Court Opinion

ID: 2973132
Source: CourtListenerOpinion
Date Created: 2015-09-22 16:58:40.328064+00
Date Added: 2024-06-11T15:02:10.780784
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 05a0998n.06
                           Filed: December 21, 2005

                                            No. 04-6261

                           UNITED STATES COURT OF APPEALS
                                FOR THE SIXTH CIRCUIT

CUMMINGS, MCGOWAN, & WEST, INC.,                  )
                                                  )
       Plaintiff-Appellant,                       )
                                                  )
v.                                                )    ON APPEAL FROM THE UNITED
                                                  )    STATES DISTRICT COURT FOR THE
WIRTGEN AMERICA, INC., a Tennessee                )    MIDDLE DISTRICT OF TENNESSEE
Corporation,                                      )
                                                  )
       Defendant-Appellee.                        )

       Before: RYAN, GILMAN, and COOK, Circuit Judges.

       COOK, Circuit Judge. Cummings, McGowan, & West (“CMW”) sued Wirtgen America for

improperly terminating the parties’ distributorship agreement (the “Agreement”), pinning its claims

on a Tennessee law enacted after the parties entered into their agreement. Because we agree with

the district court that applying the later-enacted Tennessee law to the Agreement would violate the

Contracts Clause of the Tennessee Constitution, we affirm the district court’s dismissal of the suit.1

                                                  I

       1
        Our judgment regarding the Tennessee Constitution obviates the need for this court to
consider Wirtgen’s alternative argument under the United States Constitution.
No. 04-6261
CMW v. Wirtgen

       In 1992, CMW, a construction-equipment retailer, and Wirtgen, a construction-equipment

manufacturer, entered into a “Nonexclusive Distributor Agreement.” The Agreement authorized

CMW to sell Wirtgen products and allowed either party to “terminate this Agreement at any time,

with or without cause upon 90 days prior notice.” The Agreement also contained a Tennessee

choice-of-law clause. Seven years later, Tennessee amended its franchise-agreement laws so as to

govern parties such as Wirtgen and CMW, 1999 Tenn. Pub. Acts Ch. 193 (codified at TENN. CODE

ANN. §§ 47-25-1301 to -10), directing that “[n]o supplier, directly or through an officer, agent or

employee, may terminate, cancel, fail to renew or substantially change the competitive

circumstances of a retail agreement without good cause.” TENN. CODE ANN. § 47-25-1302 (West

2005). The amendments, specifically made retrospective, further provided that a supplier may not

“[c]oerce a retailer into refusing to purchase equipment manufactured by another supplier.” Id. §

47-25-1304(3). In 2002, Wirtgen supplied ninety-day notice of its intent to terminate the Agreement

due to CMW’s insistence on selling a competitor’s products. CMW sued, alleging Wirtgen violated

the 1999 Tennessee law by coercively threatening to terminate the Agreement and by its eventual

termination of the Agreement without cause.

       The district court granted Wirtgen’s motion to dismiss on the ground that the Tennessee

Constitution’s Contracts Clause prohibited the application of Tennessee’s amended law to the

Agreement. CMW challenges the district court’s decision, arguing that the Tennessee law’s

application in this case would not contravene Tennessee’s Constitution.

                                               -2-
No. 04-6261
CMW v. Wirtgen

                                                 II

        We review de novo the district court’s decision to grant a motion to dismiss under Federal

Rule of Civil Procedure 12(b)(6). Perry v. Am. Tobacco Co., 324 F.3d 845, 848 (6th Cir. 2003).

We view the complaint in the light most favorable to CMW, accept its factual allegations as true,

and determine whether CMW can prove any set of facts in support of its claims that would entitle

it to relief. Id.

        The Tennessee Constitution provides that “no retrospective law, or law impairing the

obligations of contracts, shall be made.” TENN. CONST. art. I, § 20. This section “has uniformly

been interpreted to mean that the Legislature may enact laws that have a retrospective application

only so long as they do not impair the obligations on contracts or impair vested rights.” Privette v.

Keyes, No. M2000-01635-COA-R10-CV, 2001 WL 196970, at *2 (Tenn. Ct. App. Feb. 28, 2001)

(unreported). CMW advances three arguments to support its position that the amended law’s

restraints on termination may be applied to the Agreement without offending the Contracts Clause

of the Tennessee Constitution.2 First, CMW argues that application of the law to the Agreement

would not be “retrospective.” Next, CMW contends that the law would not impair Wirtgen’s vested

        2
         CMW filed claims under the amended law for both unlawful coercion and wrongful
termination. As counsel for CMW admitted at oral argument, however, the coercion claim rests on
Wirtgen’s alleged threats to terminate the Agreement. The Agreement expressly recognizes
Wirtgen’s right to terminate the Agreement, and an implied right to threaten to take this action
follows. Thus the coercion claim survives only to the extent that Wirtgen holds no protected
contractual right to terminate the Agreement, and we analyze CMW’s coercion claim concurrently
with its wrongful-termination claim.

                                                -3-
No. 04-6261
CMW v. Wirtgen

rights. Finally, CMW asserts that the Agreement manifests the parties’ intent to incorporate changes

in Tennessee law into the Agreement.

                                   A. Retrospective Application

       CMW first argues that the amended law’s application would not be retrospective because

Wirtgen engaged in the prohibited conduct after the amendment took effect. This argument fails

because the relevant inquiry is when Wirtgen’s contractual rights to undertake its conduct

accrued—that is, when the parties incurred their contractual obligations—rather than when

Wirtgen’s conduct occurred. For example, in Bryan v. Leach, 85 S.W.3d 136 (Tenn. Ct. App.

2001), the parties contracted at the time of their 1992 divorce for the husband to pay the wife

alimony. A 1994 legislative enactment provided that alimony would terminate upon the remarriage

of the receiving spouse, and when the wife remarried in 1997, the husband sought to end alimony

payments. The Leach court held the application of the 1994 law to the parties’ 1992 contract

violated the Tennessee Constitution: “We will not apply [the statute] retroactively to create an

automatic termination of contractual obligations undertaken and rights vested prior to its

enactment.” Id. at 144. Similarly, in Kee v. Shelter Ins., the Tennessee Supreme Court held that a

statute could not be applied to extend an insurance policyholder’s claim-filing deadline where the

insurer’s contractual rights accrued before the statute was enacted. 852 S.W.2d 226, 229 (Tenn.

1993). In the present case, the parties incurred contractual obligations and accrued contractual rights

prior to the enactment of the law, and its application to their contract would be retrospective.

                                                 -4-
No. 04-6261
CMW v. Wirtgen

                                     B. Impairment of Rights

       CMW next argues that application of the amended law to the Agreement does not

impermissibly impair Wirtgen’s vested rights. The Tennessee Supreme Court has developed a four-

factor analysis for unconstitutional impairment. See Doe v. Sundquist, 2 S.W.3d 919, 924 (Tenn.

1999).3 The first factor—whether the law advances a public interest—lends some, albeit minimal,

support to CMW’s position. Courts typically “defer to a state’s judgment as to the necessity of a

measure in question,” Linton v. Comm’r of Health & Env’t, 65 F.3d 508, 519 (6th Cir. 1995), and

the law arguably advances the public interest by adjusting suppliers’ and distributors’ relative

bargaining positions and defining their rights. That said, adjustments in bargaining power may serve

the public interest when applied prospectively to bargains not yet struck, but create minimal public

benefits when applied retrospectively to contracts formed under a prior state of law.

       The remaining factors all militate against applying the amended law to the Agreement. The

second factor, whether the law defeats the reasonable expectations of the parties, strongly favors

Wirtgen. The parties opted for a contract terminable at will by either party rather than including a

fixed termination date in the Agreement. The express language of the contract exhibits a reasonable

expectation that the amended law would defeat.

       3
       Although the Tennessee Supreme Court added a fifth consideration in In re D.A.H., 142
S.W.3d 267, 274 (Tenn. 2004), this consideration—whether the right impaired is a fundamental
one—does not apply in the present case.

                                               -5-
No. 04-6261
CMW v. Wirtgen

        The third factor, whether the law surprises parties who relied on a contrary state of law, also

supports Wirtgen’s position. Not only did the previous versions of Tennessee Code Annotated §§

47-25-1301 to -10 not prohibit Wirtgen’s termination of the Agreement, but they did not even apply

to the Agreement. The parties undoubtedly were surprised when, seven years into the ongoing

operation of their Agreement, Tennessee amended sections 47-25-1301 to -10 to encompass

contracts such as theirs. The final factor, and perhaps the most significant, is the extent to which

the law is substantive rather than procedural or remedial. See, e.g., Saylors v. Riggsbee, 544 S.W.2d
609, 610 (Tenn. 1976) (permitting retroactive application of a statute that “created no rights and

imposed no liabilities . . . [but] merely prescribed a procedure”). Because the Tennessee law goes

to the heart of Wirtgen’s rights under the agreement—that is, it “gives or defines the right[s]” of the

parties rather than defining proceedings by which a right is enforced or providing the means by

which relief may be obtained—courts view it as substantive, counseling against its retrospective

application. See Doe, 2 S.W.3d at 923. Under the four-part test announced in Doe, Tennessee’s law

impermissibly impairs Wirtgen’s contractual rights.

                                       C. Severability Clause

        Finally, CMW argues that the Agreement’s severability clause, severing any provision from

the Agreement that “may be prohibited by law,” expresses the parties’ intent to incorporate changes

in the governing law. But rather than “‘clearly indicat[ing] . . . [the] intention of [the] parties’” to

incorporate changes in the law, this language merely demonstrates the parties’ uncertainty as to

                                                 -6-
No. 04-6261
CMW v. Wirtgen

whether the then-governing law prohibited any provision. Rutherford Farmers Coop. v. MDT

Consumer Group, Inc., 124 Fed. Appx. 918, 920 (6th Cir. 2005) (quoting 11 RICHARD A. LORD,

WILLISTON ON CONTRACTS § 30:23 (4th ed. 2004)) (rejecting a similar argument that the parties’

contract incorporated future laws and finding a federal Contracts Clause violation in the application

of a related section of the amendment at issue here).

                                                 III

        Because retrospective application of the Tennessee law to the Agreement violates the

Tennessee Constitution by impairing Wirtgen’s vested rights, we affirm the district court’s dismissal

of this suit.

                                                -7-