Acquisition of Manufacturer, Rebranding Was Not Cause for Dealership Termination

A jury in the federal district court in Chicago has awarded $2.1 million to a construction equipment dealer whose dealership was terminated pursuant to the acquisition of its manufacturer and the rebranding of the acquired product line.

The dealer, FMS, Inc., sold Samsung construction equipment products, including excavators, in the State of Maine. In 1998, Volvo Construction Equipment of North America purchased Samsung and assumed its dealership agreement with FMS. In 1999, Volvo notified FMS that it would terminate its dealership as part of an initiative to rebrand the Samsung excavators as Volvo.

FMS and six other dealers filed suit in Arkansas state court in March 2000, alleging breach of contract and violation of various state franchise and trade practice laws. Eventually, the case was transferred to the federal district court in Chicago.

In January 2005, the parties filed cross motions for summary judgment on a claim that Volvo terminated the dealership without cause in violation of the Maine power equipment, machinery, and appliances dealer law. The court denied the motions and required the case to proceed to trial, since issues of fact existed about whether the rebranding constituted a discontinuation of the excavator product law—an enumerated cause for termination under the law (CCH Business Franchise Guide ¶13,011).

After a six-day trial, the jury found that the rebranding did not constitute a discontinuation of the excavator product line because there was no substantial change in the excavators. In a special verdict, the jury found that Volvo “had not discontinued the manufacture or distribution of the franchise goods,” that Volvo’s termination of the franchise relationship “proximately caused damages to FMS,” and that FMS was entitled to $2.1 million in damages.

Scott Korzenowski, counsel for FMS, said the jury verdict awarded the dealer every dollar it sought.

The case is FMS, Inc. v. Volvo Construction Equipment of North America, Inc., U.S. District Court for the Northern District of Illinois, Case No. 00 C 8143, November 30, 2006.