The Franchise Memorandum

The Third Circuit Court of Appeals, after certifying the issue to the Delaware Supreme Court, has ruled that a supplier's inventory repurchase obligation under Delaware's dealer law is limited to new, unused, undamaged and complete inventory. Southern Track & Pump, Inc. v. Terex Corp., 2015 U.S. App. LEXIS 11190 (3d Cir. June 30, 2015). Plaintiff Southern Track terminated its distributorship agreement with Terex after Southern Track had difficulty marketing approximately $4 million worth of construction equipment purchased from Terex. Although Delaware's Equipment Dealer Contracts Statute required suppliers to repurchase "all inventory previously purchased from the supplier that remains unsold," Terex refused to repurchase used equipment that Southern Track had been leasing to its customers. While negotiating the scope of equipment Terex would repurchase, Southern Track's creditor repossessed the equipment under a financing agreement and the lawsuit ensued.

The trial court granted summary judgment in favor of the dealer, finding that Terex violated the statute by refusing to repurchase all of Southern Track's unsold inventory, and ordered Terex to pay 100 percent of the inventory's net price pursuant to the prescribed statutory relief. On appeal, the Third Circuit certified the question of repurchase obligations under the statute to the Delaware Supreme Court to clarify whether it applied to "all" inventory, or only "new, unused, undamaged and complete inventory." The Delaware Supreme Court concluded that the statute was ambiguous and subject to two different interpretations, but noted that the law specifically outlined pricing formulas for new and unused equipment, yet was silent on a pricing scheme for inventory that was not new and unused. Concluding it would be inconsistent with "the statute's overall level of detail to infer by the legislature's silence that it intended to require the repurchase of used equipment," the court ruled that the repurchase obligation was limited to "new, unused, undamaged and complete inventory." Based on the state supreme court's comprehensive opinion, the Third Circuit reversed the ruling in favor of Southern Track.