Jerome-Duncan, Inc. v. Auto-By-Tel, L.L.C.

• Citation: 176 F.3d 904
• Decision Date: 21 May 1999
• Docket Number: L,JEROME-DUNCA,INC,AUTO-BY-TE,No. 98-1123,98-1123
• Parties: , Plaintiff-Appellant, v.L.C., Auto-By-Tel Marketing Corporation, and North Brothers Ford, Inc., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 904

176 F.3d 904

JEROME-DUNCAN, INC., Plaintiff-Appellant, v. AUTO-BY-TEL, L.L.C., Auto-By-Tel Marketing Corporation, and North Brothers Ford, Inc., Defendants-Appellees.

No. 98-1123.

United States Court of Appeals, Sixth Circuit.

Argued April 21, 1999.

Decided May 21, 1999.

John A. Libby (argued and briefed), Sharon M. Woods, Thomas F. Cavalier, Barris, Sott, Denn & Driker, Detroit, MI, for Plaintiff-Appellant.

Thomas J. Tallerico (argued and briefed), Jeffrey G. Raphelson (briefed), Bodman, Longley & Dahling, Detroit, MI, Patrick M. McCarthy, Howard & Howard, Bloomfield Hills, MI, John C. Polasky, Troy, MI, for Defendants-Appellees.

Before: KEITH, SUHRHEINRICH, and GILMAN, Circuit Judges.

OPINION

GILMAN, Circuit Judge.

Jerome-Duncan, Inc. ("JDI"), a Ford dealership in Michigan, sued Auto-By-Tel Marketing Corporation ("ABT"), a Delaware corporation that refers potential car buyers to dealerships through its internet web site, for breach of contract in the Circuit Court of Macomb County, Michigan. It also sought a declaratory judgment that the contract was a franchise agreement covered by the Michigan Franchise Investment Law. JDI subsequently filed an amended complaint that added North Brothers Ford, Inc., a Michigan dealership not a party to the contract, as a defendant. The very next day, ABT filed a notice of removal to federal court based upon diversity of citizenship, not knowing that JDI had added North Brothers as an additional defendant. JDI then moved for remand to state court based upon the lack of complete diversity. Shortly thereafter, ABT moved for summary judgment on the basis that its contract with JDI was not a franchise agreement, and was therefore properly terminable without cause as set forth in the contract.

The district court denied JDI's motion for remand after concluding that North Brothers was fraudulently joined as a defendant. It also granted ABT's motion for summary judgment, finding that the Michigan Franchise Investment Law did not apply to the parties' agreement. Because we find that JDI had no cause of action against North Brothers under Michigan law, we AFFIRM the district court's denial of JDI's motion for remand. Furthermore, because we conclude that the contract was not a franchise agreement under the Michigan Franchise Investment Law, we AFFIRM the grant of summary judgment in favor of ABT.

I. BACKGROUND

A. The parties

1. Jerome-Duncan, Inc.

JDI is a Ford dealership located in Sterling Heights, Michigan. It is the eleventh largest automobile dealer in the Detroit metropolitan area, with 1995 sales of $130,600,000. In addition to selling new Ford cars and trucks, JDI also sells used vehicles, owns a body shop, and operates an automobile leasing company. According to JDI's general manager, the dealership sells more than 500 vehicles per month.

2. Auto-By-Tel Marketing Corp.

ABT is a Delaware corporation in the business of operating an internet web site that refers potential car buyers to participating dealerships. Its predecessor company, Auto-By-Tel, L.L.C., is also named as a defendant in this suit. The term "ABT" refers to the two interchangeably.

B. The subscription agreement

When interested car buyers access ABT's web site, they are asked to identify the model of the vehicle that they wish to purchase and the zip code where they live. ABT uses this information to connect the potential car buyer with a dealership in his or her area, but does not provide the customer with the dealership's name. Instead, it provides customer referrals to participating dealerships with whom ABT has subscription agreements. The dealerships then contact these potential customers and quote them a price on the requested vehicle.

Participating dealerships pay a start-up fee and monthly subscription fees to ABT. In order to receive internet customer referrals from ABT, the participating dealerships must agree to display the ABT logo on print advertisements, to designate an employee to be trained by ABT, to give ABT-referred customers seven days to purchase the requested vehicle at the price quoted during the initial contact, and to conform to ABT's "Customer Service Standards."

ABT's Customer Service Standards include a phone-contact script that dealerships must use when working with customers referred by ABT. The phone procedure includes language designed to draw customers' attention to the convenience of the Auto-By-Tel buying process. For example, dealership representatives contacting customers for the first time are instructed to ask "[a]ren't you glad that you don't have to go through the old process of buying a car with all of the hassles, stress, and wasted time?" Some of the language is of the "hard-sell" variety, apparently aimed at preventing customers from using the price that they are quoted by telephone to barter with other dealerships. For example, the procedure advises the following response to a hesitant customer:

Please be aware that our competition is fearful of this program because it is so successful. They will do just about anything, including quoting you an unrealistic price, to lure you into the dealership and then subject you to the same abuse you've probably experienced in the past. Doesn't it make more sense to do business with the people who respected you enough to give you the real price in the first place rather than wasting hours of your time in the hopes of saving a few more dollars?

(emphasis in original).

ABT also provides subscribing dealerships with a description of the average customer who shops for a car through the internet. The ABT guidelines advise dealerships that their internet-using customers have greater access to information than many other customers, and instruct the dealerships on how to interact with them.

Nowhere in the guidelines does ABT indicate what price a dealership should quote for the selected vehicle. ABT does not prescribe a dealership's hours of operation, product lines, or inventory practices. It does not inspect a dealership's records or financial statements.

C. Procedural background

In June of 1996, JDI entered into a five-year subscription agreement with ABT to be the exclusive dealer to which potential Ford customers in the Michigan counties of Wayne, Oakland, Macomb, and Washtenaw would be referred. The agreement contained a clause granting either party the right to terminate on 30 days' written notice. In early 1997, ABT requested that JDI renegotiate the terms of the contract, which request JDI declined.

JDI then filed a complaint in the Macomb County Circuit Court on March 24, 1997, alleging breach of contract and seeking a declaratory judgment that the contract between JDI and ABT could not be terminated without cause because it was a franchise agreement protected by the provisions of the Michigan Franchise Investment Law. By letter dated April 22, 1997, ABT gave notice that it was terminating the contract effective May 24, 1997. On May 12, 1997, counsel for ABT telephoned counsel for JDI to advise that ABT was planning to remove the action to the United States District Court for the Eastern District of Michigan. JDI amended its state court complaint the very next day to add North Brothers, as well as to add a claim for injunctive relief and specific performance. On May 14, 1997, ABT filed its notice of removal without knowledge of the amended complaint. Five days later, JDI filed an expedited motion to remand the case back to state court based on the lack of diversity jurisdiction. In its response, ABT alleged that North Brothers had been fraudulently joined to defeat diversity jurisdiction.

JDI then filed a motion for a preliminary injunction prohibiting ABT from terminating the contract between the parties. Finding that JDI had not demonstrated that it was likely to succeed on the merits of its claim, nor that it would suffer irreparable harm if an injunction were not granted, the district court denied JDI's motion on June 4, 1997.

On June 6, 1997, ABT filed a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure or, alternatively, a motion for summary judgment under Rule 56. On December 29, 1997, the district court issued a memorandum opinion and order denying JDI's motion for remand to state court and granting ABT's motion for summary judgment. In so ruling, the district court found that North Brothers was a fraudulently joined party and that the contract between ABT and JDI was not a franchise agreement under the Michigan Franchise Investment Law. JDI timely filed its notice of appeal.

II. ANALYSIS

A. The district court did not err when it denied JDI's motion to remand the case to state court

1. Standard of review

This court conducts a de novo review of the district court's denial of a motion to remand. See Ahearn v. Charter Township of Bloomfield, 100 F.3d 451, 453 (6th Cir.1996). The defendant that removes a case from state court bears the burden of establishing federal subject-matter jurisdiction. See id. at 453-54.

2. Timing

The federal removal statute, codified at 28 U.S.C. § 1441, grants defendants in civil suits the right to remove cases from state courts to federal district courts when the latter would have had original jurisdiction. Diversity of citizenship, the basis for jurisdiction in the present case, exists only when no plaintiff and no defendant are citizens of the same state. See United States Fidelity and Guar. Co. v. Thomas Solvent Co., 955 F.2d 1085, 1089 (6th Cir.1992). In order for a defendant to remove a case to federal court based upon diversity jurisdiction, there must be complete diversity of citizenship both at the time that the case is commenced and at the time that the notice of removal is filed. See Easley v. Pettibone Mich. Corp., 990 F.2d 905, 908 (6th Cir.1993). ABT filed its notice of removal on May 14, 1997, one day after JDI had filed its amended complaint naming a non-diverse defendant (North Brothers). Therefore, if North B...