Opinion ID: 2270622
Heading Depth: 1
Heading Rank: 1

Heading: Violation of Franchise Practices Act

Text: We first consider Miller's point on appeal involving the jury's finding that Miller violated the Arkansas Franchise Practices Act (Franchise Act or Act). [3] Miller asserts that the trial court erred in submitting this claim to the jury for two reasons: (1) Roleson had no express or implied right under the Franchise Act or the franchise agreement to acquire additional brands or territories; and (2) Roleson's claim under the Franchise Act is preempted by the Arkansas Beer Wholesaler Statute, specifically, Ark.Code Ann. § 3-5-1108(a) (Repl.1996). The statutory provision of the Franchise Act at issue is set forth in Ark.Code Ann. § 4-72-206 (Repl.2001), which states in relevant part as follows: It shall be a violation of this subchapter for any franchisor, through any officer, agent, or employee to engage directly or indirectly in any of the following practices: . . . (6) To refuse to deal with a franchise in a commercially reasonable manner and in good faith[.] Ark.Code Ann. § 4-72-206 (Repl.2001). Franchise is defined by the Act as a written or oral agreement for a definite or indefinite period in which a person grants to another person a license to use a trade name, trademark, service mark, or related characteristic within an exclusive or nonexclusive territory or to sell or distribute goods or services within an exclusive or nonexclusive territory at wholesale or retail, by lease agreement, or otherwise. Ark.Code Ann. § 4-72-202(1)(A) (Repl. 2001). Good faith means honesty in fact in the conduct or transaction concerned. Ark.Code Ann. § 4-72-202(8) (Repl.2001). The Franchise Act does not define commercially reasonable manner. Whether Miller dealt with the franchise in a commercially reasonable manner and in good faith is a fact question for the jury. See Mercantile Bank v. B & H Associated, Inc., 330 Ark. 315, 320, 954 S.W.2d 226, 229 (1997). The question before us is whether, examining the evidence and all reasonable inferences arising therefrom in the light most favorable to Roleson, there was substantial evidence to support the jury's verdict that Miller did not deal with the franchise in a commercially reasonable manner and in good faith. Id. We hold that there was substantial evidence to support the jury's finding that Miller refused to deal with its franchise with Roleson in a commercially reasonable manner and in good faith. Miller argues that there was no evidence to support this claim because the claim is not based on Roleson's rights under his existing contract with Miller, but on rights Roleson might have to enter into a future contract to purchase Campbell's business. Relying on the definition of franchise as a written or oral agreement, Miller argues that, because the Distributor Agreement between Miller and Roleson conferred no rights upon Roleson to enter into new contracts for other franchises covering other brands, there was no franchise with regard to these other brands. Miller claims that, because Roleson had no franchise agreement with Miller with respect to Roleson's ownership of other brands and territories not specifically listed in the Distributor Agreement, Roleson could not make a claim of a violation of the Franchise Act with regard to such brands. We disagree. Roleson is not claiming that Miller violated some non-existent franchise agreement between Miller and Roleson regarding other brands, but that Miller refused to deal with the existing franchise between Miller and Roleson in a commercially reasonable manner and in good faith. According to Roleson, Miller adopted and executed a plan to eliminate Roleson as a distributor and applied pressure to other distributors  including Campbell, White River, and Mountain Home  in furtherance of that plan. While Miller's actions may not have caused Roleson to lose the brands and territories listed in the existing Distributor Agreement, Roleson claims that Miller's actions prevented it from growing its business and increasing its revenues, which was critical to its ability to remain competitive in the changing beer market. While we have not had an opportunity to interpret this provision of the Franchise Act, an opinion by the Eighth Circuit Court of Appeals offers some guidance. In Southern Implement, Inc. v. Deere & Co., 122 F.3d 503 (8th Cir.1997), a franchisee of John Deere equipment sued its franchisor, alleging that the franchisor permitted an unauthorized dealer to sell within the franchisee's assigned territory. Because the contract did not give the franchisee an exclusive right to sell Deere products in its area of responsibility [AOR] and because the contract did not require the franchisor to police a franchisee's AOR or prevent other dealers from establishing facilities in the AOR, the trial court granted summary judgment in favor of the franchisor on the Franchise Act claim. Id. The Eighth Circuit reversed, holding that  in spite of the lack of a specific contractual obligation  a jury could have found that the franchisor had an obligation to investigate and prevent others from operating an unauthorized facility. The court held that the failure to do so in that case could constitute bad faith. Id. While the Distributor Agreement between Miller and Roleson did not specifically address Roleson's acquisition of additional brands and territories, the law requires the parties to deal with the franchise in a commercially reasonable manner. Ark.Code Ann. § 4-72-202(7) and 206(6). Without enumerating all of a franchisor's acts which might constitute a failure to deal with a franchise in a commercially reasonable manner, we hold that a franchisor's attempt to force a franchisee out of business may constitute a refusal to deal with a franchise in a commercially reasonable manner and in good faith under Ark.Code Ann. § 4-72-206(6). We now review whether there is substantial evidence to support the jury's verdict that Miller violated this provision of the Franchise Act. Roleson presented evidence at trial of the White Paper, which set forth Miller's plan to eliminate Roleson as a distributor. Testimony at trial indicated that this plan was not disclosed to Roleson. Larry Holcomb, Roleson's general manager, testified that he and Mr. Roleson found out from a Miller representative at a national sales meeting that Miller had thwarted Roleson's efforts to purchase Campbell in furtherance of that plan. The Miller representative stated that Miller simply wanted to grow the size of [certain] Miller distributors and that Roleson was not one of those distributors. The Miller representative said that Roleson was not in Miller Brewing Company's long term plans. Furthermore, in a courtesy call to Mr. Roleson to let him know that White River had made a deal to purchase Campbell and to make an offer to purchase Roleson, Mr. O'Conner testified that he told Roleson he should sell before he died of a heart attack fighting Miller. The jury could have inferred from this testimony that Mr. O'Conner knew of Miller's plan to force Roleson out of business. There was also evidence in the testimony of Jim Young, Miller's representative, Jan Bratcher, White River's president, and Ed Roleson from which the jury could have found that the sale of Campbell to White River was executed in furtherance of Miller's overall plan to eliminate Roleson as a distributor. Mr. Bratcher stated that the plan to buy Campbell's business came unexpectedly from Mr. O'Conner, and that he advised Mr. O'Conner that it was a bad deal. Mr. O'Conner's decision to buy Campbell and his subsequent meeting with Mr. Campbell occurred within days of Mr. O'Conner's meeting with Mr. Young. Considering the evidence and all reasonable inferences arising therefrom in the light most favorable to Roleson, as we must under our standard of review, we hold that there was substantial evidence to support the jury's verdict that Miller refuse[d] to deal with a franchise in a commercially reasonable manner and in good faith in violation of Ark.Code Ann. § 4-72-206(6). Finally, we reject Miller's argument that Roleson's Franchise Act claim is preempted by the Beer Wholesaler's Act. Miller cites a provision of the Act which requires a supplier, such as Miller, to pay reasonable compensation to a wholesaler when the supplier has terminated, amended, or modified their agreement or otherwise interfered with a transfer of the wholesaler's business. Ark.Code Ann. § 3-5-1108(a) (Repl.1996). It also provides that nothing contained in this sub-chapter shall give rise to a claim against the supplier or wholesaler by any proposed purchaser of a wholesaler's business. Id. (emphasis added). Roleson's claim under the Franchise Act is not a claim against Miller by a proposed purchaser of a wholesaler's business, but by its own franchisee. Roleson's claim is that Miller refused to deal with the franchise in a commercially reasonable manner by attempting to put Roleson out of business. Miller's alleged interference with the potential purchase of Campbell was merely evidence used to support Roleson's claim. Thus, we hold that Roleson's Franchise Act claim is not preempted by Ark.Code Ann. § 3-5-1108(a) (Repl.1996).