Rutherford Farmers v. MTD Consumers Grp

File Name: 05a0042n.06
Filed: January 13, 2005
NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
No. 03-6145
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
RUTHERFORD FARMERS )
COOPERATIVE, )
)
Plaintiff, )
) ON APPEAL FROM THE UNITED
STATE OF TENNESSEE, ) STATES DISTRICT COURT FOR THE
) MIDDLE DISTRICT OF TENNESSEE
Intervenor-Appellant, )
)
v. )
)
MTD CONSUMER GROUP, INC., formerly )
known as Cub Cadet Corporation, )
Defendant-Appellee.
Before: KEITH, CLAY, and COOK, Circuit Judges.
COOK, Circuit Judge. Intervenor State of Tennessee appeals a district court decision finding
a Tennessee inventory-repurchasing scheme unconstitutional under the Contract Clause of the
United States Constitution. Because the inventory-repurchase statutes substantially and retroactively
impaired the preexisting contractual relationship in this case, we find the statutes, as applied, violate
the Contract Clause and affirm the decision of the district court.
I
No. 03-6145
Rutherford Farmers Co-op. v. MTD Consumer Group
In 1989, Rutherford Farmers Co-op contracted with MTD (then known as Cub Cadet
Corporation) for Rutherford to become a dealer of MTD’s lawn and garden power equipment. At
that time, the Tennessee statutes did not require MTD to repurchase Rutherford’s inventory upon
the contract’s termination. Some eight years into the contract, however, the State of Tennessee
amended its inventory-repurchase statutes, extending their reach to suppliers and retailers of lawn
and garden power equipment like Rutherford and MTD. §§ 47-25-1301(1997); 47-25-1302 (1997);
47-25-1303 (1999).1
The amended Tennessee law generated this controversy when MTD eventually exercised its
contractual right to terminate the agreement with Rutherford. Rutherford sued MTD in Tennessee
state court to require MTD to buy back from Rutherford its unsold MTD inventory, as the later-
enacted statutes required. MTD removed to federal court, filing a counterclaim seeking a
declaratory judgment that the later-enacted repurchase statutes, as applied, violated the Contract
Clauses of the U.S. and Tennessee Constitutions. Tennessee then intervened to defend the
constitutionality of the statutes.
Reviewing only the federal claim, the district court granted MTD’s motion for summary
judgment, agreeing with its Contract-Clause claim that the Tennessee repurchase statutes, as applied,
substantially and retroactively impaired the Rutherford-MTD contract by imposing an unagreed-to
repurchase obligation. Only the State of Tennessee appeals this decision.
1
The Tennessee General Assembly slightly altered—without substantive change for our
purpose—the 1997 statutes when it reenacted them in 1999.
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No. 03-6145
Rutherford Farmers Co-op. v. MTD Consumer Group
II
We review the district court’s summary judgment decision de novo, applying Tennessee law2
to interpret the Rutherford-MTD contract and focusing on Tennessee’s main contention that, based
on Articles VII(J) and V(F) of the contract, the repurchase statutes failed to impair the contract. The
absence of impairment, so the argument goes, ought to have precluded the district court’s Contract-
Clause analysis. Tennessee’s support for this proposition hinges on an inference, a lone New York
trial court decision, and a novel reading of the contract, none of which persuade us. We consider
each in turn.
Tennessee contends that Article VII(J) of the contract—“If any other state or federal law
applies which directly contradicts any provision of this Agreement, said law shall be deemed part
of this Agreement”—represented a “clear expression that the contract [would] be amended by
subsequent statutory enactments.” From the parties’ inclusion of Article VII(J) in their contract,
Tennessee asks us to infer that because all contracts, as a matter of Tennessee contract law,
incorporate existing law, see Kee v. Shelter Insurance, 852 S.W.2d 226, 228 (Tenn. 1993), then
Article VII(J) must be read to incorporate future law, such as the later-enacted repurchase statutes.
2
Under Tennessee Code Annotated sections 47-25-1312 and 47-18-113, we do not enforce
the contract’s Ohio choice-of-law provision but instead apply Tennessee law to resolve the
constitutional challenge. Both parties also agree on the application of Tennessee law.
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No. 03-6145
Rutherford Farmers Co-op. v. MTD Consumer Group
We do not draw that conclusion, however, because nothing prevents contracting parties from
superfluously referencing or incorporating general contract-law precepts. And Tennessee fails to
cite any other provision to bolster its view that Article VII(J)’s redundancy compels the court to
interpret that Article to mean something nonredundant.
Generally, Tennessee law instructs us to interpret contractual terms with the same sense and
meaning as the parties, “and if they are clear and unambiguous, their terms are to be taken and
understood in their plain, ordinary, and popular sense.” Victoria Ins. Co. v. Hawkins, 31 S.W.3d 578,
580 (Tenn. Ct. App. 2000) (citations omitted). Because Article VII(J) does not refer to future laws,
that clause, taken in its “plain, ordinary, and popular sense,” incorporates only laws existing at the
time of contract formation. Cf. Energy Reserves Group, Inc. v. Kan. Power & Light Co., 459 U.S.
400, 405 (1983) (contract incorporating future laws stated “relevant present and future state and
federal laws”). Since the plain meaning fails to support an agreement to be bound by future changes
in the law, we will not infer one. 11 Richard A. Lord, Williston on Contracts § 30:23 (4th ed. 2004)
(“[C]hanges in the law subsequent to the execution of a contract are not deemed to become part of
agreement unless its language clearly indicates such to have been intention of parties.”).
To further support its incorporation theory, Tennessee directs us to a New York case where
a state trial court found a similar contract provision incorporated later-enacted laws. See Garal
Wholesalers, Ltd. v. Miller Brewing Co., 751 N.Y.S.2d 679 (N.Y. Sup. Ct. 2002). That case, plainly
nonbinding, also includes a significant contractual difference that negates whatever persuasive
value it might otherwise have had. That is, the Garal parties fully expected certain statutory
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No. 03-6145
Rutherford Farmers Co-op. v. MTD Consumer Group
amendments at the time of contract formation. Id. at 691. So the contract provision actually
reflected the Garal parties’ true intent: incorporation of anticipated statutory amendments. See id.
(noting that the Contract Clause “protects only expectations of the parties to the contract arising
from mutual assent”). Neither Rutherford nor MTD anticipated the repurchase statutes at the time
of contract formation. In fact, in light of the 1989 version of the repurchase statutes, which
expressly excluded “retailers of yard equipment not primarily engaged in the farm equipment
business” from its definition of “retailer,” the parties expected the inapplicability of the repurchase
statutes to their contract. See Bob Pearsall Motors, Inc. v. Regal Chrysler-Plymouth, Inc., 521
S.W.2d 578, 580 (Tenn. 1975) (“The cardinal rule for interpretation of contracts is to ascertain the
intention of the parties and to give effect to that intention, consistent with legal principles.”).
In addition to Tennessee’s Article VII(J)-incorporation argument, Tennessee points us to
another provision of the Rutherford-MTD contract and argues that because the contract provided
for repurchase of certain replacement parts upon termination, that “small sub-set of inventory”
reduces the impact of the inventory-repurchase requirement, rendering it so incidental that the
contract as a whole is not impaired. Tennessee, however, offers no authority for quantifying
impairment in such a manner. Indeed, Article V(F) vitiates Tennessee’s theory in that it evidences
the parties’ contemplation of the subject of repurchase-upon-termination that resulted in a limitation
of the obligation to some replacement parts, not all unsold inventory. As such, imposition of an
obligation for full inventory repurchase would amount to substantial impairment of the parties’
agreed-upon arrangement.
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Rutherford Farmers Co-op. v. MTD Consumer Group
Since we conclude that the contract did not incorporate future statutory amendments, and are
not persuaded that Article V(F) renders the contract impairment incidental rather than substantial,
we find the application of the repurchase statutes unconstitutional as applied and affirm the district
court’s decision.
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