Ford Motor Co v. Meredith Motor Co, 00-2506

• Court: U.S. Court of Appeals — First Circuit
• Writing for the Court: TORRUELLA
• Citation: Ford Motor Co v. Meredith Motor Co, 257 F.3d 67 (1st Cir. 2001)
• Decision Date: 09 May 2001
• Docket Number: No. 00-2506,00-2506
• Parties: (1st Cir. 2001) FORD MOTOR COMPANY, Plaintiff, Appellant, v. MEREDITH MOTOR COMPANY, INC., Defendant, Appellee. Heard

Page 67

257 F.3d 67 (1st Cir. 2001)

FORD MOTOR COMPANY, Plaintiff, Appellant, v. MEREDITH MOTOR COMPANY, INC., Defendant, Appellee.

No. 00-2506

United States Court of Appeals For the First Circuit

Heard May 9, 2001

Decided August 6, 2001

Nicholas T. Christakos, with whom Sutherland Asbill & Brennan LLP and Bryan M. Haynes, were on brief, for appellant.

Stephanie A. Bray, with whom Wiggin & Nourie, P.A. and Gregory A. Holmes, were on brief, for appellee.

Before Torruella, Circuit Judge, Campbell, Senior Circuit Judge, and Schwarzer,^* Senior District Judge.

TORRUELLA, Circuit Judge.

Appellee Meredith Motor Company ("Meredith") filed a protest with the New Hampshire Motor Vehicle Industry Board (the "Board") pursuant to that state's Motor Vehicle Franchise Act (the "Act"), N.H. Rev. Stat. Ann. § 357-C, following appellant Ford Motor Company's ("Ford") decision to relocate a competing dealer into Meredith's market area. While that proceeding was pending, Ford filed this action in federal district court, seeking a declaration that the Act is not retroactive and, in the alternative, that retroactive application of the Act would violate the Contract and Due Process Clauses of the Constitution. The Board found Ford in violation of the Act and, shortly thereafter, the federal district court issued an order declaring that the Act was intended to be applied retroactively and that such application was constitutional. Ford appealed the Board's decision to the New Hampshire Superior Court and brings this appeal from the decision of the district court. Because the constitutional questions raised in this appeal rest on questions of state law that may be resolved by the New Hampshire state courts, we hold that Pullman abstention is proper in this proceeding. See R.R. Comm'n v. Pullman Co., 312 U.S. 496 (1941).

I.

Ford is a Delaware Corporation with its principal place of business in Dearborn Michigan. Meredith is a New Hampshire Corporation that has been doing business as an authorized Ford full sales and service dealership in Meredith, New Hampshire since 1957. On June 1, 1972, Ford and Meredith executed a Sales and Service Agreement (the "Agreement") that was to last an indefinite period. The parties made several changes to the Agreement over the years, the earliest dated May 20, 1974 and the latest dated January 15, 1998. Under the Agreement, Meredith's "dealer locality" consists of seventeen post office communities in New Hampshire, including the town of Plymouth.

A. The Motor Vehicle Franchise Act

The New Hampshire legislature first adopted a Motor Vehicle Franchise Act in 1973 which was codified as chapter 357-B. See 1973 N.H. Laws 330:1 (repealed 1981). Chapter 357-B did not expressly give a dealer the right to challenge a manufacturer's redefinition of its relevant market area. It did, however, prohibit a manufacturer from engaging in "any action which is arbitrary, in bad faith, or unconscionable and which causes damages to any of said parties or to the public." Id. In addition, it imposed restrictions on a manufacturer's ability to grant "a competitive franchise in the relevant market area previously granted to another franchise." Id.

In 1981, the New Hampshire legislature repealed chapter 357-B and replaced it with § 357-C. By an amendment effective January 1, 1997, the current statute provides for a Motor Vehicle Industry Board to enforce the chapter's provisions. Under § 357-C, moreover, a manufacturer must have "good cause" to alter a dealer's relevant market area. N.H. Rev. Stat. Ann. § 357:C-3 III(o). The statute also requires a manufacturer to notify a dealer of any proposal to add or relocate a competing dealership within the dealer's relevant market area. Id. at § 357-C:9 III. With respect to the agreements covered by § 357-C, the law states the following:

I. All written or oral agreements of any type between a manufacturer, or distributor or motor vehicle dealer shall be subject to the provisions of this chapter, and provisions of such agreements which are inconsistent with this chapter shall be void as against public policy and unenforceable in the courts of this state.

II. Before any new selling agreement or amendment thereto involving a motor vehicle dealer and such party become effective, the manufacturer, distributor, distributor branch or division, factory branch or division, or agent thereof shall, 90 days prior to the effective date thereof, forward a copy of such agreement or amendment to the attorney general and to the dealer.

III. Every new selling agreement or amendment made to such agreement between a motor vehicle dealer and a manufacturer or distributor shall include, and if omitted, shall be presumed to include, the following language: "If any provision herein contravenes the valid laws or regulations of the state of New Hampshire, such provision shall be deemed to be modified to conform to such laws or regulations; or if any provision herein, including arbitration provisions, denied or purports to deny access to the procedures, forums, or remedies provided for by such laws or regulations, such provisions shall be void and unenforceable; and all other terms and provisions of this agreement shall remain in full force and effect."

Id. § 357-C:6.

B. The Dispute

Fuller Ford, Inc. ("Fuller") became a Ford dealer in Bristol, New Hampshire in December 1993. In 1997, Ford attempted to relocate Fuller to a facility in Plymouth. To accomplish this relocation, Ford removed Plymouth from Meredith's market area and assigned it to Fuller. Meredith challenged the proposed relocation to the Board in February 1998. Meredith subsequently amended its protest to include a challenge to Ford's decision to realign Meredith's market area under § 357-C:3 III(o). In its response to the Board, Ford noted an "additional threshold issue arising under the New Hampshire and United States Constitutions regarding whether the statute, and in particular the 1996 amendments thereto, can be applied retroactively to materially alter the pre-existing contractual rights of private parties such as Ford and Meredith." To this end, Ford presented as an issue for the Board "[w]hether application of the statute in the circumstances of this cases constitutes an unconstitutional retroactive impairment of the contracting parties' rights."

In its decision and order dated August 16, 2000, the Board noted Ford's position that "the application of RSA 357-C:3, III(o) to its franchise agreement with [Meredith] . . . would be an unconstitutional retrospective application of law because the contract predates the adoption of Sections 9, I and 3, III(o)." The Board then examined the legislative purpose behind § 357-C:3 III(o) and found that it "merely made express the result that logic and fairness naturally implied" from the bad faith language included in the statute's predecessor. The Board concluded that "[i]t would be illogical to conclude that RSA 357-C, III(o) should be inapplicable because it was enacted after 1980 . . . ."¹ Though it did not elaborate on its rationale, the Board also stated that subjecting Ford to the requirements of § 357-C "impair[ed] no vested private contract right of Ford's." Finally, the Board concluded that, on the merits, "Ford failed to act in good faith when it decided to realign [Meredith's] dealer locality for reasons other than the criteria specified in the Franchise Agreement, and by not disclosing its true intentions regarding Plymouth [to Meredith] before December 15, 1997." Ford appealed the Board's decision to the New Hampshire Superior Court, where it is currently pending.

C. The Federal Action

The action that is the subject of this appeal was filed in the federal district court for the District of New Hampshire on September 28, 1999, while the Board decision was pending.² Eight days after the Board issued its decision, the district court entered judgment in favor of Meredith. The district court decision did not rely upon the Board's order, although a copy had been forwarded to the court. Instead, the court concluded that the language of § 357-C:6 was "a clear and unqualified statement of legislative intention to subject both new and existing dealer agreements to the Act's general regulatory requirements." Ford Motor Co. v. Meredith Motor Co., No. 99-456-B at 14 (D.N.H. Aug.a24, 2000). The court also found that the parties' indemnification agreement in 1978 constituted a new contract; since the law in effect at that time was sufficient to make the subsequent "good cause" requirement foreseeable, any contractual impairment was not constitutionally "significant." Id. at 25-26. Finally, the court held that the retroactive application of the statute was justified by a legitimate state interest in protecting dealers from manufacturers, and thus did not violate due process. Id. at 28.

II.

It is well established that "[a]bstention from the exercise of federal jurisdiction is the exception, not the rule." Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 813 (1976); see also Pustell v. Lynn Pub. Sch., 18 F.3d 50, 53 (1st Cir. 1994); Guiney v. Roache, 833 F.2d 1079, 1081 (1st Cir. 1987); Santasucci v. Gallen, 607 F.2d 527, 528 (1st Cir. 1979). However, "[a]mong those cases that call most insistently for abstention are those in which the federal constitutional challenge turns on a state statute, the meaning of which is unclear under state law." Harris County Comm'rs Court v. Moore, 420 U.S. 77, 84 (1974). Under the principle set forth in Railroad Commission v. Pullman Co., 312 U.S. 496 (1941), a federal court confronted with such circumstances "should stay its hand in order to provide the state court an opportunity to settle the underlying state-law question and thus avoid the possibility of unnecessarily deciding a constitutional question." Harris County, 420 U.S. at 84. Pullman abstention thus "serves a dual purpose: it 'avoid[s] the waste of a tentative...