Source: http://openjurist.org/257/f3d/235/gtfm-llc-v-tkn-sales-inc
Timestamp: 2013-05-19 16:19:16
Document Index: 90175073

Matched Legal Cases: ['§325', '§325', '§325', '§325', '§325', '§181', '§181', '§181', '§325', '§1332', '§504', '§185', '§548', '§1319', '§3612', '§1', '§181', '§325']

257 F3d 235 Gtfm Llc v. Tkn Sales Inc | OpenJurist
257 F. 3d 235 - Gtfm Llc v. Tkn Sales Inc	Home257 f3d 235 gtfm llc v. tkn sales inc
257 F3d 235 Gtfm Llc v. Tkn Sales Inc 257 F.3d 235 (2nd Cir. 2001)
GTFM, LLC., Plaintiff-Appellee,v.TKN SALES, INC., Defendant-Appellant.
No. 00-7490.August Term, 2000.
Argued: November 1, 2000.Decided: July 20, 2001.
The Minnesota Sales Representative Act ("MSRA" or the "Act") applies to sales representative agreements, i.e., agreements by which, inter alia, a manufacturer grants a sales representative the right to offer the manufacturer's goods for sale, where there is "a community of interest between the parties in the marketing of the goods at wholesale," Minn. Stat. §325E.37, subd. 1(e). A sales representative, within the meaning of the Act, is one "who is compensated, in whole or in part, by commission," id. subd. 1(d), and who is a Minnesota resident, or whose principal place of business is in Minnesota, or whose geographic sales territory includes all or part of Minnesota, seeid. subd. 6(a). As set forth in greater detail in Part II.B. below, the Act contains provisions governing, inter alia, the termination or renewal of such agreements and the prompt payment of commissions. The Act also provides that "[t]he sole remedy for a manufacturer... who alleges a violation of any provision of this section is to submit the matter to arbitration," Minn. Stat. §325E.37, subd. 5(a), and that a sales representative has the option of either submitting a matter to arbitration or bringing suit in court, see id. The arbitrator is given the power to, inter alia, reinstate the agreement, award damages, and grant other relief for frivolous claims or defenses. See id. subd. 5(b). The arbitrator's decision, though subject to judicial confirmation, is "final and binding." Id. subd. 5(c).
In August 1999, pursuant to MSRA §325E.37, subd. 5, TKN served on GTFM a demand for arbitration ("Arbitration Demand") to be conducted by the American Arbitration Association in Minneapolis, Minnesota, and a complaint ("Arbitration Complaint"). The demand described the nature of the dispute as "[w]rongful termination of independent sales representative agreement in violation of Minn. Stat. §325E.37, Subdivision 2," and "[f]ailure to pay earned commissions in violation of Minn. Stat. §325E.37, Subdivision 4 and Minn. Stat. §181.145." (TKN Arbitration Demand dated August 24, 1999.) The Arbitration Complaint asserted the above claims for statutory violations, plus a common-law claim for breach of contract; it requested, inter alia, reinstatement of the sales representative agreement, damages in excess of $50,000 for each of TKN's three claims, and attorneys' fees. GTFM, after unsuccessfully seeking a stay of the proceedings and a transfer of the arbitration from Minneapolis to New York City, commenced the present action in the Southern District of New York.
[t]he Seventh Amendment preserves the right to a jury trial in "[s]uits at common law" in federal court. U.S. Const. amend. VII; Tull v. United States, 481 U.S. 412, 417 (1987). The right to a jury trial "is of such importance and occupies so firm a place in our history and jurisprudence that any seeming curtailment of the right to a jury trial should be scrutinized with the utmost care." Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 501 (1959) (internal quotation and citation omitted).
The Seventh Amendment right to a jury trial attaches to suits in federal court in which legal rights and remedies, as distinguished from equitable rights and remedies, are to be determined. See Chauffeurs, Teamsters & Helpers Local 391 v. Terry, 494 U.S. 558, 564 [(1990)]; Curtis v. Loether, 415 U.S. 189, 193 (1974); Daisy Group, Ltd. v. Newport News, Inc., 999 F.Supp. 548, 550 (S.D.N.Y. 1998). That is, the Seventh Amendment applies not only to common law causes of action that existed in the eighteenth century, "but also to 'actions brought to enforce statutory rights that are analogous to common-law causes of action.'" Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340, 348 (1998) (quoting Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42 (1989)); Tull, 481 U.S. at 417 (1987).
The district court stated that TKN's common-law claim for breach of contract was one as to which GTFM clearly has a right to a jury trial. See id. at 11. It ruled that GTFM has the right to a jury trial as well on TKN's claim under §181.145 of the Minnesota statutes for unpaid commissions and lateness penalties because that claim seeks both a traditional legal remedy, as to which a jury trial right attaches, and civil penalties, i.e., "'[r]emedies [that are] intended to punish culpable individuals, as opposed to those intended simply to extract compensation or restore the status quo,'" which traditionally "'were issued by courts of law, not courts of equity,'" id. at 11 (quoting Tull v. United States, 481 U.S. at 422).
The second, and more important, Tull inquiry... resolves the issue. It requires the Court to examine the remedy sought and determine whether it is legal or equitable. See Terry, 494 U.S. at 570. On its MSRA claim, TKN seeks contract damages, a civil penalty under Minn. Stat. §181.145 and reinstatement of the contract. See Minn. Stat. §325E.37(5)(b). As discussed above, contract damages and the civil penalty are clearly legal remedies.
The Seventh Amendment to the United States Constitution provides, in pertinent part, that "[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved...." U.S. Const. amend VII. The Federal Rules of Civil Procedure, governing cases in the federal courts, provide that "[t]he right of trial by jury as declared by the Seventh Amendment to the Constitution or as given by a statute of the United States shall be preserved to the parties inviolate." Fed. R. Civ. P. 38(a).
The district court, as set out in Part I above, viewed the inapplicability of the Seventh Amendment to State proceedings as irrelevant because if TKN had sued GTFM in State court, "GTFM would have had the right to remove the matter to federal court under 28 U.S.C. §1332," and "[o]nce in federal court, GTFM would have the right to a jury trial," because "[t]he right to a jury trial in federal court is clearly a question of federal law[,] Simler v. Conner, 372 U.S. 221, 222 (1963) [(per curiam)]," Opinion at 8 n.6; federal law requires a jury trial when the claims asserted and at least some of the remedies sought are legal rather than equitable, see id. at 9-10, 12-14. However, other than Simler, most of the cases relied on by the district court for the proposition that federal law is determinative are cases in which the jurisdiction of the district court was premised on the presence of federal questions. See, e.g., Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340 (1998) (copyright infringement, 17 U.S.C. §504(c)); Chauffeurs, Teamsters & Helpers Local 391 v. Terry, 494 U.S. 558 (Labor-Management Reporting and Disclosure Act, 29 U.S.C. §185); Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (suit by bankruptcy trustee, see 11 U.S.C. §548(a)); Tull v. United States, 481 U.S. 412 (1987) (Clean Water Act, 33 U.S.C. §1319); Curtis v. Loether, 415 U.S. 189 (1974) (Fair Housing Act, 42 U.S.C. §3612); Beacon Theatres, Inc. v. Westover, 359 U.S. 500 (1959) (Sherman and Clayton antitrust laws, 15 U.S.C. §§1, 2, 15).
To be sure, Simler v. Conner, cited by the district court, was a diversity case; but the focus of that case was simply whether a lawyer's suit to recover fees from his client should be characterized as legal or equitable, and the precise question was whether the proper characterization was a matter of federal law or state law. With that focus in mind, the Simler Court stated that "the characterization of that state-created claim as legal or equitable for purposes of whether a right to jury trial is indicated must be made by recourse to federal law," 372 U.S. at 222; but Simler prefaced that statement with the observation that "[i]n diversity cases, of course, the substantive dimension of the claim asserted finds its source in state law," id.
When a federal court's jurisdiction is based on diversity of citizenship, "[w]e put to one side the considerations relevant in disposing of questions that arise when a federal court is adjudicating a claim based on a federal law," Guaranty Trust Co. v. York, 326 U.S. 99, 101 (1945), and we act as "only another court of the State," id. at 108. In Guaranty Trust, the Court considered whether a federal court whose jurisdiction over a suit for breach of trust was based solely on diversity was required to honor a state statute of limitations. The Court stated that the answer depended on whether the state's statute governed merely the manner and means by which a plaintiff could recover or whether it was instead "a matter of substance" in the sense that the federal court's disregard of the statute would "significantly affect the result of [the] litigation," causing that result to differ from the outcome that would be reached in state court. Id. at 109. The Court stated that the intent of the decision in Erie R. Co. v. Tompkins, 304 U.S. 64 (1938),
Id. at 203 n.4. The Court concluded that "[t]here would in our judgment be a resultant discrimination if the parties suing on a Vermont cause of action in the federal court were remitted to arbitration, while those suing in the Vermont court could not be." Id. at 204.
B. MSRA
The Act also provides that if a sales representative agreement is terminated, "[p]ayment of commissions due the sales representative shall be paid in accordance with the terms of the sales representative agreement or, if not specified in the agreement, payments of commissions due the sales representative shall be paid in accordance with section 181.145." Id. subd. 4. Section 181.145 of the Minnesota statutes, which deals generally with the employment of persons "paid on the basis of commissions for sales," Minn. Stat. §181.145 subd. 1, requires that a commission salesperson who is terminated be paid his earned commissions promptly, generally within three to ten working days, see id. subds. 2(b), (c), (d). Section 181.145 provides that if the manufacturer fails to make payment as promptly as subdivision 2 requires, a monetary penalty will be assessed, see id. subd. 3, and attorneys' fees are to be awarded to the sales representative, see id. subd. 4.
Minn. Stat. §325E.37 subd. 5(a) (emphasis added). The arbitrator has the power to grant a variety of monetary and equitable relief, see id. subd. 5(b); and subject to a court order of confirmation on motion of any party, "[t]he decision of any arbitration hearing under this subdivision is final and binding on the sales representative and the manufacturer," id. subd. 5(c). Thus, MSRA's provisions make it plain that a manufacturer has no right to pursue MSRA claims in court unless the sales representative has chosen the court as a forum, and that the sales representative has the option of insisting on arbitration.
We note that this adjudication scheme is consistent with Minnesota's general policy of favoring arbitration of commercial contracts. Eden Land Corp. v. Minn-Kota Excavating, Inc., 302 Minn. 529, 530, 223 N.W.2d 658, 659 (1974) (per curiam) (Minnesota law "has consistently looked on arbitration as a proceeding favored in the law" (internal quotation marks omitted)); Grover-Dimond Associates v. American Arbitration Association, 297 Minn. 324, 327, 211 N.W.2d 787, 788 (1973) ("Clearly, it is the policy of this state...to encourage arbitration as a speedy, informal, and relatively inexpensive procedure for resolving controversies arising out of commercial transactions." (internal quotation marks omitted)). With respect to similar Minnesota statutes, the state's courts have noted that "[e]ven though resort to courts is authorized, the basic intent of [such] act[s] is to discourage litigation and to foster voluntary resolution of disputes." Har-Mar Inc. v. Thorsen & Thorshov, Inc., 300 Minn. 149, 154, 218 N.W.2d 751, 754-55 (1974) (internal quotation marks omitted).
"A State may, of course, distribute the functions of its judicial machinery as it sees fit," Byrd v. Blue Ridge Rural Electrical Cooperative, Inc., 356 U.S. 525, 536 (1958). With respect to sales representative agreements, MSRA explicitly gives the sales representative the right to choose arbitration and provides that arbitration is the manufacturer's "sole" remedy, unless the sales representative chooses to proceed in court. The district court in the present case stated that "[h]ad TKN commenced this action in state court,... GTFM would have had the right to remove the matter to federal court," and that "[o]nce in federal court, GTFM would have the right to a jury trial." Opinion at 8 n.6 (emphasis added). Given that MSRA does not purport to prohibit jury trial in a civil action in either federal or state court when the sales representative has elected to bring his claims in court, we agree with that observation. But the district court's factual premise is purely hypothetical; and, given the potentially outcome-affecting differences between arbitration and court adjudication discussed in Bernhardt, the mere fact that the parties are of diverse citizenship does not give the federal court the power to force TKN to proceed in court on a State-created cause of action as to which the State has given TKN the right to insist on arbitration.
We note also that GTFM concedes that "if both GTFM and TKN were citizens of Minnesota, or if the amount in controversy were less than $75,000, there would be no basis upon which the present action [sic - TKN's claims] could be heard by a federal court[, and that i]n such a case," GTFM would have no right to a jury trial, for "the Seventh Amendment would not apply." (GTFM brief on appeal at 9 n.8.) Thus, for the federal court to compel TKN to pursue its claims against GTFM in court rather than through arbitration would confer on GTFM, by reason of its foreign citizenship, a potentially outcome-affecting right that Minnesota citizens do not have. The Supreme Court has expressly stated that such a "discrimination" is a reason for the federal court, in diversity, to honor, not dishonor, a State's law. Bernhardt, 350 U.S. at 204; Guaranty Trust, 326 U.S. at 112.
The majority seems to accept the mistaken premise which led the district court into a discussion of what might happen in federal court, that, "[h]ad TKN commenced this action in state court,... GTFM would have had the right to remove the matter to federal court." District court opinion at 8 n. 6. TKN, in fact, commenced this action in arbitration, not in court. TKN's decision to arbitrate its MSRA claims eliminated GTFM's right to defend itself in any court, to say nothing of an Article III court that is the gateway to the Seventh Amendment. Because the Minnesota legislature has placed an impenetrable barrier between the arbitration GTFM finds itself in and the court proceedings it wishes that TKN had instead brought, this Seventh Amendment challenge easily fails.
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