Good cause is the core protection provided by the Wisconsin Fair Dealership Law. In a dealership relationship covered by the WFDL (see our previous blog post that defines a dealership as it pertains to the Wisconsin Fair Dealership Law), the grantor cannot terminate, fail to renew, cancel, or substantially change the competitive circumstances of the relationship without “good cause” (as well as proper notice and an opportunity to cure, which we’ll address in a future post). There are three general types of good cause: definitional, per se, and judicially recognized. Like the community-of-interest standard, good cause presents complex, multifaceted questions.
Definitional Good Cause
Definitional good cause exists where there is: (1) a “failure by a dealer to comply substantially with essential and reasonable requirements imposed upon the dealer by the grantor, which requirements are not discriminatory as compared with requirements imposed on other similarly situated dealers either by their terms or in the manner of their enforcement” or (2) “bad faith by the dealer in carrying out the terms of the dealership.” Wis. Stat. § 135.02(4). The grantor bears the burden of proving that its action is justified by good cause. Wis. Stat. § 135.03.
In the first instance, a grantor is always obligated to provide ninety days’ written notice and a sixty-day opportunity to cure. Wis. Stat. § 135.04. Providing proper notice is critical, because even if the grantor satisfies the good-cause requirement, it may still violate the WFDL by failing to comply with the notice and cure requirements. In the second instance, however, a grantor may not be obligated to provide proper notice and an opportunity to cure if the dealer’s bad-faith conduct is so egregious that reconciliation is impossible.
Per Se Good Cause
The WFDL also recognizes that good cause may exist in the dealer’s nonpayment of sums due and the dealer’s insolvency, bankruptcy, or assignment for the benefit of creditors. Wis. Stat. § 135.04. If the dealer has not timely paid its bills, the grantor must provide only ten days to remedy the default, and, if not corrected, the grantor may terminate at the close of that ten-day period. Id. In the case of insolvency, bankruptcy, or the assignment for the benefit of creditors, the grantor may terminate immediately.
Judicially Recognized Good Cause
Judicially recognized good cause generally refers to systemic change and market withdrawal exceptions. There is no statutory foundation for this type of good cause, but the Seventh Circuit has declared (and state courts have subsequently recognized) that a grantor may have good cause to terminate the dealer or substantially change its competitive conditions if it acts pursuant to an objectively ascertainable need for change that is proportionate to the need and is executed in a non-discriminatory manner. Morley-Murphy Co. v. Zenith Elecs. Corp., 142 F.3d 373, 378 (7th Cir. 1998). When a grantor acts adversely to the dealer pursuant to a legitimate systemic change, it must still comply with the statute’s ninety-day notice and sixty-day cure requirements.
When faced with a change that may affect the parties’ dealership, grantors and dealers alike should first assess whether good cause exists for the proposed change. While some instances of good cause are easy to identify (such as the intentional misappropriation of the grantor’s products or the non-payment of sums), in most instances, good cause is a difficult (and likely disputed) factual issue that requires the advice of experienced counsel to fully tease out and assess.
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