“Frankenstein” Veto Language Interpreted by Federal District Court

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A recent post on this blog noted that wine distributors were not covered by an expansion of the definition of “dealer” under 1999 amendments to the Wisconsin Fair Dealership Law (“WFDL”) due to “a creative partial veto from then-Gov. Thompson.”

That creative partial veto was front and center in a decision and order issued last week by the U.S. District Court for the Eastern District of Wisconsin, denying defendants’ motion to dismiss for failure to state a claim. The plaintiff, Winebow, Inc., had brought a declaratory judgment action seeking to affirm that it could terminate all wine distribution relationships with defendants Capitol-Husting Co., Inc., and L’eft Bank Wine Company Limited without violating the WFDL.

The crux of the defendants’ motion to dismiss was that the 1999 amendments to the WFDL should be interpreted to define wine distributors as “per se dealers” under the WFDL, subject only to limitations on small producers and sales lines constituting less than 5% of a distributor’s business. They contended that the statute covers distributors of “intoxicating liquor” as defined in section 125.02(8) of the Wisconsin Statutes, regardless of whether such distributors can meet the “community of interest” test ordinarily required for dealer status.  Defendants noted that the WFDL definition that provides per se dealer status to distributors of intoxicating liquor defines “wholesalers” with reference to section 125.02(21) of the Wisconsin Statutes, which definition does not exclude wine wholesalers.

The WFDL, however, defines “intoxicating liquor” as having “the meaning given in s. 125.02(8) minus wine.”  The words “minus wine” were inserted via Gov. Thompson’s use of what was dubbed a “Frankenstein veto,” with many other words in succeeding clauses of the legislation deleted by his veto pen, leaving only “minus” and “wine” in place. The District Court denied the motion to dismiss, finding that “[t]he statutory definition of “intoxicating liquor” is clear, and wine is expressly excluded.”

Other arguments in this case, however, may also prove to be instructive. The plaintiff’s complaint seemingly alleges that the “minus wine” language means that all wine distribution agreements are exempt from coverage under the WFDL – even if the parties’ relationship satisfies the community of interest test of section 135.02(3)(a).  The complaint states the defendants’ wholesale distribution of Winebow portfolio wines does not qualify for protection under the WFDL “as wine is expressly exempt from the WFDL.”  Plaintiff’s contention was not directly at issue in the defendants’ motion to dismiss, but presumably would be raised in a motion for summary judgment or for judgment on the pleadings.

Wine and Spirits Distributors Said To Be Seeking Legislative Protections

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The Wheeler Report reported on Thursday that five trade associations have raised concerns to state legislators about rumored proposed amendments to Wisconsin’s Fair Dealership Law that would make it easier for wine and spirits distributors to transfer brand distribution agreements to third parties.

One letter to legislators dated May 14, 2015 was jointly authored by the Wisconsin Restaurant Association, the Wisconsin Petroleum Marketers & Convenience Store Association and the Wisconsin Grocers Association,  all representing retail sellers.  Another letter, also dated May 14, 2015, came from the Distilled Spirits Council of the United States and the Wine Institute, who advocate for manufacturers.

The associations allege that at least one wine and spirits wholesaler has sought amendments to the WFDL similar to changes that were enacted by the Wisconsin Legislature in 1999, but were significantly limited by a partial veto by then-Gov. Tommy Thompson.  That partial veto eliminated a section that would have provided that a change in management, ownership or control of a wholesaler would not be “good cause” under the WFDL for a grantor to terminate, cancel, fail to renew or substantially change the competitive circumstances of a wholesaler, as long as the successor wholesaler met the grantor’s reasonable and material qualification standards in effect at the time of the change.

Other provisions of the 1999 legislation expressly defined “dealer” to include liquor wholesalers, without reference to the “community of interest” requirement for dealer status under the WFDL. The expanded definition of dealer provided exceptions from WFDL coverage where the manufacturer had never produced more than 200,000 gallons of liquor in a single year, or where the distributor’s net revenues from sales of all brands produced by that grantor was less than 5% of all liquor sold by the distributor. These provisions survived the partial veto.  The original legislation, however, would have similarly expanded the definition of dealer to cover wine distributors.  A creative partial veto from then-Gov. Thompson removed wine distributors from that protected class.

When Does The Statute of Limitations Begin to Run on WFDL Claims?

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Although the Wisconsin Fair Dealership Law (“WFDL”) provides significant protections for franchisees and dealers against termination and non-renewal, the statute of limitations for filing WFDL claims is one year. That short limitations period can be a minefield for parties seeking relief under the WFDL.

For 30 years, the Wisconsin Supreme Court’s ruling in Les Moise, Inc., v. Rossignol Ski Co. has provided the principal precedent in evaluating when WFDL claims accrue for purposes of the one-year statute of limitations.  In Les Moise, the court held that a Chapter 135 claim accrued on the date that the dealer receives notice of an allegedly improper termination, instead of the actual date of termination.

A recent unreported decision of the Wisconsin Court of Appeals, Chili Implement Company v. CNH America, LLC, illustrates unresolved issues that remain in applying the Les Moise holding.  The CNH court held that “we disagree with CNH that Les Moise establishes that all causes of action under the Wisconsin Fair Dealership Law accrue when a dealer receives a termination notice.”

The facts of CNH:

  • CNH sent a notice to Chili Implement on March 1, 2010, stating that Chili Implement is in default of the parties’ agreement because it has failed to achieve a satisfactory market share and to stock sufficient inventory.  The notice also stated that to avoid termination, Chili needed to accomplish two things within one year of the notice date:  “to meet or exceed 90% of the Wisconsin state market share” and to stock sufficient inventory to achieve that market share.
  • After a year passed, CNH determined that Chili Implement has failed to meet the stated requirements and terminated Chili effective May 31, 2011
  • Chili sued CNH on January 19, 2012, alleging violations of the WFDL, among other violations.

CNH alleged that under Les Moise, CNH’s claims under the WFDL were barred by the one-year statute of limitations.  The notice was sent March 1, 2010; the lawsuit was filed almost two years later, on January 19, 2012.  Chili Implement asserted that its WFDL claim accrued as of the date of actual termination, on May 31, 2011.  The trial court had granted summary judgment in favor of Chili Implement on the statute of limitations question, finding that a material factual dispute existed as to whether the 2010 notice was actually a notice of termination.

The CNH court did not answer how a lawsuit such as Chili Implement’s should be treated.  The CNH court cited limiting language from Les Moise that what matters is whether, upon receipt of a notice, the dealer was “immediately capable of determining” all of its claims.  The court noted that Chili Implement had two potential claims:  one based on inadequate notice (which was capable of immediate enforcement upon receipt of the 2010 notice) and termination without good cause (which depended on subsequent acts or omissions of CNH).  But because CNH had not briefed how such claims should be handled, the CNH court declined to do so, and found that CNH has failed to show that it had a winning statute of limitations argument based on Les Moise.

So the issue remains:  when does the WFDL statute of limitations begin to accrue?

[Chili Implement Company v. CNH New Holland, LLC, 2014AP1496]

Fore! Governmental Entities May Need To Consider Applicability Of WFDL

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If ultimately upheld on appeal, the trial court’s initial holdings in a lawsuit filed by four golf professionals against the City of Madison, alleging a breach of the Wisconsin Fair Dealership Law by the City, have the potential to establish that the WFDL applies to governmental entities as well as private businesses.  To date, no reported case law has addressed the potential application of the WFDL to governmental entities.

Beginning in 1976, the City of Madison had contracted with golf professionals to administer municipal golf courses on the City’s behalf.  Under these agreements, the golf professionals were responsible for operating and maintaining the courses, paying for all employees, golf carts, golf ranges, golf-related goods, services, food and beverages and golf-related merchandise available for purchase at the courses.  In December, 2012, existing agreements between the City and the golf professionals terminated and were not renewed by the City.  Last year, the golf professionals sued the City, alleging that the City’s non-renewal of their agreements violated the WFDL.

In asserting that the WFDL does not apply to the City or its relationship with the golf professionals in its motion to dismiss, the City advanced two principal arguments:

  • A municipality is not a “person” with the definitions contained in Chapter 135.  “Person” is defined under sec. 135.02(6), Wis. Stats., as “natural person, partnership, joint venture, corporation or other entity.”  The City contended that the City is a “municipal corporation” and that “municipal corporation” is not included within the statutory definition of “person.”
  • The City did not grant the golf professionals the right to sell goods or services, the right to distribute goods or services, or the right to use a trade name, trademark, service mark, logotype, advertising or other commercial symbol of the City, as required under the definition of “dealership” under sec. 135.02(3)(a), Wis. Stats.

As to the first argument, the trial court held that “[m]unicipal corporations, such as the City of Madison, form a subset of “corporations.”  If that were not the case, the City would nonetheless fall within the definition of “person” under the WFDL as an “other entity”.”  The trial court disagreed with the City’s contention that case law would require that statutory provisions that are written in general terms, without expressing a clear intention that the statute apply to a governmental entity, should not be imposed on a governmental entity.  The trial court also cited sec. 135.025(1), Wis. Stats., which requires that the WFDL “shall be liberally construed and applied to promote its underlying remedial purposes and policies.” Similarly, the trial court found that the plaintiffs had alleged facts that, if proven to be true or further developed, could be sufficient to show that the City had granted the plaintiffs the right to sell the City’s goods or services or to use the City’s trademark or other symbols.  Thus, the trial court held, dismissal of the golf professionals’ lawsuit was not proper either on these grounds nor based on other arguments advanced by the City in its motion to dismiss.

Both the plaintiffs and defendant have motions for summary judgment pending with the trial court.  If the court does not grant summary judgment to either party, and the parties do not settle their dispute, the lawsuit is scheduled to proceed to a jury trial during the first week of August, 2015.

(Benson et al v. City of Madison, Dane County Circuit Court Case No. 14 CV 180)

Preemption principles applied to dismiss Wisconsin Fair Dealership Law claim

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          In a recent decision of the U.S. District Court for the Eastern District of Wisconsin, the court held that an arbitration panel’s finding that federal securities laws preempt the application of the Wisconsin Fair Dealership Law (WFDL) could be made by the panel “without [panel members] taking leave of their senses.”  The ruling provides an example of another potential avenue for grantors to challenge the application of WFDL when federal law supports termination of the parties’ relationship.

          The petitioner, Renard, was an independent financial advisor who had entered a franchise agreement with Ameriprise Financial Services, Inc. (“Ameriprise”).  Ameriprise alleged that it terminated its agreement with Renard in June, 2011, shortly after determining that Renard had engaged in practices that violated federal securities laws.  Ameriprise then sought to collect the unpaid balance on promissory notes due from Renard; when payment was not forthcoming, Ameriprise filed for arbitration with Financial Industry Regulatory Authority (“FINRA”) Dispute Resolution.  The arbitration panel found Renard liable for damages of approximately $450,000, and dismissed his claims that Ameriprise violated the WFDL by failing to provide notice and an opportunity to cure as required by the WFDL.

          Renard filed suit seeking to vacate the panel’s award, to the extent that it dismissed petitioner’s counterclaims in the arbitration. The scope of the court’s review of the panel’s award, however, was limited.  Under both federal and state law, an arbitration award can be vacated only in specified, limited circumstances. Among the arguments made by Renard was that the arbitrators exceeded their powers by disregarding Wisconsin law in dismissing petitioner’s WFDL claims.

         Ameriprise responded that it had the right to immediately terminate Renard based on his alleged violations of federal securities laws, because federal law preempts any notice requirements of the WFDL and Ameriprise could be liable for Renard’s violations of  federal securities laws.  Renard’s expert testified that Ameriprise was required to comply with WFDL notice requirements “unless … doing so would be in violation of federal statute.”  The court found that based on the evidence and arguments presented, the arbitrators could have agreed with Ameriprise’s interpretation of the WFDL, and thus did not exceed their authority in dismissing the WFDL claims.

(Paul J. Renard v. Ameriprise Financial Services, Case No. 13-CV-555-JPS (E.D. Wis., 3/6/14).)