Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Mo.: Joint venture member lacked standing to sue venture individually, (Aug 18, 2015)

By Edward L. Puzzo, J.D.

A member of a joint venture did not have standing to individually sue another member of the joint venture, and instead was required to sue derivatively on behalf of the joint venture, because the individual member failed to plead an injury distinct from that suffered by the joint venture as a whole, the federal district court in St. Louis has ruled (Sasso USA, Inc. v. Zein Investments, LLC, August 17, 2015, Ross, J.).

Sasso USA, Inc. an Illinois corporation, is a subsidiary of Sassomeccanica, S.r.L. Zein Investments, LLC, a Missouri company, was organized by Hassan Elzein, a Missouri citizen. In 2009, pursuant to an Operating Agreement, Sasso USA and Zein Investments formed a joint venture, Sasso America, LLC, to sell and distribute stone distributing equipment.

That same year, Sasso USA entered into a Distribution Agreement allowing the Sasso America joint venture to sell and market Sassomeccanica products in the United States using the Sassomeccanica trademark. The Distribution Agreement contained a non-compete clause, but Sasso USA alleged that Elzein, the principal of Zein Investments, Sasso USA’s joint venture partner, breached the clause by selling the products of a competitor, Prussiani USA, LLC, also a Missouri company.

In 2013, both the Operating Agreement and Distribution Agreement were terminated. Sasso USA alleged that after termination, Elzein and Zein Investments continued to represent themselves as distributors for Sassomeccanica products, use Sassomeccanica’s trademarks, and use Sasso USA’s contacts and customer lists to promote the products of Sasso USA’s competitor Prussiani.

In 2015, Sasso USA brought breach of contract and other claims against Elzein, Zein Investments and Prussiani USA. Defendants moved to dismiss. They claimed that Sasso USA, as a member of the Sasso America joint venture, lacked standing to individually bring an action against Zein Investments, another member of the Sasso America joint venture, and was required instead to bring a derivative action. Sasso USA acknowledged the general rule that individual shareholders must sue corporate directors and officers derivatively in breach of fiduciary duty cases, but maintained that Missouri law imposed fiduciary duties upon managers of an LLC to members of the LLC.

Exception inapplicable. The court explained that the general rule in Missouri is that an individual shareholder may not bring an action in his own name to recover for wrongs done to the corporation. However, there is an exception that permits an individual rather than a derivative action when the plaintiff has suffered an injury distinct from that suffered by the corporation.

Here, the court found, plaintiff Sasso USA failed to plead an injury distinct from that suffered by the Sasso America joint venture. The allegations that the defendants’ actions undermined the value of Sasso America’s products and trademarks only indirectly impacted Sasso USA as a member of the Sasso America joint venture. Thus, any action would have to be brought derivatively.

The case is Civil Action No. 4:14-cv-01728-JAR.

Attorneys: Aaron E. Davis (Bryan Cave LLP) for Sasso USA, Inc. Carmen David Caruso (Caruso & Roeder LLC), and Gary A. Growe (Growe and Eisen) for Zein Investments, LLC, Hassan Elzein, and Prussiani USA, LLC.

Companies: Sasso USA, Inc.; Zein Investments, LLC

Cases: FranchisingDistribution MissouriNews