Edwards v. Kia Motors of America, Inc., 06-14306.

• Decision Date: 06 January 2009
• Docket Number: No. 06-14306.,06-14306.
• Citation: 554 F.3d 943
• Parties: Edwin L. EDWARDS, individually, ELL 12, LLC, d/b/a Huntsville Kia, Plaintiffs-Appellants, v. KIA MOTORS OF AMERICA, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

554 F.3d 943

Edwin L. EDWARDS, individually, ELL 12, LLC, d/b/a Huntsville Kia, Plaintiffs-Appellants, v. KIA MOTORS OF AMERICA, INC., Defendant-Appellee.

No. 06-14306.

United States Court of Appeals, Eleventh Circuit.

January 6, 2009.

Thomas E. Baddley, Jr., M. Jay Rhodes, Jeffrey P. Mauro, Baddley & Mauro, L.L.C., Birmingham, AL, for Plaintiffs-Appellants.

John Albert Smyth, III, Fournier J. Gale, III, Maynard, Cooper & Gale, P.C., Birmingham, AL, for Defendant-Appellee.

Robert Austin Huffaker, Jr., Rushton, Stakely, Johnston & Garrett, P.A., Montgomery, AL, for Amicus Curiae.

Appeal from the United States District Court for the Northern District of Alabama.

Before HULL and MARCUS, Circuit Judges, and BARZILAY,^* Judge.

BARZILAY, Judge:

The issue in this case concerns the application of the Alabama Motor Vehicle Franchise Act ("Franchise Act" or "the Act") to a retrospective mutual release agreement (the "Release")¹ between Appellants Edwin Edwards and ELL 12,² and Appellee Kia Motors America, Inc. ("KMA"). See Ala.Code § 8-20-11. Unable to determine whether the relevant provisions of the Franchise Act did in fact operate to prohibit enforcement of the Release, the court certified a question to the Alabama Supreme Court to clarify the state law at issue. Edwards v. Kia Motors of America, Inc., 486 F.3d 1229 (11th Cir.2007) ("Edwards II"). In light of the Alabama Supreme Court's clarified view of the Franchise Act, the court affirms the holdings of the district court in full for the following reasons.

I. Background

Notwithstanding the terms of the Release between the parties,³ Appellants commenced this action against KMA in the United States District Court for the Northern District of Alabama. See Edwards v. Kia Motors America, Inc., No. CV-05-S-1510-NE, 2006 WL 4738660 (N.D.Ala. May 18, 2006) ("Edwards I"). Appellants sought money damages and equitable relief for (1) violations of the Franchise Act⁴ and (2) common law claims of fraud, fraudulent suppression of material facts, breach of covenant of good faith and fair dealing, negligence and wantonness, and negligent and wanton supervision. In the alternative, Appellants argued that the Release was voidable because it was executed under economic duress. KMA moved for partial summary judgment, averring that Appellants' claims were barred by the Release. The district court entered summary judgment in favor of KMA, and Appellants appealed.

In Edwards II, the court's inquiry focused on "whether the Franchise Act permits an automobile dealer to bring a claim under the Act, despite the fact that both parties [had] already executed a mutual release agreement in which the dealer relinquished all existing legal claims against the manufacturer in exchange for valid consideration." 486 F.3d at 1233. After a thorough review of the record and oral argument, the court was unable to determine whether § 8-20-11 of the Franchise Act prohibited the enforcement of the Release. See id. at 1233-35. Accordingly, the court affirmed the district court in part and certified a question to the Alabama Supreme Court.⁵ See id. at 1238. Specifically, the court (1) certified to the Alabama Supreme Court the issue of whether a retrospective release is effective under the Franchise Act, (2) affirmed the district court's finding that Appellants failed to satisfy the first and third prongs of its claim of economic duress, and (3) affirmed the district court's determination —subject to the Alabama Supreme Court's interpretation of the Franchise Act—that Appellants' common law claims do not fit within the limited exceptions contained in the release at issue. See id. at 1235, 1237-38.

II. Jurisdiction & Standard of Review

This Court has jurisdiction over appeals from the United States District Court for the Northern District of Alabama pursuant to 28 U.S.C. § 1291. In this circuit, "a state supreme court's answer to certified questions is conclusive on the issue certified." Nat'l R.R. Passenger Corp. (Amtrak) v. Rountree Transp. and Rigging, Inc., 422 F.3d 1275, 1282 (11th Cir.2005) (citations & quotations omitted). Indeed, "upon receiving an answer to a certified question, [the Eleventh Circuit] does not second-guess a State's application of its own law." Id. (citations & quotations omitted). The presumption that the Eleventh Circuit should apply the state law at issue is particularly strong where "private parties have entered legal relationships with the expectation that their rights and obligations would be governed by state-law standards." See In re Prudential of Florida Leasing, Inc., 478 F.3d 1291, 1298 (11th Cir.2007) (citation & quotations omitted).

III. Discussion

A. The Alabama Supreme Court's Interpretation of the Franchise Act

Pursuant to Rule 18 of the Alabama Rules of Appellate Procedure, the court certified the following question to the Alabama Supreme Court:

[W]hether the Franchise Act permits an automobile dealer to bring a claim under the Act, despite the fact that both parties [had] already executed a mutual release agreement in which the dealer relinquished all existing legal claims against the manufacturer in exchange for valid consideration.

Edwards v. Kia Motors of America, No. 1061167, 2008 WL 2068088, at *1 (Ala. May 16, 2008) ("Edwards III"); See Ala. R.App. P. 18.⁶ After reviewing the certified question and the parties' respective arguments, the Alabama Supreme Court determined that the dispositive issue was "whether the legislature intended § 8-20-11 to apply so broadly as to preclude parties subject to the Franchise Act from reaching any form of binding agreement by which then existing, ripe claims could be mutually settled without resort to a judicial determination of the claim." Edwards III, 2008 WL 2068088, at *2 (footnote omitted). Section 8-20-11 provides as follows:

Notwithstanding the terms, provisions, or conditions of any dealer agreement or franchise or the terms or provisions of any waiver, and notwithstanding any other legal remedies available, any person who is injured in his business or property by a violation of this chapter by the commission of any unfair and deceptive trade practices, or because he refuses to accede to a proposal for an agreement which, if consummated, would be in violation of this chapter, may bring a civil action in a court of competent jurisdiction in this state to enjoin further violations, to recover the damages sustained by him together with the costs of the suit, including a reasonable attorney's fee.

§ 8-20-11 (emphasis added). The Alabama Supreme Court ultimately answered the certified question in the negative, holding that while § 8-20-11 "protects both parties by prohibiting either from exempting its conduct from the requirements of the Franchise Act," it "does not ... render unenforceable the settlement and release of existing claims." Edwards III, 2008 WL 2068088, at *5 (emphasis added).

In so concluding, the Alabama Supreme Court looked to the plain language of the statute. Noting that the relevant terms "waiver" and "release" are not defined by the Franchise Act,⁷ the Alabama Supreme Court relied on the legislative intent of the Act, which is to "protect the state's citizens from abuses by motor vehicle manufacturers and dealers, and, to that end, to regulate manufactures and dealers and the dealings between manufacturers and their dealers." Id. at *3 (citation & quotations omitted). That court further acknowledged that the "purpose of the Franchise Act is to give balance to the inequality of bargaining power between individual dealers and their manufacturers." Id. (citation & quotations omitted). However, notwithstanding the purpose of the Act, the Alabama Supreme Court stated that there is "no indication of a legislative intent to prohibit the parties to an automobile-dealership franchise agreement from reaching a good-faith settlement of existing claims after those claims arise and entering into a binding settlement agreement." Id. That is, a retrospective mutual release agreement is enforceable and not prohibited by the Franchise Act so long as (1) it is made in good faith by the parties thereto, and (2) concerns claims then existing at the time of the agreement's inception. See id.

Moreover, reading the Franchise Act as a whole, the Alabama Supreme Court stated that "there is no indication that § 8-20-11 does or was intended to prohibit the settlement of known claims as an alternative to taking them to trial and ultimately to judgment. If the legislature had wished to include the settlement and release of known claims in the language of § 8-20-11, it knew how to do so." Id. The Alabama Supreme Court also noted that while the legislature listed prospective releases and waivers in describing particular unfair trade practices under the Franchise Act, it did not similarly state that a retrospective release is an "unfair trade practice or include such a release in its list of ineffective provisions in § 8-20-11." Id. at *4. In other words, that the Franchise Act proscribes prospective releases and waivers does not mean that retrospective releases and waivers are similarly prohibited by that Act. Thus, the Alabama Supreme Court concluded that "[h]ad the legislature meant to require the litigation of every disagreement between a manufacturer and a dealer, it could have said so." Id.

B. The Effect of the Alabama Supreme Court's Interpretation of the Franchise Act in Edwards III on the Court's Holdings in Edwards II

In light of the Alabama Supreme Court's interpretation and clarification of the relevant provision of the Franchise Act, the issues here are (1) whether a retrospective release lies beyond the purview of the Franchise Act, and (2) whether Appellants' common law claims continue not to fit within the limited exceptions contained in the Release.⁸ The court answers both questions in the affirmative and, therefore, upholds the rulings of the United States District Court for the Northern...