Non-Resident May Sue Under Minnesota Franchise Act, but Payment for Goods at Wholesale Prices Is Not a Franchise Fee
A non-resident of Minnesota can sue a manufacturer for violation of the Minnesota Franchise Act. At the same time, the non-resident’s purchase of the manufacturer’s products at bona fide wholesale prices did not constitute payment of a franchise fee under the same statute. A recent Minnesota Supreme Court ruling explores both issues.
Manufacturer Enters Supply Agreement
Cambria Company LLC is a Minnesota-based manufacturer of quartz surface products for use as countertops, tile, and other residential applications. M&M Creative Laminants, Inc. is a Pennsylvania company that sells custom countertops and cabinetry to homeowners and kitchen and bath dealers. In May 2009, Cambria and M&M entered into a written agreement whereby M&M could order fabricated quartz slabs from Cambria according to customer specifications. Cambria did not require M&M to pay an upfront fee or a royalty for the orders of slab.
Manufacturer Sues for Breach of Supply Agreement; Re-Seller Files Countersuit
In May 2017, Cambria terminated the parties’ relationship. Cambria then sued M&M over payment for $180,000 worth of countertops it had already delivered. See Cambria Company, LLC v. M&M Creative Company, Inc., A22-0723, 2024 WL 4139394, Sept. 11, 2024. M&M countersued alleging that Cambria could not terminate the parties’ relationship without good cause and 90 days’ notice of the reasons for the termination per the Minnesota Franchise Act. Cambria moved for summary judgment on the grounds that a franchise relationship did not exist because M&M did not pay a franchise fee. Alternatively, Cambria argued M&M was not entitled to sue for violations of the act because it was not a Minnesota resident.
The district court dismissed M&M’s counterclaim at summary judgment holding that M&M did not pay a franchise fee so it could not sue for violations of the Minnesota statute. The district court did not rule on the issue of whether M&M had standing to sue as a non-resident of Minnesota. The appeals court affirmed on the issue of the franchise fee but went on to hold that M&M could not sue under the act because it did not operate in Minnesota.
The Minnesota Supreme Court Rules on Re-Seller’s Right to Bring Suit and Whether It Paid a Franchise Fee
The Minnesota Supreme Court examined both issues concerning M&M’s standing to file suit as a non-resident and the definition of a franchise fee.
- A non-resident may bring suit for violation of the Minnesota Franchise Act.
The Court observed that the statute did not confine its definition of “franchisee” to only Minnesota residents. Conversely, the act did place geographic limitations on other provisions within the act. The Court applied the rule of statutory interpretation that application of a limitation in one part of a statute while omitting it in another indicates the legislature’s omission of the limiting language in the section of the statute at issue as intentional. Thus, the Supreme Court held there was no prohibition on a non-Minnesota resident seeking to enforce its rights under the statute.
- Re-Seller did not pay a franchise fee.
Next, the Court examined whether the parties’ business relationship constituted a franchise because M&M had paid a franchise fee to Cambria. The Minnesota Franchise Act defines a franchise relationship as:
- an agreement through which a franchisee has the right to sell the franchisor’s goods or services while using the franchisor’s name or trademark;
- the franchisor and franchisee have a “community of interest” in marketing those goods and services; and
- the franchisee—directly or indirectly—paid a franchise fee.
The Minnesota Franchise Act defines a franchise fee as “any fee or charge that franchisee or subfranchisor is required to pay . . . for the right to enter into a business or to continue a business under a franchise agreement.” Such a fee can include “the payment either in lump sum or by installments of an initial capital investment fee, any fee or charges based upon a percentage of gross or net sales whether or not referred to as royalty fees, any payment for goods or services, or any training fees . . ..” Critically, “the purchase of goods or agreement to purchase goods at a bona fide wholesale price” does not constitute a franchise fee.
M&M purchased quartz from Cambria while also paying for certain fabrication services. M&M argued that the payments for the fabrication services constituted a franchise fee. The Court held that M&M’s purchases were for goods at their wholesale price. Any costs of fabricating the quartz were included in the final price M&M paid. Indeed, M&M sold the fabricated quartz at a 100% markup to retail buyers demonstrating its purchases from Cambria were at wholesale. Lastly, the Court pointed to a previous Minnesota Supreme Court case, Valley Farmer’ Elevator v. Lindsay Bros. Co., for the proposition that payment of manufacturing services included in the overall payment for goods a bona fide wholesale price did not qualify as a franchise fee. Moreover, the agreement did not require M&M to purchase quartz it did not otherwise want or need.
Accordingly, the Minnesota Supreme Court held that M&M’s purchases did not include a franchise fee thereby precluding the existence of a franchise relationship with Cambria. M&M could not bring suit under the Minnesota Franchise Act.
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