Summary of a Recent
Judicial
Development in
Cooperatives
Court Does Not Deem Clear and Unambiguous
Contract to Incorporate Future Laws
John StacksNational AgLaw Center Research Associate
Summary of Decision
In Rutherford Farmers Cooperative v. MTD Consumer Group, Inc., 124 Fed. App'x 918 (6th Cir. 2005), the United States District Court of Appeals for the Sixth Circuit affirmed the United States District Court for the Middle District of Tennessee's judgment for the defendant.
Background
In 1989, Rutherford contracted with MTD to become an MTD dealer. Id. at 919. At the time that the parties entered the contract, Tennessee law did not require MTD to repurchase Rutherford's inventory upon termination of the contract. Id. In 1997, the Tennessee inventory-repurchase statute was amended to include suppliers and retailers of lawn equipment, such as Rutherford and MTD. Id. MTD exercised its contractual right to terminate the contract, and Rutherford sued in Tennessee state court to enforce the inventory-repurchase statute. Id. MTD removed to federal court and brought a counterclaim seeking a declaratory judgment that the amended Tennessee inventory-repurchase statute violated the contract clauses of the United States and Tennessee constitutions, and Tennessee intervened to assert the constitutionality of the statute. Id. The district court granted MTD's motion for summary judgment and found that the inventory-repurchase statute "substantially and retroactively" impaired the contract between Rutherford and MTD and found the statute to be unconstitutional. Id.
Arguments
Tennessee argued that the repurchase clause failed to impair the contract between Rutherford and MTD, and that clause VII(J) in the contract which stated that "If any other state or federal law applies which directly contradicts any provision of this Agreement, said law shall be deemed part of this Agreement" represented a "clear expression that the contract [would] be amended by subsequent statutory enactments." Id. at 920. Tennessee also argued that "because the contract [in clause V(F)] provided for repurchase of certain replacement parts upon termination, that 'small sub-set of inventory' reduces the impact of the inventory-repurchase requirement, rendering it so incidental that the contract as a whole is not impaired." Id.
Analysis and Holdings
The court held that the plain meaning of clause VII(J) did not support an agreement to be bound by future changes in the law. Id. The court also held that clause V(F) did not render the impact of the inventory-repurchase requirement incidental; in fact, its purpose was to limit the scope of any inventory repurchase. Id. The court affirmed the district court's decision that "the application of the repurchase statutes [was] unconstitutional as applied . . . ." Id. at 921.
The case was decided on January 15, 2005.