A recent federal appeals court decision overturning a $6.5 million jury verdict for a franchisee on a state franchise law discrimination claim demonstrates once again the difficulty that franchisees face in such challenges, even when the court finds that the franchisor treated some franchisees differently than others in some instances and could not explain why.
The Indiana Deceptive Franchise Practices Act (IDFPA) prohibits a franchisor from “[d]iscriminating unfairly among its franchisees” … “in relation to the [franchise] agreement.” Ind. Code § 23-2-2.7-2(5). In Andy Mohr Truck Center, Inc. v. Volvo Trucks North America, No. 16-2788, 2017 WL 3695355 (7th Cir. August 28, 2017), the U.S. Court of Appeals for the Seventh Circuit addressed what it means to “discriminate unfairly” under the IDFPA in a case where the franchisee claimed that the franchisor provided more favorable discounts on truck pricing to other franchise dealerships. In addition to standard discounts given to all dealers, the dealer could apply for additional concessions under the Retail Sales Assistance program that the dealer then used to negotiate a price quote with the customer.
Although the franchisee could show similarly situated franchisees were treated better in some cases, the appeals court held that the franchisee could not show that those differences were unfair discrimination. “At most, the evidence showed that Volvo offered no reasoned explanation for giving Mohr a relatively worse concession than it gave to a sample set of franchisees on similar transactions. But it did not show that such treatment was unfair or discriminatory (i.e., that it was not the norm among franchisees).” The court reasoned that the franchise agreement gave all dealers access to the Retail Sales Assistance program but it gave the franchisor discretion to grant different discounts for each transaction, although Volvo agreed to and did give the same discount to dealers bidding on the same transaction (a customer shopping for the best price among multiple dealers). Under a normal bidding process, the court said there is bound to be some variation between similar transactions.
So, under what circumstances could a franchisee make a showing of unfair discrimination under the IDFPA? The decision obviously is limited to the wording of this statute and these facts, but the court acknowledged that a franchisee might be able to show that it never received better discounts than allegedly favored franchisees. Or, a franchisee could show that a franchisor violated the franchise agreement, offered the franchisee worse agreement terms than other franchisees, or discriminated against it by offering less favorable terms for the same purchase by the same customer. Here, the evidence showed only that sometimes the franchisee received the better discount and sometimes the competitor did, such that the franchisee benefitted from the alleged discrimination. More is needed to show “unfair” discrimination, according to the court.
The takeaway: As courts in other states have found in analyzing similar franchisee discrimination statutes, mere variations in dealings between franchisors and franchisees do not necessarily show discrimination that rises to the level of a legal violation. However, this case demonstrates the complexity and expense of defending these claims. Franchisors implementing discretionary sales assistance or other similar programs should carefully review the applicable state statutes, with the assistance of legal counsel, to evaluate their risks.
The decision can be found here.