Southern Track & Pump Inc. v. Terex Corporation

Filing 321

MEMORANDUM OPINION and ORDER re 309 Motion To Preclude The Unconstitutional Application Of The Delaware Equipment Dealer Contracts Statute filed by Terex Corporation is DENIED. Signed by Judge Leonard P. Stark on 9/30/13. (ntl)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

SOUTHERN TRACK AND PUMP, INC.,
Plaintiff,
Civil Action No. 08-543-LPS

v.

TEREX CORP., d/b/a TEREX
CONSTRUCTION AMERICAS,
Defendant.

Peter J. Walsh, Jr., Esquire of POTTER ANDERSON & CORROON LLP, Wilmington, DE.
Suzanne H. Holly, Esquire of Berger Harris, LLC, Wilmington, DE.
Attorneys for Plaintiff.

Ericka F. Johnson, Esquire and Ryan C. Cicoski, Esquire ofWOMBLE CARLYLE
SANDRIDGE & RICE PLLC, Wilmington, DE.
Cary E. Hiltgen, Esquire and Jeff C. Grotta, Esquire ofHILTGEN & BREWER, P.C., Oklahoma
City, OK.
Attorneys for Defendant.

MEMORANDUM OPINION

September 30, 2013
Wilmington, Delaware.

sk~Di~ctJ:t
I.

INTRODUCTION

Currently pending before the Court is Defendant Terex Corporation's ("Terex" or
"Defendant") Motion to Preclude the Court's Unconstitutional Application ofthe Delaware
Equipment Dealer Contract Statute, 6 Del. C. § 2720 et seq. ("Dealer Statute"). (D.I. 309)
Plaintiff Southern Track and Pump, Inc. ("STP" or "Plaintiff') opposes the motion. (D.I. 313)
For the reasons stated below, the Court will deny the motion.
II.

BACKGROUND

On June 30, 2011, Plaintiff moved for partial summary judgment on Counts I and II of its
Second Amended Complaint, seeking a finding that (i) the Dealer Statute applied to the parties'
Distribution Agreement and (ii) Defendant had violated the statute, entitling Plaintiffto
remedies, including damages and attorneys fees. (D.I. 204) On that same day, Defendant moved
for partial summary judgment on all remaining counts of Plaintiffs complaint (D.I. 189, 191, and
193) as well as Counts I, II, and III of Defendant's Second Amended Counterclaims (D.I. 195,
197, and 199).
On December 21, 2011, the Court heard oral argument on the summary judgment motions
and, on March 28, 2012, the Court issued an Order and Memorandum Opinion on these pending
motions. (D.I. 266 and 267) Among other things, the Court granted Plaintiffs motion for partial
summary judgment and granted Defendant's motion for partial summary judgment on Counts I
and II of Defendant's counterclaims. (D.I. 267)
On April27, 2012, the parties filed a proposed schedule that would have culminated in a
three-to-five day jury trial on damages. (D.I. 272) Pursuant to the scheduling order (D.I. 275),
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the parties filed the Proposed Final Pretrial Order ("PTO") on October 22, 2012 (D.I. 293). In
the PTO, Plaintiff argued that the Court's summary judgment rulings established that Defendant
was liable for failing to repurchase all inventory, as required by§ 2723(a), and the only
remaining issue was to calculate damages under§ 2727(a) using the "current net cost" formula.
(D.I. 293 at 20-22) For its part, Defendant, in the PTO, raised several new defenses to liability,
including for the first time challenging the constitutionality of the application of the Dealer
Statute. (D.I. 293 at 28-29)
On November 1, 2012, the Court held the pre-trial conference, and ruled that most of
Defendant's new legal theories were untimely. (D.I. 308 at 70) The Court agreed with Plaintiff
that because liability was already established, the only remaining issue was the calculation of
damages under§ 2727(a). (ld. at 71) With respect to Defendant's new constitutional challenge,
the Court ordered full briefing. (ld. at 72-73) In light of these rulings, the Court directed the
parties to meet and confer to determine whether trial was still necessary. (ld. at 76) On
November 5, 2012, the parties jointly informed the Court a trial was no longer needed. (D.I. 303)
The Court entered Final Judgment on November 16, 2012. (D.I. 306 and 307)
Thereafter, according to the Court's direction, Defendant filed the pending motion. In it,
Defendant contends that it did not waive its constitutional challenge and that the Court's
construction of the Dealer Statute constitutes an unconstitutional taking and violates due process
under both the U.S. and Delaware Constitutions. (D.I. 309) Defendant's motion to preclude
arises from the Court's summary judgment order, in which the Court held that "by its plain
terms, § 2723(a) requires suppliers to repurchase 'all' remaining unsold inventory from the dealer
within 90 days oftermination ofthe contract agreement." (D.I. 266 at 14) The motion further

2

concerns rulings the Court made at the pre-trial hearing, including its ruling that once liability
arises from a failure to repurchase, "the calculation of statutory damages is ... governed by
Section 2727(a)" (D.I. 308 at 71), which states, in relevant part, "If a supplier fails or refuses to
repurchase any inventory covered under this subchapter within the time periods established, the
supplier is civilly liable for 100 percent ofthe 'current net price' ofthe inventory," 6 Del. C.§
2727. The Court added, "STP does not have to prove any additional elements in this case in
order to obtain statutory damages for the new and used inventory." (D.I. 308 at 71) Defendant
contends that the Court's construction and application of§ 2723 and § 2727 here is
unconstitutional.
Briefing on Defendant's motion to preclude was completed on December 21, 2012. (D.I.
313, 315) The Court heard oral argument on June 18,2013. (D.I. 320)

III.

DISCUSSION
A.

Waiver

As a threshold matter, the Court must decide whether Terex has waived its opportunity to
challenge the constitutionality of the Dealer Statute as construed and applied in this case.
Plaintiff argues Terex's constitutional challenge is untimely and should be deemed waived
pursuant to Fed. R. Civ. P. 8(c)(1). (D.I. 313 at 18-20) Plaintiff adds that Defendant's decision
to raise this challenge at the last minute has created "unfair surprise," prejudicing Plaintiff. (Jd.
at 20) Defendant responds that Rule 8(c)(1) does not impose the stringent requirement
articulated by Plaintiff, and notes that Plaintiff fails to cite legal authority for its waiver
argument. (D .I. 315 at 10)
The Court concludes that Terex has not waived its constitutional challenge. Rule 8(c )(1)

3

provides a list of affirmative defenses that must be raised in an answer, but it does not include a
challenge to a statute's constitutionality. Plaintiff cites no binding authority for the proposition
that a constitutional challenge to a statute is waived under Rule 8( c) if not pled as an affirmative
defense in the answer.
The Court is also unconvinced that STP has been prejudiced. STP first claims prejudice
because it did not have "the opportunity to probe the bases for this defense during discovery."
(D.I. 313 at 20) However, Defendant's constitutional challenge does not present a factual
question. Plaintiff also claims that it "made decisions concerning its strategy and the damages it
was seeking based on Terex's apparent concession ofliability" and now may be left without a
remedy "at the eleventh hour." (Jd.) As is evident from the remainder of this opinion, and the
Court's denial ofTerex's pending motion, Plaintiff has not been left without a remedy.
Accordingly, while it would have been preferable for Terex to have raised its
constitutional challenge sooner, Terex did not waive this issue.
B.

Takings

Terex contends the Court's construction and application of the Dealer Statute constitutes
an unconstitutional taking ofTerex's property under (i) the Due Process Clause ofthe Fourteenth
Amendment to the U.S. Constitution and (ii) Art. I Section 8 of the Delaware Constitution.' (D.I.
309 at 8) Specifically, Defendant argues the Court's construction and application of both§ 2723
(D.I. 266 at 14) and§ 2727 (D.I. 308 at 71) requires no proof of"actualloss" to recover statutory

'Defendant devotes a large portion of its briefing to attempting to reargue the issues
already decided by the Court in its summary judgment order. The issues now before the Court,
however, only involve whether the Court's construction and application of the statute is
unconstitutional, not whether the Court erred in its construction at the summary judgment stage
ofthe case.
4

damages and, therefore, renders the statute punitive (D.I. 309 at 9).
In support of its position, Defendant relies solely on a single Delaware Supreme Court
decision, Globe Liquor Co. v. Four Roses Distillers Co., 281 A.2d 19 (Del. 1971). Contrary to
Terex's reading, Globe Liquor does not stand for the broad proposition that whenever statutory
damages are imposed without proof of actual loss, such damages are punitive and, therefore, an
unconstitutional taking. Globe Liquor involved a challenge to the Delaware Franchise Security
Law ("FSL"), which provided that if a franchisor terminated- or even attempted to terminate the relationship it formed with a distributor, and was unsuccessful in showing good cause or
good faith, the distributor became entitled to obtain statutorily prescribed damages. See id. at 21.
After the distributor, Globe Liquor, sued the franchisor, Four Roses Distillers, for attempting to
terminate their franchise agreement, Four Roses Distillers argued that the FSL resulted in a
taking, in violation of due process, because of the FSL' s "requirement that damages be paid to
wholesale distributors irrespective of the existence of any actual economic injury taking place as
a result of franchise termination." Id. at 23. On the basis ofhow easily liability could be
established under the statute, as well as how severe the mandatory statutory damages were, the
Delaware Supreme Court held that the FSL's damages provisions were unconstitutional. See id.
at 24.
Globe Liquor addresses only the FSL, and not statutory remedies in general. Its
applicability to the Delaware Dealer Statute is limited. In any event, Globe Liquor's analysis
does not support a conclusion that the Dealer Statute is unconstitutional. First, the prescribed
damages mandated by the FSL were "savagely punitive," requiring a franchisor to pay (i) the
value of the distributor's assets attributable to the franchisor, (ii) the distributor's loss of

5

goodwill, (iii) the "loss of profits, presumed to be not less than five times the profit in the most
recently completed fiscal year," (iv) all other damages allowed by law, and (v) attorney's fees.

Id. at 20-21. By comparison, the Dealer Statute's damages provision,§ 2727, as construed and
applied here, requires the supplier, Terex, to pay 100% ofthe current net price of the inventory
Terex refused to repurchase from its dealer, STP. Second, Globe Liquor emphasized that the low
threshold for triggering the FSL' s remedy provisions compounded the problem, observing that
the FSL made it "mandatory that upon proof of a termination, or of a threat to terminate, the
distributor shall recover the statutory damages." Id. at 24. In contrast, the Dealer Statute
requires that the supplier actually "fail[] or refuse[]" to repurchase equipment within the statutory
90-day period - not merely threaten to fail or refuse to repurchase - in order to trigger its
statutory damages. See 6 Del. C.§ 2727(a) (imposing statutory damages only "if a supplier fails
or refuses to repurchase any inventory covered under this subchapter within the time periods
established"). Consequently, and unlike with the FSL, under the Dealer Statute a distributor
cannot obtain statutory damages without showing actual loss.
Hence, the Court's construction and application of the Dealer Statute results in a
prescribed damages provision that is harder to trigger, and less severe, than that contained in the
FSL and struck down in Globe Liquors. In addition, because liability is only triggered under the
Dealer Statute if a supplier "fails or refuses" to repurchase, § 2727(a) liability requires proof of
some actual harm, again unlike the FSL. Therefore, Globe Liquor, the only authority relied on by
Terex for its takings challenge, does not support a conclusion of unconstitutionality.
Accordingly, the Court concludes that its construction and application of the Dealer Statute does
not result in a taking.

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C.

Due Process

Defendant also argues that, as construed and applied here, the Dealer Statute violates due
process under the U.S. and Delaware Constitutions. In particular, Terex contends that the Dealer
Statute (i) fails "to provide adequate notice of the required conduct and resulting penalty" and
further (ii) fails "to require culpable conduct before imposing a penalty." (D.I. 309 at 11)
Additionally, in Terex's view, the Court's construction and application should not be applied
retroactively because it is novel, not foreseeable, and at odds with the plain language of the
statute. (!d. at 16)
Defendant's first argument, lack of adequate notice, is predicated on Terex's view that the
Dealer Statute is void for vagueness. The Supreme Court has explained that "a statute which
either forbids or requires the doing of an act in terms so vague that men of common intelligence
must necessarily guess at its meaning and differ as to its application violates the first essential of
due process oflaw." Connally v. Gen. Canst. Co., 269 U.S. 385, 391 (1926); see also Crissman
v. Delaware Harness Racing Comm 'n, 791 A.2d 745, 747 (Del. 2002) (stating that a statute

which "imposes a standard of conduct for the breach of which an individual will be held
responsible must define the conduct with sufficient particularity to enable [the person] to make
his [or her] conduct conform") (alteration in original).
Here, the plain language of the Dealer Statute makes clear to a person of ordinary
intelligence what constitutes a violation and does not leave such a person to guess at the statute's
meaning. In particular, § 2723(a) plainly states that the supplier "shall repurchase from the
dealer within 90 days after termination ofthe contract agreement all inventory previously
purchased from the supplier that remains unsold on the date of termination of the agreement." 6
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Del. C. § 2723(a) (emphasis added). Section 2727 then makes clear that "[i]f a supplier fails or
refuses to repurchase any inventory covered under this subchapter within the time periods
established, the supplier is civilly liable." Id. § 2727(a) (emphasis added). The word "inventory"
is defined in§ 2720 as "the tractors, implements, attachments, equipment and repair parts that the
dealer purchased from the supplier." Id. § 2720(5). Finally, as Plaintiff points out, the statute
enumerates specific exceptions to the broad requirement (including an exception for old2
equipment) but nowhere is used equipment mentioned or exempted. It follows that a person of
ordinary intelligence would know that failing to repurchase used equipment, under the
circumstances prescribed here, constitutes a violation of the Dealer Statute.
Defendant next argues the statute fails to give adequate notice of its "severe penalty."
(D.I. 309 at 14) Notwithstanding Terex's insistence on labeling the statutory penalty discussed
above as "severe," the language of the statute plainly sets out the penalty. Id. § 2727(a) ("If a
supplier fails or refuses to repurchase any inventory covered under this subchapter within the
time periods established, the supplier is civilly liable for 100 percent of the 'current net price' of
the inventory."); id. § 2720(3) (defining "current net price" as "the price listed in the supplier's
price list in effect at the time the contract agreement is terminated, less any applicable discount
allowed").
Defendant further argues that due process is violated because the Court's construction
and application of the Dealer Statute "imposes severely punitive statutory damages on Terex
without requiring that Terex have engaged in sufficiently reprehensible conduct to justify the

2

See 6 Del. C. § 2724(6) ("Any tractors, implements, attachments or equipment that the
dealer purchased from the supplier more than 36 months before date of the notice of
termination.").
8

punishment." (D.I. 309 at 14) Terex contends that under Delaware law, civil punitive awardsstatutory and non-statutory alike - can only be imposed after a close examination of whether a
defendant's conduct was "outrageous," exhibited "evil motive," or showed "reckless indifference
to the rights of others." (Id. at 15) Terex asserts that the Delaware Legislature has required a
showing of "willful and wanton conduct" in all statutes expressly authorizing punitive awards.
(!d.)

The Court disagrees. The main authority Terex cites for these propositions is Jardel Co.

v. Hughes, 523 A.2d 518 (Del. 1987), which concerns non-statutory punitive damages awarded
by a jury in a tort action. Here, the challenged provisions provide for statutory damages. 3
Furthermore, in Jardel, the Delaware Supreme Court actually remarked on how certain Delaware
statutes imposing punitive damages do not require a showing of reprehensibility. See 523 A.2d
at 529 ("[A]part from the application of punitive damage standards as a recovery threshold under
the automobile and premises guest statutes, the imposition of punitive damages has been
sanctioned only in situations where the defendant's conduct, though unintentional, has been
particularly reprehensible.") (emphasis added).
Next, Defendant argues that when the U.S. Supreme Court reviews an award for being
grossly excessive in violation of due process, it looks at certain factors to determine whether
"reprehensible conduct" is present. This argument is based on BMW of N Am., Inc. v. Gore, 517
U.S. 559, 568 (1996), in which the Court held, "[o ]nly when an award can fairly be categorized"

3

As the Supreme Court has explained, "[t]he review of a jury's award for arbitrariness
and the review of legislation surely are significantly different." TXO Prod. Corp. v. Alliance Res.
Corp., 509 U.S. 443,456 (1993); see also Arrez v. Kelly Servs., Inc., 522 F. Supp. 2d 997, 1008
(N.D. Ill. 2007) ("Defendant relies on due process cases involving punitive damages ... but
those cases are not relevant to statutory penalties.").
9

as "grossly excessive" in relation to a state's legitimate interests in punishment and deterrence
"does it enter the zone of arbitrariness that violates the Due Process Clause of the Fourteenth
Amendment." In Gore, the Court articulated "[t]hree guideposts" for evaluating whether a
damages award is grossly excessive: (i) "the degree of reprehensibility of the defendant's
conduct," (ii) the ratio between the damages award and "the actual harm inflicted on the
plaintiff," and (iii) the difference between the punitive damages award and "the civil or criminal
penalties that could be imposed for comparable misconduct." Id. at 574-83.
Even assuming the Gore factors apply to statutory damages, but see Sony BMG Music
Entm 'tv. Tenenbaum, 660 F.3d 487,513 (1st Cir. 2011), cert. denied, 132 S. Ct. 2431 (U.S.

2012) (noting that Supreme Court has not "suggested that the Gore guideposts should extend to
constitutional review of statutory damage awards"), Terex has made no effort to apply those
factors to the facts of this case. STP, however, does the analysis for Terex (at least for the first
two Gore factors), and the Court concludes that: (i) several indicia of reprehensible conduct are
present, such as "STP was in a financially vulnerable condition, Terex's violation involved
repeated actions, and the harm inflicted on STP was not accidental;" (ii) the ratio between the
damages award and the actual harm inflicted on STP is at most 4.3:1,4 which comports with the
limits of due process, see Gore, 517 U.S. at 582 ("$2 million in punitive damages awarded to Dr.
Gore by the Alabama Supreme Court is 500 times the amount of his actual harm as determined
by the jury."); see also Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 21 (1991) (holding damages
award of not more than 10 to 1 was constitutional); and (iii) no reason is apparent on the record

4

The Final Judgment Order fixed the damages for 100% of"current net price" at
$4,349,041.55. (D.I. 307 at 2) The amount of actual harm STP suffered was at least $1,000,000.
(See D.I. 266 at 4)
10

to support a conclusion that the statutory damages awarded here are excessive in comparison to
civil or criminal penalties that could be imposed for comparable misconduct. (See D.I. 313 at 1718) Consequently, the prescribed damages of the Dealer Statute are not unconstitutionally
excessive.
Finally, Defendant argues the Court's construction and application should not be applied
retroactively where it is novel, not foreseeable, or at odds with the plain language ofthe statute.
(D.I. 309 at 16) (citing, e.g., Rogers v. Tennessee, 532 U.S. 451, 456 (2001)) It follows from the
reasons already stated that the Court is not persuaded by this line of attack either.

IV.

CONCLUSION

As Terex has failed to show that application of the Delaware Dealer Statute to the instant
case in the manner previously ordered by the Court is unconstitutional, the Court will deny
Terex's motion to preclude. (D.I. 309) An appropriate Order follows.

11

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

SOUTHERN TRACK AND PUMP, INC.,
Plaintiff,
Civil Action No. 08-543-LPS

v.
TEREX CORP., d/b/a TEREX
CONSTRUCTION AMERICAS,
Defendant.

ORDER
At Wilmington, this 30th day of September 2013,
For the reasons set forth in the Memorandum Opinion issued this date,
IT IS HEREBY ORDERED that:
Defendant's Motion to Preclude the Unconstitutional Application of the Delaware
Equipment Dealer Contracts Statute (D.I. 309) is DENIED.

UNITED STATES DIS