Association of Equipment Manufacturers; AGCO Corporation; CNH Industrial America LLC; Deere & Company; Kubota Tractor Corporation, Plaintiffs - Appellees,
The Hon. Doug Burgum, Governor of the State of North Dakota, in his official capacity; The Hon. Wayne Stenehjem, Attorney General of the State of North Dakota, in his official capacity,Defendants – Appellants, North Dakota Implement Dealers Association, Intervenor Defendant-Appellant.
Submitted: November 13, 2018
from United States District Court for the District of North
Dakota - Bismarck
COLLOTON, SHEPHERD, and STRAS, Circuit Judges.
Colloton, Circuit Judge.
Association of Equipment Manufacturers and four farm
equipment manufacturers asked the district
court to enjoin North Dakota Senate Bill 2289,
which regulates relationships between manufacturers and farm
equipment dealers. The district court granted a preliminary
injunction on the ground that the Act likely violated rights
of the manufacturers under the Contract Clause of the
Constitution, U.S. Const. art. I, § 10, cl. 1. The State
of North Dakota and an intervenor, the North Dakota Implement
Dealers Association, appeal that order. We affirm.
Bill 2289 is an Act "to amend and reenact sections
51-07-01.2, 51-07-02.2, and 51-26-06 of the North Dakota
Century Code, relating to prohibited practices under farm
equipment dealership contracts, dealership transfers, and
reimbursement for warranty repair." See 2017
N.D. Laws, ch. 354 (codified at N.D. Cent. Code §§
51-07-01.2, 51-07-02.2, 51-26-06 (2017)). The legislation
contains three sections. The first section applies
"[n]otwithstanding the terms of any contract," and
prohibits manufacturers from imposing various contractual
obligations on farm equipment dealers. See id. sec.
1 (N.D. Cent. Code § 51-07-01.2, § 1).
Manufacturers, for example, cannot require dealers to
maintain exclusive facilities, "unreasonably"
refuse to approve the relocation of dealerships, or impose
"unreasonable" performance standards on dealers.
Id. sec. 1 (N.D. Cent. Code § 51-07-01.2,
§ 1.e, .i, .k).
second section regulates dealership transfers and permits a
dealer to transfer a dealership agreement after notice to the
manufacturer and approval of the manufacturer. Certain
denials by manufacturers are presumed unreasonable, and the
section allows a dealer to file an action challenging a
manufacturer's denial. Id. sec. 2. A third
section imposes several new requirements on manufacturers
with respect to reimbursements that they must provide to
dealers for warranty repairs. Id. sec. 3. Although
the last two sections do not contain language specifying
retroactive application, the State does not dispute the
district court's conclusion that they apply to existing
contracts, and the State generically describes SB 2289 as
"retroactive." Cf. Smith v. Baumgartner,
665 N.W.2d 12, 14-16 (N.D. 2003).
manufacturers sued and raised claims under several
constitutional and statutory provisions, including the
Contract Clause and the Federal Arbitration Act. The district
court entered a preliminary injunction against enforcement of
SB 2289, concluding that the manufacturers were likely to
succeed on the merits of their Contract Clause claim and that
the other relevant factors weighed in favor of a preliminary
injunction. See Dataphase Sys., Inc. v. C L Sys.,
Inc., 640 F.2d 109 (8th Cir. 1981) (en banc). The court
reasoned that SB 2289 imposed unforeseeable new regulations
on existing contracts that amounted to substantial
impairments. Citing the statement of a co-sponsor in the
legislature that the bill was designed to create a
"level playing field" for implement dealers, the
court determined that the Act was special-interest
legislation unsupported by a significant and legitimate
public purpose. The court also ruled that SB 2289's
retroactive "No Arbitration" provision, which says
that a manufacturer generally may not require a dealer to
agree to arbitration, see 2017 N.D. Laws, ch. 354,
sec. 1 (N.D. Cent. Code § 51-07-01.2, § 1.l), was
preempted by the Federal Arbitration Act, 9 U.S.C. § 2.
State appeals the district court's order, disputing the
conclusion that the manufacturers are likely to succeed on
the merits of their Contract Clause claim. An order granting
a preliminary injunction is reviewed for abuse of discretion.
TCF Nat'l Bank v. Bernanke, 643 F.3d 1158, 1162
(8th Cir. 2011).
determining whether a state law passes muster under the
Contract Clause, "[t]he threshold issue is whether the
state law has 'operated as a substantial impairment of a
contractual relationship.'" Sveen v. Melin,
138 S. Ct. 1815, 1821-22 (2018) (quoting Allied
Structural Steel Co. v. Spannaus, 438 U.S. 234, 244
(1978)). If the answer is yes, then the court asks
"whether the state law is drawn in an
'appropriate' and 'reasonable' way to advance
'a significant and legitimate public purpose.'"
Id. at 1822 (quoting Energy Reserves Grp., Inc.
v. Kan. Power & Light Co., 459 U.S. 400, 411-12
(1983)). "The State bears the burden of proof in showing
a significant and legitimate public purpose underlying the
Act." Equip. Mfrs. Inst. v. Janklow, 300 F.3d
842, 859 (8th Cir. 2002); see also Energy Reserves
Grp., 459 U.S. at 411-12. If the State shows a
significant public purpose and is not a contracting party,
then "courts properly defer to legislative judgment as
to the necessity and reasonableness of a particular
measure." Energy Reserves Grp., 459 U.S. at
412-13 (quoting U.S. Tr. Co. of N.Y. v. New Jersey,
431 U.S. 1, 23 (1977)).
State contends that SB 2289, although retroactive, does not
"substantially impair" the manufacturers'
contractual rights. This court, distilling the jurisprudence
on substantial impairment, has concluded that the governing
rule is akin to a question of reasonable foreseeability:
"if the party to the contract who is complaining could
have seen it coming, it cannot claim that its expectations
were disappointed." Holiday Inns Franchising, Inc.
v. Branstad, 29 F.3d 383, 385 (8th Cir. 1994).
conclude that the manufacturers in this case "cannot
reasonably be said to have had a fair and appreciable warning
of an impending intervention into their agreements."
Id. Several provisions regulating dealer agreements
are new additions to the North Dakota Century Code or
significantly expand existing provisions. See 2017
N.D. Laws, ch. 354, sec. 1 (N.D. Cent. Code §
51-07-01.2, § 1.d, .e, .h, .i, .j, .k, .l), sec. 3.
Previous regulations, moreover, forbade primarily coercive
and discriminatory practices; for example, a manufacturer
could not "[c]oerce or attempt to coerce" a dealer
into accepting delivery of equipment the dealer had not
voluntarily ordered. See 1991 N.D. Laws, ch. 521,
sec. 1. SB 2289, by contrast, includes several amended and
new provisions that forbid manufacturers from
"requir[ing]" dealers to take certain actions,
"[n]otwithstanding the terms of any contract."
See 2017 N.D. Laws, ch. 354, sec. 1 (N.D. Cent. Code
§ 51-07-01.2, § 1.a, .c, .d, .e, .h, .l). The law
thus goes a significant step beyond regulation of coercive
and discriminatory practices by rendering unenforceable
obligations that dealers previously accepted as part of
freely negotiated contracts. See Equip. Mfrs. Inst.,
300 F.3d at 858-59. The new law also substantially enlarged
the regulation of dealer reimbursements that had been limited
to rules about ...