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January 24, 1997


The opinion of the court was delivered by: EASTERBROOK

EASTERBROOK, Circuit Judge. Issues and litigants slowly have been winnowed from this case. Chief Judge Aspen dismissed the claims against several defendants and entered summary judgment against plaintiff To-Am Equipment on a counterclaim (for unpaid invoices) filed by defendant Mitsubishi Caterpillar Forklift America (MCFA). To-Am dismissed some additional claims and two additional defendants. The parties resolved the amount due on the counterclaim. One claim, based on the Illinois Franchise Disclosure Act, 815 ILCS 705/1 to 705/44, remained. After the case had been transferred to me, I entered an order restricting the theories of liability To-Am could use. In mid-trial, To-Am dismissed its claim against Robert Gilbride. The jury decided against To-Am and in favor of the other remaining individual defendant, Richard Wagner. To-Am prevailed, however, against MCFA, because the jury concluded that To-Am was a "franchisee." (MCFA conceded that, if To-Am was a franchisee, then its termination was improper.) The jury fixed damages at $ 1,525,000. MCFA now asks for judgment as a matter of law under Fed. R. Civ. P. 50(b), or a new trial unless To-Am accepts a remittitur. For its part, To-Am wants more than $ 500,000 in attorneys' fees, plus costs in addition to those authorized by 28 U.S.C. § 1920.


 To-Am was established to service forklift trucks. Richard Todd, its principal owner, had been a successful forklift salesman at other firms, but he had been unable to open his own dealership for new forklift sales. That changed in 1985, when To-Am became a distributor of Mitsubishi forklifts in a five-county "area of primary responsibility" in northern Illinois and Indiana. Mitsubishi was new to selling in the United States and was struggling to establish its presence in the market. According to testimony at trial, its status as a fringe supplier led MCFA (Mitsubishi's U.S. agent for forklift trucks) to accept distributors with which other manufacturers had been unwilling to deal-To-Am, for example. (Actually MCFA's predecessor signed the contract with To-Am; for the sake of brevity I refer to both corporations as MCFA.) To-Am's sales and service operations slowly grew, though not without reverses, until February 1994, when MCFA terminated To-Am's distributorship. MCFA apparently sought to consolidate its distribution network. It terminated three distributors in northern Illinois and assigned their territories to a single, larger, more established dealer. The contract permitted this step. Either side could terminate, without cause, on 60 days' notice; if MCFA exercised this right, it was required to repurchase the dealer's unsold inventory.

 MCFA fulfilled its contractual obligations. Nonetheless, To-Am insists, the Franchise Disclosure Act prevented MCFA from availing itself of the rights granted by the contract, and entitles it to damages representing the profits it could have earned had it remained a Mitsubishi dealer indefinitely. Termination of a franchisee must be supported by "good cause", 815 ILCS 705/19(a), and contracts at odds with the statutory scheme are ineffectual, 815 ILCS 705/41. To establish that it was a franchisee, To-Am had to demonstrate by a preponderance of evidence that it paid a franchise fee exceeding $ 500 "directly or indirectly for the right to enter into [the] business". 815 ILCS 705/3(14), and that it operated the business pursuant to a marketing plan that MCFA prescribed or suggested. MCFA contends that the evidence presented at trial did not permit the jury to reach either conclusion under a correct interpretation of Illinois law. (A third requirement, that "the operation of the franchisee's business ... [be] substantially associated with the franchisor's trademark," 815 ILCS 705/3(1)(b), is uncontested.)

 1. Before trial began, I ruled that any sums To-Am was required to pay for parts and repair manuals must be treated as franchise fees under the statute, in light of 14 Ill. Admin. Code § 200.105(a), which reads: "Any payment(s) in excess of $ 500 that is required to be paid by a franchisee to the franchisor or an affiliate of the franchisor constitutes a franchise fee unless specifically excluded by Section 3(14) of the Act." The statutory exceptions cover items a dealer purchases for resale, 815 ILCS 705/3(14)(f), but not items that it will use to conduct the business. To-Am did not purchase service and parts manuals for resale. MCFA insists that the regulation is invalid, as inconsistent with the statute, to the extent it counts payments made for articles that are useful in the conduct of the business and are worth the price paid.

 MCFA's argument has logical force. A required purchase at a price exceeding the item's value has the same effect as a cash transfer. A franchisor would be indifferent between receiving a "fee" of $ 1,000 and a "price" of $ 1,001 for a rabbit's foot that cost it $ 1 to supply. So a dealer required to buy a decal for $ 1,000 has paid a franchise fee of $ 1,000. The statute tries to identify required purchases that produce such a transfer, but the resale condition may be a poor proxy. Suppose repair manuals for Mitsubishi forklift trucks were available from independent suppliers (as manuals for many cars and trucks are), and sell for the same price MCFA charges. Then payments for manuals could not be disguised fees whether or not the dealer planned to resell the manuals (and the dealer's ability to obtain the manuals from an independent source would mean that purchase from MCFA was not "required"). See 815 ILCS 705/3(14)(c) (excluding from the definition of a franchise fee "the purchase or agreement to purchase goods for which there is an established market at a bona fide wholesale price"). If MCFA charges for the manuals the same price it would charge in competition, then it cannot be using the manual requirement to collect an implicit fee. This sets up MCFA's argument: for all the evidence reveals, MCFA charged no more than its cost, and the manuals were worth their weight in gold to To-Am.

 MCFA's principal argument--that the price for required purchases is not a fee "for the right to enter into [the] business" if the dealer can use the purchased goods to recoup what it pays for them--does not hang together. That the purchases may be worth the asking price may show that the price is not a disguised "fee"; it has nothing to do with whether the payment is "for the right to enter into [the] business". Moreover, when considering this issue before trial I concluded that MCFA had forfeited any challenge to the validity of the state regulations by ignoring them (despite To-Am's heavy reliance on them) until after I had issued my decision. Until then, it relied almost exclusively on Wright-Moore Corp. v. Ricoh Corp., 908 F.2d 128 (7th Cir. 1990), a case interpreting the franchise law of Indiana (and by relying on cases decided under Wisconsin law). Wright-Moore does not concern the validity of regulations issued under Illinois law. Arguments first raised in a motion for reconsideration, I stated, came too late. I remain of that view, and therefore will apply the regulations as written.

 2. Understood in the light most favorable to the verdict, the evidence shows that To-Am paid $ 1,658.75 for parts and service manuals that MCFA commanded it to possess. The requirement came from the part of the dealership agreement that obliges each dealer to maintain an adequate supply of manuals, so that it can repair the forklift trucks as it promised MFCA it would do. Agreement Art. III.14. Nonetheless, MCFA insists, the purchase of manuals was not "required" for purposes of Illinois law, for two reasons. First, MCFA provided To-Am with one free copy of (almost) every manual as it was issued or updated and deemed one to be sufficient under the contract; second, if To-Am concluded that it needed more, it could have made photocopies or bought the manuals from other dealers, and it was never required to buy from MCFA.

 Richard Todd and two other former Mitsubishi forklift dealers testified that MCFA did not send free copies of every new manual automatically. MCFA says that only the managers of the dealerships parts and service department would know this, and that the testimony of Todd and the other two owners therefore must be discounted. Weighing testimony is, however, for the jury rather than the court. The jury had a basis from which it could reach a reasoned conclusion that To-Am had to purchase some of the new manuals, the testimony of Kenneth Van Hook (MCFA's employee responsible for sending out its new manuals) to the contrary notwithstanding. What is more, the jury also rationally could have concluded that in order to provide good service--which MCFA required every dealer to do--a dealer needed more than one copy of some service manuals. Van Hook testified that in MCFA's view one copy was enough, but he did not explain how this could be so (and did not assert that this view had been conveyed to To-Am before the litigation commenced) other than to say that the manuals matter most for major work, which is done at the service department. Yet To-Am operated a number of vans that visited customers' premises to provide on-site service: it is easier to get a van to a broken forklift than a broken forklift to the dealer. Todd testified that the mechanics in roving vans need service manuals in order to improve the quality of their work. This meant that the jury could find one manual to be insufficient--and anyway manuals could be lost, or become dirty, and need to be replaced.

  Copying manuals, and buying them from other dealers, remained options, but not the kind of options that took the acquisitions outside the scope of the statute and regulations. Copying poses copyright problems. Although MCFA's witnesses testified that they knew that some dealers copied manuals, and did not object, this is some distance from evidence establishing that MCFA told dealers so, or furnished written licenses to copy. None of the manuals contains a disclaimer of copyright, so none was in the public domain; to copy them lawfully, dealers needed the permission of the copyright proprietor. MCFA could have supplied that permission (by language in the manuals themselves, if need be), but the evidence is devoid of evidence that it did so--and failing to enforce one's statutory right to prevent copying cannot be equated with a grant of permission to make copies. As for the possibility that To-Am could have purchased manuals from another dealer: this is legally irrelevant. Suppose MCFA required every dealer to have a Mitsubishi decal on every service van, and listed these decals in its catalog for $ 1,000 apiece. For reasons already given, this $ 1,000 would be an implicit franchise fee. That Dealer A could buy a supply of decals and resell them to dealers B and C would not change the nature of the transaction: so long as MCFA remained the sole source of the decals, each would represent a franchise fee of $ 1,000 from both its and the dealer's perspective. (In the terms of the statute, there cannot be "an established market at a bona fide wholesale price," 815 ILCS 705/3(14)(c), unless there are at least two different original sources.)

 3. Despite all of this, I confess to substantial doubt that To-Am paid a $ 500 franchise fee within the meaning of Illinois law. My reservations have a source different from MCFA's arguments. Suppose MCFA required each of its dealers to pay $ 250 per year for a decal bearing its trademark, the year, and the words "Authorized Dealer." Each payment would be a franchise fee; but would the stream of payments aggregate? In other words, does the statute require a fee of $ 500 over the life of the dealership, or $ 500 up front (or in the first year)? Unless payment comes at the outset of the dealership, how can it satisfy the statutory requirement that the fee be paid "for the right to enter into [the] business"? 815 ILCS 705/3(14). If a dealer starts business in Year I having paid only $ 250 for the decal, in what sense is a fee of $ 500 charged for the right to enter into the business? The dealer can quit at year's end without paying a cent more than $ 250.

 Evidence in this case, even taken in the light most favorable to To-Am, shows that the total paid for service and parts manuals did not exceed $ 500 until several years after the dealership opened its doors. Indeed, it did not exceed even $ 100 before the state legislature increased the qualifying fee from $ 100 to $ 500. Because To-Am did not become a "franchisee" under the first version of the statute, I ruled before trial that it had to qualify under the amended version. It took eight years for To-Am to make $ 1,658.75 in required purchases (and this is To-Am's calculation; MCFA believes that the number is much lower). For about half of its time as a Mitsubishi distributor To-Am was not a "franchisee" even by its own understanding. Suppose a dealer pays $ 10 annually for manuals. Can it really be that this dealer is a mere "distributor" in years 1 to 49, and turns into a "franchisee" in year 5o? That is the implication of To-Am's position, which I find hard to reconcile with the statutory text. Even the possibility that the fee may be charged for the right, not to enter into the business, but to "engage" in the business, § 705/3(l)(c), just poses the question: "engage for how long"? A year is the customary accounting period in tax law; what is the accounting period under the Franchise Disclosure Act?

 Both sides of this litigation have proceeded on the assumption that the $ 500 threshold can be met by payments accumulating over a decade. Parties may litigate such issues as they please; I am not disposed (and likely am not authorized) to enter judgment on a ground MCFA has never urged, and which To-Am has not had occasion to address. The propriety of cumulation has become the law of this case. Cf. Will v. Comprehensive Accounting Corp., 776 F.2d 665, 675 (7th Cir. 1985). So I put doubts aside and conclude that the jury was entitled to find that To-Am was required to, and did, make purchases exceeding $ 500 that constituted an implicit franchise fee.

 4. To-Am also needed to show that it had been "granted the right to engage in a business of offering, selling, or distributing goods or services, under a marketing plan or system prescribed or suggested in substantial part by a franchisor". 815 ILCS 705/3(1)(a). MCFA allows that a jury could properly find that from the beginning it supplied To-Am with assistance and suggestions about advertising, signage, demonstrations of its trucks, and trade show exhibits. But it contends that these elements are insufficiently comprehensive to be a "marketing plan or system" and that it never required To-Am to follow its suggestions or otherwise assume control of the way in which To-Am ran its business and presented itself to the public. MCFA asked me to instruct the jury that "if it did not require To-Am to follow the plan or system, you must find that MCFA did not grant To-Am" a franchise (emphasis added). I declined to give this instruction, and ...

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