ACD Distribution LLC v. Wizards of The Coast LLC, 20-35828

ACD DISTRIBUTION LLC, Plaintiff-Appellant, v. WIZARDS OF THE COAST LLC, Defendant-Appellee.

Nos. 20-35828, 20-35986

United States Court of Appeals, Ninth Circuit

September 3, 2021

NOT FOR PUBLICATION

Argued and Submitted August 11, 2021 Seattle, Washington

Appeal from the United States District Court for the Western District of Washington James L. Robart, District Judge Presiding D.C. No. 2:18-cv-01517-JLR

Before: EBEL, ^[**] BRESS, and VANDYKE, Circuit Judges.

MEMORANDUM ^[*]

ACD Distribution LLC ("ACD"), a Wisconsin distributor appeals the district court's order granting judgment on the pleadings under Federal Rule of Civil Procedure 12(c) in favor of Wizards of the Coast LLC ("Wizards"), a Washington based game publisher. ACD also appeals the district court's order granting attorney's fees and costs to Wizards. The district court had jurisdiction under 28 U.S.C. § 1332. We have jurisdiction under 28 U.S.C. § 1291. We affirm.

1. We review de novo an order granting judgment on the pleadings. Daewoo Elecs. Am. Inc. v. Opta Corp., 875 F.3d 1241, 1246 (9th Cir. 2017). While ACD argues that Wisconsin's Fair Dealership Law ("WFDL") prevented Wizards from canceling its distribution agreement with ACD "without good cause," Wis.Stat. § 135.03, the district court correctly concluded that it must apply Washington law-which lacks an analogous "good cause" requirement-based on the Washington choice-of-law provision in the parties' agreement.

We reject ACD's threshold argument that the contractual choice-of-law provision does not cover this dispute. ACD failed to preserve this argument below, and so waived it. See United States v. Anekwu, 695 F.3d 967, 985 (9th Cir. 2012). Regardless, the argument is meritless. The provision states that "[t]his Agreement will be governed by and interpreted in accordance with the laws of the State of Washington, without reference to conflict of laws." This clause is broad enough to encompass the parties' dispute. ACD's claim-whether the WFDL applies- presents a dispute "governed by" the parties' agreement because it implicates the contract's renewal and termination provisions. See Hearst Commc'ns, Inc. v. Seattle Times Co., 115 P.3d 262, 267 (Wash. 2005) (contracts must be interpreted based on "the reasonable meaning of the words used").

Applying Washington's choice-of-law rules, we agree with the district court that Washington law, and not Wisconsin law, applies. The parties do not dispute that Washington's choice-of-law rules apply and that an "actual conflict" exists between Washington and Wisconsin law. Erwin v. Cotter Health Ctrs., 167 P.3d 1112, 1120 (Wash. 2017) (quotations omitted); see Lazar v. Kroncke, 862 F.3d 1186, 1194 (9th Cir. 2017).

Washington has adopted the Restatement (Second) of Conflict of Laws. See Erwin, 167 P.3d at 1121-22. As relevant here, under Restatement § 187(2), the law of the state chosen by the parties will be applied unless its application "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 and which, under § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties." Assuming the WFDL reflects a "fundamental policy" of Wisconsin, ACD has not shown that Wisconsin has "materially greater interest" in the determination of when Wizards may terminate its agreement with ACD.^[1]

While Wisconsin has an evident policy favoring distributors like ACD (defined by the WFDL as "dealers"), Washington has not adopted such a policy. ACD has provided no basis for us to conclude that Wisconsin has a "materially greater interest" here than Washington, Restatement (Second) of Conflicts of Laws § 187(2), given Washington's effective decision not to adopt a law like the WFDL. That is especially so when, as the district court recognized, "the Wisconsin dealer specifically agreed to a contract that requires the application of out-of-state law," as well as venue in Washington courts.

Moreover, Washington's Supreme Court has recognized that Washington has an "interest[] in protecting the justifiable expectations of . . . contracting parties," which includes "letting the parties choose the law to govern the validity of the contract and the rights created thereby." Erwin, 167 P.3d at 1123-24 (quotations omitted). ACD has not shown why Wisconsin's interest in protecting its in-state dealers overrides the "justifiable expectations . . . memorialized in . . . a freely negotiated contract between two highly experienced and successful [businesses] who defined in advance the terms of their business relationship and explicitly chose Washington law to govern any disputes." Id. at 1123.

Finally, although ACD and our fine dissenting colleague reiterate that the WFDL sets forth Wisconsin's specific policy disfavoring the termination of dealers without good cause, see Wis.Stat. §§ 135.025(2), .03, the Washington Supreme Court has rejected such reasoning as "circular" because it assumes that Wisconsin law applies in the first place. See Erwin, 167 P.3d at 1123.^[2]

2. ACD's challenge to the district court's award of attorney's fees and costs also fails. We review de novo "questions of law concerning entitlement to attorney's fees" and for clear error any underlying factual findings. Lagstein v. Certain Underwriters at Lloyd's of London, 725 F.3d 1050, 1056 (9th Cir. 2013); Native Vill. Of Quinhaguk v. United States, 307 F.3d 1075, 1079 (9th Cir. 2002).

The parties' agreement provided that "[i]n the event legal action is necessary to enforce the terms of this Agreement, Wizards will be entitled to collect from [ACD] any . . . reasonable attorneys' fees, court costs, and other expenses incurred by Wizards for such action." The district court correctly determined that legal action by Wizards was necessary to enforce the terms of the agreement, namely, the provisions allowing Wizards not to renew the contract. See Bangerter v. Hat Island Cmty. Ass'n, 472 P.3d 998, 1013 (Wash.Ct.App. 2020), review granted on other grounds sub nom. Surowiecki v. Hat Island Cmty. Ass'n, 479 P.3d 1162 (Wash. 2021) (unpublished table decision).

AFFIRMED.

EBEL Circuit Judge, dissenting.

Like the majority, I constrain myself to the materially-greater-interest analysis. Unlike the majority and the district court below, I conclude that Wisconsin had a materially greater interest in the determination of this dispute than did Washington.

We need look no further than the Wisconsin Fair Dealership Law (WFDL) itself for a declaration of Wisconsin's interest: "promot[ing] the compelling interest of the public in fair business relations between dealers and grantors, and in the continuation of dealerships on a fair basis" and "protect[ing] dealers against unfair treatment by grantors, who inherently have superior economic power and superior bargaining power in the negotiation of dealerships." Wis.Stat. § 135.025(2). This protection is so important to Wisconsin that the state legislature provided that it may not be waived by contracting parties. Id. § 135.025(3).

The strength of this interest is further supported by caselaw deeming the WFDL a "strong state public policy," Bush v. Nat'l Sch. Studios, Inc., 407 N.W.2d 883, 884 (Wis. 1987), such that parties cannot "avoid[] the WFDL without deciding to forego a contract altogether," Morley-Murphy Co. v. Zenith Elecs. Corp., 142 F.3d 373, 381 (7th Cir. 1998). Other courts have also held that anti-waiver provisions in dealer-protection statutes similar to the WFDL reflect important state interests. See, e.g., Volvo Constr. Equip N. Am., Inc. v. CLM Equip. Co., 386 F.3d 581, 610-11 (4th Cir. 2004); Cromeens, Holloman, Sibert, Inc. v. AB Volvo, 349 F.3d 376, 391 (7th Cir. 2003); New Eng. Surfaces v. E.I. du Pont de Nemours &Co., 546 F.3d 1, 10 (1st Cir. 2008); see also § 187 cmt. g (recognizing the importance of a statute "designed to protect a person against the oppressive use of superior bargaining power").

On the other side of the equation, Washington has not evinced any specific interest in the relationship between grantors like Wizards and distributors like ACD. Instead, Washington's only interest in this dispute is in "protecting the justifiable expectations of the contracting parties."^[1] Erwin v. Cotter Health Ctrs., 167 P.3d 1112, 1123 (Wash. 2007). That is undoubtedly a significant interest, but it is also one subject to significant limits. Most importantly, Washington applies § 187(2)'s balancing test for determining whether a contractual choice of law is enforceable-that means that parties cannot have a justifiable expectation that their choice-of-law provision is necessarily enforceable. After all, it would be circular to enforce a choice-of-Washington-law provision on the basis that Washington has a materially greater interest simply because the parties chose Washington law.

Instead of simply enforcing the choice-of-Washington-law provision, Washington's choice-of-law principles direct us to weigh Washington's general interest against Wisconsin's specific interest. Under similar circumstances, this Court and others have concluded that a dealer-protection statute like the WFDL evinces an interest materially greater than a general interest in the freedom to contract. See Bridge Fund Cap. Corp. v. Fastbucks Franchise Corp., 622 F.3d 996, 1004 (9th Cir. 2010); Volvo Constr., 386 F.3d at 610-11 (4th Cir.); Wright-Moore Corp. v. Ricoh Corp., 908 F.2d 129, 133 (7th Cir. 1990).

I would reach the same conclusion here.

A few final, brief thoughts. First, although Erwin acknowledges Washington's interest in protecting the justifiable expectations of the contracting parties, that case does not control the outcome...