Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Tex.: Texas dealer statute interpreted to cover, not wholly displace, covered dealer agreements, (Aug 20, 2026)

By Justin Marcus Smith, J.D.

The Texas statute permitted a supplier defendant-counterclaimant to terminate a covered agreement if the dealer consistently failed to meet performance objectives; however, the burden would be, as usual, on the party asserting such prior-material-breach defense.

The Texas Fair Practices of Equipment Manufacturers, Distributors, Wholesalers, and Dealers Act (the Act) was not meant to wholly replace a covered dealer agreement, held the federal district court in San Antonio, Texas. Accordingly, defendant-counterclaimant Hitachi Construction Machinery Americas, Inc. (HCMA) needed to provide statutory two-years’ notice if it intended to rely on termination for good cause under the Act, in this instance, alleged dealer failure to meet market share performance objectives. The court sustained the plaintiff dealers’ objection to a magistrate Report & Recommendation (R&R) that they should bear the burden, ruling instead that HCMA would bear the burden to show it had good cause for termination and that it complied with any applicable statutory notice requirements. On the parties’ motions for summary judgment, the dealers argued they did not have two years’ notice, but the court found that was only true and applied as a matter of law to one of them, Beard Holdings, LLC (Beard). The court accordingly granted the dealers’ motion for summary judgment in part as to Beard and denied in part as to the other two dealers; dismissed the HCMA counterclaim as to Beard; and denied the HCMA motion for summary judgment (Cooper Equipment Co. v. Hitachi Construction Machinery Americas, Inc., No. 5:24-cv-00069-MA (W.D. Tex. Aug. 17, 2026)).

Complaint. In 2024, Plaintiffs Cooper Equipment Co. (Cooper), Beard Holdings, LLC (Beard), and plaintiff intervenor B-C Equipment Sales, Inc. (B-C) (collectively, the dealers) complained that HCMA terminated their authorized retail dealer agreements (DAs) without good 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. The Act requires good cause for termination.

Dismissal denied. In 2024, HCMA moved to dismiss the complaints under Fed. R. Civ. P. 12(b)(6) for failure to state a claim. The court, treating the complaints as a single complaint, denied dismissal because the dealers sufficiently alleged that HCMA breached the DAs by failing to let them sell the entire line of Hitachi products. Taking the allegations as true, HCMA facially lacked good cause to terminate the dealers under the Act. The plaintiffs pleaded damages in a conclusory fashion, but the court decided that dismissal for that would have been too harsh.

More claims. The dealers asserted a third claim for breach of contract in connection with HCMA’s failure to allow the dealers to sell excavators when HCMA began to manufacture excavators after the DAs went into effect.

HCMA filed counterclaims against the dealers alleging that the dealers breached first inasmuch as they allegedly failed to maintain minimum annual market shares pursuant to the DA.

SJ motions. In early 2026, the dealers filed a motion for partial summary judgment. They raised two arguments. First, they said HCMA could not assert that it had statutory “good cause” to terminate for market share performance reasons as a matter of law because HCMA did not provide two years notice. Second, the dealers asserted the DAs precluded HCMA, as a matter of law, from asserting contractual counterclaims against them for alleged failure to maintain agreed market share minimums.

Meanwhile, HCMA filed its own motion for summary judgment as to all three dealers. HCMA argued, among other things, that (1) the dealers’ late-payment history under their security agreements with HCMA per se authorized HCMA to terminate the DAs anytime thereafter; (2) HCMA’s termination notices complied with the DAs and the Act; and (3) HCMA was entitled to summary judgment on the dealers’ breach-of-contract excavator claim because excavators were beyond the scope of contractual “inventory.”

Magistrate R&R. In July 2026, a magistrate judge made a Report and Recommendation (R&R) as to both summary judgment motions. The magistrate recommended (1) granting in part the dealers’ challenge to HCMA counterclaim based on the express limitation of HCMA remedies for market share breaches; and (2) denial of the HCMA motion. The magistrate further recommended the dealers should bear the burden of proof on whether HCMA lacked good cause to terminate the DAs.

Objections to R&R. The parties filed timely objections to the R&R. The dealers asserted that the R&R (1) erred in placing the burden of proving lack of good cause on them; and (2) erred in declining to hold that the DAs and the Act precluded HCMA from relying on the market share requirements as good cause for termination without satisfaction of the two-year statutory notice requirement. HCMA asserted that the R&R (1) erred in concluding that cured payment defaults cannot be statutory good cause for termination under the Act; (2) erroneously imposed notice requirements not found in the DAs and failed to recognize that HCMA written and email notices satisfied applicable contractual requirements; (3) erred in finding that HCMA was not entitled to summary judgment on the dealers’ breach-of-contract claims relating to excavator sales as a matter of law.

The court applied de novo review to objected portions of the R&R and clear error review to the balance of the R&R.

Act schema. The court began by observing that the R&R adopted a framework for Dealer Act claims drawn from a recent nonbinding Northern District of Texas decision in Hitachi Construction Machinery Americas Inc. v Amarillo Machinery Co., 2026 WL 1747874, at *4. The Hitachi court stated that a successful claim under the Act requires four elements: (1) a covered dealer agreement; (2) termination thereof; (3) without good cause; and (4) damages. However, the instant court questioned this formulation as unsupported. It also expressed concern that the Act was only meant to supplement a “covered” agreement, not to wholly displace one.

The instant court accordingly reformulated that dealers must prove (emphasis included): “(1) the existence of a valid, covered contract; (2) that Plaintiffs performed, or tendered performance, as required by the contract and the Dealers Act; (3) that Hitachi breached the contract, as supplemented by the Dealers Act, by failing to perform or tender performance as required; and (4) that Plaintiffs suffered damages proximately caused by that breach.”

Burden of proof. The instant court sustained the dealers’ objection to the burden of proof. The court said it saw no basis to conclude that the Texas legislature’s failure to provide an express allocation of the burden of proof in the Act reflected any intent to deviate from the ordinary rule. The ordinary rule puts the burden on the party that asserts a prior-material-breach defense.

The instant court reasoned it would be illogical to allocate the burden of proof for the same termination on HCMA to prove good cause as a defense to the dealers’ breach of contract claims while requiring the dealers to prove lack of good cause in support of their claims under the Act.

Accordingly, HCMA would bear the burden of proof to show it had good cause for termination and that it complied with any applicable statutory notice requirements.

Performance objectives. The court found the dealers did not establish that HCMA was precluded, as a matter of law, from asserting good cause to terminate its agreement with two of the three dealers, specifically, B-C and Cooper.

The Act permits a supplier to terminate a covered agreement if the dealer consistently fails to meet the supplier’s expectations for performance objectives based on the supplier’s experience in comparable markets. However, in that context, the Act also requires at least two years’ notice under § 57.155(b) to terminate for good cause under § 57.154(a)(12). The dealers argued they did not have two years’ notice, but the court found that was only true as to Beard.

As the dealers acknowledged in their objection and reply, HCMA contended it gave adequate and timely notice of market-share deficiencies to B-C and Cooper. The dealers did not address a span of emails in their motion for summary judgment, but they briefly asserted HCMA did not provide sufficient notice under § 57.155(b). They did not otherwise respond to HCMA’s challenge to their interpretation of § 57.155(b). The court deemed the dispute as unresolved in part and accordingly sustained the dealers’ objection to Beard but overruled as to B-C and Cooper.

Conclusion. The court granted summary judgment to the dealers with respect to the HCMA counterclaim premised on DA breach and with respect to HCMA invocation of § 57.154(a)(12) of the Act as good cause for terminating Beard.

The court dismissed the HCMA counterclaim that the dealers breached first only as to Beard. HCMA could not rely on the termination for good cause grounds invoked through its termination notices as to Beard as a matter of law because Beard did not have the statutory two-years notice under the Act § 57.155(b). The court otherwise denied the dealers’ motion and denied the HCMA motion for summary judgment.

The Case is No. 5:24-cv-00069-MA.

Judge: Alvarez, M.

Attorneys: Brett M. Pinkus (Spencer Fane LLP) for Cooper Equipment Co. Brandon L. Grubbs (JWL International) for Hitachi Construction Machinery Loaders of America, Inc.

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

Cases: FranchisingDistribution TexasNews GCNNews