Supplier Beware Before Terminating Dealers: California’s Equipment Dealers Act

Developments in modern antitrust law have made it increasingly difficult for termination of vertical relationships between a supplier and a dealer to be actionable under the antitrust laws, particularly under a per se theory of liability. Suppliers contemplating termination of dealer agreements, however, may need to carefully consider laws beyond contracts and antitrust. That is, many states including California have statutes intended to afford greater substantive and procedural protections to dealers than may be found within the four corners of the dealer agreement. What's more, California's statute – the Fair Practices of Equipment Manufacturers, Distributors, Wholesalers and Dealers Act (commonly known as California's Equipment Dealers Act or CEDA), Cal. Bus. & Prof. Code § 22900 et seq. – is relatively arcane, has broad applicability to all kinds of "equipment" dealers, may apply to dealers solely doing business outside of California, and has a dearth of case law.

The original equipment dealers act in California was enacted in 1992. The law was sponsored by an equipment dealers trade association, out of concern that mergers and acquisitions in the 1980's resulted in significant closings of farm equipment dealerships which adversely affected rural economies and consumers. The law thus provided protections to farm equipment dealers in their contracts with suppliers, including requiring suppliers to give prior notice of their intent to terminate a contract and provide the dealer an opportunity to cure the defect. The law applied to equipment used for purposes of "agriculture, livestock, grazing, light industrial, and utility."

CEDA was later amended in 2005, and among other things, broadly expanded its scope to include all agricultural, construction, utility, industrial, mining, outdoor power, forestry, and lawn and garden equipment. While it is clear that CEDA does not apply to car dealers (who are covered under a different statutory scheme), less clear is what exactly is covered under CEDA's expansive definition of "equipment." Particularly given the dearth of case law interpreting...