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J.f. Equip. v. Owatonna Manufacturing Co.

OPINION FILED APRIL 22, 1986.

J.F. EQUIPMENT, INC., PLAINTIFF-APPELLEE,

v.

OWATONNA MANUFACTURING COMPANY, DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Winnebago County; the Hon. David F. Smith, Judge, presiding.

JUSTICE STROUSE DELIVERED THE OPINION OF THE COURT:

The plaintiff, a dealer of light construction equipment, sued the manufacturer of the equipment and a competing dealer in a two-count complaint. Count I was for breach of the plaintiff's dealership contract with the manufacturer, and count II was for conspiracy to breach the dealership contract. The competitor settled its claims with plaintiff for $7,500 before trial. The jury found the manufacturer guilty of conspiracy (count II) to breach a contract, but made no finding as to count I. The jury awarded $64,000 compensatory damages and $159,000 punitive damages. The trial court entered judgment on the verdict and, after defendant's post-trial motions were denied, the manufacturer appealed.

The plaintiff, J.F. Equipment, Inc. (J.F.), is an Illinois corporation which is a dealer of light construction equipment. The defendant, Owatonna Manufacturing Company, Inc. (OMC), is a Minnesota corporation which manufactures, among other things, a line of four-wheel-drive end loaders (called Mustangs), which comes in eight or nine different models, ranging in price from $6,000 to $60,000.

Prior to starting J.F., Joseph Fiorenza was vice-president and general manager of Fiorenza Material Handling Company (FMH). Through his efforts with FMH, Fiorenza became a top Clark Manufacturing Company Bobcat line salesman. Bobcat end loaders are virtually identical to Mustangs. FMH was the Bobcat dealer for approximately 3 1/2 years. Bobcat terminated FMH's dealership, due to personality conflicts between FMH's president (Joseph Fiorenza's brother) and Bobcat's territorial sales representative. After losing the Bobcat distributorship, FMH took on OMC's Mustang line in 1977. Due to internal FMH restructuring, Fiorenza was transferred to an inside management position. Because Fiorenza was inside, FMH sales of the OMC line were minimal. Explaining his desire to go into business for himself, Fiorenza negotiated with his brother, and they agreed to trade Fiorenza's 20% ownership in FMH for the OMC inventory in stock at FMH. For his exchange of stock, Fiorenza received $6,000 in parts, one used Bobcat, one used Mustang, and three new Mustangs. FMH agreed to allow J.F. to operate from the premises of FMH, utilizing its parts department and certain personnel.

On July 14, 1980, Joseph Fiorenza, president of J.F. Equipment, Inc., contacted OMC's territorial sales manager, Richard Collins, proposing that J.F. become the Rockford area OMC dealer. Collins was very receptive to the idea, and on August 20, Collins and Fiorenza flew to OMC's Minnesota offices. While preliminary concerns were expressed about Fiorenza's support staff, location and financial strength, OMC's regional sales manager, credit manager and warranty manager approved of Fiorenza's proposal. After leaving Owatonna, Fiorenza and Collins entered into a verbal agreement for Fiorenza to be an OMC dealer in the Rockford area. On September 1, 1980, Collins notified the OMC main office of this contract.

The terms of the contract were disputed by the parties. Fiorenza testified that the contract was for a one-year minimum term wherein he would be the exclusive dealer of the OMC full line for the Rockford area and that the dealership contract could not be terminated at will. It would be automatically renewed annually unless OMC terminated it for cause. Fiorenza noted that a termination for cause could occur through (1) obvious financial default; (2) by failing to adequately market the product; or (3) failing to purchase equipment from OMC. Collins testified that OMC does not grant either exclusive or set term dealerships. OMC's regional sales manager testified that he had no knowledge of an exclusive dealership, but that if one were proposed, the corporation would not have approved it. He further testified that many cities have more than one dealer.

On September 15, 1980, Fiorenza submitted credit applications and received a standard credit agreement from OMC. While this credit agreement was terminable by 30 days' prior written notice, the termination of the credit agreement contained language anticipating it would continue for a one-year term. Fiorenza had already sold one end loader.

While Fiorenza's operation was getting underway, the Eighmy Equipment Company (EEC), a competing distributor of several lines of light and heavy construction equipment, was notified by Clark Manufacturing that it was terminating EEC's Bobcat dealership. EEC had marketed Bobcat equipment in the Rockford, Peoria and Decatur areas. In order to prevent loss of sales and service staff essential to an ongoing construction equipment sales business, Eighmy needed, and determined to get, an OMC dealership as quickly as possible for all three areas.

In October, Eighmy made several telephone calls to OMC's regional sales manager in Minnesota and asked him to consider the possibility of EEC becoming the OMC dealer in Peoria, Rockford and Decatur. The OMC regional manager informed Eighmy that J.F. was the existing dealer in Rockford, but that he would instruct his territorial manager to contact Eighmy. Collins and Eighmy had two or three conversations in October and early November. Eighmy testified that at some point during these discussions the existing Rockford dealership was discussed. Collins acknowledged these conversations and testified that he made it very clear to Eighmy that Rockford had a dealer and that the subject was closed as to an EEC dealership in Rockford.

On November 6, 1980, a contingent of EEC sales persons flew to Minnesota with Collins and Eighmy. It was explained during these conversations that OMC had dealers in Peoria and Decatur who were not performing, but Eighmy was not made aware of any problems in Rockford. From a general business standpoint, it was Eighmy's practice to negotiate for exclusive industrial territory. This meant that while he would not be concerned with dealers of the same manufacturer dealing in farm or agricultural equipment, he would be concerned if OMC had another industrial dealer in his vicinity. Collins also testified that it would be impossible to have two full-line, industrial dealerships in Rockford.

Collins testified that on November 21, 1980, he and Eighmy had a meeting documented on a "dealer call report." A dealer call report is a document prepared by a territorial sales manager to document each visit with the dealer. If there was another call report in this dealer's file, the manager would customarily use the date from the top of the preceding call report for the date of the last call on the current call report. Collins' call report of December 15, 1980, documented the November 21 meeting with Eighmy as the date of his last call. Neither Collins nor OMC could produce that actual call report for November 21, which would indicate what discussions took place on that date.

Two days later, on November 23, Collins met with Fiorenza and informed him that OMC was canceling the J.F. dealership. He wrote a dealer call report documenting the cancellation due to (1) lack of performance; (2) poor market penetration; (3) dilution of sales effort (advertising rebuilt machines of competitors); and (4) prospects for a better performance with a new dealer. To substantiate the first two reasons for canceling the dealership, Collins testified that J.F. had sold only one OMC machine since the beginning of the dealership. Fiorenza testified, on the other hand, that the dealership had been in existence for only 2 1/2 months and that such period of time is insufficient to judge performance or market penetration. This, he stated, was especially true in light of the timing of construction business sales. As his dealership began in September, when the construction industry is at its slowest, it would not be abnormal to have low sales. In light of that, he added that he had sold one new Mustang, one used Mustang, and one used Bobcat and that he had already quoted $200,000 worth of OMC equipment of which 60% to 80% would be sold within the next three months for the spring construction season. Even Eighmy testified that 2 1/2 months would not be sufficient time in which to reach potential customers or judge a dealership's performance.

Collins testified to the third reason for canceling the dealership, stating that he disapproved of J.F. advertising rebuilt Bobcats. He stated that the Mustang name didn't appear prominently in any advertising or on any vehicles that were used in the business. He contended that dealers should not advertise completely rebuilt Bobcats, "like new," with a much lower price than its Mustang equivalent. In his letter notifying Fiorenza of the dealership cancellation, OMC's regional sales manager noted, "I might also add the fact that you have advertised Bobcat loaders for sale in the Rockford area was certainly not considered in good taste as far as we were concerned and this was also considered in making the decision." Fiorenza objected, charging that the claim was false and fabricated. He testified that it was common practice in the industry for dealers to advertise used competitive equipment. When called to the stand, OMC's regional sales manager admitted it would not be unusual for an OMC dealer to advertise used or rebuilt Bobcats. Eighmy also concurred that this was common practice and that from the beginning of his dealership he would advertise rebuilt Bobcats and OMC products on an ongoing basis, and that OMC was aware of this. The record also shows that OMC knew, from J.F.'s inception, that J.F. would be advertising new and used rebuilt Bobcats on an ongoing basis and, in fact, OMC paid for J.F.'s initial announcement which made reference to this.

On November 24 OMC offered the Rockford dealership to EEC. On November 28, Fiorenza received a letter from OMC's regional manager documenting the termination and responded that he did not accept the cancellation and ...


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