Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Discontinuation of discount agreement allegedly violated California Equipment Dealers Act, breached distribution contract, (Jun 28, 2013)

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

Hyundai Construction Equipment America’s notice to a California distributor/dealer that it would cease honoring the parties’ discount agreement materially changed the competitive circumstances of the distributor/dealer and constituted a violation of the California Equipment Dealers Act, a breach of the parties’ distribution agreement and the implied covenant of good faith and fair dealing, and tortious interference with contractual relations, according to a complaint filed in the federal district court in Sacramento (Mecom Equipment, LLC v. Hyundai Construction Equipment Americas, Inc., June 27, 2013).

In 2010, Hyundai offered distributor/dealer Mecom Equipment a discount agreement to facilitate Mecom’s ability to merchandise Hyundai construction equipment in a highly competitive market against competitors like Caterpillar, Hitachi, Komatsu, and John Deere, according to the complaint. In consideration for receiving the discount structure, Mecom allegedly agreed to forego otherwise standard Hyundai dealer programs and incentives such as floor plan financing, sales incentives, training programs, and advertising support. Mecom “completely modified its business plans to specialize in Hyundai products and to service Hyundai equipment purchased by Mecom’s customers,” the complaint claimed.

As a result of this strategy, Mecom purchased large stocks of Hyundai products and parts in order to support operations of its sub-dealers and retail customers until 80% of its capital was invested in Hyundai products, it was alleged.

Hyundai’s action to unilaterally terminate the discount agreement effectively terminated Mecom’s master distribution agreement and its relationship with multiple sub-dealers, according to Mecom.

Mecom claimed that Hyundai’s conduct violated the California Equipment Dealers Act, which prohibits suppliers from terminating, cancelling, refusing to renew, or materially changing the competitive circumstances of the dealer contract without good cause. Hyundai’s alleged violations included materially changing the discount terms of the agreement without good cause and180 days’ written notice and acting to terminate, without cause or notice, Mecom’s sub-dealer relationships.

The complaint further charged that Hyundai’s actions breached the parties’ distribution agreement, violated the implied covenant of good faith and fair dealing, and constituted tortious interference with Mecom’s contractual relations and prospective economic advantage.

Mecom requested temporary and preliminary injunctive relief barring Hyundai from altering the terms of the discount agreement until its expiration at the close of 2014 and an award of attorney fees and costs of suit.

The case is No. 2:13-cv-01287-GEB-EFB.

Attorneys: Marco Quazzo (Barg Coffin Lewis & Trapp, LLP) and Ronald K. Gardner (Dady & Gardner, P.A.) for Mecom Equipment, LLC.

Companies: Mecom Equipment, LLC; Hyundai Construction Equipment Americas, Inc.

News: FranchisingDistribution CaliforniaNews