Fraudulent Inducement Lawsuit Against MEC Leads to $280k Verdict

Bonfiglioli USA v. Midwest Engineering Component

Case Background

On January 27, 2023, Bonfiglioli USA Inc. filed a lawsuit against Midwest Engineered Components, Inc. for fraudulent inducement in the United States District Court, Kentucky Eastern (Covington). The case was assigned to Judge Danny C. Reeves and referred to Magistrate Judge Candace J. Smith. [Case number: 2:23cv14]

Cause

Bonfiglioli USA, based in Hebron, Kentucky, operates as a subsidiary of its Italian parent company. It manufactures electrical components and gear parts for automated manufacturing. In 2019, it signed an agreement with Midwest Engineer Components (MEC), a sales agency in Burnsville, Minnesota, making MEC its sales representative in the Upper Midwest.

A year later, the parties amended the contract to include another state. Under the new terms, Bonfiglioli USA agreed to pay MEC commissions on sales from the territory, even if MEC did not generate them. This arrangement acknowledged MEC’s efforts and ensured proper coverage. However, the contract also stated that no commissions would be owed if Bonfiglioli USA terminated the agreement.

At the time, a Minnesota law required companies to provide sales representatives with 90 days’ notice before termination. MEC was aware of the law, but Bonfiglioli USA was not.

In October 2022, Bonfiglioli USA grew concerned about MEC’s declining sales. It terminated the contract according to its terms without giving a reason. Despite this, it continued paying commissions for about six weeks. MEC, believing the termination violated Minnesota’s notice requirement, hired an attorney.

In January 2023, well beyond the 90-day period that would have allowed Bonfiglioli USA to address the issue, MEC sent a demand letter. It claimed the termination violated state law and demanded $165,000, warning that Bonfiglioli USA would face litigation if it did not comply.

Damages

If Bonfiglioli USA won the fraudulent inducement claim, it planned to seek nominal damages and request punitive damages as well.

Key Arguments and Proceedings

Legal Representation

• Plaintiff(s): Bonfiglioli USA, Inc.
  • Counsel for Plaintiff(s): Jon V. Connor | Justin L. Knappick
• Defendant(s): Midwest Engineered Components, Inc., a Minnesota Corporation
  • Counsel for Defendant(s): D. Clay Taylor | Cassandra L. Welch | William G. Geisen

Claims

Bonfiglioli USA initiated the lawsuit by filing a declaratory action against MEC in state court in Boone County, Kentucky. MEC moved the case to federal court and filed its own lawsuit against Bonfiglioli USA in Minnesota federal court. The Minnesota case (Case No. 0:23-37) was put on hold until the Kentucky litigation reached a conclusion.

As the case progressed, only one issue remained for trial. Bonfiglioli USA claimed MEC engaged in fraudulent inducement. Specifically, MEC allegedly withheld information about the Minnesota statute, which rendered the contract’s termination provision unenforceable. Bonfiglioli USA argued that MEC’s omission misled it into signing both the original agreement and its amendment.

The available evidence was limited. The MEC representative who negotiated the contract no longer worked there, and the company’s principal had passed away.

Defense

The court dismissed MEC’s counterclaim for breach of contract through summary judgment.

MEC denied any fraudulent inducement and argued that Bonfiglioli USA, as a subsidiary of a global company, was a sophisticated party. It maintained that the contract was negotiated at arm’s length and that it had no obligation to inform Bonfiglioli USA about Minnesota law.

Bonfiglioli USA disagreed. It contended that MEC knew about the law, was aware that Bonfiglioli USA did not, and deliberately used that knowledge to secure the agreement. According to Bonfiglioli USA, MEC never intended to follow the contract’s terms due to the statute’s restrictions.

Jury Verdict

Court Documents:

Documents are available for purchase upon request at jurimatic@exlitem.com