AKA Distributing v. Whirlpool

Can a Distributor Sue a Manufacturer for Fraud When the Deal Ends? AKA Distributing Co. v. Whirlpool Corp., 137 F.3d 1083 (8th Cir. 1998)

Boland Aarab PLLP

Only if the fraud is separate from the contract. In AKA Distributing Co. v. Whirlpool Corp., 948 F. Supp. 903 (D. Minn. 1996), aff’d, 137 F.3d 1083 (8th Cir. 1998), a vacuum-cleaner distributor claimed Whirlpool promised a long relationship while secretly planning to make vacuums for Sears. The courts held that the distributorship was a sale of goods under the Uniform Commercial Code, so the contract claim was barred by the four-year deadline. They also held that the fraud claim about the contract’s length was barred by Minnesota’s economic loss doctrine.

Key Takeaways

• A distributorship whose “predominant purpose” is selling goods is governed by UCC Article 2, including its four-year statute of limitations (948 F. Supp. at 906; 8th Cir. slip op. at 3–4).
• Under the UCC, the clock starts when the breach occurs (948 F. Supp. at 906; Minn. Stat. § 336.2-725(2)).
• Between merchants, a fraud claim for purely economic losses must be “independent of the Article 2 contract” or it is barred (8th Cir. slip op. at 6).
• The Eighth Circuit rejected a blanket bar: fraud “outside of or collateral to the contract,” such as many fraudulent-inducement claims, can still be brought (slip op. at 6).

In this case sheet: At a glance · What the courts held · Our argument and how the courts differed · What it meant · Laws · When it applies · How hard · FAQ

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At a glance

What did the courts hold in AKA Distributing v. Whirlpool?

AKA’s owner, Allen Allstadt, had sold and serviced vacuum cleaners since 1974 (slip op. at 2). Whirlpool recruited AKA in 1984 to distribute a new line of Whirlpool vacuums. The 1985 written contract had a one-year term, but Whirlpool representatives repeatedly assured AKA that the relationship would be long-term (slip op. at 2). AKA sent Whirlpool many engineering suggestions, and Whirlpool’s national sales manager agreed they improved the product (slip op. at 2).

On January 6, 1988, Whirlpool announced it would end the line and AKA’s distributorship effective April 1, 1988. That was the same day it announced a major vacuum purchase commitment from Sears (slip op. at 2). AKA sued in December 1993 for breach of contract, fraud, constructive fraud and negligent misrepresentation, among other claims (948 F. Supp. at 904).

Judge Doty granted summary judgment. He held that the services AKA provided “were incidental to the sale of vacuum cleaners,” so the UCC applied (at 906). Because AKA sued more than four years after the breach, the contract claim was time-barred (at 906). The tort claims were “inseparable” from the contract claim, since both concerned Whirlpool’s assurances about the relationship’s length (at 907).

The Eighth Circuit affirmed (slip op. at 1). It held that the fraud claim concerned duration, “a term of the contract,” so it was barred (slip op. at 6–7). The nondisclosure claims about the Sears plan involved a collateral subject. They still failed because there was no affirmative misrepresentation, and Whirlpool had no duty to disclose its unrelated plans to “arms-length distributors” (slip op. at 7).

What did AKA’s lawyers argue, and how did the courts differ?

Our side’s position. AKA argued that the contract was mainly for services, pointing to its engineering work and its “enormous efforts” to fix product defects and resolve customer complaints (slip op. at 3). It also argued that the economic loss doctrine should not apply because AKA was not trying to get around warranty remedies, and that the doctrine does not bar fraud claims at all (slip op. at 4). In the district court, AKA added that the doctrine’s cases involved defective products, while its claims concerned Whirlpool’s conduct (948 F. Supp. at 908).

The courts’ view. Both courts found that selling vacuums was the predominant purpose. The contract called the parties “Vendor and Vendee,” and Whirlpool did not pay AKA for services other than warranty repairs (slip op. at 4).

Where the Eighth Circuit partly agreed. It declined to say fraud claims are always barred. “[W]e do not think the issue can be answered categorically,” it wrote, and a fraud claim independent of the contract remains actionable (slip op. at 6). AKA’s claim simply did not fit that exception.

What did AKA Distributing mean for the law?

AKA is often cited for two points of Minnesota law: distributorship agreements are usually sales of goods under Article 2, and a fraud claim between merchants must be independent of the contract to survive the economic loss doctrine. Later decisions cite it. In St. Jude Medical, Inc. v. Lifecare International, Inc. (8th Cir. 2001, No. 00-1744), for example, the Eighth Circuit cited AKA in describing a party’s argument that a tort claim that merely restated a breach-of-contract claim was barred by the economic loss doctrine.

Minnesota’s legislature has since acted. In 2000 it enacted Minn. Stat. § 604.101, which says the economic loss doctrine “applies to claims only as stated in this section” for sales on or after August 1, 2000. Anyone relying on AKA today has to account for that statute.

Which laws and rules apply?

• Minn. Stat. § 336.2-102: Article 2 applies to transactions in goods
• Minn. Stat. § 336.2-725: four-year limitation period for breach of a contract for sale; accrual at breach
• Minn. Stat. § 336.2-721: remedies for fraud under Article 2
• Minn. Stat. § 604.10: economic loss from a sale of goods (amended in 1998, after the district court’s decision)
• Minn. Stat. § 604.101: the 2000 economic-loss statute that now governs many buyer-seller claims

When might AKA Distributing apply to you?

• A dealer or distributor is cut off. Whether the UCC’s four-year deadline applies may turn on whether the deal was mainly about selling goods.
• Promises of a “long-term” relationship. If the promise is really a contract term, a fraud claim based on it may be treated as a contract claim.
• Waiting to sue. The UCC clock ran from Whirlpool’s 1988 termination, not from when AKA later learned more (948 F. Supp. at 906).

How hard is it to survive summary judgment and win on appeal?

Summary judgment is proper when there is “no genuine issue as to any material fact” (948 F. Supp. at 904). The nonmoving party must set out specific facts, not rest on allegations (at 905). Whether services or goods predominate “is generally a question of law” (at 906), which made that issue hard to send to a jury. When the Minnesota Supreme Court had not decided a question, the federal courts had to predict how it would rule (slip op. at 5).

The Boland Aarab Way

Thomas E. Boland, practicing then as Boland Law Office in Great Falls, was co-counsel for AKA and was on the brief in the Eighth Circuit. Tom began practicing in Great Falls in 1979, after his 1974 admission. In 2017 his daughter, Caitlin Boland Aarab, and Samir F. Aarab founded Boland Aarab PLLP as the successor to his practice. We publish losses because they show how deadlines and the line between contract and tort decide real cases. That discipline carries into our serious trucking and injury cases and catastrophic injury cases.

Frequently Asked Questions

Is a distributorship agreement covered by the UCC? Usually, if its predominant purpose is the sale of goods. Services that are incidental to selling do not change that (8th Cir. slip op. at 3–4; 948 F. Supp. at 906).

What is the economic loss doctrine? It limits parties to commercial sales to their contract and UCC remedies for purely economic losses. Under AKA, a merchant’s fraud claim must be independent of the contract to proceed (slip op. at 4–6).

When does the UCC’s four-year deadline start? When the breach occurs, whether or not the injured party knows of it (Minn. Stat. § 336.2-725(2); 948 F. Supp. at 906).

Work With the Practice Behind These Cases

Boland Aarab is a Great Falls trial firm built on Tom Boland’s practice. The same attorneys who brief and argue in the Montana Supreme Court handle our clients’ serious injury, trucking and wrongful-death cases from the first call. Contact Boland Aarab PLLP for a free consultation at (406) 315-3737.

About Boland Aarab PLLP: Boland Aarab PLLP is a Great Falls, Montana trial firm. Its attorneys, Caitlin Boland Aarab and Samir F. Aarab, have appeared in more than 40 matters before the Montana Supreme Court and have argued twice before the U.S. Court of Appeals for the Ninth Circuit. The firm carries on the Great Falls practice Thomas E. Boland began in 1974. Meet our attorneys.

Sources:

• AKA Distributing Co. v. Whirlpool Corp., 948 F. Supp. 903 (D. Minn. 1996) (PDF)
• AKA Distributing Co. v. Whirlpool Corp., No. 97-1412 (8th Cir. Mar. 6, 1998) (slip opinion, PDF)
• St. Jude Medical, Inc. v. Lifecare International, Inc., No. 00-1744 (8th Cir. May 2, 2001) (PDF)
• Minn. Stat. § 336.2-102
• Minn. Stat. § 336.2-725
• Minn. Stat. § 336.2-721
• Minn. Stat. § 604.10
• Minn. Stat. § 604.101

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship.