Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.S.D. South Dakota law applies to franchisee’s wrongful termination suit, (Dec 10, 2015)

By Linda O’Brien, J.D., LL.M.

In a dispute as to the application and effect of a forum-selection clause in a distribution agreement, South Dakota law will apply to a truck dealer’s cause of action for wrongful termination of its distribution agreement by an Ohio trailer manufacturer, the federal district court in Sioux Falls, South Dakota, has ruled (Black Hills Truck & Trailer, Inc. v. MAC Trailer Manufacturing, Inc., December 9, 2015, Schreier, K.).

Dealer Black Hills Truck & Trailer, a South Dakota corporation, entered into a distribution agreement with manufacturer MAC Trailer Manufacturing, an Ohio corporation, for the sale of commercial trucks in certain counties of South Dakota and Nebraska. The agreement contained a choice of law and forum-selection clause, specifying that Ohio law would govern any disputes under the contract and that venue would lie in either an Ohio state court or a federal district court situated in Ohio. Later, MAC modified the distributor agreement to restrict Black Hills’ marketing, sales, and repair work.

Black Hills subsequently filed suit against MAC in South Dakota, alleging state law claims and violations of the Robinson-Patman Act. The matter was removed to federal court, where MAC moved to dismiss the matter on the basis of improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3) or, alternatively, to transfer the matter to federal court in Ohio, pursuant to 28 U.S.C. § 1404(a). MAC’s motions were denied. However, in November 2014, its motion for certification for interlocutory appeal was granted. Before the court was MAC’s request for an order stating Ohio law will govern the dispute and Black Hill’s motion for leave to amend its complaint.

Governing law. The court found that South Dakota law will apply to Black Hills’ claim for violation of the South Dakota Codified Law §32-6B-45. The statute provides that no franchisor may directly or indirectly fail to renew or substantially change the competitive circumstances of a vehicle dealership with good cause. Franchisees are guaranteed the opportunity to bring a cause of action in a South Dakota forum for such violations. The plain meaning and text of the statute show that South Dakota has a fundamental public policy interest in protecting franchisees.

Moreover, the substantive differences in South Dakota and Ohio law necessitate the application of South Dakota law. Under the South Dakota statute, franchisees must be given 60 days’ notice of any changes to the franchise agreement, while Ohio law does not provide the same protections. Since the application of Ohio law would result in the loss of protections for Black Hills, South Dakota has a materially greater interest than Ohio in the determination of the matter.

The case is No. 4:13-cv-04113-KES.

Attorneys: David Edwards (Breit Law Office, PC) and J. Michael Dady (Dady & Gardner, PA) for Black Hills Truck & Trailer, Inc. Justin T. Clarke (Davenport, Evans, Hurwitz & Smith, LLP) for MAC Trailer Manufacturing, Inc.

Companies: Black Hills Truck & Trailer, Inc.; MAC Trailer Manufacturing, Inc.

Cases: FranchisingDistribution SouthDakotaNews