Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—7th Cir.: Jury award of damages for wrongful termination of dairy equipment dealership affirmed, (Jul 2, 2015)

By Michael Menzhuber, J.D., LL.M.

A jury award of damages to a dairy equipment dealer, who was forced by the dairy equipment manufacturer to sell his dealership at a below-market price, was affirmed by the U.S. Court of Appeals in Chicago (Tilstra v. BouMatic, Inc., June 30, 2015, Posner, R.).

Sid Tilstra was a BouMatic LLC’s (BouMatic) dairy equipment dealer. The dealership agreement reserved BouMatic the right to change Tilstra’ assigned territory. The agreement also provided that BouMatic could not terminate the dealership or effect a substantial change in the agreement without “good cause” and only upon at least 90 days’ advance written notice.

Tilstra received an offer to purchase his dealership from a dealer who operated in an adjacent territory. After the parties could not come to terms on a sale, BouMatic’s district and regional sales managers advised Tilstra that they would eliminate his territory and stop selling him dairy equipment if he did not come to terms to sell his dealership to the other dealer. Tilstra valued the goodwill of his dealership at $1.5 million but, as a result of being forced to sell, ended up selling the dealership to the other dealer for $810,000.

Tilstra filed a complaint in federal district court alleging, among other things, that BouMatic violated the dealership agreement. The jury agreed that BouMatic violated the dealership agreement and it awarded Tilstra $471,124 in damages. The presiding magistrate judge upheld the award and BouMatic appealed.

The court determined that the jury was entitled to find that BouMatic, though it did not purport to do so, terminated its dealership agreement with Tilstra and did so without complying with the “good cause” and “90 days’ advance written notice” provisions of the agreement. Although BouMatic did not formally terminate the agreement, the court found that BouMatic telling Tilstra that his territory would be shrunk to zero if he did not sell it had a practical effect of terminating the agreement.

BouMatic argued that the agreement permitted it, at its sole discretion, to change an assigned dealership territory. The court agreed that BouMatic’s elimination of Tilstra’s entire dealership territory was a change, but determined that this “change” would amount to allowing termination “without good cause”, contrary to agreement.

BouMatic then argued that it had “good cause” to terminate its agreement with Tilstra. However, it never told Tilstra, as required by the agreement, and it did not prove, at trial, that Tilstra failed to “comply substantially with essential and reasonable requirements imposed upon Tilstra by BouMatic.”

BouMatic also presented several objections to the calculation of damages by Tilstra’s expert. First, it pointed out that the expert did not attempt to verify Tilstra’s financial statements. The court, however, noted that an expert witness is not required to verify all the facts on which he or she relies.

Next, BouMatic argued that the agreement provided that, regardless of which party terminates the agreement, the dealer is not entitled to any termination compensation or to compensation for goodwill. The court, however, found that this provision was conditioned on BouMatic’s right to terminate on its complying with the “good cause” and “90 days’ advance written notice” requirements.

Boumatic also objected to the expert’s assumption that Tilstra’s dealership, had it not been terminated, would have remained as valuable as it had been in recent years. The court, however, determined that the expert used a “capitalized earnings” approach to calculating damages and this was a standard method of business valuation.

The court also rejected BouMatic’s argument that it was entitled to shrink Tilstra’s territory and this would have reduced Tilstra’s dealership profits. It found that the jury was entitled to find that any shrinkage attempted by Boumatic would have been a further attempt to transfer Tilstra’s dealership to the other dealer. The court also found that Tilstra could not have obtained a comparable dealership from another supplier, as argued by BouMatic, because there was evidence that it was difficult to secure a new dealership and that a dealership was necessary to remain competitive.

The court dismissed BouMatic’s other complaints about Tilstra’s expert, as to the weight given to this testimony, because: (1) it had the opportunity to discredit his testimony before the jury; (2) it tried to do so; and (3) it had been successful in persuading the jury to award only about half of the damages calculated by the expert.

The case is No. 14-3333.

Attorneys: Gary L. Antoniewicz (Boardman & Clark) for Sid Tilstra, and Tilstra Dairy Equipment, Ltd. Saul C. Glazer (Axley Brynelson) for BouMatic LLC.

Companies: Tilstra Dairy Equipment, Ltd.; BouMatic LLC

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