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From Antitrust Law Daily, September 10, 2018

Franchisor had good cause not to renew agreement with equipment dealer

By Nicole D. Prysby, J.D.

A manufacturer of agricultural equipment did not violate the good cause for termination provisions of two Minnesota equipment dealer statutes and the Wisconsin Fair Dealership Law by allegedly terminating an implied contract with a Minnesota-based franchisee, the federal district court in St. Paul, Minnesota, has ruled. The franchisor had not terminated any agreement because their franchise agreement had expired by its terms and the parties did not have an implied agreement to extend the end date from the previous agreement. Further, the manufacturer did not violate the substantial change in competitive circumstances provisions of the three statutes by conditioning the renewal of their dealership agreement on the inclusion of a new noncompete provision in a new agreement because the change in competitive circumstances would not diminish the dealer’s viability or threaten its ability to maintain a reasonable profit long-term. Finally, the manufacturer did not fail to renew the parties’ relationship without good cause in violation of the statutes because the manufacturer had good cause to add the noncompete provision to the new agreement that it offered the dealer and good cause to not renew the dealer agreement when the dealer significantly expanded its relationship with a competing manufacturer (Tri-State Bobcat, Inc. v. FINN Corp., September 6, 2018, Frank, D.).

Background. Tri-State Bobcat, Inc. (Tri-State) was an authorized equipment dealer for several agricultural-equipment manufacturers, including FINN Corporation (FINN). The parties had agreements in place from 2011 to November 2016. They renewed the agreement around the beginning of each calendar year and each agreement had substantially the same terms. Their relationship ended in 2016 when they could not reach an agreement on the terms of a new dealer agreement. FINN had concerns about a competitor (Fecon, Inc.) who manufactured hydroseeders and had targeted some of the FINN dealers, including Tri-State. FINN added a noncompete provision to its dealer agreements in early 2016, prohibiting dealers from carrying equipment lines that are competitive with FINN. In mid-March, FINN sent the proposed 2016 agreement to Tri-State but by May, Tri-State had not signed it. During early 2016, Tri-State was negotiating a dealer agreement with Fecon and by May, had signed an agreement with Fecon expanding their relationship and making Tri-State one of only 20 Tier 2 Fecon dealers.

In August 2016, FINN learned of Tri-State’s agreement with Fecon and asked Tri-State not to attend its annual dealer conference. Tri-State responded that Fecon was not a competitor of FINN and that for Tri-State to sign a 2016 agreement with FINN, the parties would need to reach an understanding that Tri-State’s relationship with Fecon does not violate the noncompete provisions of the FINN dealer sales agreement. The parties had further discussions, but the agreement was never signed and eventually, FINN locked Tri-State out of its dealer portal, preventing any future purchases.

Tri-State sued FINN for breach of contract and wrongful termination under the Minnesota and Wisconsin "Equipment Statutes": the Minnesota Agricultural Equipment Dealership Act, Minn. Stat. § 325E.061, et seq. (MAEDA), the Minnesota Heavy and Utility Equipment Manufacturers and Dealers Act, Minn. § 325E.068, et seq. (MHUEMDA), and the Wisconsin Fair Dealership Law, Wis. Stat. Ann. § 135.01 et seq. (WFDL). All three Equipment Statutes prohibit equipment manufacturers from taking certain adverse actions against a dealer, including terminating, failing to renew, or substantially changing the competitive circumstances of a dealership agreement without good cause. Tri-State alleged that FINN improperly terminated its dealer agreement without the notice or cause required by the statutes, or alternatively, that FINN sought to substantially change the competitive circumstances of the parties’ agreement.

Termination of agreement. FINN argued that it could not have wrongfully terminated a contract with Tri-State because there was no contract in existence after the 2015 agreement expired on December 31, 2015. Tri-State asserted that the parties had modified the end-date of the contract by their conduct; because they operated in the same manner through 2016 as in previous years, they had effectively extended the 2015 agreement. The court rejected Tri-State’s argument, because if FINN had intended to modify the end date of the 2015 agreement, it would not have sent emails to its dealers in early 2016 expressing concern about competition with Fecon and would not have sent Tri-State the 2016 agreement in March. Although FINN did continue promoting Tri-State as a dealer on its portal and selling its equipment to a discount to Tri-State, FINN spent most of 2016 trying (and failing) to get Tri-State to sign the agreement. The evidence was undisputed that FINN would not continue a business relationship with a dealer that was doing business with Fecon. This evidence precluded a finding of an implied contract. Therefore, the wrongful termination claims under the Equipment Statutes failed.

Substantial change in competitive circumstances. Tri-State claimed that the noncompete provision violated the Equipment Statutes’ prohibition on a manufacturer substantially changing the competitive circumstances of a dealer agreement without good cause. It claimed that the noncompete provision would have forced it to forgo an existing product line and harmed its business. But the court rejected that claim because evidence showed that sales of FINN equipment constituted less than 5 percent of Tri-State’s revenue and that it had achieved sales and revenue growth since the relationship with FINN was terminated. Therefore, the noncompete provision did not "significantly diminish" Tri-State’s viability or threaten its ability to maintain a reasonable profit long-term.

Failure to renew without good cause. The court also rejected Tri-State’s claim that FINN failed to renew the agreement without good cause. A noncompete provision may reasonably be deemed essential by manufacturers and FINN had concerns about competition from Fecon beginning in 2015. FINN also did not treat Tri-State differently than other dealers—every other dealer that signed a 2016 agreement declined to expand a relationship with Fecon, whereas Tri-State expanded its relationship with Fecon and became a Tier 2 dealer. This constituted good cause for FINN to add the noncompete provision to the 2016 Agreement and good cause to not renew Tri-State’s dealer agreement when Tri-State significantly expanded its relationship with Fecon after learning of FINN’s concerns.

Other claims. The court also granted summary judgment to FINN on Tri-State’s breach of contract claim, having already found that no implied contract existed between the parties. It granted summary judgment to FINN on its claim that Tri-State’s failure to pay finance charges as agreed to was a breach of contract. FINN’s invoices stated that all accounts due over 30 days would be subject to an interest charge and there was no evidence that Tri-State was unaware of the charge. The court also found for FINN on its claim that Tri-State failed to pay it required chargebacks for selling equipment out of its designated territory in 2012-2015.

The case is No. 0:16-cv-04060-DWF-SER.

Attorneys: John D. Holland and Serena I. Chiquoine (Dady & Gardner, PA) for Tri-State Bobcat, Inc. Quentin R. Wittrock and Richard C. Landon (Gray Plant Mooty) for FINN Corp.

Companies: Tri-State Bobcat, Inc.; FINN Corp.

MainStory: TopStory FranchisingDistribution MinnesotaNews

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