Seventh Circuit Reaffirms Principle That Dealers Are Not Product Manufacturers’ Agents

Product manufacturers are often sued for breach of warranty or violations of state consumer sales practices acts over the alleged acts of their distributors and dealership networks. The theory often put forth by plaintiffs is that the dealer is the manufacturer’s agent and therefore the manufacturer is directly responsible for any of the dealer’s allegedly unlawful acts. These claims can come in many forms, from allegations that the dealer created express warranties or committed fraud while selling the product, to complaints over the dealer’s handling of customer service issues or a customer’s request for repairs to, or replacement of, a product claimed to be defective.

Courts, however, hesitate to find such relationships out of hand, instead generally reasoning that dealers are simply purchasers of the manufacturer’s products who then re-sell those products to the consuming public. Without more, this type of connection is not enough to create a binding principal-agent relationship capable of exposing the manufacturer to liability from its dealer’s conduct. Last month, the Seventh Circuit Court of Appeals reiterated this stance.

In Haley v. Kolbe & Kolbe Millwork Co., 863 F.3d 600 (7th Cir. 2017), seven sets of plaintiffs from various states appealed the District Court’s dismissal of their putative class action for breach of warranty against Kolbe, a window manufacturer, over complaints that the windows Kolbe sold to them were defective because they leaked, warped, cracked, peeled, and rotted. On appeal of the trial court’s grant of summary judgment to Kolbe, the plaintiffs argued that e-mails from Kolbe’s distributors to Kolbe’s employees that identified design defects in the windows created genuine issues of material fact on the questions of causation and design defect. The Seventh Circuit disagreed, instead holding that the e-mails were inadmissible hearsay and could not be used to defeat summary judgment.

The plaintiffs attempted to present the e-mails through the “agent exclusion” to the hearsay rule’s party-opponent exemption found in Rule 801(d)(2)(D) of the Federal Rules of Evidence on the theory that the distributors were Kolbe’s agents. Under that exclusion, an out-of-court statement being used to prove the truth of the matter contained in that statement is admissible if it (1) is being used against an opposing party (here, Kolbe), and (2) was made by that party’s agent. But, as the Seventh Circuit pointed out, distributors and dealers are not a manufacturer’s agent as a matter of law. Because they were out-of-court statements, being used against Kolbe, which were not from Kolbe’s agents, the “agent exclusion” did not apply. The Court also declined to admit the e-mails because they would have constituted inadmissible expert testimony since the dealership employees were not qualified to give expert opinions on window design. Without the e-mails as support, the plaintiffs were without any evidence of a causal relationship between an alleged defect and their claimed issues.

For product manufacturers and the attorneys representing them, it is important to understand the inner workings of the manufacturer’s relationship with its distribution network, especially if the consuming public has no direct interaction with the manufacturer itself. Having this understanding can help to narrow the claims at issue through dispositive motion practice.