Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Wis.: Texas universal joint manufacturer could terminate assigned dealership agreement, (Dec 22, 2015)

By Edward L. Puzzo, J.D.

Upon reconsideration, the federal district court in Green Bay, Wisconsin ruled that its previous ruling—that a manufacturer had improperly terminated a dealership agreement after it was assigned to a different dealer—was improper because it was based on an incorrect interpretation of the good cause for termination provision of the Texas equipment dealer law (Texas Ujoints LLC v. Dana Holding Corporation, December 21, 2015, Griesbach, W.).

Dana Holding Corporation manufactures heavy duty industrial drive lines and universal joints used in the fracking industry. In an asset purchase agreement, DanMar Holdings acquired substantially all of the assets of Automotive Industrial Supply Co., Inc. (AISCO), primarily in order to obtain the right to distribute Dana products. Texas Ujoints, the transferee of the assets of DanMar Holdings, contended that AISCO had an oral distribution agreement with Dana, which was acquired as part of the asset purchase agreement. After meeting with Daniel Zahn and Martin Brown, the principals of DanMar Holdings and Texas Ujoints, Dana continued to sell its products to Texas Ujoints for a period of time, but later notified them that it would not be entering into a long-term distribution agreement with Texas Ujoints.

Texas Ujoints brought a claim against Dana, alleging that (a) by purchasing AISCO's assets, it had obtained AISCO's distributorship rights to Dana products, (b) Dana's subsequent dealings with Texas Ujoints created a new dealer agreement between Dana and Texas Ujoints, and (c) Dana's notification that it would not be entering into a long-term distribution agreement with Texas Ujoints was a termination without cause of a statutorily-protected dealer agreement, in violation of the Texas Fair Practices of Equipment Manufacturers, Distributors, Wholesalers, and Dealers Act (FPA). On May 30, 2015, the court found in favor of plaintiff Texas Ujoints, ruling that Dana had improperly terminated a valid distributorship agreement without cause, notice, or an opportunity to cure. Dana moved for reconsideration of the decision.

Previous ruling. It was undisputed that there never was a written distribution agreement between Dana and AISCO, nor between Dana and Texas Ujoints. It was also undisputed that Dana never consented to the sale of AISCO's alleged right to distribute Dana products. Dana had argued that good cause for the termination of the dealership agreement existed under the FPA because AISCO, previously a Dana dealer, had sold its assets. But in the May 30, 2015 decision, the court dismissed that argument stating that a supplier's consent to a sale, when not contractually required, cannot be unreasonably withheld.

Reconsideration. The court now ruled that reconsideration was warranted because the reasoning in its previous ruling was flawed. The court had essentially re-written the good-cause provision of the FPA, Section 57.154(a)(4), based upon a belief that Section 57.102 implied that dealership agreements must be freely assignable, a conclusion consistent with common law, since agreements for the sale of goods are generally assignable. However, Dana argued, and the court now agreed, such an interpretation was not consistent with the plain meaning of the words in the good-cause provision. Section 57.154(a)(2) unequivocally states that a supplier has good cause to terminate a dealer agreement if “the dealer or dealership has transferred a controlling ownership interest in its business without the supplier’s consent.” Therefore, regardless of the result under Texas common law, the FPA directly addressed the transferability of a dealer agreement, and stated that selling a dealership without the supplier’s consent is grounds for termination without notice or an opportunity to cure. Consequently, Dana had good cause to terminate any dealer agreement Texas Ujoints acquired from AISCO because it is undisputed that AISCO sold substantially all of its assets to Texas Ujoints.

Mutual assent. Texas Ujoint's alternative theory was that it and Dana independently entered into a dealership agreement through their course of dealings. However, establishing a dealership agreement with a supplier requires more than simply paying the purchase price on a few orders, the court stated. There must be a manifestation of mutual assent by the parties creating a formal or informal agreement. That was absent here.

The court granted Dan's motion for reconsideration, vacated the earlier judgment in favor of Texas Ujoint, and granted Dana's motion for summary judgment dismissing the action.

The case is Civil Action No. 1:13-cv-01008-WCG.

Attorneys: David H. Weber (Law Firm of Conway Olejniczak & Jerry SC) for Texas Ujoints LLC a/k/a Automotive Industrial Supply Co. Inc. Jonathan T. Smies (Godfrey & Kahn SC) and Cary Rodman Cooper (Marshall & Melhorn LLC) for Dana Holding Corporation. Cary Rodman Cooper (Marshall & Melhorn LLC) for Dana Limited.

Companies: Texas Ujoints LLC; Dana Holding Corporation; Dana Limited

Cases: FranchisingDistribution WisconsinNews