Kia Motors Am., Inc. v. Glassman Oldsmobile Saab Hyundai, Inc.

• Decision Date: 07 February 2013
• Docket Number: No. 12–1202.,12–1202.
• Citation: 706 F.3d 733
• Parties: KIA MOTORS AMERICA, INC., Plaintiff–Appellee, v. GLASSMAN OLDSMOBILE SAAB HYUNDAI, INC., dba Glassman Kia, Defendant–Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

706 F.3d 733

KIA MOTORS AMERICA, INC., Plaintiff–Appellee,

v.GLASSMAN OLDSMOBILE SAAB HYUNDAI, INC., dba Glassman Kia, Defendant–Appellant.

No. 12–1202.

United States Court of Appeals, Sixth Circuit.

Argued: Jan. 24, 2013.

Decided and Filed: Feb. 7, 2013.

ARGUED:Lawrence F. Raniszeski, Colombo & Colombo, P.C., Bloomfield Hills, Michigan, for Appellant. Catherine E. Stetson, Hogan Lovells US LLP, Washington, D.C., for Appellee. ON BRIEF:Lawrence F. Raniszeski, Colombo & Colombo, P.C., Bloomfield Hills, Michigan, for Appellant. Catherine E. Stetson, David M. Ginn, Hogan Lovells US LLP, Washington, D.C., Jonathan T. Walton, Jr., Walton & Donnelly, P.C., Detroit, Michigan, for Appellee.

Before SILER, SUTTON, and McKEAGUE, Circuit Judges.

OPINION

McKEAGUE, Circuit Judge.

The goal of every car manufacturer is to sell as many cars as possible. To accomplish this goal they need dealers, which must invest substantial resources to build attractive facilities and advertise the latest models. Superficially, dealers share the manufacturer's goal of selling as many cars as possible. But their mutual objectives may diverge if the manufacturer seeks to increase sales by appointing new dealers, whose efforts may erode the sales of existing dealers. Michigan recognized this potential problem in 1981 when it enacted the Motor Dealers Act (the “Act”), which grants car dealers certain limited territorial rights, even when the dealer has a nonexclusive franchise. The application of the Act to the dealer agreement between Kia Motors America, Inc. (“Kia”) and Glassman Oldsmobile Saab Hyundai, Inc. (“Glassman”) ¹ is at the nub of this dispute.

The Act requires car manufacturers to provide notice to an existing dealer before establishing a new dealer within a certain distance of the existing dealer's location. Receipt of notice gives the existing dealer a cause of action to challenge the proposed new dealer. Kia and Glassman entered into a Dealer Sales and Service Agreement (the “Agreement”) in 1998, when the distance for notice was 6 miles. The Michigan Legislature amended the Act in 2010 to increase the distance to 9 miles (the “2010 Amendment”). Kia now intends to establish a new dealer more than 6 miles, but less than 9 miles, from Glassman's location. The district court found that the parties did not agree to comply with the 2010 Amendment and that the 2010 Amendment is not retroactive. Therefore, it concluded that the 6–mile distance applies to the parties' relationship, and Kia need not give notice to Glassman. We affirm.

I. BACKGROUND

The facts are uncomplicated. Kia imports and distributes Kia products in the United States. Glassman is a car dealer in Southfield, Michigan. Their Agreement is a relatively simple contract. It appointed Glassman as an authorized Kia dealer. It contains provisions governing things such as sales and delivery, operation of the dealership, and service and parts. Importantly for this appeal, the Agreement clearly states that Glassman's right to sell Kia products is not exclusive. Kia “expressly reserves the unrestricted right to sell Kia Products itself and to grant others the right to sell Kia Products, whether or not in competition with [Glassman].” R. 1–2, Agreement, PageID # 17. Glassman understood that it was “not being granted an exclusive right to sell Kia products in any specified geographic area.” Id. at PageID # 18.

Although its right to sell Kia products is nonexclusive, Glassman agreed to assume certain responsibilities in its geographic region. It agreed to “vigorously and aggressively promote, solicit and make sales of Kia Products within its [Area of Primary Responsibility]”—a location left undefined in the Agreement.²Id. at PageID # 25. However, Glassman agreed “that it has no right or interest in any [Area of Primary Responsibility] that [Kia] may designate.” Id. Instead, in the sentence whose meaning is at issue in this appeal, the parties agreed that “ [a]s permitted by applicable law, [Kia] may add new dealers to, relocate dealers into or remove dealers from the [Area of Primary Responsibility] assigned to [Glassman].” Id. (emphasis added).

Kia's right to establish a new dealer in Glassman's vicinity is unrestricted by the Agreement, but it is restricted by an anti-encroachment provision ³ in the Act. SeeMich. Comp. Laws § 445.1576. This provision requires a car manufacturer to give notice to an existing dealer before establishing a new dealer in the same vicinity. In relevant part, the Act provides as follows:

(2) Before a manufacturer or distributor enters into a dealer agreement establishing or relocating a new motor vehicle dealer within a relevant market area where the same line make is represented, the manufacturer or distributor shall give written notice to each new motor vehicle dealer of the same line make in the relevant market area of its intention to establish an additional dealer or relocate an existing dealer within that relevant market area.

(3) Within 30 days after receiving the notice provided for in subsection (2), or within 30 days after the end of any appeal procedure provided by the manufacturer or distributor, a new motor vehicledealer may bring a declaratory judgment action in the circuit court for the county in which the new motor vehicle dealer is located to determine whether good cause exists for the establishing or relocating of a proposed new motor vehicle dealer. Once an action has been filed, the manufacturer or distributor shall not establish or relocate the proposed new motor vehicle dealer until the circuit court has rendered a decision on the matter. An action brought pursuant to this section shall be given precedence over all other civil matters on the court's docket.

Id. (emphasis added). When Kia and Glassman signed the Agreement in 1998, the “relevant market area” was defined as the area within 6 miles of the proposed new dealer. However, on August 4, 2010, the Act was amended to extend the distance to 9 miles. See 2010 Mich. Pub. Acts No. 139 (codified at § 445.1566(1)(a)).

Sixteen days after the 2010 Amendment became effective, Kia informed Glassman that it intended to establish a new dealer in Troy, Michigan. The new dealer would be located about 7 miles from Glassman's location (thus falling within the “relevant market area” under the 2010 Amendment, but outside the “relevant market area” when the Agreement was signed in 1998). When Glassman protested that it was entitled to notice under the Act, Kia filed a declaratory judgment action in the United States District Court for the Eastern District of Michigan. Kia sought a declaration that the 2010 Amendment did not require it to give notice to Glassman and did not give Glassman the right to protest the new dealer. Glassman filed a counter-complaint asking for the opposite declaration. The parties then filed cross-motions to dismiss and for judgment on the pleadings.

The district court granted Kia's motions and denied Glassman's motions. It concluded that when the parties used the term “applicable law” when referring to Kia's right to establish a new dealer in Glassman's Area of Primary Responsibility, they meant the law in effect in 1998 and did not intend to incorporate future changes in the law. It further determined that the 2010 Amendment did not operate retroactively to affect a contract entered into before its enactment because the Amendment is substantive—not procedural—in nature. Kia had argued that applying the 2010 Amendment retroactively would violate the Contracts Clauses of the Michigan and United States Constitutions, but because the district court found that the 2010 Amendment was not retroactive, it did not reach this question. Glassman timely appealed.

II. ANALYSIS

A. Standard of Review

We review de novo the district court's grant or denial of a Rule 12(b)(6) motion to dismiss and a Rule 12(c) motion for judgment on the pleadings. Tucker v. Middleburg–Legacy Place, LLC, 539 F.3d 545, 549 (6th Cir.2008).

B. Glassman's Contract Argument

The issue in this case is whether the 2010 Amendment requires Kia to give Glassman notice. Glassman contends that it does and has advanced both a contract argument and a statutory argument to support its position. We tackle first the contract argument and ultimately find that it fails.

Glassman contends that the parties agreed to comply with subsequent changes to the Act, including the 2010 Amendment, when they stated that Kia could establish new dealers in Glassman's Area of PrimaryResponsibility “[a]s permitted by applicable law.” As a preliminary matter, it is not at all clear that this provision is even relevant here. By its terms, it applies only when the new dealer would be located within Glassman's Area of Primary Responsibility. “Area of Primary Responsibility” is solely a contractual term and is distinct from the statutory term “relevant market area.” Glassman has never explicitly asserted that the proposed new dealer would be within its Area of Primary Responsibility, and Kia has assured us that it will not. Additionally, when read in context, this phrase seems directed more toward reinforcing the nonexclusive nature of Glassman's distribution rights than toward restricting Kia's right to establish new dealers.

Furthermore, although the parties have not agreed what state's law governs their agreement,⁴ it is a generally accepted rule of construction that “changes in the law subsequent to the execution of a contract are not deemed to become part of [the] agreement unless its language clearly indicates such to have been [the] intention of [the] parties.” 11 Richard A. Lord, Williston on Contracts § 30:23 (4th ed.1990); see also Rutherford Farmers Coop. v. MTD Consumer Grp., Inc., 124 Fed.Appx. 918, 920 (6th Cir.2005) (applying Tennessee law and quoting Williston ). Contracting parties are free to agree that their rights and duties will track the law as it changes, but because the terms of their bargain could be...