Association of Equipment Mfr. v. The Hon. Doug Burgum

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 18-1115
___________________________
Association of Equipment Manufacturers; AGCO Corporation; CNH Industrial
America LLC; Deere & Company; Kubota Tractor Corporation,
lllllllllllllllllllllPlaintiffs - Appellees,
v.
The Hon. Doug Burgum, Governor of the State of North Dakota, in his official
capacity; The Hon. Wayne Stenehjem, Attorney General of the State of North
Dakota, in his official capacity,
lllllllllllllllllllllDefendants - Appellants,
North Dakota Implement Dealers Association,
lllllllllllllllllllllIntervenor Defendant - Appellant.
------------------------------
International Franchise Association,
lllllllllllllllllllllAmicus on Behalf of Appellee(s).
____________
Appeal from United States District Court
for the District of North Dakota - Bismarck
____________
Submitted: November 13, 2018
Filed: August 2, 2019
____________
Before COLLOTON, SHEPHERD, and STRAS, Circuit Judges.
____________
COLLOTON, Circuit Judge.
The Association of Equipment Manufacturers and four farm equipment
manufacturers asked the district court1 to enjoin North Dakota Senate Bill 2289,
which regulates relationships between manufacturers and farm equipment dealers.
The district court granted a preliminary injunction on the ground that the Act likely
violated rights of the manufacturers under the Contract Clause of the Constitution,
U.S. Const. art. I, § 10, cl. 1. The State of North Dakota and an intervenor, the North
Dakota Implement Dealers Association, appeal that order. We affirm.
I.
Senate Bill 2289 is an Act “to amend and reenact sections 51-07-01.2, 51-07-
02.2, and 51-26-06 of the North Dakota Century Code, relating to prohibited practices
under farm equipment dealership contracts, dealership transfers, and reimbursement
for warranty repair.” See 2017 N.D. Laws, ch. 354 (codified at N.D. Cent. Code
§§ 51-07-01.2, 51-07-02.2, 51-26-06 (2017)). The legislation contains three sections.
The first section applies “[n]otwithstanding the terms of any contract,” and prohibits
manufacturers from imposing various contractual obligations on farm equipment
dealers. See id. sec. 1 (N.D. Cent. Code § 51-07-01.2, § 1). Manufacturers, for
example, cannot require dealers to maintain exclusive facilities, “unreasonably”
refuse to approve the relocation of dealerships, or impose “unreasonable”
performance standards on dealers. Id. sec. 1 (N.D. Cent. Code § 51-07-01.2, § 1.e,
.i, .k).
1
The Honorable Daniel L. Hovland, Chief Judge, United States District Court
for the District of North Dakota.
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The second section regulates dealership transfers and permits a dealer to
transfer a dealership agreement after notice to the manufacturer and approval of the
manufacturer. Certain denials by manufacturers are presumed unreasonable, and the
section allows a dealer to file an action challenging a manufacturer’s denial. Id. sec.
2. A third section imposes several new requirements on manufacturers with respect
to reimbursements that they must provide to dealers for warranty repairs. Id. sec. 3.
Although the last two sections do not contain language specifying retroactive
application, the State does not dispute the district court’s conclusion that they apply
to existing contracts, and the State generically describes SB 2289 as “retroactive.”
Cf. Smith v. Baumgartner, 665 N.W.2d 12, 14-16 (N.D. 2003).
The manufacturers sued and raised claims under several constitutional and
statutory provisions, including the Contract Clause and the Federal Arbitration Act.
The district court entered a preliminary injunction against enforcement of SB 2289,
concluding that the manufacturers were likely to succeed on the merits of their
Contract Clause claim and that the other relevant factors weighed in favor of a
preliminary injunction. See Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109 (8th
Cir. 1981) (en banc). The court reasoned that SB 2289 imposed unforeseeable new
regulations on existing contracts that amounted to substantial impairments. Citing
the statement of a co-sponsor in the legislature that the bill was designed to create a
“level playing field” for implement dealers, the court determined that the Act was
special-interest legislation unsupported by a significant and legitimate public purpose.
The court also ruled that SB 2289’s retroactive “No Arbitration” provision, which
says that a manufacturer generally may not require a dealer to agree to arbitration, see
2017 N.D. Laws, ch. 354, sec. 1 (N.D. Cent. Code § 51-07-01.2, § 1.l), was
preempted by the Federal Arbitration Act, 9 U.S.C. § 2.
The State appeals the district court’s order, disputing the conclusion that the
manufacturers are likely to succeed on the merits of their Contract Clause claim. An
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order granting a preliminary injunction is reviewed for abuse of discretion. TCF
Nat’l Bank v. Bernanke, 643 F.3d 1158, 1162 (8th Cir. 2011).
II.
In determining whether a state law passes muster under the Contract Clause,
“[t]he threshold issue is whether the state law has ‘operated as a substantial
impairment of a contractual relationship.’” Sveen v. Melin, 138 S. Ct. 1815, 1821-22
(2018) (quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244 (1978)).
If the answer is yes, then the court asks “whether the state law is drawn in an
‘appropriate’ and ‘reasonable’ way to advance ‘a significant and legitimate public
purpose.’” Id. at 1822 (quoting Energy Reserves Grp., Inc. v. Kan. Power & Light
Co., 459 U.S. 400, 411-12 (1983)). “The State bears the burden of proof in showing
a significant and legitimate public purpose underlying the Act.” Equip. Mfrs. Inst.
v. Janklow, 300 F.3d 842, 859 (8th Cir. 2002); see also Energy Reserves Grp., 459
U.S. at 411-12. If the State shows a significant public purpose and is not a
contracting party, then “courts properly defer to legislative judgment as to the
necessity and reasonableness of a particular measure.” Energy Reserves Grp., 459
U.S. at 412-13 (quoting U.S. Tr. Co. of N.Y. v. New Jersey, 431 U.S. 1, 23 (1977)).
The State contends that SB 2289, although retroactive, does not “substantially
impair” the manufacturers’ contractual rights. This court, distilling the jurisprudence
on substantial impairment, has concluded that the governing rule is akin to a question
of reasonable foreseeability: “if the party to the contract who is complaining could
have seen it coming, it cannot claim that its expectations were disappointed.”
Holiday Inns Franchising, Inc. v. Branstad, 29 F.3d 383, 385 (8th Cir. 1994).
We conclude that the manufacturers in this case “cannot reasonably be said to
have had a fair and appreciable warning of an impending intervention into their
agreements.” Id. Several provisions regulating dealer agreements are new additions
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to the North Dakota Century Code or significantly expand existing provisions. See
2017 N.D. Laws, ch. 354, sec. 1 (N.D. Cent. Code § 51-07-01.2, § 1.d, .e, .h, .i, .j, .k,
.l), sec. 3. Previous regulations, moreover, forbade primarily coercive and
discriminatory practices; for example, a manufacturer could not “[c]oerce or attempt
to coerce” a dealer into accepting delivery of equipment the dealer had not voluntarily
ordered. See 1991 N.D. Laws, ch. 521, sec. 1. SB 2289, by contrast, includes several
amended and new provisions that forbid manufacturers from “requir[ing]” dealers to
take certain actions, “[n]otwithstanding the terms of any contract.” See 2017 N.D.
Laws, ch. 354, sec. 1 (N.D. Cent. Code § 51-07-01.2, § 1.a, .c, .d, .e, .h, .l). The law
thus goes a significant step beyond regulation of coercive and discriminatory
practices by rendering unenforceable obligations that dealers previously accepted as
part of freely negotiated contracts. See Equip. Mfrs. Inst., 300 F.3d at 858-59. The
new law also substantially enlarged the regulation of dealer reimbursements that had
been limited to rules about reimbursement for labor. See 2017 N.D. Laws, ch. 354,
sec. 3 (N.D. Cent. Code § 51-26-06, §§ 1, 2 (regulating reimbursement for
transportation services, diagnostic work, repair service, warranty work compensation,
product improvement programs, maintenance plans, extended warranties, and
certified preowned warranties)).
This court previously held that a similar retroactive law governing agreements
between farm equipment dealers and manufacturers in South Dakota violated the
Contract Clause. See Equip. Mfrs. Inst., 300 F.3d at 848-49, 859-62. Some
provisions of the North Dakota law parallel the South Dakota statute by expanding
prohibitions on coercion to regulate existing contracts, and the manufacturers were
entitled to rely on the South Dakota precedent when considering what legislative
impairments were reasonably foreseeable. See Holiday Inns Franchising, 29 F.3d at
385. For all of these reasons, SB 2289 substantially impairs obligations of contract.
The State’s primary argument is that even if SB 2289 substantially impairs the
manufacturers’ contractual rights, the legislation reasonably advances a significant
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and legitimate public purpose, so the impairment is constitutional. In Equipment
Manufacturers Institute, South Dakota conceded that the purpose of a similar law was
“to level the playing field between manufacturers and dealers,” 300 F.3d at 860, and
this court concluded that the conceded purpose did not qualify as a “significant and
legitimate public interest.” Id. at 861. North Dakota makes no such concession and
asserts that this law furthers a significant public interest in serving farmers and rural
communities. But the mere assertion of a conceivable public purpose is insufficient
to justify a substantial impairment of contractual rights. Virtually all legislation
enacted by multi-member bodies will be motivated by multiple purposes in the minds
of individual legislators, but those subjective intentions are not controlling. Whether
the law passes constitutional muster requires a more discerning inquiry into the Act’s
structure and design.
As a matter of the text and original meaning of the Contract Clause, there
seems to be little doubt that the North Dakota law would be unconstitutional. The
Clause’s terms are absolute: “No State shall . . . pass any . . . Law impairing the
Obligation of Contracts . . . .” U.S. Const. art. I, § 10, cl. 1. The Clause’s principal
target was debtor-relief legislation that many States had passed in the wake of the
Revolutionary War, see Sveen, 138 S. Ct. at 1821, but the text is not so limited, and
historical context suggests that the Clause was “aimed at all retrospective,
redistributive schemes in violation of vested contractual rights.” Douglas W. Kmiec
& John O. McGinnis, The Contract Clause: A Return to the Original Understanding,
14 Hastings Const. L.Q. 525, 533-34 (1987). The Supreme Court, through Chief
Justice Marshall, understood the Framers “to have intended to establish a great
principle, that contracts should be inviolable,” and concluded in an early case
construing the Clause that the Court “should give these words their full and obvious
meaning.” Sturges v. Crowninshield, 17 U.S. (4 Wheat.) 122, 205-06 (1819). Even
where a state statute was designed to further a legitimate state purpose of assisting
poor people who were oppressed by debts, the Contract Clause forbade legislation
that discharged contractual liability without performance. See id. at 206; Kmiec &
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McGinnis, supra, at 536-37. The Clause did not prevent a State from regulating
health, safety, and morals, see Stone v. Mississippi, 101 U.S. 814, 817-19 (1880), but
drew the line at efforts “to redistribute resources in violation of vested contractual
rights.” Kmiec & McGinnis, supra, at 541; see also Richard A. Epstein, Toward a
Revitalization of the Contract Clause, 51 U. Chi. L. Rev. 703, 715-16, 730-40 (1984)
(arguing that while the Contract Clause encompasses a modest police power
limitation, “the transfer of wealth by special-interest politics” is the “evil to which the
clause is directed”).
Modern jurisprudence, however, has taken a different course. The Court in
Home Building & Loan Association v. Blaisdell, 290 U.S. 398 (1934), disavowed that
“what the Constitution meant at the time of its adoption it means to-day,” or that “the
great clauses of the Constitution must be confined to the interpretation which the
framers . . . would have placed upon them.” Id. at 442-43. Blaisdell upheld
Minnesota’s mortgage moratorium law, a form of debtor-relief legislation, against a
challenge under the Contract Clause. Id. at 447-48. Yet Blaisdell did not rest on a
mere assertion of conceivable public purpose; the Court cited legislative findings,
supported by an adequate factual basis, that documented the existence of an economic
emergency. Id. at 421 n.3, 444-45; see also Keystone Bituminous Coal Ass’n v.
DeBenedictis, 480 U.S. 470, 486 & n.14 (1987) (upholding state statute where “the
legislative purposes set forth in the statute were genuine, substantial, and legitimate”).
Since Blaisdell, the Court has reaffirmed that the Contract Clause prohibits
special-interest redistributive laws, even if the legislation might have a conceivable
or incidental public purpose. Allied Structural involved a Minnesota law that sought
to protect pension benefits for those who worked for a specific class of employers.
See 438 U.S. at 238. A three-judge district court had “no trouble concluding” that the
statute addressed “a problem of vital public interest,” namely, “protecting the
economic welfare of its senior citizens by assuring the receipt of earned pension
benefits as a form of retirement income.” Fleck v. Spannaus, 449 F. Supp. 644, 650-
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51 (D. Minn. 1977). But the Supreme Court reversed, observing that the law had “an
extremely narrow focus” because it applied only to certain employers. Allied
Structural, 438 U.S. at 248. The Court ruled that the statute could “hardly be
characterized, like the law at issue in the Blaisdell case, as one enacted to protect a
broad societal interest.” Id. at 248-49. As such, the Minnesota law was
unconstitutional.
On the other hand, in Energy Reserves Group, there was “little doubt about the
legitimate public purpose behind” a Kansas law that imposed price controls for
natural gas. 459 U.S. at 417. Because the public utility defending the law already
could pass through any price increase to its customers, the price controls promised
lower prices for consumers, and the public utility would not benefit significantly. See
id. at 405 n.3, 407 n.6, 418 n.25; see also Brief for Appellee at 4-5 & n.12, Energy
Reserves Grp., 459 U.S. 400 (No. 81-1370). Under those circumstances, the Court
deemed the statute a valid exercise of the State’s “police power to protect consumers
from the escalation of natural gas prices caused by deregulation.” 459 U.S. at 416-17.
In short, the inherent pro-consumer nature of the Kansas law and the pre-existing
pass-through mechanism made it self-evident to the Court that the law had a broad
public purpose and was not special-interest legislation.
So too in Exxon Corp. v. Eagerton, 462 U.S. 176 (1983), where a state law
prohibited oil and gas producers from passing on a severance tax increase to
consumers. The Court reasoned that the statute “imposed a generally applicable rule
of conduct designed to advance ‘a broad societal interest,’” namely, “protecting
consumers from excessive prices.” Id. at 191 (quoting Allied Structural, 438 U.S. at
249). The effect on contracts “was incidental to its main effect of shielding
consumers from the burden of the tax increase.” Id. at 191-92.
Exxon did contrast a statute that permissibly imposed “a generally applicable
rule of conduct” with an unconstitutional enactment whose “sole effect was to alter
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contractual duties”—i.e., one that applied only to existing contracts. Id. at 192. But
the Court did not say that only laws in the latter category can transgress the Contract
Clause. Cf. post, at 17. If that were so, then this court’s decision in Equipment
Manufacturers Institute would have come out the other way, because the South
Dakota law at issue there imposed generally applicable rules for both pre-existing and
future dealership agreements. 300 F.3d at 848-49. This court has thus rejected the
view that retroactive legislation is always permissible under the Contract Clause “so
long as the state takes the simple precaution of having its legislation apply in futuro
as well.” See Epstein, supra, at 739. Even where a law does not have the sole effect
of altering pre-existing contractual duties, “[t]he State must show that the regulation
protects a ‘broad societal interest rather than a narrow class.’” Equip. Mfrs. Inst., 300
F.3d at 859 (quoting Allied Structural, 438 U.S. at 249).
In evaluating the present North Dakota law governing contracts between
manufacturers and dealers, the State “bears the burden of proof in showing a
significant and legitimate public purpose underlying the Act.” Id. at 859. The state
legislature declined to follow the examples of the legislatures in Blaisdell and
Keystone Bituminous, which included well-supported findings or purposes within
their duly enacted laws, so any significant and legitimate public purpose must be
discerned from the design and operation of the legislation itself. Statements in the
legislative history of individual legislators, lobbyists, or advocates that the law would
benefit farmers and rural communities are insufficient. Special-interest groups cannot
establish that legislation serves a broad societal interest simply by ensuring that the
record contains testimony or floor statements about a law’s conceivable public
benefits.
Unlike the statutes at issue in Energy Reserves Group and Exxon, this North
Dakota legislation does not self-evidently further a significant and legitimate public
purpose. “[A] state must do more than mouth the vocabulary of the public weal in
order to reach safe harbor,” McGrath v. R.I. Ret. Bd., 88 F.3d 12, 16 (1st Cir. 1996),
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and here the State did not even utter it. The Act nowhere mentions benefits for
farmers or rural communities, and it has a narrow focus: restricting the contractual
rights of farm equipment manufacturers. The law primarily benefits a particular
economic actor in the farm economy—farm equipment dealers. Even if the law
indirectly might benefit farmers and rural communities, the Contract Clause demands
more than incidental public benefits. “The requirement of a legitimate public purpose
guarantees that the State is exercising its police power, rather than providing a benefit
to special interests.” Energy Reserves Grp., 459 U.S. at 412. The design of this
North Dakota legislation fails to provide the requisite guarantee.
Accepting the State’s assertion of a sufficient public purpose without a stronger
showing would come perilously close to upholding an impairment of contractual
obligations based merely on a rational basis—i.e., a rational relationship between the
new regulation and a legitimate governmental purpose. Under current doctrine, once
a State is deemed to have shown a “significant and legitimate public purpose” for
retroactive legislation, the court considers whether the law is drawn in an
“appropriate” and “reasonable” way to advance that purpose. Sveen, 138 S. Ct. at
1822. At this last step, the Supreme Court has directed courts to defer to the
legislative judgment as to necessity and reasonableness, “as is customary in reviewing
economic and social regulation.” Energy Reserves Grp., 459 U.S. at 412-13 (internal
quotation and brackets omitted). Yet the Court also has made clear that the Contract
Clause provides greater protection for contractual rights than the “less searching”
rational basis standard applied under the Due Process Clauses. See Pension Benefit
Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 733 (1984). To avoid collapsing the
specific prohibition of the Contract Clause into the more general Due Process Clause,
a reviewing court must require the State to demonstrate more than a conceivable or
incidental public purpose for impairing the obligation of contracts.2
2
Citing City of El Paso v. Simmons, 379 U.S. 497, 508-09 (1965), and
Manigault v. Springs, 199 U.S. 473, 480-81 (1905), the dissent asserts that it is not
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* * *
For these reasons, the State has not carried its burden of showing a significant
and legitimate public purpose underlying Senate Bill 2289. The district court thus did
not err in concluding that the manufacturers were likely to succeed on the merits of
their Contract Clause claim. The State does not challenge the scope of the
preliminary injunction, so the question whether it should be limited to retroactive
applications of SB 2289, or to certain provisions of the law, is not presented at this
juncture. The motions to supplement the record are denied. The district court’s order
granting a preliminary injunction is affirmed.
SHEPHERD, Circuit Judge, dissenting.
I respectfully disagree with the Court’s conclusion that North Dakota has not
met its burden of showing a significant and legitimate public purpose underlying
SB 2289. Because this Court has stated that a state’s interest in serving its farming
and rural communities is “unquestionably significant and legitimate,” Equip. Mfrs.
Inst. v. Janklow, 300 F.3d 842, 860 (8th Cir. 2002), and SB 2289 sufficiently evinces
such a public purpose, I respectfully dissent.
Generally, “the Contract Clause does not prohibit the States from repealing or
amending statutes . . . , or from enacting legislation with retroactive effects.” U.S.
“difficult” for a State to carry its burden of showing a significant and legitimate
public purpose, because there is “wide discretion on the part of the legislature in
determining what is and what is not necessary.” Post, at 12-13. These decisions,
however, refer to discretion in choosing a means to implement a law’s purpose if the
State is properly exercising its police power—i.e., if the law has a significant and
legitimate public purpose. See Energy Reserves Grp., 459 U.S. at 412; Simmons, 379
U.S. at 508-09 (“Once we are in this domain of the reserve power of a State we must
respect the ‘wide discretion on the part of the legislature in determining what is and
what is not necessary.’”) (emphasis added) (internal quotation omitted).
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Trust Co. of N.Y. v. New Jersey, 431 U.S. 1, 17 (1977). A state’s exercise of its
police power “to protect the lives, health, morals, comfort and general welfare of the
people . . . is paramount to any rights under contracts between individuals.” Allied
Structural Steel Co. v. Spannaus, 438 U.S. 234, 241 (1978) (internal quotation marks
omitted). It is essential for a state to retain its police power to enact legislation aimed
at addressing perceived economic harms “without being concerned that private
contracts will be impaired, or even destroyed, as a result. Otherwise, one would be
able to obtain immunity from the [legislation] by making private contractual
arrangements.” U.S. Trust, 431 U.S. at 22. However, state legislation’s “sole effect”
cannot be “to alter contractual duties.” Exxon Corp. v. Eagerton, 462 U.S. 176, 192
(1983); see also City of El Paso v. Simmons, 379 U.S. 497, 509 (1965) (noting that
“[i]t is the motive, the policy, the object, that must characterize the legislative act, to
affect it with the imputation of violating the obligation of contracts” (alteration in
original) (citation omitted)).
Although SB 2289 substantially impairs preexisting contractual obligations
between farm implement dealers and farm equipment manufacturers, such an
impairment is not fatal where the state shows it has “a significant and legitimate
public purpose” for the impairment. Energy Reserves Grp., Inc. v. Kan. Power &
Light Co., 459 U.S. 400, 411 (1983); Equip. Mfrs. Inst., 300 F.3d at 859-60. State
legislation that substantially impairs preexisting contracts between private parties
must be “enacted to protect a broad societal interest rather than a narrow class.”
Allied Structural, 438 U.S. at 249. The legislation must be “addressed to a legitimate
end[.]” Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 438 (1934). This is
not a difficult burden for a state to meet. A state’s “economic interests . . . may justify
the exercise of its continuing and dominant protective power notwithstanding
interference with contracts. . . . Once we are in this domain of the reserve power of
a State we must respect the wide discretion on the part of the legislature in
determining what is and what is not necessary.” City of El Paso, 379 U.S. at 508-
09 (citation omitted) (internal quotation marks omitted). In other words, “courts
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ordinarily will not interfere with” the legislature’s wide discretion in this area.
Manigault v. Springs, 199 U.S. 473, 480-81 (1905).3 Requiring a significant and
legitimate public purpose for substantially impairing preexisting contractual rights
between private parties simply “guarantees that the State is exercising its police
power, rather than providing a benefit to special interests.” Energy Reserves, 459
U.S. at 412.
The Court today employs an approach that second-guesses the North Dakota
legislature’s sound judgment and unnecessarily heightens the state’s burden. The
Court faults the legislature for not including “well-supported findings or purposes
within” SB 2289 and finds the legislators’ statements in the official legislative record
to be “insufficient.” Supra, at 9. I respectfully disagree. In enacting SB 2289, the
legislature was pursuing a broad societal interest.
First, in enacting legislation, the North Dakota legislature is presumed to have
acted in favor of the “[p]ublic interest . . . over any private interest.” N.D. Cent.
Code § 1-02-38(5). Undoubtedly, the legislature believed SB 2289 benefitted the
3
The Court states that City of El Paso and Manigault simply “refer to discretion
in choosing a means to implement a law’s purpose if the State is properly exercising
its police power—i.e., if the law has a significant and legitimate public purpose.”
Supra, at 10 n.2. But neither case support that interpretation. The Supreme Court has
said very little about a state’s burden to show a significant and legitimate public
purpose behind legislation that substantially impairs preexisting contracts between
private parties. In Energy Reserves, it said a state has to identify such a public
purpose before a court addresses the final step of the Contract Clause analysis, and
found “little doubt about the legitimate public purpose behind the” Kansas legislation
at issue there. 459 U.S. at 412, 417. Notably, the Supreme Court found it relevant
that there was no “indication that the Kansas political process had broken down.” Id.
at 417 n.25 (citing Note, A Process-Oriented Approach to the Contract Clause, 89
Yale L.J. 1623, 1645 (1980), for the proposition that, “provided ‘legislature is
functioning properly, selection of a public purpose and determinations of necessity
and appropriateness should be left to it’”).
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public; the legislation enjoyed overwhelming support in both chambers. The North
Dakota Senate passed SB 2289 with a vote margin of 46-0, S. Journal, 65th
Legis. Assemb., Reg. Sess. 434 (N.D. 2017), and the North Dakota House of
Representatives passed SB 2289 with a vote margin of 86-5. H. Journal, 65th Legis.
Assemb., Reg. Sess. 942 (N.D. 2017).
Second, the title of SB 2289 suggests that the legislation is not solely designed
to alter preexisting contracts between private parties. Compare S.B. 2289, 65th
Legis. Assemb., Reg. Sess. (N.D. 2017) (“An Act to amend and reenact sections 51-
07-01.2, 51-07-02.2, and 51-26-06 of the North Dakota Century Code, relating to
prohibited practices under farm equipment dealership contracts, dealership transfers,
and reimbursement for warranty repair.”), with Equip. Mfrs. Inst., 300 F.3d at 861
(concluding that there was no significant and legitimate public purpose in South
Dakota legislation titled “An Act to provide certain restrictions for dealership
contracts for machinery”).
Third, although the text of SB 2289 covers dealers and manufacturers and is
silent over any benefits for North Dakota’s farming and rural communities, that is not
fatal. Neither the North Dakota Constitution nor the North Dakota Century Code
expressly require that legislation contain either a statement of legislative purpose or
legislative findings. Cf. Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522,
528 (1959) (noting that, in the Equal Protection Clause context, “a state legislature
need not explicitly declare its purpose” for enacting legislation). Nor does the
absence of express text establish that the North Dakota legislature was acting in bad
faith. In a Contract Clause challenge, legislative history may be used to ascertain the
purpose underlying the legislation at issue. Equip. Mfrs. Inst., 300 F.3d at 860; Deere
& Co. v. State, 130 A.3d 1197, 1211 (N.H. 2015). North Dakota permits the use of
legislative history in the absence of legislative findings “to determine the evils and
objectives at which the legislation was aimed as distinguished from the meaning of
the statute.” State v. Knoefler, 279 N.W.2d 658, 663-64 (N.D. 1979) (relying on state
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legislature’s house and senate agriculture committees’ minutes to ascertain the
primary purpose of the legislation).
The legislative history underlying SB 2289 reveals that the legislation was
designed to accomplish more than one purpose: not only to regulate relationships
between dealers and manufacturers, but also to serve the farming and rural
communities in North Dakota. North Dakota House Representative Craig Headland
stated “that [the loss of farm equipment dealers] would have an impact on the town
where the dealer is located.” House Agriculture Committee Vice-Chairman
Representative Wayne A. Trottier stated that, if farmers cannot “get service and sales,
it makes it costlier and more difficult.” Representative Dwight Kiefert stated that
equipment is purchased “because we can get the service and the parts. Our area
dealership closed and it costs more to get service because there is more mileage.”
Representative Kiefert further stated that “[t]here was a time when things were easy
to fix. Now we are dependent to have the dealer come out.” And House Agriculture
Committee Chairman Representative Dennis Johnson stated that, “[a]s a custom
harvestor over the years[,]” he had
seen from Oklahoma the dealerships that have closed in 25 years. At the
end of the day we all need each other. We are still sitting with $4 wheat.
We are heading for a train wreck in trying to make this all work. We
want to take care of everyone involved: farmers, dealers, and
manufacturers.
SB 2289 aspires to benefit the farming and rural communities of North Dakota
as well as the dealers that do business there. The legislation aims to preserve the
symbiotic relationship between the groups. Farmers rely on having a local dealer for
prompt service, especially during harvest. Without a local dealer, farmers must travel
farther to purchase equipment and obtain repairs. Moreover, the small towns in North
Dakota with dealerships reasonably depend on the employment opportunities that
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come with having such dealerships. Depriving North Dakotans of these opportunities
results in adverse consequences for the communities where the dealers are located.
The Court states that, “[e]ven if [SB 2289] indirectly might benefit farmers and
rural communities, the Contract Clause demands more than incidental public
benefits.” Supra, at 10. However, the Contract Clause makes no such demand and,
if anything, the Court’s statement acknowledges that SB 2289 does not exclusively
benefit dealers.
The Contract Clause requires that state legislation be “enacted to protect a
broad societal interest rather than a narrow class.” Allied Structural, 438 U.S. at 249.
Here, SB 2289 aspires to benefit a broad class: the farming and rural communities of
North Dakota as well as the dealers that do business there. It is simply irrelevant
whether the benefits to that broad class are incidental. Other than prohibiting state
legislation exclusively designed to alter contractual duties, the Contract Clause places
no limitations on a state’s ability to exercise its police power “to protect the lives,
health, morals, comfort and general welfare of the people,” id. at 241 (internal
quotation marks omitted), much less the manner in which a state chooses to
implement that power. The Contract Clause requires that state legislation be
“addressed to a legitimate end[.]” Home Bldg., 290 U.S. at 438. And we have
already determined that a state’s interest in serving its farming and rural communities
is “unquestionably significant and legitimate,” Equip. Mfrs. Inst., 300 F.3d at 860,
irrespective of whether the benefits to them are incidental.
In Equipment Manufacturers Institute, this Court was very clear as to why the
South Dakota legislation at issue there had no significant and legitimate public
purpose: the state produced no evidence of the advancement of a broad societal
interest and, indeed, conceded that the legislation’s “purpose [was] to level the
playing field between manufacturers and dealers.” Id. at 860-62. Accordingly, “[i]t
[was] clear that the only real beneficiaries under the [South Dakota legislation were]
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the narrow class of dealers of agricultural machinery.” Id. at 861. Without its readily
apparent and exclusively protectionist features, the South Dakota legislation would
have fared better. See Exxon Corp., 462 U.S. at 191-92 (distinguishing a permissible
law “impos[ing] a generally applicable rule of conduct designed to advance ‘a broad
societal interest,’” from an impermissible law with the “sole effect” of “alter[ing]
contractual duties” (quoting Allied Structural, 438 U.S. at 249)).
Ensuring that North Dakota’s agriculture industry, a large component of its
economy, is stable and beneficial for all of its participants is squarely within the
province of the North Dakota legislature, notwithstanding the imperatives of the
Contract Clause. See Farmers Union Oil Co. v. Allied Prods. Corp., 162 B.R. 834,
841 (D.N.D. 1993) (“[I]t is undisputed that North Dakota’s economy is heavily
dependent on agricultural production.”); cf. Hall GMC, Inc. v. Crane Carrier Co., 332
N.W.2d 54, 61 (N.D. 1983) (finding significant and legitimate public purpose behind
North Dakota statute protecting farm equipment distributors because a farm
equipment “distributor service is a substantial public need in [North Dakota’s]
economic system”).
Because the “sole effect” of SB 2289 is not “to alter contractual duties[,]”
Exxon Corp., 462 U.S. at 192, we should not second-guess the legislature’s sound
judgment. See Mascio v. Pub. Emps. Ret. Sys. of Ohio, 160 F.3d 310, 314 (6th Cir.
1998) (refusing to “question the legitimacy of the purposes put forward” by the Ohio
legislature); Kendall-Jackson Winery, Ltd. v. Branson, 82 F. Supp. 2d 844, 875 (N.D.
Ill. 2000) (“Unquestionably, the state interests served by a strong local distributorship
network are substantial, and a judgment by the Illinois legislature that that interest is
best-served by prohibiting termination of distributorships except for good cause is
beyond challenge.”); Deere, 130 A.3d at 1211-12 (stating that it would not
“second-guess [the New Hampshire legislature’s] determination[,]” refusing to
“require of the legislature courtroom factfinding[,]” and stating that it “will uphold
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a legislative choice based on rational speculation” (internal quotation marks and
citations omitted)).
The Court is unwilling to defer to the North Dakota legislature’s judgment as
to why it enacted SB 2289 but would give “complete deference” to a legislature’s
assessment that a law “is reasonable and necessary to serve an important public
purpose[,]” U.S. Trust, 431 U.S. at 25-26, or, in other words, “the means chosen to
implement” the purposes behind the law. Energy Reserves, 459 U.S. at 418; see
also Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 506 (1987)
(refusing “to second-guess the [Pennsylvania legislature]’s determinations” about
“the most appropriate ways of dealing with the problem”); Home Bldg., 290 U.S. at
447-48 (“Whether the legislation is wise or unwise as a matter of policy is a question
with which we are not concerned.”). However, by not deferring to the legislature, the
Court substitutes its own judgment for that of the legislature. Underscoring the
Court’s unusual approach today is the fact that the Supreme Court has very rarely—
and perhaps in only a single instance—invalidated state legislation for not having a
significant and legitimate public purpose. See Energy Reserves, 459 U.S. at 412
n.13 (noting that in Allied Structural, the Minnesota legislature “had not acted to meet
an important general social problem” because the statute at issue “had a very narrow
focus” and, indeed, “may have been directed at one particular employer planning to
terminate its pension plan when its collective-bargaining agreement expired”).
Because the North Dakota legislature was pursuing a broad societal interest in
enacting SB 2289, the state has met its burden of showing a significant and legitimate
public purpose underlying the legislation. Accordingly, the district court abused its
discretion in entering its preliminary injunction upon concluding that the appellees
were likely to prevail on the merits of their Contract Clause claim and, therefore, the
preliminary injunction should be vacated. I respectfully dissent.
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