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Hammil v. Rickel Manufacturing Corp.

decided: October 11, 1983.


Appeal from the United States District Court for the Western District of Wisconsin. No. 79-C-77 W.D. -- Robert W. Warren, Judge.

Cummings, Chief Judge, Eschbach, Circuit Judge, and Neaher, Senior District Judge.*fn*

Author: Cummings

CUMMINGS, Chief Judge.

On January 9, 1979, Charles H. Hammil, doing business as Hammil Equipment Company (HEC), and Browntown Mill, Inc., a Wisconsin corporation located in Milton, Wisconsin, sued Rickel Manufacturing Corporation (RMC), a Kansas corporation located in Kansas City, Missouri.*fn1 Defendant and HEC, a division of Browntown Mill, Inc., entered into a dealership agreement on June 1, 1976, entitling that division to distribute defendant's goods. After one year either party was entitled to terminate the agreement on 30 days' notice. On October 14, 1977, the defendant terminated the dealership, effective February 1, 1978. The plaintiffs charged that the termination was without good cause and that the notice of termination was defective in that it was unconditional and failed to provide a time period within which they could rectify any claimed deficiency. They sought $1,000,000 in damages plus costs and attorneys' fees and requested a jury trial. Defendant's answer asserted that (1) the contract was properly terminated under Kansas law, which was the law specified in the contract, (2) plaintiffs failed to mitigate damages, (3) plaintiffs defaulted in payments under the contract, (4) plaintiffs failed to submit appropriate financial documents and (5) plaintiffs failed to pursue the promotion and sale of defendant's products with their best efforts.

In an amended answer, defendant asserted the following additional affirmative defenses: (1) failure to take action called for in the notice of termination and to comply with the contract, thus estopping plaintiffs from suit, (2) insolvency*fn2 at time of notice, which, under the Wisconsin Fair Dealership Law (WFDL), estopped plaintiffs from proceeding, (3) bar of one-year statute of limitations, (4) waiver and (5) failure to state a claim. Next defendant moved for partial summary judgment, urging that Kansas law was applicable rather than the WFDL. Subsequently defendant moved for judgment on the pleadings and for summary judgment (1) because of the one-year statute of limitations contained in Wisconsin Statute § 893.93(3)(b) and (2) because the dealership agreement gave defendant an immediate right to terminate without liability therefor.

The district court handed down four memoranda and orders. In the first, the court ruled that Wisconsin law governed this diversity action because the WFDL represented fundamental policy of that state "to protect dealers from the unjust termination of their dealership agreements" (No. 79-C-77 at 6 (W.D. Wis. Sept. 10, 1980)).

In its second decision, the court granted defendant's motion for summary judgment with respect to plaintiff's second claim (which arose under Wis. Stat. § 135.04 (1979) setting forth the notice requirements for terminating or changing a dealership) on the ground that a statutory violation occurs when a defective notice is sent to a dealer, so that the one-year statute of limitations contained in Wisconsin Statutes § 893.93(3)(b) barred that cause of action. However, as to plaintiffs' claim under § 135.03 for termination without good cause, the court held no violation occurred under § 135.03 until termination so that the cause of action under that provision was timely and had to be tried.

In his third decision and order, which was a pre-trial ruling, Judge Warren permitted defendant to introduce good cause evidence regarding plaintiffs' insolvency despite no reference thereto in the termination notice, on the ground that the statutory notice requirements specifically exempted a reference to dealer insolvency.

The court's final decision and order were handed down after the jury trial on the § 135.03 claim resulted in a special verdict that defendant had good cause for terminating the dealership. The court held that adequate evidence of plaintiff Hammil's precarious financial situation permitted the jury to infer that he was insolvent, in bad faith, and in noncompliance with "reasonable and nondiscriminatory requirements of the dealership agreement" (No. 79-C-77 at 3 (W.D. Wis. Jan. 17, 1983)), any of which, he said, would constitute good cause for termination under Section 135.03. Judge Warren also held that under the WFDL, defendant need only prove good cause for termination by a preponderance of the evidence. He concluded that issues of insolvency and financial status were material to the issue of good cause for termination and that the evidence of plaintiffs' financial dealings enabled the jury to consider the issue of their bad faith as well. Therefore, plaintiffs' motions for judgment n.o.v. and for a new trial were denied. Plaintiffs no longer challenge defendant's good cause for termination.

On appeal, plaintiffs argue that the district court erred in granting defendant's motion for summary judgment on the claim arising under § 135.04. That Section provides as follows:

135.04 Notice of termination or change in dealership. Except as provided in this section, a grantor shall provide a dealer at least 90 days' prior written notice of termination, cancellation, nonrenewal or substantial change in competitive circumstances. The notice shall state all the reasons for termination, cancellation, nonrenewal or substantial change in competitive circumstances and shall provide that the dealer has 60 days in which to rectify any claimed deficiency. If the deficiency is rectified within 60 days the notice shall be void. The notice provisions of this section shall not apply if the reason for termination, cancellation or nonrenewal is insolvency, the occurrence of an assignment for the benefit of creditors or bankruptcy. If the reason for termination, cancellation, nonrenewal or substantial change in competitive circumstances is nonpayment of sums due under the dealership, the dealer shall be entitled to written notice of such default, and shall have 10 days in which to remedy such default from the date of delivery or posting of such notice.

Another provision of the WFDL covers damage actions and provides as follows:

135.06 Action for damages and injunctive relief. If any grantor violates this chapter, a dealer may bring an action against such grantor in any court of competent jurisdiction for damages sustained by him as a consequence of the grantor's violation, together with the actual costs of the action, including reasonable actual attorney fees, and the dealer also may be granted injunctive relief against unlawful termination, cancellation, nonrenewal or substantial change of competitive circumstances.

At the time this lawsuit was filed in 1979, § 893.14 together with § 893.22 of the Wisconsin Statutes provided that an action under the WFDL must be commenced within one year "after the cause of action has accrued." Their successor, § 893.93(3)(b), became effective on July 1, 1980, and provides that an action under the WFDL ...

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