By Greg Johnson. The Minnesota Supreme Court recently issued a decision interpreting the Minnesota Motor Vehicle Sale and Distribution Act (“MVSDA”), Minn. Stat. §§ 80E.01 .17 (2014).

In Wayzata Nissan LLC v. Nissan North America, Inc., Case No. A14-1652 2016 WL 626069 (Minn. Feb. 17, 2016), the Supreme Court held that a dealer which had operated a Nissan dealership in Bloomington, MN for three months before relocating it to Eden Prairie, MN, was not an “existing dealer” for purposes of the MVSDA such that another Nissan dealer located within a ten mile radius could challenge the relocation.

The Background Facts

Feldmann Imports Inc. (“Feldmann”) operated a Nissan dealership in Bloomington, MN. Feldmann wanted to sell the Nissan dealership, but retain the property for other purposes.

In March 2014, Feldmann executed an asset purchase agreement (APA) with a third-party for the sale of the dealership. The APA specified a potential new dealership location in Eden Prairie. The Eden Prairie location was 7.6 miles from another Nissan dealership Wayzata Nissan LLC (“Wayzata”). By the terms of Feldmann’s franchise agreement, Nissan North America, Inc. (“Nissan”) maintained a right of first refusal on the sale of the Feldmann dealership. In May 2014, Nissan exercised its right of first refusal and later assigned its right to McDaniels. Although McDaniels operated motor vehicle dealerships pursuant to franchises with other manufacturers, McDaniels had never held a franchise agreement with Nissan. McDaniels then purchased the real property in Eden Prairie that was referenced in the APA.

After hearing rumors of the proposed relocation, Wayzata sent a letter to Nissan inquiring about its intentions, claiming the proximity of the relocated dealership (7.6 miles) would impinge on Wayzata’s primary geographic area of business. By letter dated May 8, 2014, Nissan responded that it intended to allow Feldmann or its successor in interest to relocate the Bloomington dealership to a location within 10 miles of the Wayzata dealership.

In July 2014, Nissan approved McDaniels as a Nissan dealer, as well as the relocation of the Bloomington dealership. McDaniels closed on the purchase of the dealership and immediately commenced operation of the dealership in Bloomington, pending its relocation to Eden Prairie. McDaniels operated the dealership in Bloomington for three months before completing the relocation to Eden Prairie in November 2014.

In June 2014, Wayzata filed suit against Nissan and McDaniels challenging the relocation under the Minnesota Motor Vehicle Sale and Distribution Act (MVSDA), Minn. Stat. §§ 80E.01 .17 (2014). The MVSDA regulates contracts between manufacturers and dealers of new motor vehicles. Minnesota Statutes § 80E.14, subd. 1, imposes requirements on a manufacturer that seeks to enter into a franchise establishing an additional dealership or relocating an existing dealership. In relevant part, the statute provides:

In the event that a manufacturer seeks to enter into a franchise establishing an additional new motor vehicle dealership or relocating an existing new motor vehicle dealership within or into a relevant market area where the line make is then represented, the manufacturer shall, in writing, first notify each new motor vehicle dealer in this line make in the relevant market area of the intention to establish an additional dealership or to relocate an existing dealership within or into that market area.

Minn. Stat. § 80E.14, subd. 1.

A “relevant market area” encompasses a 10-mile radius around an existing dealership. Id. Within 30 days of receiving notice, an affected dealership may commence a civil action challenging the relocation. Id. After a civil action is filed, “the manufacturer shall not establish or relocate” the proposed dealership until the district court finds that the establishment or relocation is supported by good cause. Id.

However, the notice and good-cause requirements do not apply to the “relocation of an existing dealer” within the “area of responsibility” described in the dealer’s franchise agreement when the proposed relocation site is within five miles of the existing dealer’s current location and is not within five miles of another dealer of the same line make. Id.

The Eden Prairie location was within five miles of the Bloomington location and more than five miles from the Wayzata dealership. Nissan and McDaniels contended that Wayzata had no right to challenge the relocation because McDaniels had operated the dealership in Bloomington for three months before relocating the dealership to Eden Prairie and, thus, was an “existing dealer” within the statute’s notice and good-cause exemption.

The Supreme Court’s Rulings

The district court and Court of Appeals held that Nissan and McDaniels were exempt from the statute’s notice and good-cause requirements. Under the court of appeals’ holding, the notice requirement and existing-dealer exception of Minn. Stat. § 80E.14, subd. 1, applied on the date of the physical relocation of a dealership, not on the date that the manufacturer developed an intention to relocate a dealer. See Wayzata Nissan, LLC v. Nissan N. Am., Inc., 865 N.W.2d 75, 82 (Minn. Ct. App. 2015). Thus, the Court of Appeals determined that notice was required on November 1, 2014—the date that McDaniels completed the relocation of the Bloomington dealership to Eden Prairie. Id. (stating that McDaniels was an “existing dealer” at “the time of the relocation in November 2014” because McDaniels “had operated as a Nissan dealer in Bloomington for over three months”).

The issues before the Minnesota Supreme Court were two-fold: (1) whether the notice and good-cause requirements of Minn. Stat. § 80E.14, subd. 1 applied on the date that a manufacturer developed an intention to relocate a dealership or the date of physical relocation; and (2) whether the existing-dealer exception applied when the relocation of a dealership was accompanied by a change in the person or entity operating the dealership.

As to the first issue, the Supreme Court held that “notice is required on the date that a manufacturer develops the intention to authorize a relocation, not on the date of the physical relocation of a dealership.” 2016 WL 626069 at *6. Because Nissan had developed a definite intention to authorize the relocation of the dealership from Bloomington to Eden Prairie by May 8, 2014, Nissan was required to provide notice on or before May 8, 2014 unless the “existing-dealer” exception applied. The Supreme Court next addressed whether the existing-dealer exception applied. The court held the phrase “existing dealer” in Minn. Stat. § 80E.14, subd. 1, “refers to the person or entity that is operating a dealership on the date that the manufacturer develops a definite intention to relocate the dealership.” Id. at *7. Because Nissan intended to approve the relocation of the dealership to Eden Prairie on May 8, 2014 and the relocated dealership was not to be operated by Feldmann — the entity that was operating the dealership on May 8, but rather by a new dealer — McDaniels — the existing-dealer exception did not apply and Wayzata was entitled to notice and a good-cause hearing.

The decision leads to odd results. As Nissan and McDaniels pointed out, Wayzata would have had no statutory right to challenge the relocation if either (1) Feldmann had first relocated the dealership to Eden Prairie and then sold it to McDaniels; or (2) McDaniels had purchased and operated the dealership in Bloomington and then decided, as an existing dealer, to relocate to Eden Prairie. The Supreme Court rejected this argument on two grounds. It first noted that the “Legislature could have created the existing-dealer exception to accommodate dealers that have occupied a particular geographic area, but find it necessary to slightly shift their location,” but did not do so. Id. at *8. Second, while courts will not presume that the Legislature intended an absurd or unreasonable result, this rule of construction only applies where a statute is ambiguous or where the plain meaning of the statute “utterly confounds” the clear legislative purpose of the statute. Id. at *7. Here, the statute was not ambiguous and the fact “[t]hat an existing dealer … may take advantage of the existing-dealer exception certainly [did] not confound any clear legislative purpose.” Id.

Because the exemption for relocation of an existing dealer did not apply, Wayzata was entitled to a good cause hearing on the relocation and the case was remanded to the district court for that purpose.

This blog is for informational purposes only. By reading it, no attorney-client relationship is formed. The law is constantly changing and if you want legal advice, please consult an attorney licensed in your jurisdiction. Gregory J. Johnson © All rights reserved. 2016.