Lead Opinion
Electrical and Magneto Service Company, Incorporated (“EMS”) appeals the district court’s entry of summary judgment. We reverse.
I. BACKGROUND
In April 1984, United Technical Diesel Systems (“United”) entered a franchise agreement with EMS. EMS distributed diesel equipment manufactured by United. The agreement contained a clause stating that the contract was to be “construed and enforced in accordance with the laws of the State in which the Company’s principal office is located.” The agreement defined “the Company” as United, whose principal office was located in Massachusetts; EMS’ principal office was located in Missouri. The contract provided that it could be terminated by either party after giving ninety days written notice, and that “the Company” could terminatе the agreement immediately if EMS breached the agreement and such breach continued for ten days after written complaint of the breach was given to EMS.
In late 1987 or early 1988, AMBAC purchased the diesel business from United and became United’s successor in interest. AMBAC is a Delaware corporation and its principal office is in South Carolina. In June 1988, AMBAC terminated the franchise agreement with EMS; the termination occurred ten days after AMBAC had given EMS written notice that AMBAC believed EMS had breached the agreement. EMS then sued AMBAC fоr damages for its failure to comply with Missouri law, which requires that a franchisor give ninety days notice before cancelling a franchise agreement.
II. DISCUSSION
“Federal district courts must аpply the choice of law rules of the state in which they sit when jurisdiction is based on diversity of citizenship.” Whirlpool Corp. v. Ritter,
(1) The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to thаt issue.
(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to thаt issue, unless either
*662 (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue....
In its opinion, the district court determined that the issue of notice was one the parties could have provided for in their agreement, reasoning thusly:
Examples of issues which “could have [been] resolved by an explicit provision” are rules relating to construction оf the agreement, to conditions precedent and subsequent, to sufficiency of performance or to excuse for nonperformance. [Restatement (Second) of Conflicts § 187], Comment c. Questions which cannot be determined by explicit agreement include capacity, substantial validity and illegality. Id., Comment d.
Electrical & Magneto Serv. Co. v. AMBAC Int’l Corp.,
The Restatement must be appliеd in the same manner as it would be applied by Missouri courts; to the extent that Missouri bypasses the Restatement’s formal analysis, so must federal district courts sitting in Missouri. With this in mind, we find State ex rel. Geil v. Corcoran,
In Corcoran, the contract in issue contained an arbitratiоn clause and a choice of law provision that selected New York law. Id. at 555. In construing the Restatement, the Missouri Court of Appeals stated that “the parties have chosen New York as the applicable law, but § 187(2)(b) calls for this choice to bе disregarded if application of New York law would be ‘contrary to a fundamental policy’ of [Missouri’s].” Id. at 556. The court did not utilize that portion of § 187 that calls for a distinction between issues that can and cannot be agreed to by the parties, thus any attempted distinction in the case at bar is not relevant. Missouri’s law, as contained in Corcoran, simply requires the choice of law provision to be given effect unless to do so would violate a fundamental policy of Missouri.
The parties concede that South Carolina has no counterpart to Missouri’s notice requirement. They also seem to agree that if South Carolina law does not apply, then Missouri law will apply. Our task, then, is to determine whether Missouri’s ninety-day notice requirement is such a fundamental policy of statе law that Missouri courts would not apply a choice of law provision selecting a state that does not have a similar requirement. In Corcoran, the court of appeals determined that Missouri had “a very strong policy in favor of providing a judicial forum for the сlaims of investors under the blue-sky laws.” Id. Significant factors contributing to this conclusion were the existence of a statute providing for a private action in state court and a provision voiding any attempt to waive compliance with the private right of аction. Id. We find comparable, and in some respects greater, indicia that the ninety-day notice requirement at issue in the case sub judice is a fundamental policy of Missouri.
First, Missouri is strongly committed to the notion that different sections of a statute must be construed together, especially when they are passed by the same session of the legislaturе. E.g., State ex rel. Kemp v. Hodge,
Secondly, we note that the individual statutes comprising a chapter are to be construed consistently with each other. See City of St. Louis v. Carpenter, 341
Finally, we observe that both aggrieved parties and, in some cases, prosecuting attorneys and the attorney general may bring an action against franchisors that fail Aggrieved parties can bring legal action to recover actual damages, including loss of goоdwill and the cost of the suit, and may also obtain injunc-tive relief. Id. § 407.410.2. A willful violation of § 407.405 constitutes a class D felony. Id. § 407.420. Although we have been assured that no criminal action has been brought pursuant to this statute, the provision does exist. Perhaps, in a situation deemed sufficiеntly egregious, those charged with bringing criminal prosecutions under this statute will do so. For our purposes, it is sufficient that the criminal provision exists, and its existence is significant because the legislature would not allow a criminal law to be bypassed by the mere existenсe of a choice of law provision contained in a contract. to comply with the law.
Although our above discussion convinces us that Missouri courts would not honor the choice of law provision present in this case, we further explain our position by addressing AMBAC’s citation of decisions from other jurisdictions purporting to support its position. None of these decisions involve Missouri law, and there is no indication that Missouri would be likely to follow the lead of any other particular state. One of these decisions, Modern Computer Sys., Inc. v. Modern Banking Sys., Inc.,
As an initial matter, Modern Computer suffers from the same inadequacy as the other cases relied upon by AMBAC; namely, it did not involve Missouri law. Almost equally important, however, Modern Computer did not involve the same faсt pattern present in the case at bar. In Modern Computer, a Nebraska District Court, faced with a choice of law provision select
The Missouri statutes in question, relating to merchandising and trade practices, are оbviously a declaration of state policy and are matters of Missouri’s substantive law. To allow these laws to be ignored by waiver or by contract, adhesive or otherwise, renders the statutes useless and meaningless.
III. CONCLUSION
Missouri case law provides that a chоice of law provision will be honored unless to do so would violate a fundamental public policy of the state. We conclude that the ninety-day notice requirement contained in Mo.Rev.Stat. § 407.405 represents fundamental public policy of Missouri. Because application of South Carolina law would infringe upon this policy by denying EMS the protections of Missouri’s law, South Carolina law cannot be applied, and we reverse and remand this case for further proceedings consistent with this opinion.
Notes
. Therе are exceptions to Missouri’s ninety-day requirement, but simple breach of the franchise agreement is not one of them. Mo.Rev.Stat. § 407.405 (1986).
. For a history of Chapter 407, see generally Webster, Combatting Consumer Fraud in Missouri: The Development of Missouri’s Merchandising Practices Act, 52 Mo.L.Rev. 365 (1987).
. AMBAC argues that there is no evidence of economic disparity between itself and EMS. However, the Missouri Legislature created a legislative presumption that franchisees are in an inferior bargaining position with respect to franchisors and thus are entitled to protection from the opрressive use of the franchisor’s superiority. The Legislature has further decreed that allowing franchisors to terminate franchise agreements with less than ninety-days notice is an oppressive use of bargaining strength. Franchisees are entitled to rely on these рresumptions and take advantage of the statute's protection regardless of their true economic power; for this reason, AMBAC's argument is of little consequence.
Dissenting Opinion
dissenting.
I respectfully dissent. This case is controlled by Modern Computer Sys., Inc. v. Modern Banking Sys., Inc.,
Here, we have a franchisee, whose franchise was cancelled for cause upon the ten days notice provided in the contract, who is now using an inapplicable Missouri statute to extract damages from a franchisor that thе franchisee had willfully ceased to serve. This is hardly the stuff upon which fundamental state policy should be built. Further, the Missouri statute that EMS seeks to enforce has six exceptions that permit cancellation without any timeline whatever. This further depreciates the argument that ninety days of notice for cancellation of a franchise is (or should be) a fundamental policy adopted by the Missouri Legislature. I would affirm.