Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: High Court will not consider challenge to Connecticut Franchise Act, (Mar 9, 2016)

By Greg Hammond, J.D.

The U.S. Supreme Court has denied a trade association’s request to review a ruling by the U.S. Court of Appeals in New York City, which found that an automobile manufacturer trade association’s constitutional challenges to Connecticut Franchise Act (CFA) amendments governing warranty repair reimbursements to auto dealers were properly dismissed (Alliance of Automobile Manufacturers, Inc. v. Currey, Dkt. 15-438).

Alliance of Automobile Manufacturers is a non-profit trade association of major automobile manufacturers. In 2009, the CFA was amended to (1) revise the statutory method for determining reasonable compensation paid to dealers (reimbursement provisions); and (2) prohibit manufacturers from recovering from in-state dealers increased costs incurred as a result of the reimbursement provisions (recoupment bar).

Alliance brought a declaratory judgment action seeking to invalidate provisions of the CFA as amended in 2009 as violations of the Contracts, Commerce, and Due Process clauses of the U.S. Constitution. The district court granted a motion to dismiss, brought by the Connecticut Department of Motor Vehicles, on the grounds that Alliance’s complaint failed to state plausible constitutional claims. The appellate court affirmed dismissal, finding that Alliance failed to state a plausible claim under the Commerce Clause; failed to allege facts in support of its Contract Clause claim to suggest that the 2009 amendments were unforeseeable to its members; and failed to assert facts from which a factfinder could reasonably infer arbitrary or irrational governmental action with regard to the Due Process claim.

In support of its petition for review, Alliance argued that the petition should be granted because the appellate court mistakenly applied a facial discrimination standard to a Dormant Commerce Clause challenge; the appellate court’s decision conflicts with other circuit court law; the Court should uphold a robust Commerce Clause in the face of special interest legislation that is running amok in an industry important to the national economy; and the appellate court has decided an important issue of Contract Clause Jurisprudence that conflicts in principle with other circuit court law.

The questions presented were: (1) Whether there is a cognizable burden on interstate commerce under a dormant Commerce Clause analysis where a state requires motor vehicle manufacturers and distributors (all out-of-state) to pay significantly increased amounts to in-state dealers for warranty repairs, but prohibits the manufacturers and distributors from recovering those increased costs within the state, thereby ensuring that the costs of the state’s regulations imposed on interstate commerce are borne entirely out-of-state and (2) Whether a state statute that imposes significantly increased costs for warranty reimbursements on manufacturers and distributors, but, for the first time in the state’s legislative history, interferes with the manufacturers’ and distributors’ longstanding contractual rights to price their products sold in the state by prohibiting recovery of those costs in the state, is subject to challenge under the Contract Clause of the U.S. Constitution.

Attorneys: Daniel L. Goldberg (Morgan, Lewis & Bockius LLP) for Alliance of Automobile Manufacturers, Inc. Mark F. Kohler, Office of Attorney General, for Connecticut Department of Motor Vehicles. Thomas J. Murphy (Cowdery & Murphy, LLC) for Connecticut Automotive Retailers Association. James C. McGrath (Seyfarth Shaw LLP) for Association of Global Automakers, Inc.

Companies: Alliance of Automobile Manufacturers, Inc.; Connecticut Automotive Retailers Association; Association of Global Automakers, Inc.

News: FranchisingDistribution