Equipment Dealer-Manufacturer Laws


Equipment Dealer-Manufacturer Laws

What you need to know

by Samuel I. Kreamer, J.D., C.P.A.

Presented at the Iowa-Nebraska Equipment Dealers Association’s Annual Meeting

November 19, 2013

La Vista, Nebraska

I. Overview

a. Basic Principles

b. Effect of statutes to ongoing operations

c. Implications on Termination of Dealership

d. Transferring the dealership

i. Sale of business

ii. Death of Dealer

II. Basic Principles-Context

a. Primary purpose of the laws is to “level the playing field” between manufacturers[1] and equipment dealerships[2]

b. Nature of Dealer relationship

i. Contractual relationship

1. May be oral or written[3]

2. Provides Dealer with the right to sell and/or service “equipment” manufactured or distributed by a “Supplier”[4]

ii. Definition of equipment

1. Nebraska- machines designed for or adapted for use for an agricultural, horticultural, livestock, or industrial purpose[5]

2. Iowa-equipment designed to be principally used for agricultural, construction, or utilities purpose[6]

c. Applicable law

i. Applicable statutes

1. Neb. Stat. 87-701 to 87-711

2. Iowa Code §322F

ii. State law (rather than Federal) law applies

iii. Where contract is silent or where conflicts with state law- State law applies/prevails[7]

iv. Applies to dealership agreements in entered into or renewed:

1. After 5/2/1991 for Nebraska dealerships[8]

2. After 7/1/1990 for Iowa Agricultural Equipment Dealerships[9]

3. After 7/1/2002 for Iowa Construction, Industrial, Utility Equipment Dealerships[10]

d. Choice of Law

i. Both statutes silent

ii. PROBABLY law where “principal place of business” located

1. Consider dealership agreement for specification of principal place of business

2. Consider documents filed with the Secretary of State for formation of the Dealership

3. Consider location generating most revenue

iii. Consider separate business entities with separate Dealership Agreements in each state.

iv. WHICH law to be applied is different than WHERE law is applied

1. Iowa law could be applied in Nebraska courts and vice versa.

2. Nebraska or Iowa law could be applied in venue stated in dealership agreement regardless of where that is.

III. Ongoing Operations

a. Manufacturers cannot require:[11]

i. Dealer to accept of un-ordered equipment

ii. Dealer to accept of goods with special attachments

iii. An amendment of the Dealership Agreement, UNLESS the manufacturer requires all similarly situated dealers to make similar amendments to their dealership agreements

iv. Dealer to renovate, construct or acquire new facilities without:

1. At least one year prior notice

2. A “reasonable” amount of time to comply

3. IN IOWA: a statement of grounds supporting the request

b. NEBRASKA-Parts Return Program[12]

i. No similar provision in Iowa statute

ii. Dealer must make availability of repair parts through useful life of equipment[13]

iii. Annually

1. Manufacturer may establish a 60 day return window[14]

2. If no Manufacturer return period established during prior 12 months – parts are returnable within 30 days of dealer request to return part[15]

iv. Amount of parts subject to return

1. Manufacturer must allow dealer to return 6% or more of parts purchased during prior 12 months[16]

2. Dealer may return less than 6% but manufacturer is not forced to accept less[17]

v. Age of part does not matter but, unless still in catalog, or not previously subject to a return notice, an obsolete or superseded part may not be returned[18]

vi. Returned part must be new and unused condition and purchased from Manufacturer[19]. if not known where purchased – Manufacturer has burden to prove its not theirs[20]

vii. Price: 85% of catalog/price list; if there is no catalog or there is no price list 85% of dealer’s invoice[21]

viii. Credit for the return must be within 90 days of Manufacturer’s receipt[22]

c. IOWA-Non-discrimination/Non restrictive

i. No similar provisions in Nebraska statute

ii. Manufacturer may not prohibit dealer from purchasing competing products[23]

iii. Manufacturer may not discriminate in prices charged to dealers, but quantity discounts are allowed[24]

IV. Manufacturer Termination of Dealership Agreement

a. Neither the Nebraska nor the Iowa statute provides DEALER with a right to terminate the dealership agreement

b. Both Nebraska and Iowa allow a Manufacturer to terminate the dealership arrangement upon “Good Cause.” The two states have a slightly different approach to “Good Cause”:

i. Nebraska- Statute defines good cause[25] which presumably supplements and/or supersedes the “good cause” provisions in the Dealership Agreement

ii. Iowa- Manufacturer may terminate, cancel, or refuse to renew ONLY if there is “good cause” as defined in statute[26]

c. Manufacturer may immediately terminate the dealership upon occurrence of:

i. BOTH Nebraska and Iowa

1. Transfer of Control without consent of Manufacturer[27]

2. Material misrepresentation to Manufacturer[28]

3. Files bankruptcy, dissolves, or is liquidated [29]

4. Conviction of

a. Crime punishable by 1 year in prison or more (Nebraska)[30]

b. Conviction of a felony (Iowa)[31]

5. Failure to operate for 7 consecutive business days[32]

6. Relocation without Manufacturer consent[33]

ii. IOWA (only) allows for immediate termination by the Manufacturer if:

1. Dealer has defaulted on debt to Manufacturer (or Manufacturer affiliate)[34]

2. There is a revocation or discontinues a personal guaranty of dealership obligations[35]

d. Failure by Dealership, after 60 days’ notice from Manufacturer:

i. To cease engaging in detrimental business practices (excessive pricing; misleading ads; refusal to perform warranty work)[36] (NOTE: Iowa allows immediate termination for dealers engaging in detrimental business practices[37])

ii. To meet housekeeping/building requirements and staffing requirements (Nebraska only)[38]

iii. To comply with licensing laws applicable to equipment[39]

iv. To “substantially” comply with ”essential and reasonable” dealership agreement (so long as same is applicable to all other similarly situated dealers)[40]

e. Failure by Dealership to meet performance goals established by Manufacturers[41]:

i. Time to cure

1. 1 year to cure (Nebraska)

2. 18 months to cure (Iowa)

ii. Sales Goals must be consistent with similarly situated dealerships

f. Buyback Upon Termination of Dealership

i. General Requirements

1. Condition of items subject to buyback[42]

a. New (unused)

b. Undamaged

c. Complete

d. Immediately salable condition

e. Purchased from Manufacturer

2. Items not subject to buyback-Anything with a limited storage life or deterioration[43]

ii. Complete equipment purchased from Manufacturer within 24 months of termination:100% net cost (cost less discounts)[44]

iii. Attachments and repair parts

a. Nebraska-85% of current price (catalog or invoice)[45]

b. Iowa-90% of current price (catalog or invoice)[46]

c. Unless Manufacturer does the packaging; Manufacturer also pays Dealer 5% packaging and loading[47]

2. Specialized tools purchased from Manufacturer at Manufacturer’s direction

a. Nebraska- Fair Market Value[48].

i. Specialized tools must not be more than 3 years old[49]

ii. Statute contains no definition of “Specialized tools”

b. IOWA-(if in resalable condition)[50]

i. 75% if purchased within 3 years

ii. 50% if purchased within 4-6 years

iv. Iowa Buyback provisions

1. Unamortized value of particular computer software[51]

2. 100% of net cost of equipment leased primarily for demonstration or lease at agreed upon depreciated value, provided it is in new condition and not abused[52]

v. Dealer pays shipping/Manufacturer pays packaging and handling.

vi. If payment is not made within 90 days from Manufacturer’s receipt in addition to amount to be paid Manufacturer owes[53]

1. Interest due to delay in payment (1.5%/Month in Iowa- Rate not specified in Nebraska)

2. Shipping costs

3. Legal costs

g. Damages for wrongful termination[54]

i. Injunctive relief to prohibit termination

ii. Damages arising from wrongful termination including “reasonable” attorney fees.

V. Transfer of Dealership

a. Sale of Business

i. Approval of Buyer

1. Approval or denial m/b made within 60 days (if no denial transferee is deemed approved)

2. If denied, reason for denial must be provided NEBRASKA[55]

3. Manufacturer may not “unreasonably” deny request for sale or transfer of dealership

ii. IOWA- Same as Nebraska[56], BUT Manufacturer may ONLY deny the request based on failure of a proposed transferee to meet the reasonable requirements imposed by Manufacturer in determining whether to approve a transfer OR a new dealership[57]

iii. Selling/transferring dealer must provide (by certified mail) transferee’s

1. Financial information

2. Personal background

3. Character references

4. Work history

b. Death of Dealer[58]

i. Heirs do not have the right to continue operation without consent of Manufacturer. NOTE: there is no requirement that the Manufacturer allow family to operate for ANY length of time.

ii. At any time during the 12 month period, the estate can elect to use the buyback as if Manufacturer terminated. In Iowa- If no sale of dealership, and no exercise of option Manufacturer MUST buyback



[1] For the purposes of this presentation “manufacturer” and “supplier” are interchangeable. See Neb. Stat. 87-703(6) and Iowa Code §322F.1(11) for further and more complete definition of the term “supplier”.

[2] This presentation is limited to the statutes applicable Equipment Dealerships in Iowa and Nebraska. It does not relate to other types of dealerships, nor does it relate to statutes of states other than Iowa and Nebraska.

[3] Neb Stat. §87-703(4); Iowa Code §322F.1(5)

[4] Id. See also Footnote 1, supra.

[5] Neb. Stat. §87-703(5);

[6] Iowa Code §322F.1(1) and (3)

[7] Neb. Stat. §87-709(1); Iowa Code §322F.9(1)

[8] Neb. Stat. 87-711

[9] Iowa Code §322F.9(2)(a)

[10] Iowa Code §322F.9(2)(b)

[11] Neb. Stat 87-704; Iowa Code §322F.7

[12] Neb. Stat. 87-706

[13] Neb. Stat. 87-706(1)

[14] Neb. Stat. 87-706 (2)(a)(i)

[15] Neb. Stat. 87-706 (2)(a)(ii)

[16] Neb. Stat. 87-706(2)(b)

[17] Id.

[18] Neb. Stat. 87-706(c)

[19] Neb. Stat. 87-706(d)

[20] Neb. Stat. 87-706(g)

[21] Neb. Stat. 87-706(e)

[22] Neb. Stat. 87-706(f) although the statute speaks in terms of “credit”, presumably there could be a cash payment option.

[23] Iowa Code§322F.7(5) presumably this provision also contemplates that a dealer can sell the competing products it purchases.

[24] Iowa Code §322F.7(6)

[25] Neb. Stat. 87-705(1)

[26] Iowa Code §322F.2(1)(a)

[27] Neb. Stat. 87-705(1)(a); Iowa Code §322F.1(7)(c)

[28] Neb. Stat. 87-705(1)(b); Iowa Code §322F.1(7)(b)

[29] Neb. Stat. 87-705(1)(c); Iowa Code §322F.1(7)(f) and (g)

[30] Neb. Stat. 87-705(1)(d);

[31] Iowa Code §322F.1(7)(l)

[32] Neb. Stat. 87-705(1)(e); Iowa Code §322F.1(7)(k)

[33] Neb. Stat. 87-705(1)(f); Iowa Code §322F.1(7)(h)

[34] Iowa Code §322F.1(7)(i)

[35] Iowa Code §322F.1(7)(j)

[36] Neb. Stat. 87-705(1)(g)

[37] Iowa Code §322F.1(7)(m)

[38] Neb. Stat. 87-705(1)(i)

[39] Neb. Stat. 87-705(1)(j); Iowa Code §322F.1(7)(n)

[40] Neb. Stat. 87-705(1)(k); Iowa Code §322F.1(7)(m)

[41] Neb. Stat. 87-705(1)(h); Iowa Code §322F.1(7)(o)

[42] Neb. Stat. 87-707(4); Iowa Code §322F.3(1)(a) and (e)

[43] Neb. Stat. 87-707(4)(a); Iowa Code §322F.3(4)

[44] Neb. Stat. 87-707(1)(a)(i); Iowa Code 322F.3(1)(a)

[45] Neb. Stat. 87-707(1)(a)(i)

[46] Iowa Code 322F.3(1)(b)

[47] Neb. Stat. 87-707(1)(a)(iii); Iowa Code §322F.1(b)

[48] Neb. Stat. 87-707(1)(b)

[49] Neb. Stat. 87-707(1)(b)

[50] Iowa Code §322F.3(d)

[51] Iowa Code §322F.3(c)

[52] Iowa Code §322F.3(f)

[53] Neb. Stat. 87-707(5); Iowa Code §322F.8 (1) and (2)

[54] Neb. Stat.87-709(2); Iowa Code §322F.8(1)(a)

[55] Neb Stat. 87-705(3)

[56] Iowa Code 322F.5A(1) and (2)

[57] Iowa Code 322F.5A(1) Last full sentence.

[58] Neb. Stat. 87-708(1); Iowa Code §322F.5

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