Distributorship agreement was not a franchise agreement, court rules

In C.N. Wood Co., Inc. v. Labrie Environmental Group, a federal district court in Massachusetts determined that a distributorship agreement between a manufacturer of waste collection vehicles and its distributor was not a "franchise agreement" under the Massachusetts franchise laws.

Background and procedural history

Since the 1960s, the distributor, a family-owned business in Massachusetts sold and serviced garbage trucks manufactured by the Leach Company. In 2006, Labrie Environmental Group purchased the Leach Company and terminated the agreement with the distributor. In 2008, a new agreement was signed which designated the distributor as the manufacturer's exclusive distributor in Massachusetts and Rhode Island for refuse vehicles manufactured by either Leach or Labrie. The initial term of the agreement was for one year and automatically renewed from year to year unless either party provided notice of intent to terminate no later than 60 days prior to the annual expiration date.

In 2011, the manufacturer sent the distributor a notice of nonrenewal. The manufacturer subsequently selected another waste equipment dealer in Connecticut to carry its line of refuse vehicles in Massachusetts and Rhode Island.

In 2012, the distributor filed suit in state court in Massachusetts, claiming breach of contract and that the manufacturer had wrongfully terminated its "franchise agreement" by not following the notice and good-cause requirements for termination provided under the Massachusetts and Rhode Island franchise laws.

Later that year, the case was removed to a federal district court in Massachusetts. The manufacturer argued that a franchise relationship did not exist between the parties and requested a ruling that the case should therefore be dismissed. The central issue for the court to decide was whether there was a sufficient "community of interest" shared by the distributor and the manufacturer to consider the distributorship agreement as a franchise agreement.

The district court's decision

The district court determined that the distributorship agreement was not a franchise agreement under the Massachusetts franchise laws. In order for a franchise agreement to exist under state law, there must be an interdependent "community of interest" relationship between the parties, said the court.

In this case, the distributor's sales of the manufacturer's products comprised less than 7 to 10 percent of the distributor's total annual gross sales. The distributor carried multiple product lines and sold and serviced other well-known brands, such as Heil, Loadmaster, and New Way - products which directly competed with those of the manufacturer. The distributor's sales of Heil refuse vehicles totaled 40 percent of the distributor's sales of waste collection vehicles. While both parties profited from their mutual relationship while it lasted, the court found no evidence of a "community of interest" to establish that a franchise agreement existed.

Contact an attorney

Business contracts and disputes often present complex legal matters. Private individuals and owners or operators of businesses should seek the advice and assistance of an attorney who is knowledgeable and experienced in this field to ensure that their rights are protected.