Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—2ndCir: Insurance agent not a “franchisee” within Connecticut Franchise Act, (Jun 25, 2013)

By John W. Arden, J.D., LL.M.

An insurance agent that did not purchase insurance products from its insurance company did not have the right to offer, sell, or distribute goods or services as required by the “franchise” definition of the Connecticut Franchise Act, the U.S. Court of Appeals in New York City has ruled (Garbinski v. Nationwide Property and Casualty Insurance Co., June 24, 2013, Per Curiam). Thus, the agent could not maintain a wrongful termination claim under the Franchise Act against its insurance company.

The federal district court’s grant of summary judgment in favor of the company on the agent’s Connecticut Franchise Act, the Connecticut Unfair Trade Practices Act, tortious interference, and breach of the implied covenant of good faith and fair dealing claims was upheld.

Background. Gregory J. Garbinski joined Nationwide as an employee in 1992. After working for the company in various capacities for more than 10 years, he entered into an independent contractor agent’s agreement with Nationwide. The contract included a “General Conduct and Representation” provision, requiring him to “maintain a good reputation in the community” where he served. In March 2009, Garbinski got into a dispute with his wife, resulting in his holding her captive at gunpoint for two or three hours. Eventually, he was taken into police custody. The incident was covered by the local and Internet media. Invoking the “General Conduct and Reputation” provision of the agent’s agreement, Nationwide terminated the agreement.

Garbinski subsequently sued Nationwide, claiming (1) wrongful termination in violation of the Connecticut Franchise Act, (2) unfair and deceptive acts in violation of the Connecticut Unfair Trade Practices Act, (3) tortious interference with a business expectancy, and (4) breach of the implied covenant of good faith and fair dealing.

The district court held that Garbinski was not within the coverage of the Franchise Act and that the other claims failed as a matter of law, since they relied on the Franchise Act claim. Garbinski appealed these rulings, as well as the summary judgment in favor of Nationwide on its counterclaims for amounts due on loans made to Garbinski and his agency.

Coverage of Connecticut Franchise Act. Among other provisions, the Connecticut Franchise Act prohibits franchisors from terminating franchises “except for good cause” and at least 60 days’ notice. It defines a “franchise” as an oral or written agreement in which (1) a franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by the franchisor and (2) the operation of a franchisee’s business is substantially associated with the franchisor’s trademark, service mark, trade name, logo, or other commercial symbol.

With regard to the first element, the Connecticut Supreme Court has held that a franchisee must have the right to offer, sell, or distribute goods or services and the franchisor must substantially prescribe a marketing plan for such offer, sales, or distribution of goods or service.

The district court held that this definition did not apply to insurance agents in general or to the relationship between Garbinski and Nationwide in particular. Although the Court of Appeals did not weigh in on whether an insurance agent may ever be a franchisee, it agreed with the district court that no reasonable juror could find that Garbinski and Nationwide entered into a franchise relationship as contemplated by the Franchise Act.

In particular, the district court observed that “unlike a typical franchise, Garbinski did not buy the insurance products from Nationwide before reselling them to clients, nor was he required to do so to meet any minimum sales quota.” Instead, Nationwide owned the policies it issued. Garbinski was a commissioned sales representative and never owned the policies himself.

These precise factors led the Connecticut Supreme Court to find that the alleged franchise in Getty Petroleum Marketing., Inc. v. Ahmad, 253 Conn. 806 (2000) “did not have the right to offer, sell or distribute goods or services” as required for a franchise relationship under the Franchise Act. Since there was no principled distinction between the alleged franchise in Getty Petroleum Marketing and Garbinski, the appeals court held that Garbinski was not covered by the Connecticut Franchise Act.

Accordingly, the district court correctly held that no reasonable juror could find that a franchise relationship existed between Garbinski and Nationwide.

The case is No. 12-3797.

Attorneys: David L. Weiss (Cohen and Acampora) for Gregory J. Garbinski. Quintin F. Lindsmith (Bricker & Eckler LLP) for Nationwide Property and Casualty Insurance Co.

Companies: Nationwide Property and Casualty Insurance Co.

Cases: FranchisingDistribution ConnecticutNews NewYorkNews VermontNews