Brio Corp v. Meccano SN
ORDER signed by Judge Rudolph T Randa on 02/10/2010 denying 71 Motion for Summary Judgment. Telephone Conference call set for 3/11/2010 at 9:30 AM 2/10/2010 before Judge Rudolph T Randa. The Court will initiate the call. (cc: all counsel) (Koll, J) Modified on 2/19/2010 (vkb)
UNITED STATES DISTRICT COURT E A S T E R N DISTRICT OF WISCONSIN
B R I O CORPORATION, P l a in tif f , C a s e No. 06-C-1001 v. M E C C A N O S.N., Defendant.
D E C IS IO N AND ORDER
T h is action arises out of defendant Meccano S.N.'s ("Meccano") termination of its d is trib u tio n agreement with plaintiff Brio Corporation ("Brio"). In May 2001, Brio and M e c ca n o entered into a distribution agreement entitled "Distributor Agreement," pursuant to which Meccano granted to Brio the exclusive right to sell Meccano's Erector brand of toy w ith in the United States. Meccano unilaterally terminated the agreement in September 2005, a n d the parties engaged in negotiations regarding the repurchase of Brio's inventory of M e c ca n o products. Brio was not satisfied and brought suit in Wisconsin under the
W is c o n s in Fair Dealership Law ("WFDL") and other causes of action. Brio asserts that it is a "dealer" and that the Distributor Agreement constitutes a " d e a ler sh ip " under the WFDL. Brio contends that the termination notice did not comply w it h the requirements of the WFDL and that Meccano did not have good cause for te rm in a tin g the Distributor Agreement in violation of the WFDL. Brio also contends that w h en Meccano ended its relationship with Brio, it was obligated to repurchase all of Brio's
in v e n to ry of Erector products at the fair wholesale market value of the inventory. Brio f u rth e r asserts that Meccano made oral promises to repurchase Brio's inventory. Meccano removed this action from Washington County Circuit Court, invoking the C o u rt's diversity jurisdiction. See 28 U.S.C. § 1332. The Court has jurisdiction because the s u it is between a citizen of Wisconsin and a citizen or subject of a foreign state and the a m o u n t in controversy exceeds $75,000, exclusive of interest and costs. Id. Pursuant to Rules 56 and 12(b)(3) of the Federal Rules of Civil Procedure, Meccano m o v es this Court for an order granting Meccano summary judgment and dismissing Brio's claim that Meccano violated the WFDL. Meccano argues that Brio was not a WFDL dealer. M ec ca n o contends that Brio was not "situated in" Wisconsin under the WFDL and that there w as no "community of interest" between Brio and Meccano relating to the sale of Meccano's p ro d u c ts in Wisconsin. Meccano further argues that if Brio's WFDL claim is dismissed, this e n tire cause of action should be dismissed for improper venue based upon the Distributor A g re e m e n t's forum selection clause, which requires that all disputes be resolved in the C o m m e rc ia l Court of Calais, France. For the reasons that follow, Meccano's motion is d e n ie d . BACKGROUND T o clarify the dispute in this case, the Court will briefly set forth the background facts o n which the parties appear to agree. When there is a dispute, the Court has so indicated. T h e Court will further set forth facts directly relevant to the dealership issue, including any
d i s p u t e d facts, when the Court discusses the legal issue of whether or not the WFDL is a p p lic a b le to this case. B rio is a Wisconsin corporation with its principal place of business in Germantown, W isco n sin . Brio is in the business of buying and reselling toys as a distributor. (Meccano's P r o p o s e d Findings of Fact ("DPFOF") ¶ 2.) Meccano is a French company, organized under th e laws of France, that manufactures various types of toys and construction kits that are sold w o rld w id e under the Meccano name and in the United States under Meccano's well-known E rec tor brand name. (DPFOF ¶ 1.) In May 2001, Brio became Meccano's exclusive distributor of its Erector brand toys in the United States and entered into a written distribution agreement with Meccano, entitled " D is trib u to r Agreement."1 (DPFOF ¶ 4.) The term of this "Distributor Agreement" was as f o llo w s: "[t]his Agreement shall come into effect upon signature and shall remain valid until D e c e m b e r 31, 2003. After this date, this Agreement shall be rolled over for succeeding p e rio d s of one year at a time, unless otherwise terminated by either party upon three months w ritte n notice and provided that both parties agree upon the relevant Quotas (Section 5)." (K w a te rs k i Decl. ¶ 1, Ex. 1, § 3.) The agreement further provided that if Brio was " ter m in a ted ," Meccano would be entitled to determine at "its sole discretion" whether it w o u ld authorize Brio to sell the remaining inventory or ask for return of the remaining
Prior to Brio's exclusive appointment, Nikko America ("NAI") distributed Erector brand play sets in the United States. NAI served as Meccano's distributor for less than one year. Meccano terminated NAI's appointment based on its inability to promote and sell Erector sets to the "specialty market," which included smaller "mom and pop" toy stores. (Plaintiff's Proposed Findings of Fact ("PPFOF") ¶ ¶ 1-3.) -3-
in v e n to ry "at landed costs." (Id. at § 13.2.) The agreement also provided that it was to be g o v e rn e d and construed in accordance with the laws of France and that the parties would s u b m it to "the exclusive jurisdiction of the Tribunal de Commerce de Calais, FRANCE." (Id . at § 14.) Brio was appointed by Meccano specifically to focus on the specialty market a n d move into "mass market" outlets such as Wal-Mart and Toys R Us. (Kwaterski Decl. ¶ 5, Ex. 5, Ingberg Dep. 20:14-22.) T im o th y O'Connor ("O'Connor") became President and Chief Executive Officer of B rio in January 2003. O'Connor attests that the strategic nature of the business relationship b e tw e e n Meccano and Brio was to reintroduce the Erector business within the specialty toy d is tr ib u tio n channel, focusing on small regional chains and hobby shops. (PPFOF ¶ 5.) O 'C o n n o r contends that Brio quickly gained a sustainable and growing business within the sp e c ialty toy retail channel. Meccano and Brio then began to develop an Erector line to p u rs u e in the mass market channel of the United States toy business. About 85% to 90% of th e domestic toy business was concentrated among five top mass market accounts. (PPFOF ¶ 6.) Meccano contends that Brio could have done more with respect to its service of the sp ec ialty market and specifically identified Brio's lack of marketing as the main area where B rio could have performed better. (Def.'s Resp. to PPFOF ¶ 6.) Kay Thompson ("Thompson"), Brio's Senior Marketing Manager, led the strategic d e v e lo p m e n t of the Erector mass market line. Brio contends that its efforts in the mass m a rk e t were very successful, and it managed to gain distribution in nearly all of the major m ass market channels. (PPFOF ¶ 7.) Meccano contends that Michael Ingberg ("Ingberg"),
M e c c a n o 's Managing Director, was responsible for introducing the Erector brand to WalM art and Brio was not able to deliver a mass marketer like Wal-Mart domestically. (Def.'s R esp . to PPFOF ¶ 7.) It is undisputed that in June of 2004, Brio and Meccano entered into a distribution a g r e e m e n t entitled "Additional Agreement," which supplemented and amended the parties' M a y 10, 2001, Distributor Agreement. (DPFOF ¶ 5.) The "Additional Agreement" provided th a t "[a]ll sections not expressly mentioned in the present `Additional Agreement' remain u n c h a n g ed and valid." (Kwaterski Decl. ¶ 2, Ex. 2 at 1.) Brio and Meccano's "Additional A g re e m e n t" further provided that: "[t]he Agreement is rolled over for a one year period with e f f e c t as from January 1, 2004 and ending on December 31, 2004. After this date, this A g r e e m e n t shall be rolled over for succeeding periods of one year at a time, unless otherwise te rm in a te d by either party upon three months written notice." (Id. at § 3.) O'Connor contends that by 2004 it became clear to both Brio and Meccano that a new a g re e m en t was necessary in order to address issues particular to the mass market. (PPFOF ¶ 8.) Meccano denies this and points to the additional agreement entered into by the parties in June 2004, which supplemented the terms of the parties' May 10, 2001, Distribution A g re e m e n t. (Def.'s Resp. to PPFOF ¶ 8.) Brio contends that the Distributor Agreement was d e sig n e d to generate sales and distribution in the specialty channel and it did not reflect the re a litie s of the mass market. (O'Connor Aff. ¶ 6.) Ingberg testified that "there was a plan d is c u s s e d with Brio from the beginning which was we start with the specialty market and we
g o to the mass market, [a] two step [plan]." (Kwaterski Decl. ¶ 5, Ex. 5, Ingberg Dep. 20:142 2 .) O'Connor contends that the parties exchanged many drafts of proposed new ag ree m en ts, even though no specific agreement was ever finalized. According to O'Connor, In g b e rg and O'Connor both expressed that, while the parties were working toward a new a g re e m e n t geared toward the mass market, they would be content to operate without a w ritte n contract.2 (O'Connor Aff. ¶ 7.) Brio contends that there is a dispute as to whether th e parties' written Distribution Agreement was in effect in September of 2005. Brio and Meccano met in Paris in June 2005. One purpose of the June 2005 Paris m ee tin g was to determine whether the parties could agree on terms for a new long-term c o n tra c t. Ingberg told O'Connor that Meccano had several options and that he needed to s tu d y those options. Insofar as Meccano was concerned, any new contract was an
u n c e rta in ty. (PPFOF ¶ 12.) Brio contends that, unknown to Brio, for many months Meccano h a d been discussing with NAI the details regarding NAI's succession of Brio as the exclusive d istrib u to r of Erector sets in the United States. (PPFOF ¶ 13.) Meccano contends that Brio w a s aware that throughout 2005, Meccano was discussing with various potential distributors, in c lu d in g NAI, the possibility of a future agreement to distribute the Erector products in the U n ited States for calendar year 2006. (Def.'s Resp. to PPFOF ¶ 13.)
Meccano denies that during 2004, the parties exchanged many drafts of proposed new agreements, even though no specific agreement was ever finalized. Brio has not produced any drafts of a proposed new agreement. The parties, however, have produced the additional agreement, which was entered into in June 2004 and supplemented the May 10, 2001, Distribution Agreement. (See Kwaterski Decl. ¶ 2, Ex. 2.) -6-
A t this juncture, the evidence is not clear as to when Meccano began discussions with N A I. In a June 29, 2005, email from O'Connor to Ingberg, O'Connor acknowledges that B rio knew Meccano was considering moving the business to NAI. (Kwaterski Decl. ¶ 8, Ex. 8 .) A July 7, 2005, email from Ingberg to Bob Grey ("Grey") of NAI, notes prior
co n v ersa tio n s in Dallas and New York and further notes that Meccano would consider a b u s in e ss relationship between Meccano and NAI if certain points could be confirmed, such a s the duration of the new contract, minimum purchase expectations, minimum marketing ex p e ctatio n s, and personnel issues, including Meccano's recommendation that NAI hire T h o m p s o n , the head of Brio's marketing department. (Beilfuss Decl. ¶ 1, Ex. 1, Ingberg D e p ., Ex. 4.) One of those points was that NAI will "accept to purchase the stock of c o n tin u e d item from [B]rio, inc. to have a clean situation on the US market." (Id.) The email f u rth e r noted that Meccano "will announce our move only in [S]eptember after all p u rc h a se [ s] from [B]rio have been paid." (Id.) Ingberg testified that the issue of repurchase o f inventory was "part of the negotiation" between Meccano and NAI. (Id. at 74.) By
A u g u s t 2005, email correspondence between Ingberg and Grey suggests that Meccano and N A I had reached an agreement. (Id. at Ex. 5.) Regardless, it is undisputed that a distributor agreement between Meccano and NAI w a s entered into and was effective as of September 24, 2005. (Id. at Ex. 7.) On September 7 , 2005, Meccano and Brio met in Copenhagen. Brio contends that this meeting was o rg a n iz e d under the guise of Meccano wanting to review its 2006 marketing plans with Brio, w h en all the while Meccano had already decided to replace Brio, as the exclusive distributor,
w ith NAI. Meccano contends that the parties addressed Meccano's concerns about Brio's p o o r performance with respect to Brio's failure to meet Meccano's marketing quotas and sa les purchase quotas. Meccano asserts that Ingberg did not decide between NAI and Brio u n til Ingberg "had the two  proposals [i]n hand" after the September 7, 2005, Copenhagen m ee tin g with Brio. (Kwaterski Decl. ¶ 5, Ex. 5, Ingberg Dep. 93:19-96:22.) In any event, it is undisputed that on September 20, 2005, Meccano provided written n o tic e to Brio that as of December 31, 2005, Brio would cease to be Meccano's distributor o f its Erector brand products in the United States. O ' C o n n o r from Ingberg stated as follows: F o llo w in g our last meeting in Copenhagen on [September] 7th and after res tu d yin g your last offer regarding the ERECTOR distribution for year 2006 a n d followings, I have the regret to inform you that we have decided not to c o n tin u e the distribution of our product line in USA through BRIO, inc. We considered various aspect[s] in order to make our decision: 1 s t as explained to me, in your future new organization ERECTOR set is  s e e n as a non strategic issue in BRIO inc. Y o u need to restructure BRIO inc. in a smaller company and I do understand yo u r concern regarding the general spending [which] do[es] not match with o u r current needs to grow our business. 2nd as I mentioned to you ERECTOR brand is at a turning point, it means that w e need a real investment in terms of Marketing/TV, such spending that BRIO in c . never allocated to our brand. 3 rd as I mentioned to you, you need to restructure your sales approach in order to match with our requirements to have real mass sales team to look after E R E C T O R . It will take time to find the[se] people and to [organize] this s tr u c tu r e . It was not an easy decision but [w]e don't think that BRIO inc. is today the b e s t partner to distribute ERECTOR brand in the USA. -8Meccano's notice of nonrenewal to
W e will of course try to help you in the best way with the eventual stock you ca n have by end of this year. T h e [authorization] to distribute ERECTOR will last until the end of this c u rre n t year, i.e., [D]ecember 31st. (K w atersk i Decl. ¶ 9, Ex. 9.) Brio acknowledges that it received a September 20, 2005, e m a il. Brio denies, however, that this email constituted a termination notice or complied w ith the requirements of the WFDL. After receiving the notice of nonrenewal, on September 23, 2005, Brio sent to M e c ca n o a list of its current inventory levels. The attachment to the email confirmed that B rio 's stock of Erector sets at the time was valued at $3,610,207. (Beilfuss Decl. ¶ 1, Ex. 1 , Ingberg Dep., Ex. 14.) Meccano had no opinion, one way or the other, whether the a m o u n t of inventory Brio was stocking was excessive. (PPFOF ¶ 26.) Meccano contends th a t from the time Brio was notified in September 2005, that Meccano would not be re n e w i n g Brio's distribution agreement with Meccano, the parties, as well as NAI, began h a v in g discussions about what Brio should do with any remaining Erector inventory. Brio c o n ten d s that at the September 7, 2005, meeting in Copenhagen, Meccano promised to re p u rc h a se Brio's inventory. Brio contends that promise was later memorialized in a D e c e m b e r 6, 2005, email from Ingberg and accepted by Brio. Meccano denies that it p rom ise d to Brio to repurchase Brio's outstanding Erector inventory. Meccano further avers that the parties' Distributor Agreement provided Meccano the option to repurchase Brio's rem ainin g Erector inventory. (Kwaterski Decl. ¶ 1, Ex. 1 at § 13.2.)
O n December 6, 2005, Ingberg sent O'Connor an email setting forth a possible so lu tio n regarding the disposition of Brio's Erector inventory: please find enclosed our proposal regarding the stock situation in Brio inc th e first draft is the quantity which NAI will take before end of the year. th e second draft is the quantity that NAI will take on or before mid [F]ebruary 2 0 0 6 [ .] [P]lease get in touch with Bob Grey from NAI for the precise p r o c e d u re . th e third draft is the balance quantity that NAI won't run, we will take this q u a n t ity on a base of our sale price to you +15% (landed cost), (we will close o u t all these items) and ask you a payment term on [A]pril 1st [2006.] Please note that we believe that our offer is very fair in particular in view of th e unexpected and unusual level of stock carried by Brio Inc. (vs 2005 Brio yea rly sales). (K w a te rs k i Decl. ¶ 23, Ex. 23.) Meccano also contends that Ingberg's December 6, 2005, e m a il set forth a proposal to move forward and negotiate the repurchase of Brio's remaining E re c to r inventory, but lacked essential terms, and required that Brio negotiate with NAI re g a rd in g a portion of the inventory. Ingberg testified that he was surprised by the high a m o u n t of inventory that Brio was predicting it would have at the end of 2005 and that he b e li e v e d some of Brio's remaining inventory of Erector products should have been sold d u rin g prior years and an even bigger portion of the inventory should have been earmarked f o r customers who already placed orders for the 2005 holiday season. Ingberg further tes tifie d that Brio's excess inventory of Erector products demonstrated to Meccano that Brio h a d not been doing its job in selling and promoting the products and had not properly f o re c a st its need for inventory. Brio counters that Brio's inventory level did not accurately
re f lec t Brio's performance and instead, Meccano forced Brio to purchase inventory that Brio d id not need and did not want, much of which was undesirable product. In March 2005, Brio h a d an inventory reduction plan to close out approximately $271,000 of its Erector inventory. B rio also committed to Meccano that it would sell and close out outdated and discontinued E re c to r inventory. On December 14, 2005, O'Connor sent an email to Ingberg responding to the D e c em b e r 6, 2005, email. This December 6, 2005, email attached a number of exhibits and a proposed letter agreement entitled "Letter Agreement for repurchase of Erector inventory" th a t O'Connor asked Ingberg to sign. O'Connor's email provided in pertinent part: A tta c h e d is a fair and final proposal to complete the transition to [NAI]. We h a v e worked with your desire to receive the goods in three "waves" and have ac co m m o d ated the needs of [NAI] to preserve the sales momentum on Erector. B e c au s e we are rapidly approaching year-end, we ask that you reply/approve th e attached agreement as quickly as possible. (Id . at Ex. 26.) On December 18, 2005, Brio subsequently sent an email stating that the p ric e s it was seeking in the December 13, 2005, letter were not correct. The December 18, 2 0 0 5 , email attached a revised version of the December 13, 2005, letter, now dated D e c em b e r 16, 2005. Meccano contends that the contents of O'Connor's email and the a tta c h ed documents included terms, such as a letter of credit for the full amount of the e n tire ty of the inventory, not contemplated by Meccano. Both Brio's December 13, 2005, le tte r and its revised December 16, 2005, letter set forth new and additional terms that altered th e proposal in Ingberg's December 6, 2005, email. (Kwaterski Decl., Exs. 22, 26;
K w a ter sk i Suppl. Decl. ¶ 5, Ex. D.) Meccano never signed the proposed letter agreement. -11-
T h e parties dispute what transpired with regard to the repurchase of inventory. Brio s o ld a portion of its inventory, which the parties refer to as "Wave 1," to NAI at the b e g in n in g of 2006 for a little over a million dollars. Brio claims that NAI's payment for W a v e I merchandise was $65,000 short. Brio contends that its "landed cost" for the in v e n to ry was $1,084,739 and that NAI only paid $1,019,739. As for the inventory sold via W a v e II, Brio sold the inventory to TJ Maxx in May 2006 for a claimed loss of $291,085. A s for Wave III, Brio received a bid from Liquid XS, a customer in the close-out market, for th e balance of the Wave III inventory, for which Brio's landed cost was $295,000. Liquid X S proposed to purchase this inventory for just over $90,000. Brio contends that it had a lre a d y sold $112,000 worth of Wave III merchandise at a loss of $19,000. Brio contends th a t was able to sell Wave 3 at a loss of approximately $223,000. Suffice it to say that the p a rtie s were unable to amicably resolve the repurchase of Brio's inventory of Meccano p ro d u c t and Brio filed suit in April 2006. S U M M A R Y JUDGMENT STANDARDS S u m m a r y judgment is proper if the pleadings, depositions, answers to interrogatories, a n d admissions on file, together with any affidavits, show that there is no genuine issue of m a te ria l fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P . 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party has the in itia l burden of demonstrating that it is entitled to summary judgment. Celotex, 477 U.S. a t 323. Once this burden is met, the nonmoving party must designate specific facts to s u p p o rt or defend its case. Id. at 322-24. In analyzing whether a question of fact exists, the
C o u rt construes the evidence in the light most favorable to the party opposing the motion. A n d e rs o n v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). "[T]he mere existence of some a lle g e d factual dispute between the parties will not defeat an otherwise properly supported m o tio n for summary judgment; the requirement is that there be no genuine issue of material f a ct." Id. at 247-48. While a material fact is one that is "outcome determinative under the g o v e rn in g law," Whetstine v. Gates Rubber Co., 895 F.2d 388, 392 (7th Cir. 1990), a genuine issue as to that material fact is raised only "if the evidence is such that a reasonable jury c o u ld return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. THE WISCONSIN FAIR DEALERSHIP LAW T h e WFDL's purposes are to promote the public's interest in the relationships b e tw e e n dealers and grantors, and to protect dealers against unfair treatment by grantors, who m a y use their superior economic and bargaining powers to the disadvantage of small b u s in e s s owners.3 Cent. Corp. v. Research Prods. Corp., 681 N.W.2d 178, 186 (Wis. 2004).
Section 135.025(2) of the Wisconsin Statutes states, in relevant part, as follows:
The underlying purposes and policies of this chapter are: (a) 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; (b) To protect dealers against unfair treatment by grantors, who inherently have superior economic power and superior bargaining power in the negotiation of dealerships; (c) To provide dealers with rights and remedies in addition to those existing by contract or common law; (d) To govern all dealerships, including any renewals or amendments, to the full extent consistent with the constitutions of this state and the United States. Wis. Stat. § 135.025(2). -13-
T h e statute is to be "liberally construed and applied to promote its underlying remedial p u rp o se s and policies." Wis. Stat. § 135.025(1). The WFDL, however, does not apply to e v e ry business relationship, but instead, "reaches only to those business relationships p ro p e rly classified as `dealerships.'" Frieburg Farm Equip., Inc. v. Van Dale, Inc., 978 F.2d 3 9 5 , 398 (7th Cir. 1992). The central issue before the Court is whether the business relationship between M e c c a n o and Brio was a "dealership" entitled to the protections of the WFDL. The WFDL p ro v id e s dealers with rights and remedies in addition to those existing in contract or common la w . Wis. Stat. § 135.025. For example, the WFDL mandates that a dealer receive 90 days n o t i c e before termination, and that a dealer be allowed 60 days to rectify any claimed d e f ic ie n c y. Wis. Stat. § 135.04. The WFDL applies only to a "dealer," which is defined by th e statute to mean "a person who is a grantee of a dealership situated in this state." Wis. S ta t. § 135.02(2). In order to determine if the WFDL applies to a given business relationship, th e Court must determine if the parties' relationship is a dealership with one party being the d e a le r and the other party being the grantor of the dealership. " d e a l e rs h ip " means: A contract or agreement, either express or implied, whether oral or written, b e tw e e n 2 or more persons, by which a person is granted the right to sell or d is trib u te goods or services, or use a trade name, trademark, service mark, lo g o t yp e , advertising or other commercial symbol, in which there is a c o m m u n ity of interest in the business of offering, selling or distributing goods o r services at wholesale, retail, by lease, agreement or otherwise. W is . Stat. § 135.02(3)(a). A community of interest "means a continuing financial interest b e tw e e n the grantor and the grantee in either the operation of the dealership business or the -14Under the WFDL,
m a rk e tin g of such goods or services." Wis. Stat. § 135.02(1). There is no bright line rule f o r determining whether a community of interest exists between the parties. In fact, the W is c o n s in Supreme Court referred to determining a "community of interest" as the "most v e x in g element." Cent. Corp., 681 N.W.2d at 187 In Central Corp., the Wisconsin Supreme Court reviewed Ziegler Co. v. Rexnord, 407 N .W . 2d 873 (Wis. 1987), its prior precedent, and discussed two "guideposts" which, if s a t is f i e d , would lead to the conclusion that the parties share a community of interest. The f irs t guidepost is whether the parties share a continuing financial interest. Centr. Corp., 681 N .W . at 187 (citing Ziegler, 407 N.W. 2d 873). A dealer can manifest a continuing financial in te re st in the relationship by, among other things, investing in grantor-specific inventory and f a c iliti e s . Ziegler, 407 N.W.2d at 880. The second guidepost is whether the parties share an in te rd e p e n d en c e , which may be characterized as "the degree to which the dealer and the g r a n t o r cooperate, coordinate their activities and share common goals in their business re la tio n s h ip ." Id. at 879. These guideposts require an alleged dealer "to demonstrate a stake in the relationship large enough to make the grantor's power to terminate, cancel or not re n e w a threat to [its] economic health[.]" Id. The Wisconsin Supreme Court identified ten "facets" to the guideposts that should be c o n s id e r e d when determining whether or not a community of interest exists. F a c e ts which a court should examine to determine whether the grantor and g ra n te e have a continuing financial interest in the business relationship and w h e t h e r the business relationship is so interdependent that there is a co m m u n ity of interest include: how long the parties have dealt with each other; th e extent and nature of the obligations imposed on the parties in the contract o r agreement between them; what percentage of time or revenue the alleged -15-
d e a le r devotes to the alleged grantor's products or services; what percentage o f the gross proceeds or profits of the alleged dealer derives from the alleged g ran to r's products or services; the extent and nature of the alleged grantor's g ra n t of territory to the alleged dealer; the extent and nature of the alleged d e a le r's uses of the alleged grantor's proprietary marks (such as trademarks or lo g o s ); the extent and nature of the dealer's financial investment in the in v e n to ry facilities and good will of the alleged dealership; the personnel w h ic h the alleged dealer devotes to the alleged dealership; how much the a lle g e d dealer spends on advertising or promotional expenditures for the a lle g e d grantor's products or services; the extent and nature of any s u p p le m e n ta ry services provided by the alleged dealer to consumers. Id. at 879-80. In applying the WFDL, the Seventh Circuit has distilled this dual guidepost, multif a ce te d test into two crucial factors: "(1) the percentage of revenues and profits the alleged d e a le r derives from the grantor and (2) the amount of time and money an alleged dealer has s u n k into the relationship." Home Protective Servs., Inc. v. ADT Sec. Servs., Inc., 438 F.3d 7 1 6 , 719 (7th Cir. 2006) (citing Baldewein Co. v. Tri-Clover, Inc., 606 N.W.2d 145, 151 (W is . 2000)). The Seventh Circuit has stated the one primary inquiry as follows: "The u l tim a te question is whether the grantor has the alleged dealer `over a barrel' that is, w h e th e r it has such great economic power over the dealer that the dealer will be unable to n e g o tia te with the grantor or comparison shop with other grantors." Id. at 719. Indeed, the " o v e rrid in g principle [is] whether the business' status is dependent upon the relationship with th e grantor for its economic livelihood." Moodie v. Sch. Book Fairs, Inc., 889 F.2d 739, 742-
4 3 (7th Cir. 1989).4 The Seventh Circuit has further opined that the purpose of the WFDL is to prevent "suppliers from behaving opportunistically once franchisees or other dealers h a v e sunk substantial resources into tailoring their business around, and promoting a brand." K e n o sh a Liquor Co. v. Heublein, Inc., 895 F.2d 418, 419 (7th Cir. 1990). In Central Corp., the alleged dealer, Central, sold humidifiers, air cleaners, and zoning s ys te m s to installer contractors. The alleged grantor, Research, manufactured heating, v e n tila tio n , and air conditioning equipment, including Aprilaire brand products, such as h u m id i f ie r s, air cleaners, zone controls, and thermostats. The parties had a 20-year business relatio n sh ip , but no written distributorship agreement. Central distributed Research's
A p r il a ir e products in northeastern Wisconsin for ten years, then expanded its territory to in c lu d e Milwaukee and Madison. Central carried no brands that directly competed with the R e se a rc h 's products. Central provided Aprilaire literature and information to its contractor cu stom ers, who then passed along the information to consumers. Central promoted Aprilaire p ro d u c ts when it called on installer contractors, and occasionally, Research's employees m a d e sales calls with Central's employees. Central derived approximately eight to nine percent of its sales and profits from the sa le of Aprilaire products. Central argued that if it did not carry the Aprilaire line, it would lo s e business because its customers would buy from a wholesaler that carried all of the
The Wisconsin Supreme Court stated as follows: "[T]he law was meant to protect only those small businessmen who make a substantial financial investment in inventory, physical facilities or `goodwill' . . . . It is these types of businesses whose economic livelihood would be imperiled by the termination of their dealership without good cause or adequate notice." Foerster, Inc. v. Atlas Metal Parts Co., 313 N.W.2d 60, 63 (Wis. 1981). -17-
p ro d u c ts they needed, instead of buying only a few items from multiple wholesalers. Central co n tend ed it would take years for it to replace the business and sales that the Aprilaire p ro d u c ts brought to its business. Although Research did not require the alleged dealer to m a in ta in inventory, Central's inventory fluctuated from about $44,000 to $70,000. Central a ls o replaced defective parts that were covered under Research's warranties and kept a p p ro x im a tely $5,000 of spare parts inventory on hand. Central absorbed the overhead costs o f warranty work, such as delivery, handling and paperwork, associated with the replacement p arts. Central's owners also built a new warehouse to store the inventory of Central's p r o d u c ts , which included Aprilaire products. Central leased 7,000 square feet of warehouse s p a c e and claimed that approximately 2,000 square feet of such warehouse space was in te n d e d to store Aprilaire's product inventory. Central arranged for cooperative advertising o f Aprilaire products approximately twice a year. The Wisconsin Supreme Court concluded that summary judgment was improperly g ra n te d to Research. In holding that summary judgment should not have been granted, the c o u rt cited the following facts, from which it determined reasonable alternative inferences c o u ld be drawn: "the parties' 20 year business relationship; Central's owners' significant f in a n c ia l investment in the construction of a warehouse based, in part, on the amount of R e se a rc h 's products it housed; Central's practice of keeping a substantial amount of R e se a rc h 's product in inventory; Research's desire to limit Central's sales to a specific te rrito ry; and Central's practice of keeping spare parts for Research's products on hand for s a le , at cost, to its customers." Centr. Corp., 681 N.W.2d at 180. The Wisconsin Supreme
C o u rt further recognized that while eight to nine percent did "not comprise a large percentage o f Central's gross revenues or profits, this fact alone is not dispositive, but is a matter to be w e ig h e d by the trier of fact." Id. at 189. Central Corp is an important decision to consider b e c au s e this Court, sitting in diversity and applying state law, is required to apply state law a s the highest court of the state interprets it. See Commonwealth Ins. Co. v. Stone Container C o r p ., 323 F.3d 507, 509 (7th Cir. 2003). In this case, the Court must determine whether a community of interest existed b e tw e e n Meccano and Brio, taking the facts in a light most favorable to Brio, the nonm o v in g party. When the material facts are undisputed, the community of interest question is a question of law for the court to determine. See Frieburg Farm Equip., 978 F.2d at 398; S u p e r Natural Distribs., Inc. v. Muscletech Research and Dev., 196 F. Supp. 2d 761, 770 (E .D . Wis. 2002). However, in Central Corp., the Wisconsin Supreme Court stated that " [ w ]h e re there are genuine issues of material fact or reasonable alternative inferences drawn f r o m undisputed material facts, the determination of whether there is community of interest is one which will be made by the trier of fact based on an examination of all the facets of the b u s in e ss relationship." 681 N.W.2d at 180. Therefore, when the facts are undisputed the c o m m u n ity of interest question is a question of law for the court, and only when the u n d e rlyin g facts are disputed is the community of interest a question to be decided by the t r i e r of fact. See Home Protective Servs. v. ADT Sec. Servs., Inc., 348 F. Supp. 2d 1010, 1 0 1 5 n.9 (E.D. Wis. 2004). In Home Protective Services, the parties agreed that the
c o m m u n ity of interest issue is one of law. Id. In this case, Meccano contends that the Court
c a n resolve whether Brio is afforded the protection of the WFDL on summary judgment, w h ile Brio contends that genuine issues of material fact prevent the Court from resolving the iss u e . The Court must also determine whether Brio's alleged dealership was "situated in this s ta te ." Wis. Stat. § 135.02. The Court will determine whether a community of interest e x is te d between Meccano and Brio by first evaluating the "facets" as set forth in Ziegler. Facet One: How long the parties have dealt with each other. T h e parties' relationship was four and half years. The case law demonstrates that this le n g th of a relationship is not a decisive factor. Beloit Beverage Co. v. Winterbrook Corp., 9 0 0 F. Supp. 1097 (E.D. Wis. 1995) (no community of interest despite a thirteen-year re latio n sh ip between the parties); Guderjohn v. Loewen-Am., Inc., 507 N.W.2d 115 (Wis. Ct. A p p . 1993) (no community of interest despite four-year relationship). In Guderjohn, the a p p e lla te court commented that "[i]f duration has significance, it is this: [the distributorship] d id not last long enough to cement interdependence between the parties. Id. at 120. The C o u rt determines that this short duration of time weighs against finding a community of in te re st, however, the finding may be impacted if the parties' relationship demonstrated the re q u is ite interdependence. Facet Two: The extent and nature of the obligations imposed on the parties in th e contract or agreement between them. The Distributor Agreement imposed substantial obligations upon Brio to buy, sell, and p ro m o te Meccano products. In particular, the Distributor Agreement required minimum p u rc h a s e s referred to as "Quotas" and minimum sales. (Kwaterski Decl. ¶ 1, Ex. 1 at § 5.) F o r example, in 2003, the Distributor Agreement required that Brio make minimum -20-
p u rc h a se s of $3,500,000 of Meccano product and make minimum sales of $6,500,000 of M e c c a n o product. (Id.) At all times during the parties' business relationship, Brio was re q u ire d to maintain appropriate inventory levels. (Id. at § 6.1.) Brio was not allowed to d is trib u te toys that competed against Meccano's Erector brand toys, however, Brio was a llo w e d to sell its own Brio brand toys. (Id. at § 6.3.) Brio further contends that its business strategy for its own products was heavily in ter tw in e d with its sales of Meccano products. Brio attests that its relationship with M e c c a n o was part of a strategic plan for Brio and Meccano to transition the sales channels f o r these classic toys from the specialty toy sellers, for example, mom and pop type stores, to the mass market, for example, Wal-Mart and Target. Brio contends that mass market s e lle rs were especially interested in these classic toys if there were multiple lines of toys that a dealership could offer it. Brio contends that with this intertwined sales strategy, Brio had s te a d ily increased sales in both national and Wisconsin markets. (O'Connor Aff. ¶ 5.) The C o u rt concludes that the Distributor Agreement between Brio and Meccano imposed s ig n if ic a n t obligations on Brio which weighs in favor of finding a community of interest and f u r t h e r that Brio has raised a genuine issue of material fact as to whether the parties' re la tio n s h ip was the type of intertwined dependent relationship that the WFDL was designed to protect. Facet Three: The percentage of time or revenue the alleged dealer devoted to the a l le g e d grantor's products or services. W ith respect to the percentage of time or revenue that Brio devoted to Meccano's p ro d u c ts or services, Brio contends that it had employees dedicated solely to Meccano, -21-
h o w e v e r, every single employee at Brio worked in furtherance of Meccano sales and sales o b je c tiv e s. (O'Connor Aff. ¶ 27.) As discussed above, according to Brio, the mutual goal o f Brio and Meccano to penetrate the mass market sellers required an integrated, in te rtw in e d strategy. (Id.) Thus, Brio contends that the nature of the relationship and sales s tr a te g y did not call for independent sales people to focus solely on Meccano products. N e v e rth e le ss , Brio's sales people spent more than 50% of their efforts to expand Meccano s a le s channels. (O'Connor Aff. ¶ 27.) Meccano contends that Brio's interrogatory response sta ted that Brio's personnel devoted their time to the Erector brand at a ratio generally p ro p o rtio n a te to Brio's annual nationwide sales of the Erector brand, which by Brio's own ad m issio n was 30-32% not 50% of annual sales. (Def.'s Resp. to PPFOF ¶ 47.) Brio argues that there is no discrepancy between O'Connor's testimony and Brio's in te rro g a to ry response. In his affidavit, O'Connor identified the amount of time spent s p e c if ic a lly by "Brio sales people" on efforts to expand Meccano sales channels. (O'Connor A f f . ¶ 27.) Brio contends that amount of time was 50%. Meccano's interrogatory question w a s different in that it asked about the amount of time devoted to Meccano products by the e n tire Brio organization. Brio contends that amount of time was generally proportionate to B rio 's annual nationwide sales of the Erector brand, for example, 38% in 2005. The Court c o n c lu d e s that Brio has raised a genuine issue of material fact as to whether the percentage o f time or revenue Brio devoted to Meccano's products constitutes a community of interest. F a c e t Four: The percentage of gross proceeds or profits the alleged dealer d e r iv e d from the alleged grantor's products or services.
T h e percentage of sales revenue derived from selling an alleged grantor's product is o n e of the facets for the Court to consider and indicates whether the alleged dealer has a s ig n if ic a n t financial interest in selling the alleged grantor's product. There is no bright line p e rc e n ta g e test. The Wisconsin Supreme Court stated: A test for community of interest based exclusively on a fixed percentage of b u sin e ss time or business revenues improperly truncates the court's inquiry in to the relationship between the parties, focuses the court's attention on one a s p e c t of the business relationship to the exclusion of all others, and narrows th e coverage of the statute in a manner that ill-suits a statutory definition of d e a ler sh ip designed to include a variety of relationships which are not all stru ctu re d in the same manner. Z ie g le r, 407 N.W.2d at 878. The court also stated that "[a] low percentage is strong e v id e n c e, evidence that might ultimately be determinative in many cases, that there is no c o n tin u in g financial interest between the parties in the operation of the business and thus no c o m m u n ity of interest." Id. at 880. In Baldewein, the court discussed the analysis applicable to determining whether a dealer is "situated in this state" compared to the analysis regarding w h e t h e r a "community of interest" exists. The court stated as follows: [ C ]o u rts and counsel in WFDL cases often look to sales or revenue figures f irs t to determine whether a community of interest exists. For "community of in te re st" analysis, the higher the percentage of overall sales or revenue g en era ted from the grantor's products, the less important the other indicators o f "investment" become, because the loss of a significant sales-or revenueg e n e ra tin g product line is more easily seen as a threat to the economic health o f the dealer. For the "situated in this state" analysis, the higher the percentage o f Wisconsin sales or revenues generated from the grantor's products, the less im p o rta n t the other indicators of "investment" become, because a substantial le v e l of sales activity in this state is more easily seen as indicative of a s u b s ta n tia l investment in and reliance upon the Wisconsin market. Baldewein, 606 N.W.2d at 152, n.9.
B rio contends that nearly 21% of its entire business was derived from sales of M e c ca n o products. In particular, Brio contends that in 2001, Meccano's sales accounted for 6 .7 % of Brio's total sales. This number increased to 16.5% in 2002, 26.2% in 2003, 32.1% in 2004, and 37.7% in 2005. Meccano looks to sales of Meccano products in Wisconsin, not nationwide. In 2001, B rio 's sales of Meccano products in Wisconsin accounted for 2.3% of its total sales. For the su b se q u e n t years, the percentages were as follows: 4.1% in 2002; 4.8% in 2003; 3.8% in 2 0 0 4 ; and 4.2% in 2005. Brio contends that Meccano's comparison of Wisconsin only sales to Brio's sales nationwide is a misleading attempt to make it appear that Brio's Meccano s a le s were de minimus. In determining whether a community of interest exists, the Court must decide whether to consider the revenues derived nationwide, or whether to consider the revenues derived s o le ly from sales in Wisconsin. Meccano argues that it is the percentage of Brio's Erector b ra n d sales in Wisconsin not the percentage of Brio's Erector brand sales nationwide that is re le v a n t to determining whether a "community of interest" exists under the WFDL. M ec ca n o , however, offers no citation for this distinction and the Court has found none. In B a ld e w e in , the Court discussed the different analysis utilized when determining whether a d e a ler is "situated in this state" as compared to whether a "community of interest" exists b e tw e e n the dealer and grantor. The Baldewein test is designed to focus the court's inquiry on th e nature and extent of the dealership's development of, and in v e stm e n t in, and reliance upon the Wisconsin market. On the o th e r hand, the [community of interest] test is designed to -24-
m e a s u r e whether the parties have a continuing financial interest in their business relationship, and whether the business re la tio n s h i p is so interdependent that there is a community of in te re st. Thus, one test focuses on the parties' link to Wisconsin, w h ile the other focuses on the parties' link with each other. Baldewein Co. v. Tri-Clover, Inc., 183 F. Supp. 2d 1116, 1120 n.7 (E.D. Wis. 2002) (citing E ric J. Meier, When is a Business a "Wisconsin Business"? Baldewein v. Tri-Clover: A New M u ltifa c to r Approach to the "Situated in This State" Requirement of The Wisconsin Fair D e a le rs h ip Law, 2001 Wis. L. Rev. 1403, 1426 n.151 (emphasis in original) (internal c ita tio n s omitted)). The "community of interest" test should be designed to measure whether th e parties have a continuing financial interest in their business relationship, and whether the b u sine ss relationship is so interdependent that there is a community of interest. The Court d e ter m in e s that for a "community of interest" analysis the Court will focus on the "overall" s a le s as set forth by the Wisconsin Supreme Court in Baldewein.5
Meccano contends that Brio's damages are limited to those which result from its sales of Meccano products in Wisconsin and cites Morley-Murphy Co. v. Zenith, 142 F.3d 373 (7th Cir. 1998) for Meccano's contention that the WFDL does not extend beyond the borders of Wisconsin. The United States Court of Appeals for the Seventh Circuit held that the WFDL has no extra-territorial application to "sales" outside Wisconsin, stating: "We think . . . that the Wisconsin Supreme Court would construe the WFDL as not applying to Morley-Murphy's sales of Zenith products in Minnesota and Iowa. Id. at 380. In Baldewein, the Wisconsin Supreme Court noted that any "extraterritorial application of the WFDL would, at the very least, raise significant questions under the Commerce Clause." Baldewein, 606 N.W.2d 145, 151, n.6 (quoting Morley-Murphy Co., 142 F.3d at 397). The dealer in Morley-Murphy was a Wisconsin corporation, headquartered in Green Bay, Wisconsin, that operated dealerships in Wisconsin, Iowa, and Minnesota. The Seventh Circuit held that "on remand, the district court must exclude from the profits recoverable under the WFDL any amounts attributable to the termination of Morley-Murphy's right to serve states other than Wisconsin." Morley-Murphy, 142 F.3d at 381. In this case, Brio is a Wisconsin corporation with its headquarters in Wisconsin. Brio was granted an exclusive territory that encompassed the entire United States. Whether Brio's damages are limited to those which result from its sales of Meccano products in Wisconsin is left for another day. -25-
In Ziegler, the sale of the alleged grantor's products accounted for between 1% and 8 % of the total revenues which the court noted was a small percentage of Ziegler's total re v e n u es . 407 N.W.2d at 880. In Sales and Marketing, the alleged dealer derived on average 2 3 % of its revenues from the grantor's products. This is strikingly similar to the revenues B rio derived from Meccano. The Seventh Circuit noted that while the dealer was not e x c lu siv e ly dependent on its relationship with the grantor, "its relationship with a nationally re c o g n iz e d manufacturer and the revenues derived therefrom were significant." Sales & M k tg . Assoc., Inc. v. Huffy Corp., 57 F.3d 602, 606 (7th Cir. 1995). In Central Corp., the g r a n t o r 's products accounted for 8% of revenue, however, the community of interest d e te rm in a tio n was reserved for the trier of fact. Central Corp., 681 N.W.2d at 189. In G u d e rjo h n , the state appellate court noted that the percentage of sales derived from the a lle g e d grantor of between 19% and 26% "tend[ed] to show a community of interest." 507 N .W .2 d at 119. In this case, over the course of the parties' relationship, Brio's sales of M e c ca n o 's products accounted for over 20% of its business. For 2005, the last year of the p a rtie s ' relationship, the percentage was 38%. See Frieburg, 978 F.2d at 400 ("Even a p ro p o rtio n as low as 11% can suffice if a relationship exhibits . . . other characteristics of a c o m m u n ity of interest."). On balance, this Court finds this facet to weigh slightly in favor o f finding a community of interest. Facet Five: The extent and nature of the alleged grantor's grant of territory to th e alleged dealer. B rio had the exclusive right to sell Meccano's products in the United States. Meccano w a s solely dependent on Brio to sell its products in the United States. "An extensive and -26-
e x c lu s iv e territory certainly weighs in favor of a dealership [for purposes of `community of in te re st' analysis]." Beloit Beverage, 900 F. Supp. at 1108-09; see Guderjohn, 507 N.W.2d a t 120 (lack of exclusive distributorship favored finding that there was no "community of in te re st" ). The fact that Brio had the exclusive right to sell Meccano's products weighs h e a v ily in favor of finding a community of interest existed. F a c e t Six: The extent and nature of the alleged dealer's uses of the alleged g ra n to r 's proprietary marks (such as trademarks or logos). W ith respect to Brio's use of Meccano's proprietary marks, Brio used the Erector b ra n d name as part of its efforts to sell the product. However, Brio did not use the Erector n a m e on its exterior signage at its warehouse or on Brio vehicles. Brio contends that M e c ca n o 's trademarks were used on Brio's website, in advertising, and were displayed p rom ine n tly at trade shows and fairs. O'Connor attests that anyone viewing Brio's
p r o m o tio n a l materials would have understood Brio and Meccano to be one in the same. (O 'C o n n o r Aff. ¶ 28.) Other than O'Connor's conclusory affidavit, Brio does not present a n y other evidence of trademark use on Brio's website or in advertising. Brio does not offer a n y photographs that show Meccano's trademarks prominently displayed at a trade show or f a ir. See Frieburg, 978 F.2d at 400 (community of interest exists when, among other things, a dealer displays grantor's proprietary marks on its stationary, bank checks, business cards, b ro c h u re s, and telephone directory entry). The Court determines that Brio's use of the E re c to r trademark appears to be de minimus and this one facet does not satisfy the WFDL. F a c e t Seven: The extent and nature of the alleged dealer's financial investment in inventory, facilities, and good will of the alleged dealership.
T h e extent and nature of Brio's financial investment in inventory, facilities, and good w ill is a facet to be considered in determining whether a community of interest existed. Brio c o n te n d s that it invested significant amounts in inventory. Brio contends that it was required to purchase undesirable Meccano product that was ill-liquid. Brio did not need or want this p ro d u c t. (PPFOF ¶ 43.) Meccano denies that the inventory that Brio was "forced" to p u rc h a se was ill-liquid and contends that any difficulties regarding the sale of inventory was b a se d upon Brio's incorrect purchase strategy and that Brio did not accept Meccano's advice to sell its older products to the close out channels earlier. (Def.'s Resp. to PPFOF ¶ 43.) W h e n Meccano terminated its relationship with Brio, Brio's inventory was valued at $ 3 ,6 1 0 , 2 0 7 . (Beilfuss Decl. ¶ 1, Ex. 1, Ingberg Dep., Ex. 14.) Brio contends that it was u n a b l e to sell the inventory upon Meccano's termination easily or without incurring a loss. B rio further contends that it lost $514,111 in the sale of unsalable Meccano inventory to liq u id a to rs . (Pl.'s Br. Opposing Meccano's Mot. for S. J. and Mot. to Dismiss at 27.) The C o u rt determines that this is a genuine issue of material fact to be resolved by the trier of f a c t. Brio also contends that it dedicated a large portion of its facilities in Germantown, W is c o n sin to storage of Meccano product. Meccano product took up approximately half of B r io ' s warehouse. (O'Connor Aff. ¶ 25.) At his deposition, O'Connor testified as follows: Q D id Brio have any other products besides Meccano products in the w a re h o u se during the 2006 time frame? A Y es.
Q W h a t percentage of the lease space, if you have an estimate even, was u s e d for the storage of Meccano products? A I think it was relatively consistent with the percent of business, so in the 3 0 , 31, 32 percent range. It was no more bulky or bigger than anything else w e had. We had some plastic stuff, for example, that took up a lot of room but [ w a s ] very lightweight. (Kwaterski Decl. ¶ 4, Ex. 4, O'Connor Dep. 228.) Meccano contends that O'Connor's deposition testimony is inconsistent with his a f f id a v it and that this Court should strike O'Connor's affidavit as a "sham affidavit." Brio a ss e rts , however, that during his deposition, O'Connor was asked about inventory stored at B r io 's warehouse "during the 2006 time frame." (Id.) The 2006 time frame was after M e c ca n o terminated the Distributor Agreement and Brio had begun liquidating its Meccano i n v e n to ry. Brio argues that O'Connor's testimony that, during this 2006 time frame, M e c ca n o product took up warehouse space "in the 30, 31, 32 percent range" is not in c o n sis te n t with O'Connor's affidavit testimony that, during the time Brio served as M ec ca n o 's exclusive dealer, "Meccano product took up approximately half of Brio's w a re h o u se , which was located in Germantown, Wisconsin." In this circuit, it is well established that "a party may not create an issue of fact by su b m itt in g an affidavit whose conclusions contradict prior deposition or other sworn t e s t i m o n y. " Gates v. Caterpillar, Inc., 513 F.3d 680, 688 n.5 (7th Cir. 2008). The
in f o r m a tio n in O'Connor's affidavit relating to Meccano inventory in Brio's warehouse re la te s to a different time frame than addressed by O'Connor's deposition testimony. The
C o u rt concludes that O'Connor's deposition testimony does not directly contradict his a f f id a v it and, therefore, will not strike O'Connor's affidavit as a "sham affidavit." The Court, however, determines that Brio's warehouse, which was a rental property, w a s not devoted exclusively to Meccano products and as argued by Meccano was adaptable to other uses upon termination of the Agreement. This type of expense does not in and of itse lf create a community of interest. There is nothing in the record indicating that Brio c o u ld not have used this space to store other products. Moreover, the fact that the warehouse w a s leased indicates this was a cost of doing business and not a sunk cost. Brio contends that it invested in promoting the goodwill of Meccano. In support of th is contention, Brio states that it maintained a relationship with several "Meccano Clubs," w h ich are groups of people who are enthusiasts for Erector product. Brio also helped to c re a te a set for a movie about A.C. Gilbert, the inventor of the Erector toy line; gave away M e c c a n o product to children; and had contests for building models out of Erector product. (O 'C o n n o r Aff. ¶ 24.) Brio, however, does not quantify the costs of its investment in p ro m o tin g the goodwill of Meccano. Absent such quantification, Brio has failed to raise a g e n u i n e issue of material fact regarding its investment in promoting the good will of M eccano. As previously noted, the WFDL is meant to protect those businesses that make a " su b s ta n tia l financial investment in inventory, physical facilities or `good will' as part of th e ir association with the grantor." Foerster, Inc., 313 N.W. 2d at 63. With regard to Brio's in v e stm e n t in inventory, physical facilities and good will, the Court determines that Brio has
ra is e d a genuine issue of material fact regarding its financial investment in inventory but not its investment in physical facilities or good will. Brio contends that it was required to p u rc h a se undesirable inventory; this inventory was not able to be sold easily; and, instead, it was sold at a loss, after the relationship was terminated. Brio contends that it lost $514,111 in the sale of unsalable Meccano inventory to liquidators. Brio's investment in inventory that B rio contends was largely ill-liquid raises a genuine issue of material fact as to whether a c o m m u n ity of interest existed. F a c e t Eight: The personnel which the alleged dealer devoted to the alleged d e a le r s h ip . A facet to be considered in determining whether a community of interest existed is w h e th e r the dealer had personnel devoted to the grantor's business. Brio had one employee, T h o m p s o n , who worked only on Meccano. Thompson did marketing for the Erector p ro d u c ts nationwide and was paid in part by Meccano. Brio also contends that every single e m p l o ye e at Brio worked in furtherance of Meccano sales and sales objectives. Brio co n tend s that the mutual goal of Brio and Meccano was to penetrate the mass market sellers sellers who were much more interested if the dealership offered multiple product lines. C o n s e q u e n tly, Brio argues that the nature of the relationship and the sales strategy did not c a ll for independent sales people to focus solely on Meccano products but instead to market a mix of multiple product lines. In Sales and Marketing, none of the alleged dealer's staff w as devoted exclusively to selling the grantor's products. 57 F.3d at 606. In this case, there w a s an employee who was exclusively devoted to Meccano products and Brio attests that its e m p lo ye e s spent more than 50% of their efforts to expand Meccano sales channels. (PPFOF -31-
¶ 47.) As noted above, Meccano denies this contention and notes that in its response to in te rro g a to ry questions, Brio stated that its personnel devoted their time to the Erector brand a t a ratio generally proportionate to Brio's annual nationwide sales of the Erector brand. (D e f .'s Resp. to PPFOF ¶ 47.) The Court concludes that Brio has raised a genuine issue of m a te ria l fact as to whether the amount of time that its personnel devoted to Meccano helps to establish a community of interest. F a c e t Nine: How much the alleged dealer spends on advertising or promotional e x p e n d it u r e s for the alleged grantor's products or services. A facet to be considered in determining whether a community of interest exists is how m u c h the dealer spends on advertising or promotional expenditures for the grantor's products o r services. Brio contends that it spent significant amounts on advertising and promotion of M e c c a n o products, including an annual expense of $150,000 to present Meccano products a t the New York Toy Fair; an annual expense of $80,000 to lease a showroom at the Toy F a ir; and, annual marketing expenses of $85,000 to $90,000. (DPFOF ¶¶ 23, 26.) Meccano c o n te n d s that Brio does not submit any evidence that its participation at these shows was M ec ca n o -sp e cific or that Brio would not have attended these shows absent Meccano's e n c o u ra g e m e n t. See Super Natural Distrib., Inc., 196 F. Supp. 2d at 774 (granting summary ju d g m e n t to supplier and finding that WFDL did not apply because there was no "community o f interest" where there was "[n]o evidence . . . presented that attendance at these [trade] s h o w s was `MuscleTech-specific' or that Super Natural would not have attended these shows a b s e n t MuscleTech's encouragement").
T h e Court concludes that the sums expended by Brio are not negligible. Moreover, th e percentage of Brio's business derived from Meccano products was substantially higher th a n what the alleged dealer derived from the grantor's business in Super Natural and Brio's b u s in e ss with Meccano was more intertwined than the business relationship in Super N a tu r a l. The Court concludes that Brio has raised a genuine issue of material fact as to
w h e t h e r its expenditures on advertising and promotion of Meccano's products constitutes a c o m m u n ity of interest. Facet Ten: The extent and nature of any supplementary services provided by the a l le g e d dealer to consumers of the alleged grantor's products or services. W ith respect to supplementary services Brio provided for Meccano's products, Brio h ad a dedicated employee who dealt with customer complaints related to Meccano's p ro d u c ts , such as returns, warranty issues, and, lost or missing parts. The Wisconsin resident re p re se n tativ e who handled customer service for Meccano products was paid approximately $ 2 0 ,0 0 0 to $25,000 per year. Brio contends that it further stocked large quantities of spare o r replacement parts that it would send to customers when they complained that a part was m is s in g , damaged, or lost. Brio also stocked approximately $10,000 in Meccano
rep lace m en t parts in its Germantown, Wisconsin warehouse. Brio also paid to transport th e se parts.6 (PPFOF ¶ 46.) This factor weighs slightly in favor of finding a community of Meccano contends that the facts relating to facet ten should be disregarded by the Court because Brio did not list any of these investments in its interrogatory responses. Meccano asked the following interrogatory: "State the complete factual basis for your contention . . . that Brio `invested substantial resources and efforts in promoting and distributing Meccano's Erector products under the Distributor Agreement.'" (Kwaterski Suppl. Decl. ¶ 2, Ex. A., at 7.) In response, Brio made the standard objection that Brio is not presently capable of describing the complete factual basis for its contention that it invested substantial resources and efforts in promoting and distributing Meccano's -336
in ter e st. The Court concludes that Brio has raised a genuine issue of material fact as to w h e t h e r the supplementary services provided to Meccano constitute a community of interest A s noted in the authoritative treatise on the WFDL "[o]ne can examine a relationship u n til one is cross-eyed looking at its various facets, trying to decide whether they imply a c o m m u n ity of interest, and then trying to decide how much each facet should count yet end u p feeling uncertain about the conclusion." Michael A. Bowen and Brian E. Butler, The W is c o n s in Fair Dealership Law § 4.33 (3rd ed. 2003). As guided by this treatise, the Court lo o k s to the following statement of the Wisconsin Supreme Court, albeit dicta: When a dealer sinks substantial resources into its relationship with a particular g ra n to r time, money, employees, facilities, inventory, advertising, training or derives substantial revenue from the relationship (as a percentage of its to ta l), or some combination of the two, the grantor's power to terminate, c a n ce l, or not renew the relationship becomes a substantial threat to the e c o n o m ic health of the dealer and a community of interest can be said to exist. B a ld e w e in , 606 N.W.2d at 151. In weighing the various Ziegler facets of the parties' relationship that bear upon the c o m m u n ity of interest question, this Court is obligated to construe the facts in a light most f a v o ra b le to Brio. With regard to the ten facets, the Court concludes that the following facets ra is e genuine issues of material fact as to whether a community of interest existed: the o b lig a tio n s imposed on Brio by the Distributor Agreement, the percentage of time or revenue
Erector products until the conclusion of discovery. Brio, however, set forth as part of its answer to the interrogatory that Brio incurred customer service and replacement costs as a result of defective manufacturing by Meccano and its suppliers. Brio further attested that in addition to managing all of Meccano's safety certifications with the Consumer Product Safety Commission, Brio was also called on by Meccano to coordinate replaceme
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