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The Franchise Memorandum

Federal Court Grants Summary Judgment on "Substancial Change in Competitive Circumstances" Claim Under Minnesota Statutes

The District of Minnesota recently dismissed a plaintiff’s claims under two Minnesota dealer statutes arising out of terms imposed on the sale of the dealership. Bobcat of Duluth, Inc. v. Clark Equip. Co., 2018 WL 559531 (D. Minn. Jan. 25, 2018). Plaintiff Bobcat of Duluth had been a dealer of Bobcat equipment since 2000, and it also sold other lines of equipment including two Kubota products that compete with Bobcat’s equipment. In 2012, Bobcat implemented a new policy in its dealer agreements prohibiting the sale of products that compete with Bobcat’s lines, but this policy never was reflected specifically in Bobcat of Duluth’s annual dealer agreements. Bobcat of Duluth was not even aware of the policy until it attempted to sell its dual-brand dealership, when it learned that Bobcat’s approval and consent of the sale required the new dealer to adhere to the noncompetition policy from which Bobcat of Duluth had been excluded. Because of this noncompete provision, Bobcat of Duluth had difficulty finding a buyer for its dealership and filed a lawsuit alleging that Bobcat’s policy had imposed unreasonable conditions on the transfer of its dealer agreement, reducing the purchase price by more than $1,000,000.

Bobcat of Duluth argued that Bobcat’s 2012 policy substantially changed the competitive circumstances of its dealership agreement in violation of Minnesota’s Heavy and Utility Equipment Manufacturers and Dealers Act as well as the Minnesota Agricultural Equipment Dealers Act. The court dismissed this claim after concluding that Bobcat of Duluth had not put forward sufficient evidence to show that the policy had diminished its ability to maintain a reasonable long-term profit or stay in business, which is the standard set by the Minnesota Supreme Court for such a claim. Although the dealer statutes did provide that a manufacturer cannot unreasonably withhold consent for a transfer, that provision only relates to whether a substantial change in competitive circumstances was made with or without good cause. Because Bobcat of Duluth did not meet the threshold issue of showing such a substantial change occurred, its statutory claims failed.

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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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