Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—DMinn: Independent Sales Representative Not Protected from Termination by Minnesota Statute, (Mar 20, 2013)

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

An independent sales representative that did not reside in Minnesota, did not maintain its principal place of business in Minnesota, and was not granted the right to sell products in Minnesota was not protected from termination by the Minnesota Termination of Sales Representative Act, despite a contractual choice of Minnesota law, the federal district court in St. Paul has ruled (North Coast Technical Sales, Inc. v. Pentair Technical Products, Inc., March 4, 2013, Schlitz, P.). The fact that the sales representative agreement expressly applied Minnesota law did not bring the parties within the coverage of the state sales representative statute, the court held.

In 2009, North Coast Technical Sales, Inc. was granted the right to sell electronic cabinets and other products manufactured by Pentair Technical Products, Inc. on commission in Ohio, Kentucky, Michigan, Indiana, and Pennsylvania. The original agreement ran through December 31, 2009, but was automatically renewed for one-year terms. Either North Coast or Pentair could terminate the contract for any reason and at any time upon 30 days’ written notice.

On October 1, 2011, Pentair provided North Coast with a written notice of nonrenewal, informing the sales representative that the manufacturer was withdrawing its authority to sell electronic cabinets, effective January 1, 2012. North Coast’s authority to sell other products manufactured by Pentair was not affected. On January 12, 2012, Pentair notified North Coast that it was terminating the entire sales representative agreement, effective February 17, 2012.

North Coast brought this action, alleging that Pentair breached the agreement and violated the Minnesota Termination of Sales Representative Act. It further alleged that two equitable doctrines—the procuring cause doctrine and the unjust enrichment doctrine—afforded it relief from the termination.

Minnesota sales representative statute. The Minnesota Termination of Sales Representive Act prohibits termination of a sales representative agreement without good cause and 90 days’ written notice setting forth the reasons for termination. “North Coast may be correct that, if it were protected by the MTRSA, it could obtain relief under the statute,” the court noted. “The problem for North Coast is that it is not protected by the MTRSA.”

By its terms, the statute protects only sales representatives who are residents of Minnesota, maintain a principal place of business within the state, or whose geographical territory specified in the sales representative agreement includes part or all of Minnesota. Since North Coast did not reside in Minnesota, maintain a residence there, or have authority to sell there under the agreement, the statute did not protect North Coast.

North Coast alleged that the choice of Minnesota law in the sales representative agreement brought it within the protection of the statute. “This view, however, reads too much into a generic choice-of-law clause,” the court held. The choice of Minnesota law required the court to apply Minnesota law, as it was written, but did not change the law. On its face, the Minnesota sales representative law did not govern the sales representative agreement in this case.

North Coast complained that this interpretation was unfair, since a number of states—including Pennsylvania—enacted statutes providing protection to sales representatives. But North Coast was not protected by any of these statutes because of the choice of Minnesota law in the contract. It was not the district court’s job to determine whether the contract was “fair.” The parties had the freedom to contract and negotiated this agreement. It was the district court’s job to enforce the bargain struck by the parties. Thus, North Coast’s claim under the Minnesota Termination of Sales Representative Act was dismissed.

Breach of contract. North Coast further claimed that Pentair’s notice of nonrenewal had breached the sales representative agreement, which provided the parties with the right to terminate the contract on 30 days’ written notice, but did not provide the right to “non-renew” on those terms. In effect, North Coast was maintaining that the October 2011 non-renewal notice—which purported to revoke the authority to sell electronic cabinets—breached the contract, even though the January 2012 notice of termination of the entire contract was proper.

Pentair argued that the October 2011 notice did not exercise the authority to terminate the contract, but only exercised the contractual authority to revise the list of products North Coast was authorized to sell. The court agreed with Pentair.

Equitable relief. North Coast alleged that it had not been paid all of the commissions due it under the contract. It specifically pointed to orders it procured from Westinghouse and Bombardier that continued to be received and accepted by Pentair after termination of North Coast. While North Coast claimed commissions under the “procuring cause” doctrine, that doctrine applied only to parties without a contract addressing the right of sales representatives to receive commissions after termination.

In this case, the agreement provided commissions on customer invoices for orders placed on or before the effective date of the termination, for a period of 90 calendar days. Accordingly, North Coast could not recover additional commissions under the procuring cause doctrine.

Surviving claims. Although most of North Coast’s claims were dismissed, two of its claims survived—those alleging interference with the performance of a contract and claiming commissions on customer invoices for orders placed on or before the effective date of the termination, for a period of 90 calendar days. These claims were to proceed.

The case is 12-CV-1272 (PJS/LIB).

Attorneys: Adam J. Glazer and David S. Makarski (Schoenberg, Finkel, Newman & Rosenberg, LLC) and Christopher M. Daniels and Jesse H. Kibort (Daniels & Wymore, PLLC) for North Coast Technical Sales, Inc. Quentin R. Wittrock and Nicholas H. Callahan (Gray, Plant, Mooty, Mooty & Bennett, P.A.) for Pentair Technical Products, Inc.

Companies: North Coast Technical Sales, Inc.; Pentair Technical Products, Inc.

Cases: FranchisingDistribution MinnesotaNews