Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. S.D.: Fact issues precluded summary judgment in truck distributor’s wrongful termination suit, (Nov 17, 2015)

By Linda O’Brien, J.D., LL.M.

Genuine issues of material fact precluded dismissal of a truck equipment distributor’s contract and equitable claims against a truck equipment manufacturer over the termination of its distributorship, the federal district court in Sioux Falls, South Dakota has decided. Thus, the manufacturer’s motion for summary judgment was denied (Northern Truck Equipment Co. v. Omaha Standard, LLC, November 16, 2015, Schreier, K.).

Omaha Standard is a manufacturer of truck body and truck equipment. Northern Truck Equipment is a full-line truck equipment distributor. In 1980, Northern Truck and Omaha Standard agreed, through a series of letters, that Northern Truck would distribute and sell Omaha Standard trucks and products in South Dakota. Northern Truck sold Omaha Standard products without material conflict between the two companies until 2012. In 2012, Omaha Standard authorized another company—North American Truck and Trailer—to distribute its products in Sioux Falls. Thus, both Northern Truck and North American Truck sold Omaha Standard products in the Sioux Falls market in 2012. In 2013, Northern Truck entered into an agreement with Knapheide Manufacturing Company to distribute its products in the Sioux Falls market.

After learning of Northern Truck’s agreement with Knapheide, Omaha Standard cancelled its distributorship with Northern Truck. Subsequently, Northern Truck filed a complaint against Omaha Standard, asserting claims for unfair competition, breach of contract, and unjust enrichment. Omaha Standard filed a motion for summary judgment on all claims. In response, Northern Truck moved for summary judgment on its unfair cancellation claim.

Unfair cancellation. The court explained that Northern Truck’s unfair cancellation claim was based on the South Dakota vehicles, implements, and industrial equipment dealer law (South Dakota Codified Laws (SDCL) §37-5-4), which provides a civil remedy for any dealer damaged by a manufacturer or distributor that cancels the dealer’s franchise without “just provocation.”

Omaha Standard argued that it had just provocation for two reasons: (1) consistently disappointing sales revenue and sales from Northern Truck for the last ten years and (2) Northern Truck’s decision to become a Knapheide distributor would further undercut sales efforts to improve profitability. Northern Truck contended that its actual sales production ranked in the top ten percent of all regional Omaha Standard distributors and that it consistently sold other manufacturer’s products throughout the life of the relationship with Omaha Standard.

The court determined that whether there was just provocation to terminate the distributorship agreement presented a question of fact. Because there were material issues of fact implicated in the determination of whether Omaha Standard had just provocation, the issue should be presented to a jury. Thus, both parties were denied summary judgment on the unfair cancellation claim.

Breach of contract. The court found that, due to the different terms that Omaha Standard and Northern Truck contended were included in their oral agreement, there were questions of fact regarding the full scope of the agreement and whether the conduct at issue constituted a breach. Omaha Standard had the burden, as the moving party, to present sufficient evidence that it did not breach the contract by terminating Northern Truck’s distributorship and it failed to show there was no genuine factual issue in dispute.

Unjust enrichment. To prevail on its claim for unjust enrichment, Northern Truck must show that Omaha Standard received a benefit, it was aware that it received a benefit, and it would be inequitable for Omaha Standard to retain the benefit without paying for it. Omaha Standard’s argument that Northern Truck had an adequate remedy at law if there was a wrongful termination was rejected. The court concluded that it was premature to rule on the equitable claim before a jury’s judgment on the unfair cancellation and breach of contract claims, since there were questions of fact regarding any benefits conferred to Omaha Standard that potentially extend the scope of the oral agreement.

The case is No. 5:13-CV-04088-KES.

Attorneys: Elizabeth S. Hertz (Davenport, Evans, Hurwitz & Smith, LLP) for Northern Truck Equipment Co. Gary P. Thimsen (Woods, Fuller, Shultz & Smith, PC) for Omaha Standard, LLC.

Companies: Northern Truck Equipment Co.; Omaha Standard, LLC

Cases: FranchisingDistribution SouthDakotaNews