EXISTENCE OF INDIANA DEALER/FRANCHISE TERMINATION, FRAUD AND NON-RENEWAL LAWS AND FRANCHISE INDUSTRY-SPECIFIC LAWS
In Indiana, the following Dealer/Franchise Termination and Non-Renewal Laws, Fraud, and Franchise Industry-Specific Laws exist:
– Indiana Has a Disclosure/Registration Franchise Law
– Indiana Has a Relationship/Termination Franchise Law
– Indiana Does Have a General Business Opportunity Franchise Law
– Indiana Has an Alcoholic Beverage Wholesaler/Franchise Law
– Indiana Does Not Have an Equipment Dealer/Franchise Law
– Indiana Has a Gasoline Dealer/Franchise Law
– Indiana Does Not Have a Marine Dealer/Franchise Law
– Indiana Has a Motor Vehicle Dealer/Franchise Law
– Indiana Does Not Have a Motorcycle Dealer/Franchise Law
– Indiana Does Not Have a Recreational and Power Sports Vehicle Dealer/Franchise Law
– Indiana Does Have a Restaurant Liability Law
Indiana’s detailed regulation of the franchise relationship is included in the Indiana Deceptive Franchise Practices Act (“IDFPA”).
Section 1 of the IDFPA, focuses on forbidden provisions, and makes it unlawful for any franchise agreement to contain any of the following provisions: (1) Requiring goods, supplies, inventories, or services to be purchased exclusively from the franchisor or sources designated by the franchisor where such goods, supplies, inventories, or services of comparable quality are available from sources other than those designated by the franchisor. However, the publication by the franchisor of a list of approved suppliers of goods, supplies, inventories, or service or the requirement that such goods, supplies, inventories, or services comply with specifications and standards prescribed by the franchisor does not constitute designation of a source nor does a reasonable right of the franchisor to disapprove a supplier constitute a designation. The IDFPA explicitly exempts from this provision the principal goods, supplies, inventories, or services manufactured or trademarked by the franchisor; (2) Allowing the franchisor to establish a franchisor-owned outlet engaged in a substantially identical business to that of the franchisee within the exclusive territory granted the franchisee by the franchise agreement; or, if no exclusive territory is designated, permitting the franchisor to compete unfairly with the franchisee within a reasonable area; (3) Allowing substantial modification of the franchise agreement by the franchisor without the consent in writing of the franchisee; (4) Allowing the franchisor to obtain money, goods, services, or any other benefit from any other person with whom the franchisee does business, on account of, or in relation to, the transaction between the franchisee and the other person, other than for compensation for services rendered by the franchisor, unless the benefit is promptly accounted for, and transmitted to the franchisee; (5) Requiring the franchisee to prospectively assent to a release, assignment, novation, waiver, or estoppel which purports to relieve any person from liability to be imposed by the IDFPA, or requiring any controversy between the franchisee and the franchisor to be referred to any person, if referral would be binding on the franchisee. This prohibition does not apply to arbitration before an independent arbitrator; (6) Allowing for an increase in prices of goods provided by the franchisor which the franchisee had ordered for private retail consumers prior to the franchisee's receipt of an official price increase notification; (7) Permitting unilateral termination of the franchise if such termination is without “good cause” or in “bad faith”. Good cause is defined as including any material violation of the franchise agreement; (8) Permitting the franchisor to fail to renew a franchise without good cause or in bad faith. This chapter shall not prohibit a franchise agreement from providing that the agreement is not renewable upon expiration or that the agreement is renewable if the franchisee meets certain conditions specified in the agreement; (9) Requiring a franchisee to covenant not to compete with the franchisor for a period longer than three (3) years or in an area greater than the exclusive area granted by the franchise agreement or, in absence of such a provision in the agreement, an area of reasonable size, upon termination of or failure to renew the franchise; (10) Limiting litigation brought for breach of the agreement in any manner whatsoever; (11) Requiring the franchisee to participate in any: (A) advertising campaign or contest; (B) promotional campaign; (C) promotional materials; or (D) display decorations or materials; at an expense to the franchisee that is indeterminate, determined by a third party, or determined by a formula, unless the franchise agreement specifies the maximum percentage of gross monthly sales or the maximum absolute sum that the franchisee may be required to pay.
Section 2 of the IDFPA, focuses on prohibited practices, as opposed to forbidden provisions which were identified in the former section. Under Section 2, the IDFPA first makes it unlawful for any franchisor to engage in any of the following acts and practices in relation to the franchise agreement:
(1) Coercing the franchisee to: (i) order or accept delivery of any goods, supplies, inventories, or services which are neither necessary to the operation of the franchise, required by the franchise agreement, required by law, nor voluntarily ordered by the franchisee; (ii) order or accept delivery of any goods offered for sale by the franchisee which includes modifications or accessories which are not included in the base price of those goods as publicly advertised by the franchisor; (iii) participate in an advertising campaign or contest, any promotional campaign, promotional materials, display decorations, or materials at an expense to the franchisee over and above the maximum percentage of gross monthly sales or the maximum absolute sum required to be spent by the franchisee provided for in the franchisee agreement; in the absence of such provision for required advertising expenditures in the franchise agreement, no such participation may be required; or (iv) enter into any agreement with the franchisor or any designee of the franchisor, or do any other act prejudicial to the franchisee, by threatening to cancel or fail to renew any agreement between the franchisee and the franchisor. Notice in good faith to any franchisee of the franchisee's violation of the terms or provisions of a franchise or agreement does not constitute a violation of this subdivision.
(2) Refusing or failing to deliver in reasonable quantities and within a reasonable time after receipt of an order from a franchisee for any goods, supplies, inventories, or services which the franchisor has agreed to supply to the franchisee, unless the failure is caused by acts or causes beyond the control of the franchisor.
(3) Denying the surviving spouse, heirs, or estate of a deceased franchisee the opportunity to participate in the ownership of the franchise under a valid franchise agreement for a reasonable time after the death of the franchisee, provided that the surviving spouse, heirs, or estate maintains all standards and obligations of the franchise.
(4) Establishing a franchisor-owned outlet engaged in a substantially identical business to that of the franchisee within the exclusive territory granted the franchisee by the franchise agreement or, if no exclusive territory is designated, competing unfairly with the franchisee within a reasonable area. However, a franchisor shall not be considered to be competing when operating a business either temporarily for a reasonable period of time, or in a bona fide retail operation which is for sale to any qualified independent person at a fair and reasonable price, or in a bona fide relationship in which an independent person has made a significant investment subject to loss in the business operation and can reasonably expect to acquire full ownership of such business on reasonable terms and conditions.
(5) Discriminating unfairly among its franchisees or unreasonably failing or refusing to comply with any terms of a franchise agreement.
(6) Obtaining money, goods, services, or any other benefit from any other person with whom the franchisee does business, on account of, or in relation to, the transaction between the franchisee and the other person, other than compensation for services rendered by the franchisor, unless the benefit is promptly accounted for, and transmitted to the franchisee.
(7) Increasing prices of goods provided by the franchisor which the franchisee had ordered for retail consumers prior to the franchisee's receipt of a written official price increase notification.
(8) Using deceptive advertising or engaging in deceptive acts in connection with the franchise or the franchisor's business.
Section 3 of the IFPDA regulates notices of franchise terminations and simply states that unless otherwise provided in the franchise agreement, any termination of a franchise or election not to renew a franchise must be made on at least ninety (90) day's notice.
Section 3 of the IFPDA also discusses damages and reformation remedies to violations. Again, very succinctly, the Act states that any franchisee who is a party to a franchise agreement which contains any provision set forth in Section 1 of this chapter or who is injured by an unfair act or practice set forth in Section 2 of this chapter may bring an action to recover damages, or reform the franchise agreement.
In Indiana, the following Dealer/Franchise Termination, Fraud and Non-Renewal Laws, and Franchise Industry-Specific Laws, are identified as follows:
Indiana State Franchise Disclosure/Registration Laws
Indiana Code, Title 23, Article 2, Chap. 2.5, Sec. 1 through 51
Indiana State Franchise Relationship/Termination Laws
Deceptive Franchise Practices Law
Indiana Code, Title 23, Article 2, Chap. 2.7, Sec. 1 through 7
Indiana State Business Opportunity Laws
Business Opportunity Transactions Law
Indiana Code, Title 24, Article 5, Chap. 8, Sections 1 through 21
Indiana Alcoholic Beverage Franchise/Wholesaler Laws
Indiana beer law
Ind. Code Ann. §7.1-5-5-9
Indiana Equipment Franchise/Dealer Laws
Indiana does not have an industry-specific law in this area
Indiana Gasoline Franchise/Dealer Laws
Indiana gasoline Franchise/Dealer law
Indiana Marine Franchise/Dealer Laws
Indiana does not have an industry-specific law in this area
Indiana Motor Vehicle Franchise/Dealer Laws
Indiana motor vehicle Franchise/Dealer law
Ind. Code Ann. Tit. 9, Art. 23
Indiana Motorcycle Franchise/Dealer Laws
Indiana does not have an industry-specific law in this area
Indiana Recreational and Powersports Vehicle Franchise/Dealer Laws
Indiana does not have an industry-specific law in this area
Indiana restaurants liability law
Ind. Code Ann. Tit. 34, Art. 30, Chap. 23
Sheldon v. Munford, Inc.Eyeglasses, United States Court of Appeals, Seventh Circuit, December 5, 1991950 F.2d 403 (“We note that Indiana has a statute protecting Indiana franchises which declares unlawful any provision in a Franchise Agreement with a resident of Indiana which permits the franchise to be terminated “without good cause or in bad faith.” “Good cause” is defined as including “any material violation of the franchise agreement.” See Wright–Moore Corp. v. Ricoh Corp., 908 F.2d 128, 136–37 (7th Cir.1990); Ind.Code § 23–2–2.7–1(7). The contractual choice of Georgia law could not supervene Indiana's franchise statute, 908 F.2d at 132 (except, possibly, that the agreement in this case was formed before enactment of the statute in 1976). In any event, we do not think the objective standard of reasonableness in the instruction would be supported by the terms of the statute, which differ from the agreement only in requiring that a violation of the agreement be “material,” and that termination not be in bad faith. 5 In the light of the facts of this case, however, and the positions urged by the parties, we do not deem the error in this instruction to have been prejudicial to Munford. The jury was instructed on the plaintiffs' theories that the agreement had been modified so that the Sheldons need be current only by March 31, 1987, or that Munford had waived strict compliance. The error in the instruction could have hurt Munford only if the jury had found there was no agreement to extend the time for payment and/or no waiver of compliance, so that there was a material breach, but nevertheless decided that a reasonably prudent company would not have terminated the agreement. We consider this basis of decision most unlikely under the evidence.”)
Canada Dry Corp. v. Nehi Beverage Co., Inc. of Indianapolis, United States Court of Appeals, Seventh Circuit, December 2, 1983, 723 F.2d 512 (“Discrimination Under The Indiana Deceptive Franchise Practices Act -- The Indiana Deceptive Franchise Practices Act provides that, It is unlawful for any franchisor who has entered into any franchise agreement with a franchisee who is a resident of Indiana to engage in any of these acts and practices in relation to the agreement: (5) discriminating unfairly among its franchisees, or unreasonably failing or refusing to comply with any terms of a franchise agreement... IND.CODE § 23–2–2.7–2(5). The jury awarded Nehi $200,000 in compensatory damages on its claim that Canada *521 Dry unfairly discriminated against it by refusing to initiate a “soft drink program” for ginger ale and by terminating the agreement prematurely. On appeal, Nehi asserts that it established a prima facie case of discrimination, with a resulting shift in the burden of proof to Canada Dry to prove as an affirmative defense that there were legitimate nondiscriminatory reasons for its conduct. First, with respect to the soft drink program, Nehi's “prima facie case” consists of the following: (1) Nehi was the only bottler out of a total of nine midwestern bottlers presented with a ginger ale soft drink program which was not given the opportunity to initiate the program; (2) the soft drink program was part of a broad based midwestern marketing effort; (3) all of Canada Dry's national advertisements were, at the time in question, geared to the promotion of ginger ale as a soft drink; and (4) Nehi was consistently ready, willing and able to initiate a soft drink program. Second, with respect to the premature termination of the agreement, Nehi's “prima facie case” of discrimination contains these elements: (1) to the best of any witness' knowledge, Canada Dry had never before terminated a bottler; (2) the quality of Nehi's Canada Dry products was allegedly no worse than those of other midwestern Canada Dry bottlers, of which none was terminated; (3) although Nehi failed to meet sales goals contained in the agreement, such failure had never led Canada Dry to terminate any other bottlers; and finally (4) in relative terms, Nehi's sales of Canada Dry products were rising faster than the national average and the average of midwestern Canada Dry bottlers at the time Canada Dry terminated the agreement. We conclude, however, that Nehi failed to introduce sufficient evidence for the jury to find that Nehi established a prima facie case of discrimination. Discrimination among franchisees means that as between two or more similarly situated franchisees, and under similar financial and marketing conditions, a franchisor engaged in less favorable treatment toward the discriminatee than toward other franchisees. Thus, proof of “discrimination” requires a showing of arbitrary disparate treatment among similarly situated individuals or entities. This principle is supported by the very authorities which Nehi itself has cited in favor of its position. Thus, in Swayne & Hoyt, Ltd. v. United States, 300 U.S. 297, 57 S.Ct. 478, 81 L.Ed. 659 (1937), the Supreme Court held that appellees established a prima facie case of discrimination with respect to the ocean freight rates charged by appellants. The court stated, “[t]he differential between appellants' rates on commodities transported under contract and the rates on the same commodities for non-contract shippers was prima facie discriminatory since the two rates were charged for identical services and facilities,” 300 U.S. at 303, 57 S.Ct. at 480 (emphasis supplied). Similarly, in Atchison, Topeka and Santa Fe Ry. v. United States, 218 F.Supp. 359 (N.D.Ill.1963), the district court noted, “both the Interstate Commerce Commission and the federal courts have ruled that undue prejudice or preference [in freight rates] does not exist unless the transportation conditions with regard to the prejudiced and preferred points are substantially similar.” 218 F.Supp. at 366. Finally, in McDonnell-Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973), the Supreme Court held that one element of a plaintiff's prima facie case of class-based discrimination in employment is that the plaintiff is qualified for the job (and, hence, similar in this respect to other applicants). Thus, one who alleges employment discrimination in violation of Title VII must show substantial similarity to other applicants except for race, sex, religion or national origin. 411 U.S. 802, 93 S.Ct. 1824. Given the necessity of showing similarity of situation in connection with a claim of discriminatory treatment—whether involving shippers, job applicants or franchisees—Nehi's discrimination claim must fail as a matter of law. Nehi introduced no evidence of more favorable treatment of simi *522 lar bottlers under similar marketing conditions either as to the soft drink program or as to termination of the franchise agreement. For example, Nehi did not show whether it was as qualified to enter the soft drink program as the eight bottlers who were offered such a program; nor did it demonstrate that it was more qualified than bottlers who were also not offered the program, of which Canada Dry asserts there were at least fifteen. As to termination, Nehi's only evidence of discrimination was that no bottler had ever been terminated by Canada Dry before, although some bottlers exhibited some of the deficiencies which formed the basis for Nehi's termination by Canada Dry. No evidence was submitted indicating that any bottler had acted comparably to Nehi with respect to the full range of Nehi's deficiencies. The fact that some bottlers were deficient in only some of the ways in which Nehi was deficient, but were not terminated (e.g., other bottling facilities reported yeast contamination in their plants), is an inadequate basis for comparison between Nehi and other bottlers. Therefore, such comparisons provide insufficient evidence from which a reasonable jury could conclude, prima facie, that Canada Dry unfairly discriminated against Nehi. A demonstration of comparability in a termination context will no doubt often be difficult, but we think this is no reason for sustaining discrimination claims where there is an inadequate basis of comparison. Absent an adequate showing of comparability between the alleged deficiencies of Nehi and the deficiencies of other bottlers, it was error to submit Nehi's claim under IND.CODE § 23–2–2.7–2(5) to the jury. A verdict should have been directed or a judgment notwithstanding the verdict granted to Canada Dry with respect to this claim.”)
Wright-Moore Corp. v. Ricoh Corp., United States Court of Appeals, Seventh Circuit, November 10, 1992980 F.2d 432 (“The distributorship agreement was a non-renewable contract -- Even viewing the distributorship agreement as constituting an Indiana franchise, it was a non-renewable contract within the meaning of Section 1(8) of the Indiana Deceptive Franchise Practices Act (Indiana Code § 23-2-2.7-1(8)). As we noted in our prior opinion, the agreement itself contains only a one-year term, although Wright-Moore had endeavored to obtain a two-year term. Article 9(a) of the distributorship agreement required the negotiation and execution of an entirely new written agreement, showing that renewal was not automatic but that a new agreement would be necessary for renewal. Since this contract contained a non-renewable one-year term, under the above statutory provision good cause was not needed to enable defendant to terminate it.”)
Wright-Moore Corp. v. Ricoh Corp., United States District Court, N.D. Indiana, Fort Wayne Division, December 10, 1991, 794 F.Supp. 844 (“Defendant next argues that the limitations on renewal in Ind.Code § 23–2–2.7–1(8) do not apply in this case because plaintiff never had an expectation of a renewal. Indiana's limitation on non-renewals is explicitly made inapplicable in certain circumstances. Specifically, the following sentence was added to Ind.Code § 23–2–2.7–1(8): This chapter shall not prohibit a franchise agreement from providing that the agreement is not renewable upon expiration or that the agreement is renewable if the franchisee meets certain conditions specified in the agreement.Defendant argues that the Indiana act's limitation on non-renewal clauses was designed to preserve the reasonable expectations of the parties. Thus, if the franchise agreement provides for automatic renewals or otherwise indicates renewals will be forthcoming, thereby creating an expectation of renewal, the statute prohibits non-renewals without good cause. However, if the agreement provides it is non-renewable or renewable only if the franchisee meets certain conditions, thereby creating no expectations of renewal, the agreement is enforceable as written. Defendant points out that the Distributorship Agreement entered into between Ricoh and Wright–Moore has a provision relating to the term of the Agreement. Article 9(a) of the Agreement provides as follows: This Agreement shall commence as of the date hereof and, unless earlier terminated as provided herein, shall continue in effect for an initial period of one (1) year. Thereafter, this Agreement may be renewed for additional one (1) year periods by written agreement of both parties at least sixty (60) days prior to the expiration of the initial term or any annual renewal term. Defendant admits that Article 9(a) provides for the possibility of renewals, but argues that it does not provide for mandatory renewals or renewals which occur automatically. Defendant concludes that the language of the Agreement is no different than a provision simply stating that the contract was not renewable upon expiration, and, under the language of Article 9(a), the parties had to explicitly agree to the renewal, which is the exact same requirement that would apply if the Agreement simply specifically stated it was non-renewable. Defendant further argues that Mr. Wright has essentially admitted that the contractual language gave him no expectation of a long-term arrangement. In fact, Mr. Wright specifically asked Ricoh for a longer term contract but his request was rejected22. 10 Plaintiff counters with the argument that the court should endorse a very strict, literal reading of Ind.Code § 23–2–2.7–1(8). According to the plaintiff, the “good cause” requirement does not apply if the franchise agreement provides: (a) that it is not renewable upon expiration; or (b) that it is renewable if the franchisee meets certain conditions specified in the agreement. Plaintiff concludes that the Distributorship Agreement between plaintiff and defendant contains neither of these provisions and therefore the good cause requirement applies. The court finds that plaintiff's construction and application of the statute to the case at bar is incorrect. First, the clear intent of the parties was for the Distributorship Agreement to not be automatically renewable, but to be subject to renewal by express agreement of the parties. Second, it must be remembered that when the Distributorship Agreement was entered into, the parties intended for it to be governed by New York law. Thus, the parties would not have written Article 9(a) so as to conform to a strict reading of an Indiana statute and the court will not now impose a strict construction of the statute on the defendant. Consequently, the court concludes *862 that Ricoh did not have an obligation to renew the Agreement, and thus did not violate Ind.Code § 23–2–2.7–1(8) for any alleged failure to renew without good cause or in bad faith. Accordingly, the court will grant summary judgment for Ricoh on the issue of wrongful non-renewal of the Distributorship Agreement. E. Breach of Credit Terms (Substantial Modification) In Count III of its complaint, plaintiff alleges that the defendant breached the contract between the parties. Specifically, Count III alleges that “pursuant to the terms of the letter agreement between the parties, plaintiff properly exercised its option in January 1985 to purchase an additional 3,000 copiers” but that “defendant has shipped only approximately 1,000 of the copiers ordered under the letter agreement....”23 Under the terms of the July 23, 1984 letter agreement, defendant agreed to sell Wright–Moore 1,200 machines under special payment terms of 15% down and six months to pay the balance. Other special terms were incorporated as well. The letter agreement also gave Wright–Moore the option to purchase additional machines on the same terms until January 30, 1985. When Wright–Moore, however, attempted to exercise that option, defendant refused to sell the machines under the specific credit terms and instead insisted on cash in advance. In this court's order of July 27, 1989 summary judgment was granted in favor of the defendant on this issue. The court held: Under the distributorship agreement, the terms of sale of copiers were subject to unilateral change by Ricoh as it saw fit. In Article 2(b) of the distributorship agreement, Ricoh reserved the right “to change its prices and terms of sale of the products at any time without prior notice to the distributor.” Under that agreement, Ricoh's right to change the terms of sale was unfettered. Thus, when the two contemporaneously executed agreements are construed together, it is clear that plaintiff's option to purchase additional copiers was limited by Ricoh's reservation of right to change the terms of sales of the copiers. July 27, 1989 Order at 41. On appeal to the Seventh Circuit, the Court did not reach this issue, because the Court concluded that, if the Distributorship Agreement was an Indiana franchise, then one provision of the Indiana Deceptive Franchise Practices Act might apply to Article 2(b). The Seventh Circuit noted that Ind.Code § 23–2–2.7–1(3) provides that it is unlawful for a franchise contract to allow “substantial modification of the franchise agreement by the franchisor without the consent in writing of the franchisee.” Thus, the Seventh Circuit remanded this issue for further development of the record24.
Assuming that the Distributorship Agreement constitutes an Indiana franchise agreement, defendant argues that Ind.Code § 23–2–2.7–1(3) has no application to the present case. Defendant contends that the agreement which plaintiff claims was “substantially modified” through the change in credit terms was not the agreement which plaintiff claims to constitute the franchise agreement, i.e., the Distributorship Agreement, but that the change was addressed to an option agreement entered in January of 1985. Defendant concludes that any “modification” was not to the claimed “franchise agreement” but to purchase orders generated later and, as a matter of law, such a modification was not contrary to Ind.Code § 23–2–2.7–1(3). Plaintiff has not responded to this argument. However, the court has already ruled that the Distributorship Agreement and the letter agreement are to be read together. The terms of the later option agreement were set out in the letter agreement, and it is the letter agreement, rather than the option agreement, that gives rise to plaintiff's claim of breach of contract terms. Thus, any modification, substantial *863 or otherwise, of the credit terms necessarily constituted a modification of the Distributorship Agreement, which is assumed to be a franchise agreement. 11 Defendant next argues that assuming that Ind.Code § 23–2–2.7–1(3) applies, the “modification” in this case was not “substantial.” Defendant claims that a “substantial modification” is one which has a substantial adverse effect on a franchisee's competitive position25, and argues that in this case there is no evidence that the change in credit terms had any adverse effect on Wright–Moore or Wright–Moore's competitive position. First, defendant contends that Ricoh compensated Wright–Moore for the change in credit terms by providing Wright–Moore with an additional 5 1/2% discount, plus an 8% rebate which was changed to a discount off the price itself, for a total additional discount of 13 1/2%. In his deposition, Jack Wright was asked to identify a specific hardship which the change in credit terms caused to plaintiff. Mr. Wright was unable to do so, stating at one point that he didn't know if the change caused Wright–Moore any harm26. Mr. Wright further testified that the reason he didn't buy the machines under the cash terms with the additional discounts was “the principle of it.”27 Defendant concludes that there was not a substantial change in credit terms, in violation of Ind.Code § 22–2–2.7–1(3), since the change in terms did not cause plaintiff any “adverse effects” as Mr. Wright was unable to point to any harm at all to Wright–Moore28. Plaintiff argues that since the question of whether a breach of a franchise contract is a jury question, the question of whether a change in a contract is “substantial” is also a jury question. Plaintiff also argues that whether Wright–Moore acted reasonably to mitigate its damages is also a question of fact and thus the issue of breach of credit terms is inappropriate for summary judgment. Plaintiff further claims that there is a dispute as to whether plaintiff had the cash or credit lines available to make the purchase of the remaining machines. Specifically, plaintiff points out that in August of 1985 (the time period in which plaintiff was to purchase the additional machines) it had a current liability, in the form of a note payable to the bank, of $857,068, and total current liabilities of $1,316,054. Plaintiff summarily concludes that there is an obvious factual issue as to plaintiff's ability to pay cash for additional machines, costing approximately $2.3 million, under these circumstances. However, plaintiff's reference to its August 1985 balance sheet does not negate Mr. Wright's statement that he was not going to say that he didn't order the machines because he didn't have the credit, but that it was the principle of the issue29. Although plaintiff may very well have had a large current liability owing to the bank this does not constitute evidence that plaintiff was unable to obtain favorable credit terms for the purchase of the machines. Plaintiff has merely shown that it did not wish to purchase the machines on cash, not that it suffered any harm by Ricoh's change in the credit terms. The court fails to see how plaintiff expects to prove to a jury that Ricoh violated the Indiana act by causing a “substantial modification” of the franchise agreement without Wright–Moore's consent. Plaintiff has not come forward with any evidence of harm, loss, or adverse effect on its business as a result of the change in credit terms. Consequently, the court holds, as a matter of law, that the change in credit terms was not a substantial modification of the Distributorship Agreement. Plaintiff, as part of its response to defendant's motion for summary judgment on plaintiff's claim for breach of the credit *864 terms of the letter agreement, argues that if plaintiff is a franchisee, then the defendant's failure to deliver the balance of the machines ordered was a violation of Ind.Code § 23–2–2.7–2(2) which provides: It is unlawful for any franchisor who has entered into any franchise agreement with a franchisee who is either a resident of Indiana or a nonresident operating a franchise in Indiana to engage in any of the following acts and practices in relation to the agreement: * * * * * * (2) Refusing or failing to deliver in reasonable quantities and within a reasonable time after receipt of an order from a franchisee for any goods, supplies, inventories, or services which the franchisor has agreed to supply to the franchisee, unless the failure is caused by acts or causes beyond the control of the franchisor. Defendant, in reply, claims that this court in its order of July 27, 1989, entered summary judgment against plaintiff on this statutory claim and thus the claim is barred by res judicata. First, it is clear that plaintiff raised this claim in its complaint. See Complaint, Count II, at ¶ 55. Second, it is clear that this court granted defendant summary judgment on this claim as the plaintiff did not produce sufficient evidence on this claim to justify submitting its claim to a jury. See Order at 39–40. Third, the Seventh Circuit did not reverse this court's grant of summary judgment on this claim, nor did it remand for further evidence on this issue. Consequently, this court agrees with the defendant that plaintiff is now barred from raising its claim under Ind.Code § 23–2–2.7–2(2). 12 Finally, plaintiff puts forth the argument that even if plaintiff is not a franchisee, the contract for the sale of additional machines was a contract for the sale of goods governed by the Uniform Commercial Code and there is a question of fact as to whether the defendant acted in good faith in unilaterally altering the credit terms. Defendant disputes the application of the UCC to this case, and contends that it changed the terms of the sale of machines in good faith, because the plaintiff was the source of very serious credit concerns at Ricoh. The evidence clearly shows that Ricoh had reason to be concerned about extending further credit to plaintiff. First, plaintiff had previously provided a false and misleading credit application to Ricoh, misrepresenting plaintiff's annual sales by approximately $3.3 million and claiming a $250,000 credit line with its own “shell” corporation, Summit Business Systems. Second, the evidence clearly shows that Ricoh had in its possession Wright–Moore's August 31, 1984 financial statements and had expressed concern over Wright–Moore's credit position. In fact, an interoffice memo suggested that Ricoh should obtain a letter of credit from Wright–Moore and also explore the possibility of obtaining a personal guarantee from Mr. Wright and his wife. For these reasons, the court finds plaintiff's claim under the UCC to be without merit. “)
Ford Motor Credit Co. v. Garner, United States District Court, N.D. Indiana, Fort Wayne Division, June 3, 1988688 F.Supp. 435 (“Unfair Discriminatory Practices -- 8 The Garners argue that FMCC unfairly discriminated against them in the enforcement of the guaranty. Indiana's “Motor Vehicle Manufacturers, Distributors, and Dealers” statute makes it unlawful for manufacturers or distributors to “[v]iolate the provisions of I.C. 23–2–2.7.” See I.C. 9–10–3–2. Indiana Code 23–2–2.7 is the “Deceptive Franchise Practices” Act and it prohibits franchisors from discriminating *444 unfairly among franchisees.11 Before reaching the question of unfair discrimination the court must decide whether FMCC is a manufacturer within the meaning of I.C. 9–10–3–2. FMCC did not brief the question of whether it is a manufacturer for purposes of I.C. 9–10–3–2. The statute defines manufacturer as a person engaged in manufacturing or assembling vehicles and selling vehicles.12 FMCC does neither and is not, therefore, a manufacturer within the plain meaning of the Act. It could have been argued, as has been argued under the Automobile Dealers Day in Court Act, 15 U.S.C. § 1221, et seq. (1976), that even non-manufacturers who are in reality only instrumentalities, or who are subject to the manufacturer's control, or who are alter egos, should be considered as manufacturers for purposes of the Act. See DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 550 F.Supp. 1199, 1201–02 (N.D.Ill. 1982), and cases cited therein. But this argument would fail because of the important difference in the way the word manufacturer is defined under the two Acts. The federal statute defines a manufacturer as a person who manufactures or assembles cars or a corporation which “acts for and is under the control of such manufacturer....” 15 U.S.C. § 1221(a).
The state statute contains no similar language which would allow this court to hold that FMCC, as a non-manufacturer, is a manufacturer for the purposes of I.C. 9–10–3–2. 9 Assuming this initial hurdle was successfully jumped, so that I.C. 23–2–2.7–2(5) applied in this case, the Garners would be immediately confronted with a second obstacle. The Deceptive Practices Franchise Act prohibits unfair discrimination among franchisees or dealers as the Garners argue.13 Garner Lincoln–Mercury, Inc. is the franchisee (or dealer) in this case, the Garners are not. But the Garners cite a string of cases which hold that non-dealers may invoke the protections of the Federal Dealers Day in Court Act. See Kavanaugh v. Ford Motor Co., 353 F.2d 710 (7th Cir.1965); John Peterson Motors, Inc. v. General Motors Corp., 613 F.Supp. 887, 903 (D.Minn.1985); DeValk, 550 F.Supp. at 1203–04. As the following analysis will show, however, each of these cases represents instances in which departure from the general rule was well justified. The general rule under the federal statute is that only the corporation may seek protection under the Act when the dealer is a corporate entity. John Peterson, 613 F.Supp. at 903; Schmitt–Norton Ford, Inc. v. Ford Motor Co., 524 F.Supp. 1099, 1104–05 (D.Minn.1981). In Kavanaugh, the court pierced the corporate veil and held that Mr. Kavanaugh was a “dealer” within the meaning of the Act, given various contracts which considered him the dealer, given the fact that both parties considered him the intended dealer, and given the Act's fundamental purpose of balancing the power now weighted heavily in favor of manufacturers. Kavanaugh, 353 F.2d at 710. In John Peterson, the court held that Peterson was a “dealer” within the meaning of the Act because he was the president, the sole shareholder and *445 the director, so that the corporation was merely an alter ego of Peterson. John Peterson, 613 F.Supp. at 903. And in DeValk, the court held that dismissal of two shareholders would be improper, drawing all inferences in their favor. DeValk, 550 F.Supp. at 1203–04. Before looking at Mr. Garner's relationship to Garner Lincoln–Mercury, Inc., the court emphasizes that each of these cases dealt with the federal Act and are cited only as analogous authorities.
Moreover, these cases represent departures from the general rule. Unless a plaintiff can make out a legitimate reason for finding an exception to the general rule, the general rule must be applied. See Schmitt–Norton, 524 F.Supp. at 1107. The Garners argue that in 1980 Mr. Garner was an 80% stockholder in the dealership and that he and his wife invested everything they had in the dealership. But those facts, while they suggest a very close relationship between Mr. Garner and the corporation, do not rise to the level which compelled the Kavanaugh, John Peterson, and DeValk courts to depart from the general rule. While this is a close question, the court holds that the Garners are not dealers within the meaning of the Indiana Act. 10 If they were, and still assuming the first hurdle had been overcome, the court would have to decide whether FMCC (as a “manufacturer”) had “discriminated unfairly” against the Garners (“franchisees” or “dealers”). See n. 11, infra. The evidence supports the conclusion that the Garners were discriminated against (treated differently) in the enforcement of the guaranty. See Findings of Fact, pp. 7–8. It does not, however, support the conclusion that they were unfairly discriminated against. The word unfairly is used in I.C. 23–2–2.7–2(5) to modify the word discriminated, so that only discrimination which is not fair discrimination is actionable under I.C. 23–2–2.7–2(5). An analogy can be found in employment discrimination cases, where the McDonnell Douglas–Burdine three step paradigm is applied. See Reeder–Baker v. Lincoln Nat. Corp., 649 F.Supp. 647 (N.D.Ind.1986), aff'd 834 F.2d 1373 (7th Cir.1987); Beard v. Whitley County REMC, 656 F.Supp. 1461 (N.D.Ind.1987), aff'd 840 F.2d 405 (7th Cir.1988). If a prima facie case of discrimination is proved by the plaintiff, then the burden of production shifts to the defendant to offer a legitimate non-discriminatory reason for its action—that is, that it did what it did for some legitimate (i.e., non-race, non-sex, non-retaliatory) reason. It matters not what the reason is so long as it is non-discriminatory. Thus, even bad reasons are good enough, so long as they are non-discriminatory. See Pollard v. REA Magnet Wire, 824 F.2d 557 (7th Cir.1987), cert. denied, ––– U.S. ––––, 108 S.Ct. 488, 98 L.Ed.2d 486 (1987). If the prima facie case is rebutted, then the plaintiff has to prove that the proffered reason is pretextual, that a discrimination reason more likely motivated the employer. FMCC discriminated against the Garners (treated them differently) by waiting so long to enforce the guaranty. But FMCC offered two fair reasons for its delay (discrimination) in enforcing the guaranty: (1) FMCC had no knowledge that the Garners had any income before 1985; and (2) the corporation was in bankruptcy, so that the losses were not clearly established. These are clearly non-discriminatory (fair) reasons for the way the Garners were treated and there is no real suggestion that these reasons are pretextual. Accordingly, the court finds that FMCC did not unfairly discriminate against the Garners.”)