The Franchise Memorandum

Cole’s Tractor & Equipment, Inc. was both a dealer and distributor for Homier Distributing Company, Inc., which sells and distributes Farm Pro tractors, implements, tools, small engines, and related products. Homier sent a notice of termination to Cole due to Cole’s alleged failure to actively develop its territory and its severely declining sales performance.The notice specified that Cole had not, however, lost its “status as a dealer of Homier Farm Pro product lines.” Cole sued Homier in federal court, alleging that Homier had impermissibly contacted the dealerships to which Cole sold Homier products and asked them to buy directly from Homier. Cole v. Homier Distrib. Co., Inc., 2007 WL 4233636 (E.D. Mo. Nov. 28, 2007)

The United States District Court for the Eastern District of Missouri granted in part and denied in part manufacturer Homier’s motion to dismiss the claims. The court dismissed Cole’s claim that Homier tortiously interfered with Cole’s relationships with its dealers because “[Cole] only established the dealerships in response to their Agreement with [Homier]. [Cole] did not have a preexisting relationship with any of these dealerships, which courts require a distributor to have with a buyer before a tortious interference claim can go forward against the distributor’s supplier.” The court also dismissed the fraud claim because Cole had not alleged any false representations in support of the claim.

The court allowed Cole to proceed with its claim under the Missouri Merchandising Practices Act, however. The MMPA requires at least 90 days advance written notice to cancel, terminate, or fail to renew a “franchise,” which the Act defines as “a written or oral agreement for a definite or indefinite period in which a person grants to another person a license to use a trade name, trademark, service mark, or related characteristic, and in which there is a community interest in the marketing of goods or services at wholesale, retail, by lease, agreement, or otherwise”. Homier did not argue that its relationship with Cole was not a “franchise” under the Act.  Instead, it claimed that the Act did not apply because it does not create a claim for the “constructive termination” that Cole alleged. The court disagreed, citing Eighth Circuit precedent holding that a franchisor cannot “in effect terminate” the franchise during the 90-day notice period because to do so would render the Act meaningless. Cole’s pleadings alleged that Homier effectively terminated its franchise before the 90-day period ran by contacting its dealers directly and by no longer giving Cole sales leads. The court found that those allegations, if true, would establish an MMPA violation.