Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—SDWVa: Whether Establishment of Dealership Was “Reopening” for Encroachment Purposes Certified to West Virginia High Court, (May 29, 2013)

By John W. Arden, J.D., LL.M.

The question of whether General Motors’ establishment of a new Chevrolet dealership within two years of closing an area dealership constituted a “reopening”—exempting General Motors from the West Virginia Dealer’s Act requirement to provide notice of the establishment to existing dealers in the relevant market—was certified to the Supreme Court of Appeals of West Virginia by the federal district court in Charleston, West Virginia (King Coal Chevrolet Co. v. General Motors LLC, May 23, 2013, Copenhaver, J.).

General Motors LLC had discontinued a Chevrolet franchise agreement with Lewis Automotive Group, which was located in the Beckley, West Virginia area. Within two years, it decided to add a dealership in the Beckley area, establishing Crossroads Chevrolet.

Crossroads Chevrolet was located within 11 miles of an existing dealership—King Coal Chevrolet of Oak Hill—but General Motors did not did not provide King Coal with the notice that the West Virginia Dealer’s Act requires manufacturers to give dealers located within the relevant market area of 20 air-miles from the new dealership.

General Motors maintained that it was exempt from providing such notice because the establishment of Crossroads constituted a re-opening of Lewis Automotive within two years of its closing. The Crossroads location was within four miles of the Lewis Automotive dealership, as required for the exemption, but Crossroads was not related to Lewis by ownership, location, name, or management.

On October 10, 2012, King Coal brought suit against General Motors, seeking a preliminary injunction (1) enjoining GM from permitting the operation of any dealership within the relevant market area and (2) requiring General Motors to provide King Coal with the statutory notice prescribed by the Dealer’s Act. On October 16, 2012, General Motors moved to dismiss the action.

West Virginia Dealer’s Act. The Dealer’s Act (West Virginia Code §§17A-6A-1 to 17A-6A-18) requires a manufacturer to send notice to an existing motor vehicle dealer when it enters into an agreement to establish or relocate a new motor vehicle dealership within the relevant market area. It provides a safe harbor for manufacturers reopening a motor vehicle dealer that has been closed or sold within the preceding two years if the established place of business is within four miles of the location of the closed or sold dealer.

King Coal asserted that Crossroads was an entirely new dealership created after the demise of Lewis Automotive and that its entry into the relevant market area constituted an establishment of a new dealer that required General Motors to provide notice under the Dealer’s Act. General Motors responded that the establishment of Crossroads was a “reopening” under the safe harbor provision of the law.

General Motors argued that Lewis Automotive was “closed” within the temporal and geographic definitions of the safe harbor and that King Coal’s assertion that there must be an association between the closed and reopened dealerships was contrary to the statutory provision.

This assertion raised a question whether the legislature covered the matter of a dealership relocation or change in ownership in an earlier provision of the law (§17A-6A-12(1)) and intended the reopening safe harbor to be more limited.

Certified question. With little guidance available on this issue, the district court decided to certify the following question:

“Do the circumstances in this case permit GM to avail itself of the safe harbor found in West Virginia Code section 17A-6A-12(4) or, instead, is it required to provide to King Coal the statutory notice commanded by section 17A-6A-12 (2).”

In view of the certification, the district court did not decide the two additional grounds for dismissal—that the action was barred by estoppel and laches and that King Coal’s interpretation of §17A-6A-12(2) offended the federal and state constitutions.

“Respecting the constitutional arguments, the certified question may be answered in a manner that would obviate the need to reach the matter or that might answer the constitutional challenge,” the court observed.

Preliminary injunction. The district court’s decision to certify the central question in this case necessarily meant that King Coal could not, at this stage, make the clear showing on the merits that it is entitled to relief. Thus, the motion for preliminary injunction was denied without prejudice.

The case is Civil Action No. 2:12-5992.

Attorneys: Brett N. Mayes (Shuman McCuskey & Slicer) for King Coal Chevrolet Co. Alison E. Haedt (Jones Day) for General Motors LLC.

Companies: King Coal Chevrolet Co.; General Motors LLC

Cases: FranchisingDistribution WestVirginiaNews