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Ohio Federal Court Finds Distributor Adequately Alleged Breach of Fiduciary Duty Claim Against Manufacturer
Posted in Fiduciary Duty

A federal court in Ohio recently held that a distributor adequately alleged the existence of a fiduciary relationship with a manufacturer. Shepard and Assocs., Inc. v. Lokring Tech., LLC, 2021 WL 1061893 (N.D. Ohio Mar. 19, 2021). Shepard and Associates was a distributor of Lokring products, which are patented weld-equivalent pipe and tube fittings, in the southwest United States. The distributor was initially owned by an individual named Joe Shepard, and was subsequently sold to his son, Brad Shepard, when Joe Shepard established a new distributor in the southeast United States. In connection with the transfer of the distributor to the son, Lokring structured the transaction and prepared the documents for the transaction. Lokring further assured the son that it would continue to work with him as long as the distributor performed well. The parties’ relationship subsequently soured and, despite the distributor’s allegedly strong performance, Lokring terminated it. The distributor sued, alleging, among other claims, that Lokring breached its fiduciary duty by terminating the relationship.

Lokring moved to dismiss, arguing that no fiduciary relationship existed as they were merely parties to a distributor agreement, which expressly stated the distributor’s relationship as an independent contractor. The distributor argued that, based on Lokring’s involvement in the transfer of the distributor from father to son, its assurances that it would honor the son’s company as long as it performed well, and Lokring’s alleged total control of the distributor under the distributor agreement, the parties’ relationship arose to a fiduciary relationship. The court agreed with the distributor. The court held that various provisions of the distributor agreement, which granted Lokring “immense” control over many aspects of the distributor’s business and required numerous disclosures by the distributor to Lokring, including detailed customer and financial information, made the relationship between the parties more akin to a fiduciary relationship. The court further reasoned that while the distributor agreement labeled the distributor as an independent contractor, the label was not dispositive.

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