Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—DMass: Truck Distributorship Not “Franchise” Under Massachusetts Motor Vehicle Dealer Law, (Jun 6, 2013)

By John W. Arden, J.D., LL.M.

A truck distributorship was not a “franchise” protected from termination without cause by the Massachusetts motor vehicle dealer law, since the manufacturer and distributor did not share a “community of interest,” according to the federal district court in Boston (C.N. Wood Company, Inc. v. LaBrie Environmental Group and Sanitary Equipment Co., Inc., June 5, 2013, Stearns, R.). Thus, the distributor’s wrongful termination claim was dismissed.

C.N. Wood Company is a family-owned Massachusetts business that sells and services a variety of heavy equipment lines, used in the construction, agricultural, and environmental industries. Since the 1960s, Wood sold and served Leach brand refuse collection trucks in Massachusetts and Rhode Island. In May 2006, Labrie Environmental Group purchased Leach’s assets and terminated the existing distribution agreement with Wood. In September 2008, Labrie and Wood entered into an agreement designating Wood as Labrie’s exclusive distributor in Massachusetts and Rhode Island for the Leach and Labrie brands of waste collection vehicles. The agreement had an initial term of one year, which automatically renewed unless a party gave notice of an intent to terminate at least 60 days prior to the expiration date.

On January 7, 2011, Labrie sent Wood a notice of nonrenewal under the agreement, effective April 30, 2011. Later that year, Labrie chose Sanitary Equipment Co. of West Haven, Connecticut, as its dealer in Massachusetts and Rhode Island. Wood continued to sell the Labrie brand until it received a notice of termination from Labrie.

Wood sued Labrie in Massachusetts Superior Court, asserting that Labrie had wrongfully terminated the franchise agreement between the parties, without advance notice and good cause as required by the Massachusetts law. Labrie removed the case to the federal district court and moved to dismiss on the ground that the agreement required application of Canadian law and use of Quebec courts. Wood countered that the agreement established a de facto franchise, and Massachusetts law vests exclusive jurisdiction over the parties’ dispute in its own courts.

“Franchise” Definition

Under the Massachusetts motor vehicle dealer law (Mass. Gen. Laws ch. 93B, §1-§18), a franchise agreement is defined as an oral or written agreement for a definite or indefinite period in which a manufacturer or distributor grants to a motor vehicle dealer a license to use a trade name, service mark, or related characteristic and in which there is a community of interest in the marketing of new motor vehicles at wholesale, retail, lease, or otherwise.

It was uncontested that Labrie granted Wood the right to use its marks in association with the sales and servicing of Leach and Labrie brand refuse collection vehicles. However, the parties disputed whether they shared a “community of interest.”

Community of interest. The Massachusetts statute did not define the term “community of interest,” and no Massachusetts court has construed it in any relevant context, the district court observed. However, the New Jersey Franchise Practices Act defines “franchise” in almost identical terms, and the Third Circuit has interpreted “community of interest” to mean “more than the mere fact that two parties share in the profits realized when a product makes its way from manufacturer to the ultimate consumer.” Courts analyzing whether a franchisee is part of a class protected by the New Jersey Franchise Practices Act “have looked for specific proof, focusing on certain indicia of control by the supposed franchisor over the supposed franchisee.”

Community of interest is found when the subordinate interests of the franchisee are merged with the dominant interests of the franchisor, the district court held. There is no “community of interest” where the alleged franchisee fails to establish that it was subject to the whim, direction, and control of the more powerful entity whose withdrawal from the relationship “would shock a court’s sense of equity.”

In Instructional Systems, Inc. v. Computer Cirriculum Corp, 130 N.J. 324 (1992), the New Jersey Supreme Court took an almost identical approach in finding that a “community of interest” is a “symbiotic relationship” between the parties. The court took into account the extent of the licensor’s control and the licensee’s economic dependence.

Wisconsin courts have likewise interpreted “community of interest” in the Wisconsin Fair Dealership Law to mean a continuing financial interest between a grantor and grantee in either the operation of the dealership or the marketing of goods and services.

Both New Jersey and Wisconsin courts have attempted to protect franchisees and dealers from exploitation by suppliers. This concern has been echoed in the primary purpose of the Massachusetts franchise law—that is, to curb the potentially oppressive power of automobile manufacturers and distributors in relation to their affiliated dealers.

Wood attempted to cast itself as a “virtual thrall to Labrie,” arguing that it was subject to many obligations under the agreement, including using its best efforts to promote the sales of Labrie products, providing trained sales and service staff, furnishing service facilities, and keeping an inventory of parts. The larger picture, however, cast the relationship in a different light. Labrie products comprise less than 10% of Wood’s total annual gross sales. Wood not only carried multiple product lines, but sold and serviced products that directly competed with those of Labrie.

It was true that the Massachusetts motor vehicle dealer law expressly protected multi-brand automobile dealerships. But that did nothing to advance Wood’s cause, the district court observed. “As Labrie points out, there is nothing about the maintenance of service bays so Labrie-specific as to have no utility outside of the Labrie line of products,” the court found. “Labrie also notes that it is undisputed that Wood has always set its own prices for Labrie products, has enjoyed a quick turn over in its Labrie parts inventory, and has generated significant sales revenues and commissions from the rental of Labrie demonstration vehicles.”

There was no evidence that Labrie had Wood “over a barrel, or even a bucket,” the court ruled. Both parties profited from their vendor/vendee relationship while it lasted. However, there was no “community of interest” that would have converted the relationship into a franchise.

Thus, the distribution agreement’s choice of law and choice of forum provisions were controlling. Labrie’s motion to dismiss was granted.

The case is Civil Action No. 12-11778-RGS.

Attorneys: David H. Travers (Todd & Weld) for C.N. Wood Company, Inc. Craig A. Raabe (Robinson & Cole, LLP) for Labrie Environmental Group. Seth C. Turner (Flynn Wirkus Young, P.C.) for Sanitary Equipment Co., Inc.

Companies: C.N. Wood Company, Inc.; Labrie Environmental Group; Sanitary Equipment Co., Inc.

Cases: FranchisingDistribution MassachusettsNews