Wisconsin Fair Dealership Law: Let the Grantor Beware

December 14, 2012

The Wisconsin Fair Dealership Law is a statute that governs the relationship between manufacturers and suppliers (termed “Grantors”), and their distributors, independent sales representatives and dealers (termed “Dealers”). The Fair Dealership Law creates legal standards and procedures that must be followed by Grantors prior to terminating a protected dealer or changing the competitive circumstances of the dealership agreement. The Fair Dealership Law trumps any contradictory provision contained in a dealership agreement.

The threshold issue under the Fair Dealership Law is whether the distributor, supplier or independent manufacturer’s representative can establish that it is a protected dealer under the law. To meet this threshold, an alleged dealer must establish the following elements. First, there must be a contract or agreement (written or oral) between the Grantor and Dealer. Second, the Dealer must be granted the right to sell goods or services, or the right to distribute goods or services, or the right to use a trade name, trademark, service mark, logo type, advertising or other commercial symbols. Third, “a community of interest” must exist between the Grantor and Dealer regarding the selling or distributing of goods or services. A “community of interest” means a continuing financial interest between the grantor and grantee in either the operation of the dealership business or the marketing of such goods or services. Generally, the protected business relationships have included manufacturers and their distributors, and national corporations and their independently owned stores.

The keystone of the Fair Dealership Law is the “good cause” requirement. No Grantor, directly or through any officer, agent or employee, may terminate, cancel, fail to renew or substantially change the competitive circumstances of a dealership agreement without “good cause.” To establish “good cause,” Grantors must show that an individual Dealer failed to comply substantially with essential and reasonable requirements imposed upon the Dealer; the requirements may not be discriminatory as compared with requirements imposed on other similarly situated Dealers either by their terms or in the manner of their enforcement. Generally, Wisconsin courts have established that “good cause” exists, for example, when a Grantor can show that the Dealer is operating in bad faith, when the Dealer is insolvent, when the Dealer fails to pay its bills, or when the Dealer fails to meet reasonable sales quotas. However, “good cause” is a fact specific question and no general rule will guide a business in determining when “good cause” exists.

Even if a Grantor can establish “good cause” for its intended actions, the Fair Dealership Law requires that it give 90 days written notice prior to taking any such action, and 60 days to “cure” the alleged deficiency that forms the basis of the Grantor’s “good cause.” For example, if a Grantor wishes to terminate a Dealer for the Dealer’s alleged failure to achieve its minimum sales quota, the Grantor must provide the Dealer written notice of its intent to terminate, state the good cause basis for the termination, and an opportunity to “cure” its deficiency. If the Grantor fails to provide the proper notice, the termination of the agreement would be in violation of the Fair Dealership Law.

Failure to comply with the Fair Dealership Law carries significant consequences. Dealers may ask for an injunction or monetary damages. An injunction is simply a court order requiring a party to take certain actions or refrain from certain actions. In the Fair Dealership context, a Dealer usually asks a court to stop the Grantor from taking any action that would terminate or change the competitive circumstances of the dealership. If the Grantor has terminated the dealership agreement in violation of the Fair Dealership Law, the Dealer can ask for monetary damages. Monetary damages are generally calculated by determining the specific Dealer’s lost profits into the future through the reasonable time the dealership would have existed but for the wrongful action. This type of calculation can lead to large judgments for the successful Dealer. The successful Dealer is also able to recover from the Grantor the costs and attorneys’ fees incurred to enforce its rights under the Fair Dealership Law.

In the eyes of the Grantor, the Fair Dealership Law provides a complicated web of protectionist legislation that limits its ability to conduct its business. For protected dealerships, the Fair Dealership Law protects the investment of the Dealer. Under any light, the Fair Dealership Law is an ever evolving web of rules that can catch the most sophisticated business unaware.

Axley Brynelson law firm offers a variety of services to our clients including the drafting of favorable distribution contracts, providing guidance through the dictates of the Fair Dealership Law and, if necessary, litigating or negotiating the best settlements to lawsuits. Furthermore, we have broad experience in addressing the issues facing national businesses in Wisconsin, and have extensive experience in both state and federal courts. We invite you to contact us to ensure that your business does not fall prey to the requirements of the Wisconsin Fair Dealership Law.

To subscribe to email alerts from Axley Law Firm, click here.

For more information about "Wisconsin Fair Dealership Law: Let the Grantor Beware," contact Robert C. Procter at rprocter@axley.com or 608.283.6762.