Thursday, March 19, 2009

Market Withdrawal Not “Good Cause” for Termination of Arkansas Franchise

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

The market withdrawal of a product or a trademark and trade name for the product did not constitute “good cause” to terminate a franchise under the Arkansas Franchise Practices Act, the Arkansas Supreme Court has ruled.

The issue was the first of three questions certified to the state supreme court by a federal district court in a dispute between a farm equipment manufacturer and an Arkansas dealer.

The dispute began after the manufacturer started dual-branding of its products—selling identical products in different colored paint and under a different brand to a competitor of the complaining dealer. Eventually, the manufacturer informed the complaining dealer that it was withdrawing from the market for the brand of equipment sold by the dealer. The dealer subsequently filed the instant suit against the manufacturer, alleging several common law and statutory claims.

List of Causes for Termination

The Arkansas Franchise Practices Act contains a list of eight occurrences constituting good cause for termination or cancellation of a franchise. Market withdrawal is not among them, the court noted. Had the legislature intended to include market withdrawal as good cause for termination, it could have done so.

The reasoning of the Fourth Circuit in the case of Volvo Trademark Holding Aktiebolaget v. Clark Machinery Co. (CCH Business Franchise Guide ¶13,786) was persuasive on the issue, according to the court. In Volvo, the Fourth Circuit held that the eight enumerated occurrences causes for termination in the Arkansas franchise law were the exclusive means by which a franchisor could properly terminate a franchise.

As noted by the Fourth Circuit, Arkansas subscribed to the legal principle of expression unius est exclusion alterius, meaning that the express designation of one thing could be properly construed to exclude another. In this case, the plain language of the franchise law prohibited an interpretation of good cause for termination that included a circumstance not specifically listed, such as market withdrawal.

Equipment Dealer Law

However, no liability is created under the Arkansas farm equipment dealer law by a manufacturer’s termination, cancellation, nonrenewal, or substantial change in competitive circumstances of the dealership agreement based on the rebranding of a product or the ceasing to use a particular trademark or trade name for a product while selling it under a different trademark or trade name, the state supreme court ruled on the second of the certified questions.

The particular section of the dealer law at issue prohibited a manufacturer’s attempt or threat “to terminate, cancel, failure to renew, or substantially change the dealership agreement based on the result of a natural disaster, including a sustained drought in the dealership market area, labor dispute, or other circumstances beyond the dealer’s control.”

The section proscribed only attempts or threats to terminate, cancel, fail to renew, or substantially change the circumstances of a dealership agreement, the court held. Actual termination, cancellation, failure to renew, or substantial change in the circumstances of a dealership was not addressed in that section.

The decision is Larry Hobbs Farm Equipment, Inc. v. CNH America LLC, CCH Business Franchise Guide ¶14,075.

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