Bull International, Inc. v. MTD Consumer Group, Inc.

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________
No. 15-2438
______________
BULL INTERNATIONAL, INC.,
Appellant
v.
MTD CONSUMER GROUP, INC.,
successor in interest to CUB CADET CORPORATION t/d/b/a MTD PRODUCTS, INC.,
MTD CONSUMER GROUP, CUB CADET CORPORATION, BOLENS, COLUMBIA,
CUB CADET COMMERCIAL, CUB CADET YANMAR, FARM KING,
GARDEN WAY, GOLD SERIES, GUTBROD, GUTBROD-KEHRER, LAWN FLITE,
MASTERCUT, MOW MASTER, MOW MASTER MASTERCUT, MTD BLACK
EDITION, MTD SILVER EDITION, MTD GOLD, MTD MOWMASTER, MTD
PLATINUM PRO, MTD PLATINUM SD, MTD PRO, MTD SUPER, MTD TARAL,
MTD TRADESMAN, MTD TURBOMAX, MTD 2000 ELITE, NOVOTRAC, RANCH
KING, RASENTRAC, REMINGTON, RYOBI, TROY-BILT, VENTZKI, VENTZKI
MTD, WHITE OUTDOOR, YARD MACHINES, YARD-MAN, YARD-MAN ELITE,
YARD-MAN SELECT, and YARDWORKS
______________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(No. 2:14-cv-00255)
Honorable David Stewart Cercone, District Judge
______________
Argued March 2, 2016
BEFORE: JORDAN, GREENBERG, and SCIRICA, Circuit Judges
(Filed: June 29, 2016)
______________
1
Jeffrey J. Ludwikowski (argued)
Gregory M. Monaco
Picadio Sneath Miller & Norton, P.C.
Four Gateway Center
444 Liberty Avenue, Suite 1105
Pittsburgh, PA 15222
Attorneys for Appellant
Frederick W. Bode, III
Steven W. Zoffer (argued)
Brett W. Farrar
Michael P. Flynn
Dickie McCamey & Chilcote, P.C.
Two PPG Place, Suite 400
Pittsburgh, PA 15222-5402
Attorneys for Appellee
Gregory A. Holmes
Holmes Law Offices PLLC
P.O. Box 2280
Concord, NH 03302
Attorney for Amici Curiae
Northeast Equipment Dealers
Association and Ohio-Michigan
Equipment Dealers Association
______________
OPINION*
______________
GREENBERG, Circuit Judge.
I. INTRODUCTION
____________________
*This disposition is not an opinion of the full court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
2
This matter comes on before this Court on an appeal from an order of the District
Court granting motions by defendant-appellee, MTD Consumer Group, Inc. (“MTD”), an
Ohio corporation with its principal place of business in Cleveland, Ohio, seeking
dismissal of this action brought against it by plaintiff-appellant, Bull International, Inc.
(“Bull”), a Pennsylvania corporation with its principal place of business in Washington,
Pennsylvania. Bull brought this action because MTD terminated certain written contracts
that it had with Bull setting forth the terms of the relationship between Bull, a family-
owned business dealing in lawn and garden, commercial mowing, and farm and light
industrial equipment in Western Pennsylvania, and MTD, a global manufacturer of
equipment that Bull and other retailers sold.
The written contractual relationship between Bull and MTD with which we are
concerned dates from 1985 when Cub Cadet Corporation (“Cub Cadet”), a predecessor in
interest to MTD, entered into several agreements (“Agreements”) that provided for Bull
to sell at retail products that MTD manufactured under MTD’s Cub Cadet brand. Though
the Agreements did not specify their temporal length, two of the Agreements provided
that either party could terminate that Agreement at any time after providing 30 days prior
written notice to the other party. The Agreements did not require that the party
terminating an Agreement state or have a cause for the termination. Essentially,
therefore, the Agreements were contracts at will. The Agreements provided that any
questions or matters arising under them would be subject to Ohio law.
We draw the inference from Bull’s complaint and amended complaint that the
relationship between Bull and MTD proceeded without incident for many years. Indeed,
3
Bull became an exclusive Cub Cadet dealer for lawn and garden products in 1991, after
which Bull did not sell other manufacturers’ lawn and garden products. In September
2013, however, MTD’s attorney wrote Bull to inform it that MTD would terminate its
Wholesale Finance Agreement and Sales and Service Agreement with Bull effective after
expiration of the 30-day notice period provided in the Agreements. Bull objected to the
termination, claiming that under the statute regulating equipment dealer agreements in
Ohio, Ohio Rev. Code §§ 1353 et seq. (“OEDA”), enacted in 2001, MTD only could
terminate its Agreements with Bull for “good cause” after providing no fewer than “one
hundred eighty days’ prior written notice.” Id. § 1353.06 (A)(1) and (B).1 But MTD
denied that the Agreements were subject to the OEDA’s procedural and substantive
termination requirements inasmuch as the parties had executed the Agreements more than
15 years prior to their enactment. Therefore, notwithstanding Bull’s objection, MTD
terminated its Agreements with Bull without giving a reason for why it was doing so and
without providing notice beyond the 30-day period required by the Agreements.
Bull responded by filing a nine-count complaint, the details of which we discuss
below, in the District Court against MTD. MTD moved to dismiss the complaint but
Bull, with leave of the Court, then amended its complaint to add a tenth count, which
MTD also moved to dismiss. On May 11, 2015, the Court filed an opinion and entered
an order granting MTD’s motions to dismiss from which, in June 2015, Bull filed a
timely notice of appeal. We conclude that the Court erred when it dismissed a claim that
1
Our citations to the Ohio Revised Code throughout this opinion are to Title 13 of the
Code.
4
Bull predicated on MTD’s breach of an implied warranty of merchantability with respect
to the products it supplied to Bull. Therefore, we in part will reverse the May 11, 2015
order and will remand the case to the District Court for further proceedings on Bull’s
implied warranty claim. In all other respects, we will affirm the May 11, 2015 order.
II. STATEMENT OF JURISDICTION
The District Court exercised diversity of citizenship jurisdiction pursuant to 28
U.S.C. § 1332. We have jurisdiction pursuant to 28 U.S.C. § 1291, because the Court’s
May 11, 2015 order constituted a final order.2
2
The amended complaint alleges that the corporate parties have “a principal place of
business” at a particular location. App. 258 (emphasis added). 28 U.S.C. § 1332(c)(1),
however, establishing the criteria for determining a corporation’s place of citizenship for
diversity of citizenship purposes, provides that a corporation is a citizen of the state in
which it is incorporated and is a citizen of the state in which it has “its principal place of
business.” (Emphasis added). See Hunt v. Acromed Corp., 961 F.2d 1079, 1080 (3d Cir.
1992). When we examined the District Court’s jurisdiction we noted Bull’s defective
jurisdictional allegations. See, e.g., Pomper v. Thompson, 836 F.2d 131, 132 (3d Cir.
1987). Accordingly, at our direction, the Clerk of this Court by a letter dated January 25,
2016, directed the parties to submit supplemental briefing on the question of “whether the
apparent jurisdictional problem raised by the pleading is indeed a problem and, if so,
whether and how it might be remedied.” Letter from Marcia M. Waldron, Clerk of the
United States Court of Appeals for the Third Circuit (Jan. 25, 2016) (on file with the
Court).
In their supplemental briefs, the parties acknowledge that the jurisdictional
allegations of the amended complaint are imprecise, though they agree that there is
complete diversity of citizenship in this matter. Notwithstanding this agreement between
the parties, we point out that Bull’s supplemental brief and supporting documents remain
imprecise to the extent that they treat MTD Holdings, Inc. as a defendant in this case.
The cause of this imprecision is that the case caption names MTD Consumer Group, Inc.
as a defendant, along with over 40 additional defendants, but does not include MTD
Holdings, Inc. as a defendant or otherwise list it in the case caption. The Declaration of
Jeffrey J. Ludwikowski, submitted with Bull’s supplemental brief, nonetheless states that
MTD Consumer Group, Inc. and MTD Holdings, Inc. are incorporated entities with
5
III. STANDARD OF REVIEW
We exercise de novo review over the order granting MTD’s Rule 12(b)(6) motions
to dismiss. See Pension Trust Fund for Operating Eng’rs v. Mortg. Asset Securitization
Transactions, Inc., 730 F.3d 263, 268 (3d Cir. 2013); Renfro v. Unisys Corp., 671 F.3d
314, 320 (3d Cir. 2011). In doing so, we first “take note of the elements a plaintiff must
plead to state a claim.” Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011) (citation
and internal quotation marks omitted). Then, we determine if the claim has facial
plausibility, a threshold that can be reached only when a plaintiff pleads factual content—
as opposed to mere conclusions—that allows us to “draw the reasonable inference that
the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678,
principal places of business, a point seemingly relevant to our assessment of whether
there is complete diversity of citizenship in this case. The Declaration is misguided
inasmuch as MTD Holdings, Inc. is not a defendant and therefore its citizenship need not
be considered to assess whether there is complete diversity of citizenship.
Relatedly, although the citizenship of each captioned defendant ordinarily must be
examined to determine if there is complete diversity of citizenship, Lincoln Prop. Co. v.
Roche, 546 U.S. 81, 89, 126 S. Ct. 606, 613 (2005), the amended complaint alleges, and
Bull’s supplemental brief confirms, that all entities listed as defendants other than MTD
Consumer Group, Inc. are merely trade names under which MTD Consumer Group, Inc.
“trades and/or does business.” App. 259. The parties seem to be of the view that these
other names, though captioned as defendants, are not relevant to our assessment of
whether there is complete diversity of citizenship in this matter. Nevertheless, in light of
Bull’s defective jurisdictional allegations, on the remand Bull should seek to amend these
allegations pursuant to 28 U.S.C. § 1653, which permits “[d]efective allegations of
jurisdiction [to] [] be amended, upon terms, in the trial or appellate courts.” The District
Court can then reconsider whether there is complete diversity of citizenship.
Notwithstanding the imprecision of the jurisdictional allegations, we are adjudicating this
matter on the merits, as it appears that as they now read, the pleadings set forth that there
are only two parties that need be considered for jurisdictional purposes–Bull, a citizen of
Pennsylvania, and MTD Consumer Group, Inc., a citizen of Ohio–and the amount in
controversy exceeds the sum or value of $75,000, exclusive of interest and costs.
6
129 S. Ct. 1937, 1949 (2009). Although we “must accept the allegations in the complaint
as true, we are not compelled to accept unsupported conclusions and unwarranted
inferences, or a legal conclusion couched as a factual allegation.” Morrow v. Balaski,
719 F.3d 160, 165 (3d Cir. 2013) (quoting Baraka v. McGreevey, 481 F.3d 187, 195 (3d
Cir. 2007)) (internal quotation marks omitted); James v. City of Wilkes-Barre, 700 F.3d
675, 679 (3d Cir. 2012). Accordingly, we must examine the context in which Bull made
its claims, including the underlying substantive law, in order to assess the plausibility of
the claims. See In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 320 n.18 (3d Cir.
2010).
IV. BACKGROUND
A. Factual History
Dennis Bull founded Bull as Somerville Equipment Company in 1967, but he
changed its name to Bull International, Inc. in 1978. Bull sold and serviced commercial
mowing, lawn and garden, and farm and light industrial equipment, at least some of
which was manufactured under the Cub Cadet brand. Though International Harvester
originally manufactured and distributed Cub Cadet products, MTD purchased the brand
in 1981 and created the Cub Cadet Corporation.
By contracts dated August 1, 1985, Bull and Cub Cadet entered into a Dealer
Wholesale Finance Agreement, a Sales and Service Agreement (the “Dealer
Agreement”), and an Account Finance Agreement. As we already have stated, the
Agreements do not contain provisions specifying their temporal duration, but the
7
Wholesale Finance and Dealer Agreements provide that either party could terminate the
Agreements at “any time” after providing 30 days prior written notice to the other party.
See App. 294, ¶ M; App. 298, ¶ M. But as we also already have indicated, we draw the
inference from the amended complaint that the relationship between Bull and MTD was
amicable for an extended period. In fact, though Bull no longer is in business, it had a
strong record in selling Cub Cadet products and MTD repeatedly honored it for being a
consistent high-performing dealer. For example, MTD named Bull the Cub Cadet North
Region Retailer of the Year in 2010 and Bull was a repeat member of the Cub Cadet
Million Dollar Club. In addition, MTD recognized Bull with a 50-Year Partnership
Award and invitations to Cub Cadet incentive trips every year since the late 1980s until
the termination of the Bull-MTD relationship.
There is no allegation in the amended complaint that Bull and MTD ever modified
their written Agreements in further writings. Nevertheless, Bull alleges that two events
altered their Agreements. The first event occurred in or around 1991, when, Bull alleges,
Curt Moll, owner and then-CEO of MTD, “specifically requested [that] all Cub Cadet
dealers . . . be exclusive dealers only for Cub Cadet branded lawn and garden products.”
App. 264. Moll’s exclusivity request—which Bull does not allege was ever put in
writing—meant that Bull would not sell lawn and garden products other than those that
MTD manufactured. But Bull does not claim that it was barred from selling other types
of products made by different manufacturers. Bull asserts that when Moll made this
exclusivity request he “impliedly promised” that if Bull became an exclusive dealer for
MTD lawn and garden equipment it could remain an MTD dealer indefinitely. App. 264.
8
Based on what Bull claims was Moll’s implied promise, it became an exclusive Cub
Cadet dealer for all lawn and garden products.
Bull alleges that the second relationship-altering event occurred in 2002, when
MTD “began to sell the Cub Cadet brand through big box retailers.” App. 261. Bull
does not allege that the terms of the Agreements precluded MTD from making this
change in the marketing of its products but alleges, instead, that MTD’s unilateral change
in marketing strategy led to a reduction in Bull’s market share of the affected products.
Furthermore, Bull alleges that the change forced it to perform more low-margin work
(warranty service, for example) while its high-margin business (equipment sales) was
diminished. Bull alleges that the change in MTD’s marketing strategy expanded the
scope of Bull’s obligation to service MTD’s products because MTD requested that the
independent retailers of its products, such as Bull, service MTD’s products even if sold
by other dealers. Bull alleges that its warranty service obligations became even more
problematic “[i]n the past few years,” after MTD began to distribute its products through
big box retailers because MTD began to obtain various parts and components
manufactured offshore, a change that led to a reduction in their quality and availability.
App. 262. Bull alleges that Jeff Bull, who became president of Bull after Dennis Bull’s
death, voiced these concerns to MTD on a regular basis.
9
Significantly, for over 40 years, Bull was a member of a trade association now
known as the Northeast Equipment Dealer Association, Inc. (“NEDA”).3 NEDA’s
mission is to improve business conditions for equipment dealers in the northeast United
States and it traditionally has been active in the legislative process to support its efforts.
Jeff Bull served as the president of NEDA in 2007 and 2013, and served as its interim
president in late 2012. Bull contends that in this capacity, Jeff Bull was involved in
NEDA’s efforts to have pro-dealer legislation enacted in Pennsylvania and eight other
northeastern states, and alleges that these efforts motivated MTD to end its relationship
with Bull.
On September 24, 2013, a law firm representing MTD informed Bull by letter that
MTD would terminate its Wholesale Finance and Dealer Agreements after expiration of
the 30-day notice period provided in the Agreements. The letter did not state a cause for
the termination, and when Bull sought to ascertain the cause, MTD representatives
declined to provide an explanation. MTD contended that it did not have to state a cause
because the Agreements: (1) did not require it to do so prior to the termination of its
Agreements with Bull; and (2) the Agreements called for only 30 days prior written
notice of termination to the other party. Bull responded that these contractual terms
violated the OEDA, codified in Ohio Rev. Code § 1353.06, because the statute requires a
supplier, such as MTD, to show “good cause” and to provide not fewer than “180 days’
3
NEDA, joined by the Ohio-Michigan Equipment Dealers Association, filed an amicus
curiae brief in support of Bull. In the brief the amici ask that we reverse the order of the
District Court granting MTD’s motions to dismiss.
10
prior written notice” before it may terminate its agreements with a dealer. Id.; App. 268-
69.
Specifically, for the “good cause” requirement Bull pointed to Ohio Rev. Code §
1353.06(A)(1) which provides:
No supplier, without good cause, shall terminate, fail to
renew, or substantially alter the competitive circumstances of
a dealer agreement that is entered into by the supplier and a
dealer on or after the effective date of this section or that is a
continuing contract with no expiration date.
For the extended notice requirement, Bull pointed to Ohio Rev. Code §
1353.06(B), which states, in pertinent part:
Prior to a supplier’s termination of or failure to renew a dealer
agreement, the supplier shall provide the dealer with not
fewer than one hundred eighty days’ prior written notice of
the intent to terminate or not renew it.
MTD contended, however, and now agues on this appeal, that these provisions of the
OEDA are inapplicable because the Ohio legislature enacted them in 2001, more than 15
years after Bull and MTD entered into the Agreements. MTD contended in the District
Court and continues to contend in this Court that the imposition of the OEDA’s cause and
notice requirements on MTD’s termination of its Agreements with Bull would constitute
an unconstitutional retroactive application of the law and, accordingly, would
substantively impair MTD’s vested rights in violation of the United States and Ohio
Constitutions. Thus, notwithstanding Bull’s objection, MTD terminated the Agreements
after the expiration of the 30-day notice period.
11
Bull alleges that after MTD terminated its Agreements with Bull, MTD “made it
known to various other dealers” that Bull was no longer an MTD dealer. App. 266. Bull
also alleges that although it had won an invitation to MTD’s 2014 dealer incentive trip,
MTD informed it that it was disqualified from attending the trip. According to Bull, its
absence from the trip was conspicuous and “[a]ll other dealers” in attendance “were
aware that no representative of Bull International was present.” App. 267.
B. Procedural History
Bull initiated this action against MTD on February 26, 2014. Bull’s initial
complaint against MTD contained nine counts alleging claims for breach of contract on
several theories, including MTD’s failure to comply with the OEDA, failure to act in
good faith and to engage in fair dealing, and unconscionability, and non-contractual
counts based on promissory estoppel, misrepresentation, defamation, and other tortious
conduct. MTD filed a motion to dismiss the complaint, pursuant to Rule 12(b)(6), on
April 30, 2014, but, before the District Court ruled on the motion, the Court granted Bull
permission to amend the complaint, and Bull filed an amended complaint on October 1,
2014, adding a count for “Breach of Contract (Implied Warranties).” App. 273. On
October 29, 2014, MTD filed a motion to dismiss this count as well.
On May 11, 2015, the District Court issued a comprehensive opinion and entered
an accompanying order granting MTD’s motions to dismiss. The Court first concluded
that applying § 1353.06 to the Agreements would violate the Ohio Constitution by
retroactively burdening MTD’s substantive rights. App. 12. The Court then determined
that MTD did not breach an implied covenant of good faith and fair dealing when it
12
terminated the Agreements because the Agreements’ express terms allowed their
termination. App. 13. The Court next dismissed Bull’s claim for “Breach of Contract-
Unconscionability” because it reasoned that unconscionability only could be raised as an
affirmative defense in a breach of contract action or incorporated into an unjust
enrichment claim. App. 14. The Court also held that Bull failed to state a claim for
breach of the implied warranties of merchantability and fitness for a particular purpose
because: (1) Bull’s allegations that MTD’s goods were not merchantable were conclusory
and general; and (2) Bull failed to assert facts that could support the elements of a breach
of the implied warranty for a particular purpose. App. 16-17. The Court also concluded
that Bull could not state a claim based on promissory estoppel because Pennsylvania law,
which the parties agreed governed the action other than with respect to questions or
matters arising under the Agreements,4 does not recognize a claim based on an implied
promise and Bull did not allege that there was an express promise supporting its claims.
App. 18-19.
The District Court dismissed Bull’s tort-based claims, including the
misrepresentation claims, pursuant to the Pennsylvania “gist of the action test” and the
“economic loss doctrine” because it viewed the claims as being based on MTD’s alleged
breach of contract so that, when stated as torts, they duplicated Bull’s contract claims
4
The Dealer Agreement states that “[a]ny questions or matters arising under this
Contract, as to the validity, construction, performance, or otherwise, shall be determined
in accordance with the Laws of the State of Ohio.” App. 300. Ohio law therefore
governs Bull’s claims rooted in breach of contract with respect to the Dealer Agreement.
Bull’s remaining claims are not subject to this choice of law provision, and the parties
agree that Pennsylvania law should be applied to them. See Pac. Emp’rs Ins. Co. v.
Global Reinsurance Corp., 693 F.3d 417, 432 (3d Cir. 2012).
13
against MTD. App. 20-23. Finally, the Court determined that Bull failed to state a claim
for defamation based on either: (1) MTD’s statements to other dealers that it had
terminated its Agreements with Bull; or (2) MTD’s disqualification of Bull from
attending the 2014 incentive trip. The Court reasoned that MTD’s statements that it had
terminated Bull were true and thus could not be defamatory, and that MTD’s failure to
invite Bull to the incentive trip was not a statement at all. App. 25-26. At the end of its
opinion and in the accompanying order, the Court dismissed the action with prejudice.
Bull timely filed a notice of appeal on June 9, 2015.
V. DISCUSSION
A. Breach of Contract
The District Court concluded that the OEDA in Ohio Rev. Code § 1353.06 was
inapplicable in the circumstances here because its retroactive application would violate
the Ohio Constitution and burden substantive terms of the parties’ Agreements reached
before the enactment of the law. On appeal, Bull asserts, as it did in the District Court,
that the OEDA and its termination provisions are more demanding than those in the
Agreements and that the OEDA applies to the Agreements because MTD materially
modified the parties’ relationship—and formed new contracts—following the enactment
of § 1353.06. Bull’s theory thus seeks to avoid the retroactivity issue by framing the
Agreements as post-enactment contracts that MTD breached by terminating the
Agreements without complying with the requirements of the OEDA.
14
MTD provides a layered answer to Bull’s contention. It first points to the
Agreements’ provisions precluding their alteration or modification except by a writing
signed by authorized representatives of both parties. According to MTD, these
provisions explicitly bar the formation of the purportedly new contracts on which Bull
relies. Second, recognizing that not all retroactive applications of a statute violate the
United States and Ohio Constitutions, MTD argues that § 1353.06’s heightened
termination requirements are substantive—as opposed to remedial—and if applied here
unconstitutionally would burden its prior vested rights. We are satisfied that Bull’s “new
contracts” theory lacks merit and that application of § 1353.06’s termination
requirements to the Agreements would violate the Ohio Constitution. Accordingly, for
the reasons we will explain below, we will affirm the District Court’s dismissal of Bull’s
breach of contract claim to the extent the claim is dependent on § 1353.06.
1. Bull’s “New Contracts” Theory Based on
Material Alterations to the Parties’ Relationship
In support of its contention that § 1353.06 is applicable to the Agreements, Bull
asserts that the parties materially altered their relationship on the two occasions we
described above. Specifically, Bull claims that the relationship-modifying events were:
(1) Bull’s promise in 1991 “to sell MTD’s products exclusively at the request of MTD”;
and (2) MTD’s decision in 2002 to sell its products “through ‘big box’ stores.”
Appellant’s Reply br. at 4-5. According to Bull, these modifications bring the
15
Agreements into the post-§ 1353.06 period and render the retroactivity issue that MTD
raises irrelevant.5 We cannot agree.
Under Ohio law, it may be possible for contractually bound parties to form a new
contract by significantly or materially altering their relationship. Hal Artz Lincoln-
Mercury, Inc. v. Ohio Motor Vehicle Dealers Bd., 693 N.E.2d 811, 816 (Ohio Ct. App.
1997). In such a case, a determination of whether alterations in the parties’ relationship
are sufficiently “significant” or “material” to form a new contract would be a question of
fact that a factfinder would resolve, id., but “if the materiality question in a given case
admits of only one reasonable answer . . . then the court must intervene and address what
is ordinarily a fact question as a question of law,” Norfolk S. Ry. Co. v. Basell USA Inc.,
512 F.3d 86, 92-93 (3d Cir. 2008) (citations omitted).
Bull contends that its decision, at MTD’s request, to become an exclusive MTD
dealer of lawn and garden products fundamentally altered its relationship with MTD.
Bull further contends that MTD’s change in its marketing strategy to include “big box”
stores as distributors of its products had similar effect. It argues that these circumstances
provide apt examples of fundamental changes in the parties’ relationship sufficient to
form new contracts. But Bull’s position suffers from several flaws, the first of which
5
The Agreements contain provisions that shed light on why Bull relies on its “new
contracts” theory. Specifically, the documents contain an integration clause, which
provides some variation of the following, in pertinent part: “[n]o representative of Cub
Cadet other than one of its duly authorized officers has authority to modify, change or
waive any of [the Agreement’s] terms, conditions and/or provisions. Any modification
must be in writing and signed by the appropriate official of both parties.” App. 77, ¶ X;
see also App. 71, ¶ G. Bull does not allege that the parties modified the 1985
Agreements in accordance with these formal modification procedures.
16
applies only to Bull’s agreement to become an exclusive dealer of MTD lawn and garden
products. Bull alleges that then-MTD CEO Moll “requested [that] all Cub Cadet dealers .
. . be exclusive dealers only for Cub Cadet branded lawn and garden products.” App.
264. According to the amended complaint, Moll’s request and Bull’s subsequent shift to
sell only lawn and garden products with the Cub Cadet brand occurred in 1991.
Yet Ohio enacted the provisions of the OEDA in 2001 that Bull argues are
applicable as a result of the “new contract” that Bull and MTD formed. Thus, even if we
were to conclude that Bull’s agreement to become a Cub Cadet dealer on an exclusive
basis with respect to lawn and garden products was a sufficiently material change in the
parties’ relationship so that they should be regarded as entering into a new contract at that
time, that new contract would have been effective as of 1991. Bull does not explain how
a new contract formed in 1991 possibly could render the later enacted termination
provisions of § 1353.06 applicable to the contract unless the 2001 law was applied
retroactively. Moreover, Bull does not allege that the parties did not continue to conduct
their dealings in accordance with the Agreements’ original provisions after the 1991
exclusive dealership change. Thus, we do not understand how the Agreements’
termination provisions could have been modified in 1991. Consequently, we will not
examine whether Bull’s 1991 decision to sell Cub Cadet lawn and garden products on an
exclusive basis created a new, post-§ 1353.06 contract.
The other event that Bull asserts materially altered the parties’ relationship
occurred in 2002, when MTD “began to sell the Cub Cadet brand through big box
retailers.” App. 261. According to Bull, the change in MTD’s marketing strategy led to
17
a reduction in Bull’s market share, and forced Bull to perform an increased volume of
low-margin work while its high-margin business concurrently declined. Bull does not
persuasively explain, however, how MTD’s unilateral and independent change in its
marketing strategy altered its contractual relationship with Bull. After all, Bull does not
point to any provision in its Agreements with MTD prohibiting MTD from marketing its
products through “big box” retailers. Furthermore, Bull cannot plausibly assert that
MTD’s decision to grant third-party retailers permission to sell the Cub Cadet brand—a
brand for which Bull was an exclusive dealer solely for lawn and garden products—
somehow altered its Agreements with MTD. Moreover, it is unclear how or why Bull
distinguishes “big box” retailers from Bull’s other competitors to which MTD sells Cub
Cadet products, or why a reduction in Bull’s lawn and garden product market share
materially altered its broader contractual relationship with MTD. We conclude that the
materiality determination is “sufficiently lopsided” to require us to “address what is
ordinarily a factual question as a question of law.” Norfolk S. Ry. Co., 512 F.3d at 92
(citations omitted). Because Bull’s theory based on the formation of “new contracts”
lacks merit, we address whether it would be constitutional to apply § 1353.06
retroactively.
2. Retroactively Applying § 1353.06 would Violate
the Retroactivity Clause of the Ohio Constitution
Because we are satisfied that the Agreements—as executed in 1985—are the
contracts relevant to Bull’s breach of contract claim, we must evaluate whether the
termination provisions of § 1353.06 may be applied retroactively to them. The OEDA in
18
§ 1353.05 provides that the section applies retroactively to any “continuing contract that
has no expiration date.” As a result, the statute, in terms, applies to the Agreements
between Bull and MTD inasmuch as they do not have an expiration date and remained
effective after the enactment of the OEDA provisions in 2001. But the Ohio Constitution
contains a Retroactivity Clause, Article II, Section 28, providing that the “general
assembly shall have no power to pass retroactive laws, or law impairing the obligation of
contracts.” Thus, despite the clear retroactive language of § 1353.05, the OEDA
including the termination provisions in § 1353.06 cannot apply to the Agreements unless
their retroactive application would not violate Article II, Section 28 of the Ohio
Constitution.
To determine whether a statute violates the Retroactivity Clause, a court must
“first determine whether the General Assembly expressly intended the statute to apply
retroactively. . . . [and] [i]f so, . . . whether the statute is substantive, rendering it
unconstitutionally retroactive, as opposed to merely remedial.” Smith v. Smith, 847
N.E.2d 414, 417 (Ohio 2006) (citations, emphasis, and internal quotation marks omitted).
Inasmuch as § 1353.05 makes clear that the Ohio Legislature intended the OEDA to
apply retroactively, we must determine whether it would violate Article II, Section 28, to
apply § 1353.06 retroactively, a determination that turns on whether the statute is
substantive or remedial.
Under Ohio law, “[a] substantive statute is one that impairs vested rights, affects
an accrued substantive right, or imposes new or additional burdens, duties, obligations, or
liabilities as to a past transaction.” Smith, 847 N.E.2d at 417 (citations and internal
19
quotation marks omitted); see also Ackison v. Anchor Packing Co., 897 N.E.2d 1118,
1123 (Ohio 2008); State ex rel. Noble v. Indus. Comm’n, 882 N.E.2d 1, 2 (Ohio Ct. App.
2007). In contrast, remedial statutes “affect[] only the remedy provided, and include laws
that merely substitute a new or more appropriate remedy for the enforcement of an
existing right.” Ackison, 897 N.E.2d at 1123.
Although so far as we are aware the Ohio Supreme Court has not opined on
whether § 1353.06 is substantive or remedial, other courts have concluded that analogous
statutory provisions applicable to automotive dealership agreements limiting a
franchisor’s right to terminate a franchise are substantive. See, e.g., Coulter Pontiac, Inc.
v. Pontiac Motor Div., General Motors Corp., 446 N.E.2d 1128, 1131 (Ohio Ct. App.
1981). For example, in Coulter Pontiac, a manufacturer terminated an automobile
dealer’s franchise agreement after a complete change in the ownership of the dealer’s
stock. Id. at 1129. The dealer franchise agreement provided that “[a]ny change in the
management of Dealer . . . . without [] prior written approval” would be grounds for
termination. Id. However, the appellant pointed to Ohio Rev. Code § 4517.54—which
was enacted after the parties entered into the dealer franchise agreement—and claimed
that the statute’s “good cause” termination requirement applied retroactively to its dealer
franchise agreement. Id. at 1130. The court rejected this contention because it reasoned
that “[t]he provisions at issue [we]re intended to add the substantive requirement in
franchise contracts, covered by the Act, that grounds for termination be limited to those
specific reasons set forth by statute.” Id. at 1131. Because the legislature attempted in
the statute to limit the grounds for termination previously available to a franchisor, the
20
court concluded that the statute was substantive and thus, if applied retroactively, would
violate Article II, Section 28. Id.
The Court of Appeals for the Sixth Circuit reached a similar result when
considering the constitutionality of a retroactive application of Ohio Rev. Code § 4517 in
Bob Tatone Ford, Inc. v. Ford Motor Co., 197 F.3d 787 (6th Cir. 1999). The appellant in
Bob Tatone Ford was a franchised automobile dealer that sued the appellee franchisor-
manufacturer for wrongful termination of its franchise agreement. Id. at 788.
Specifically, the appellant argued that Ohio Rev. Code §§ 4517.54-55, enacted after the
parties entered into the franchise agreement, should be applied retroactively to replace the
less demanding termination procedures and notice requirements of the franchise
agreement. Id. at 790. The court concluded that the statute could not be applied
retroactively because it “substantively affected the ability of a franchisor to terminate an
agreement.” Id. at 791. The court held that the statute’s attempt to limit the bases for
termination retroactively to “only . . . the grounds defined by the statute” violated Article
II, Section 28. Id. at 792 (citing Coulter Pontiac, 446 N.E.2d at 1131).
Finally, in John Deere Constr. & Forestry Co. v. Mahnen Mach., Inc., No.
1:01CV2757, 2005 U.S. Dist. LEXIS 21701, at *10 (N.D. Ohio Sept. 21, 2005) (“John
Deere”), a district court in the Northern District of Ohio adopted a magistrate judge’s
Report and Recommendation which applied the reasoning of Bob Tatone Ford to §
1353.06. In that case, the defendant contended that the franchisor-plaintiff violated §
1353.06 when it terminated the parties’ pre-statute dealer agreements without cause.
App. 105. The magistrate judge’s Report and Recommendation reasoned that:
21
[t]he agreements at issue, whose creation predates the
effective date of § 1353.06, expressly gave [the franchisor]
the right to terminate on notice without cause. The statute, if
applied in this case, would eliminate [the franchisor’s] right
to so terminate the agreements. That right is a substantive
right of contract, which the Ohio Constitution protects from
retroactive impairment.
App. 107. The court adopted the magistrate judge’s Report and Recommendation and
indicated that § 1353.06—the same statute at issue in this case—was a substantive statute
that could not be applied retroactively. John Deere, 2005 U.S. Dist. Lexis 21701, at *10.
In light of these decisions, we conclude that Ohio Rev. Code § 1353.06 is
substantive and may not be applied retroactively to the earlier executed Agreements
between Bull and MTD. These Agreements allow either party to terminate them after 30
days prior written notice and do not require that the party terminating the Agreements
state or even have a cause for doing so. But if we give § 1353.06 retroactive effect, we
would: (1) preclude Bull and MTD from terminating the Agreements without good
cause; and (2) require them to provide not fewer than 180 days prior written notice of
termination to the other party. The statute’s heightened termination requirements—
written into law more than 15 years after the parties executed the Agreements—would
negate MTD’s contractual rights that vested in 1985 and impose “additional burdens,
duties, obligations, or liabilities” on MTD which the parties did not include in the
Agreements. Smith, 847 N.E.2d at 417. Thus, a retroactive application of § 1353.06
would narrow the grounds on which MTD could terminate the Agreements in a manner
violating the Ohio Constitution. Bull cannot rely on § 1353.06 to salvage its breach of
22
contract claim, and we therefore will affirm the District Court’s dismissal of the claim to
the extent based on that section.6
B. Breach of Contract-Implied Covenant of Good Faith and Fair Dealing
The District Court dismissed Bull’s breach of contract claim based on MTD’s
breach of the implied covenant of good faith and fair dealing because it held that when
MTD terminated its Agreements with Bull, it complied with the express terms of the
Agreements. MTD asserts that we should uphold this ruling because as a matter of law a
party may not base a claim for a breach of the obligation to act in good faith and engage
in fair dealing on conduct allowable under a contract—here, termination of the
Agreements without cause after 30 days prior written notice. Bull and the amici, on the
other hand, contend that even if the Agreements allowed MTD to terminate its
Agreements with Bull, MTD’s motivation for doing so was improper and invidious.
Specifically, Bull claims that MTD wrongfully made its decision to terminate the
Agreements because of Jeff Bull’s lobbying efforts with NEDA, as well as his repeated
complaints to MTD about what he believed was the declining quality and availability of
MTD’s products.
6
MTD also contends that a retroactive application of Ohio Rev. Code § 1353.06 would
violate the Contracts Clauses of the United States and Ohio Constitutions. Appellee’s br.
at 25-31; see U.S. Const. art. I, § 10, cl. 1 Ohio Const. art. II, § 28. Although MTD’s
position may have merit, we need not address it in light of our conclusion that § 1353.06
violates the Retroactivity Clause of the Ohio Constitution. It is well established that we
avoid deciding federal constitutional issues when resolution of such issues is not
necessary for the disposition of a case. See, e.g., In re Snyder, 472 U.S. 634, 642, 105
S. Ct. 2874, 2880 (1985).
23
Ohio law imposes a duty to act in good faith and engage in fair dealing on the
parties to any contract. Wendy’s Int’l, Inc. v. Saverin, 337 F. App’x 471, 476 (6th Cir.
2009); Littlejohn v. Parrish, 839 N.E.2d 49, 53 (Ohio Ct. App. 2005). “Good faith is a
compact reference to an implied undertaking not to take opportunistic advantage in a way
that could not have been contemplated at the time of drafting, and which therefore was
not resolved explicitly by the parties.” Ed Schory & Sons, Inc. v. Soc. Nat’l Bank, 662
N.E.2d 1074, 1082-83 (Ohio 1996) (citation and internal quotation marks omitted). Ohio
courts have explained that the duty serves as a construction aid, or a gap-filler, meant to
assist in a determination of the parties’ intent where a contract is silent on a specific
subject. Metro. Life Ins. Co. v. Triskett Illinois, Inc., 646 N.E.2d 528, 534 n.2 (Ohio Ct.
App. 1994). Accordingly, the principle that a party must act in good faith does “not
block use of terms that actually appear in the contract.” Id. (quoting Kham & Nate’s
Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1357 (7th Cir. 1990)).
Although at least one federal district court, applying Ohio law, has entertained the
possibility that a party can breach the duty to act in good faith if it dishonestly terminates
a contract based on “invidious purposes,” Florence Urgent Care v. Healthspan, Inc., 445
F. Supp. 2d 871, 880 (S.D. Ohio 2006), a party does not fail to exercise good faith “by
acting as allowed by the specific terms of the contract,” Wendy’s Int’l, 337 F. App’x at
477; Ed Schory & Sons, 662 N.E.2d at 1083. As the Supreme Court of Ohio has
explained, “[f]irms that have negotiated contracts are entitled to enforce them to the
letter, even to the great discomfort of their trading partners, without being mulcted for
lack of good faith.” Ed Schory & Sons, 662 N.E.2d at 1082 (citation and internal
24
quotation marks omitted); see also In re Kaplan, 143 F.3d 807, 818 (3d Cir. 1998)
(“[E]xpress covenants abrogate the operation of implied [covenants] so courts will not
permit implied agreements to overrule or modify the express contract of the parties.”).
Bull’s claim for breach of the duty to act in good faith turns on its contention that
MTD terminated the Agreements in retaliation for Jeff Bull’s trade-group advocacy and
his complaints concerning the quality and availability of MTD’s products. Specifically,
Bull alleges that MTD terminated the Agreements in retaliation for Jeff Bull’s: (1)
involvement in NEDA and his efforts to obtain dealer-friendly state legislation, App. 270,
¶ 93a; (2) “repeated articulation of concerns over declining quality of MTD products,”
App. 270, ¶ 93b; (3) “repeated articulation of concerns over declining safety of MTD
products,” App. 270, ¶ 93c; (4) “repeated articulation of concerns over [the]
unavailability of product from MTD necessary to fulfill customer demands,” App. 270, ¶
93d; (5) “repeated articulation of concerns related to the unavailability of service parts
and unacceptable delivery delays of parts necessary to service customer requirements,”
App. 270, ¶ 93e; and (6) “repeated articulation of concerns over the continued viability of
the [independent retailer] network due to loss of market share and MTD’s imposed lower
profit margins,” App. 270, ¶ 93f. In sum, Bull claims that MTD targeted Bull because
Jeff Bull sought the enactment of dealer-friendly legislation and advocated for
improvement of MTD’s performance under the Agreements.
But, notwithstanding Bull’s assertions, which for all we know may be well
founded, MTD had the contractual right to terminate the Agreements without cause or
explanation. MTD simply exercised that right, and, in so doing, did not violate its duties
25
with respect to good faith and fair dealing. Indeed, the law in a case on which Bull relies
to support its lack of good faith claim, Florence Urgent Care, supports a conclusion that
MTD did not violate its duty to act in good faith and deal fairly when it terminated the
Agreements. In Florence Urgent Care, the plaintiffs-physicians brought a claim based,
inter alia, on an alleged breach of the covenant of good faith and fair dealing against a
medical preferred provider network. 455 F. Supp. 2d at 873-75. The plaintiffs alleged
that although the defendants claimed that they terminated the plaintiffs from their
network because of the plaintiffs’ improper billing practices, the defendants really
terminated the relationship because of the plaintiffs’ Middle Eastern ancestry. Id. Both
parties moved for summary judgment on the claim. The defendants argued on the
motions that they were entitled to judgment as a matter of law “because the [agreement]
provide[d] for termination by notice, and [applicable] Ohio law allows parties to exercise
rights under a contract without being liable for such a breach.” Id. at 878-79.
The Florence Urgent Care court denied summary judgment to both parties on the
good faith and fair dealing issues as it reasoned that the case “present[ed] more than a
mere termination without cause, but rather present[ed] a case where a jury could find
pretext for invidious purposes running contrary to public policy,” i.e., prejudicial reasons,
even though the defendants asserted that they were terminating the plaintiffs from the
defendant’s network by reason of the plaintiffs’ improper billing practices. Id. at 880
(emphasis added) (citation and internal quotation marks omitted). The court confined its
ruling to the facts of the case “under which the alleged violator admittedly lied about the
purported reason for its” decision to terminate the plaintiffs, and it was “the lack of
26
honesty . . . [that] preclude[d] a finding in Defendants’ favor on their summary judgment
motions.” Id. at 879, 880.
Even if Florence Urgent Care were controlling state precedent, however, Bull’s
allegations with respect to MTD do not fit the above description because Bull does not
contend that MTD was dishonest about its reasons for terminating its Agreements with
Bull. Indeed, Bull alleges quite the opposite: that MTD refused to provide a reason for its
termination decision and asserted that it had a contractual right to terminate its
Agreements with Bull without cause. Thus, rather than asserting that MTD provided
pretextual or improper reasons for its termination of its Agreements with Bull, Bull
alleges that MTD provided no reason for the termination. Therefore, according to Bull’s
own allegations, the termination was literally “without cause.” Id. at 880.
But the Agreements between Bull and MTD allowed either party to terminate the
Agreements after 30 days prior written notice and made no reference to the need for a
cause for the termination.7 Though Bull regards this provision as unfair to it, Bull
7
Bull contends that it could have demonstrated that MTD acted for the retaliatory reasons
that we have described if it had been given the opportunity for discovery. The problem
with this argument is that in the absence of a dealer protection law such as the OEDA,
there is no reason why MTD could not have terminated its Agreements with Bull because
it objected to Jeff Bull’s conduct. Certainly the First Amendment would not have
precluded Bull from doing so. See Democratic Nat’l Comm. v. Republican Nat’l Comm.,
673 F.3d 192, 204 (3d Cir. 2012) (“[T]he First Amendment applies only to state action.”)
(citing Cent. Hardware Co. v. NLRB, 407 U.S. 539, 547, 92 S. Ct. 2238, 2243 (1972)).
Moreover, we see no way that a case seeking damages for the termination because of Jeff
Bull’s legislative efforts and complaints regarding MTD’s procedures based on common
law principles would be viable. Indeed, the absence of a basis for a common law dealer
or franchisee action based on a supplier’s termination of a dealer’s or franchisee’s
contract with the manufacturer or franchisor has led many states to enact dealer and
franchisee protection laws such as the OEDA. In this regard, Bull indicates that in “the
27
overlooks the circumstance that it could have terminated its relationship with MTD if it
found what it regarded as a better supplier of the products that MTD supplied or, indeed,
for any other reason. Moreover, the integration clauses in the Agreements explain, in
pertinent part, that “all understandings and agreements with respect to the subject matter
hereof between the parties are contained in this Contract.” App. 300; see also App. 294.
In these circumstances, Bull cannot rely on a claim that MTD breached its duty to act in
good faith and to engage in fair dealing to negate the express terms of the Agreements.
MTD exercised a right that the Agreements expressly provided and the District Court
properly dismissed Bull’s claims as they cannot be reconciled with MTD’s exercise of
that right.
C. Breach of Contract-Unconscionability
The District Court dismissed Bull’s claim that the Dealer Agreement was
unconscionable because the Court concluded that unconscionability is an affirmative
defense not available as an independent cause of action. This is an accurate statement of
the law, as there is general agreement among courts applying Ohio law that
unconscionability only may “be raised as an affirmative defense to a breach of contract
action or incorporated into an unjust enrichment claim.” Price v. EquiFirst Corp., No.
1:08-CV-1860, 2009 WL 917950, at *7 (N.D. Ohio Apr. 1, 2009) (citation omitted); see
also Cook v. Home Depot U.S.A., Inc., 2007 WL 710220, at *5 (S.D. Ohio Mar. 6, 2007)
(summarizing cases). Thus, despite Bull’s attempt to repackage its claim based on
past 25 years . . . approximately 35 states” have enacted dealer protection laws.
Appellant’s br. at 21.
28
unconscionability as one based on “unenforceability,” we will dismiss the claim for the
reasons the District Court set forth. App. 13-14.8
D. Breach of Contract-Implied Warranties
Bull asserted a claim against MTD for breach of the implied warranties of
merchantability and fitness for a particular purpose based on MTD’s allegedly deficient
manufacturing of several of its products. See App. 273. The District Court dismissed
this claim with prejudice because it determined that: (1) Bull’s factual averments were
insufficient to support the elements of a cause of action for breach of the implied
warranty of fitness for a particular purpose; and (2) allegations that Bull made about full
product-line failures were too conclusory and general to state a claim for breach of the
implied warranty of merchantability regarding a specific MTD product. On appeal, Bull
contends that it was not obligated “to identify by serial number each and every product in
the subject series that was defective,” Appellant’s Reply br. at 11, and that “the only
logical inference” to draw from the amended complaint is that the MTD products it
identified as being defective, and thus as not satisfying the implied warranties
8
As we have explained, Bull cannot maintain an independent claim for breach of contract
based on unconscionability. Even if such a claim was available to it, Bull’s amended
complaint fails to set forth sufficiently either procedural or substantive unconscionability.
Bull distributed MTD’s products under the Dealer Agreement for more than 25 years, and
its allegations fail to assert sufficiently that it lacked “meaningful choice” or agreed to
“contract terms that are unreasonably favorable to” MTD. W. Res. Acad. v. Franklin,
999 N.E.2d 1198, 1200 (Ohio Ct. App. 2013). Moreover, when Bull entered into its
Agreements with MTD allowing either party to terminate the Agreements and did not
include conditions on the exercise of that right, it should have recognized that the
Agreements were subject to termination without cause and if it could not have negotiated
for what it regarded as better termination provisions it was free not to enter into the
Agreements.
29
accompanying the products, could not be sold “without issue” as “Bull’s customers
would not spend thousands of dollars on products that did not work and posed safety
concerns.” Id. at 11-12.
Ohio law, applicable on the warranty claims, codifies an implied warranty of
merchantability and an implied warranty of fitness for a particular purpose at Ohio Rev.
Code § 1302.27 and § 1302.28, respectively. The implied warranty of fitness for a
particular purpose applies “[w]here the seller at the time of contracting has reason to
know any particular purpose for which the goods are required and that the buyer is
relying on the seller’s skill or judgment to select or furnish suitable goods, . . . .” Ohio
Rev. Code § 1302.28 (emphasis added). The Commentary in the code to the section
establishing the warranty explains that for the warranty to apply, “the buyer . . . must
actually be relying on the seller,” id., Comment 1, and the “particular purpose” must
“differ[] from the ordinary purpose for which the goods are used,” id., Comment 2; see
also Hollingsworth v. Software House, Inc., 513 N.E.2d 1372, 1376 (Ohio Ct. App.
1986).
When we examine the allegations of the amended complaint, we, like the District
Court, find that Bull has failed to allege even the basic elements of a claim for breach of
the implied warranty of fitness for a particular purpose as defined in § 1302.28. Indeed,
Bull does not aver that it relied on MTD’s skill or knowledge to select or furnish the Cub
Cadet products listed in the amended complaint. Furthermore, Bull neither sets forth a
particular purpose for which the Cub Cadet products were to be used nor asserts that
30
MTD knew of any particular purpose for the products’ use.9 In light of Bull’s insufficient
allegations, we need not address its claim for breach of the implied warranty of fitness for
a particular purpose any further.10
In contrast, Bull’s allegations that MTD breached the implied warranty of
merchantability are sufficient to survive MTD’s motion to dismiss. Ohio Rev. Code §
1302.27(A) states: “[u]nless excluded or modified as provided in section 1302.29 of the
Revised Code, a warranty that the goods shall be merchantable is implied in a contract for
their sale if the seller is a merchant with respect to goods of that kind.” Section
1302.27(B) specifically explains that, to be merchantable, goods must at least: (1) “pass
without objection in the trade under the contract description”; (2) be “of fair average
9
The closest that Bull comes to alleging a particular purpose for which MTD’s products
were to be used is its assertion that the products were “use[d] in the terrain of Western
Pennsylvania.” App. 275, ¶ 117. As an initial matter, it is unclear how the use of lawn
and garden equipment on the terrain of the region in which a dealer is located constitutes
a particular (as distinguished from an ordinary) purpose. See Ohio Rev. Code § 1302.28,
Comment 2. But even if using lawn and garden equipment on the terrain of Western
Pennsylvania constituted a particular purpose, Bull does not allege that it relied on
MTD’s knowledge or skill in selecting the relevant equipment.
10
In dismissing Bull’s claim for breach of the implied warranty of fitness for a particular
purpose, the District Court stated: “[m]oreover, the parts that Bull contends failed hardly
seem to be major components that would affect the fitness of MTD tractors for the
ordinary purpose for which they were used.” App. 16. Bull argues that in reaching this
conclusion the District Court engaged in improper fact finding. Appellant’s br. at 17-18.
We agree with Bull that the District Court—without any record or basis for its opinion at
the motion to dismiss stage—should not have passed on the importance or functional
significance of the allegedly defective lawn tractor parts. Though we recognize that
under Ashcroft v. Iqbal, a reviewing court is entitled to “draw on its judicial experience
and common sense” in determining whether a complaint states a plausible claim for
relief, 556 U.S. at 679, 129 S.Ct. at 1950, we do not understand how judicial experience
or common sense could have aided the District Court in its assessment of the significance
of the allegedly deficient tractor parts that Bull listed. At least we know that we could
not make that assessment.
31
quality within the description”; (3) be “fit for the ordinary purposes for which such goods
are used”; (4) “run, within the variations permitted by the agreement, of even kind,
quality and quantity, within each unit and among all units involved”; (5) be “adequately
contained, packaged, and labeled as the agreement may require”; and (6) “conform to the
promises or affirmations of fact made on the container or label if any.” Ohio Rev. Code
§ 1302.27(B)(1)-(6). It is significant that neither Ohio law nor the Uniform Commercial
Code limits the right to bring an action based on breach of the implied warranty of
merchantability to an ultimate consumer. Consequently, a dealer such as Bull may bring
a claim for its breach as between the dealer and the supplying manufacturer provided that
the manufacturer is a merchant within Ohio Rev. Code § 1302.01(A) (5). See Allis-
Chalmers Credit Corp. v. Herbolt, 479 N.E.2d 293, 297 (Ohio Ct. App. 1984); see also
Mar. Mfrs., Inc. v. Hi-Skipper Marina, 483 N.E.2d 144, 146 (Ohio 1985); cf.
Harbourview Yacht Sales, L.L.C. v. Ocean Yachts, Inc., 500 F. Supp. 2d 462, 466-67
(D.N.J. 2007).
The District Court dismissed Bull’s claim based on its reasoning that Bull failed to
“state specifically” how MTD did not comply with the standard in International
Organization for Standardization 9001:2008,11 or how the allegedly defective parts that
Bull listed affected the merchantability of MTD’s products. App. 16. To support its
conclusion, the Court incorrectly indicated that Bull “mention[ed] none of the six (6)
11
According to Bull, an Organization for Standardization 9001:2008 compliance
indication on a product operates as an industry guarantee that the product is “safe,
reliable and of good quality.” App. 274, ¶ 111.
32
criteria of merchantability listed in § 1302.27 (B).” Id. This statement is puzzling,
however, because Bull does set forth the six criteria of merchantability in paragraph 107
of the amended complaint, essentially tracking § 1302.27(B).12 App. 273-74. Moreover,
following Bull’s recitation of § 1302.27(B)’s requirements, Bull provides significant and
detailed factual allegations that, when taken as true, call the merchantability of MTD’s
products into question.
The factual allegations that support Bull’s claim for breach of the implied
warranty of merchantability focus on MTD’s use of five types of parts in “various”
models that are “either not merchantable and/or fit for particular purpose of use.” App.
275, ¶ 117. Bull avers that “[s]ince before at least 2006,” it has advised MTD that it had
concerns about the quality and safety of its products. App. 275, ¶ 116. Specifically, Bull
alleges that the following five parts are not “merchantable and/or fit for particular
purpose”: (1) plastic hood on Cub Cadet models 2500 Series tractors; (2) steel wheel rim
on various Cub Cadet models; (3) steel seat base on Cub Cadet models 2500 Series
tractors; (4) small steel hub on Cub Cadet models 3000 Series; and (5) large steel hub on
Cub Cadet model 3000 Series. App. 275, ¶ 117(a)-(e). Bull further asserts that
laboratory testing on these five parts has demonstrated that MTD is not compliant with its
International Organization for Standardization 9001:2008 certification, and it provides
detailed summaries of the laboratory’s findings regarding each allegedly defective part.
In its brief, MTD claims that “Bull did not allege any of the required elements under
12
Ohio law showing the products were not merchantable.” Appellee’s br. at 12.
Nevertheless, Bull clearly stated a claim for breach of the implied warranty of
merchantability under Ohio law.
33
Furthermore, Bull alleges that MTD did not recall parts it knew were defective and did
not issue any service advisory to warn dealers and consumers of the parts’ potential of
failure. Finally, Bull alleges that it has received numerous complaints and requests for
warranty service relating to each of the five defective parts, and the complaints and
service requests have “forced [it] to spend hundreds of hours servicing under warranty
failed MTD products.” App. 276, ¶ 122(a)-(e) to 277, ¶ 124.
We are satisfied that these factual allegations include enough factual “heft” to
“nudge[] [Bull’s] claims across the line from conceivable to plausible.” Bell Atl. Corp. v.
Twombly, 550 U.S. 594, 557, 570, 127 S. Ct. 1955, 1966, 1974 (2007). If we take Bull’s
factual allegations as true and view them in the light most favorable to Bull, as we must
on this appeal from an order granting a motion to dismiss, see Morrow, 719 F.3d at 165,
they sufficiently assert that various MTD products were: (1) defectively fabricated; (2)
of substandard quality; (3) improperly labeled and described; and (4) unfit for their
ordinary purposes. Bull’s allegations about the results of laboratory testing further
support the allegation that certain MTD products were unsafe and not merchantable, at
least to an extent sufficient to survive a Rule 12(b)(6) motion.
In resisting this conclusion, MTD contends that Bull was bound by the same
warranties that it granted to the users of MTD’s products. MTD points to a limited
warranty given to users of its products which it attached as an exhibit to its memorandum
in support of its motion to dismiss Bull’s claim, and accurately notes that the limited
warranty conspicuously states as follows: “[t]here are no implied warranties, including
without limitation any implied warranty of merchantability . . . .” See App. 312; 316.
34
MTD is correct that in the limited warranty it expressly disclaimed any implied warranty
of merchantability in bold type, but MTD is mistaken to the extent that it argues that we
properly may consider extraneous documents at the motion to dismiss stage. As we have
explained, “[i]n evaluating a motion to dismiss, we may consider documents that are
attached to or submitted with the complaint, . . . and any matters incorporated by
reference or integral to the claim, items subject to judicial notice, matters of public
record, orders, [and] items appearing in the record of the case.” Buck v. Hampton Twp.
Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006) (alteration in original) (citations and internal
quotation marks omitted).
The warranty with the disclaimer that MTD attached as an exhibit does not come
within any one of the above categories, and, though it may prove to be important if MTD
moves for summary judgment on remand or at a trial, we will not consider the disclaimer
in evaluating the appeal from an order granting MTD’s Rule 12(b)(6) motion. Without
consideration of the disclaimer, and in light of our above analysis, the Court erred when it
dismissed Bull’s claim for breach of the implied warranty of merchantability.
Accordingly, we will reverse the order of the District Court to the extent that it dismissed
the claim for breach of the warranty of merchantability and will remand the case to that
Court for further proceedings on this claim.
E. Promissory Estoppel
35
The District Court dismissed Bull’s promissory estoppel claim because it
determined that, under Pennsylvania law,13 such a claim must be based on an express
promise. Bull contends that then-MTD CEO Moll “impliedly promised that the
relationship between [MTD and Bull] would continue indefinitely,” Appellant’s br. at 38,
and further contends that its allegations are sufficient to state a claim for promissory
estoppel.
Promissory estoppel is an equitable doctrine that may be invoked to enforce a
promise that one party makes to another even in the absence of an enforceable agreement
between the parties. Crouse v. Cyclops Indus., 745 A.2d 606, 610 (Pa. 2000). In order to
assert a claim for promissory estoppel under Pennsylvania law the aggrieved party must
show that:
(1) the promisor made a promise that he should have
reasonably expected to induce action or forbearance on the
part of the promisee; (2) the promisee actually took action or
refrained from taking action in reliance on the promise; and
(3) injustice can be avoided only by enforcing the promise.
Id. Importantly, Pennsylvania law requires that a litigant base a claim for promissory
estoppel on an express promise, rather than a “broad and vague implied promise.” C & K
Petroleum Prods., Inc. v. Equibank, 839 F.2d 188, 192 (3d Cir. 1988); see also Constar,
Inc. v. Nat’l Distribution Ctr., Inc., 101 F. Supp. 2d 319, 324 (E.D. Pa. 2000) (applying
Pennsylvania law).
13
The parties agree that Pennsylvania law applies to Bull’s promissory estoppel claim
and its remaining tort-based claims. These claims do not involve questions or matters
under the Agreements and therefore are not subject to the Ohio choice of law clause in
the Agreements. See App. 18 n.7; Appellant’s br. at 37.
36
The promissory estoppel allegations of Bull’s amended complaint, however, are
based on a broad and vague implied promise. As the District Court explained, Bull
predicates its promissory estoppel claim on Bull’s allegation that, in or around 1991,
Moll “impliedly promised” that MTD and Bull would continue to do business indefinitely
when Bull became an exclusive Cub Cadet dealer with respect to lawn and garden
products. App. 278, ¶ 128. Bull further asserts that MTD breached Moll’s implied
promise in 2013, when it terminated its Agreements with Bull without cause. But in the
absence of any allegation that Moll made an express promise to Bull leading to its
detrimental reliance, Bull does not adequately state a claim based on promissory estoppel.
Consequently, we will affirm the District Court’s dismissal of this claim.14
F. Gist of the Action Doctrine - Bull’s Tortious Interference Claims
The District Court dismissed Counts VIII, IX, and X—all different iterations of a
tortious interference claim15—under the gist of the action doctrine, recognized by the
Pennsylvania courts, because it determined that Bull’s tort-based claims were derivative
14
In dicta, the District Court stated: “[m]oreover, the Court questions whether it was
reasonable [for Bull] to rely upon a vague, implied promise of a contractual relationship
in perpetuity in the face of the express terms of the contract which allowed termination,
without cause, upon thirty (30) days written notice.” App. 18-19. Nevertheless, it is
clear that the Court did not rely on this statement in reaching its result. Rather, the Court
dismissed Bull’s promissory estoppel claim “[b]ecause an implied promise is insufficient
to sustain a contract claim based on promissory estoppel.” App. 19. Inasmuch as we
agree with the Court’s analysis and can affirm “on any basis which finds support in the
record,” Fairview Twp. v. EPA, 773 F.2d 517, 525 n.15 (3d Cir. 1985), we will not
disturb its dismissal of Bull’s promissory estoppel claim.
15
These claims allege tortious interference with existing contracts (Count VIII), tortious
interference with business relationships (Count IX), and tortious interference with
prospective economic advantage (Count X).
37
of its contract-based claims and its alleged injuries were dependent on MTD’s wrongful
termination of the Agreements. On appeal, Bull maintains that the District Court’s
conclusion fails as a matter of logic, because “[i]t makes no sense that the District Court
could conclude that MTD breached no terms of its contractual relationship with Bull, and
then also conclude that the gist of the action doctrine precludes tort claims based on what
are properly considered breach of contract claims.” Appellant’s br. at 41. According to
Bull, its tort-based claims are separate “in conduct and nature” from its contract-based
claims, and therefore the gist of the action doctrine does not bar its action. Appellant’s
br. at 41; Appellant’s Reply br. 21.
We apply Pennsylvania law when considering the effect of the gist of the action
doctrine on these tortious interference claims. Pennsylvania courts apply the gist of the
action doctrine “to ensure that a party does not bring a tort claim for what is, in actuality,
a claim for a breach of contract.” Bruno v. Erie Ins. Co., 106 A.3d 48, 60 (Pa. 2014).
Under the doctrine, a party is precluded from pursuing a tort action for the breach of
contractual duties in the absence of any separate or independent event giving rise to the
tort. See Bohler-Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247 F.3d 79, 103 (3d Cir.
2001) (applying Pennsylvania law). The purpose of the doctrine is thus “to maintain the
conceptual distinction between breach of contract claims and tort claims.” eToll, Inc. v.
Elias/Savion Advert., Inc., 811 A.2d 10, 14 (Pa. Super. Ct. 2002).
As we have explained, “[t]he important difference between contract and tort
actions is that the latter lie from the breach of duties imposed as a matter of social policy
while the former lie for the breach of duties imposed by mutual consensus.” Bohler-
38
Uddeholm Am., 247 F.3d at 103-04 (citation omitted). Said another way, “a claim
should be limited to a contract claim when the parties’ obligations are defined by the
terms of the contracts, and not by the larger social policies embodied in the law of torts.”
Id. at 104 (citation and internal quotation marks omitted).
With these principles in mind, Pennsylvania courts and other persuasive authority
interpreting Pennsylvania law have catalogued the types of claims that the gist of the
action doctrine bars. The gist of the action doctrine precludes claims: (1) “arising solely
from a contract between the parties”; (2) where “the duties allegedly breached were
created and grounded in the contract itself”; (3) where “the liability stems from a
contract”; or (4) where the tort claim “essentially duplicates a breach of contract claim or
the success of which is wholly dependent on the terms of a contract.” eToll, 811 A.2d at
19 (citations omitted). From this list, it is clear that Bull’s tortious interference claims
will be precluded if they rely on MTD’s termination of the Agreements or conduct that is
subject to an express contractual provision within the Agreements. It is also clear,
despite Bull’s arguments to the contrary, that Bull cannot revive its dismissed contract-
based claims by repackaging them in the form of torts.
When we examine Bull’s claims for tortious interference alleged in the amended
complaint, we conclude that Bull bases them on MTD’s “wrongful termination” of its
Agreements with Bull. The first is Count VIII of the amended complaint, Bull’s claim
for tortious interference with contract, which alleges, in pertinent part:
160. By wrongfully terminating Bull International’s Dealer
Agreement with MTD, MTD has rendered performance of
39
Bull International’s contractual obligations to its various
customers impossible.
161. Bull intended to prevent Bull International from
performing the contractual obligations to its various
customers.
162. As a result of MTD’s wrongful termination of Bull
International it has tortiously interfered with Bull
International’s contractual relationships with its various
customers who purchased MTD products.
App. 283, ¶¶ 160-62 (emphasis added). The second claim is Count IX, Bull’s claim for
tortious interference with business relationships, which alleges, in pertinent part:
165. Over the course of the past 50 years, Bull International
has established ongoing business relationships with several of
its customers.
166. MTD knew of the relationships that Bull International
had established with its customers.
167. As a result of MTD’s wrongful termination of Bull
International it has tortiously interfered with Bull
International’s business relationship with its various
customers.
App. 284, ¶¶ 165-67 (emphasis added). The final claim is Count X, Bull’s claim for
tortious interference with prospective economic advantage, which alleges, in pertinent
part:
170. Bull International has an existing reasonable
expectation of future economic benefit arising from its
established relationships with its customer base.
171. MTD knew of the relationships that Bull International
had established with its customer base.
172. As a result of MTD’s intentional wrongful termination
of Bull International it has tortiously interfered with Bull
40
International’s reasonable expectation of future economic
advantage.
173. Bull International would have received the anticipated
economic benefit arising from its established relationships
with customers in the absence of MTD’s interference.
App. 285, ¶¶ 170-73 (emphasis added).
Each of Bull’s tortious interference claims thus follows the same basic formula: a
legal conclusion (e.g., MTD tortiously interfered) added to the allegation that MTD
wrongfully terminated its relationship with Bull. Under this formulation, the volitional
conduct alleged is MTD’s allegedly wrongful termination of its Agreements with Bull,
not MTD’s “breach of duties imposed as a matter of social policy” or duties “embodied
in the law of torts.” Bohler-Uddeholm Am., 247 F.3d at 103-04 (citation omitted).
Indeed, Bull does not allege any tortious conduct by MTD—or any event attributable to
MTD—that is independent of MTD’s termination of its relationship with Bull. Thus,
these claims cannot be characterized properly as separate or distinct from the claims
derived out of the parties’ contractual obligations under the Agreements. Rather, “the
nature of the duty alleged to have been breached, as established by the underlying
averments supporting [Bull’s] claim,” Bruno, 106 A.3d at 68, is contractual and turns on
whether MTD had the right to terminate its Agreements with Bull.
Moreover, Bull’s tortious interference claims fit squarely within the eToll court’s
list of tort claim-types that the gist of the action doctrine precludes. Although Bull’s
claims could be precluded under several of the claim-types listed, the final category is
most applicable to this case. Under that category, the gist of the action doctrine precludes
41
tort claims where the claim “essentially duplicates a breach of contract claim or the
success of which is wholly dependent on the terms of a contract.” eToll, 811 A.2d at 19
(citations omitted). Returning to Bull’s allegations, each tortious interference claim
hinges on “MTD’s wrongful termination of Bull International.” E.g., App. 284, ¶ 167.
As a result, Bull’s tort allegations are “wholly dependent” on MTD’s termination of the
Agreements with Bull being wrongful, which, in turn, is wholly dependent on the terms
of the Agreements. Bull’s contention that the Agreements are collateral to its tort claims
therefore contradicts its allegations in the amended complaint.
In an attempt to salvage its claims, Bull argues that its tortious interference claims
do not duplicate its contract-based claims because “the contract is unsurprisingly [] silent
on whether MTD is prohibited from making statements about Bull or tortiously
interfering with Bull’s relationships” with customers. Appellant’s Reply br. at 21. First,
we point out that none of Bull’s tortious interference claims mention MTD making
statements to Bull’s customers—such allegations are confined to Bull’s claims for
intentional and negligent misrepresentation and defamation, respectively. As we set forth
above, Bull’s only allegation of MTD’s wrongdoing in each of its tortious interference
claims concerns MTD’s “wrongful termination” of its Agreements with Bull. Second,
Bull’s argument that MTD’s supposed tortious interference is not addressed under the
Agreements fails because it relies on Bull’s legal conclusion that MTD has tortiously
interfered in the first place, which again, is based on Bull’s assertion that MTD
wrongfully terminated its Agreements with Bull. In sum, the Agreements, as well as
Bull’s allegation that MTD wrongfully terminated the Agreements, are central to each of
42
Bull’s tortious interference claims. Consequently, these claims duplicate Bull’s breach of
contract claims and the gist of the action doctrine bars the claims.
G. Economic Loss Doctrine-Bull’s Claim for
Intentional and Negligent Misrepresentation
The District Court, applying Pennsylvania law, relied on the economic loss
doctrine to dismiss Bull’s claim for intentional and negligent misrepresentation which
Bull based on an allegation that MTD “published its termination of Bull International . . .
to various dealers and customers.” App. 281, ¶ 151. Although the Court set forth the
parameters of the economic loss doctrine in detail, it did not undertake an analysis of
Bull’s claim under the doctrine or explain why dismissal was appropriate. Rather, the
Court simply stated that other courts have applied the doctrine to bar both negligent
misrepresentation and intentional fraud claims, and that it therefore would dismiss Bull’s
claim. App. 23.
Although we question the District Court’s treatment of the economic loss doctrine,
we are “free to affirm the judgment of the district court on any basis which finds support
in the record.” United States v. Woods, 321 F.3d 361, 364 n.2 (3d Cir. 2003) (citation
omitted). For the reasons that follow, we conclude that Bull’s claim of intentional and
negligent misrepresentation fails to state a claim on which relief can be granted, and thus
affirm the dismissal of that claim on that alternate basis.
In Pennsylvania, a party claiming intentional misrepresentation must show:
(1) a representation; (2) which is material to the transaction at
hand; (3) made falsely, with knowledge of its falsity or
recklessness as to whether it is true or false; (4) with the
intent of misleading another into relying on it; (5) justifiable
43
reliance on the misrepresentation; and (6) the resulting injury
was proximately caused by the reliance.
Gibbs v. Ernst, 647 A.2d 882, 889 (Pa. 1994). The only difference in elements for a
claim of negligent as distinguished from intentional misrepresentation is that the false
representation can be made in circumstances in which the person making the
misrepresentation should have known that the representation was false, rather than where
he had knowledge or acted with reckless disregard of the falsity of the representation. Id.
at 890.
Against this backdrop, it is clear that Bull’s allegations do not state a claim for
intentional and negligent misrepresentation. According to Bull’s own allegations, the
only purported “statement” on which Bull’s misrepresentation claim can be predicated is
MTD’s “publish[ing of] its termination of the Dealership Agreement with Bull
International.” App. 281, ¶ 149. But Bull does not allege that this supposed “statement”
was “made falsely,” as required by Pennsylvania law. Quite the opposite, Bull asserts
throughout the amended complaint that MTD did, in fact, terminate the Dealer
Agreement, as that circumstance is at the heart of its breach-of-contract claims. (E.g.,
App. 266, ¶ 64; App. 268, ¶ 84). In addition, Bull fails to make any allegation relevant to
the reliance element required by Pennsylvania law, among other substantive deficiencies.
Our review of the amended complaint makes clear that Bull’s allegations on this
claim are based on MTD’s termination of the Dealer Agreement. These allegations seek
to develop a theory of MTD’s “impute[d]” representations being “implicitly published”
to others, not Bull’s own reliance on a false representation that MTD made to it. App.
44
281-82, ¶¶ 149, 151, 152. Bull does not plead, among other requirements, that MTD
made a false representation to it, that it relied on said representation, or that its reliance
proximately caused it injury. Rather, the underlying allegations resemble those that
might support a claim for defamation. Thus, although we express doubt as to the District
Court’s dismissal of Bull’s intentional and negligent misrepresentation claim pursuant to
the economic loss doctrine, nevertheless Bull has failed to state a claim on which relief
can be granted. Accordingly, we will affirm the District Court’s dismissal of this claim.
H. Defamation
Finally, Bull contends that the District Court wrongly dismissed its defamation
claim because its amended complaint stated a claim under Pennsylvania law for the tort
of defamation by implication.16 In Pennsylvania, “a claim for defamation may exist
where the words utilized themselves are not defamatory in nature, however, the context
in which these statements are issued creates a defamatory implication, i.e., defamation by
innuendo.”17 Mzamane v. Winfrey, 693 F. Supp. 2d 442, 477 (E.D. Pa. 2010). As the
Pennsylvania Supreme Court has explained:
16
Pennsylvania courts also have referred to defamation by implication as “defamation by
innuendo,” and we will use the terms interchangeably.
17
There is a Pennsylvania statute defining the elements of a defamation claim. In order
to establish a claim for defamation successfully, a plaintiff must prove: (1) the
defamatory character of the communication; (2) its publication by the defendant; (3) its
application to the plaintiff; (4) the understanding by the recipient of its defamatory
meaning; (5) the understanding by the recipient of it as intended to be applied to the
plaintiff; (6) special harm resulting to the plaintiff from its publication; (7) abuse of a
conditionally privileged occasion. 42 Pa. Cons. Stat. § 8343(a). A court decides as a
matter of law whether the statements at issue are capable of defamatory meaning.
Blackwell v. Eskin, 916 A.2d 1123, 1125 (Pa. Super. Ct. 2007).
45
The purpose of an innuendo, as is well understood, is to
define the defamatory meaning which the plaintiff attaches to
the words; to show how they come to have that meaning and
how they relate to the plaintiff[.] But it cannot be used to
introduce new matter, or to enlarge the natural meaning of the
words, and thereby give to the language a construction which
it will not bear[.] It is the duty of the court in all cases to
determine whether the language used in the objectionable
article could fairly and reasonably be construed to have the
meaning imputed in the innuendo. If the words are not
susceptible of the meaning ascribed to them by the plaintiff
and do not sustain the innuendo, the case should not be sent to
a jury. . . . [Consequently,] [i]f the publication complained of
is not in fact libelous, it cannot be made so by an innuendo
which puts an unfair and forced construction on the
interpretation of the publication.
Sarkees v. Warner-W. Corp., 37 A.2d 544, 546 (Pa. 1944) (citations and internal
quotation marks omitted).
A communication will not be regarded as defamatory by innuendo unless the
“innuendo [] [is] warranted, justified and supported by the publication.” Livingston v.
Murray, 612 A.2d 443, 449 (Pa. Super. Ct. 1992) (citation omitted). But “the literal
accuracy of separate statements will not render a communication ‘true’ where . . . the
implication of the communication as a whole was false.” Mzamane, 693 F. Supp. 2d at
478 (citation omitted). Thus, “even where the complained-of statements are literally true,
if, when viewed in toto, the accurate statements create a false implication, the speaker
may be liable for creating a defamatory implication.” Id. (emphasis in original).
Here, we can separate Bull’s claim for defamation into two potentially defamatory
statements: (1) when MTD published the fact that it terminated its Agreements with Bull;
and (2) when MTD “implicitly” published such termination by failing to invite Bull to the
2014 Top 100 dealer incentive meeting. App. 25. Specifically, Bull alleges that:
46
137. MTD intentionally and without just cause terminated
its Dealer Agreement with Bull International.
138. MTD published its termination of Bull International to
various dealers and customers of Bull International.
139. MTD implicitly published its termination of Bull
International by preventing Bull International from attending
the 2014 Top 100 Dealer Incentive Meeting.
140. MTD knew or should have known that by publishing
its termination of its Dealer Agreement with Bull
International, it would impute to the listener the implication
that Bull International was no longer financially responsible.
App. 280, ¶¶ 137-140 (emphasis added). To assess Bull’s claim for defamation-by-
innuendo, we must determine whether an alleged inference of Bull’s financial
irresponsibility would have been “warranted, justified and supported” by MTD’s actual
communication. Livingston, 612 A.2d at 449 (citation omitted). Said another way, we
must evaluate whether third parties “could fairly and reasonably . . . construe[ ]” MTD’s
termination of its relationship with Bull to mean that Bull was financially irresponsible.
Sarkees, 37 A.2d at 546.
As to MTD’s first allegedly defamatory communication—publishing its
termination of its relationship with Bull—we believe that the strained innuendo for which
Bull advocates is not reasonable. If a trier of fact could conclude that a party implied that
another party with whom it had a contractual relationship was financially irresponsible
simply by terminating their contract, any party that terminated a contract with another
party would risk being subject to a defamation claim. The fact that MTD terminated its
Agreements with Bull does not justify drawing an inference that Bull is financially
47
unstable because the termination in itself says nothing about the reason for the
termination. In the context of a dealer agreement, the act of termination does not operate
as a proxy statement that the terminated party is financially irresponsible and Bull’s
allegations provide no contextual basis beyond the termination itself to justify this
connection. After all, there can be any number of reasons for a party’s decision to
terminate its contractual relationship with another party. Indeed, in this very case, Bull
contends that MTD terminated the agreements in retaliation for Jeff Bull’s dealer
advocacy conduct and his complaints with respect to MTD’s products. Neither of these
reasons deals with Bull’s financial condition.
The second alleged communication that Bull alleges was defamatory is MTD’s
failure to invite Bull to the 2014 Top 100 dealer incentive meeting. Bull asserts that by
not allowing it to attend the meeting, MTD implicitly made a publication that Bull’s
Agreements with MTD had been terminated, and the fact of termination supported the
innuendo that Bull was financially unstable. We recognize that it is well established that
a defamatory communication need not be a written or oral statement, Bennett v. Norban,
151 A.2d 476, 478 (Pa. 1959), and “words, gestures or a combination of both may
constitute a defamatory communication” under Pennsylvania law, Byars v. Sch. Dist. of
Phila., 942 F. Supp. 2d 552, 564 (E.D. Pa. 2013) (citation omitted). But Bull does not
allege that MTD’s “implicit publication” was any form or combination of words or
gestures. Rather, Bull alleges that MTD failed to allow it to attend an event. Even if
MTD’s action in not allowing Bull to attend the event could communicate the
circumstance that its Agreements with Bull had been terminated, however, as we already
48
have indicated, the alleged publication of MTD’s termination of the Agreements was not
defamatory. Thus, Bull has failed to show that MTD made a defamatory statement, and
we will affirm the District Court’s dismissal of Bull’s defamation claim.18
VI. CONCLUSION
For the foregoing reasons, we will affirm the District Court’s order of May 11,
2015, dismissing Bull’s breach of contract, breach of the implied covenant of good faith
and fair dealing, unconscionability, promissory estoppel, intentional and negligent
misrepresentations, defamation, and various tortious interference claims (Counts I-III, V-
X). However, we will reverse the District Court’s order of May 11, 2015, to the extent
that it dismissed Bull’s breach of contract based on breach of the implied warranty of
merchantability claim (Count IV) and will remand the case to the District Court so that
Bull can proceed on that claim as allowed in this opinion. The parties will bear their own
costs on this appeal.
18
Even if we agreed with Bull that MTD’s statement was defamatory, we would
conclude that Bull has failed to state a claim for defamation on account of other pleading
deficiencies. For example, Bull alleges only that MTD’s defamatory communications
were published to “various dealers and customers of Bull International.” App. 280, ¶
138. But as Pennsylvania courts have explained, “[a] complaint for defamation must, on
its face, identify exactly to whom the allegedly defamatory statements were made.”
Jaindl v. Mohr, 637 A.2d 1353, 1358 (Pa. Super. Ct. 1994), aff’d, 661 A.2d 1362 (Pa.
1995).
49