United States Court of Appeals,
Fifth Circuit.
No. 93-5610.
CHEROKEE PUMP & EQUIPMENT INC., Plaintiff-Appellant,
v.
AURORA PUMP, a Unit of General Signal and General Signal Corp.,
Defendants-Appellees.
Nov. 23, 1994.
Appeal from the United States District Court for the Western
District of Louisiana.
Before REAVLEY, DeMOSS and STEWART, Circuit Judges.
STEWART, Circuit Judge:
This diversity case arises out of a contract dispute between
an Illinois manufacturer and one of its regional distributors
located in Louisiana. The issue concerns whether the manufacturer
had the right to terminate the distributorship agreement without
stating the cause, giving sixty days notice. The district court
concluded that the manufacturer did have such a right to terminate
under Louisiana law as it existed at the time the agreement was
confected. The court denied the distributor's motions for
preliminary and permanent injunctions and granted summary judgment
in favor of the manufacturer. Although we conclude that the
district court erroneously found that Louisiana law applied to the
contract, we nonetheless affirm because, under governing Illinois
law, the manufacturer had the right to terminate the agreement.
Facts
Cherokee Pump & Equipment, Inc., is a Shreveport, Louisiana,
1
company that serves as a regional distributor for commercial and
industrial pumps manufactured by Aurora Pump of Aurora, Illinois.
Aurora and Cherokee have enjoyed a business relationship
dating back to 1980. Over the years, Cherokee and Aurora have
operated under several different distributorship agreements. In
April 1991, the contract at issue in this litigation was executed
by the parties. This "Engineered Products Distributor Agreement"
("the Agreement") provided for a renewable one-year contract term1
and stated that either party could terminate the contract without
cause by giving 30 days notice.2 It also stated that Illinois law
would govern any dispute arising from the Agreement and contained
a forum selection provision whereby Cherokee agreed to submit to
the jurisdiction of Illinois in the event of a dispute concerning
the contract.3
The preamble of the Agreement stated that "[t]his AGREEMENT is
in effect only when the current year ADDENDUM is attached and duly
executed." But the only addendum attached and executed was for the
one-year period starting in January 1991 and ending on the last day
1
The contract reads: "This AGREEMENT is issued for one year
and is renewed each year between AURORA and DISTRIBUTOR for dates
listed on the attached ADDENDUM subject to termination as
provided herein."
2
"Either party may terminate the AGREEMENT, with or without
cause, at any time, upon thirty (30) days written notice sent by
registered mail as measured from the postmark date."
3
"This AGREEMENT shall be interpreted and construed in
accordance with the laws of the State of Illinois. DISTRIBUTOR
[Cherokee] agrees to submit to the jurisdiction of ... Illinois
and further agrees that such courts shall have exclusive
jurisdiction over all matters pertaining to this AGREEMENT and
the relationship established by this AGREEMENT."
2
of that year. Although no new addendum was executed for either
1992 or 1993, the parties continued to do business under the terms
of the Agreement, except for at least one modification of
Cherokee's sales quota. This course of events continued until July
1993, when Aurora notified Cherokee of its intent to terminate the
Agreement effective September 30, 1993.
Procedural Background
On September 28, 1993, Cherokee filed suit in Louisiana state
court seeking to enjoin Aurora from terminating their contract.
Cherokee asserted that Aurora's termination without cause violates
Louisiana law. In support of its position, Cherokee pointed to
Louisiana's Repurchase Statute, La.R.S. 51:481, et seq., which
places significant restrictions on the rights of manufacturers to
terminate dealer agreements.
In particular, Louisiana Revised Statutes 51:482(A)(1)
prohibits a distributor from terminating, cancelling, failing to
renew, or substantially changing the competitive circumstances of
a dealership agreement or contract without "good cause." Louisiana
51:482(C) expressly requires that 90 days advance notice be given
to the dealer before cancellation and that the dealer be given 60
days to correct any alleged deficiency.
The state court issued a temporary restraining order,
enjoining Aurora from terminating the agreement. Aurora
immediately removed the case to federal district court on the basis
of diversity. Aurora filed a motion to dismiss, which the federal
court converted to a motion for summary judgment. Aurora's motion
3
was based upon two alternative grounds: (1) that the amended
version of the Repurchase Statute did not come into effect until
September 1991, four and a half months after Cherokee and Aurora
executed their Agreement and therefore the statute's termination
requirements constitutionally could not be applied retroactively to
Aurora4; and (2) alternatively, that pursuant to the Agreement's
choice-of-law provision, Illinois law was applicable, meaning that
Aurora's termination of the agreement was permissible and Cherokee
was not entitled to an injunction.5
The district court denied Cherokee's motions for preliminary
and permanent injunctions and granted summary judgment in favor of
Aurora on all of Cherokee's claims, concluding that injunction was
inappropriate because Cherokee could not show a likelihood of
success on the merits. In fact, the court concluded that quite the
opposite was true: Aurora was entitled to summary judgment under
applicable law.
The district court based its decision upon its conclusion that
the choice-of-law provision in the Agreement was not enforceable
because the application of Illinois law would violate the public
policy of Louisiana, as espoused in the Repurchase Statute. The
court further concluded that although Louisiana law governs the
4
"No State shall ... pass any ... ex post facto Law, or Law
impairing the Obligation of Contracts...." U.S. CONST. art. I, §
10, cl. 1.
5
Cherokee has conceded that it would prevail only if
Louisiana law were applied to the contract, because Illinois has
no provision in its law to prevent Aurora from terminating the
contract as it did.
4
Agreement, the Repurchase Statute's termination requirements may
not be applied retroactively to this agreement, due to the
constitutional prohibition, because the contract was executed for
an indefinite term beginning in April 1991,6 over four months prior
to the effective date of the amendment to the Repurchase Statute.
Thus, because the termination requirements of the Repurchase
Statute cannot constitutionally be applied to the Agreement, the
judge determined that Aurora had the right to terminate the
Agreement without cause.
Accordingly, the district court denied Cherokee's motions for
preliminary and permanent injunctions and granted summary judgment
in favor of Aurora, dismissing Cherokee's suit. This appeal
followed.
Standard of Review
The preliminary injunction
We review the denial of a preliminary injunction only for
abuse of discretion. Hull v. Quitman Co. Bd. of Educ., 1 F.3d 1450
(5th Cir.1993); White v. Carlucci, 862 F.2d 1209 (5th Cir.1989).
Four elements are required for the grant of a preliminary
injunction. First, the movant must establish a substantial
likelihood of success on the merits. Second, there must be a
6
The trial court rejected Cherokee's argument that instead
of one contract with an indefinite term, the parties had actually
entered into a series of one-year contracts. Thus, Cherokee
argued that although the original 1991 Agreement was created
before the effective date of the amended Repurchase Statute, the
subsequent "contracts" in 1992 and 1993 were created after the
statute's effective date; therefore, under Cherokee's
interpretation the statute could have been applied to Aurora's
termination of the agreement in 1993.
5
substantial threat of irreparable injury if the injunction is not
granted. Third, the threatened injury to the plaintiff must
outweigh the threatened injury to the defendant. Fourth, the
granting of the preliminary injunction must not disserve the public
interest. Sierra Club v. FDIC, 992 F.2d 545 (5th Cir.1993), citing
Canal Authority of Florida v. Callaway, 489 F.2d 567, 572 (5th
Cir.1974). "A preliminary injunction is an extraordinary remedy.
It should only be granted if the movant has clearly carried the
burden of persuasion on all four Callaway prerequisites. The
decision to grant a preliminary injunction is to be treated as the
exception rather than the rule." Mississippi Power & Light v.
United Gas Pipe Line Co., 760 F.2d 618 (5th Cir.1985).
The motion for summary judgment
We review a district court's grant of summary judgment de
novo. Topalian v. Ehrman, 954 F.2d 1125 (5th Cir.1992). Summary
judgment is proper if the pleadings, depositions, answers to
interrogatories, and admissions on file together with the
affidavits filed in support of the motion, if any, show that there
is no genuine issue of material fact and that the moving party is
entitled to judgment as a matter of law. Celotex Corp. v. Catrett,
477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).
We review de novo a district court's determination of state
law on a summary judgment motion. Willis v. Roche Biomedical
Laboratories, Inc., 21 F.3d 1368 (5th Cir.1994); Mills v. Davis
Oil Co., 11 F.3d 1298 (5th Cir.1994). Accordingly, the district
court's choice-of-laws determination is reviewed de novo. Arochem
6
Corp. v. Wilomi, Inc., 962 F.2d 496 (5th Cir.1992); Federal
Deposit Insurance Corp. v. Massingill, 24 F.3d 768 (5th Cir.1994).
An appellate court can affirm the granting of summary judgment
on any ground supported by the record, Matter of Jones, 966 F.2d
169, 172 (5th Cir.1992), even where the district court granted
summary judgment based upon erroneous reasoning.7 Davis v. Liberty
Mut. Ins. Co., 525 F.2d 1204, 1208 (5th Cir.1976).
Discussion
Cherokee argues on appeal that the district court erred as a
matter of law in its determination that, under Louisiana law, the
contract was for an indefinite term, that La.R.S. 51:481, et seq.,
could not be applied retroactively due to constitutional
restrictions to prevent Aurora's termination of the agreement, and
that Cherokee did not establish a substantial likelihood of success
on the merits.
Because we affirm on a different basis than that relied upon
by the district court and conclude that Illinois law will apply to
the dispute, thereby upholding the choice-of-law provision in the
contract, we do not reach the constitutional question, nor do we
reach the issue of whether this contract would be considered one
for an indefinite term under Louisiana law. We conclude that
summary judgment in favor of Aurora was proper under Illinois law,
it being undisputed that Aurora would prevail if Illinois law were
applied to the contract.
7
Cherokee's argument that the district court's choice-of-law
determination is the law of the case due to Aurora's failure to
file a cross-appeal is meritless.
7
Federal courts sitting in diversity must apply the
choice-of-law rules of the state in which they are located. Klaxon
Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct.
1020, 85 L.Ed. 1477 (1941). Thus, we apply Louisiana's
choice-of-law principles to determine whether Illinois or Louisiana
law governs the contract.
Louisiana has a new set of choice-of-law provisions, recently
codified as Book IV of the Louisiana Civil Code. These articles
apply to all actions filed after January 1, 1992, and thus are
applicable in this case.
Louisiana Civil Code Article 3540, entitled "Party autonomy,"
generally gives contracting parties the freedom to choose which
state's law will govern disputes arising out of the contract. This
article forms the basis for the primary issue on appeal. It
provides:
All other issues of conventional obligations [besides capacity
and form] are governed by the law expressly chosen or clearly
relied upon by the parties, except to the extent that law
contravenes the public policy of the state whose law would
otherwise be applicable under Article 3537.
Louisiana Civil Code Article 3537, in turn, states the general
rule applicable to conventional obligations:8
Except as otherwise provided in this Title, an issue of
conventional obligations is governed by the law of the state
whose policies would be most seriously impaired if its law
were not applied to that issue.
That state is determined by evaluating the strength and
8
Louisiana is unique among the states in that it is a civil
law jurisdiction, as opposed to one governed by common law;
accordingly, its jurists use the civilian term "conventional
obligation" to refer to a contract.
8
pertinence of the relevant policies of the involved states in
the light of: (1) the pertinent contacts of each state to the
parties and the transaction, including the place of
negotiation, formation, and performance of the contract, the
location of the object of the contract, and the place of
domicile, habitual residence, or business of the parties; (2)
the nature, type, and purpose of the contract; and (3) the
policies referred to in Article 3515, as well as the policies
of facilitating the orderly planning of transactions, of
promoting multistate commercial intercourse, and of protecting
one party from undue imposition by the other.
Louisiana Civil Code Article 3515, in turn, contains the
general and residual choice-of-law rule pertinent to all types of
cases, not just those involving conventional obligations. It
provides that:
Except as otherwise provided in this Book, an issue in a
case having contacts with other states is governed by the law
of the state whose policies would be most seriously impaired
if its law were not applied to that issue.
That state is determined by evaluating the strength and
pertinence of the relevant policies of all involved states in
the light of: (1) the relationship of each state to the
parties and the dispute; and (2) the policies and needs of
the interstate and international systems, including the
policies of upholding the justified expectations of parties
and of minimizing the adverse consequences that might follow
from subjecting a party to the law of more than one state.
By considering the factors listed both in Article 3537 and in
Article 3515, it is easy to see that Louisiana clearly is the
state's law that "would otherwise be applicable" in the absence of
a choice-of-law provision in the contract. Both Louisiana and
Illinois have an interest in having their law apply to the
contract, but Louisiana's interest in having its law applied in the
absence of a choice-of-law provision by the parties would be
stronger than that of Illinois, as the district court correctly
concluded. The overall purpose of the Agreement was the
9
establishment of Cherokee as an Aurora dealer in Louisiana.
Cherokee is a Louisiana corporation whose performance under the
contract took place in Louisiana. Aurora is authorized to do and
doing business in Louisiana. Louisiana customers purchase the
pumps Aurora manufactures via Aurora's distributorship arrangement
with Cherokee. Louisiana has an interest in protecting all its
citizens, both distributors and consumers. It also has an interest
in policing to some extent those companies such as Aurora who do
business within its borders, who enter into contracts with
Louisiana citizens, and who introduce their products into the
stream of commerce for end-use here in Louisiana. The only
competing interest Illinois has is in protecting Aurora, one of its
citizens. Under the relevant policies of Articles 3515 and 3537,
Louisiana's law would govern under a normal choice-of-law analysis.
However, given the existence of the choice-of-law provision in
the contract, which states that Illinois law will apply to any
dispute concerning the Agreement, we must also look to Article
3540, infra. Under Article 3540, Louisiana law "would otherwise be
applicable" to this dispute absent the choice-of-law provision.
Thus, also under Article 3540, Illinois law, as the law "expressly
chosen" by the parties will govern, except to the extent that law
contravenes the public policy of Louisiana.
Does the application of Illinois law to the contract contravene the
public policy of Louisiana?
The next step in our analysis thus focuses on whether the
application of Illinois law would contravene any public policy of
Louisiana. The district court felt that the Repurchase Statute,
10
with its termination restrictions on manufacturers, espoused a
public policy on the part of the Louisiana that manufacturers
should not be applied to terminate such a distributorship agreement
at will.9 The court stated that:
Protection from the perceived imbalance in bargaining
positions between national manufacturers and local
distributors and the economic hardships associated with
maintaining industrial equipment inventories are but a few of
the strongly held beliefs behind the Legislature's decision
[in passing the Repurchase Statute].
The district court thus concluded that, because Louisiana has
enacted provisions which require manufacturers to provide
distributors with 90 days notice and 60 days opportunity to correct
any alleged deficiency, Louisiana has a public policy against
allowing manufacturers to terminate distributorship agreements
without complying with La.R.S. 51:481 et seq. Illinois law
contains no such provision requiring the giving of notice and the
opportunity to correct deficiencies. Cherokee concedes that under
9
Because we conclude that the application of Illinois law to
the contract does not violate Louisiana public policy as espoused
in the Repurchase Statute, we merely note in passing the flaws
inherent in the district court's determination, on the one hand,
that the Repurchase Statute is inapplicable to the agreement, but
on the other hand, that the Repurchase Statute provides the basis
for determining that there is a Louisiana public policy against
termination-at-will contracts. The district court recognized
that such reasoning is vulnerable to "the oft-quoted criticism of
"circularity,' " but sought to avoid such a criticism by stating
that it merely was assuming arguendo that Louisiana's statute
would apply. Such an analysis is inconsistent—if the statute is
held inapplicable for constitutional reasons, likewise it must be
assumed inapplicable, even for purposes of argument, in
determining whether Louisiana has a public policy against
termination-at-will contracts. Arguably, it would
unconstitutionally "impair the Obligations of Contracts" to apply
the statute retroactively in order to "find" a Louisiana public
policy here which would invalidate a choice-of-law determination
made by the parties prior to the enactment of that statute.
11
Illinois law, Aurora has the right to terminate the agreement.
Consequently, the judge determined that the application of Illinois
law to the contract would contravene the public policy of
Louisiana; thus, under Louisiana Civil Code Article 3540, the
choice-of-law provision in the contract could not be upheld. We
disagree.
Admittedly, Illinois law does not contain a provision which
would prevent Aurora from terminating the agreement. Cherokee has
conceded this point. However, the fact that Louisiana law does
contain such a provision does not mean that the application of
Illinois law to the issue of whether Aurora had the right to
terminate as it did (without giving 90 days notice, stating the
causes for termination, and affording Cherokee a chance to remedy)
would violate Louisiana public policy. Just because Louisiana
would reach a different result on the right to terminate does not
mean that the application of Illinois law to this dispute would
violate Louisiana public policy.
The law of a state and its public policy are not necessarily
synonymous. Not every law enacted by the legislature embodies the
"public policy" of the state. As the official comments to Article
3540 note, "only strongly held beliefs of a particular state
qualify for the characterization of "public policy.' " Comment (f)
to La.Civ.C. art. 3540.
Unfortunately, Article 3540 does not elucidate what
constitutes the public policies of the State of Louisiana.
Instead, it is one of "those frequent cases where the Code refers
12
the judge to his own judgment ... by the use of indeterminate words
which demand appraisal of values ... such as "public policy.' "
James L. Dennis, The 21st John M. Tucker, Jr. Lecture in Civil Law:
Interpretation and Application of the Civil Code and the Evaluation
of Judicial Precedent, 54 La.L.Rev. 1 (1993).10
However, because we are a federal court sitting in diversity,
we are Erie-bound11 to rely upon Louisiana judicial and legislative
authority to analyze whether the Repurchase Statute as amended
embodies the public policy of the state of Louisiana.
If every Louisiana statute were deemed to constitute public
policy, the exception in Article 3540 to the general rule of party
autonomy in choice-of-laws determinations would be wholly consuming
and would strip the general rule in the article of all its meaning.
The result would be that parties would have the right to choose the
application of another state's law only when that state's law is
identical to Louisiana's. Such an approach would be ridiculous.
In order to support a finding of Louisiana public policy on a
particular issue, something more must be shown than just the fact
that the other state's law differs from Louisiana's. The late
Judge Alvin Rubin, who was a distinguished member of this Court and
also a Louisiana jurist steeped in Louisiana's civilian tradition,
made this identical observation in Delhomme Industries, Inc. v.
Houston Beechcraft, 669 F.2d 1049, 1058 (5th Cir.1982): "One
state's law does not violate another state's public policy merely
10
Justice Dennis sits on the Louisiana Supreme Court.
11
Erie Railroad Co. v. Tompkins,
13
because the law of the two states differ." Judge Rubin also noted:
A choice of law provision in a contract is presumed valid
until it is proved invalid.... The party who seeks to prove
such a provision invalid because it violates public policy
bears the burden of proof.... Courts are reluctant to declare
such provisions void as against public policy.... Courts
favor, and tend to uphold, choice of law provisions in
contracts, particularly when such provisions are used in
interstate transactions....
Ibid.
In Delhomme, the buyer and seller of an airplane had entered
into a contract calling for the application of Kansas law. One of
the claims that the plaintiff made against the defendant was in
redhibition under Louisiana law, a remedy apparently not available
under Kansas law. The plaintiff argued that the court should
ignore the parties' choice of Kansas law, claiming that Louisiana
public policy would be contravened by the application of Kansas law
due to Louisiana's public policy against the easy waiver of
redhibitory rights. Judge Rubin rejected this claim and applied
Kansas law notwithstanding the fact that a different outcome would
have resulted under Louisiana law.
Under Delhomme, Aurora bears the burden of proving that the
parties' choice-of-law selection is invalid. We conclude that
Aurora has not met that burden. It has adduced no authority to
establish that the amendment to the Repurchase Statute expresses a
public policy of Louisiana that would displace the choice-of-law
determination made by the parties. There is nothing in the
amendment to the Repurchase Statute itself to indicate that a
"strongly held belief" or "public policy" of the state was being
fostered or protected by the amendment. Moreover, there is nothing
14
in the amendment to indicate that the statute prevents or overrides
a choice-of-law by the parties which precludes application of the
statute.12
Likewise, there is no case law evidencing that the Repurchase
Statute amendment espouses public policy in Louisiana or otherwise
rendering null and void any contractual provision that would
displace its notice requirements and opportunity to remedy
provision. As a federal court sitting in diversity, it would be
inappropriate for us to formulate a statement of Louisiana public
policy. Accordingly, we conclude that there is no statutory or
jurisprudential authority to suggest that the notice requirement
and opportunity to remedy provision in the Repurchase Statute
constitute a statement of public policy which would displace the
choice-of-law selection made by Aurora and Cherokee. We give
effect to the choice-of-law provision and hold that Illinois law
applies to the contract. In light of this holding, Cherokee's
entire appeal fails, by its own admission. Thus, we do not reach
the constitutional question or the issue of the term of the
12
In stark contrast to the Repurchase Statute, other
Louisiana statutes cited by Aurora for illustrative purposes, do
contain such statements of public policy or purpose. For
example, Louisiana's Oilfield Indemnity Act, La.R.S. 9:2780,
states that:
It is the intent of the legislature by this Section to
declare null and void and against public policy of the
state of Louisiana any provision in any agreement which
requires defense and/or indemnification, for death or
bodily injury to persons, where there is negligence or
fault (strict liability) on the part of the indemnitee,
or an agent or employee of the indemnitee, or an
independent contractor who is directly responsible to
the indemnitee.
15
contract under Louisiana law.
Conclusion
For the foregoing reasons, the district court's denial of
Cherokee's motions for preliminary and permanent injunction and its
grant of summary judgment in favor of Aurora are AFFIRMED.
16