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The Franchise Memorandum

Distributor Is Not a Dealer Under Wisconsin Fair Dealership Law

In Kay Beer Distributing, Inc. v. Energy Brands, Inc., 2009 WL 425821 (E.D. Wis. Feb. 20, 2009), a beverage distributor sued Energy Brands, Inc., alleging violation of the Wisconsin Fair Dealership Law (“WFDL”) and breach of contract. The plaintiff distributor, Kay Beer Distributing, Inc., had been a distributor of Energy Brands’ “Glacéau” line of products, which includes Vitaminwater drinks, but these products  were a very small part of Kay’s business. Kay signed a termination and release agreement ostensibly terminating the distributorship and clearing the way for Energy Brands to establish a larger distributor to cover Kay’s former territory. Despite the apparent termination (the intent and effect of which were in dispute), Kay continued to distribute a small amount of product in a smaller area by buying through the larger distributor. In 2007, Coca-Cola purchased Energy Brands and paid a substantial sum to buy out the larger distributor’s contract. Kay received no portion of the buy-out and filed a lawsuit against Energy Brands, alleging that the termination violated both the WFDL and an alleged oral contract permitting Kay to distribute in its smaller area.

Energy Brands moved for summary judgment on Kay’s WFDL claim. The WFDL expressly applies only to relationships between a “grantor” and a “dealer” where there is a “community of interest” between the grantor and the dealer. Energy Brands asserted that no community of interest existed between it and Kay, because Glacéau represented a very small part of Kay’s business. The court noted that the Wisconsin Supreme Court has distilled the complex community of interest determination into two key “guideposts:” (1) the extent to which the dealer and the grantor have a continuing financial interest in their business relationship; and (2) the interdependence of the dealer and grantor—the degree to which they coordinate activities and share common goals. In interpreting WFDL cases, the Seventh Circuit has developed its own test, assessing the percentage of profits the alleged dealer derives from dealing in the grantor’s goods and the amount of time and money invested by the dealer in the business. If these two factors result in the grantor having the dealer “over a barrel,” such that the dealer is unable to negotiate with the grantor, there is a community of interest. Kay argued that the community of interest question requires a jury trial in all cases. The court disagreed, holding that when all material facts are undisputed, it is the court’s role to determine whether a “community of interest” exists. The district court found that because the Glacéau line amounted to less than one percent of Kay’s sales and profits, Energy Brands did not have Kay “over a barrel” in the relationship. Therefore, Kay was found not to be a dealer entitled to the protections of the WFDL. Energy Brands’ motion for summary judgment on the WFDL claim was granted, although the case proceeded on Kay’s breach of contract 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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