Wisconsin Fair Dealership Case Law Update: Brio Corporation v. Meccano SN

February 10, 2010

Axley Brynelson’s Distribution and Franchise Team publishes the Wisconsin Fair Dealership Case Law Update as an online resource for developments in the Wisconsin Fair Dealership Law.

Brio Corporation v. Meccano SN 
United States District Court for the Eastern District of Wisconsin, February 10, 2010

Facts: Meccano is a toy manufacturer located in France. BRIO Corporation is a toy distributor located in Wisconsin. This lawsuit arose out of Meccano’s termination of its distribution agreement with BRIO. In 2001, Meccano had entered into a distribution agreement granting BRIO the exclusive right to sell Meccano’s Erector brand of toys within the United States. Meccano terminated the agreement unilaterally in September 2005. BRIO brought the lawsuit claiming that the termination was in violation of the Wisconsin Fair Dealership Law. Meccano asked the Court to dismiss the lawsuit arguing that as a matter of law, BRIO was not a protected dealer, and that it could not claim protection under the Fair Dealership Law because it was not “situated in” Wisconsin. The Court went found that Meccano imposed substantial obligations upon BRIO to buy, sell or promote Meccano products, that BRIO provided evidence that it devoted a substantial amount of time or revenue to promoting Meccano’s products; that the percentage of revenue from Meccano products of 21% slightly weighed in favor of finding a community of interest; that the scope of the territory granted to BRIO weighed heavily in favor of finding a community of interest; that BRIO’s assertion that its employees spent more than 50 percent of their efforts to expand Meccano sales channels raised a genuine issue of material fact as to whether there was a community of interest; that BRIO’s investment of approximately $320,000 a year into advertising and selling Meccano products raised a genuine issue of material fact as to whether the expenditures on advertising and promotion constituted a community of interest; and, that the extent and nature of the supplementary services provided by BRIO, which included providing paying for service and replacement parts for the product, raised a genuine issue of material fact as to whether there was a community of interest.

Ruling: The Court denied Meccano’s motion for summary judgment as to whether or not BRIO was a dealer and allowed the issue to proceed to trial so that a fact finder would determine whether a community of interest (and a protected dealership) existed between BRIO and Meccano.

The second issue that the Court addressed was whether BRIO was “situated in” Wisconsin. In order to be protected by the Wisconsin Fair Dealership Law a distributor must be “situated in” the State of Wisconsin. BRIO argued that it was a Wisconsin corporation, that it was incorporated in Wisconsin, that its corporate headquarters and all of its warehouses were in Wisconsin, it paid taxes in Wisconsin and it hired 75 Wisconsin residents, who in turn paid taxes in Wisconsin, all support a finding that it was “situated in Wisconsin.” Further, BRIO acquired and stored large amounts of inventory in its Wisconsin facilities. However, BRIO only had approximately 4.8% of its business revenue from sales in Wisconsin which is a factor against finding it as a business situated in Wisconsin. The Court determined that all of the factors that weighed in favor of finding that BRIO was located in Wisconsin precluded it from dismissing the lawsuit on summary judgment. Thus, the Court denied the motion for summary judgment.

Bottom Line: This case is an illustration of the factual analysis done by courts when determining whether a distributor is a protected dealer under the statute and whether it is “situated in” Wisconsin for purposes of the statute.

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