Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Wis.: Termination of hauling and distribution agreements did not violate dealership law, (Jun 9, 2016)

By Edward L. Puzzo, J.D.

A dairy products supplier had good cause to terminate a distribution agreement with a diary hauler-distributor under the Wisconsin Fair Dealership Law (WFDL), and a separate hauling agreement between the parties did not create a "dealership" under the WFDL, the federal district court in Madison, Wisconsin has ruled Thus, wrongful termination claims brought by the hauler-distributor were rejected (Andrea Distributing, Inc. v. Dean Foods of Wisconsin, LLC, June 8, 2016, Peterson, J.).

Andrea Distributing, a diary hauler-distributor, transported milk and other dairy products for Dean Foods, a dairy distribution company, to Dean's primarily institutional customers in northern Wisconsin, including schools and large retail chains. Under the hauling agreement, Dean provided Andrea with a list of deliveries to make and then reimbursed Andrea regardless of whether the customer paid Dean for the products.

Andrea Distributing also purchased dairy products from Dean Foods and resold them to its own customers, primarily smaller retail stores. Under the distribution agreement, Andrea ordered products from Dean for resale, and Dean invoiced Andrea.

By September 2014, Andrea had built up a substantial past due balance under the distribution agreement. The parties entered negotiations wherein Andrea sought higher rates under the hauling agreement that it would use to pay the past due balance under the distribution agreement. The parties were unable to agree on modifications.

In March 2015, Dean Foods notified Andrea that it was terminating the hauling agreement effective June 7, 2015. Andrea then stopped making payments towards its past due balance under the distribution agreement and brought a claim alleging that Dean violated the Wisconsin Fair Dealership Law (WFDL). Dean Foods counterclaimed for the past-due balance and terminated the distribution agreement.

Nature of agreements. Andrea maintained that the entirety of its relationship with Dean Foods constituted a dealership agreement, and based its WFDL claim on the provision that prohibits the termination, cancellation, failure to renew, or to substantial change the competitive circumstances of a dealership agreement without good cause. Dean Foods maintained that the WFDL did not apply because the hauling and distribution agreements it had with Andrea were two separate agreements and no dealership agreement existed between the parties.

In order to determine whether the hauling and distribution agreements together constituted a dealership agreement under the criteria set forth in Team Electronics of Janesville, Inc. v. Apple Computer, Inc., 773 F. Supp.153 (W.D. Wis. 1991), the court had to examine (1) the language and history of the agreements; (2) the extent to which the grantor distinguished between the activities; (3) the extent to which the grantee distinguished between the activities; and (4) whether there were third parties performing the activities separately.

First, the court noted that the two agreements were structured differently, served different customers, and had different compensation methods (i.e., per-stop rates under the hauling agreement versus a product price list under the distribution agreement).

Second, Dean Foods treated the two agreements as separate, with separate assigned Dean managers and separate termination letters issued.

Third, Andrea maintained that it treated the entire relationship with Dean Foods as one, but Andrea was a small company with four employees and had little choice but to have employees work on both hauling and distribution, so Andrea's understanding of its relationship with Dean Foods was not particularly informative in this regard.

Fourth, other companies that work with Dean Foods can work only as haulers and not distributors if they wish.

The court found that at least three of these four factors weighed in favor of a finding that the parties had two separate agreements for hauling and distribution, not one dealership agreement.

Distribution agreement. Further analyzing the separate agreements to determine whether either or both of them fell under the WFDL, the parties agreed that the distribution agreement fell under the WFDL. Thus, Dean Foods was required to have good cause for terminating it. Andrea's failure to pay its past-due amounts certainly qualified as good cause, the court found. In the event of nonpayment, the WFDL required a least 90 days prior written notice of termination providing the dealer 10 days in which to remedy the default. Dean Foods complied with these requirements, the court found.

Hauling agreement. As to the hauling agreement, courts have consistently found that simple hauling agreements do not create dealerships. The court noted that Dean Foods did not require Andrea to display Dean Foods logos or wear Dean Foods-labeled uniforms, nor did they direct or control any aspect of Andrea's business other than to provide a list of stops and the products to deliver. The court found that Andrea's relationship with Dean Foods regarding hauling did not create a "dealership" under the WFDL.

Thus, the court ruled that Dean Foods did not violate the WFDL in terminating its hauling and distribution agreements with Andrea, and was entitled to summary judgment.

The case is Civil Action No. 3:15-cv-00341-jdp.

Attorneys: Thomas Owen Mulligan (Mulligan Law Office) for Andrea Distributing, Inc. David Michael Lucey (Foley & Lardner LLP) for Dean Foods of Wisconsin, LLC.

Companies: Andrea Distributing, Inc.; Dean Foods of Wisconsin, LLC

Cases: FranchisingDistribution WisconsinNews