Cherokee Pump & Equipment Inc. v. Aurora Pump

• Decision Date: 23 November 1994
• Docket Number: No. 93-5610,93-5610
• Citation: 38 F.3d 246
• Parties: CHEROKEE PUMP & EQUIPMENT INC., Plaintiff-Appellant, v. AURORA PUMP, a Unit of General Signal and General Signal Corp., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 246

38 F.3d 246

CHEROKEE PUMP & EQUIPMENT INC., Plaintiff-Appellant, v. AURORA PUMP, a Unit of General Signal and General Signal Corp., Defendants-Appellees.

No. 93-5610.

United States Court of Appeals Fifth Circuit.

Nov. 23, 1994.

Brian F. Blackwell, Shreveport, LA, for appellant.

Charles W. Salley, Lunn, Irion, Johnson, Salley & Carlisle, Shreveport, LA, Wood Brown, III, Quentin F. Urquhart, Jr., Montgomery, Barnett, Brown, Read, Hammond & Mintz, New Orleans, LA, for appellees.

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

Before REAVLEY, DeMOSS and STEWART, Circuit Judges.

STEWART, Circuit Judge:

This diversity case arises out of a contract dispute between an Illinois manufacturer and one of its regional distributors located in Louisiana. The issue concerns whether the manufacturer had the right to terminate the distributorship agreement without stating the cause, giving sixty days notice. The district court concluded that the manufacturer did have such a right to terminate under Louisiana law as it existed at the time the agreement was confected. The court denied the distributor's motions for preliminary and permanent injunctions and granted summary judgment in favor of the manufacturer. Although we conclude that the district court erroneously found that Louisiana law applied to the contract, we nonetheless affirm because, under governing Illinois law, the manufacturer had the right to terminate the agreement.

Facts

Cherokee Pump & Equipment, Inc., is a Shreveport, Louisiana, company that serves as a regional distributor for commercial and industrial pumps manufactured by Aurora Pump of Aurora, Illinois.

Aurora and Cherokee have enjoyed a business relationship dating back to 1980. Over the years, Cherokee and Aurora have operated under several different distributorship agreements. In April 1991, the contract at issue in this litigation was executed by the parties. This "Engineered Products Distributor Agreement" ("the Agreement") provided for a renewable one-year contract term ¹ and stated that either party could terminate the contract without cause by giving 30 days notice. ² It also stated that Illinois law would govern any dispute arising from the Agreement and contained a forum selection provision whereby Cherokee agreed to submit to the jurisdiction of Illinois in the event of a dispute concerning the contract. ³

The preamble of the Agreement stated that "[t]his AGREEMENT is in effect only when the current year ADDENDUM is attached and duly executed." But the only addendum attached and executed was for the one-year period starting in January 1991 and ending on the last day of that year. Although no new addendum was executed for either 1992 or 1993, the parties continued to do business under the terms of the Agreement, except for at least one modification of Cherokee's sales quota. This course of events continued until July 1993, when Aurora notified Cherokee of its intent to terminate the Agreement effective September 30, 1993.

Procedural Background

On September 28, 1993, Cherokee filed suit in Louisiana state court seeking to enjoin Aurora from terminating their contract. Cherokee asserted that Aurora's termination without cause violates Louisiana law. In support of its position, Cherokee pointed to Louisiana's Repurchase Statute, La.R.S. 51:481, et seq., which places significant restrictions on the rights of manufacturers to terminate dealer agreements.

In particular, Louisiana Revised Statutes 51:482(A)(1) prohibits a distributor from terminating, cancelling, failing to renew, or substantially changing the competitive circumstances of a dealership agreement or contract without "good cause." Louisiana 51:482(C) expressly requires that 90 days advance notice be given to the dealer before cancellation and that the dealer be given 60 days to correct any alleged deficiency.

The state court issued a temporary restraining order, enjoining Aurora from terminating the agreement. Aurora immediately removed the case to federal district court on the basis of diversity. Aurora filed a motion to dismiss, which the federal court converted to a motion for summary judgment. Aurora's motion was based upon two alternative grounds: (1) that the amended version of the Repurchase Statute did not come into effect until September 1991, four and a half months after Cherokee and Aurora executed their Agreement and therefore the statute's termination requirements constitutionally could not be applied retroactively to Aurora ⁴; and (2) alternatively, that pursuant to the Agreement's choice-of-law provision, Illinois law was applicable, meaning that Aurora's termination of the agreement was permissible and Cherokee was not entitled to an injunction. ⁵

The district court denied Cherokee's motions for preliminary and permanent injunctions and granted summary judgment in favor of Aurora on all of Cherokee's claims, concluding that injunction was inappropriate because Cherokee could not show a likelihood of success on the merits. In fact, the court concluded that quite the opposite was true: Aurora was entitled to summary judgment under applicable law.

The district court based its decision upon its conclusion that the choice-of-law provision in the Agreement was not enforceable because the application of Illinois law would violate the public policy of Louisiana, as espoused in the Repurchase Statute. The court further concluded that although Louisiana law governs the Agreement, the Repurchase Statute's termination requirements may not be applied retroactively to this agreement, due to the constitutional prohibition, because the contract was executed for an indefinite term beginning in April 1991, ⁶ over four months prior to the effective date of the amendment to the Repurchase Statute. Thus, because the termination requirements of the Repurchase Statute cannot constitutionally be applied to the Agreement, the judge determined that Aurora had the right to terminate the Agreement without cause.

Accordingly, the district court denied Cherokee's motions for preliminary and permanent injunctions and granted summary judgment in favor of Aurora, dismissing Cherokee's suit. This appeal followed.

Standard of Review

The preliminary injunction

We review the denial of a preliminary injunction only for abuse of discretion. Hull v. Quitman Co. Bd. of Educ., 1 F.3d 1450 (5th Cir.1993); White v. Carlucci, 862 F.2d 1209 (5th Cir.1989). Four elements are required for the grant of a preliminary injunction. First, the movant must establish a substantial likelihood of success on the merits. Second, there must be a substantial threat of irreparable injury if the injunction is not granted. Third, the threatened injury to the plaintiff must outweigh the threatened injury to the defendant. Fourth, the granting of the preliminary injunction must not disserve the public interest. Sierra Club v. FDIC, 992 F.2d 545 (5th Cir.1993), citing Canal Authority of Florida v. Callaway, 489 F.2d 567, 572 (5th Cir.1974). "A preliminary injunction is an extraordinary remedy. It should only be granted if the movant has clearly carried the burden of persuasion on all four Callaway prerequisites. The decision to grant a preliminary injunction is to be treated as the exception rather than the rule." Mississippi Power & Light v. United Gas Pipe Line Co., 760 F.2d 618 (5th Cir.1985).

The motion for summary judgment

We review a district court's grant of summary judgment de novo. Topalian v. Ehrman, 954 F.2d 1125 (5th Cir.1992). Summary judgment is proper if the pleadings, depositions, answers to interrogatories, and admissions on file together with the affidavits filed in support of the motion, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).

We review de novo a district court's determination of state law on a summary judgment motion. Willis v. Roche Biomedical Laboratories, Inc., 21 F.3d 1368 (5th Cir.1994); Mills v. Davis Oil Co., 11 F.3d 1298 (5th Cir.1994). Accordingly, the district court's choice-of-laws determination is reviewed de novo. Arochem Corp. v. Wilomi, Inc., 962 F.2d 496 (5th Cir.1992); Federal Deposit Insurance Corp. v. Massingill, 24 F.3d 768 (5th Cir.1994).

An appellate court can affirm the granting of summary judgment on any ground supported by the record, Matter of Jones, 966 F.2d 169, 172 (5th Cir.1992), even where the district court granted summary judgment based upon erroneous reasoning. ⁷ Davis v. Liberty Mut. Ins. Co., 525 F.2d 1204, 1208 (5th Cir.1976).

Discussion

Cherokee argues on appeal that the district court erred as a matter of law in its determination that, under Louisiana law, the contract was for an indefinite term, that La.R.S. 51:481, et seq., could not be applied retroactively due to constitutional restrictions to prevent Aurora's termination of the agreement, and that Cherokee did not establish a substantial likelihood of success on the merits.

Because we affirm on a different basis than that relied upon by the district court and conclude that Illinois law will apply to the dispute, thereby upholding the choice-of-law provision in the contract, we do not reach the constitutional question, nor do we reach the issue of whether this contract would be considered one for an indefinite term under Louisiana law. We conclude that summary judgment in favor of Aurora was proper under Illinois law, it being undisputed that Aurora would prevail if Illinois law were applied to the contract.

Federal courts sitting in diversity must apply the choice-of-law rules of the state in which they are located. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Thus, we apply Louisiana's choice-of-law principles to determine whether Illinois or Louisiana law governs...