Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Wis.: Cabinet seller might be “dealer” under Wisconsin Fair Dealership Law, (Oct 8, 2013)

By Tobias J. Gillett, J.D., LL.M.

In an action alleging that a cabinet producer terminated an alleged dealer without good cause under the Wisconsin Fair Dealership Law, sufficient factual disputes remained to preclude summary judgment to either party on the question of whether the parties had a sufficient “community of interest” for their relationship to be governed by the dealership law, the federal district court in Milwaukee has ruled (Wholesale Partners, LLC v. MasterBrand Cabinets, Inc., October 4, 2013, Randa, R.).

MasterBrand Cabinets, Inc. sells a range of kitchen and bathroom cabinets under various brand names through a network of dealers nationwide. According to the complaint, in 2010, James Dorman and his son, James Jr., formed Wholesale Partners, LLC for the purpose of acquiring Laminated Products, Inc. (LPI), at the time a nearly-bankrupt MasterBrand dealer, and taking over LPI’s dealership. Wholesale Partners and MasterBrand negotiated an agreement on June 9, 2011, under which MasterBrand would transfer the LPI dealership to Wholesale Partners, in exchange for Wholesale Partners agreeing to become financially responsible for LPI’s debt.

On September 23, 2011, after the dealership had been transitioned and after Wholesale Partners leased space and begun selling the cabinets, MasterBrand informed Wholesale Partners that it was immediately terminating Wholesale Partners. MasterBrand allegedly gave no prior notice of the termination, of problems with Wholesale Partners’ account, or of any breach of the agreement, and did not permit Wholesale Partners an opportunity to cure any breach. The loss of the dealership drove Wholesale Partners out of business.

Wholesale Partners filed suit against MasterBrand, asserting claims for breach of contract and violations of Wisconsin’s Fair Dealership Law (WFDL). Both parties moved for summary judgment on the question of whether Wholesale Partners was a dealer for MasterBrand for purposes of the WFDL.

The court explained that the WDFL protects “dealers against unfair treatment by grantors.” A dealership under the WDFL requires, among other elements, “a community of interest in the business of offering, selling or distributing goods or services at wholesale, retail, by lease, agreement or otherwise.” Wisconsin courts had found that a “community of interest” could exist (1) “when a large proportion of an alleged dealer’s revenues are derived from the dealership,” and (2) “when the alleged dealer has made sizable investments (in, for example, fixed assets, inventory, advertising, training) specialized in some way to the grantor’s goods or services.”

The court initially rejected Wholesale Partners’ argument that it was entitled to summary judgment because MasterBrand admitted that it had “treated plaintiff as its dealer on a temporary basis.” The court noted that Wholesale Partners’ status as a dealer under the WDFL was a legal conclusion, and “legal conclusions are rarely considered to be binding judicial admissions.” In any case, the court found MasterBrand’s admission to be “equivocal, at best,” noting that the short duration of the parties’ relationship was a factor in the “community of interest” analysis, and concluding that MasterBrand’s admission that it had treated Wholesale Partners as a dealer on a “temporary basis” was not an admission that Wholesale Partners was “a ‘dealer’ as that term is defined in the WDFL.”

However, the court noted that MasterBrand’s admission “strongly suggest[ed]” that the parties had some agreement that permitted Wholesale Partners to sell MasterBrand’s goods. Moreover, it was undisputed that “Wholesale Partners designed, priced and sold MasterBrand’s products to customers and committed MasterBrand to sales of MasterBrand’s merchandise, and Wholesale Partners then ordered product through the MasterBrand account and MasterBrand delivered the product.”

The court noted that the short length of the parties’ relationship “work[ed] against” Wholesale Partners, but was “not dispositive.” Wholesale Partners had made substantial investments in leasing a storefront, securing a business development loan, making payments on LPI’s debt, dedicating money for payroll and inventory, and hiring salesmen experienced with MasterBrand experience. Many of these investments were MasterBrand-specific. Moreover, Wholesale Partners had been formed for the sole purpose of taking over LPI’s distributorship, and direct sales of MasterBrand products had accounted for 43 percent of Wholesale Partners’ gross profits. The court found these facts to be “more than enough to create an issue of fact as to whether there was a community of interest between the parties.” Therefore, the court denied both motions for summary judgment.

The case is No. 12-C-747.

Attorneys: Erin K. Dickinson (Hansen Riederer Dickinson Crueger & Reynolds LLC) for Wholesale Partners LLC. Christopher E. Nyenhuis (Michael Best & Friedrich LLP) for MasterBrands Inc.

Companies: Wholesale Partners, LLC; MasterBrands Inc.

Cases: FranchisingDistribution WisconsinNews