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Finlay & Associates Inc. v. Borg-Warner Corp.

Decided: September 22, 1976.


Petrella, J.s.c.


Plaintiff, a distributor terminated by defendant Borg-Warner Corporation, claimed the termination of its distributorship was wrongful, alleging applicability and violation of the New Jersey Franchise Practices Act (first count). It also seeks damages, including treble damages, for alleged violations of the New Jersey Antitrust Act and conspiracy to violate it.

The last sentence of plaintiff's pretrial contentions refers to a possible tort claim, although paragraph 7 of the pretrial order includes no such issue. See R. 4:25. At commencement of trial the parties agreed (despite a jury demand*fn1 of

the added second defendant, Tek-Bearing Co., in response to the amended complaint against it on a conspiracy theory) that there was no right to a jury under the New Jersey Franchise Practices Act. The entire case as to that act was heard by the court without a jury. Because of the apparent inclusion of a tort claim a jury was impanelled as to any alleged tort of interference with economic advantage or contractual relations, and subject to any further determination as to the propriety of a jury in a ruling at the end of the case, the alleged Antitrust Act violations were presented before the jury.

I. Franchise Practices Aspect

Plaintiff Finlay and Associates, Inc. entered into a written distributorship agreement dated October 11, 1968 with Morse Chain, Inc., predecessor to defendant Borg-Warner. The New Jersey Franchise Practices Act, N.J.S.A. 56:10-1 et seq. , adopted as L. 1971, c. 356, effective December 21, 1971, applies to franchises created or renewed or amended after the effective date. See N.J.S.A. 56:10-8. In this case there is no written amendment to the distributorship agreement. Nevertheless, plaintiff alleges that the act applies by virtue of certain alleged additions or withdrawals of product lines specifically listed in that agreement and which it claims occurred after the effective date, and thus should be treated as amendments to the distributorship agreement

to bring it within the statute's coverage. Under N.J.S.A. 56:10-5, if the act applies, a franchisee can be terminated only in accordance with the act, and on notice and for good cause. "Franchise" is defined in N.J.S.A. 56:10-3(a):

"Franchise" means a written arrangement for a definite or indefinite period, in which a person grants to another person a license to use, a trade name, trade mark, service mark, or related characteristics, and in which there is a community of interest in the marketing of goods or services at wholesale, retail, by lease, agreement or otherwise. [Emphasis added]

N.J.S.A. 56:10-4 spells out "franchises," as defined, to which the act is applicable. Thus, gross sales of products between the franchisor and the franchisee covered by such franchise must exceed $35,000 for the 12 months before suit, and more than 20% of the franchisee's gross sales must be intended to be or are derived from the franchise. These two conditions were satisfied in this case. The third element is that performance contemplates or requires the franchisee "to establish or maintain a place of business within the State of New Jersey." The term "place of business" means, according to N.J.S.A. 56:10-3(f), a fixed geographical location, other than an office or warehouse or the like. The testimony that was credible indicated that plaintiff's business consisted of an office and warehouse operation from which incidental sales and pickups were made. Plaintiff's description was in large respect undermined by photographs of the interior. Nevertheless, it is clear that sales can be made from a warehouse.

The court considered various questions in this case. Is the definition of a franchise met? Was there a license granted? Was there a requirement of a "fixed geographical location" within this State in the agreement or contemplated thereby? Was there anything besides an office and warehouse maintained by plaintiff in this State? In considering this matter and making findings the court has determined that there is a fatal defect as a matter of law, as well as

certain omitted factual requirements, which negate plaintiffs being within the ambit of the Franchise Practices Act. There is no meeting of the statute's definition of franchise.

There is no written agreement granting a "license" to plaintiff from defendant Borg-Warner Corporation to "use" anything.

The court finds that the alleged additions to the product lines were all made available or available to plaintiff prior to the effective date of the Franchise Practices Act, and this was confirmed by defendant Borg-Warner's computer lists of products actually purchased by plaintiff on dates prior to the effective date of the Franchise Practices Act. The same applied to deletions. See Sears, Roebuck & Co. v. Merla , 142 N.J. Super. 205 (App. Div. 1976). Thus, there was no applicability of the act to the pre-existing distributorship agreement. This would resolve the issue, but the court will discuss other aspects which also preclude applicability of the act here.

There is no requirement in the written distributorship agreement, and no understanding between the parties in this case, which contemplates that plaintiff must maintain a fixed place of business within this State or at any specified geographical location. Plaintiff had a nonexclusive distributorship as to territory, area, product or competition. Plaintiff's president testified that his business made sales all over the State, although concededly primarily in the Northern New Jersey areas, as well as in Pennsylvania, New York, Maryland and other states.

Plaintiff's testimony was that no controls were placed on it in manner of operation or sales, or specific location. Even customers were not limited, subject possibly to qualification as to original equipment manufacturers. Plaintiff's president did indicate his belief that the North Jersey or Emerson area was the contemplated location. Plaintiff was not limited to any fixed geographical location. Compare, Business Incentives Co. v. Sony Corp. of America , 397 F. Supp. 63 (S.D.N.Y. 1975).

In a broad sense, any arrangement between a manufacturer and seller or distributor or retailer to sell a brandname product could be considered a franchise. However, merely because there is a sale or distribution agreement does not make it a franchise within the purview of the act. The specific requirements of the act must be met.

Plaintiff seeks the legislative history of the Franchise Practices Act by looking to a statement by the chairman of the Assembly Judiciary Committee. Such a statement can be used as a basis for determining legislative history. See Raybestos-Manhattan, Inc. v. Glaser , 144 N.J. Super. 152, 168-171 (Ch. Div. 1976), and Caldwell v. Rochelle Park Tp. , 135 N.J. Super. 66, 74 (Law Div. 1975). However, this statement was in opposition to the bill (Assembly Bill 3063 of 1971), and was addressed to the version of the bill before it was amended. The committee chairman had noted that ยง 3(a) of the bill, as then written, encompassed written or oral agreements. The chairman was speaking primarily of "exclusive" distributorships, as well as the type of franchise which is not involved in this case which included franchising of an entire business system. The legislation as enacted was limited to written agreements. The scope of the bill was narrowed, and thus that statement is of little aid here to plaintiff.

Plaintiff, as part of its sales of products, could give out or had available certain catalogs which listed or advertised Borg-Warner's products, and plaintiff could, if it wished, have its business name imprinted thereon by it or defendant Borg-Warner, or by plaintiff affixing its labels or even by its own rubber stamp. In addition, plaintiff argued that by its being furnished items such as rolls of adhesive wrapping or label tape which had advertising of the Borg-Warner name, and obtaining match books and similar advertising materials on which it could also have its name imprinted along with Borg-Warner, this constituted such a license to use Borg-Warner's name as to bring it within the Franchise Practices Act.

Mere furnishing of advertising materials as contemplated by the distributorship agreement, and allowing plaintiff to have its name placed on certain items, if it wished, as advertising (plaintiff using its own business name) for their own benefit does not fulfill the letter or intent of the Franchise Practices Act. Obviously, someone who sells a product has to, or wants to, make known that he has it. Distributing advertising materials of another's products, with or without plaintiff's name, or having those materials available, including catalogs, or participating in advertising or listing advertisements that certain individuals or businesses sell certain products, is not what is meant by a license to use the various items referred to in the statute. The agreement here merely provided that the manufacturer would make advertising material available. Although "license" is not expressly defined in the statute, it is a familiar word in the law and can be used in different senses. See Black's Law Dictionary. The question is, what does it mean in the context of the Franchise Practices Act? Although the word "license" has many applications, it means in this statute to use as if it is one's own. It implies a proprietary interest and this is what the Legislature intended in effect. Mere oral permission would not be enough under the statute.

The trademark, tradename reference means and implies use of that name in the very business title of the franchisee and a holding out or perhaps representation to the public of some special relationship or connection. Simply selling goods or distributing materials which bear the manufacturer's name or trademark does not "license" use of the "trademark." See Note, 48 Wash. L. Rev. 291 (1973). Nor is the common interest in selling a product and making a profit sufficient. The occasional repairs or incidental services performed on defendant's products by ...

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