The Franchise Memorandum

In Machine Maintenance, Inc. v. Generac Power Systems, Inc., 2013 U.S. Dist. LEXIS 14275 (E.D. Mo. Oct. 8 2013), a federal court in Missouri denied cross motions for summary judgment in a dealer termination dispute. The plaintiff, which did business as Luby Equipment, Inc., was a former nonexclusive seller and servicer of generators manufactured by Generac Power Systems. Generac terminated Luby’s Buy/Sell Agreement and Service Agreement at an in-person meeting in December 2011. Although the termination letter that followed the meeting did not specify the reason for termination, Generac claimed it terminated Luby for its failure to meet criteria set forth in a strategic plan entered into by the parties. Luby argued that its termination resulted from Generac’s secret discussions with a replacement dealer, and that the termination violated the Missouri Industrial Maintenance and Construction Power Equipment Act, which requires that a supplier give at least ninety days prior written notice of termination, specify all reasons constituting good cause for termination, and provide the dealer with sixty days to cure any deficiency. Luby also sought equitable relief under the recoupment doctrine.

Both parties moved for summary judgment on the statutory claim. Although the court concluded as a matter of law that the generators constituted “power equipment,” and thus came within the scope of the statute, it found that factual disputes remained regarding the reasons Generac terminated Luby, whether its reasons constituted good cause, and whether the notice and cure requirements had been satisfied. The court also denied Generac’s summary judgment motion on the recoupment claim. Under Missouri law, when an at-will dealer contract says nothing about duration or does not specifically deal with remedies for termination, courts can impute into the contract a duration equal to the length of time reasonably necessary for a dealer to recoup its investment, plus a reasonable notice period before termination. Generac’s contract with Luby specified remedies for termination of the Buy/Sell Agreement, but not the Service Agreement. Because the parties had not addressed how the differences between both parts of the Agreement impacted the doctrine, and because neither party addressed how the nonexclusive nature of the contract impacted the doctrine, the court concluded questions of material fact about the doctrine’s application remained and denied summary judgment.