John Maye Co., Inc. v. Nordson Corp.

• Decision Date: 08 April 1992
• Docket Number: No. 91-1112,91-1112
• Citation: 959 F.2d 1402
• Parties: JOHN MAYE COMPANY, INC., Plaintiff-Appellant, v. NORDSON CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1402

959 F.2d 1402

JOHN MAYE COMPANY, INC., Plaintiff-Appellant, v. NORDSON CORPORATION, Defendant-Appellee.

No. 91-1112.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 4, 1991.

Decided April 8, 1992.

T. Michael Schober, Rodney W. Carter (argued), Schober & Radtke, New Berlin, Wis., for plaintiff-appellant.

James R. Scott (argued), Lindner & Marsack, Milwaukee, Wis., for defendant-appellee.

Before COFFEY and EASTERBROOK, Circuit Judges, and MORAN, District Judge. ^*

COFFEY, Circuit Judge.

The John Maye Company (Maye) appeals from the district court's denial of its request for a preliminary injunction under the Wisconsin Fair Dealership Law. Wis.Stat. §§ 135.01-.07. Maye sought to enjoin the Nordson Corporation (Nordson) from terminating it as a regional sales representative of Nordson products without good cause. The district court refused to grant the injunction because Maye was unable to demonstrate that it was a dealer under the statute; the district court found that Maye had neither a right to sell Nordson products nor a right to use Nordson's trademarks. Absent such a showing, Maye could not prove a reasonable likelihood of prevailing on the merits if the case went to trial, and so failed to meet the standard for a preliminary injunction. John Maye Co., Inc. v. Nordson Corp., 753 F.Supp. 1451, 1456 (E.D.Wis.1990). We affirm.

I. BACKGROUND

This case involves the Wisconsin Fair Dealership Law (WFDL) and the question of who qualifies as a "dealer" under the law. John Maye Company is a Wisconsin Corporation that sells packaging machinery, and Nordson Corporation is an Ohio corporation that manufactures packaging machinery. The two companies entered into a "Sales Representation Agreement" (Agreement) in May of 1987. On October 1, 1990, Nordson notified Maye that it was terminating the Agreement as of November 5, 1990 because it wanted to utilize a direct sales force in Maye's area. After receiving this notice Maye initiated a suit in state court, seeking both a preliminary and a permanent injunction prohibiting Nordson from ending the business relationship. Nordson then removed the case to federal court under diversity jurisdiction.

The Agreement designates Maye as Nordson's "representative" and requires it to "actively promote the sale and acceptance" of Nordson products in Wisconsin and the upper peninsula of Michigan. Maye's authority in this territory is non-exclusive. Agreement, p 1. The Agreement requires Maye to promptly transmit customer orders or inquiries to Nordson for approval (p 4b); to provide assistance and advice to Nordson customers (p 4c); to bear all of its own expenses in performing the Agreement (p 4e); to recognize Nordson's exclusive ownership of its trademarks, trade names, and patents (p 4g); and to make sure that any price quotations contain Nordson's standard conditions of sale (p 6a). Nordson, in turn, agreed to identify prospective customers for Maye (p 5a) and to supply Maye with literature, samples, and other material necessary for promoting Nordson products (p 5b). The Agreement also gave Nordson "sole discretion" to accept or reject any order (p 7). Once a contract was formed Nordson shipped products directly to the customer (p 7), transferring title from itself to the buyer without going through Maye. For its efforts Maye received a commission on each sale it helped procure (p 8). ¹

Other aspects of the relationship were defined by the parties' course of dealing. For example, Nordson controlled how much it charged for products and decided whether to extend credit and the terms of any credit arrangement. If a customer was late on a payment, Nordson contacted both the customer and Maye, and Maye was expected to help collect the money. If an account remained unpaid, however, Nordson bore the loss. ² Nordson assumed the risk for any damage to products during shipping. Maye did not have to pay any fee under the Agreement, and did not pay to advertise Nordson products. Instead, Nordson sent Maye sales brochures, pamphlets, and thank you notes, which Maye in turn delivered to customers. Though not required to do so, Maye also maintained an inventory of $1,000 to $1,500 in spare parts for Nordson machines. After a sale Maye performed both warranty and non-warranty work on Nordson machines, doing the warranty work for free but at times charging for non-warranty work. It also trained customers in the upkeep of Nordson equipment. Of its eleven employees, one spent almost all of his time promoting Nordson, while two others spent a portion of their time doing so.

After examining these facts the district court analyzed the WFDL to see if Maye had made the requisite showing of a reasonable likelihood of prevailing on its claim. Maye, 753 F.Supp. at 1454. To receive the protection of the WFDL, a party must first be a "dealer." A dealer has a contractual "dealership" with a grantor, through which it receives either the right to sell or distribute the grantor's goods or services, or to use its commercial symbols (e.g., a trademark or logo), and in which it shares a "community of interest" with the grantor. Wis.Stats. § 135.02(3). Because Maye was unable to demonstrate that it had either the right to sell Nordson's goods or the right to use its trademarks, the district court found that it was not a "dealer" without addressing the community of interest prong. Maye, 753 F.Supp. at 1457.

II. ISSUES

Maye contends that it meets the WFDL's definition of a dealer because: (1) its many responsibilities under the Agreement, when taken as a whole, gave it the right to sell Nordson products, (2) its distribution of Nordson's promotional materials to customers gave it the right to use Nordson's trademark, and (3) the two companies shared a community of interest due to Maye's financial dependence on the relationship. Accordingly, Maye asserts that since it is a dealer, it has demonstrated a reasonable likelihood of prevailing at a trial regarding its alleged unlawful termination under the WFDL. We review the court's denial of a preliminary injunction deferentially, reversing only if there has been an abuse of discretion. Dederich Corp. v. Eurozyme S.N.C., 839 F.2d 373, 375 (7th Cir.1988).

III. DISCUSSION

The WFDL is intended to protect small businesses (dealers) that deal in the goods or services of a larger company (grantor) and which, because of the link between their economic health and their ability to deal in the grantor's goods or services, are in an inferior bargaining position and could be unfairly exploited by the grantor. Wis.Stats. § 135.025(2). As the court stated in Kenosha Liquor Co. v. Heublein, Inc., 895 F.2d 418, 419 (7th Cir.1990), "We have deduced from the structure and history of the statute a central function: preventing suppliers from behaving opportunistically once franchisees or other dealers have sunk substantial resources into tailoring their business around, and promoting, a brand." See also Moodie v. School Book Fairs, Inc., 889 F.2d 739, 742 (7th Cir.1989) ("The premise underlying [the WFDL] is that the grantor may be able to change the terms of the dealership to his advantage after a firm-specific investment has been made in such items as training, specialized products, or goodwill."). The fear is that dealers who are economically dependent on the grantor could be forced, for example, to pay more than the market price for the grantor's goods, or provide more services or bear more costs than less dependent dealers.

The statute attempts to achieve its goal by defining the protected business relationships in terms of their characteristics, intending to encompass those situations where grantors are most likely to have superior bargaining power and the ability to oppress dealers. A "dealer" is defined as "a person who is a grantee of a dealership situated in this state." Wis.Stats. § 135.02(2). A "dealership" must have the following elements:

1. a contract or agreement between two or more persons;

2. by which a person is granted

a. the right to sell goods or services; [or]

b. the right to distribute goods or services; or

c. the right to use a trade name, trademark, service mark, logotype, advertising or other commercial symbol; and

3. in which there is a community of interest in the business of

a. offering goods or services;

b. selling goods or services; or

c. distributing goods or services at wholesale, retail, by lease, agreement or otherwise.

Foerster, Inc. v. Atlas Metal Parts Co., 105 Wis.2d 17, 25, 313 N.W.2d 60, 64 (1981), quoting Kania v. Airborne Freight Corp., 99 Wis.2d 746, 763, 300 N.W.2d 63, 70 (1981). The parties here agree that there is a contract, and so the first question we must address is whether Maye has satisfied the second part of the definition of a dealer by proving that it has either: (1) the right to sell Nordson products, or (2) the right to use Nordson's commercial symbols. ³

A. The Right to Sell

In interpreting the WFDL, courts have concluded that the single most important factor in determining whether an alleged dealer has the right to sell a grantor's goods or services is the dealer's ability to transfer the product itself (or title to the product) or commit the grantor to a transaction at the moment of the agreement to sell. Foerster, 105 Wis.2d at 26, 313 N.W.2d at 64; Wilburn v. Jack Cartwright, Inc., 719 F.2d 262, 265 (7th Cir.1983). In this case the Agreement makes it clear that Nordson alone has the authority to accept or reject any offer by a customer. Agreement, p 7. Maye admits that it lacks the unqualified right to commit Nordson to a sale, but argues that this is not dispositive. It asserts that courts should look at all of the circumstances surrounding a business relationship before deciding whether a company ought to be treated as a dealer under the WFDL, rather than just looking for the right to commit the grantor to a sale. Maye argues that, even though it could not commit Nordson to a sale,...