Wisconsin Fair Dealership Case Law Update: The Water Quality Store, LLC v. Dynasty Stores Inc.

July 15, 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.

The Water Quality Store, LLC v. Dynasty Spas, Inc. 
Wisconsin Court of Appeals, July 15, 2010 

Facts: The Water Quality Store is a business located in Wisconsin that sells and services spas and water conditioning equipment. Dynasty Spas is a Tennessee corporation engaged in the business of manufacturing and distributing spas to retailers. Water Quality sold and serviced Dynasty spas until July 2007, when Dynasty terminated the agreement in order to accommodate a new high volume dealer and give it an exclusive selling territory. Sixty to seventy percent of Water Quality’s business is selling spas as opposed to water conditioning equipment. The Court of Appeals affirmed the jury’s verdict that the Water Quality Store was a dealership covered by the WFDL and that the evidence supported an award of compensatory damages of $264,000.

Ruling: This case is important because the Wisconsin Court of Appeals decided not to follow the Seventh Circuit decision in Home Protective Services v. ADT Security Services, Inc., 438 F.3d 716 (7th Cir. 2006), which stood for the proposition that an alleged dealer must show that the alleged grantor had the dealer “over a barrel” to prove it is a protected dealer. In declining to follow the Home Protective Services case, the Wisconsin Court of Appeals found that the grantor’s actions (in this case termination of the dealership) did not have to pose a significant threat to the economic health of a retailer to prove that a retailer is a protected dealer under the statute. Factually, this means that even if a dealer like Water Quality could find another manufacturer to sell it spas and water softening equipment and, thus, the termination by Dynasty Spas of its dealership was not a significant threat to its business, a jury could still find that Water Quality was a protected dealer.

Bottom Line: This ruling is specifically important because the analysis of the Seventh Circuit in Home Protective Services was often sited in federal court decisions and used as guidance for many manufacturers for whether the WFDL would apply to their distributors. The Seventh Circuit’s analysis is no longer followed by Wisconsin courts and will likely not be persuasive in federal court.

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