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The Franchise Memorandum

Manufacturer Wins Jury Verdict Defeating Antitrust and Other Claims by Terminated Distributor
Posted in Antitrust

Following a nine-day jury trial in the United States District Court for the District of Minnesota, a manufacturer of fireplaces and related products won a jury verdict defeating all counts in a product distribution and antitrust case tried earlier this year. J&M Distrib., Inc. v. Hearth & Home Techs., Inc., No. 13- cv-00072-SRN-TNL (D. Minn. Jan. 23, 2015). The lawsuit, in which Gray Plant Mooty represented the manufacturer, Hearth & Home Technologies, followed the decision of Hearth & Home to terminate its wholesale, two-step distributor in Pennsylvania, Ohio, Maryland, and West Virginia, and to sell direct to several dozen dealers in those areas. The terminated distributor, J&M, alleged antitrust, contract, and tort claims, naming a large Pennsylvania dealer as a co-defendant on the antitrust and tort conspiracy counts. Following termination, J&M went out of business after thirty years as a distributor, and it claimed at trial to have lost its entire business value of $3.5 million, plus other “lost profits.” All told, with potential damages tripled under antitrust law, J&M was seeking more than $10 million plus attorneys’ fees. After eight hours of deliberation, the jury found no antitrust conspiracy, breach of contract, or tortious interference. This provided a complete trial victory for Hearth & Home. (Price discrimination claims had been dismissed by the judge earlier in the case.)

The case was of great importance to all concerned. In addition to avoiding an adverse judgment, Hearth & Home achieved confirmation of its right to terminate wholesale distributors and other intermediaries when it wants to sell directly to dealers or to others down the product distribution chain. Many manufacturing companies struggle with this same desire to improve their competitiveness and profitability by eliminating long-time wholesalers who no longer add sufficient value. Key fact issues in this case included whether statements and documents created an “implied” contract precluding termination except with good cause, and whether Hearth & Home had “conspired” with the large Pittsburgh dealer to eliminate as competitors J&M and some other Pittsburgh-area dealers J&M had supplied.

As reported in Issue 162 of The GPMemorandum, at the same time Hearth & Home sent its termination notice, it commenced a declaratory judgment action so that any litigation would be venued in its headquarters state, Minnesota. That earlier venue battle was won by Hearth & Home, which resulted in the trial being held in Minnesota as opposed to federal court in West Virginia, where J&M filed its own lawsuit.

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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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