Home Protective Serv v. ADT Security Serv In ( 2006 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-1074
HOME PROTECTIVE SERVICES, INC.,
Plaintiff-Appellant,
v.
ADT SECURITY SERVICES, INC.,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 03-C-444—Lynn Adelman, Judge.
____________
ARGUED OCTOBER 27, 2005—DECIDED FEBRUARY 13, 2006
____________
Before EASTERBROOK, EVANS, and WILLIAMS, Circuit
Judges.
WILLIAMS, Circuit Judge. Home Protective Services, Inc.
(“HPS”) sued ADT Security Services, Inc. (“ADT”) for
damages under the Wisconsin Fair Dealership Law
(“WFDL”). The district court granted summary judgment in
favor of ADT on the theory that there was no community of
interest between the parties. Because we agree with the
district court that the parties did not share a community of
interest within the meaning of the WFDL, we reject HPS’
argument that summary judgment was improperly granted
and affirm the ruling.
2 No. 05-1074
I. BACKGROUND
The facts in this case are not in dispute. Plaintiff-appel-
lant HPS is a small, family-owned business that sells,
installs, and repairs residential and small business security
systems. In this industry, local dealers like HPS typically
solicit customers, sign them to service contracts, and tender
the contracts to large alarm companies like defendant-
appellee ADT for a fee. The alarm companies choose which
contracts to accept and which to reject. If the contract is
accepted, then the dealer installs the alarm system, and the
customer pays a monthly fee to the alarm company, which
monitors the system and contacts local authorities if there
is a break-in or fire. Defendant ADT is the leading alarm
monitoring company in the United States. ADT markets its
products through both an internal sales force and through
its relationships with small dealers like HPS (the “ADT
Authorized Dealer Program”).
HPS was an ADT dealer from 1996 until its contract was
suddenly terminated by ADT in August 2002. At the time
of termination, the parties’ relationship was governed by a
document referred to as the 1998 ADT Authorized Dealer
Agreement (the “Agreement”). The Agreement contained
exclusivity and non-competition provisions which prevented
HPS from working with any ADT competitors unless ADT
first rejected the customer’s contract. Once ADT accepted a
contract, the account became ADT property, and HPS was
not permitted to contact the customer for twenty-five years
without written permission from ADT. HPS received a one-
time net payment of $800 for each customer contract it
tendered. HPS would then install the electronic security
system, which had to bear the ADT logo and meet ADT
specifications. If a customer renewed a contract upon
expiration, HPS shared in the renewal income, which was
$200-$1100 per month. If a customer canceled or defaulted,
HPS paid ADT an attrition chargeback. HPS was required
to advertise itself exclusively as an ADT authorized dealer.
No. 05-1074 3
During the relationship, HPS devoted 95% of its time and
derived 95% of its revenues from its ADT business. It spent
about 10% of its annual revenues, or about $32,000 per
year, on ADT-specific direct mail advertising.
In August 2002, following a corporate restructuring,
ADT ended its relationships with about 200 of its 700
Authorized Dealers. No notice or opportunity to cure was
provided. According to HPS’s expert, HPS incurred over
$63,000 in one-time losses while it searched for a new
partner and over $14,000 in recurring monthly losses once
it began a less profitable relationship with one of ADT’s
competititors. As a result, HPS was forced to lay off most of
its workforce and become a “mom-and-pop” operation. At
the time of termination, HPS possessed about $10,000
worth of ADT promotional materials it could no longer use.
HPS sued ADT, alleging that ADT had violated the WFDL
by terminating the Agreement without providing notice or
an opportunity for HPS to improve its performance. The
district court granted summary judgment in favor of ADT,
and HPS appeals.
II. ANALYSIS
The District Court Properly Granted Summary Judgment in
Favor of ADT Because HPS Failed to Show That There Was
a Community of Interest between the Parties.
We generally review a district court’s grant of summary
judgment de novo. McCoy v. Gilbert, 270 F.3d 503, 508 (7th
Cir. 2001). However, although the parties here characterize
this action as an appeal from a grant of summary judgment,
there is no dispute as to either the facts or the law; the sole
question is whether the agreed facts come within the ambit
of the agreed law. This invites the question whether this
case is more akin to bench trial on stipulated facts (in which
case we would review the application of fact to law for clear
error) or to a ruling on summary judgment (in which case
4 No. 05-1074
we would review the same questions de novo). Hess v.
Hartford Life & Accident Ins. Co., 274 F.3d 456, 461 (7th
Cir. 2001) (judgment on stipulated facts more akin to a
bench trial than to summary judgment, and therefore the
district court’s application of law to the facts should be
reviewed for clear error). As the parties have not briefed the
issue, and as our conclusion in this case would be the same
under either standard, we think it best to reserve the
question for another day. See Cook, Inc. v. Boston Scientific
Corp., 333 F.3d 737, 742 (7th Cir. 2003) (“No matter. The
district judge’s ruling [on stipulated facts] was not errone-
ous at all, and so the precise standard of review is unimpor-
tant”).
The WFDL provides certain protections (the right to three
months’ notice and an opportunity to cure) to grantees “of
a dealership situated in this state.” WIS. STAT. §§ 135.04,
135.02(2). A dealership as defined by the statute contains
three elements:
[1]A contract or agreement . . . [2] between 2 or
more persons, by which a person is granted the
right to sell or distribute goods or services, or use a
trade name . . . or other commercial symbol, [3] in
which there is a community of interest in the
business of offering, selling or distributing goods or
services.
WIS. STAT. § 135.02(3)(a). The first two elements are clearly
met here; the case turns on the third.
There is no bright-line test for determining whether
community of interest exists. The two primary guideposts
Wisconsin courts have established are (1) continuing
financial interest and (2) interdependence, which must be
great enough to threaten the financial health of the dealer
if the grantor exercises its power to terminate. Cent. Corp.
v. Research Prods. Corp., 681 N.W.2d 178, 186 (Wis. 2004).
The Wisconsin Supreme Court has identified a long list of
No. 05-1074 5
factors courts should consider in evaluating interdepen-
dence:
[1] How long the parties have dealt with each other;
[2] the extent and nature of the obligations imposed
on the parties in the contract or agreement between
them;
[3] what percentage of time or revenue the alleged
dealer devotes to the alleged grantor’s products or
services;
[4] what percentage of the gross proceeds or profits
of the alleged dealer derives from the alleged
grantor’s products or services;
[5] the extent and nature of the alleged grantor’s
grant of territory to the alleged dealer;
[6] the extent and nature of the alleged dealer’s
uses of the alleged grantor’s proprietary marks
(such as trademarks or logos);
[7] the extent and nature of the alleged dealer’s
financial investment in inventory, facilities, and
good will of the alleged dealership;
[8] the personnel which the alleged dealer devotes
to the alleged dealership;
[9] how much the alleged dealer spends on advertis-
ing or promotional expenditures for the alleged
grantor’s products or services; and
[10] the extent and nature of any supplementary
services provided by the alleged dealer to consum-
ers of the alleged grantor’s products or services.
Ziegler v. Rexnord, 407 N.W.2d 873, 879-80 (Wis. 1987)
(formatting altered). These factors may be distilled into two
highly important questions in establishing a community of
interest: (1) the percentage of revenues and profits the
6 No. 05-1074
alleged dealer derives from the grantor and (2) the amount
of time and money an alleged dealer has sunk into the
relationship. Baldewein Co. v. Tri-Clover, Inc., 606 N.W.2d
145, 151 (Wis. 2000). Neither of these is sufficient alone,
but strong facts in one area can make up for weaker facts in
another area. Id. at 152 n.9. The ultimate question is
whether the grantor has the alleged dealer “over a barrel”
—that is, whether it has such great economic power over
the dealer that the dealer will be unable to negotiate with
the grantor or comparison-shop with other grantors. Praefke
Auto Elec. & Battery Co. v. Tecumseh Prods. Co., 255 F.3d
460, 464-65 (7th Cir. 2001).
Here, it is undisputed that HPS derived 95% of its
revenue and devoted 95% of its personnel hours to its
arrangement with ADT. However, the district court cor-
rectly found that because it could (and did) find another
grantor to work with, it was not “over a barrel.” The new
relationship is not as economically advantageous to HPS,
which was forced to cut back most of its staff, but the
WFDL provides no protection from that kind of sustainable
economic harm. As for HPS’s lost investments in the
relationship, the funds HPS invested in marketing the ADT
name over the years may well have been recouped via
increased sales during that time (cf. Super Natural Distrib-
utors, Inc. v. Muscletech Research & Development, 196 F.
Supp. 2d 761, 773 (E.D. Wis. 2002)), and the $10,000 in
unusable ADT promotional materials it currently has on
hand is not sufficient to render it “over a barrel.” HPS is not
left with unsaleable inventory or unusable buildings as, for
example, a fast food franchisor might be. This court has
upheld grants of summary judgment to alleged grantors on
very similar facts. Kornacki v. Norton Performance Plastics,
956 F.2d 129, 132-33 (7th Cir. 1992) (sales agent who did
not have power to bind the grantor and who had not made
a substantial capital investment specific to the grantor was
not a dealer under WFDL, even though 75-85% of his
No. 05-1074 7
revenue came from selling the grantor’s products); compare
Moodie v. School Book Fairs, Inc., 889 F.2d 739, 740-41 (7th
Cir. 1989) (WFDL applied where alleged dealer had made
a front-end investment of $46,000 in equipment to operate
a book dealership on behalf of the grantor).
III. CONCLUSION
For the foregoing reasons, we AFFIRM the ruling of the
district court.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—2-13-06