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Faxon Sales, Inc. v. U-Line Corp.

United States District Court, E.D. Wisconsin

October 31, 2017

FAXON SALES, INC., Plaintiff,


          J. P. Stadtmueller U.S. District Judge

         Plaintiff Faxon Sales Inc. (“Faxon”) was formerly a distributor of refrigerators and ice makers manufactured by Defendant U-Line Corporation (“U-Line”). In mid-2016, U-Line elected to terminate the parties' relationship as provided in the terms of their distributor agreement. Faxon claims that this termination, made without good cause, amounted to a violation of the franchisee protection laws of several northeastern States. Faxon's theory in this case is that despite express disavowals in the contract of a franchiser-franchisee relationship, the parties entered into such a relationship accidentally. It is this accidental franchise relationship which forms the basis for Faxon's claims.

         U-Line has filed a motion to dismiss, arguing that the claims are without merit and that the suit is untimely pursuant to the contract, which provides a one-year statute of limitations for actions arising from it. For the reasons stated below, the Court agrees with U-Line that Faxon's action is time-barred in this Court.

         1. LEGAL STANDARD

         Federal Rule of Civil Procedure 12(b)(6) provides for dismissal of complaints which fail to state a viable claim for relief. Fed.R.Civ.P. 12(b)(6). In reviewing the complaint, the Court is required to “accept as true all of the well-pleaded facts in the complaint and draw all reasonable inferences in favor of the plaintiff.” Kubiak v. City of Chicago, 810 F.3d 476, 480 (7th Cir. 2016) (citation omitted). The statute of limitations, an affirmative defense, cannot be resolved via a motion to dismiss unless the allegations themselves demonstrate that the claim is time-barred. See U.S. Gypsum Co. v. Ind. Gas Co., Inc., 350 F.3d 623, 626 (7th Cir. 2003); Walker v. Thompson, 288 F.3d 1005, 1009 (7th Cir. 2002).

         2. RELEVANT FACTS

         Faxon is a Connecticut corporation that operates in the northeastern United States. U-Line is based in Milwaukee. The two companies first encountered each other in the early 1990s, when Faxon took over as a distributor of U-Line refrigerators and ice makers from its predecessor, Appliance Distributors of Ct, Inc. (“ADC”).

         Three brothers of the O'Brien family owned ADC, which has been dissolved, and they continue to own and operate Faxon. Faxon had two major divisions, one supplying plumbing products and the other distributing appliances, including U-Line's products. By the end of the parties' relationship in 2016, eighty percent of Faxon's appliance-distribution sales were generated from selling U-Line products.

         Faxon and U-Line entered into a distributor contract granting Faxon an exclusive right to distribute U-Line products in several areas in the northeastern United States. The most recent iteration of this agreement was executed in 2014. [1] In the contract, the parties agreed that either could terminate the relationship without cause on thirty days' notice. (Docket #20-1 ¶¶ 5-6). They further agreed that any disputes “arising out of or relating to this Agreement, or any other aspect of the parties' relationship, shall be commenced no later than one (1) year following the date any such claim arises.” Id. ¶ 7(d). Finally, the parties agreed that “[n]o franchise relationship is created by the entering into or performance of this Agreement, ” nor would the parties be “joint ventures or partners, ” nor would one act as “the agent, employee or fiduciary of the other.” Id. ¶ 20(e).

         The parties coexisted amicably for many decades, but things changed suddenly in 2016. U-Line notified Faxon by letter dated May 30, 2016 that it elected to terminate its relationship with Faxon effective June 25, 2016. In the letter, U-Line stated that “any and all relationships between [U-Line] and [Faxon] shall terminate” as of June 25, 2016, including the relationship “as set forth in their Distributor Agreements.” (Docket #20-2 at 1). The letter gave no reason for the termination, and U-Line has never contended that the termination was for cause. The termination went forward as indicated in the letter, and the loss of U-Line products has devastated Faxon's appliance-distribution division. Furthermore, on June 7, 2016, Faxon learned in response to an email it sent to U-Line that U-Line would not repurchase any of its inventory from Faxon. (Docket #20-3).

         Faxon filed this action on June 22, 2017, which is more than a year from the date of the termination letter and June 7, 2016 email, but within a year of the effective date of the termination. In the amended complaint, Faxon does not assert any breach of the parties' contract. Rather, it asserts that U-Line violated the following laws by its without-cause termination and its refusal to repurchase inventory: (1) the Connecticut Franchise Act (“CFA”), Conn. Gen. Stat. § 42-133 et seq.; (2) the Connecticut Unfair Trade Practices Act (“CUPTA”), Conn. Gen. Stat. § 42-110a et seq.; (3) the Rhode Island Fair Dealership Act (“RIFDA”), 6 R.I. Gen. Laws § 60-50-1 et seq.; (4) the New York Unfair Trade Practices Act (“NYUTPA”), N.Y. G.B.L. § 349; (5) the Massachusetts Consumer Protection Act (“MCPA”), Mass. Gen. Laws ch. 93A, § 1 et seq.; and (6) the New Hampshire Consumer Protection Act (“NHCPA”), N.H. Rev. Stat § 358-A:1 et seq.

         Among other requirements, the CFA and RIFDA prohibit a franchiser from terminating a franchise relationship without good cause and impose notice and inventory repurchasing obligations on any attempted termination. Conn. Gen. Stat. § 42-133f; 6 R.I. Gen. Laws § 6-50-4(a). The CUPTA prohibits unfair or deceptive business practices, and a claim under this statute can be premised on an underlying CFA violation. Conn. Gen. Stat. § 42-110b; Bentley v. Greensky Trade Credit, LLC, 156 F.Supp.3d 274, 288-89 (D. Conn. 2015). Similarly, the NYUTPA, MCPA, and NHCPA broadly proscribe deceptive and unfair trade practices. N.Y. G.B.L. § 349; Mass. Gen. Laws ch. 93A, § 2(a); N.H. Rev. Stat. § 358-A:2.

         3. ANALYSIS

         3.1 Wisconsin's Borrowing Statute

         The Court finds that this action is untimely. To reach that conclusion, the Court must answer a series of questions. The first and easiest question is: whose law should apply to the statute-of-limitations analysis? The Supreme Court has directed district courts exercising diversity jurisdiction-as this Court does in this case-to apply the choice-of-law rules of the states in which they sit. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Thus, this Court must apply Wisconsin's choice-of-law rules to decide whose statute of limitations applies. McMahon v. Pa. Life Ins. Co., 891 F.2d 1251, 1257 (7th Cir. 1989). [2]

         Wisconsin, like many states, has enacted a special choice-of-law rule for potential conflicts between state statutes of limitation. It is called a “borrowing statute, ” and it is found at Wis.Stat. § 893.07. The statute provides:

(1) If an action is brought in this state on a foreign cause of action and the foreign period of limitation which applies has expired, no ...

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