Volvo Construction Equipment North America, Inc. v. CLM Equipment Co.

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
VOLVO CONSTRUCTION EQUIPMENT 
NORTH AMERICA, INC., a Delaware
corporation; VOLVO TRADEMARK
HOLDING AKTIEBOLAGET, a Swedish
corporation; CHAMPION ROAD
MACHINERY LIMITED, a Canadian
corporation,
Plaintiffs-Appellees,
v.
CLM EQUIPMENT COMPANY, INC., a
Louisiana corporation; FUTURE
EQUIPMENT COMPANY, INC., a Texas  No. 03-1108
corporation, CLARK MACHINERY
COMPANY, an Arkansas corporation,
Defendants-Appellants,
and
AIS CONSTRUCTION EQUIPMENT
CORPORATION, a Michigan
corporation; NUECES FARM CENTER,
INC., d/b/a Nueces Power
Equipment, a Delaware corporation,
Defendants.

Appeal from the United States District Court
for the Western District of North Carolina, at Asheville.
Lacy H. Thornburg, District Judge.
(CA-00-238-1; CA-01-232-1)
Argued: September 24, 2003
Decided: October 8, 2004
2 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
Before WIDENER, TRAXLER, and KING, Circuit Judges.
Affirmed in part, vacated in part, and remanded by published opinion.
Judge King wrote the opinion, in which Judge Traxler joined. Judge
Widener wrote an opinion concurring in part and dissenting in part.
COUNSEL
ARGUED: Scott E. Korzenowski, DADY & GARNER, P.A., Minne-
apolis, Minnesota, for Appellants. Michael J. Lockerby, HUNTON &
WILLIAMS, Richmond, Virginia, for Appellees. ON BRIEF: J.
Michael Dady, Ronald K. Gardner, DADY & GARNER, P.A., Min-
neapolis, Minnesota; Robert B. Delano, Jr., SANDS, ANDERSON,
MARKS & MILLER, Richmond, Virginia; Edward L. Bleynat, Jr.,
FERIKES & BLEYNAT, P.L.L.C., Asheville, North Carolina, for
Appellants. Kimberley A. Isbell, HUNTON & WILLIAMS, Rich-
mond, Virginia; Nash E. Long, III, HUNTON & WILLIAMS, Char-
lotte, North Carolina, for Appellees.
OPINION
KING, Circuit Judge:
Three retail dealers of large earth-moving motor graders (the "Deal-
ers")1 appeal the district court’s decision in favor of the graders’ man-
ufacturers (collectively, "Volvo")2 in this contract dispute. Volvo
Trademark Holding Aktiebolaget v. CLM Equip. Co., Inc., 236 F.
1
The Dealers are CLM Equipment Company, Inc., a Louisiana corpo-
ration, Clark Machinery Company, an Arkansas corporation, and Future
Equipment Company, Inc., a Texas corporation.
2
The three appellees, referred to as Volvo, are Volvo Construction
Equipment North America, Inc., a Delaware corporation, Volvo Trade-
mark Holding Aktiebolaget, a Swedish corporation, and Champion Road
Machinery Limited, a Canadian corporation.
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 3
Supp. 2d 536 (W.D.N.C. 2002) (the "Opinion"). The Dealers maintain
that the court lacked jurisdiction in the declaratory judgment proceed-
ing initiated by Volvo because no actual controversy existed. The
Dealers also assert that, even if the court possessed jurisdiction, it
abused its discretion by exercising jurisdiction in that proceeding.
Finally, the Dealers contend that the court erroneously ruled in favor
of Volvo on the merits of this dispute, in that Volvo’s refusal to sup-
ply them with equipment constituted a breach of its contractual obli-
gations and contravened several state statutes. For the reasons
explained below, we affirm in part, vacate in part, and remand.
I.
A.
Prior to being purchased by Volvo in 1997, Champion Road
Machinery Limited ("Champion") was a Canadian corporation spe-
cializing in the manufacture of large earth-moving motor graders (the
"Champion Motor Graders").3 The contract dispute underlying this lit-
igation emanates from Volvo’s 1997 purchase of Champion and
Volvo’s subsequent decision to cease supplying Champion Motor
Graders to the Dealers — CLM Equipment Company, Inc. ("CLM"),
Clark Machinery Company ("Clark"), and Future Equipment Com-
pany, Inc. ("FEC") — for resale. That decision resulted in what the
Dealers contend was Volvo’s unlawful termination of their dealer
agreements with Champion (the "Dealer Agreements").4 According to
the Dealers, Champion promised them, during a 1970s effort to
increase its dealerships in this country, that it would "continue a busi-
ness relationship with a dealer unless the dealer was having financial
difficulties or was performing poorly." The Dealers allege that Cham-
3
Because we are reviewing an award of judgment on the pleadings, our
factual recitation is presented in the light most favorable to the nonmov-
ing party (i.e., the Dealers). George C. Frey Ready-Mixed Concrete, Inc.
v. Pall Hill Concrete Mix Corp., 554 F.2d 551, 553 (2d Cir. 1977); 5A
Charles Alan Wright & Arthur R. Miller, Federal Practice and Proce-
dure § 1368 (2d ed. 1990).
4
The three Dealer Agreements at issue are entitled "Distributor Sales
Agreement[s]" (CLM and Clark) and "Grader Dealer Agreement" (FEC).
We refer to each as a Dealer Agreement.
4 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
pion promised to terminate a Champion dealer "only after first giving
the dealer notice of its deficiencies and an opportunity to correct those
deficiencies." The Dealers maintain that Champion representatives
also made contemporaneous oral representations that the Dealers
could continue as Champion dealers so long as they adequately per-
formed. This contract dispute relates primarily to the interpretation
and application of a specific subsection of the Termination section of
the Dealer Agreements. That subsection, the "Without Cause Provi-
sion," authorizes termination of a dealership without cause, providing
as follows:
Champion may terminate this agreement at any time without
cause by written notice of termination delivered to [Dealer
or Distributor], such termination to be effective not less than
sixty (60) days after receipt or deemed receipt by Dealer of
such notice.
CLM, Clark, and FEC Dealer Agreements § 24.4. Although the With-
out Cause Provision is important in this appeal, several other provi-
sions of the Dealer Agreements are also significant. They include:
• a merger and integration clause (the "Integration
Clause"), providing that a Dealer Agreement contains the
entire agreement respecting a Dealer’s purchase and dis-
tribution of Champion products and parts; CLM and
Clark Dealer Agreements § 32.1, FEC Dealer Agreement
§ 33.1;
• a clause prohibiting oral modification (the "Modification
Clause"), providing that any modification of a Dealer
Agreement must be in writing and signed by a duly
authorized officer of Champion; CLM and Clark Dealer
Agreements § 32.2, FEC Dealer Agreement § 33.2;
• a market withdrawal provision (the "Market Withdrawal
Provision"), pursuant to which Champion reserves the
right to discontinue its product lines without notice to the
Dealers; CLM, Clark, and FEC Dealer Agreements § 27;
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 5
• a best efforts provision (the "Best Efforts Provision"),
under which the Dealers agree to use their best efforts to
sell Champion products; CLM and Clark Dealer Agree-
ments § 6, FEC Dealer Agreement § 7;
• a choice-of-law provision (the "Choice-of-Law Provi-
sion"), providing that, pursuant to CLM’s and Clark’s
Dealer Agreements, the obligations of the parties are to
be determined under South Carolina law; CLM and
Clark Dealer Agreements § 29; and that, pursuant to
FEC’s Dealer Agreement, the obligations of the parties
are to be governed by the law of Ontario; FEC Dealer
Agreement § 29; and
• a conformity with local laws provision (the "Local Law
Provision"), under which the rights and obligations of the
parties are subject to all applicable laws of government
entities having jurisdiction over them, and providing
that, if local law substantially alters relationships under
a Dealer Agreement, a party may request modification of
the Agreement; CLM, Clark, and FEC Dealer Agree-
ments § 30.
After consummating its purchase of Champion, Volvo decided that
it could compete more effectively with such manufacturers as Case,
Caterpillar, John Deere, and Komatsu if it marketed motor graders
under a single brand name (i.e., Volvo) and through a single dealer
network (i.e., that of Volvo).5 As a result, Volvo implemented a plan
to "Volvoize" its products and "rationalize" its dealer network. Volvo
characterized the "Volvoization" program as a process of reengineer-
ing and rebranding Champion Motor Graders for sale under the
VOLVO trademark. Volvo characterized its "Dealer Rationalization"
plan as the integration of the Volvo and Champion dealer networks.
In 2000, the Dealers responded to Volvo’s plan by demanding that
Volvo continue to provide them with motor graders manufactured by
5
According to Volvo, its competing manufacturers typically market a
full line of construction equipment, and their dealers offer "one-stop
shopping" for such products.
6 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
Volvo at the former Champion factory. Despite these demands, the
Dealers were not selected by Volvo as authorized dealers of such
motor graders, and Volvo notified the Dealers that it would no longer
supply them with Champion Motor Graders. On January 19, 2000,
FEC received notice that its Dealer Agreement would be terminated
on March 19, 2000. On October 10, 2000, Volvo notified Clark and
CLM that their Dealer Agreements would be terminated on January
9, 2001. Upon receipt of these termination notices, the Dealers
advised Volvo that they would litigate all efforts to terminate the
Dealer Agreements. In January 2001, after receipt of such advice
from the Dealers, Volvo ceased manufacturing Champion brand
motor graders.
B.
On October 10, 2000, Volvo filed its declaratory judgment com-
plaint in the Western District of North Carolina (the "North Carolina
Litigation"), naming as defendants CLM, FEC, AIS Construction
Equipment Corporation ("AIS"), and certain other Champion dealers,
including Nueces Farm Center, Inc. ("NFC"). By this civil action,
Volvo sought a declaration that, pursuant to the Dealer Agreements,
it was not obliged to continue supplying Champion Motor Graders to
Champion dealers. On November 27, 2000, the defendants sought dis-
missal of the North Carolina Litigation for lack of subject-matter
jurisdiction. In response, Volvo amended its declaratory judgment
complaint and, inter alia, named Clark as an additional defendant. On
March 19, 2001, before the district court addressed the jurisdictional
issue, Volvo sought leave to amend its complaint for a second time,
dropping defendant NFC from the North Carolina Litigation and
asserting diversity jurisdiction in the North Carolina court.6
On March 20, 2001, the Dealers filed a separate civil action against
Volvo in the Eastern District of Arkansas (the "Arkansas Litigation").
The Dealers then moved the North Carolina court to dismiss, abstain
from, or stay the North Carolina Litigation, in deference to the Arkan-
6
Both Volvo and NFC are Delaware corporations. NFC, as a defen-
dant, would have destroyed diversity in the North Carolina Litigation.
See 28 U.S.C. § 1332. With NFC no longer a defendant in the North Car-
olina Litigation, no diversity issue is raised, and none is apparent.
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 7
sas Litigation (the "Dealers’ Motion"). On April 9, 2001, a magistrate
judge in North Carolina recommended to the district court that the
Dealers’ Motion be denied and that Volvo be authorized to file its
Second Amended Complaint. Volvo Trademark Holding Aktiebolaget
v. AIS Const. Equip. Corp., No. 1:00CV238 (W.D.N.C. April 9,
2002).
On April 20, 2001, Volvo moved the Arkansas court to dismiss,
abstain from, or stay the Arkansas Litigation, in deference to the
North Carolina Litigation. On June 21, 2001, the Arkansas court
granted that motion, entering a stay of the Arkansas Litigation pend-
ing resolution of the Dealers’ Motion in North Carolina. On August
27, 2001, the North Carolina court, relying on the magistrate judge’s
recommendation, denied the Dealers’ Motion, granted Volvo leave to
voluntarily dismiss NFC as a defendant, and authorized Volvo to file
its Second Amended Complaint (the "Complaint"). Volvo Trademark,
No. 1:00CV238 (W.D.N.C. Aug. 27, 2001).7
Upon being advised of the North Carolina court’s ruling on the
Dealers’ Motion, the Arkansas court, on August 30, 2001, transferred
the Arkansas Litigation to the Western District of North Carolina.
Thereafter, on September 14, 2001, the Dealers filed their Joint
Answer and Counterclaim in the North Carolina Litigation. Their
Counterclaim mirrored the claims asserted in their complaint against
Volvo in the Arkansas Litigation.8 On January 9, 2002, the parties
7
Volvo’s Second Amended Complaint in the North Carolina Litigation
sought the following: (1) a declaration pursuant to the Lanham Act (15
U.S.C. § 1051, et seq.) of trademark infringement, unfair competition,
and dilution; (2) a declaration that the Lanham Act preempted any state
law claims that were inconsistent therewith; (3) a declaration that there
had been no breach of contract by Volvo; (4) a declaration that there are
no ancillary tort law claims against Volvo; and (5) a declaration that
Volvo had not violated any state statutes. Volvo’s Second Amended
Complaint is the operative complaint in this appeal.
8
The Dealers asserted twelve claims against Volvo in the Arkansas Lit-
igation and in the North Carolina Litigation. Those claims were for (1)
violations of the Arkansas Franchise Practices Act, Ark. Code § 4-72-
201, et seq.; (2) violations of the Texas Farm, Industrial and Outdoor
Power Equipment Dealer Act, Tex. Bus. & Com. Code § 19.01, et seq.;
8 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
consented to consolidation of the Arkansas Litigation with the North
Carolina Litigation in the North Carolina court. Volvo Trademark,
No. 1:00CV238, No. 1:01CV122 (W.D.N.C. Jan. 9, 2002).
On December 13, 2002, the district court filed the Opinion from
which this appeal arises. The Opinion granted Volvo partial judgment
on the pleadings, dismissed the Dealers’ counterclaims in the North
Carolina Litigation, and dismissed the Dealers’ affirmative claims in
the Arkansas Litigation. Opinion at 558. In its Opinion, the court
determined, inter alia, that Volvo’s refusal to supply the Dealers with
Champion Motor Graders did not breach the Dealer Agreements
because each agreement contained the Without Cause Provision. Id.
at 546. In addition, the court concluded that the Dealers were not pro-
tected by the state dealer protection statutes of Arkansas, Louisiana,
or Texas, because the Choice-of-Law Provision precludes the Dealers
from seeking protection under those statutes. Id. at 551-54. The Deal-
ers thereafter filed a timely notice of appeal, and we possess jurisdic-
tion pursuant to 28 U.S.C. § 1291.9
(3) violations of the Texas Deceptive Trade Practices and Consumer Pro-
tection Act, Tex. Bus. & Com. Code § 17.41, et seq.; (4) violations of the
Michigan Motor Vehicle Act, Mich. Comp. Laws Ann., Ch. 445.1561,
et seq.; (5) violations of the Louisiana Dealer Act, La. Rev. Stat.
§ 51:481, et seq.; (6) violations of Ontario’s Arthur Wishart Act; (7) vio-
lations of the South Carolina Fair Practices of Farm, Construction, Indus-
trial and Outdoor Power Equipment Manufacturers, Distributors,
Wholesalers and Dealers Act, S.C. Code Ann. § 39-6-10, et seq.; (8)
breach of contract and the covenant of good faith and fair dealing; (9)
tortious interference with contractual relations and prospective economic
advantage; (10) unjust enrichment; (11) estoppel; and (12) recoupment.
9
We recognize that an award of partial judgment on the pleadings does
not generally constitute an appealable order. See Am. Canoe Ass’n, Inc.
v. Murphy Farms, Inc., 326 F.3d 505, 511 (4th Cir. 2003). This appeal
is not interlocutory, however, because Volvo has voluntarily dismissed
its remaining claims. Volvo Trademark, No. 1:00CV238, No.
1:01CV232, No. 1:01CV122 (W.D.N.C. Jan. 2, 2003).
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 9
II.
We review de novo the issue of whether a district court possessed
jurisdiction in a declaratory judgment proceeding. Richmond, Freder-
icksburg & Potomac R. Co. v. United States, 945 F.2d 765 (4th Cir.
1991). If a plaintiff has asserted sufficient facts to create declaratory
judgment jurisdiction, we review for abuse of discretion a district
court’s decision to exercise its jurisdiction. See Wilton v. Seven Falls
Co., 515 U.S. 277, 282 (1995) ("[D]istrict courts possess discretion
in determining whether and when to entertain an action under the
Declaratory Judgment Act, even when the suit otherwise satisfies sub-
ject matter jurisdictional prerequisites."). We review de novo a district
court’s award of judgment on the pleadings. Fed. R. Civ. P. 12(c); see
Burbach Broad. Co. v. Elkins Radio Corp., 278 F.3d 401, 405-06 (4th
Cir. 2002) (noting that same standard is applied to motions under
Rule 12(c) and Rule 12(b)(6)). In reviewing an award of judgment on
the pleadings, we assume the facts alleged in the relevant pleadings
to be true, and we draw all reasonable inferences therefrom. Elkins
Radio, 278 F.3d at 406; see also Edwards v. City of Goldsboro, 178
F.3d 231, 244 (4th Cir. 1999). Finally, the issue of whether an entity
is protected under a state dealer protection statute is a question of law,
which we review de novo. See generally United States v. Hill, 322
F.3d 301, 304 (4th Cir. 2003); Hand v. Dean Witter Reynolds Inc.,
889 S.W.2d 483, 496 (Tex. App. 1994).
III.
The Dealers raise multiple issues on appeal. They first maintain
that the district court erred in exercising jurisdiction in the North Car-
olina Litigation. Specifically, they contend that Volvo failed to allege
an actual controversy between it and the Dealers. Moreover, the Deal-
ers maintain that, even if the court possessed jurisdiction, its exercise
thereof constituted an abuse of discretion.
The Dealers next contend that the district court erred when it ruled
that Volvo’s termination of the Dealer Agreements was not a breach
of its contractual obligations. They maintain that the contract terms
"may" and "without cause," as used in the Without Cause Provision,
are ambiguous, that the Dealer Agreements are not completely inte-
grated, and that the parties orally modified the Without Cause Provi-
10 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
sion. The Dealers contend that, notwithstanding the Without Cause
Provision, Volvo’s actions breached its implied duty of good faith and
fair dealing. The Dealers also maintain that, even if the Dealer Agree-
ments are completely integrated contracts unmodified by oral prom-
ises, Volvo is estopped from breaching its oral representations.
Finally, the Dealers contend that the Without Cause Provision is
trumped by Arkansas, Louisiana, and Texas statutes that preclude
manufacturers from terminating dealer agreements without cause
(collectively, the "State Statutes"). The Dealers assert that, under the
Local Law Provision, the Dealer Agreements are governed by the
State Statutes. In the alternative, the Dealers maintain that the Choice-
of-Law Provision should not be given effect because the laws selected
thereunder are not rationally related to the Dealer Agreements and are
contrary to the fundamental policies of their home states. Volvo main-
tains that the Dealers never raised this alternative contention in the
district court and that it should not be considered on appeal.
We assess each of these contentions in turn.
A.
We first consider whether the district court erred in its exercise of
jurisdiction in Volvo’s declaratory judgment action. In this regard, it
is elementary that a federal court may properly exercise jurisdiction
in a declaratory judgment proceeding when three essentials are met:
(1) the complaint alleges an "actual controversy" between the parties
"of sufficient immediacy and reality to warrant issuance of a declara-
tory judgment;" (2) the court possesses an independent basis for juris-
diction over the parties (e.g., federal question or diversity
jurisdiction); and (3) the court does not abuse its discretion in its exer-
cise of jurisdiction. 28 U.S.C. § 2201; Cont’l Cas. Co. v. Fuscardo,
35 F.3d 963, 965 (4th Cir. 1994); N. Jefferson Square Assocs. v. Va.
Hous. Dev. Auth., 94 F. Supp. 2d 709, 714 (E.D. Va. 2000).
Two of these three jurisdictional prerequisites, the first and the
third, are contested by the Dealers on appeal. The second jurisdic-
tional prong, that the court must possess an independent basis for
jurisdiction over the parties, was satisfied when Volvo filed its Com-
plaint and dropped defendant NFC, the only party defeating diversity.
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 11
The district court thus properly concluded that Volvo had established
diversity jurisdiction in its Complaint. Volvo Trademark, No.
1:00CV238 (W.D.N.C. Aug. 27, 2001).
The Dealers maintain, however, that the first and third jurisdic-
tional prongs are not met, and that the district court erred in its exer-
cise of jurisdiction. They assert that the first prong (the
"Constitutional Inquiry") is not satisfied because Volvo’s actions did
not create an actual controversy under the Declaratory Judgment Act.
They contend that the third prong (the "Prudential Inquiry") is not met
because, even if the court had jurisdiction, it abused its discretion in
considering the merits of this dispute. We address these inquiries
below.
1.
In assessing the Constitutional Inquiry, we look to the Declaratory
Judgment Act, which provides that "[i]n a case of actual controversy
within its jurisdiction . . . any court of the United States . . . may
declare the rights and other legal relations of any interested party
seeking such declaration, whether or not further relief is or could be
sought." 28 U.S.C. § 2201 (emphasis added). A case meets the actual
controversy requirement only if it presents a controversy that qualifies
as an actual controversy under Article III of the Constitution. See
Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240 (1937) (deciding
that, pursuant to statute’s limitation to cases involving actual contro-
versy, Act is operative only with respect to constitutional contro-
versy). The Dealers contend that, although Volvo’s termination
notices created disputes regarding their rights to distribute Champion
Motor Graders, "the termination did not create the type of trademark
‘case or controversy’ subject to declaratory-judgment review." As
explained below, this contention is immaterial.
The Dealers first maintain that the district court lacked federal
question jurisdiction because they did not take any action or make any
assertion that placed Volvo in objective apprehension of the improper
use of its trademark or its ability to control its trademark. For a con-
troversy to exist for declaratory judgment purposes, however, the situ-
ation need not present a federal cause of action; if the parties are
diverse, a federal court may possess subject matter jurisdiction over
12 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
a state-law contract dispute. The Dealers have admitted in their plead-
ings that the court had diversity jurisdiction over the North Carolina
Litigation, and the existence of a contract dispute is plainly evident
in the pleadings.10 Indeed, when the court addressed the Dealers’
Motion, Volvo had already been sued in Maine and Texas by Cham-
pion dealers,11 and Volvo had already received written and oral litiga-
tion threats from the Dealers.12
The Dealers acknowledge that an actual controversy exists under
the Declaratory Judgment Act when a plaintiff seeks declaratory relief
in order to avoid the accrual of potential damages for past actions.
NUCOR Corp. v. Aceros Y Maquilas de Occidente, 28 F.3d 572, 577
(7th Cir. 1994) (stating that purpose of Declaratory Judgment Act is
to avoid accrual of avoidable damages to party uncertain of its rights).
10
In its Complaint, Volvo sought a "declaratory judgment with respect
to [its] rights and obligations under certain contracts . . . ." Complaint
¶ 3. And, in assessing whether an actual controversy existed between
Volvo and the Dealers under the Complaint, the magistrate judge
observed that Volvo "run[s] the risk of incurring multiple liabilities if [it
does] not seek judicial interpretation and clarification of [its] rights in
respect to the contracts . . . . Without a doubt, there is an active and
immediate controversy among these plaintiffs and defendants . . . ."
Volvo Trademark, No. 1:00CV238 (W.D.N.C. April 9, 2001).
11
On February 2, 2000, Champion dealer N.A. Burkitt, Inc. initiated
litigation against Volvo in the District of Maine alleging, inter alia, that
Volvo’s termination of its dealer agreement contravened the Maine
Motor Vehicle Dealers Act. On August 28, 2000, a defendant in Volvo’s
original complaint in North Carolina (i.e., NFC) commenced litigation
against Volvo in Texas, contending, inter alia, that Volvo could not ter-
minate its dealer agreement without cause.
12
The initiation of litigation against Volvo and the threats of future liti-
gation distinguish this dispute from North Jefferson, a decision on which
the Dealers rely. There, the district court determined that a controversy
was not present under the Declaratory Judgment Act because the defen-
dant had not taken any action, even of a preliminary nature, against the
plaintiff, and the defendant had not indicated that it intended to take any
future legal action against the plaintiff. N. Jefferson, 94 F. Supp. 2d at
718. See generally GTE Directories Pub. Corp. v. Trimen Am., Inc., 67
F.3d 1563 (11th Cir. 1995) (holding that threat of future litigation gives
rise to actual controversy).
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 13
When Volvo initiated its declaratory judgment action in North Caro-
lina, it had terminated the Dealer Agreements, it had received the
Dealers’ litigation threats, and separate suits had been filed against it
in Maine and Texas. In these circumstances, Volvo possessed a rea-
sonable apprehension of a multiplicity of litigation and of liability for
ongoing damages. An actual controversy therefore existed between
Volvo and the Dealers when Volvo initiated the North Carolina Liti-
gation. The first prong of the declaratory judgment test is thus satis-
fied.
2.
The Dealers next maintain that Volvo fails to satisfy the third
prong of the declaratory judgment test, the Prudential Inquiry. They
contend that, even if an actual controversy existed and the district
court possessed an independent basis of jurisdiction, the court never-
theless abused its discretion when it exercised jurisdiction in the
North Carolina Litigation.
If a district court possesses declaratory judgment jurisdiction, it
may nonetheless, in the exercise of its discretion, decline to entertain
the action. See Cont’l Cas. Co., 35 F.3d at 965 (acknowledging that
court possessed jurisdiction in declaratory judgment action and noting
that critical question was whether court should have exercised its
jurisdiction). The exercise of such discretion, however, is not without
bounds. We have held that a district court must have "good reason"
for declining to exercise its declaratory judgment jurisdiction. Id. As
Judge Parker aptly opined years ago, a district court is obliged to rule
on the merits of a declaratory judgment action when declaratory relief
"will serve a useful purpose in clarifying and settling the legal rela-
tions in issue," and "will terminate and afford relief from the uncer-
tainty, insecurity, and controversy giving rise to the proceeding."
Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th Cir. 1937).
And we have often observed that "‘district courts have great latitude
in determining whether to assert jurisdiction over declaratory judg-
ment actions.’" United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 493
(4th Cir. 1998) (quoting Aetna Cas. & Sur. Co. v. Ind-Com Elec. Co.,
139 F.3d 419, 422 (4th Cir. 1998)). In these circumstances, the district
court did not abuse its discretion. Its Opinion served several useful
purposes: it clarified and settled Volvo’s legal obligations under the
14 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
Dealer Agreements, it eliminated uncertainty regarding those agree-
ments, and it clarified the contractual rights of the parties.13
The Dealers, relying on the Supreme Court’s decision in Colorado
River Water Conservation District v. United States, 424 U.S. 800, 817
(1976), maintain that principles of efficiency and comity compelled
the district court either to dismiss or abstain from Volvo’s declaratory
judgment action, in the interests of conserving judicial resources and
comprehensively disposing of the litigation. We recognize that the
federal trial courts should weigh the legitimate concerns of efficiency
and comity when deciding whether to award declaratory relief. Id. As
the Dealers acknowledge, however, "the first suit should have prior-
ity, absent the showing of balance of convenience in favor of the sec-
ond action." Ellicott Mach. Corp. v. Modern Welding Co., Inc., 502
F.2d 178, 180 n.2 (4th Cir. 1974) (internal quotation marks and cita-
tion omitted). In this situation, as there has been no such showing, the
court did not abuse its discretion in declining to defer to the Arkansas
proceeding.
B.
The Dealers next maintain that Volvo breached its contractual obli-
gations when it terminated the Dealer Agreements under its programs
of Volvoization and Dealer Rationalization. More specifically, the
Dealers contend that Volvo breached the Dealer Agreements when it
13
The factual predicate underlying this appeal is analogous to the fac-
tual underpinnings of Kapiloff. There, we concluded that a "declaratory
judgment action is designed to allay exactly the sort of uncertainty that
flows from the threat that ambiguous contractual rights may be asserted,"
and we observed that a "declaratory judgment action allows the uncertain
party to gain relief from the insecurity caused by a potential suit waiting
in the wings." Kapiloff, 155 F.3d at 494.
The Dealers acknowledge that a federal court may exercise its declara-
tory judgment jurisdiction when a plaintiff is seeking a declaration to
avoid the accrual of potential damages for past actions. See Tempco Elec.
Heater Corp. v. Omega Eng’g, Inc., 819 F.2d 746, 749 (7th Cir. 1987)
(observing that declaratory judgment is available where party desires
declaration of legal effect of proposed or past course of action). In this
dispute, Volvo was seeking such a declaration.
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 15
began placing Volvo labels on Champion Motor Graders and when it
refused to provide the Dealers with an inventory of Champion Motor
Graders. As explained below, we disagree.
First and foremost, Volvo’s termination of the Dealer Agreements
did not constitute a breach of contract because the Without Cause
Provision authorized Volvo to act as it did. When Volvo acquired
Champion in 1997, Volvo assumed Champion’s rights and obliga-
tions under the Dealer Agreements. Volvo was, therefore, entitled to
terminate the Dealer Agreements under the Without Cause Provision.14
The Dealers do not contend that the express terms of the Dealer
Agreements preclude Volvo from terminating their dealer contracts
without cause. Instead, they contend that the Without Cause Provision
14
Volvo also contends that, in the absence of the Without Cause Provi-
sion, its terminations of the Dealer Agreements would not constitute
breaches of contract because "the Market Withdrawal Provision contem-
plates the possibility that Champion could completely disappear from the
marketplace without liability following a discontinuation of the CHAM-
PION line of motor graders." The Market Withdrawal Provision pro-
vides:
Champion reserves the right at any time to change models, clas-
sification of models and specifications, or add to or discontinue
any products or product lines without notice to [Dealer or Dis-
tributor] and without incurring any obligation to incorporate such
changes in any other products.
CLM, Clark, and FEC Dealer Agreements § 27. According to Volvo, any
interpretation of the Market Withdrawal Provision that would not permit
Champion to withdraw from the marketplace would render meaningless
the phrase "discontinue any product or product lines." The Dealers con-
tend, however, that in order to "withdraw from the market," Volvo would
have to cease producing motor graders at the Champion factory — the
simple act of relabeling does not constitute a withdrawal from the mar-
ketplace. As the district court observed, however:
Volvo did not terminate the dealership contracts by virtue of dis-
continuing Champion Road motor graders or withdrawing that
product from the market; the contracts were terminated pursuant
to the provision . . . for termination without cause.
Opinion at 543-44.
16 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
is ambiguous and that the district court was obligated to look beyond
the Dealer Agreements in determining Volvo’s contractual obliga-
tions. Under South Carolina and Ontario law, which apply to CLM’s
and Clark’s contract claims, the court did not err because (1) the
Without Cause Provision is clear and unambiguous; (2) the Dealer
Agreements were integrated instruments; and (3) oral promises,
course of dealing, and industry custom can not alter the plain and
unambiguous terms of the integrated Dealer Agreements. See U.S.
Leasing Corp. v. Janicare, Inc., 364 S.E.2d 202, 205 (S.C. Ct. App.
1988) (providing that, under South Carolina law, if contract contains
language that imports complete legal obligation, parol or extrinsic
evidence is not admissible to add to contract); Gutierrez v. Tropic
Int’l Ltd., 63 O.R.3d 63, 73 (Ont. C.A. 2002) (providing that, under
Ontario law, evidence of collateral agreement is not admissible to
contradict terms of integrated contract).
1.
Because the terms of the Dealer Agreements favor the legal posi-
tion advanced by Volvo, the Dealers emphasize a series of oral prom-
ises allegedly made by Champion representatives before the Dealer
Agreements were made. In South Carolina and Ontario, however, the
parol evidence rule precludes the use of extrinsic evidence of prior or
contemporaneous negotiations to alter, contradict, or explain the
terms of the Dealer Agreements, provided the agreements are com-
plete, unambiguous and unconditional. See Gilliland v. Elmwood
Prop., 391 S.E.2d 577, 581 (S.C. 1990) (applying South Carolina
law); Gutierrez, 63 O.R.3d at 71 (applying Ontario law). Unless the
Dealer Agreements are ambiguous or incomplete, oral promises or
representations made to the Dealers by Champion representatives
prior to execution of the Dealer Agreements have no effect on those
agreements. In their appeal, the Dealers maintain that the Dealer
Agreements are both ambiguous and incomplete and that the district
court erred by not incorporating Volvo’s oral promises into them. As
explained below, we disagree.
a.
The Dealers first maintain that the Without Cause Provision is
ambiguous and that the district court should have looked beyond the
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 17
four corners of the Dealer Agreements in determining Volvo’s con-
tractual obligations. The Without Cause Provision provides that
"Champion may terminate [the] agreement at any time without cause
by written notice of termination . . . ." CLM, Clark, and FEC Dealer
Agreements § 24.4 (emphasis added). The Dealers contend that this
terminology is ambiguous because it fails to define the terms "may"
and "without cause" as they are used therein. To the contrary, how-
ever, there is nothing ambiguous about the term "may," and there is
no ambiguity in any of the other operative terms in the Without Cause
Provision. Those terms are easily and commonly understood in the
English language — contract terms are rarely more plainly stated. See
Cromeens, Holloman, Sibert, Inc. v. AB Volvo, No. 01-3770, 2003
WL 22519825, at *13 (7th Cir. Nov. 7, 2003) (declaring contract lan-
guage permitting dealer agreement to be terminated at any time with-
out cause to be unambiguous).15
The Dealers contend, however, that the ambiguity of the Without
Cause Provision is apparent when examined in the context of Sec-
tion 24 of the Dealer Agreements. More specifically, the Dealers
maintain that the "may terminate" language of the Without Cause Pro-
vision contrasts sharply with the "shall terminate automatically" lan-
guage found in Subsection 24.5. As the district court noted in its
Opinion, however, this distinction relates to the fact that termination
under the Without Cause Provision is discretionary and occurs only
after sixty days notice. Opinion at 545. A termination under Subsec-
tion 24.5, by contrast, is non-discretionary, and it occurs automati-
15
The Seventh Circuit’s decision in Cromeens was filed on November
7, 2003, a month after this appeal was argued. One of the issues in Crom-
eens was whether, under their programs of Volvoization and Dealer
Rationalization, AB Volvo, Volvo Excavators AB, and Volvo Construc-
tion Equipment NV could terminate the dealers of Samsung construction
equipment without cause. The dealer agreements in Cromeens contained
a termination clause analogous to the Without Cause Provision. Crom-
eens, 2003 WL 22519825, at *11. On appeal, the Samsung dealers main-
tained that the "without cause" provision in the Samsung dealer
agreements was ambiguous. The Seventh Circuit rejected this contention,
ruling that the language of the "without cause" provision "could not be
more plain." Id. at *13. The Seventh Circuit then concluded that the
dealer agreements unambiguously permitted termination of the Samsung
dealers without cause. Id.
18 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
cally upon the occurrence of a certain event, such as when a dealer
files for bankruptcy.
The Dealers also maintain that the ambiguity of the term "without
cause" is apparent when examined in the context of Section 24. The
Dealers contend that, because Section 24 otherwise provides when
Champion can terminate the Dealer Agreements for cause, the term
"cause" in the Without Cause Provision should be interpreted to mean
a cause not otherwise provided for in Section 24. As the Eleventh Cir-
cuit has observed, however, the fact that both "with cause" and "with-
out cause" termination provisions are contained in the same section
of a contract only shows that the parties differentiated between termi-
nation for cause and termination without cause. And when a contract
contains both "for cause" and "without cause" provisions, a party may
terminate a contract, even in the absence of breach or fault by the
other party, pursuant to the without cause provision. Harris Corp. v.
Giesting & Assocs., Inc., 297 F.3d 1270, 1273 (11th Cir. 2002). We
agree with the district court; the Without Cause Provision is "clear,
specific and unambiguous." Opinion at 546.
b.
The Dealers next maintain that, because the Dealer Agreements are
incomplete, evidence of promises made by Champion representatives
prior to execution of the Dealer Agreements are not barred by the
parol evidence rule. In this regard, a court applying South Carolina or
Ontario law is obliged to consider a writing as complete if "the writ-
ing on its face appears to express the whole agreement." U.S. Leasing
Corp., 364 S.E.2d at 205; G. H. L. Fridman, Law of Contract in Can-
ada 22 (4th ed. 1999). In addition, we are entitled to consider an inte-
gration clause in weighing whether contracting parties intended a
written contract to constitute the entirety of an agreement. Gilliland,
391 S.E.2d at 581; Gutierrez, 63 O.R.3d at 73. In this situation, the
Dealer Agreements are detailed and explicit, and each contains the
Integration Clause providing that the writing is "the entire and only
agreement between the parties respecting the . . . purchase and distri-
bution" by the Dealers of Champion products and parts.16 Further-
16
The Integration Clause specifically provides:
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 19
more, the Dealer Agreements emphasize that "terms or conditions in
connection therewith not incorporated herein shall not be binding
upon either party." Finally, the agreements provide that they cancel,
terminate, and supersede all previous agreements entered into
between the parties. CLM and Clark Dealer Agreements § 32.1; FEC
Dealer Agreement § 33.1.
In these circumstances, the Dealer Agreements are both unambigu-
ous and integrated. As such, we agree with the district court on the
parol evidence issue. The parol evidence rule bars the Dealers from
utilizing oral representations made prior to contract execution to mod-
ify or contradict the terms of the Dealer Agreements. Opinion at 546.
2.
The Dealers next maintain that subsequent oral promises, made by
Champion and Volvo representatives after the Dealer Agreements
were executed, altered the terms thereof. Volvo acknowledges that the
parol evidence rule does not bar the use of such promises; it main-
tains, however, that the Modification Clause precludes their use here.
Pursuant to the Modification Clause, any modification of a Dealer
Agreement is invalid unless it is in writing and signed by an autho-
rized Champion officer.17 In response to Volvo’s reliance on the Mod-
This agreement and [any] accompanying Exhibits contain the
entire and only agreement between the parties respecting the sale
to and purchase and distribution by [Dealer or Distributor] of
Products and Parts, and any representations, terms or conditions
in connection therewith not incorporated herein shall not be
binding upon either party. This agreement wholly cancels, termi-
nates and supersedes any agreement heretofore entered into
between the parties, or their successors or assigns, pertaining to
Products and Parts.
CLM and Clark Dealer Agreements § 32.1; FEC Dealer Agreement
§ 33.1.
17
The Modification Clause provides:
This agreement, and any modification, renewal, waiver, exten-
sion or termination hereof, shall not be valid unless in writing
and signed by a duly authorized officer of Champion.
FEC Dealer Agreement § 33.2; CLM and Clark Dealer Agreements
§ 32.2 (omitting "waiver").
20 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
ification Clause, the Dealers assert that a "no oral modification
clause" may itself be orally modified, validating subsequent unwritten
modifications. This position must also fail, however, because, pursu-
ant to South Carolina and Ontario law, an oral modification of a writ-
ten contract must be supported by separate and adequate
consideration. See Evatt v. Campbell, 106 S.E.2d 447, 449-50 (S.C.
1959) (observing that written contract may be changed by subsequent
parol agreement supported by valuable consideration); Francis v.
Canadian Imperial Bank of Commerce, 21 O.R.3d 75, 83 (Ont. C.A.
1994) (recognizing principle of contract law that additional consider-
ation is required to support modification of existing agreement).
The Dealers’ sole basis for contending that they provided separate
and adequate consideration in support of modification of the Modifi-
cation Clause is that they continued to market Champion Motor Grad-
ers after Champion was purchased by Volvo. Although the Dealers
may have made good faith efforts to market Champion Motor Graders
after Champion’s purchase by Volvo, such efforts could not constitute
consideration in support of an oral modification because, under the
Best Efforts Provision, the Dealers had a preexisting contractual obli-
gation to make such efforts. Rabon v. State Fin. Corp., 26 S.E.2d 501,
502 (S.C. 1943) (observing that, pursuant to South Carolina law,
agreement to do what one is already legally bound to do is not suffi-
cient consideration to support new agreement); Francis, 21 O.R.3d at
82 (observing that, under Ontario law, agreement to perform preexist-
ing duty does not constitute new consideration). In such circum-
stances, the Dealers’ contention of subsequent oral modification of
the Dealer Agreements must fail.
3.
In their final effort to convince us to read additional terms into the
Dealer Agreements, the Dealers contend that, in defining the parties’
obligations under the Dealer Agreements, we should look to the
course of dealing between the parties and to industry custom regard-
ing heavy equipment dealer franchises. Although courts commonly
look to evidence of the course of dealing and to industry custom and
usage in assessing ambiguous contract terms, under South Carolina
and Ontario law, "extrinsic evidence of a usage or custom is not
admissible where the contract expresses the intent of the parties in
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 21
clear and unambiguous language." U.S. Leasing Corp., 364 S.E.2d at
206; see Gutierrez, 63 O.R.3d at 71 (concluding that extrinsic evi-
dence is not admissible to vary terms of clear and unambiguous con-
tract). The terms of the Dealer Agreements are clear and
unambiguous, and we must decline to modify them on the basis of
either course of dealing or industry custom.
4.
Finally, the Dealers contend that Volvo breached its implied duty
of good faith and fair dealing when it refused to supply them with
Champion Motor Graders. In South Carolina and Ontario, however,
there can be no breach of an implied covenant of good faith and fair
dealing where "a party to a contract [does] what provisions of the
contract expressly [give] him the right to do." Adams v. G.J. Creel &
Sons, Inc., 465 S.E.2d 84, 85 (S.C. 1995); see Peel Condo. Corp. No.
505 v. Cam-Valley Homes, Ltd., 53 O.R.3d 1, 16 (Ont. C.A. 2001)
(holding that covenant of good faith and fair dealing is circumscribed
by terms of contract). In this regard, the Dealer Agreements gave
Champion, and therefore Volvo, the right to terminate the Dealer
Agreements without cause. In terminating the Dealer Agreements,
then, Volvo could not have breached its duty of good faith and fair
dealing.
C.
The Dealers maintain that, even if the Dealer Agreements are com-
pletely integrated contracts unmodified by the promises of Champion
and Volvo representatives, Volvo is estopped from breaching its oral
promises. The Dealers’ estoppel theory is without merit. Promissory
estoppel is simply not a cause of action recognized in Ontario. See
Gilbert Steel, Ltd. v. Univ. Constr., Ltd., 12 O.R.2d 19, 23 (Ont. C.A.
1976) ("[E]stoppel can never be used as a sword but only as a shield.
A plaintiff cannot found his claim in estoppel."). And in South Caro-
lina, equitable relief is precluded under a theory of promissory estop-
pel if the estoppel claim is in direct conflict with a specific contract
term. See Charleston County Sch. Dist. v. Laidlaw Transit, Inc., 559
S.E.2d 362, 364-65 (S.C. Ct. App. 2001) (holding that party who
acknowledges being bound by contract cannot recover in equity under
theory of promissory estoppel if estoppel claim is in direct conflict
22 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
with contract term). CLM’s and Clark’s estoppel claims are barred
under South Carolina law, therefore, because they conflict with the
Without Cause Provision.
D.
We next turn to the Dealers’ contentions regarding the State Stat-
utes. The Dealers maintain that, notwithstanding the Without Cause
Provision, Volvo was prohibited by the State Statutes from terminat-
ing the Dealer Agreements without good cause. More specifically,
Clark contends that the Arkansas Franchise Act (the "Arkansas Act")
prohibited Volvo from terminating its Dealer Agreement (Ark. Code
§ 4-72-201, et seq.); CLM maintains that Volvo’s termination of its
Dealer Agreement was prohibited by the Louisiana Dealer Act (the
"Louisiana Act"; La. Rev. Stat. § 51:481, et seq.); and FEC alleges
that both the Texas Farm, Industrial and Outdoor Power Equipment
Dealer Act (the "Equipment Act"; Tex. Bus. & Com. Code § 19.01,
et seq.) and the Texas Deceptive Trade Practices and Consumer Pro-
tection Act (the "DTPA"; Tex. Bus. & Com. Code § 17.41, et seq.)
precluded Volvo’s termination of its Dealer Agreement.
A federal court exercising diversity jurisdiction is obliged to apply
the substantive law of the state in which it sits, including the state’s
choice-of-law rules. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 79
(1938); Klaxon Co. v. Stentor Elec. Mfg. Co., Inc., 313 U.S. 487, 496
(1941) (observing that forum state’s choice-of-law rules are substan-
tive). And when a lawsuit is transferred from one federal court to
another pursuant to 28 U.S.C. § 1404(a), the transferee court is
obliged to apply the choice-of-law rules that the transferor court
would have applied. Van Dusen v. Barrack, 376 U.S. 612, 632-37
(1964). This transfer, however, was not a typical § 1404(a)
convenience-of-the-witnesses transfer. Instead, the Arkansas Litiga-
tion was transferred to North Carolina because the North Carolina
court declined to defer to the Dealers’ later filed Arkansas case. The
North Carolina Litigation was first filed, venue was proper in the
Western District of North Carolina, and that court possessed jurisdic-
tion over all the parties. The North Carolina court’s decision that it
need not defer to the Arkansas court, therefore, was entirely proper.
Under these circumstances, and in light of the principles animating
the Supreme Court’s decision in Van Dusen, we are not at all sure that
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 23
the Van Dusen precedent should be blindly and mechanically applied,
as the Dealers would have us do. See Van Dusen, 376 U.S. at 635-36
("The legislative history of § 1404(a) certainly does not justify the
rather startling conclusion that one might get a change of law as a
bonus for a change of venue. Indeed, an interpretation accepting such
a rule would go far to frustrate the remedial purposes of § 1404(a).
If a change of law were in the offing, the parties might well regard
the section primarily as a forum-shopping instrument.").
Moreover, the claims asserted by the Dealers in the Arkansas Liti-
gation are mirror images of their counterclaims in the North Carolina
Litigation. Thus, applying Arkansas law to the Arkansas claims and
North Carolina law to the North Carolina counterclaims could (in the-
ory, at least) lead to different results on identical claims. It therefore
seems clear that the choice-of-law rules of only one state should be
applied to this action. For example, in Boardman Petroleum, Inc. v.
Federated Mutual Insurance Co., 135 F.3d 750 (11th Cir. 1998), an
insurer and its insured filed separate actions in the federal courts of
different states, both raising the question of whether coverage existed
under an insurance policy. The insurer’s action was transferred from
South Carolina to Georgia, where the insured’s action was pending,
and the proceedings were consolidated. The Eleventh Circuit applied
Van Dusen but nonetheless concluded that "of necessity, only one
state’s law may be applied" to the consolidated case. Id. at 753; see
also Bott v. Am. Hydrocarbon Corp., 441 F.2d 896, 899-900 (5th Cir.
1971) ("[W]hen the California action was transferred to Texas the
California law went with it. But this is only the first step, because the
Texas District Court found pending before it two separate but identi-
cal actions between the same parties, which it consolidated. . . . The
Texas court could not try the consolidated cases under two sets of
laws if to do so would produce differing results. If there was a con-
flict, it was required to make a choice of law.").
In any event, we need not definitively decide how this thorny issue
should be resolved, because the choice-of-law principles of North
Carolina and Arkansas are sufficiently similar that the outcome of this
dispute would be the same under either set of rules. Both North Caro-
lina and Arkansas typically give effect to contractual choice-of-law
provisions. See Torres v. McClain, 535 S.E.2d 623, 625 (N.C. App.
2000) (holding that parties’ choice of law is generally binding); In re
24 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
Jones, 231 B.R. 66, 68 (Bankr. E.D. Ark. 1999) (observing that
Arkansas courts will generally uphold contract’s choice of law). In
addition, as discussed in more detail later, both Arkansas and North
Carolina rely on the Restatement (Second) of Conflict of Laws (1971)
(the "Second Restatement") to determine the circumstances under
which a contractual choice-of-law provision will be given effect. See
Cable Tel Servs., Inc. v. Overland Contracting, Inc., 574 S.E.2d 31,
33-34 (N.C. Ct. App. 2002); S. Farm Bureau Cas. Ins. Co. v. Craven,
89 S.W.3d 369, 372 (Ark. Ct. App. 2002). Accordingly, in the interest
of simplicity, and because it will not affect the outcome of this pro-
ceeding, we will approach this dispute through the prism of North
Carolina’s choice-of-law rules.
In support of their contentions regarding the State Statutes, the
Dealers rely on the presumptive rule of lex loci contractus, that is, the
interpretation of a contract is governed by the law of the place where
it was made. See Tanglewood Land Co., Inc. v. Byrd, 261 S.E.2d 655,
656 (N.C. 1980) (observing presumption that interpretation of con-
tract is governed by law of place where contract was made). Under
North Carolina law, however, such a presumption may be overcome
by the presence of a choice-of-law provision in a contract. See Bueltel
v. Lumber Mut. Ins. Co., 518 S.E.2d 205, 209 (N.C. App. 1999) (not-
ing that, when contract contains choice-of-law provision, parties
intended exception to presumptive rule that law of place where con-
tract made governs). In this situation, the Dealer Agreements each
contain a Choice-of-Law Provision.18
18
The Choice-of-Law Provision in the Clark and CLM Dealer Agree-
ments provides:
This Agreement has been formalized in South Carolina, and the
rights, duties and obligations of the parties as set forth herein
shall be determined according to the laws of the State of South
Carolina.
CLM and Clark Dealer Agreements § 29. The Choice-of-Law Provision
in the FEC agreement provides:
This Agreement and the rights and obligations of the parties
hereunder shall be governed by and construed in accordance
with the laws of the Province of Ontario.
FEC Dealer Agreement § 29.
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 25
Recognizing the difficultly presented by that provision, the Dealers
attack Volvo’s position that the Dealer Agreements are governed
solely by South Carolina and Ontario law. First, the Dealers contend
that the Local Law Provision is also a choice-of-law clause and that,
pursuant thereto, the Dealer Agreements are governed by the State
Statutes. Second, the Dealers maintain that, if the Dealer Agreements
are not governed by the State Statutes under the Local Law Provision,
the Choice-of-Law Provision is invalid because the law selected
thereunder contravenes the fundamental policies of their home states.
We address these contentions below.
1.
The Dealers first contend that there are, in effect, two choice-of-
law clauses in each Dealer Agreement — the Choice-of-Law Provi-
sion (§ 29) and the Local Law Provision (§ 30). The Dealers maintain
that these two clauses are reconcilable because the drafters of the
Dealer Agreements could have intended the Choice-of-Law Provision
to be applicable only in the absence of local law governing the agree-
ments. The Dealers contend that, because these two provisions are
reconcilable, it would be error to give effect to one clause but not the
other. As explained below, these contentions are without merit.
Under the Local Law Provision, the rights and obligations created
by the Dealer Agreements are subject to all applicable laws, orders,
and regulations of governments and government agencies having
jurisdiction over the parties. If a contracting party believes that a local
law substantially alters the relationships established by its Dealer
Agreement, that party may request the other party to modify the agree-
ment.19 According to Volvo, the State Statutes, if applied, would
19
The Local Law Provision provides:
The rights and obligations of the parties hereto shall be subject
to all applicable laws, orders, regulations, directions, restrictions
and limitations of governments and government agencies having
jurisdiction over the parties hereto. In the event that [a local]
law, order, regulation, direction, restriction or limitation, appro-
priation, . . . or interpretation thereof shall, in the judgment of
either party hereto substantially alter the relationship between the
parties under this Agreement or the advantages derived from
such relationship, either party may request the other hereto to
modify this Agreement.
CLM, Clark, and FEC Dealer Agreements § 30 (emphasis added).
26 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
effectively nullify the Without Cause Provision, substantially altering
the relationship between Champion and the Dealers. We agree.
The Local Law Provision provides a ready mechanism for the
Dealers to request that the Dealer Agreements be modified. If the
Dealers had viewed the State Statutes as substantially altering the
relationships between the parties under the Dealer Agreements, they
were entitled to request Champion (or Volvo) to modify the agree-
ments; the Local Law Provision expressly provided them with this
right. The Dealers did not, however, seek to modify the Dealer Agree-
ments so that they could be terminated only "for good cause," and
they cannot now maintain that, under the Local Law Provision, they
are protected by the State Statutes.20
2.
In their second assault on the Choice-of-Law Provision, the Dealers
maintain that application of South Carolina law (under the Clark and
CLM Dealer Agreements) and Ontario law (under the FEC Dealer
Agreement) is unreasonable and contravenes the fundamental policies
of Arkansas, Louisiana, and Texas. Despite North Carolina’s adher-
ence to the presumptive rule of lex loci contractus, contracting parties
in North Carolina are entitled to agree that a particular jurisdiction’s
substantive law will govern their contract, and such a provision will
generally be given effect. See Torres, 535 S.E.2d at 625 (holding that
20
In support of their contention that the Local Law Provision mandates
that the State Statutes govern the Dealer Agreements, the Dealers rely on
two decisions, Sutter Home Winery, Inc. v. Vintage Selections, Ltd., 971
F.2d 401 (9th Cir. 1992), and Lake Charles Diesel, Inc. v. General
Motors Corp., 328 F.3d 192 (5th Cir. 2003). Their reliance on these deci-
sions, however, is misplaced. The agreement at issue in Sutter Home
expressly provided that, "[e]xcept as otherwise required by applicable
law, this Agreement shall be governed by the law of the State of Califor-
nia." Sutter Home, 971 F.2d at 406 (emphasis added). This language is
absent from the Dealer Agreements. The agreement at issue in Lake
Charles provided that "any provision which contravenes the laws of any
state or jurisdiction where this Agreement is to be performed will be
deemed not a part of this Agreement in such state or jurisdiction." Lake
Charles, 328 F.3d at 197 n.10. No such provision exists in the Dealer
Agreements.
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 27
21
parties’ choice of law is generally binding). In certain circum-
stances, however, North Carolina will decline to honor a choice-of-
law provision. North Carolina relies on the Second Restatement to
determine whether such circumstances are present. See Cable Tel
Servs., 574 S.E.2d at 33-34. Pursuant to § 187 of the Second Restate-
ment, a choice-of-law provision will not be enforced if either of the
following two conditions is satisfied:
(a) the chosen state has no substantial relationship to the
parties or the transaction and there is no other reasonable
basis for the parties’ choice, or
(b) application of the law of the chosen state would be
contrary to a fundamental policy of a state which has a
materially greater interest than the chosen state in the deter-
mination of the particular issue . . . .
Second Restatement § 187 (emphasis added). The Dealers maintain
that the Choice-of-Law Provision does not apply here because it con-
travenes both prongs of the § 187 test. They contend, first, that there
is no substantial relationship between South Carolina and the Clark
and CLM Dealer Agreements (the "Substantial Relationship" issue),
and, second, that application of South Carolina or Ontario law to
those agreements would contravene the fundamental policies of
Arkansas, Louisiana, and Texas (the "Fundamental Policy" issue).
Before addressing this aspect of the Dealers’ assault on the Choice-
of-Law Provision, we must assess whether Volvo is correct in its con-
tention that the Substantial Relationship and Fundamental Policy
issues were not properly raised in the district court. If those issues are
properly before us, we must determine whether the Dealers are pro-
tected by the State Statutes.
21
We recognize that the "Supreme Court has consistently accorded
choice of forum and choice of law provisions presumptive validity."
Allen v. Lloyd’s of London, 94 F.3d 923, 928 (4th Cir. 1996).
28 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
a.
Volvo contends that the Substantial Relationship and Fundamental
Policy issues were not raised in the district court. Absent exceptional
circumstances, of course, we do not consider issues raised for the first
time on appeal. Williams v. Prof’l Transp. Inc., 294 F.3d 607, 614
(4th Cir. 2002) (citing Muth v. United States, 1 F.3d 246, 250 (4th
Cir. 1993)). Indeed, we consider such issues on appeal only when the
failure to do so would result in a miscarriage of justice. Muth, 1 F.3d
at 250.
In support of its contention, Volvo relies on an observation in the
Opinion that the Dealers and the Dealer Agreements may not bear a
reasonable relationship to South Carolina or Ontario. The court
declined to decide whether such a reasonable relationship existed,
however, concluding that the Dealers had not raised the Substantial
Relationship issue. Opinion at 542 n.5. The Dealers maintain that
Volvo has mischaracterized the record on this point, and they contend
that the Substantial Relationship and Fundamental Policy issues were
raised in the district court. In support of their position that these issues
were properly raised, the Dealers point to memoranda filed on Octo-
ber 23, 2002 (the "October Response"), in which they maintained:
all the Dealers are protected by dealer protection statutes
enacted by their own state legislatures to protect them from
the precise action that Volvo is seeking to undertake. . . . all
but one of the applicable statutes contain ‘non-waiver’ pro-
visions — meaning that the contract simply cannot be seen
as circumventing the statute.
In the October Response, the Dealers asserted that, because some of
the State Statutes contain anti-waiver provisions, the Dealers are pro-
tected by them, despite the presence of the Choice-of-Law Provision
in the Dealer Agreements. In assessing whether an issue was properly
raised in the district court, we are obliged on appeal to consider any
theory plainly encompassed by the submissions in the underlying liti-
gation. See Maynard v. Gen. Elec. Co., 486 F.2d 538, 539 (4th Cir.
1973). In this circumstance, the October Response plainly encom-
passes the contention that certain of the State Statutes contain anti-
waiver provisions (namely the Arkansas Act, the Texas Equipment
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 29
Act, and the Texas DTPA), and that protection of the Dealers under
these statutes cannot be circumvented by the Choice-of-Law Provi-
sion. We will therefore consider this contention on appeal. The Deal-
ers acknowledged in the October Response, however, that one of the
State Statutes (i.e., the Louisiana Act) does not contain an anti-waiver
clause. Rather than raising the issue of whether the Louisiana Act sets
forth a fundamental policy of Louisiana, and therefore trumps the
Choice-of-Law Provision, the Dealers asserted that the Act governs
CLM’s Dealer Agreement because of the Local Law Provision.
Although the Dealers failed to assert in the district court that the Loui-
siana Act expresses a fundamental policy of Louisiana, the court
addressed this point in determining whether the Louisiana Act pre-
cluded Volvo’s termination of the CLM Dealer Agreement without
cause. Opinion at 554. Because the question of whether the Louisiana
Act expresses fundamental state policy was decided by the district
court, that issue is properly before us on appeal. Home Health Servs.,
Inc. v. Currie, 706 F.2d 497, 498 (4th Cir. 1983) (observing that issue
may be considered on appeal if it was argued below or specifically
decided by district court).
We next consider whether the Substantial Relationship issue was
properly raised below. On this point, the pleadings fail to plainly
encompass the contention that there is no substantial relationship
between the law selected under the Choice-of-Law Provision, on the
one hand, and the parties or the Dealer Agreements, on the other. We
therefore agree with the district court — the Dealers did not properly
raise the Substantial Relationship issue below. Opinion at 542 n.5.
Moreover, the Dealers have presented us with no reason to believe
that declining to address this issue on appeal will result in a miscar-
riage of justice.
b.
Next, before assessing whether the State Statutes constitute funda-
mental policies of Arkansas, Louisiana, or Texas and thus govern the
Dealer Agreements, we must decide whether the Dealers are protected
parties under those statutes. If a Dealer is protected by one of the
State Statutes, we must then determine whether the statute also
applies to Champion Motor Graders.
30 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
(1)
We first consider whether FEC can assert a claim under the Texas
Equipment Act, which provides that a manufacturer may not termi-
nate a dealer agreement except for cause. Tex. Bus. & Com. Code
§ 19.41. As the district court ruled, however, FEC cannot state a claim
under the Texas Equipment Act because FEC is not a party protected
by it. When FEC acquired its Champion dealership in 1996, the Texas
Equipment Act excluded from its protection those "person[s] whose
principal business is the sale of off-road construction equipment." Id.
§ 19.01(5) (originally enacted as Act of May 19, 1991, 72nd Leg., ch.
119, § 1), amended by Act of Sept. 1, 1999, 76th Leg., ch. 725, § 2.
The court concluded that FEC could not state a claim under the Texas
Equipment Act because Champion Motor Graders constituted off-
road construction equipment.22 Opinion at 553. We agree. Because
FEC is unable to state a claim under the Texas Equipment Act, we
need not address the question of whether its provisions constitute a
fundamental policy of Texas.
(2)
We next turn to the issue of whether FEC can state a claim under
the Texas DTPA, which provides protection only to "consumers." See
Kennedy v. Sale, 689 S.W.2d 890, 892-93 (Tex. 1985) (noting that
DTPA is designed to protect only "consumers," as that term is defined
therein). Under the DTPA, "a consumer is one who seeks or acquires,
by purchase or lease, any goods or services." Rayford v. Maselli, 73
S.W.3d 410, 411 (Tex. App. 2002) (citing Tex. Bus. & Com. Code
Ann. § 17.45(4)). On appeal, FEC maintains that it is a consumer
under the DTPA, and that the district court erred in ruling that it could
22
In 1999, the Texas Legislature amended the Texas Equipment Act so
that a "dealer" under the Act included dealers engaged in the retail sale
of off-road construction equipment. The Legislature provided, however,
that "[a]n agreement entered into before the effective date of this Act
[Sept. 1, 1999] is governed by the law in effect on the date the agreement
was entered into . . . ." 1999 Tex. Gen. Laws § 4, 76th Leg., Ch. 725
(emphasis added). FEC acquired its Champion dealership in 1996; thus
the 1999 amendments to the Texas Equipment Act have no application
to its Dealer Agreement.
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 31
not state a claim under that statute. In assessing whether the court
erred in so ruling, we must ascertain and follow the substantive law
of Texas. See Erie, 304 U.S. at 78-79.
In its Opinion, the court relied heavily on the Texas decision in
Fisher Controls International, Inc. v. Gibbons, 911 S.W.2d 135 (Tex.
App. 1995), and it ruled that FEC was not a consumer under the DTPA.23
In Fisher, the owner ("Gibbons") of a company engaged in the resale
of valves and instruments ("ACI") sued the company’s supplier
("Fisher"), alleging a violation of the DTPA. ACI was an independent
sales representative for Fisher. In his DTPA claim, Gibbons alleged
that Fisher had falsely promised to extend ACI’s agreement beyond
the three years expressly provided in its contract, and that Fisher
failed to inform ACI of Fisher’s long-term business plan to terminate
its independent representatives (such as ACI). Id. at 139 n.1.
Although the jury found for Gibbons, the trial court granted judgment
notwithstanding the verdict, concluding that ACI was not a consumer
under the DTPA.
The Texas Court of Appeals began its analysis of whether ACI was
a consumer by noting that ACI was authorized, under the agreement,
to "buy Fisher products at a discount and resell them on its own
behalf." Id. at 139. The court ruled, however, that despite being
authorized to buy Fisher products, ACI was not a consumer under the
DTPA. The court observed that ACI’s DTPA complaint was premised
on ACI’s "intangible property right . . . to act as Fisher’s sales repre-
sentative under the ‘Representative Agreement,’" rather than the qual-
ity of Fisher’s products. Id. at 138-39. In ruling for Volvo, the district
23
The Supreme Court of Texas, the court possessing the final authority
in all Texas civil cases, has not addressed the issue of whether, pursuant
to a dealer agreement analogous to FEC’s, a vendee is a consumer under
the DTPA. Because there is no reason to believe the Supreme Court of
Texas would disagree with the Texas Court of Appeals (an intermediate
appellate court of Texas) on this issue, we must rely on that court in dis-
cerning Texas law. See West v. Am. Tel. & Tel. Co., 311 U.S. 223, 237
(1940) (holding that state intermediate appellate court’s judgment on rule
of law is datum for ascertaining state law and should not be disregarded
by federal court unless it is convinced by persuasive data that highest
court of state would decide otherwise).
32 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
court concluded that the Fisher decision was controlling because
there is no material distinction between the arrangement in Fisher and
the arrangement between FEC and Volvo.24 We agree. FEC’s com-
plaint is based on its asserted intangible right to be a Champion
dealer, not the quality of Champion Motor Graders. Opinion at 552.
FEC maintains that, under the Texas decision in Texas Cookie Co.
v. Hendricks & Peralta, 747 S.W.2d 873 (Tex. App. 1988), it is none-
theless a consumer protected by the Texas DTPA. Under Texas
Cookie, a business possessing an intangible right analogous to that in
Fisher (i.e., the contract right to be a dealer of a manufacturer’s goods
in a certain geographic area) may be a consumer under the DTPA if
(1) the business purchased the intangible right, and (2) the business’s
decision to purchase the right was motivated, in part, by its desire to
obtain collateral services under the dealer agreement. Fisher, 911
S.W.2d at 139 (citing Tex. Cookie, 747 S.W.2d at 876-77).
FEC is not a consumer under the DTPA, however, because FEC
did not purchase an intangible right to be a Champion dealer, and the
collateral services provided under the Dealer Agreement were merely
incidental to the agreement. See id. (concluding that, because collat-
eral services provided ACI under contact were incidental to transac-
tion rather than its objective, ACI was not consumer under DTPA).
As the district court observed, FEC does not allege that it paid for an
intangible right to continue to be a Champion dealer, and no payment
is reflected in the Dealer Agreement. Opinion at 552. In addition,
receipt of collateral services provided to FEC by Champion was not
an objective of the Dealer Agreement. The collateral services Cham-
pion provided to the Dealers included sales advice, catalogues, manu-
als, instruction booklets, and advertising signs, and the Dealer
Agreement provided that all demonstration equipment furnished by
Champion "remain[s] the property of Champion." FEC Dealer Agree-
ment § 14. These collateral services were, therefore, merely incidental
to FEC’s objective of being an authorized Champion dealer, and the
24
Under both the dealer agreement in Fisher and FEC’s Dealer Agree-
ment, the relationship between the manufacturer and dealer was that of
vendor and vendee. FEC Dealer Agreement § 21. And like the valves and
instruments provided to ACI by Fisher, Champion Motor Graders were
sold to FEC at dealer net prices for resale. Id. §§ 9.1, 12.4.
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 33
court properly determined that FEC was not a consumer under the
DTPA. Opinion at 552. As such, FEC is unable to assert a claim
under the DTPA, and we need not reach the issue of whether the
DTPA constitutes a fundamental policy of Texas.
(3)
Next, we assess whether Clark or CLM can state a claim under the
Arkansas Act or the Louisiana Act, respectively. In the district court,
Volvo maintained that Clark was not protected by the Arkansas Act
and that CLM was not protected by the Louisiana Act because, pursu-
ant to the Choice-of-Law Provision, Clark’s and CLM’s Dealer
Agreements are governed by South Carolina law. Volvo did not, how-
ever, assert that the statutes in question, by their terms, fail to apply
to Clark’s or CLM’s Dealer Agreements. Absent the Choice-of-Law
Provision, Clark could state a claim under the Arkansas Act, and
CLM could state a claim under the Louisiana Act. We must therefore
decide whether either statute embodies a fundamental state policy.
c.
Under the Second Restatement, North Carolina will not honor a
choice-of-law provision if the law of the chosen state is contrary to
the fundamental policy of a state possessing a greater interest in the
issue than the chosen state (the "Fundamental Policy" test). See Cable
Tel Servs., 574 S.E.2d at 33-34 (quoting § 187 and noting that it has
been incorporated into North Carolina common law). Pursuant
thereto, unless the Choice-of-Law Provision in either Clark’s or
CLM’s Dealer Agreement satisfies the Fundamental Policy test, it
does not deprive Clark or CLM of protection under the Arkansas Act
or the Louisiana Act, respectively.
In this regard, Clark and CLM maintain that Volvo’s termination
of their Dealer Agreements without cause contravenes fundamental
state policies. More specifically, they contend that the law selected
under the Choice-of-Law Provision is contrary to the Arkansas Act
and the Louisiana Act, that these statutes constitute fundamental state
policy, and that the Choice-of-Law Provision therefore fails the Fun-
damental Policy test.
34 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
In order to determine whether the law selected under the Choice-
of-Law Provision fails the Fundamental Policy test, we must first
determine whether either the Arkansas Act or the Louisiana Act
expresses a fundamental state policy. In addressing this issue, we
begin with the proposition that not every statutory provision consti-
tutes a fundamental policy of a state. Cherokee Pump & Equip. Inc.
v. Aurora Pump, 38 F.3d 246, 252 (5th Cir. 1994) ("The law of a state
and its public policy are not necessarily synonymous. Not every law
enacted by the legislature embodies the ‘public policy’ of the state.").25
(1)
In assessing whether a dealer protection statute expresses a state’s
fundamental policy, we are guided by the language of the statute, rel-
evant court decisions, and pertinent legislative history.26 In particular
here, we are aided by several recent decisions of our sister circuits
regarding similar controversies. See Cromeens, 2003 WL 22519825
(determining that Maine franchise statute evidenced strong public pol-
icy against contracts violating franchise law, and that protection under
such statute may not be waived); Wright-Moore Corp. v. Ricoh Corp.,
908 F.2d 128 (7th Cir. 1990) (determining that Indiana franchise law
expressed fundamental policy, and that protection under Indiana fran-
chise law may not be waived); Modern Computer Sys., Inc. v. Modern
Banking Sys., Inc., 871 F.2d 734 (8th Cir. 1989) (en banc) (holding
that protection under Minnesota franchise law may be waived because
law does not embody fundamental policy); Tele-Save Merch. Co. v.
Consumers Distrib. Co., Ltd., 814 F.2d 1120 (6th Cir. 1987) (holding
25
If every statutory provision expressed a state’s fundamental policy,
contracting parties would be entitled to apply the law of another state
under the Second Restatement only when the law of the chosen state was
the same as that of the state where the contract was made. Cherokee
Pump & Equip. Inc., 38 F.3d at 252 (characterizing such proposition as
"ridiculous").
26
We note that, in assessing whether the Arkansas Act or the Louisiana
Act embodies a fundamental state policy, we would be bound by any rel-
evant precedent of the Arkansas or Louisiana courts. Because there is
none, and because our Court has not heretofore addressed such an issue,
we are constrained to examine the decisions of our sister circuits address-
ing these and similar dealer protection statutes.
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 35
that protection under Ohio business statute may be waived because
statute does not embody fundamental policy).
The Sixth, Seventh, and Eighth Circuits have, in their analyses of
similar issues, focused on whether state dealer protection statutes con-
tain anti-waiver provisions. The Arkansas Act contains such a provi-
sion, and Clark maintains that its inclusion reflects that the Arkansas
Act constitutes a fundamental policy of Arkansas.27 In espousing this
proposition, Clark relies primarily on the Seventh Circuit’s decision
in Wright-Moore. There, the court held that an Indiana franchise stat-
ute containing an anti-waiver provision constituted a fundamental pol-
icy of Indiana and barred contracting parties from opting out of its
protection "whether directly through waiver provisions or indirectly
through choice of law." Wright-Moore, 908 F.2d at 132. As the Sixth
and Eight Circuits have observed, however, the presence of a statu-
tory anti-waiver provision does not necessarily mean that a statute
embodies a state’s fundamental policy. See Tele-Save, 814 F.2d 1120;
Modern Computer, 871 F.2d 734.
There is no established rule for determining whether a state policy
is fundamental. Although the presence of an anti-waiver provision
does not necessarily mean that a dealer protection statute embodies a
fundamental policy, such a provision suggests the importance the leg-
islature attached to the statute. The strength of anti-waiver provisions
in dealer protection statutes, however, varies among the states.
Wright-Moore, 908 F.2d at 134. Following the lead of our sister cir-
cuits, we will determine whether the Arkansas Act expresses funda-
mental policy by first assessing the strength of its anti-waiver
provision. See Wright-Moore, 908 F.2d at 134; Modern Computer,
871 F.2d at 738; Tele-Save, 814 F.2d at 1122-23; see also Jeffries v.
Woodruff County, 205 S.W.2d 194, 196 (Ark. 1947) (observing that,
in Arkansas, public policy is determined by examining constitution,
statutes, and court decisions). We will also focus on any legislative
history indicating whether the Arkansas Act was intended to embody
a fundamental policy of Arkansas. See Cromeens, 2003 WL
22519825, at *9-10; see also Jordan v. Atl. Cas. Ins. Co., 40 S.W.3d
254, 257 (Ark. 2001) (observing that, in Arkansas, determination of
27
Unlike the Arkansas Act, the Louisiana Act does not contain an anti-
waiver provision.
36 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
public policy lies almost exclusively with legislature, and courts
should not interfere with that determination absent palpable error).
Because the Louisiana Act does not have an anti-waiver provision, we
must, in seeking to determine whether the Act was intended to
embody a fundamental policy of Louisiana, focus on its provisions
and on any relevant court decisions.
(2)
In assessing whether the Louisiana Act constitutes a fundamental
policy of Louisiana, we look to pertinent Louisiana judicial and legis-
lative authorities. Because the Louisiana courts have not addressed
this issue, our analysis is limited to the text of the statute. Cherokee
Pump, 38 F.3d at 253 (observing that court decisions fail to show that
Louisiana Act reflects public policy of Louisiana). Unlike the dealer
protection statutes of certain other states, the Louisiana Act does not
contain an anti-waiver provision. More importantly, nothing in the
Act indicates that it was enacted to foster or protect a fundamental
policy of Louisiana. See Cherokee Pump, 38 F.3d at 253 (observing
that Louisiana Act fails to indicate that "strongly held belief" or "pub-
lic policy" of Louisiana was being fostered or protected by its enact-
ment). In this regard, the Louisiana legislature clearly understood the
significance of a statutory provision indicating that a statute repre-
sents important state policy. For example, in the Louisiana Oilfield
Indemnity Act, the legislature indicated its intent "to declare null and
void and against public policy of the state of Louisiana any provision
in any agreement which requires defense and/or indemnification, for
death or bodily injury to persons, where there is negligence or fault
. . . on the part of the indemnitee . . . ." La. Rev. Stat. § 9:2780
(emphasis added). No such provision is found in the Louisiana Act.
In the absence of an anti-waiver provision in the statute, and there
being no legislative finding that the Louisiana Act constitutes an
important, much less a fundamental, state policy, we agree with the
Fifth Circuit that the Act cannot override a choice-of-law contract
provision precluding its application. Cherokee Pump, 38 F.3d at 252.
Because the body of law selected in CLM’s Choice-of-Law Provision
does not fail the Fundamental Policy test, that law, rather than the
Louisiana Act, governs the obligations of the parties.
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 37
(3)
Finally, we turn to the issue of whether the Arkansas Act embodies
a fundamental policy of Arkansas. The Arkansas courts have not
addressed this issue. We begin our analysis, therefore, by examining
the text of the Arkansas Act. That Act, unlike the Louisiana Act, con-
tains an anti-waiver provision, which provides that a franchisor may
not "require a franchisee at the time of entering into a franchise agree-
ment to assent to a . . . waiver . . . which would relieve any person
from liability imposed by [the Arkansas Act]." Ark. Code § 4-72-
206(1). Although the inclusion of an anti-waiver provision in the
Arkansas Act is indicative of the importance the Arkansas legislature
attached to the statute, we see nothing in the provision itself to indi-
cate that the legislature intended the Act to embody the state’s funda-
mental policy.
The Seventh Circuit recently addressed a similar situation in Crom-
eens, in which it analyzed the anti-waiver provision of the Maine
Franchise Law for Power Equipment, Machinery and Appliances (10
M.R.S.A. § 1361, et seq.; the "Maine Law").28 Like the anti-waiver
provision of the Arkansas Act, there was nothing in the anti-waiver
provision of the Maine Law to indicate that the legislature intended
the statute to embody fundamental policy. As the court observed in
Cromeens, however, a legislature simplifies the task of determining
whether a state statute embodies fundamental policy when it
expressly states that the statute constitutes such policy. Cromeens,
2003 WL 22519825, at *9. In Cromeens, the Seventh Circuit discov-
ered that the Maine legislature had rendered the court’s task "exceed-
ingly easy" by including in the Maine Law a section entitled "Public
Policy." Id. The "Public Policy" section of the Maine Law provides
that "[a] contract . . . or activity undertaken pursuant to a contract in
violation of this chapter is deemed against public policy and is void
and unenforceable." 10 M.R.S.A. § 1368. Relying on this section, the
court held that the Maine Law "evidences a strong public policy
against contracts that violate the franchise law generally," and that,
28
Pursuant to the anti-waiver provision of the Maine Law, it is unlaw-
ful for a manufacturer, without good cause, "[t]o cancel . . . a franchise
relationship with a distributor or dealer, notwithstanding . . . the terms
or provisions of a waiver . . . ." 10 M.R.S.A. § 1363(3)(B).
38 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
because Maine has expressed a strong public policy against allowing
choice-of-law provisions to prevail over the statute, franchisees could
not waive protection under the Maine Law. Cromeens, 2003 WL
22519825, at *10.
In determining whether the Arkansas Act embodies a fundamental
policy of Arkansas, we will conduct an analysis like that utilized by
the Cromeens court. As the Supreme Court of Arkansas has observed,
the "public policy [of Arkansas] is declared by the General Assem-
bly." W. World Ins. Co., Inc. v. Branch, 965 S.W.2d 760, 762 (Ark.
1998). And the Arkansas legislature, in the Arkansas Act’s emer-
gency clause (the "Emergency Clause"), included a provision analo-
gous to the "Public Policy" section of the Maine Law.29 In the
Emergency Clause, the legislature expressly declared that cancellation
of franchise agreements in Arkansas, absent good cause, was "vitally
affect[ing] the . . . public welfare." 1977 Ark. Acts 355, § 13. More
specifically, the Emergency Clause asserted that franchisors, "without
good cause and to the great prejudice and harm of the citizens of the
State of Arkansas, [were] cancell[ing] existing franchise agreements."
And it declared that the legislature had enacted the Arkansas Act to
prevent the cancellation of such franchise agreements without good
cause, in order to preserve the "public peace, health, and safety" of
its citizens. Importantly, the Supreme Court of Arkansas has recog-
nized that the Emergency Clause shows that the legislature "designed
the [Arkansas Act] for the protection of the public," and it has
acknowledged that the purpose of the Arkansas Act is revealed in its
Emergency Clause. Dr. Pepper Bottling Co. of Paragould v. Frantz,
29
The requirements for enacting an emergency clause in Arkansas are
explained in Amendment 7 to the Arkansas Constitution:
If it shall be necessary for the preservation of the public peace,
health and safety that a measure shall become effective without
delay, such necessity shall be stated in one section, and if upon
a yea and nay vote two-thirds of all members elected to each
house . . . shall vote upon separate roll call in favor of the mea-
sure going into immediate operation, such emergency measure
shall become effective without delay.
Ark. Const. amend. 7. In interpreting an Arkansas statute, courts may
look to the emergency clause to determine legislative intent. Quinney v.
Pittman, 895 S.W.2d 538, 542 (Ark. 1995).
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 39
842 S.W.2d 37, 41 (Ark. 1992). In sum, like the "Public Policy" pro-
vision of the Maine Law, the Emergency Clause of the Arkansas Act
constitutes a compelling statement of Arkansas policy.
In these circumstances, the anti-waiver provision of the Arkansas
Act, considered in conjunction with the declarations made in the
Emergency Clause, renders the termination of a dealer agreement,
absent good cause, a violation of the fundamental policy of Arkansas.
And Arkansas has a materially greater interest than South Carolina in
determining whether a dealer agreement between an Arkansas dealer
and an out-of-state manufacturer can be terminated without cause.
Thus, under the Fundamental Policy test, Clark’s Dealer Agreement
is governed by the Arkansas Act. We must therefore assess whether
Volvo’s termination of Clark’s Dealer Agreement was permissible
under the Arkansas Act.
d.
Volvo maintains that, even if Clark’s Dealer Agreement is gov-
erned by the Arkansas Act, it did not violate the Act because the
Dealer Agreement was terminated for good cause. More specifically,
Volvo contends that its legitimate business objective of consolidating
its network of motor-grader dealers satisfies the good cause standard
of the Arkansas Act. Indeed, in the Cromeens controversy, AB Volvo,
Volvo Excavators AB, and Volvo Construction Equipment NV (col-
lectively, "AB Volvo") made a similar argument to the Seventh Cir-
cuit. And AB Volvo, like Volvo here, maintained that it possessed
good cause to terminate its dealers because it had withdrawn from the
market the heavy equipment sold by those dealers. Cromeens, 2003
WL 22519825, at *10.
In this appeal, Volvo maintains that it possessed good cause to ter-
minate Clark’s Dealer Agreement because it withdrew the Champion
Motor Graders from the market. Volvo acknowledges that, although
the Maine Law assessed in Cromeens provided that "[t]here is good
cause [for termination of a franchise] when the manufacturer discon-
tinues production or distribution of the franchise goods," 10 M.R.S.A.
§ 1363(3)(C)(4), the Arkansas Act contains no such provision. Volvo
maintains, however, that circumstances other than those enumerated
40 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
in the Arkansas Act may constitute good cause, and it contends that
a market withdrawal is such a circumstance.
Clark, on the other hand, asserts that, even if the list of what may
constitute good cause under the Arkansas Act is not exhaustive, and
even if a market withdrawal may constitute good cause for a franchise
termination, Volvo did not in fact withdraw the Champion Motor
Graders from the market. Clark contends that, because the motor
graders currently manufactured by Volvo have not been significantly
reengineered, Volvo has not withdrawn Champion Motor Graders
from the market. More specifically, Clark maintains that Volvo has
simply rebranded the Champion Motor Graders and that it is selling
them as Volvo graders. And, according to Clark, such rebranding
does not constitute a market withdrawal. Clark contends, therefore,
that even if a market withdrawal may constitute good cause under the
Arkansas Act, Volvo did not possess good cause for terminating its
Dealer Agreement.
In these circumstances, a genuine factual dispute exists as to
whether Volvo possessed good cause, under the Arkansas Act, to ter-
minate Clark’s Dealer Agreement. We therefore remand Clark’s stat-
utory claim (in the Arkansas Litigation) and its statutory counterclaim
(in the North Carolina Litigation) for the district court’s assessment
of whether, pursuant to the Arkansas Act, Volvo terminated Clark’s
Dealer Agreement without good cause.
IV.
Pursuant to the foregoing, we affirm the district court except as to
Clark’s statutory claim in the Arkansas Litigation and its statutory
counterclaim in the North Carolina Litigation. We vacate the judg-
ment on those two claims only, and we remand for such further pro-
ceedings as may be appropriate.
AFFIRMED IN PART, VACATED IN PART,
AND REMANDED
WIDENER, Circuit Judge, concurring and dissenting:
I concur in part and respectfully dissent in part.
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 41
I agree with the result reached by the majority except the treatment
of CLM’s claim under the Louisiana Act and the claim of Future
Equipment Company under the Texas Deceptive Trade Practices and
Consumer Act. In my opinion, the decision of the district court as to
those claims should be vacated, and as to them should be remanded
to the district court for further consideration.
I.
The key provision in CLM’s dealer agreement with Volvo is the
Local Law Provision, or section 30 of the dealer agreement. The
Local Law Provision provides as follows:
The rights and obligations of the parties hereto shall be sub-
ject to all applicable laws, orders, regulations, directions,
restrictions and limitations of governments and governmen-
tal agencies having jurisdiction over the parties hereto. In
the event that any law, order, regulation, direction, restric-
tion or limitation, appropriation . . . or interpretation thereof
shall, in the judgment of either party hereto, substantially
alter the relationship between the parties under this Agree-
ment or the advantages derived from such relationship,
either party may request the other party hereto to modify
this Agreement. If, within fifteen (15) days subsequent to
making such request, the parties hereto are unable to agree
upon a mutually satisfactory modification hereof, then the
adversely affected party may terminate this Agreement on
fifteen (15) days’ notice to the other party.
The Louisiana Act, La. Rev. Stat. Ann. §§ 51:481-82 (West 2003),
applies to the CLM-Volvo dealer agreement. In Lake Charles Diesel,
Inc. v. General Motors Corp., 328 F.3d 192 (5th Cir. 2003), the court
explained the prerequisites necessary for the Louisiana Act to apply.
For the Louisiana Act to apply in this case, each of the following must
be present:
1. A contract or agreement, written or oral;
42 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
2. The contract must be between (1) a dealer,1 and (2) an
agent.2
3. The dealer must be in the business of selling, distribut-
ing, or retailing.
4. The agent must be in the business of wholesaling, man-
ufacturing, or distributing.
5. The tangible movable (personal) property that the dealer
agrees to sell, distribute, or retail and that the agent
agrees to wholesale, manufacture, or distribute must
pertain to one or more of five industries only: (1) farm-
ing; (2) construction; (3) heavy industrial material han-
dling; (4) utility; or (5) lawn and garden.
6. The tangible movables that are the objects of the dealer-
ship contract must be one or more of the following
types: (1) equipment; (2) engines; (3) implements; (4)
machinery; or (5) attachments.
7. In addition to the type or types of equipment that are the
objects of the dealership contract, the dealer must also
agree to sell, distribute or retail, and the agent must also
agree to wholesale, manufacture, or distribute repair
parts for such equipment.
8. In the dealership contract, the dealer must agree to
maintain an inventory of one or more of the following:
(1) repair parts for the subject tangible movables; or (2)
the tangible movables themselves; or (3) attachments.
1
A dealer is defined by statute to mean "any farm dealer, heavy indus-
trial equipment dealer, construction equipment dealer, material handling
equipment dealer, utility equipment dealer, engines equipment dealer,
lawn and garden equipment dealer or retail equipment distributor dealer."
La. Rev. Stat. Ann. § 51:481(B)(3) (West 2003).
2
An agent is defined by statute to mean "any manufacturer, wholesaler
or wholesale distributor." La. Rev. Stat. Ann. § 51:481(B)(4) (West
2003).
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 43
Lake Charles Diesel, 328 F.3d at 200. The CLM-Volvo dealer agree-
ment fulfills all of these prerequisites. Because the dealer agreement
fulfills all of the prerequisites outlined by the court in Lake Charles
Diesel, the substantive sections of Title 51 apply to the dealer agree-
ment. In particular, § 482 is applicable. Section 482(A)(1) provides
that:
[n]o agent, directly through an officer or an employee, may
terminate, cancel, fail to renew, or substantially change the
competitive circumstances of a dealership agreement or con-
tract without good cause.
La. Rev. Stat. Ann. § 51:482 (West 2003). Accordingly, § 482 is an
applicable law under the Local Law Provision of the dealer agree-
ment.
Under the majority’s interpretation of the Local Law Provision,
§ 482 is not applicable in this case because CLM failed to request a
modification of its dealer agreement. Maj. Op. at 25-26. But the plain
language of the Local Law Provision does not require CLM to request
a modification of the dealer agreement in order to gain the protection
of § 482. Under the Local Law Provision, either party, either Volvo
or CLM, could have requested a modification if it believed, "in [its]
judgment" that a local law would substantially alter the contractual
relationship between the parties. Neither CLM nor Volvo requested
a modification. As the majority duly notes in its opinion, Volvo rec-
ognized that § 482 would alter the relationship between the two par-
ties:
According to Volvo, the State Statutes, if applied, would
effectively nullify the Without Cause Provision, substan-
tially altering the relationship between Champion and the
Dealers.
Maj. Op. at 25-26. Despite this realization, Volvo never sought a
modification of the contract.
The Louisiana state legislature added § 482 to Title 51 in 1991. See
La. Rev. Stat. Ann. § 51:482 (West 2003). Until the time of this addi-
44 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
tion, neither CLM nor Volvo was subject to § 482(A)(i), and immedi-
ately upon enactment, and until 2000, either CLM or Volvo could
have asked for a modification of the dealer agreement. The reason
that CLM did not seek such a modification is at once apparent; under
the dealer agreement, if there had been no applicable local law, the
agreement could have been terminated under the Without Cause Pro-
vision of CLM Dealer Agreement § 24. At the time the dealer agree-
ment was signed in 1984, neither party had any cause to seek a
modification. The passage of § 482 in 1991 modified the dealer agree-
ment. CLM had no cause for concern, however, because it derived a
benefit from § 482. Volvo, as it admits and as the majority notes in
its opinion, did have its rights and advantages altered by the passage
of § 482. Maj. Op. at 26. Since Volvo now recognizes the impact of
§ 482, as shown without objection, it could have recognized § 482’s
significance at any time since 1991, and did not.
Furthermore, the Local Law Provision provided a method for
Volvo to alter the dealer agreement to regain any advantages, in its
judgment it lost by the passage of § 482. The majority opinion holds
that only CLM bears the burden of requesting a modification of the
dealer agreement, but as I have noted, the plain language of the Local
Law Provision does not limit to CLM alone the ability to request a
modification. The majority interprets the Local Law Provision so that,
while § 482 alters the relationship of the parties, CLM loses on its
claims because it did not request a modification. Using the same
logic, the majority should, with equal facility, reach the opposite con-
clusion; that because § 482 alters the relationship between the parties,
Volvo loses because it did not request a modification.
The majority offers no reason or justification for declaring Volvo
the winner with respect to the construction of this provision of the
contract, which, by its literal terms, applies to "either party." Indeed,
a more logical and reasonable construction of the contract is that in
the absence of a "request [of] the other party," the literal terms of the
contract should stand as written and unaltered.
Under the majority’s reasoning, CLM, as the party benefitting from
§ 482, must call Volvo’s attention to the existence of a provision that
benefits CLM for the purpose of altering the relationship to the point
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 45
where CLM loses the benefit of § 482. Such a departure from human
nature is not a reasonable contract construction, I suggest.
II.
The Local Law Provision, section 30 of the dealer agreement, is
reconcilable with the Choice of Law Provision in section 29. For
example, prior to 1991, the Louisiana legislature had not enacted
§ 482. As a result, no local law triggered the application of the Local
Law Provision. Had there been a contract dispute prior to 1991, it
would have been governed by South Carolina law. After the passage
of § 482, the contract is still governed by South Carolina law, except
that § 482, as an applicable local law, applies as well.
Yet, under the majority’s interpretation of the contract, the Local
Law Provision would be surplusage, violating the "universal law of
contract law that, in construing language in a contract, ‘an interpreta-
tion that gives a reasonable meaning to all parts of the contract will
be preferred to one that leaves portions of the contract meaningless.’"
Island Creek Coal Co. v. Lake Shore, Inc., 832 F.2d 274, 277 (4th
Cir. 1987) (quoting United States v. Johnson Controls, Inc., 713 F.2d
1541, 1555 (Fed. Cir. 1983); see also Union Inv. Co. v. Fidelity &
Deposit Co. of Ind., 549 F.2d 1107, 1110 (6th Cir. 1977)). The major-
ity decision renders meaningless the contractual language in the Local
Law Provision that "the rights and obligations of the parties . . . shall
be subject to all applicable local laws."
In Liverpool & London Steamship Protection & Indemnity Associa-
tion, Ltd. v. Queen of Leman MV, 296 F.3d 350 (5th Cir. 2002), the
court faced a contract construction question similar to the one facing
this court regarding the Local Law Provision and Choice of Law Pro-
vision in the dealer agreement. Liverpool & London Steamship Pro-
tection & Indemnity Association, Ltd., (L & L) provided protection
and indemnity insurance to the owners and operators of the QUEEN
OF LEMAN. 296 F.3d at 351. The insurance contract between the
parties contained four provisions that affected the choice of law that
would govern the contract. First, Rule 40 of the contract stated that
L & L "is entitled to ‘a lien on the ships of a member’ for any unpaid
premiums." Second, Rule 47 stated that "disputes are to be resolved
46 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
either by arbitration or ‘by the English High Court of Justice.’" Third,
Rule 47C stated that:
[n]othing herein shall affect or prejudice the right of the
Association to take action and/or commence proceedings in
any jurisdiction to enforce its right of lien on ships or to oth-
erwise obtain security by seizure, attachment or arrest of
assets for any amounts owed to the Association.
Finally, Rule 48 provided that
[t]hese rules and any special terms of entry form a contract
of insurance between the Association and a member, and
subject to the right of the Association under Rule 47C to
enforce its right of lien in any jurisdiction in accordance
with local law in such a jurisdiction, shall be construed in
accordance with English law.
See L & L, 296 F.3d at 353.
L & L filed a complaint in the Eastern District of Louisiana to seize
the QUEEN OF LEMAN for unpaid insurance premiums. 296 F.3d
at 351. The district court granted the request, and the vessel was
arrested and later sold for $512,000.00. 296 F.3d at 351. The funds
from the sale of the vessel were placed in the registry of the district
court. Two parties, one who insured the vessel’s cargo and one who
owned the vessel’s cargo, intervened seeking to recover the proceeds
from the sale. The intervenors argued that the insurance contract cal-
led for the application of English law, under which L & L could not
obtain a maritime lien. 296 F.3d at 351. The district judge agreed,
granted summary judgment in favor of the intervenors, and L & L
appealed to the Fifth Circuit. 296 F.3d at 351-52.
On appeal, the parties agreed "that English law generally governs
the contract." 296 F.3d at 352. They also agreed that the procedure
for enforcing a lien was governed by the law of the jurisdiction in
which the lien was being enforced, in this case the United States. The
parties disagreed over whether English law, as the law that governs
the contract generally, also determines whether a maritime lien exists.
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 47
As the court noted, this disagreement is "significant because even L
& L admits it would have no maritime lien under English law." 296
F.3d at 352. In contrast, the federal Maritime Commercial Instruments
and Liens Act, 46 U.S.C. §§ 31341-31343, makes a maritime lien
available for a party who provides necessaries, which includes marine
insurance in the Fifth Circuit, to a vessel. 296 F.3d at 353 (citing
Equilease Corp. v. M/V Sampson, 793 F.2d 598, 603 (5th Cir. 1986)
(en banc)). The intervenors sought to persuade the court that the "ref-
erence to local law in Rules 47C and 48 is limited to the procedural
aspects of enforcing liens." The argument went that the substantive
issue of any lien to which L & L may be entitled is governed by
English law, but L & L may enforce the lien by relying on local pro-
cedural law. 296 F.3d at 353.
The court disagreed. If the choice of law provision controlled the
maritime lien, then the provision in Rule 40 authorizing L & L to
secure a maritime lien would have been rendered meaningless
because English law did not recognize a maritime lien. 296 F.3d at
353. The court explained that
[i]f English law controls and there is no maritime lien for
unpaid insurance premiums, then L & L would have little
need for enforcement provisions, as no right would exist to
be enforced. . . . We therefore agree with L & L that in order
to give meaning to the entire contract, the determination of
whether a maritime lien exists in the first place should be
determined by United States law.
296 F.3d at 353-54. The court thus reversed the district court’s deci-
sion granting the intervenors’ motion for summary judgment. 296
F.3d at 355.
The Local Law Provision in the dealer agreement is similar to Rule
47C. By construing the contract to allow the Choice of Law Provision
to trump another provision in the contract, the majority follows a path
that the L & L court rejected because it would not give meaning to
the entire contract. See L & L, 296 F.3d at 353-54. Because the Local
Law Provision can be reconciled with the Choice of Law Provision,
this court should allow CLM to pursue its rights under § 482, an
applicable local law.
48 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
The dealer agreement should be construed to give effect to all of
its provisions. See Osteen v. T.E. Cuttino Constr. Co., 434 S.E.2d
281, 284 (S.C. 1993). The majority’s interpretation gives no effect to
the Local Law Provision. In my opinion, CLM is entitled to the pro-
tection of the Louisiana Act, and CLM’s claims and counterclaims
under the Louisiana Act should be remanded to the district court.
III.
On remand, the district court should have South Carolina law and
the Louisiana Act as the governing law for interpreting the CLM-
Volvo dealer agreement. The district court should enforce the Louisi-
ana Act unless there is a rule in North Carolina that prevents the dis-
trict court from enforcing the Louisiana Act, and no such rule has
been brought to our attention. Accordingly, the Louisiana Act should
be enforced by the district court on the basis of the Local Law Provi-
sion.
The majority concluded that the CLM dealer agreement is to be
construed according to South Carolina law. Maj. Op. at 24. The
majority reached this decision by applying North Carolina’s choice of
law rules, which enforce choice of law provisions in contracts. Maj.
Op. at 24; see also Bueltel v. Lumber Mut. Ins. Co., 518 S.E.2d 205,
209 (N.C. App. 1999). South Carolina law, while retaining the rule
of lex loci contractus,3 also recognizes the right of parties to choose
another jurisdiction’s law to govern the contract. Associated Spring
Corp. v. Wilson, 410 F. Supp. 967, 975 (D.S.C. 1976). The Associated
Spring Corp. court relied on the following language from the South
Carolina Supreme Court’s opinion in Livingston v. Atlantic Coast
Line R. Co., 180 S.E. 343 (S.C. 1935):
It is fundamental that unless there be something intrinsic in,
or extrinsic of, the contract that another place of enforce-
ment was intended, the lex loci contractu governs. If the
contract be silent thereabout, the presumption is that the law
3
The rule of lex loci contractus means "the law of the place where the
contract is made governs the contract." Joye v. Heuer, 813 F. Supp.
1171, 1173 (D.S.C. 1993) (citing Livingston v. Atlantic Coast Line R.
Co., 180 S.E. 343, 345 (S.C. 1935)).
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 49
governing the enforcement is the law of the place where the
contract is made.
"The act of the parties in entering into a contract at a partic-
ular place, in the absence of anything shown to the contrary,
sufficiently indicates their intention to contract with refer-
ence to the laws of that place; hence the rule as it usually
stated is that a contract as to its validity and interpretation
is governed by the law of the place where it is made, the lex
loci contractu; or more accurately, that contracts are to be
governed as to their nature, validity and interpretation by the
law of the place where they are made, unless the contracting
parties clearly appear to have had some other place in view."
13 C.J., 248.
180 S.E. at 345.
In Livingston, the South Carolina Supreme Court explained that
South Carolina law allows parties to choose the law that they want to
use to enforce their contract. See Associated Spring Corp., 410 F.
Supp. at 975 (noting that this view is "widely-held and is generally
in conformity with that of the Restatement (Second) of Conflict of
Laws § 187 (1971)"). Under the Restatement (Second) of Conflict of
Laws § 187(2), South Carolina law will govern the contract unless the
application of the law of the chosen state would be contrary
to a fundamental policy of a state which has a materially
greater interest than the chosen state in the determination of
the particular issue and which, under the rule of § 188,
would be the state of the applicable law in the absence of
an effective choice of law by the parties.
The majority refuses to remand CLM’s claims and counterclaims
under the Louisiana Act to the district court on the ground that the
Louisiana Act does not constitute a fundamental policy of Louisiana.
Maj. Op. at 34-35. In my opinion, this reasoning is not only overly-
and hyper-technical, it is fundamentally wrong. A statute enacted by
a state legislature establishes the public policy of that State. See Bibb
v. Navajo Freight Lines, Inc., 359 U.S. 520, 524 (1959) ("Policy deci-
sions are for the state legislature, absent federal entry into the field.");
50 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
Barnes Group, Inc. v. C & C Prods., Inc., 716 F.2d 1023, 1031 (4th
Cir. 1983) ("[I]t seems apparent that where the law chosen by the par-
ties would make enforceable a contract flatly unenforceable in the
state whose law would otherwise apply, to honor the choice-of-law
provision would trench upon that state’s ‘fundamental policy.’").
Every state court in the Fourth Circuit has also recognized the state
legislature as the definitive voice on pronouncements of public policy.
See Schmeizi v. Schmeizl, 46 A.2d 219, 621 (Md. 1946) ("The court
cannot adopt a public policy contrary to the plain provisions of the
statute."); Pitt & Greene Electric Membership Corp. v. Carolina
Power & Light Co., 120 S.E.2d 749, 754 (N.C. 1961) ("[P]ublic pol-
icy is for legislative determination."); Brown v. Drake, 270 S.E.2d
130, 132 (S.C. 1980) ("Public policy is basically for the legislature");
Wood v. Board of Supervisors of Halifax City, 236 Va. 104, 115
(1988) ("[I]t is the responsibility of the legislature, not the judiciary,
to formulate public policy."); State v. Varney, 96 S.E.2d 72, 76 (W.
Va. 1956) (". . . the public policy of a state is a law of the state, and
is a legislative and not a judicial function, and it is not the function
of the judiciary to declare what is the public policy of the state
respecting matters on which the legislature has spoken . . .").
The Supreme Court of Louisiana especially has expressed its opin-
ion as to whether statutes express the public policy of Louisiana in a
case involving a state antitrust law. State v. American Sugar Refining
Co., 71 So. 137, 142-143 (La. 1916).
. . . the public policy of a state is to be found in its statutes,
and, when they have not directly spoken, then in the deci-
sions of the courts. But, when the Legislature speaks upon
a subject upon which it has the constitutional power to legis-
late, public policy is what the statutes passed by it enacts
public policy to be. The only authentic and admissible evi-
dence of public policy of a state on any given subject are its
Constitutions, laws, and judicial decisions. The public pol-
icy of a state, of which courts take notice and which they
give effect, must be decided from those sources. Where the
state has spoken through its legislators, there is no room for
speculation as to what the policy of the state is.
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 51
So, in my opinion, it is beyond argument that the fundamental pol-
icy of Louisiana is expressed in § 51:482.
Section 51:482, barring cancellation of the contract without cause,
was enacted by the Louisiana state legislature. In this circuit, nothing
else appearing, we must accept that statute as the fundamental public
policy of Louisiana. See Hall v. McKenzie, 537 F.2d 1232, 1234 (4th
Cir. 1976)("[T]he determination of legislative policy for the State of
West Virginia is for that state and not us."); St. Paul Fire & Marine
Ins. Co. v. Jacobson, 48 F.3d 778 (4th Cir. 1995) ("[W]e will not
attempt to decide the public policy of the State of Virginia absent a
clear and dominant articulation of that policy by the Commonwealth
herself."). By concluding that the Louisiana Act does not constitute
a fundamental policy of Louisiana, the majority is making its own
determination that the Louisiana Act, as a statute, does not express the
fundamental public policy of Louisiana. Our court cannot determine
the public policy of Louisiana, even if the Fifth Circuit is willing to
do so. See St. Paul Fire & Marine, 48 F.3d at 783. C.f. Cherokee
Pump & Equipment, Inc. v. Aurora Pump, 38 F.3d 246, 252-53 (5th
Cir. 1994). Instead, the Louisiana state statute must be viewed as the
fundamental public policy of that State.
Whatever the Fifth Circuit may have decided, Cherokee Pump is
a flawed authority on which to rest our decision. Cherokee Pump
recites, 38 F.3d at 253, that "There is no case law evidencing that the
Repurchase Statute amendment espouses public policy in Louisiana."
Along the same line, the majority in this case recites that "The Louisi-
ana courts have not addressed this issue," referring to whether the
Louisiana statute is a fundamental policy of Louisiana. Although
State v. American Sugar Refining Co., 71 So. 137 (La. 1916) has been
in full force and virtue in that State for some 88 years and has not
been modified or overruled, both the Fifth Circuit and the majority
here persist in their reasoning that the subject has not been addressed
by the Louisiana courts. To repeat, American Sugar stated:
But, when the Legislature speaks upon a subject upon which
it has the constitutional power to legislate, public policy is
what the statutes passed by it enacts public policy to be.
71 So. at 142. That certainly should end the discussion, but just as
Cherokee Pump did not mention American Sugar, so the majority
52 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
here does not. Such omission, both by the Fifth Circuit and this court,
is flawed reasoning, I suggest.
If that were not enough, and of even more importance, the case of
Barnes Group, Inc. v. C & C Prods., Inc., 716 F.2d 1023 (4th Cir.
1983), is on facts which are indistinguishable from those at hand, and,
on the same question, determines that where the law chosen by the
parties would make enforceable a contract flatly unenforceable in the
State whose law would otherwise apply, "the choice of law provision
would trench upon that State’s ‘fundamental policy.’" 716 F.2d at
1031. Barnes Group was a case in which Barnes, the plaintiff, alleged
that C & C, the defendant, had interfered with Barnes’ contracts with
six of Barnes’ sales agents. Barnes was an Ohio company, and its
contracts with its agents provided that they should be construed in
accordance with the laws of the State of Ohio. Three of the salesmen,
however, were from Alabama, and their territories were exclusively
in Alabama. The contract of employment, which included a covenant
not to compete, was void as against public policy under Alabama law
and could not be enforced. The holding of this court was:
To honor the contractual choice of law would make enforce-
able a contract flatly unenforceable in Alabama, surely
impinging upon "fundamental policy" of Alabama. It was
error, therefore, for the district court to apply Ohio law to
determine the enforceability of the Alabama salesmen’s
covenants not to compete.
716 F.2d at 1032. Applying the facts of this case to the holdings of
Barnes Group, the law chosen by the parties, South Carolina, would
permit a contractual provision for cancellation to be without notice,
and would make enforceable in Louisiana a contract "flatly unen-
forceable" in Louisiana under § 51:482, the law of that State. The
holding of Barnes Group is that such a choice-of-law provision would
"trench upon [Louisiana’s] ‘fundamental policy.’" 716 F.2d at 1031.
And the impinging of the fundamental policy of Louisiana, error here
as there, means that the statute of Louisiana, § 51:482, must be
applied. Louisiana is the State in which the dealership is located, and
which even the majority in this case agrees had a greater interest than
the chosen State of South Carolina.
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 53
Applying the rule of § 187(b) Restatement (Second) Conflict of
Laws to this case indicates that the Louisiana Act should apply, for
if the "application of the law of the chosen state would be contrary
to a fundamental policy of a state which has a materially greater inter-
est than the chosen state in the determination of the particular issue"
the law of South Carolina should not apply. I have just demonstrated
that the fundamental policy of Louisiana is expressed in the statute
requiring that such contracts not be cancelled by the manufacturer
without cause. It is also beyond doubt that Louisiana has a materially
greater interest than South Carolina in determining whether a dealer
agreement between a Louisiana dealer and an out-of-state manufac-
turer can be terminated without cause. The majority holds just that
with relation to the Arkansas dealer,4 and no reason is apparent why
the Louisiana dealer should be treated differently on what are essen-
tially the same facts. The only difference in the two statutes is that
Arkansas has some kind of anti-waiver provision mentioned by the
majority, but even Arkansas does not have an opinion of its Supreme
Court taking nearly so strong a stand as the position of the Louisiana
court in American Sugar that statutes reflect the fundamental policy
of Louisiana. In my opinion, the clearly implicit holding of the major-
ity, that a statute without an anti-waiver provision is not the funda-
mental policy of a State, is clearly wrong.
IV.
I am further of opinion that the claim of Future Equipment Com-
pany, Inc. under the Texas Deceptive Trade Practices and Consumer
Protection Act, Vernon’s Texas Statutes and Codes Ann., Title II,
§ 17.41, et seq., should be re-examined on the merits.
This case is a result of a "judgment on the pleadings," A.486, and
not based on depositions, affidavits, etc., a factual development, as is
the more usual case.
4
"And Arkansas has a materially greater interest than South Carolina
in determining whether a dealer agreement between an Arkansas dealer
and an out of state manufacturer can be terminated without cause." Maj.
Op. at 39.
54 VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP.
For the purposes of the court’s consideration of the motion
[for judgment on the pleadings], all of the well pleaded fac-
tual allegations in the adversary’s pleadings are assumed to
be true, and all contravening assertions in the movant’s
pleadings are taken to be false.
5A Charles Alan Wright & Arthur R. Miller, Federal Practice and
Procedure 520 (2d. ed. 1990) relying on National Metropolitan Bank
of U.S., 323 U.S. 454, 457 (1945) and various cases from the federal
courts of appeals and district courts. In Count III of the Arkansas
complaint found in this appendix at A.298, the following allegation
is made by Future Equipment Company:
53. At all times material to this action, FEC was a ‘busi-
ness consumer’ as that term is defined in the Texas Decep-
tive Trade Practices and Consumer Protection Act
(‘DTPA’), Tex. Bus. & Com. Code, § 17.41, et seq., in that
FEC is a corporation or business that sought and/or acquired
goods or services by purchase or lease, and the goods or ser-
vices formed the basis of their claims.
Section 17.45 (10) provides that:
‘Business Consumer’ means an individual, partnership or
corporation who seeks or acquires by purchase or lease, any
goods or services for commercial or business use. The term
does not include this state or a subdivision or agency of this
state.
So, for the purposes of judgment on the pleadings under Rule 12, as
here, we must consider that FEC is a "business consumer, a corpora-
tion who seeks or acquires by purchase or lease . . . goods or services
for commercial or business use." That is sufficient to qualify Future
Equipment to have its claim examined under the Texas Deceptive
Trade Practices and Consumer Protection Act under Texas law as
found in Fisher Controls Intern., Inc. v. Givens, 911 S.W. 2d. 135
(Tx. App. 1995) and Texas Cookie Co. v. Hendricks & Peralta, 747
S.W. 2d. 873 (Tx. App. 1988). Briefly, Texas Cookie held that the
fact that the transfer agreement "involved the transfer of ‘goods or
services’ for purpose of the DTPA," Texas Cookie, 747 S.W. at 877,
VOLVO CONSTRUCTION EQUIP. v. CLM EQUIP. 55
qualified Hendricks for relief under the Texas Deceptive Trade Prac-
tices and Consumer Act, the same statute involved here.
This is not to say that a future factual development may not add to
the facts favorable to Future Equipment or to the facts favorable to
Volvo. But it is clear that judgment in favor of Volvo should not have
been entered on the pleadings which admit the necessary facts, and
that the case on remand should require examination and development
of that aspect or Future Equipment’s claim.
In all events, if the majority holding is correct, that Future Equip-
ment loses because "FEC does not allege that it paid for an intangible
right to continue to be a champion dealer and no payment is reflected
in the dealer agreement," there would have been no dealership con-
tract to cancel, and this case is nothing more than an exercise for the
lawyers.