One Of Caterpillar’s Oldest Distributors Sues Company For Breach Of Trust In $56 Million Transaction
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MIAMI (March 28, 2001) — The Law Firm of Colson Hicks Eidson today announced that it recently filed a lawsuit on behalf of Lion Enterprises of Brazil against Caterpillar Americas Co. the Miami based subsidiary of manufacturing giant, Caterpillar, Inc., for deceit and abuse of trust in Miami-Dade Circuit Court.
Lion, a Brazilian company founded in 1887 and owned by the family of Plinio A. Lion Salles-Souto, was the exclusive distributor for Caterpillar products to an area covering nearly 50% of the landmass of Brazil for more than sixty years. Brazil is equivalent in size to 90% of the USA.
The suit alleges that Caterpillar used and abused the trust Lion placed in it to take control of Lion and is preparing to merge it with Lion’s primary competitor in Brazil. In the process, the suit alleges that Caterpillar scuttled a sale of the Lion dealership to the second largest Caterpillar dealer in the world, Barlow, Inc. that would have allowed the Brazilian family to receive more than $36 million for its sixty years of building the dealership.
“Caterpillar claimed the right to take away six decades of hard work and loyal service by the Salles Souto family to building the Lion Caterpillar Dealership” said Enid Duany Mendoza, one of the lawyers that filed the suit.
Caterpillar is a global company which sells its products through a network of hundreds of independent dealers like Lion both in the United States and in countries all over the world. The former Chairman and Chief Executive Officer of Caterpillar, Donald V. Fites, once highlighted the kind of the relationship Caterpillar enjoyed with its dealers in the March-April 1996 edition of prestigious Harvard Business Review as follows:
“The quality of the relationship between a company and its dealers is much more important than the contractual agreements or the techniques and tactics that make the relationship work on the surface. What matters is mutual trust, and that is fostered by observing a few simple rules: Share gain as well as pain; strive for continuity in relationships and consistency in policies; and communicate constantly….the rules don’t change, so everyone knows what to expect of one another…our dealership agreements are documents that run just a few pages.”
The agreements between Caterpillar, Lion and the Salles Souto family were anything but simple according to the complaint and Caterpillar betrayed the “mutual trust” that once existed between the parties. In 1996, Caterpillar and Lion, through Lion Empreendimentos, S.A. entered into an enormously complicated “Joint Venture Agreement” pursuant to which Caterpillar loaned $22 million in exchange for 89% stake in Lion. However, critical to the arrangement was a right to repurchase all of the stock by repaying the loan, which high-ranking officials of Caterpillar verbally reaffirmed to Mr. Salles Souto. After several years, Mr. Salles Souto, who was close to retirement, chose to sell Lion so that he could repay the loan to Caterpillar, regain his shares and make a profit on the sale of his company.
In May, 2000, Mr. Salles Souto received a letter of intent from Barlow to purchase for $56 million, more than enough to repay the loan to Caterpillar and provide Mr. Salles Souto fair value for his many years as a loyal member of the Caterpillar Family. Prior to finalizing the transaction, Caterpillar headquarters had to give their approval as the successor dealer in Lion’s exclusive territories. Given the nature of the relationship among Caterpillar and its dealer “family”, the complaint alleges that Mr. Salles Souto was led to believe by Caterpillar that the deal would go ahead by the date his loan repayment date expired.
Instead, just two days before Lion had to repay its loan, Mr. Salles Souto received a letter informing him, for the first time, that Caterpillar would not approve the sale of Lion to Barlow. Caterpillar’s action deprived Mr. Salles Souto of the opportunity to exercise his option to repay the loan and make a profit on the sale of a company that had been in his family for generations, stating that
“On a related matter, Caterpillar, as the majority shareholder must insist that any proposal to purchase its shares by any third party, exception the option as provided by the Joint Venture Agreement, must account for Caterpillar’s 89% equity interest. The proceeds from any proposed sale accepted by Caterpillar must be distributed according to the respective ownership of each shareholder.”
Caterpillar’s action deprived Mr. Salles Souto of the enormous value on the sale of a company that had been in his family for generations since 1887.
“We believe a jury will make them compensate these good people,” added Mendoza.