Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Minn.: Nissan’s declaratory judgment action against Minnesota dealer lacked diversity jurisdiction, (Jul 28, 2014)

By Edward L. Puzzo, J.D.

The federal district court in Minneapolis dismissed the declaratory judgment action brought by Nissan North America against Wayzata Nissan, regarding the validity of Nissan’s relocation of a dealership, due to lack of diversity of citizenship (Nissan North America, Inc. v. Wayzata Nissan, LLC, July 24, 2014, Doty, D.). There was a lack of complete diversity because one of the dealer’s owners was a citizen of California, the state of Nissan’s incorporation.

Manufacturer Nissan North America was a California corporation. Dealer Wayzata Nissan was a Minnesota corporation. In 2013, one of Wayzata’s owners, Randall Lammle, transferred a small partial interest in Wayzata to a trust controlled by his half-brother, Mark Regan, a California citizen.

It was Wayzata’s position that the federal court in Minnesota did not have diversity jurisdiction because there was not complete diversity of citizenship between Nissan and Wayzata. Wayzata moved to dismiss on that basis.

Ultra Vires. Nissan responded that complete diversity of citizenship did exist, because the purported transfer of a partial ownership interest in Wayzata was ultra vires, i.e. beyond Wayzata’s authority under the dealer agreement, because prior approval for the transfer had not been obtained from Nissan.

The court noted that the dealer agreement required Wayzata to obtain the prior written consent from Nissan for any change of ownership, except for “changes in the record or beneficial ownership interests of Other Owner(s) not effecting a change in majority control or interest.” Randall Lammle was an “Other Owner,” as opposed to a “Principal Owner,” under the dealer agreement, the court observed, and his transfer of a one-half of one percent (0.5%) interest in Wayzata did not effect a change in majority control or interest. The court found that no notice to Nissan of this transfer was required under the dealer agreement, so the transfer was not ultra vires.

Void ab initio. Nissan also argued that complete diversity of citizenship existed because the transfer of the partial ownership interest was void ab initio. The agreement between Randall Lammle for the sale of a partial interest of Wayzata stated within its terms that the contract for the sale of the ownership would be void ab initio, or as if never in effect, if the sale would place Wayzata or Lammle in breach of its obligations to a third party such as Nissan. However, the court stated, as discussed above, that the sale was not in violation of the dealer agreement with Nissan, so the agreement to sell a partial interest was not void ab initio.

Collusive transfer. Finally, Nissan argued that the primary purpose of the sale of the partial interest in Wayzata was to deprive the court of diversity jurisdiction, and therefore was in the nature of a collusive assignment. Nissan argued that the transfer occurred only nine days before Wayzata filed the initial lawsuit in the litigation, and that they had a motive to avoid federal court: in a separate case being heard in the same federal district, one of Wayzata’s principals was found to have made “knowing misrepresentations.”

The court agreed that the timing of the transfer was “suspicious,” but noted there also was a reasonable explanation for the transfer involving estate planning. Additionally, the transferee became a real party in interest, so the transfer was not illusory. Therefore, the court ruled, the transfer was valid and bona fide, even if avoiding diversity of citizenship for purposes of litigation was also a motivating factor. Thus the collusive assignment doctrine did not apply.

Consequently, the court ruled that diversity of citizenship between the parties did not exist, and granted Wayzata’s motion to dismiss for lack of diversity jurisdiction, without prejudice.

The case is Civil Action No. 14-1446(DSD/FLN).

Attorneys: Brandon L. Bigelow, Caleb J. Schillinger, and William N. Berkowitz (Bingham McCutchen LLP) and John Rock (Rock Law LLC) for Nissan North America, Inc. Aaron R. Thom, Christopher W. Madel, and Nicole S. Frank (Robins, Kaplan, Miller & Ciresi LLP) for Wayzata Nissan, LLC.

Companies: Nissan North America, Inc.; Wayzata Nissan, LLC.

Cases: FranchisingDistribution MinnesotaNews