Wednesday, April 28, 2010

Not Bound By Answer To Certified Question, 11th Circuit Holds Contract Violates Contract Clause

In Reliable Tractor, Inc. v. John Deere Construction & Forestry Company (09-16152), the Eleventh Circuit reversed the district court's summary judgment order that was entered after certifying a question to the Maryland Court of Appeals and stated:
And, we are bound to accept the Maryland Court of Appeals’ conclusion that, under Maryland law, the Act’s good cause provision applies to the agreements. Even so, we conclude that application of the good cause provision would violate the Contracts Clause of the United States Constitution.
The court analyzed the Contracts Clause as follows:
Article I, § 10 of the United States Constitution provides that no state shall pass any law impairing the obligation of contracts. In determining whether a state law violates the Contracts Clause, we ask “whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial.” General Motors Corp. v. Romein, 503 U.S. 181, 186, 112 S. Ct. 1105, 1109 (1992)....While the Maryland Court of Appeals held that for purposes of Maryland law the dealer agreements in this case should be considered a series of 120 contracts, we are not bound to adopt this interpretation. Rather, we must conduct an independent federal law analysis of the agreements for purposes of the Contracts Clause inquiry.
Because the original 1984 dealer agreements were in force in 1998 when the Maryland Act’s good cause provision became law, the Act effected a change in law that impaired an existing contractual relationship—it limited a contractual right to terminate the dealer agreements. And, we conclude that this impairment was substantial. The Maryland Act impairs the contractual right of one party, John Deere, to terminate the contract without cause on 120 days notice. Applying the Act would effectively extend the dealer agreements indefinitely unless John Deere can meet the terms of the Act’s good cause provision. We conclude that this would substantially impair the contractual relationship between John Deere and Reliable Tractor and would violate the Contracts Clause. 


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