset by $338,563 damages awarded Renewal on its service restitution counterclaim, with interest to be determined as provided below.)

7. The following Reasoning, including findings and conclusions contained therein, are a part of this Interim Award.

8. To assure correctness in respect to identifications of the parties provided in items 5 and 6 above, the undersigned reserve for the Final Award, and the hearing remains open for submissions in respect to, any necessary party-in-interest modifications, about which the parties shall confer and advise the undersigned of any concerns no later than January 17, 2022.

9. The undersigned reserve for the Final Award, and the hearing remains open for submissions in respect to, (a) any applications for an award of attorneys' fees, arbitration fees and/or costs, and (b) any applications for pre-award interest, any such applications due to the undersigned arbitrators no later than January 24, 2022. Any submission respecting attorneys' fees, arbitration fee and/or costs shall be limited to five pages and shall deal solely with the submitting party's claim of entitlement or its opposition to any claim of entitlement of the opposing party, with any submission respecting amounts to be reserved pending a determination, if warranted, of entitlement.

10. This Award shall remain in full force and effect until such time as a final Award is rendered.

Dated: January 3, 2022

REASONING

I. Introduction

[1].
1. Parties and Agreements: Renewal by Andersen, L.L.C. ("Renewal") is a Minnesota-based manufacturer of replacement windows and doors. This arbitration arose out of Renewal's termination and/or non-renewal of five Retailer Agreements between Renewal and entities owned by Larry Chavez ("Larry"), such Agreements being in respect to five geographical territories in the western United States—namely:

a. New Mexico owned by Dreamstyle Remodeling Inc., a New Mexico corporation;

b. Tucson owned by Dreamstyle Remodeling Inc., a New Mexico corporation;

c. Northern Arizona owned by Home Resort Living Inc., an Arizona corporation;

d. San Diego owned by Dreamstyle Remodeling of San Diego, Inc., a California corporation; and

e. Boise owned by Dreamstyle Remodeling of Boise, L.L.C., an Idaho limited liability company.

For convenience, the above owner entities, except as otherwise noted, are collectively referred to herein as "Dreamstyle."

[2].
2. Essence of Agreements: The essence of the Retailer Agreements was for Renewal to provide window and door products to the retailer to fulfill the retailer's sale and installation of such products to its homeowner customer—the retailer thereby providing the sales channel from Renewal as manufacturer to the homeowner customer as end-user. Other primary purposes or core provisions of the Agreements were (a) that the retailer would sell and install Renewal's products in a given geographical territory known as the Primary Market Area ("PMA"), which PMA was defined largely by the enumeration of zip codes in the Agreements , (b) that the retailer would be the exclusive seller of Renewal's products in the retailer's PMA, and (c) that the retailer's rights under each Agreement were for five-year terms with an option to renew the Agreement at the end of such term, subject to related conditions, for an additional five-year term. The Retailer Agreements, which were largely the same among all Dreamstyle retailers, contained other provisions important to this dispute, to be discussed below.
[3].
3. Termination: At a May 7, 2021, meeting and a follow-up May 8, 2018, letter, Renewal informed Dreamstyle of the intended termination and/or non-renewal of all five Retailer Agreements/locations, Renewal claiming breaches of Dreamstyle's Retailer Agreements and other concerns. Dreamstyle disputed Renewal's actions, and this dispute followed.1

II. Dispositive Motions

[4].
As noted in the above Interim Award, prior to the hearing, various dispositive motions were made by Renewal. They were determined as follows:

1. Motion to dismiss claims for tortious interference with contract: This motion was granted, as there was a failure of Dreamstyle to show any genuine dispute of fact as to whether there was a binding contract for the subject sale to the Esler Group, and a failure of Dreamstyle to prove any interference in any such sale or in the subject letter of intent. The motion of Dreamstyle to amend the arbitration demand to allege interference with prospective economic advantage was denied as futile, as the preponderance of the evidence showed that the failure of the subject sale to the Esler Group was not the result of actions by Renewal.

2. Motion to dismiss claims for violation of franchise statutes: This motion has been granted in the Interim Award, as Dreamstyle failed to sustain its burden of proof that Renewal required the payment of any fees which fees could be shown to have been payment for Dreamstyle's right to be, or continue as, a Renewal retailer.

3. Motion to dismiss claims for fraud: This motion was granted, as there was a failure of Dreamstyle to show there was any genuine dispute of fact as to any elements of fraud or misrepresentation or as to any harm that fraud or misrepresentation was a substantial factor in bringing about, and there was no evidence sustaining the same at the hearing.

4. Motion to dismiss claims of rescission damages: This motion was granted, as there was a failure of Dreamstyle to show there was any genuine dispute of fact as to whether such damages could be sustained under Minnesota law.

III. Relationship and Performance 2006 Through 2017

[5].
1. The Beginning: The relationship began in 2006, with Larry expressing an interest in becoming a Renewal retailer, and a Renewal manager visiting Larry at Larry's remodeling business in Albuquerque, New Mexico, which visit was followed by Renewal's invitation for Larry to visit with Renewal managers at Renewal's offices in Cottage Grove, Minnesota. In connection with this beginning, Renewal learned and was aware that home remodeling and a few related endeavors (sunrooms, bath fixtures, etc.) were Larry's principal businesses, and that home remodeling involved the sale and installation of windows. The first contractual relationship between the parties was the 2006 Retailer Agreement, in which the parties agreed that an entity owned by Larry, namely Dreamstyle Remodeling, Inc., a New Mexico corporation, would be Renewal's retailer in a New Mexico PMA, for a five-year term.
[6].
2. Additional Retailer Agreements: From 2006 through 2017, Renewal awarded Dreamstyle four additional Retailer Agreements/locations, and renewed existing Retailer Agreements at the end of their five-year terms. As of May 2018, the following Retailer Agreements were in force, with the following terms:

New Mexico: Term May 1, 2017, to April 30, 2022

San Diego: Term July 1, 2014, to June 30, 2019

Tucson: Term November 1, 2014, to October 31, 2019

Boise: Term June 8, 2015, to May 31, 2020

Northern Arizona: Term February 1, 2014, to January 31, 2019

We found that the willingness of Renewal to award new PMAs and to renew existing Retailer Agreements was evidence that Dreamstyle's sales, installations and customer satisfaction respecting Renewal's products were, at related times, sufficiently positive and aligned with the Retailer Agreements to warrant the award of new Agreements/locations and the renewal of existing Agreements/locations, in which locations Renewal agreed that Dreamstyle would be Renewal's exclusive sales channel.

[7].
3. Dreamstyle's Investments and Efforts: From 2006 through May of 2018, Dreamstyle made substantial investments in respect to and as necessary to further the objectives of its Retailer Agreements in each of its locations or PMAs, namely investments in hiring and training sales personnel, in hiring and training installers, in hiring management, clerical and call center personnel, in establishing show rooms, warehousing and/or distribution facilities and vehicles, in building customer data banks, and in creating and purchasing direct mail campaigns, advertising and other marketing efforts, all to build the Renewal market and brand in each Dreamstyle PMA.

Evidence at the hearing was that Dreamstyle spent up to $7,000,000 per year on advertising. And from sworn and undisputed interrogatory answers introduced at the hearing, the evidence was that Dreamstyle, in establishing and enhancing the Renewal markets and brand, spent some $34 million in all Dreamstyle's PMAs. Admittedly these expenditures provided for increased sales of Renewal products and in turn increased profits for both Dreamstyle and Renewal. However, much of the lasting value of these sunk costs was the enhanced Renewal markets and Renewal brand recognition in Dreamstyle's five PMAs. Much of this value and related worth of Dreamstyle's replacement window business would be materially devalued if Dreamstyle's Retailer Agreements ended, albeit such value would continue to benefit Renewal given the enhanced Renewal brand recognition in the five PMAs. Because of this wealth forfeiture of the retailer, and the wealth enrichment to Renewal, we had related concerns about certain provisions in the Retailer Agreements— particularly those dealing with the termination or non-renewal of the Agreements and the availability of any redress for wrongful termination or non-renewal, all as discussed below.

[8].
4. Dreamstyle's Performance: Performance of Renewal retailers was largely manifest in two metrics as noted in the Retailer Agreements, namely sales performance and customer satisfaction. In respect to these metrics, we found that Dreamstyle was a strong performer. Respecting sales, Dreamstyle was within the top five or six retailer groups, surpassing most other retailers in building Renewal market share. And Dreamstyle succeeded in sales growth year-over-year, growing substantially during the six years prior to the year in which it was terminated.2 As for customer service, Dreamstyle was a recipient of top Renewal awards respecting its such service, and had strong on-line customer reviews. We need not detail here the substantial evidence, largely undisputed, respecting Dreamstyle's strong performance. In short, we found that any claimed performance issues did not constitute material breaches or rightful causes for termination or non-renewal of the Agreements.3

IV. May 7 and May 8, 2018

[9].
On May 7, 2018, Renewal's Jeanne Junker and Dave Crowell met with Dreamstyle's Larry Chavez, Joyce Hitchner, and Dreamstyle's counsel Guy Bluff. At this meeting, Jeanne Junker advised those from Dreamstyle that its Retailer Agreements were being terminated and/or non-renewed, claiming a number of causes. The next day, May 8, 2018, such causes were repeated in Jeanne Junker's letter to Larry, as follows:

a. Marketing and selling Renewal products outside Dreamstyle's PMA;

b. Purchasing or starting businesses in the PMA of another Renewal retailer without informing Renewal;

c. Selling or offering to sell competitive products in the PMA of other Renewal retailers;

d. Opening a Renewal facility in Yuma, Arizona without Renewal's consent;

e. Selling or offering to sell competitive products in Dreamstyle's PMA;

f. Dreamstyle's handling of (customer) Hageman matter, including disparagement of Anderson products;

g. Failure to meet 2017 sales goals;

h. Failure to meet your 2018 Net Promoter score in San Diego and Tucson;

i. Recruiting or hiring employees from other Renewal retailers in violation of Renewal's Integrity in Hiring policy.

V. Renewal's Reasons for Termination and/or Non-Renewal

[10].
1. Introduction: As noted above, we have found that many of Renewal's reasons for its May 7 and 8, 2018, termination and/or non-renewal did not consist of material breaches of the Retailer Agreements, and/or that the claimed causes were subject to estoppel by reason of inconsistent Renewal assertions and courses of dealing about which Dreamstyle reasonably relied in its continuing investments and efforts.4
[11].
2. Paragraph 14 of the Agreements and Materiality: Paragraph 14 provides that breaches subjecting the Retailer Agreement to termination be "material." We largely agree with Renewal's testimony that material means "going to the heart of the contract," going to the contract's primary or core purposes. As noted above, we have found that the essence or "heart" of the Retailer Agreements was:

... for Renewal to provide window and door products to the retailer to fulfill the retailer's sale and installation of such products to the retailer's homeowner customer—the retailer thereby providing the sales channel from Renewal as manufacturer to the homeowner customer as end-user. Other primary purposes or core provisions of the Agreements were (a) that the retailer would sell and install Renewal's products in a given geographical territory known as the Primary Market Area ("PMA"), which PMA was defined largely by the enumeration of zip codes, (b) that the retailer would be the exclusive seller of Renewal's products in the retailer's PMA, (c) that the retailer and Renewal would from time to time agree on certain sales and customer satisfaction goals, (d) that the retailer's rights under the Agreement were for five-year terms with an option to renew the Agreement for an additional five-year term.

Accordingly, we concluded that any breach which impaired the above essence of the Agreement was material, and conversely that any breach which did not so impair, was not material.5 In addition and again, a party is estopped from asserting a breach about which the party has acquiesced and continued to receive benefits, and about which the other party has detrimentally relied.6

VI. Opportunity to Cure

[12].
As we found that the communications of May 7 and May 8, 2018, constituted a notice of termination,7 we assessed whether Renewal had an attendant obligation to afford Dreamstyle an opportunity to cure. In this regard, we concluded that Renewal did have such an obligation, for two reasons.
[13].
First, we concluded that a provision of paragraph 14 of the Agreement, that enunciated the means of terminating the Agreement in respect to a number of causes, including some of the causes claimed here, and which causes were (expressly and as testified by Ms. Junker) to be mere examples without limitation as to other possible termination causes, provided for an opportunity to cure. While Renewal here focused on another operative provision of paragraph 14 that did not include an opportunity to cure, such focus essentially created an inconsistency between these provisions. Given the resulting ambiguity, as the opportunity to cure paragraph was the more specific, and as the Agreement was drafted by Renewal, such ambiguity was resolved in favor of the more specific over the more general, and against Renewal as the draftsperson. In addition, since termination involved a material forfeiture, these provisions were strictly construed.
[14].
Second, we found that Renewal with its materially greater bargaining power,8 was required to act in good faith and deal fairly in exercising its discretion with respect to terminations for causes about which a retailer could cure. Such good faith and fair dealing would include affording the retailer with such an opportunity.9
[15].
However, in the end, the debate over whether May 7 and 8, 2018, constituted a notice of termination, and the debate over Renewal's failure to afford Dreamstyle an opportunity to cure, was not fully consequential—at least in respect to the termination of Dreamstyle's two Arizona Agreements. This is because, as discussed below, we concluded that the material breach of paragraph 18 associated with Larry's acquisition, ownership and operation of Legacy, particularly the sustained non-disclosure of the same and Legacy's related and concealed sale of Renewal products in the Phoenix PMA of another Renewal retailer, constituted sufficient causes to terminate Dreamstyle's Arizona Retailer Agreements. And we found that the failure to afford an opportunity to cure these breaches of the Arizona Agreements was not a breach of contract, as this sustained undisclosed ownership and operation of Legacy in the Phoenix PMA of another Renewal retailer, attendant the loss of trust engendered, was not curable.10 We found that Renewal's early terminations of the Tucson and North Arizona Agreements were not a breach of contract.11

VII. New Mexico, San Diego and Boise Retailer Agreements

[16].
Apart from circumstances associated with Larry's acquisition, ownership and operation of Legacy in Phoenix, we have found insufficient evidence of any material breach or cause justifying an early termination of Dreamstyle's New Mexico, San Diego and Boise Retailer Agreements. The evidence failed to show how any of the claimed causes impaired the essence of any of these three Agreements/locations.12 Again, the related evidence or lack of evidence in these regards is described in Dreamstyle's post-hearing submission.
[17].
However, as respects Larry's acquisition and ownership of Legacy, Dreamstyle's five Retailer Agreements had the identical "Non-Competition" paragraph 18, in which the retailer agrees to not, without Renewal's consent, acquire an interest in any business engaged in the sale of window or door products. This provision is, by its terms, not confined to acquiring a business in the PMA of the particular Agreement, and accordingly paragraph 18 of all five Agreements was literally breached by Larry's ownership of Legacy in Phoenix.
[18].
But our finding and conclusion that the acquisition, ownership and operation of Legacy was a breach of paragraph 18 in all five agreements, does not fully answer the Legacy-as-cause issue. This is because the question is whether such breach of this paragraph in each of the Retailer Agreements was material—whether such breach impaired the essence of each of the five Agreements. We found that the breach of paragraph 18—again headed "Non-Competition," was material as to Dreamstyle's two Arizona (Tucson and Northern Arizona) Agreements, as the breach impaired the essence of these Agreements and core provisions— those associated with competition and exclusive territories in and around Phoenix and perhaps greater Arizona.
[19].
However, whether the breach of paragraph 18 in the Boise, New Mexico and/or San Diego Agreements was material—whether such breach impaired the essence (as set out above) of these Agreements in these locations, was a different analysis and a closer question. We note that the harm associated with a breach of paragraph 18 in respect to competitive impacts from a competing business located in Arizona, was not felt materially, if at all, in the Boise, New Mexico or San Diego markets. And here the competitive impact associated with the Legacy business being in the PMA of another Renewal retailer—namely the Phoenix PMA retailer, was presumably not felt materially, if at all, outside of the greater Phoenix area. Accordingly, we concluded that in respect to protecting against competitive impacts, presumably the objective of the "Non-Competition" paragraph 18, a breach of such paragraph in the Boise, New Mexico and San Diego Agreements was not material—not impairing the essence of these Agreements, and thus was not a cause to early terminate them.13
[20].
However, with respect to the denial of renewals, as opposed to early terminations, of the Boise, New Mexico and San Diego Agreements, we found that the Legacy-related breach of paragraph 18, which included a sustained undisclosed business involving the concealed sale of Renewal windows in a PMA of another retailer, as well as the related and foreseeable lack of trust that this breach engendered relative to certain objectives of paragraph 1 and the renewal network, was sufficient ground to deny renewal of these Larry-owned locations. In these regards, we examined the differences between the contractual issues associated with an early termination compared to a denial of renewal. First, we did not find any contractual provision that the denial of renewal, governed by paragraph 41 of the Retailer Agreements, required an opportunity to cure—which in respect to Legacy was never afforded as discussed above.14 Second, apart from the obligation to afford an opportunity to cure, we found that the bar over which Renewal had to clear to deny renewal under paragraph 41, albeit perhaps unreasonably low, was less than that for early termination under paragraph 14. In these regards, we found and concluded that, while Renewal failed to lawfully early terminate the Boise, New Mexico and San Diego Retailer Agreements (whether in May 2018 and/or in the September and/or October 2018 communications), Renewal did not breach such Agreements by its May 2018 notice of its intention to not renew these Agreements/locations, such notice of non-renewal being timely in respect to the 180-day requirement in paragraph 41. However, Renewal early terminated these Agreements and locations prior to the end of their term, and such early terminations were not mere denials of renewal. Paragraph 41 provides for the option to renew "at the end" of the term, and thus the early termination of each of the San Diego, New Mexico and Boise Agreement/location well before the end of each term, was another matter.

VIII. Simultaneous Terminations and Provisions of Paragraphs 14 and 30

[21].
Given our findings and conclusions that Renewal did not breach its Retailer Agreements in non-renewing, giving notice of its intent to deny renewal of, the New Mexico, San Diego and Boise Agreements, we turn to the following provision in paragraph 14 relied upon by Renewal to essentially early terminate these locations:

Any other agreement between you and us concerning your being a Renewal retailer at a location other than the premises listed in Appendix A will automatically terminate effective at the time of expiration or termination for any reason of this Agreement unless we notify you to the contrary in writing prior to the expiration or termination of this Agreement. (emphasis ours)

It was this paragraph on which Renewal, perhaps belatedly, based its September 2018 notice to essentially claim it could simultaneously terminate all Agreements—despite the five-year terms promised in the Agreements and despite the May 8, 2018, letter.15

[22].
We had concerns about the shifting sands and related lack of good faith associated with Renewal's efforts to early terminate the Retailer Agreements, particularly those respecting the non-Arizona locations. We start with Renewal's May 8, 2018, letter about which Renewal claims it was not then terminating Dreamstyle, but in which Renewal did give notice of an intention to not renew Agreements when they "start" to expire in early 2019. We found that this communication (and the communications in the meeting on May 7) in fact constituted an irrevocable early termination which was wrongful as to the non-Arizona locations.16
[23].
Next, in September 2018, Jeanne Junker said in a letter to Larry that which had not been said in May, namely that all five locations were to be simultaneously terminated:

I also wanted to remind you that the Retailer Agreement for the Northern Arizona market will expire January 31, 2019. Unless we reach some other arrangement, all of your other Retailer Agreements also will expire on that same date.

[24].
However, the use of the above simultaneous termination provision did not provide for such simultaneous and early termination of either the San Diego or Boise Agreements, as neither were Agreements with the same retailer, the same "your" as the Dreamstyle retailer under the Northern Arizona Agreement.17 Renewal, perhaps appreciating the problem, took an about-face in dealing with the Boise and San Diego Agreements, and in October 2019 gave notice not of an intention to not renew as in the May 8 letter, but of early termination for cause of Boise and San Diego, writing:

Under section 14 of the RA for the Northern Arizona market area, any other agreement between Renewal and DSR for another market area will automatically terminate upon the expiration of the Retailer Agreement for the Northern Arizona market area. Accordingly, the Retailer Agreement for New Mexico, and Tucson also expire on January 31, 2019 ... This letter constitutes notice that the Retailer Agreements for Boise and San Diego market areas are terminated for cause, including the breaches identified above.

[25].
Thus, in the end, Renewal based its early termination (as opposed to denial of renewal) of the Boise and San Diego Agreements/locations, on its October 2018 notice of early termination for cause. But as discussed earlier, we have not found a valid cause to early terminate the Boise and San Diego (or New Mexico) Agreements, much less any valid cause which occurred between May (when Renewal claims it was not then terminating any Agreements) and October when it gave notice of early termination for cause (with no opportunity to cure) of Boise and San Diego, and no evidence showing any meaningful change in cause factors respecting Boise and San Diego occurring between Renewal's September (simultaneous terminations) and October (early termination for cause) letters. In short, and as discussed earlier, we have found the evidence insufficient to early terminate for cause the Boise, San Diego and New Mexico (the non-Arizona) Agreements/locations, and that the related determinations were not made in good faith and fair dealing. This, notwithstanding our finding that a denial of renewal "at the end" of these Agreements' terms would not be a breach of contract.
[26].
Thus, we come back to the simultaneous termination provision of paragraph 14 of the Agreements which Renewal here seeks to invoke to deny Dreamstyle's remaining terms of Boise, San Diego and New Mexico. As to such provision and others in the Retailer Agreements' construct capable of literally rendering a retailer's promised five-year term illusory, we have found and concluded that such provisions are facially unconscionable, and that Renewal's discretionary application of the simultaneous termination provision here was unconscionable and, as discussed above, not exercised in good faith and fair dealing.
[27].
Our analysis began with the simultaneous termination provision, labeled "A", which is expressly ("unless") discretionary:

A: "Any other agreement between you and us concerning your being a Renewal retailer at a location other than the premises listed in Appendix A will automatically terminate effective at the time of expiration or termination for any reason of this Agreement unless we notify you to the contrary in writing prior to the expiration or termination of this Agreement." (Emphasis ours)

And add to this the following two provisions B and C from paragraph 14:

B: "... constitutes cause for termination ... you fail to meet the sales and customer satisfaction goals that are set forth in your Business Plan ... ."

and:

C: "Either party can terminate this Agreement and you as a Renewal retailer ... if you and we are unable to agree on future annual commitments for your sales and customer satisfaction goals when your Business Plan is updated pursuant to Section 8."

And finally, D from paragraph 30:

D: "Further, in no event will either party be liable to the other party, and neither party will seek to recover or enforce a judgment against the other party, for indirect, incidental, consequential or special damages, including without limitation, damages relating to loss of investment, indebtedness, loss of financing, loss of sales or profits, or business interruption, discontinuance or termination ... "

[28].
While there are additional troublesome provisions in Renewal's Retailer Agreements, for now the above provisions are used to analyze whether the simultaneous termination provision (A above) is unconscionable, both facially and as applied, and/or whether discretion under such provision must be exercised in good faith and fair dealing and/or in a commercially reasonable manner.18
[29].
Assume business X is a retailer having spent tens of millions of dollars in Renewal's market and brand enhancements respecting five separate Retailer Agreements, one Agreement for Area 1 expiring in six months, another for Area 2 expiring in three years, three others for Areas 3, 4 and 5 expiring in 4 years. Now assume Renewal wants to terminate all five Agreements, but there is no cause to do so. Renewal, under the literal provisions set out above, can insist on an overly aggressive sales plan for Area 1, to which X cannot agree, allowing Renewal to terminate the retailer for its inability to agree on a sales plan for Area 1 under provision C above, and then use the simultaneous termination provision A above to early terminate all five Agreements—all without cause and all as allowed by the express terms (on the face) of the Agreement. And to add to the unconscionability, any claim for X's "loss of investment," or "lost profits" or "discontinuation" or "termination," is expressly limited by the express terms (on their face) of provision D above, thus denying any redress in respect to Renewal obliterating the remaining terms of the Agreements without any material breach by the retailer.19 All this rendering the essence and a core promise of the Agreements, namely the retailers' five-year term, illusory.20
[30].
We can change the facts slightly and assume X, knowing it cannot meet the Area 1 sales goal demanded by Renewal, but also knowing that the failure to agree to Renewal's insistence can result in termination of Area 1 under provision C above, agrees to the sales goal, hoping to be able to meet it—somewhat akin to circumstances surrounding the claimed cause involving the 2017 sales plan here. When X predictably fails to meet the goal, termination or non-renewal of Area 1 occurs under provision B above, and the Agreement for Areas 2, 3, 4 and 5 are all simultaneous terminated under the simultaneous termination provision A above, again rendering illusory the retailer's rights to full five-year terms in four Agreements, without any rightful cause.21 Thus, a judge or arbitrator could determine that Renewal has failed to show cause for an early termination of a single location where a breach was not material ("for any reasons"), but nonetheless be asked to bless a termination of all other locations pursuant to the simultaneous termination provision.
[31].
In short, the five-year terms so important to the retailer's material investment into Renewal's market and brand—a core provision going to the essence of the retailer's rights under the Agreement, can be illusory under the literal and facially unconscionable terms of the Renewal Retailer Agreement--the five-year terms being ended by the simultaneous termination of the Retailer Agreement even when the retailer was faultless. The law of course provides relief in these situations, either (a) by judicially finding that the contractual provision was unconscionable in that no retailer would knowingly agree to the same, and no honorable counterparty would accept the fruits of the same, or (b) by judicially assuring that the discretionary acts of the contract draftsperson, here the simultaneous termination occurring "unless" Renewal decides otherwise, be done in good faith and fair dealing. We have concluded that the simultaneous termination provision is unconscionable as it permits of unconscionably rendering the retailer's five-year term illusory,22 and that its discretionary use here offends the implied covenant of good faith and fair dealing. Accordingly, there was no lawful basis for Renewal's early terminations of the Boise, San Diego and New Mexico Agreements, which terminations were a breach of contract—a breach of Renewal's five-year term promises.23

IX. Renewal's Counterclaims

[32].
1. Breach of Contract relative to Dreamstyle's Use and/or Failure to Return Intellectual or other Intangible Property: This counterclaim failed and was dismissed during the hearing as Renewal failed to prove with reasonable certainty damages resulting from or caused by Dreamstyle's breaches of the Agreements. Moreover, as to claimed harm associated with the San Diego, New Mexico or Boise locations, as discussed above, Renewal wrongly early terminated Dreamstyle's remaining terms in respect to these Retailer Agreements—a substantial breach of these Non-Arizona Agreements.24 As to one potentially yet-to-be transferred URL, an award of specific performance (largely based on the parties' post-hearing agreement) has been included in the above Interim Award.
[33].
2. Breach of Contract relative to Reimbursements Made by Renewal for Post-Termination: This counterclaim was proven, and Exhibit 502-R was acknowledged by Dreamstyle, although the extent to which the profit margin associated with the reimbursement for replaced product remained disputed. We have agreed with Dreamstyle that the profit margin should not be included as loss or damage resultant from any breach respecting service reimbursement, and have calculated the above award accordingly.

X. Damages

[34].
1. Dreamstyle's Damages: As described above, we have found and concluded that the Boise, San Diego and New Mexico Agreements were breached, in that they were terminated before the end of their terms. We used Mr. Nutten's Schedule 6 to analyze the but-for lost margin for each of these Agreements/locations from May of 2018 through the term ending date of each Agreement.25 Although Mr. Nutten assessed interest, our award of lost but-for margin damages is prior to any interest—which interest determinations are reserved for further submissions. Additionally, we did not award damages for the early termination of the Boise Agreement/location, as Boise had been losing money, and thus we could not find that related but-for lost margin for Boise was shown with reasonable certainty. In not awarding any damages in respect to the Boise Agreement/location, however, we appreciated that the Boise margin percentage lowered the average margin percentage used by Mr. Nutten, such that the margin percentage applicable to San Diego and New Mexico was arguably understated by leaving Boise's negative margin in the mix. We did not play expert and adjust this margin, nor did we play expert and adjust Mr. Nutten's growth rate which Renewal claims to be overstated. On balance, we felt it was reasonable to let these two admittedly subjective issues, which cut in opposite ways, simply offset. As to Mr. Tepp, we disagreed with the contention that determining but-for lost margin should ignore a subject company's actual growth, noting that the evidence showed that Dreamstyle was able to grow revenue in new markets.26 On balance, we used Mr. Nutten's lower (Schedule 6) "but-for" lost margin, influenced by the above analysis.27

In calculating the award, we determined the percentage of each year in which there remained unexpired term in respect to each of the San Diego and New Mexico Agreements. We then determined from Mr. Nutten's Schedule 6 the percentage of lost but-for margin (prior to any interest add) for each of these two locations for each year in which there were unexpired terms, based on the percentage of but-for (window) revenue of each of San Diego and New Mexico as to total but-for (window) revenue. We then multiplied the percentage of each year's unexpired term for each of San Diego and New Mexico times the percentage of lost but-for margin for such year, to get the but-for margin lost for each such location for each year in which such location had a remaining unexpired term, and then added such amounts to arrive at the damages for the wrongful early termination of each of the San Diego and New Mexico Agreement/location. For purposes of further submissions respecting interest,28 whether pursuant to Minnesota Statute sec. 549.09--Minnesota's prejudgment statute, or otherwise, the following amounts were awarded in respect to the following years:

New Mexico:

2018: $155,757

2019: $1,241,372

2020: $1,648,049

2021: $2,345,270

2022: $794,286

San Diego:

2018: $150,822

2019: $606,670

[35].
2. Renewal's Counterclaim Damages: Renewal offered damage evidence in respect to its counterclaims (a) respecting claimed Dreamstyle breaches of contract relative to the use or failure to transfer certain intangible or intellectual properties, and (b) respecting claimed Dreamstyle breaches of contract relative to obligations to pay for amounts Renewal paid to replacement retailers which provided service to former Dreamstyle homeowner customers. As noted above, we dismissed Renewal's counterclaim respecting intangible or intellectual property obligations, as the evidence failed to prove with reasonable certainty, and without speculation, any but-for Renewal margin loss to which any claimed breaches of contract were a substantial factor in bringing about. As to the service reimbursement counterclaim, the parties largely stipulated to RbA Exhibit 502-R, and we have adopted it, subject to backing out the degree to which the damage claim included margin on Renewal product provided with respect to the service.29 We have offset these damages against damages in favor of Dreamstyle, as provided in the above Interim Award.30
[36].
3. Damage Limitations and Paragraph 30: As discussed above, we have found the damage limitation clauses, which would essentially deny any redress for even the direct damages associated with a wrongful early termination of a Retailer Agreement, unconscionable and thus unenforceable. The prominent consideration provided to an affiliate under the Retailer Agreement is the right to a business, the essence of which is the right to obtain replacement window products at a cost less than the price obtainable from the end-using homeowner—the right to the margin. This also is the essence of the consideration provided RbA, namely to be able to sell its replacement windows to end users via a business which will retail such windows. Accordingly, the direct and inherent harm necessarily flowing from the wrongful early termination of the Retailer Agreement is the termination of the retailer's business—more specifically the termination of the revenue from the sale of Renewal's windows and the attendant margin.31 In short, to the extent the damage limitation provision in paragraph 30 of the Retailer Agreement limits damages for lost profits—which here are direct and not consequential damages, the provision is unconscionable as it denies any redress for any termination of, and renders illusory, the retailer's principal benefit from the Agreement, namely the Retailer's right to a five-year term.32 A contractual right is illusory if there is no redress for a related breach.
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