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

Decision Date29 March 1989
Docket NumberNo. 88-1393,88-1393
Citation871 F.2d 734
PartiesMODERN COMPUTER SYSTEMS, INC., Appellant, v. MODERN BANKING SYSTEMS, INC.; Modern Banking Systems of Southern Wisconsin, Appellees.
CourtU.S. Court of Appeals — Eighth Circuit

Charles B. Rogers, Minneapolis, Minn., for appellant.

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

Before LAY, Chief Judge, HEANEY, * McMILLIAN, ** ARNOLD, JOHN R. GIBSON, FAGG, BOWMAN, WOLLMAN, MAGILL and BEAM, Circuit Judges, en banc.

MAGILL, Circuit Judge.

Modern Computer Systems, Inc. (MC) appeals from the district court's 1 denial of its motion for a preliminary injunction pending a ruling on the merits of its claims against Modern Banking Systems, Inc. (MB). The gravamen of MC's case is that MB may not lawfully terminate MC as its computer software distributor or market software in MC's exclusive sales territory. MC alleges, inter alia, that violations of the Minnesota Franchise Act, Minn.Stat. Ch. 80C (1986 and Supp.1987), committed by MB necessitate the requested injunctive relief.

The district court based its denial of MC's motion on two findings. First, it concluded that because of a choice of law clause in the MC-MB contract, Nebraska law (not the Minnesota Franchise Act) must govern all disputes between the parties arising from the contract. Second, the court found that MC failed to carry its burden to prove that MB's actions caused the irreparable injury integral to any request for injunctive relief.

On appeal, a panel of this court, in a 2-1 decision, reversed the district court's judgment, finding that "the Minnesota Franchise Act should be applied * * * " and that "Modern Computer has shown a likelihood of success on the merits * * *." Modern Computer Systems v. Modern Banking Systems, 858 F.2d 1339 (8th Cir.1988). That decision was vacated when rehearing en banc was granted. On rehearing, the court en banc voted (8-2 decision) to affirm the judgment of the district court. Since the district court did not err in its conclusions that the choice of law clause is enforceable and that MC failed to prove irreparable injury, MC's motion is denied.

I. BACKGROUND

On October 22, 1980, MC and MB signed a contract that gave MC exclusive rights to distribute MB's computer software in Minnesota. The distributorship agreement was a standard form contract with preset, nonnegotiable terms. The contract included a clause establishing that if the agreement engendered litigation between the parties, the laws of Nebraska (MB's place of business) would govern.

The contract authorized MC to distribute computer systems created by MB. The hardware in the systems came from the Texas Instruments Corporation. The accompanying software was designed and developed by MB. Although it could have purchased hardware directly from Texas Instruments, MC paid MB a premium price for it in order to obtain MB software (which facilitates use by commercial banking establishments) as well.

By 1987, MC had purchased over $3.6 million worth of computer systems from MB and amassed a client list of eighty-six financial institutions in the region in which it distributed MB systems. MC grew from a two-man "start up" operation to a thriving company with twenty-five employees. However, to a substantial degree, it remained financially dependent on its continuing relationship with MB; over seventy percent of MC's business was in some respects related to the sale and maintenance of MB systems and the sale of supplies required by MB systems purchasers.

As MC expanded, it installed computer systems in more than 400 institutions throughout the United States. All of its commerce outside of Minnesota and North Dakota was entirely unrelated to MB and its products. MC's distribution zone for MB products grew from Minnesota alone to a region comprising Minnesota, North Dakota and, for two years, South Dakota. In 1983, MC sought to expand into Wisconsin, but MB prevented it from doing so by threatening to enter the Minnesota market as a direct competitor if MC's expansion plans persisted.

In 1986, MB decided to convert its distributors into licensees. With the exception of MC, all of the erstwhile distributors acceded to MB's demand for a new licensor-licensee arrangement. Because MC refused to alter its contract, MB began to charge MC, as a distributor, more for its software than it charged licensees.

Alarmed by the way its relationship with MB had deteriorated, MC filed suit against MB in Minnesota state court on August 4, 1987. MC requested a declaration of its rights under the distributorship agreement as they pertained to (1) whether MC could expand into the Wisconsin market; (2) whether MB could require MC to purchase its Texas Instruments hardware; (3) whether MB could require hardware/software tie-in sales; and (4) whether MB's policy of charging distributors more than licensees was lawful.

The suit was dismissed on October 20, 1987. The Minnesota district court exercised its discretionary right not to assert jurisdiction because the parties, in the distributorship agreement's forum selection clause, agreed "to exclusive venue in Douglas County, Nebraska in any litigation between them concerning this contract." Modern Computer Systems v. Modern Banking Systems, No. 104618, slip op., Dakota County, Minnesota, October 20, 1987 (unpublished memorandum opinion). 2

The court supported its decision to enforce the forum selection clause with Minnesota Supreme Court precedent:

"[W]hen the parties to a contract agree that actions arising from that contract will be brought in a particular forum, that agreement should be given effect unless it is shown by the party seeking to avoid the agreement that to do so would be unfair or unreasonable." Minnesota law, therefore, favors the enforcement of forum selection clauses.

Id. (quoting Hauenstein & Bermeister, Inc. v. MET-FAB Industries, Inc., 320 N.W.2d 886 (Minn.1982)).

In addition to emphasizing that Minnesota law favors the enforcement of clearly worded and otherwise not unreasonable forum selection clauses, the Minnesota district court obliquely raised another rationale for denying MC's motion: MB's actions caused no irreparable harm to MC. The court reasoned that "[t]here is no evidence * * * that [MC] could not have acquired computer software suitable for banking from any other source. Plaintiff himself states he can purchase the computer hardware directly." Modern Computer Systems v. Modern Banking Systems, No. 104618, slip op., Dakota County, Minnesota, October 20, 1987 (unpublished memorandum opinion).

After the dismissal of MC's state claim, MB commenced a breach of contract action against MC in Nebraska state court. 3 The litigation continued to flourish, as MC filed the instant action in the United States District Court for the District of Nebraska. MC's new suit contained a multitude of allegations, charging MB with 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. MC sought a preliminary injunction forbidding the termination of the MC-MB distributorship agreement and MC-MB competition in Minnesota pending ruling on the merits of MC's claims.

The district court, emphasizing the absence of irreparable injury, also denied MC's motion for a preliminary injunction. 4 Ultimately, the court concluded that MC would not be pushed to the brink of extinction (with irreparably damaged goodwill and reputation) absent injunctive relief. On the contrary, the court concluded MC could survive, perhaps nearly financially intact, by pursuing other avenues of business, viz., maintenance service and emphasis on clients outside Minnesota and North Dakota. The district court also analyzed the distributorship agreement's choice of law clause, concluding that the parties' selection of Nebraska law to govern disputes arising out of the agreement was enforceable since it was reasonable, agreed upon mutually in clear language, and not contrary to the laws or fundamental policies of Minnesota. Accordingly, the court denied MC's request for injunctive relief.

II. DISCUSSION

We agree with the district court's conclusions concerning both of this case's salient issues. Our review of the record convinces us that MC failed to establish the irreparable injury required to necessitate injunctive relief. Moreover, we agree that no fundamental public policy of Minnesota overrides the choice of law provision agreed upon by the parties in the distributorship agreement.

A. No Irreparable Injury

The burden of proving that a preliminary injunction 5 should be issued rests entirely with the movant. See Gelco Corp. v. Coniston Partners, 811 F.2d 414, 418 (8th Cir.1987); Jensen v. Dole, 677 F.2d 678, 680 (8th Cir.1982). Unless the district court's denial of injunctive relief is the product of an abuse of discretion or misplaced reliance on an erroneous legal premise, we may not reverse on appeal. See, e.g., Calvin Klein Cosmetics Corp. v. Lenox Laboratories, Inc., 815 F.2d 500, 503 (8th Cir.1987); Randall v. Wyrick, 642 F.2d 304, 308 (8th Cir.1981).

In 1981, this court convened en banc to "clarify the standard to be applied by the district courts in this circuit in considering requests for preliminary injunctive relief." Dataphase Systems, Inc. v. CL Systems, Inc., 640 F.2d 109, 112 (1981) (en banc). The Dataphase court emphasized that when deciding whether to issue a preliminary injunction, a district court must consider four relevant factors: the threat of irreparable harm to the movant, the balance between such irreparable harm and the corresponding harm that injunctive relief would inflict on other interested parties, the movant's prospects for success on the merits, and the public interest. Id. at 113. The court then stated that "[i]n balancing the...

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