To-Am Equipment Co., Inc. v. Mitsubishi Caterpillar Forklift America, Inc.

• Decision Date: 31 August 1998
• Docket Number: No. 97-1395,TO-AM,97-1395
• Citation: To-Am Equipment Co., Inc. v. Mitsubishi Caterpillar Forklift America, Inc., 152 F.3d 658 (7th Cir. 1998)
• Parties: EQUIPMENT CO., INC., Plaintiff-Appellee, v. MITSUBISHI CATERPILLAR FORKLIFT AMERICA, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 658

152 F.3d 658

TO-AM EQUIPMENT CO., INC., Plaintiff-Appellee, v. MITSUBISHI CATERPILLAR FORKLIFT AMERICA, INC., Defendant-Appellant.

No. 97-1395.

United States Court of Appeals Seventh Circuit.

Argued Oct. 31, 1997.

Decided Aug. 6, 1998.

Rehearing and Suggestion for Rehearing En Banc Denied Aug.

31, 1998. ^*

Gary W. Leydig (argued), Robin L. Hoberman, Levin McParland, Phillips, Leydig & Haberkorn, Chicago, IL, for plaintiff-appellee.

Stacy Lee Prange, McBride, Baker & Coles, Chicago, IL, David E. Zajicek, McBride, Baker & Coles, Oakbrook Terrace, IL, Kenneth G. Cole, Thomas J. Collin (argued), Kristin M. Ehlers, Thompson, Hine & Flory, Cleveland, OH, for defendant-appellant.

Before POSNER, Chief Judge, and ROVNER and DIANE P. WOOD, Circuit Judges.

DIANE P. WOOD, Circuit Judge.

Legal terms often have specialized meanings that can surprise even a sophisticated party. The term "franchise," or its derivative "franchisee," is one of those words. The question in this case is whether the district court correctly ruled that certain payments that To-Am Equipment Company made to Mitsubishi Caterpillar Forklift America (MCFA), in connection with To-Am's distributorship for certain Mitsubishi products, could constitute franchise fees within the meaning of the Illinois Franchise Disclosure Act of 1987, 815 ILCS 705/1 et seq. That ruling in turn set the stage for a jury verdict in To-Am's favor awarding it $1.525 million in damages for MCFA's termination of its distribution agreement. MCFA challenges the lower court's legal ruling on appeal, and argues in addition that the district court erred in refusing to grant a new trial or in the alternative a remittitur of the damages. We affirm.

I

The Mitsubishi keiretsu (the traditional Japanese form of conglomerate) is a well known manufacturer of heavy equipment, including forklift trucks. In June 1985, To-Am entered into a dealership agreement for these forklifts with a company affiliated with Mitsubishi, Machinery Distribution, Inc. (MDI). (In 1992 MDI became part of a new entity, MCFA, which assumed its role in the contract and which we, like the parties, will refer to exclusively henceforth.) To-Am had been doing business in south Chicago since 1973, servicing, renting, and repairing forklifts. Over the years it also sold a number of different brands of forklifts, including those made by Clark, Yale, and Hyster, though prior to its contract with MCFA it sold only used forklifts. Before allowing To-Am to become a Mitsubishi dealer MCFA required To-Am to relocate to a larger showroom. To-Am complied and moved to Frankfort, Illinois. During the years it served as a Mitsubishi dealer To-Am continued to handle used forklifts manufactured by Mitsubishi's competitors--in other words, the dealership did not require exclusivity on To-Am's part. On the other hand, the agreement conferred on To-Am an exclusive Area of Primary Responsibility (APR), consisting of four Illinois counties and one county in Indiana, in which MCFA did not have and agreed not to create a competing dealership.

Under the 1985 contract (the only one ever entered between the parties), To-Am was required to participate in Mitsubishi's warranty program. This meant, among other things, that To-Am had to maintain trained personnel and provide prompt warranty and non-warranty service on all Mitsubishi products within its APR. To comply with these requirements, To-Am participated in all of MCFA's training programs, apparently for the most part at its own expense. Article III para. 14 of the agreement expressly required To-Am to "maintain an adequate supply of current [MCFA] sales and service publications." To-Am did so by keeping a master set of manuals in its parts department, a second set in its service department, and additional manuals in its mobile service vehicles (a necessity in this business). MCFA provided one set of these manuals in 1985 when To-Am became a distributor, but thereafter To-Am had to order additional manuals for the other locations where it kept manuals, for updating, and when manuals wore out. MCFA invoiced To-Am for these additional manuals, and over the years To-Am paid over $1,600 for them. At trial MCFA argued that it updated To-Am's manuals with all new releases free of charge, and that it viewed one full set (which it claimed to have supplied to To-Am) as an "adequate supply." Other evidence, however, indicated that MCFA dealers, including To-Am, did not receive free updates and that one set was not "adequate" for a dealer of To-Am's size. Taking the evidence in the light most favorable to To-Am, as of course we must, e.g., Riemer v. Illinois Dept. of Transportation, 148 F.3d 800, 805-06 (7th Cir.1998), we conclude that to satisfy this clause of the dealership contract To-Am had to purchase these additional manuals. (We address later whether such payments were indirect franchise fees.)

In February 1994, MCFA notified To-Am that it was terminating the dealership agreement effective April 2, 1994, in accordance with Article XI para. 1 of the agreement, which permitted either party to terminate upon 60 days' written notice "or as required by law." This step was a blow to To-Am's business, even though after MCFA's action To-Am continued to service, repair, lease, and rent Mitsubishi forklift trucks, and continued to service and repair other brands of forklift trucks. The reason was simple: Mitsubishi forklifts were the only new vehicles that To-Am had been selling. Even though new truck sales are themselves relatively low profit generators for dealers, they can create substantial downstream business, ranging from trade-ins that could be resold as used equipment or carried as rental equipment, to service and parts sales. Testimony at trial indicated that, while dealer profit margins on new equipment sales might be as low as 3%, the margins on these downstream business opportunities ranged from 30% to 50%. Cf. Chrysler Corp. v. Kolosso Auto Sales, Inc., 148 F.3d 892, 893-94 (7th Cir.1998) (financial interests of manufacturers and dealers may diverge). Thus, the loss of To-Am's line of new trucks had ripple effects on its business going far beyond the immediate lost sales.

To-Am therefore brought this suit against MCFA, its predecessor, and a variety of affiliated individuals and corporations on January 5, 1995, in the Circuit Court of Will County, Illinois. To-Am alleged violations of the Illinois Franchise Disclosure Act by all defendants for the wrongful termination of its franchise without good cause, and breach of contract by MCFA for its failure to repurchase To-Am's inventory following termination. On February 9, 1995, the defendants removed the case to the United States District Court for the Northern District of Illinois, and MCFA filed a counterclaim for $78,000 in unpaid invoices. Eventually it won summary judgment on the counterclaim, which To-Am paid, so there is nothing about it that need concern us. Likewise, To-Am's contract claim and all defendants other than MCFA have by now dropped out of the case.

Before trial, MCFA moved for summary judgment on the question whether To-Am had paid any "franchise fees" within the meaning of the Illinois Act, which the district court granted in part and denied in part. It rejected To-Am's contention that several types of payments to MCFA were in fact indirect franchise fees, including To-Am's argument that payments to MCFA for To-Am employees attending MCFA service schools amounted to franchise fees. On the other hand, the court concluded that To-Am's payments for service and parts manuals were required and therefore could satisfy the statutory definition of a franchise fee. 815 ILCS 705/3(14). Prior to trial MCFA conceded that To-Am met the requirement under the Franchise Disclosure Act that the franchisee's business be substantially associated with the franchisor's trademark. 815 ILCS 705/3(1)(b). MCFA also conceded that the termination was without good cause, as the Act uses the term. See 815 ILCS 705/19. The case thus went to trial on the two remaining criteria for whether To-Am was a franchisee: (1) did To-Am pay MCFA an indirect franchise fee of $500 or more, 815 ILCS 705/3(1)(c); and (2) did the distributorship agreement give To-Am the right to conduct its business under a marketing plan prescribed or suggested in substantial part by MCFA. 815 ILCS 705/3(1)(a). The jury found for To-Am on both questions, and as we noted it returned a generous verdict for To-Am. After the district court denied MCFA's post-trial motions under Rules 50(b) and 59 and (as provided by statute) awarded To-Am its attorneys' fees and costs, MCFA timely appealed.

II

MCFA has made it clear that it is appealing only two points: whether To-Am paid it a sufficient "franchise fee" as defined by the Franchise Disclosure Act to be considered a franchisee, and the appropriateness of the jury's damage award. We can therefore confine our own discussion to these issues.

A. Franchise Fees

The Franchise Disclosure Act defines a franchise fee as follows:

[A]ny fee or charge that a franchisee is required to pay directly or indirectly for the right to enter into a business or sell, resell, or distribute goods, services or franchises under an agreement, including, but not limited to, any such payments for goods or services, provided that the Administrator may by rule define what constitutes an indirect franchise fee, and provided further that the following shall not be considered the payment of a franchise fee [setting forth six exceptions, none of which MCFA argues apply here].

815 ILCS 705/3(14). As this section specifically contemplates, the Illinois Attorney General, as the Administrator of the statute, see 815 ILCS 705/3(19), has issued a number of pertinent implementing regulations. First, he has elaborated on the definition of the term "franchise fee":

A franchise fee within the meaning of Section 3(14) of the Act may be present regardless of...