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The Franchise Memorandum

Federal Court Concludes That Termination of Distribution Agreement Fell Outside of New Jersey Franchise Practices Act and Antitrust Claims
Posted in Antitrust

A federal court in New Jersey has dismissed claims that an ambulance manufacturer violated the New Jersey Franchise Practices Act (“NJFPA”) and state and federal antitrust laws. First Priority Emergency Vehicles, Inc. v. REV Ambulance Grp. Orlando, Inc., 2019 WL 3423571 (July 30, 2019). First Priority became a party to two distributor agreements with the manufacturer, REV, that both required First Priority to use its “best efforts” to meet or exceed sales goals. On June 30, 2017, REV terminated the agreements based on First Priority’s failure to meet those sales goals. First Priority sued, alleging, among other things, that REV’s termination did not comport with the NJFPA and that REV’s exertion of control over the ambulance manufacturing market violated the Sherman Act.

The court dismissed the NJFPA claims because First Priority failed to show that the act applied to First Priority’s relationship with REV. To fall within the NJFPA, a franchisor must grant a license to use its marks and a community of interest must exist between the franchisor and franchisee. Although REV had given First Priority marketing materials, had listed First Priority on its website as an authorized dealer, and had allowed certain of REV’s trademarks to be displayed on First Priority’s headquarters, the court concluded that those facts did not amount to the granting of a “proprietary interest in REV’s trademarks” or show a sufficient “level of corporate entanglement” between REV and First Priority. The court also dismissed First Priority’s antitrust claims based on its failure allege a viable relevant market, which was required for its monopolization and exclusive dealing claims. First Priority alleged that the relevant market at issue was the market for newly manufactured ambulances, but the court rejected this market definition because used ambulances were reasonably interchangeable with new ambulances. Indeed, First Priority actually alleged that used ambulances had flooded the market in 2016 and substantially reduced its ability to sell new ambulances, demonstrating that the narrowly defined market was insufficient as a matter of law.

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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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