Antitrust Law Daily Log home franchisor must continue to honor dealership agreement with distributor
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Thursday, June 25, 2020

Log home franchisor must continue to honor dealership agreement with distributor

By Nicole D. Prysby, J.D.

The dealer demonstrated that it was likely to succeed on claims that the franchisor terminated the parties’ agreement without notice or opportunity to cure.

A log home distributor demonstrated a reasonable likelihood of success on the merits of its claims against a franchisor that terminated the parties’ dealership agreement, based on the franchisor’s lack of written notice and opportunity to cure before termination, and was granted its requested for an injunction preserving the parties’ relationship because all of the other requirements for injunctive relief were met. The distributor claimed that the termination violated the Wisconsin Fair Dealership Law (WFDL) and filed a motion for a preliminary injunction to require the franchisor to honor the agreement until trial. The court rejected the franchisor’s argument that the distributor acted in bad faith thus making the defects uncurable and negating the responsibility to provide notice and opportunity to cure, as it was not clear that the distributor violated the agreement or acted in bad faith. The dealership would suffer irreparable harm without the injunction, as the majority of its business was for the franchisor’s products. The balance of harms and public interest factors also weighed in favor of the injunction. The franchisor was required to provide the distributor with wholesale pricing and promptly refer all potential sales or other leads as described in the agreement. The distributor was required to post a $65,000 bond (Rustic Retreats Log Homes Inc v. Pioneer Log Homes of British Columbia Inc., June 22, 2020, Joseph, N.).

Rustic Retreats Log Homes, Inc. entered into a written distributorship agreement with Pioneer Log Homes of British Columbia, Ltd., to be Pioneer’s exclusive distributor of log homes across several states. Beginning in 2016, the parties began to have complaints about the relationship. Rustic’s sales dropped off; Pioneer took the position that if Pioneer drew plans for a home, Rustic could not use materials from a competitor to build the home; several Pioneer employees left to start a competing business and Pioneer alleged that Rustic conspired with them to misappropriate prospective Pioneer clients; and Rustic alleged that Pioneer made direct sales in Rustic territory. Pioneer terminated the agreement and Rustic claimed that the termination violated the WFDL, because it was without good cause or adequate notice. Rustic filed a motion for a preliminary injunction to require Pioneer to honor the agreement until trial.

The court granted Rustic’s request, in part. Rustic demonstrated a reasonable likelihood of success on the merits, based on Pioneer’s lack of written notice and opportunity to cure before terminating the agreement. The court rejected Pioneer’s argument that Rustic acted in bad faith thus making the defects uncurable and negating Pioneer’s responsibility to provide notice and opportunity to cure—it was not clear that Rustic violated the agreement, much less that it acted in bad faith. The agreement did not state that Rustic cannot work with other builders after a client purchases a Pioneer design and Pioneer failed to offer any evidence of the alleged conspiracy between Rustic and the former Pioneer employees. And Rustic’s alleged actions were not inherently incurable. The claimed deficiencies were failing to keep design plans confidential and enabling clients to use other builders; the cures would be to keep plans confidential and refrain from facilitating clients’ use of other builders. Pioneer’s guess that Rustic acted in bad faith did not appear at this stage to have justified unilaterally terminating the agreement without notice and undermining Rustic’s relationship with clients, according to the court.

As to irreparable harm, as a dealer seeking a preliminary injunction against a grantor, Rustic was entitled to the presumption of irreparable harm under the WFDL. Pioneer failed to rebut the presumption; Rustic alleged not just lost sales but the potential destruction of its business—historically consisting of 95 percent Pioneer products—as well as harm to its reputation and goodwill.

The balance of harms factor favored granting the preliminary injunction, as Rustic faced the potential destruction of its business, which historically consisted almost entirely of sales of Pioneer products, as well as harm to its reputation and goodwill. It was admittedly questionable whether Rustic’s business will be destroyed if Rustic was not allowed to sell Pioneer products during the pendency of this litigation, as it appeared Rustic closed no sales of Pioneer products in 2018 or 2019. On the other hand, Pioneer admitted that the sale, design, and building of a Pioneer log home is a multiyear process, which weighed against reading too much into the absence of sales in 2018 or 2019. Pioneer’s alleged harms were a loss of credibility and being forced to do business with a dealer in whom it has no confidence or trust and with whom it no longer wished to do business, but these harms would be short-lived. Finally, a preliminary injunction for alleged violations of the WFDL is presumed to be in the public interest.

The court held that as to scope of the preliminary injunction, Pioneer should be required to honor the agreement pending trial, including providing Rustic with wholesale pricing and promptly referring all potential sales or other leads from the exclusive territory to Rustic, as well as leads from Rustic’s non-exclusive territory as described in the agreement. Rustic’s request that the court order Pioneer to inform past or current customers that Rustic is its exclusive dealer in the territory was unwarranted. Such an order risked undue confusion to customers. Additionally, ordering Pioneer to place Rustic’s name on its website was at odds with the discretion the agreement gave Pioneer to conduct publicity. The court rejected requests from Pioneer to limit the injunction to 90 days or to Wisconsin; requiring Pioneer to honor the agreement by forwarding sales leads from other states to Rustic did not "apply" the WFDL to any action occurring outside Wisconsin. The court required Rustic to post a one-time bond of $65,000.

This case is No. 2:19-cv-01614-NJ.

Attorneys: Ann M. Maher (Husch Blackwell LLP) for Rustic Retreats Log Homes Inc. d/b/a Pioneer Log Homes Midwest. Gregory M. Jacobs (Stafford Rosenbaum LLP) for Pioneer Log Homes of British Columbia Inc.

Companies: Rustic Retreats Log Homes Inc. d/b/a Pioneer Log Homes Midwest; Pioneer Log Homes of British Columbia Inc.

MainStory: TopStory FranchisingDistribution WisconsinNews

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