Appellate Court Says Waiver Enforceable, Notwithstanding Statute

Many state franchise or distributor statutes contain provisions that purport to limit the enforceability of waivers or releases signed by dealers or franchisees. The restrictions on waivers ' even to settle existing disputes (as opposed to prospective waivers or releases when there is no current dispute) ' are often justified on claimed “inequality of power” between the manufacturer or distributor and franchisee. One court recently struck a blow in favor of manufacturers and distributors in upholding a waiver even though part of the statute expressly referenced restrictions on certain waivers.

In Edwards v. Kia Motors of America, Edwards and his company, Huntsville Kia, sued Kia Motors of America in federal court, claiming that Kia violated a state dealer statute providing that any person who was injured by a violation of the statute could bring a claim “[n]otwithstanding the terms, provisions, or conditions of any dealer agreement or franchise or the terms or provisions of any waiver,” among other things. So. 2d, 2008 WL 2068088 (Ala. May 16, 2008). Edwards claimed that he purchased the Kia dealership with an understanding that he would later receive another dealership in a different town and that he would be able to sell the first dealership to a buyer that Kia would find. After the first dealership continued to lose money, Edwards eventually found a potential buyer and submitted a proposal for the buy/sell to Kia. In connection with the request for approval of the sale, Edwards signed a broad release; he later claimed that he was afraid Kia would not approve the sale if he refused to sign the release and that he was faced with a deadline for closing the sale with the buyer.

Federal District Court

The federal district court dismissed some of the claims based on the release. A federal court of appeals affirmed the dismissal in part and then certified one question to the Alabama Supreme Court on whether the statute permits a dealer to bring a claim if the parties already executed a mutual release where the dealer relinquished all existing legal claims. The Alabama Supreme Court said no.

AL Supreme Court Ruling

The Alabama Supreme Court found that the release was permissible, notwithstanding the statute's recited intent “to prevent fraud and other abuses” and to “protect and preserve the investments of properties” of the citizens. That language is similar to other dealer statutes across the country. The court found that “there is no indication of a legislative intent to prohibit the parties to an automobile-dealership franchise agreement from reaching a good-faith settlement of existing claims after those claims arise and entering into a binding settlement agreement.” In reaching its conclusion, the court noted that the statute included in its definition of unfair and deceptive trade practices the prospective waiver of claims and did not include retrospective waivers. Thus, notwithstanding the “remedial” purpose of the statute, the court found the waiver to be enforceable.

Conclusion

This decision may turn out to be a significant victory for manufacturers and distributors in other jurisdictions that contain similar restrictions on potential waivers. The enforceability of a franchisee's or dealer's waiver or release may depend on the specifics of the contract and the applicable statute, but one key in the enforceability will be whether the waiver applies to existing or known claims. Careful attention to the language in the waiver is a must.

Many state franchise or distributor statutes contain provisions that purport to limit the enforceability of waivers or releases signed by dealers or franchisees. The restrictions on waivers ' even to settle existing disputes (as opposed to prospective waivers or releases when there is no current dispute) ' are often justified on claimed “inequality of power” between the manufacturer or distributor and franchisee. One court recently struck a blow in favor of manufacturers and distributors in upholding a waiver even though part of the statute expressly referenced restrictions on certain waivers.

In Edwards v. Kia Motors of America, Edwards and his company, Huntsville Kia, sued Kia Motors of America in federal court, claiming that Kia violated a state dealer statute providing that any person who was injured by a violation of the statute could bring a claim “[n]otwithstanding the terms, provisions, or conditions of any dealer agreement or franchise or the terms or provisions of any waiver,” among other things. So. 2d, 2008 WL 2068088 (Ala. May 16, 2008). Edwards claimed that he purchased the Kia dealership with an understanding that he would later receive another dealership in a different town and that he would be able to sell the first dealership to a buyer that Kia would find. After the first dealership continued to lose money, Edwards eventually found a potential buyer and submitted a proposal for the buy/sell to Kia. In connection with the request for approval of the sale, Edwards signed a broad release; he later claimed that he was afraid Kia would not approve the sale if he refused to sign the release and that he was faced with a deadline for closing the sale with the buyer.

Federal District Court

The federal district court dismissed some of the claims based on the release. A federal court of appeals affirmed the dismissal in part and then certified one question to the Alabama Supreme Court on whether the statute permits a dealer to bring a claim if the parties already executed a mutual release where the dealer relinquished all existing legal claims. The Alabama Supreme Court said no.

AL Supreme Court Ruling

The Alabama Supreme Court found that the release was permissible, notwithstanding the statute's recited intent “to prevent fraud and other abuses” and to “protect and preserve the investments of properties” of the citizens. That language is similar to other dealer statutes across the country. The court found that “there is no indication of a legislative intent to prohibit the parties to an automobile-dealership franchise agreement from reaching a good-faith settlement of existing claims after those claims arise and entering into a binding settlement agreement.” In reaching its conclusion, the court noted that the statute included in its definition of unfair and deceptive trade practices the prospective waiver of claims and did not include retrospective waivers. Thus, notwithstanding the “remedial” purpose of the statute, the court found the waiver to be enforceable.

Conclusion

This decision may turn out to be a significant victory for manufacturers and distributors in other jurisdictions that contain similar restrictions on potential waivers. The enforceability of a franchisee's or dealer's waiver or release may depend on the specifics of the contract and the applicable statute, but one key in the enforceability will be whether the waiver applies to existing or known claims. Careful attention to the language in the waiver is a must.