Cummings, McGowan v. Wirtgen Amer Inc , 160 F. App'x 458 ( 2005 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 05a0998n.06
Filed: December 21, 2005
No. 04-6261
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
CUMMINGS, MCGOWAN, & WEST, INC., )
)
Plaintiff-Appellant, )
)
v. ) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR THE
WIRTGEN AMERICA, INC., a Tennessee ) MIDDLE DISTRICT OF TENNESSEE
Corporation, )
)
Defendant-Appellee. )
Before: RYAN, GILMAN, and COOK, Circuit Judges.
COOK, Circuit Judge. Cummings, McGowan, & West (“CMW”) sued Wirtgen America for
improperly terminating the parties’ distributorship agreement (the “Agreement”), pinning its claims
on a Tennessee law enacted after the parties entered into their agreement. Because we agree with
the district court that applying the later-enacted Tennessee law to the Agreement would violate the
Contracts Clause of the Tennessee Constitution, we affirm the district court’s dismissal of the suit.1
I
1
Our judgment regarding the Tennessee Constitution obviates the need for this court to
consider Wirtgen’s alternative argument under the United States Constitution.
No. 04-6261
CMW v. Wirtgen
In 1992, CMW, a construction-equipment retailer, and Wirtgen, a construction-equipment
manufacturer, entered into a “Nonexclusive Distributor Agreement.” The Agreement authorized
CMW to sell Wirtgen products and allowed either party to “terminate this Agreement at any time,
with or without cause upon 90 days prior notice.” The Agreement also contained a Tennessee
choice-of-law clause. Seven years later, Tennessee amended its franchise-agreement laws so as to
govern parties such as Wirtgen and CMW, 1999 Tenn. Pub. Acts Ch. 193 (codified at TENN. CODE
ANN. §§ 47-25-1301 to -10), directing that “[n]o supplier, directly or through an officer, agent or
employee, may terminate, cancel, fail to renew or substantially change the competitive
circumstances of a retail agreement without good cause.” TENN. CODE ANN. § 47-25-1302 (West
2005). The amendments, specifically made retrospective, further provided that a supplier may not
“[c]oerce a retailer into refusing to purchase equipment manufactured by another supplier.” Id. §
47-25-1304(3). In 2002, Wirtgen supplied ninety-day notice of its intent to terminate the Agreement
due to CMW’s insistence on selling a competitor’s products. CMW sued, alleging Wirtgen violated
the 1999 Tennessee law by coercively threatening to terminate the Agreement and by its eventual
termination of the Agreement without cause.
The district court granted Wirtgen’s motion to dismiss on the ground that the Tennessee
Constitution’s Contracts Clause prohibited the application of Tennessee’s amended law to the
Agreement. CMW challenges the district court’s decision, arguing that the Tennessee law’s
application in this case would not contravene Tennessee’s Constitution.
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CMW v. Wirtgen
II
We review de novo the district court’s decision to grant a motion to dismiss under Federal
Rule of Civil Procedure 12(b)(6). Perry v. Am. Tobacco Co., 324 F.3d 845, 848 (6th Cir. 2003).
We view the complaint in the light most favorable to CMW, accept its factual allegations as true,
and determine whether CMW can prove any set of facts in support of its claims that would entitle
it to relief. Id.
The Tennessee Constitution provides that “no retrospective law, or law impairing the
obligations of contracts, shall be made.” TENN. CONST. art. I, § 20. This section “has uniformly
been interpreted to mean that the Legislature may enact laws that have a retrospective application
only so long as they do not impair the obligations on contracts or impair vested rights.” Privette v.
Keyes, No. M2000-01635-COA-R10-CV, 2001 WL 196970, at *2 (Tenn. Ct. App. Feb. 28, 2001)
(unreported). CMW advances three arguments to support its position that the amended law’s
restraints on termination may be applied to the Agreement without offending the Contracts Clause
of the Tennessee Constitution.2 First, CMW argues that application of the law to the Agreement
would not be “retrospective.” Next, CMW contends that the law would not impair Wirtgen’s vested
2
CMW filed claims under the amended law for both unlawful coercion and wrongful
termination. As counsel for CMW admitted at oral argument, however, the coercion claim rests on
Wirtgen’s alleged threats to terminate the Agreement. The Agreement expressly recognizes
Wirtgen’s right to terminate the Agreement, and an implied right to threaten to take this action
follows. Thus the coercion claim survives only to the extent that Wirtgen holds no protected
contractual right to terminate the Agreement, and we analyze CMW’s coercion claim concurrently
with its wrongful-termination claim.
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CMW v. Wirtgen
rights. Finally, CMW asserts that the Agreement manifests the parties’ intent to incorporate changes
in Tennessee law into the Agreement.
A. Retrospective Application
CMW first argues that the amended law’s application would not be retrospective because
Wirtgen engaged in the prohibited conduct after the amendment took effect. This argument fails
because the relevant inquiry is when Wirtgen’s contractual rights to undertake its conduct
accrued—that is, when the parties incurred their contractual obligations—rather than when
Wirtgen’s conduct occurred. For example, in Bryan v. Leach, 85 S.W.3d 136 (Tenn. Ct. App.
2001), the parties contracted at the time of their 1992 divorce for the husband to pay the wife
alimony. A 1994 legislative enactment provided that alimony would terminate upon the remarriage
of the receiving spouse, and when the wife remarried in 1997, the husband sought to end alimony
payments. The Leach court held the application of the 1994 law to the parties’ 1992 contract
violated the Tennessee Constitution: “We will not apply [the statute] retroactively to create an
automatic termination of contractual obligations undertaken and rights vested prior to its
enactment.” Id. at 144. Similarly, in Kee v. Shelter Ins., the Tennessee Supreme Court held that a
statute could not be applied to extend an insurance policyholder’s claim-filing deadline where the
insurer’s contractual rights accrued before the statute was enacted. 852 S.W.2d 226, 229 (Tenn.
1993). In the present case, the parties incurred contractual obligations and accrued contractual rights
prior to the enactment of the law, and its application to their contract would be retrospective.
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B. Impairment of Rights
CMW next argues that application of the amended law to the Agreement does not
impermissibly impair Wirtgen’s vested rights. The Tennessee Supreme Court has developed a four-
factor analysis for unconstitutional impairment. See Doe v. Sundquist, 2 S.W.3d 919, 924 (Tenn.
1999).3 The first factor—whether the law advances a public interest—lends some, albeit minimal,
support to CMW’s position. Courts typically “defer to a state’s judgment as to the necessity of a
measure in question,” Linton v. Comm’r of Health & Env’t, 65 F.3d 508, 519 (6th Cir. 1995), and
the law arguably advances the public interest by adjusting suppliers’ and distributors’ relative
bargaining positions and defining their rights. That said, adjustments in bargaining power may serve
the public interest when applied prospectively to bargains not yet struck, but create minimal public
benefits when applied retrospectively to contracts formed under a prior state of law.
The remaining factors all militate against applying the amended law to the Agreement. The
second factor, whether the law defeats the reasonable expectations of the parties, strongly favors
Wirtgen. The parties opted for a contract terminable at will by either party rather than including a
fixed termination date in the Agreement. The express language of the contract exhibits a reasonable
expectation that the amended law would defeat.
3
Although the Tennessee Supreme Court added a fifth consideration in In re D.A.H., 142
S.W.3d 267, 274 (Tenn. 2004), this consideration—whether the right impaired is a fundamental
one—does not apply in the present case.
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CMW v. Wirtgen
The third factor, whether the law surprises parties who relied on a contrary state of law, also
supports Wirtgen’s position. Not only did the previous versions of Tennessee Code Annotated §§
47-25-1301 to -10 not prohibit Wirtgen’s termination of the Agreement, but they did not even apply
to the Agreement. The parties undoubtedly were surprised when, seven years into the ongoing
operation of their Agreement, Tennessee amended sections 47-25-1301 to -10 to encompass
contracts such as theirs. The final factor, and perhaps the most significant, is the extent to which
the law is substantive rather than procedural or remedial. See, e.g., Saylors v. Riggsbee, 544 S.W.2d
609, 610 (Tenn. 1976) (permitting retroactive application of a statute that “created no rights and
imposed no liabilities . . . [but] merely prescribed a procedure”). Because the Tennessee law goes
to the heart of Wirtgen’s rights under the agreement—that is, it “gives or defines the right[s]” of the
parties rather than defining proceedings by which a right is enforced or providing the means by
which relief may be obtained—courts view it as substantive, counseling against its retrospective
application. See Doe, 2 S.W.3d at 923. Under the four-part test announced in Doe, Tennessee’s law
impermissibly impairs Wirtgen’s contractual rights.
C. Severability Clause
Finally, CMW argues that the Agreement’s severability clause, severing any provision from
the Agreement that “may be prohibited by law,” expresses the parties’ intent to incorporate changes
in the governing law. But rather than “‘clearly indicat[ing] . . . [the] intention of [the] parties’” to
incorporate changes in the law, this language merely demonstrates the parties’ uncertainty as to
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whether the then-governing law prohibited any provision. Rutherford Farmers Coop. v. MDT
Consumer Group, Inc., 124 Fed. Appx. 918, 920 (6th Cir. 2005) (quoting 11 RICHARD A. LORD,
WILLISTON ON CONTRACTS § 30:23 (4th ed. 2004)) (rejecting a similar argument that the parties’
contract incorporated future laws and finding a federal Contracts Clause violation in the application
of a related section of the amendment at issue here).
III
Because retrospective application of the Tennessee law to the Agreement violates the
Tennessee Constitution by impairing Wirtgen’s vested rights, we affirm the district court’s dismissal
of this suit.
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