Cherokee Pump & Equipment Inc. v. Aurora Pump

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