NA Burkitt, Inc. v. JI Case Co.

• Decision Date: 08 November 1984
• Docket Number: Civil No. 83-0094-P.
• Citation: 597 F. Supp. 1086
• Court: U.S. District Court — District of Maine
• Parties: N.A. BURKITT, INC., Plaintiff, v. J.I. CASE CO., Defendant.

597 F. Supp. 1086

N.A. BURKITT, INC., Plaintiff, v. J.I. CASE CO., Defendant.

Civil No. 83-0094-P.

United States District Court, D. Maine.

November 8, 1984.

John B. Graustein, Drummond, Woodsum, Plimpton & MacMahon, Portland, Me., for plaintiff.

David M. Hirshon, Thompson, Willard & McNaboe, Portland, Me., for defendant.

MEMORANDUM AND ORDER DENYING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

GENE CARTER, District Judge.

I.

The Defendant manufactures construction equipment and sells it through dealers in Maine, including Plaintiff. By letter dated January 21, 1983, Defendant notified Plaintiff that because the Plaintiff had achieved inadequate sales volume, the Defendant was terminating the dealership agreement effective on April 23, 1983, or 90 days after Plaintiff's receipt of the letter, whichever was later. Plaintiff brought suit alleging that (1) Defendant had violated Maine's Regulations of Business Practices Between Motor Vehicle Manufacturers, Distributors and Dealers, 10 M.R.S.A. §§ 1171, et seq. (Supp.1983) (the "1981 Act"); (2) Defendant had violated the 1975 version of the same act, 10 M.R.S.A. §§ 1171, et seq. (1964) partially repealed by 1981 Maine Laws ch. 331, §§ 4-6 & ch. 470, §§ A 23-25 (the "1975 Act"); and (3) Defendant had breached its agreement with Plaintiff. The dealership agreement had been entered into during 1979 and amended in 1980, while the 1975 Act was in force. The termination letter was sent after the effective date of the 1981 Act.

Defendant moved for partial summary judgment on the notice issues, contending that it had complied with the notice provisions of the 1975 Act and no more was necessary. The 1975 Act required that manufacturers provide a written notice of cancellation, setting forth the specific ground therefor, at least sixty days before the effective date of cancellation. 10 M.R. S.A. § 1174(3)(C) (prior to amendment). Plaintiff asserts that Defendant was required to comply with the 1981 Act, which repealed § 1174(3)(C), and enacted new notice provisions including one that a manufacturer cancelling because of a dealer's inadequate sales or service performance provide the dealer with a six-month opportunity to cure the performance. Id. § 1174(3)(P)(2). Plaintiff also contends that Defendant has not complied with the notice provisions of the 1975 Act. Defendant counters that the 1981 amendments were not intended to apply to dealership agreements already in effect and that to apply them to agreements like the instant one would impair the obligation of contract, in violation of both the United States and Maine Constitutions.

On April 6, 1984, United States Magistrate D. Brock Hornby recommended that Defendant's motion be granted. He found that (1) Defendant had complied with the 1975 notice requirements; (2) the 1981 Amendments were intended to apply to dealership agreements already in effect at the time of their enactment; (3) the 1981 imposition of a six-month right-to-cure violated the Maine Constitution, article 1, section 11.

Plaintiff objected to the Magistrate's finding that application of the 1981 amendments to the instant franchise would violate the Maine Constitution and that the notice given by Defendant meets the requirements of the 1975 Act. Due to the importance of the constitutional issue, this Court ordered that supplemental briefs be filed and scheduled oral argument. Having carefully considered the record, including the recommended decision of the Magistrate and the written and oral presentations of counsel, the Court has determined that Maine law is consonant with federal law on impairment of contracts and that under the most recent pronouncement of federal law, Energy Reserves Group, Inc. v. Kansas Power and Light Co., 459 U.S. 400, 103 S.Ct. 697, 74 L.Ed.2d 569 (1983), application of the 1981 amendments violated neither the Maine nor the United States Constitution.¹

II.

In analyzing the 1981 amendments, the Magistrate found that the legislature intended them to apply to dealership agreements already in effect. The Court adopts this sound conclusion. As the Magistrate states, the 1981 Act's repeal of the 1975 Act would leave a gap in coverage of preexisting dealerships if the 1981 Act does not apply to them. Moreover, to find that the legislature intended dealership agreements to be covered only by the law in effect when they were executed would create grave problems of enforcement.

The Magistrate's subsequent determination that application of the 1981 amendments to the instant dealership agreement violated the Maine Constitution relied on Portland Savings Bank v. Landry, 372 A.2d 573 (Me.1977), a case in which a statute reducing the redemption period of mortgages was found unconstitutional. In Landry the Law Court quoted both the Maine Law Court and United States Supreme Court and set forth the test for determining whether legislation impairs contractual obligations:

"The obligation of contract, in the constitutional sense, is the means provided by law by which it can be enforced, — by which the parties can be obliged to perform it. Whatever legislation lessens the efficacy of the means impairs the obligation. If it tends to postpone or retard the enforcement of the contract, the obligation of the latter is to that extent weakened."

Accord, Canal National Bank v. School Administrative District, 160 Me. 309 203 A.2d 734 (1964). Thus, where a statute lessens the value of a contract to the parties, the constitutional prohibition has been violated. See Bank of Minden v. Clement, 256 U.S. 126, 128 41 S.Ct. 408, 408, 65 L.Ed. 857 (1921); Barton v. Conley, 119 Me. 581 112 A. 670 (1921), aff'd 260 U.S. 677 43 S.Ct. 238, 67 L.Ed. 456 (1923).

Id. (quoting Phinney v. Phinney, 81 Me. 450, 421, 17 A. 405 (1899), which quoted Louisiana v. New Orleans, 12 Otto 203, 206-07, 102 U.S. 203, 206-07, 26 L.Ed. 132 (1880)). Finding that Landry was Maine's latest pronouncement on the meaning of the contract clause, the Magistrate applied its test to find that the six-month right-to-cure "`lessens the efficacy of the means' by which the manufacturer can enforce the contract and thereby `lessens the value' of the contract to the manufacturer.'" Magistrate's Recommended Decision at 8.

Since the Law Court's decision in Landry, however, the United States Supreme Court has clarified the standard for determining violations of the Contract Clause of the United States Constitution in three major cases: United States Trust Co. v. New Jersey, 431 U.S. 1, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977); Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978); and most recently in Energy Reserves Group, Inc. v. Kansas Power and Light Co., 459 U.S. 400, 103 S.Ct. 697, 74 L.Ed.2d 569. In Energy Reserves the Court elucidated a three-pronged balancing test which contrasts sharply with the rights/remedies distinction set forth in Landry. In footnote 4 of his opinion, the Magistrate stated that in light of his finding based on the Maine Constitution "it is unnecessary to address the federal constitutional issue which, as the Defendant admitted at oral argument, is a much closer issue." Implicit, therefore, in the Magistrate's recommendation is a finding that the federal law on impairment of contract is diverging from that of Maine.

In determining what the law of the forum state is, the federal judge is to use all the data available to him and decide what the judges of the highest state court would decide. See C. Wright, Law of Federal Courts 372 (1983). In most instances a relevant holding by the highest state court is the best evidence of how that Court would decide a given issue of state law. See, for example, Industrial Consultants, Inc. v. H.S. Equities, Inc., 646 F.2d 746 (2d Cir.1981). That is not the case, however, if there are strongly persuasive reasons for the federal court's belief that the state's highest court would no longer adhere to its own decision. C. Wright, A. Miller and E. Cooper, 19 Federal Practice and Procedure § 4507 at 92. The First Circuit has pointed out that a federal court may anticipate a change in state law: "Of course, it is not necessary that a case be explicitly overruled in order to lose its persuasive force as an indication of what the law is." Mason v. American Emery Wheel Works, 241 F.2d 906, 909 (1st Cir.1957). In Mason the Court abolished Mississippi's privity requirement in tort actions, relying on the facts that the requirement was out of date and that the new trend had been mentioned in an opinion by the Mississippi Supreme Court: "We have no doubt that when the issue is squarely presented, the Supreme Court of Mississippi will declare itself in agreement with the more enlightened and generally accepted doctrine." Id. at 910.

Plaintiff urges the Court to anticipate that the Maine Court will employ the Energy Reserves balancing test in the future when confronting contract clause claims based both on the federal and state constitutions. This is, in the view of this Court, a sound prediction.

The language of both clauses is identical,² and the Law Court has made no distinction between the two in analyzing cases alleging a contract clause violation. See, e.g., Bowman v. Maine State Employees Appeals Board, 408 A.2d 688 (Me.1979); Landry, 372 A.2d 573; In re Searsport Water Co., 118 Me. 382, 108 A. 452 (1919). In fact, in Landry, the case relied upon by the Magistrate for his construction of the Maine contract clause, neither the Court nor the plaintiff articulated under which constitution the challenge to the new redemption law was brought. At the beginning of its analysis the Court recited language of the federal clause and then stated: "In its Declaration of Rights, the Constitution of Maine, art. I, § 11, contains a similar provision."

Perusal of Maine contract clause cases shows that the Law Court used federal and state cases interchangeably in its analysis of those issues. See, e.g., Bowman...