Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Tex.: Court denies dismissal under Texas law requiring good cause for equipment dealer termination, (Oct 15, 2024)

By Justin Marcus Smith, J.D.

The equipment dealers sufficiently pleaded that the distributor terminated them simply because it wanted full-line distributors, but that was not a statutory good cause for termination.

A trio of Hitachi wheel loader dealers sufficiently alleged that Hitachi Construction Machinery Americas, Inc. (HCMA) breached their dealer agreements by failing to let them to sell the entire line of Hitachi products, held the federal district court in San Antonio. According to the complaint, Hitachi did not have a good cause for termination, as required under the Texas Fair Practices of Equipment Manufacturers, Distributors, Wholesalers, and Dealers Act. The court held the dealers adequately alleged their own performance and they did not necessarily need to specify which agreement provisions HCMA allegedly breached as long as the complaint provided adequate notice of their claims. However, the dealers pleaded their damages in a conclusory fashion. Dismissal on that ground would have been too harsh, so the court gave the dealers 21 days to amend their complaint with respect to damages (Cooper Equipment Co. v. Hitachi Construction Machinery Americas, Inc., No. 5:24-cv-00069-JKP-RBF (W.D. Tex. Oct. 09, 2024)).

Background. Plaintiffs Cooper Equipment Co. (Cooper), Beard Holdings, LLC (Beard), and plaintiff-intervenor B-C Equipment Sales, Inc. (B-C) complained that Hitachi Construction Machinery Americas, Inc. (HCMA) terminated their authorized retail dealer agreements without cause. The plaintiffs asserted two causes of action against HCMA: 1) violation of the Texas Fair Practices of Equipment Manufacturers, Distributors, Wholesalers, and Dealers Act (the Act), Tex. Bus. & Com. Code § 57.001; and, 2) breach of contract. HCMA moved to dismiss the complaints under Fed. R. Civ. P. 12(b)(6) for failure to state a claim. Intervenor B-C’s complaint was identical to the Cooper and Beard complaint so the court analyzed and treated them as a single complaint. The court described how the Act required good cause for equipment or part dealer termination.

No good cause. The court held the complaint, taken as true, showed HCMA lacked good cause to terminate the dealers under the Act. The complaint alleged that HCMA terminated the plaintiffs because HCMA wanted to eliminate dealers, like the plaintiffs, that sold only small wheel loaders. HCMA contended that the dealers failed to specify how its notices of termination did not meet the definition of good cause. Contrary to that argument, the court found the complaint alleged that HCMA’s notices of termination recited requirements not previously communicated, instances of alleged default caused by HCMA, and did not recite any consistent failure by the plaintiffs to comply with standards or performance objectives. The court accordingly concluded the face of the complaint sufficiently alleged that HCMA lacked an enumerated good cause for termination under the Act. The court added that HCMA did not address the plaintiffs’ claims that HCMA also violated the Act by failing to provide an opportunity to cure.

Breach. The court disagreed with HCMA that the complaint needed to identify the specific agreement provisions breached; however, the court did order amendment of claimed damages. With respect to performance, the court found the plaintiffs adequately pleaded their own performance by alleging they performed all actions required under the agreement. The court declined to require further performance details because the plaintiffs did not need to prove their allegations at the pleading stage.

Turning to the sufficiency of the breach allegations, the court held Fed. R. Civ. P. 8 and R. 12(b)(6) did not require the plaintiffs to identify the specific contractual provisions that HCMA allegedly breached. The plaintiffs alleged that, after HCMA began distributing Hitachi excavators in addition to the wheel loaders, it did not offer to sell the entire Hitachi line to the plaintiffs even though the disputed dealer agreements said the plaintiffs were allowed to sell the entire line. The court found these allegations were enough to inform HCMA of the nature of the breach and fulfilled the notice requirements of federal procedure.

HCMA cited to a Fifth Circuit case that affirmed dismissal of a breach of contract cause of action where the plaintiff’s complaint failed to explain how the defendant breached the contract. Howley v. Bankers Standard Insurance Company, No. 20-10940, 2022 WL 576403 (5th Cir. Feb. 25, 2022). However, the court found the Howley court specifically dealt with a complaint that offered “no insight” into the alleged breach of contract in that matter. That was not a problem here. The court held the instant complaint offered sufficient insight into how HCMA allegedly breached the dealer agreements. HCMA also cited to mortgage-foreclosure cases for the proposition that the plaintiffs needed to be more specific about breached contract provisions, but the court held the required specificity for mortgage foreclosure complaints was an exception and not applicable, as here, to other kinds of contractual disputes.

Turning to damages, the court agreed with HCMA that the plaintiffs pleaded damages in a conclusory fashion, deficient under Texas law. However, the court declined to dismiss the whole complaint on this basis because that would be too harsh. The court therefore granted the plaintiffs 21 days of leave to amend the complaint with more proper allegations about their damages.

The Case is No. 5:24-cv-00069-JKP-RBF.

Judge: Pulliam, J.

Attorneys: Brett M. Pinkus (Wick, Phillips, Gould & Martin, LLP) for Cooper Equipment Co. Christina Gratke Nason (Kershaw Anderson King PLLC) for Hitachi Construction Machinery Loaders of Americas, Inc.

Companies: Cooper Equipment Co.; Hitachi Construction Machinery Loaders of Americas, Inc.

Cases: FranchisingDistribution TexasNews