Rimrock Chrysler, Inc. v. State

Rimrock Chrysler, Inc. v. State, 2016 MT 165 (July 12, 2016) (Baker, J.) (5-0, aff’d & rev’d)

Issue: (1) Whether the district court erred by assuming subject matter jurisdiction to review Lithia Motors’ administrative protest; and (2) whether the district court erred by dismissing Rimrock’s petition for judicial review on the grounds of mootness.

Short Answer: (1) No, and (2) yes.

Affirmed (1), reversed (2), and remanded

Facts: Lithia Motors bought a Dodge franchise in Billings in 2003. At the time, Dodge was a division of Chrysler, LLC (Old Chrysler). Old Chrysler filed for bankruptcy in April 2009. AS part of its restructuring, Old Chrysler rejected 789 existing dealer agreements, including Rimrock’s in May 2009. Most of Old Chrysler’s assets were sold to Chrysler Group, LLC (New Chrysler. In July 2009, New Chrysler awarded a Chrysler-Jeep franchise to Lithia to sell all of the Chrysler line in Billings.

Rimrock pursued arbitration of its franchise termination under § 747 of the federal Consolidated Appropriations Act of 2010, and in June 2010, was awarded the only remedy afforded it under federal law – a “customary and usual letter of intent” to enter into a dealer agreement. New Chrysler then filed a notice of intent with the Department of Justice, Motor Vehicle Division, to establish a Chrysler-Jeep dealership at Rimrock.

Lithia filed an administrative protest pursuant to statute, based on its being an existing franchise of the same line in the same community. The department hearing officer conducted a contested case hearing and concluded New Chrysler was not authorized to establish another Chrysler-Jeep franchise at Rimrock. Both New Chrysler and Rimrock filed exceptions, and after oral argument the department issued a final decision adopting the hearing officer’s proposed order.

Rimrock petitioned for judicial review. New Chrysler did not join Rimrock’s petition or file its own. Lithia moved to dismiss based on New Chrysler’s failure to request review and the court granted the motion, reasoning that New Chrysler had abandoned its interest in the proceeding, rendering the matter moot as no effective relief could be provided. Rimrock appealed to this Court.

In the meantime, New Chrysler named Rimrock a defendant in a declaratory judgment action in Michigan. Rimrock moved to dismiss itself on the grounds that resolution of the issues in Montana would conclusively resolve the issues concerning it. Rimrock and New Chrysler entered into a settlement agreement in May 2011, providing for Rimrock’s dismissal with prejudice, and an agreement that Rimrock would not assert that § 747 preempts Montana state dealer laws or precludes a protest of establishment of Rimrock pursuant to the arbitration order. The Michigan federal court dismissed Rimrock on May 10, 2011.

Before this Court issued a decision in Rimrock’s first appeal, the Sixth Circuit Court of Appeals ruled in the Michigan case that § 747 preempts state regulation of new dealerships issued under dealership protest laws in Michigan and Nevada. This Court dismissed Rimrock’s appeal without prejudice and remanded to the district court to consider the Sixth Circuit’s decision and to rule upon issues of subject matter jurisdiction, federal preemption, and whether § 61-4-206(1)(b), MCA, added by the Legislature in 2013, had any effect on the case.

On remand, Rimrock moved to vacate the administrative proceeding and dismiss on the basis of federal preemption, arguing Montana lacked subject matter jurisdiction. New Chrysler and Lithia argued that the Sixth Circuit erred and that Rimrock had waived any preemption arguments.

Procedural Posture & Holding: The district court denied Rimrock’s motion to vacate and dismiss, holding that it had subject matter jurisdiction, and that Rimrock expressly agreed to adjudicate its dispute in the Montana administrative forum. The court further held that § 747 may preempt Montana law in very narrow, unique circumstances but did not affect the outcome already reached here, and concluded that § 61-4-206(1)(b) does not apply. Rimrock appeals, and the Supreme Court affirms and reverses.

Reasoning: (1) After Old Chrysler and General Motors filed for bankruptcy, resulting in the termination of many local dealerships across the United States, Congress sought to protect the rejected auto dealers by enacting § 747. The federal statute creates an arbitration right for covered dealerships terminated during the franchisor’s bankruptcy. There is no dispute that Rimrock is a covered dealership.

If the arbitrator rules in favor of the covered dealership, the covered manufacturer provides a letter of intent to enter into a sales and services agreement. The statute allows the parties to opt out of arbitration and negotiate their own agreement.

The U.S. Supreme Court has held that where a federal preemption defense affects choice of forum rather than choice of law, it is a matter of jurisdiction that cannot be waived. Here, the Court concludes § 747 does not vest exclusive jurisdiction in the federal arbitration process. The statute allows parties to reach their own agreements, as Rimrock and New Chrysler did here.

Therefore, the Court holds, Rimrock waived its preemption defense in the settlement agreement, and the Court affirms the district court’s conclusion that it had subject matter jurisdiction..

(2) The district court concluded that the Montana Dealer Act requires New Chrysler to establish good cause to add Rimrock as a Chrysler-Jeep franchisee in Billings. Because Chrysler did not appeal the department’s decision, the district court concluded it was presented with merely hypothetical questions, depriving it of jurisdiction on the basis of mootness.

This Court concludes that New Chrysler’s failure to participate in the judicial review process does not preclude effective relief for Rimrock, and reverses the district court’s conclusion that this case did not present a justiciable controversy.