E-Alert Case Updates

U.S. District Court Examines The Delaware Dealer Statute, 6 Del. C. §§ 2720 et seq.

Southern Track and Pump, Inc. v. Terex Corp.
No. 08-543 (United States District Court for the District of Delaware, October 16, 2015)
by Richard J. Medoff, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.ded.uscourts.gov/sites/default/files/opinions/lps/2015/october/08-543.pdf

Southern Track and Pump, Inc. v. Terex Corp. involves a dispute over the scope of proceedings on remand in the United States District Court for the District of Delaware (“the District Court”). In considering the Motion for Remand, the Third Circuit Court of Appeals (“the Third Circuit”) determined that the District Court’s prior judgment had misinterpreted the Delaware Dealer Statute, 6 Del. C. §§ 2720 et seq. and that all of the issues decided in the District Court's earlier order should be reopened.

By way of factual background, Plaintiff Southern Track and Pump, Inc. ("STP") and Defendant Terex Corporation ("Terex") entered into a distribution contract in April 2007. Under the contract, STP agreed to purchase and distribute Terex's equipment. Pursuant to this contract, STP purchased approximately $4 million worth of parts and equipment from Terex. In May 2008, STP sent a letter to Terex terminating the parties' distribution agreement and notifying Terex of its intent to return to Terex all remaining inventory. Terex, however, refused to repurchase the inventory from STP.

On July 23, 2008, STP filed suit against Terex in the U.S. District Court for the District of Delaware alleging that Terex violated the Delaware Dealer Statute, 6 Del. C. §§ 2720 et seq. ("Dealer Statute") by failing to repurchase the inventory from STP. The parties disagreed as to whether the Dealer Statute required Terex to repurchase all of the equipment it had sold to STP, or only the equipment that was "new, unused, and undamaged."

On March 28, 2012, the District Court entered summary judgment for STP, concluding that the Dealer Statute required Terex to repurchase all of the equipment, not just the equipment that was new, unused, and undamaged, and that Terex violated the statute by refusing to repurchase all of the equipment.

Terex appealed to the Third Circuit Court of Appeals. On December 18, 2014, following briefing and oral argument, the Third Circuit certified the issue to the Delaware Supreme Court. Specifically, the Third Circuit inquired of the Delaware Supreme Court: "Does a supplier's repurchase obligation under § 2723(a) of the Dealer Statute extend to used inventory or is it limited to 'new, unused, undamaged, and complete inventory' under § 2723(b )?" In its Certification Order, the Third Circuit acknowledged that “§ 2723(a) of the Dealer Statute can be read in one of two ways, each of which has its problems.”

On June 15, 2015, the Delaware Supreme Court issued an opinion on the certified question, holding that a supplier's obligation under the Dealer Statute was limited to new, unused, undamaged, and complete inventory. On June 30, 2015, the Third Circuit adopted the conclusion of the Delaware Supreme Court and remanded the case to the District Court, providing:

For the reasons set forth by the Delaware Supreme Court, we hereby reverse the decision of the District Court and remand for proceedings consistent with the view of the Delaware Supreme Court that the repurchase obligation under§ 2723(a) of the Dealer Statute extends only to "new, unused, undamaged, and complete inventory."

On July 28, 2015, the District Court ordered the parties to provide a joint status report. The parties did so on September 4, 2015, however, the parties had “vastly different interpretations of the proper scope of the proceedings that should be held on remand.” Accordingly, the District Court ordered the parties to submit briefing on their competing proposals.

In its briefing, STP argued that the Third Circuit reversed the District Court only with respect to a single issue of law and that, as a result, the District Court did not need to "revisit its determination that Terex was liable for its refusal to repurchase 'new' inventory." STP contended that the District Court should conduct fact finding only to the extent necessary to determine an appropriate amount of damages.

Terex, however, argued that the Third Circuit's mandate should be construed broadly. Under Terex's reading, the Third Circuit's decision reversed the District Court's judgment in its entirety and, thus, reopened each of the issues decided in the District Court's earlier order. On October 9, 2015, the District Court conducted a teleconference to further discuss the parties' disputes and proposals.

After reviewing the Third Circuit's mandate, the Delaware Supreme Court's opinion, and the parties' briefing and statements, the District Court concluded that the letter and spirit of the Third Circuit's mandate was more consistent with Terex's position than with STP's. Accordingly, the District Court adopted Terex's proposal for how the case should proceed.

Although the Third Circuit's reversal was predicated on a single issue of law, the scope of Terex's repurchase obligations under the Dealer Statute, the District Court reasoned that its prior misinterpretation of the Dealer Statute necessarily impacted other issues that it had decided. The District Court explained that it “did not issue its findings in a vacuum,” and "the decision of the Third Circuit and the opinion of the Delaware Supreme Court necessarily changed the lens through which the facts of this case must be viewed."

Thus, the District Court concluded that all of the issues decided in the District Court's earlier order were reopened on remand.