MO Supreme Court Denies Auto Dealer's 'Bad Faith' Statutory Claim

MO Supreme Court's Review

On further review, the Supreme Court of Missouri analyzed the question of whether Parktown had the authority to file a claim under ' 407.825(1) to protest the establishment of a new dealership, or whether a different provision, ' 407.817, governs the process. The latter provision provides that franchisees within a certain distance are entitled to notice of the proposed location and the opportunity to a hearing to determine whether there is good cause for the new location. The court found that ' 407.817 “is the sole and exclusive authority for challenging the establishment of a new motor vehicle dealership” under the statute. The court explained that the provision is the only section of the statute that addresses the rights and obligations of franchisors and franchisees with respect to adding new dealerships.

The court also rejected Parktown's argument that the two provisions are not in conflict because neither statute addresses the same issue. Among other things, the court noted that the location statute “is the specific statute on the issue,” and also that “a later-enacted, specific statute controls the general statute.” The court added: “Allowing Parktown to bring a claim under ' 407.825(1), solely on the basis of Audi establishing a new motor vehicle dealership, would abrogate policy decisions made by the legislature in enacting ' 407.817.”

The court's ruling, in addition to limiting the reach of “bad faith” provisions, also avoids another problem ' namely, the lower appellate court's ruling of what could have happened when a dealer that has no standing under the additional dealership statute and was therefore not required to be given notice of the proposed additional dealership (within the 30-day timing requirement for filing a protest) nevertheless tries to block an additional dealership or relocation under the generic bad-faith provision. Because there is apparently no expedited time frame for resolving generic claims for claimed capricious, bad faith, or unconscionable conduct, the protesting dealership could potentially wait until the new or relocating dealership's plans were already implemented before initiating the proceedings, potentially creating havoc for the relocating dealership. That problem may now have been avoided.

Douglas M. Mansfield and J. Todd Kennard are partners in the Columbus, OH, office of Jones Day. They can be contacted at 614-281-3943, 614-281-3989, or [email protected] or [email protected], respectively. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the law firm with which they are associated.

In an earlier article, we commented on the potential import of an appellate court's ruling that an automobile dealership that could not file suit to enjoin an additional dealership under a Missouri statute's specific additional “add-point” statute could nevertheless file an administrative proceeding based on a “generic” statute that prohibits conduct by a manufacturer that is “capricious, in bad faith, or unconscionable.” (See “Auto Dealer Can Bring 'Bad Faith' Statutory Claim,” Franchising Business & Law Alert, January 2009, discussing Parktown Imports, Inc. v. Audi of America, No. 2008 WL 2651775 (Mo. Ct. App. W.D. July 8, 2008).)

We contended that the prior decision could set a precedent with potentially serious implications for automobile manufacturers and other franchisors or distributors because it would have allowed actions to block network changes on a mere claim of “bad faith,” even when there is no standing to bring suit under a specific provision governing network changes. The Missouri Supreme Court has fixed that decision by overturning the appellate court in March and holding that the dealer could not rely on a general “good faith” provision in the statute to bring a claim related to an additional dealership when the dealership lacked standing to protest under the specific provision that addresses additional dealerships. See Parktown Imports, Inc. v. Audi of Amer., Inc., 278 S.W.3d, 670 (Mo. 2009).

The issue arose when Parktown Imports, Inc., one of two authorized Audi dealers in the St. Louis area, was notified that Audi had determined that St. Louis could support a third dealership (the other dealer also was notified). Audi later informed Parktown that if it built a new facility designed by Audi, then Audi would abandon plans for the third dealership, but Parktown rejected that proposal. After Audi failed in an attempt to buy the second dealership, Audi notified Parktown that it had awarded the third dealership. Parktown then filed an application for review with the Missouri Administrative Hearing Commission (“AHC”), alleging that Audi's decision to establish the new dealership was not motivated by proper business considerations, but “rather was a capricious, bad faith, or unconscionable retaliation against Parktown for refusing to move its existing facilities” prohibited by ' 407.825(1) of the Missouri Revised Code. The AHC rejected Parktown's argument, but the Missouri Court of Appeals reversed that decision.

MO Supreme Court's Review

On further review, the Supreme Court of Missouri analyzed the question of whether Parktown had the authority to file a claim under ' 407.825(1) to protest the establishment of a new dealership, or whether a different provision, ' 407.817, governs the process. The latter provision provides that franchisees within a certain distance are entitled to notice of the proposed location and the opportunity to a hearing to determine whether there is good cause for the new location. The court found that ' 407.817 “is the sole and exclusive authority for challenging the establishment of a new motor vehicle dealership” under the statute. The court explained that the provision is the only section of the statute that addresses the rights and obligations of franchisors and franchisees with respect to adding new dealerships.

The court also rejected Parktown's argument that the two provisions are not in conflict because neither statute addresses the same issue. Among other things, the court noted that the location statute “is the specific statute on the issue,” and also that “a later-enacted, specific statute controls the general statute.” The court added: “Allowing Parktown to bring a claim under ' 407.825(1), solely on the basis of Audi establishing a new motor vehicle dealership, would abrogate policy decisions made by the legislature in enacting ' 407.817.”

The court's ruling, in addition to limiting the reach of “bad faith” provisions, also avoids another problem ' namely, the lower appellate court's ruling of what could have happened when a dealer that has no standing under the additional dealership statute and was therefore not required to be given notice of the proposed additional dealership (within the 30-day timing requirement for filing a protest) nevertheless tries to block an additional dealership or relocation under the generic bad-faith provision. Because there is apparently no expedited time frame for resolving generic claims for claimed capricious, bad faith, or unconscionable conduct, the protesting dealership could potentially wait until the new or relocating dealership's plans were already implemented before initiating the proceedings, potentially creating havoc for the relocating dealership. That problem may now have been avoided.

Douglas M. Mansfield and J. Todd Kennard are partners in the Columbus, OH, office of Jones Day. They can be contacted at 614-281-3943, 614-281-3989, or [email protected] or [email protected], respectively. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the law firm with which they are associated.