Lake Charles Diesel, Inc. v. General Motors Corp.

• Decision Date: 14 April 2003
• Docket Number: No. 01-31442.,01-31442.
• Citation: 328 F.3d 192
• Parties: LAKE CHARLES DIESEL, INC., Plaintiff-Appellee, v. GENERAL MOTORS CORP.; et al., Defendants, General Motors Corp., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 192

328 F.3d 192

LAKE CHARLES DIESEL, INC., Plaintiff-Appellee, v. GENERAL MOTORS CORP.; et al., Defendants General Motors Corp., Defendant-Appellant.

No. 01-31442.

United States Court of Appeals, Fifth Circuit.

April 14, 2003.

Jeffery Haff (argued), Jeffery S. Haff & Associates, Minneapolis, MN, Benjamin W. Mount, Bergstedt & Mount, Lake Charles, LA, for Plaintiff-Appellee.

Thomas A. Casey, Jr. (argued), Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, LA, Matthew Jon Landreau, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Lafayette, LA, for Defendant-Appellant.

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

Before JONES, WIENER, and DeMOSS, Circuit Judges.

WIENER, Circuit Judge:

Defendant-Appellant General Motors Corp. ("GM"), through its aftermarket automotive parts division, AC Delco ("Delco"), appeals from the district court's grant of a preliminary injunction to Plaintiff-Appellee Lake Charles Diesel, Inc. ("LCD"), preventing Delco from terminating its "ACDELCO Direct Account Supply Agreement (`Parts Agreement') with LCD." Delco contends, among other things, that the district court erred when it concluded that LCD had a substantial likelihood of success on the merits of its contention that Delco's putative termination of the Parts Agreement pursuant to the termination provision of that contract was invalid because it contravened applicable Louisiana law. Delco asserts that the court mistakenly concluded that the termination provision of the Parts Agreement is contravened — and thus trumped — by the termination provision of Louisiana's Repurchase of Farm, Industrial, and Lawn and Garden Equipment by Wholesaler Act ("Repurchase Act").¹ This statute specifies that a contract to which it applies cannot be terminated by a party in Delco's position except for good cause after furnishing 90 days prior written notice to a party in LCD's position, and giving such party the opportunity to cure the cause. Delco argues further that, even if, as a general proposition, a termination provision like the one in the Parts Agreement would be trumped by the mandated termination provision of the Louisiana statute, the contract's termination provision is not barred in this particular case. This is so, insists Delco, because the Parts Agreement is not a contract to which the Repurchase Act applies. For the reasons expressed in the remainder of the opinion, we agree with Delco that the Parts Agreement is not a contract to which the Repurchase Act applies.

Absent such applicability, Delco's termination in compliance with the contract could not be invalidated by a provision in the Repurchase Act that is "contravened" by the provision of the contract. This, in turn eliminates LCD's likelihood of success on the merits and makes the district court's grant of the instant preliminary injunction improvident. We therefore reverse the district court's grant of the preliminary injunction and remand with instructions to vacate that injunction and to conduct any further proceedings in a manner consistent with this opinion.

I. Facts and Proceedings

Delco is a national supplier of automotive repair parts which it markets through a nationwide network of warehouse distributors. LCD has been a dealer in Delco automotive parts since 1977.

The instant controversy arose when Delco purported to terminate the Parts Agreement by having a letter hand-delivered to LCD, notifying it that Delco was terminating that contract effective 30 days after delivery. At the time, Delco and LCD were operating under the most recent version of their Parts Agreement, which had been extended for an indefinite term by a letter mailed less than two months prior to the delivery of the termination notice. That extension letter was from Delco's general manager and included the statement that "[w]e intend to operate under this extension until we execute new supply agreements with our warehouse distributors, which will coincide with the implementation of the Dedicated Distribution Group. Required standards and guidelines must be achieved to enter into a new Dedicated Distribution Group agreement." Nevertheless, within a matter of weeks, Delco's regional manager personally delivered the 30-day termination notice to LCD. That notice did not state or imply that the relationship was being terminated for cause; neither did it offer any explanation for Delco's decision to terminate the Parts Agreement.

The Parts Agreement consists of a two-page document entitled "General Motors Corporation, SERVICE PARTS OPERATIONS ACDelco Direct Account Supply Agreement" appended to a copy of Delco's 14-page standard form dealership agreement. In the two-page instrument, LCD is named as the "direct account" and is authorized to sell each checked-off product line from among a list of 57 — in this case, 53 of the 57 listed product lines. One of the four product lines not checked off is "Engines." Among the 53 authorized product lines are a number that clearly are automotive parts but just as clearly are not engine parts: radiators, shocks, batteries, Durastop brakes, air conditioning, brake parts, steering and drive systems, transmission parts, and lighting. In Delco's mission statement at the top of page 4 of its 14-page standard form instrument, the product lines covered by the Parts Agreement are referred to globally as "vehicle replacement parts."

LCD's business operations include, without limitation, the repair and rebuilding of engines of numerous manufacturers. LCD uses some of these Delco automotive parts in repairing and rebuilding engines and other equipment, and sells some of the stocked parts to third parties. The engine repair and rebuilding aspect of LCD's business, as well as the parts sales and distribution aspect, have a substantial (but not exclusive) connection with several significant Southwest Louisiana industries, such as marine, agriculture, construction, and the like.

LCD is not in the business of selling, distributing or retailing any new equipment, engines, implements, machinery, or attachments that are wholesaled, manufactured or distributed by Delco or GM. Rather, vis-à-vis GM and Delco, LCD maintains only a stock of Delco's vehicle replacement parts, which it either uses itself or sells, distributes, or retails to third parties.²

Shortly after receiving Delco's termination notice, LCD filed this suit in state court. In addition to Delco, LCD named another Louisiana distributor of Delco automotive parts as a co-defendant. Delco removed the case to the district court, asserting fraudulent joinder of the Louisiana defendant, and the district court denied LCD's subsequent motion to remand.

In its injunction suit, LCD complained that Delco's termination of the Parts Agreement violated both the Repurchase Act and Louisiana's Used Motor Vehicle Dealers and Marine Products Dealers Act³ ("Marine Act"). In regard to the latter statute, LCD alleged that some of the engines it repairs and rebuilds, and some of the Delco parts it distributes, are used in the marine industry.

In its petition, LCD also complained that, by engaging in misleading and disingenuous correspondence in the weeks preceding delivery of its notice of termination, Delco breached an applicable Michigan law that proscribes violations of express covenants of good faith and fair dealing. In support of this charge, LCD pointed to the parties' mutual covenant in the Parts Agreement to communicate with each other in an "honest, ethical and professional manner."

The district court rejected as inapplicable LCD's attempt to invoke the Marine Act; and the court mused without ruling that LCD might well prevail on its claim that Delco breached the Parts Agreement by violating its honest-communication covenant. In the end, however, the court concluded that the Repurchase Act does apply to the Parts Agreement, and that the termination provision of that statute governs, because the termination provision of the Parts Agreement does not merely differ from that of the Repurchase Act but directly contravenes it. As Delco's 30-day, no-cause termination notice failed to satisfy the applicable 90-day, good-cause termination provision of the Repurchase Act, reasoned the court, LCD met the likelihood-of-success prong of the temporary injunction test. After addressing the three remaining prongs of that test and concluding that LCD met them all, the district court granted the preliminary injunction that prohibits Delco from terminating the Parts Agreement. Delco timely filed a notice of appeal.

II. Analysis

A. Standard of Review

We have jurisdiction to review grants of preliminary injunctions under 28 U.S.C. § 1292(a)(1). We review such grants for abuse of discretion.⁴ Even though "the ultimate decision whether to grant or deny a preliminary injunction is reviewed only for abuse of discretion, a decision grounded in erroneous legal principles is reviewed de novo."⁵

B. Requirements for Preliminary Injunction

To be entitled to a preliminary injunction, the applicant must show (1) a substantial likelihood that he will prevail on the merits, (2) a substantial threat that he will suffer irreparable injury if the injunction is not granted, (3) his threatened injury outweighs the threatened harm to the party whom he seeks to enjoin, and (4) granting the preliminary injunction will not disserve the public interest.⁶ We have cautioned repeatedly that a preliminary injunction is an extraordinary remedy which should not be granted unless the party seeking it has "clearly carried the burden of persuasion" on all four requirements.⁷ Citing our opinion in Martinez v. Mathews, Delco maintains that a mandatory preliminary injunction that goes beyond the status quo is even more disfavored and "should not be issued unless the facts and law clearly favor the moving party."⁸ We fail to see the relevance of that proposition here, however, because the preliminary...