The Franchise Memorandum

A federal court in Tennessee denied a dealer’s motion to dismiss a supplier’s declaratory judgment action because it was unclear whether a CEO’s departure was a “substantial” change in ownership that would establish good cause for nonrenewal. Wirtgen Am. v. Hayden-Murphy Equip., 2023 WL 123499 (M.D. Tenn. Jan. 6, 2023). Since 2010, Minnesota-based Hayden-Murphy has been a dealer of road construction and surface mining equipment supplied by Tennessee-based Wirtgen. When Hayden-Murphy’s CEO and minority owner announced his retirement in 2018, Wirtgen informed the company that it did not consent to this “substantial” change in ownership and control. Wirtgen reiterated this position in correspondence in subsequent years and, in early 2022, informed Hayden-Murphy that it would not renew the distributorship at the end of the year. Wirtgen filed a declaratory judgment action the same month, asking the court to confirm it had a right to not renew the distributor agreement based on contractual language requiring Wirtgen’s consent prior to a “substantial change” in the ownership or control of Hayden-Murphy. Hayden-Murphy moved to dismiss, arguing that Wirtgen lacked the good cause required by Minnesota dealer law, and that even if the change in ownership did constitute good cause, Wirtgen’s four-year wait prior to announcing its intention not to renew waived any right to assert that basis.

The court denied the motion, first concluding that Tennessee law, not Minnesota law, would apply. Because there were few clear, relevant differences between the termination requirements of the Minnesota dealership law and the Tennessee dealership law, the court applied Tennessee law on the basis that no “fundamental policies” of Minnesota would be contravened by the choice of law. In particular, Tennessee’s law had its own good cause requirement, even if it was not clear to what extent that requirement differed from Minnesota’s. As to the merits of Wirtgen’s reason for non-renewal, the court declined to decide the factual question of whether good cause existed or whether Wirtgen’s delay had waived its right not to renew. The court determined that there were factual disputes, which could not be resolved on a motion to dismiss, regarding whether the CEO’s departure constituted a ”substantial” change in ownership or control and whether Wirtgen had taken a sufficiently “absolute” course of action or inaction so as to waive its right to not renew on this basis.