United States Court of Appeals,

Fifth Circuit.

No. 90–4686.

DELTA TRUCK & TRACTOR, INC., Plaintiff–Appellant, Cross–Appellee,

v.

J.I. CASE COMPANY, Tenneco, Inc., and Navistar International Transportation Corp. f/k/a

International Harvester Company, Defendants–Appellees, Cross–Appellants.

Oct. 29, 1992.

Appeals from the United States District Court for the Western District of Louisiana.

Before THORNBERRY, HIGGINBOTHAM, and WIENER, Circuit Judges.

WIENER, Circuit Judge.

In this Louisiana diversity case, Plaintiff–Appellant Delta Truck & Tractor, Inc. (D elta)

appeals the district court's adverse summary judgments dismissing all but one of Delta's claims. Also

appealed is the district court's directed verdict dismissing Delta's remaining claim following a bench

trial.

Delta, in its suit aga inst Defendants–Appellees, J.I. Case Company, now a wholly-owned

subsidiary of Tenneco, Inc. (Case), and International Harvester Company, now Navistar International

Transportati on Corp. (IH), sought damages for wrongful termination of its Dealership Agreement

with IH following IH's in globo transfer of its farm implement manufacturing and distribution business

to Case. In our de novo review of the issues determined on summary judgment, we reach conclusions

opposite those reached by the district court, particularly that court's characterization of the transfer

transaction between IH and Case as one in which IH went out of the farm implement business. We

conclude instead that IH in fact sold its farm implement group or division to Case as a unitary, going

business. For the reasons set forth below, we reverse the summary judgments and the directed verdict

o f the district court; render judgment in favor of Delta against IH and Case in solido (jo int ly and

severally) on Delta's breach of contract and third party beneficiary claims, and against IH on Delta's

claim against IH for breach of its duty of good faith; and remand the case to the district court for the

sole purpose of determining the quantum of damages, interest and costs, including attorneys' fees tothe extent appropriate, owed to Delta by IH and Case, as well as such ancillary matters as may be

required for the court to make such determinations.

I

FACTS

In 1962, Delta, a Louisiana corporati on, became a franchise dealer of IH, itself an integrated

manufacturer and distributor of farm implements and agricultural equipment. After meeting specified

qualifying standards, Delta became a "XL" dealer of IH in 1976 and obtained a new dealer agreement

with IH consistent with that status.

The new agreement (the Dealer Agreement), executed April 7, 1977, is the contract under

consideration here. Among other things, the Dealer Agreement sets forth the conditions under which

it could be terminated by either or both of the parties: 1) mutually, by written consent of both Delta

and IH at any time; 2) unilaterally by Delta upon furnishing four months' advance written notice to

IH, with or without cause; and 3) unilaterally by IH upon furnishing six months' advance written

notice to Delta, but only for cause. For IH to have cause to terminate, eit her (a) Delta must (i)

breach one of its obligations under the Dealer Agreement, (ii) be advised by IH of such breach, (iii)

be given a reasonable opportuni ty by IH to rectify the breach, and (iv) fail to do so in a t imely

manner; or (b) IH must determine that a sufficient market for its products no longer exists i n Delta's

trade area. (There is no contention by any party to this litigation that either of IH's terminating

causes as set forth in the Dealer Agreement ever occurred.) Notably absent from the exclusive list

of causes that would give IH the right to terminate the Dealer Agreement unilaterally, unrelated to

Delta's breach of its obligations under the agreement, is the total ces sat ion by IH of its farm

implement and agricultural equipment business everywhere or the in globo sale or exchange of that

business.

Section 2 of the Dealer Agreement states that the contract covers all agricultural equipment

ident ified on IH's price list. That section acknowledges that IH has the right, without incurring

liabilit y to the dealer, to make add it ions to and deletions from the price list, including deletions1 Section 2 of the Dealer Agreement provides in pertinent part:

2. The agreement shall cover all those items of agricultural tractors, machines,

equipment and attachments, which appear in the Agricultural Equipment Price List

issued by [IH], and service parts for such goods. [IH] reserves the right to make

additions to and eliminations from such List, including but not limited to

reductions resulting from the discontinued production of a line or lines of such

tractors, machines, equipment and attachments, without incurring any

responsibility to the Dealer. Changes in the List may be announced to the Dealer

by the issuance of a revision thereto or by the issuance of a price bulletin. resulting from discontinued producti on of a line or lines of agricultural equipment. 1 Notably absent

from section 2 is any express or implied right of IH unilaterally to terminate all lines of agricultural

equipment, i.e., to exit that market altogether, without incurring liability to the dealer.

For many years both before and after becoming a wholly-owned subsidiary of Tenneco, Inc.,

J.I. Case Company, Inc. competed directly with IH as a manufacturer and distributor of agricultural

equipment. As will be noted, Case competed directly with IH in Delta's trade area, primarily through

the authorized Case dealer for that area, Scott Truck and Tractor.

As a result of a general recession in the farm economy, IH suffered substantial losses in its

agricultural equipment group from 1980 throu gh 1984. On November 26, 1984, IH and Case

executed a contract (the Purchase Agreement) in which IH agreed to sell and Case agreed to buy all

assets of IH's farm implement and agricultural equipment manufacturing and distribution business.

Upon consummation of its purchase from IH, Case took over the manufacture of IH products, calling

that line of agricultural equipment "Case–International."

Prior to the IH sale to Cas e

, each company had manufactured and distributed its own

agricultural equipment through its own network of independent dealers. Delta was such a dealer for

IH. Both IH and Case recognized that Case's purchase of IH's farm implement group or division

would produce a number of "conflict areas"—common geographical trade areas i n which a Case

dealership and an IH dealership competed. Case therefore decided that, immediately following its

purchase of IH's farm implement business, it would offer a new dealership agreement for a combined

Case–International dealership to one (but only one) dealer in each conflict area, effectively leaving

the other dealer in such area with no access to either Case or IH merchandise and parts.2 Section 5.2 of the Purchase Agreement provided:

5.2 Dealer Arrangements. Purchaser [Case] shall, as soon as practical (sic) after

the date hereof, notify the agricultural equipment distributors and dealers of Seller

[IH] (the "Dealers") that it intends, within 60 days thereafter, to offer to each of

the Dealers, effective as of the Closing Date, either (a) a new distributor or dealer

agreement (a "Purchaser Agreement") with respect to the Acquired Business

which will be at least as favorable to the Dealer as the current form of distributor

or dealer agreement used by Seller and such subsidiaries (a "Seller Agreement"), or

(b) an appropriate arrangement for the consolidation, relocation, purchase or

termination of the Dealer's operations on terms at least as favorable as such Dealer

would be entitled to receive upon termination under a Seller Agreement, and, in

the event that agreement has been reached with any Dealer on the Closing Date as

to the terms and conditions of such an arrangement, Purchaser will offer such

Dealer a Purchaser Agreement for such period as may be reasonably required to

attempt to reach such an arrangement. Purchaser shall arrange credit financing for

the Dealers and their retail customers which is comparable to the financing

currently provided by the Seller and such subsidiaries. Case and IH recognized that each t erminated dealer would be faced with the prospect of

either finding a third manufacturer with which to affiliat e or simply going out of the farm machinery

business. With this in mind (and, we assume, with the expectation that in most instances the Case

dealer would be the one to which the combined Case–International dealership would be offered),

Case and IH included in the Purchase Agreement a provision addressing the post-sale status of the

former IH dealers. 2 Under this provision Case agreed that with respect to each IH dealer, Case would

either offer the former IH dealer a Case–IH dealership agreement (thereby making the IH dealer the

sole surviving dealer in the conflict area), or—if the IH dealer were not thus to "make the cut"—offer

one alternative among consolidation, relocation, purchase or termination of the IH dealer's opera tions,

on terms at least as favorable as that Dealer would be entitled to receive upon termination of its

Dealer Agreement with IH. Case also agreed with IH that in the further alternative that Case and an

IH dealer could not reach an agreement by the closing date of the Purchase Agreement, Case would

offer such IH dealer an interim dealership contract for a period reasonably required for Case and the

former IH dealer to reach a mutually acceptable agreement on that dealer's future status.

Delta fell within one of the several hundred conflict areas throughout rural America. Case

de cided t o grant the exclusive Case–International dealership within Delta's area to Scott Truck &

Tractor, the pre-existing Case dealer in that locale and a direct competitor of Delta's of long-standing.3 See L A .R EV .S TAT .A NN . 51:481–88.

4 The district court dismissed the RICO claim and we affirmed the dismissal. Delta Truck &

Tractor, Inc. v. J.I. Case Co., 855 F.2d 241 (5th Cir.1988), cert. denied, 489 U.S. 1079, 109

S.Ct. 1531, 103 L.Ed.2d 836 (1989).

5 See L A .C IV .C ODE A NN . arts. 1978–82.

6 See L A .R EV .S TAT .A NN . 51:481–88. On January 15 , 1985, Delta was informed by Case of its decision not to extend Delta a new

Case–International dealership contract. Three weeks later Case and Delta met to consider a buy-out

of Delta by Case but were unable to arrive at a mutually acceptable arrangement. The following day

Delta was informed by letter from Case that it would make IH goods and parts available to Delta for

90 mo re days only. The letter also stated that negotiations for a termination agreement would

continue , but for 30 days only, after which Case would do nothing more than repurchase Delta's

whole goods and parts (incidentally, a s tatutory ri ght of Del ta to dem and). Case thereafter

maintained an account for Delta and provided Delta with IH parts and equipment.

Few if any additional discussions took place between Case and Delta until March 13, 1985

(after the 30 day negotiation period specified by Case had expired), at which time Delta demanded

by letter that Case comply with Louisiana law 3 by repurchasing all of Delta's whole goods and parts.

Case complied with that demand.

II

PROCEEDINGS

Delta filed suit in federal district court against IH and Case, proffering numerous claims

arising from the termination of Delta's IH dealership. Delta asserted claims of racketeering, 4 antitrust

violations, br each of contract, breach of s tipulation pour autrui 5 (Louisiana's equivalent of a third

party beneficiary contract), breach of fiduciary duty, breach of implied covenants of good faith and

fair dealings, fraud, unfair trade practices, and non-compliance with Louisiana's statutory provision

covering dealership termination. 6 Delta subsequently amended its complaint to allege that Case

succeeded to IH's contractual obligations under the Dealer Agreement, and that Case breached that

agreement and was guilty of misrepresentation.IH and Case moved for summary judgment, and Delta moved for partial summary judgment.

The district court partially granted the IH and Case motions for summary judgments, dismissing all

of Delta's claims except the one grounded in the theory of third party beneficiary contract. On that

one claim the district court ruled that, under section 5.2 of the Purchase Agreement, Case undertook

"certain obligations" of IH to its former dealers even though Case did not e xpressly assume IH's

dealership contracts. As such, fo und t he court (albeit without using express terminology of

stipulation pour autrui or third party beneficiary), Delta could enforce the provisions of section 5.2

directly against Case.

Thereafter Case moved for pa rt ial summary judgment on the third party beneficiary issue.

Init ially, that motion was denied, the district court finding a genuine fact issue in connection with

Delt a 's third party beneficiary claims under Delaware law—the law of choice stipulated by IH and

Case in the Purchase Agreement. But after it requested and received additional briefing on the issue,

the court recalled its prior ruling and granted Case's motion in part. In the revised ruling, the district

court stated that as Case had, under section 5.2(b) of the Purchase Agreement, elected not to offer

Delta a new combined Case–International dealership agreement, Case had the option of exploring

with Delta any of four alternatives (consolidation, relocation, purchase or termination); and that Case

had properly pursued the termination alternative aft er unsuccessfully pursuing the purchase

alternative. The district court held that under the termination alternative Case's only obligation was

to offer Delta a settlement on terms at least as favorable as those to which Delta would have been

entitled upon termination of its IH Dealer Agreement.

The district court then concluded that the only issue remaining for trial was whether Case had

failed to offer Delta an interim agreement as required by the second part of section 5.2(b ) of the

Purchase Agreement. But in a subsequent pre-trial ruling the district court held that of two remaining

issues, the one that invok ed Case's o bligation to offer Delta an interim agreement had evaporated

when Delta made its statutory demand that its inventory of IH equipment and parts be repurchased.

The bench trial commenced less than a month later. Given the district court's prior rulings,

Delta's only remaining claim was for the loss of a sale of five cotton pickers to one of its customers.7 Pierce v. Hobart Corp., 939 F.2d 1305, 1307 (5th Cir.1991).

8 Salve Regina College v. Russell, ––– U.S. ––––, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991). At the conclusion of Delta's case in chief the district court granted a directed verdict for IH and Case,

ruling that inasmuch as Delta had failed to prove that the customer actually would have purchased

the cotton pickers, Delta's evidence was insufficient to support a judgment for damages. The district

court then dismissed Delta's action with prejudice.

Delta t imely appealed the district court's summary disposition of all claims except one and,

as to that one claim, appealed the district court's directed verdict. IH and Case cross appealed the

district court's holding that Delta could enforce section 5. 2 o f t he Purchase Agreement as a third

party beneficiary.

III

ANALYSIS

A. Summary Judgments Dismissing Delta's Claims

1. Standard of Review

In reviewing a district court's grant of a motion for summary judgment, we examine the record

de novo. Our task is to determine, viewing the evidence and all reasonable inferences in the light

most favorable to the non-movant, whether the movant has demon st rat ed that there is no genuine

is sue o f mat erial fact and that the movant was entitled to judgment as a matter of law. 7 We also

conduct a plenary review of applicable law; and when, as here, our jurisdiction and that of the district

court is based on diversity of citiz enship, we afford no deference to the district court's state law

determinations. 8

2. Delta's Claims Against IH for Breach of Dealer Agreement

Delta asserts that the Dealer Agreement was unlawfully terminated by IH as a result of the

transfer by IH of its entire agricultural equipment division—manufacturing facilit ies, inventory, trade

name and other assets—in globo to Case. Delta complains that IH deliberately contracted with Case

in a manner calculated to diminish contractual obligations of IH to Delta under the Dealer Agreement,

even though Delta was not a party to the Purchase Agreement.The district court found that, although the Dealer Agreement specified several grounds upon

which it could be terminated unilate rally by either party or jointly by both parties, that agreement

neither expressly provided a fixed t erm or duration for its performance nor addressed the

consequences of a unilateral withdrawal from the agreement by IH, either by ceasing to manufacture

agricultural equipment or by disposing entirely of its agricultural equipmen t business. Relying

principally on the provisions of La.Civ.Code Ann. art. 2054, one of several Civil Code articles setting

forth rules for interpretation of contracts, the district court first concluded as a matter of law that,

absent an express contractual provision for the duration of the Dealer Agreement, that contract

should continue for a "reasonable period." The district court then found that the period during which

IH continued to manufacture agricultural equipment was the "reasonable period" for purposes of the

Dealer Agreement's duration. Stating the obvious—that the Dealer Agreement did not require IH

to manufacture agricultural equipment forever —t he dist rict court held that when IH ceased

manufacturing agricultural equipment, the Dealer Agreement terminated . As such, reasoned the

dist rict co urt, Delta was left with no cause of action against IH for breach of contract when t he

Dealer Agreement terminated as a result of IH's cessation of manufacturing and selling agricultural

equipment pursuant to its sale of that business to Case.

Although we do not quarrel with the determination that IH was not obligated to manufacture

and distribute farm equipment forever and thus not obligated to maintain Delta as a dealer forever;

and also agree that the reasonable period of IH's obligation to maintain Delta as a dealer was until

such time as IH might truly terminate it s farm implement business, we disagree with the district

court's finding that IH did that. We find, to the contrary, that IH did not terminate its farm implement

business but that it sold it lock, stock and barrel, as an ongoing business. In so doing, IH caused the

termination of Delta's Dealership Agreement, without cause, before the term of that agreement would

otherwise have expired, a classic breach of contract.

Not surprisingly given the number of IH dealers affected by the transaction between IH and

Case, this is not the first dispute concerning that transaction to make its way into court. Other IH

dealers have sued on claims essentially identical to Delta's in other juri sdictions. As the contracts9 410 N.W.2d 159 (S.D.1987).

10 See supra note 1.

11 Groseth, 410 N.W.2d at 164.

12 Id. at 167.

13 Id. at 168. considered by the courts in those cases were sub st ant ially identical to the Dealer Agreement here,

those cases merit discussion.

In Groseth International, Inc. v. Tenneco, Inc., 9 a l o ng-time IH dealer in South Dakota

suffered the termination of its dealer status as a result of an? IH/Case transaction and filed, among

other claims, a breach of contract action against IH. The trial court granted summary judgment for

IH on that claim, holding that section 2 of the dealer agreement 10 gave IH the right to discontinue

producti on of all lines of agricultural equipment without in curring any liability to Groseth. The

Groseth trial court also held that, even absent s ect ion 2 of the dealer agreement, the doctrines of

frustration of purpose and commercial impracticability would discharge IH from liabilit y under the

contract.

The South Dakota Supreme Court reversed, holding that the trial court had erred in

concluding that section 2 of the dealer agreement authorized I H t o disco nt inue completely all

agricultural product lines without liabilit y to Groseth. That supreme court held that even though

section 2 stated that the price list could always change, there was an underlying assumption that IH

would continue to market some group of agricultural products. Therefore, held that court, IH could

not cancel the dealer agreement by operati on of section 2 as that section did not contemplate IH's

discontinuation of manufacturing and distributing agricultural equipment altogether. 11

The South Dakota Supreme Court also held that, as a m atter of l aw, the doctri ne of

frustration of purpose did not discharge IH from its duty to perform under the dealer agreement. 12

The court then reversed and remanded the case for a trial on the issue of commercial impracticability,

holding that there existed material issues of fact on that question. 1314 931 F.2d 1112 (6th Cir.1991).

15 Id. at 1118.

16 Id. at 1120.

17 Id. at 1121. In Karl Wendt Farm Equip. Co. v. Internat ional Harvester Co., 1 4 a former IH dealer in

Michigan filed suit in federal district court alleging, inter alia, that IH breached its dealer agreement

with Wendt. All other claims were disposed of before trial. At trial, the district court permitted IH's

defense of impracticability of performance to go to the jury, and the jury returned a verdict of no

cause of action on the contract, adverse to Wendt. The district court denied Wendt 's motion for

J.N.O.V./new trial but ordered a directed verdict in favor of Wendt on IH's defenses of (1) frustration

of purpose, (2) the abilit

y of IH to cease producti on of all product lines under section 2 of the Dealer

Agreement, and (3) an implied term limit ing the duration of the contract. Wendt appealed the district

court's denial of its motion for J.N .O.V./new t rial, arguing the invalidity of IH's impracticability

defense. IH cross-appealed the district court's directed verdict on the viability of IH's other defenses.

The Sixth Circuit held that, under Michigan law, the district court erred in permitting the jury

to consider the impracticability defense and that Wendt was entitled t o a directed verdi ct on that

issue. 15 The appellate court then addressed IH's assertions on cross-appeal. First, the court agreed

with Groseth in holding that frustration of purpose was not available as a defense. 16 Again agreeing

with Groseth, the Wendt court also held that section 2 of the dealer agreement did not serve as an

alternative means for termination of the contract, especi ally in light of the existence of specific

termination provisions in the contract. 17

Finally, the Wendt court addressed IH's assertio n t hat t here is an implied term in every

dealership agreement giving the manu fact urer the freedom to go out of business, and that such an

implied term gave IH a defense to the breach of contract action. IH cited the opinion of the district

court in the instant case in arguing t hat t he Sixth Circuit should likewise hold that Wendt's dealer

agreement automatically terminated when IH ceased manufacturing agri cult ural equipment. The

Sixth Circuit, criticizing the decision of the district court in the instant case, held that IH had no18 Id.

defense under such a theory. The W endt court stated that the evidence supported the conclusion that

at the time the parties contracted, neither IH nor Wendt anticipated that IH would leave the

agricultural equipment business completely. That court continued:

Implying a term which enables IH to t erminate its franchise agreement unilaterally without

following the termination conditions of the agreement and without incurring a breach places

all the risk on the dealer. Rather, if economic circumstances require that IH leave the market

for farm products, it should properly seek to terminate its agreement under the terms of the

agreement.. .. As there is no evidence which suggests that IH sought to terminate its

agreement with Wendt by mutual agreement under the terms of the agreement, the district

court properly granted a directed verdict for Wendt on this defense. 18

We are not bound to follow either Groseth or Wendt, as those cases decided the issues under

the laws of South Dakota and Michigan; we are bound here to apply Louisiana law. Furthermore,

as the district court in the instant case held that IH had not breached the dealer agreement, it did not

address, and hence we do not face, some of the issues decided by Groseth and Wendt —in particular,

the defenses of frustration of purpose and impracticability of performance. Nevertheless, we find the

opinions in those two cases helpful in our determination whether IH breached the dealer agreement

when it sold its agricultural equipment division to Case without ensuring th at Delta woul d be

protected to the full extent of its contractual rights.

The Sixth Circuit in Wendt suggested that the district court in the instant case erred in holding

that the Dealer Agreement terminated by implication when IH ceased personally to manufacture its

agricultural equipment. IH construes that language in W endt to mean that the De aler Agreement

obligated IH to perpetual performanc e regardless of the circumstances, a conclusion IH argues is

unreasonable. IH argues further that, if such is the t rue meaning of W

endt, that opinion is

fundamentally flawed because the Sixth Circuit failed to distinguish between IH's decision to leave

the agricultural equipment business altogether (which is not addressed in the dealer agreement) and

a decision to terminate Delta or any other individual dealer (which is explicitly addressed in the dealer

agreement).

We shall not attempt to interpret the true meaning of Wendt's analysis of the district court's

opinion in the instant case. Our responsibility here is to review the instant decision "from scratch,"not to act as a super appellate court in review of the Sixth Circuit's extra-territorial analysis of our

trial court's work. Nevertheless, we conclude that it is IH and the district court, not the Sixth Circuit,

which have failed to make a fundamental distinction in this case—the distinc t ion between a true

business contraction or partial liquidation o n the one hand and the outright sale or transfer of an

active trade or business on the other.

In a true business contraction, an entity completely puts to an end one or more of its business

pursuits. Such would be the case had IH discontinued its agricultural equipment business so that such

business no longer existed; specifically, so that IH farm implements ceased altogether to be

manufactured and sold. Clearly, however, that is not what occurred here; IH did not make a business

contraction. Instead, it sold in globo its agricultural equipment manufacturing and dist ributing

business, which continued—albeit under the aegis of Case—without so much as skipping the

proverbial heart beat.

Under the terms of the Dealer Agreement, Delta could be terminated as a dealer only for

cause. The issue whether the "reasonable" duration of the Dealer Agreement—which specified no

term—is only as long as IH remained in the business of manufacturing farm equipment, is simply not

material to our decision. As drafted, the Dealer Agreement presents a significantly different question,

even though it sounds similar: Given no specified term and given the explicit termination provisions

in the Dealer Agreement, does IH's transfer of its agricultur al implement manufacturing and

distributing business, qua business, with the uninterrupted c o nt inuat ion of the manufacture and

distribution of IH farm equipment, constitute cause for the manufacturer of such equipment—whether

that be IH or its transferee—to terminate the Dealer Agreement as to Delta? Less an issue than a

rhetorical question, the answer is a resounding "no!"

The fact remains that, as a direct result of the sale by IH to Case, Delta has been terminated

as a dealer—without cause and through no fault of its own. IH cannot avoid its obligations under

the dealer agreement by a sale of the business; because IH's sale caused Delta to be terminated as a

dealer in violation of the Dealer Agreement, IH has breached that agreement.

Nevertheless, IH argues speciously here as it did in Groseth and Wendt, that section 2 of thedealer agreement allows IH to discontinue its agricultural equipment business without liabilit y to its

dealers. IH contends that t he holdings of G roseth and Wendt —that section 2 allowed IH to

discontinue some, but not all, of it s agricult ural equipment lines—are illogical. In support of its

argument, IH poses a hypothetical example in which IH phases ou t a different line of agricultural

equipment every six months until only one line, for which there is no market in Delta's area, remains.

IH asserts that, as far as Delta is concerned, this scenario does not differ from one in which IH

discontinues all of its agricultural equipment. That proposition is so ludicrous it will not be dignified

with more than a flat rejection.

IH also argues that if, under Groseth and Wendt, IH is obligated to continue to manufacture

at least one line of agricultural equipment, there is no guidance under the dealer agreem ent as to

which line that must be. IH's arguments so miss the mark that they approach frivolity, failing to

recognize (or accept) the distinction between a true termination of the agricultural equipment business

(i.e., the cessation of the manufacture of IH agricultural implements by anyone) and the sale of that

continuing business to an erstwhile competitor. In the former situation, there would be no more IH

agricultural equipment products manufactured by anyone to be d istributed to any one for sale to

anyone. In the latter situation, IH products would continue to be manufactured, distributed and sold.

It is clearly the latter situation with which we are faced here and which we hold constitutes a breach

of the dealer agreement by IH when it results in the loss of dealership by a former dealer who has not

breached the Dealer Agreement or otherwise g i ven IH or IH's successor cause to terminate the

dealerships.

The key inquiry in this case is better understood if we ask n ot whether IH ceased to

manufacture and sell agricultural equipment, but whether IH's agricultural equipment ceased to be

manufactured and sold. If only the former had occurred, IH may have been off the hook. But that

simply is not what happened, or at least not all that happened. IH farm implements continued to be

manufactured and distributed wit ho ut interruption, so IH remained obligated to Delta. It did not

wind down and terminate its manufacture and sale of agricultural eq uipment; it did not close

fact o ries; it did not dispose of land, buildings, machinery, raw materials, inventory, and the like,merely for scrap or salvage value or in some vas t "going out of business" sale. It made a unitary

transfer of those and all other elements of its farm implement business.

Even if we assume without deciding that the decision of IH to dispose of its agricultural

equipment division was for bona fide business purposes, that disposition st ill did not produce a

termination of such business. Irrespective of the tags and labels that IH and Case placed on the "asset

purchase " o f t hat business—whether for tax purposes, labor relations, or other reasons totally

irrelevant to this consideration—that transaction was nonetheless a global sale of a going business,

qua going business, carrying with it not merely tangible corporeal assets but all intangible, incorporeal

attributes of the going business as well—not the least of which was the International Harvester brand

name.

We hold that IH is responsible to Delta for all damages it suffered as a result of the loss of its

dealership and thus its lawful right to sell and service IH equipment and parts in its designated trade

area. IH breached the Dealership Agreement by transferring its ongoing farm implement business to

Case in a manner that purported to vest Case with the legal right to terminate Delta's farm implement

dealership despite the total absence of cause. In so doing IH layed itself open to respond in damages

to Delta for any net losses incurred in the event Case should terminate Delta without cause as defined

in the Dealer Agreement and without compensating Delta fully for that breach of t he Dealer

Agreement. Issues of indemnity or contribution between IH and Case for causing IH thus to respond

in damages are not before us; but clearly IH is obligated to Delta for its losses not otherwise

compensated for by Case.

3. Delta's Claims Against Case for Breach of the I.H. Dealer Agreement

Delta also alleges that as part of the purchase agreement between Case and IH, Case assumed

IH's rights and obligations under the dealer agreements. Section 1.2 of the purchase agreement

defines the business acquired by Case as IH's "agricultural equipment group [division] which is

represented by the Purchased Assets, including

... marketing in North America, through a large

dealer organization. " (emphasis added). Delta argues that the only assets relating to the dealer

organization are the dealer agreements. As Case acquired those dealer agreements and assumed IH's19 See supra note 2.

obligations under them, Delta's argument continues, Case is bound by the termination provisions of

the dealer agreements; and as Delta was terminated as a dealer in a manner inconsistent with its

Dealer Agreement, Case has breached that contract.

In further support of its argument that Case assumed IH's obligations under the deal er

agreement, Delta cites section 2.1(g) of the purchase agreement, which provides that Case assumed:

[a]ll liabilit

ies arising out of any claim against [IH]

... brought by any dealer ... in the United

States ... which arises out of termination after the date of this Agreement of the contractual

relationship of [IH]

... with such dealer

... (whether by the dealer or

... by [IH] ) ... or which

otherwis e results because of this Agreement or the transactions contemplated by this

Agreement.

The district court rejected this argument because a provision in the purchase agreement listed

"agreements with dealers" as a type of asset excluded from the purchase. The district court held that

section 2.1(g) was an

indemnity provision, requiring only that Case indemnify IH against claims

brought by dealers. The district court concluded that Case could not and therefore did not breach

Delta's Dealer Agreement with IH because Case neither assumed nor acq uired any of IH's dealer

agreements.

We recognize that the purchase agreement att empt ed expressly to exclude IH's dealer

agreements from the sale of IH's agricultural equipment business. We find as a matter of law,

however, that such language was merely an attempt to mask the reality of the transaction. Under

section 5.2 of the purchase agreement, 19 Case had the option to terminate Delta's status as a dealer

of IH agricultural equipment. Such a provision, though, is pregnant with its own obverse: If Case

could opt to terminate, it could opt—here, through inaction— not to terminate; just another way of

saying that Case could elect to retain, and insist upon the dealer's beneficial performance of, any and

all dealer agreements. Stated another way, it cannot be that Case could enjoy the power to terminate

dealer status, which arose through a Dealer Agreement with IH, without acquiring all of the

rights—and obligations—arising under the Dealer Agreement. One of those obligations was not to

terminate the dealer without cause. As there is no contention that any of the express conditions

just ifying termination under the Dealer Agreement were satisfied, Case breached that agreement whenit terminated Delta's status as a dealer.

Our analysis of the nature of IH's sale of its agricultural equipment business to Ca s e leads

inescapably to the conclusion that the parties to that transaction acted in concert and attempted to

do indirectly what they could not do directly—terminate IH dealers without cause while avoiding or

minimizing any financial responsibility and legal liabilit y for such unlawful terminations. IH and Case

knew that the transaction would result in a surfeit of dealers, and also knew that they were stuck with

IH dealer agreements that did not allow for termination of IH dealers without cause. In an obvious

act of damage control, IH and Case crafted the Purchase Agreement so as to disguise the effect of

the transaction and avoid the troublesome provisions of t he dealer agreements. The Purchase

Agreement stated that Case did not assume or acquire the dealer agreements as part of the purchase;

at the same time the Purchase Agreement gave Case the power to terminate former IH dealers. IH

could not possibly confer on Case a power greater than IH possessed; Case coul d not obtai n the

power to terminate an IH dealer in the absence of some sort of contractual relationship between Case

and that dealer.

When the Purchase Agreement is viewed in the cold light of reality, it is evident that IH and

Case tried to make an end run around the Dealer Agreement between IH and Delta. They failed. We

hold that Case is liable for breach of Delta's Dealer Agreement by improper termination. As such,

Case and IH are liable in solido (jointly and severally) for breach of that Dealer Agreement.

4. Delta's Third Party Beneficiary Claims Against Case

As noted earlier, the district court init ially found Delta was entitled to seek enforcement of

the obligations undertaken by Case to IH's dealers in section 5.2 of the Purchase Agreement between

IH and Case, even though Case did not expressly assume the IH Dealership Agreements. When it

denied motions by Case and IH for further summ ary judgment, the district court recognized the

existence of a genuine issue of fact: whether Case had complied with its third party obligations

undertaken in section 5.2 of the Purchase Agreement. But the court reiterated that, having ruled that

Case did not assume the IH Dealership Agreements, Case was not bound by the conditions contained

in those agreements concerning the grounds for termina t io n o f a dealer. On subsequentreconsideration, however, the district court—while continuing to maintain the position that Case was

not bound by the termination provisions of the Dealer Agreement between IH and Delta—held that

section 5.2 of the Purchase Agreement did constitute a third party beneficiary agree ment under

Delaware law.

In an effort to avoid third party beneficiary liabilit y to Delta, Case insists here as it did in the

district court that the express disavowal of third party beneficiary liabilit y set forth in section 18.8 of

the Purchase Agreement eschews a third party beneficiary result. The district court's rejection of that

contention by Case is correct. The specific provisio ns o f sect ion 5.2 clearly create a third party

beneficiary obligation running from Case to IH dealers like Delta, trumping the general language of

section 18.8.

Nevertheless, the district court concluded that, as to Delta, Case was only obligated to offer

one of t he four alternative arrangements listed disjunctively in section 5.2(b): consolidation,

relocation, purchase, or termination. The district court found that Case had first explored the third

opti on (purchase) and had negotiated, presumably in good fait h, t o no avail; after which Case

nevertheless chose to exercise the fourth option (termination).

Continuing, the district court recognized that, as Case had pursued termination, it was

obligated under section 5.2(b) to see to it that Delta's termination was accomplished "on terms at least

as favorable as such dealer would be entitled to receive upon t ermination under [the Dealer

Agreement with IH]." The district court observed that the termination provision requires

consideration of § 30 of the Dealer Agreement between IH and Delta which, concluded the district

court, "sets out the minimum standard with which Case must comply."

Up to that point we have no disagreement with the district court's analysis. Our disagreement,

and the point at which we find that the district court erred, is with its treatment of the § 30 standard

as applicable equally to an unlaw ful termination (such as the termination of Delta's dealership

arrangement here) and to a law ful termination with cause as specified in the Dealer Agreement, e.g.,

no longer distributing in the de aler's sales area or an active breach by the dealer which remains

uncured. Clearly, the limited remedy of the dealer's right to have its inventory equipment and partsrepurchased upon termination applies only to lawful termination, i.e., by mutual consent of IH and

Delta, or by Delta unilaterally with or without cause, or by IH unilaterally with specified cause—none

of which occurred here. The measure of the obligation of IH—and thus Case—when termination is

a breach of the Dealer Agreement is entirely different: full compensatory damages.

As we hold today that the obligation of IH under such circumstances is to respond monetarily

to Delta in compensatory damages for the losses it experienced as a result of having its Dealership

Agreement breached by unlawful termination under section 5.2 of the Purchase Agreement, Case can

be responsible to no lesser extent. We and the district court agree that Case expressly obligated itself

under section 5.2(b), whether as a Delaware third party beneficiary contract or a Louisiana stipulation

pour autrui, to treat IH dealers such as Delta no less favorably than IH would be required to treat

Delta upon termination of the Dealer Agreement. It is inescapable therefore that Case's obligation

to Delta is congruent with IH's obligation to Delta. The fact that, in the Purchase Contract between

IH and Case (to which Delta and the other IH dealers were not parties ), t he four alternatives

contemplated by IH and Case as covering for the various types of arrangement s t hat Case might

propose are enumerated expressly, is of no legal significance whatsoever as between IH and Delta

or Case and Delta. Just as we have held IH and Case contractually obligated in solido to Delta for

the l o sses it suffered when its right to sell and service IH agricultural parts and equipment was

terminated by breach of contract, we hold, alternatively, that Case is obligated to Delta as a third

party beneficiary to the same extent.

5. Breach of Duty of Good Faith

Delta claims that IH breached its duty to act in good faith in its performance under the Dealer

Agreement. The district court, having determined that IH did not breach the Dealer Agreement, also

found as a matter of la w that IH fulfilled its duty to act in good faith under that contract. We

disagreed with the former conclusion and now disagree with the latter. As we have noted, IH sold

its agricultural equipment business to Case knowing that the transaction would result in the

termination of IH dealers without cause. The Purchase Agreement even provided for "comfort

letters." For the reasons set forth in more detail in section III.A.3 above, we find that IH deliberately20

Automatic Coin Enters., Inc. v. Vend–Tronics, Inc., 433 So.2d 766, 768 (La.Ct.App. 5th

Cir.1983).

21 Cason v. Texaco, Inc., 621 F.Supp. 1518, 1526 (M.D.La.1985). structured the transaction so as to leave the terminated IH dealers with little or no recourse against

either IH or Case. IH argues that by including section 5.2 in the purchase agreement, it fulfilled its

duty to act in good faith because that provision was designed to provide for the terminated dealers.

On the contrary, that was the very provision which purported to give Cas e the right to term i nate

those dealers without cause and, at the same time, immunize IH. We find as a matter of law that IH

breached its duty to act in good faith.

6. Fraud Claim Against IH

Delta alleges that IH committed fraud by representing to its dealers that it would remain in

the agricultural equipment business "forever," at t he very time it was negotiating the sale of that

business to Case. Such behavior is clearly duplicitous, but to constitute actionable fraud a promise

or representation of future actions must be made "with the intention not to perform at the time the

promise is made." 20 The district court held that "[b]eyond exhortation and allegation, Delta has

produced no evidence which indicates that whenever IH repeated its commitment to the farm

equipment business, IH intended otherwise." After reviewing the record, we agree with the district

court that Delta has failed to produce evidence of IH's fraudulent intent sufficient to avoid summary

judgment on this issue.

7. Breach of Fiduciary Duty Claim Against IH

Delta also alleges that IH breached a fiduciary duty in its dealings with Delta. This claim is

easily dismissed. Louisiana law does not recognize a fiduciary relationship between a franchisor and

a franchisee. 21 Delta cites no Louisiana cases to support its claim. Summary judgment was proper

on this issue.

8. Unfair Trade Practices Claims Against IH and Case

Delta claims that IH and Case violated the Louisiana Unfair Trade Practices and Consumer22 L A .R EV .S TAT .A NN . § 51:1401 et seq. (West 1987).

23 Morris v. Rental Tools, Inc., 435 So.2d 528 (La.Ct.App. 5th Cir.1983).

24 1488, Inc. v. Philsec Inv. Corp., 939 F.2d 1281, 1286 (5th Cir.1991). Protecti on Act 22 (the "Act"). The district court dismissed these claims by holding that Delta had

failed to show an injury to competition as the required by the Act. The Act provides a cause of action

only for "consumers and business competitors." 23 Delta does not qualify as either a consumer or a

business competitor vis-a-vis either IH or Case. As Delta's claims do not fall within the ambit of the

Act, the district court's summary dismissal of these claims was correct.

B. Directed Verdict Against Delta

1. Standard of review

In reviewing a directed verdict, we use the same standard used by the district court in making

its determination.

If the facts and inferences point so strongly and overwhelmingly in favor of one party that the

Court believes that reason able men could not arrive at a contrary verdict, granting of the

motions is proper. On the other hand, if there is substantial evidence opposed to the motions,

that is, evidence of such quality and weight that reasonable and fair-minded men in the

exercise of impartial judgment might reach different conclu sio ns, the motions should be

denied, and the case submitted to the jury. 24

2. Third–Party Beneficiary Claim Against Case

Delta appeals the district court's directed verdict for Case on the issue whether Case violated

its obligation under section 5.2 of the purchase agreement to provide Delta with an interim dealer

agreement. The district court held that Delta had failed to prove that it suffered any damages related

to that obligation. As we have already discussed, the district court reached this claim only because

it rejected Delta's breach of contract claim against Case but held that Delta had enforceable rights as

a third-party beneficiary of Case under section 5.2 of the Purchase Agreement, an issu e which we

have addressed fully above. No additional discussion is required in the context of the district court's

directed verdict.

3. Losses on Missed Sale

Delta's evidence of lost profits related to a failed sale of five cot t on pickers, which Deltaclaims it would have consummated if it had been issued an interim agreement, is insufficient. The

district court held, and we agree, that Delta failed to show with certainty that the potential purchaser

would actually have purchased the equipment, and if so, that he would have purchased it from Delta.

As Delta failed to prove loss of profits with t he requisit e degree of certainty , the district court

properly rendered a directed verdict in favor of Case on this claim.

IV.

CONCLUSION

We agree for the most part with the district court's finding of facts. We disagree, however,

with the court's conclusions concerning the legal effects of a number of those facts. Concluding that,

as a matter of law, both IH and Case breached Delta's dealer agreement, we REVERSE the district

court's holding on those issues and hold IH and Case liable in solido for Delta's damages resulting

from termination of its Dealer Agreement without cause. We hold in the alternative that Case is liable

to Delta to the same extent for Case's breach of its third party beneficiary obligation to Delta. We

remand the case to the district court for a determination of the quantum of damages which Delta is

entitled to recover from IH and Case in solido. We also hold that, as a matter of law, IH breached

its duty of good faith in carrying out its dealer agreement with Delta. So we REVERSE the district

court's holding on that issue and remand it too for a determination of the quantum of bad faith

damages. We AFFIRM the holdings of the district court on all other issues.

SO ORDERED, with IH and Case to bear all costs of this appeal solidarily.