Antitrust Law Daily Bobcat prevails in suit by independent dealer over sale of dealership
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Monday, January 29, 2018

Bobcat prevails in suit by independent dealer over sale of dealership

By Wendy Biddle, J.D.

The company behind the Bobcat brand was entitled to summary judgment on a tractor dealer’s claims that it violated the Minnesota Heavy and Utility Equipment Manufacturers and Dealers Act and the Minnesota Agricultural Equipment Dealers Act by withholding its consent to let the dealer sell its dual-brand dealership to two prospective purchasers, a Minnesota federal district court has decided. The complaining independent equipment dealer failed to demonstrate a substantial change in competitive circumstances of the dealership agreement by not identifying how the policy lessened its ability to maintain profits or stay in business. Bobcat was well within its rights to withhold consent to sell to a buyer who would not agree to its requirements, which was not an offer that would trigger the right-of-first-refusal provision. The equipment maker was also granted summary judgment on the dealer’s breach of contract and declaratory judgment claims (Bobcat of Duluth, Inc. v. Clark Equipment Co., January 25, 2018, Magnuson, P.).

Bobcat of Duluth, Inc. was one of Bobcat’s independent dealers selling Bobcat equipment exclusively from 2000 to 2002, then selling both Bobcat and Kubota equipment from 2002 to 2015. In 2012, Bobcat started requiring new dealers to sign an exclusivity agreement, prohibiting the sale of competing products. This update was not included in the annual dealer agreements with the equipment dealer.

In 2014, the president of Bobcat of Duluth notified Bobcat of his intent to sell to which Bobcat responded that it would require any prospective buyer to sell only Bobcat product lines. In 2015, Quality Forklift expressed interest in buying the entire dealership, not just the Bobcat portion. The equipment dealer requested Bobcat’s consent to sell and transfer the dealer agreement. Bobcat set out several requirements including selling Bobcat equipment exclusively, achieving specific market share commitments, having at least 50% Bobcat equipment in its rental fleet and agreeing that Bobcat may terminate the agreement for failure to cure a breach within 60 days. Quality Forklift would only agree to a dealer agreement consistent with the current equipment dealer’s contract and made other substantial changes to Bobcat’s requirements. Bobcat therefore did not consent to the transfer. Quality Forklift then offered to purchase only the Kubota business and another dealer offered to buy the Bobcat business, resulting in total price of a $1.275M less than the original offer. The equipment dealer filed suit claiming that Bobcat violated two Minnesota statutes, Bobcat breached its terms in the dealer agreement, and the equipment dealer sought a declaratory judgment against Bobcat.

Minnesota Equipment and Dealers Acts. The equipment dealer argued that Bobcat’s exclusivity policy prevents it from selling its business to buyers who would operate as a dual or multi-brand dealership. But the court found that in order to prevail under the two Minnesota dealer laws, the equipment dealer needed to show that there was a substantial change in the competitive circumstances of the dealer agreement. The equipment dealer did not identify how the policy affected its ability to maintain a long term reasonable profit or its ability to stay in business. Without that showing, the equipment dealer had not shown that Bobcat substantially changed the competitive circumstances of the agreement.

Because the equipment dealer failed to show a substantial change in the competitive circumstances, the court also struck down the argument that withholding consent to transfer is actionable under the Minnesota dealer and equipment statutes. The court went on to analyze that even if withholding consent was actionable, Bobcat had good cause to withhold because Quality Forklift did not consent to a number of Bobcat’s requirements, not just the exclusivity clause.

Even if withholding consent to transfer a dealership, without the requirement of showing changed competitive circumstances was actionable under the two dealer laws, the manufacturer had good cause to do so, the court held. Good cause under the statutes is the "failure by [the] dealer to substantially comply with essential and reasonable requirements imposed upon the dealer by the dealership agreement, if the requirements are not different from those requirements imposed on other similarly situated dealers by their terms." Bobcat attached a number of requirements to its conditional approval of the transfer to one of the prospective purchasers, including compliance with market share commitments stated in the prospective purchaser’s own business plan, a ban on selling competitive attachments with Bobcat equipment, and provisions addressing how to resolve a breach of these requirements. The complaining dealer did not argue that these conditions, to which the prospective purchaser would not agree, were unreasonable. On this basis alone, Bobcat’s refusal to consent to the transfer would be for good cause.

Breach of contract. In the dealer agreement, Bobcat contended that the assignment provision gives it unconditional right to approve or deny any assignment. But the equipment dealer argued that the right-of-first-refusal provision not the assignment provision controls because it contains more specific language. The court found that those provisions addressed different rights under the dealer agreement. The assignment provision prohibited assignment or transfer without Bobcat’s prior consent. The right-of-first-refusal provision gave Bobcat the right to buy the dealership first if another buyer has made an acceptable offer. Bobcat was within its rights to withhold consent under the dealer agreement and doing so was not a breach of the agreement or a breach of the implied covenant of good faith and fair dealing. Moreover, Bobcat could not have violated the right-of-first-refusal provision because Quality Forklift did not make an offer, only a non-binding letter of intent. Furthermore, if the letter of intent was to be considered an offer, the right-of-first-refusal provision would have required that Bobcat purchase the entire dealership, including the Kubota part of the business, which would lead to an "absurd result."

Finally, the court dismissed the declaratory judgment claim finding Bobcat’s withholding of consent was lawful, nullifying the equipment dealer’s substantive claims.

The case is No. 0:16-cv-01007-PAM-LIB.

Attorneys: J. Michael Dady (Dady & Gardner PA) for Bobcat of Duluth Inc. Anthony J. Novak (Larson King LLP) for Clark Equipment Co.

Companies: Bobcat of Duluth Inc.; Clark Equipment Co.

MainStory: TopStory FranchisingDistribution MinnesotaNews

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