The Franchise Memorandum

A court has denied a manufacturer's motions for judgment as a matter of law and for a new trial after a jury awarded one of its dealers nearly half a million dollars on his claim that his distribution agreement was constructively terminated, resulting in a breach of the implied covenant of good faith and fair dealing. Tilstra v. Bou-Matic, LLC, 2014 U.S. Dist. LEXIS 131531 (W.D. Wis. Sept. 19, 2014). Although the parties' agreement expressly allowed the manufacturer, Bou-Matic, to alter the territory of its dealer, Tilstra, in its sole discretion, it also required good cause for termination or a substantial change in competitive circumstances. The court held that the jury reasonably concluded that Bou-Matic evaded the spirit of the termination clause by eliminating all of Tilstra's territory without making a showing of good cause. Although Tilstra was still able to use Bou-Matic's trademarks and hold itself out as a Bou-Matic dealer, taking away its territory ended the commercially meaningful aspects of the parties' contractual relationship, the court found.

The court also rejected Bou-Matic's argument that Tilstra's damages must be reduced because the distribution agreement expressly disallowed compensation for goodwill. The court observed that the contract only excluded compensation for goodwill upon proper termination of the dealership agreement—in other words, when and if Bou-Matic provided ninety days' written notice and good cause. The contract said nothing about limitations on damages in cases in which a breach occurs.