Jones Distributing Co. v. White Consol. Industries, No. C 94-4029-MWB.

• Court: United States District Courts. 8th Circuit. Northern District of Iowa
• Writing for the Court: Bennett
• Citation: 943 F.Supp. 1445
• Parties: JONES DISTRIBUTING COMPANY, INC., an Iowa corporation, Plaintiff, v. WHITE CONSOLIDATED INDUSTRIES, INC., a Delaware corporation, and Frigidaire Company, a division thereof, Defendants.
• Decision Date: 15 September 1996
• Docket Number: No. C 94-4029-MWB.

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943 F.Supp. 1445 JONES DISTRIBUTING COMPANY, INC., an Iowa corporation, Plaintiff,
v.
WHITE CONSOLIDATED INDUSTRIES, INC., a Delaware corporation, and Frigidaire Company, a division thereof, Defendants. No. C 94-4029-MWB. United States District Court, N.D. Iowa, Western Division. September 15, 1996.

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Steven R. Jensen of Crary, Huff, Inkster, Hecht & Sheehan, P.C., Sioux City, IA, for Plaintiff Jones Distributing Company.

Stephen D. Turner and Ellen S. Carmody of Law, Weathers & Richardson, P.C., Grand Rapids, MI, for Defendant WCI and its Frigidaire division.

MEMORANDUM OPINION AND ORDER REGARDING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

BENNETT, District Judge.

 TABLE OF CONTENTS
                 I. INTRODUCTION................................................................1450
                 II. STANDARDS FOR SUMMARY JUDGMENT..............................................1452
                III. FACTUAL BACKGROUND..........................................................1453
                 A. Undisputed Facts.........................................................1453
                 B. Disputed Facts...........................................................1456
                 IV. LEGAL ANALYSIS..............................................................1457
                 A. Violation Of Franchise Laws..............................................1457
                 B. Choice Of Law On Tort And Contract Claims................................1458
                 C. Contract Claims..........................................................1459
                 1. Unconscionability.....................................................1459
                 a. Ohio law of unconscionability......................................1460
                 b. Unconscionability here.............................................1462
                 2. Breach of contract....................................................1464
                 3. Breach of covenant of good faith and fair dealing.....................1465
                 a. The covenant of good faith and fair dealing under Ohio law.........1465
                 b. Jones's allegations of breach of good faith........................1466
                 D. Tort Claims..............................................................1467
                 1. Tortious interference with business relationships.....................1467
                 a. Tortious interference under Iowa law...............................1467
                 b. Jones's claim of tortious interference.............................1468
                 2. Fraudulent misrepresentation..........................................1468
                 a. Fraudulent misrepresentation under Iowa law........................1469
                 b. The effect of an integration clause under Iowa law.................1470
                 c. Misrepresentations in the cover letter.............................1471
                 d. Reliance...........................................................1471
                 3. Fraudulent non-disclosure.............................................1472
                 a. Fraudulent non-disclosure under Iowa law...........................1473
                 b. WCI's duty to disclose.............................................1473
                 c. When does the duty arise?..........................................1474
                 i. One stated test...............................................1474
                 ii. Other general tests...........................................1474
                 iii. Tests in Restatement (Second) of Torts § 551.............1475
                 d. Other elements of the claim........................................1479
                 E. WCI's Counterclaim.......................................................1479
                 V. CONCLUSION..................................................................1480
                

The defendant's motions for summary judgment on plaintiff's claims and its own counterclaim in this lawsuit between a distributor and a manufacturer of household appliances have already had two salutary effects. First, they have led to the agreed disposition of some of the plethora of claims originally pleaded by the plaintiff, because the parties now agree there is insufficient factual or legal basis for those particular claims. Thus, the parties and the court may focus their resources on truly contested matters. Second, although the court would ordinarily be required to determine what state's law applies to what claims in a diversity action such as this, the parties appear to be in agreement on this potentially critical issue as well. Nonetheless, the court must still determine whether genuine issues of material fact require submitting to a jury any of the plaintiff's remaining claims arising from the termination of a distributorship contract in

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the face of defendant's motion for summary judgment. Those remaining claims include unconscionability of an at-will termination provision and consequent breach of a distributorship contract, breach of an implied covenant of good faith and fair dealing in a distributorship contract, tortious interference with business relationships, fraudulent misrepresentation, fraudulent non-disclosure, and violation of state franchise laws. Defendant has also moved for summary judgment on its counterclaim for sums due under a statement of account in connection with the distributorship agreement. Although plaintiff does not dispute the sum due, it does contend that judgment should not now be entered on defendant's counterclaim, because plaintiff may be entitled to damages against the defendant in excess of the sum defendant is owed.

I. INTRODUCTION

Plaintiff Jones Distributing Company (Jones) filed its original complaint and jury demand in this action on March 22, 1994, against defendants White Consolidated Industries, Inc., and its Frigidaire division. Defendants will be referred to collectively herein as "WCI," unless the separate conduct of Frigidaire or its employees is at issue. Jones's claims arise from the termination of its distributorship agreement with WCI in 1993. WCI answered the original complaint on May 16, 1994, also asserting a counterclaim for sums due under a statement of account in connection with the distributorship agreement. Jones answered the counterclaim on May 20, 1994. Considerably later, however, on May 29, 1996, Jones moved for leave to amend its complaint. Leave to amend was granted on July 15, 1996. The claims at issue in the first of WCI's motions for summary judgment are those stated in this amended and substituted complaint.

Nine claims are asserted in the amended and substituted complaint. Jones's first cause of action, denominated a cause of action for "breach of contract," asserts that the entire "1993 Franchise Agreement"¹ between the parties is void as unconscionable. It further contends that if the 1993 Agreement is not void in its entirety, provisions providing for termination without cause are nonetheless void and unenforceable by reason of being unconscionable. Furthermore, this cause of action asserts that the 1993 Agreement, which pertains specifically to distribution of goods in South Dakota, did not terminate those portions of a 1987 agreement concerning distribution of goods in Iowa and Nebraska, as well as South Dakota; consequently, Jones alleges, the termination provisions of the 1987 Agreement are still applicable to distribution of goods in Iowa and Nebraska, and have been breached by WCI's termination of Jones's distributorship. Finally, this cause of action asserts that WCI breached an agreement arising from a course of dealing and performance that granted Jones an exclusive sales territory by selling products within this exclusive territory without compensating Jones and by terminating Jones's distributorship agreement and selling in this territory.

Second, Jones asserts a cause of action for tortious interference with business relationships, premised on WCI's direct dealings with and sales to Jones's customers. Jones therefore asserts that WCI has interfered with the contractual or business relationships between Jones and its customers. Third, Jones asserts violation of the franchise statutes of South Dakota, Nebraska, and Iowa. Fourth, in a cause of action denominated "Fraud, Misrepresentation, Coercion and Duress," Jones asserts a claim of fraudulent misrepresentation premised on WCI's alleged repeated assurances that Jones would always be able to sell Frigidaire products, contrary to WCI's actual termination of its distributorship agreement with Jones. Jones's fifth cause of action alleges "unjust enrichment," and is premised on WCI reaping the benefits of Jones's development of customers for WCI's products in the region

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formerly serviced by Jones. Jones's sixth cause of action alleges breach of the implied covenant of good faith and fair dealing in the contract between the parties. The breach of covenant is premised on WCI's alleged termination of "override" payments to Jones for sales made directly by WCI to dealers in Jones's territories and WCI's alleged failure to inform Jones of its plan to terminate Jones and other distributors even while demanding that Jones sign a new distributorship agreement for 1993 which included substantial changes in the termination provisions of the contract. The seventh cause of action in the amended and substituted complaint alleges violation of the anti-trust laws of the states of South Dakota, Nebraska, and Iowa. Jones's eighth "cause of action" is essentially a prayer for compensatory and exemplary damages on each of the prior claims.

Jones's ninth cause of action, added by virtue of its amendment of its original complaint, is a claim of fraudulent non-disclosure. In this cause of action, Jones alleges that in January of 1993, WCI forwarded a new "distributor agreement" to Jones to sign (the document referred to by the court above as the 1993 Agreement) with a cover letter that failed to set forth any significant changes from prior contracts. However, the 1993 Agreement in fact made a significant change to the termination provisions that had been a part of the preceding series of agreements between the parties, because it added a provision...