Source: https://www.goldlawgroup.com/franchise-laws/missouri/
Timestamp: 2019-04-21 06:28:14+00:00

Document:
Missouri has a short franchise relationship law known as the Missouri Franchise Act (“MFA”). Section 407.405 of the MFA involves cancellation of a franchise without notice. Specifically, the MFA prohibits a franchisor from cancelling or otherwise terminating a franchise agreement without notifying the franchisor of the cancellation, termination or failure to renew in writing at least ninety days in advance of the cancellation, termination or failure to renew. The provision creates an exception to the 90 days’ notice requirement where there is criminal misconduct, fraud, abandonment, bankruptcy or insolvency of the franchisee, or the giving of a no account or insufficient funds check is the basis or grounds for cancellation or termination.
Section 407.410 discusses cancellation of a franchise without the requirement of notice. Under this section, the MFA directs that any contract made in violation of section 407.405 is void and an action under this section may be brought in court. Also, this section of the MFA states that a franchisee suffering damage as a result of the failure to give notice as required of the cancellation or termination of a franchise, may institute legal proceedings, in which if the franchisee prevails, it may be awarded a recovery of damages sustained to include loss of goodwill, costs of the suit, and any equitable relief that the court deems proper.
Maude v. General Motors Corp., United States District Court, W.D. Missouri, Western Division, January 22, 1986, 626 F.Supp. 1081 (“GM's purported cancellation of the Maude dealership relies on his failure to operate for seven consecutive business days, in violation of Article IV(A)(2)(i) of the Dealer Agreement. Maude contends, however, that nine months' notice should have been given, under Article IV(A)(3), requiring such extended notice when there is failure to provide “adequate premises.” Because the adequacy of premises is not in question, but rather the failure to provide any place to operate the business, it appears that notice was given under the correct paragraph of the Dealer Agreement.1 On the contract issue, therefore, GM prevails. The second major issue, as phrased in my order setting hearing, was “whether the ninety day statutory requirement under § 407.405, RSMo, is superseded by deregulation as to termination notice periods under § 407.825 (listing unlawful practices by motor vehicle franchisors).” Defendant now strenuously asserts that a second aspect of the statutory question is whether there is any such generally applicable ninety day termination notice requirement in § 407.405, RSMo. Assuming for the moment that such a period is specified for Missouri franchises in general, it seems clear that the auto dealer franchise legislation enacted in 1980 does not repeal this requirement. Such repeals by implication are disfavored. Wright v. Martin, 674 S.W.2d 238, 242–3 (Mo.App.1984). A review of the 1980 legislation shows that nothing therein purports to establish or reject a mandated termination period. While the scattering of pertinent statutes throughout the Missouri Revised Statutes creates traps for the unsophisticated attorney, this court is not surprised to find such inartful methods of legislating. E.g., Drew v. Chrysler Credit Corp., 596 F.Supp. 1371, 1374 n. 1 (W.D.Mo.1984). It might be argued that the 1980 legislation was an attempt to codify all pertinent Missouri statutes on automobile dealer franchises, and the omission of a provision requiring particular periods for giving termination notices could arguably be deemed significant. Just as likely, however, one might speculate that the legislators shrank from coping with a controversial subject, or *1085 were simply adopting legislation from elsewhere which did not, for one reason or another, establish periods for giving notices of termination. The 1980 statute does not on its face preclude plaintiffs' reliance on § 407.405, and I therefore turn to that statute. Oral argument and briefing suggest, moreover, that GM's most serious contention is that I should rethink the cryptic observation in the Earley Ford case, and hold that § 407.405 does not really establish a ninety day notice period of general applicability. I have reconsidered the issue. Without belaboring the legislative history of the pertinent sections, through reprinting pertinent paragraphs from the 1974 and 1975 enactments of the General Assembly, the interested reader is referred to the appendix to the Missouri Supreme Court decision in Brown-Forman Distillers Corp. v. McHenry, 566 S.W.2d 194, 198–200 (Mo.Sup. en banc, 1978). The 1974 text also appears in Historical Note to § 407.400, RSMo, 21 VAMS. It seems clear from the text that from the time of initial enactment of the legislation in 1974, a person who has granted a “franchise” has been prohibited from giving less than ninety days' notice of cancellation (with exceptions to be reviewed later). There has, however, been a change in the statutory definition of franchises, as set forth in § 407.400, RSMo. The 1974 definition of franchise was quite straight-forward (clearly including motor car dealerships, for example) except that it purported to exclude “persons engaged in sales from warehouses.” The 1975 revision has proved to be confusing, partly because it now contains a 38-line sentence defining the term “franchise.” It seems clear, however, from the italicized portions set forth in the Brown-Forman case, 566 S.W.2d at 199, that the warehouse sales exclusion proved troublesome in the liquor industry, and that it became appropriate to explain what was covered in that industry. A lengthy statement, applicable only to that industry, was added to the definition. Except for the liquor industry, the coverage of the 1974 act remained intact. This analysis of the 1975 legislation (the “liquor amendment”) is consistent with an affidavit supplied in 1984 by former state Senator Spradling for use in certain state court litigation. The conclusion I reach is inconsistent, however, with an observation by Senator Spradling that the “intent” of the 1974 legislation was “to deal solely with pyramid sales schemes” and the statute “referred to franchises only in connection with their use in pyramid sales schemes.” The use of an unexplained current opinion is one of the least favored methods of showing legislative history and is generally, I believe, rejected. In this case, moreover, the statement obtained is simply contrary to the text of the 1974 legislation, considered as a whole. The pyramid scheme portion of the 1974 law prohibits such schemes, and declares pyramid scheme contracts void. It is difficult to imagine why there would be a protective notice period enacted in connection with termination of a void agreement. Contrary to the recent statement of views of Senator Spradling, the Missouri Supreme Court has already said, quite correctly, that the 1974 legislation “related to what we believe are ... two types of merchandising practices: ‘pyramid sales schemes and franchise security.’ ” Brown-Forman Distillers Corp. v. McHenry, supra, 566 S.W.2d at 197. The present case involves “franchise security.” The result reached in this litigation has been repeatedly forecast, with one reported exception, by judicial decisions and commentators. Chmieleski v. City Products Corp., 660 S.W.2d 275, 295 (Mo.App.1983); Bain v. Champlin Petroleum Co., 692 F.2d 43, 48 (8th Cir.1982) (Regan, Senior District Judge); Palmer and Monica, Franchises: Statutory and Common Law Causes of Action in Missouri, 45 Mo.L.Rev. 42, 53 (1980).2 The only exception *1086 appears to be an Eighth Circuit opinion by Senior Circuit Judge Peck of Ohio, who “questioned” the applicability of the law to a beer franchise, apparently erroneously assuming that the 1975 legislation considerably narrowed the coverage of the 1974 legislation. ABA Distributors, Inc. v. Adolph Coors Co., 661 F.2d 712, 715 n. 4 (8th Cir.1981). While I am of course bound to follow the Eighth Circuit, the latest controlling ruling is in Bain. A post-hearing brief filed this week by GM now raises a constitutional argument. It is said that § 407.413, which is expressly limited to liquor franchises, would be in danger as a “special law” if § 407.405 were construed as being of general applicability. This belated contention has only colorable validity. In any event I would not feel authorized to misconstrue § 407.405 in order to save § 407.413. It is therefore concluded that Maude was entitled, by statute, to ninety days' notice, unless his situation falls within one of the statutory exceptions. Ninety days' notice is excused when a franchisee is guilty of criminal misconduct, has taken bankruptcy or has taken other specified actions for which immediate termination is authorized. Section 407.405, RSMo. The only conduct asserted by GM that would permit termination without notice is the alleged “abandonment” of the franchise. GM initially asserted there was an abandonment when Maude allegedly “would not or could not come up with the monies which were demanded by the seller” for the premises, or that there was an “involuntary” abandonment when the seller took bankruptcy.3 Neither of these circumstances can fairly qualify for the statutory exception. Maude continued actively pursuing the dealership opportunity, as it relates to the premises, until he finally obtained the premises in October 1985. The recitation of events to which the parties have stipulated is inconsistent with the contention that there was an abandonment. Abandonment is largely a question of intention. Russell v. Allen, 496 S.W.2d 290, 294 (Mo.App.1973). The burden is on one claiming an abandonment to establish the condition by clear and unequivocal evidence. Ibid. Nothing has been presented which would permit a trier of fact to infer that Maude had decided neither to use nor retake the franchise. Wirth v. Heavey, 508 S.W.2d 263, 267 (Mo.App.1974). Even if it could be concluded that Maude should have been more generous in his business dealings with the seller, or that bankruptcy had temporarily made it impossible to operate, adopting a theory of constructive abandonment would be inconsistent with the remedial purposes of the legislation. 5 A statutory violation having been shown, I could be expected to follow Judge Oliver's view that the appropriate remedy is to reinstate the franchise until proper notice is given. ABA Distributors, supra. GM urges, however, that I conclude that Maude's remedy at law is adequate. Most of the cases cited deal with preliminary injunctions, where a plaintiff's claim is sometimes given quite critical analysis. Even in those cases, however, where damage remedies are uncertain or verge on speculation, relief is often given. Earley Ford, supra. While Maude might be able to establish in this case what his out-of-pocket losses and expenses have been, an equally significant aspect of a franchise is the element of lost profits or prospects. *1087 Since Maude did not in fact have an opportunity to exercise the franchise, GM would doubtless argue with some force that a claim for lost profits is speculative. It follows from such a contention that the damages allowed in a lawsuit would not be fully adequate. It is the general rule in Missouri and elsewhere that equitable relief will be granted when a violation of law has been shown, “if the remedy at law is not clear, complete and as practical and efficient to the ends of justice and its prompt administration as the remedy in equity.” Hughes v. Neely, 332 S.W.2d 1, 7 (Mo.Sup.1960). That is surely the case here, where a damage suit presented to a jury would not afford as adequate and effective relief as can be achieved by injunction. See, MPI, Inc. v. McCullough, 463 F.Supp. 887, 902 n. 18 (N.D.Miss.1978). The prayer for relief seeks a prohibition against granting a franchise for the Johnson County, Missouri, area to anyone other than plaintiffs. Article II(I) of the Dealer Agreement provides that GM reserves the right to appoint additional dealers, but “this right will not be exercised without making a survey of marketing factors in the area of a possible new dealership location.” A dealer is entitled to notice of a proposed new dealership and of “an opportunity to present information relevant to the survey.” While none of the parties apparently anticipate that a Harness dealership will operate in competition with a Maude dealership, the sound way to avoid such competitive activity would be to reinstate the Maude dealership and allow (1) termination pursuant to law, as set forth in this opinion or (2) creation of a Harness dealership in Maude's territory only upon compliance with Article II(I). It is therefore ORDERED that defendant refrain from establishing another Chevrolet-Cadillac dealership in plaintiffs' territory except in accordance with Article II(I) of the dealership agreement of February 7, 1985, or after termination of the plaintiffs' dealership in accordance with law and with this opinion. Judgment is entered in favor of plaintiffs on Count V. Jurisdiction is retained to enforce or modify this order.

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