Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Mo.: Dealer states wrongful termination claim under Missouri power equipment distribution law, (Oct 15, 2013)

By John W. Arden, J.D., LL.M.

A generator dealer, bringing a wrongful termination action against its manufacturer under the Missouri Industrial Maintenance and Construction Power Equipment Act, raised genuine issues of material fact regarding the reasons behind the termination, whether the reasons constituted good cause for termination, whether the manufacturer was required to provide notice and an opportunity to cure, and whether such notice and opportunity to cure were ever provided, the federal district court in St. Louis has ruled (Machine Maintenance, Inc. v. Generac Power Systems, Inc., October 8, 2013, Hamilton, J.). Thus, the manufacturer’s motion for summary judgment was denied.

From mid-2005 to December 2011, Machine Maintenance, Inc. (d/b/a Luby Equipment, Inc.) sold and serviced generators manufactured by Generac Power Systems, Inc. pursuant to a non-exclusive buy/sell agreement and a non-exclusive service agreement with Generac Power Systems.

The buy/sell portion of the agreement could be terminated by either party, without cause, with 90 days’ prior written notice. It also could be terminated with cause upon written notification for specified reasons, including Luby’s violation of the agreement. Luby’s sole remedy for termination was Generac’s repurchase of inventory. This remedy was “in lieu of all other claims [Luby] may have against Generac as a result of termination.”

The service portion of the agreement stated that either party could terminate “with or without cause by giving thirty (30) days written notice” and that Generac could terminate in the event Luby failed to satisfy any term or provision of Generac’s operating manual. Upon termination, Luby was to promptly remove all advertising and other publicity suggesting a connection with Generac.

In April 2011, Luby and Generac signed a Performance Improvement Plan, outlining strategies and tactics to be implemented in order to improve Luby’s overall sales performance. In November and December 2011, Luby exceeded Generac’s sales goals by 61% and 98% respectively. Nevertheless, in early December 2011, Generac terminated the parties’ agreement. By letter dated December 8, 2011, Generac gave written notice of Luby’s termination. The letter did not specify a reason for the termination, but set forth the process by which Generac would begin closing Luby’s account.

Generac later asserted that it terminated Luby for the alleged failure to satisfy criteria set forth in the Performance Improvement Plan and for failing to meet agreed-upon goals and objectives laid out three years previously. Luby asserted that Generac was “secretly” engaged in discussions with Clifford Power Systems regarding its distributing Generac’s products in the St. Louis market. Although Generac admitted to having engaged in discussions with Clifford, it did not admit to the subject matter or time frame of the discussions.

Luby brought suit against Generac, alleging that (1) the manufacturer violated the Missouri Industrial Maintenance and Construction Power Equipment Act by failing to provide written notice of termination and failing to provide an opportunity to correct alleged deficiencies and (2) the dealer was entitled to recoupment of its investment in the dealership.

Industrial Maintenance and Construction Power Equipment Act

Luby sought summary judgment on its statutory claim because the generators were “power equipment” governed by the Act and the Act required advanced written notice of termination and an opportunity to cure any claimed deficiencies. Generac argued that the generators at issue did not qualify as power equipment under the Act and that the termination fell within one of the Act’s enumerated “good cause” exceptions to the notice and opportunity-to-cure requirements. Generac also requested summary judgment on the claims.

The Act requires that a supplier provide a retailer at least 90 days prior written notice of termination, cancellation, or nonrenewal; that the notice shall state all reasons constituting “good cause”; and that the notice shall provide the dealer 60 days in which to cure claimed deficiencies. These requirements do not apply when the reason for termination is consistent failure to meet requirements for reasonable market penetration based on experience in other comparable marketing areas.

“Construction power equipment.” The court initially held that the Generac generators constituted construction power equipment as defined by the Act. It was undisputed that the generators were engines that produce power and operate under their own internal power source to generate power. “To otherwise construe the undisputed facts would be contrary to the plain and ordinary meaning of the term ‘power equipment’ and would be unreasonable,” the court observed.

Notice, opportunity-to-cure requirements. Generac contended that the Act’s notice and opportunity-to-cure requirements were not applicable because it terminated Luby for its consistent failure to meet requirements for reasonable market penetration based on its experience in other comparable marketing areas. Luby claimed that the termination was based on reasons other than such a failure. The court found that there were genuine issues of material fact necessary to determine (1) the reasons Generac terminated Luby, (2) whether the reasons implicated the good cause exception to the Act, and (3) whether notice and an opportunity to cure were required and/or were given. Thus, summary judgment was denied on the claim that Generac violated the Missouri Industrial Maintenance and Construction Power Equipment Act.

Recoupment doctrine

The Missouri “recoupment doctrine” was designed to allow agents, franchisees, or dealers with “at will” arrangements to recoup their investments upon termination. The parties did not address whether the relationship was actually “at will,” whether the non-exclusivity of the agreement precluded recoupment damages, or whether the sales portion and the service portion of the agreement affected this issue. Thus, there remained genuine issues of material fact regarding the applicability of the recoupment doctrine. Generac’s motion for summary judgment was therefore denied.

The case is No. 4:12CV793JCH.

Attorneys: Brian A. Lamping (Thompson Coburn, LLP) and Gregory H. Wagoner (Shumaker and Loop) for Machine Maintenance, Inc. Joel B. Smith for Generac Power Systems, Inc.

Companies: Machine Maintenance, Inc.; Generac Power Systems, Inc.

Cases: FranchisingDistribution MissouriNews