Peugeot Motors of America, Inc. v. Eastern Auto Distributors, Inc., s. 88-2598

Citation892 F.2d 355
Decision Date27 February 1990
Docket Number88-2604,Nos. 88-2598,s. 88-2598
PartiesPEUGEOT MOTORS OF AMERICA, INC., Plaintiff-Appellant, v. EASTERN AUTO DISTRIBUTORS, INC., Defendant-Appellee. PEUGEOT MOTORS OF AMERICA, INC., Plaintiff-Appellee, v. EASTERN AUTO DISTRIBUTORS, INC., Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

John Y. Pearson, Jr. (Conrad M. Shumadine, James J. Wheaton, Randy D. Singer, Willcox & Savage, P.C., Norfolk, Va.; Peter S. Paine, Jr., Peter Mozarsky, Cleary, Gottlieb, Steen & Hamilton, on brief), for plaintiff-appellant.

Arthur S. Linker (Max Freund, Robert W. Gottlieb, Rosenman & Colin, New York City, Robert C. Nusbaum, Thomas F. McPhaul, Joseph R. Lassiter, Jr., William F. Devine, Beth Hirsch Berman, Hofheimer, Nusbaum, McPhaul & Samuels, Norfolk, Va., on brief), for defendant-appellee.

Before WIDENER, HALL, and WILKINS, Circuit Judges.

WIDENER, Circuit Judge:

In 1971, Eastern Auto Distributors, Inc. (Eastern) entered into a Distributor Agreement with the corporate predecessor of Peugeot Motors of America, Inc. (Peugeot). On October 14, 1987, Peugeot sent a notice of non-renewal to Eastern. On November 9, 1987, Peugeot filed its complaint asking for a declaratory judgment that it properly exercised its rights under the contract not to renew. Eastern filed a five-count counterclaim alleging that Peugeot's action violated the Automobile Dealer's Day in Court Act (15 U.S.C. §§ 1221-1225); §§ 197 and 197-a of New York's General Business Law; and the New York Franchised Motor Vehicle Dealer Act (N.Y.Veh. & Traf.Law 460-471); and also alleged a breach of contract. The district court granted Eastern summary judgment on Peugeot's declaratory judgment claim. 1 It also granted Peugeot's motion for summary judgment on Eastern's Dealer's Day in Court counterclaim and its breach of contract counterclaim, 2 all the remaining parts of Eastern's case.

Both sides appeal from the district court's decision. Peugeot argues that the district court erred as it applied the New York regulatory law in this case, 3 that New York common law permits the non-renewal, that the contract's specific non-renewal terms should be applied, and that even if the New York regulatory law applies, there was no violation under these facts. Eastern's cross-appeal argues that the district court improperly granted summary judgment on its Dealer's Day in Court and breach of contract counterclaims. Being of the opinion that the New York regulatory law was not properly applied in this case and that New York's common law permits the challenged non-renewal, we vacate the district court's summary judgment in favor of Eastern in Peugeot's declaratory judgment action. We are also of opinion that the district court properly granted summary judgment on Eastern's breach of contract counterclaim as well as on the Dealer's Day in Court counterclaim, with an exception to be hereinafter noted. So, subject to the exception, we largely affirm the district court's action granting summary judgment to Peugeot on Eastern's counterclaims one and five.

Peugeot, a Delaware corporation with its principal place of business in New Jersey, imports Peugeot automobiles into the United States and distributes them through a network of enfranchised dealers in states where Eastern is not the distributor. For over twenty-five years, Eastern, a Virginia corporation, has distributed Peugeot products in West Virginia, Virginia, North Carolina, South Carolina, Maryland, Kentucky, Tennessee, Delaware, the District of Columbia, and the northern part of Georgia. Eastern has never sold or distributed vehicles in New York. Eastern has never registered under New York's regulatory laws to be a dealer in New York, nor has it qualified to do business as a foreign corporation in New York.

On January 1, 1971, Peugeot and Eastern entered into the Distributor Agreement which is the subject of the present dispute. There are two relevant contractual provisions. The first is the non-renewal provision, paragraph thirty-two of the contract, which states:

Unless terminated by any other provision, this agreement shall continue for a period of one year from the effective date set forth at the foot of the agreement [January 1, 1971] and shall be renewed automatically from year to year thereafter unless either party gives at least 60 days' written notice to the other that it shall not be so renewed.

The second relevant provision is paragraph thirty-nine, the choice of law provision, and provides that "[i]t is the express intention of the parties hereto that this agreement shall be governed by the laws of the State of New York."

The relationship between Peugeot and Eastern became strained in the late 1970's and on July 1, 1981, Eastern sued Peugeot alleging Dealer's Day in Court violations, Robinson-Patman Act (15 U.S.C. § 13 et seq.) violations, other antitrust violations, civil conspiracy claims and breach of contract claims. Peugeot counterclaimed alleging antitrust claims and breach of contract claims. See Eastern Auto Distrib. v. Peugeot Motors of America, 795 F.2d 329 (4th Cir.1986). Prior to trial the district court dismissed all the antitrust claims and Eastern's civil conspiracy claim. Id. at 331. After trial, before a magistrate 4 and a jury, the magistrate directed a verdict against Eastern on the Robinson-Patman Act claims and all Dealer's Day in Court claims except one involving a training facility. The jury returned a verdict for Eastern on its breach of contract claims regarding vehicle shortages and Peugeot's actions regarding the Delaware territory included in the agreement. The jury verdict was for Peugeot on all remaining claims. The magistrate granted judgment notwithstanding the verdict in favor of Peugeot on the contract claim based on the stock shortages. Both sides appealed and we affirmed except the district court was empowered to enter injunctive relief regarding the Delaware territory. Eastern Auto Distrib. v. Peugeot Motors of America, 795 F.2d 329, 340 (4th Cir.1986).

The relationship continued to be strained. On October 14, 1987, as stated, Peugeot sent notice of non-renewal to Eastern stating that pursuant to the non-renewal clause of the Distributor Agreement the contract would not be renewed on its expiration on January 1, 1988. The current action followed.

We first decide which state law is applicable. A federal court sitting in diversity must apply the choice of law rules of the forum state. Klaxon Co. v. Stentor Elect. Mfg. Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 1021-22, 85 L.Ed. 1477 (1941). Since the action was filed in the Eastern District of Virginia, Virginia's choice of law rules apply. Virginia gives effect to parties' choice of law in a contract unless circumstances show a fraudulent purpose. Tate v. Hain, 181 Va. 402, 25 S.E.2d 321, 324 (1943). There being no fraudulent purposes shown we give effect to the parties' choice to have New York law apply to the contract.

We next address the proper application of New York law. Absent some controlling statutory scheme, New York has traditionally enforced unrestricted termination clauses in contracts as written. A.S. Rampell Inc. v. Hyster Co., 3 N.Y.2d 369, 165 N.Y.S.2d 475, 144 N.E.2d 371, 379 (1957). Although the case at bar deals with a non-renewal clause as opposed to a termination clause, we believe New York would treat the two very similar situations the same. Eastern argues that §§ 197 and 197-a 5 of New York's General Business Law as well as the New York Franchised Motor Vehicle Act apply and control over the contract's non-renewal clause. 6 Given that N.Y.Business Law §§ 197, 197-a and the N.Y.Franchised Motor Vehicle Dealer Act are very similar, we will address their applicability to the dispute together. Both of these regulatory acts have explicit geographic limitations. Section 197-a prohibits a non-renewal of a motor vehicle franchise contract to a distributor except in good faith. Section 195 defines a distributor as one who "sells or distributes in this state." Likewise, § 463(2)(d)(1) prohibits non-renewal of a franchise of any "franchised motor vehicle dealer" except for due cause. Section 462(7) defines "franchised motor vehicle dealer" as "any person required to be registered pursuant to section four hundred fifteen of this chapter." Section 415(3) requires registration only if the dealer intends to engage in business "in this state." 7 Eastern has never done business in New York. It has never registered pursuant to New York law as a motor vehicle dealer or distributor. The New York regulatory schemes with explicit geographical limitations do not apply to this contract between two parties outside the state of New York. Bimel-Walroth Co. v. Raytheon Co., 796 F.2d 840 (6th Cir.1986); Gilchrist Machinery Co. v. Komatsu America Corp., 601 F.Supp. 1192 (S.D.Miss.1984). 8 Given that the two New York regulatory schemes by their own terms do not apply to the dispute, New York common law controls, and there is nothing in New York law to indicate that Peugeot did not act properly under the contract regarding its notice of non-renewal.

We next consider the propriety of the district court's grant of Peugeot's motion for judgment on Eastern's Dealer's Day in Court and breach of contract counterclaims. Peugeot moved for summary judgment on several grounds including res judicata, statute of limitations, estoppel, and that the defendant could prove no damages. The district court granted Peugeot's motion without clearly stating upon which ground or grounds it relied.

We first address the issue of res judicata. The complaint in the 1981 litigation which alleged Dealer's Day in Court violations and contractual breaches among other things is strikingly similar to the current counterclaims alleging Dealer's Day in Court claims and contractual breaches. Res judicata "is not a...

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