Equipment Mfrs. Institute v. Janklow, CIV 99-4161.
| Decision Date | 30 March 2001 |
| Docket Number | No. CIV 99-4161.,CIV 99-4161. |
| Citation | 136 F.Supp.2d 991 |
| Court | U.S. District Court — District of South Dakota |
| Parties | EQUIPMENT MANUFACTURERS INSTITUTE, Agco Corporation, Case Corporation, Deere & Company, and New Holland North America, Inc., Plaintiffs, v. William J. JANKLOW, Governor of the State of South Dakota, in his Official Capacity, and Mark Barnett, Attorney General of the State of South Dakota, in his Official Capacity, Defendants, and Farm Equipment Association of Minnesota and South Dakota, Intervenor-Defendant. |
David A. Gerdes, Michael F. Shaw, May, Adam, Gerdes & Thompson, Pierre, SD, David M. Kroeger, Margaret J. Simpson, Jenner & Block, Chicago, IL, for Plaintiffs.
Jeffrey P. Hallem, Attorney General's Office, Pierre, SD, for Defendants William J. Janklow Mark W. Barnett.
John E. Burke, Sioux Falls, SD, Michael P. Healy, Kansas City, MO, for Amicus Diesel Machinery, Inc.
J. Michael Dady, W. Michael Garner, Cheryl A. Stanton, Dady & Garner, Minneapolis, MN, for Intervenor Defendant Farm Equipment Association of Minnesota and South Dakota.
This declaratory judgment action concerns the constitutionality of a South Dakota law governing contracts between farm machinery manufacturers and their in-state dealers. The parties have filed cross-motions for summary judgment. For the reasons stated below, each motion for summary judgment is granted in part and denied in part.
Plaintiffs represent the interests of various farm machinery manufacturers. Plaintiff Equipment Manufacturers Institute (EMI) is a Chicago-based trade association representing 141 companies which manufacture equipment, including agricultural equipment. Plaintiffs AGCO, Case Corporation (Case), Deere & Company (Deere) and New Holland North America, Inc. (New Holland) are all members of EMI, and all manufacture farm machinery. Another member of EMI, Gehl Corporation (Gehl), also manufactures farm machinery.1 AGCO, Case, Deere, New Holland, and Gehl each uses a system of independent dealers to distribute and sell its farm equipment. The originally-named defendants are the Governor and Attorney General of the State of South Dakota. Since the commencement of the lawsuit, the Farm Association of Minnesota and South Dakota, an organization which represents the interests of South Dakota farm machinery dealers, has intervened as a defendant.
South Dakota law has long governed the relationships between farm machinery manufacturers and farm machinery dealers. Since 1951, it has been unlawful in the State of South Dakota for a manufacturer "to coerce or attempt to coerce" a dealer in "farm tractors" or "farm implements" to purchase or accept delivery of motor vehicles, parts or other commodities which the dealer has not ordered. SDCL 37-5-1, 1951 S.D. Laws Ch. 262, § 1. Since the same date, it has been unlawful for a manufacturer "to coerce or attempt to coerce" such a dealer "to enter into any agreement" with the manufacturer, "to assign, sell, or dispose of any contract or property in any way," "to expend any money," or "to do any other act unfair to such dealer." SDCL 37-5-2, 1951 S.D. Laws Ch. 262, § 1. State law has also forbidden manufacturers from accomplishing the same results by threatening to terminate a dealer's franchise or agency agreement, or "by any other unfair means or by duress of any kind." SDCL 37-5-1, 37-5-2. Similarly, it has been unlawful for a manufacturer to cancel the franchise of a dealer "without due regard for the equities of the dealer and without just provocation." SDCL 37-5-3, 1951 S.D. Laws Ch. 262, § 1.
In 1999, the South Dakota State Legislature passed, and the Governor signed, additional legislation on dealership agreements (the Dealership Act). The Dealership Act, which is the subject of this action, also limits the ability of manufacturers to terminate or discontinue their contractual relationships with dealers. It provides:
The following circumstances are not cause for the termination or discontinuance of a dealership contract, nor for entering into a dealership contract for the establishment of an additional dealership in a community for the same line-make:
(1) The change of executive management or ownership of the dealer, unless the manufacturer can show that the change would be detrimental to the representation or reputation of the manufacturer's product;
(2) Refusal by the dealer to purchase or accept delivery of any machinery, parts, accessories, or any other commodity or service not ordered by the dealer, unless such machinery, parts, accessories, or other commodity or service is necessary for the operation of machinery commonly sold in the dealer's area of responsibility;
(3) The sole fact that the manufacturer desires further penetration of the market;
(4) The fact that the dealer owns, has an investment in, participates in the management of, or holds a dealership contract for the sale of another line-make of machinery, or that the dealer has established another line-make of machinery in the same dealership facilities as those of the manufacturer, if the dealer maintains a reasonable line of credit for each line-make of machinery; or
(5) Refusal by the dealer to participate in any national advertising campaign or contest or purchase any promotional materials, display devices, or display decoration or materials which are at the expense of the dealer.
SDCL 37-5-14, 1999 S.D. Laws Ch. 200. The Dealership Act became effective on July 1, 1999.
The dealership contracts used by the plaintiff manufacturers govern several types of conduct now regulated by the Dealership Act:
(1) All of the dealership contracts submitted to the Court give the manufacturer the option to terminate the contract in the event of a change of ownership or management of the dealer.
(2) The dealership contracts generally require dealers to stock replacement parts and other inventory in proportion to "sales possibilities" or "anticipated demand" for the dealer's area.
(3) The dealership contracts all require the dealer to achieve a certain, unspecified, level of market penetration, usually to the satisfaction of the manufacturer. The dealership contracts also allow manufacturers either to enlarge or reduce the dealer's market area, or to establish additional dealers in the dealer's area.
(4) Two of the dealership contracts — those of AGCO and Deere — give manufacturers the right to control the dealer's display and stocking of competing products. In some instances, a Deere dealer must make "such separation of the personnel, facilities, capital and other resources devoted to the [other product line] as is satisfactory" to Deere.
(5) The dealership contracts used by AGCO and New Holland require dealers to conduct advertising and promotional campaigns with the manufacturer's programs or materials.
Plaintiffs claim that these provisions lie at the heart of the relationships between manufacturers and dealers.
In addition to the provisions listed above, the Dealership Act also prohibits certain types of clauses in dealership contracts. Under section 3 of the Dealership Act,
No manufacturer may require a dealer to agree to the inclusion of a term or condition in a dealership contract, or in any lease or agreement ancillary or collateral to a dealership contract, as a condition to the offer, grant, or renewal of such dealership contract, lease, or agreement, that:
* * * * * *
(2) Requires that disputes between the manufacturer and dealer be submitted to arbitration or to any other binding alternate dispute resolution procedure. However, any dealership contract, lease or agreement may authorize the submission of a dispute to arbitration or to binding alternate dispute resolution if the manufacturer and dealer voluntarily agree to submit the dispute to arbitration or binding alternate dispute resolution at the time the dispute arises; or
(3) Requires a dealer to pay the attorney fees of a manufacturer. SDCL 37-5-15(2). At least one of the dealership contracts submitted to the Court contains such provisions.
In their Complaint, Plaintiffs seek a declaration that the Dealership Act and its specific provisions are void. Plaintiffs argue that the law: (1) violates the Contract Clauses of the United States Constitution and the South Dakota Constitution; (2) is pre-empted by the Federal Arbitration Act, 9 U.S.C. § 2; (3) is void for vagueness under the Due Process Clause of the Fourteenth Amendment to the United States Constitution and Article VI, § 2 of the South Dakota Constitution; and (4) violates the requirement of substantive due process contained in the Fourteenth Amendment to the United States Constitution and Article VI, § 2 of the South Dakota Constitution. Defendants argue that all of the provisions of the Dealership Act are valid and enforceable.
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper when the evidence, viewed in the light most favorable to the non-moving party, demonstrates that there is no genuine issue of material fact, and that the moving party is entitled to judgment as a matter of law. Robinson v. Valmont Industries, 238 F.3d 1045, 1047 (8th Cir. 2001). For any issue on which the moving party will have the burden of proof at trial, that party "bears the burden of proof in addition to the burden of demonstrating that no genuine issues of material fact exist." Exxon Corp. v. Phillips Petroleum, 81 F.Supp.2d 746, 750 (S.D.Tex.1999).
Although the federal Contract Clause provides, in rather draconian terms, that "[n]o State shall ... pass any ... Law impairing the Obligation of Contracts," U.S. Const. art. I, § 10, it has long been interpreted to give States some flexibility to regulate existing contracts. See Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 240, 98 S.Ct. 2716, 2720, 57 L.Ed.2d 727 (1978). The South Dakota Constitution...
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...See Kolosso , 148 F.3d at 895.To argue that the 2017 amendment is a substantial impairment, defendant relies on Equip. Mfrs. Inst. v. Janklow , 136 F. Supp. 2d 991 (D.S.D. 2001). In Janklow , South Dakota revised its law governing the relationship between farm machinery manufacturers and de......
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