Manufacturer and Distributor’s Relationship Is Not a Franchise Under Connecticut Law
The Superior Court of Connecticut addressed a contractual dispute between a manufacturer of snow removal equipment and its distributor. HP Fairfield, a distributor of snow removal equipment, argued that a manufacturer, CIVES Corporation (doing business as Viking Cives), had improperly terminated their distribution agreement without good cause, violating Connecticut law. HP Fairfield claimed the arrangement was effectively a franchise due to its substantial investment and dependence on Viking Cives’s products, which would require good cause for termination under Connecticut’s franchise statute.
Was There a Community of Interest Creating a Franchise Relationship?
What constitutes a franchise relationship is often the source of litigation. See our past discussion in this article. Here, the Court examined whether the relationship between HP Fairfield and Viking Cives was a franchise under Connecticut law. HP Fairfield argued that it heavily invested in promoting Viking Cives’s products and depended on them to maintain its business, asserting that this relationship created a “community of interest” typical in franchise agreements. Viking countered the parties merely had a distribution relationship thereby lacking the mutual dependency that franchise agreements entail.
Ultimately, the Court found that the arrangement did not meet the franchise criteria, emphasizing that Connecticut law requires more than economic dependence to establish a franchise relationship. Key factors, such as shared control or significant operational interdependence, were absent. Consequently, the Court ruled that Viking Cives had the right to terminate the distribution agreement without needing to demonstrate good cause.
Reliance on a Single Supplier Does Not Necessarily Create a Franchise Relationship
This case underscores a couple of legal takeaways for businesses distribution arrangements.
First, it clarifies that distributors relying on a single supplier for products are not necessarily in a franchise relationship. Economic reliance alone does not meet the legal threshold.
Second, companies seeking franchise protections should clearly define mutual dependence and control within agreements. This decision highlights the importance of contractual precision in distributor-supplier relationships and the limited scope of franchise protections under Connecticut law for standard distributive arrangements.
