Franchise Termination Is Upheld For Good Cause Under Maine Statute When Manufacturer Rebrands The Product
FMS, INC. v. VOLVO CONSTRUCTION EQUIPMENT NORTH AMERICA, INCORPORATED (March 4, 2009)
.jpg)
In 1997, FMS and Samsung entered into a dealer agreement under which FMS was authorized to sell Samsung construction equipment in Maine. The next year, Samsung sold its construction equipment business to Volvo. Volvo acquired the division, the factory, the design, and the franchise relationships -- but not the name. It was only authorized to sell under the Samsung name for three years. Volvo did manufacture and sell equipment under the Samsung name. In short order, however, it redesigned the equipment and rebranded it with the Volvo name. It then terminated the agreements with most of the Samsung dealers. FMS and other dealers brought an action against Volvo, alleging a breach of contract and wrongful termination. The District Court granted summary judgment to Volvo. On appeal, the Seventh Circuit affirmed in large part but reversed with respect to FMS's Maine franchise law claim. The Court held that there was a genuine factual dispute about whether Volvo had "good cause" under the Maine statute to terminate the franchise. On remand, a jury found for FMS. Volvo appeals.
In their opinion, Judges Flaum, Rovner and Sykes reversed and remanded. The court first considered the Maine franchise law. That law requires "good cause" for a manufacturer to terminate a franchisee. A manufacture’s discontinuation of the production of the franchise goods constitutes good cause under the statute. Volvo argued that it's redesign and rebranding of the equipment constituted a discontinuation of the franchise goods. The Court turned its analysis to the statutory definition of “franchise goods.” It found that the definition centered on the grant of a license to use a trademark or trade name. Considering that definition in conjunction with the dealer agreement, which defined the target of the franchise to be “all Samsung construction equipment,” the Court concluded that the contract only covered equipment that was branded Samsung. The Court then addressed whether the contractual inclusion of "later improved or superseding models" in its definition of “product” was enough to include the Volvo equipment. The Court cited the contract interpretation principle that when a contract refers to items “including” other items, the latter must be a subset of the former. It therefore concluded that that phrase included only later models that were branded Samsung. Concluding that the franchise covered only Samsung branded equipment, the Court had little difficulty in finding that Volvo met the good cause requirement when it discontinued the production of Samsung-branded equipment. Volvo is therefore not liable for improper termination under the Maine franchise statute and was entitled to summary judgment in its favor.
