Enfield Equipment Co v. John Deere Company

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ENFIELD EQUIPMENT COMPANY,
INCORPORATED; RICHARD H. ENFIELD,
Plaintiffs-Appellants,
No. 99-2394
v.
JOHN DEERE COMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Benson E. Legg, District Judge.
(CA-99-406-L)
Argued: June 5, 2000
Decided: July 19, 2000
Before MURNAGHAN, WILLIAMS, and TRAXLER,
Circuit Judges.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: David Foxwell Albright, Jr., HORN & BENNETT, P.A.,
Baltimore, Maryland, for Appellants. Todd Michael Stenerson,
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P., Washington,
D.C., for Appellee. ON BRIEF: Leslie M. Turner, Shari L. Fleish-
man, AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P., Washing-
ton, D.C., for Appellee.
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Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Enfield Equipment Company (Enfield) appeals from the district
court's order granting John Deere Company's (John Deere) motion to
dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The
issue presented is whether Maryland law prevents John Deere from
arbitrarily withholding its consent to a proposed assignment of a dis-
tributorship when the dealer agreement expressly prohibits such
assignment "without the prior written consent of[John Deere]." (J.A.
at 213.) We agree with the district court that under Maryland law
John Deere may withhold its consent for any reason, and we affirm
the district court's order granting the motion to dismiss.
I.
Because our review is from the district court's grant of a Rule
12(b)(6) motion to dismiss, we take the facts alleged in Enfield's
complaint as true. See Vickers v. Nash General Hosp., Inc., 78 F.3d
139, 141 (4th Cir.1996). In 1971, Enfield began selling and servicing
agricultural equipment as an authorized dealer for John Deere. Under
the terms of the latest dealer agreement between the parties, entered
into in October 1985, Enfield could not assign its dealership "without
the prior written consent of [John Deere]." (J.A. at 213.) In the fall
of 1996, Enfield informed John Deere that it was interested in selling
its dealership, to which a John Deere employee responded that John
Deere would only approve a sale of the dealership to a company
owned and operated by Greg and Charles Rebar (Rebar). In February
1997, Enfield and Rebar reached an agreement that provided for the
sale of all of the business's assets for approximately $3,000,000. John
Deere, however, refused to consent to the deal as structured. Despite
John Deere's earlier assurances that Rebar possessed the financial
strength to purchase Enfield, John Deere claimed that Rebar did not
have sufficient financial resources for the purchase as proposed. John
2
Deere thus required the parties to renegotiate the terms of the agree-
ment. Enfield and Rebar then reached a new agreement, which
Enfield claims was much less favorable to it than the original deal.
In January 1999, Enfield brought suit in Maryland state court,
asserting breach of contract and tort claims against John Deere in an
attempt to recover damages resulting from the restrictions John Deere
placed upon Enfield's ability to sell the business. John Deere removed
the case to the United States District Court for the District of Mary-
land, pursuant to 28 U.S.C.A. § 1441(b) (West 1994). John Deere
then filed a 12(b)(6) motion to dismiss part of the breach of contract
claim and all of the remaining claims, which the district court granted.
The parties then consented to dismissal of the remaining parts of the
breach of contract claim. On appeal, Enfield challenges only that por-
tion of the district court's order that determined that the assignment
provision in the dealer agreement gave John Deere the contractual
right to withhold its consent to any proposed transfer for any reason,
even an arbitrary one. Enfield argues that the implied covenant of
good faith and fair dealing is present in every Maryland contract and
required John Deere to exercise its discretion in a reasonable fashion.
Because John Deere limited Enfield's freedom to assign its distribu-
torship by allowing it to deal only with Rebar, and because John
Deere later refused to consent to the original purchase agreement that
Enfield negotiated with Rebar, Enfield claims that John Deere unrea-
sonably withheld its consent in violation of Maryland law.
II.
We review a district court's dismissal under Rule 12(b)(6) for fail-
ure to state a claim de novo. See Republican Party v. Martin, 980
F.2d 943, 952 n.16 (4th Cir. 1992). We will affirm the district court's
order only if it appears certain that Enfield could not prove any set
of facts that would support its claim and entitle it to relief. See Mylan
Lab., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). For the rea-
sons that follow, we agree with the district court that granting John
Deere's motion to dismiss was proper. The express language of the
dealer agreement between Enfield and John Deere prohibited Enfield
from transferring its distributorship without the prior written consent
of John Deere. Significantly, there was no "reasonableness" limitation
provided in this assignment provision. Enfield asks us to read into the
3
contract such a limitation based upon the implied covenant of good
faith and fair dealing. Enfield relies almost entirely upon Julian v.
Christopher, 575 A.2d 735 (Md. 1990), as support for its position and
argues that the Court of Appeals of Maryland would extend the rule
announced in Julian to the distributorship context at issue here.1 We
disagree.
In Julian, the Court of Appeals of Maryland overruled its prior
decision in Jacobs v. Klawans, 169 A.2d 677 (Md. 1961), and
announced a new approach to interpreting commercial lease agree-
ments that contain provisions prohibiting the tenant from assigning or
subletting the premises without the prior written consent of the land-
lord. The Julian court held that for lease agreements entered into after
its decision, landlords could no longer unreasonably withhold their
consent when a tenant sought to assign or sublet the property. See
Julian, 575 A.2d at 740. The Julian court grounded its decision in two
articulated public policy considerations: (1) the policy against
restraints on alienation; and (2) the policy implying a covenant of
good faith and fair dealing in all contracts. See id. at 738. Although
Enfield seizes upon this second public policy consideration as requir-
ing courts to impose a similar reasonableness standard in assignment
clauses like the one contained in its agreement with John Deere, our
reading of Julian persuades us that were it not for the policy against
restraints on alienation the Maryland court likely would not have
implied a reasonableness requirement in that case. See id. at 736-39
(centering its discussion around property law and landlord-tenant con-
cepts, rather than general contract principles). Indeed, Maryland state
courts and other courts interpreting Maryland law have indicated that
the implied covenant of good faith and fair dealing will not often
serve to impose such limitations on bargained-for contract provisions.
See Dupont Heights Ltd. Partnership v. Riggs Nat'l Bank, 949 F.
Supp. 383, 389 (D. Md. 1996) ("To the extent that a duty of good
faith and fair dealing exists in Maryland, it is of very narrow scope.");
Suburban Hosp., Inc. v. Dwiggins, 596 A.2d 1069, 1076-77 (Md.
1991) (declining to extend an implied covenant of good faith and fair
dealing to an at-will employment contract); Waller v. Maryland Nat'l
Bank, 620 A.2d 381, 388 (Md. Ct. Spec. App.) ("The implied duty of
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1 Alternatively, Enfield asks us to certify this question to the Court of
Appeals of Maryland.
4
good faith does not change the terms of the contract."), vacated on
other grounds, 631 A.2d 447 (Md. 1993). Because we find the Julian
court's decision dependent upon the right to alienate property at issue
there, and we have seen no indication from Maryland courts that they
would be willing to impose a reasonableness limitation in contract
provisions like the one at issue here,2 we agree with the district court
that John Deere was free to disapprove any proposed transfer for any
reason.3
Our review of cases from other jurisdictions reveals that our hold-
ing is consistent with other courts' consideration of this issue. In Tay-
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2 We acknowledge that, if interpreted broadly, language in our recent
opinion in Eastern Shore Markets, Inc. v. J.D. Associates Ltd. Partner-
ship, No. 99-1554, 2000 WL 665636 (4th Cir. May 22, 2000), could be
read as implying that all Maryland contract provisions that give one party
the right to exercise discretion also include an implied reasonableness
limitation on the manner in which that discretion may be exercised. See
id. at *7 ("[A] promisor who undertakes to exercise judgment on behalf
of a promisee impliedly agrees to exercise good judgment. . . ." (citing
Julian v. Christopher, 575 A.2d 735, 738-39 (Md. 1990)). We think,
however, that any statements in Eastern Shore that one might read as
suggesting that John Deere must act reasonably in withholding its con-
sent are better interpreted as statements that merely note the general prin-
ciple recognized in Julian, which, as we have concluded above, does not
apply in this context.
3 As further support for our conclusion that Maryland law does not
place a reasonableness requirement upon John Deere's ability to with-
hold its consent to a proposed transfer, we point out that the distributor-
ship agreement calls on Enfield to work closely and"cooperate" with
John Deere in maintaining the dealership. (J.A. at 208); see also Berliner
Foods Corp. v. Pillsbury Co., 633 F. Supp. 557, 559 (D. Md. 1986) (not-
ing that distributorship agreements are contracts"calling for the perfor-
mance of personal services," which cannot be assigned without the
consent of the other contracting party). Because of the personal nature of
the distributorship agreement at issue here -- which involves a relatively
close relationship between John Deere and its dealer that is not typically
present between commercial lessors and lessees -- we are further con-
vinced that to imply a reasonableness limitation in the dealer agreement
would serve to frustrate John Deere's bargained-for power to prevent
assignments of the distributorship to parties John Deere finds undesir-
able.
5
lor Equipment, Inc. v. John Deere Co., 98 F.3d 1028 (8th Cir. 1996),
the Eighth Circuit interpreted South Dakota law in considering the
virtually identical question with which we are faced. The Eighth Cir-
cuit concluded that the implied covenant of good faith and fair deal-
ing did not upset John Deere's right to refuse consent to a proposed
assignment, even if its refusal was unreasonable. 4 See id. at 1033-34.
The court explained that the dealer agreement, which contained the
same "no-assignment-without approval clause" at issue here, could
have been written in a manner that would have required John Deere
to act reasonably if that had been the intention of the parties. See id.
at 1034-35. Similarly, in James v. Whirlpool Corp., 806 F. Supp. 835(E.D. Mo. 1992), a federal district court applying Michigan law con-
cluded that Whirlpool had "unlimited authority to refuse assignment"
and held that the implied covenant of good faith and fair dealing
would not limit that discretion. Id. at 840, 844. The contract at issue
in James contained a provision similar to the one here that prohibited
Whirlpool's distributor from assigning its rights"without the prior
written consent of Whirlpool." Id. at 839. The James court recognized
that the implied covenant applied to all contracts under Michigan law,
but noted that the purpose of the covenant is to protect the reasonable
expectations of the parties and should not be used to override express
rights included as part of the contract. See id. at 843-44. We find these
courts' reasoning persuasive and are confident that Maryland's high-
est court would agree. We do not consider its decision in Julian to
undermine these general contract principles.
Finally, and perhaps most importantly, we point out that the Julian
court took pains to limit the reach of its holding to leases entered into
after the date that its mandate was issued. See Julian, 575 A.2d at
740. Julian was decided in June 1990. The dealer agreement between
Enfield and John Deere that is at issue here was entered into in Octo-
ber 1985. At the time the parties in this case negotiated the contract,
therefore, there was no Maryland opinion, in any context, suggesting
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4 The Taylor Equipment court also noted a line of cases that would sup-
port the theory that although John Deere could act unreasonably in with-
holding its consent, it could not act dishonestly. See Taylor Equip., Inc.
v. John Deere Co., 98 F.3d 1028, 1033 (8th Cir. 1996). Enfield does not
allege that John Deere acted dishonestly in limiting Enfield's ability to
assign its rights under the dealer agreement.
6
that the implied covenant of good faith and fair dealing imposed a
reasonableness limitation upon a party's ability to withhold its con-
sent under an assignment provision like the one agreed to by Enfield
and John Deere. The Julian court's desire to protect the negotiated
expectations of parties to contracts entered into before its decision and
not to apply its ruling to those contracts warrants the conclusion that
the Court of Appeals of Maryland would also not seek to extend
Julian's application to contracts entered into prior to June 1990. Even
if the Court of Appeals of Maryland were to extend the holding of
Julian to the circumstances at issue here, therefore, we are confident
that it would not do so in this case, where the contract was entered
into pre-Julian.5
III.
For the foregoing reasons, we affirm.
AFFIRMED
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5 Because we have found that the available Maryland state law ade-
quately informs our resolution of this case, we also deny Enfield's
motion to certify the question presented here to the Court of Appeals of
Maryland. See Roe v. Doe, 28 F.3d 404, 407 (4th Cir. 1994) (noting that
we will certify questions to state courts "[o]nly if the available state law
is clearly insufficient").
7