Court Opinion

ID: 4908308
Source: CourtListenerOpinion
Date Created: 2021-09-03 20:01:33.110109+00
Date Added: 2024-06-11T08:13:03.790873
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        SEP 3 2021
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

ACD DISTRIBUTION LLC,                           No.    20-35828
                                                       20-35986
                Plaintiff-Appellant,
                                                D.C. No. 2:18-cv-01517-JLR
 v.

WIZARDS OF THE COAST LLC,                       MEMORANDUM*

                Defendant-Appellee.

                   Appeal from the United States District Court
                      for the Western District of Washington
                    James L. Robart, District Judge, Presiding

                      Argued and Submitted August 11, 2021
                               Seattle, Washington

Before: EBEL,** BRESS, and VANDYKE, Circuit Judges.
Dissent by Judge EBEL

      ACD Distribution LLC (“ACD”), a Wisconsin distributor, appeals the district

court’s order granting judgment on the pleadings under Federal Rule of Civil

Procedure 12(c) in favor of Wizards of the Coast LLC (“Wizards”), a Washington-

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
            The Honorable David M. Ebel, United States Circuit Judge for the
U.S. Court of Appeals for the Tenth Circuit, sitting by designation.
based game publisher.     ACD also appeals the district court’s order granting

attorney’s fees and costs to Wizards. The district court had jurisdiction under 28

U.S.C. § 1332. We have jurisdiction under 28 U.S.C. § 1291. We affirm.

      1.    We review de novo an order granting judgment on the pleadings.

Daewoo Elecs. Am. Inc. v. Opta Corp., 875 F.3d 1241, 1246 (9th Cir. 2017). While

ACD argues that Wisconsin’s Fair Dealership Law (“WFDL”) prevented Wizards

from canceling its distribution agreement with ACD “without good cause,” Wis.

Stat. § 135.03, the district court correctly concluded that it must apply Washington

law—which lacks an analogous “good cause” requirement—based on the

Washington choice-of-law provision in the parties’ agreement.

      We reject ACD’s threshold argument that the contractual choice-of-law

provision does not cover this dispute. ACD failed to preserve this argument below,

and so waived it. See United States v. Anekwu, 695 F.3d 967, 985 (9th Cir. 2012).

Regardless, the argument is meritless. The provision states that “[t]his Agreement

will be governed by and interpreted in accordance with the laws of the State of

Washington, without reference to conflict of laws.” This clause is broad enough to

encompass the parties’ dispute. ACD’s claim—whether the WFDL applies—

presents a dispute “governed by” the parties’ agreement because it implicates the

contract’s renewal and termination provisions. See Hearst Commc’ns, Inc. v. Seattle

Times Co., 115 P.3d 262, 267 (Wash. 2005) (contracts must be interpreted based on

                                         2
“the reasonable meaning of the words used”).

      Applying Washington’s choice-of-law rules, we agree with the district court

that Washington law, and not Wisconsin law, applies. The parties do not dispute

that Washington’s choice-of-law rules apply and that an “actual conflict” exists

between Washington and Wisconsin law. Erwin v. Cotter Health Ctrs., 167 P.3d

1112, 1120 (Wash. 2017) (quotations omitted); see Lazar v. Kroncke, 862 F.3d 1186,

1194 (9th Cir. 2017).

      Washington has adopted the Restatement (Second) of Conflict of Laws. See

Erwin, 167 P.3d at 1121–22. As relevant here, under Restatement § 187(2), the law

of the state chosen by the parties will be applied unless its application “would be

contrary to a fundamental policy of a state which has a materially greater interest

than the chosen state in the determination of the particular issue and which, under

§ 188, would be the state of the applicable law in the absence of an effective choice

of law by the parties.” Assuming the WFDL reflects a “fundamental policy” of

Wisconsin, ACD has not shown that Wisconsin has “materially greater interest” in

the determination of when Wizards may terminate its agreement with ACD.1

      While Wisconsin has an evident policy favoring distributors like ACD

1
  Because we conclude that ACD cannot meet § 187(2)’s “materially greater
interest” requirement, we need not address whether ACD can make the other
necessary showings that § 187(2) requires. We also need not address whether the
parties’ choice-of-law provision would be independently enforceable under
§ 187(1).

                                         3
(defined by the WFDL as “dealers”), Washington has not adopted such a policy.

ACD has provided no basis for us to conclude that Wisconsin has a “materially

greater interest” here than Washington, Restatement (Second) of Conflicts of Laws

§ 187(2), given Washington’s effective decision not to adopt a law like the WFDL.

That is especially so when, as the district court recognized, “the Wisconsin dealer

specifically agreed to a contract that requires the application of out-of-state law,” as

well as venue in Washington courts.

      Moreover, Washington’s Supreme Court has recognized that Washington has

an “interest[] in protecting the justifiable expectations of . . . contracting parties,”

which includes “letting the parties choose the law to govern the validity of the

contract and the rights created thereby.” Erwin, 167 P.3d at 1123–24 (quotations

omitted). ACD has not shown why Wisconsin’s interest in protecting its in-state

dealers overrides the “justifiable expectations . . . memorialized in . . . a freely

negotiated contract between two highly experienced and successful [businesses]

who defined in advance the terms of their business relationship and explicitly chose

Washington law to govern any disputes.” Id. at 1123.

      Finally, although ACD and our fine dissenting colleague reiterate that the

WFDL sets forth Wisconsin’s specific policy disfavoring the termination of dealers

without good cause, see Wis. Stat. §§ 135.025(2), .03, the Washington Supreme

Court has rejected such reasoning as “circular” because it assumes that Wisconsin

                                           4
law applies in the first place. See Erwin, 167 P.3d at 1123.2

      2.     ACD’s challenge to the district court’s award of attorney’s fees and

costs also fails. We review de novo “questions of law concerning entitlement to

attorney’s fees” and for clear error any underlying factual findings. Lagstein v.

Certain Underwriters at Lloyd’s of London, 725 F.3d 1050, 1056 (9th Cir. 2013);

Native Vill. Of Quinhaguk v. United States, 307 F.3d 1075, 1079 (9th Cir. 2002).

      The parties’ agreement provided that “[i]n the event legal action is necessary

to enforce the terms of this Agreement, Wizards will be entitled to collect from

[ACD] any . . . reasonable attorneys’ fees, court costs, and other expenses incurred

by Wizards for such action.” The district court correctly determined that legal action

by Wizards was necessary to enforce the terms of the agreement, namely, the

provisions allowing Wizards not to renew the contract. See Bangerter v. Hat Island

Cmty. Ass’n, 472 P.3d 998, 1013 (Wash. Ct. App. 2020), review granted on other

grounds sub nom. Surowiecki v. Hat Island Cmty. Ass’n, 479 P.3d 1162 (Wash.

2021) (unpublished table decision).

      AFFIRMED.

2
  The authorities on which the dissent relies are inapposite, as none of those cases
involved the application of Washington’s choice of law rules, as interpreted by
Washington courts. Our decision is grounded in Erwin, the leading case from the
Washington Supreme Court interpreting § 187(2). The cases the dissent cites also
involve different factual scenarios. As the dissent notes, “[e]ach case will depend
on its individual circumstances.”

                                          5
                                                                           FILED
20-35828 & 20-35986, ACD Distribution LLC v. Wizards of the Coast LLC
                                                                              SEP 3 2021
EBEL, Circuit Judge, dissenting.                                        MOLLY C. DWYER, CLERK
                                                                         U.S. COURT OF APPEALS

      Like the majority, I constrain myself to the materially-greater-interest

analysis. Unlike the majority and the district court below, I conclude that

Wisconsin had a materially greater interest in the determination of this dispute

than did Washington.

      We need look no further than the Wisconsin Fair Dealership Law

(WFDL) itself for a declaration of Wisconsin’s interest: “promot[ing] the

compelling interest of the public in fair business relations between dealers and

grantors, and in the continuation of dealerships on a fair basis” and

“protect[ing] dealers against unfair treatment by grantors, who inherently have

superior economic power and superior bargaining power in the negotiation of

dealerships.” Wis. Stat. § 135.025(2). This protection is so important to

Wisconsin that the state legislature provided that it may not be waived by

contracting parties. Id. § 135.025(3).

      The strength of this interest is further supported by caselaw deeming the

WFDL a “strong state public policy,” Bush v. Nat’l Sch. Studios, Inc.,

407 N.W.2d 883, 884 (Wis. 1987), such that parties cannot “avoid[] the WFDL

without deciding to forego a contract altogether,” Morley-Murphy Co. v. Zenith

Elecs. Corp., 142 F.3d 373, 381 (7th Cir. 1998). Other courts have also held
that anti-waiver provisions in dealer-protection statutes similar to the WFDL

reflect important state interests. See, e.g., Volvo Constr. Equip N. Am., Inc. v.

CLM Equip. Co., 386 F.3d 581, 610–11 (4th Cir. 2004); Cromeens, Holloman,

Sibert, Inc. v. AB Volvo, 349 F.3d 376, 391 (7th Cir. 2003); New Eng.

Surfaces v. E.I. du Pont de Nemours & Co., 546 F.3d 1, 10 (1st Cir. 2008); see

also § 187 cmt. g (recognizing the importance of a statute “designed to protect

a person against the oppressive use of superior bargaining power”).

      On the other side of the equation, Washington has not evinced any

specific interest in the relationship between grantors like Wizards and

distributors like ACD. Instead, Washington’s only interest in this dispute is in

“protecting the justifiable expectations of the contracting parties.” 1 Erwin v.

Cotter Health Ctrs., 167 P.3d 1112, 1123 (Wash. 2007). That is undoubtedly a

significant interest, but it is also one subject to significant limits. Most

importantly, Washington applies § 187(2)’s balancing test for determining

whether a contractual choice of law is enforceable—that means that parties

      1
        This is the only Washington interest considered by the district court
below, and the only one identified by Wizards in its brief on appeal. Prompted
by an argument Wizards raised for the first time at oral argument, the majority
divines a more-specific Washington interest rooted in “Washington’s effective
decision not to adopt a law like the WFDL.” (Maj. Op. 3.) I find Wizard’s
late-raised argument unpersuasive because legislative “inaction is not a reliable
guide to legislative intent.” Gen. Constr. Co. v. Castro, 401 F.3d 963, 970 (9th
Cir. 2005).
cannot have a justifiable expectation that their choice-of-law provision is

necessarily enforceable. After all, it would be circular to enforce a choice-of-

Washington-law provision on the basis that Washington has a materially

greater interest simply because the parties chose Washington law.

      Instead of simply enforcing the choice-of-Washington-law provision,

Washington’s choice-of-law principles direct us to weigh Washington’s general

interest against Wisconsin’s specific interest. Under similar circumstances, this

Court and others have concluded that a dealer-protection statute like the WFDL

evinces an interest materially greater than a general interest in the freedom to

contract. See Bridge Fund Cap. Corp. v. Fastbucks Franchise Corp., 622 F.3d

996, 1004 (9th Cir. 2010); Volvo Constr., 386 F.3d at 610–11 (4th Cir.);

Wright-Moore Corp. v. Ricoh Corp., 908 F.2d 129, 133 (7th Cir. 1990).

I would reach the same conclusion here.

      A few final, brief thoughts. First, although Erwin acknowledges

Washington’s interest in protecting the justifiable expectations of the

contracting parties, that case does not control the outcome here. The Erwin

court concluded that Washington had the stronger interest there because

California, the state weighed against Washington, had no interest in the dispute.

167 P.3d at 1122–23. That is not the case here, where Wisconsin has an

undeniable interest in protecting its in-state distributors like ACD.
      Second, deeming Wisconsin’s interest materially greater here does not

mean that one state’s protectionist scheme will always prevail over a

contractual choice-of-law provision and another state’s laissez faire regime.

The materially-greater-interest prong is only a small piece of the Restatement

analysis as to whether a choice-of-law provision is enforceable. Each case will

depend on its individual circumstances.

      Third, Washington and its residents are not helplessly at the mercy of all

foreign law. It is Washington that chose to adopt the Restatement’s balancing

test for determining the enforceability of choice-of-Washington-law

provisions—had Washington wanted such a provision always to retain primacy,

it could have simply said so. Instead, Washington recognized that in some

circumstances, other considerations outweigh the parties’ choice of law. See

§ 187 cmt. g (“Fulfillment of the parties’ expectations is not the only value in

contract law; regard must also be had for state interest and for state

regulation.”).

      Finally, there is good reason for Washington to apply the Restatement’s

balancing test and not simply to favor all choice-of-Washington-law

provisions: sometimes, Washington will want other states to apply Washington

law despite a choice-of-law provision selecting some other state. For example,

Washington has its own version of the WFDL, the Washington Franchise
Investment Protection Act (FIPA), which although not applicable in this case,

protects franchisees from the unfair bargaining practices of franchise grantors.

Wash. Rev. Code § 19.100.180. FIPA provides that “[a]ny agreement,

condition, stipulation or provision, including a choice of law provision,

purporting to bind any person to waive compliance with any provision of this

chapter or any rule or order hereunder is void.” Id. § 19.100.220 (emphasis

added). This shows that Washington itself deems the public interest in

protecting against the unfair use of superior bargaining power materially

greater than the state’s interest in enforcing a choice-of-law provision. See

Rutter v. BX of Tri-Cities, Inc., 806 P.2d 1266, 1268 (Wash. Ct. App. 1991)

(holding that FIPA voids a choice-of-California-law clause agreed to by a

Washington franchisee).

      Accordingly, if the positions here were reversed, and Wisconsin was

deciding whether to apply FIPA to protect a Washington franchisee despite a

contractual choice-of-Wisconsin-law provision, it is clear that Washington

would want Wisconsin to do so. Washington would thus be likely to return the

favor here.

      For these reasons, I respectfully dissent. 2

      2
        Because I would reverse as to the choice-of-law issue, I would also
reverse on the attorneys’ fees issue.