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Affidavit From Dealership's President Could Not Establish Applicability of Connecticut Franchise Act

The United States Court of Appeals for the Seventh Circuit affirmed summary judgment last month in favor of a supplier and its replacement distributor in an interesting case brought by a terminated distributor under the Connecticut Franchise Act. Echo, Inc. v. Timberland Machines & Irrig., Inc., 2011 U.S. App. LEXIS 21502 (Oct. 25, 2011). After Echo terminated its dealer, Timberland Machines & Irrigation Equipment (TMI), Echo filed suit to collect past amounts due. TMI brought a counterclaim for violation of the Connecticut Franchise Act and brought a third-party complaint against LEPCO, the distributor that took over TMI’s former territory. The principal issue on appeal was whether an affidavit from TMI’s president could properly establish that TMI came under the Connecticut statute’s purview. To qualify as a “franchise” in Connecticut, the operation of a “franchisee’s” business must be “substantially associated” with a “franchisor’s” trademark, service mark, trade name, logotype, advertising, or other commercial symbol. Courts have construed the “substantially associated” language to mean that a franchise exists only where at least half of the plaintiff’s business results from its relationship with the defendant. 

In support of its summary judgment motion, Echo submitted sales and gross profit figures demonstrating that TMI did less than 50 percent of its business with Echo. The affidavit from TMI’s president sought to discredit those figures. Although the Seventh Circuit rejected the lower court’s conclusion that, as a non-accountant, the president could not opine on what amounts should properly be considered in a gross sales analysis, it nonetheless held that a critical portion of the president’s analysis was not plausible and therefore did not salvage TMI’s franchise law claim. The court also affirmed the decision to strike portions of the affidavit in which the president asserted that a particular unprofitable division’s data should be excluded from the gross profits calculation, because those assertions “rested on nothing more than…say-so rather than a statistical analysis.” Finally, the appeals court rejected TMI’s argument that the fact that it went out of business alone established the existence of the requisite “substantial association” between the franchisee and the franchisor’s name and marks that is required for a Connecticut Franchise Act claim.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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