Friday, May 23, 2008

Manufacturer’s Rep Was Not a Wisconsin “Dealer”

This posting was written by Peter Reap, Editor of CCH Business Franchise Guide.Correspondent.

A representative for a manufacturer of bathtub products was not a “dealer” within the meaning of the Wisconsin Fair Dealership Law because the representative could not establish that it was granted the right to sell or distribute the manufacturer’s products or the right to use the manufacturer’s commercial symbols to the extent anticipated by the Fair Dealership Law.

The federal district court in Milwaukee granted the manufacturer summary judgment on the representative’s claim that its relationship was terminated without “good cause” in violation of the Fair Dealership Law.

The representative commenced a relationship with the manufacturer's predecessor in 1988 and operated as the representative for that company in an exclusive territory pursuant to an oral agreement, the court noted. The predecessor was purchased by the manufacturer in 2002 and entered into a written contract continuing its representation for the defendant manufacturer.

Representation Agreement

The contract limited the representative's use of the manufacturer's trademarks and specified that the representative would solicit and receive orders from plumbing wholesalers in the region and obtain commissions on products sold and distributed by the manufacturer. Sales of the manufacturer's products ranged from 37 to 43 percent of the representative's income from 1999 to 2004. Following the manufacturer's announcement of its intent to terminate the relationship, the representative brought suit.

Right to Sell or Distribute Goods

In determining whether a party satisfied the Fair Dealership Law’s requirement that "dealers" have a right to sell or distribute goods, the most important factor was the party's ability to transfer the product itself (or title to the product) or commit the grantor to a transaction at the moment of the agreement to sell, according to the court. The representative acknowledged that it was not able to commit the manufacturer to a sale. However, it argued that, under the circumstances, it was the functional equivalent of a dealer of the manufacturer's products. The representative encouraged a broad reading of the statutory term "distribute" and insisted that the totality of the circumstances demanded that it be considered a dealer under the statute.

The representative pointed to evidence that the predecessor's distribution network was a very important aspect of the manufacturer's acquisition of the predecessor. The fact that the representative invested many years into developing a sales market for the manufacturer and its predecessor did not turn it into a dealer, the court reasoned.

Next, the representative asserted that it actively facilitated the delivery of the manufacturer's products to customers and that delivery could qualify as distribution under the Fair Dealership Law. That argument did not withstand scrutiny, the court ruled, because there was no evidence that the representative was required to purchase vehicles to deliver the manufacturer's products or to build storage facilities.

Warranty Work

The representative's argument that it assumed a significant amount of the warranty risk of every sale by performing a significant amount of warranty and service work—actions that could reveal a right to sell under the statute—was also rejected. There was no evidence that the representative was required by the manufacturer to offer and perform warranty work or to assume any warranty risk, and any service work performed by the representative was "on a gratis basis."

The March 31 decision is Northland Sales, Inc. v. Maax Corp.,CCH Business Franchise Guide ¶13,877.

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