Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Minn.: Kitchen, bath cabinet distributorship not a “franchise”, (Feb 24, 2015)

By Greg Hammond, J.D.

A franchisor of kitchen and bath design and home remodeling businesses that had a national exclusive distributorship with MasterBrand Cabinets, Inc. was not a “franchisee” of the cabinet maker under the Minnesota Franchise Act, the federal district court in St. Paul decided. MasterBrand’s motion to transfer, pursuant to an enforceable choice of forum clause, was therefore granted, and the case was transferred to the Southern District of Indiana (Rogovsky Enterprise, Inc. v. MasterBrand Cabinets, Inc., February 23, 2015, Nelson, S.).

Background. MasterBrand, a leading manufacturer of cabinets in the United States, entered into a written Exclusive Distribution Agreement with Rogovsky Enterprise, Inc.—a franchisor of kitchen and bath design and home remodeling businesses called Kitchen & Home Interiors—allowing Rogovsky franchisees to sell MasterBrand cabinetry sourced through Rogovsky and MasterBrand. Rogovsky asserts that the agreement granted it the right to act as a putative franchisor for the sale of MasterBrand cabinets in the United States. However, MasterBrand maintains that the agreement did not grant Rogovsky franchisor status.

MasterBrand subsequently terminated Rogovsky’s right to sell franchises, claiming that Rogovsky was not using its “best efforts” under the distribution agreement. Rogovsky filed suit under various state franchise laws, alleging that MasterBrand did not have good cause to terminate the agreement. MasterBrand moved to transfer venue, pursuant to a choice of venue clause in the distribution agreement. In addition, MasterBrand moved to stay proceedings until the motion to transfer is decided, and Rogovsky moved for default judgment.

Default. The court first denied Rogovsky’s motion for default judgment, finding that, despite MasterBrand’s failure to file an answer, it has participated in a full-day of mediation and filed two motions, demonstrating a desire to contest the action. The motion was additionally denied because there was no “clear record of delay or contumacious conduct.”

“Franchise.” The court found that the forum-selection clause in the distribution agreement was valid, because the agreement was not demonstrably affected by fraud, undue influence, or overreaching, and the parties actively participated in the drafting of the agreement. Consequently, in determining the enforceability of the forum-selection clause, the court could only consider public-interest factors. In determining whether Minnesota public policy concerning franchises applied, the crux of the case became whether the distribution agreement qualifies as a franchise contract or an area franchise contract.

Rogovsky decidedly did not have a “franchise” under the Minnesota Franchise Act, the court decided, finding that Rogovsky failed to establish that it paid a “franchise fee” as part of the distribution agreement. Paying $300,000 worth of improvements was not deemed a franchise fee because the agreement did not clearly require Rogovsky to remodel its dealership showroom and the agreement specifically stated that Rogovsky “acknowledges and agrees that all of the costs and expenses incurred in performance of this Agreement are for its own account and shall not for any purpose be construed as franchise, entitlement, licensing, or similar fees.” Further, Rogovsky’s discontinued sale of cabinetry manufactured by competing manufacturers also did not constitute a franchise fee, because a contractual promise to not sell products does not constitute a “fee” or “charge” of any kind.

“Subfranchisor.” Similarly, Rogovsky was not a subfranchisor and did not have an area franchise pursuant to a franchise contract, the court found. Specifically, it was determined that Rogovsky did not sell franchises in the name of MasterBrand and was not selling franchises “in behalf of MasterBrand.” Consequently, the distribution agreement was not a franchise or area franchise agreement between the parties, but rather an agreement that identifies MasterBrand as the sole supplier of cabinets for Rogovsky’s franchises. Minnesota public policy regarding franchises was therefore inapplicable in this case.

No federal public policy factors counseled the court to overrule the parties’ prior negotiated distribution agreement to litigate in Indiana, the court concluded, and the parties’ forum-selection clause was therefore deemed enforceable. Consequently, MasterBrand’s motion to transfer to the Southern District of Indiana was granted, and the motion to stay was denied as moot.

The case number is 14-cv-188 (SRN/HB)

Attorneys: John D. Holland and J. Michael Dady (Dady & Gardner, PA) for Rogovsky Enterprise, Inc. Erin K. Westbrook (Barnes & Thornburg, LLP) for MasterBrand Cabinets, Inc.

Companies: Rogovsky Enterprise, Inc.; MasterBrand Cabinets, Inc.

Cases: FranchisingDistribution MinnesotaNews