The Franchise Memorandum

The Fifth Circuit Court of Appeals affirmed a Texas federal court’s (i) dismissal of a distributor’s fraud claims against an automobile-product manufacturer and (ii) grant of summary judgment in favor of the manufacturer on the distributor’s breach of contract claim. Wesdem, LLC  v. Illinois Tool Works, Inc., 70 F.4th 285 (5th Cir. 2023). Distributor Wesdem alleged that manufacturer Illinois Tool Works (ITW) wrongfully disapproved of Wesdem selling ITW’s products online after initially allowing it to do so. Wesdem contended that dismissal of its fraud claim was improper because it had plausibly alleged that ITW wanted to learn Wesdem's “online strategy” so it could “eventually cut the middleman ... out to capture greater profits.” Wesdem argued that ITW falsely represented at the parties’ initial meeting that, if Wesdem became a distributor of ITW’s products, Wesdem could sell those products through online marketplaces.

The Court of Appeals held that the allegations in the complaint were insufficient to allege that ITW had no intention of performing at the time it made the representation, as would be required to state a promissory fraud claim under Texas law. Merely alleging that ITW made the promise and later failed to perform, the Court concluded, did not suffice. Wesdem further argued that summary judgment on its breach-of-contract claim was improper because there remained material fact disputes as to key terms in the contract. ITW invoked the statute of frauds as an affirmative defense, asserting that the parties' agreement was not in writing, and therefore unenforceable. The Court agreed with ITW and the district court, holding that an email from ITW describing the credit limit to be extended to Wesdem and an attached blank order form were insufficient to establish a quantity term of the contract, which is a material term required to satisfy the statute of frauds.