Machine Maintenance, Inc. d/b/a Luby Equipment Services, Inc. v. Generac Power Systems, Inc.

Filing 88

MEMORANDUM AND ORDER re: 71 68 ORDERED that Luby's Motion for Partial Summary Judgment (ECF No. 68) is DENIED, in part, and GRANTED, in part; ORDERED that Luby's Motion for Partial Summary Judgment (ECF No. 68) is GRANTED, to the ex tent that theCourt finds that the generators at issue are power equipment under the Act, and DENIED, in all other regards; FURTHER ORDERED that Generac's Motion for Summary Judgment (ECFNo. 71) is DENIED in its entirety.. Signed by District Judge Jean C. Hamilton on 10/8/13. (CEL) (cc:Roddy W. Rogahn by mail Modified on 10/8/2013 (CEL).

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

MACHINE MAINTENANCE, INC.,
d/b/a Luby Equipment, Inc.,
Plaintiff/Counter-Defendant,
vs.
GENERAC POWER SYSTEMS, INC.,
Defendant/Counter-Plaintiff.

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) Case No. 4:12CV793JCH
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MEMORANDUM AND ORDER
This matter is before the Court on the Motion for Partial Summary Judgment filed by
Plaintiff/Counter-Defendant Machine Maintenance, Inc., d/b/a Luby Equipment, Inc. (Luby), and
the Motion for Summary Judgment filed by Defendant/Counter-Plaintiff Generac Power Systems,
Inc., (Generac). (ECF Nos. 68, 71). The motions are fully briefed and ready for disposition.
BACKGROUND1
From mid-2005 to December 2011, in the St. Louis market, Luby sold and serviced
generators manufactured by Generac pursuant to a Non-Exclusive Buy/Sell Agreement and NonExclusive Service Agreement with Generac (jointly, the Agreement). The Buy/Sell portion of the
Agreement could be terminated by either party, without cause with 90 days prior written notice. It
could be terminated with cause upon written notification for specified reasons, including Luby’s
violation of the Agreement. Luby’s sole remedies for termination were Generac’s “repurchase of
[Luby’s] inventory of products or [Luby’s] right to sell such inventory.” This remedy was “in lieu
of all other claims [Luby] may have against Generac as a result” of termination. “Under no

1

Facts are not disputed unless otherwise indicated.

circumstances was Generac to be liable based on termination for “compensation, reimbursement or
damages for any reason.” (ECF Nos. 60.1 ¶ 5). The Service portion of the Agreement stated that
either party could terminate “with or without cause by giving thirty (30) days written notice,” and
that Generac could terminate in the event Luby “fail[ed] to satisfy any term or provision stated
[therein] or in [Generac’s] manual.” Upon termination, Luby was required to “promptly remove
from its premises . . . all advertising or other publicity” suggesting it was connected with Generac.
(ECF No. 60.2 ¶¶ 5-6).
Luby added a generator division when it began selling Generac products as it previously had
never sold or serviced generators. Luby’s business was then organized in three divisions: an oil field
products division, representing approximately 25-30 percent of Luby’s business; a construction
equipment division representing approximately 50-55 percent of Luby’s business; and a standby
generator division, representing 20-30 percent of Luby’s business. Luby’s sales and service of
Generac products fell within its generator division.
The generators subject to the Agreement ranged in size from five to 600 kilowatts.
(Agreement App. #1, ECF No. 60.1). Generators manufactured by Generac have diesel or gas
powered engines. While Generac denies that its generators “operate under their own power” and “do
work,” it admits that they “supply power,” “operate as an independent power source,” and “produce
electricity.” (ECF. Doc. 70, Luby Statement of Undisputed Facts (Luby’s SUF) ¶¶ 4-5; ECF Doc.
77, Generac’s Resp. to Luby’s SUF, ¶¶ 4-5). Literature produced by Generac about its products
states that it “manufactures the widest range of power products in the marketplace”; its “SparkIgnited” generator performs “the task of generating backup power”; and its “Compression-Ignited”
generator “provides more options for heavy-duty backup power.” (ECF Nos. 70.3, 70.6).
A Performance Improvement Plan (PIP), signed by representatives of Luby and Generac in
April 2011, “outline[d] strategies and tactics” to be “implemented within identified time lines with

the purpose of helping Luby [] improve its over all sales performance.” The PIP noted that areas
which needed focus included “[a] structured and organized approach to the local Engineering
Community where by the % of Generac named projects reache[d] acceptable levels.” Specifically,
“35% of all projects listed in Dodge were to have Generac named as an approved
vendor/supplier/manufacturer.” The PIP also provided for Luby’s “[b]ringing Generac market share
to levels in line with the Generac national dealer average,” with certain percentages and dollar
amounts delineated. Finally, Luby was to “[f]ully engage in Generac programs.” For each focus
area, the PIP provided detailed actions which Luby was to undertake. (ECF No. 70.21, PIP, Luby
Ex. G). Generac contends that its “market penetration” requirements were embodied in the PIP, and
that “market share,” as referenced in the PIP is only one part of these requirements. (ECF Nos. 74.4
(Bowers Dep.) at 79; 77 (Generac Resp. to Luby’s SUF ¶ 7). In November and December 2011
Luby exceeded Generac’s sales goals by 61% and 98% respectively. (ECF No. 24, Answer to
Compl. ¶ 17).
In early December 2011, at a meeting in Luby’s office in Fenton, Missouri, Generac
terminated the Agreement. By letter dated December 8, 2011, Generac provided Luby written notice
of its termination of the Agreement. The letter did not specify a reason for the termination, but set
forth the process pursuant to which Generac would begin closing Luby’s direct account and stated
that after ninety days, “Luby would purchase all parts through [Generac’s] newly assigned Industrial
Dealer.” (ECF No. 1.1, Ex. A.) The termination letter was drafted and signed by Paul Bowers,
Generac’s Vice President of Industrial Sales, although others were involved in the decision to
terminate Luby. (ECF No. 70.21, Kelly Dep., at 81). Generac asserts that it terminated Luby based
on Luby’s alleged failure to satisfy criteria set forth in the PIP and for failing to meet “agreed-upon
goals and objectives that were laid out between” Luby and Generac for three years proceeding the
PIP’s execution. (ECF No. 72.4, Bowers Dep. at 163-64; ECF No. 70.20, Kelly Dep. at 82; Generac

Resp. to Luby’s SUF ¶ 10). Luby asserts that prior to its being terminated by Generac, Generac was
“secretly” engaged in discussions with Clifford Power Systems, Inc., (Clifford) regarding Clifford’s
distributing Generac’s products in the St. Louis Market, and that Clifford is the “newly assigned”
dealer mentioned in the December 2011 termination letter. (ECF No. 1.1, Compl. ¶¶ 28, 36).
Although Generac admits that it engaged in discussions with Clifford, it does not admit the subject
matter or time frame of the discussions. (ECF No. 24, Answer to Compl. ¶ 28).
In Count 1 of its action, Luby alleges Generac violated the Missouri Industrial Maintenance
and Construction Power Equipment Act (the Act), Mo. Rev. Stat. §§ 407.750 et seq., by failing to
give written notice of Luby’s termination and by failing to give it the opportunity to correct alleged
deficiencies, and in Count 2 it seeks recoupment.2
SUMMARY JUDGMENT STANDARD
The Court may grant a motion for summary judgment if, “the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of
law.” Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The substantive law
determines which facts are critical and which are irrelevant. Only disputes over facts that might
affect the outcome will properly preclude summary judgment. See Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986). Summary judgment is not proper if the evidence is such that a reasonable
jury could return a verdict for the nonmoving party. See id.
A moving party always bears the burden of informing the Court of the basis of its motion.
See Celotex, 477 U.S. at 323. Once the moving party discharges this burden, the nonmoving party
must set forth specific facts demonstrating that there is a dispute as to a genuine issue of material

2

Generac’s Counterclaims against Luby, alleging Breach of Contract (Count 1), Action
on Account (Count 2), Action for Price of Goods Accepted (Count 3), and Unjust Enrichment
(Count 4) are not the subject of the pending motions. (ECF Nos. 1.1, 60).

fact, not the “mere existence of some alleged factual dispute.” Fed.R.Civ.P. 56(e); Anderson, 477
U.S. at 247. The nonmoving party may not rest upon mere allegations or denials of its pleadings.
See Anderson, 477 U.S. at 256.
In passing on a motion for summary judgment, the Court must view the facts in the light most
favorable to the nonmoving party, and all justifiable inferences are to be drawn in its favor. See
Anderson, 477 U.S. at 255. The Court's function is not to weigh the evidence, but to determine
whether there is a genuine issue for trial. See id. at 249.
DISCUSSION
Luby seeks summary judgment in its favor in regard to Generac’s alleged violation of the Act
(Count 1). It asserts that the Act applies because the generators which were the subject of the
Agreement were “power equipment”; because the generators were “power equipment, the Act
required Generac give Luby prior written notice of its termination and an opportunity to cure any
claimed deficiencies; and, therefore, Luby’s failure to do so violated the Act. Generac seeks
summary judgment in its favor as to Count 1 based on its contention that Luby’s termination is not
subject to the Act because the generators at issue are not power equipment under the Act.
Alternatively, Generac argues that, even if the generators qualify as power equipment under the Act,
Luby’s termination falls within one of the Act’s enumerated “good cause” exceptions to its notice
and opportunity-to-cure requirements. Generac also requests summary judgment in its favor in
regard to Luby’s claim for Recoupment (Count 2).
The Act provides:
Any manufacturer, wholesaler or distributor of industrial, maintenance and
construction power equipment used for industrial, maintenance and construction
applications and repair parts therefor, who enters into a written or parol contract with
any person, firm, or corporation engaged in the business of selling and repairing
industrial, maintenance and construction power equipment used for industrial,
maintenance and construction applications and repair parts therefor, whereby such
retailer agrees to maintain a stock of parts or complete or whole machines or
attachments, shall not terminate, cancel, or fail to renew any such contract without

good cause. “Good cause” means failure by the retailer to substantially comply with
essential and reasonable requirements imposed upon the retailer by the contract if
such requirements are not different from those requirements imposed on other
similarly situated retailers either by their terms or in the manner of their enforcement.
Mo. Rev. Stat. § 407.753.1 (2001) (emphasis in original).
The Act requires that a supplier “provide a retailer at least ninety-days prior written notice
of termination, cancellation, or nonrenewal of the contract”; that the notice state all reasons
constituting “good cause”; and that the notice “provide that the dealer has sixty days [] to cure any
claimed deficiency.” Mo. Rev. Stat. § 407.753.2 (2001). The Act’s notice and opportunity-to-cure
provisions, however, do not apply in specified circumstances, including when the reason for
termination is that “[t]he retailer has consistently failed to meet the manufacturer’s, wholesaler’s or
distributor’s requirements for reasonable market penetration based on the manufacturer’s,
wholesaler’s, or distributor’s experience in other comparable marketing areas.” Mo. Rev. Stat. §
407.753.1(8); 407.753(2).
First, the Court will consider whether the generators are “construction power equipment” as
defined by the Act. As previously observed by this Court, “at minimum, ‘power equipment’ must
refer to end use machines and equipment which operate and perform work using some power source,
whether electrical, gas, steam, or other, or their own internal power source, such as an internal
combustion engine.” (ECF No. 21 at 5 (citing McBud of Missouri, Inc. v. Siemans Energy &
Automation, Inc., 68 F.Supp.2d 2016, 1081-82 (E.D. Mo. 1999) (“power equipment” within meaning
of Act includes machinery which performs work and operates under its own power source). Because
it is undisputed that generators manufactured by Generac and sold by Luby are engines, which
produce power and operate under their own internal power source to do work -- generate power, the
Court finds that the generators which were the subject of the Agreement qualify under the Act as
“construction power equipment.” McBud, 68 F.Supp.2d at 1079 (noting that equipment at issue, and
found not covered by Act, did not operate with its own power source, such as an internal combustion

engine, and did not use power to propel itself or do work). To otherwise construe the undisputed
facts would be contrary to the plain and ordinary meaning of the term “power equipment” and would
be unreasonable. See McBud, 68 F.Supp.2d at 1080 (in absence of statutory definition, terms are
given their plain and ordinary meaning; legislature did not intend strained construction of term
“power equipment”). The Court finds unpersuasive Generac’s reliance on McBud, 688 F. Supp.2d
at 1081-82, for the argument that because generators assist or control “end use” machines, they do
not perform work as contemplated by the Act. The equipment in McBud, which the court found not
covered by the Act, regulated electricity and assisted and controlled end use machines; rather,
Generac’s generators actually produce power, and thus do work. Cf. id. at 1081 (rejecting argument
that equipment that regulates, distributes, or controls electrical power is covered by Act; if
“contention were taken to its logical extreme, a distributor of electrical outlets or electrical wiring,
whose products were utilized in an industrial, maintenance or construction setting, would fall within
scope” of Act).
Next, the Court will consider whether the Act’s notice and opportunity-to-cure requirements
apply. Generac contends that the exception articulated in Mo. Rev. Stat. § 407.753.1(8) applies
because it terminated Luby for “consistently fail[ing] to meet” its “requirements for reasonable
market penetration,” based on Generac’s experience in other comparable marketing areas. Luby
contends the notice and opportunity-to-cure requirements apply because it was terminated for reasons
other than the Act’s stated exceptions. The Court finds that there are genuine issues of material fact
necessary to determine (1) the reason(s) Generac terminated Luby, (2) whether the reason(s)
implicated the good cause exception of the Act, and, ultimately, (3) whether notice and an
opportunity to cure were required and/or were given; and that, therefore, summary judgment should
be denied on the issue of whether Generac violated the Act.

As for Count 2, Recoupment, Generac initially argued only that, should the Court grant
summary judgment in its favor in regard to Count 1, it should likewise do so in regard to Count 2;
if Luby’s claim under the Act fails, so must its claim for Recoupment. (ECF Nos. 71 at 2, 73 at 8).
It also argued for the first time in its Reply that recoupment does not apply because the Agreement
“expressly deals with termination,” again without further explanation and without differentiating
between the sales and service aspects of the Agreement. (ECF No. 86 at 8).
The recoupment doctrine was designed to allow agents with “at will” “franchise, exclusive
agency or distributorship agreement[s]” to recoup their investment upon termination. See Ernst v.
Ford Motor Co., 813 S.W.2d 910, 918-19 (Mo. Ct. App. 1991) (for terminable at-will franchise,
exclusive agency, or distributorship contracts, “[t]he recoupment doctrine imputes into a 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”). The doctrine applies to such agreements where they
say “nothing about duration and [do] not specifically deal with termination.” Id. at 918. Although
the Agreement was at will, it was non-exclusive and, in regard to sales, specified Luby’s sole
remedies, whether Generac terminated with or without cause. The service portion of the Agreement
did not address remedies. Nonetheless, the parties have not addressed whether under Missouri law
the non-exclusivity of the Agreement precludes recoupment damages, nor have they addressed the
differences and relationship between the sales and service portions of the Agreement in regard to
termination. Cf. Sofa Gallery, Inc., v. Stratford Co., 872 F.2d 259 (8th Cir. 1989) (under Minnesota
law, non-exclusivity of distributorship was fact to be considered in determining extent of recoupment
damages to be recovered by at will distributorship rather than precluding recovery altogether). The
Court finds, therefore, that there remain genuine issues of material fact regarding the applicability
of the recoupment doctrine, and that Generac’s Motion for Summary Judgment should be denied in
regard to Count 2 of Luby’s Complaint.

IT IS HEREBY ORDERED that Luby’s Motion for Partial Summary Judgment (ECF No.
68) is DENIED, in part, and GRANTED, in part;
IT IS HEREBY ORDERED that Luby’s Motion for Partial Summary Judgment (ECF No.
68) is GRANTED, to the extent that the Court finds that the generators at issue are power equipment
under the Act, and DENIED, in all other regards;
IT IS FURTHER ORDERED that Generac’s Motion for Summary Judgment (ECF No. 71)
is DENIED in its entirety.

Dated this 8th day of October, 2013.
/s/Jean C. Hamilton
UNITED STATES DISTRICT JUDGE