Constructive Termination Under the Wisconsin Fair
Dealership Law
By David R. Cross & Daniel M. Janssen
The Wisconsin Fair Dealership Law (WFDL) has been a subject of
controversy in the courts and in the business world for more than 20
years.1 The purpose of the WFDL is to
provide "thousands of small businessmen in Wisconsin" 2 with a type of tenure. 3 The WFDL prohibits a "grantor" of a dealership
from terminating, canceling, failing to renew or substantially changing
the competitive circumstances of an agreement with a dealer absent
statutorily defined good cause, after providing the dealer with written
notice and an opportunity to cure.4
The Seventh Circuit in JPM Inc. v. John Deere
Industrial Equipment Co. confirmed that there truly is an implied
WFDL cause of action for constructive termination. However, the WFDL's
express protections dramatically limit the remedies for a constructive
termination claim.
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A few decisions over the last 10 years have hinted that dealers may
possess a cause of action implied in the WFDL but not found in its text
- a claim for "constructive termination." However, no claim for
constructive termination has ever succeeded. In fact, it appears that no
court has ever addressed an actual claim of constructive termination
until the recent case of JPM Inc. v. John Deere Industrial Equipment
Co.5 The Seventh Circuit's decision in
JPM confirms what earlier decisions had suggested in passing - that
there truly is an implied WFDL cause of action for constructive
termination. But in a stroke of irony, the Seventh Circuit held in JPM
that the express protections of the WFDL dramatically limit the remedies
for a constructive termination claim.
Constructive Termination before JPM
The notion that a claim for constructive termination (or "de facto
termination") might exist under the WFDL is nothing new. Three
decisions before JPM suggested in dicta that the WFDL impliedly
prohibits a grantor from taking actions that destroy the value of the
dealer's business, yet fall short of an actual termination. The
treatment given constructive termination by the courts in these early
decisions is oblique, probably because the courts were not faced with
dealers who actually pled such a claim.
The concept of constructive termination under the WFDL was raised for
the first time by Judge Posner, writing for the Seventh Circuit in
Remus v. Amoco Oil Co. Amoco, the grantor, adopted a uniform
program that reduced the wholesale price of gasoline to its dealers and
at the same time reduced its reimbursement to dealers for credit card
sales. The program was attractive to dealers who sold gasoline primarily
to customers who paid cash. The program hurt Remus, though, because most
of Remus's customers paid by credit card. According to Remus, Amoco's
program "substantially change[d] the competitive circumstances" of its
dealership agreement in violation of section 135.03 of the Wisconsin
Statutes.6
Judge Posner rejected Remus's claim because the WFDL "substantial
change" provision was not intended to prevent grantors from enacting
uniform and systemwide changes in their methods of distribution.7
In the process of dismissing Remus's complaint, however, Judge Posner
discussed in dicta whether the WFDL "substantial change" provision was
itself a remedy for dealers who were the victims of constructive
termination. But in answering the question, he seemed to suggest just
the opposite - that a claim for constructive termination could exist
independently of a claim for "substantial change." Judge Posner noted
that Remus might have had a claim for constructive termination had there
been proof that Amoco "wanted to drive Remus out of business."8 There was no such evidence, and Remus had not
argued constructive termination, so Judge Posner's analysis ended
without a full explanation of the claim.
The concept of constructive termination appeared again briefly in
East Bay Running Store Inc. v. Nike Inc., a Seventh Circuit
decision two years after Remus.9
East Bay, one of Nike's
dealers, sued Nike after it implemented a policy
prohibiting all its dealers from selling the "Nike Air" line of shoes
through catalogs. Nike claimed that the policy was needed to ensure that
the line was marketed effectively through personalized attention to the
sale of each pair of shoes. East Bay sued Nike for violating the WFDL's
prohibition of "substantial change," because more than 90 percent of its
business was based upon mail order catalog sales.10
Judge Kanne, writing for the court, rejected East Bay's claim for the
same reason that Judge Posner dismissed the "substantial change" claim
in Remus. Judge Kanne wrote that the WFDL "substantial change"
language was not meant to punish grantors' nondiscriminatory systemwide
changes. In so holding, he cited Remus (in a footnote) for the
proposition that the WFDL "substantial change" provision might be meant
to protect dealers from constructive termination.11 Judge Kanne did not elaborate on the
constructive termination concept, however, because East Bay did not
"attempt to show that Nike's actions amounted to a 'constructive
termination.'"12
Constructive termination also was mentioned in a Wisconsin Court of
Appeals case, Super Valu Stores Inc. v. D-Mart Food Stores
Inc., but under the name of "de facto" termination.13 Like Remus and East Bay,
Super Valu involved an unsuccessful claim for "substantial
change," so the majority decision did not discuss in any detail the
elements of a claim for de facto termination.
The JPM Decision
The case of JPM v. John Deere Industrial Equipment Co.
presented a court for the first time with a dealer's concrete allegation
that its WFDL-protected dealership had been constructively terminated.
The grantor argued that the WFDL did not recognize claims for
constructive termination, and in the alternative, that there were limits
to the claim that made it unavailable under JPM's facts. The
Seventh Circuit rejected the grantor's first argument, holding that
there was a claim for constructive termination under the WFDL, but
agreed that the dealer could not prove constructive termination under
the facts.![](/SiteCollectionImages/WisconsinLawyer/1997/06/righthand.gif)
In 1990 JPM signed a dealership agreement with John Deere. The
agreement appointed JPM as a dealer of John Deere construction and
forestry equipment in northwest Wisconsin. JPM had purchased the
business from John Deere's former dealer for $1 million. Four years
later, JPM sold the business to another dealer for more than double that
amount - $2,062,705.
After the sale, JPM sued John Deere alleging that John Deere had
constructively terminated its dealership in violation of the WFDL by
forcing JPM to sell and that JPM did so under economic duress. JPM
claimed that John Deere told JPM that it had to sell the business in
three months to a buyer handpicked by John Deere, and that JPM could not
merge with the chosen buyer or solicit bids for the dealership. John
Deere vigorously challenged JPM's story.
John Deere's first line of defense was that there was no such thing
as a cause of action for constructive termination under the WFDL,
outside of a claim for "substantial change," and that no claim for
"substantial change" could arise until John Deere actually altered the
terms of its dealership agreement with JPM. John Deere argued that
threatened future actions did not ripen into a WFDL claim until the
grantor actually took some action harming the dealer.
The Seventh Circuit rejected John Deere's argument, stating simply,
"We assume that constructive termination is a recognized cause of action
under the Wisconsin Fair Dealership Law."14
The court held that economic duress could properly be the basis of a
claim for constructive termination. Writing for the court, Judge Evans
noted that one policy behind the WFDL is to protect dealers against
unfair treatment by inherently powerful grantors, and threatening to
violate the WFDL was simply one of the ways that a grantor could
exercise that superior power.15
However, the Seventh Circuit agreed with John Deere that, because
JPM's claim was based upon termination due to an alleged involuntary
sale, JPM had to prove the elements of economic duress. The Seventh
Circuit looked to Wurtz v. Fleischman, the Wisconsin Supreme
Court decision that sets forth the common law elements of duress.16 Under Wurtz a plaintiff claiming
economic duress must prove, among other things, that the plaintiff had
no adequate legal remedy for the threats at the time they were made.
The Seventh Circuit held that JPM could not meet the Wurtz
test because the WFDL's preliminary injunction provision was an adequate
legal remedy for John Deere's alleged threats. Under the WFDL's liberal
standards for injunctions, JPM could easily have obtained a court order
preventing John Deere from acting on the threats, assuming JPM could
have demonstrated a likelihood of proving that the threats were
made.
The court rejected JPM's argument that it would not be able to prove
the irreparable injury needed to get a preliminary injunction. The court
noted that the WFDL deems any violation by a grantor "an irreparable
injury to the dealer" when a dealer seeks a preliminary
injunction.17 In addition, JPM would have
been able to recover its attorney fees and expenses for obtaining the
injunction.18
JPM also argued that, had it been able to obtain a preliminary
injunction, the injunction would have done JPM no good in the long run
because John Deere had "poisoned" the relationship and would secretly
sabotage its dealership if forced to continue the relationship by court
order.19 The court rejected this argument
because it was premised upon the speculative assumption that John Deere
would deliberately ignore a court order.
Finally, JPM argued that the court's decision improperly limited
JPM's relief for constructive termination solely to a court order. JPM
argued that case law interpreting the WFDL allows a dealer a choice of
remedies under the WFDL between injunctive relief or money
damages.20 The court held that its decision
did not require plaintiffs under the WFDL to always seek injunctive
relief or provide an explanation why an injunction would not work. Nor
was injunctive relief even a preferred remedy under the WFDL. The court
held that to prevail on the theory of constructive termination based
upon duress, a plaintiff must prove the elements of a duress claim. The
only difference between JPM and any other economic duress plaintiff was
that JPM happened to be a WFDL-protected dealer - a fact that provided
JPM with remedies far more powerful than those available to an ordinary
economic duress plaintiff.
Lessons from JPM
On one hand, dealers can take comfort from JPM because it
allows a dealer to take its grantor to task for simply threatening to
violate the WFDL. Under JPM a claim arises under the WFDL even
though a grantor has done nothing to terminate the dealer's agreement or
alter the terms of the dealership agreement.
On the other hand, JPM makes clear that there are important
limitations to any such claim. JPM provides a dealer with only two
viable courses of action when faced with threats amounting to
constructive termination. First, the dealer could wait to see if the
threats become reality. A dealer who is told it must sell its business
or be terminated could dig in its heels and wait to see if it is
terminated. If it is not, the dealer has called the grantor's bluff. But
if the threats become actions, then the dealer has the traditional
remedies under the WFDL for wrongful termination (constructive or
actual), cancellation or nonrenewal of its dealership agreement.
Alternatively, the dealer could seek a court order preliminarily
enjoining the grantor from acting on its threats and from making
additional threats. The dealer could recover its attorney fees if the
court issues an injunction.
A dealer should not follow the third possible course of action -
succumbing to the wishes of the grantor, then suing for money damages
under the WFDL. If it does, the dealer would not pass the Wurtz test.
When the dealer complies with the wishes of the grantor, in the face of
a clearly adequate WFDL remedy, a court will presume that the dealer
made a voluntary choice to follow the grantor's dictates.
![](/SiteCollectionImages/WisconsinLawyer/1997/06/cross.gif)
David Cross
![](/SiteCollectionImages/WisconsinLawyer/1997/06/jannsen.gif)
Daniel Janssen
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David R. Cross, Chicago 1980, and Daniel M. Janssen, Iowa 1993, are
trial lawyers with the Milwaukee office of Quarles & Brady. Their
practice includes handling dealer terminations and other product
marketing and distribution matters. Cross and Janssen represented John
Deere Industrial Equipment Co. in JPM Inc. v. John Deere Indus.
Equip. Co.
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Grantors should learn from the JPM decision to be careful
when persuading their dealers to take desired actions. The WFDL does not
prohibit grantors from trying to convince their dealers to do things
that grantors believe are in the best interest of selling product. This
could include anything from remodeling showrooms, to increasing sales
staff, to requiring the dealer to spend additional money on advertising.
But grantors should be wary of informing their dealers what will happen
if the dealers do not comply. Grantors should take care not to threaten
to terminate a dealership agreement or threaten to change the terms of a
dealership agreement in a way that harms the dealer. Should this occur,
the dealer may have a right to obtain a court order preventing the
grantor from acting on its threats.
Conclusion
After JPM there is compelling authority for the argument
that an implied claim of constructive termination exists under the WFDL,
at least where a grantor threatens to terminate its dealer for failing
to follow the grantor's orders. The WFDL provides strong protection for
a dealer facing such economic duress in the form of a preliminary
injunction and the recovery of the dealer's attorney fees. But dealers
who choose not to seek a preliminary injunction cannot later claim that
they acted under duress. JPM makes clear that the WFDL is a
remedy that is available to stop a grantor from acting on threats, and
it must be used to stop the threats or the dealer may lose its WFDL
claim.
Endnotes
1 Wis. Stat. Ch. 135.
2 Foerster Inc. v. Atlas Metal
Parts Co., 105 Wis. 2d 17, 24, 313 N.W.2d 60, 63 (1981), quoting
Press Release, Office of Governor, April 6, 1973.
3 Remus v. Amoco Oil Co.,
794 F.2d 1238, 1240 (7th Cir. 1986).
4 Wis. Stat.§§ 135.03 and
135.04.
5 JPM Inc. v. John Deere Indus.
Equip. Co., 934 F. Supp. 1043 (W.D. Wis. 1995), affirmed
94 F.3d 270 (7th Cir. 1996).
6 Remus, 794 F.2d at
1240.
7 Id. at 1241.
8 Id.
9 East Bay Running Store Inc.
v. Nike Inc., 890 F.2d 996 (7th Cir. 1989).
10 Id. at 998.
11 Id. at 1000, n.6.
12 Id.
13 Super Valu Stores Inc. v.
D-Mart Food Stores Inc., 146 Wis. 2d 568, 431 N.W.2d 721 (Ct. App.
1988).
14 JPM, 94 F.3d at
272.
15 Id.
16 Wurtz v. Fleischman,
97 Wis. 2d 100, 293 N.W.2d 155 (1980).
17 JPM, 94 F.3d at 273,
quoting Wis. Stat. §135.065.
18 Wis. Stat. §135.06.
19JPM, 94 F.3d at
273.
20 See Frieburg Farm Equip.
Inc. v. Van Dale Inc., 978 F.2d 395 (7th Cir. 1992).
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