Distributor, Manufacturer May Share "Community of Interest"

A "community of interest" under the meaning of the Wisconsin Fair Dealership Law (WFDL) could have existed between a Wisconsin toy distributor and a French manufacturer, the federal district court in Milwaukee has decided. The distributor raised several genuine issues of material fact as to whether a "community of interest" existed on the manufacturer's motion for summary judgment on the distributor's WFDL claims. Thus, the motion was denied and the dispute would proceed to trial.

In 2001, the distributor became the manufacturer's exclusive toy distributor for the United States. The manufacturer unilaterally terminated the distribution relationship in 2006, and the distributor brought suit. The distributor alleged that the manufacturer failed to comply with the notice and "good cause" provisions of the WFDL, and failed to repurchase all of the distributor's inventory of the manufacturer's toys at the fair wholesale market value. The manufacturer argued that the distributor was not entitled to the protections of the WFDL because, among other reasons, there was no "community of interest" between the parties.

There was a genuine issue of material fact as to whether the relationship was the type of intertwined dependent relationship the WFDL was designed to protect, the court ruled. The agreement imposed substantial obligations on the distributor to buy, sell, and promote the manufacturer's products. The agreement specified minimum purchase quotas and minimum sales, the court noted. The distributor was required to maintain appropriate inventory levels and was not allowed to distribute toys that competed against the manufacturer's toys. However, the distributor could sell its own brand of toys.

The court also concluded that the distributor raised a genuine issue of fact as to whether the percentage of time or revenue the distributor devoted to the manufacturer's products constituted a community of interest. The percentage of gross proceeds or profits the alleged dealer derived from the alleged grantor's products or services and the distributor contended that nearly 21% of its entire business was derived from sales of the manufacturer's products. In 2001, those sales accounted for 6.7% of the distributor's total sales, increasing to 16.5% in 2002, 26.2% in 2003, 32.1% in 2004, and 37.7% in 2005, the court observed. However, the manufacturer looked to the sales of its products in Wisconsin, not nationwide. Nevertheless, for its community of interest analysis the focus should be on the distributor's overall nationwide sales, according to the court. The distributor was granted an exclusive territory that encompassed the entire United States and whether the distributor's damages would be limited to those resulting from its sales of the manufacturer's products in Wisconsin was left for another day. On balance, the distributor's sales of the manufacturer's products accounted for over 20% of its business and that weighed slightly in favor of finding a community of interest.

The fact that the distributor had the exclusive right to sell the manufacturer's Erector brand of toys in the United States weighed heavily in favor of finding a community of interest. The distributor used the manufacturer's brand name as part of its efforts to sell the products but it did not use the name on its exterior signage or on its vehicles. Such use appeared to be de minimus and the facet did not satisfy the WFDL, the court held. The parties contested whether or not the distributor was forced to purchase undesirable product that was ill-liquid. The distributor's warehouse, which was rental property, was not devoted exclusively to the manufacturer's products and was adaptable to other uses upon termination of the parties' agreement. The distributor raised a genuine issue of material fact regarding its investment in inventory but not in physical facilities or goodwill.

The distributor raised a genuine issue of material fact as to whether the amount of time that its personnel devoted to the manufacturer helped to establish a community of interest. The distributor had one employee who worked solely on the manufacturer's products and contended that every one of its employees worked in furtherance of sales of the manufacturer's products. The distributor alleged that it spent $150,000 annually to present the products at a toy fair, $80,000 annually to lease a showroom at a toy fair, and $85,000 to $90,000 annually in marketing expenses, raising an issue of fact about whether its expenditures on advertising and promotion supported a community of interest. Finally, the distributor had one dedicated employee who dealt with customer complaints related to the manufacturer's products, such as returns and warranty issues, and raised a genuine issue of material fact as to whether the supplementary services it provided favored a finding of a community of interest.

Considering all of the circumstances in a light most favorable to the distributor, while it was not exclusively dependent upon the manufacturer, the relationship and the resultant revenues were significant to its business, the court decided. The distributor contended that the termination caused such a significant impact on its business that the business collapsed, in other words, the distributor alleged that the manufacturer had it "over a barrel." However, the reason for the distributor's ultimate demise was contested. Thus, the case was allowed to proceed to trial.