By: Joseph “Joey” Kroart III, Esquire
Do you operate a wholesale business in the State of Maryland? If so, and if you meet certain legal criteria, you may be afforded protections by the Maryland Fair Distributorship Act (the “Act”) should the manufacturer whose products you sell decide to suddenly cut off your supply of goods.
The Act defines a “distributor” as a person who conducts business in Maryland whose primary business is the wholesale distribution of commercial goods for resale, maintains an inventory of commercial goods for resale, and has been granted either expressly or implicitly the right to sell or distribute a supplier’s or manufacturer’s (defined by the Act as a “grantor”) commercial goods in Maryland for resale to retailers or to other resellers., There are a couple of important points to note here. First, a person or entity who sells directly to an end-customer is not deemed to be a distributor under the Act. Second, a salesperson who collects commissions, but who does not maintain an inventory, is not recognized as being a distributor by the Act.
If a person or entity is indeed deemed a distributor under the Act, and if there is an existing “agreement” between the parties, defined by the Act as “a contract or other agreement between a Grantor and a Distributor,” then the Act will govern certain relations between the parties. It is key to note that the agreement between the parties does not have to be a written document. Rather, it can be in the form of repeated businesslike behavior over a period of time. If a grantor intends to terminate any distribution between the parties, it must notify the distributor not less than sixty days before the proposed date of cancellation of an existing oral or written agreement, and the notice must identify the effective date of the proposed date of cancellation. If the proposed cancellation is because of a failure by the distributor to comply with any reasonable requirement of the agreement between the parties, the distributor must be provided with ample time to dispute or cure the alleged deficiency.
Upon completion of the sixty-day notice period of cancellation and provided that the cancellation was not brought about by any deficiency by the distributor, the distributor may elect to exercise its right to require the grantor to repurchase any merchandise that the distributor still has in its inventory provided that it (1) is still in its original condition, (2) is part of the grantor’s current product line, and (3) was shipped within six months of the cancellation. In addition, the distributor may require the repurchase by the grantor of all other merchandise in the distributor’s inventory that was purchased from the grantor, such as special tools or accessories, at the original price less depreciation, regardless of when they were originally purchased. However, the distributor should take heed that its rights to force repurchase under the Act terminates thirty days after the effective date of the proposed cancellation.
If a dispute arises between a grantor and a distributor under the Act, either party may submit the dispute to the State of Maryland for arbitration under the Maryland Uniform Arbitration Action. Arbitration remains the sole redress for relief under the Act.
For more information about the Maryland Fair Distributorship Act, please contact Joey Kroart at Pessin Katz Law, P.A. at jkroart@pklaw.com or (410) 339-5787.
Joseph “Joey” Kroart III is an Attorney in the Firm’s Corporate and Real Estate Group. Practicing law is a second career for Mr. Kroart, who prior to attending law school, spent several years running his family’s multi-store retail operation in Ocean City, Maryland and southern Delaware. As a result, Mr. Kroart possesses a rare combination of practical business experience along with formalized legal and business training. He graduated with a joint J.D./M.B.A. degree from the University of Maryland Carey School of Law and the Johns Hopkins University Carey Business School. He can be reached at jkroart@pklaw.com and 410-339-5787.
