Devery Implement Co. v. J.I. Case Co.

• Citation: 944 F.2d 724
• Decision Date: 10 September 1991
• Docket Number: Nos. 90-6140,90-6155,s. 90-6140
• Parties: DEVERY IMPLEMENT COMPANY, an Oklahoma general partnership, Plaintiff-Appellant and Cross-Appellee, v. J.I. CASE COMPANY, a Delaware corporation, Steiger Tractor, Inc., a Delaware corporation, Defendants-Appellees and Cross-Appellants, Tenneco Inc., a Delaware corporation, Defendant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 724

944 F.2d 724

DEVERY IMPLEMENT COMPANY, an Oklahoma general partnership, Plaintiff-Appellant and Cross-Appellee, v. J.I. CASE COMPANY, a Delaware corporation, Steiger Tractor, Inc., a Delaware corporation, Defendants-Appellees and Cross-Appellants, Tenneco Inc., a Delaware corporation, Defendant.

Nos. 90-6140, 90-6155.

United States Court of Appeals, Tenth Circuit.

Sept. 10, 1991.

Richard C. Ford (Larry E. Joplin, Mark S. Grossman, with him, on the brief), Crowe & Dunlevy, Oklahoma City, Okl., for plaintiff-appellant and cross-appellee.

Brian W. McGrath (Robert A. DuPuy, Foley & Lardner, Milwaukee, Wis., Joseph H. Bocock, M. Richard Mullins, McAfee & Taft, Oklahoma City, Okl., with him, on the brief), for defendants-appellees and cross-appellants.

Before LOGAN, BALDOCK and BRIGHT, ^* Circuit Judges.

BALDOCK, Circuit Judge.

This case arises from the circumstances surrounding the termination of plaintiff-appellant Devery Implement Company (Devery), an Oklahoma general partnership, as a dealer of defendant-appellee Steiger Tractor, Inc. (Steiger). Steiger is a farm equipment manufacturer headquartered in North Dakota. The termination occurred in 1988, following defendant Tenneco Inc.'s (Tenneco) acquisition of Steiger. Tenneco subsequently assigned Steiger to another of its subsidiary corporations, defendant-appellant J.I. Case Company (Case). Devery brought this diversity action claiming that the termination was a breach of fiduciary duty and a breach of the implied covenant of good faith and fair dealing arising from its dealer agreement with Steiger. After pretrial motions, only the claims for breach of fiduciary duty against Case and Steiger survived. ¹ The jury found in favor of Devery on these claims, and the court entered judgment for damages equalling the jury's finding of one year of lost profits plus punitive damages.

Devery appeals, contending that the district court erred in (1) limiting the lost profits damages calculation to one year and (2) granting summary judgment in favor of the defendants on the claim for breach of implied covenant of good faith and fair dealing. Defendants cross-appeal, contending that (1) they had no fiduciary duty to Devery or, in the alternative, (2) they did not breach their fiduciary, and (3) the jury's damage verdict was based on inadmissable evidence, (4) the award of punitive damages was inappropriate and (5) the judgment violated the contracts clause of the federal constitution. Under the circumstances of this case, neither of Devery's theories of liability is tenable. We therefore must reverse the judgment.

I. Background

Devery became a Steiger tractor dealer in 1974 and continued as such until the dealership agreement was terminated in 1988. Although Devery sold many Steiger tractors throughout the relationship, Steiger tractors were never Devery's primary product line. XIII R.S. 258. In fact, Devery did not sell any Steiger tractors between 1986 and 1988 when the dealership was terminated. XIII R.S. 275. Therein lay the controversy between Devery and the defendants. When Case began operating Steiger after the 1986 Tenneco acquisition, it implemented a $50,000 minimum annual whole goods (tractors as opposed to parts and services) sales requirement to cover its dealer support costs. This was permissible pursuant to the express language of the dealership agreement between Steiger and Devery, ² but Steiger had not previously implemented such requirements. R.V. II at 207.

If Devery had sold a single tractor in 1987, it would have met the $50,000 minimum. Instead, it sold only parts and services. As a result, Case gave Devery ninety days notice that its dealership would be terminated for lack of sales, this, in spite of the contract's provision for termination at will. During the notice period, Case approached Devery with an offer of a full-line Case dealership to replace the soon-to-be-terminated Steiger dealership. Devery in turn requested a one-year extension of the Steiger dealership for the stated purpose of allowing time to consider the details of the full-line Case dealership offer. Case rejected the one-year extension, Devery did not accept the full-line Case dealership offer, and the Steiger dealership agreement terminated at the end of the ninety-day notice period.

In support of its theories of breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing, Devery claimed that Case (1) denied customary marketing support, (2) arbitrarily and unreasonably imposed the mandatory minimum sales requirement and (3) unreasonably refused to extend the Steiger dealership until the details of the full-line Case dealership offer could be considered. Upon defendants' motion for summary judgment, the district court held that the termination was proper pursuant to the dealership agreement termination-at-will clause as interpreted under Oklahoma law. The court therefore granted summary judgment in favor of defendants on claim (3) above to the extent that it pertained to the breach of implied covenant of good and fair dealing theory. Devery later abandoned claims (1) and (2) under the good faith and fair dealing theory of liability because it could not prove damages through the date of the termination. This left only the breach of fiduciary duty theory. The district court, ruling that material factual issues remained unresolved, allowed all of the claims to proceed to trial under the breach of fiduciary duty theory. At trial the jury found that a fiduciary relationship existed between Devery and defendants and that defendants breached their fiduciary duty. Subsequently, the district court denied defendants' motion for judgment notwithstanding the verdict (JNOV) or in the alternative new trial and entered judgment for damages equalling the jury's finding of lost profits for one year.

For the sake of clarity, we will not address the issues in the order presented by the parties in their respective appeals and cross-appeals. Instead, we will consider first the district court's summary judgment with respect to the bad faith claim and then the district court's denial of defendants' requested JNOV on the fiduciary duty claim.

II. Implied Covenant of Good Faith and Fair Dealing

We review the summary judgment determination de novo, applying the same standard as the district court. Osgood v. State Farm Mut. Auto. Ins. Co., 848 F.2d 141, 143 (10th Cir.1988). Summary judgment is appropriate if "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). If the nonmoving party bears the burden at trial, the moving party need only point to those portions of the record which demonstrate an absence of a genuine issue of material fact as to the nonmovant's case. Celotex Corp. v. Catrett, 477 U.S. 317, 322-323, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). The nonmoving party must then "set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 2514, 91 L.Ed.2d 202 (1986). If the nonmoving party fails in this endeavor, and the moving party is entitled to judgment as a matter of law given the operative facts summary judgment will lie. Id. at 256-57, 106 S.Ct. at 2514-15. See also Matsushita Elec. Indust. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). In exercising de novo review we afford no deference to the district court's interpretation of state law. Salve Regina College v. Russell, --- U.S. ----, 111 S.Ct. 1217, 1224, 113 L.Ed.2d 190 (1991).

A diversity court must apply the substantive law of the forum state, including its choice of law provisions. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941); Equifax Services, Inc. v. Hitz, 905 F.2d 1355, 1360 (10th Cir.1990); Moore v. Subaru of America, 891 F.2d 1445, 1448 (10th Cir.1989). Devery contends that the Oklahoma forum choice of law provision governing contract disputes requires the application of North Dakota law to the bad faith claim, not Oklahoma law as applied by the district court. Nevertheless, Devery argues for reversal of the summary judgment pursuant to either North Dakota or Oklahoma law. We address the choice of law issue first, for Devery's principal argument rests in the application of North Dakota law.

Devery refers us to the North Dakota Century Code § 51-07-01.1 and to the North Dakota Supreme Court's decision in Production Credit Ass'n v. Halverson, 386 N.W.2d 905 (N.D.1986), contending that the statute and case together clearly recognize a contract action for breach of the implied covenant of good faith in this situation. Because Oklahoma is the forum, the relevancy of this argument depends entirely upon Oklahoma's choice of law rule for contract disputes. Oklahoma law provides that "[a] contract is to be interpreted according to the law and usage of the place where it is to be performed, or, if it does not indicate a place of performance, according to the law of the place it was made." Okla.Stat.Ann. tit. 15, § 162 (West 1984). See also Bohannan v. Allstate Ins. Co., No. 72262, slip op., at ---- (Okla. July 2, 1991),(noting in dictum that § 162 "remain[s] a part of our law in ordinary contract cases").

The dispute in this case centers on whether "the place of performance is indicated in the contract." Rhody v. State Farm Mut. Ins. Co., 771 F.2d 1416, 1420 (10th Cir.1985) (emphasis in original). Devery contends that, for the place of performance to be "indicated" in the contract, the contract must expressly provide as such. Devery underlies this argument with the observation that this bilateral contract was necessarily performed both in North Dakota, defendants' principal place of business, and Oklahoma, Devery's principal place of business. In light of this ambiguity, Devery argues for the application of the law of...