Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Ill. App.: Illinois Motor Vehicle Franchise Act requires finding of manufacturer misconduct for award of attorneys’ fees, (Jul 1, 2013)

By Tobias J. Gillett, J.D., LL.M.

Dealerships that succeeded in obtaining an administrative order denying General Motors Corporation permission to open new franchises in their market areas were not entitled to an award of attorneys’ fees absent manufacturer misconduct, an Illinois appellate court has ruled (General Motors Corp. v. The State of Illinois Motor Vehicle Review Board, June 26, 2013, Steigmann, R.).

Although the court found that the dealerships had not waived their requests for attorneys’ fees, the court reversed a circuit court decision confirming a fee award to the dealerships because the Illinois Motor Vehicle Franchise Act only contemplated an award of fees when the manufacturer had engaged in an “unfair or deceptive act or practice,” in the court’s view.

In 2001, GMC sought to add a franchise to two existing Illinois automobile dealerships. As required by the Illinois Motor Vehicle Franchise Act, GMC informed four dealerships—North Shore, Inc., Joe Mitchell Buick/GMC Truck, Inc., Grossinger Autoplex, Inc., and Castle Buick-Pontiac, Inc., of its intent to add the franchises. The dealerships filed objections with the Illinois Motor Vehicle Review Board under a provision allowing dealers to protest when a manufacturer attempts to establish a new franchise within their “relevant market area.” In September 2003, the Board issued a final order siding with the dealerships, concluding that GMC failed to meet its burden of showing that good cause existed to allow the new franchises. The Board also found that the dealerships were entitled to attorneys’ fees because they had “substantially prevailed.”

The circuit court confirmed the Board’s decision. On appeal in October 2005, the appellate court vacated the confirmation of the attorneys’ fees award, but otherwise affirmed the circuit court’s decision. The Illinois Supreme Court later upheld that decision, and in February 2007 the Board sent the parties a letter enclosing its final decision. GMC later reached a settlement with two of the dealerships, leaving only the attorneys’ fees requests of the two remaining dealerships. Addressing the attorneys’ fees issue, the Board awarded the remaining dealerships $551,906 in fees, and the circuit court confirmed that decision.

Waiver. On appeal, the appellate court first addressed GMC’s argument that, although the dealerships had timely filed their initial petitions for attorneys’ fees when the Board issued its first final order, the dealerships waived their requests for additional fees when they failed to file claims when the Board sent the parties its February 2007 letter.

The court rejected GMC’s argument, concluding that the February 2007 letter did not constitute a final order triggering a 10-day limitation period on filing claims for additional attorneys’ fees. The court observed that its October 2005 decision did not vacate the Board’s attorneys’ fees decision, but instead merely vacated the circuit court’s confirmation of the Board’s decision that the dealerships were entitled to attorneys’ fees because the Board had not yet determined their amount pursuant to the Administrative Code. The court viewed the Board’ s 2007 letter “as a prudent measure” that “alerted the parties involved about the supreme court’s resolution of GMC’s appeal,” but did not constitute a final order in itself.

Award of attorney fees. However, the court found that the Board had erred in awarding attorney fees. The court explained that the first three sentences of Section 13 of the Franchise Act permit dealers to recover fees if they had “suffered a loss of money or property, real or personal” from the manufacturer’s use “of an unfair method of competition or an unfair or deceptive act or practice declared unlawful by this Act, or any action in violation of this Act.” A dealer that had not “suffered a loss of money or property” could still recover damages “if it can be shown that the unfair act or practice may have the effect of causing such loss of money or property.”

The fourth sentence of Section 13 provides that “[w]here the franchisee or dealer substantially prevails the court or arbitration panel or Motor Vehicle Review Board shall award attorney’s fees and assess costs, including expert witness fees and other expenses incurred by the dealer in the litigation, so long as such fees and costs are reasonable, against the opposing party.”

The dealerships contended that the “substantially prevails” language meant that a dealer could recover attorneys’ fees “(1) when the complainant can prove the manufacturer engaged in misconduct or (2) when the complainant substantially prevails against the manufacturer in any claim brought under the Franchise Act.” The court observed that this interpretation would render the first three sentences of the section “superfluous,” because “initially segregating complainants by financial situation and requiring a manufacturer’s misconduct to garner damages would be nonsensical when substantially prevailing on any cause of action would suffice.”

Here, the dealerships never alleged that GMC engaged in misconduct or “that their respective financial status changed or could have changed as a result of GMC’s proposal.” Although the court agreed with the dealerships that the Franchise Act was intended to protect dealerships from manufacturers in specific circumstances, the court declined to adopt the dealerships’ position that “threatened relocation, addition, or termination of a dealer” were “prima facie evidence of an unfair act or practice,” noting that manufacturers could have “legitimate business reasons” for carrying out those actions. The court found that manufacturers in those circumstances “should not be penalized by paying the attorney fees of protesting dealerships without a showing of misconduct as contemplated by section 13 of the Franchise Act.”

The case is No. 4-08-0893.

Attorneys: Edward Gower and William Hardy (Hinshaw & Culbertson LLP ) and Jeffrey Jones and J. Dodd Kennard (Jones Day) for General Motors Corporation. John P. Schmidt for The State Of Illinois Motor Vehicle Review Board.

Companies: General Motors Corporation; North Shore, Inc.; Joe Mitchell Buick/GMC Truck, Inc.; Loren Buick, Inc.; Grossinger Autoplex, Inc.; Castle Buick-Pontiac, Inc.

Cases: FranchisingDistribution IllinoisNews