Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Wis.: Termination of successor industrial parts distributor violated Texas statute, (Jun 3, 2015)

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

A German industrial parts manufacturer’s refusal to continue supplying parts to the purchaser of its authorized Texas distributor violated the Texas Fair Practices of Equipment Manufacturers, Distributors, Wholesalers, and Dealers Act (FPA), since the purchaser had acquired the right to distribute the parts and the manufacturer terminated the distributorship without cause, notice, or opportunity to cure, the federal district court in Milwaukee has ruled (Texas Ujoints, LLC v. Dana Holding Corp., May 30, 2015, Griesbach, W.).

In 2012, Wisconsin residents Daniel Zahn and Martin Brown formed DanMar Holdings for the purpose of purchasing the assets of Automotive Industrial Supply Co., a/k/a Texas Ujoints LLC, an authorized distributor of Dana’s industrial drive lines and universal joints. Their motivation for purchasing the company’s assets was to acquire the company’s right to distribute Dana’s parts. Neither Zahn nor Brown contacted Dana prior to the sale, but Gary Stoddard, a principal of Automotive Industrial Supply Co. (AISCO), assured them that their new company would be able to sell Dana’s parts after the sale.

After the transaction, representatives of Dana met with Zahn, Brown, and Stoddard. It was not clear to Dana that it was dealing with a new entity. Telephone conferences occurred, and Dana sent a credit application to Stoddard, Zahn, and Brown. According to Dana, the communications indicated that the new owners were “auditioning” to become a distributor. Dana filled orders during this time, sent a distributors price list, and requested a business plan. In the end, Dana decided not to enter a more extensive relationship with the company and sent an email to that effect to Zahn.

AISCO brought this action against Dana, alleging violation of the Texas FPA. Both parties moved for summary judgment. Dana claimed that the parties did not have a “dealer agreement” under the statute and that AISCO was not an authorized distributor. AISCO maintained that it was an authorized dealer and that Dana terminated the relationship without good cause.

Definition of “dealer agreement.” Dana contended that it never entered into a formal contract with AISCO and, therefore, the relationship was not within the Texas FPA. However, the court concluded that the FPA’s definition of “dealer agreement” only required some sort of formal or informal agreement that gives rise to ongoing rights and obligations with respect to the purchase or sale of equipment or repair parts.

Dana and AISCO’s “dealer agreement.” While Dana objected to the term “authorized distributor,” the court found that Dana’s own representative had called AISCO by that term. The term meant that AISCO had the right to buy and sell Dana’s products. There was a manifestation of mutual intent for AISCO to distribute at least some of Dana’s products that was not terminated prior to the incident in dispute. From the undisputed facts, the court concluded that AISCO had a dealer agreement with Dana within the meaning of the FPA at the time AISCO entered into the purchase agreement with Zahn and Brown.

Transfer of rights. The court further found that AISCO had transferred its rights under its dealer agreement to Zahn and Brown. As a third party, Dana could not assert a contract-formation defense. The Texas FPA acknowledges good cause for termination for “a sale or other closeout of a substantial part of the dealer’s assets related to the business.” However, Dana did not terminate the dealer agreement when it first learned of the agreement to sell the business. It continued to do business with AISCO for several months. In addition, there was no evidence that Dana retained contractual authority to approve or deny the sale of AISCO.

Cause for termination. Once it was determined that Zahn and Brown acquired AISCO’s distributorship rights by transfer, it was evident that Dana violated the FPA by terminating the distributorship without cause, notice, or an opportunity to cure, the court concluded.

The case is No. 13-CV-1008.

Attorneys: David H. Weber (Law Firm of Conway Olejniczak & Jerry SC) for Texas Ujoints LLC. Jonathan T. Smies (Godfrey & Kahn SC), and Cary Rodman Cooper (Marshall & Melhorn LLC) for Dana Holding Corp., and Dana Ltd.

Companies: Texas Ujoints LLC; Automotive Industrial Supply Co., Inc.; Dana Holding Corp.; Dana Ltd.

Cases: FranchisingDistribution WisconsinNews