The Honorable John F. Na ngle, Senior United States District Judge for the Eastern District of Missouri, sitting by designation. UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

Nos. 96-3095 and 96-3281

Southern Implement Company, * Inc., * * Appellant, *

* Appeal from the United States v. * District Court for the * Eastern District of Arkansas. Deere & Company, * * Appellee. *

Submitted: March 13, 1997 Filed: July 29, 1997
Before FAGG and HEANEY, Circuit Judges, and NANGLE, Senior 1 District Judge.
HEANEY, Circuit Judge.Southern Implement became a Deere dealer in 1951, located in Helena, Arkansas.

In 1964, Southern Implement opened another de alership in Elaine, Arkansas. In 1978, the company purchased the dealership in Marvell, the only other Deere dealership in Phillips County. Until 1 985, Deere renewed annual dealership agreements with Souther n Implement. After that time, Deere and Southern Implement executed three open-ended dealership agreements with no fixed ter m. The 1985 contracts ended in January 1987, when the parties entered into the agreement at issue. 2 Southern Implement Company (“Southern Implement”) appeals the distric t court’s gr ant of summary judgment in favor of Deere & Company (“Deere”) o n Southern Implement’s b reach of contract and statutory violation claims. We affirm in part and reverse in part.

FACTS
Given the posture of this case, we consider the facts in the light most favorable to the nonmoving party , Southern Implement. See , e.g. , Adickes v. Kress & Co. , 398 U.S. 144, 157 (1970). Southern Implement is a farm equipment dealer for Deere i n Phillip s County, Arkansas. Following a history of business relations with Deere, 2 Southern Implement entered into a contract with the company entitled John Deer e Company Authorized Agricultural Dealer Agreement (“Agreement”) in 1987. Th e terms and conditions of the Agreement are virtually identical to Deere’s agreement s with its dealers nationwide. J.A. at 65. The contract assigns to Southern Implement an area of responsibility (“AOR”) that includes the towns of Helena, Marvell, andT he introduction to the contract contains the statement that “[a] Dealer accepts as

his area of responsibility the town in which his place of business is located an d vicinity.” 3 Elaine, Arkansas, and the surrounding a rea. The Agreement requires a dealer such as 3 Southern Implement to “thoroughly canvass his [AOR], to actively promote the sale of all Good s which are usable in his [AOR], and to maintain an inventory of Goods i n proportion to the sales possibilities in such area.” Agreement, § 1(f).
The Agreement also requires a dealer to “maintain his principle plac e of business at t he location set forth [by the Agreement].” Agreement, § 1(k). The Agreemen t prohibi ts dealers from “either directly or indirectly, establish[ing], maintain[ing], o r op erating a facility at any other location for displaying, selling, renting, leasing, o r servici ng of new or used goods, without the prior written approval of [Deere].” Id. If a dealer’s franchise is canceled or terminated according to the terms of th e agreement, Deere “may negot iate and/or enter a Dealer Agreement with another party for the Dealer’s [AOR].” Agreement, § 4.
One of the largest farmi ng operations in Southern Implement’s AOR during the mid-198 0's belonged to David Brooks Griffin. Griffin and his father owned a n In ternational Harvester (“I.H.”) dealership in Elaine until 1985 and Griffin used I.H

. eq uipment

on his 23,000 acre farming operation. After the I.H. dealership closed , Griffin operated Elaine Parts, an agricu ltural parts and equipment store, in the building that had housed the dealership.For example, Deere initially permitted the placement of a computer system at Elaine

Pa rts that would allow Producer’s to take parts orders there, despite Deere’s internal guidelines that restrict the systems to a dealer’s AOR. Deere revoked its permission to install the system after it recognized the violation of its rules. 4 In 1989, Griffin bought Producer’s Tractor Company, Inc. (“Producer’s”), a Deere dealership located in Brinkley, Arkansas, seventy mile s from Elaine. Producer’s began s upplying Griffin’s Elaine farming operation with Deere parts and equipmen t through Elaine Par

ts. Southern Implement alleges that sometime in late 1990 or early 1991 Producer’s expanded its efforts to supply Deere parts to the general public.

South ern Implement’s Elaine facility took a downward financial turn in lat e 1991. In February 1992, Southern Implement’s management met with Bill Hubbard, Ma nager of Deere’s Dallas branch, the unit that supervises dealership activity i n Arkansas. Southern Implement alerted Hubbard that Producer’s was d istributing Deere par ts through Griffin’s Elaine Parts facility. Hubbard said he would investigate an d report the results to Southern Implement.

Hubbar d never reported back to Southern Implement regarding its complaint

. Rat her, Southern Implement asserts that Deere encouraged Producer’s to operate the
una uthorized facility. Southern Implement continued to complain to Deer e 4 management that Elaine Parts was selling Deere equipment. Deere’s representatives asked Producer’s employees if they were selling Deere products to the general public through Elain e parts, and the response was, “no.” They claimed that they only sol d parts to Griffin’s farming operations.5Griffin r equested that Deere take the Elaine AOR from Southern Implement an d

assig n it to Producer’s, but Deere refused, allowing Southern Implement to retain the Elaine AOR. 6 In 1993, Gri ffin ceased his farming operations. The land previously farmed by Griffin was taken over by Tyler Farms, a partnership that included multiple corporate entities. Griffin remained the landlord, although he did not participate in farming the la nd himself. Elaine Parts continued to provide Deere parts to customers in the area, including Tyler Farms.
In February 1993, Southern Implement closed its E laine facility due to mounting lo sses. Following the closure, Southern Implement filed a complaint alleging tha t

5 Dee re, by allowing Producer’s to operate through a facility within Souther n Implement’s Elaine AOR: (1) breached its deale r agreement with Southern Implement, (2) bro ke the implied covenant of good faith and fair dealing, (3) breached its duty to act with commercial reasonablene ss under the Arkansas Franchise Practices Act, Ark. Code An n. § 4-72-206, and (4) changed the competitive circumstances of th e dealership in violat

ion of the Arkansas Farm Equipment Retailer Franchise Protection Act, Ark. Code Ann. § 4-72-310.

After Southern Implement filed its complaint, Deere conducted a survey t o discover w hether Producer’s was selling parts to the general public through Elain e Parts. Deere discovered that on at least one occasion Elaine Parts sold equipment to a member of the general pub lic. J.A. at 131. Deere also discovered that several large producers i n the area were acquiring equipment at Elaine Parts through what wa s described as “borrowing” from the Tyler Farm inventory at Elaine Parts. Id.7

Moreover, two Producer’s sales representatives had offices at Elaine Parts.

Deere responded to Southern Implement’s complaint by moving for summar y judgment. Deere asserted that the Agreement does not give th e franchisee an exclusive right to sel l Deere products in its AOR. Nor does the Agreement require Deere t o poli ce a franchisee’s AOR to prevent other dealers from establishing facilities in th e AOR.

The distri ct court granted Deere’s motion for summary judgment. The cour t construed the Agreemen t to allow other dealers to maintain facilities within a dealer’s AOR. The court further held that, even if the Agreement prohibited such a n encroachme nt, Southern Implement failed to present evidence that Deere knew about the violative facility or that Deere had any obligation to police Southern Implement’s AOR. Therefore, the court determined that Deere did not breach the Agreement.
The court also held that, in t he absence of a contractual obligation, Deere could not h ave breached the covenant of good faith and fair dealing. Moreover, Souther n Implement did not present evidence of bad faith by Deere. The c ourt rejected Southern Implement’s commercial reasonableness claim, holding that Deere ’s actions conformed to the contract and were thus reasonable. Finally, the court held that the Arkansa s Farm Equipment Retailer Franchise Protection Act was inapplicable.8 DISCUSSION
Southern Implement appeals the district court’s grant of summa ry judgment. For the reasons below , we reverse the district court with respect to Southern Implement’s breach of contract, breach of the implied covenant of good faith and fair dealing and commercial reasonableness claims. We affirm the district court’s grant of summar y judgment on Southern Implement’s claim under the Arkans as Farm Equipment Retailer Franchise Law.

Breach of Contract
We review a grant of summary judgment de novo. Crawford v. Runyon , 37 F.3d 1338, 1340 (8th Cir. 1994). Under Arkansas law, the court ascertains the plain an d
or dinary meaning of a contract. Moore v. Columbia Mut. Cas. Ins. Co. , 821 S.W.2d 59, 60 (Ark. App. 1991). The initi al determination whether a contract is ambiguous is
a legal dete rmination for the court. Cate v. Irvin , 866 S.W.2d 423, 426 (Ark. App

. 1993). When a contract is unambiguous, the court determines its construction as a matter of law. Id. Where there i s ambiguity in a contract, the meaning of the terms of the contract becomes a question of fact. Stacy v. Williams , 834 S.W .2d 156, 158 (Ark. 1992).

We believ e that the Agreement is ambiguous with respect to a dealer’s right to operate in an AOR free of other dea lers’ facilities. Although the Agreement describes an AOR and the dealer’s duties within its AOR, the Agreement does not explicitly9

pro vide a dealer with an exclusive right to operate a facility to sell and service Deere products within an AOR. It does, however, contain two clauses that strongly support
a de aler’s right to operate without the encroachment of other dealers’ umauthorize d facilities within the AOR.

Under the terms of th e agreement, Deere permits a dealer to create and operate facilities outside its AOR only by written permission from Deere. Agreement, § 1(k). Deere will only reassign an AOR if the existing dea ler’s operation ceases. Agreement, § 4. Based on the language of these two provisions and the long-standing history and conditions of Southern Implement’s prior de alings with Deere, a jury could reasonably find that Southern Implement has a contractual right to an AOR free of unauthorized facilities, provided Sou thern Implement continued to operate and Deere had not given written permission to anot

her dealer to place a facility in Southern Implement’s AOR.

We agree w ith the district court that the provisions above do not place a requirement on Deere to police every dealer’s AOR for encroachmen t by other dealer’s facilities. We believe, however, that a jury could find that once Deere was informed that a dealer was operating an unauthorized facility in another dealer’s A OR, Deere had
a duty to in vestigate and, if necessary, to prevent the dealer from operating th e unauthori zed facility by the same mechanisms Deere would use to prevent othe r unauthorized dealer activity.

Southern Implement has presented evidence to s upport a finding that Producer’s was operating an unauthorized facility that sold Deere parts to the general public inThe Arkansas Franchise Practices Act provides, in pertinent part:

Unlawful practices of franchisors. It sha ll be in violation of this chapter for any franchisor . . . to engag e directly or indirectly in any of the following practices:

. . . (6) To ref

use to deal with a franchise in a commercially reasonabl e manner and in good faith . . . . Ark. Code Ann. § 4-72-206. 10 Southern Implement’ s AOR. Southern Implement also presented evidence to support that Deere wa s bound by and failed to meet its obligation to prevent the unauthorized facility from operating in Southern Implement’s AOR, and that the failure resulted in lost revenue to Southern Implement’s Elaine sto re. Therefore, summary judgment was improper.

Good Faith

Arkansas law states that every contract imposes an obligation of good faith i n the performance of the co ntract. Ark. Code Ann. § 4-1-203. To establish a breach of that obligation, the plaintiff must demons trate that the defendant was not honest in fact and that he acted with a bad motive. JRT, Inc. v. TCBY Systems, Inc. , 52 F.3d 734, 736 ( 8th Cir. 1995). Similarly, The Arkansas Franchise Practices Act requires a franchisor to act in a commercially-reasonable manner and in good faith in it s relationship with a franchisee. Ark. Code Ann. § 4-72-206. 61112

The district court held that because Deere had no contractual obligation t o prevent Producer’s from operating a facility in Southern Implement’s AOR Southern Implement could not show Deere acted in bad faith by failing to do so. We hav e determined that a jury could find that Deere had an obligation to investigat e and prevent Prod ucer’s from operating an unauthorized facility. Therefore, we must conside r whether Southern Implement presented evidence to support a cl aim that Deere’s failure to do so constitutes bad faith.

Deere clearly knows the language contained in the Agreement. Souther n Implement presented evidence of its agents inf orming Deere that Producer’s was using
an unauthorized facility to sell and service Deere equipment in Elaine. Because they were the largest operations in Phillips Count y, Deere had an interest in maintaining the Gri ffin and Tyson farm accounts. Given this and the evidence that Deere failed t o
re spond to Southern Implement’s concerns, a jury could reasonably conclude tha t Deere was not honest in fact and acted with a bad motive with respect to Deere’ s
co ntractual obligations to Southern Implement. Therefore, we reverse summar y judgment on both the breach of the implied c ovenant of good faith and fair dealing and the violation of the Arkansas Franchise Practices Act claims.
Violation of the Arkansas Farm Equipment Retailer Franchise Protection Act The district court granted summary judgment on Southern Implement’s clai m under the Arkansas Farm Equipment Retailer Franchise Protection Act, Ark. C ode Ann. § 4-72-310, holding that the l aw does not apply to the circumstances of this case. We agree. The only section of the law arguably applicable to the present case is § 4-72-Section 4-72-310(b)(4) provides:

(b) It is a violation of this subchapter for a manufacturer to:

. . . (4) Attempt to threaten to terminate, cancel, f ail to renew, or substantially change the competiti ve circumstances of the dealership agreement based on the result of a natural disaster, including a sustained drought in th e dealership market are a, labor dispute, or other circumstances beyond the dealer’s control. § 4-72-310(b)(4). 13 310(b)(4), which re quires a “natural disaster” to trigger the law’s prohibition. While 7

we ac knowledge that the law includes “labor disputes” as natural disasters and tha t “other circumstances beyond the dealer’s control” is rather broad, we do not believe that Deere’s relationship with Producer’s qualifies as a natural d isaster for the purposes of the law. We therefore affirm the d istrict court’s grant of summary judgment on that statutory claim.

CONCLUSION
According ly, the district court’s grant of summary judgment is reversed in part and affirmed in par

t. We remand the case for further proceedings consistent with this opinion.14

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS FOR THE EIGHTH CIRCUIT.