Groseth Intern., Inc. v. Tenneco, Inc.

Decision Date02 November 1987
Docket NumberNos. 15329,15330,s. 15329
Citation410 N.W.2d 159
PartiesGROSETH INTERNATIONAL, INC., and Clifford Groseth, Plaintiffs and Appellants. v. TENNECO, INC., and J.I. Case Company, Defendants and Appellees. GROSETH INTERNATIONAL, INC., and Clifford Groseth, Plaintiffs and Appellants, v. INTERNATIONAL HARVESTER CO., Defendant and Appellee.
CourtSouth Dakota Supreme Court

Steven M. Johnson and Celia Miner of Brady, Kabeiseman, Reade & Johnson, Yankton, for plaintiffs and appellants.

Joan F. Kessler and James L. Huston of Foley & Lardner Milwaukee, and John Simko of Woods, Fuller, Shultz & Smith, P.C. Sioux Falls, for defendants and appellees.

SABERS, Justice (on reassignment).

Groseth International, Inc. and Clifford Groseth appeal from summary judgments in favor of International Harvester Company, in one action, and J.I. Case Company and Tenneco, Inc., in the second action. The cases are consolidated on appeal pursuant to SDCL 15 26A 3. We affirm in part, reverse in part, and remand.


Tenneco Inc. (Tenneco) is the parent company of J.I. Case Company (Case), an equipment manufacturing corporation. Until 1985, International Harvester Company (IHC) manufactured farm equipment, construction equipment, and trucks. Groseth International, Inc. (Groseth) is a closely held corporation located in Yankton, South Dakota. Until 1985, Clifford Groseth was a franchised dealer of IHC farm equipment.

As a result of economic depression in the agricultural economy and farm equipment operating losses, IHC's financial condition deteriorated. IHC began to search for potential buyers of its farm equipment division in 1982.

In 1984, IHC negotiated a purchase agreement with Case/Tenneco structured as a purchase and sale of assets. The acquisition covered selected assets and liabilities from IHC's North American group. The base purchase price was $246,700,000 cash. Although Case was the acquiring corporation, IHC received $161,300,000 of participating preferred stock of Tenneco. IHC became Navistar International. While Navistar could no longer manufacture farm equipment, it could continue to market trucks under the name "International." Case's farm equipment line became "Case-International."

The IHC dealer network was of particular interest to Case/Tenneco since it offered a chance to immediately command an existing market. However, Case/Tenneco did not "acquire" the franchise network. Instead, it received "access" to IHC dealers, many of whom eventually received a Case franchise. In 400 "conflict areas," areas in which both Case and IHC dealerships were located, Case offered only one franchise contract. In nearly two-thirds of the conflict areas the IHC dealer received the franchise. In this case, however, the Case Implement dealer in Yankton, Mark's Machinery, was chosen over the IHC dealer, Groseth.



Groseth was a family-owned corporation which employed fifteen people. Pursuant to the franchise agreement with IHC, Groseth's employees attended service and sales schools, training sessions, sales meetings, and other requirements of the franchise agreement. Groseth abided by the terms and conditions of the franchise agreement.

In December 1984, Groseth was called to a meeting in Dallas, Texas, and notified by Case/Tenneco that Case would be acquiring IHC. Speakers at the meeting stated that cities where Case and IHC dealers existed were "conflict cities" and one dealership would be terminated. Case requested information concerning Groseth's business on December 14, 1984, and Groseth responded. However, the decision to close Groseth's business had already been made by Case on December 6, 1984.

Despite Case/Tenneco's assertion that there would be a "painstaking evaluation" of dealers in conflict cities, none of their representatives contacted Groseth to view his business operation, inspect the business premises, evaluate the financial aspects of his business, or perform any investigation whatsoever concerning the nature of his business as an IHC franchisee. Termination decisions were not based on any market analysis or study.

Without warning or explanation, Case/Tenneco representatives came to Groseth's business on January 3, 1985, and informed Groseth that he was not to be awarded a franchise agreement and that his current dealer agreement with IHC was terminated. Contrary to the direct language of the IHC agreement, he was not given six months notice of his termination nor any opportunity to rectify any claim of breach of the agreement. He was denied information as to why his franchise was terminated.

Groseth was not allowed to have anyone else in the room with him when the Case/Tenneco personnel were present. They attempted to get Groseth to sign a termination agreement, which by its own terms, indicated that Case/Tenneco was terminating the IHC franchise with Groseth. It also contained provisions releasing Case, Tenneco, and IHC from any liability resulting from Groseth's termination and further offered a $10,000 bonus to dealers who would sign within ten days. Groseth refused to sign the termination agreement.

On January 31, 1985, Case/Tenneco acquired the assets of IHC in relation to its agricultural division. It acquired IHC's patents, trademarks, manufacturing facilities, personnel, and the North American dealership network of IHC franchisees. The purchase agreement between the defendants required Case/Tenneco to undertake negotiations with IHC dealers resulting in their termination. This was done, according to IHC officials, so that IHC franchisees would not attempt to require IHC to buy back their equipment and parts pursuant to the franchise laws of various jurisdictions and the IHC franchise agreement.

According to the chief executive officer of IHC, Mr. Lennox, all responsibilities concerning the IHC franchisees were turned over to and assumed by Case/Tenneco pursuant to the purchase agreement between those entities. From the time of consummation of the purchase agreement between those entities, Case/Tenneco undertook termination of hundreds of IHC franchisees throughout the United States, including Groseth in South Dakota. Case/Tenneco formed a group within its organization called the "transition task force." This group was composed mainly of Case/Tenneco officials who were internally referred to as a "swat team." They met with a clinical psychologist, hired by Case/Tenneco, in order to more effectively deal with franchisees they were to terminate. This group was to obtain franchisee signatures on termination agreements which would have released Case/Tenneco from statutory obligations such as those found under South Dakota's franchise law.

According to the IHC franchise agreement in effect at the time of Groseth's termination, specifically Section 25(c), Groseth was required to be given an opportunity to cure any supposed breach of his franchise agreement. He was also entitled to notice, of not less than six calendar months, of his termination period. None of the defendants complied with these provisions. Defendants made no study of South Dakota franchise laws. However, Case/Tenneco dealt differently with IHC dealers in other states. For example, in Wisconsin, a dealer received a termination letter from J.I. Case providing both notice and an opportunity to cure the alleged deficiency in market penetration.

Following termination of Groseth's franchise without compliance with the franchise agreement or South Dakota law, Groseth was unable to continue his operation as an IHC farm equipment dealer. His business is presently open, but engaged only in repair and service of farm equipment and the sale of trucks. He is no longer allowed to sell IHC farm equipment, parts, or service IHC goods under warranty. He effectively has been removed from the farm equipment business.

IHC claims it took no action to "terminate" Groseth. IHC merely "voluntarily withdrew" from the agricultural equipment market after selling its agricultural equipment division to Case/Tenneco for nearly a half billion dollars.

Groseth's Claims

Groseth claims that either IHC, or Case/Tenneco, or both, are liable for damages associated with losing the franchise and that the trial court erred in awarding summary judgment in both cases.

Summary Judgment

Two questions must be asked in analyzing whether summary judgment is proper. First, are there "genuine issues as to any material fact?" SDCL 15 6 56(c). Second, is the moving party "entitled to a judgment as a matter of law?" Id. The moving party has the burden of proof. Hamaker v. Kenwel-Jackson Machine, Inc., 387 N.W.2d 515 (S.D.1986). The evidence must be viewed most favorably to the nonmoving party and reasonable doubts should be resolved against the moving party. Wilson v. Great Northern Ry. Co., 83 S.D. 207, 157 N.W.2d 19 (1968); Trapp v. Madera Pacific, Inc., 390 N.W.2d 558 (S.D.1986). Thus, summary judgment is appropriate to dispose of legal, not factual questions. Hamaker, supra.



Groseth argues that the trial court erred in granting summary judgment to IHC on Groseth's claim of breach of franchise agreement.

According to the terms of the franchise agreement IHC could unilaterally terminate the agreement only after written notice of termination. Such notice could not be issued at all unless: (a) the dealer, having breached certain duties and obligations, was given an opportunity to cure those defects, or (b) if in IHC's judgment, the dealer's trade area no longer offered a sufficient market for IHC goods. Furthermore, termination could not become effective until after six months from the date of such notice.

Section 2 of the franchise agreement further provided:

The agreement shall cover all those items of agricultural...

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