Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W. Va. Sup. Ct.: GM could "reopen" a dealership in same market without notifying existing dealer, (Apr 25, 2014)

By Edward L. Puzzo, J.D.

An auto manufacturer was exempt from the West Virginia Dealer's Act requirement that it notify one of its dealers that it was opening another dealership in the same market area, because the new dealership qualified as a "reopening" under the Act's safe harbor, the West Virginia Supreme Court in Charleston has ruled (King Coal Chevrolet v. General Motors LLC, April 24, 2014, Ketchum, M.).

Certified question. In a dispute between auto manufacturer General Motors and auto dealer King Coal Chevrolet, the federal district court for the Southern District of West Virginia submitted a certified question to the West Virginia Supreme Court: Whether or not, under the West Virginia Dealer's Act, GM was required to provide notice prior to entering into a new dealership agreement with another automobile dealer in King Coal’s "relevant market area."

Background: As part of GM's restructuring occasioned by its 2009 bankruptcy, GM closed a Chevrolet dealership in 2010, Lewis Automotive, which had co-existed within King Coal’s relevant market area for 35 years. In 2011, GM authorized the opening of a new dealer, Crossroads Chevrolet, also within King Coal’s relevant market area.

King Coal argued that under the plain language of the West Virginia Dealer's Act, GM was required to provide it with statutory notice prior to entering into the dealer agreement with Crossroads, an "additional dealer" located within its relevant market area. GM countered that it was exempt from the notice requirement because Crossroads was a "reopening" of a dealership within two years of the closing of the Lewis Automotive dealership, and thus was protected by the safe harbor provision of the Dealer's Act. The dispute, stated the court, centered on differing interpretations of the word "reopening."

Reopening. King Coal argued that Crossroads was a new dealer with no association with Lewis, the closed dealer, and therefore its opening cannot be considered a "reopening." GM argued that the term "reopening" referred to a reopening of a line-make (i.e. Chevrolet) rather than an actual dealer that was sold or closed.

The court agreed with GM's interpretation. The Dealer's Act recognized circumstances, including criminal or fraudulent conduct or bankruptcy, in which a manufacturer could lawfully close a dealer on an expedited basis, the court stated. The Dealer's Act contemplated a scenario where a dealer may be closed and the manufacturer would need to replace that line-make in the same market. Under such circumstances, the court continued, the safe harbor provision of the Dealer's Act allowed the manufacturer to "reopen" the line-make with a new dealer, as long as certain time and geographic limitations were met. Here, the purported "reopening" took place within two years of the previous dealer closing and within four miles of the previous dealer's location, so those time and geographic requirements for the safe harbor were met by GM. Thus, GM was exempt from the notice requirement.

The case is No. 13-0675.

Attorneys: Christopher J. Sears and William R. Slicer (Shuman McCuskey & Slicer) and Warren R. McGraw, II (McGraw Law Offices) for King Coal Chevrolet Company. Jeffrey A. Kimble and E. Ryan Kennedy (Robinson & McElwee PLLC) and Jeffrey J. Jones (Jones Day) for General Motors LLC.

Companies: King Coal Chevrolet Company; General Motors LLC.

Cases: FranchisingDistribution WestVirginiaNews