Vol. 70, No. 6, June
1997
Constructive Termination
Under the
Wisconsin Fair Dealership Law
By David R. Cross & Daniel M. Janssen
The Wisconsin Fair Dealership Law (WFDL) has been a subject of controversy
in the courts and in the business world for more than 20 years.1 The purpose of the WFDL is to provide "thousands
of small businessmen in Wisconsin" 2 with
a type of tenure. 3 The WFDL prohibits a "grantor"
of a dealership from terminating, canceling, failing to renew or substantially
changing the competitive circumstances of an agreement with a dealer absent
statutorily defined good cause, after providing the dealer with written
notice and an opportunity to cure.4
The Seventh Circuit in JPM Inc. v. John
Deere Industrial Equipment Co. confirmed that there truly is an implied
WFDL cause of action for constructive termination. However, the WFDL's express
protections dramatically limit the remedies for a constructive termination
claim. |
A few decisions over the last 10 years have hinted that dealers may possess
a cause of action implied in the WFDL but not found in its text - a claim
for "constructive termination." However, no claim for constructive
termination has ever succeeded. In fact, it appears that no court has ever
addressed an actual claim of constructive termination until the recent case
of JPM Inc. v. John Deere Industrial Equipment Co.5
The Seventh Circuit's decision in JPM confirms what earlier decisions had
suggested in passing - that there truly is an implied WFDL cause of action
for constructive termination. But in a stroke of irony, the Seventh Circuit
held in JPM that the express protections of the WFDL dramatically limit
the remedies for a constructive termination claim.
Constructive Termination before JPM
The notion that a claim for constructive termination (or "de facto
termination") might exist under the WFDL is nothing new. Three
decisions before JPM suggested in dicta that the WFDL impliedly prohibits
a grantor from taking actions that destroy the value of the dealer's business,
yet fall short of an actual termination. The treatment given constructive
termination by the courts in these early decisions is oblique, probably
because the courts were not faced with dealers who actually pled such a
claim.
The concept of constructive termination under the WFDL was raised for
the first time by Judge Posner, writing for the Seventh Circuit in Remus
v. Amoco Oil Co. Amoco, the grantor, adopted a uniform program that
reduced the wholesale price of gasoline to its dealers and at the same time
reduced its reimbursement to dealers for credit card sales. The program
was attractive to dealers who sold gasoline primarily to customers who paid
cash. The program hurt Remus, though, because most of Remus's customers
paid by credit card. According to Remus, Amoco's program "substantially
change[d] the competitive circumstances" of its dealership agreement
in violation of section 135.03 of the Wisconsin Statutes.6
Judge Posner rejected Remus's claim because the WFDL "substantial
change" provision was not intended to prevent grantors from enacting
uniform and systemwide changes in their methods of distribution.7
In the process of dismissing Remus's complaint, however, Judge Posner
discussed in dicta whether the WFDL "substantial change" provision
was itself a remedy for dealers who were the victims of constructive termination.
But in answering the question, he seemed to suggest just the opposite -
that a claim for constructive termination could exist independently of a
claim for "substantial change." Judge Posner noted that Remus
might have had a claim for constructive termination had there been proof
that Amoco "wanted to drive Remus out of business."8 There was no such evidence, and Remus had not argued constructive
termination, so Judge Posner's analysis ended without a full explanation
of the claim.
The concept of constructive termination appeared again briefly in East
Bay Running Store Inc. v. Nike Inc., a Seventh Circuit decision two
years after Remus.9 East Bay, one of
Nike's dealers, sued Nike after
it implemented a policy prohibiting all its dealers from selling the "Nike
Air" line of shoes through catalogs. Nike claimed that the policy was
needed to ensure that the line was marketed effectively through personalized
attention to the sale of each pair of shoes. East Bay sued Nike for violating
the WFDL's prohibition of "substantial change," because more than
90 percent of its business was based upon mail order catalog sales.10
Judge Kanne, writing for the court, rejected East Bay's claim for the
same reason that Judge Posner dismissed the "substantial change"
claim in Remus. Judge Kanne wrote that the WFDL "substantial
change" language was not meant to punish grantors' nondiscriminatory
systemwide changes. In so holding, he cited Remus (in a footnote)
for the proposition that the WFDL "substantial change" provision
might be meant to protect dealers from constructive termination.11 Judge Kanne did not elaborate on the constructive
termination concept, however, because East Bay did not "attempt to
show that Nike's actions amounted to a 'constructive termination.'"12
Constructive termination also was mentioned in a Wisconsin Court of Appeals
case, Super Valu Stores Inc. v. D-Mart Food Stores Inc., but under
the name of "de facto" termination.13
Like Remus and East Bay, Super Valu involved an unsuccessful
claim for "substantial change," so the majority decision did not
discuss in any detail the elements of a claim for de facto termination.
The JPM Decision
The case of JPM v. John Deere Industrial Equipment Co. presented
a court for the first time with a dealer's concrete allegation that its
WFDL-protected dealership had been constructively terminated. The grantor
argued that the WFDL did not recognize claims for constructive termination,
and in the alternative, that there were limits to the claim that made it
unavailable under JPM's facts. The Seventh Circuit rejected the grantor's
first argument, holding that there was a claim for constructive termination
under the WFDL, but agreed that the dealer could not prove constructive
termination under the facts.
In 1990 JPM signed a dealership agreement with John Deere. The agreement
appointed JPM as a dealer of John Deere construction and forestry equipment
in northwest Wisconsin. JPM had purchased the business from John Deere's
former dealer for $1 million. Four years later, JPM sold the business to
another dealer for more than double that amount - $2,062,705.
After the sale, JPM sued John Deere alleging that John Deere had constructively
terminated its dealership in violation of the WFDL by forcing JPM to sell
and that JPM did so under economic duress. JPM claimed that John Deere told
JPM that it had to sell the business in three months to a buyer handpicked
by John Deere, and that JPM could not merge with the chosen buyer or solicit
bids for the dealership. John Deere vigorously challenged JPM's story.
John Deere's first line of defense was that there was no such thing as
a cause of action for constructive termination under the WFDL, outside of
a claim for "substantial change," and that no claim for "substantial
change" could arise until John Deere actually altered the terms of
its dealership agreement with JPM. John Deere argued that threatened future
actions did not ripen into a WFDL claim until the grantor actually took
some action harming the dealer.
The Seventh Circuit rejected John Deere's argument, stating simply, "We
assume that constructive termination is a recognized cause of action under
the Wisconsin Fair Dealership Law."14
The court held that economic duress could properly be the basis of a claim
for constructive termination. Writing for the court, Judge Evans noted that
one policy behind the WFDL is to protect dealers against unfair treatment
by inherently powerful grantors, and threatening to violate the WFDL was
simply one of the ways that a grantor could exercise that superior power.15
However, the Seventh Circuit agreed with John Deere that, because JPM's
claim was based upon termination due to an alleged involuntary sale, JPM
had to prove the elements of economic duress. The Seventh Circuit looked
to Wurtz v. Fleischman, the Wisconsin Supreme Court decision that
sets forth the common law elements of duress.16
Under Wurtz a plaintiff claiming economic duress must prove, among
other things, that the plaintiff had no adequate legal remedy for the threats
at the time they were made.
The Seventh Circuit held that JPM could not meet the Wurtz test
because the WFDL's preliminary injunction provision was an adequate legal
remedy for John Deere's alleged threats. Under the WFDL's liberal standards
for injunctions, JPM could easily have obtained a court order preventing
John Deere from acting on the threats, assuming JPM could have demonstrated
a likelihood of proving that the threats were made.
The court rejected JPM's argument that it would not be able to prove
the irreparable injury needed to get a preliminary injunction. The court
noted that the WFDL deems any violation by a grantor "an irreparable
injury to the dealer" when a dealer seeks a preliminary injunction.17 In addition, JPM would have been able to recover
its attorney fees and expenses for obtaining the injunction.18
JPM also argued that, had it been able to obtain a preliminary injunction,
the injunction would have done JPM no good in the long run because John
Deere had "poisoned" the relationship and would secretly sabotage
its dealership if forced to continue the relationship by court order.19 The court rejected this argument because it was
premised upon the speculative assumption that John Deere would deliberately
ignore a court order.
Finally, JPM argued that the court's decision improperly limited JPM's
relief for constructive termination solely to a court order. JPM argued
that case law interpreting the WFDL allows a dealer a choice of remedies
under the WFDL between injunctive relief or money damages.20 The court held that its decision did not require plaintiffs
under the WFDL to always seek injunctive relief or provide an explanation
why an injunction would not work. Nor was injunctive relief even a preferred
remedy under the WFDL. The court held that to prevail on the theory of constructive
termination based upon duress, a plaintiff must prove the elements of a
duress claim. The only difference between JPM and any other economic duress
plaintiff was that JPM happened to be a WFDL-protected dealer - a fact that
provided JPM with remedies far more powerful than those available to an
ordinary economic duress plaintiff.
Lessons from JPM
On one hand, dealers can take comfort from JPM because it allows
a dealer to take its grantor to task for simply threatening to violate the
WFDL. Under JPM a claim arises under the WFDL even though a grantor
has done nothing to terminate the dealer's agreement or alter the terms
of the dealership agreement.
On the other hand, JPM makes clear that there are important limitations
to any such claim. JPM provides a dealer with only two viable courses of
action when faced with threats amounting to constructive termination. First,
the dealer could wait to see if the threats become reality. A dealer who
is told it must sell its business or be terminated could dig in its heels
and wait to see if it is terminated. If it is not, the dealer has called
the grantor's bluff. But if the threats become actions, then the dealer
has the traditional remedies under the WFDL for wrongful termination (constructive
or actual), cancellation or nonrenewal of its dealership agreement.
Alternatively, the dealer could seek a court order preliminarily enjoining
the grantor from acting on its threats and from making additional threats.
The dealer could recover its attorney fees if the court issues an injunction.
A dealer should not follow the third possible course of action - succumbing
to the wishes of the grantor, then suing for money damages under the WFDL.
If it does, the dealer would not pass the Wurtz test. When the dealer complies
with the wishes of the grantor, in the face of a clearly adequate WFDL remedy,
a court will presume that the dealer made a voluntary choice to follow the
grantor's dictates.
David Cross
Daniel Janssen
|
David R. Cross, Chicago 1980, and Daniel M. Janssen, Iowa 1993, are
trial lawyers with the Milwaukee office of Quarles & Brady. Their practice
includes handling dealer terminations and other product marketing and distribution
matters. Cross and Janssen represented John Deere Industrial Equipment Co.
in JPM Inc. v. John Deere Indus. Equip. Co.
|
Grantors should learn from the JPM decision to be careful when
persuading their dealers to take desired actions. The WFDL does not prohibit
grantors from trying to convince their dealers to do things that grantors
believe are in the best interest of selling product. This could include
anything from remodeling showrooms, to increasing sales staff, to requiring
the dealer to spend additional money on advertising. But grantors should
be wary of informing their dealers what will happen if the dealers do not
comply. Grantors should take care not to threaten to terminate a dealership
agreement or threaten to change the terms of a dealership agreement in a
way that harms the dealer. Should this occur, the dealer may have a right
to obtain a court order preventing the grantor from acting on its threats.
Conclusion
After JPM there is compelling authority for the argument that
an implied claim of constructive termination exists under the WFDL, at least
where a grantor threatens to terminate its dealer for failing to follow
the grantor's orders. The WFDL provides strong protection for a dealer facing
such economic duress in the form of a preliminary injunction and the recovery
of the dealer's attorney fees. But dealers who choose not to seek a preliminary
injunction cannot later claim that they acted under duress. JPM makes
clear that the WFDL is a remedy that is available to stop a grantor from
acting on threats, and it must be used to stop the threats or the dealer
may lose its WFDL claim.
Endnotes
1 Wis. Stat. Ch. 135.
2 Foerster Inc. v. Atlas Metal Parts Co.,
105 Wis. 2d 17, 24, 313 N.W.2d 60, 63 (1981), quoting Press Release, Office
of Governor, April 6, 1973.
3 Remus v. Amoco Oil Co., 794 F.2d
1238, 1240 (7th Cir. 1986).
4 Wis. Stat.§§ 135.03 and 135.04.
5 JPM Inc. v. John Deere Indus. Equip.
Co., 934 F. Supp. 1043 (W.D. Wis. 1995), affirmed 94 F.3d 270
(7th Cir. 1996).
6 Remus, 794 F.2d at 1240.
7 Id. at 1241.
8 Id.
9 East Bay Running Store Inc. v. Nike Inc.,
890 F.2d 996 (7th Cir. 1989).
10 Id. at 998.
11 Id. at 1000, n.6.
12 Id.
13 Super Valu Stores Inc. v. D-Mart Food
Stores Inc., 146 Wis. 2d 568, 431 N.W.2d 721 (Ct. App. 1988).
14 JPM, 94 F.3d at 272.
15 Id.
16 Wurtz v. Fleischman, 97 Wis. 2d
100, 293 N.W.2d 155 (1980).
17 JPM, 94 F.3d at 273, quoting Wis.
Stat. §135.065.
18 Wis. Stat. §135.06.
19JPM, 94 F.3d at 273.
20 See Frieburg Farm Equip. Inc. v. Van
Dale Inc., 978 F.2d 395 (7th Cir. 1992). |