Terex Corp. v. S. Track & Pump, Inc.

• Decision Date: 15 June 2015
• Docket Number: No. 704, 2014,704, 2014
• Citation: 117 A.3d 537
• Parties: Terex Corporation, d/b/a Terex Construction Americas, Defendant–Appellant, v. Southern Track & Pump, Inc., Plaintiff–Appellee.
• Court: Supreme Court of Delaware

117 A.3d 537

Terex Corporation, d/b/a Terex Construction Americas, Defendant–Appellant

v.Southern Track & Pump, Inc., Plaintiff–Appellee.

No. 704, 2014

Supreme Court of Delaware.

Submitted: April 15, 2015

Decided: June 15, 2015

Revised: June 16, 2015

John C. Phillips, Jr., Esquire (argued), David A. Bilson, Esquire, Phillips, Goldman & Spence, P.A., Wilmington, Delaware; Virginia W. Hoptman, Esquire, Redmon Peyton & Braswell LLP, Alexandria, Virginia, for Defendant–Appellant.

Peter J. Walsh, Jr., Esquire (argued), Ryan M. Murphy, Esquire, Potter Anderson & Corroon LLP, Wilmington, Delaware; Suzanne Hill Holly, Esquire, Berger Harris, LLC, Wilmington, Delaware, for Plaintiff–Appellee.

Before STRINE, Chief Justice; HOLLAND and VALIHURA, Justices; NOBLE, Vice Chancellor,^* and GRAVES, Judge,^* constituting the Court en Banc.

Opinion

VALIHURA, Justice:

A dispute pending before the United States Court of Appeals for the Third Circuit (the “Third Circuit”) turns on the interpretation of Delaware's Equipment Dealer Contracts Statute, 6 Del. C. § 2720, et seq. (the “Dealer Statute”). To assist the Third Circuit in resolving this dispute, the Third Circuit certified the following question of law to this Court:

Does a supplier's repurchase obligation under § 2723(a) of the Dealer Statute extend to used inventory or is it limited to “new, unused, undamaged and complete inventory” under § 2723(b) ?

As more fully explained below, we answer the certified question of law by concluding that a supplier's repurchase obligation under the Dealer Statute is limited to new, unused, undamaged, and complete inventory.

I. FACTUAL AND PROCEDURAL HISTORY¹

In April 2007, Southern Track & Pump, Inc. (“Southern Track”), a Florida-based equipment dealership that sells and leases construction equipment, entered into a distributorship agreement with Terex Corporation (“Terex”), a Delaware corporation that manufactures construction equipment. Under the distributorship agreement, which was governed by Delaware law, Southern Track purchased from Terex approximately $4 million worth of equipment (about forty pieces in total) and $50,000 worth of parts. Southern Track financed its purchase through an arrangement with GE Commercial Distribution Finance Company (“GE”). The financing was secured by the equipment Southern Track purchased from Terex using funds provided by GE.

Southern Track had difficulty marketing Terex products. When its loan obligations to GE became too onerous, Southern Track decided to terminate the distributorship agreement. In its termination letter, Southern Track indicated that it wanted to keep some equipment, but it wanted Terex to repurchase everything else. The purported impetus behind the decision to terminate was Southern Track's assumption that the Dealer Statute's repurchase obligation would force Terex to repurchase all of the inventory Terex had previously sold to Southern Track that Southern Track did not wish to retain.²

Terex disagreed. Terex contended that the Dealer Statute required a supplier to repurchase only new and unused equipment. Terex argued that since most, if not all, of the equipment it sold to Southern Track had entered Southern Track's rental fleet, the equipment was used. Terex asked Southern Track to compile a list of the new and unused equipment Southern Track had in its inventory. Instead of complying with that request, Southern Track sent Terex a letter in June 2008 that identified seventeen pieces of equipment that it wanted Terex “to come and pick up.” Over half of those items had been in operational use for 175 to 300 hours. Yet Southern Track insisted that Terex was required to purchase the equipment at brand new prices.

After some back and forth, Terex offered to repurchase nine of the seventeen pieces of equipment listed in Southern Track's June 2008 letter.³ Terex offered to pay market value for the equipment, but reserved the right to take a deduction for any parts or repair services “required to return any of the repurchased equipment to good running and operating condition.”

As negotiations between the parties progressed, Southern Track was under increasing pressure from GE to make past-due payments or risk losing possession of the equipment it had purchased from Terex. With GE's threat looming, and with no sign that the parties were close to resolving their differences, Southern Track filed a declaratory judgment action against Terex in the Delaware Superior Court on July 23, 2008. One day later—and one month before the expiration of the Dealer Statute's ninety-day repurchase period—GE took possession of all of the equipment Southern Track had purchased from Terex. GE later sold most of this equipment at auction.

Terex removed the lawsuit to the United States District Court for the District of Delaware based on diversity jurisdiction. Southern Track's second amended complaint alleged, in relevant part, that Terex had violated the Dealer Statute when it failed to repurchase “all inventory previously purchased [from it] ... that remain[ed] unsold on the date of the termination of the agreement.”⁴ As a result of the alleged breach, Southern Track claimed that it was entitled to the relief prescribed by § 2727(a) of the Dealer Statute, namely, that Terex was “civilly liable for 100% of the ‘current net price’ of the inventory” plus other associated costs and fees.⁵

The parties filed cross-motions for summary judgment in the District Court. The principal issue was whether a supplier's repurchase obligation under § 2723(a) extends to all inventory in a dealer's possession that remains unsold, or only applies to inventory that remains in new and unused condition. The District Court held that § 2723(a) required suppliers to repurchase all —not just new and unused—inventory. Thus, it held that Terex's actions ran afoul of the Dealer Statute because Terex offered to repurchase only the new and unused equipment. The District Court granted Southern Track's motion for summary judgment and ordered Terex to pay the full price of all inventory it had sold to Southern Track that remained unsold on the date of the termination of the distributorship agreement (which amounted to approximately $4.35 million).

Terex appealed the District Court's judgment to the Third Circuit. The Third Circuit, having considered the submissions of the parties and having heard oral argument, petitioned for certification to this Court. Pursuant to Article IV, Section 11(8) of the Delaware Constitution and Delaware Supreme Court Rule 41, we agreed to decide this question of law since it raises an important and unsettled issue concerning the interpretation of Delaware's Dealer Statute. As this is a pure question of law, we exercise de novo review.⁶

II. ANALYSIS

A. Background of the Dealer Statute

Dealer statutes were enacted to address an imbalance of economic power that often exists between suppliers and dealers.⁷ As the Third Circuit observed, as a condition of sale, and as a result of their superior bargaining power, suppliers generally impose a minimum quantity purchase obligation. This requirement “puts dealers in a tough position: in an unfavorable business climate it can be difficult to move the equipment off their showroom floor.”⁸ Delaware's Dealer Statute sets forth a statutory scheme that embodies policy choices made by our legislature in an attempt to balance the interests of dealers and suppliers, maintain the freedom to enter into contracts, and regulate certain aspects of the dealer franchise industry. The Dealer Statute addresses the imbalance of power between dealers and suppliers by including a mandatory repurchase obligation in 6 Del. C. § 2722(a), which provides that “[w]henever a contract agreement between a dealer and a supplier is terminated by either party, the supplier shall repurchase the dealer's inventory as provided in this subchapter unless the dealer chooses to keep the inventory.”⁹

The Dealer Statute itself does not distinguish between new and used equipment in those precise terms setting forth the repurchase obligation. Instead, § 2723(a) provides that “[t]he supplier shall repurchase from the dealer within 90 days after termination of the contract agreement all inventory previously purchased from the supplier that remains unsold on the date of termination of the agreement.”¹⁰ Thus, the Third Circuit has requested that we determine whether the Dealer Statute's use of the term “all inventory” means that a supplier must repurchase both new and used equipment.

B. The Parties Dispute the Correct Interpretation of the Dealer Statute

As the Third Circuit acknowledged, “§ 2723(a) can be read in one of two ways, each of which has its problems.”¹¹ Southern Track advocates that the term “all inventory” in § 2723(a) should be construed according to its plain meaning, namely, that “all” means all. Further, “Inventory” is defined broadly as “tractors, implements, attachments, equipment and repair parts that the dealer purchased from the supplier.”¹² Thus, Southern Track contends that § 2723(a) does not limit a supplier's obligation to repurchase inventory to new and unused equipment when that equipment remains unsold after an agreement between a supplier and retailer is terminated. Any other construction of the statute, Southern Track argues, would render the modifier “all” superfluous.

Although Southern Track maintains that this provision is clear on its face, Terex points out that the § 2723(b) provides a repurchase price only for new inventory. Section 2723(b) provides:

The supplier shall pay the dealer:

(1) One hundred percent of the net cost of all new, unused, undamaged and complete inventory except repair parts, less a reasonable allowance for deterioration attributable to weather conditions at the dealer's location.

(2) Eighty-five percent of the current net price of all new, unused and undamaged repair parts that are currently listed in the supplier's price book. The supplier may perform the handling, packing and

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