Carter Equipment Co. v. John Deere Indus. Equipment Co., 80-3877

• Decision Date: 29 July 1982
• Docket Number: No. 80-3877,80-3877
• Citation: 681 F.2d 386
• Parties: CARTER EQUIPMENT COMPANY, et al., Plaintiffs-Appellees Cross-Appellants, v. JOHN DEERE INDUSTRIAL EQUIPMENT COMPANY, Defendant-Appellant Cross-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 386

681 F.2d 386

CARTER EQUIPMENT COMPANY, et al., Plaintiffs-Appellees Cross-Appellants, v. JOHN DEERE INDUSTRIAL EQUIPMENT COMPANY, Defendant-Appellant Cross-Appellee.

No. 80-3877.

United States Court of Appeals Fifth Circuit.

July 29, 1982.

Erskine W. Wells, J. Jerry Langford, Jackson, Miss., for defendant-appellant cross-appellee.

Kenneth A. Rutherford, Jackson, Miss., Jack N. Price, Austin, Tex., for plaintiffs-appellees cross-appellants.

Appeals from the United States District Court for the Southern District of Mississippi.

Before WISDOM, JOHNSON and WILLIAMS, Circuit Judges.

JOHNSON, Circuit Judge:

Plaintiff, Carter Equipment Company (Carter), sued defendant, John Deere Industrial Equipment Company (Deere), originally alleging seven causes of action. ¹ Ultimately, only two causes of action were submitted to the jury. The first cause of action related to Carter's claim that a fiduciary relationship existed between the parties and that Deere had breached its fiduciary duty. The second cause of action related to Carter's claim that Deere was a de facto trustee, or trustee in fact, of the repossession reserve account and that it had breached that trust.

The jury returned a verdict in the amount of $1,000,000 and judgment was entered accordingly. Deere filed a motion for judgment notwithstanding the verdict or, in the alternative, a new trial. The district court overruled the motion after oral argument. This appeal followed. This Court reverses the judgment of the district court and remands the case for a new trial.

I. Facts

In 1965, Carter and Deere entered into agreements that resulted in Carter's becoming an authorized dealer of Deere equipment in Natchez and Jackson, Mississippi. Subsequently, the parties entered into agreements establishing Carter dealerships in Greenwood, Meridian, and Starkville, Mississippi. ² It is undisputed that the agreements constituted a franchising arrangement. During the early stages of the franchise relationship, Carter's business involved only a limited amount of Deere equipment. However, Deere equipment was Carter's major line by 1974.

In May of 1974, Deere held a worldwide meeting of Deere equipment dealers in Moline, Illinois. Dan Hyde, Carter's general manager, and Roy Carter attended the meeting. The purpose of the meeting was to introduce Deere's plans for significantly broadening its product line by introducing a number of new "ERA III" machines during the next five years. Remarks were made that Deere would double the number of offerings in seven product groups in hopes of more than doubling Deere's worldwide industrial sales within the five years. The record contains evidence that, in order to achieve its goals, Deere relied upon its dealers and "challenged" them to aggressively participate in the plan. In return for the dealers' increased efforts, Deere promised to provide the products and equipment necessary to challenge the marketplace.

Testimony at trial indicates Carter Equipment began planning new facilities to meet the challenge. However, fire almost totally destroyed Carter's physical facilities in Jackson, Mississippi in 1975. Consequently, Carter began the construction of a new facility. Carter alleges the new facility was built, at least in part, in anticipation of the new line of equipment from Deere. In any event, it is undisputed that the facility far exceeded Carter's needs or capacity at the time it was built. It is also undisputed that the project created financial difficulty for Carter.

About this time, Dan Hyde was fired by Carter, creating a problem in the company's management. A replacement for Hyde was hired approximately eight months later, but he too was fired after a few months.

Carter's financial difficulties continued; it fell behind and was in default on accounts with suppliers and manufacturers. Carter asked Deere to release Deere's security interest so the items utilized as collateral for the security interest could be used to secure other loans. Deere refused. On November 3, 1977, Deere notified Carter it was terminating the dealership agreement in 120 days. During this time, Carter approached various prospective purchasers. At one point, it appeared Norwel Equipment Company would purchase the Carter dealership. Deere would not approve of Norwel as a dealer of Deere equipment for the area serviced by Carter. ³ Ultimately, the business was sold to the Hughes-Henry Equipment Company on February 1, 1978. According to Carter, the sale was made at a substantial loss.

II. Deere's Claims

As noted, the case went to the jury on only two of Carter's causes of action. Deere claims error relating to both. This Court will address the fiduciary duty issue first and the "de facto" trustee issue second.

A. Fiduciary Duty

The question of whether Carter and Deere enjoyed a fiduciary relationship is perhaps the central issue of the case sub judice, since the jury appears to have based most of its million dollar damage award on a perception that Deere breached some fiduciary duty owed to Carter. ⁴ The cause of action, as it appeared in Carter's final complaint, stated: "The actions of Defendant toward Plaintiffs ... constitute a breach of the fiduciary duty which Defendant owed to Plaintiff Carter Equipment Company as a result of the Dealer-Supplier Relationship entered into by the parties." The district court recognized that, because this case was based on diversity jurisdiction, the Mississippi state law was the law of decision. The district court noted that it was contrary to his experience to impose a fiduciary relationship in a case, such as the one sub judice, involving written contracts that expressly set out the relationships between the parties. The district court, however, relied upon a Mississippi Supreme Court case, Parker v. Lewis Grocer Co., 246 Miss. 873, 153 So.2d 261 (1963), that the court believed "alligned Mississippi with a view completely at variance with (the district court's) own views and experience on the subject."

Deere contends this determination, together with the submission of a jury instruction relating to a possible fiduciary relationship, was error. The basis of Deere's argument is that the contracts entered into by Deere and Carter controlled the entirity of the parties' relationship. On the other hand, Carter contends that, while Mississippi law does not recognize every franchise or contractual relationship as giving rise to a fiduciary duty, the facts of the present case clearly suggest Deere owed a fiduciary duty to Carter.

Mississippi applies a broad brush to the equitable doctrine of the fiduciary and does not preclude a jury's finding a fiduciary relationship exists between a franchisor and franchisee. To the contrary, the case referred to by the district court-Parker v. Lewis Grocer Co.-indicates Mississippi law would indeed recognize a fiduciary relationship in an appropriate situation. Parker, which relied upon a prior Mississippi Supreme Court decision, Risk v. Risher, 197 Miss. 155, 19 So.2d 484 (1944), emphasized the Mississippi Supreme Court's position that fiduciary obligations may arise outside the conventional boundaries traditionally recognized as giving rise to fiduciary relationships. See DeTenorio v. McGowan, 510 F.2d 92 (5th Cir. 1975) (Godbold, J. dissenting); Ham v. Ham, 146 Miss. 161, 110 So. 583, 584 (1926).

The Mississippi Supreme Court held that the facts involved in Parker created a fiduciary relationship between a landlord and tenant, even though the parties' underlying relationship was contractual. ⁵ The court pointed out that "the relation is not restricted to such confined relations as trustee and beneficiary, partners, principal and agent, guardian and ward, managing directors and corporation, etc. ... It applies to all persons who occupy a position out of which the duty of good faith ought in equity and good conscience to arise." Parker, 153 So.2d at 275-76 quoting Risk (citations omitted) (emphasis in Parker ). The court went on to state:

Wherever one person is placed in such a relation to another by the act or consent of that other, or by the act of a third person, or of the law, that he becomes interested for him, or interested with him, in any subject of property or business, he is in such a fiduciary relation with him that he is prohibited from acquiring rights in that subject antagonistic to the person with whose interests he has become associated.

Id. at 276 (quoting Risk ) (emphasis in Parker ).

The language of the Mississippi Supreme Court indicates that, under Mississippi law, a fiduciary relationship may encompass, in certain instances, a relationship based upon a contractual agreement. Ordinarily, courts do not impose fiduciary duties upon parties to contractual agreements. Accordingly, Mississippi law does not dictate that out of every contractual-or franchising-arrangement a fiduciary relationship arises. The Mississippi Supreme Court teaches that the relationship of franchisor/franchisee does not negate the possibility the parties may also be fiduciaries. A fiduciary relationship may arise, if the appropriate facts are present.

The existence or nonexistence of a fiduciary relationship between parties is a question of fact for the jury. ⁶ As such, the jury must be given guidance regarding when such a relationship exists. At the outset, "(i)t is the nature of the relation which is to be regarded, and not the designation of the one filling the relation." Parker, 153 So.2d at 276 (quoting Risk ). The court in Parker provided guidance regarding the genesis of a fiduciary relationship by stating that one of the parties will not be permitted to "frustrate the mutual purposes of the parties or drive the (other party) from the business world." Id. at 275 (emphasis added). In other words, the parties must have mutual or shared intentions. ⁷ A fiduciary relationship arises only if the activity of the parties goes beyond their operating on their...