Kaeser Compressors Inc v. Compressor & Pump Repair Services Inc

Filing 120

FINDINGS OF FACT AND CONCLUSIONS OF LAW; signed by Judge William C Griesbach on 5/18/2011. The Clerk is directed to enter judgment with statutory costs to defendant. (cc: all counsel)(Griesbach, William)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
KAESER COMPRESSORS, INC.,
Plaintiff,
v.

Case No. 09-C-521

COMPRESSOR & PUMP REPAIR
SERVICES, INC.,
Defendant.

FINDINGS OF FACT, CONCLUSIONS OF LAW
AND ORDER FOR JUDGMENT

Plaintiff Kaeser Compressors, Inc. (“Kaeser”), sells industrial compressors, blowers, and
related products manufactured by its German affiliate Kaeser Compressoren GmbH. Defendant
Compressor & Pump Repair Services, Inc. (“CPR”), is a Kaeser distributor for the States of
Wisconsin and Minnesota, and a portion of the Upper Peninsula of Michigan. Kaeser brought this
diversity action seeking a declaration that its relationship with Defendant CPR was not a dealership
within the meaning of the Wisconsin Fair Dealership Act (“WFDL”). Wis. Stat. § 135.01, et seq.
Kaeser also sought a determination that in the event the relationship was found to constitute a
dealership, Kaeser had good cause to terminate the arrangement based upon CPR’s refusal to sign
a new agreement.
The Court partially granted Kaeser’s motion for summary judgment with respect to its
Minnesota territory on the ground that the WFDL did not apply to business relationships outside of
Wisconsin. (Docket 88, p 14-15). Kaeser’s motion was denied as to the remaining territory,

however, and the matter was set for trial. CPR had demanded a jury, and the question then arose
as to whether it was entitled to a jury determination of the issues remaining in the suit. Kaeser took
the position that the relief sought was equitable in nature and thus CPR was not entitled to a jury.
On March 18, 2011, the Court concluded that CPR was entitled to a jury trial and denied
Kaeser’s motion to strike its demand. Given the uncertainty of the law, however, the Court also
indicated that it would makes its own findings of fact and conclusions of law based on the evidence
presented at trial so that in the event it was later determined that CPR was not entitled to a jury trial,
the parties would not be forced to try the case a second time.
The four day trial commenced on May 9, 2011. The jury returned a verdict in which it found
that the relationship between the parties was a dealership within the meaning of the WFDL and,
further, that CPR’s refusal to sign the proposed new agreement did not constitute good cause for
termination. What follows is the Court’s findings of fact and conclusions of law based upon the
same evidence.

FINDINGS OF FACT AND CONCLUSIONS OF LAW
I. Jurisdiction
Federal jurisdiction over the dispute between the parties exists under 28 U.S.C. § 1332.
Kaeser is a business corporation incorporated under the laws of the Commonwealth of Virginia with
its principal place of business located in Fredericksburg, Virginia. CPR is a business corporation
incorporated under the laws of State of Wisconsin, with its principal place of business located in
DePere, Wisconsin. The parties are therefore citizens of different states.

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The amount in controversy is in excess of the jurisdictional amount of $75,000. CPR
purchases millions of dollars worth of Kaeser products every year. CPR’s annual sales of Kaeser’s
Sigma line of compressors in Wisconsin for the past three years ranges from $3.8 million to almost
$5 million. Additional revenue for service related to Kaeser products over the same period exceeds
a million dollars per year. CPR contends that if Kaeser prevails in the action and terminates its right
to distribute Kaeser products, its entire business would be destroyed.

II. Relationship between Kaeser and CPR
Kaeser is a supplier to the U.S. market of compressors (the Sigma line), parts, and related
industrial products manufactured primarily by an affiliated company in Germany. Currently, Kaeser
sells these products through a network of distributors and Kaeser branch locations in the United
States as well as by direct sales. The percentage of Kaeser products distributed in the United States
either directly by Kaeser or through its branch locations, as compared to its independent distributers,
has increased since 2001.
CPR, which was started by Jim Kinate and his wife Kathy, became a distributor for Kaeser’s
Sigma line of compressors in 1988, when the parties entered into a written agreement that has since
been amended three times. (Exh. 1). Since it first became a Kaeser distributor in 1988, CPR has
operated as an exclusive distributor for Kaeser products within its territory. Under the written
agreement the parties signed on October 24, 1988, CPR agreed that it would “represent Kaeser
exclusively, and at no time while this agreement is in effect will [CPR] sell other equipment in
direct competition with the Kaeser line of products.” (Exh. 1 ¶ 1). The agreement also provided
that CPR would initially stock a minimum inventory of $25,000 representing a cross-section of
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Kaeser product line and maintain a sufficient spare parts inventory to service Kaeser compressors
and accessories in the field. CPR also agreed to open a sales and service branch in the Milwaukee
area by January 1, 1991. If it failed to do so, CPR agreed that a number of counties would be
reassigned to a distributor in the Milwaukee area. (Id.).
The agreement also provided that CPR would annually provide Kaeser with the company’s
financial statement upon completion of the fiscal year, strive to meet mutually agreed upon sales
goals, and maintain service and maintenance personnel who are properly trained to perform service
and repair work based on Kaeser’s standards. The agreement noted that Kaeser provides periodic
service schools for that purpose and expected CPR personnel to attend at least one of the schools.
In return, Kaeser agreed that it would assist CPR in selling its products by making available
literature covering their entire line of products and assist CPR with training and sales of equipment,
servicing and aftermarket sales. Kaeser specifically agreed that all sales leads in CPR’s territory
received by Kaeser as a result of their advertising efforts would be forwarded to CPR. In addition,
Kaeser promised that its district sales manager would be available to assist in marketing efforts and
that CPR could contact its engineering department for any technical questions or problems. (Ex.
1.)
On September 23, 1991, Kaeser signed an addendum to the agreement with CPR whereby
Kaeser expanded CPR’s territory to include the entire state of Wisconsin, as well as the state of
Minnesota. Under the terms of the addendum, CPR agreed that by January 1, 1992, it would have
a full-time experienced compressor sales person working in the western half of Wisconsin and the
entire state of Minnesota. On July 1, 1992, CPR was to have a sales office established in
Minneapolis/St. Paul area to serve the newly assigned territory. By January 1, 1993, CPR was to
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have a service department added to the sales office with Kaeser-trained mechanics. In the event
CPR did not meet these conditions, Kaeser reserved the right to reassign the territory. (Exh. 3.).
Finally, on December 4, 1995, Kaeser entered into a separate agreement with CPR concerning its
Omega blower line of products. Under this agreement, CPR agreed it would represent Kaeser
exclusively and at no time while the agreement was in effect enter in to any similar agreement with
a competitive blower manufacturer. Kaeser, however, reserved the right to handle original
equipment manufacturers (“OEM’s”) and direct accounts in order to maintain the blower business
from those accounts. Kaeser’s territory for the Omega blower was the entire state of Wisconsin and,
again, it agreed to keep on set levels of inventory and spare parts. (Exh. 5).
At the time CPR became a Kaeser distributor, the Kaeser product was almost unknown in
Wisconsin and Minnesota. Largely through CPR’s efforts, sales of Kaeser compressors within
CPR’s territory significantly grew over the last twenty years to the point where Kaeser now enjoys
a market share of between 13% and 14%. CPR’s success did not come without significant effort.
The market for compressors was considered by all parties a mature market in the industrialized
Midwest with Ingersol Rand occupying the dominant position and various other manufacturers also
having a strong presence. Moreover, though the quality of Kaeser’s compressors was high, the
product was more expensive than those with which it competed. Jim Kinate was initially able to
use contacts he had developed through his work with municipal waste water treatment systems to
successfully introduce the Kaeser brand. Over the years, CPR has also put on seminars featuring
Kaeser products in various locations within its territory, display Kaeser products at various
tradeshows, and promoted Kaeser products in its advertising.

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Since it became a Kaeser distributor, CPR’s sales and service staff grew to twenty
employees in its three separate locations in De Pere, New Berlin and Minnesota where it maintains
offices, storage facilities, equipment and inventory. (Ex. 1079, 1080.) CPR’s investment in its
facilities and, particularly, its employees is substantial. Its current inventory is valued at more than
$725,000, approximately 70% of which represents Kaeser products. (Ex. 1068.) Employees are
provided company cars, laptops, cell phones and other equipment needed to perform their jobs.
Training and experience are essential to successfully sell, maintain, and repair industrial
compressors and other equipment. CPR’s employees have received education and training that is
specific to the Kaeser line of products. CPR provides its own training and regularly sends its
employees for training sponsored by Kaeser at its Fredricksburg offices and in other locations. CPR
employees also receive training and education about Kaeser products through Kaeser literature and
online “webenars.” CPR personnel have also won numerous awards for selling and servicing
Kaeser products. “With at least 2,350 Sigma units sold as of 2009, CPR ranks at or near the top of
Kaeser distributors in terms of rotary screw compressors in the field.” Stipulation of Facts, ¶ 14.
More than 90% of CPR’s sales revenue is for Kaeser products. Although CPR notes on its
website that it services and repairs other products in addition to Kaeser’s, between 73% and 80%
of its revenue from repairs and service is related to Kaeser products. In fact, CPR does not have
access to the more specialized parts of other major brands of compressors, just as the distributors
for other brands do not have access to the more specialized parts of Kaeser’s compressors. Kaeser
restricts access to the internal controls of its compressors to prevent outside service technicians from
making improper and possibly dangerous adjustments. As an authorized Kaeser distributor, CPR
is furnished with a unique key every year that allows them access to the internal controls of Kaeser’s
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compressors. Without such access, CPR would be limited to routine maintenance and replacement
of generic parts and filters on Kaeser compressors as it is on other major brands.

III. Dealership Under the WFDL
The WFDL, as applicable here, defines a dealership as follows:
A contract or agreement, either expressed or implied, whether oral or written,
between 2 or more persons, by which a person is granted the right to sell or
distribute goods or services, or use a trade name, trademark, service mark, logotype,
advertising or other commercial symbol, in which there is a community of interest
in the business of offering, selling or distributing goods or services at wholesale,
retail, by lease, agreement or otherwise.
Wis. Stat. § 135.02(3)(a). As in most WFDL cases, there is no dispute between the parties here that
an agreement existed between CPR and Kaeser under which CPR was granted the right to sell
Kaeser’s products. The dispute centers on whether there is a “community of interest” between the
parties in the business of distributing those products.
The seminal case addressing the meaning of the phrase “community of interest” is Ziegler
Co., Inc. v. Rexnord, Inc., 139 Wis.2d 593, 407 N.W.2d 873 (1987). There, the Wisconsin Supreme
Court rejected a bright-line percentage-of-revenue test for determining whether a community of
interest exists between a distributor and supplier, and instead fashioned a multifaceted analysis
centered on two “guideposts” that were to be used to determine the WFDL’s applicability. The two
guideposts identified by the Court are a continuing financial interest and interdependence between
the parties. 139 Wis. 2d 603-04. The requirement that there be a continuing financial interest
“contemplates a shared financial interest in the operation of the dealership or the marketing of a
good or service.” Id. at 604. The interdependence guidepost focuses on “the degree to which the

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dealer and grantor cooperate, coordinate their activities and share common goals in their business
relationship.” Id. The Court cautioned that “[a]lthough every contract involves some shared goals
and coordinated efforts, more than a modicum of shared goals and cooperation is required to
establish a community of interest.” Given the purpose underlying the WFDL, the Court concluded
that “the continuing financial interest” and “interdependence” required must be sufficient to
“demonstrate a stake in the relationship large enough to make the grantor's power to terminate,
cancel or not renew a threat to the economic health of the person (thus giving the grantor inherently
superior bargaining power).” Id.
The Ziegler Court then listed a non-inclusive set of “facets” that were to be considered in
deciding whether such a relationship existed:
how long the parties have dealt with each other; the extent and nature of the
obligations imposed on the parties in the contract or agreement between them; what
percentage of time or revenue the alleged dealer devotes to the alleged grantor's
products or services; what percentage of the gross proceeds or profits of the alleged
dealer derives from the alleged grantor's products or services; the extent and nature
of the alleged grantor's grant of territory to the alleged dealer; the extent and nature
of the alleged dealer's uses of the alleged grantor's proprietary marks (such as
trademarks or logos); the extent and nature of the alleged dealer's financial
investment in inventory, facilities, and good will of the alleged dealership; the
personnel which the alleged dealer devotes to the alleged dealership; how much the
alleged dealer spends on advertising or promotional expenditures for the alleged
grantor's products or services; the extent and nature of any supplementary services
provided by the alleged dealer to consumers of the alleged grantor's products or
services.
Id. at 606.
In the many cases it has decided under the WFDL, the Seventh Circuit has distilled this
analysis down to two circumstances under which a community of interest will be found to exist:
“first, when a large proportion of an alleged dealer's revenues are derived from the dealership, and,

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second, when the alleged dealer has made sizable investments (in, for example, fixed assets,
inventory, advertising, training) specialized in some way to the grantor's goods or services, and
hence not fully recoverable upon termination.” Frieburg Farm Equipment, Inc. v. Van Dale, Inc.,
978 F.2d 395, 399 (7th Cir. 1992). Of these two circumstances, it is clearly the second, the
distributor’s investment in what the Seventh Circuit has called “sunk costs,” that is primary: “a
retailer is a dealer only if it has made the kind of investments that would tempt an unscrupulous
grantor to engage in opportunistic behavior-in other words, to exploit the fear of termination that
naturally attends a dealer's investment in grantor-specific assets.” Id.

IV. CPR’s Distributorship Is A Dealership
The evidence presented at trial establishes beyond a preponderance of the evidence that
CPR’s right to sell Kaeser products is a dealership within the meaning of the WFDL. Indeed, the
Court finds the evidence of a dealership overwhelming. The parties had a continuing and shared
financial interest in selling Kaeser products and were interdependent in the sense that they
cooperated, coordinated their activities and shared common goals in their business relationship.
Consideration of the ten facets identified in Ziegler and the Seventh Circuit’s distillation of them
confirms this conclusion.
The parties have dealt with each other for more than twenty-two years. CPR assumed
substantial obligations pursuant to its contract with Kaeser at the inception of the relationship, and
those obligation of increased over time. Kaeser was contractually obligated to maintain an
inventory of Kaeser products valued at a minimum of $25,000, along with a sufficient spare parts
to service Kaeser compressors. CPR established offices and warehouses in three different locations
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throughout its territory, bought service vehicles and equipment and hired and trained personnel to
sell and service Kaeser compressors. CPR expended substantial time and money advertising and
promoting Kaeser’s compressors to the exclusion of all other compressors to the point where
Kaeser’s market share in CPR’s territory has grown from almost nothing to close to 14%. CPR is
identified within the industrial compressor market with the Kaeser brand. Most of its revenue from
supplementary services such as maintenance and repair of compressors is derived directly from its
sales and installation of Kaeser compressors. Finally, the vast amount of CPR’s revenue is derived
from sale and service of Kaeser products. Considering both the amount of its revenue attributable
to Kaeser products and its sunk costs in promoting, selling and servicing Kaeser compressors, the
conclusion that a dealership exists between CPR and Kaeser is inescapable.
Kaeser’s argument to the contrary is based on a conflict that has arisen between the parties
in recent years over the need for additional salespersons and alternative ways to market and sell
Kaeser products. The conflict between the parties appears to have come to the surface in April 2008
when Kaeser, after twenty years of doing business with CPR, demanded that CPR submit a
satisfactory business plan. Kaeser had conducted a study and concluded that CPR ranked fifteenth
out of seventeen distributors who met certain sales minimums. When CPR balked at the idea of
submitting a business plan, Kaeser threatened CPR with the loss of its exclusive right to sell Kaeser
compressors in its territory. CPR ultimately submitted a business plan in September 2008 that
Kaeser found unacceptable. (Ex. 48, 52.) CPR then provided an addendum to the plan the
following month. (Ex. 49.) Still not satisfied, Kaeser asked for a meeting in Fredricksburg.
At the meeting, Kaeser’s President, Frank Mueller, emphasized that Kaeser was serious
about seeing CPR adopt specific measures that would increase its sales over the next several years.
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Jim Kinate, on the other hand, noted the economic downturn in the nation and indicated he was
unwilling to make significant new investments at this time. In a follow-up letter, Kaeser expressed
disappointment in CPR’s failure to take steps to implement growth strategies and identify potential
customers. In light of CPR’s unwillingness to commit to additional growth in its territory, Kaeser
indicated it needed to “provide for the possibility of arranging for additional distribution in the
territory at some point in the future.” (Ex. 57.) It therefore enclosed with its letter an addendum
to CPR’s 1988 agreement which was intended to confirm that CPR’s right to distribute Kaeser
compressors in its territory was not exclusive. Kaeser was asked to execute the addendum and
return it to Kaeser. (Id.)
CPR declined Kaeser’s request that it sign the addendum, and Kaeser followed with a letter
again expressing its disappointment with CPR’s response. Kaiser characterized CPR’s plan as a
“no-growth/slow-growth plan” and indicated that CPR could not reasonably expect to retain
exclusive rights to an important territory if it cannot achieve reasonable sales growth. (Ex. 59.) In
the face of CPR’s refusal to sign the addendum, Kaeser decided to defer “the decision about
additional sales effort in [CPR’s ] territory” until it saw how it actually performed. (Id.) Kaeser
then provided CPR with a Growth Chart showing quarterly sales goals for the following three years,
and advised CPR that if it failed to meet quarterly levels for two or more consecutive quarters, its
refusal to agree to the contractual change could lead to termination of its distributorship. (Id.) CPR
responded with a letter in which it insisted its business plan “project[ed] reasonable and realistic
growth given the maturity of the market, current and anticipated economic conditions in the United
States and the competitiveness of Kaeser’s products.” (Ex. 60.) CPR assured Kaeser that it would
continue to use its best efforts to sell Kaeser’s products, but rejected Kaeser’s attempt to impose
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unreasonable and nonessential sales goals. Finally, CPR warned that any attempt to terminate
CPR’s dealership without good cause would result in legal action under the WFDL. (Id.) Kaeser
acknowledged the parties’ disagreement over the matter and took no further action at that time.
Kaeser argues that it is clear from this evidence that, whatever their previous relationship,
Kaeser and CPR no longer shared a community of interest by 2008 or 2009. The evidence
demonstrates, Kaeser contends, that by that time the parties did not share a strategic vision and were
not cooperating in the pursuit of that vision. CPR came to believe sometime in the mid-2000s that
Kaeser was “out to get them.” Thereafter, Kaeser argues, CPR stopped working for the strategic
vision that Kaeser held and began working for itself alone to protect its own monopoly position.
Given the obvious conflict that had developed between them, Kaeser contends that the key elements
of a community of interest were no longer present.
Kaeser recognized that independent distributors, such as CPR, did not want to risk
investment in hiring and training more sales personnel in the hope that they would be able to
generate enough additional sales and service income to provide a return. Hiring a new employee
is always risky. It takes time to train a new sales person, and the costs of providing training, a car
and equipment are high. If the economy has a downturn, or the new person doesn’t work out or
leaves too early, the distributor loses money. Many distributors, in Kaeser’s view, became content
with the level of sales they have already achieved and the additional revenue they were able to
generate from servicing and maintaining their existing customers. Thus, they have little incentive
to risk the investment required in order to expand their sales force. Kaeser, on the other hand, only
made money through sales of product, not servicing and maintaining compressors its distributors

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had sold. As this conflict of interest came to a head in 2008-09, Kaeser contends whatever
community of interest that may have previously existed between the parties was extinguished.
But a dealership does not cease to exist simply because a conflict of interest arises between
the parties. Conflicts between grantors and dealers, or suppliers and distributors, are inherent in the
nature of the relationship. Indeed, the parties stipulated to the following facts:
19. One of the advantages to Kaeser of using independent distributors is that Kaeser
can establish a presence in a marketplace with little financial risk.
20. One of the disadvantages to Kaeser’s use of independent distributors is that
Kaeser gives up some measure of control over the business operations of the
distributors.
21. Kaeser does not have an interest in the independent distributor’s profit margin
so much as it is interested in having the independent distributor sell as much Kaeser
product as possible.
(Dkt. 100, Stip. of Facts, ¶¶ 19-21.)
When a product is first being introduced into a new territory, the risk lies primarily with the
distributor, and the supplier is largely dependent on the distributor for success. It is also at that
point that the interests of both parties are most closely aligned. The income of both parties depends
almost entirely on new sales of the product. Once the product is established and enjoys a solid
customer base, however, the distributor’s risk and incentive to invest more in sales personnel,
assuming he retains the right to distribute the supplier’s product, can lessen. As Jim Kinate
explained, the distributorship becomes like an annuity to the extent that existing customers generate
repeat business and service calls. This is not to say that the distributor does not still wish to increase
sales. But he may not be as dependent on sales as he was at the inception of the dealership.

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At the same time, the supplier’s dependence on the distributor is reduced once the product
is established since there now exists a solid foundation from which to grow sales even more. And
since the supplier’s income is derived almost exclusively from sales, the supplier retains a strong
incentive to generate continued sales growth, especially since the cost of hiring and training
additional sales personnel falls exclusively, if not primarily, on the distributer. Add to this the fact
that the distributor and supplier may have substantially different views of the potential for sales
growth in the distributor’s territory, the need for additional sales personnel, and the condition of the
national economy, and it is not surprising that serious conflicts arise.
It was precisely because of such conflicts that the WFDL was enacted. Recognizing the
inherently superior power of grantors or suppliers, the Wisconsin legislature sought “to provide
dealers with rights and remedies in addition to those existing by contract or common law” and “to
promote the compelling interest of the public in fair business relations between dealers and grantors,
and in the continuation of dealerships on a fair basis.” Wis. Stat. § 135.025(2). If there were no
conflicts between suppliers and distributors, there would be no need for a specialized law to address
them. In light of this purpose, Kaeser’s contention that the conflict of interest that arose between
the parties extinguished the dealership makes no sense. If that were the law, then the mere fact of
invoking the WFDL would destroy a dealer’s right to its protection. For it is only when serious
conflicts between the parties arise that a dealer would see a need to invoke the WFDL.
Whatever the phrase “community of interest” may mean, it does not mean the absence of
serious conflict between the parties or a complete agreement on a strategic vision and perfect
alignment of interests and goals. Even within the same organization it is difficult to find such
agreement and cooperation. The Wisconsin legislature could have had no such illusions about the
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relationship between the parties to a dealership. Here, for the reasons set forth above, the Court
finds that the relationship between Kaeser and CPR was a dealership as that term is defined in the
WFDL.

V. The New Contract
In 2008, Kaeser introduced a new uniform distributorship contract to its 37 independent
distributors across the country. In Kaeser’s view, significant changes had occurred in the world
since its original contract with CPR and its other distributors in the United States. The Internet was
in its infancy at the time of CPR’s initial agreement in 1988, for example, and was not a channel
for distribution of industrial goods in the United States. Since that time, Kaeser believed that the
growth of the Internet as a sales and marketing tool and the globalization of the economy called for
new ways of reaching potential customers. Kaeser had opened branch offices or factory shops in
various states and saw them as a way of gaining deeper penetration of the market. Based on its
experience in areas where it maintained branch stores and its own assessment of the market, Kaeser
believed that it could obtain a greater share of the market for its compressors.
In an effort to resolve the conflict between independent distributers like CPR who were
reluctant to invest in new sales personnel and strategies, and its own desire to achieve a deeper
market penetration for its products, Kaeser wanted the right to open branch offices in territories
previously served exclusively by one independent distributor. Distributors satisfied with the level
of sales and income they were able to generate without hiring additional sales personnel would be
able to continue as they had. At the same time, through its company stores, Kaeser would be able
to more aggressively pursue sales within the territory in an attempt to gain a deeper penetration.
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Through this system of “dual distribution,” Kaeser would be able to pursue what it viewed as
potential sales revenue that its independent distributors had insufficient incentive to pursue on their
own. The new uniform distributor contract it rolled out in 2008 and 2009, explicitly recognized
Kaeser’s right to make direct sales of its products “through branch offices, employee salespeople,
manufacturer’s representatives, and through catalog or the Internet to end-users and Original
Equipment Manufacturers (OEMs) in [an independent distributor’s] Territory when [Kaeser]
reasonably determines that such an approach is appropriate . . . .” (Ex. 70, Pt. II.)
CPR and Jim Kinate saw Kaeser’s movement toward what it called “dual distribution” as
the “kiss of death” for its independent distributors. In Kinate’s view, Kaeser was trying to steal the
fruits of his labor and investment of more than twenty years promoting and selling Kaeser
compressors and servicing his customers. Notwithstanding Kaeser’s assurances that it had no
interest in putting a branch office in CPR’s territory to sell to existing customers and that it would
only seek business CPR was not interested in pursuing, Kinate was convinced that Kaeser would
use its ability to undersell CPR on any transaction to not only take new business CPR might
otherwise acquire but eventually take away CPR’s existing customers as well. CPR viewed any
move to dual distribution in its territory as a serious breach of its original agreement and a violation
of the WFDL.
There were other provisions of the new contract that Kinate and CPR also found
objectionable. Whereas CPR’s original contract required CPR to annually provide Kaeser with its
financial statements upon completion of its fiscal year, the new contract called for annual audited
financial statements, which CPR saw as unnecessarily adding to its costs. The new contract, unlike
the old, contained an arbitration clause requiring that all disputes between the parties that they could
not otherwise resolve were to be submitted for binding arbitration in Washington, D.C. The new
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contract required CPR to “meet all sales goals specified in the yearly goal letter and sales history”
as opposed to “strive to meet mutually agreed upon sales goals,” as its original contract had stated.
Also of particular concern to Kinate was a provision that provided that the agreement would
automatically terminate in the event of a change in ownership, control or legal status of the
distributor and gave Kaeser “unfettered discretion” in deciding whether to offer a new agreement
to the new entity. Due to his age and health problems, Jim Kinate was in the process of handing
over control of CPR to his daughter Martha Kinate Blaney, who had worked for the company since
her early teens. Under the new contract, Kaeser would be able to terminate the dealership upon
completion of the transfer.
Kaeser formally tendered the new contract to Jim Kinate on April 21, 2009, informing him
that he had twenty days to return a signed copy. Kinate refused to sign the new contract but
expressed a willingness to negotiate with Kaeser over the terms. Kaeser indicated, however, that
it could not vary the terms of the contract, since it was intended to be a uniform agreement that
would govern its relations with all of its U.S. distributors. In Kaeser’s view, fairness to its other
independent distributors and administrative ease and necessity required that each distributor be
governed by the same terms. Kaeser also noted that all of its other independent distributors had
signed the new contract, and no exception could be made for CPR. When CPR persisted in its
refusal to sign, Kaeser commenced this action.

VI. Good Cause
Kaeser seeks a determination by the Court that CPR’s refusal to sign its new uniform
contract for its independent distributors constitutes good cause for termination of the dealership
within the meaning of the WFDL. The WFDL defines “good cause,” as applicable here, as follows:
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Failure by a dealer to comply substantially with essential and reasonable
requirements imposed upon the dealer by the grantor, or sought to be imposed by the
grantor, which requirements are not discriminatory as compared with requirements
imposed on other similarly situated dealers either by their terms or in the manner of
their enforcement.
Wis. Stat. § 135.02(4)(a).
The Court discussed the meaning of good cause extensively in its decision denying Kaeser’s
motion for summary judgment and will not repeat that entire discussion here other than to note that
although the statute requires new requirements imposed by a grantor to be both essential and
reasonable, courts have noted that these terms “are closely related and were clearly intended to be
read together.” Deutchland Enterprises, Ltd. v. Burger King Corp., 957 F.2d 449, 452 (7th Cir.
1992). In other words, a court need not determine whether each requirement imposed by a grantor
is both “essential” and “reasonable;” it must instead analyze good cause as a whole. As the Seventh
Circuit has put it, “the grantor must therefore show three things in order to justify its proposed
change: (1) an objectively ascertainable need for change, (2) a proportionate response to that need,
and (3) a nondiscriminatory action.” Morley-Murphy Co. v. Zenith Electronics Corp., 142 F.3d
373, 378 (7th Cir. 1998). Moreover, in order to demonstrate an objective need for a change, a
grantor need not show that the change is necessary for the grantor’s very survival as a business. It
is enough if Kaeser proves that the proposed contract was a nondiscriminatory and proportionate
means of allowing the company to stay competitive in its market. Ziegler Co. v. Rexnord, Inc.
(Ziegler II), 147 Wis. 2d 308, 319, 433 N.W.2d 8 (1988) (citing Remus v. Amoco Oil Co., 611 F.
Supp. 885, 887 (E.D. Wis.1985), aff'd 794 F.2d 1238 (7th Cir.1986)).

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VI. CPR’s Refusal To Sign The New Contract Is Not Good Cause
Kaeser failed to establish by a preponderance of the evidence that CPR’s refusal to sign the
new distributorship contract constitutes good cause for termination of its dealership. It failed to
show an objectively ascertainable need for the significant changes in the arrangement that the
contract would have allowed and, thus, that its insistence that CPR sign was a proportionate
response to its needs. Although the conditions Kaeser sought to impose on CPR were essentially
the same as those it imposed on other distributors, this fact is entitled to little weight since its
relationship with its other distributors was not subject to the WFDL and there is no evidence of what
the terms of its previous contracts with the other distributers were. It is therefore at least
questionable whether the other distributers could be considered “similarly situated.” Wis. Stat. §
135.02(4)(a).
Relying on Moodie v. School Book Fairs, Inc., 889 F.2d 739 (7th Cir. 1989), Kaeser places
great emphasis upon the fact that the conditions it sought to impose on CPR are uniform and
identical to the conditions it imposed on its other independent distributors. In Moodie the Court
held that a dealer’s failure to sign a lease for a computer that would allow him to come “on-line”
with the grantor’s computer system constituted a failure to comply substantially with reasonable
requirements. In upholding the grantor’s right to terminate the dealership in the face of the dealer’s
adamant refusal to sign the agreement, the Moodie Court observed: “A company is entitled to
maintain uniform contract terms with its many dealers.” 889 F.2d at 746.
Of course, the contract the dealer refused to sign in Moodie was an ancillary agreement that
would not have changed the essential character of the dealership. Neither Moodie, nor any other
case Kaeser cites stands for the proposition that a dealer must accept any and all uniform changes
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to the dealership contract. See Ziegler II, 147 Wis. 2d at 319 (noting that “[i]n Remus v. Amoco Oil
Co., 794 F.2d 1238 (7th Cir.1986), the Seventh Circuit Court of Appeals condoned the grantor's
unilateral and system-wide change of minor terms of the franchise agreement) (italics added). Here,
by contrast, Kaeser was seeking to take away CPR’s exclusivity, a key component of its agreement,
even if a disputed one. The contract Kaeser insisted CPR sign is far different than that computer
lease that the dealer in Moodie rejected.
While its desire for a uniform contract is understandable, Kaeser offered little evidence to
support its claim that uniformity is essential or even important to its overall operation. Kaeser
admitted that up until now, its distributer contracts have not been uniform, but offered no substantial
evidence of significant problems that the lack of uniformity had caused. It offered testimony from
several current distributors that they would be upset if they found out that CPR got a better deal than
they did. But while Kaeser cites a desire to treat each of its distributors in a fair and consistent
manner, the evidence demonstrated that before it insisted on a uniform new contract, none of the
distributors knew the terms of the contracts Kaeser had with other distributors. Given the fact that
each of the distributors became a Kaeser distributor at different times under different conditions for
different territories having different advantages and disadvantages and brought different pluses and
minuses to the table, it presumably would not have surprised many to know their agreements were
not the same. Since they were not competing against each other at the time, however, it apparently
was not a problem.
Moreover, even assuming complete uniformity is important, a grantor’s desire for uniformity
cannot trump the additional requirement that the changes in the agreement sought by the grantor
must be essential and reasonable. Otherwise a manufacturer could impose draconian (but uniform)
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new terms on its dealers (or effect a uniform “blanket termination”) and simply cite a generic need
for uniformity to justify the changes. The very fact that the WFDL exists is necessarily an obstacle
to complete uniformity in contracts governing dealerships located in different states.

The

applicability of the WFDL to CPR’s dealership also substantially reduces the force of Kaeser’s
evidence that all of its other independent distributors signed onto the new contract. Absent the
protection of the WFDL, CPR would in all likelihood have signed on as well. The issue is not
whether Kaeser’s distributors can survive under the new contract; the issue is whether the
significant changes Kaeser is demanding are essential and reasonable to Kaesar’s profitability.
In fact, even though Kaeser has framed the issue in terms of whether CPR’s refusal to sign
the new contract constitutes good cause, the real issue is whether Kaeser has good cause to change
the competitive circumstances of the dealership. For that is in essence what Kaeser’s new contract
would do. It would expressly permit Kaeser to place a branch office in CPR’s territory and directly
compete with CPR for sales. In claiming good cause exists for such a change in its distributor
contracts, Kaeser points not to CPR’s conduct so much as its own needs and desires. Indeed,
notwithstanding Kaeser’s dispute with CPR over its business plan and additional sales personnel,
Kaeser conceded from the very beginning that CPR was an excellent distributor of its products, one
of its best. It is its own desire for growth in the market beyond what it has already achieved upon
which Kaeser bases its demand for a new distributorship arrangement.
By its terms, the WFDL does not contemplate changes in the dealership arrangement based
on the grantor’s economic interests. The grantor is not allowed to “terminate, cancel, fail to renew
or substantially change the competitive circumstances of a dealership agreement without good
cause,” Wis. Stat. § 135.03, and the definition of good cause, as set out above, focuses on the
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conduct of the dealer, not the grantor. In Ziegler II, however, the Wisconsin Supreme Court
construed the requirement of “good cause” in § 135.02(4) to cover at least some cases in which the
grantor's economic circumstances impelled the proposed change:
The good cause element may be met if a dealer lacks substantial compliance with
the terms of the new contract, provided the altered terms are essential, reasonable
and nondiscriminatory. If the grantor is demonstrably losing substantial amounts of
money under the relationship, it may constitute good cause for changes in the
contract.
147 Wis. 2d at 315. Still, while Ziegler II broadened the definition of good cause to include the
grantor’s economic circumstances, it did not give grantors a license to terminate dealerships simply
because they found they could make more money without them. “The Wisconsin Supreme Court
was careful to limit this kind of grantor-based good cause, so that grantors would not be able to
terminate merely upon a showing that they believed they could make more money without the
particular dealer.” Morley-Murphy Co., 142 F.3d at 377.
In both Ziegler II and Morley-Murphy, the grantors were facing substantial losses when they
sought to radically alter or terminate the dealerships. Kaeser has made no such showing here.
Although testimony from Kaeser’s president and secretary suggests the changes are needed for its
profitability to increase, the parties stipulated that Kaeser has been profitable over the last ten years.
(Dkt. 100, Stip. of Facts, ¶ 27.) Kaeser offered no evidence that would support Mueller’s statement
that its new uniform distributor contract was essential to its continued growth and profitability.
There were no financial projections showing anticipated growth if CPR signed the new agreement
verses lack of growth or even loss if it did not. Although Kaeser introduced evidence that showed
significant sales growth in the Los Angeles and New England territories where it had branch
locations, along with independent distributors, Kaeser’s attempt to transfer its experience in those
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territories to CPR’s was unpersuasive, given the substantial differences in the populations and
industrial capacities of the different areas. Indeed, Kaeser indicated it had no plans to introduce a
branch office in CPR’s district; it was seeking only CPR’s acknowledgment that it had the right to
do so if it deemed such an approach appropriate. In other words, Kaeser essentially conceded it had
no current need to take away CPR’s exclusivity within its district. This fact alone would seem to
defeat Kaeser’s argument over good cause. CPR’s refusal to sign a new contract recognizing
Kaeser’s right to take action it conceded was not needed falls far short of showing good cause for
termination.
Perhaps Kaeser’s most curious argument was that because CPR has the protection of the
WFDL the terms of the contract do not really matter. Kaeser assured CPR it had no interest in
competing with CPR for the same customers and would not offer its products at lower prices in an
attempt to take over its business, even though its new contract would give Kaeser the right to do just
that. But if it did attempt to use its newly recognized rights to drive CPR out of business, Kaeser
argued, CPR would be able to seek relief under the WFDL. For example, if Kaeser exercised its
new contractual power to open up its own dealership across the street from CPR, CPR would be
able to invoke the WFDL’s protections against constructive termination. Remus v. Amoco Oil Co.,
794 F.2d 1238, 1241 (7th Cir. 1986). Thus, the WFDL’s protections will mute Kaeser’s ability to
compete directly against CPR, and in considering the reasonableness of the proposed contractual
terms, Kaeser argues, a court must consider not just the terms themselves but how those terms could
be muted by the WFDL.
Kaeser’s argument fails for at least two reasons. First, it runs directly counter to the
argument Kaeser made in its brief seeking dismissal of CPR’s counterclaim under the WFDL. In
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its counterclaim, CPR had repeatedly alleged that by providing for direct Internet sales, Kaeser had
“substantially changed CPR’s competitive circumstances.” (Counterclaim, ¶¶ 39, 45, and 52.) In
support of its motion to dismiss CPR’s counterclaim, Kaeser denied that the contract between the
parties prohibited Kaeser from making such sales and argued that in the absence of such a provision
in its contract, CPR had no such claim. “CPR’s competitive circumstances – that is, the de facto
situation of the dealer itself – are irrelevant to a § 135.03 claim”, Kaeser argued. “All that matters
is the contractual competitive rights created by the dealership agreement.” (Br. in Supp. of Mot.
to Dismiss, at 2-3.) Kaeser continued: “it is black-letter law that a supplier does not violate
§ 135.03 by subjecting a dealer to intra-brand competition, even if the dealer had not faced such
competition before, as long as that competition does not infringe a right to exclusivity prescribed
by the dealership agreement.” (Id. at 3 citing Super Valu Stores, Inc. v. D-Mart Food Stores, Inc.,
146 Wis. 2d 568, 574-77, 431 N.W.2d 721, 724-25 (Ct. App.), review denied, 147 Wis. 2d 888, 436
N.W.2d 29 (1988)). If, as Kaeser argued in its motion to dismiss CPR’s counterclaim, it is the
contract between the parties that determines whether the grantor can take actions that substantially
change the dealer’s competitive circumstances, and Kaeser cited several decisions that support its
argument, then CPR is fully justified in refusing to sign a new contract that explicitly allows Kaeser
to compete with it.
Kaeser’s argument also fails, however, even if its more recently expressed view of the law
– that the WFDL trumps the parties contract – is correct. This view, too, has some support in the
cases, as well as the WFDL itself. See Wis. Stat. § 135.025(3) (“The effect of this chapter may not
be varied by contract or agreement. Any contract or agreement purporting to do so is void and
unenforceable to that extent only.”); see also Jungbluth v. Hometown, Inc., 201 Wis.2d 320, 548
24

N.W.2d 519 (1996) (holding that conduct by grantor that substantially changes competitive
circumstances requires notice even though expressly authorized by contract). As Kaeser would
apparently concede, the law is less than clear on the issue, making CPR’s reluctance to sign entirely
reasonable. But even if it was clear under the law that CPR would not be forfeiting its rights under
the WFDL by signing the new contract, its refusal to do so still would not constitute good cause.
For in that event, Kaeser would have nothing to gain from CPR signing. There is nothing essential
and reasonable about requiring a dealer to sign an agreement that the grantor concedes is not
enforceable by its terms against the dealer in any event. For all of these reasons, CPR’s refusal to
sign Kaeser’s new distributor contract does not constitute good cause for termination of its
dealership.

ORDER FOR JUDGMENT
Based on the Court’s previous order partially granting Kaeser’s motion for summary
judgment, the jury’s verdict, and the Court’s findings of fact and conclusions of law, the Court
makes the following declarations:
1.

The agreement between Defendant Compressor & Pump Repair Services, Inc.
(“CPR”), and Kaeser Compressors, Inc. (“Kaeser”), constitutes a dealership within
the meaning of the Wisconsin Fair Dealership Law (“WFDL”), Wis. Stat. § 135.01
et seq.

2.

CPR’s refusal to sign Kaeser’s new distributor contract does not constitute good
cause to terminate the dealership within the meaning of the WFDL.

3.

The WFDL does not apply to the Minnesota portion of CPR’s territory.

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The Clerk is directed to enter judgment accordingly, with statutory costs to CPR.
SO ORDERED this

18th

day of May, 2011.

s/ William C. Griesbach
William C. Griesbach
United States District Judge

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