LEON MANUFACTURING COMPANY, INC. v. WILSON KUBOTA, LLC; AND HON. TODD FARMER
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RENDERED:
FEBRUARY 17, 2006; 10:00 A.M.
TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2004-CA-002256-MR
LEON MANUFACTURING COMPANY, INC.
APPELLANT
APPEAL FROM BALLARD CIRCUIT COURT
HONORABLE WILLIAM L. SHADOAN, JUDGE
ACTION NO. 03-CI-00105
v.
WILSON KUBOTA, LLC; AND
HON. TODD FARMER
APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
TACKETT, TAYLOR, AND VANMETER, JUDGES.
TAYLOR, JUDGE:
Leon Manufacturing Company, Inc. (Leon) brings
this appeal from Findings of Fact and Conclusions of Law entered
by the Ballard Circuit Court on October 7, 2004, wherein the
court ordered Leon to “repurchase” dozer blades from Wilson
Kubota, LLC (Wilson Kubota) in the amount of $48,303.81.
We
reverse and remand.
The circuit court set forth the facts as follows:
2.
Wilson Kubota, LLC, is a Kentucky
Limited Liability Corporation doing business
in Ballard County, Kentucky. Wilson Kubota
was Incorporated on October 25, 1999.
3.
Jim Wilson Equipment, Inc./Wilson
Kubota (“Wilson Kubota”) submitted a
customer application to Leon. And this
customer application did not refer to Wilson
Kubota, LLC. Thereafter, Leon established
an account for Jim Wilson, Inc., d/b/a
Wilson Kubota.
4.
Leon Manufacturing Company, Inc.
(“Leon”) is a foreign corporation whose
principal offices are located in Canada.
Leon manufactures and distributes farm and
earth moving equipment.
5.
Wilson Kubota purchased equipment
from Leon in 1999 and 2000. These purchases
were 2 Mini-skid Steers (tractors), and were
delivered by Jim Poling Enterprises, Inc., a
Leon dealer, and two land scrapers; all of
which were purchased in the Fall of 1999.
Certain dozer blades and accessories were
purchased on an invoice which is the subject
matter of this action. . . .
And “Wilson Kubota” did have a
franchise agreement as contemplated by
[Kentucky Revised Statutes] KRS 365.805.
6.
“Wilson Kubota” required Leon to
repurchase inventory for resale totaling
$65,603.00 and made demand for repurchase of
other inventory on July 16, 2001, which the
Defendant Leon refused.
The circuit court tried the action without a jury
pursuant to Ky. R. Civ. P. (CR) 52.01.
The circuit court
concluded that Leon, as Wilson Kubota’s franchisor, was required
to repurchase the dozer blades under Kentucky Revised Statutes
(KRS) 365.805.
In accordance therewith, the court entered
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judgment against Leon in the amount of $48,303.81, plus a 5%
handling fee of $2,415.19.
This appeal follows.
Leon contends the circuit court committed error by
concluding it had entered into a franchise agreement with Wilson
Kubota and by requiring it to repurchase the dozer blades from
Wilson Kubota.
Under CR 52.01, the findings of fact of the
circuit court shall not be set aside unless clearly erroneous,
and “due regard” is given to the court’s judgment upon
credibility of witnesses.
de novo.
However, issues of law are reviewed
Gosney v. Glenn, 163 S.W.3d 894 (Ky.App. 2005).
For
the reasons hereinafter elucidated, we are of the opinion the
circuit court erred by requiring Leon to repurchase the dozer
blades under KRS 365.805.
At issue in this appeal is the Retail Sales of Farm
Equipment Act codified in KRS 365.800-840.
concerned with KRS 365.805.
Specifically, we are
The current version of KRS 365.805
became effective on April 21, 2004.1
Because the relevant facts
of this appeal occurred before April 21, 2004, our inquiry
necessarily focuses upon the previous version of KRS 365.805,
which became effective February 28, 1986.
It reads as follows:
Whenever any retailer enters into a
franchise agreement with a wholesaler,
1
Our opinion is limited to the version of Kentucky Revised Statutes (KRS)
365.805 which became effective on February 28, 1986. KRS 365.805 was later
amended effective April 21, 2004, which is currently in effect. In its
amended form, the term “franchise agreement” has been deleted and the term
“retail agreement contract” has been substituted.
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manufacturer or distributor of inventory
wherein the retailer agrees to maintain an
inventory and the contract is terminated,
then such wholesaler, manufacturer or
distributor shall repurchase the inventory
as provided in KRS 365.810 to 365.840. The
retailer may keep the inventory if he
desires. If the retailer has any outstanding
debts to the wholesaler, manufacturer or
distributor then the repurchase amount may
be credited to the retailer's account.
Under KRS 365.805, a retailer, who entered into a
franchise agreement with a wholesaler, manufacturer, or
distributor of inventory, could require that wholesaler,
manufacturer, or distributor to repurchase the inventory if the
agreement was terminated.
The circuit court concluded that
KRS 365.805 mandated Leon to repurchase the dozer blades at
issue from Wilson Kubota.
Leon argues that such a decision was
erroneous because no franchise agreement existed between it and
Wilson Kubota.
As pointed out by the parties, the Retail Sales
of Farm Equipment Act does not provide a definition for the term
“franchise agreement.”
With no definition being provided, both
Leon and Wilson Kubota offer varying definitions thereof.
It is well-established that interpretation and
construction of a statute is a matter of law for the court.
City of Worthington Hills v. Worthington Fire Prot. Dist.,
140 S.W.3d 584 (Ky.App. 2004).
When a term has acquired a
technical legal meaning, the court is to interpret that term in
accordance with such meaning.
Id.
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The term “franchise agreement” is a legal term.
While
its exact definition may be somewhat fluid, we think there are
three elements common to all franchise agreements that must be
present for a contract to be considered a franchise agreement.
The three elements are:
(1) A franchisor is engaged in the business
of offering, selling or distributing
goods or services under a marketing plan
or system prescribed in substantial part
by the franchisor; and
(2) The operation of the franchisee's
business pursuant to such plan or system
is substantially associated with the
franchisor's trademark, service mark,
trade name, logotype, advertising or
other commercial symbol designating the
franchisor or its affiliate; and
(3) The franchisee is required to pay,
directly or indirectly, a franchise fee.
62B AM. JUR. 2D Private Franchise Contracts § 10 (1990).
To
constitute a franchise agreement under KRS 365.805, we, thus,
hold the above three elements must be present.2
In the case at hand, Wilson Kubota asserts that a
franchise agreement did exist between it and Leon.
To support
same, Wilson Kubota particularly states:
Mr. Wilson testified that he submitted a
dealer application and that Leon took
pictures of his facility and retail space
and submitted the pictures along with his
application to Leon’s upper management for
2
We emphasis that this opinion is narrowly limited to interpreting that
version of KRS 365.805, which became effective on February 28, 1986. As
hereinbefore noted, KRS 365.805 was later amended effective April 21, 2004.
Our opinion should not be misconstrued as passing upon the amended version of
KRS 365.805.
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approval [Tape 1; 8-11-04; (14:00:43)].
Prior to any additional merchandise being
received by Wilson Kubota, Brett Wilson
testified that a second representative of
Leon came to his facility to discuss
carrying Leon equipment. Mr. Wilson also
testified that he went to Canada and met
with the president of Leon to discuss the
development and marketing of the smaller
dozer blades within the United States
[Tape 1; 8-11-04; (14:05:25]. Mr. Wilson
testified that he was given a variety of
marketing materials by Leon to assist him in
marketing their product under a private
label. Mr. Wilson testified that as an
inducement to enter into this contract, it
was his understanding that he would be given
an exclusive territory within which he could
market Leon’s products [Tape 1; 8-11-04;
(14:07:03)]. Wilson Kubota’s relationship
with Leon was not any different that it was
with any of the other suppliers who
repurchased their inventory.
. . . .
It was clear at trial from the evidence
presented that the parties entered into an
agreement whereby Wilson Kubota would serve
as Leon’s exclusive dealer in the Western
Kentucky region.
Appellee’s Brief at 4, 5, and 13.
From the above, it is clear that Wilson Kubota never
alleged it was required to directly or indirectly pay a
franchise fee to Leon.
Additionally, Wilson Kubota did not
establish that operation of its business was pursuant to a plan
or system associated with Leon’s trademark, service mark, trade
name, logo type, advertising, or other commercial symbol.
As
such, Wilson Kubota did not prove the existence of the second
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element (franchisee’s business operated pursuant to a plan
associated with franchisor’s trademark) or the third element
(direct or indirect payment of franchisee fee) necessary for a
franchise agreement to have existed between the parties.
Accordingly, we are of the opinion the circuit court erred as a
matter of law in determining that a franchise agreement existed
and concluding that Leon was required to repurchase the dozer
blades under KRS 365.805.
In light of our decision on the franchise issue, we
view Leon’s remaining contentions as moot.
For the foregoing reasons, the Findings of Fact and
Conclusions of Law of the Ballard Circuit Court are reversed and
this cause remanded for proceedings not inconsistent with this
opinion.
ALL CONCUR.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEES:
Thomas J. Keuler
DENTON & KEULER, LLP
Paducah, Kentucky
Todd A. Farmer
STOUT & FARMER
Paducah, Kentucky
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