Hunter Mining Laboratories, Inc. v. Management Assistance, Inc.
104 Nev. 568, 763 P.2d 350, 1988 Nev. LEXIS 94 (1988)
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Rule of Law:
A manufacturer-distributor relationship does not become a principal-agent relationship merely because the dealership agreement grants the manufacturer control over aspects of the business designed to protect its brand and product integrity. An agency relationship requires the principal to have the right to control the day-to-day operative details of the agent's business.
Facts:
- In 1981, Hunter Mining Laboratories, Inc. ('Hunter') contracted with Hubco Data Products Corporation ('Hubco') for the sale, installation, and software customization of computer equipment.
- The computer equipment was manufactured by Management Assistance, Inc. ('MAI') and its subsidiary, MAI Application Software Corporation ('MAI Software').
- Hubco and Data Doctors Corporation ('Data Doctors') were licensed distributors of MAI products.
- The dealership agreement between MAI and its distributors gave MAI some control, including requiring an appropriate premises, monitoring advertising, and receiving monthly reports.
- Hubco delivered most of the equipment but then closed its business without completing the installation or software programming.
- Hunter hired Data Doctors to complete the work, but Data Doctors also failed to fulfill its agreement.
- MAI did not control the day-to-day operations of Hubco or Data Doctors, such as their business expenditures, customer rates, profits, sales methods, or employee management.
Procedural Posture:
- Hunter Mining Laboratories, Inc. sued Management Assistance, Inc. (MAI) and MAI Software in a state trial court for breach of contract, based on contracts Hunter signed with Hubco and Data Doctors.
- A jury found MAI and MAI Software liable, implicitly finding an agency relationship existed.
- The trial court judge granted MAI's motion for a judgment notwithstanding the verdict (JNOV), concluding that no evidence supported the jury's finding of an agency relationship.
- Hunter appealed the trial court's order granting the JNOV to the Supreme Court of Nevada.
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Issue:
Does a manufacturer-distributor agreement that grants the manufacturer some control over its distributor's business create a principal-agent relationship that makes the manufacturer liable for the distributor's breach of contract with a customer?
Opinions:
Majority - Per Curiam
No. A manufacturer-distributor agreement that grants the manufacturer some control over its distributor's business does not, by itself, create a principal-agent relationship. To establish an agency relationship, the principal must possess the right to control the agent's day-to-day conduct and operative business details. Here, the controls in the MAI/Hubco dealership agreement were typical for protecting MAI’s goodwill and product integrity, not for managing Hubco's daily operations. MAI had no power over Hubco's expenditures, customer rates, profits, or employee relations. Furthermore, an essential element of agency, a fiduciary obligation for the agent to act primarily for the principal's benefit, was absent; Hubco and Data Doctors purchased goods from MAI and resold them for their own profit, acting as independent buyers. The court also rejected the argument of apparent authority, as Hunter did not rely on any representations from MAI that Hubco or Data Doctors were its agents.
Analysis:
This decision clarifies the line between a standard manufacturer-distributor arrangement and a true principal-agent relationship. It establishes that typical contractual controls aimed at preserving brand integrity and quality do not suffice to create agency liability for a manufacturer. The ruling protects manufacturers from being held liable for the independent contractual breaches of their resellers, reinforcing the principle that liability follows control. For an agency to be found, a plaintiff must show that the manufacturer exercised control over the minute, daily operations of the distributor's business, a significantly higher bar than simply setting standards for the sale of its products.
