What are the facts of the case?

Sun Aviation Inc. distributed certain aircraft instruments (gyros) manufactures by L-3
communications Avionics Systems Inc. As part of a consolidation process, L-3’s parent company
decided to terminate L-3’s distributorship agreement with Sun and directed L-3 to notify Sun of
the decision. Then, Sun sued L-3, alleging by the following violations:

Count I: § 407.405 (the "Franchise Act") by failing to provide timely, written notice of
termination,

Count II: § 407.753 (the "Industrial Maintenance and Construction Power Equipment Act"
or "IMCPE Act") by terminating the parties' business relationship without good cause,

Count III: § 407.860 (the "Inventory Repurchase Act") by refusing to repurchase inventory

Count IV: Fraudulent concealment of its parent's consolidation plans, which eventually led
to the termination of the parties' business relationship.

The circuit court ultimately granted in favor of Sun on all four counts, awarding it damages to
all counts. However, L-3 appeals.

Decisions of the court:

The judges of the Supreme Court of Missouri’s decisions are enumerated as follows:

(1) The circuit court ultimately granted in favor of Sun on all four counts, awarding it
damages to all counts.

(2) The circuit court’s judgment is reversed as to Sun’s product-related claims under
chapter 407 because neither product in question fits the statutory language of “industrial,
maintenance and construction power equipment.” The phrase “power equipment” cannot
be read in isolation but rather must be considered in context of the entire phrase “industrial,
maintenance and construction power equipment.” The legislature intended “power
 equipment” to refer to end-use machines and equipment that operate using some power
source – not a component part that works only in an auxiliary or supplementary manner
with other machines or equipment. The two products in question do not operate under their
own internal power source, instead relying on external power sources. Further, construing
“industrial” broadly to refer to any business activity would render “construction” and
“maintenance” meaningless, just as reading “power equipment” in isolation would render
meaningless the legislature’s inclusion of a separate category for “outdoor power
equipment.”

(3) The circuit court’s judgment is reversed as to the fraudulent concealment claim. L-
3 had no role in its parent company’s consolidation process. L-3 did not know how the
termination came about and was unaware of the parent company’s decision to terminate
Sun’s distributorship until the parent company “effectively imposed” the termination
decision on L-3. And L-3 merely executed the parent company’s directive to terminate the
distributorship. Accordingly, L-3 had no duty to disclose to Sun its parent company’s
consolidation plan, which eventually led to the termination of the parties’ business
relationship.

(4) The circuit court improperly calculated the damages awarded for Sun’s “franchise act”
claim. Section 407.405 requires written notice at least 90 days in advance of the
cancellation, termination or failure to renew a franchise agreement. If the requisite notice
is not provided, then the plain language of section 407.410.2 provides the remedy –
“damages sustained” “as a result of the failure to give notice.” As such, the amount of
damages are limited to those Sun sustained as a result of L-3’s failure to give 90 days’
notice. The damages award on this count is vacated, and the case is remanded for a
new trial as to damages.

Analysis:

This case provides comfort and guidance to franchisors, particularly those who may fail to
provide notice or who provide less than 90 days’ notice of termination of a franchise. It also
highlights the importance of any franchisor, manufacturer, supplier or distributor carefully
reviewing each state’s relationships laws before terminating or not renewing a franchise.