Ziegler Co., Inc. v. Rexnord, Inc.

• Decision Date: 25 June 1987
• Docket Number: No. 86-0462,86-0462
• Parties: , 56 USLW 2044 ZIEGLER COMPANY, INC., a Wisconsin corporation, Plaintiff-Appellant-Petitioner, v. REXNORD, INC., a Wisconsin corporation, Defendant-Respondent.
• Court: Wisconsin Supreme Court

Page 873

407 N.W.2d 873

139 Wis.2d 593, 56 USLW 2044

ZIEGLER COMPANY, INC., a Wisconsin corporation Plaintiff-Appellant-Petitioner, v. REXNORD, INC., a Wisconsin corporation, Defendant-Respondent.

No. 86-0462.

Supreme Court of Wisconsin.

Argued May 29, 1987.

Decided June 25, 1987.

Steven J. Kirschner, Madison, argued, for plaintiff-appellant-petitioner; Ross & Stevens, S.C., Madison, on brief; Lewis A. Remele, Jr., Gregory M. Weyandt and Rider, Bennett, Egan & Arundel, Minneapolis, Minn., of counsel.

William H. Levit, Jr., Milwaukee, argued, for defendant-respondent; Michael B. Apfeld and Godfrey & Kahn, S.C., Milwaukee, on brief.

William F. Nelson, Margaret A. Satterthwaite and DeWitt, Porter, Huggett, Schumacher & Morgan, P.C., Madison, for amicus curiae Wisconsin Council of the National Alliance of Franchisees and Dealers.

Michael A. Bowen and Foley & Lardner, Milwaukee, for the J.I. Case Co.

SHIRLEY S. ABRAHAMSON, Justice.

This is a review of an unpublished decision of the court of appeals filed on July 15, 1986, affirming a summary judgment of the circuit court for Eau Claire county, William D. O'Brien, Judge dismissing the complaint on the ground that the plaintiff, Ziegler Company, Inc. (Ziegler), was not a dealer within the meaning of the Wisconsin Fair Dealership Law (ch. 135, Stats. 1985-86).

The Wisconsin Fair Dealership Law (WFDL) provides among other things that a grantor of a dealership may not fail to renew a dealership agreement without good cause. Sec. 135.03, Stats. 1985-86. Ziegler claims to be a dealer for Rexnord, Inc. (Rexnord) and that without good cause Rexnord refused to renew Ziegler's dealership. Ziegler and Rexnord each moved for summary judgment in the circuit court, Ziegler asserting that as a matter of law Rexnord had no good cause for refusing to renew the dealership and Rexnord asserting that as a matter of law Ziegler was not a dealer within the meaning of WFDL. ¹

The circuit court granted Rexnord's motion for summary judgment, holding that as a matter of law Ziegler was not a dealer within the meaning of WFDL because Ziegler and Rexnord did not share a community of interest. The court of appeals affirmed the judgment. Neither the circuit court nor the court of appeals considered the "good cause" issue raised by Ziegler's motion for summary judgment.

There are two issues in the case as it comes before this court on review of the court of appeals' affirmance of the summary judgment. The central issue in this case is whether Ziegler is Rexnord's dealer within the meaning of WFDL--more specifically, whether the community of interest requirement for the existence of a dealership under ch. 135 is satisfied. A second issue, which we do not reach for the reasons set forth, is whether Rexnord's desire to increase the profitability (or reduce the losses) of its Process Machinery Division was good cause under secs. 135.02(4) and 135.03, Stats. 1985-86, for its decision not to renew its agreement with Ziegler.

We conclude that the court of appeals and the circuit court erred by examining only one factor of the business relationship to determine the requisite community of interest. We further conclude that we cannot affirm the summary judgment by applying the correct legal test, because material facts are in dispute. Accordingly we reverse the court of appeals and remand the cause to the circuit court for further proceedings not inconsistent with this opinion.

I.

To clarify the dispute in this case, we briefly set forth the background facts on which the parties appear to agree. We will elaborate on the facts directly relevant to the dealership issue, including the disputed facts, when we discuss that legal issue.

Rexnord, a diversified, Milwaukee-based multinational, manufactures industrial equipment and components. Ziegler, a Wisconsin corporation, is generally engaged in the distribution, sale and service of many lines of construction, mining and material-handling equipment. Thus, it is not surprising that the two companies might do business together, with Rexnord manufacturing certain equipment and Ziegler distributing that equipment in Wisconsin and elsewhere.

The contacts between the two companies date back to the 1920's, when Ziegler, Inc. (a Minnesota corporation that is Ziegler's sister corporation) became a distributor for Rex Chain Belts (a predecessor to Rexnord). Since that time, Ziegler, Inc. has acted as a distributor for various divisions of Rexnord.

In 1971, Ziegler, through its subsidiary General Tractor, became a machinery distributor in Minnesota, eastern North Dakota and eastern South Dakota for Rexnord's Process Machinery Division. This territory was expanded in 1978 to include western Wisconsin.

In 1980, Ziegler and Rexnord orally agreed that Ziegler would assume sales responsibility throughout Wisconsin for aggregate (rock crushing) equipment manufactured by Rexnord's Process Machinery Division. In 1981, this distributorship agreement was renewed in writing and ran from June 30, 1981, until June 30, 1984. During the three-year term of the distributorship, however, Rexnord decided not to renew the distributorship agreement.

The three years during which the distributorship agreement was in effect were not good ones for the aggregate equipment industry. In fact, according to Ziegler, these were the worst years for the aggregate equipment industry since the Great Depression.

Prior to the nonrenewal of the distributor agreement, Rexnord's products represented 8 percent, 2 percent, 1 percent and 5 percent of Ziegler's total sales in the lean years of 1981, 1982, 1983 and 1984, respectively. In the same time period, Rexnord equipment accounted for a significantly higher percentage of Ziegler's total sale of aggregate equipment. For the years 1980, 1981 and 1982, Rexnord equipment constituted 95 percent, 83 percent and 32 percent of this market.

In 1982 and 1983, the Processed Machinery Division of Rexnord lost over $8 million. Rexnord decided it could save money by disbanding the distributor system and selling its products directly. Accordingly it announced in September 1983 that for economic reasons it did not intend to renew any of the 23 distributor contracts it had nationwide when they expired on June 30, 1984, and it intended to go to a direct system of selling with agents.

Ziegler rejected Rexnord's offer to transform Ziegler from a distributor into a "tight agent," and Rexnord refused to renew the distributorship agreement. The legal dispute in this case arose from this disagreement.

We first address whether Rexnord and Ziegler share a community of interest under sec. 135.02(1), (3) and then address whether Rexnord had good cause to refuse to renew its distributorship agreement with Ziegler.

II.

The Wisconsin Fair Dealership Law (ch. 135) was enacted to "promote the compelling interest of the public in fair business relations between dealers and grantors, and in the continuation of dealerships on a fair basis." Sec. 135.025(2)(a), Stats. 1985-86. Convinced that grantors of dealerships had "inherently superior economic power and superior bargaining power in the negotiation of dealerships," the legislature attempted in WFDL to "protect dealers against unfair treatment by grantors." Sec. 135.025(2)(b). The result was a statute with "a sharp bite," with significant protections for dealers. H. Phillips Co. v. Brown-Forman Distillers, 483 F.Supp. 1289, 1295 (W.D.Wis.1980). The statute prohibits the grantor from terminating, cancelling, failing to renew or substantially changing the competitive circumstances of a dealership agreement without good cause. Sec. 135.03. If a grantor violates WFDL, a dealer may seek damages and an injunction. Sec. 135.06.

Courts have frequently been called upon to determine whether a business relationship falls within the purview of WFDL. ² Under sec. 135.02, Stats. 1985-86, ³ a dealership exists if the following elements are satisfied:

"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;

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."

See Kania v. Airborne Freight Corp., 99 Wis.2d 746, 763, 300 N.W.2d 63 (1981).

Much of the difficulty in interpreting the statutory definition of dealership has stemmed, as it does in this case, from the troublesome third element, community of interest, probably the element which most distinguishes dealerships from other forms of business agreements. The community of interest requirement has been difficult to delimit with any precision. As one court noted, "the requirement for a 'community of interest' must be interpreted so that it means something. If it is interpreted to mean that anytime a dealer sells any products of a manufacturer there is a community of interest, the requirement would be effectively read out of the statute. For the phrase to mean something, 'community of interest' must indicate some significant economic relationship between the parties." Kusel Equip. Co. v. Eclipse Packaging Equip. Ltd., 647 F.Supp. 80, 82 (E.D.Wis.1986). The challenge in interpreting community of interest, then, is to establish some guidepoosts which will confine the phrase without so constricting it that it no longer extends to persons or entities the legislature intended to protect.

The circuit court and the court of appeals in this case appear to have found a guidepost in our decision in Foerster, Inc. v. Atlas Metal Parts Co., 105 Wis.2d 17, 313 N.W.2d 60 (1981). These courts seem to have assumed that in Foerster this court adopted, or at least strongly suggested, the...