Wirtgen Am. v. Hayden-Murphy Equip. Co.

• Decision Date: 06 January 2023
• Docket Number: 3:22-cv-00308
• Parties: WIRTGEN AMERICA, INC., Plaintiff, v. HAYDEN-MURPHY EQUIPMENT COMPANY, Defendant.
• Court: U.S. District Court — Middle District of Tennessee

WIRTGEN AMERICA, INC., Plaintiff,
v.
HAYDEN-MURPHY EQUIPMENT COMPANY, Defendant.

No. 3:22-cv-00308

United States District Court, M.D. Tennessee, Nashville Division

January 6, 2023

MEMORANDUM

ALETA A. TRAUG, UNITED STATES DISTRICT JUDGE

Hayden-Murphy Equipment Company (“Hayden-Murphy”) has filed a Motion to Dismiss (Doc. No. 24), to which Wirtgen America, Inc. (“Wirtgen”) has filed a Response (Doc. No. 25), and Hayden-Murphy has filed a Reply (Doc. No. 27). For the reasons set out herein, the motion will be denied.

I. BACKGROUND^[1]

A. The Parties' Relationship and Wirtgen's Desire to End It

Wirtgen is a Tennessee-based supplier of road construction and surface mining equipment. The end users of Wirtgen's goods are typically contractors or governments, who buy or rent the equipment they need through Wirtgen's network of independent dealers. (Doc. No. 18 ¶¶ 12-14.) Hayden-Murphy is one such dealer. On January 1, 2010, Wirtgen and Hayden-Murphy entered into a Distributor Sales and Service Agreement, whereby Hayden-Murphy agreed to be a

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nonexclusive dealer of various lines of Wirtgen products in Minnesota. (Id. ¶¶ 15-16; Doc. No. 18-2.)

In 2017, Wirtgen's parent company was acquired by John Deere & Co. (“Deere”). (Doc. No. 18 ¶ 18.) According to Wirtgen, its “dealer network is not fully aligned with Deere's dealer network,” and, “[b]ecause of that misalignment, there are many regions of North America where there is one dealer which sells and services Wirtgen's products and a separate dealer which sells and services Deere's products.” (Id. ¶ 19.) Faced with that reality, Wirtgen decided to begin taking steps to “align” its dealer network with the Deere network. (Id. § 20.) Wirtgen did not, however, immediately seek to end its relationship with Hayden-Murphy.

On August 13, 2018, Hayden-Murphy's then-CEO, Len Kirk, sent Wirtgen a letter, informing Wirtgen that Hayden-Murphy was in the process of what Wirtgen describes as a “substantial change in the control of Hayden-Murphy and the loss of managers, officers, and key employees within Hayden-Murphy, including, but not limited to, [Kirk] himself, who was stepping down as CEO after 30 years of service.” (Id. ¶ 26.) On September 6, 2018, Kirk met with Wirtgen President James P. McEvoy and Vice President of Dealer Development Brodie Hutchins to discuss matters including the turnover in Hayden-Murphy's leadership. McEvoy and Hutchins expressed their dismay at the changes and, in particular, at the fact that Wirtgen had not received more advance notice of the transition. (Id. ¶ 27.) McEvoy and Hutchins informed Kirk that Wirtgen “did not approve or consent to the changes that were being made.” (Id. ¶ 28.)

In many areas of business, that type of language-involving one company's refusal to “consent” to a leadership change at another, wholly independent company-might seem unusual. Such issues of inter-company consent and agreement, however, have special significance in the law of distributorships and franchises. Many states have enacted statutory protections designed to

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prevent manufacturers and suppliers^[2] from unilaterally imperiling the financial health of the companies and individuals who sell their products without good cause. In so doing, those statutes, by necessity, restrict the parties' ordinary freedom of contract. For example, Tenn. Code Ann. § 47-25-1302 requires that “[n]o supplier, directly or through an officer, agent or employee, may terminate, cancel, fail to renew or substantially change the competitive circumstances of a retail agreement without good cause,” even if the parties' contract says otherwise. Tenn. Code Ann. §§ 47-25-1302(a), -1312. The statute defines “good cause” to refer, first, to any “failure by a retailer to comply with requirements imposed upon the retailer by the retail agreement if such requirements are not different from those imposed on other retailers similarly situated in this state.” Id. The statute then lists a series of additional events that qualify as “good cause” as a matter of law, including the loss or retirement of “a person with a substantial interest in the ownership or control of the dealership, including an individual proprietor, partner or major shareholder.” Tenn. Code Ann. § 47-25-1302(a)(6). Good cause, however, “does not exist if the supplier consents to” the qualifying change in leadership. Id. The issue of Wirtgen's consent was therefore potentially relevant to whether Kirk's departure gave rise to “good cause” to terminate the parties' agreement.

After the meeting on September 6, 2018, Hutchins confirmed Wirtgen's position in a letter to Kirk dated September 20, 2018. Hutchins wrote:

We have taken some time since our meeting to consider what you said. Even though you will still be part of the customer relationships during the transition, we nevertheless have concerns regarding the succession. We are . . . unaware of any meaningful relationships between [incoming Hayden-Murphy President Don Knackstedt] and our customer base

Because of these concerns, we are not presently able to consent to this substantial change in management and control We will continue to monitor the situation between now and your actual retirement. We hope you understand.

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(Doc. No. 18-3 at 2.)

Despite the concerns that Wirtgen raised in 2018, the parties' relationship remained formally intact for the ensuing few years. However, on April 8, 2022, McEvoy sent Knackstedt a letter informing him that “Wirtgen strongly believe[d] that the time has come to allow each of [the two] companies to pursue its business objectives separately.” (Doc. No. 18-4 at 4.) McEvoy explained:

[W]e think we have the right to terminate the Agreement as a result of the recent personnel changes Hayden-Murphy has undergone, but we believe there is another provision of the Agreement that is also applicable to the present situation.

Section 5.01 of the Agreement says that it became effective on January 1, 2010 and will automatically expire at the end of each calendar year unless both Hayden-Murphy and Wirtgen consent to renew it. After the Agreement went into effect, it remained in Wirtgen's interest to consent to the renewal of the Agreement. With John Deere & Co.'s acquisition of Wirtgen, however, that is no longer the case.... We're not saying that Hayden-Murphy was in any way responsible for the misalignment that now exists in Wirtgen's and Deere's dealer networks, nor are we encouraging Hayden-Murphy to become a Deere dealer. We are saying that the Agreement, with its automatic, annual expiration provision absent mutual consent, is designed to accommodate situations like this where it is no longer in one party's business interest to remain in business together. And[] we intend to exercise our right to allow the Agreement to expire at the end of the year, depending upon your response to this letter.

(Id. at 2.)

Knackstedt sent a letter in response, which Wirtgen received around April 27, 2022. (Doc. No. 18 ¶ 32; Doc. No. 18-5.) Knackstedt explained that he was “writing to respond to the specifics of [McEvoy's] letter and also in hopes that both sides can see that working together . . . makes a lot more business sense than engaging in a protracted legal battle.” (Doc. No. 18-5 at 2.) Knackstedt stated that, in Hayden-Murphy's view, “Wirtgen cannot simply non-renew the Agreement, and[,] instead, there must be ‘good cause' to terminate ....” (Id. at 2.) Knackstedt then provided a lengthy argument that Kirk's departure did not provide Wirtgen with grounds for

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terminating the contract and that, in the alternative, if that departure did originally amount to good cause, then it could no longer do so in light of Wirtgen's supposed acquiescence to the change. (Id. at 2-5.) The letter includes references to an unidentified state statute that, according to the letter, forbids actions such as Wirtgen's attempt to end the agreement. (Id. at 2, 5.)

B. Relevant Contractual Provisions

The parties' Distributor Sales and Service Agreement states that it is “renewable annually upon the consent of both parties.” (Doc. No. 18-2 at 16.) If the parties mutually agree to terminate the contract, they may do so at any time. (Id.) Otherwise, a decision by one party to terminate the contract must comply with certain procedures. Under the terms of the contract as written, either Wirtgen or Hayden-Murphy “may terminate this Agreement at any time, with or without cause, upon sixty (60) days written notice to the other party.” (Id.) However, the Agreement grants Wirtgen accelerated termination rights in certain situations. Specifically, there is a list of nine occurrences that, if they come to pass, grant Wirtgen a right to immediately terminate the agreement upon written notice, and there is a second list of ten other occurrences that would grant Wirtgen the “right to terminate this Agreement upon thirty (30) days written notice and opportunity to cure.” (Id. at 17-18.) Among the events giving rise to a 30-day-notice termination right are the following:

c. Any dispute, disagreement or controversy between or among the principles, parties, managers, officers or stockholders of [Hayden-Murphy] or any loss of managers, officers or key employees through termination of employment or otherwise, which in the commercially reasonable judgment of [Wirtgen] may adversely affect the business of [Hayden-Murphy] or [Wirtgen]; . . .

j. A substantial change in the ownership or control of [Hayden-Murphy] without prior written consent of Wirtgen.

(Id. at 18.)

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The contract includes a provision forbidding Hayden-Murphy from selling, assigning, delegating, or otherwise transferring any of its “rights or obligations” under the agreement. (Id. at 25-26.) Although this case does not involve assignment of Hayden-Murphy's rights in the ordinary sense, the language of the provision...