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Bresler's 33 Flavors Franchising Corp. v. Wokosin
Citations: 591 F. Supp. 1533; 1984 U.S. Dist. LEXIS 24292Docket: Civ. A. 83-C-380
Court: District Court, E.D. Wisconsin; August 17, 1984; Federal District Court
Bresler's 33 Flavors Franchising Corp., an Illinois corporation, initiated a declaratory judgment action against Wisconsin residents Donald and Donna Wokosin regarding their franchise agreement for an ice cream shop in Oshkosh, Wisconsin. The court's jurisdiction is based on diversity of citizenship under 28 U.S.C. 1332. Bresler's seeks a ruling that the Wokosins' option to continue their franchise is restricted to the terms of a new franchise agreement. The motion for summary judgment from Bresler's is granted.
The Wokosins entered into a franchise agreement on December 1, 1977, with Ice Cream, Ltd., Bresler's predecessor. Under this agreement, both parties contributed to an advertising fund, and the Wokosins paid a franchise royalty of approximately 5 percent of their gross sales. The agreement prohibited the Wokosins from using unauthorized products and allowed for price adjustments based on Ice Cream, Ltd.'s costs. The franchise could be terminated for noncompliance, with no limit on the time between violations, and the Wokosins had no termination rights. A non-compete clause applied regardless of the termination reason.
Regarding renewal, the agreement allowed the Wokosins to enter into a new franchise agreement if they could extend their lease and were not in default. The original agreement expired on January 30, 1983, but contained the option to renew under specified conditions. The Wokosins operated under a sublease from a different entity, having no direct lease with Ice Cream, Ltd.
The '77 agreement contained a unique renewal provision for Bresler's Wisconsin operations, differing from previous agreements with franchisees, which generally linked franchise duration to lease validity or specified timeframes. Bresler's acquired Ice Cream, Ltd. in June 1981, and in January 1983, requested the Wokosins to adopt a new franchise agreement ('83 agreement), which they refused. The '83 agreement mandates a 1% advertising fund contribution from Bresler's based on the Wokosins' ice cream purchases, and a franchise royalty of either 6% of gross sales or 21% of the wholesale price of ice cream. It allows limited use of non-approved products and ties ice cream prices to Bresler's costs. Franchise termination for the Wokosins can only occur after two noncompliance instances within a year, while they can terminate for cause without the non-compete clause applying.
Both agreements require the Wokosins to maintain their premises per Bresler's specifications. Bresler's requested remodeling, costing approximately $6,000 annually for five years, alongside projected rent and utility increases of $3,000 per year. In 1982, the Wokosins reported gross sales of $86,370 and a net profit of $13,528. Under the '83 agreement, their advertising contribution would rise to $1,985.62, and the franchise fee to $5,182.20, totaling an operational cost increase of $12,745.92, nearly exhausting their net profit. The Wokosins argue that the '83 agreement's conditions would significantly alter their competitive position and assert that the Wisconsin Fair Dealership Law allows them to continue under the '77 agreement.
Bresler's contends that the proposed remodeling of the Wokosins' premises is unnecessary, asserting that the premises are currently in good condition. They argue that the Fair Dealership Law is not applicable as their actions do not constitute a termination or failure to renew the franchise, nor do they substantially alter the competitive landscape for the Wokosins. Bresler's claims there are no genuine material facts in dispute, warranting judgment in their favor as a matter of law. They assert that increases in rent and utility expenses, imposed by parties outside their control, are irrelevant to the current legal issues, and that the '83 agreement does not stipulate such increases.
The crux of the dispute involves the applicability of the Wisconsin Fair Dealership Law, which prohibits grantors from terminating or altering dealership agreements without good cause. Good cause is defined by the law as either the dealer's failure to comply with reasonable requirements or bad faith by the dealer. The Wokosins argue that Bresler's must demonstrate good cause to condition franchise renewal on acceptance of a new agreement, while Bresler's counters that the Wokosins' failure to renew is the issue, maintaining that there has been no substantial change in competitive circumstances.
The limited case law on the Fair Dealership Law primarily addresses its constitutionality and dealership definitions. The law aims to ensure fair treatment of dealers and protect them from grantors with superior bargaining power. The court must first assess whether there has been a termination or failure to renew, and Bresler's asserts that such a situation does not exist. The Wokosins claim Bresler's has refused to allow them to operate under the terms of the '77 agreement, which allows renewal under the current terms used by Bresler's. Bresler's argues they have complied with this provision but the Wokosins are unwilling to renew under those terms.
The '83 agreement does not significantly alter the dealer's competitive position, despite differences in provisions for remodeling, advertising, and franchise fees compared to the '77 agreement. The Wokosins have not substantiated claims that their dealership's competitive circumstances will worsen, particularly their assertion that profits will plummet due to new obligations. Their argument is based on the unfounded assumption that sales volume will not increase from enhanced decorations and advertising. An increase in costs does not automatically lead to reduced profits; such changes may even allow the franchisee to operate more efficiently and potentially expand output. Additionally, the Wokosins have not presented evidence that they cannot set their own retail prices or that competitors would undercut them if their prices were adjusted. The burden of proof lies heavily on the dealers, and although complex, essential information has not been provided. The court emphasizes that American businesses operate in a free market, and any state intervention requires the plaintiff to prove their case. The defendants are treated equally with other Bresler's franchisees. Thus, the court grants the plaintiff's motion for summary judgment. Regarding remodeling, while the Wokosins claim a requirement to remodel exists in the new agreement, Bresler's contends there is no explicit directive. However, Bresler’s acknowledges that both agreements include remodeling obligations, confirming that the Wokosins have been directed to remodel under one of the agreements, although the specific document is not part of the court's records.