Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—MinnCtApp: Franchise Dealers’ Minnesota Statutory Claims Fail Against Navistar, (Apr 9, 2013)

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

Two franchise dealers of International-brand trucks produced by Navistar, Inc. could not obtain a new trial or injunctive relief on claims that Navistar violated the Minnesota Motor Vehicle Sale and Distribution Act (MVSDA) and the Minnesota Heavy and Utility Equipment Manufacturer and Dealers Act (HUEMDA), a Minnesota appellate court has ruled (North Star International Trucks, Inc. v. Navistar, Inc., April 8, 2013, Peterson, R.).

Navistar, Inc. produces the International line of trucks. North Star International Trucks, Inc. and Astleford Equipment Co., Inc. are Minnesota franchise dealers of those trucks that share common ownership. North Star’s agreements with Navistar assign them territories known as "areas of responsibility" (AORs).

In 2007, Navistar developed concerns about the dealers’ performance, and an audit revealed deficiencies in the dealers’ warranty claims procedures. Navistar later notified the dealers that it would charge back $67,313 in claims. In a series of meetings and communications from 2008 to 2009, Navistar and the dealers disputed the dealers’ performance, and relations deteriorated. On January 7, Navistar notified the dealers that it intended to remove 51 zip codes from North Star’s AOR, and on April 27, 2009 Navistar announced that Boyer Ford Trucks, Inc. had been appointed as a dealership to fill the void.

Repeated communications from Navistar to the dealers’ owner in the first half of 2009 received no response, although the owner did send one letter objecting to Navistar’s intent to charge back the warranty payments. In August 2009, the owner met with a Navistar representative, but failed to attend a subsequent dealer meeting. On November 13, 2009, Navistar sent the owner a letter stating that the dealers were in breach of their agreements, and notifying the owner that "Navistar shall consider itself entitled to serve notice to terminate" if the dealers did not correct the problems by April 30, 2010.

The dealers filed suit against Navistar, and obtained a temporary injunction. One claim for bad faith franchise termination was dismissed as premature, a jury found in Navistar’s favor on five claims, and the court found in Navistar’s favor on another claim. The jury did find in favor of the dealers on a claim for breach of the implied covenant of good faith and fair dealing, but found insufficient evidence to assess damages, and the district court denied injunctive relief. The dealers moved for judgment as a matter of law and for a new trial, and appealed the district court’s denial of those motions.

Waiver. The appeals court addressed North Star’s appeal from the denial of JMOL with respect to its claim that Navistar violated the MVSDA by taking the 51 zip codes and reassigning them to another dealer. The jury had found that the claim was barred by waiver.

The court first rejected North Star’s argument that the language of the MVSDA did not permit Navistar to assert a common law waiver defense. The MVSDA stated that "[n]otwithstanding the terms of any franchise agreement or waiver to the contrary" a person injured by a violation of the MVSDA could bring a claim. The court explained that the phrase "the terms of any" modified both "franchise agreement" and "waiver," and since a common law waiver based on the unilateral conduct of one party could not have "terms," the legislature must have intended to preclude only waiver defenses based on waiver agreements.

The court also dispensed with North Star’s contention that the evidence before the jury was insufficient to establish that it had the knowledge of its rights or intent to waive them necessary to support the finding that it waived its claim. North Star should have known that Navistar’s removal of the zip codes would permit it to establish a new dealership in those areas, and North Star’s owner had sent an e-mail indicating he knew Boyer might be established as the dealer there. The owner’s intent could be inferred from his "failure to respond to the letter notifying North Star of Navistar’s intent to remove the 51 zip codes from North Star’s AOR, from [the owner]’s general failure to communicate with Navistar during the relevant period, and from the failure of [the owner] or the dealership’s counsel to object to the zip-code removal in the demand letters sent to Navistar in January 2009 and June 2009."

Changed competitive circumstances. The court next reviewed North Star’s challenge to the denial of JMOL with respect to North Star’s claim that Navistar "change[d] the competitive circumstances" of North Star’s franchise without good cause, in violation of the HUEMDA. The court concluded that Navistar presented sufficient evidence that North Star did not comply with the terms of its agreements by failing to acquire a reasonable share of the market, by not aggressively marketing the trucks, by not resolving consumer complaints, by failing to attend company meetings, by failing to provide financial information in the correct format, and by failing to maintain sufficient personnel.

Evidence in the record reflecting the standards that Navistar used to evaluate dealer performance, and demonstrating that Navistar did not compare favorably to other dealers on those standards, was enough to permit the jury to find the standards "were essential, necessary, and uniformly applied." Navistar was not required to show that it had taken action against another dealer for similar breaches, because Navistar was not statutorily compelled to change a dealer’s competitive circumstances in response to a breach.

Injunctive relief. Next, the dealers contended that the district court erred in denying injunctive relief based on their claims that Navistar breached the implied covenant of good faith and fair dealing and that Navistar engaged in price discrimination in violation of HUEMDA. The jury found that Navistar breached the covenant "by resisting [the dealers’] efforts to obtain pricing discounts for new truck sales from 2006 to 2008." However, the district court denied injunctive relief because the breach had ended when a Navistar employee transferred positions, and the dealers had an adequate remedy of damages. Despite amending its findings to adopt the jury’s advisory finding that Navistar had engaged in price discrimination, the district court also denied injunctive relief on the grounds that the dealers failed to demonstrate irreparable injury and had an adequate remedy at law.

The appeals court upheld the denials, concluding that the dealers had not shown that they would suffer irreparable injury because Navistar had not attempted to terminate their franchises. Moreover, the dealers had an adequate remedy in the form of damages, despite the difficulty of discerning their amount and the dealers’ failure to prove it.

Notice of new dealership. The court also rejected the dealers’ challenge to the district court’s denial of a new trial on their claim that Navistar violated the MVSDA by establishing a new dealership without notice. Although the dealers challenged the jury instruction employed for the claim, the dealers’ counsel failed to make a record of an objection, and the record clearly reflected "that the district court did not understand that the dealerships were objecting on grounds that the proposed instruction would add a written-agreement requirement not imposed by the statute." Therefore, the dealers had waived their objection to the jury instructions, in the court’s view.

Warranty chargebacks. Finally, the court rejected the dealers’ challenge to the district court’s refusal to grant a new trial on their claim that Navistar unlawfully charged back warranty payments in violation of HUEMDA. Contrary to the dealers’ contention, the dealers bore the burden of demonstrating that its warranty claims were reasonably substantiated and not fraudulent. The statute did not "create a comparable statutory presumption" to that employed in "exceptions in presumptions in the real-property context." Instead, the statute provided that the dealers were "not entitled to recover on warranty claims that are unsubstantiated or fraudulent," and therefore had the burden of proving they were substantiated and not fraudulent.

The case is No. A12-0732.

Attorneys: Elizabeth Catherine Kramer (Leonard, Street, and Deinard) for North Star International Trucks, Inc. Melissa Ruth Stull (Bowman & Brooke LLP) for Navistar, Inc. Ronald Kenton Gardner, Jr. (Dady and Gardner, P.A.) for Boyer Ford Trucks, Inc.

Companies: North Star International Trucks, Inc.; Navistar, Inc.; Boyer Ford Trucks, Inc.; Astleford Equipment Co.

Cases: FranchisingDistribution MinnesotaNews