Ass'n of Equip. Mfrs. v. Burgum

• Decision Date: 02 August 2019
• Docket Number: No. 18-1115,18-1115
• Parties: ASSOCIATION OF EQUIPMENT MANUFACTURERS; AGCO Corporation; CNH Industrial America LLC; Deere & Company; Kubota Tractor Corporation, Plaintiffs - Appellees, v. The Hon. Doug BURGUM, Governor of the State of North Dakota, in his official capacity; The Hon. Wayne Stenehjem, Attorney General of the State of North Dakota, in his official capacity, Defendants - Appellants, North Dakota Implement Dealers Association, Intervenor Defendant - Appellant. International Franchise Association, Amicus on Behalf of Appellee(s).
• Court: U.S. Court of Appeals — Eighth Circuit

932 F.3d 727

ASSOCIATION OF EQUIPMENT MANUFACTURERS; AGCO Corporation; CNH Industrial America LLC; Deere & Company; Kubota Tractor Corporation, Plaintiffs - Appellees,

v.The Hon. Doug BURGUM, Governor of the State of North Dakota, in his official capacity; The Hon. Wayne Stenehjem, Attorney General of the State of North Dakota, in his official capacity, Defendants - Appellants,North Dakota Implement Dealers Association, Intervenor Defendant - Appellant.

International Franchise Association, Amicus on Behalf of Appellee(s).

No. 18-1115

United States Court of Appeals, Eighth Circuit.

Submitted: November 13, 2018

Filed: August 2, 2019

Rehearing and Rehearing En Banc Denied September 19, 2019^*

Lauren Champaign, Benjamin R. Dryden, Jarren Ginsburg, Michael J. Lockerby, FOLEY & LARDNER, Washington, DC, Roberta F. Howell, Connor A. Sabatino, FOLEY & LARDNER, Madison, WI, Eric John Magnuson, ROBINS & KAPLAN, Minneapolis, MN, Timothy Q. Purdon, ROBINS & KAPLAN, Bismarck, ND, for Plaintiffs - Appellees.

Joseph Paul Bialke, I, Matthew A. Sagsveen, Nathan J. Svihovec, Assistant Attorney Generals, ATTORNEY GENERAL'S OFFICE, Bismarck, ND, for Defendants - Appellants.

Jason T. Allen, William Kirby Bissell, BASS & SOX, Tallahassee, FL, Benjamin Eugene Thomas, WOLD & JOHNSON, Fargo, ND, for Intervenor Defendant - Appellant.

Benjamin B. Reed, James C. Rubinger, PLAVE & KOCH, Reston, VA, for Amicus on Behalf of Appellee.

Before COLLOTON, SHEPHERD, and STRAS, Circuit Judges.

COLLOTON, Circuit Judge.

The Association of Equipment Manufacturers and four farm equipment manufacturers asked the district court¹ to enjoin North Dakota Senate Bill 2289, which regulates relationships between manufacturers and farm equipment dealers. The district court granted a preliminary injunction on the ground that the Act likely violated rights of the manufacturers under the Contract Clause of the Constitution, U.S. Const. art. I, § 10, cl. 1. The State of North Dakota and an intervenor, the North Dakota Implement Dealers Association, appeal that order. We affirm.

I.

Senate Bill 2289 is an Act "to amend and reenact sections 51-07-01.2, 51-07-02.2, and 51-26-06 of the North Dakota Century Code, relating to prohibited practices under farm equipment dealership contracts, dealership transfers, and reimbursement for warranty repair." See 2017 N.D. Laws, ch. 354 (codified at N.D. Cent. Code §§ 51-07-01.2, 51-07-02.2, 51-26-06 (2017)). The legislation contains three sections. The first section applies "[n]otwithstanding the terms of any contract," and prohibits manufacturers from imposing various contractual obligations on farm equipment dealers. See id. sec. 1 ( N.D. Cent. Code § 51-07-01.2, § 1). Manufacturers, for example, cannot require dealers to maintain exclusive facilities, "unreasonably" refuse to approve the relocation of dealerships, or impose "unreasonable" performance standards on dealers. Id. sec. 1 ( N.D. Cent. Code § 51-07-01.2, § 1.e, .i, .k).

The second section regulates dealership transfers and permits a dealer to transfer a dealership agreement after notice to the manufacturer and approval of the manufacturer. Certain denials by manufacturers are presumed unreasonable, and the section allows a dealer to file an action challenging a manufacturer’s denial. Id. sec. 2. A third section imposes several new requirements on manufacturers with respect to reimbursements that they must provide to dealers for warranty repairs. Id. sec. 3. Although the last two sections do not contain language specifying retroactive application, the State does not dispute the district court’s conclusion that they apply to existing contracts, and the State generically describes SB 2289 as "retroactive." Cf. Smith v. Baumgartner , 665 N.W.2d 12, 14-16 (N.D. 2003).

The manufacturers sued and raised claims under several constitutional and statutory provisions, including the Contract Clause and the Federal Arbitration Act. The district court entered a preliminary injunction against enforcement of SB 2289, concluding that the manufacturers were likely to succeed on the merits of their Contract Clause claim and that the other relevant factors weighed in favor of a preliminary injunction. See Dataphase Sys., Inc. v. C L Sys., Inc. , 640 F.2d 109 (8th Cir. 1981) (en banc). The court reasoned that SB 2289 imposed unforeseeable new regulations on existing contracts that amounted to substantial impairments. Citing the statement of a co-sponsor in the legislature that the bill was designed to create a "level playing field" for implement dealers, the court determined that the Act was special-interest legislation unsupported by a significant and legitimate public purpose. The court also ruled that SB 2289’s retroactive "No Arbitration" provision, which says that a manufacturer generally may not require a dealer to agree to arbitration, see 2017 N.D. Laws, ch. 354, sec. 1 ( N.D. Cent. Code § 51-07-01.2, § 1.l), was preempted by the Federal Arbitration Act, 9 U.S.C. § 2.

The State appeals the district court’s order, disputing the conclusion that the manufacturers are likely to succeed on the merits of their Contract Clause claim. An order granting a preliminary injunction is reviewed for abuse of discretion. TCF Nat’l Bank v. Bernanke , 643 F.3d 1158, 1162 (8th Cir. 2011).

II.

In determining whether a state law passes muster under the Contract Clause, "[t]he threshold issue is whether the state law has ‘operated as a substantial impairment of a contractual relationship.’ " Sveen v. Melin , ––– U.S. ––––, 138 S. Ct. 1815, 1821-22, 201 L.Ed.2d 180 (2018) (quoting Allied Structural Steel Co. v. Spannaus , 438 U.S. 234, 244, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978) ). If the answer is yes, then the court asks "whether the state law is drawn in an ‘appropriate’ and ‘reasonable’ way to advance ‘a significant and legitimate public purpose.’ " Id. at 1822 (quoting Energy Reserves Grp., Inc. v. Kan. Power & Light Co. , 459 U.S. 400, 411-12, 103 S.Ct. 697, 74 L.Ed.2d 569 (1983) ). "The State bears the burden of proof in showing a significant and legitimate public purpose underlying the Act." Equip. Mfrs. Inst. v. Janklow , 300 F.3d 842, 859 (8th Cir. 2002) ; see also Energy Reserves Grp. , 459 U.S. at 411-12, 103 S.Ct. 697. If the State shows a significant public purpose and is not a contracting party, then "courts properly defer to legislative judgment as to the necessity and reasonableness of a particular measure." Energy Reserves Grp. , 459 U.S. at 412-13, 103 S.Ct. 697 (quoting U.S. Tr. Co. of N.Y. v. New Jersey , 431 U.S. 1, 23, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977) ).

The State contends that SB 2289, although retroactive, does not "substantially impair" the manufacturers’ contractual rights. This court, distilling the jurisprudence on substantial impairment, has concluded that the governing rule is akin to a question of reasonable foreseeability: "if the party to the contract who is complaining could have seen it coming, it cannot claim that its expectations were disappointed." Holiday Inns Franchising, Inc. v. Branstad , 29 F.3d 383, 385 (8th Cir. 1994).

We conclude that the manufacturers in this case "cannot reasonably be said to have had a fair and appreciable warning of an impending intervention into their agreements." Id. Several provisions regulating dealer agreements are new additions to the North Dakota Century Code or significantly expand existing provisions. See 2017 N.D. Laws, ch. 354, sec. 1 ( N.D. Cent. Code § 51-07-01.2, § 1.d, .e, .h, .i, .j, .k, .l), sec. 3. Previous regulations, moreover, forbade primarily coercive and discriminatory practices; for example, a manufacturer could not "[c]oerce or attempt to coerce" a dealer into accepting delivery of equipment the dealer had not voluntarily ordered. See 1991 N.D. Laws, ch. 521, sec. 1. SB 2289, by contrast, includes several amended and new provisions that forbid manufacturers from "requir[ing]" dealers to take certain actions, "[n]otwithstanding the terms of any contract." See 2017 N.D. Laws, ch. 354, sec. 1 ( N.D. Cent. Code § 51-07-01.2, § 1.a, .c, .d, .e, .h, .l). The law thus goes a significant step beyond regulation of coercive and discriminatory practices by rendering unenforceable obligations that dealers previously accepted as part of freely negotiated contracts. See Equip. Mfrs. Inst. , 300 F.3d at 858-59. The new law also substantially enlarged the regulation of dealer reimbursements that had been limited to rules about reimbursement for labor. See 2017 N.D. Laws, ch. 354, sec. 3 ( N.D. Cent. Code § 51-26-06, §§ 1, 2 (regulating reimbursement for transportation services, diagnostic work, repair service, warranty work compensation, product improvement programs, maintenance plans, extended warranties, and certified preowned warranties)).

This court previously held that a similar retroactive law governing agreements between farm equipment dealers and manufacturers in South Dakota violated the Contract Clause. See Equip. Mfrs. Inst. , 300 F.3d at 848-49, 859-62. Some provisions of the North Dakota law parallel the South Dakota statute by expanding prohibitions on coercion to regulate existing contracts, and the manufacturers were entitled to rely on the South Dakota precedent when considering what legislative impairments were reasonably foreseeable. See Holiday Inns Franchising , 29 F.3d at 385. For all of these reasons, SB 2289 substantially impairs obligations of contract.

The State’s primary argument is that even if SB 2289 substantially impairs the manufacturers’ contractual rights, the legislation reasonably advances a significant and legitimate public purpose, so the impairment is constitutional. In Equipment Manufacturers Institute , South Dakota conceded that the purpose of a similar law was "to level the playing field between manufacturers and dealers," 300 F.3d at 860, and this court concluded that the conceded purpose did not qualify as a "significant and legitimate public interest." Id. at 861. North Dakota makes no...