Modern Computer Systems, Inc. v. Modern Banking Systems, Inc.

• Decision Date: 17 November 1988
• Docket Number: No. 88-1393,88-1393
• Citation: 858 F.2d 1339
• Parties: MODERN COMPUTER SYSTEMS, INC., Appellant, v. MODERN BANKING SYSTEMS, INC.; Modern Banking Systems of Southern Wisconsin, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1339

858 F.2d 1339

MODERN COMPUTER SYSTEMS, INC., Appellant, v. MODERN BANKING SYSTEMS, INC.; Modern Banking Systems of Southern Wisconsin, Appellees.

No. 88-1393.

United States Court of Appeals Eighth Circuit.

Submitted June 17, 1988.

Decided Oct. 14, 1988.

Rehearing En Banc Granted and Opinion Vacated Nov. 17, 1988.

Jeffrey J. Keyes, Minneapolis, Minn., for appellant.

James P. Fitzgerald, Omaha, Neb., for appellees.

Before HEANEY and MAGILL, Circuit Judges, and LARSON, ^* Senior District Judge.

LARSON, Senior District Judge.

Plaintiff Modern Computer Systems, Inc., appeals from the district court's decision denying its motion for a preliminary injunction. Claiming violations of the Minnesota Franchise Act, Modern Computer sought to enjoin defendant Modern Banking Systems, Inc., from terminating it as a distributor and from selling or marketing Modern Banking's computer software in plaintiff's exclusive territory. The district court held the Minnesota Franchise Act did not apply because the distributorship agreement between the parties contained a choice of law provision which stated that Nebraska law should govern any disputes between them. Based in part upon its determination that the Franchise Act did not apply, the court concluded that Modern Computer had failed to show the irreparable injury necessary to justify injunctive relief.

We reverse. We find the Minnesota Franchise Act should be applied under the circumstances of this case and that Modern Computer has shown a likelihood of success on the merits of its claims under the Act. Because injunctive relief is the only remedy available for violations of the Minnesota law, plaintiff's remedy will largely be meaningless if preliminary relief is denied. Accordingly, we find plaintiff has shown the requisite injury to support the issuance of a preliminary injunction, and we remand to the district court for further proceedings consistent with this opinion.

I.

Plaintiff Modern Computer Systems, Inc., entered into a distributorship agreement with defendant Modern Banking Systems, Inc., in October, 1980. At the time, plaintiff was a two-person start-up company. The agreement was a form contract presented by Modern Banking, the substantive terms of which were non-negotiable. The agreement gave plaintiff the right to distribute Modern Banking's turn-key data processing computer systems, which included both hardware purchased from Texas Instruments and software developed by Modern Banking for use by commercial banks. ¹

From 1981 through 1987, plaintiff purchased $3,614,739.41 worth of hardware and software from defendant, and built up a customer base of 86 financial institutions. Plaintiff currently employs 25 people in Minnesota and has been endorsed by the Independent Bankers Association of Minnesota. Approximately 72.5% of plaintiff's business arises from the sale and maintenance of Modern Banking's software packages, the sale and maintenance of computer hardware, and the sale of supplies to banking customers utilizing Modern Banking's system.

Plaintiff began distributing Modern Banking's systems in the state of Minnesota, and was required to sell at least five computer systems, with application software, during each year. The distributorship agreement gave plaintiff the right of first refusal for the open territories adjoining Minnesota as well, and in 1981 and 1982 the states of North and South Dakota were included within plaintiff's territory. ²

Plaintiff also sought to take over the Wisconsin territory when it became available in 1983, but defendant took the position that plaintiff's right of first refusal did not extend to Wisconsin, since Wisconsin was not "open" at the time the distributor agreement was signed. Plaintiff sought again to enter Wisconsin in 1986, through an assignment of rights under a settlement agreement between defendant and its Wisconsin distributor. Defendant again blocked this move, threatening to sue and to enter Minnesota to compete directly with plaintiff if plaintiff attempted to service any Wisconsin customers.

In 1986, defendant sought to convert its distributors to licensees, and all distributors except plaintiff agreed to enter into a new license agreement. Since this time, defendant has revised its pricing, and has charged plaintiff, as a distributor, more for copyrighted software than it charges its licensees.

II.

On August 4, 1987, plaintiff filed suit in Minnesota state court seeking a declaration of rights under the distributorship agreement, including specifically (1) whether plaintiff could service existing Wisconsin bank customers, (2) whether defendant could require plaintiff to purchase Texas Instruments hardware from defendant, (3) whether defendant could tie the sale of hardware to the sale of software, and (4) whether defendant could charge its distributors more than its licensees.

On October 19, 1987, the Minnesota court exercised its discretion to dismiss the suit, holding the parties had agreed that venue for any disputes between them would lie exclusively in Douglas County, Nebraska. That same month, defendant filed suit against plaintiff in Nebraska state court, alleging Modern Computer had breached the distributorship agreement by installing Modern Banking's software without paying, by failing to complete the proper paperwork, and by installing hardware not purchased from Modern Banking. ³

In November, Modern Banking twice refused to accept plaintiff's $1,000 check for renewal of its distributorship, and in early December, it returned an order from plaintiff, stating flatly that Modern Computer was no longer a Modern Banking distributor.

Modern Computer then filed the present action in the United States District Court for the District of Nebraska, alleging interference with prospective contractual relations, defamation, breach of contract, promissory estoppel, antitrust violations, unfair competition, and violations of the Minnesota Franchise Act and the Wisconsin Fair Dealership law. Plaintiff sought a preliminary injunction, and evidence in the form of affidavits was submitted by both parties. The district court denied plaintiff's request for preservation of the status quo until the merits of the parties' claims could be fully litigated, and this appeal followed.

III.

Whether a preliminary injunction should issue involves consideration of (1) the threat of irreparable harm to the movant, (2) the state of the balance between this harm and the injury that granting the injunction will inflict on the other parties litigant, (3) the probability the movant will succeed on the merits, and (4) the public interest. Dataphase Systems, Inc. v. C.L. Systems, Inc., 640 F.2d 109, 114 (8th Cir.1981). No single factor is dispositive; in each case all factors must be considered to determine whether on balance they weigh towards granting the injunction. Id. at 113.

Plaintiff bears the burden of proving that a preliminary injunction should be granted, Gelco Corp. v. Coniston Partners, 811 F.2d 414, 418 (8th Cir.1987), and we may reverse the district court's denial of relief only if the court abused its discretion or based its decision on an erroneous legal premise. Calvin Klein Cosmetics Corp. v. Lenox Laboratories, Inc., 815 F.2d 500, 503 (8th Cir.1987); West Publishing Co. v. Mead Data Central, Inc., 799 F.2d 1219, 1222-23 (8th Cir.1986), cert. denied, 479 U.S. 1070, 107 S.Ct. 962, 93 L.Ed.2d 1010 (1987); Randall v. Wyrick, 642 F.2d 304, 308 (8th Cir.1981).

The district court in this case based its denial of preliminary relief primarily on plaintiff's failure to show irreparable harm. Plaintiff challenges the court's conclusion, arguing that the protections it is entitled to as a Minnesota franchise under the Minnesota Franchise Act are rendered meaningless and its legal remedy rendered inadequate by the court's denial of preliminary relief. The district court held the Minnesota Act inapplicable, and hence did not consider its impact in deciding plaintiff's motion.

While the propriety of granting injunctive relief is a question of federal law, the right plaintiff claims is state-created. We must, therefore, first address the district court's conclusion that Nebraska, rather than Minnesota, law controls the substantive issues in the case. See System Operations, Inc. v. Scientific Games Development Corp., 555 F.2d 1131, 1141 (3d Cir.1977).

In deciding conflict of laws questions such as this, a federal district court sitting in Nebraska must follow Nebraska's conflict of laws rules. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 477 (1941); Birdsell v. Holiday Inns, 852 F.2d 1078, 1079 (8th Cir.1988). The district court determined that Nebraska follows the Restatement (Second) of Conflict of Laws, and noted that Nebraska had honored choice of law provisions in past cases. See Shull v. Dain, Kalman & Quail, Inc., 201 Neb. 260, 267 N.W.2d 517, 520 (1978); Exchange Bank & Trust Co. v. Tamerius, 200 Neb. 807, 265 N.W.2d 847, 850 (1978).

The choice of law provision in the distributorship agreement signed by the plaintiff states: "this Agreement shall be governed by the laws of the State of Nebraska." Section 187 of the Restatement provides that the law of the state chosen by the parties will be applied unless to do so "would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of Sec. 188, ⁴ would be the state of the applicable law in the absence of an effective choice of law by the parties." Restatement (Second) of Conflict of Laws Sec. 187(2)(b) (1971). Comment g reflects the rationale of this rule: "Fulfillment of the parties' expectations is not the only value in contract law; regard must also be had for state interests and for state regulation."

Both Nebraska and Minnesota have an interest in the construction and...