What is the Minnesota Heavy and Utility Equipment Manufacturers and Dealers Act?
The Minnesota legislature has adopted the Minnesota Heavy and Utility Equipment Manufacturers and Dealers Act, Minn. Stat. § 325E.068, et seq. (the “Act” or “MHUEMDA”), which provides special legal protections to dealers of heavy and utility equipment.
Who is Covered by the Minnesota Heavy and Utility Equipment Manufacturers and Dealers Act?
The Act is specifically tailored to provide statutory protections to dealers and dealerships. Under the Act, “heavy and utility equipment dealer” and “heavy and utility equipment dealership,” means a person, partnership, corporation, association, or other form of business enterprise engaged in the business of acquiring heavy and utility equipment from a manufacturer and reselling the heavy and utility equipment at wholesale or retail.
Under the Act, a “heavy and utility equipment manufacturer,” “heavy equipment manufacturer,” or “equipment manufacturer,” means a person, partnership, corporation, association, or other form of business enterprise engaged in the manufacturing, assembly, or wholesale distribution of heavy and utility equipment.
The Act applies to dealers who sell “heavy and utility equipment” (sometimes referred to as “heavy equipment” or “equipment”), which is defined to mean equipment and parts for equipment, including but not limited to:
(1) excavators, crawler tractors, wheel loaders, compactors, pavers, backhoes, hydraulic hammers, cranes, fork lifts, compressors, generators, attachments and repair parts for them, and other equipment, including attachments and repair parts, used in all types of construction of buildings, highways, airports, dams, or other earthen structures or in moving, stock piling, or distribution of materials used in such construction;
(2) trucks and truck parts; or
(3) equipment used for, or adapted for use in, mining or forestry applications.
What Types of Agreements Are Covered by the Minnesota Heavy and Utility Equipment Manufacturers and Dealers Act?
The Act applies to contracts between a dealer and manufacturer for the purchase or sale of equipment, referred to by the statute as a “dealership agreement.” To qualify for protections under the Act, the dealership agreement need not be of definite duration or in writing. Specifically, the Act defines dealership agreements to mean the following:
“Dealership agreement” means an oral or written agreement of definite or indefinite duration between an equipment manufacturer and an equipment dealer that enables the dealer to purchase heavy and utility equipment from the manufacturer and provides for the rights and obligations of the parties with respect to the purchase or sale of heavy and utility equipment.
Does the Minnesota Heavy and Utility Equipment Manufacturers and Dealers Act Apply to Verbal or “Handshake” Dealership Agreements?
The Act applies to a wide variety of dealership agreements in many different forms, not just written agreements. The statute covers both oral and written agreements, regardless of their duration. Additionally, the Act supersedes any written contract between a dealer and manufacturer, thus protecting the dealer from coercive or capricious actions by manufacturers to terminate their dealership agreement or renegotiate onerous terms.
Does the Minnesota Heavy and Utility Equipment Manufacturers and Dealers Act Limit When a Dealership Agreement Can Be Terminated?
The Act prohibits the manufacturer from terminating the dealership agreement without “good cause,” and then only after providing a 90-day advance notice and cure period. The Act provides that an equipment manufacturer may not “terminate, cancel, fail to renew, or substantially change the competitive circumstances of a dealership agreement” without “good cause.”
After receiving the notice of intent to terminate the dealership agreement, the equipment dealer has the full length of 90-day notice period to cure any claimed deficiencies. If the deficiency is cured during the notice period, the notice is void. There are, however, certain circumstances where immediate termination of a dealership agreement is permissible, discussed below.
What is “Good Cause” Under the Minnesota Heavy and Utility Equipment Manufacturers and Dealers Act?
“Good cause” is defined by the statute to mean failure by an equipment dealer to substantially comply with essential and reasonable requirements imposed upon the dealer by the dealership agreement if the requirements are not different from those requirements imposed on other similarly situated dealers by their terms. In addition, good cause exists whenever:
(a) Without the consent of the equipment manufacturer who shall not withhold consent unreasonably, (1) the equipment dealer has transferred an interest in the equipment dealership, (2) there has been a withdrawal from the dealership of an individual proprietor, partner, major shareholder, or the manager of the dealership, or (3) there has been a substantial reduction in interest of a partner or major stockholder.
(b) The equipment dealer has filed a voluntary petition in bankruptcy or has had an involuntary petition in bankruptcy filed against it that has not been discharged within 30 days after the filing, or there has been a closeout or sale of a substantial part of the dealer’s assets related to the equipment business, or there has been a commencement of dissolution or liquidation of the dealer.
(c) There has been a change, without the prior written approval of the manufacturer, in the location of the dealer’s principal place of business under the dealership agreement.
(d) The equipment dealer has defaulted under a security agreement between the dealer and the equipment manufacturer, or there has been a revocation or discontinuance of a guarantee of the dealer’s present or future obligations to the equipment manufacturer.
(e) The equipment dealer has failed to operate in the normal course of business for seven consecutive days or has otherwise abandoned the business.
(f) The equipment dealer has pleaded guilty to or has been convicted of a felony affecting the relationship between the dealer and manufacturer.
(g) The dealer has engaged in conduct that is injurious or detrimental to the dealer’s customers or to the public welfare.
(h) The equipment dealer, after receiving notice from the manufacturer of its requirements for reasonable market penetration based on the manufacturer’s experience in other comparable marketing areas, consistently fails to meet the manufacturer’s market penetration requirements.
There are circumstances in which immediate termination of the dealership agreement is proper. The Act provides that the 90-day advance notice and cure period do not apply “if the reason for termination, cancellation, or nonrenewal is for any reason set forth in subdivision 1, clauses (a) to (g)” listed above.
What if the Dealership Agreement Allows Termination “At Will”?
The Act overrides any contrary provision of the dealership agreement. Therefore, even if the dealership agreement itself states that the manufacturer can terminate a dealer for any reason (at will), or authorizes termination, cancellation, or nonrenewal on less than 90-days’ notice, or does not grant a “cure period” to the dealer, the equipment manufacturer may be violating Minnesota law by enforcing these contractual provisions.
Does the Minnesota Heavy and Utility Equipment Manufacturers and Dealers Act Regulate the Non-Renewal of Dealership Agreements?
In addition to limiting the termination of a dealership agreement, the Act provides that unless the failure to renew a dealership agreement is for good cause and the dealership has failed to correct the reasons for termination within the 90-day cure period, the equipment manufacturer may not fail to renew a dealership agreement.
What Payments Must Be Made Following Termination?
The Act provides that, upon termination, cancellation, or discontinuation of the dealership agreement, the manufacturer is obligated to repurchase all unused heavy and utility equipment from the dealer. The amount owed to the dealer must also include the costs of transportation and any expense incurred by the dealer in assembling the equipment:
If a dealership agreement is terminated, canceled, or discontinued, the equipment manufacturer shall pay to the dealer, or credit to the dealer’s account if the dealer has an outstanding amount owed to the manufacturer, an amount equal to 100 percent of the net cost of all unused heavy and utility equipment in new condition that has been purchased by the dealer from the manufacturer within the 24 months immediately preceding notification by either party of intent to terminate, cancel, or discontinue the agreement. This amount must include transportation and reasonable assembly charges that have been paid by the dealer or invoiced to the dealer’s account by the manufacturer. The dealer may elect to keep the merchandise instead of receiving payment if the contract gives the dealer this right.
In addition, the Act also provides that, upon good faith termination, cancellation, or discontinuation of the dealership agreement, the manufacturer must purchase back from the dealer, any repair parts, data processing and communication hardware, software, and specialized tools the dealer may possess. The Act accounts for any applicable depreciation in the repair part’s market value, as shown below:
(1) 95 percent of the current net prices on repair parts, including superseded parts listed in current price lists or catalogs in use by the manufacturer on the date of the termination, cancellation, or discontinuance of the agreement;
(2) as to any parts not listed in current price lists or catalogs, 100 percent of the invoiced price of the repair part for which the dealer has an invoice if the parts had previously been purchased by the dealer from the manufacturer and are held by the dealer on the date of the termination, cancellation, or discontinuance of the agreement or received by the dealer from the manufacturer after that date;
(3) 50 percent of the most recently published price of all other parts if the price list or catalog is not more than ten years old as of the date of the termination, cancellation, or discontinuance of the agreement;
(4) net cost less 20 percent per year depreciation for five years following purchase of all data processing and communications hardware and software the retailer purchased from the wholesaler, manufacturer, or distributor, or an approved vendor of the wholesaler, manufacturer, or distributor, to meet the minimum requirements for the hardware and software as set forth by the wholesaler, manufacturer, or distributor; and
(5) an amount equal to 75 percent of the net cost to the retailer of specialized repair tools, including computerized diagnostic hardware and software, and signage purchased by the retailer pursuant to the requirements of the wholesaler, manufacturer, or distributor. Specialized repair tools or signage that have never been used must be repurchased at 100 percent of the retailer’s cost. Specialized repair tools must be unique to the wholesaler’s, manufacturer’s, or distributor’s product line, specifically required by the wholesaler, manufacturer, or distributor, and must be in complete and usable condition. The wholesaler, manufacturer, or distributor may require by contract or agreement that the retailer resell to the wholesaler, manufacturer, or distributor such specialized repair tools and signage for the amounts established in this section or the amount specified in the dealer agreement or contract or fair market value, whichever is greater.
Are Choice of Law Provisions in a Dealership Agreement Enforceable?
Often dealership agreements include a choice of law provision that selects the law of a state other than Minnesota to govern the agreement. For example, in a dealership agreement drafted by a manufacturer headquartered in Connecticut, the manufacturer may specify that the agreement will be governed by Connecticut law. The Act, however, provides that any dealership agreement including a choice of law provision selecting the laws of a state other than Minnesota is void:
A term of a dealership agreement either expressed or implied, including a choice of law provision, that is inconsistent with the terms of sections 325E.068 to 325E.0684 or that purports to waive an equipment manufacturer’s compliance with sections 325E.068 to 325E.0684 is void and unenforceable and does not waive any rights that are provided to a person by sections 325E.068 to 325E.0684.
Are Venue Provisions in a Dealership Agreement Enforceable?
As discussed above, a dealership agreement including a choice of law provision selecting the law of another jurisdiction is void. Nothing in the Act, however, invalidates “choice of venue” provisions which are often found in many commercial contracts. A venue clause typically states that the parties agree to bring all legal disputes in a specified venue or jurisdiction. Whereas choice of law provisions dictate what state’s law will apply, venue provisions merely address the geographic location where the parties must bring their legal dispute.
Minnesota courts generally enforce a venue provision unless the party seeking to avoid the contractual forum shows that the agreement is unfair and unreasonable because: (1) the chosen forum is a “seriously inconvenient” place for trial; (2) the agreement containing the venue provision is a contract of adhesion; or (3) the agreement is “otherwise unreasonable.” Generally, a venue is “seriously inconvenient” if, by litigating there, one party would be deprived of their meaningful day in court. Location and convenience of witnesses, however, are generally not considered a serious inconvenience. Therefore, venue provisions contained in Minnesota dealership agreements will often be enforceable.
Where Can I Get More Information About the Minnesota Heavy and Utility Equipment Manufacturers and Dealers Act?
This is just a brief overview of the Minnesota laws governing heavy and utility equipment dealership agreements. Each situation is unique and must be evaluated based on its own specific facts.
If you are a manufacturer or dealer of heavy equipment being sold in Minnesota, and need assistance complying with the MHUEMDA, contact one of the Minnesota distributorship law attorneys of Trepanier MacGillis Battina P.A.
About the Author:
Minnesota distributorship law attorney Craig W. Trepanier has experience litigating claims under the Minnesota Heavy and Utility Equipment Manufacturers and Dealers Act and representing a variety of manufacturers, dealers, and sales representatives regarding issues arising under Minnesota law. Craig may be reached at 612.455.0502 or firstname.lastname@example.org. Trepanier MacGillis Battina P.A. is a Minnesota sales rep law firm located in Minneapolis, Minnesota.
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