Suppliers May Change Material Terms in Dealer Agreements at Renewal

A supplier may be able to change the terms of a dealer agreement upon renewal under the Alabama Tractor, Lawn and Garden and Light Industrial Equipment Franchise Act (“the Act”).

Coblentz Equipment & Parts Co., Inc. (“Coblentz”), an Alabama tractor dealer, signed a five-year dealer agreement with Mahindra USA, Inc. (“Mahindra”) in 2014. The parties continued operating as normal after the agreement expired in 2019. Mahindra did not issue a new dealer agreement until 2021, which Coblentz refused to sign primarily because it included an exclusivity provision. Later, in 2023, Mahindra terminated its relationship via email, citing Coblentz’s refusal to sign the agreement as the reason for termination. Coblentz sued Mahindra for violation of the Act in the U.S. District Court for the Middle District of Alabama alleging Mahindra improperly terminated and failed to renew its dealership agreement without good cause. The court denied summary judgment for both parties finding a jury must determine whether the agreement was terminated.

Parties’ Behavior Can Maintain a Dealer Relationship After an Agreement’s Expiration

The court found that the Act’s definition of a dealer agreement included implied oral agreements. Because the parties continued dealing together after the contract expired, the court ruled the agreement remained in effect after its supposed expiration in 2019.

Proposed Changes to an Agreement May Be Included as Part of the Overall Renewal of a Dealer Relationship

The court also considered whether Mahindra’s attempts to add new terms in its proposed 2021 agreement constituted termination or nonrenewal under the plain language of the Act. The court used subscription renewals for things like magazines as an example, where material provisions, such as price, can often change, but the subscription is fundamentally the same.

The court held that it was ultimately a fact question for a jury to decide whether Mahindra’s proposed 2021 agreement fundamentally altered the nature of the parties’ relationship. If the answer to that question was “yes,” then Mahindra had, in fact, terminated the previous agreement for which it needed good cause. If the answer was “no,” then Mahindra did not terminate the relationship and was offering a renewal of the old agreement albeit on different terms.

Key Takeaways

This case highlights two takeaways for businesses renewing their dealer agreements in Alabama.

First, a supplier and dealer may maintain a dealer agreement beyond the contract expiration date through their actions.

Second, a supplier can alter material terms of a dealer agreement upon renewal if the agreement fundamentally remains the same. The key question is what changes are so fundamental as to render the old agreement terminated and simply not renewed.

For additional information on this ruling or other Distribution & Franchise regulations across the country, please contact Peter Loh or another member of Foley’s Distribution and Franchise team.