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The Franchise Memorandum

No Community of Interest Means No Dealership Under WFDL

In The Dry Dock, LLC v. The Godfrey Conveyor Co., 2010 U.S. Dist. LEXIS 55628 (E.D. Wis. June 7, 2010), the plaintiff, a boat retailer, sued a manufacturer from which it purchased boats, claiming that the boats were defective and needed repairs. The retailer brought claims for breach of contract, breach of warranty, and violation of the Wisconsin Fair Dealership Law (WFDL), seeking consequential damages and reimbursement for the cost of repairs. The retailer claimed that the manufacturer’s failure to honor warranty claims and its removal of the retailer from the “dealer locator” on its Web site amounted to an unlawful termination of its “dealership” in violation of the WFDL.

In moving for summary judgment, the manufacturer argued that: (1) the retailer had failed to follow the manufacturer’s written warranty procedures (which included pre-approval for repairs over $100), (2) the manufacturer’s express warranty excluded consequential damages, and (3) the retailer was not a dealer because there was no “community of interest” between the manufacturer and the retailer, as required under the WFDL. The district court applied Seventh Circuit precedent holding that for a “community of interest” to exist for WFDL purposes, a manufacturer must have such unequal bargaining power over a reseller that the reseller is “over a barrel” and has no functional ability to negotiate with the manufacturer. Here, the retailer had only been selling the manufacturer’s products for 3.5 years, sold other brands in addition to the manufacturer’s, was not charged a franchise fee, was not required to purchase a minimum number of boats or maintain minimum inventory, was not required to advertise the manufacturer’s boats, and its sales of the manufacturer’s products amounted to six percent and two percent of its total revenues in the previous two years. Under these circumstances, no community of interest or “dealership” was found to exist and the WFDL claim was dismissed. The court also dismissed the claim for consequential damages, finding that the manufacturer’s warranty unambiguously disclaimed such damages and that the manufacturer’s required claims procedures were enforceable.

The retailer’s suit was permitted to continue on a separate claim for breach of the implied warranty of merchantability. Under the Uniform Commercial Code, the warranty of merchantability is implied in all contracts for the sale of goods, unless the manufacturer’s express warranty specifically excludes it, which it did not in this case.

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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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