Delta Truck & Tractor, Inc. v. J.I. Case Co. , 975 F.2d 1192 ( 1992 )

United States Court of Appeals,
Fifth Circuit.
No. 90–4686.
DELTA TRUCK & TRACTOR, INC., Plaintiff–Appellant, Cross–Appellee,
v.
J.I. CASE COMPANY, Tenneco, Inc., and Navistar International Transportation Corp. f/k/a
International Harvester Company, Defendants–Appellees, Cross–Appellants.
Oct. 29, 1992.
Appeals from the United States District Court for the Western District of Louisiana.
Before THORNBERRY, HIGGINBOTHAM, and WIENER, Circuit Judges.
WIENER, Circuit Judge.
In this Louisiana diversity case, Plaintiff–Appellant Delta Truck & Tractor, Inc. (Delta)
appeals the district court's adverse summary judgments dismissing all but one of Delta's claims. Also
appealed is the district court's directed verdict dismissing Delta's remaining claim following a bench
trial.
Delta, in its suit against Defendants–Appellees, J.I. Case Company, now a wholly-owned
subsidiary of Tenneco, Inc. (Case), and International Harvester Company, now Navistar International
Transportation Corp. (IH), sought damages for wrongful termination of its Dealership Agreement
with IH following IH's in globo transfer of its farm implement manufacturing and distribution business
to Case. In our de novo review of the issues determined on summary judgment, we reach conclusions
opposite those reached by the district court, particularly that court's characterization of the transfer
transaction between IH and Case as one in which IH went out of the farm implement business. We
conclude instead that IH in fact sold its farm implement group or division to Case as a unitary, going
business. For the reasons set forth below, we reverse the summary judgments and the directed verdict
of the district court; render judgment in favor of Delta against IH and Case in solido (jointly and
severally) on Delta's breach of contract and third party beneficiary claims, and against IH on Delta's
claim against IH for breach of its duty of good faith; and remand the case to the district court for the
sole purpose of determining the quantum of damages, interest and costs, including attorneys' fees to
the extent appropriate, owed to Delta by IH and Case, as well as such ancillary matters as may be
required for the court to make such determinations.
I
FACTS
In 1962, Delta, a Louisiana corporation, became a franchise dealer of IH, itself an integrated
manufacturer and distributor of farm implements and agricultural equipment. After meeting specified
qualifying standards, Delta became a "XL" dealer of IH in 1976 and obtained a new dealer agreement
with IH consistent with that status.
The new agreement (the Dealer Agreement), executed April 7, 1977, is the contract under
consideration here. Among other things, the Dealer Agreement sets forth the conditions under which
it could be terminated by either or both of the parties: 1) mutually, by written consent of both Delta
and IH at any time; 2) unilaterally by Delta upon furnishing four months' advance written notice to
IH, with or without cause; and 3) unilaterally by IH upon furnishing six months' advance written
notice to Delta, but only for cause. For IH to have cause to terminate, either (a) Delta must (i)
breach one of its obligations under the Dealer Agreement, (ii) be advised by IH of such breach, (iii)
be given a reasonable opportunity by IH to rectify the breach, and (iv) fail to do so in a timely
manner; or (b) IH must determine that a sufficient market for its products no longer exists in Delta's
trade area. (There is no contention by any party to this litigation that either of IH's terminating
causes as set forth in the Dealer Agreement ever occurred.) Notably absent from the exclusive list
of causes that would give IH the right to terminate the Dealer Agreement unilaterally, unrelated to
Delta's breach of its obligations under the agreement, is the total cessation by IH of its farm
implement and agricultural equipment business everywhere or the in globo sale or exchange of that
business.
Section 2 of the Dealer Agreement states that the contract covers all agricultural equipment
identified on IH's price list. That section acknowledges that IH has the right, without incurring
liability to the dealer, to make additions to and deletions from the price list, including deletions
resulting from discontinued production of a line or lines of agricultural equipment.1 Notably absent
from section 2 is any express or implied right of IH unilaterally to terminate all lines of agricultural
equipment, i.e., to exit that market altogether, without incurring liability to the dealer.
For many years both before and after becoming a wholly-owned subsidiary of Tenneco, Inc.,
J.I. Case Company, Inc. competed directly with IH as a manufacturer and distributor of agricultural
equipment. As will be noted, Case competed directly with IH in Delta's trade area, primarily through
the authorized Case dealer for that area, Scott Truck and Tractor.
As a result of a general recession in the farm economy, IH suffered substantial losses in its
agricultural equipment group from 1980 through 1984. On November 26, 1984, IH and Case
executed a contract (the Purchase Agreement) in which IH agreed to sell and Case agreed to buy all
assets of IH's farm implement and agricultural equipment manufacturing and distribution business.
Upon consummation of its purchase from IH, Case took over the manufacture of IH products, calling
that line of agricultural equipment "Case–International."
Prior to the IH sale to Case, each company had manufactured and distributed its own
agricultural equipment through its own network of independent dealers. Delta was such a dealer for
IH. Both IH and Case recognized that Case's purchase of IH's farm implement group or division
would produce a number of "conflict areas"—common geographical trade areas in which a Case
dealership and an IH dealership competed. Case therefore decided that, immediately following its
purchase of IH's farm implement business, it would offer a new dealership agreement for a combined
Case–International dealership to one (but only one) dealer in each conflict area, effectively leaving
the other dealer in such area with no access to either Case or IH merchandise and parts.
1
Section 2 of the Dealer Agreement provides in pertinent part:
2. The agreement shall cover all those items of agricultural tractors, machines,
equipment and attachments, which appear in the Agricultural Equipment Price List
issued by [IH], and service parts for such goods. [IH] reserves the right to make
additions to and eliminations from such List, including but not limited to
reductions resulting from the discontinued production of a line or lines of such
tractors, machines, equipment and attachments, without incurring any
responsibility to the Dealer. Changes in the List may be announced to the Dealer
by the issuance of a revision thereto or by the issuance of a price bulletin.
Case and IH recognized that each terminated dealer would be faced with the prospect of
either finding a third manufacturer with which to affiliate or simply going out of the farm machinery
business. With this in mind (and, we assume, with the expectation that in most instances the Case
dealer would be the one to which the combined Case–International dealership would be offered),
Case and IH included in the Purchase Agreement a provision addressing the post-sale status of the
former IH dealers.2 Under this provision Case agreed that with respect to each IH dealer, Case would
either offer the former IH dealer a Case–IH dealership agreement (thereby making the IH dealer the
sole surviving dealer in the conflict area), or—if the IH dealer were not thus to "make the cut"—offer
one alternative among consolidation, relocation, purchase or termination of the IH dealer's operations,
on terms at least as favorable as that Dealer would be entitled to receive upon termination of its
Dealer Agreement with IH. Case also agreed with IH that in the further alternative that Case and an
IH dealer could not reach an agreement by the closing date of the Purchase Agreement, Case would
offer such IH dealer an interim dealership contract for a period reasonably required for Case and the
former IH dealer to reach a mutually acceptable agreement on that dealer's future status.
Delta fell within one of the several hundred conflict areas throughout rural America. Case
decided t o grant the exclusive Case–International dealership within Delta's area to Scott Truck &
Tractor, the pre-existing Case dealer in that locale and a direct competitor of Delta's of long-standing.
2
Section 5.2 of the Purchase Agreement provided:
5.2 Dealer Arrangements. Purchaser [Case] shall, as soon as practical (sic) after
the date hereof, notify the agricultural equipment distributors and dealers of Seller
[IH] (the "Dealers") that it intends, within 60 days thereafter, to offer to each of
the Dealers, effective as of the Closing Date, either (a) a new distributor or dealer
agreement (a "Purchaser Agreement") with respect to the Acquired Business
which will be at least as favorable to the Dealer as the current form of distributor
or dealer agreement used by Seller and such subsidiaries (a "Seller Agreement"), or
(b) an appropriate arrangement for the consolidation, relocation, purchase or
termination of the Dealer's operations on terms at least as favorable as such Dealer
would be entitled to receive upon termination under a Seller Agreement, and, in
the event that agreement has been reached with any Dealer on the Closing Date as
to the terms and conditions of such an arrangement, Purchaser will offer such
Dealer a Purchaser Agreement for such period as may be reasonably required to
attempt to reach such an arrangement. Purchaser shall arrange credit financing for
the Dealers and their retail customers which is comparable to the financing
currently provided by the Seller and such subsidiaries.
On January 15, 1985, Delta was informed by Case of its decision not to extend Delta a new
Case–International dealership contract. Three weeks later Case and Delta met to consider a buy-out
of Delta by Case but were unable to arrive at a mutually acceptable arrangement. The following day
Delta was informed by letter from Case that it would make IH goods and parts available to Delta for
90 more days only. The letter also stated that negotiations for a termination agreement would
continue, but for 30 days only, after which Case would do nothing more than repurchase Delta's
whole goods and parts (incidentally, a statutory ri ght of Delta to demand). Case thereafter
maintained an account for Delta and provided Delta with IH parts and equipment.
Few if any additional discussions took place between Case and Delta until March 13, 1985
(after the 30 day negotiation period specified by Case had expired), at which time Delta demanded
by letter that Case comply with Louisiana law3 by repurchasing all of Delta's whole goods and parts.
Case complied with that demand.
II
PROCEEDINGS
Delta filed suit in federal district court against IH and Case, proffering numerous claims
arising from the termination of Delta's IH dealership. Delta asserted claims of racketeering,4 antitrust
violations, breach of contract, breach of stipulation pour autrui5 (Louisiana's equivalent of a third
party beneficiary contract), breach of fiduciary duty, breach of implied covenants of good faith and
fair dealings, fraud, unfair trade practices, and non-compliance with Louisiana's statutory provision
covering dealership termination.6 Delta subsequently amended its complaint to allege that Case
succeeded to IH's contractual obligations under the Dealer Agreement, and that Case breached that
agreement and was guilty of misrepresentation.
3
See LA.REV.STAT.ANN. 51:481–88.
4
The district court dismissed the RICO claim and we affirmed the dismissal. Delta Truck &
Tractor, Inc. v. J.I. Case Co., 855 F.2d 241 (5th Cir.1988), cert. denied, 489 U.S. 1079, 109
S. Ct. 1531, 103 L. Ed. 2d 836 (1989).
5
See LA.CIV.CODE ANN. arts. 1978–82.
6
See LA.REV.STAT.ANN. 51:481–88.
IH and Case moved for summary judgment, and Delta moved for partial summary judgment.
The district court partially granted the IH and Case motions for summary judgments, dismissing all
of Delta's claims except the one grounded in the theory of third party beneficiary contract. On that
one claim the district court ruled that, under section 5.2 of the Purchase Agreement, Case undertook
"certain obligations" of IH to its former dealers even though Case did not expressly assume IH's
dealership contracts. As such, found t he court (albeit without using express terminology of
stipulation pour autrui or third party beneficiary), Delta could enforce the provisions of section 5.2
directly against Case.
Thereafter Case moved for partial summary judgment on the third party beneficiary issue.
Initially, that motion was denied, the district court finding a genuine fact issue in connection with
Delta's third party beneficiary claims under Delaware law—the law of choice stipulated by IH and
Case in the Purchase Agreement. But after it requested and received additional briefing on the issue,
the court recalled its prior ruling and granted Case's motion in part. In the revised ruling, the district
court stated that as Case had, under section 5.2(b) of the Purchase Agreement, elected not to offer
Delta a new combined Case–International dealership agreement, Case had the option of exploring
with Delta any of four alternatives (consolidation, relocation, purchase or termination); and that Case
had properly pursued the termination alternative after unsuccessfully pursuing the purchase
alternative. The district court held that under the termination alternative Case's only obligation was
to offer Delta a settlement on terms at least as favorable as those to which Delta would have been
entitled upon termination of its IH Dealer Agreement.
The district court then concluded that the only issue remaining for trial was whether Case had
failed to offer Delta an interim agreement as required by the second part of section 5.2(b) of the
Purchase Agreement. But in a subsequent pre-trial ruling the district court held that of two remaining
issues, the one that invoked Case's o bligation to offer Delta an interim agreement had evaporated
when Delta made its statutory demand that its inventory of IH equipment and parts be repurchased.
The bench trial commenced less than a month later. Given the district court's prior rulings,
Delta's only remaining claim was for the loss of a sale of five cotton pickers to one of its customers.
At the conclusion of Delta's case in chief the district court granted a directed verdict for IH and Case,
ruling that inasmuch as Delta had failed to prove that the customer actually would have purchased
the cotton pickers, Delta's evidence was insufficient to support a judgment for damages. The district
court then dismissed Delta's action with prejudice.
Delta timely appealed the district court's summary disposition of all claims except one and,
as to that one claim, appealed the district court's directed verdict. IH and Case cross appealed the
district court's holding that Delta could enforce section 5.2 of the Purchase Agreement as a third
party beneficiary.
III
ANALYSIS
A. Summary Judgments Dismissing Delta's Claims
1. Standard of Review
In reviewing a district court's grant of a motion for summary judgment, we examine the record
de novo. Our task is to determine, viewing the evidence and all reasonable inferences in the light
most favorable to the non-movant, whether the movant has demonstrated that there is no genuine
issue o f material fact and that the movant was entitled to judgment as a matter of law.7 We also
conduct a plenary review of applicable law; and when, as here, our jurisdiction and that of the district
court is based on diversity of citizenship, we afford no deference to the district court's state law
determinations.8
2. Delta's Claims Against IH for Breach of Dealer Agreement
Delta asserts that the Dealer Agreement was unlawfully terminated by IH as a result of the
transfer by IH of its entire agricultural equipment division—manufacturing facilities, inventory, trade
name and other assets—in globo to Case. Delta complains that IH deliberately contracted with Case
in a manner calculated to diminish contractual obligations of IH to Delta under the Dealer Agreement,
even though Delta was not a party to the Purchase Agreement.
7
Pierce v. Hobart Corp., 939 F.2d 1305, 1307 (5th Cir.1991).
8
Salve Regina College v. Russell, ––– U.S. ––––, 111 S. Ct. 1217, 113 L. Ed. 2d 190 (1991).
The district court found that, although the Dealer Agreement specified several grounds upon
which it could be terminated unilaterally by either party or jointly by both parties, that agreement
neither expressly provided a fixed term or duration for its performance nor addressed the
consequences of a unilateral withdrawal from the agreement by IH, either by ceasing to manufacture
agricultural equipment or by disposing entirely of its agricultural equipment business. Relying
principally on the provisions of La.Civ.Code Ann. art. 2054, one of several Civil Code articles setting
forth rules for interpretation of contracts, the district court first concluded as a matter of law that,
absent an express contractual provision for the duration of the Dealer Agreement, that contract
should continue for a "reasonable period." The district court then found that the period during which
IH continued to manufacture agricultural equipment was the "reasonable period" for purposes of the
Dealer Agreement's duration. Stating the obvious—that the Dealer Agreement did not require IH
to manufacture agricultural equipment forever—the district court held that when IH ceased
manufacturing agricultural equipment, the Dealer Agreement terminated. As such, reasoned the
district court, Delta was left with no cause of action against IH for breach of contract when t e
h
Dealer Agreement terminated as a result of IH's cessation of manufacturing and selling agricultural
equipment pursuant to its sale of that business to Case.
Although we do not quarrel with the determination that IH was not obligated to manufacture
and distribute farm equipment forever and thus not obligated to maintain Delta as a dealer forever;
and also agree that the reasonable period of IH's obligation to maintain Delta as a dealer was until
such time as IH might truly terminate its farm implement business, we disagree with the district
court's finding that IH did that. We find, to the contrary, that IH did not terminate its farm implement
business but that it sold it lock, stock and barrel, as an ongoing business. In so doing, IH caused the
termination of Delta's Dealership Agreement, without cause, before the term of that agreement would
otherwise have expired, a classic breach of contract.
Not surprisingly given the number of IH dealers affected by the transaction between IH and
Case, this is not the first dispute concerning that transaction to make its way into court. Other IH
dealers have sued on claims essentially identical to Delta's in other jurisdictions. As the contracts
considered by the courts in those cases were substantially identical to the Dealer Agreement here,
those cases merit discussion.
In Groseth International, Inc. v. Tenneco, Inc.,9 a long-time IH dealer in South Dakota
suffered the termination of its dealer status as a result of an? IH/Case transaction and filed, among
other claims, a breach of contract action against IH. The trial court granted summary judgment for
IH on that claim, holding that section 2 of the dealer agreement10 gave IH the right to discontinue
production of all lines of agricultural equipment without incurring any liability to Groseth. The
Groseth trial court also held that, even absent section 2 of the dealer agreement, the doctrines of
frustration of purpose and commercial impracticability would discharge IH from liability under the
contract.
The South Dakota Supreme Court reversed, holding that the trial court had erred in
concluding that section 2 of the dealer agreement authorized IH to discontinue completely all
agricultural product lines without liability to Groseth. That supreme court held that even though
section 2 stated that the price list could always change, there was an underlying assumption that IH
would continue to market some group of agricultural products. Therefore, held that court, IH could
not cancel the dealer agreement by operation of section 2 as that section did not contemplate IH's
discontinuation of manufacturing and distributing agricultural equipment altogether.11
The South Dakota Supreme Court also held that, as a matter of law, the doctrine of
frustration of purpose did not discharge IH from its duty to perform under the dealer agreement.12
The court then reversed and remanded the case for a trial on the issue of commercial impracticability,
holding that there existed material issues of fact on that question.13
9
410 N.W.2d 159 (S.D.1987).
10
See supra note 1.
11
Groseth, 410 N.W.2d at 164.
12
Id. at 167.
13
Id. at 168.
 In Karl Wendt Farm Equip. Co. v. International Harvester Co.,14 a former IH dealer in
Michigan filed suit in federal district court alleging, inter alia, that IH breached its dealer agreement
with Wendt. All other claims were disposed of before trial. At trial, the district court permitted IH's
defense of impracticability of performance to go to the jury, and the jury returned a verdict of no
cause of action on the contract, adverse to Wendt. The district court denied Wendt's motion for
J.N.O.V./new trial but ordered a directed verdict in favor of Wendt on IH's defenses of (1) frustration
of purpose, (2) the ability of IH to cease production of all product lines under section 2 of the Dealer
Agreement, and (3) an implied term limiting the duration of the contract. Wendt appealed the district
court's denial of its motion for J.N.O.V./new t rial, arguing the invalidity of IH's impracticability
defense. IH cross-appealed the district court's directed verdict on the viability of IH's other defenses.
The Sixth Circuit held that, under Michigan law, the district court erred in permitting the jury
to consider the impracticability defense and that Wendt was entitled to a directed verdict on that
issue.15 The appellate court then addressed IH's assertions on cross-appeal. First, the court agreed
with Groseth in holding that frustration of purpose was not available as a defense.16 Again agreeing
with Groseth, the Wendt court also held that section 2 of the dealer agreement did not serve as an
alternative means for termination of the contract, especially in light of the existence of specific
termination provisions in the contract.17
Finally, the Wendt court addressed IH's assertion that there is an implied term in every
dealership agreement giving the manufacturer the freedom to go out of business, and that such an
implied term gave IH a defense to the breach of contract action. IH cited the opinion of the district
court in the instant case in arguing that the Sixth Circuit should likewise hold that Wendt's dealer
agreement automatically terminated when IH ceased manufacturing agricultural equipment. The
Sixth Circuit, criticizing the decision of the district court in the instant case, held that IH had no
14
931 F.2d 1112 (6th Cir.1991).
15
Id. at 1118.
16
Id. at 1120.
17
Id. at 1121.
defense under such a theory. The Wendt court stated that the evidence supported the conclusion that
at the time the parties contracted, neither IH nor Wendt anticipated that IH would leave the
agricultural equipment business completely. That court continued:
Implying a term which enables IH to terminate its franchise agreement unilaterally without
following the termination conditions of the agreement and without incurring a breach places
all the risk on the dealer. Rather, if economic circumstances require that IH leave the market
for farm products, it should properly seek to terminate its agreement under the terms of the
agreement.... As there is no evidence which suggests that IH sought to terminate its
agreement with Wendt by mutual agreement under the terms of the agreement, the district
court properly granted a directed verdict for Wendt on this defense.18
We are not bound to follow either Groseth or Wendt, as those cases decided the issues under
the laws of South Dakota and Michigan; we are bound here to apply Louisiana law. Furthermore,
as the district court in the instant case held that IH had not breached the dealer agreement, it did not
address, and hence we do not face, some of the issues decided by Groseth and Wendt—in particular,
the defenses of frustration of purpose and impracticability of performance. Nevertheless, we find the
opinions in those two cases helpful in our determination whether IH breached the dealer agreement
when it sold its agricultural equipment division to Case without ensuring that Delta would be
protected to the full extent of its contractual rights.
The Sixth Circuit in Wendt suggested that the district court in the instant case erred in holding
that the Dealer Agreement terminated by implication when IH ceased personally to manufacture its
agricultural equipment. IH construes that language in Wendt to mean that the Dealer Agreement
obligated IH to perpetual performance regardless of the circumstances, a conclusion IH argues is
unreasonable. IH argues further that, if such is the true meaning of Wendt, that opinion is
fundamentally flawed because the Sixth Circuit failed to distinguish between IH's decision to leave
the agricultural equipment business altogether (which is not addressed in the dealer agreement) and
a decision to terminate Delta or any other individual dealer (which is explicitly addressed in the dealer
agreement).
We shall not attempt to interpret the true meaning of Wendt's analysis of the district court's
opinion in the instant case. Our responsibility here is to review the instant decision "from scratch,"
18
Id.
not to act as a super appellate court in review of the Sixth Circuit's extra-territorial analysis of our
trial court's work. Nevertheless, we conclude that it is IH and the district court, not the Sixth Circuit,
which have failed to make a fundamental distinction in this case—the distinction between a true
business contraction or partial liquidation on the one hand and the outright sale or transfer of an
active trade or business on the other.
In a true business contraction, an entity completely puts to an end one or more of its business
pursuits. Such would be the case had IH discontinued its agricultural equipment business so that such
business no longer existed; specifically, so that IH farm implements ceased altogether to be
manufactured and sold. Clearly, however, that is not what occurred here; IH did not make a business
contraction. Instead, it sold in globo its agricultural equipment manufacturing and distributing
business, which continued—albeit under the aegis of Case—without so much as skipping the
proverbial heart beat.
Under the terms of the Dealer Agreement, Delta could be terminated as a dealer only for
cause. The issue whether the "reasonable" duration of the Dealer Agreement—which specified no
term—is only as long as IH remained in the business of manufacturing farm equipment, is simply not
material to our decision. As drafted, the Dealer Agreement presents a significantly different question,
even though it sounds similar: Given no specified term and given the explicit termination provisions
in the Dealer Agreement, does IH's transfer of its agricultural implement manufacturing and
distributing business, qua business, with the uninterrupted continuation of the manufacture and
distribution of IH farm equipment, constitute cause for the manufacturer of such equipment—whether
that be IH or its transferee—to terminate the Dealer Agreement as to Delta? Less an issue than a
rhetorical question, the answer is a resounding "no!"
The fact remains that, as a direct result of the sale by IH to Case, Delta has been terminated
as a dealer—without cause and through no fault of its own. IH cannot avoid its obligations under
the dealer agreement by a sale of the business; because IH's sale caused Delta to be terminated as a
dealer in violation of the Dealer Agreement, IH has breached that agreement.
Nevertheless, IH argues speciously here as it did in Groseth and Wendt, that section 2 of the
dealer agreement allows IH to discontinue its agricultural equipment business without liability to its
dealers. IH contends that the holdings of Groseth and Wendt—that section 2 allowed IH to
discontinue some, but not all, of its agricult ural equipment lines—are illogical. In support of its
argument, IH poses a hypothetical example in which IH phases out a different line of agricultural
equipment every six months until only one line, for which there is no market in Delta's area, remains.
IH asserts that, as far as Delta is concerned, this scenario does not differ from one in which IH
discontinues all of its agricultural equipment. That proposition is so ludicrous it will not be dignified
with more than a flat rejection.
IH also argues that if, under Groseth and Wendt, IH is obligated to continue to manufacture
at least one line of agricultural equipment, there is no guidance under the dealer agreement as to
which line that must be. IH's arguments so miss the mark that they approach frivolity, failing to
recognize (or accept) the distinction between a true termination of the agricultural equipment business
(i.e., the cessation of the manufacture of IH agricultural implements by anyone) and the sale of that
continuing business to an erstwhile competitor. In the former situation, there would be no more IH
agricultural equipment products manufactured by anyone to be distributed to anyone for sale to
anyone. In the latter situation, IH products would continue to be manufactured, distributed and sold.
It is clearly the latter situation with which we are faced here and which we hold constitutes a breach
of the dealer agreement by IH when it results in the loss of dealership by a former dealer who has not
breached the Dealer Agreement or otherwise given IH or IH's successor cause to terminate the
dealerships.
The key inquiry in this case is better understood if we ask not whether IH ceased to
manufacture and sell agricultural equipment, but whether IH's agricultural equipment ceased to be
manufactured and sold. If only the former had occurred, IH may have been off the hook. But that
simply is not what happened, or at least not all that happened. IH farm implements continued to be
manufactured and distributed without interruption, so IH remained obligated to Delta. It did not
wind down and terminate its manufacture and sale of agricultural equipment; it did not close
factories; it did not dispose of land, buildings, machinery, raw materials, inventory, and the like,
merely for scrap or salvage value or in some vast "going out of business" sale. It made a unitary
transfer of those and all other elements of its farm implement business.
Even if we assume without deciding that the decision of IH to dispose of its agricultural
equipment division was for bona fide business purposes, that disposition still did not produce a
termination of such business. Irrespective of the tags and labels that IH and Case placed on the "asset
purchase" of that business—whether for tax purposes, labor relations, or other reasons totally
irrelevant to this consideration—that transaction was nonetheless a global sale of a going business,
qua going business, carrying with it not merely tangible corporeal assets but all intangible, incorporeal
attributes of the going business as well—not the least of which was the International Harvester brand
name.
We hold that IH is responsible to Delta for all damages it suffered as a result of the loss of its
dealership and thus its lawful right to sell and service IH equipment and parts in its designated trade
area. IH breached the Dealership Agreement by transferring its ongoing farm implement business to
Case in a manner that purported to vest Case with the legal right to terminate Delta's farm implement
dealership despite the total absence of cause. In so doing IH layed itself open to respond in damages
to Delta for any net losses incurred in the event Case should terminate Delta without cause as defined
in the Dealer Agreement and without compensating Delta fully for that breach of the Dealer
Agreement. Issues of indemnity or contribution between IH and Case for causing IH thus to respond
in damages are not before us; but clearly IH is obligated to Delta for its losses not otherwise
compensated for by Case.
3. Delta's Claims Against Case for Breach of the I.H. Dealer Agreement
Delta also alleges that as part of the purchase agreement between Case and IH, Case assumed
IH's rights and obligations under the dealer agreements. Section 1.2 of the purchase agreement
defines the business acquired by Case as IH's "agricultural equipment group [division] which is
represented by the Purchased Assets, including ... marketing in North America, through a large
dealer organization." (emphasis added). Delta argues that the only assets relating to the dealer
organization are the dealer agreements. As Case acquired those dealer agreements and assumed IH's
obligations under them, Delta's argument continues, Case is bound by the termination provisions of
the dealer agreements; and as Delta was terminated as a dealer in a manner inconsistent with its
Dealer Agreement, Case has breached that contract.
In further support of its argument that Case assumed IH's obligations under the dealer
agreement, Delta cites section 2.1(g) of the purchase agreement, which provides that Case assumed:
[a]ll liabilities arising out of any claim against [IH] ... brought by any dealer ... in the United
States ... which arises out of termination after the date of this Agreement of the contractual
relationship of [IH] ... with such dealer ... (whether by the dealer or ... by [IH] ) ... or which
otherwise results because of this Agreement or the transactions contemplated by this
Agreement.
The district court rejected this argument because a provision in the purchase agreement listed
"agreements with dealers" as a type of asset excluded from the purchase. The district court held that
section 2.1(g) was an indemnity provision, requiring only that Case indemnify IH against claims
brought by dealers. The district court concluded that Case could not and therefore did not breach
Delta's Dealer Agreement with IH because Case neither assumed nor acquired any of IH's dealer
agreements.
We recognize that the purchase agreement attempted expressly to exclude IH's dealer
agreements from the sale of IH's agricultural equipment business. We find as a matter of law,
however, that such language was merely an attempt to mask the reality of the transaction. Under
section 5.2 of the purchase agreement,19 Case had the option to terminate Delta's status as a dealer
of IH agricultural equipment. Such a provision, though, is pregnant with its own obverse: If Case
could opt to terminate, it could opt—here, through inaction—not to terminate; just another way of
saying that Case could elect to retain, and insist upon the dealer's beneficial performance of, any and
all dealer agreements. Stated another way, it cannot be that Case could enjoy the power to terminate
dealer status, which arose through a Dealer Agreement with IH, without acquiring all of the
rights—and obligations—arising under the Dealer Agreement. One of those obligations was not to
terminate the dealer without cause. As there is no contention that any of the express conditions
justifying termination under the Dealer Agreement were satisfied, Case breached that agreement when
19
See supra note 2.
it terminated Delta's status as a dealer.
Our analysis of the nature of IH's sale of its agricultural equipment business to Case leads
inescapably to the conclusion that the parties to that transaction acted in concert and attempted to
do indirectly what they could not do directly—terminate IH dealers without cause while avoiding or
minimizing any financial responsibility and legal liability for such unlawful terminations. IH and Case
knew that the transaction would result in a surfeit of dealers, and also knew that they were stuck with
IH dealer agreements that did not allow for termination of IH dealers without cause. In an obvious
act of damage control, IH and Case crafted the Purchase Agreement so as to disguise the effect of
the transaction and avoid the troublesome provisions of the dealer agreements. The Purchase
Agreement stated that Case did not assume or acquire the dealer agreements as part of the purchase;
at the same time the Purchase Agreement gave Case the power to terminate former IH dealers. IH
could not possibly confer on Case a power greater than IH possessed; Case could not obtain the
power to terminate an IH dealer in the absence of some sort of contractual relationship between Case
and that dealer.
When the Purchase Agreement is viewed in the cold light of reality, it is evident that IH and
Case tried to make an end run around the Dealer Agreement between IH and Delta. They failed. We
hold that Case is liable for breach of Delta's Dealer Agreement by improper termination. As such,
Case and IH are liable in solido (jointly and severally) for breach of that Dealer Agreement.
4. Delta's Third Party Beneficiary Claims Against Case
As noted earlier, the district court initially found Delta was entitled to seek enforcement of
the obligations undertaken by Case to IH's dealers in section 5.2 of the Purchase Agreement between
IH and Case, even though Case did not expressly assume the IH Dealership Agreements. When it
denied motions by Case and IH for further summary judgment, the district court recognized the
existence of a genuine issue of fact: whether Case had complied with its third party obligations
undertaken in section 5.2 of the Purchase Agreement. But the court reiterated that, having ruled that
Case did not assume the IH Dealership Agreements, Case was not bound by the conditions contained
in those agreements concerning the grounds for termination of a dealer. On subsequent
reconsideration, however, the district court—while continuing to maintain the position that Case was
not bound by the termination provisions of the Dealer Agreement between IH and Delta—held that
section 5.2 of the Purchase Agreement did constitute a third party beneficiary agreement under
Delaware law.
In an effort to avoid third party beneficiary liability to Delta, Case insists here as it did in the
district court that the express disavowal of third party beneficiary liability set forth in section 18.8 of
the Purchase Agreement eschews a third party beneficiary result. The district court's rejection of that
contention by Case is correct. The specific provisions of section 5.2 clearly create a third party
beneficiary obligation running from Case to IH dealers like Delta, trumping the general language of
section 18.8.
Nevertheless, the district court concluded that, as to Delta, Case was only obligated to offer
one of the four alternative arrangements listed disjunctively in section 5.2(b): consolidation,
relocation, purchase, or termination. The district court found that Case had first explored the third
option (purchase) and had negotiated, presumably in good faith, to no avail; after which Case
nevertheless chose to exercise the fourth option (termination).
Continuing, the district court recognized that, as Case had pursued termination, it was
obligated under section 5.2(b) to see to it that Delta's termination was accomplished "on terms at least
as favorable as such dealer would be entitled to receive upon termination under [the Dealer
Agreement with IH]." The district court observed that the termination provision requires
consideration of § 30 of the Dealer Agreement between IH and Delta which, concluded the district
court, "sets out the minimum standard with which Case must comply."
Up to that point we have no disagreement with the district court's analysis. Our disagreement,
and the point at which we find that the district court erred, is with its treatment of the § 30 standard
as applicable equally to an unlawful termination (such as the termination of Delta's dealership
arrangement here) and to a lawful termination with cause as specified in the Dealer Agreement, e.g.,
no longer distributing in the dealer's sales area or an active breach by the dealer which remains
uncured. Clearly, the limited remedy of the dealer's right to have its inventory equipment and parts
repurchased upon termination applies only to lawful termination, i.e., by mutual consent of IH and
Delta, or by Delta unilaterally with or without cause, or by IH unilaterally with specified cause—none
of which occurred here. The measure of the obligation of IH—and thus Case—when termination is
a breach of the Dealer Agreement is entirely different: full compensatory damages.
As we hold today that the obligation of IH under such circumstances is to respond monetarily
to Delta in compensatory damages for the losses it experienced as a result of having its Dealership
Agreement breached by unlawful termination under section 5.2 of the Purchase Agreement, Case can
be responsible to no lesser extent. We and the district court agree that Case expressly obligated itself
under section 5.2(b), whether as a Delaware third party beneficiary contract or a Louisiana stipulation
pour autrui, to treat IH dealers such as Delta no less favorably than IH would be required to treat
Delta upon termination of the Dealer Agreement. It is inescapable therefore that Case's obligation
to Delta is congruent with IH's obligation to Delta. The fact that, in the Purchase Contract between
IH and Case (to which Delta and the other IH dealers were not parties), t he four alternatives
contemplated by IH and Case as covering for the various types of arrangements that Case might
propose are enumerated expressly, is of no legal significance whatsoever as between IH and Delta
or Case and Delta. Just as we have held IH and Case contractually obligated in solido to Delta for
the losses it suffered when its right to sell and service IH agricultural parts and equipment was
terminated by breach of contract, we hold, alternatively, that Case is obligated to Delta as a third
party beneficiary to the same extent.
5. Breach of Duty of Good Faith
Delta claims that IH breached its duty to act in good faith in its performance under the Dealer
Agreement. The district court, having determined that IH did not breach the Dealer Agreement, also
found as a matter of law that IH fulfilled its duty to act in good faith under that contract. We
disagreed with the former conclusion and now disagree with the latter. As we have noted, IH sold
its agricultural equipment business to Case knowing that the transaction would result in the
termination of IH dealers without cause. The Purchase Agreement even provided for "comfort
letters." For the reasons set forth in more detail in section III.A.3 above, we find that IH deliberately
structured the transaction so as to leave the terminated IH dealers with little or no recourse against
either IH or Case. IH argues that by including section 5.2 in the purchase agreement, it fulfilled its
duty to act in good faith because that provision was designed to provide for the terminated dealers.
On the contrary, that was the very provision which purported to give Case the right to terminate
those dealers without cause and, at the same time, immunize IH. We find as a matter of law that IH
breached its duty to act in good faith.
6. Fraud Claim Against IH
Delta alleges that IH committed fraud by representing to its dealers that it would remain in
the agricultural equipment business "forever," at the very time it was negotiating the sale of that
business to Case. Such behavior is clearly duplicitous, but to constitute actionable fraud a promise
or representation of future actions must be made "with the intention not to perform at the time the
promise is made."20 The district court held that "[b]eyond exhortation and allegation, Delta has
produced no evidence which indicates that whenever IH repeated its commitment to the farm
equipment business, IH intended otherwise." After reviewing the record, we agree with the district
court that Delta has failed to produce evidence of IH's fraudulent intent sufficient to avoid summary
judgment on this issue.
7. Breach of Fiduciary Duty Claim Against IH
Delta also alleges that IH breached a fiduciary duty in its dealings with Delta. This claim is
easily dismissed. Louisiana law does not recognize a fiduciary relationship between a franchisor and
a franchisee.21 Delta cites no Louisiana cases to support its claim. Summary judgment was proper
on this issue.
8. Unfair Trade Practices Claims Against IH and Case
Delta claims that IH and Case violated the Louisiana Unfair Trade Practices and Consumer
20
Automatic Coin Enters., Inc. v. Vend–Tronics, Inc., 433 So. 2d 766, 768 (La.Ct.App. 5th
Cir.1983).
21
Cason v. Texaco, Inc., 621 F. Supp. 1518, 1526 (M.D.La.1985).
Protection Act22 (the "Act"). The district court dismissed these claims by holding that Delta had
failed to show an injury to competition as the required by the Act. The Act provides a cause of action
only for "consumers and business competitors."23 Delta does not qualify as either a consumer or a
business competitor vis-a-vis either IH or Case. As Delta's claims do not fall within the ambit of the
Act, the district court's summary dismissal of these claims was correct.
B. Directed Verdict Against Delta
1. Standard of review
In reviewing a directed verdict, we use the same standard used by the district court in making
its determination.
If the facts and inferences point so strongly and overwhelmingly in favor of one party that the
Court believes that reasonable men could not arrive at a contrary verdict, granting of the
motions is proper. On the other hand, if there is substantial evidence opposed to the motions,
that is, evidence of such quality and weight that reasonable and fair-minded men in the
exercise of impartial judgment might reach different conclusions, the motions should be
denied, and the case submitted to the jury.24
2. Third–Party Beneficiary Claim Against Case
Delta appeals the district court's directed verdict for Case on the issue whether Case violated
its obligation under section 5.2 of the purchase agreement to provide Delta with an interim dealer
agreement. The district court held that Delta had failed to prove that it suffered any damages related
to that obligation. As we have already discussed, the district court reached this claim only because
it rejected Delta's breach of contract claim against Case but held that Delta had enforceable rights as
a third-party beneficiary of Case under section 5.2 of the Purchase Agreement, an issue which we
have addressed fully above. No additional discussion is required in the context of the district court's
directed verdict.
3. Losses on Missed Sale
Delta's evidence of lost profits related to a failed sale of five cot ton pickers, which Delta
22
LA.REV.STAT.ANN. § 51:1401 et seq. (West 1987).
23
Morris v. Rental Tools, Inc., 435 So. 2d 528 (La.Ct.App. 5th Cir.1983).
24
1488, Inc. v. Philsec Inv. Corp., 939 F.2d 1281, 1286 (5th Cir.1991).
claims it would have consummated if it had been issued an interim agreement, is insufficient. The
district court held, and we agree, that Delta failed to show with certainty that the potential purchaser
would actually have purchased the equipment, and if so, that he would have purchased it from Delta.
As Delta failed to prove loss of profits with the requisit e degree of certainty, the district court
properly rendered a directed verdict in favor of Case on this claim.
IV.
CONCLUSION
We agree for the most part with the district court's finding of facts. We disagree, however,
with the court's conclusions concerning the legal effects of a number of those facts. Concluding that,
as a matter of law, both IH and Case breached Delta's dealer agreement, we REVERSE the district
court's holding on those issues and hold IH and Case liable in solido for Delta's damages resulting
from termination of its Dealer Agreement without cause. We hold in the alternative that Case is liable
to Delta to the same extent for Case's breach of its third party beneficiary obligation to Delta. We
remand the case to the district court for a determination of the quantum of damages which Delta is
entitled to recover from IH and Case in solido. We also hold that, as a matter of law, IH breached
its duty of good faith in carrying out its dealer agreement with Delta. So we REVERSE the district
court's holding on that issue and remand it too for a determination of the quantum of bad faith
damages. We AFFIRM the holdings of the district court on all other issues.
SO ORDERED, with IH and Case to bear all costs of this appeal solidarily.