UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF NEW YORK
March 11, 1980
UNITED STATES SURGICAL CORPORATION, Plaintiff,
OREGON MEDICAL & SURGICAL SPECIALTIES, INC., et al., Defendants, Third-Party Plaintiffs, v. Leon G. HIRSCH, Turi Josefsen and Surgical Service Corporation, Third-Party Defendants
The opinion of the court was delivered by: OWEN
MEMORANDUM AND ORDER
Plaintiff United States Surgical Corporation ("U. S. Surgical" or the "Company") originally brought this suit against certain of its dealers, including Messrs. Lamovec, Miller, Powers, and Kahn (the "Minnesota dealers"), whose dealerships it intended to eliminate on or about February 25, 1980. The Company sought a declaratory judgment to the effect that its adoption of a new marketing strategy, whereby it replaced its existing network of independent dealerships with company salesmen, does not violate the antitrust laws.
The Minnesota dealers commenced an action in Minnesota state court alleging that the proposed terminations of their dealerships by U. S. Surgical violated the Minnesota Franchise Act, M.S.A. § 80C.01, et seq. (the "Franchise Act" or the "Act"). That lawsuit was removed by U. S. Surgical to the United States District Court in Minnesota. Subsequently, the Minnesota lawsuit was transferred to the Southern District of New York and consolidated with U. S. Surgical's declaratory judgment action.
On January 17, 1980, the Minnesota dealers filed a motion for a preliminary injunction to stay U. S. Surgical's termination of their dealerships on February 25, 1980 and to enjoin the Company from competing with the defendants in Wisconsin, North Dakota, South Dakota, and Minnesota. In the alternative, they moved for summary judgment with respect to their claims under the Minnesota Franchise Act. U. S. Surgical opposed the foregoing and cross-moved for summary judgment in its favor with respect to the defendants' claims under the Franchise Act. For the reasons set forth below, U. S. Surgical's motion for summary judgment is granted, and the Minnesota dealers' motion for a preliminary injunction and/or summary judgment is denied.
The parties disagree as to the applicability of the Minnesota Franchise Act, and the regulations promulgated thereunder, to U. S. Surgical's business activities in Minnesota.
The Franchise Act "was adopted in 1973 as remedial legislation designed to protect potential franchisees within Minnesota from unfair contracts and other prevalent and prevailing unregulated abuses. . . ." Martin Investors, Inc. v. Vander Bie, 269 N.W.2d 868 (Minn.1978). The Act regulates the offer or sale of a franchise in Minnesota Minn.Stat. § 80C.01, subds. 15, 16; § 80C.19, subds. 1-4, by requiring inter alia, registration by the franchisor of a proposed offering statement, Minn.Stat. § 80C.04, and full disclosure to the prospective franchisee of the terms of the franchise, Minn.Stat. § 80C.06. In addition, the Act prohibits "any unfair and inequitable practice," Minn.Stat. § 80C.14, which the regulations define to include the termination or cancellation of a franchise except for good cause, Minn.Reg. SDiv. 1714(e), (f).
The regulations also permit a franchisor to decline to renew a franchise after giving the franchisee both 90 days notice and an opportunity to recover his investment, Minn.Reg. SDiv. 1714(m). U. S. Surgical contends that (1) the U. S. Surgical Dealership Agreement (the "Agreement") did not grant the Minnesota dealers a "franchise" within the meaning of the Act; (2) even if a U. S. Surgical dealership is a "franchise," the Company never "offered or sold" a franchise in Minnesota; (3) even if the Act applies to the Company, the regulations promulgated in 1975 cannot be retroactively applied to dealership agreements that were executed prior to the effective date of the regulations; and (4) even if the 1975 regulations are applicable to the termination at issue, the Company insists that it has not violated the Act as a result of its decision to discontinue its present reliance on independent dealers.
The court need not reach the issues pertaining to the Franchise Act's applicability to U. S. Surgical in this case. Assuming arguendo that the Act governs U. S. Surgical's conduct, on the basis of the court's interpretation of the agreements between the Company and the Minnesota dealers, the proposed terminations of the defendants' dealerships will not, in my view, result in a violation of the Act.
The Minnesota dealers argue that, by operation of the Franchise Act and Regulation 1714(e) and (f), the provisions of the U. S. Surgical Dealership Agreements permitting termination without cause are unenforceable. Consequently, the defendants conclude that the Dealership Agreements grant these dealers a U. S. Surgical "franchise" in perpetuity terminable only upon "good cause" as that term is defined by the Franchise Act. However, even assuming that the enactment of the Minnesota Franchise Act nullified the termination provisions of the agreements, the defendants are not thereby granted a U. S. Surgical dealership in perpetuity.
Under established principles of contract law,
courts are loathe to find that the absence of a terminal point indicates an intention to contract for the indefinite future, and a perpetual obligation will not usually be inferred from the absence of a terminating date . . .. If the parties intend that the obligation be perpetual they must expressly say so.
Warner-Lambert Pharmaceutical Co. v. John J. Reynolds, Inc., 178 F. Supp. 655, 661 (S.D.N.Y.1959), affirmed on the opinion below, 280 F.2d 197 (2d Cir. 1960); Boyle v. Readers' Subscription Inc., 481 F. Supp. 156 (S.D.N.Y.1979). Here, as evidenced by paragraph 17C of the Agreements, which provide for terminations without cause, there is no question that the parties did not intend to create a contract for a perpetual term. In the absence of any controlling contract provision fixing the duration of a contract, the law will deem the contract to be terminable within a "reasonable" period of time. See Warner-Lambert Pharmaceutical Co. v. John J. Reynolds, Inc., supra ; Boyle v. Readers' Subscription Inc., supra. See generally McGinnis Piano and Organ Co. v. Yamaha International Corp., 480 F.2d 474 (8th Cir. 1973); 10 N.Y.Jur. Contracts § 412 (1960 & Supp. 1978). Thus, for the purposes of these motions, the Agreements between U. S. Surgical and the Minnesota dealers will be construed so as to be terminable within a "reasonable" time.
In fixing a "reasonable" contract term, the court will be guided by "the actual though unexpressed intention of the parties . . .." Warner-Lambert Pharmaceutical Co. v. John J. Reynolds, Inc., supra. Each of the Minnesota dealers entered into their U. S. Surgical Dealership Agreements between 1973 and 1975. See note 5 supra. On or about February 25, 1980, the proposed termination date of the defendants' U. S. Surgical Dealerships, these contracts will have been in effect for five to seven years. The question presented, therefore, is whether the defendants' dealership agreements have terminated at the end of a reasonable term. An examination of the Agreements suggests that a four to five year term would be reasonable. For example, paragraph 17C of the Agreement, governing the notice required upon the termination of the dealership, provides as follows:
17. This Agreement may be terminated as follows:
C. By either party, for any other cause, or without cause, as follows:
During the first six months of dealership, upon fifteen days prior written notice; during the next six months of dealership, upon thirty days prior written notice; during the second, third and fourth years of dealership, respectively, upon sixty, ninety and one hundred twenty days prior written notice, respectively; and after the expiration of the fourth year of dealership, upon six months prior written notice.
This provision refers only to the second, third and fourth years of the dealership. It is consistent with the express language of the contracts to conclude that terms of five to seven years are reasonable. Thus, I find that the proposed February 25, 1980 terminations by U. S. Surgical occurred at a point when the contracts had been in existence for a reasonable period of time.
The Minnesota Franchise Act permits the termination or non-renewal of a franchise agreement when the contract has expired. The Franchise Act clearly contemplates that franchises may have fixed terms, and may come to an end at the conclusion of such a term. The Franchise Act regulations provide that:
(I)t shall be "unfair and inequitable' for any person to:
(m) Fail to renew a franchise unless the franchisee has been given written notice of the intention not to renew at least 90 days in advance thereof and has been given a sufficient opportunity to recover his investment or unless for good cause as defined in clause (f).
Minn.Reg. SDiv. 1714(m). Therefore, at the end of the contract term, the franchisor may simply fail or refuse to renew a franchise as long as the franchisee is given the required notice and an opportunity to recoup his investment. In sharp contrast to the "good cause" required to terminate a franchise during the term of the franchise agreement, Minn.Reg. SDiv. 1714(e), (f), non-renewal or termination without cause incident to the end of the contract term are sanctioned by the Minnesota Franchise Act and the regulations promulgated thereunder.
There appears to be no dispute over the fact that, as required by Minn.Reg. SDiv. 1714(m), the Minnesota dealers have been given the requisite notice of termination and are being given a sufficient opportunity to recoup their investments. Given the fact that U. S. Surgical has complied with the terms of the Act, the court need not decide the question of the applicability of the Minnesota Franchise Act to the U. S. Surgical dealerships. Accordingly, U. S. Surgical's motion for summary judgment with respect to the alleged violations of the Minnesota Franchise Act is granted, and the Minnesota dealers' motion for a preliminary injunction and/or summary judgment is denied.