Reliable Tractor, Inc. v. John Deere Construction & Forestry Co. , 376 F. App'x 938 ( 2010 )

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
No. 09-16152 ELEVENTH CIRCUIT
APRIL 28, 2010
Non-Argument Calendar
JOHN LEY
________________________ CLERK
D.C. Docket No. 07-00043-CV-HL-7
RELIABLE TRACTOR, INC.,
a Georgia Corporation
d.b.a. Stafford,
Plaintiff-Appellee,
versus
JOHN DEERE CONSTRUCTION & FORESTRY COMPANY,
a Delaware corporation as successor to John Deere Industries
Equipment Company,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Middle District of Georgia
________________________
(April 28, 2010)
Before BLACK, PRYOR and COX, Circuit Judges.
PER CURIAM:
Reliable Tractor, Inc. and John Deere Construction & Forestry Company
executed two dealer agreements in 1984 at John Deere’s headquarters in Maryland.
The agreements appointed Reliable Tractor as a dealer of John Deere forestry and
utility equipment for a fourteen county region in Georgia. The dealer agreements
were open-ended—they did not contain a term of duration and allowed either party
to terminate the agreements without cause on 120 days notice. At the time the
contracts were executed, the 120 day notice provision was enforceable under
Maryland law.
In 1987, Maryland enacted the Equipment Dealer Contract Act. Md. Code
Ann., Com. Law § 19-101 et. seq. This Act was amended in 1998 to provide that
equipment suppliers, like John Deere, may not terminate a dealer agreement without
good cause. Id. § 19-103. From 1984 through March 2007, John Deere and Reliable
Tractor performed their obligations under the dealer agreements, and neither sought
termination. On March 27, 2007, John Deere gave notice to Reliable Tractor that it
would terminate the agreements in 120 days pursuant to the agreements’ no-cause
provision. Reliable Tractor filed this suit against John Deere in the United States
District Court for the Middle District of Georgia, asserting a breach of contract claim
and a claim for declaratory relief seeking to declare John Deere’s attempt to terminate
the dealer agreements unlawful and void under the Maryland Act.
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Reliable Tractor moved for summary judgment on its claim for declaratory
relief, and John Deere filed a motion to dismiss Reliable Tractor’s complaint.
Reliable Tractor argued that the attempted termination of the dealer agreements
violated the Maryland Act’s good cause provision. John Deere countered: (1) that the
Act does not apply to the dealer agreements because Georgia law, not Maryland law,
applies to the 1984 agreements; (2) even if Maryland law applies, the good cause
provision in the Act only applies to contracts entered into after the effective date of
the Act; (3) even if the good cause provision applies, its application would violate the
Contracts Clause, Due Process Clause, and Full-Faith-and-Credit Clause of the
United States Constitution; and (4) even if application of the good cause provision
would not violate the Constitution, there are genuine issues of material fact as to
whether John Deere did in fact have good cause to terminate the agreements.
The district court certified to the Maryland Court of Appeals the question
whether the good cause provision of the Act applies to contracts executed before it
was enacted in 1998. The Maryland court answered that the Act did apply to the
dealer agreements. The court recognized that under Maryland law statutes are
presumed to operate prospectively unless there is evidence of a contrary intent, and
it concluded that the Act, as applied to the agreements in this case, applied
prospectively as opposed to retrospectively. The court interpreted the agreements not
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as contracts with an indefinite term, but as a series of 120 day contracts that renewed
whenever the parties continued to perform their obligations without announcing that
they intended to exercise their rights to terminate under the 120 day notice provision.
The court explained that “the contracts, by their terms, could be terminated by either
party at any time without good cause, merely by providing 120 days notice. It is
logical, then, that neither party could reasonably expect the contracts to continue for
more than 120 days from any given date.” (R.1-37 at 8.) It reasoned that once the
statute was enacted in 1998, John Deere and Reliable Tractor had constructive notice
of its existence. And, “[b]y continuing to perform their obligations under the
contracts without providing notice of termination, the parties effectively renewed
their contracts consistent with the applicable law in effect at the time.” (Id.) So, the
court concluded that the first renewal of the dealer agreements that occurred120 days
after the good cause provision became law bound John Deere to comply with that
provision. (Id.)
With the benefit of the opinion of the Maryland Court of Appeals, the district
court considered Reliable Tractor’s motion for summary judgment and John Deere’s
motion to dismiss. John Deere argued that if the Maryland court’s interpretation of
the agreements as a series of 120 day contracts was to be adopted by the district court,
the court must find that the Act could not apply to the agreements because in 1991,
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John Deere had moved its headquarters from Maryland to Illinois. According to John
Deere, once its headquarters was moved, the renewals of the agreements could not
have occurred in Maryland because neither party had a presence in the state, and
under Georgia choice of law rules, Maryland law would not apply. John Deere also
reasserted that application of the Maryland Act’s good cause provision would violate
the Constitution and even if it would not, genuine issues of material fact would
preclude the grant of summary judgment to Reliable Tractor. The district court
disagreed. It explained that the Maryland court applied a “legal fiction” to conclude
that the agreements were a series of 120 day contracts. In actuality, the agreements
were executed one time, in Maryland, in 1984. Therefore, the court held, under
Georgia’s choice of law rules, Maryland law applied. (R.1-47 at 11.) The court went
on to note that it was bound to accept the Maryland court’s holding that the Act’s
good cause provision applied to the agreements. So, it held that an attempt by John
Deere to terminate the agreements without cause would violate the Act. And, because
the Maryland court concluded that the Act applied prospectively, not retrospectively,
the district court held that application of the good cause provision did not violate the
United States Constitution. (Id. at 12-13.) Further, it held that there were no genuine
issues of material fact as to whether John Deere possessed good cause to terminate
the agreements. (Id. at 19.) Therefore, the court granted Reliable Tractor’s motion
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for summary judgment as to its claim for declaratory relief, and it denied John
Deere’s motion to dismiss. (Id. at 22.) John Deere filed this interlocutory appeal
pursuant to 28 U.S.C. § 1292.
Subject matter jurisdiction in this case is based on diversity of citizenship.
Thus, the forum state’s substantive law applies, including its choice of law rules.
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020 (1941). Georgia,
the forum state, applies the lex loci contractus doctrine in determining what state’s
law applies to contracts. The lex loci rule provides that contracts “are to be governed
. . . by the law of the place where they were made, except where it appears from the
contract itself that it is to be performed in a State other than that in which it was
made, in which case . . . the laws of that sister State will be applied.” Convergys
Corp. v. Keener, 582 S.E.2d 84, 86 n.1 (Ga. 2003) (quotations and citations omitted).
We assume arguendo that Reliable Tractor is correct that Maryland law applies to the
agreements at issue. And, we are bound to accept the Maryland Court of Appeals’
conclusion that, under Maryland law, the Act’s good cause provision applies to the
agreements. Even so, we conclude that application of the good cause provision
would violate the Contracts Clause of the United States Constitution.
Article I, § 10 of the United States Constitution provides that no state shall pass
any law impairing the obligation of contracts. In determining whether a state law
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violates the Contracts Clause, we ask “whether there is a contractual relationship,
whether a change in law impairs that contractual relationship, and whether the
impairment is substantial.” General Motors Corp. v. Romein, 503 U.S. 181, 186, 112
S. Ct. 1105, 1109 (1992). Because we are asked to interpret the United States
Constitution, federal law controls this inquiry. “The question whether a contract was
made is a federal question for purposes of Contract Clause analysis, and whether it
turns on issues of general or purely local law, we can not surrender the duty to
exercise our own judgment.” Id. at 187, 112 S. Ct. at 1110 (quotations and citations
omitted). While the Maryland Court of Appeals held that for purposes of Maryland
law the dealer agreements in this case should be considered a series of 120 contracts,
we are not bound to adopt this interpretation. Rather, we must conduct an
independent federal law analysis of the agreements for purposes of the Contracts
Clause inquiry.
The plain language of the dealer agreements demonstrates that they were open-
ended contracts with no term of duration that could be terminated without cause by
either party on 120 days notice. We see no reason to conclude, as the Maryland court
did, that continued performance under the contracts beyond the 120-day notice period
equated to the making of a new contract. Rather, we give effect to the terms of the
agreements themselves and conclude that they were executed once, in 1984, and that
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the original agreements continued to be in force until John Deere attempted to
exercise its rights under the 120 notice provision in 2007. See 11 WILLISTON ON
CONTRACTS § 32:3 (4th ed.) (“The plain, common or normal meaning of language
will be given to the words of a contract unless the circumstances show that in a
particular case a special meaning should be attached to them.”).
Because the original 1984 dealer agreements were in force in 1998 when the
Maryland Act’s good cause provision became law, the Act effected a change in law
that impaired an existing contractual relationship—it limited a contractual right to
terminate the dealer agreements. And, we conclude that this impairment was
substantial. A provision granting the right to terminate a contract without cause is a
material provision of that contract. See Fornaris v. Ridge Tool Co., 423 F.2d 563,
568 (1st Cir. 1970), rev’d on other grounds 400 U.S. 41, 91 S. Ct. 156 (holding that
a law converting a contractual relationship terminable by either party without cause
into one which can be terminated only under certain conditions was a “change of
great magnitude” that violated the Contracts Clause). The Maryland Act impairs the
contractual right of one party, John Deere, to terminate the contract without cause on
120 days notice. Applying the Act would effectively extend the dealer agreements
indefinitely unless John Deere can meet the terms of the Act’s good cause provision.
We conclude that this would substantially impair the contractual relationship between
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John Deere and Reliable Tractor and would violate the Contracts Clause. See
Morgan v. Kemper Ins. Cos., 754 F.2d 145, 147-48 (4th Cir. 1985) (holding that a
retroactive application of a statute impairing an insurer’s contractual right to
terminate an agent without cause violated the Contract Clause); Garris v. Hanover
Ins. Co., 630 F.2d 1001, 1006 (4th Cir. 1980) (same). We therefore reverse the grant
of summary judgment for Reliable Tractor, and remand for entry of a judgment in
favor of John Deere.
REVERSED AND REMANDED.
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