Court Opinion

ID: 7846288
Source: CourtListenerOpinion
Date Created: 2022-09-08 17:11:12.072473+00
Date Added: 2024-06-11T16:25:03.347563
License: Public Domain

CALLAHAN, C. J.,
dissenting. I disagree with the majority’s conclusion that the relationship between the plaintiff, Hartford Electrical Supply Company, and the defendant, Allen-Bradley Company, LLC,1 constitutes a “franchise” within the meaning of General Statutes § 42-133e (b).21 therefore respectfully dissent.
The following undisputed facts are relevant to this appeal. The defendant is a manufacturer of sophisticated industrial automation products. The plaintiff, a distributor of electrical supplies and equipment, is an authorized distributor of the defendant’s products. The *371plaintiff distributes the products of other manufacturers and derives only approximately one half of its sales from distribution of the defendant’s products.
The relationship between the plaintiff and the defendant is governed by a written distributorship agreement (agreement). The agreement, which was executed in 1991, grants to the plaintiff the right to sell certain of the defendant’s products. The agreement assigns to the plaintiff a marketing area and requires, inter alia, that the plaintiff: (1) “devote its best efforts to developing the sales potential” of its assigned market area; (2) “vigorously and aggressively promote and develop the market for the sale of [the defendant’s products]”; (3) maintain “a staff of competent sales and marketing personnel who are trained to describe, demonstrate and quote [the defendant’s products]” ; (4) authorize its personnel to attend training when recommended by the defendant; (5) comply with certain inventory requirements; (6) purchase demonstration equipment for certain of the defendant’s products; (7) prominently display the defendant’s “Appointed Distributor” sign; (8) refrain from using the defendant’s trademark in its company name; (9) refrain from otherwise using the defendant’s trademark without the defendant’s express written approval; (10) render prompt courteous service; (11) maintain and make available to the defendant records reflecting the plaintiffs true financial condition; (12) develop an annual business plan for each product line that the agreement authorizes the plaintiff to distribute; (13) satisfy written marketing commitments established in those annual business plans; and (14) satisfy mutually established sales goals.
In addition, the agreement requires that the defendant cooperate with the plaintiff in promoting the marketing and sale of the defendant’s products whenever such assistance becomes necessary or desirable. Specifically, the agreement provides that, as necessary or *372desirable, the defendant will: (1) make training available to the plaintiffs personnel; (2) provide joint sales assistance and inventory management support; and (3) make promotional material available to the plaintiff. The agreement does not expressly require that the plaintiff accept such assistance from the defendant.
Further, the agreement provides that “either party may terminate the [agreement at any time, with cause or without any cause whatsoever” on ninety days notice, and that the plaintiffs “sales performance . . . shall be the prime consideration for the continued right hereunder to purchase and sell the [the defendant’s] [products.”
In February, 1992, after the plaintiff had experienced two years of weak sales, the defendant placed the plaintiff on its distributor concern program (concern program). The concern program is a remedial program that the defendant offers to distributors who have not met their sales goals. Distributors are identified as early as possible, and support is offered from the defendant’s sales and marketing departments to help the distributor to improve its sales performance to meet its goals. The plaintiff monitors the performance of distributors who have been placed on the concern program and pressures them to increase their sales performance.
The defendant informed the plaintiff that it had placed the plaintiff in its concern program because of inadequate: (1) sales performance; (2) sales promotion; (3) staffing; (4) training; and (5) effort to identify new business. The defendant also informed the plaintiff that it had entered the plaintiff into the concern program “with the sincere intent to turn the situation around” and that “the commitment [to do so] must be strong at both organizations . . . .”
Upon placing the plaintiff in the concern program, the defendant notified the plaintiff that: (1) the plaintiff *373should prepare a twelve month business plan for the defendant’s review; (2) thereafter, a management team would visit the plaintiff to discuss the plaintiffs status; (3) joint meetings then would be scheduled to address problem areas; and (4) unsatisfactory performance in the concern program could result in termination of the plaintiffs distributorship.
Subsequent to the plaintiffs participation in the concern program, its performance improved. Between October 1, 1993, and September 30, 1994, the plaintiffs purchases of the defendant’s products increased by 20.6 percent over the previous fiscal year. In April, 1995, the plaintiff presented to the defendant a business plan that it had developed regarding sales of the defendant’s products for fiscal year 1996 (1996 business plan). On the basis of the plaintiffs 1996 business plan, the defendant removed the plaintiff from its concern program.
Although the plaintiffs purchases of the defendant’s products between October 1, 1994, and September 30, 1995, reflected a 22.5 percent increase over its purchases during the previous year, the plaintiffs sales of the defendant’s products decreased between April, 1995, and December, 1995. On January 22, 1996, the defendant again placed the plaintiff on the concern program, citing, inter alia, inadequate staffing and training of sales personnel, the departure of the plaintiffs director of operations, concern about internal conflicts within the plaintiffs management, and concern that the plaintiffs 1996 business plan was not being implemented effectively. In response, that plaintiff acknowledged that its 1996 business plan “had temporarily fallen off the tracks.”
In April, 1996, however, the plaintiff informed the defendant that it would no longer participate in the *374concern program,3 and on June 27, 1996, the defendant notified the plaintiff that it intended to terminate the plaintiffs distributorship on September 30, 1996. Additional facts will be set forth as necessary.
On July 2, 1996, the plaintiff commenced the present action against the defendant claiming, inter alia, that: (1) its relationship with the defendant constituted a “franchise” within the meaning of § 42-133e (b); (2) the defendant had lacked good cause to terminate the plaintiffs franchise; (3) the defendant’s termination of the plaintiffs franchise without good cause was in violation of General Statutes § 42-133f (a)4 of the Connecticut Franchise Act; (4) the defendant’s termination of the plaintiffs franchise without good cause was in violation of General Statutes § 42-110b (a)5 of the Connecticut Unfair Trade Practices Act. In its complaint, the plaintiff sought both an order enjoining the defendant from terminating its alleged franchise and damages.
The trial court granted a temporary injunction prohibiting the defendant from terminating its relationship with the plaintiff. Thereafter, the parties agreed to expedite discovery and proceed to trial with respect to the plaintiffs claims that the defendant had terminated its relationship with the plaintiff in violation of §§ 42-133f (a) and 42-110b. The court concluded, inter alia, that: (1) the parties’ relationship was a franchise within the *375meaning of § 42-133e (b); (2) the defendant had terminated that franchise without good cause in violation of § 42-133f (a); and (3) because the defendant’s termination of the plaintiffs franchise in violation of § 42-133f (a) offended public policy, it constituted an unfair trade practice within the meaning of § 42-110b. The court, therefore, issued an order enjoining the defendant from terminating its franchise relationship with the plaintiff.
The defendant then moved, pursuant to Practice Book § 61-4 (a), for permission to appeal from that partial judgment of the trial court to the Appellate Court. Upon the granting of its motions for permission to appeal, the defendant appealed to the Appellate Court, and we transferred the appeal to this court pursuant to Practice Book § 65-1 and General Statutes § 51-199 (c).
On appeal, the defendant claims, inter alia, that the trial court improperly determined that the parties’ relationship constituted a “franchise” within the meaning of § 42-133e (b). I agree.
“In construing a statute, [o]ur fundamental objective is to ascertain and give effect to the apparent intent of the legislature. ... In seeking to discern that intent, we look to the words of the statute itself, to the legislative history and circumstances surrounding its enactment, to the legislative policy it was designed to implement, and to its relationship to existing legislation and common law principles governing the same general subject matter.” (Internal quotation marks omitted.) Ferrigno v. Cromwell Development Associates, 244 Conn. 189, 195, 708 A.2d 1371 (1998).
Section § 42-133e provides in relevant part: “(b) ‘Franchise’ means an oral or written agreement or arrangement in which (1) a franchisee is granted the right to engage in the business of . . . distributing goods . . . *376under a marketing plan or system prescribed in substantial part by a franchisor . . . and (2) the operation of the franchisee’s business pursuant to such plan or system is substantially associated with the franchisor’s trademark . . . .” Thus, in the present case, in order to establish that its distributorship constituted a “franchise” the plaintiff was required to demonstrate: (1) the existence of an “agreement or arrangement” granting the plaintiff the right to distribute the defendant’s products “under a marketing plan or system prescribed in substantial part [by the defendant]”; and (2) that the operation of the plaintiffs business pursuant to that marketing plan or system was “substantially associated” with the defendant’s trademark. I would conclude that, as a matter of law, the plaintiff did not meet its burden of proof with respect to either of those requirements.
I
I begin with the “marketing plan or system” requirement set forth in § 42-133e (b). By its terms, § 42-133e (b) requires that, in order for a distributorship to constitute a “franchise,” the right granted to the distributor by the “agreement or arrangement” must be subject to a “marketing plan or system prescribed in substantial part” by the product supplier. The language of § 42-133e (b) therefore manifests an intent to limit “franchises” to situations in which: (1) the product supplier retains a contractual right; (2) to exercise substantial control over the manner in which the distributor markets the supplier’s products to its customers.
A
The legislative genealogy of House Bill No. 5081, the bill that eventually was enacted as Public Acts 1972, No. 287 and codified as the Connecticut Franchise Act; see General Statutes §§ 42-133e through 42-133h; also indicates that the legislature intended that § 42-133e (b) *377apply only to agreements or arrangements that provide the product supplier with a contractual right to exercise substantial control over the manner in which the distributor markets the supplier’s products to its customers. The original version of House Bill No. 5081 provides in relevant part: “ ‘[Franchise’ means an oral or written agreement or arrangement ... in which (1) a person grants to another person a license to use a trade name, service mark, or related characteristics; (2) there is a community of interest in the marketing of goods; (3) the franchisee as an independent business organization constitutes a component of the franchisor’s distribution system; (4) the operation of the franchisee’s business is substantially dependent on the franchisor for the continued supply of goods or services . . . .” (Emphasis added.) Raised Committee Bill No. 5081. The legislature’s deletion of the language requiring a “community of interest in the marketing of the goods” and its substitution of the language requiring that the “agreement or arrangement” grant to the franchisee the right to distribute the franchisor’s products “under a marketing plan or system prescribed in substantial part by a franchisor”; (emphasis added) General Statutes § 42-133e (b); strongly suggests that the legislature intended that § 42-133e (b) limit “franchises” to those situations in which a product supplier retains a contractual right to exercise substantial control over the manner in which the distributor markets the supplier’s products to its customers.
Furthermore, the legislative history of House Bill No. 5081 also indicates that the legislature intended that § 42-133e (b) limit “franchises” to situations in which the product supplier retains a contractual right to exercise substantial control over the manner in which a distributor markets the supplier’s products. In the discussion of the bill on the floor of the House of Representatives, Representative Joseph M. Pugliese, explaining *378the need for the proposed legislation, stated: “I think there [are] just entirely too many gas station operators being forced out of business by the type of contracts they . . . find themselves involved in.” (Emphasis added.) 15 H.R. Proc., Pt. 7, 1972 Sess., p. 2783. Representative Elmer A. Mortensen, similarly noting the need for the bill, stated: “It is something terrible to read one of these leases and see the fine print in there.” (Emphasis added.) Id., p. 2781. Representative Nicholas A. Lenge explained that the bill “does not undo any of the contract arrangements . . . .” (Emphasis added.) Id., p. 2793. Finally, Representative Albert R. Webber, a proponent of the bill, noted that in developing the bill, the legislators had reviewed “almost every conceivable franchise contract . . . .” (Emphasis added.) Id., p. 2794. I would conclude, therefore, that § 42-133e (b) was intended to limit “franchises” to situations in which the franchisor retains a contractual right to exercise substantial control over the manner in which its products are marketed.
B
The legislative history of § 42-133e (b) is instructive as to the degree of contractual control that a product supplier must retain over the marketing of its products in order for that control to constitute “[prescription] in substantial part” of the distributor’s marketing plan or system. See 15 H.R. Proc., Pt. 7, 1972 Sess., pp. 2785-86, remarks of Representative Howard A. Newman (bill applies to arrangements by which distributor is in effect company store); id., p. 2777, remarks of Representative Webber (bill protects franchisees from imposition by franchisor of operating conditions “virtually impossible” to fulfill); id., p. 2780, remarks of Representative Mortensen (bill protects franchisees against “one-sided affairs”); id., p. 2785, remarks of Representative Newman (bill protects distributors terminated for refusing to purchase and distribute supplier’s trading *379stamps to customers). I would conclude, therefore, that, in order for a distributorship to constitute a franchise within the meaning of § 42-133e (b), the product supplier must retain pervasive contractual control over the manner in which the distributor markets the supplier’s products.
C
I turn now to the provisions of the agreement that governs the relationship between the plaintiff and the defendant. The agreement specifies that the plaintiff, not the defendant, is responsible for preparing business plans for the sale of the defendant’s products in the local market. Specifically, with respect to each of the defendant’s product lines, the agreement contains a provision that requires that the plaintiff prepare a business plan that includes some or all of the following elements: (1) identification of target accounts; (2) unspecified promotional activities; (3) sales forecasts; (4) inventory levels that are based on sales forecasts; (5) employee training sessions appropriate for the sale and support of the defendant’s products; and (6) purchase and use of appropriate demonstration equipment. Thus, the business plan provisions of the agreement set forth only general categories to be addressed by the plaintiff in the business plans; they do not provide the defendant with any ability to mandate the inclusion of any specific provision in those business plans. I would conclude, therefore, that, as a matter of law, the provisions of the agreement that require the plaintiff to develop a business plan for the marketing and sale of the defendant’s products do not grant to the defendant a contractual right to prescribe in substantial part the manner in which the plaintiff markets the defendant’s products.
The only other provisions of the agreement that are relevant to the manner in which the plaintiff markets *380the defendant’s products are those that require that the plaintiff: (1) schedule specific training sessions for certain specialized employees; (2) maintain its inventory of the defendant’s products at certain levels in order to ensure good customer service; and (3) purchase demonstration equipment for certain authorized product lines. Those provisions in effect require only that the plaintiff understand the defendant’s products and have stock available for demonstration and sale; they do not dictate pervasively the manner in which the defendant’s products are to be marketed. By way of contrast, the 1996 business plan that the plaintiff developed for marketing the defendant’s products includes: (1) objectives set by the plaintiff for the sales and marketing of the defendant’s products; (2) targeted sources of growth; (3) analysis of industrial and technological trends and the plaintiffs proposed responses to those trends; (4) analysis of the general economic environment; (5) market segment analysis; (6) analysis of the plaintiffs sales and marketing organization and objectives for fiscal year 1996; (7) analysis of the plaintiffs branch operations; (8) planned marketing initiatives; (9) summary of action items and proposed schedules for their implementation including individual territory plans and individual high-tech marketing plans by product category; and (10) sales and marketing budgets. Each component of the 1996 business plan was developed solely by the plaintiff; none was formulated by the defendant. I would conclude that, as a matter of law, the training, inventory and demonstration provisions of the agreement do not provide the defendant with sufficient contractual control over the manner in which the plaintiff markets the defendant’s products to constitute a marketing plan or system prescribed in substantial part by the defendant.
The agreement, moreover, does not provide the defendant with any authority to control the plaintiffs *381hiring or firing of employees. Nor does it contain any provision expressly granting the defendant authority to control a key element of the plaintiffs marketing system — the prices at which the plaintiff sells the defendant’s products. See Petereit v. S.B. Thomas, Inc., 63 F.3d 1169, 1181 (2d Cir. 1995), cert. denied, 517 U.S. 1119, 116 S. Ct. 1351, 134 L. Ed. 2d 520 (1996). In my view, as a matter of law, the mere fact that the defendant established manufacturer’s suggested retail prices for its products does not provide a proper basis for concluding that the defendant had contractual authority to control the plaintiffs pricing. Any conclusion to the contrary would have the effect of transforming virtually every distributorship into a franchise. There is nothing in the legislative history to suggest that the legislature intended such a radical result. I would conclude, therefore, that as a matter of law, the agreement does not provide the defendant with the right to prescribe in substantial part the plaintiffs marketing plan or system as required by § 42-133e (b).
The majority does not maintain, moreover, that the agreement itself gave rise to a franchise within the meaning of § 42-133e (b). Instead, the majority reasons that it was the agreement together with the defendant’s concern program that created a franchise between the parties. As previously noted, however, the concern program is relevant to the existence of a franchise only to the extent that it grants the defendant contractual control over the manner in which the plaintiff markets the defendant’s products. The agreement, however, does not expressly require that the plaintiff participate in the concern program, and, in fact, the plaintiff maintains that it was not contractually required to do so.6 *382Because the agreement, by its terms, did not grant to the defendant a contractual right to prescribe in substantial part the plaintiffs marketing plan or system as required by § 42-133e (b), I would conclude that the parties’ relationship did not constitute a franchise within the meaning of the statute.
II
I turn now to the second requirement of § 42-133e (b) (2), namely that “the operation of the franchisee’s business pursuant to such [marketing] plan or system [be] substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate . . . .” (Emphasis added.) The language of this requirement referring to visual commercial symbols suggests that, in order for a franchise to exist between a supplier and a distributor, the legislature intended not only that the supplier control pervasively the manner in which the distributor markets the supplier’s products, but also that the marketing plan or system imposed on the distributor by the supplier create a substantial association between the distributor’s and the supplier’s business images.
The legislative history of House Bill No. 5081 also indicates that the substantial association requirement of § 42-133e (b) was intended to limit franchises to situations in which the franchisee’s business image derives from the franchisor’s marketing plan or system. See 15 H.R. Proc., supra, p. 2788, remarks of Representative Ronald A. Sarasin (bill applies to “fast food” franchises and to Holiday Inn, Ramada Inn, Howard Johnson, Avon Lady and Tupperware franchises); id., p. 2785, remarks of Representative Newman (discussing automobile dealerships and service station franchises); id., pp. 2783-84, remarks of Representative Carl R. Ajello (discussing automobile dealerships); id., p. 2786, *383remarks of Representative Darius Spain (discussing Avon Lady and Tupperware franchises).
In sharp contrast to those examples, rather than require that the plaintiff associate itself with the defendant’s commercial symbol, the agreement governing the parties’ relationship explicitly prohibits the plaintiff from using the defendant’s trademark as part of its company name or for any other purpose without the defendant’s consent. During the discussion of House Bill No. 5081 on the floor of the House of Representatives, Representative Lenge, a proponent of the bill, stated that the proposed legislation would not apply to an agreement by which a manufacturer grants an independent hardware store an exclusive right to sell the manufacturer’s products in the hardware store. Id., p. 2793. In my view, the degree of association that exists between the plaintiff and the defendant as a result of the plaintiffs display of the defendant’s authorized dealer logo and the plaintiffs sale of the defendant’s products is closer to the association that exists between an independent hardware store and its suppliers than it is to the level of association that exists between the business identities of a franchisor such as Burger King or Holiday Inn and its franchisees.
I am not persuaded, moreover, that, in the absence of a contractual limitation on the plaintiffs ability to sell the products of other manufacturers, the fact that the defendant’s products account for approximately one half of the plaintiffs sales is a proper basis for concluding that the plaintiffs business is “substantially associated” with that of the defendant within the meaning of § 42-133e (b). See Muha v. United Oil Co., 180 Conn. 720, 726, 433 A.2d 1009 (1980) (suggesting that in order for franchise to exist, seller must be contractually required to sell only supplier’s products). If no such contractual limitation is required for a franchise to *384exist, a distributor unilaterally could transform a distributorship into a franchise simply by increasing the percentage of its business devoted to the sale of a supplier’s products. Such a unilateral transformation of a distributorship into a franchise would contravene the requirement set forth in § 42-133e (b) that a franchise be based upon a contractual “agreement or arrangement.” I would conclude, therefore, that as a matter of law, the relationship between the plaintiff and the defendant does not satisfy the “substantial association” requirement set forth in § 42-133e (b) and that, consequently, the parties’ relationship is not a franchise within the meaning of the statute.
The agreement provides the defendant with a right to terminate the plaintiffs distributorship without good cause on ninety days notice. Because I would conclude that the agreement does not constitute a franchise within the meaning of § 42-133e (b), even if we assume, without deciding, that the defendant lacked good cause to terminate the plaintiffs distributorship,71 would conclude that the defendant’s termination of the agreement was not violative of § 42-133f (a), and that, consequently, that termination does not constitute an unfair trade practice in violation of § 42-110b. I therefore respectfully dissent.

 Allen-Bradley Company, LLC, which was substituted for Allen-Bradley Company, Inc., is the only defendant for purposes of the present appeal, and references to the defendant are to Allen-Bradley Company, LLC. See footnotes 1 and 10 of the majority opinion.

 General Statutes § 42-133e provides in relevant part: “(b) ‘Franchise’ means an oral or written agreement or arrangement in which (1) a franchisee is granted the right to engage in the business of . . . distributing goods . . . under a marketing plan or system prescribed in substantial part by a franchisor . . . and (2) the operation of the franchisee’s business pursuant to such plan or system is substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor . . . .”

 In its letter informing the defendant that it no longer would participate in the concern program, the plaintiff stated: “[E]nough is enough. We are not going to let you . . . push us around anymore. . . . Forget remediation and your probationary threats . . .

 General Statutes § 42-133Í (a) provides in relevant part: “No franchisor shall . . . terminate ... a franchise, except for good cause which shall include, but not be limited to the franchisee’s refusal or failure to comply substantially with any material and reasonable obligation of the franchise agreement . . . .”

 General Statutes § 42-110b (a)provides: “Noperson shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”

 Moreover, if participation in the concern program was a contractual obligation imposed by the defendant upon the plaintiff, the plaintiffs refusal to participate in that program would have constituted good cause for the defendant’s termination of the agreement. In that case, § 42-133f would not have prohibited the defendant from terminating the agreement.

 The agreement explicitly provides, moreover, that the plaintiffs “sales performance . . . shall be the prime consideration for the continued right hereunder to purchase and sell [the defendant’s] [p]roducts.” (Emphasis added.) It is undisputed that in fiscal year 1996, the plaintiffs sales of the defendant’s products were 13.5 percent lower than sales of those products in fiscal year 1995. In my view, that decline in sales performance coupled with the plaintiffs admission that its 1996 business plan had “fallen off the tracks” and the plaintiffs refusal to participate in the concern program— a program designed to improve the plaintiffs sales performance — constitutes, as a matter of law, good cause for termination of the plaintiffs distributorship.