Kenosha Liquor Co. v. Heublein, Inc., 89-1929

• Decision Date: 12 February 1990
• Docket Number: No. 89-1929,89-1929
• Parties: KENOSHA LIQUOR COMPANY, Plaintiff-Appellee, v. HEUBLEIN, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 418

895 F.2d 418

KENOSHA LIQUOR COMPANY, Plaintiff-Appellee, v. HEUBLEIN, INC., Defendant-Appellant.

No. 89-1929.

United States Court of Appeals Seventh Circuit.

Argued Jan. 12, 1990.

Decided Feb. 12, 1990.

John V. O'Connor, Robert DuMez, Cletus R. Willems, O'Connor & Willems, Kenosha, Wis., for plaintiff-appellee.

Edwin J. Hughes, Brian E. Buttler, Barbara A. Neider, Stafford, Rosenbaum, Rieser & Hansen, Madison, Wis., for defendant-appellant.

Before COFFEY, EASTERBROOK, and MANION, Circuit Judges.

EASTERBROOK, Circuit Judge.

Wisconsin enacted a statute protecting dealers from termination. Wisconsin Fair Dealership Law, Wis.Stat. ch. 135. Because many suppliers and franchisors have headquarters outside Wisconsin, litigation frequently meets the requirements of the diversity jurisdiction. Franchisors apparently think the federal courts more attuned to their interests, while dealers prefer state courts. District judges in Wisconsin have been overrun by suits originally filed in state court and removed to federal court. This is one, filed by a liquor wholesaler that lost its right to distribute Jose Cuervo brand tequila sold by Heublein, a subsidiary of Grand Metropolitan PLC.

Heublein sells many brands of liquor; the only one Kenosha Liquor Company carries is Jose Cuervo tequila. In 1983 Jose Cuervo accounted for 3.2% of Kenosha Liquor's sales; by 1988, when Heublein tried to turn off the spigot, it accounted for 5.8%. This percentage is the focus of the dispute. The Fair Dealership Law applies only to "dealers", a term it does not define except by saying that a dealer is a distributor in a "community of interest" with the supplier, Sec. 135.02(2), (3), which "pushes the lack of a definition to a new level of abstraction." Fleet Wholesale Supply Co. v. Remington Arms Co., 846 F.2d 1095, 1096 (7th Cir.1988). Ziegler Co. v. Rexnord, Inc., 139 Wis.2d 593, 407 N.W.2d 873 (1987), adopts a multi-factor definition under which the trier of fact must ponder all aspects of the buyer-seller relation.

Multi-factor tests could imply jury trials in all cases, but no one wants (or can believe the state legislature created) a vapid law, uncertain in every application. To say that courts must examine many facts is not to say that there are no rules. 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 Moodie v. School Book Fairs, Inc., 889 F.2d 739, 742 (7th Cir.1989); Fleet Wholesale, 846 F.2d at 1097; Moore v. Tandy Corp., 819 F.2d 820, 822-24 (7th Cir.1987). This implies that unless a large portion of the business is committed to a supplier, or the reseller has substantial assets specialized to that supplier's goods, there is no opportunity to exploit by changing the terms in mid-stream, no terms other than those applied to all middlemen, hence no "community of interest", and so no statutory "dealership".

Heublein moved for summary judgment, observing that 5.8% of sales is not enough to allow it to drive the buyer to the brink or wring concessions (at least, no concessions that could not equally be wrung by raising the price of tequila), and that Kenosha Liquor has made absolutely no Jose Cuervo-specific investments (that is, investments in equipment and reputation that are less useful for other brands than for Jose Cuervo). Kenosha Liquor defended the motion by relying on Steve L. Barsby, an economist who maintained that Jose Cuervo is one of Kenosha Liquor's "magnet brands" essential to its business. The distributor also pointed to its contract with Heublein, which entitled Heublein to demand that Kenosha Liquor make some product-specific investments. To this Heublein replied that it had never made the kinds of demands authorized by the contract, which Kenosha Liquor does not deny.

Judge Evans agreed with Heublein that undisputed material facts call for summary judgment on the "dealership" question. On his own motion, he awarded victory to Kenosha Liquor. After Kenosha Liquor waived any request for damages, Heublein stipulated to the entry of an injunction forbidding the cutoff. Judge Evans entered the injunction and awarded more than $61,000 in legal fees and costs. Heublein's appeal presents a single question: whether Kenosha Liquor is a "dealer" as a matter of law under Sec. 135.02(3). Like the district court, we believe that this case can be resolved on the current record.

Jose Cuervo yields less than 6% of Kenosha Liquor's sales. Although Ziegler implies that 8% of sales (the amount in Ziegler itself) could be enough if other factors suggest "dealership", there are no (pertinent) other factors here. Kenosha Liquor distributes Jose Cuervo through its regular means. Its premises, trucks, and so on all bear its own markings; it has not pointed to a single business asset that is not useful in distributing Remy Martin cognac to the same degree it may be used in handling Jose Cuervo tequila. No matter what...