Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Del.: Violation of repurchase obligations under Delaware Dealer Statute revisited after remand, (Oct 19, 2015)

By Michael Menzhuber, J.D., LL.M.

Upon reversal and remand by the U.S. Court of Appeals in Philadelphia that a construction equipment manufacturer’s repurchase obligation under the Delaware Equipment Dealer Contracts Statute was limited to new and unused equipment, the district court determined that the reversal of its decision impacted the judgment in its entirety and reopened all issues decided in the earlier order (Southern Track and Pump, Inc. v. Terex Corp., October 16, 2015, Stark, L.).

Background. Terex Corporation (Terex), a Delaware construction equipment manufacturer, entered into a distributorship agreement with Southern Track & Pump, Inc. (Southern), a Florida dealership. Subsequently, Southern decided to terminate the distributorship agreement. Based on its interpretation of Dealer Statute, Southern argued that Terex was required to repurchase all unwanted inventory it previously sold to Southern. Terex refused to do so, arguing that the Dealer Statute only required it to repurchase new and unused inventory.

Southern sued Terex over the Dealer Statute’s repurchase obligations. The district court ruled for Southern, holding that Section 2723(a) of the Dealer Statute required suppliers to repurchase all—not just new and unused—inventory. As a result, Terex was ordered to pay the full price of all the inventory it had sold to Southern. After Terex appealed, that court certified the following question of law to 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)?”

The Delaware Supreme Court determined that, under the Dealer Statute, the supplier is required to repurchase new and unused equipment from a terminated dealer but is not required to repurchase used equipment. Following the opinion of the Supreme Court, the appellate court reversed the district court’s decision and remanded the case for the proceedings consistent with the determination that the repurchase obligation under Section 2723(a) extended only to “new, unused, undamaged, and complete inventory.”

Remand Proceedings. Southern, in its briefing to the court as to the proper scope of the proceedings that should be held on remand, argued that the appellate court reversed the court only with respect to a single issue of law. Consequently, according to Southern, the court did not need to revisit its earlier determination that Terex was liable for its refusal to repurchase new inventory.

The court, however, agreed with Terex that the appellate court’s decision: (1) reversed the court’s judgment in its entirety; and (2) reopened each of the issues decided in the court’s earlier order. Consequently, the court determined that the following issues had to be resolved as part of the proceedings on remand: (1) whether Terex violated its repurchase obligations under the Dealer Statute; (2) whether Terex acted inequitably toward Southern; and (3) the effect, if any, of GE Commercial Distribution Finance’s repossession of Southern’s inventory for non-payment of Southern’s loans, on Terex’s obligation to repurchase equipment.

The case is No. 08-543-LPS.

Attorneys: Peter J. Walsh, Jr. (Potter Anderson & Corroon LL) and Suzanne H. Holly (Berger Harris LLP) for Southern Track & Pump, Inc. John C. Phillips, Jr and David A. Bilson (Phillips, Goldman & Spence, P.A.) for Terex Corporation.

Companies: Southern Track & Pump, Inc.; Terex Corporation

Cases: FranchisingDistribution DelawareNews