Those familiar with the series of Terminator movies starring Arnold Schwarzenegger have heard the phrase “you are terminated.” Schwarzenegger’s character was a cyborg and he said “you are terminated” when he destroyed other cyborgs. It was something moviegoers expected to hear.
However, it’s not something an equipment dealer expects to hear, especially when, by volume, you’re one of the top dealers in the country in sales of a particular brand. But happen it did to a Missouri dealer who was “terminated” because he wouldn’t yield to pressure from a manufacturer to clear his showroom of competitive commercial mowing equipment.
Under Missouri law, one of eight defined conditions that could lead a supplier to terminate an equipment dealer’s contract with good cause is “The retailer has consistently failed to meet the manufacturer’s, wholesaler’s or distributor’s requirements for reasonable market penetration based on the manufacturer’s, wholesaler’s, or distributor’s experience in other comparable marketing areas.”
In addition, the law, which is Chapter 407 Merchandising Practices, Missouri Fair Dealership Statutes for Farm, Lawn & Garden and Industrial and Construction Equipment, also allows termination of a dealer agreement for good cause if there is “failure by the retailer to substantially comply with essential and reasonable requirements imposed upon the retailer by the contract if such requirements are not different from those requirements imposed on other similarly situated retailers either by their terms or in the manner of their enforcement.”
The dealer had been recognized as the manufacturer’s top dealer multiple times and awarded the manufacturer’s top tier dealer status for several years in a row (including the year of termination) so it would normally be safe to assume the dealer was meeting its contract obligations. But when a dealer pushes a button with a manufacturer like taking on the wrong competitive line, sometimes all bets are off and, in this case, caused the manufacturer to immediately terminate the dealer.
When the dealer received this news, he didn’t accept the outcome and he turned to the association and its legal counsel. The association has an excellent legal team, which is considered by many in the industry as the best of its kind.
The legal team reviews contracts for many brands of equipment, and encourages dealers to provide new or revised contracts for review before signing. They also frequently help dealers work through difficult situations that relate to termination of dealer agreements.
But this termination was unusual because it didn’t seem to fit any of the so-called “good cause” definitions in the Missouri buy-back statutes and the manufacturer didn’t seem interested in trying to resolve the situation.
What’s implied in contracts?
We turned to Lance Formwalt, the association’s legal counsel and leader of the Equipment Dealer Group with Seigfreid Bingham in Kansas City, Missouri.
We asked Formwalt if there are provisions in dealer-supplier contracts that imply selling competitive equipment is not an option or discouraged.
“I don’t think a contract is needed to tell you that a manufacturer may not always encourage a dealer to carry a competitive line since there is always a natural tension between a manufacturer and dealer about this topic. But that tension is different than a legal obligation,” noted Formwalt. “When working with dealers and manufacturers, it is possible to have “implied” or oral dealer agreements but, in my experience, manufacturers that prohibit dealers from carrying other lines put that very specifically in writing. In this situation, there was nothing to suggest that competitive lines were prohibited and, in fact, this dealer had always carried four or five competitive commercial mowing lines, similar to other dealers.”
The dealer’s next step
As noted, the dealer and the association’s legal counsel were not able to get the manufacturer interested in resolving the situation so they had to file a lawsuit. That’s when the association became involved again to provide a little help from one of the association’s seldom used but most powerful member benefits.
That benefit is the Industry Relations Fund. The fund is administered by NAEDA and was created nearly 50 years ago by dealer associations and their members to address situations that could have industry-wide implications.
In essence, the fund can be a source of financial assistance in the form of a loan to assist a dealer’s legal challenge but only after specific requirements are met. Chief among those requirements is the dealer must have first tried to resolve the issue through communication and, where possible, negotiation with the manufacturer. This would ideally include enlisting the assistance of the dealer’s association executive through his or her relationship with the manufacturer.
If this path doesn’t offer the dealer any relief, the dealer can apply for a loan from the Industry Relations Fund. It’s a process, notes Kim Rominger, NAEDA CEO, but it ensures the fund is used wisely and for its intended purposes.
“The fund is there to assist dealers and not fund an entire lawsuit,” said NAEDA CEO Kin Rominger. “Generally, when the fund is needed it’s because all options and alternatives to resolve the issue have been exhausted.”
Some, but not all, of the reasons that support use of the fund include:
• contract language that is detrimental to all dealers,
• policies that would unfairly circumvent the dealer network, or
• challenging (or bypassing) existing dealer laws.
However, before any approval of a fund disbursement is made, dealers must agree in writing to the following conditions:
1. … furnish a written summary of disbursements/expenditures and provide updates on the progress of discussions and/or litigation on a regular basis until the dispute is resolved.
2. … sign a promissory note that in the event money is recovered from litigation or a settlement, the dealer will reimburse money advanced from the Industry Relations Fund including interest.
3. … may include a commitment to make an additional payment to the Industry Relations Fund in an amount mutually agreed to by the dealer and NAEDA based on the recovery from litigation or settlement
Dealer prevails
The best part of this article is this paragraph. The Missouri dealer who challenged the outcome of a termination letter, won a multimillion-dollar jury verdict against the manufacturer that terminated his contract. The manufacturer was also ordered to reimburse the dealer for attorneys’ fees and other costs incurred by the dealer in pursuing its claim.
No one is jumping for joy over this because this should never have happened. But there are times when you believe you have right on your side but need a little help to prove it and that’s where the association came in. The Industry Relations Fund is an unseen benefit that makes association membership more than a dues statement. It’s a partnership where the commitment to serve members is as strong as ever.
“When the Industry Relations Fund was created, there was a strong consensus that this could be a valuable initiative to help protect our dealers’ interests,” noted John Schmeiser, NAEDA COO. “This case was a reminder that the creation of this fund was one of the most important initiatives of our association.”
“This situation was a really unfortunate one,” added Schmeiser. “We and our legal counsel always strive to avoid lawsuits and find that these are almost never involved in situations where the association and the manufacturer engage in an active ongoing dialogue about dealer network issues.”
It should also be noted, the dealer no longer represents the brand in question. Under Missouri law, inventory, which included parts, has been repurchased by the manufacturer.
