GTFM LLC v. TKN Sales Inc., 00-7490
Citation | 257 F.3d 235 |
Decision Date | 01 August 2000 |
Docket Number | No. 00-7490,00-7490 |
Parties | (2nd Cir. 2001) GTFM, LLC., Plaintiff-Appellee, v. TKN SALES, INC., Defendant-Appellant |
Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Appeal from a judgment of the United States District Court for the Southern District of New York, Barbara S. Jones, Judge, declaring that the Minnesota Sales Representative Act, Minn. Stat. §325E.37, which compels the resolution of certain state-law claims through binding arbitration, violates plaintiff's Seventh Amendment right to trial by jury, and permanently enjoining defendant from demanding arbitration under that Act.
Reversed.
STEWART D. AARON, New York, New York (Dorsey & Whitney, New York, New York, Michael Iwan, Dorsey & Whitney, Minneapolis, Minnesota, on the brief) for Plaintiff-Appellee.
D. CLAY TAYLOR, Minneapolis, Minnesota (Laurent S. Drogin, Drogin & Drogin, New York, New York, on the brief) for Defendant-Appellant.
Before: KEARSE, LEVAL, and SOTOMAYOR, Circuit Judges.
SOTOMAYOR Concurring in a separate opinion
Defendant TKN Sales, Inc. ("TKN"), appeals from a final judgment of the United States District Court for the Southern District of New York, Barbara S. Jones, Judge, (1) declaring that, as applied to plaintiff GTFM, LLC. ("GTFM"), the requirement of the Minnesota Sales Representative Act, Minn. Stat. §325E.37 (1995), that certain claims for violation of that statute be resolved only through binding arbitration denies GTFM a jury trial, in violation of the Seventh Amendment to the United States Constitution, and (2) permanently enjoining TKN from demanding arbitration of its current dispute with GTFM under the Minnesota statute. The district court ruled principally that TKN's statutory claims against GTFM were analogous to common-law claims for breach of contract and that the statute's requirement that they be submitted to binding arbitration is thus unconstitutional. TKN challenges that conclusion on appeal. For the reasons that follow, we conclude that the Minnesota statute does not violate GTFM's Seventh Amendment rights, and we reverse.
Although there is an underlying controversy between the parties, the facts material to this appeal are not in dispute. GTFM, a New York limited liability company headquartered in New York, is a manufacturer of apparel. TKN, a Minnesota corporation whose principal place of business is in Missouri, is an apparel distributor. In 1996, GTFM and TKN entered into an oral agreement for TKN to distribute one of GTFM's clothing lines to retailers in various locations, including Minnesota. TKN's compensation was to be in the form of commissions based on the quantity of goods it sold. In mid-1999, disputes arose between TKN and GTFM with respect to the terms and performance of the contract.
The Minnesota Sales Representative Act ("MSRA" or the "Act") applies to sales representative agreements, i.e., agreements by which, inter alia, a manufacturer grants a sales representative the right to offer the manufacturer's goods for sale, where there is "a community of interest between the parties in the marketing of the goods at wholesale," Minn. Stat. §325E.37, subd. 1(e). A sales representative, within the meaning of the Act, is one "who is compensated, in whole or in part, by commission," id. subd. 1(d), and who is a Minnesota resident, or whose principal place of business is in Minnesota, or whose geographic sales territory includes all or part of Minnesota, seeid. subd. 6(a). As set forth in greater detail in Part II.B. below, the Act contains provisions governing, inter alia, the termination or renewal of such agreements and the prompt payment of commissions. The Act also provides that "[t]he sole remedy for a manufacturer... who alleges a violation of any provision of this section is to submit the matter to arbitration," Minn. Stat. §325E.37, subd. 5(a), and that a sales representative has the option of either submitting a matter to arbitration or bringing suit in court, see id. The arbitrator is given the power to, inter alia, reinstate the agreement, award damages, and grant other relief for frivolous claims or defenses. See id. subd. 5(b). The arbitrator's decision, though subject to judicial confirmation, is "final and binding." Id. subd. 5(c).
In August 1999, pursuant to MSRA §325E.37, subd. 5, TKN served on GTFM a demand for arbitration ("Arbitration Demand") to be conducted by the American Arbitration Association in Minneapolis, Minnesota, and a complaint ("Arbitration Complaint"). The demand described the nature of the dispute as "[w]rongful termination of independent sales representative agreement in violation of Minn. Stat. §325E.37, Subdivision 2," and "[f]ailure to pay earned commissions in violation of Minn. Stat. §325E.37, Subdivision 4 and Minn. Stat. §181.145." (TKN Arbitration Demand dated August 24, 1999.) The Arbitration Complaint asserted the above claims for statutory violations, plus a common-law claim for breach of contract; it requested, inter alia, reinstatement of the sales representative agreement, damages in excess of $50,000 for each of TKN's three claims, and attorneys' fees. GTFM, after unsuccessfully seeking a stay of the proceedings and a transfer of the arbitration from Minneapolis to New York City, commenced the present action in the Southern District of New York.
GTFM's complaint challenged the constitutionality of MSRA on the ground that its provision for arbitration violates GTFM's right to a jury trial under the Seventh Amendment to the Constitution. GTFM premised federal jurisdiction on the existence of a federal question, to wit, MSRA's constitutionality, and on diversity of citizenship. Although GTFM's complaint contained allegations as to the merits of the underlying business dispute, its only requests for relief, other than the usual catchall phrase ("such other and further relief as to the court seems just and proper"), were for (1) a declaratory judgment that the Act as applied would violate its Seventh Amendment right to a jury trial, and (2) a permanent injunction against arbitration. GTFM moved for a preliminary injunction to halt the pending Minnesota arbitration; TKN cross-moved to dismiss GTFM's complaint. The district court, with the consent of the parties, treated GTFM's motion as one for summary judgment, and proceeded directly to the merits of GTFM's attack on the Minnesota statute.
In an Opinion & Order dated April 7, 2000 ("Opinion"), relying principally on Chauffeurs, Teamsters & Helpers Local 391 v. Terry, 494 U.S. 558, 564 (1990), and Tull v. United States, 481 U.S. 412, 417 (1987), the district court ruled that GTFM is entitled to a jury trial because most of TKN's claims, including those asserted under MSRA, seek legal, as contrasted with equitable, relief. The court began by noting that
[t]he Seventh Amendment preserves the right to a jury trial in "[s]uits at common law" in federal court. U.S. Const. amend. VII; Tull v. United States, 481 U.S. 412, 417 (1987). The right to a jury trial "is of such importance and occupies so firm a place in our history and jurisprudence that any seeming curtailment of the right to a jury trial should be scrutinized with the utmost care." Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 501 (1959) (internal quotation and citation omitted).
The Seventh Amendment right to a jury trial attaches to suits in federal court in which legal rights and remedies, as distinguished from equitable rights and remedies, are to be determined. See Chauffeurs, Teamsters & Helpers Local 391 v. Terry, 494 U.S. 558, 564 [(1990)]; Curtis v. Loether, 415 U.S. 189, 193 (1974); Daisy Group, Ltd. v. Newport News, Inc., 999 F.Supp. 548, 550 (S.D.N.Y. 1998). That is, the Seventh Amendment applies not only to common law causes of action that existed in the eighteenth century, "but also to 'actions brought to enforce statutory rights that are analogous to common-law causes of action.'" Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340, 348 (1998) (quoting Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42 (1989)); Tull, 481 U.S. at 417 (1987).
Opinion at 9-10 (footnote omitted). The court dismissed TKN's argument that the Seventh Amendment has not been incorporated into the Fourteenth Amendment and hence gives GTFM no right to avoid arbitration here, stating that
[t]his argument--true as far as it goes--misses the mark. But for the MSRA's mandatory and binding arbitration system, TKN would have had to commence its action in either state or federal court, because it is undisputed that there was no agreement among the parties to arbitrate. Had TKN commenced this action in state court, there is no dispute that GTFM would have had the right to remove the matter to federal court under 28 U.S.C. §1332. Once in federal court, GTFM would have the right to a jury trial.
The fact that the MSRA, a state law, requires arbitration does nothing to change this conclusion. The right to a jury trial in federal court is clearly a question of federal law. Simler v. Conner, 372 U.S. 221, 222 (1963); Kampa v. White Consolidated Industries, Inc., 115 F.3d 585, 587 (8th Cir. 1997). Federal law controls the issue, even in cases such as this, where the federal court would be enforcing a state-created right and "even when a state statute or state constitution would preclude a jury trial in state court." Gipson v. KAS Snacktime Co., 83 F.3d 225, 230 (8th Cir. 1996) (citing Byrd v. Blue Ridge Rural Elec. Co-op., Inc., 356 U.S. 525, 538-39 (1958)).
The district court stated that TKN's common-law claim for breach of contract was one as to which GTFM clearly has a right to a jury trial. See id. at 11. It ruled that GTFM has the right to a jury trial as well on TKN's claim under §181.145 of the Minnesota statutes for unpaid commissions and lateness penalties because that claim seeks both a traditional...
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