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Elliott & Frantz, Inc. v. Ingersoll-Rand Co.

August 11, 2006


On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civ. No. 03-04746) Honorable John P. Fullam, District Judge.

The opinion of the court was delivered by: Greenberg, Circuit Judge.


Argued June 1, 2006




This matter comes on before the court on an appeal by plaintiff-appellant Elliott & Frantz, Inc. ("Elliott & Frantz") from orders of the district court entered April 1, 2005, and April 6, 2005, granting defendant-appellee Ingersoll-Rand Company ("Ingersoll-Rand") summary judgment on Elliott & Frantz's contract claims arising out of Ingersoll-Rand's termination of the parties' Distributor Selling Agreement. For the reasons set forth below, we will affirm the orders in part and reverse in part and will remand the matter to the district court for further proceedings.


1. The Parties and Their Agreement

Plaintiff Elliott & Frantz is an industrial construction equipment sales and service provider incorporated under the laws of Pennsylvania with its principal place of business in that state. Defendant Ingersoll-Rand is a manufacturer and supplier of industrial construction equipment incorporated under the laws of New Jersey with its principal place of business in that state. In August 1994, Elliott & Frantz and Ingersoll-Rand entered into a written Distributor Selling Agreement (the "Agreement") pursuant to which Elliott & Frantz would have non-exclusive rights to promote, sell and service Ingersoll-Rand equipment within a specific geographical area, referred to as the "Area of Primary Sales Responsibility," consisting of various counties in eastern Pennsylvania and Delaware. Although the Agreement granted Elliott & Frantz the "non-exclusive" right to represent Ingersoll-Rand's products within the Area of Primary Sales Responsibility, Elliott & Frantz asserts that the parties treated the Agreement as granting it an exclusive right.

The Agreement imposed certain responsibilities on Ingersoll-Rand including, inter alia, the obligation to "provide sales assistance, engineering and application advice, reasonable quantities of advertising materials, campaigns and instruction in sales and service." App. at 54, ¶ 2.B. On the other hand, the Agreement required Elliott & Frantz, inter alia, to "use its best efforts to develop business, to promote the sale of and to sell Equipment covered by this Agreement within its Area of Primary Sales Responsibility and [to] furnish prompt, efficient, and courteous service." App. at 54, ¶ 3.B.

Most relevant for our purposes, the Agreement contained a termination provision, which read in pertinent part:


A. This Agreement, unless terminated as hereinafter provided, shall continue in full force and effect until terminated by either party, without cause, on sixty (60) days written notice to such effect given to the other party.

B. This agreement may be terminated by Ingersoll-Rand on thirty (30) days written notice to Distributor, should the Distributor fail to satisfy the sales objectives as prescribed by this Agreement.

App. at 56, ¶ 13.A-B. (emphasis added). The Agreement further provided that "[the] Agreement including its attachments contains the entire and only agreement between the parties respecting the sale to and the purchase by the Distributor of the Equipment referred to herein, and any representation, promise or condition not incorporated herein shall not be binding on either party." App. at 57, ¶ 14.B. Finally, the Agreement provided that all questions arising under it were to be governed by New Jersey law.

2. Termination of the Agreement

In July 2002, Ingersoll-Rand notified Elliot & Frantz of its dissatisfaction with what it stated was Elliott & Frantz's declining performance under the Agreement. On May 12, 2003, Ingersoll-Rand sent a letter to Elliott & Frantz terminating its distributorships in Pennsylvania and Delaware. In particular, the termination letter read:

[P]ursuant to Section 13 of the Agreement, the Agreement and our business relationship with respect to the Pennsylvania counties covered by the Agreement will terminate sixty (60) days from your receipt of this letter. The Agreement and our business relationship with respect to Delaware will terminate one hundred eighty (180) days from receipt of this letter.

App. at 138. Ingersoll-Rand explained that it based its decision to terminate the Agreement on "the continued unacceptable performance of Elliott & Frantz and the significant decline in its overall sales and market share with respect to [Ingersoll-Rand] products in 2002," which led Ingersoll-Rand to conclude that its products were "not being adequately represented by Elliott & Frantz." App. at 138.

3. Procedural History

In response to the termination, Elliott & Frantz commenced this action in the Court of Common Pleas of Philadelphia County, Pennsylvania, alleging breach of contract and breach of the duty of good faith and fair dealing.*fn1 Elliott & Frantz alleged that Ingersoll-Rand breached the Agreement by terminating it without cause inasmuch as, according to Elliott & Frantz, the parties had "by conduct amended the [Agreement] to eliminate Ingersoll-Rand's ability to terminate without cause." App. at 707, 718-19. With regard to this purported contractual modification, Elliott & Frantz alleged that "Ingersoll-Rand's annual review of Elliott & Frantz, Inc.'s performance indicated by its nature that so long as Elliott & Frantz, Inc. performed satisfactorily, it would be permitted to continue to have the right to sell Ingersoll-Rand products, and would not be terminated without cause." App. at 707. Of course, in Elliott & Frantz's view it had performed satisfactorily. Elliott & Frantz also alleged that Ingersoll-Rand further breached the Agreement by failing to provide the service and support that the Agreement required. Finally, Elliott & Frantz claimed that Ingersoll-Rand breached its duty of good faith and fair dealing by, among other things, arbitrarily terminating the Agreement, fabricating a pretext to terminate "for cause," and failing to reveal its corporate strategy that called for termination of the Agreement.

Ingersoll-Rand removed the action to the district court on diversity of citizenship jurisdictional grounds on August 18, 2003, and thereafter filed an answer including affirmative defenses and a counterclaim.*fn2 During discovery, Elliott & Frantz inquired into the factual bases explaining Ingersoll-Rand's decision to terminate the Agreement, and Ingersoll-Rand represented that it based its decision on Elliott & Frantz's unacceptable performance and decline in sales and market share. Shortly before the scheduled trial date, Ingersoll-Rand filed a motion for summary judgment on Elliott & Frantz's claims for breach of contract and breach of the implied covenant of good faith and fair dealing, arguing principally that it had "an absolute right to terminate [the Agreement] . . . without cause." App. at 13, 19-20. Ingersoll-Rand further asserted that Elliott & Frantz failed to proffer facts to support an allegation it advanced that the parties assented to, and provided new and independent consideration for, the purported modification of the Agreement. Finally, Ingersoll-Rand argued that the undisputed material facts demonstrated that it fulfilled all of its obligations under the Agreement.

Elliott & Frantz opposed Ingersoll-Rand's motion for summary judgment. Notably Elliott & Frantz asserted that Ingersoll-Rand had waived its right to terminate the Agreement without cause by failing to raise that right as an affirmative defense in its pleadings or during discovery. On April 1, 2005, the district court conducted a hearing on Ingersoll-Rand's motion for summary judgment and, later that same day, granted the motion and ordered that judgment be entered in favor of Ingersoll-Rand on Elliott & Frantz's claims.

In a subsequent Memorandum dated April 5, 2005, the district court set forth the reasons for granting Ingersoll-Rand's motion for summary judgment.*fn3 In its Memorandum, the court explained that Ingersoll-Rand did not waive its right to advance the without cause termination provision by failing to reference it in the termination letter. The district court rejected Elliott & Frantz's contract claim predicated on the assertion that Ingersoll-Rand wrongfully had terminated the Agreement without cause, as the court explained that any purported modification of the Agreement to eliminate the termination without cause provision failed for lack of consideration. The court also rejected Elliott & Frantz's arguments based on New Jersey public policy aimed at preventing economic duress. Finally, with regard to the claim for breach of the duty of good faith and fair dealing, the district court stated that "[t]he contract calls for reasonable support to be provided, and a reasonable jury could not conclude that defendant failed to meet that standard," inasmuch as Ingersoll-Rand did not completely withdraw its contractually obligated support.*fn4 Thereafter, Elliott & Frantz filed a timely appeal.


The district court exercised removal diversity of citizenship jurisdiction over this matter pursuant to 28 U.S.C. §§ 1441 and 1332, and we have jurisdiction pursuant to 28 U.S.C. § 1291. We exercise plenary review of the orders granting summary judgment. See Dilworth v. Metro. Life Ins. Co., 418 F.3d 345, 349 (3d Cir. 2005); Haugh v. Allstate Ins. Co., 322 F.3d 227, 230 (3d Cir. 2003). Thus, we will affirm those orders if our review reveals that "there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter or law." Fed. R. Civ. P. 56(c). As the moving party, Ingersoll-Rand bears the burden of proof, and we view the facts in the light most favorable to Elliott & Frantz, the party against whom summary judgment was sought and entered. See Dilworth, 418 F.3d at 349; Haugh, 322 F.3d at 230. The parties agree that New Jersey law governs, and we ...

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