Hedding Sales & Service v. The Pneu Fast Company

Background

Curt Hedding brought the case on behalf of Hedding Sales & Service, described in the opinion as a Minnesota sole proprietorship. Hedding Sales represented manufacturers in selling and distributing goods. In 2006, it entered a representative agreement with The Pneu Fast Company, described as an Illinois corporation that produced nails and staples for certain power tools.

The agreement covered sales in nine states, including Minnesota and Ohio, and stated that Ohio law would govern. It provided for commissions of 10% on new accounts for one year and 5% afterward. It also allowed either party to terminate the agreement, stated that Pneu Fast would not be liable for damages resulting from termination, and required most amendments to be written and signed by both parties. The agreement separately allowed changes to product prices, product categories, geographic territory, and the commission schedule by written notice.

In 2008, Hedding Sales established a Menards account for Pneu Fast. Hedding alleged that Pneu Fast paid only 4% commissions on that account rather than the agreed rates. Hedding Sales continued working on the account through 2018, while the account expanded into additional states in 2015 and 2016.

In March 2018, Pneu Fast sent a letter terminating the agreement immediately. The letter did not state reasons for the termination or give Hedding an opportunity to address any reasons. It also withheld outstanding commissions until Hedding returned product samples. Hedding asserted one claim under the Minnesota Termination of Sales Representatives Act.

Pneu Fast’s motions

Pneu Fast moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that Hedding had not stated a legally sufficient claim. It also moved under Rule 12(b)(1), arguing that the court lacked subject-matter jurisdiction because Hedding had not shown that more than $75,000 was in controversy.

Pneu Fast argued that the agreement’s Ohio choice-of-law provision required the court to apply Ohio law, which would prevent Hedding from relying on the Minnesota statute. Pneu Fast also argued that the statute’s provision invalidating certain choice-of-law and waiver provisions did not apply because the agreement had not been amended or renewed after August 1, 2014.

Choice of law and the Minnesota statute

The Minnesota Termination of Sales Representatives Act protects qualifying sales representatives, including those who are Minnesota residents, maintain their principal place of business in Minnesota, or have sales territories that include Minnesota. The statute generally requires good cause and advance notice before termination and provides other protections concerning renewal and commissions.

A 2014 anti-waiver provision states that sales agreements may not choose the law of a state other than Minnesota or waive the statute’s requirements. The provision applies to agreements entered into, renewed, or amended on or after August 1, 2014. The court held that this provision clearly expressed Minnesota’s policy of protecting sales representatives and prevented enforcement of an out-of-state choice-of-law provision when the agreement fell within the provision’s scope.

The court found it plausible that the agreement had been amended after August 1, 2014 because Hedding alleged that the sales territory expanded in 2015 and 2016, and the agreement allowed written changes to its geographic territory. The court also concluded that the agreement had been renewed after that date. Hedding Sales continued soliciting orders through 2018 and expanded sales into new territories, which the court found sufficient to trigger the anti-waiver provision at the motion-to-dismiss stage.

The court therefore treated the Ohio choice-of-law provision as void and considered whether Hedding had adequately alleged a violation of the Minnesota statute. Hedding alleged that Pneu Fast lacked good cause, failed to provide advance notice, and withheld commissions after termination. The court held that these allegations were sufficient to defeat the Rule 12(b)(6) motion.

Subject-matter jurisdiction

For diversity jurisdiction, the court explained that the pleadings generally establish the amount in controversy unless it is legally certain that the plaintiff cannot recover more than $75,000. Hedding alleged more than $200,000 in damages and lost commissions. The court found no indication that the allegation was made in bad faith or that recovering more than $75,000 was legally impossible.

Disposition

The court denied Pneu Fast’s motion to dismiss under both Rule 12(b)(6) and Rule 12(b)(1). The order did not resolve the ultimate merits of Hedding’s statutory claim.