Coyne’s & Co. entered into a distribution agreement with Country Artist, Ltd. in 2005.  In exchange for a 35-50% markup on products sold, CA granted Coyne’s the exclusive right to sell, distribute, market, and advertise all of their products, and use the associated copyrights and trademarks.   The agreement applied to the United States and Mexico and ran through December 2007.

CA was placed into receivership on August 10, 2007.   The receivers immediately sold Country Artist’s business assets to a third-party, Enesco LLC, which notified Coyne’s that it was terminating the distribution agreement on August 21, 2007.   A clause in the agreement had allowed a party to terminate if the counter-party became insolvent, but didn’t permit a party to terminate on their own insolvency.

Coyne’s filed suit on  August 29, 2007, alleging claims under the Lanham Act & the Copyright Act (both of which were dismissed), the Minnesota Deceptive Trade Practices Act, the Minnesota Uniform Trade Secrets Act, and Minnesota common law, and sought a temporary retraining order and preliminary injunction to prevent Enesco from distributing the Country Artist products.

The District Court denied relief, and found that Conye’s couldn’t demonstrate a likelihood of success unless the agreement with Country Artist was still in effect.  Conye’s argued that, under the Minnesota Franchise Act’s termination requirements, they had to be given a minimum 150 days before cancellation.  The District Court rejected this argument and found that Coyne’s wasn’t a franchise (and not entitled to statutory protection) because they didn’t pay CA a franchise fee.

The question on appeal was whether the minimum purchasing requirement and the 35-50% markup represented an indirect franchise fee.  The District of Minnesota had held that the mark-up on CA’s products were profit, and not an indirect franchise fee.  On appeal, Coyne’s argued that the right to use the relevant trademarks, the exclusive nature of the rights granted, and the substantial termination fee signaled that the agreement created a franchise.  The 8th Circuit denied a preliminary injunction and found that Coyne’s argument fell short of demonstrating that the district court’s factual findings were clearly erroneous.

Documents:

Counsel:

Coyne’s & Company, Inc.: Fabyanske Westra Hart & Thomson, PA (Minneapolis, MN).

Enesco LLC: Vedder Price Kaufman & Kammholz, PC (Chicago, IL); Larson King, LLP (St. Louis, MN).

Country Artists, Ltd.: Fafinski Mark & Johnson, PA (Eden Prairie, MN); Berg & Strommen, PLLC (Vadnais Heights, MN).