Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Va.: GM’s breach of dealership agreement claims subject to arbitration, (Nov 9, 2015)

By Michael Menzhuber, J.D., LL.M.

Claims by General Motors LLC (GM), that a car dealership breached their exclusive use agreement by selling Chrysler vehicles, must be submitted to arbitration pursuant to the enforceable arbitration clause in the agreement, according to the federal district court in Norfolk, Virginia (General Motors LLC v. Hall Chevrolet, LLC, November 6, 2015, Doumar, R.).

Background. Hall Chevrolet is the current Chevrolet dealer operating on property that has been a Chevrolet dealership since 1999. In an asset purchase agreement with a prior GM dealer, Hall Chevrolet assumed the contractual obligations of an exclusive use agreement (EU agreement) and dealer agreement with GM. The EU agreement provided that arbitration was the exclusive means for resolving any disputes.

In October 2010, Hall Chevrolet and GM entered into the most recent dealership agreement. The dealership agreement contained an addendum, requiring that Hall’s buildings and lots would be devoted to GM use and that no changes in location in the use of it premises could be made without GM’s prior written authorization. Several years later, Hall added a Chrysler Dodge, Jeep, and Ram operation to its premises. GM filed a complaint against Hall for breach of the EU agreement and dealership agreement. Hall moved to dismiss in favor of an alternative forum. GM filed a cross motion to compel arbitration and stay proceedings.

Arbitration. The court, after determining that the parties had valid agreement to arbitrate, considered whether the arbitration provision in the EU agreement applied to the dispute. It noted that, under federal law, motor vehicle franchise contracts are subject to the Virginia Motor Vehicle Franchise Contract Arbitration Fairness Act. The Act negates pre-dispute arbitration agreements in motor vehicle franchise contracts unless written consent is given at the time of the dispute. Because it had previously found that the dealer agreement constituted a motor vehicle franchise contract, the question before the court was whether the EU agreement constituted a motor vehicle franchise contract.

Separate and independent contract. The court noted that only those contracts fitting within the narrow definition of a motor vehicle franchise contract could avoid arbitration under that Act. Since the court had previously found that the dealership agreement was subject to the motor vehicle statute, the EU agreement would be subject to the Act if it was part of an integrated contract with the dealership agreement.

The court found that the EU agreement was a separate contract from the dealer agreement. The parties clearly intended to enter into a separate contract for exclusive control of a piece of property, because: (1) the EU agreement was a separately negotiated contract that was not determinative of the dealer agreement; (2) separate consideration was paid by GM for the exclusivity of the lot; and (3) the EU agreement was for an entirely separate term of years than the dealer Agreement, which was required to be renegotiated frequently.

As a separate agreement, the court agreed with GM that the EU agreement was not a motor vehicle franchise contract because it did not authorize Hall to sell or repair motor vehicles. The court rejected Hall’s argument that the EU agreement should be included in the definition of a motor vehicle franchise contract to give effect to the policy evinced by the Automobile Dealers Day in Court Act (ADDCA). It concluded that Congress explicitly limited those contracts that fell within the state motor vehicle dealer law’s definition, rather than applying the more expansive definition provided for in the ADDCA.

The case is No. 2:15cv301.

Attorneys: Edward Victor Arnold (Seyfarth Shaw LLP) for General Motors, LLC. Barbara Susan Wahl (Arent Fox PLLC) for Hall Chevrolet, LLC.

Companies: General Motors, LLC; Hall Chevrolet, LLC

Cases: FranchisingDistribution VirginiaNews