Hartford Electric Supply Co. v. Allen-Bradley Co., (SC 16011)

• Decision Date: 24 August 1999
• Docket Number: (SC 16011)
• Court: Connecticut Supreme Court
• Parties: HARTFORD ELECTRIC SUPPLY COMPANY v. ALLEN-BRADLEY COMPANY, INC., ET AL.

250 Conn. 334

736 A.2d 824

HARTFORD ELECTRIC SUPPLY COMPANY v. ALLEN-BRADLEY COMPANY, INC., ET AL.

(SC 16011)

Supreme Court of Connecticut.

Argued March 25, 1999.

Officially released August 24, 1999.

Callahan, C. J., and Berdon, Norcott, Katz and Palmer, JS. Paul D. Sanson, with whom were Sheila A. Huddleston and, on the brief, Charles L. Howard, for the appellant (substitute defendant Allen-Bradley Company, LLC).

Edward F. Hennessey, with whom were David T. Ryan, Linda L. Morkan and, on the brief, Austin J. McGuigan, for the appellee (plaintiff).

Brian A. Lema, Robert L. Berchem and Anthony V. Avallone filed a brief for the Manufacturing Alliance of Connecticut, Inc., as amicus curiae.

Steven D. Ecker filed a brief for the Connecticut Beer Wholesalers Association as amicus curiae.

Opinion

BERDON, J.

In this appeal, the defendant Allen-Bradley Company, LLC,¹ claims that the trial court improperly found that, under the Connecticut Franchise Act (franchise act), General Statutes žž 42-133e through 42-133h: (1) a franchise relationship existed between the defendant manufacturer and the plaintiff distributor, the Hartford Electric Supply Company;² and (2) the defendant did not have "good cause" to terminate the franchise relationship.³ The defendant also argues that the trial court improperly found that the defendant violated the Connecticut Unfair Trade Practices Act (CUTPA); General Statutes ž 42-110a et seq.; when it attempted to terminate its contract with the plaintiff.⁴

The trial court set forth the following relevant facts and procedural history. The defendant, a manufacturer of high-tech industrial automation products, nationally assigns distributors for specific geographic territories in which to market and sell its products. The plaintiff is a distributor of electrical supplies and equipment that has been an authorized distributor of the defendant's products for more than fifty years. It employs fifty-six persons and maintains offices in West Hartford and Milford. One half of the plaintiffs $20 million annual business is derived from the sale of the defendant's products. In addition, many of its other products, such as wires and switches, are sold as complements to the defendant's products.

The "Appointed Distributor Agreement" (agreement)⁵ that governs the relationship between the parties grants the plaintiff the right to market and sell products bearing the defendant's trademark within certain counties in Connecticut.⁶ The current agreement, dated August 9, 1991, was initially effective for a one year term, subject to automatic renewal each year. According to the agreement, "either party may terminate [it] at any time, with cause or without any cause," on ninety days notice.

The trial court found that the agreement requires the plaintiff to prepare a business plan that includes targeted accounts, a promotion program, a sales forecast, a training plan, an inventory plan, and demonstration equipment. Although the plaintiff retains the ultimate authority over whom to employ, the trial court found that the defendant "exert[s] enormous pressure" on the plaintiff to hire specialists for its products, and sales and operations managers. Similarly, the trial court found that the defendant requires the plaintiffs employees to be trained extensively regarding the defendant's products. The agreement provides, in relevant part, that "distributors are expected to participate in training conducted locally, at the factory and in regional locations."

In addition, the defendant substantially controls the plaintiff's level of inventory of the defendant's products. The agreement requires the plaintiff to maintain an inventory of the defendant's products at a level that allows the plaintiff to meet its customers' needs, dictates minimum purchase amounts of certain products, and grants the defendant's local office permission to determine the exact level and mix of inventory required or, in the alternative, allows the defendant's area manager and the plaintiff to agree upon required levels of inventory. The court further found that the defendant had the power to examine the plaintiff's financial records and require audits. Pursuant to the agreement, the plaintiff is required to maintain both sales records of the defendant's products and business records "reflecting the true financial condition and operating records of [the plaintiff's] business." Beyond the plaintiffs inventory and finances, the defendant effectively controls the ultimate price of its products because the defendant prints a catalog with sale prices for the plaintiff to use when selling the defendant's products.

The trial court also found that throughout 1990 and 1991, the plaintiff suffered weakened sales that mirrored the correspondingly infirm Connecticut economy. Consequently, in a letter dated February 12, 1992, the defendant placed the plaintiff on its "Distributor Concern Program" (program), which is designed to support distributors whose sales have failed to meet the defendant's standards, but also contains the threat of termination if the sales of the distributors in the program do not improve adequately.⁷ When placing the plaintiff on the program, the defendant identified the following areas of concern: the plaintiffs inadequate sales performance, sales promotion, staffing, training, customer service, and number of specialists for the defendant's high technology drives, as well as its lack of a proactive effort to identify new business. The defendant demanded improvement in each of these areas before it would remove the plaintiff from the program.

While the plaintiffs sales were sagging and it was trying to function within the parameters of the program, Blaise P. DePasquale,⁸ the plaintiffs president and chief executive officer, was involved in litigation with his elderly father over who rightfully owned and controlled the plaintiff. In 1994, as a part of the resolution of that action, DePasquale purchased the company from his father.

During the defendant's 1994 fiscal year, which ran from October 1, 1993, through September 30, 1994, the plaintiffs purchase of the defendant's products increased by more than 20.6 percent from the prior year. In the following fiscal year of 1995, the plaintiffs purchases rose another 22.5 percent, which was 3.5 percent above the defendant's national sales growth that year.⁹ At an April, 1995 meeting between the parties, the defendant approved the plaintiffs business plan setting forth growth goals, and removed it from the program. Subsequently, at an October, 1995 meeting, the defendant expressed its satisfaction with the plaintiffs performance for the 1995 fiscal year.

Only one week later, however, Joseph Lupone, one of the defendant's managers, Dan Fadden, the plaintiff's then director of sales and marketing, and Roy Lusk, the plaintiffs then director of operations, met clandestinely. At the meeting, both Fadden and Lusk accused DePasquale of having poor management practices and engaging in unethical conduct. Robert Daub, another manager of the defendant, met with Fadden at a second covert meeting in November, 1995. Fadden then repeated his criticisms of DePasquale. The trial court found that, henceforth, the parties' relationship deteriorated. In December, 1995, Lusk left the plaintiffs employment and in February, 1996, Fadden left as well.

The trial court further found that before the start of 1996, the defendant began to complain once again to the plaintiff that it was not meeting the goals of its plan. The plaintiff's April to December, 1995 sales had once again decreased. As a result, on January 22, 1996, the defendant placed the plaintiff on the program for a second time, asserting the following reasons: (1) inadequate staffing; (2) inadequate participation in defendant sponsored programs, promotions and seminars; (3) inadequate training of certain categories of sales personnel; (4) the lack of a staff member devoted to addressing growth areas outlined in the plaintiffs April, 1995 presentation to the defendant; and (5) the departure of and failure to replace Lusk and the related concern over internal conflicts within the plaintiffs organization.

On April 26, 1996, in response to the defendant's continual, extensive monitoring of the plaintiff's activities and the fact that a forty-eight year old employee of the plaintiff had just prior to that time suffered a heart attack due to work-related stress, an angered DePasquale sent the defendant a letter. The letter provides in relevant part: "[The plaintiff] has provided outstanding productivity for [the defendant] in a difficult and still declining Connecticut economy. But instead of praise and support we are deluged with absurd and repetitive demands for paperwork of all kinds, with criticism of our staff, with insistence we hire new employees and reassign or get rid of existing ones and with continuing efforts by [the defendant] to diminish our stature in the marketplace and to spread the seeds of discontent among our people. This, however, is going to stop.

"We now find our days are consumed with trying to deal with increasingly irrational behavior by [the defendant's] personnel....

"So, as we said in the beginning, enough is enough. We are not going to let you or anyone else from [the defendant] push us around anymore....

"[The plaintiff] will work as hard as ever to market your goods.... Otherwise you will leave us alone to do what we have always done wellÔÇösell your products, service them and keep our customers satisfied. Forget remediation programs and your probationary threats. Our franchise agreement does not compel us to endure this from you...."

Soon thereafter, on May 22, 1996, Daub and Lupone recommended to Dan Reshel, the defendant's director of distribution sales, that the defendant terminate the parties' agreement. Reshel responded by sending a letter dated June 27, 1996, informing the plaintiff that the defendant...