Manufacturer as its Distributor’s Fiduciary

By Jerry Meek (January 14, 2016)

When one party places its faith, confidence, and trust in another, with the expectation that the latter will act for its benefit, the law typically imposes upon the latter a duty to act for the benefit of the former, with loyalty and pursuant to a higher duty of care. These “fiduciary duties” often automatically arise out of the nature of the parties’ relationship. Officers owe such duties to the companies they serve, as do lawyers to their clients and doctors to their patients. But, even when fiduciary duties don’t result from the status of the parties, they may still exist given the specific circumstances of the parties’ relationship.

Buyers and sellers typically owe no fiduciary duties to each other. After all, it’s a relationship of mutual exchange for mutual benefit, with each party acting in its own best interest. While the relationship of a manufacturer to its distributor is at its core one of buyer and seller, there’s often more to it. Under what circumstances can this relationship give rise to fiduciary duties?

In Plastech Holding Corp. v. WM Greentech Automotive Corp., 14-cv-14049 (E.D. Mich. Jan. 8, 2016), an importer, distributor, and developer of automobile products sued its OEM, alleging – in part – breach of fiduciary duties. According to the Court, “[i]t is true that a traditional relationship between a manufacturer and its distributor, without more, has often been found not to be a fiduciary one.” But here the plaintiff had alleged sufficient facts to plausibly give rise to the existence of a fiduciary relationship.

The relationship between this distributor and its manufacturer, the Court held, was arguably not the “traditional, run-of-the-mill manufacturer-distributor relationship for which no fiduciary duties could ever arise.” Here the distributor had invested millions of dollars assisting the manufacturer to prepare the product for the U.S. market, offering everything from engineering assistance to market intelligence. In fact, for almost a year, the distributor provided additional technical and other assistance to the manufacturer that it was not even required to provide under the distribution agreement. “By alleging a combination of services that not every distributor performs,” the Court held, the distributor “articulates a relationship that may be arguably different from the standard vendor-vendee relationship that exists between a manufacturer and its distributor.” This relationship, according to the Court, would require more of the manufacturer than would be required of the typical self-interested seller.

Finally, according to the Court, the existence of confidentiality, non-use, and non-disclosure agreements between the parties supported the conclusion that their relationship was fiduciary in nature.