Newcourt contends that the Franchise Act is inapplicable in the absence of a franchise fee paid by the franchisee. See Martin Invs., Inc. v. Vander Bie, 269 N.W.2d 868, 874 (Minn. 1978); OT Indus., Inc. v. OT-tehdas Oy Santasalo-Sohlberg Ab, 346 N.W.2d 162, 165-66 (Minn.App. 1984). McLaughlin has admitted that it did not make any payments to Carpenter other than for goods it purchased, and McLaughlin is unaware of any fees paid to Carpenter.
(iii) for which the franchisee pays, directly or indirectly, a franchise fee. Minn.Stat. § 80C.01, Subd. 4(a)(1). All three elements must be present for a franchise to fall within the Minnesota Franchise Act's purview. OT Indus., Inc. v. OT-tehdas Oy Santasalo-Sohlberg Ab, 346 N.W.2d 162, 166 (Minn.Ct.App. 1984). The Minnesota Franchise Act sets forth additional circumstances under which a franchise can occur that are not relevant here.
To avoid creating a franchise relationship, a minimum purchase requirement need only have a "valid business purpose." OT Indus., Inc. v. OT-tehdas Oy SantasaloSohlberg Ab, 346 N.W.2d 162, 166 (Minn.Ct.App. 1984); see also Hogin, 2003 WL 21500044, at *5 (rejecting claim under MFA where "the record does not support any claim that the required quantity was unreasonable"). Thus, Minnesota law does not require a fact-intensive inquiry into how much inventory a distributor would stock in the absence of a minimum purchase commitment.
Each of these elements must be present before a court may find that the parties have entered into a franchise agreement. See OT Industries v. OT-Tehdas Oy Santasalo-Sohlberg AB, 346 N.W.2d 162, 166 (Minn.Ct.App. 1984) (construing a substantially similar provision of the Minnesota Franchise Act, Minn.Stat. § 80C.01 subd. 4(a) (1982)). The presence of the third element, the payment of a franchise fee, is at issue here.
Coyne's argues the Agreement is governed by the Minnesota Franchise Act. Minn. Stat. § 80C.01. Coyne's argues that a franchise is defined by three elements: 1) a right granted to the franchisee to engage in business using the franchiser's trade name or other commercial symbol; 2) a "community of interest" in the marketing of goods or services between the franchisee and franchiser; and 3) a franchise fee paid by the franchisee. OT Industries, Inc. v. OT-tehdas Oy Santasalo-Sohlberg Ab, 346 N.W.2d 162, 165-66 (Minn.Ct.App. 1984). The applicability of the Minnesota Franchise Act is highly relevant with respect to Coyne's request for preliminary injunctive relief, because if the franchise act applies, irreparable injury is presumed.
Id. However, ordinary business expenses do not constitute a franchise fee. See RJM Sales Mktg., Inc. v. Banfi Prods. Corp., 546 F. Supp. 1368, 1373 (D. Minn. 1982) (payments for samples and advertising payments to outside firms are ordinary business expenses and receipt of lower-than-average commission not indirect franchise fee); OT Indus. Inc. v. OT-Tehdas, 346 N.W.2d 162, 167 (Minn.Ct.App. 1984) (mandatory advertising payments to outside firms are ordinary business expenses). Although Minnesota courts have not directly addressed the extent to which advertising fees paid to a distributor can be considered indirect franchise fees for purposes of the MFA, in the context of minimum purchase commitments Minnesota courts have not adopted a brightline approach to determining the existence of an indirect franchise fee.
The case law coming from other states that have a franchise act similar to Indiana's supports my conclusion that such a normal business expense cannot constitute a franchise fee. See OT Industries v. OT-tehdas Oy Santasalo-Sohlberg Ab, 346 N.W.2d 162 (Minn.Ct.App. 1984) (normal business expenses do not constitute the payment of a franchise fee). The third alleged payment of an indirect fee was the distribution of marketing displays.
Therefore, in his view, SDCL 15-5-10 does not bar his right to contest the filing of the suit in Spink County. He relies on OT Industries, Inc. v. OT-tehdas Oy Santasalo-Sohlberg Ab, 346 N.W.2d 162, 168 (Minn.Ct.App. 1984) to support his position that "[a] contractual forum selection clause is not governed by the rules relating to venue and jurisdiction, but rather by the rules of contractual defenses."
In OT Industries, Inc. v. OT-tehdas Oy Santasalo-Sohlberg Ab , we determined that sales under contracts that included a "minimum volume requirement, even at bona fide factory prices, may ... be a franchise fee." 346 N.W.2d 162, 166 (Minn. App. 1984). In Unlimited Horizon Marketing, Inc. v. Precision Hub, Inc. , we held that an upfront payment of $15,000 from the franchisee to the franchisor for marketing was a franchise fee.
A payment is not an indirect franchise fee absent a threat of termination for non-payment. See OT Indus., Inc. v. OT-tehdas Oy Santasalo-Sohlberg Ab, 346 N.W.2d 162, 166-67 (Minn.App. 1984). "Ordinary business expenses and reasonable minimum purchase requirements do not constitute franchise fees."