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Terex Corp. v. S. Track & Pump, Inc.

Supreme Court of Delaware

June 15, 2015

TEREX CORPORATION, d/b/a TEREX CONSTRUCTION AMERICAS, Defendant-Appellant,
v.
SOUTHERN TRACK & PUMP, INC., Plaintiff-Appellee

Submitted April 15, 2015

Case Closed July 1, 2015.

Page 538

Certification of Question of Law from the United States Court of Appeals for the Third Circuit. C. A. No. 13-4279.

CERTIFIED QUESTION ANSWERED.

John C. Phillips, Jr., Esquire (argued), David A. Bilson, Esquire, Phillips, Goldman & Spence, P.A., Wilmington, Delaware; Virginia W. Hoptman, Esquire, Redmon Peyton & Braswell LLP, Alexandria, Virginia, for Defendant-Appellant.

Peter J. Walsh, Jr., Esquire (argued), Ryan M. Murphy, Esquire, Potter Anderson & Corroon LLP, Wilmington, Delaware; Suzanne Hill Holly, Esquire, Berger Harris, LLC, Wilmington, Delaware, for Plaintiff-Appellee.

Before STRINE, Chief Justice; HOLLAND and VALIHURA, Justices; NOBLE, Vice Chancellor,[*] and GRAVES, Judge,[*] constituting the Court en Banc.

OPINION

Page 539

VALIHURA, Justice.

A dispute pending before the United States Court of Appeals for the Third Circuit (the " Third Circuit" ) turns on the interpretation of Delaware's Equipment Dealer Contracts Statute, 6 Del. C. § 2720, et seq. (the " Dealer Statute" ). To assist the Third Circuit in resolving this dispute, the Third Circuit certified the following question of law to this 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)?

As more fully explained below, we answer the certified question of law by concluding that a supplier's repurchase obligation under the Dealer Statute is limited to new, unused, undamaged, and complete inventory.

I. FACTUAL AND PROCEDURAL HISTORY[1]

In April 2007, Southern Track & Pump, Inc. (" Southern Track" ), a Florida-based equipment dealership that sells and leases construction equipment, entered into a distributorship agreement with Terex Corporation (" Terex" ), a Delaware corporation that manufactures construction equipment. Under the distributorship agreement, which was governed by Delaware law, Southern Track purchased from Terex approximately $4 million worth of equipment (about forty pieces in total) and $50,000 worth of parts. Southern Track financed its purchase through an arrangement with GE Commercial Distribution Finance Company (" GE" ). The financing was secured by the equipment Southern Track purchased from Terex using funds provided by GE.

Southern Track had difficulty marketing Terex products. When its loan obligations to GE became too onerous, Southern Track decided to terminate the distributorship agreement. In its termination letter, Southern Track indicated that it wanted to keep some equipment, but it wanted Terex to repurchase everything else. The purported impetus behind the decision to terminate was Southern Track's assumption that the Dealer Statute's repurchase obligation

Page 540

would force Terex to repurchase all of the inventory Terex had previously sold to Southern Track that Southern Track did not wish to retain.[2]

Terex disagreed. Terex contended that the Dealer Statute required a supplier to repurchase only new and unused equipment. Terex argued that since most, if not all, of the equipment it sold to Southern Track had entered Southern Track's rental fleet, the equipment was used. Terex asked Southern Track to compile a list of the new and unused equipment Southern Track had in its inventory. Instead of complying with that request, Southern Track sent Terex a letter in June 2008 that identified seventeen pieces of equipment that it wanted Terex " to come and pick up." Over half of those items had been in operational use for 175 to 300 hours. Yet Southern Track insisted that Terex was required to purchase the equipment at brand new prices.

After some back and forth, Terex offered to repurchase nine of the seventeen pieces of equipment listed in Southern Track's June 2008 letter.[3] Terex offered to pay market value for the equipment, but reserved the right to take a deduction for any parts or repair services " required to return any of the repurchased equipment to good running and operating condition."

As negotiations between the parties progressed, Southern Track was under increasing pressure from GE to make past-due payments or risk losing possession of the equipment it had purchased from Terex. With GE's threat looming, and with no sign that the parties were close to resolving their differences, Southern Track filed a declaratory judgment action against Terex in the Delaware Superior Court on July 23, 2008. One day later -- and one month before the expiration of the Dealer Statute's ninety-day repurchase period -- GE took possession of all of the equipment Southern Track had purchased from Terex. GE later sold most of this equipment at auction.

Terex removed the lawsuit to the United States District Court for the District of Delaware based on diversity jurisdiction. Southern Track's second amended complaint alleged, in relevant part, that Terex had violated the Dealer Statute when it failed to repurchase " all inventory previously purchased [from it] . . . that remain[ed] unsold on the date of the termination of the agreement." [4] As a result of the alleged breach, Southern Track claimed that it was entitled to the relief prescribed by ยง 2727(a) of the Dealer Statute, namely, that ...


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