Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

ECHO, INC. v. TIMBERLAND MACHINES & IRRIGATION (October 25, 2011)

Between 2004 and 2008, Timberland Machines & Irrigation distributed assorted outdoor power equipment for Echo in New England. On October 21 of 2008, Echo gave Timberland a sixty-day termination notice. Echo alleges that it actually made the decision to terminate Timberland in August of that year, for financial reasons. In September, Echo met with Lawn Equipment Parts Company to discuss giving it the New England region. Lawn Equipment was already a Echo distributor in another region. Echo eventually awarded the New England region to Lawn Equipment. Depending on the calculation, Echo accounted for between 30% and just over 50% of Timberland’s total sales. Echo brought suit against Timberland for breach of contract and for unpaid sums owed. A few weeks later, Timberland filed a separate suit in the same federal district against Echo and Lawn Equipment. It asserted Connecticut Franchise Act claims against Echo and claims for tortious interference, unjust enrichment and violation of the Connecticut Unfair Trade Practices Act against Lawn Equipment. The cases were consolidated before Judge Kocoras (N.D. Ill.), who granted summary judgment against Timberland on all counts after striking portions of the affidavit of Timberland’s president. Timberland appeals.

In their opinion, Seventh Circuit Judges Posner, Flaum, and Hamilton affirmed. The Court first addressed the affidavit, which the district court struck on the grounds that it constituted undisclosed expert testimony. The purpose of the affidavit was to establish that Timberland met the definition of a franchise under the Connecticut Franchise Act. Judicial interpretations of the statute hold that a party is a franchisee of another party if more than half of its business comes as a result of that relationship. The affidavit was designed to support a calculation that met the half-of-its-business test. The Court was not impressed. Of the four points of calculation stricken from the affidavit, the Court: a) agreed that one should be stricken, even if not expert testimony, because it was unsupported by any analysis, b) concluded that two points no longer mattered once the first was stricken, and c) disagreed with the exclusion of one point regarding certain sales numbers, given the president's knowledge as a result of his role in the corporation. Nevertheless, the Court disagreed with the substantive point made in the affidavit, concluded that the relevant sales figures were less than 35%, and affirmed summary judgment on the Franchise Act claim. With respect to the award of interest on the account stated claim, the Court concluded that Timberland waived its objection. Even had it not waived its objection, the interest award was appropriate in that Timberland accepted the goods and was obligated to pay for them, with interest, pursuant to the parties’ prior relationship. Finally, the Court found no genuine issues of material fact with respect to Timberland’s tortious interference, Unfair Trade Practices Act, or unjust enrichment claims.

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FMS, INC. v. VOLVO CONSTRUCTION EQUIPMENT NORTH AMERICA, INCORPORATED (March 4, 2009)

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.

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