November 29, 2023
Liberty Lighting Group Sues Acuity Brands and Rival Agent
The former $38M Acuity agent airs a long list of grievances in New Jersey court
In the dynamic world of lighting agent and manufacturer alliances, Liberty Lighting Group's story stands out as a rollercoaster of rewarding strategic partnerships with unfortunate endings – one that is now headed to court as the longtime New Jersey lighting agent has filed a lawsuit against its former manufacturer partner, Acuity Brands, and agent rival Illuminations Inc., the company that lured Acuity Brands away.
We’ll start this tale in 2010 when Liberty Lighting Group, the leading agent in the Northern New Jersey lighting market was terminated by Hubbell Lighting. This split, instigated by a New York City-centric decision from Hubbell, opened the door for an enticing new partnership with Acuity Brands.
Acuity Brands, keen to upgrade from its previous partner, Spectro Lume, found in Liberty an alluring and capable new agent. The deal proposed by Acuity Brands was a very favorable one for Liberty, better than any deal one could find at the nearby and upscale Short Hills Mall.
This new alliance was marked by fruitful financial commitments. Acuity Brands set Liberty Lighting Group a seemingly attainable first-year target of $9 million in May 2010, a growth period at the intersection of recession recovery and rapid LED lighting conversions. The stakes were high, but so were the rewards: an 11-13% guaranteed commission on achieving sales goals over three years, a deal that would be a rare find in today's market. Over time, Liberty didn't just meet expectations; they seemingly exceeded them, reportedly amplifying Acuity Brands’ annual business in the territory to an impressive $38 million ten years later.
However, this success story took an unexpected turn in March 2021. In a move that sent shockwaves from Paramus to Piscataway, Acuity Brands terminated its contract with Liberty Lighting Group – a rare thing to happen to the top agent in a major U.S. market. The reason? A newly formed partnership with Illuminations, Inc., a long-established ally of Acuity Brands in Philadelphia, who had extended its territorial reach far beyond the Molly Pitcher Service Area into New York City.
Liberty Lighting Group, reporting that approximately 65% of its sales came from selling Acuity Brands products, faced a significant turning point with this strategic shift. The result was its merger with Diversified New Jersey, the Hubbell Lighting agent. Liberty contributed numerous product lines and staff to the combined business, and by all accounts, the “new” Diversified maintains the top market share position in the territory.
A cautionary tale for Lighting Agents:
Whether the accusations of unlawful termination stand up in court, the saga of Liberty Lighting Group fuels the idea that agents must protect the long term viability of their business by doing two things some manufacturers often dislike:
(1) Ensure that a major line does not constitute 65% of an agent's gross revenues. As Liberty learned, on only 30 days' notice, those revenues can vanish, along with the cash flow and value of the agency.
(2) When feasible, expand agent territory to adjacent markets to strengthen market position. Liberty, a clear number one agent in a top US market, was terminated by their major line twice in eleven years due to decisions influenced by larger adjacent markets.
The lawsuit
In the recently filed lawsuit, Liberty Lighting Group alleges that the termination of its sales agreement with Acuity Brands was unlawful. Liberty Lighting Group is the sole plaintiff and even though the agency merged with Diversified in 2021, this lawsuit focuses on matters that occurred before the merger and does not involve Diversified as a party. Bob Czarny, longtime President of Liberty Lighting Group and owner of the agency at all times relevant to the lawsuit, further emphasized to Inside Lighting that this legal action stems from his pursuits and that Diversified is uninvolved.
The defendants in the lawsuit include Acuity Brands, Illuminations Inc., and four individual executives who, in 2021, were employed by either Acuity Brands and/or Illuminations Inc.
Since Liberty Lighting Group is the only party whose arguments have been filed, the following recap primarily stems from their allegations, without the other parties filling in blanks or providing counterpoints.
Redefining a Lighting Agency as a Franchise: Breach of NJ Franchise Laws Alleged
A major argument presented by Liberty Lighting Group is an alleged breach of the New Jersey Franchise Practices Act (NJFPA). The complaint specifically claims that Liberty Lighting Group should be considered a "franchise" of Acuity Brands under New Jersey law.
The argument latches on to key financial thresholds. Liberty Lighting Group's annual gross sales of Acuity Brands' products approached $38 million, surpassing the NJFPA's requirement of a $35,000 threshold. Additionally, approximately 65% of Liberty Lighting Group's gross sales originated from selling Acuity Brands' products, well above the NJFPA's 20% requisite.
Liberty Lighting Group contends that meeting these financial thresholds qualifies their relationship with Acuity Brands as a franchise under the NJFPA. Therefore, the termination of this relationship by Acuity Brands, as per the plaintiff, constitutes a violation of the NJFPA.
With Liberty Lighting Group invoking New Jersey state law as their primary argument, they may need to convince the court that New Jersey is the appropriate venue for this litigation. The Sales Agency Agreement submitted by Liberty to the court explicitly states that the agency agreed the contract would be governed by the laws of Acuity Brands' home state, Georgia. It is anticipated that Acuity's lawyers will argue that New Jersey courts are an improper venue for the litigation.
The Buyout of Liberty Lighting Group that Didn’t Happen
The complaint details a series of events beginning in July 2020, when Acuity Brands reportedly initiated discussions among three businesses, including Liberty Lighting Group, about a possible reorganization of their corporate and business structures in the Northeast United States.
The discussions, involving New York Digital Lighting (the Acuity-owned lighting agent in New York City), Illuminations, Inc., and Liberty Lighting Group, were premised on a Non-Disclosure Agreement (NDA). This NDA required the parties to share confidential information, such as financial data, client lists, and trade secrets, for the sole purpose of evaluating a potential reorganization. The agreement explicitly stipulated that this information could not be used for any other purpose without prior written consent.
Liberty Lighting Group reports disclosing its most sensitive data, including customer information, business strategies, and financial details. Discussions about the reorganization took place between July and September 2020, exploring various scenarios, including the formation of a new entity named I2L2 or the acquisition of Liberty Lighting Group by Illuminations.
However, Liberty Lighting Group's concerns about the reorganization terms, voiced by its owner Bob Czarny, were met with assurances from Acuity Brands' senior vice president that Liberty Lighting Group would not face termination if it opted out of the sale. Despite this, after Liberty Lighting Group declined an offer from Illuminations to purchase its business, the situation escalated.
Acuity Brands and Illuminations proceeded with a reorganization plan without Liberty Lighting Group, resulting in Illuminations taking over Liberty Lighting Group's territory and Acuity Brands's New York City territory.
With the three parties, Liberty Lighting Group, Acuity Brands and Illuminations all parties to an NDA contract, Liberty is alleging a “Breach of the Implied Covenant of Good Faith & Fair Dealing” and seeking related damages.
Some Lines Don’t Follow Liberty to Diversified – Liberty claims $2 million in lost commissions
Following the merger of Liberty Lighting Group and Diversified, a need emerged to revise manufacturer sales agreements. Not all manufacturers previously represented by Liberty joined the new line card under Diversified. This led to Liberty accusing its rivals of unlawful interference.
Liberty alleges that these competitive disruptions caused the shift of several key independent manufacturers from Liberty Lighting Group to Illuminations, Inc. Liberty contends that its loss of lines in the transition to Diversified was due to tortious interference by Illuminations. The manufacturers involved in this context include Lumenpulse, SpecGrade Lighting, Elemental LED, Diode LED, Barbican, Cali (ALUZ) Lighting, Klik USA Lighting, Baselite Lighting, Waldmann Lighting and Sternberg Lighting.
The lawsuit further alleges that this interference by the defendants led to these manufacturers terminating the business relationship with Liberty Lighting Group. The terminations reportedly resulted in over $2 million in lost commissions for Liberty Lighting Group.
In other instances where two lighting agents merge, it's common for many affected manufacturers to choose not to be part of an overly cluttered combined line card, instead seeking new agent partnerships in the market. Despite this common reaction, Liberty Lighting Group is seeking compensatory, consequential, and incidental damages, from Illuminations including over $2 million in lost commissions. They are also demanding punitive damages, legal costs, and various injunctions to prevent Acuity Brands and Illuminations from contacting Liberty Lighting Group's customers and using its confidential information.
Once the defendants receive the summons, each will have 35 days to respond. We contacted all six defendants involved in the lawsuit early Tuesday evening, but none provided comments before press time.
