Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: High Court denies petition to hear appeal in dealership termination dispute, (May 30, 2023)

By Donielle Tigay Stutland, J.D.

Petition for writ of certiorari denied by the Supreme Court in a request for a review related to the calculation of damages in a franchise termination dispute.

The U.S. Supreme Court today denied the petition for a writ of certiorari from an electric vehicle and battery manufacturer in an appeal of a Ninth Circuit affirmance of a Hawaii federal district court's award of damages to a terminated franchisee under Hawaii’s motor vehicle dealer law. The petition for certiorari, filed by BYD Motors, Inc. (BYD), argued for review based on unexplained discrepancies in the lower courts' logic and statutory construction. The Petitioner’s primary argument was that the appellate panel failed to conduct a de novo review of whether the district court erred by not determining the fair market value of the franchise as of the date of termination or one day before the notice of termination. An Opposition Brief, filed by Soderholm Sales and Leasing, Inc. (SSLI) on April 24, 2023, argued that the Petitioner’s argument regarding the calculation of damages was only first raised in Petitioner’s Petition for Panel Rehearing and not in its Appellant’s Opening Brief or Appellant’s Response and Reply Brief to the appellate panel, and as such, certiorari should be denied. Additionally and very recently on May 25, 2023, the parties jointly filed a stipulation to withdraw the petition, and indicated that each party will bear its own attorneys’ fees costs. (Soderholm Sales and Leasing, Inc. v. BYD Motors, Inc., Dkt. No, 22-929).

Background. SSLI sells and leases motor vehicles in Hawaii. BYD is a China-based manufacturer of electric batteries and electric vehicles that has a sales and manufacturing presence in California. BYD and SSLI entered into a dealership agreement in 2016, giving SSLI a non-exclusive franchise in Hawaii. The agreement had a one-year term, but provided for its own continuance at will thereafter.

Disagreements arose, whereby (1) BYD contended that SSLI was pricing the BYD busses too high, and the salesmanship manner of SSLI's principal owner was counterproductive; and (2) SSLI took the position that BYD's attempt to directly sell electric buses to governmental entities violated Hawaii law and the franchise agreement.

The situation deteriorated when a BYD employee resigned from the company; this BYD employee had long known SSLI's principal owner. Many BYD employees were unaware of the franchise agreement's existence, which was BYD's only franchise agreement with any dealer in any state. In 2018, BYD sent SSLI a 30-day termination letter.

SSLI's written response to BYD's initial termination letter noted that BYD further failed to comply with Hawaii’s motor vehicle dealer law because (1) the law required 60 days' termination notice; (2) BYD failed to notify the Hawaii Motor Vehicle Industry Licensing Board; and (3) BYD had did not state sufficient grounds for termination. BYD thereafter declined further discussions and meetings with SSLI, and was unresponsive to SSLI's product information inquiries, except that two weeks later BYD sent a new letter to SSLI to rescind the termination letter. BYD otherwise continued to refuse to communicate with SSLI's principal.

On February 28, 2019, SSLI brought suit against BYD in Hawaii federal district court, alleging claims under the Hawaii dealer law. On November 17, 2020, BYD sent a new termination letter, drafted to address the points noted in SSLI's response to the first termination letter. BYD's second termination letter was never challenged.

In federal district court, SSLI prevailed on its claim of bad faith, and also against BYD's counterclaims of breach of contract and interference. Having so prevailed, SSLI was entitled to damages. A divided Ninth Circuit panel affirmed the district court's decision 2-1 in November 2022. BYD petitioned the U.S. Supreme Court for certiorari on March 24, 2023, arguing that the.

Petition arguments. The certiorari petition asserted that the Hawaii federal district court misconstrued the relevant Hawaii state motor vehicle dealership statute [Hawaii Rev. Stat. 437-58(g)], and that the Ninth Circuit panel majority did not review the district court's state law construction decision de novo as mandated in the Supreme Court's decision in Salve Regina College v. Russell, 499 U.S. 225, 111 S. Ct. 1217, 113 L. Ed. 2d 190 (1991). The petition contended that the circuit court's mere recitation of the district court's determination that SSLI was entitled to damages, and description of the damages computation methodology employed by the district, were "vague generalities" which failed to conform to the de novo review standard enunciated in Salve Regina.

BYD argued that the court erred in its determining the damages, as the Hawaii Statute requires a calculation based on the fair market value. BYD argued that under the applicable statute, the manufacturer, “shall compensate the dealer at the fair market value for the dealer’s capital investment, which shall include the going business value of the business, goodwill, property, and improvement owned or leased by the dealer for the purpose of the franchise as of the effective date of the termination or one day prior to the notice, whichever is greater. However, the district court never conducted valuation on either of the statutory dates, and never made any finding as to the date of valuation.”

Opposition arguments. The Opposition Brief argued that BYD is raising an argument which was not raised in an appellate brief or at oral argument, and as such it may not be raised for the first time in a petition for rehearing. BYD asserted that the reason the appellate panel “disregarded” BYD’s argument for the calculation of damages was because BYD failed to raise it before the appellate panel in either its Appellant’s Opening Brief or Appellant’s Response and Reply Brief. SSLI argued that the Supreme Court should decline to assert its jurisdiction to consider a new and novel argument. SSLI also averred that the appellate panel correctly applied the proper standard of review. Finally, SSLI argued that there is no conflict in authority to warrant review by the Supreme Court.

Attorneys: Christian Keola Adams (Adams Krek LLP) for BYD Motors Inc. Jeffrey P. Miller (Miller Shea, LLLP) for Soderholm Sales and Leasing, Inc.

Companies: BYD Motors Inc.; Soderholm Sales and Leasing, Inc.

News: FranchisingDistribution