Jack Tyler Engineering Company v. SPX Corporation

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 08a0560n.06
Filed: September 15, 2008
No. 08-5017
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
JACK TYLER ENGINEERING CO., INC., )
) ON APPEAL FROM THE
Plaintiff-Appellant, ) UNITED STATES DISTRICT
) COURT FOR THE WESTERN
v. ) DISTRICT OF TENNESSEE
)
SPX CORP., d/b/a Waukesha Cherry-Burrell; and )
SPX CORP., as successor-in-interest of United ) OPINION
Dominion Co., )
)
Defendants-Appellees. )
BEFORE: GUY, RYAN, and McKEAGUE, Circuit Judges.
McKEAGUE, Circuit Judge. Jack Tyler Engineering Co., Inc. (“JTE”) sued several
companies, including SPX Corp., over a terminated distributorship agreement. The district court
granted summary judgment in favor of the defendants on all of JTE’s claims. JTE appeals the
judgment on a sole claim: whether the termination of the distributorship agreement violated
Tennessee Code § 47-25-1301 et seq. Two panels of this court have already considered and rejected
similar claims. Because we agree with the reasoning of those panels, we affirm judgment in favor
of SPX Corp.
No. 08-5017
Jack Tyler Eng’g Co. v. SPX Corp.
I
In 1993, Waukesha Cherry-Burrell (“Waukesha”), a company now owned and operated by
SPX Corp., entered into a distributorship agreement with JTE.1 The agreement appointed JTE as
a non-exclusive distributor of Waukesha automotive-related equipment. The agreement provided
that either party may terminate the agreement upon thirty days written notice and that, should no such
notice be received by either party, the agreement would continue in effect for subsequent one-year
periods. On January 10, 2002, Waukesha notified JTE in writing that it elected to end the
distributorship relationship as of January 11, 2002.
JTE sued Waukesha and its parent company in the Western District of Tennessee.2 In its
amended complaint, JTE put forth several claims, including one for violation of Tenn. Code. § 47-
25-1301 et seq. On the defendants’ motion, the district court granted summary judgment in favor
of the defendants. As to the statutory claim, the district court concluded that the 1993 version of that
statute applied, rather than the amended 1999 version. The 1993 version was limited to retailers of
farm equipment, whereas the 1999 version was broadened to include retailers of other specified
equipment. Because JTE did not qualify as a retailer of farm equipment, the district court held that
the parties’ agreement did not fall within the ambit of the 1993 version of the statute.
1
JTE is a Tennessee corporation, while SPX Corp. is incorporated in and has its principal
place of business outside of Tennessee.
2
JTE also sued Detroit Pump & Manufacturing Co., but has not pursued any appeal as to that
defendant.
-2-
No. 08-5017
Jack Tyler Eng’g Co. v. SPX Corp.
JTE appealed from the district court’s judgment. On appeal, JTE focuses solely on its claim
of violation of the Tennessee statute.
II
A. Standard of Review
We review de novo the grant of a motion for summary judgment. F.R.C. Int’l, Inc. v. United
States, 278 F.3d 641, 642 (6th Cir. 2002). Summary judgment is appropriate when “the pleadings,
the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue
as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ.
P. 56(c). To survive summary judgment, the non-movant must provide evidence beyond the
pleadings “set[ting] out specific facts showing a genuine issue for trial.” Fed. R. Civ. P. 56(e)(2).
In reviewing a grant of summary judgment, we draw all justifiable factual inferences in favor of the
non-moving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587
(1986).
As this case comes to federal court under diversity jurisdiction, we apply the substantive law
of the forum state, in this case Tennessee. Gahafer v. Ford Motor Co., 328 F.3d 859, 861 (6th Cir.
2003). SPX Corp. contends that application of the amended 1999 version of Tenn. Code § 47-25-
1301 et seq. to JTE’s claim would violate the Tennessee Constitution’s Contracts Clause. In
addressing that issue, we first look to the applicable decisions, if any, of the Tennessee Supreme
Court to determine whether the statute in question violates the Tennessee Constitution. Mathis v. Eli
Lilly & Co., 719 F.2d 134, 141 (6th Cir. 1983). The parties have not identified any Tennessee
-3-
No. 08-5017
Jack Tyler Eng’g Co. v. SPX Corp.
Supreme Court decision directly addressing this issue, and our research has likewise found none.
Accordingly, we are left “to make [the] best prediction . . . of what the [Tennessee] Supreme Court
would do if it were confronted with” the same question of law. Managed Health Care Assocs., Inc.
v. Kethan, 209 F.3d 923, 927 (6th Cir. 2000) (internal quotation marks omitted).
B. The Tennessee Constitution’s Contracts Clause
Article I, section 20 of the Tennessee Constitution provides that “no retrospective law, or law
impairing the obligations of contracts, shall be made.” Tennessee courts have read this clause to
mean, “That no retrospective law which impairs the obligation of contracts, or any other law which
impairs their obligation, shall be made.” Hamilton County v. Gerlach, 140 S.W.2d 1084, 1085
(Tenn. 1940) (citation omitted). Courts have construed this provision as prohibiting laws “which
take away or impair vested rights acquired under existing laws or create a new obligation, impose
a new duty, or attach a new disability in respect of transactions or considerations already passed.”
Morris v. Gross, 572 S.W.2d 902, 907 (Tenn. 1978) (citations omitted). The determination of
whether a vested right has been impaired by a retrospective statute involves the consideration of
several factors. Doe v. Sundquist, 2 S.W.3d 919, 923-24 (Tenn. 1999). Tennessee courts apply the
following factors, no one factor being dispositive, to make this determination: (1) whether the public
interest is advanced or impeded; (2) the extent to which the retroactive provision gives effect to or
defeats the reasonable expectations of affected persons; (3) whether the statute comes as a surprise
to persons who have long relied on a contrary state of law; and (4) whether the statute appears to be
procedural or remedial. Id. at 924.
-4-
No. 08-5017
Jack Tyler Eng’g Co. v. SPX Corp.
C. The Tennessee Statute
The original focus of the Tennessee statute was narrow. In 1993 when the parties entered
into their agreement, the statute defined a covered “retailer” as:
any person, firm, or corporation engaged in the business of selling and retailing farm
implements, machinery, motorcycles, utility and industrial equipment, attachments,
or repair parts, but does not include retailers of petroleum and other motor vehicle
and related automotive care and replacement products normally sold by such retailers
and does not include retailers of yard and garden equipment not primarily engaged
in the farm equipment business.
Tenn. Code § 47-25-1301(5) (1993). Moreover, covered “inventory” was defined to encompass only
farm equipment and related implements. See id. § 47-25-1301(3) (1993). Because the subject of the
parties’ agreement was automotive-related equipment, not farm-related equipment, there is no
dispute that the parties’ agreement was not subject to the earlier version of the statute. See Middle
Tenn. Assocs., Inc. v. Leeville Motors, Inc., 803 S.W.2d 206, 209 (Tenn. 1991) (“The language of
[Tenn. Code § 47-25-1301] makes it clear that the legislature’s purpose in enacting the statute was
not to protect franchisees in general, but to protect farm equipment dealers in particular.”).
In 1999, Tennessee removed the statute’s narrow focus on retailers of farm equipment. See
Tenn. Code § 47-25-1301(3),(4) (1999). Had the parties entered into the agreement on or after the
effective date of the amendments, the agreement would have been subject to the statute (assuming,
among other things, that JTE met the other requirements of a covered retailer). Yet, it is a “well
established” principle of Tennessee contract law “that the laws affecting enforcement of a contract,
and existing at the time and place of its execution, enter into and form a part of the contract.” Kee
v. Shelter Ins., 852 S.W.2d 226, 228 (Tenn. 1993); see also C-Wood Lumber Co., Inc. v. Wayne
-5-
No. 08-5017
Jack Tyler Eng’g Co. v. SPX Corp.
County Bank, 233 S.W.3d 263, 282 (Tenn. Ct. App. 2007) (“The rights and obligations of parties
engaged in a commercial transaction are customarily governed by the law in effect when the
transaction[] occurs.”). Under this general principle, the agreement incorporated the 1993 version
of the statute (and thus its inapplicability), even though the agreement had been extended without
modification in 1999 and 2000.
JTE counters this principle of contract law by pointing us to the statute’s retroactivity
provision, which was also added in 1999. Section 47-25-1312 (1999) states:
The provisions of this part shall apply to all contracts and shall apply to all retail
agreements in effect which have no expiration date and are a continuing contract, and
shall apply to all other contracts entered into, amended, extended, ratified or renewed
after May 16, 1977. The provisions of this part shall apply to and be binding upon
all suppliers, all successors in interest or purchasers of assets or stock of suppliers,
and all receivers, trustees or assignees of suppliers. Any contractual term restricting
the procedural or substantive rights of a retailer under this part, including a choice of
law or choice of forum clause, is void.
A straightforward application of this retroactivity provision would bring the parties’ 1993 agreement
into the ambit of the amended statute. Thus, the issue on appeal boils down to this: is the amended
statute’s retroactivity provision applicable to the 1993 agreement or is the provision, as SPX Corp.
contends, unconstitutional as applied?3
Two panels of the court have addressed this question (one under the Tennessee Constitution,
the other under the U.S. Constitution), and both have found the retroactivity provision
3
SPX Corp. raised its constitutionality argument before the district court. Although the
district court declined to address it, we can affirm a district court’s judgment for a reason other than
that considered by that court when the losing party has had an adequate opportunity to respond.
Carver v. Dennis, 104 F.3d 847, 849 (6th Cir. 1997).
-6-
No. 08-5017
Jack Tyler Eng’g Co. v. SPX Corp.
unconstitutional. See Cummings, McGowan & West, Inc. v. Wirtgen Am., Inc., 160 F. App’x 458 (6th
Cir. 2005) (unpublished); Rutherford Farmers Coop. v. MTD Consumer Group, Inc., 124 F. App’x
918 (6th Cir. 2005) (unpublished). In Cummings, the court considered whether the retroactivity
provision of the statute violated the Tennessee Constitution’s Contracts Clause. The court
considered the four-factor analysis applied by Tennessee courts to determine whether a contractual
right had been impaired. On the first factor—whether the law advanced the public interest—the
court noted that courts typically defer to a State’s judgment and the law arguably advanced the public
interest by improving the bargaining power of retailers. Id. at 461. However, the court also correctly
noted that “adjustments in bargaining power may serve the public interest when applied
prospectively to bargains not yet struck, but create minimal public benefits when applied
retroactively to contracts formed under a prior state of law.” Id. On the remaining factors—whether
the law gives effect to or defeats the reasonable expectations of affected persons, whether the statute
comes as a surprise to affected persons, and whether the statute is procedural or remedial—the court
sided against the retailer. Id. at 461-62.
In Rutherford Farmers, the court addressed whether the retroactivity provision violated the
Contract Clause of the U.S. Constitution. That clause prohibits any State from passing “any . . . Law
impairing the Obligation of Contracts.” U.S. const. art. I § 10, cl. 1. The parties had entered into a
retail contract for non-farm equipment in 1989. Given this, the court found that the parties would
have expected that the Tennessee statute would be inapplicable to their retail contract. Rutherford
Farmers, 124 F. App’x at 920-21. The court held that the retroactivity provision was
unconstitutional as applied. Id. at 921.
-7-
No. 08-5017
Jack Tyler Eng’g Co. v. SPX Corp.
Although both decisions are unpublished and therefore not binding precedent, we agree with
their reasoning. We do not view a significant change in bargaining power between retailers and
suppliers as a clear-cut advancement of the public interest when such a change is applied
retroactively. Both retailers and suppliers are commercial entities; both retailers and suppliers are
focused primarily on one thing, their own bottom line; and both retailers and suppliers can be
expected to negotiate contracts to their own respective advantage. Moreover, we agree with the
Cummings court that the other three factors strongly militate against applying the 1999 amendments
to an earlier contract. The amendments are not strictly procedural or remedial, and applying them
to the 1993 agreement would defeat the expectations of the parties, especially those of Waukesha,
who bargained for the contract with the reasonable understanding that § 47-25-1301 et seq. would
not cover the agreement.
JTE tries to distinguish this case from Cummings and Rutherford Farmers by pointing out
that the contracts in those cases were for indefinite periods of duration, whereas the agreement here
was subject to, in JTE’s words, annual “renewal.” The district court held, however, that the parties’
agreement was not subject to annual renewal, but rather annual extension. The difference between
“renewal” and “extension” is not merely semantic—while a renewal results in a new contract, an
extension acts simply as a continuation of the original contract. 17B C.J.S. Contracts § 500
(“Generally an option to renew a contract is the right to require the execution of a new contract while
an option to extend the term merely operates to extend the term of the original agreement.”). If the
agreement was, in fact, renewed after the effective date of the 1999 amendments, then the renewed
-8-
No. 08-5017
Jack Tyler Eng’g Co. v. SPX Corp.
agreement would be subject to the amended statute. If not, the agreement would be subject to the
1993 version of the statute.
Contrary to JTE’s characterization, the agreement was not renewed. Where, as here, a
contract is subject to automatic extension for a definite period of time, under identical terms and
conditions, and both parties simply remain silent at the end of the term and continue to perform
under the contract, then there is an extension of the contract, not a renewal. Id. Therefore, the annual
automatic extension of the agreement is not a material difference to distinguish the present case from
Cummings and Rutherford Farmers.
The parties’ rights and duties accrued under the agreement when the parties initially executed
it in 1993. Given the then-current state of Tenn. Code § 47-25-1301 et seq., the parties could
reasonably have expected that the statute did not apply to their agreement. Application of the
broader provisions of the amended statute to the parties’ agreement would be an unconstitutional
impairment of the agreement in violation of the Tennessee Constitution’s Contracts Clause.
III
Accordingly, for the reasons set forth above, we AFFIRM judgment in favor of SPX Corp.
-9-