Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Mich. Sup. Ct.: Amendment expanding relevant market radius for automobile dealerships may not be retroactively applied, (Jun 12, 2014)

By Greg Hammond, J.D.

The Supreme Court of Michigan determined that an amendment to the state’s Motor Vehicle Dealer Act (MVDA)—expanding the relevant market for automobile dealerships from a six-mile radius to a nine-mile radius—should not be retroactively applied. In reversing the appellate court’s decision, the state high court found that: (1) the legislature did not clearly intend to retroactively apply the amendment and (2) retroactive application would impair vested rights under a previously reached dealer agreement (LaFontaine Saline, Inc. v Chrysler Group, LLC, June 10, 2014, Kelly, M).

Background. LaFontaine Saline, Inc. entered into a dealer agreement with Chrysler Group, LLC on September 24, 2007, granting LaFontaine a non-exclusive right to sell Dodge vehicles within a specified locality. The agreement also stated that the “Sales Locality may be shared with other [Chrysler] dealers of the same line-make as [Chrysler] determines to be appropriate.” LaFontaine and Chrysler agreed that the 2007 Dealer Agreement is subject to the MVDA, which specified a six-mile relevant market in 2007, but was amended to provide for a nine-mile relevant market in 2010.

Chrysler subsequently entered into a Letter of Intent to Add Vehicle Line (LOI) with IHS Automotive Group, LLC, which would allow IHS to sell Dodge vehicles outside of a six-mile radius, but within a nine-mile radius of LaFontaine.

After unsuccessfully attempting to protest the IHS Dodge dealership location with Chrysler, LaFontaine filed suit for declaratory relief, challenging the IHS dealership location under the MVDA. The trial court granted IHS’ and Chrysler’s motion for summary judgment, but the appellate court reversed, reasoning that the LOI was not a dealer agreement. The Michigan Supreme Court granted IHS' and Chrysler’s applications for leave to appeal, noting two issues that needed to be resolved: (1) whether the contractual rights of the parties predates the 2010 amendment to the MVDA and (2) whether retroactive application of the 2010 amendment, which would expand the relevant market area to a nine-mile radius, would interfere with the parties’ contractual rights.

Source of contractual rights. There are three elements a contract must meet to be considered a “dealer agreement” under the MVDA: “(1) a writing (2) establishing the legal rights and obligations of the parties (3) with regard to the purchase and sale or resale of new motor vehicles and accessories for motor vehicles.” Accordingly, the Court determined that the 2007 Chrysler-LaFontaine Dealer Agreement was a “dealer agreement” under the MVDA, and the document established the parties’ contractual rights. Because the MVDA provided for a six-mile relevant market area at the time of the 2007 Dealer Agreement, the Court concluded that the six-mile relevant market area will continue to govern the agreement, unless the 2010 Amendment is found to retroactively expand the relevant market area.

Retroactive application. The Court first noted that the 2010 amendment did not specify that the new relevant market radius should be applied retroactively, and that the legislature’s silence on this issue undermined any argument that the amendment was intended to be applied in such a manner. To the contrary, the legislature provided a specific effective date.

The Court was therefore required to consider whether the amendment “takes away or impairs vested rights acquired under existing laws, or creates a new obligation and imposes a new duty, or attaches a new disability with respect to transactions or considerations already past.” According to the Court, retroactive application of the amendment would place a greater burden on Chrysler by requiring it to show good cause for establishing a broader geographical range of dealerships. Conversely, LaFontaine would have greater substantive rights than the 2007 agreement allowed, by providing it with the right to challenge the establishment of new dealerships within a nine-mile radius.

Thus, the Michigan Supreme Court concluded that retroactive application of the 2010 amendment would impinge on Chrysler’s rights under the 2007 Dealer Agreement, and it therefore declined to give retroactive effect. The judgment of the appellate court was consequently vacated, and the trial court’s summary disposition was reinstated in favor of Chrysler and IHS.

The case is Nos. 146722 and 146724.

Attorneys: Ward M. Powers (Ward M. Powers, PC) for Lafontaine Saline Inc. Jill M. Wheaton (Dykema Gossett PLLC) for Chrysler Group LLC. Suzanne P. Bartos (Allen Brothers, PLLC) for IHS Automotive Group LLC.

Companies: Lafontaine Saline Inc.; Chrysler Group LLC; IHS Automotive Group LLC

Cases: FranchisingDistribution MichiganNews