History of Ensign Equipment Company

8/11/2019 History of Ensign Equipment Company

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history.txtcontract and tort claims

against John Deere in anattempt to recover damages resulting from the restrictionsJohn Deereplaced upon

Enfield's ability to sell the business. John Deere removedthe case to the UnitedStates District Court

for the District of Mary-land, pursuant to 28 U.S.C.A. 1441(b) (West 1994). JohnDeerethen filed a 12

(b)(6) motion to dismiss part of the breach of contractclaim and all of theremaining claims, which the

district court granted.The parties then consented to dismissal of the remainingparts of thebreach of

contract claim. On appeal, Enfield challenges only that por-tion of the districtcourt's order that

determined that the assignmentprovision in the dealer agreement gave John Deere thecontractualright to

withhold its consent to any proposed transfer for any reason,even an arbitrary one.Enfield argues that

the implied covenant ofgood faith and fair dealing is present in every Marylandcontract andrequired

John Deere to exercise its discretion in a reasonable fashion.Because John Deerelimited Enfield's

freedom to assign its distribu-torship by allowing it to deal only with Rebar, andbecause JohnDeere

later refused to consent to the original purchase agreement thatEnfield negotiatedwith Rebar, Enfield

claims that John Deere unrea-sonably withheld its consent in violation of Marylandlaw.II.We review a

district court's dismissal under Rule 12(b)(6) for fail-ure to state a claim denovo. See Republican

Party v. Martin, 980F.2d 943, 952 n.16 (4th Cir. 1992). We will affirm the districtcourt'sorder only if

it appears certain that Enfield could not prove any setof facts that would supportits claim and entitle

it to relief. See MylanLab., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). Forthe rea-sons that

follow, we agree with the district court that granting JohnDeere's motion to dismisswas proper. The

express language of thedealer agreement between Enfield and John Deere prohibitedEnfieldfrom

transferring its distributorship without the prior written consentof John Deere.Significantly, there

was no "reasonableness" limitationprovided in this assignment provision. EnfieldPage 2


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history.txtasks us to read into

the3Page 4contract such a limitation based upon the implied covenant of goodfaith and fairdealing. Enfield relies

almost entirely upon Julian v.Christopher, 575 A.2d 735 (Md. 1990), as support forits position

andargues that the Court of Appeals of Maryland would extend the ruleannounced inJulian to the

distributorship context at issue here.1 Wedisagree.In Julian, the Court of Appealsof Maryland overruled

its priordecision in Jacobs v. Klawans, 169 A.2d 677 (Md. 1961), andannounced a newapproach to

interpreting commercial lease agree-ments that contain provisions prohibiting thetenant from assigning

orsubletting the premises without the prior written consent of the land-lord. TheJulian court held that

for lease agreements entered into afterits decision, landlords could no longerunreasonably withhold

theirconsent when a tenant sought to assign or sublet the property. SeeJulian, 575A.2d at 740. The

Julian court grounded its decision in twoarticulated public policy considerations:(1) the policy

againstrestraints on alienation; and (2) the policy implying a covenant ofgood faithand fair dealing in

all contracts. See id. at 738. AlthoughEnfield seizes upon this second public policyconsideration as

requir-ing courts to impose a similar reasonableness standard in assignmentclauseslike the one

contained in its agreement with John Deere, ourreading of Julian persuades us thatwere it not for the

policy againstrestraints on alienation the Maryland court likely would nothaveimplied a reasonableness

requirement in that case. See id. at 736-39(centering its discussion around propertylaw and landlord-

tenant con-cepts, rather than general contract principles). Indeed, Marylandstatecourts and other

courts interpreting Maryland law have indicated thatthe implied covenant of goodfaith and fair dealing

will not oftenserve to impose such limitations on bargained-for contractprovisions.See Dupont Heights

Ltd. Partnership v. Riggs Nat'l Bank, 949 F.Supp. 383, 389 (D. Md. 1996) ("To theextent that a duty of

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history.txtnotapply in this

context.3 As further support for our conclusion that Maryland law does notplace areasonableness

requirement upon John Deere's ability to with-hold its consent to a proposedtransfer, we point out that

the distributor-ship agreement calls on Enfield to work closely and"cooperate"withJohn Deere in

maintaining the dealership. (J.A. at 208); see also BerlinerFoods Corp. v. PillsburyCo., 633 F. Supp.

557, 559 (D. Md. 1986) (not-ing that distributorship agreements arecontracts"calling for the perfor-

mance of personal services," which cannot be assigned without theconsent of theother contracting

party). Because of the personal nature ofthe distributorship agreement at issue here-- which involves a

relativelyclose relationship between John Deere and its dealer that is nottypicallypresent between

commercial lessors and lessees -- we are further con-vinced that to imply areasonableness limitation in

the dealer agreementwould serve to frustrate John Deere's bargained-for power topreventassignments of

the distributorship to parties John Deere finds undesir-able.5Page 6lor Equipment, Inc. v. John Deere Co., 98 F.3d 1028 (8th Cir. 1996),the EighthCircuit interpreted South

Dakota law in considering thevirtually identical question with which we are faced.The Eighth Cir-cuit

concluded that the implied covenant of good faith and fair deal-ing did not upsetJohn Deere's right to

refuse consent to a proposedassignment, even if its refusal was unreasonable. 4 Seeid. at 1033-34.The

court explained that the dealer agreement, which contained thesame"no-assignment-without approval

clause" at issue here, couldhave been written in a manner that would have requiredJohn Deereto act

reasonably if that had been the intention of the parties. See id.at 1034-35.Similarly, in James v.

Whirlpool Corp., 806 F. Supp. 835(E.D. Mo. 1992), a federal district court applyingMichigan law con-

cluded that Whirlpool had "unlimited authority to refuse assignment"and held thatthe implied covenant

of good faith and fair dealingwould not limit that discretion. Id. at 840, 844. Thecontract at issuein

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history.txt

James contained a provision similar to the one here that prohibitedWhirlpool'sdistributor from

assigning its rights"without the priorwritten consent of Whirlpool." Id. at 839. TheJames court

recognizedthat the implied covenant applied to all contracts under Michigan law,butnoted that the

purpose of the covenant is to protect the reasonableexpectations of the parties andshould not be used

to override expressrights included as part of the contract. See id. at 843-44. Wefind thesecourts'

reasoning persuasive and are confident that Maryland's high-est court would agree.We do not consider

its decision in Julian toundermine these general contract principles.Finally, andperhaps most

importantly, we point out that the Juliancourt took pains to limit the reach of itsholding to leases

entered intoafter the date that its mandate was issued. See Julian, 575 A.2d at740.Julian was decided

in June 1990. The dealer agreement betweenEnfield and John Deere that is at issuehere was entered into

in Octo-ber 1985. At the time the parties in this case negotiated thecontract,therefore, there was no

Maryland opinion, in any context,

suggesting_________________________________________________________________4 The

Taylor Equipment courtalso noted a line of cases that would sup-port the theory that although John Deerecould act

unreasonably in with-holding its consent, it could not act dishonestly. See TaylorEquip., Inc.v. John

Deere Co., 98 F.3d 1028, 1033 (8th Cir. 1996). Enfield does notallege that JohnDeere acted dishonestly

in limiting Enfield's ability toassign its rights under the dealer agreement.6Page 7that the implied covenant of good faith and fair dealing imposed areasonablenesslimitation upon a

party's ability to withhold its con-sent under an assignment provision like the oneagreed to by

Enfieldand John Deere. The Julian court's desire to protect thenegotiatedexpectations of parties to

contracts entered into before its decision andnot to apply its ruling to thosecontracts warrants the

conclusion thatthe Court of Appeals of Maryland would also not seek toPage 6


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history.txtextendJulian's application to

contracts entered into prior to June 1990. Evenif the Court of Appeals of Marylandwere to extend the

holding ofJulian to the circumstances at issue here, therefore, we are confidentthatit would not do so

in this case, where the contract was enteredinto pre-Julian.5III.For the foregoingreasons, we

affirm.AFFIRMED_________________________________________________________________5

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History of Ensign Equipment Company