TS & A Motors, LLCv. KIA Motors Am., Inc.

• Decision Date: 29 March 2019
• Docket Number: No. 2017-0714,2017-0714
• Parties: TS & A MOTORS, LLC d/b/a Kia of Somersworth v. KIA MOTORS AMERICA, INC.
• Court: New Hampshire Supreme Court

172 N.H. 94

208 A.3d 429

TS & A MOTORS, LLC d/b/a Kia of Somersworth

v.KIA MOTORS AMERICA, INC.

No. 2017-0714

Supreme Court of New Hampshire.

Argued: November 13, 2018

Opinion Issued: March 29, 2019

Law Office of Joshua L. Gordon, of Concord (Joshua L. Gordon on the brief and orally), for the appellant.

Nixon Peabody LLP, of Manchester (Kevin M. Fitzgerald and Nathan P. Warecki on the brief), and Hogan Lovells US LLP, of Washington, D.C. (Catherine E. Stetson and Kirti Datla on the brief, and Ms. Stetson orally), for the appellee.

LYNN, C.J.

The appellant, TS & A Motors, LLC d/b/a Kia of Somersworth (Somersworth), appeals a decision of the Superior Court (McNamara, J.) affirming an order of the New Hampshire Motor Vehicle Industry Board (the Board) ruling that the appellee, Kia Motors America, Inc. (Kia), properly terminated its franchise agreement with Somersworth pursuant to RSA 357-C:7 (Supp. 2018). We affirm.

I

The following facts are drawn from the trial court's order, or are otherwise supported by the record and undisputed on appeal. In December 2007, Kia and Somersworth entered into a Dealer Sales and Service Agreement (Dealer Agreement), which governed the franchise relationship between the parties. Under this agreement, Somersworth is required to employ certain parts and service personnel. Specifically, the agreement provides:

DEALER shall employ and train a sufficient number of competent personnel of good character, including one or more persons who will function as sales manager, service manager and parts manager, sales persons, service technicians and parts personnel to fulfill all of DEALER'S responsibilities under this Agreement and as recommended by COMPANY, and shall cause such personnel to attend such training schools as COMPANY may from time to time require at DEALER'S sole expense.

Dealer Agreement § IV.A.4.

Subsequently, between March 2011 and March 2012, Kia sent a series of letters notifying Somersworth of perceived staffing and training deficiencies. These letters referenced Somersworth's failure to meet technician training requirements in 2009 and 2010, to adequately staff and train personnel in its parts and service department, and to meet the minimum number of technicians required to participate in Kia's "Optima Hybrid Program." During Somersworth's tenure as a dealer, Kia employees overseeing Somersworth made note of its high employee turnover rates. The Board determined that over the course of its operations as a dealer, Somersworth violated the provision of the Dealer Agreement that required certain parts and service personnel "on an almost constant basis." Kia management worked with Somersworth to remedy its staffing deficiencies. It sent numerous written notifications to Somersworth referencing the inadequacy of its parts and service staffing, met with Somersworth to discuss its concerns over staffing, and gave Somersworth the "benefit of the doubt" when the dealer promised to hire the appropriate number of staff members.

Finally, on November 6, 2014, Kia sent formal notice to Somersworth of its failure to employ a minimally adequate parts and service staff, as required under the Dealer Agreement. At the time this letter was sent, Somersworth was operating without a service manager, service advisor/service consultant, or parts-counter person; all positions mandated by the Dealer Agreement. The November 6 letter provided a 60-day period to cure the staffing breach; however, Somersworth continued to function without the requisite staff. In light of Somersworth's continued failure to cure its staffing issues, on or about February 23, 2015, Kia notified Somersworth that, effective 90 days from receipt of the letter, its Dealer Agreement with Kia would terminate. At the time the termination letter was sent, Somersworth did not have a single position filled in its parts and service department that was required under the Dealer Agreement.

Somersworth protested its termination before the Board, arguing that there was insufficient evidence of statutory good cause on the part of Kia to terminate the agreement. See RSA 357-C:7, I(c). Specifically, Somersworth argued that "[d]ue to an unprecedented tight labor market for automobile service workers in the Seacoast area, ... it was unable to hire the workers required under the dealer agreement," and thus "it was not reasonably possible for it to comply with the staffing requirements." In an order dated May 10, 2017, the Board denied Somersworth's termination protest.

On May 26, 2017, Somersworth filed an application for rehearing on the grounds that the Board erred in finding that Kia had sent the termination letter within 180 days of first obtaining knowledge of Somersworth's staffing issues, as required by RSA 357-C:7, II(a). In support of its request for rehearing, Somersworth attached the 2011 and 2012 communications from Kia, which, it argued, proved that Kia had actual knowledge of Somersworth's deficiency in staffing its parts and service department "well over 180 days prior to the notice of termination." Somersworth also pointed to testimony, relied on by the Board in its initial order, that it believed indicated that employees of Kia had knowledge of the staffing breach for more than 180 days preceding Kia's sending of the termination letter.

The Board denied Somersworth's request for rehearing and found "that the notice was proper because of the continuing nature of the staffing problems." In so doing, the Board stated that "[i]t would be contrary to the intent of the dealer statute to require a manufacturer to initiate a termination action by sending a termination letter at the first technical breach of the dealer agreement." The Board also noted that "Kia expended tremendous effort in order to correct the breach and avoid a termination," and it was "[o]nly after these efforts had failed and the breach rose to a critical level" that Kia sent its termination letter.

Somersworth appealed to the superior court, and on November 15, 2017, the superior court affirmed the Board's order. The trial court ruled that the Board's interpretation of RSA 357-C:7 was consistent with the plain language of the statute. Relying on state and federal cases, the court concluded that "[e]ach day that Somersworth was out of compliance with the Dealer Agreement's staffing requirements constituted a new violation of that agreement." The court reasoned that adopting Somersworth's argument would mean requiring a manufacturer to terminate a franchise agreement at the first sign of breach, without providing a dealer with the opportunity to remedy the infraction, a construction the court found inconsistent with the statute's purpose "to protect dealers from oppressive conduct by manufacturers." This appeal followed.

II

The trial court's review of the Board's decision is governed by RSA 357-C:12, VII (2009). Mahindra & Mahindra v. Holloway Motor Cars of Manchester, 166 N.H. 740, 745, 103 A.3d 1170 (2014). Pursuant to this statute, all findings of fact by the Board "shall be prima facie lawful and reasonable." RSA 357-C:12, VII. "No additional evidence shall be heard or taken by the superior court on appeals from the board," and the "decision appealed from shall not be set aside or vacated except for errors of law." Id. Our review of the trial court's decision is similarly limited, and we will not overturn the trial court unless a legal error has been made.

Mahindra & Mahindra, 166 N.H. at 745, 103 A.3d 1170. In conducting our analysis, we review the trial court's statutory interpretation de novo. Strike Four v. Nissan N. Am., 164 N.H. 729, 735, 64 A.3d 936 (2013).

RSA chapter 357-C, "the so-called ‘dealer bill of rights,’ " was enacted in 1981. STIHL, Inc. v. State of N.H., 168 N.H. 332, 333, 126 A.3d 1192 (2015). It governs the relationship between automobile manufacturers and their dealers. See Roberts v. General Motors Corp., 138 N.H. 532, 534, 643 A.2d 956 (1994). In 1996, the legislature created the New Hampshire Motor Vehicle Industry Board to enforce RSA chapter 357-C. STIHL, Inc., 168 N.H. at 333, 126 A.3d 1192. Like similar statutes in other states, RSA chapter 357-C was enacted by the legislature "to protect retail car dealers from perceived abusive and oppressive acts by the manufacturers." Deere & Co. v. State of N.H., 168 N.H. 460, 466-67, 130 A.3d 1197 (2015) (quotation omitted); see also Roberts, 138 N.H. at 536, 643 A.2d 956.

RSA chapter 357-C mandates, among other requirements, that a manufacturer have "good cause" to terminate a franchise agreement. RSA 357-C:7, I(c). Good cause exists when: (1) there is a failure by the dealer to comply with a provision of the franchise agreement that is "reasonable and of material significance to the franchise relationship," provided compliance on the part of the dealer is "reasonably possible"; and (2) the manufacturer "first acquired actual or constructive knowledge of such failure not more than 180 days prior to the date on which notification" of termination is given. RSA 357-C:7, II(a) (emphasis added).

On appeal, Somersworth argues that Kia did not comply with the statutory "good cause" requirements, and in particular the 180-day look-back period, because it had knowledge of Somersworth's staffing breach as early as March 2011 — years before Kia's February 2015 termination letter. Somersworth contends that the plain language of RSA 357-C:7, II(a) supports this position, as commencement of the statute's notification period turns on the date the manufacturer "first acquired ... knowledge" of the breach.

Kia, on the other hand, contends that the phrase "such failure" assigns the 180-day requirement to the specific failure on which the termination was based. Kia argues that the breach that triggered the termination — and thus, the only breach relevant to the look-back period — occurred sometime between October 2014 and February 2015, and marked the "last straw" for Kia "after a series of breaches of the Dealer Agreement."...