The two companies have agreed to dismiss the suit with prejudice and have entered into a mutual release of all claims.
In February 2008 Sally Beauty disclosed a report that on February 21 of the same year, L’Oreal had filed a lawsuit in the Superior Court of the State of California in and for the County of San Diego against two of its subsidiaries,Beauty Systems Group LLC (BSG) and Armstrong McCall LP (AMLP).
The suit related to a distribution agreement between Armstrong McCall and L'Oreal concerning its Matrix brand.
‘Breached franchise agreement’
It alleged, among other things, that SD Hair, which is a franchisee of Armstrong McCall division, breached its franchise agreement by selling Matrix branded products to unauthorized buyers, and that L’Oreal was entitled to make claims against SD Hair under the franchise agreement as a third-party beneficiary of that agreement.
The following month, SD Hair filed a cross-complaint asking for relief from AMLP and BSG that it was not breaching its contract, and to take appropriate legal action against L’Oreal’s claims.
A second report was disclosed on July 30, 2009, stating that L’Oreal had filed a Second Amended Complaint in connection with the previous one.
This complaint alleged that AMLP, certain of its employees and others were involved in selling Matrix branded products to unauthorized buyers and that certain of its employees engaged in improper business transactions for personal benefit during 2005 through 2007.
L’Oreal sought money damages, certain injunctive relief and a declaration that it was entitled to terminate the 1981 Matrix Distributor Agreement now in effect between itself and AMLP.
‘Attempt to terminate agreement’
As a result of these allegations made by L’Oreal, Sally Beauty claims to have engaged in an independent special counsel to investigate whether certain employees engaged in improper business transactions for personal benefit, finding there to be insufficient evidence to support this claim.
On September 8, 2009, AMLP and BSG filed a cross-complaint against L’Oreal alleging that it did not have a genuine interest in stopping diversion, and that its anti-diversion policies had been discriminatorily applied to the Sally Beauty subsidiaries as a pretext to attempt to terminate the 1981 Matrix Distributor Agreement.
With L’Oreal responding to this cross complaint, the jury trial was staged last month and the outcome was that Sally Beauty and L'Oreal agreed to terminate an existing agreement to distribute Matrix-branded products through Armstrong McCall and its franchisees, and instead signed new five-year agreements.