Guest article by former Missouri Supreme Court Judge William Ray Price, Jr., partner, Armstrong Teasdale
L3-Communications was sued by a terminated distributor, Sun Aviation. Sun obtained a $7.6 million verdict that was upheld in the Missouri Court of Appeals. After transfer to the Missouri Supreme Court, L3-Communications asked AIM to file an Amicus Brief supporting its defense and to advocate a more practical and pro-business position.
On October 31, 2017, the Missouri Supreme Court issued just such a decision reversing the judgement. The Court denied Sun Aviation’s request for rehearing on December 19, 2017.
At issue was a Missouri statute governing distributor relationships involving the sale of “industrial, maintenance and construction power equipment used for industrial, maintenance and construction applications.” The statute generally prohibits manufacturers from terminating such relationships except in narrow circumstances involving wrongdoing by the distributor. The lower court had interpreted the statute so broadly that it would apply to virtually any distributor relationship involving the sale of any item that uses electricity. The Supreme Court reversed, clarifying that the statute applies to only those distributor relationships involving the sale of end-use machines, and not to those involving the sale of electrically powered component parts.
The Supreme Court also reversed the lower court’s determination that L-3 had fraudulently concealed its parent’s business consolidation plans. The Court concluded that L-3 had no obligation to disclose such information. In the process, the Court reaffirmed longstanding Missouri law that an ordinary, arms-length business relationship does not, by itself, create a fiduciary relationship.
Finally, the Court concluded that Sun Aviation was not entitled to 18 years of lost earnings. Although L-3 had not given Sun Aviation 90 days’ notice of the termination of the business relationship as required by Missouri franchising law, the Court held that the statute entitles a franchisee to only those profits it would have earned during the 90-day notice period.
This decision represents a victory for Missouri industry and ensures that parties to most arms’ length distributor arrangements can conduct their business without fear that ending the relationship will lead to crippling penalties.
AIM is happy to have played a part in protecting the rights of its members and ensuring a more practical legal environment for Missouri businesses.
The case is Sun Aviation, Inc. v. L-3 Communications Avionics Systems, Inc., No. SC96280. AIM was represented by former Missouri Supreme Court Judge William Ray Price, Jr., Jeffery McPherson, and Alexander Barrett of Armstrong Teasdale LLP. . L-3 Communications was represented by Edward Downey and Elizabeth Carver of Bryan Cave LLP.