Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—3d Cir.: Equipment dealer’s breach of contract claims crushed, (Jun 30, 2016)

By Greg Hammond, J.D.

An Ohio statute that set forth heightened requirements for the termination of equipment dealer agreements was inapplicable to an industrial equipment dealer’s contracts with a manufacturer, entered into more than 15 years before the Ohio statute was enacted, the U.S. Court of Appeals in Philadelphia has decided. In affirming dismissal, the appellate court determined that the Ohio statute could not be retroactively applied to the agreements at issue because the statute was substantive, would have negated the manufacturer’s contractual rights, and would have imposed additional burdens that the parties did not include in their agreements (Bull International, Inc. v. MTD Consumer Group, Inc., June 29, 2016, Greenberg, M.).

Bull International, Inc.—a lawn and garden, commercial mowing, and farm and light industrial equipment dealer—filed suit against MTD Consumer Group, Inc.—a global manufacturer of equipment, alleging that MTD unlawfully terminated its Wholesale Finance Agreement and Sales and Service Agreement without giving a reason and without providing adequate notice under the statute regulating equipment dealer agreements—Ohio Rev. Code § 1353.06 (OEDA). The district court granted MTD’s request for dismissal of the various breach of contract claims. Bull appealed.

Application of OEDA. The OEDA, which was enacted in 2001, requires "good cause" for terminating equipment dealer agreements, as well as 180 days’ prior written notice. The appellate court first concluded that the OEDA was inapplicable in the instant action because it was enacted after the agreements at issue were entered into and could not be retroactively applied. Bull was unable to avoid the retroactivity issue by alleging that MTD materially modified the parties’ relationship because any new contract would have been formed in 1991, prior to the applicability of the OEDA, and the arguments were nevertheless meritless. The OEDA is also substantive, according to the court, and may not be applied retroactively to the earlier executed agreements between Bull and MTD because the OEDA’s heightened termination requirements—which was enacted more than 15 years after the parties executed their agreements—would negate MTD’s contractual rights that vested in 1985 and impose additional burdens, duties, obligations, or liabilities on MTD that the parties did not include in the agreements.

Implied warranties. The appellate court, however, reversed and remanded the lower court’s opinion with regard to Bull’s breach of the implied warranty of merchantability claim, finding that Bull set forth the six criteria of merchantability and provided significant and detailed factual allegations that call the merchantability of MTD’s products into question. In particular, Bull had alleged that: (1) it advised MTD that it had concerns about the quality and safety of five products, including a plastic hood, steel wheel rim, steel seat, small steel hub, and large steel hub; (2) laboratory testing on these five parts demonstrated MTD was not compliant with its International Organization for Standardization 9001:2008 certification, and Bull provided detailed summaries of the laboratory’s findings regarding each allegedly defective part; (3) MTD did not recall parts it knew were defective and did not issue any service advisory to warn dealers and consumers of the parts’ potential of failure; and (4) it received numerous complaints and requests for warranty services regarding each of the five defective parts, which forced Bull to spend hundreds of hours servicing, under warranty, failed MTD products.

The court otherwise affirmed dismissal of the breach of contract claims based on implied covenant of good faith and fair dealing, unconscionability, and implied warranty of fitness, as well as the promissory estoppel, tortious interference, economic loss doctrine, and defamation claims.

The case is No. 15-2438.

Attorneys: Jeffrey J. Ludwikowski (Picadio Sneath Miller & Norton, P.C.) for Bull International, Inc. Frederick W. Bode, III (Dickie McCamey & Chilcote, P.C.) for MTD Consumer Group, Inc.

Companies: Bull International, Inc.; MTD Consumer Group, Inc.

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