Autobody Jobbers Warehouse, Inc. v. Minnesota Mining and Manufacturing Company

99-1670 (U.S. Dist. Ct. D. N.J. 1999) (Unpublished)
  • Opinion Date: August 5, 1999

CONTRACTS; FORUM SELECTION—New Jersey’s compelling policy interest in protecting franchises overrides and supplants a contract’s statement that the relationship between the parties is not one of franchisor and franchisee and its forum selection provision.

A contract between a manufacturer and a wholesale distributor required the distributor to “use its best efforts to promote, sell, use, advertise and otherwise maximize [the manufacturer’s] products.” The distributor had the right to use the manufacturer’s trademarks and logos during the term of the agreement in connection with its effort to sell the manufacturer’s products. It further had the right to refer to itself as an authorized distributor of the manufacturer although it was not prohibited from selling competing supplier’s products. The contract specified that it established a vendor-vendee relationship between the manufacturer and the distributor, stating that the distributor “is not an agent or franchisee of” the manufacturer. Minnesota law was to govern any disputes. Pursuant to the terms of the contract, the manufacturer terminated the relationship. The distributor argued that the termination violated the New Jersey Franchise Practices Act and that it breached an agreement between the manufacturer and a trade association, wherein members of the trade association were to serve as distributors for the manufacturer. The Act defines a franchise as: “a written agreement . , in which a person grants ... a license to use a trade name, . , and in which there is a community of interest in the marketing of goods or services… .” The Act applies only to a franchisee which is required to establish or does maintain a place of business in New Jersey, where gross sales between a franchisor and franchisee exceed $35,000 for the twelve months preceding the institution of suit pursuant to the Act, and where more than 20 percent of the franchisee’s gross sales are intended to be or are derived from the franchise. The Court assumed that the distributor’s complaint satisfied all requirements of the Act. The manufacturer argued that the contract expressly stated that the agreement was not a franchise agreement. Unfortunately for the manufacturer, the Act altered the common law rule of freedom of contract. New Jersey’s compelling policy interest in protecting its franchisees overrides and supplants the parties’ freedom of contract. Accordingly, where the statutory definition of a franchise is met, the parties’ description of their relationship does not govern. The manufacturer also argued that it did not grant the distributor a license within the meaning of the Act. It asserted that the distributor neither conducted its business under the manufacturer’s trademark or name nor showed the type of “merger of identity” required under the Act. The Court refused to adjudicate whether or not this was true because on this motion to dismiss the Court was required to accept the allegations in the distributor’s complaint as true. Consequently, the distributor was entitled to proceed to prove the truth of its allegations and, if it was successful, then the New Jersey Franchise Practices Act would be applicable. This was true notwithstanding that the contract called for the application of Minnesota law because New Jersey’s policy considerations were strong enough to override that choice of law. New Jersey Law was also applied to the claim that the distributor was the intended beneficiary of the manufacturer’s agreement with the trade association, and, although the Court would not proceed to decide that issue until it was presented with additional facts, it did make some observations. “New Jersey courts have been hesitant to imply third party beneficiary obligation[s] unless the parties explicitly indicate that (1) the claimant is an intended beneficiary of the proposed arrangement and (2) that the claimant will have a direct claim under the contract.” Further, “[a] the third party who merely stands to benefit from a contract is no more than an incidental beneficiary who incurs no contractual right to enforce the contract.” In this case, the distributor’s complaint was devoid of an allegation that there was a final agreement or contract between the manufacturer and the trade association. Nonetheless, the Court granted the distributor leave to amend its complaint so this issue could be fully aired.