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Distributorship Law

David M. Duree has more than 40 years experience in handling Distributorship cases. With offices in St. Louis, Mo. and O’Fallon, Ill., he also handles cases in numerous other states.

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Law updates about Distributorship law, Dealership Terminations, Distributor Law, Tortious Interference Law, Automobile dealership law, Good Faith Fair Dealing, Distributor Claims, Distributor Terminations, Termination for cause, Distributorship Terminations, Anticipatory Contract Breach, the Petroleum Marketing act, Distributorship Territory Disputes and implied contract covenants. Distributorship Attorney.

These materials are in reverse chronological order. New material is added at the top. Older material is inserted in the correct chronological spot. Overruled, modified and/or obsolete material is deleted, revised, consolidated and/or moved, when appropriate. Citations preceded by <>are linked to the complete court opinion. (NOTE: Some linked court sites are not always available). Distributorship Lawyer.

A wholesale financing agreement between a farm equipment manufacturer and one of its dealers (and the personal guarantors) contains a broad arbitration clause covering all claims “arising out of or directly or indirectly relating to” the wholesale financing agreement or guarantys (which contain similar arbitration clauses). The dealership (and personal guarantors) also signed retail financing agreements (and personal guarantys) with a third party (subsequently acquired by the manufacturer) which do not contain arbitration clauses. Claims by the third party (subsequently assigned to the manufacturer) against the dealership and personal guarantors arose from the retail financing agreement and related personal guarantys (which do not contain arbitration clauses). The Seventh Circuit reversed the judgment (confirming the arbitration award) against the dealership and personal guarantors, ruling, under 9 U.S.C. sec. 10(a)(4), that the arbitrators exceeded their authority because the retail financing claims do not directly or indirectly come within the scope of the wholesale financing agreement arbitration clauses. The Court rejected the dealership’s alternative argument that the “all direct and indirect claims” language was an illegal “dragnet” clause, applying Georgia law (which follows the minority view enforcing such clauses). The judgment was reversed. <>Agco Corporation v. Max Anglin et al., (Case No. 98-3373) 216 F.3d 589, 2000 WL 739317, (7th Cir. 6-9-2000)

California Public Policy reflected in its franchise statutes precluded transfer of a California franchise dispute to the home state of the franchiser under a Forum Selection Clause in the Franchise Agreement. <>Jones v. GNC Franchising Inc., 211 F.3d 495 (9th Cir. 2000)

A District Court in Georgia certified a class of Dairy Queen franchisees and denied the franchiser’s Motion to Dismiss the Antitrust Tying Claims. The case is still pending. Collins et el. v. International Dairy Queen et al., 59 F. Supp. 2d 1312 (M.D. Ga. 1999), 939 F. Supp. 875 (M.D. Ga. 1996), 174 F.R.D. 511 (M.D. Ga. 1997), 980 F. Supp. 1252 (M.D. Ga. 1997), 990 F. Supp. 1469 (M.D. Ga. 1998), 2 F. Supp. 2d 1465 (M.D. Ga. 1998), 186 F.R.D. 689 (M.D. Ga. 1999), 190 F.R.D. 633 (M.D. Ga. 2000)

A vendor of Point of Sales Systems to fast food (Subway) franchisees stated a cause of action against the franchiser, Doctor’s Associates, Inc., for an illegal tying arrangement, in violation of the antitrust laws for the common law tort of tortious interference with a business expectancy and for violation of the Connecticut Unfair Trade Practices Act. Motion to Dismiss, for the most part, denied. Subsolutions, Inc. v. Doctor’s Associates, Inc., 62 F. Supp. 2d 616 (D. Conn. 1999)

A franchiser which provides nurses to healthcare facilities on a temporary basis entered into a franchise agreement providing the franchisee with an exclusive territory. Florida law applied. The agreement provided that neither the franchiser, nor its parent or affiliated companies, would compete. Adia then acquired the franchiser, as a subsidiary, and also acquired another subsidiary which directly competed with the franchisee. A verdict of $2488,000 for the franchisee was set aside by the district court, which found that Adia neither induced nor otherwise caused an interference with the franchisee’s contract rights. Restatement (Second) of Torts, 766, and 766 comment h; 922 F.Supp. 558 (M.D.Fla. 1997). The 11th Circuit certified this unresolved question of Florida state law to the Florida Supreme Court;<>120 F.3d 1229 (11th Cir. 1997). The Florida Supreme court found that a claim for tortious interference with contract rights was established because Adia acquired the company that competed with the franchisee, with knowledge of franchise agreement terms prohibiting the franchiser or its affiliates from competing;<>723 So.2d 182 (Fla.1998). The 11th Circuit then reversed the judgment for Adia and remanded to the district court to resolve its prior determination that the franchisees had used the wrong method of calculating damages by using a contract, instead of tort, theory., <>Gossard et al., v. Adia Services, Inc., 173 F.3d 825 (11th Cir. 1999)

The contract between a michigan automobile dealership and an online service, which referred potential car buyers to the dealership, was not a franchise contract covered by the the Michigan Franchise Investment law, M.C.L. 445.1502(3). While the dealership paid a franchise fee, it did not offer goods or services under a marketing plan implemented by the online company, and it did not offer goods or services substantially associated with the online company’s service or trade marks. <>Jerome-Duncan,Inc. v. Auto-By-Tel., LLC, et al., 176 F.3d 904 (6th Cir. 1999)

A distributor of industrial automation equipment brought an action against the manufacturer for wrongful termination, in violation of the Illinois Franchise Disclosure Act, 815 ILCS 705/1 et seq. The claim was barred by the act’s one year statute of limitations, 815 ILCS 705/27. The one year began to run no later than the distributor’s consultation with his first attorney, who was apparently unaware of the act and did not believe the distributor had grounds to contest the termination. The action was filed immediately after the distributor contacted another attorney, but more one year after the written notice of termination. Brenkman v Belmont Marketing, Inc., 87 Ill.App.3d 1060, 43 Ill.Dec. 500, 410 N.E.2d 500 (Ill.App. 1980) distinguished; <>Pyramid Controls, Inc. v. Siemens Industrial Automation, Inc. (Case No. 98-3310) 172 F.3d 516 (7th Cir. 1999)

The exclusive distributor of slot machines brought suit against the manufacturer pursuant to the New Jersey Franchise Practices Act, alleging that the manufacturer unlawfully terminated its franchise. The distributor was granted a preliminary injunction against dealership termination. The court found that the distributor was likely to prevail on the merits of the case and its claim that it was a franchisee under the Act. Atlantic City Coin & Slot Service Co. & MacSeelig v. IGT, 14 F. Supp. 2d 644 (D.N.J. 1998); another court held that individual shareholders of a corporate franchisee were not entitled to protection under the New Jersey Franchise Act, that claims that the franchiser failed to meet its contractual obligation to provide training, guidance and support failed to state a claim under the New Jersey Act, N.J. Stat. § 56:10-1 et. seq., and that the franchiser had not “constructively terminated” the agreement. Express, Inc. v. Ray-Matt Enterprises, Inc., 74 F Supp. 2d 79 (D.Mass. 1999)

A provision in the Wisconsin Automobile dealership law, W.S.A. 218.01(3x), permitting dealers to challenge a manufacturer’s refusal to permit them to move their dealerships, does not violate the Contracts Clause of the U.S. Constitution, by limiting the unilateral unreviewable right that the manufacturers previously had to insist that the dealers stay at the location specified in the dealership contract. <>Chrysler Corporation v. Kolosso Auto Sales, inc, 148 F.3d 892 (7th Cir. 1998)

Franchise and distributor agreements have sometimes been held to contain implied contract covenants of fair dealing which preclude the franchiser/supplier from placing a second franchise or distributorship near an existing one. Generally, implied contract covenants may not defeat a specific, express, written term. The cases finding, and failing to find, implied covenants of fair dealing very widely. Scheck v. Burger King Corp., 756 F. Supp. 543 (S.D. Fla. 1991). But see <>Burger King v. Weaver, 169 F. 3d 1310 (11th Cir. 1999); Cook v. Little Caesar Enterprises, Inc., 972 F. Supp. 400 (E.D. Mich. 1997); Payne v. McDonald’s Corp., 957 F. Supp. 749 (D. Md. 1997); Clark v. America’s Favorite Chicken Co., 916 F. Supp. 586 (E.D. La. 1996); <>Camp Creek Hospitality Inns, Inc. v. Sheraton Franchise Corp., 139 F. 3d 1396 (11th Cir. 1998)

A verdict of $196,000,000.00 compensatory damages plus $150,000,000.00 in punitive damages for a certified class of Meineke Muffler Franchisees, against the franchiser and related parties, was reversed by the Fourth Circuit, which found that the requirements for class certification had not been met, which tainted the entire case, and that the claims were essentially for breach of contract, dismissing the tortious interference and other tort claims. The franchisees claimed the franchiser misused funds paid into an advertising fund managed by the franchiser. The Court also held that the franchiser did not owe a fiduciary duty to the franchisees with respect to its administration of the advertising fund. <>Broussard et el. v. Meineke Discount Muffler Shops, Inc. et el., 155 F. 3d 331 (4th Cir. 1998)

Suppliers, manufacturers and franchisers may set price ceilings for the resale of their products by their dealers, distributors and franchisees without risking a “per se” ruling that they have violated the Antitrust Laws. The “per se” violation rule has been replaced with the “Rule of Reason” Standard, providing the trial and federal circuit appellate courts with far more discretion in determining if the Antitrust Laws have been violated by price ceilings. <>State Oil Co. v. Kahn, 522 U.S. 3 (1997); <>Addamax Corp. v. Open Software Foundation, Inc., 152 F. 3d 48 (1st Cir. 1998)

The concept of the customers’ goodwill in the context of trademark law is the goodwill for the trademark, not the goodwill for a specific restaurant. As a result, a terminated “Roy Rogers” franchisee could not continue to use the trademark, after termination, notwithstanding its contention that the owners of the trademark had mismanaged the operation, resulting in a significant reduction in the number of operating franchisees and damage to the goodwill and trademark. The District Court found that the resulting harm to the franchisee, by granting the injunction, would outweigh the harm to the trademark owners if the injunction was not granted. The Court of Appeals reversed, finding the District abused its discretion. A preliminary injunction was entered by the Court of Appeals. <>Pappan Enterprises, Inc. v. Hardee’s Food Systems, Inc. et el., 143 F. 3d 800 (3rd Cir. 1998)

Dealership termination: A manufacturer’s false reasons for exercising the termination for cause provision in the dealership agreement was a bad faith termination even though the manufacturer had other proper reasons for the termination. Arnott v. American Oil Co., 609 F. 2d 873 (8th Cir. 1979); <>Bronx Auto Mall, Inc. v. American Honda Motor Co., 113 F. 3d 329 (2nd Cir. 1997) An improper termination may also constitute tortious interference with the current and prospective contractual relationships of the terminated dealer. Midwest Grate Dane Trailers, Inc. v. Great Dane LTD. Partnership, 977 F. Supp. 1386 (D. Minn. 1997). Distributorship Lawyer.

Placement of company-owned stores within the dealer’s nonexclusive territory was not a breach of the implied contract covenants of good faith and fair dealing because the contract expressly provided that the dealers territory was not exclusive; see also Cassan Enterprises, Inc. v. Dollar Systems, Inc., 131 F. 3d 145, 1997 WL 753394 (unpublished opinion) (9th Cir. 1997) which granted partial relief to the franchisee under the Washington Consumer Protection Act; Goodyear Tire & Rubber Co. v. Whitman Tire, Inc., 935 P. 2d 628 (Wash. 1997).

A Michigan Franchise Statute, M.C.L.A. § 445.1527 (f), precludes enforcement of a pre-dispute franchise agreement clause requiring arbitration or litigation outside the state of Michigan for Michigan franchisees. This does not preclude the franchisee from entering into a post-dispute agreement to arbitrate or litigate outside the state of Michigan. Hambell v. Alphagraphics Franchising, Inc., 779 F. Supp. 910 (E.D. Mich. 1991). The contrary conclusion was reached, however, by the U.S. District Court in Arizona. Alphagraphics Franchising Inc. v. Whaler Graphics, Inc., 840 F. Supp. 708 (D. Ariz. 1993); also see <>Webb v. Investacorp, Inc., 89 F. 3d 252 (5th Cir. 1996)

A service station distributor/franchisee was governed by the Petroleum Marketing act which prohibits the supplier/franchiser from terminating existing distributor/franchise agreements because the supplier/franchiser is withdrawing from the territory. A.W. Anderson et el v. Chevron Corp. and Cheron U.S.A., Inc., 933 F. Supp. 52 (D.D.C. 1996)

The Eighth Circuit reversed a judgment in favor of an equipment dealer, finding that the manufacturer could not be liable for allegedly breaching its implied duty of good faith and fair dealing, in withholding its consent for the dealer’s proposed assignment of its dealership, absent any evidence that the manufacturer acted dishonestly. <>Taylor Equipment Inc. v. John Deere Co.,et el., 98 F. 3d 1028 (8th Cir. 1996)

A distributor was awarded $25,000.00 in lost profits for tortious interference with the distributor’s relationship with its existing customers, in violation of distributorship law. The manufacturer abruptly terminated the distributor on only 4 days notice. Cherick Distributing, Inc. v. Polar Corp., 669 N.E. 2d 218 (Mass. App. 1996)

A-B Distributors, Inc. operated as a distributor for Anheuser-Busch, Inc. for 35 years in Jacksonville, Florida. Anheuser-Busch, Inc. terminated the agreement on the basis of fraud and brought suit against A-B Distributors, Inc., which was also engaged in other businesses, for violation of its trademark and for unfair trade practices, following the dealership termination. The District Court refused to enjoin A-B Distributors, under distributorship law, finding that it was not likely that Anheuser-Busch would prevail on the merits since A-B Distributors was not likely to create confusion with the Anheuser-Busch trademark and A-B Distributors had developed the right to use the name in other businesses over many years. Anheuser-Busch, Inc. v. A-B Distributors, Inc., 910 F. Supp. 587 (M.D. Fla. 1995)

A manufacturer which tells a dealer’s prospective customers about the dealer’s impending termination, before the termination is effective, may be held liable for tortious interference with contract rights and business expectancies. Adcom Product, Inc. v. Konica Business Machines, 668 N.E. 2d 866 (Mass. App. 1995)

A mail-order prescription service retailer was entitled to recover under fraud, tortious interference and breach of contract theories from the mail-order pharmacy (supplier) its successor in interest, its parent and the parent’s chairman of the board, where the mail-order pharmacy (supplier) agreed not to conduct a similar business with another organization structured like the plaintiff, retailer, then entered into similar arrangements with other similar, retailer, organizations. Actual damages, for the loss of goodwill and profits, and punitive damages, were affirmed. <>Preferred RX, Inc. v. American Prescription Plan, Inc., et el., 46 F. 3d 535 (6th Cir. 1995)

An award of $40,000.00 actual damages and $500,000.00 punitive damages to a distributor was affirmed for a claim under the Idaho Consumer Protection Act. The manufacturer/supplier had failed to fulfill promises of training and assistance, had furnished inadequate territory to the distributor to support the required sales and expenses, and had added more distributors to the area in violation of the implied contract covenants of good faith and fair dealing. Mac Tools, Inc. v. Griffin, 879 P. 2d 1126 (Idaho 1994)

An arbitration clause which requires arbitration of claims under the Federal Petroleum Marketing act, 15 U.S.C. § 2801-2806, is not enforceable where the arbitration clause eliminates some of the rights and protections provided to the franchisee under the statute, then requires arbitration. The arbitration clause was severable from the balance of the contract and was held void and unenforceable. <>Graham Oil Co. v. Arco Products Co., 43 F. 3d 1244 (9th Cir. 1994)

A choice of law clause in a sales representative contract was void as against public policy under the Illinois Sales Representatives Act, 820 ILCS § 120/0.01 et seq., because the protection of the Sales Representatives Act constitutes a fundamental public policy in Illinois. Maher & Associates, Inc. v. Quality Cabinets, 267 Ill. App. 3d 69, 203 Ill. Dec. 850, 640 N.E. 2d 1000 (Ill. App. 1994).

The provision in the Missouri Franchise Act which permits only termination for cause, applies only to liquor distributorships. Other franchisees (and distributors who qualify as franchisees) may be terminated without cause, if provided with 90 days written notice; R.S.Mo. § 407.405 and 407.413.2. Architectural Lighting Co., Inc. v. General Electric Company, Inc. et al., 886 S.W. 2d 166 (Mo. App. 1994)

The implied duty of good faith and fair dealing continued after the distributor was terminated for cause, where the supplier failed to negotiate with its distributor for a new arrangement or to allow its distributor sufficient time to sell to another party. <>Carmichael v. Adirondak Bottled Gas Corp. of Vermont, 635 A. 2d 1211 (Vt. 1993)

A hotel franchisee recovered from the franchiser under fraud and for violation of the Minnesota Franchise Act. The jury was properly instructed to disregard the “anti-fraud” disclaimer in the franchise agreement for allegations of fraud which were not expressly disclaimed in the agreement. Under Minnesota law, the fraud damages were calculated under the minority “out-of-pocket loss” rule instead of the more expansive “benefit-of-the-bargain” rule. Commercial Property Investments, Inc. v. Quality Inns International, Inc., 61 F. 3d 639 (8th Cir. 1995). See also the previous appeal reversing the District Court’s summary judgment for the defendant. Commercial Property Investments, Inc. v. Quality Inns International, Inc., 938 F. 2d 870 (8th Cir. 1991)

Issues of fact existed which precluded Summary Judgment where an optical franchiser entered into both franchise and lease agreements with the franchisee. The franchisee had paid the rent, but the lease contained a cross-default clause making breaches of the franchise agreement breaches of the lease. The court held that the franchisee could not be evicted, when it ceased making royalty payments under the franchise agreement, as long as the reason for stopping payment was in dispute. American Vision Center of St. Louis Center, Inc. v. Carr Optical, Inc., 810 S.W. 2d 121 (Mo. App. 1991)

A franchiser waived its right to compel arbitration by filing eviction lawsuits against its franchisee, sublessee to resolve related disputes. The eviction lawsuits were filed by the alter ego or agent leasing company of the franchisor. Yates v. Doctor’s Associates, Inc., 193 Ill. App. 3d 431, 549 N.E. 2d 1010, 140 Ill. Dec. 359 (1990)

Motor vehicle manufacturer/supplier had the right to locate a new dealership within proximity to an existing dealership, upon providing proper notice under the existing franchise/distributor contracts and the Illinois Automobile dealership law, 815 ILCS §710/1 et seq., citing Ace Cycle World, Inc. v. American Honda Motor Co., Inc., 788 F. 2d 1225 (7th Cir. 1986); Velde Ford Sales Inc. v. John Bearce Ford Inc., 201 Ill. App. 3d 866, 147 Ill. Dec. 327, 559 N.E. 2d 500 (Ill. App. 1990)

The Pillsbury Company purchased the Hagen-Dazs franchise operation. The franchisees brought suit against the Pillsbury Company and others claiming fraud and breach of the contractual duty of good faith. The court granted summary judgment for the defendants, finding that the purchaser of the franchise chain could not be held liable for the alleged fraud of the franchiser, that the franchiser’s officers could not be held liable for the alleged fraudulent conduct of the franchiser’s agents, that express disclaimers in the Uniform Franchise Offering Circular made the franchisees’ reliance on the franchiser’s alleged misrepresentations unreasonable and that even if the franchiser greatly increased sales of prepacked ice cream (bypassing the franchisees) to supermarkets and convenience stores, such increased sales could not support a claim of breach of an implied duty of good faith. Massachusetts law applied under a choice of law clause. Rosenberg v. The Pillsbury Co., et el., 718 F. Supp. 1146 (S.D.N.Y. 1989)

A Kansas Supreme Court held that to establish a claim for tortious interference, the plaintiff must establish that the defendant interfered with the prospective business advantage of a third party-not a party with whom the defendant has contracted. Noller v. GMC Truck and Coach Division, General Motors Corp., 772 P.2d 271 (Kan. 1989). For contrasting opinions see Knight v. Snap-on Tools Corp., 3 F. 3d 1398 (10th Cir. 1993); Dwayne Prestin v. Mobile Oil Corp., 741 F. 2d 268 (9th Cir. 1984); Hamro v. Shell Oil Co., 674 F. 2d 784 (9th Cir. 1982); Pierce Ford Sales, Inc. v. Ford Motor Co., 299 F. 2d 425 (2nd Cir. 1962); Richter v. Dairy Queen of Southern Arizona, Inc., 643 P. 2d 508 (Az. App. 1982); Northside Mercury Sales &Service, Inc. v. Ford Motor Corp., 871 F. 2d 758 (8th Cir. 1989)

The Courts will sometimes apply the Doctrine of Equitable Recoupment where a manufacturer terminates a distributorship relatively soon after execution of the agreement, even though permitted by the agreement, and before the distributor recovers the cost of his initial investment through operating profits. The Courts will sometimes permit the distributor to continue operating under the manufacturers trade name until he recovers those initial expenses. Ag-Chem. Equip. Co., Inc. v. Hahn, Inc., 480 F. 2d 482 (8th Cir. 1983); McGinnis Piano and Organ Co. v. Yamaha Int’l Corp., 480 F. 2d 474 (8th Cir. 1973); Clausen & Sons, Inc. v. Theo Hamm Brewing Co., 395 F. 2d 388, (8th Cir. 1968); Sofa Gallery, Inc. v. Stratford Co., 872 F. 2d 259 (8th Cir. 1989)

The Haagen-Dazs Ice Cream franchisees established a submissible claim for fraudulent inducement into the franchise agreements, avoiding summary judgment. The Court held that issues of fact existed about whether the franchisees were defrauded into the franchise agreements by misrepresentations about the weight of the Ice Cream sold in bulk containers along with fraudulent concealment of the change in air content of bulk ice cream and alleged misrepresentations about the level of advertising and marketing assistance provided to the franchisees. Carlock et el. v. the Pillsbury Co., et el., 719 F. Supp. 791 (D. Minn. 1989)

A manufacturer was estopped to deny the existence of a long-term dealer relationship, by its conduct, despite the existence of 18 successive one-year contracts with integration clauses. Lano Equip., Inc. v. Clark Equip. Co., 399 N.W. 2d 694 (Minn. App. 1987)

A terminated milk dealer was allowed to recover both compensatory and punitive damages from its creamery/supplier for tortious interference with the dealer’s relationships with its customers. Northfield Nat’l Bank v. Associated Milk Producers v. Green, 390 N.W. 2d 289 (Minn. App. 1986)

Only the parties to a Franchise Contract, containing an arbitration clause, may compel arbitration or be compelled to arbitrate. Officers and directors of a corporate party may not be compelled to arbitrate and may not compel arbitration. Vukusich v. Comprehensive Accounting Corp., 150 Ill App. 3d 634, 501 N.E. 2d 1332, 103 Ill. Dec. 794 (1986)

There is an implied covenant in supplier-dealer franchise/distributor contracts which restricts the franchiser/supplier’s discretion in terminating the agreement to those cases in which good cause exists. Lippo v. Mobile Oil Corp., 776 F. 2d 706 (7th Cir. 1985)

Distributorship agreements include an implied duty of good faith which may be violated by the supplier by abusing the power to terminate. ABA Distributors v. Adolph Coors Co., 542 F. Supp. 1272 (W.D. Mo. 1982)

A manufacturer maybe precluded from invoking a clause in its written contract where the manufacturer has, by its conduct, led the dealer to believe that it would not rely on the clause against the dealer. Both actual and punitive damages were awarded under fraud, breach of contract and promissory estoppel theories in Central Microfilm Service Corp. v. Basic/four Corp., 688 F. 2d 1206 (8th Cir. 1982)

A distributorship agreement which permitted the supplier to terminate on 10 days notice was void as against public policy, which implies a good cause requirement for such terminations. Shell Oil Co. v. Marinello, 307 A. 2d 598 (N.J. 1973). Distributorship Lawyer.