Hedding Sales & Service v. The Pneu Fast Company
Filing
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MEMORANDUM OPINION & ORDER DENYING MOTION TO DISMISS 23 . (Written Opinion) Signed by Chief Judge John R. Tunheim on 1/2/2019. (JMK)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 18-1233 (JRT/SER)
CURT HEDDING, o/b/o
HEDDING SALES & SERVICE,
Plaintiff,
MEMORANDUM OPINION &
ORDER DENYING
MOTION TO DISMISS
v.
THE PNEU FAST COMPANY,
Defendant.
Daniel P. Brees, GASKINS, BENNETT & BIRRELL, LLP, 333 South
Seventh Street, Suite 300, Minneapolis, MN 55402, for plaintiff.
Benjamin Kinney, LAW OFFICES OF THOMAS SHIAH, 247 Third
Avenue South, Minneapolis, MN 55415, and Michael S. Poncin, MOSS &
BARNETT, PA, 150 South Fifth Street, Suite 1200, Minneapolis, MN
55402, for defendant.
Plaintiff Curt Hedding (“Hedding”) brings this action against Defendant The Pneu
Fast Company (“Pneu Fast”), alleging a violation of the Minnesota Termination of Sales
Representative Act (“MTSRA”). Presently before the Court is Pneu Fast’s Motion to
Dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6) and lack of subject
matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1). Because Hedding has alleged facts
sufficient to show a violation of the MTSRA and has claimed damages in excess of
$75,000, the Court will deny the motion.
BACKGROUND
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I.
FACTS
Hedding is a Minnesota citizen and the owner of Hedding Sales & Services
(“Hedding Sales”), a Minnesota sole proprietorship. (Am. Compl. (“Compl.”) ¶¶ 1-2, June
19, 2018, Docket No. 21.) Hedding Sales represents manufacturers in the sale and
distribution of goods. (Id. ¶ 3.) In 2006, Hedding Sales entered into a Representative
Agreement (the “Agreement”) with Pneu Fast, an Illinois corporation specializing in the
production of nails and staples used in certain power tools. (Id. ¶¶ 4-5, 11). The Agreement
established that Hedding Sales would represent Pneu Fast in the sale and distribution of its
products across nine states, including Minnesota and Ohio.
(Id. ¶ 11 & Ex. A
(“Agreement”) at 7.) It was to be effective indefinitely and, according to its terms, would
be governed by the laws of the State of Ohio. (Id. at 5; Compl. ¶¶ 11, 12.)
In relevant part, the Agreement also contained the following terms: (1) Pneu Fast
would pay Hedding Sales a 10% commission for one year on new accounts, and 5%
thereafter (Agreement at 8); (2) either party could terminate the Agreement with or without
cause (id. at 4); (3) in the event of termination, Pneu Fast would not be liable to Hedding
Sales for any damages whatsoever (id.); and (4) any amendment to the Agreement would
not be effective unless in writing signed by both parties, except that product prices, product
categories, geographic territory, and the commission schedule could be “amended at any
time by giving written notice thereof to [Hedding Sales],” (id. at 5).
In 2008, Hedding Sales established a new account for Pneu Fast with Menards, a
large home improvement chain. (Compl. ¶ 15). Despite agreeing that Hedding Sales would
receive a 10% commission on new accounts for the first year and 5% thereafter, Pneu Fast
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never paid Hedding Sales more than 4% in commissions on the Menards account. (Id. ¶¶
16-20). Nevertheless, Hedding Sales continued to work on the Menards account through
2018. (Id. ¶ 36.) Because of its efforts, the account expanded into new states throughout
the U.S., including expansions in 2015 and 2016 into Kansas, Missouri, and Wyoming.
(Id. ¶¶ 24, 26.)
In March 2018, Pneu Fast’s President and COO, Reno Joseph, sent a letter to
Hedding Sales (the “Termination Letter”) terminating the Agreement. (Id. ¶ 36.) The
Termination Letter stated that the termination would be effective immediately. (Id. ¶ 37.)
It also denied Hedding Sales any outstanding commissions until Hedding returned all
product samples to Pneu Fast. (Id. ¶ 39.) The Termination Letter did not include a
statement of reasons for the termination, nor did it give Hedding an opportunity to address
any such reasons. (Id. ¶ 40.)
Hedding now brings a single claim against Pneu Fast, alleging wrongful termination
in violation of the Minnesota Termination of Sales Representatives Act (“MTSRA”), Minn.
Stat. § 325E.37 (2018). (Compl. ¶¶ 45-55-.) Pneu Fast seeks to dismiss the Amended
Complaint for failure to state a claim upon which relief can be granted pursuant to Fed. R.
Civ. P. 12(b)(6) and lack of subject matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1).
(Mot. to Dismiss, June 4, 2018, Docket No. 23.)
II.
MINNESOTA TERMINATION OF SALES REPRESENTATIVES ACT
The purpose of the MTSRA “is to afford some protection to sales representatives
by limiting the circumstances under which their agreements may be terminated.”
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Cooperman v. R.G. Barry Corp., No. 4-91-663, 1992 WL 699500, at *8 (D. Minn. Jan. 10,
1992). The MTSRA’s protections extend to sales representatives who are residents of or
maintain their principal place of business in Minnesota or whose sales territory includes all
or part of Minnesota. Minn. Stat. § 325E.37, Subd. 6. The MTSRA defines “sales
representative” as “a person who contracts with a principal to solicit wholesale orders and
who is compensated, in whole or in part, by commission.” Id. at Subd. 1(d).
Under the MTSRA, a manufacturer may terminate a sales agreement upon good
cause, provided the manufacturer gives the sales representative (1) notice of its intent to
terminate at least 90 days before the expiration of the agreement, and (2) 60 days in which
to correct the reasons stated for termination. Id. at Subd. 2. If a manufacturer does not
have good cause to terminate, it must renew the sales agreement or give written notice of
its intent not to renew at least 90 days before the expiration of the agreement. Id. at Subd.
3. A sales agreement of indefinite duration is treated as an agreement of definite duration
expiring 180 days after written notice of intent to terminate is given. Id.
The newest subdivision of the MTSRA, Subdivision 7 (the “Anti-Waiver
Provision”), was enacted on August 1, 2014, to prevent manufacturers from using contract
terms to circumvent the statute’s existing requirements. It provides that sales agreements
may not include choice of law provisions for any state other than Minnesota and may not
purport to waive any MTSRA requirements. Id. at Subd. 7. Any such provisions are
automatically void and unenforceable. Id. The Anti-Waiver Provision became effective
on August 1, 2014, as to “sales representative agreements entered into, renewed or
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amended on or after that date.” Act of April 14, 2014, Ch. 165, S.F. No. 2108, 2014 Minn.
Laws.
DISCUSSION
I.
FAILURE TO STATE A CLAIM
A.
Standard of Review
In reviewing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6),
the Court considers all facts alleged in the complaint as true to determine if the complaint
states a “claim to relief that is plausible on its face.” Braden v. Wal-Mart Stores, Inc., 588
F.3d 585, 594 (8th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). To
survive a motion to dismiss, a complaint must provide more than “‘labels and conclusions’
or ‘a formulaic recitation of the elements of a cause of action.’” Iqbal, 556 U.S. at 678
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Although the Court
accepts the complaint’s factual allegations as true, it is “not bound to accept as true a legal
conclusion couched as a factual allegation.” Id. (quoting Twombly, 550 U.S. at 555). “A
claim has facial plausibility when the plaintiff pleads factual content that allows the court
to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Id. at 678. “Where a complaint pleads facts that are ‘merely consistent with’ a defendant's
liability, it stops ‘short of the line between possibility and plausibility,’” and therefore must
be dismissed. Id. (quoting Twombly, 550 U.S. at 557).
B.
Conflict-of-Laws Analysis
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If applicable, the MTSRA would directly conflict with several of the stated terms in
the parties’ Agreement. Likewise, it could render the termination of Hedding Sales
unlawful. Pneu Fast argues, however, that the MTSRA does not apply and Hedding’s claim
should therefore be dismissed. Pneu Fast asserts that a conflict-of-laws analysis requires
application of Ohio law, precluding application of the MTSRA entirely. Pneu Fast further
asserts that, even putting choice-of-law questions aside, the Anti-Waiver Provision was
never triggered because the Agreement was not “amended or renewed” after August 1,
2014. If true, then the parties’ Ohio choice-of-law provision would remain in place.
Because a conflict-of-laws analysis favoring Ohio law would end the Court’s inquiry, the
Court will address that issue first.
The Court first notes that a such a finding would allow Pneu Fast to accomplish
precisely what that Minnesota Legislature intended to prohibit when it enacted the 2014
Anti-Waiver Provision. That is, it would allow Pneu Fast to circumvent the requirements
of the MTSRA by discarding Minnesota law altogether in favor of the laws of another state.
Nevertheless, the Court will proceed with its conflict-of-laws analysis.
“A federal court sitting in diversity must apply the choice of law principles of the
state in which it sits . . . .” Florida State Bd. of Admin. v. Law Engineering and
Environmental Services Inc., 262 F. Supp. 2d 1004, 1010 (D. Minn. 2003).
Thus,
Minnesota choice-of-law principles control here.
Minnesota courts have traditionally honored parties’ contractual choice-of-law
provisions. Milliken and Co. v. Eagle Packaging Co., Inc., 295 N.W.2d 377, 380 n.1
(Minn. 1980). However, parties do not have unchecked power to choose their own law,
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particularly where the State has “expressed an intent to protect its citizens with its own
laws by voiding . . . choice-of-law provisions . . . .” Banbury v. Omnitrition Intern., Inc.,
533 N.W.2d 876, 880 (Minn. Ct. App. 1995).
Recognizing this limitation, the Eighth
Circuit has explained that “the law of the state chosen by the parties will be applied unless
to do so ‘would be contrary to a fundamental policy of a state which has a materially greater
interest than the chosen state in the determination of the particular issue . . . .’” Modern
Computer Systems, Inc. v. Modern Banking Systems, Inc., 858 F.2d 1339, 1342 (8th Cir.
1988) (quoting the Restatement (Second) of Conflict of Laws § 187(2)(b) (Am. Law. Ins.
1971)).
Such a policy may be evidenced by explicit statutory language. A useful illustration
is the Minnesota Franchise Act (“MFA”). In 1994, the Minnesota Legislature passed an
amendment to the MFA, which reads:
Any condition, stipulation or provision, including any choice
of law provision, purporting to bind any person who, at the
time of acquiring a franchise is a resident of this state . . . or
purporting to bind a person acquiring any franchise to be
operated in this state to waive compliance or which has the
effect of waiving compliance with any provision of sections
80C.01 to 80C.22 or any rule or order thereunder is void.
Minn. Stat. § 80C.21 (2018). In Banbury, the Minnesota Court of Appeals found that the
amendment’s language expressed the legislature’s intent to prohibit circumvention of the
MFA’s terms through choice-of-law provisions. 533 N.W.2d at 880. The court therefore
held that the parties’ Texas choice-of-law provision was void. Id. A court in this district
came to the same conclusion in a similar case and voided a choice-of-law provision
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accordingly. Delaria v. KFC Corp., Civ. No. 4-94-116, 1995 WL 17079305, at *6 (D.
Minn. Jan. 13, 1995).
The Eighth Circuit has likewise emphasized statutory clarity in resolving tensions
between a state’s expressed policy priorities and parties’ choice-of-law provisions. In JRT,
Inc. v. TCBY Systems, Inc., the court stated that “anti-waiver statutes . . . will void choice
of law contract clauses only so long as it is clear the state legislature deliberately targeted
choice of law provisions.” 52 F.3d 734, 739 (8th Cir. 1995). To apply to agreements signed
prior to their effective date, anti-waiver provisions must also define their scope as such.
See TCBY Systems, Inc. v. RSP Co., Inc., 33 F.3d 925, 930 (8th Cir. 1994) (finding that,
although the MFA’s anti-waiver provision applied to choice-of-law clauses, it did not apply
to agreements signed before its effective date and thus did not void the parties’ choice-oflaw provision).
Like the 1994 amendment to the MFA, the MTSRA’s Anti-Waiver Provision
unambiguously expresses the Minnesota Legislature’s intent to prioritize the statute’s
protections over parties’ choice-of-law. It also defines the scope of its application,
extending only to agreements enacted, amended or renewed after August 1, 2014.
Accordingly, the Court finds that Minnesota has a clearly-defined policy of protecting its
sales representatives from agreements purporting to waive the protections of the MTSRA
by any means. This policy precludes the Court from honoring contractual choice-of-law
provisions for sales agreements that were enacted, amended, or renewed after August 1,
2014.
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C.
Application of the Anti-Waiver Provision
The Court must now consider whether the Agreement falls within the scope of the
Anti-Waiver Provision such that the Ohio choice-of-law provision is void. If it does not,
the Court may yet be obligated to apply Ohio law. There is no dispute that Curt Hedding
is a sales representative as defined by the MTSRA, or that the Agreement was enacted prior
to August 2014. Thus, application of the Anti-Waiver Provision turns on whether the
Agreement was renewed or amended after August 1, 2014.
Hedding presents three avenues through which the Agreement may have been
renewed or amended in the requisite period: (1) an amendment to the terms of the
Agreement; (2) an active renewal; and (3) a passive renewal. Hedding first asserts that the
Agreement was amended in 2015 and 2016 to reflect an expanding sales territory. Relying
on language in the Agreement requiring amendments to be in writing and signed by both
parties, Pneu Fast contends that any changes in the geographic scope of the sales territory
were not effective “amendments” that would trigger application of the Anti-Waiver
Provision. However, Pneu Fast ignores additional language allowing for exceptions to the
writing requirement: “. . . current prices of the Products, and Exhibits A through C may be
amended from time to time and at any time by giving written notice thereof to
Representative and any such change shall become effective on the date specified in such
notice.” (Agreement at 5.) “Exhibits A through C” include the geographic sales territory
covered by the Agreement. Taking as true Hedding’s allegation that the sales territory was
expanded in 2015 and 2016, the Court finds it plausible that the changes reflect an
“amendment” to the Agreement.
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With respect to renewal, Hedding argues that when Pneu Fast encouraged Hedding
Sales to take the lead on managing Pneu Fast’s account at Menards stores in the expanded
sales territory, its actions constituted an “active renewal” of the Agreement. Alternatively,
Hedding argues such actions constitute a “passive renewal.”
Courts have yet to examine the meaning of “renewed” as incorporated into the AntiWaiver Provision. However, courts have interpreted the term as written in the statute
generally. When the MTSRA was enacted in 1990, it applied to sales agreements “enacted,
amended, or renewed” after that year. Minn. Stat. § 325E.37. In 1991, Congress amended
the MTSRA to clarify that “renewed” included agreements of an indefinite period under
which, “with the principal’s consent or acquiescence, the sales representative solicits orders
on or after May 28, 1991.” 1991 Minn. Laws, Ch. 190, § 2(a)(2). Soon thereafter, the
Minnesota Court of Appeals addressed whether the MTSRA would apply to a sales
agreement entered into in 1986 but terminated in 1991 – after the enactment of the MTSRA.
New Creative Enterprises, Inc. v. Dick Hume & Associates, Inc., 494 N.W.2d 509, 510-11
(Minn. Ct. App. 1993). The court held that, because the plaintiff had solicited orders for
the defendant after the enactment of the requisite date, their agreement was “renewed”
within the meaning of the statute as clarified by the 1991 amendment. Id. at 511.
In contrast, in Angostura International v. Melemed, a court in this district held that
the MTSRA did not apply to an indefinite sales contract entered into in the 1970s and
terminated in 1997. 25 F. Supp. 2d 1008, 1010 (D. Minn. 1998). The court found that,
despite the 1991 definition of “renewed,” “[s]uch a broad application of the MSRA’s
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amended definition . . . works an unconstitutional retroactive amendment on the preexisting agreement.” Id.
Angostura supports a narrow reading of the definition of “renewed” as incorporated
into the MTSRA. However, Angostura stands alone in its narrow reading of the term.
Moreover, Angostura is distinguishable from the present dispute. There, the parties entered
into an agreement over a decade before the passage of the MTSRA. Here, the parties had
notice not only of the MTSRA’s protections, but also of its definition of “renewal” when
they entered the Agreement and when they decided to continue under it following the
passage of the Anti-Waiver Provision. Additionally, while the parties in Angostura merely
continued to perform their existing obligations, here, the parties incurred new obligations
and costs with the expansion of the account. The Court therefore finds the application of
“renewal” in New Creative Enterprises more in line with the MTSRA’s statutory language.
As such, because Hedding Sales continued to solicit orders – and even expanded sales to
new territories – for Pneu Fast through 2018, the Court concludes that the Agreement was
renewed after August 1, 2014, triggering the Anti-Waiver Provision.
Having determined that the parties’ Ohio choice-of-law provision is null and void,
the Court must consider whether Hedding has alleged facts showing that Pneu Fast’s
termination of the Agreement violated the MTSRA. According to the pleadings, Pneu Fast
lacked good cause for termination, did not notify Hedding Sales in advance of the
termination, and withheld commissions upon termination – each an alleged violation of the
MTSRA. As such, Hedding’s allegations are sufficient to defeat Pneu Fast’s Motion to
Dismiss pursuant to Rule 12(b)(6).
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II.
SUBJECT MATTER JURISDICTION
Pneu Fast also moves to dismiss Hedding’s claim for lack of subject matter
jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1), arguing that Hedding has failed to plead
facts showing the amount in controversy exceeds $75,000 as required by 28 U.S.C. § 1332.
“The district court has subject matter jurisdiction in a diversity case when a fact
finder could legally conclude, from the pleadings and proof adduced to the court before
trial, that the damages the plaintiff suffered are greater than $75,000.” Kopp v. Kopp, 280
F.3d 883, 885 (8th Cir. 2002). The sum claimed by a plaintiff in good faith is usually
dispositive, unless “it appear[s] to a legal certainty that the claim is really for less than the
jurisdictional amount . . . .” St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283,
289 (1938). “The legal certainty standard is met where the ‘legal impossibility of recovery
[is] so certain as virtually to negative the plaintiff’s good faith in asserting the claim.’”
Schubert v. Auto Owners Ins. Co., 649 F.3d 817, 822 (8th Cir. 2011) (quoting JTH Tax, Inc.
v. Frashier, 624 F.3d 635, 638 (4th Cir. 2010)).
Hedding alleges upwards of $200,000 in damages and lost commissions resulting
from termination of the Agreement. There is no indication Hedding made these allegations
in bad faith or that it is legally impossible that Hedding suffered damages in excess of
$75,000. The Court will therefore deny Pneu Fast’s Motion to Dismiss pursuant to Rule
12(b)(1).
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ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that Defendant’s Motion to Dismiss [Docket No. 23] is DENIED.
DATED: January 2, 2019
at Minneapolis, Minnesota.
____s/John R. Tunheim_____
JOHN R. TUNHEIM
Chief Judge
United States District Court
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