Mercedes-Benz U.S. v. JP Motors, Inc.

• Docket Number: 23-cv-02281
• Decision Date: 28 November 2023
• Parties: Mercedes-Benz USA, LLC, Plaintiff, v. JP Motors, Inc., Defendant.
• Court: U.S. District Court — Northern District of Illinois

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Mercedes-Benz USA, LLC, Plaintiff, v. JP Motors, Inc., Defendant.

No. 23-cv-02281

United States District Court, N.D. Illinois, Eastern Division

November 28, 2023

MEMORANDUM OPINION AND ORDER

MARY M. ROWLAND United States District Judge

Mercedes-Benz USA, LLC (“MBUSA”) brings this breach of contract and declaratory judgment action against JP Motors, Inc. (“JP Motors”). JP Motors has moved to dismiss under Federal Rule of Civil Procedure 12(b)(1) or alternatively stay the proceeding. [17]. For the reasons explained below, this Court grants JP Motors's motion to dismiss.

I. Background

MBUSA distributes new passenger cars and sport utility vehicles to its network of Mercedes-Benz dealers. [27] (“Compl.”) ¶¶ 4, 6. JP Motors is an authorized Mercedes-Benz dealer pursuant to agreements (“Dealer Agreements”) with MBUSA. Id. ¶ 9. JP Motors operates a Mercedes-Benz dealership, as well as Nissan and Chevrolet dealerships, at the same property in Peru, Illinois. Id. ¶¶ 8, 10.

In February 2023, JP Motors entered into an agreement with Lapso Motors to sell and transfer its Mercedes-Benz, Chevrolet, and Nissan dealerships. Id. ¶ 19. JP Motors gave notice of the proposed package sale to MBUSA. Id. ¶ 23. Within 60 days of receiving all of the reasonable and customary information to evaluate a sale, MBUSA is obligated to inform JP Motors whether (1) it approves or disapproves the sale and (2) whether it will exercise its right of first refusal (“ROFR”). Id. ¶¶ 16-17.

The dispute boils down to whether JP Motors must provide an apportionment or break out of the sale price of the Mercedes-Benz, Chevrolet, and Nissan dealerships. Id. ¶ 22. MBUSA contends that JP Motors's submission of the proposed package sale without an apportionment of the Mercedes-Benz assets does not preserve MBUSA's ROFR under the Dealer Agreements. Id. ¶ 22. JP Motors argues that the Illinois Motor Vehicle Franchise Act (the “Act”), 815 ILL. COMP. STAT 710 §§ 1-32, which regulates contractual relationships between distributors and dealers, prohibits MBUSA from exercising its ROFR over anything less than the package transaction. [57] at 1.

On April 11, 2023, MBUSA brought this breach of contract action seeking declarations that (1) MBUSA has the right to have the purchase price broken out as to the Mercedes-Benz assets; (2) this right is protected by the Act; (3) the time period for MBUSA to respond to the sale does not begin until JP Motors provides the breakout; and (4) JP Motors cannot transfer the Mercedes-Benz assets unless it first provides the breakout.^[1] Compl. ¶ 45.

Three days after this case was filed, JP Motors filed an administrative protest with the Illinois Motor Vehicle Review Board (“Board”) alleging, among other things, that MBUSA violated the Act by refusing to process the buyer's application and demanding an apportionment of the purchase price. [18], Ex. 1. JP Motors also filed the present motion to dismiss or stay this action. [17].

On April 20, 2023, the Court reserved ruling on MBUSA's motion for a preliminary injunction. [19]. At the hearing, MBUSA indicated that it would move to dismiss the administrative protest for lack of jurisdiction. [19]; [20] at 23:7-15. After the parties failed to reach a settlement before an administrative law judge, this Court stayed this case pending a ruling on MBUSA's motion to dismiss the administrative protest. [36]. In the interim, the Court granted MBUSA a stay of all contractual and statutory deadlines under its Dealer Agreements with JP Motors and the Act to approve, disapprove, or exercise its ROFR over the proposed sale. [50]; [53]; [58]. On October 11, 2023, the Board's hearing officer denied MBUSA's motion to dismiss without prejudice. [57-1]. The Board's hearing officer set a hearing on the merits on January 16, 2024. [42-2].

II. Legal Standard

A Rule 12(b)(1) motion seeks dismissal of an action over which a court allegedly lacks subject matter jurisdiction. Fed.R.Civ.P. 12(b)(1). In evaluating a motion brought under Rule 12(b)(1), the court accepts as true the plaintiff's well-pleaded allegations and draws all reasonable inferences in favor of the nonmoving party. Long v. Shorebank Dev. Corp., 182 F.3d 548, 554 (7th Cir.1999). Nevertheless, the party asserting jurisdiction bears the burden of establishing that jurisdiction is satisfied. Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 913 (7th Cir. 2009). The court may “look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists.” Long, 182 F.3d at 554 (quoting Capitol Leasing Co. v. FDIC, 999 F.2d 188, 191 (7th Cir. 1993)) (internal quotation marks omitted).

III. Analysis

JP Motors argues that the Court should decline to exercise federal jurisdiction based on the abstention doctrine set forth in Buford v. Sun Oil Co., 319 U.S. 315, 332-33, (1943), or alternatively stay the proceeding pursuant to the abstention doctrine in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 814 (1976). The Court finds that Burford abstention is the better fit “given the potential public policy ramifications of the legal issues presented in this case.” Nissan N. Am., Inc. v. Jim M'Lady Oldsmobile, Inc., No. 07 C 6304, 2008 WL 4148528, at *2 (N.D. Ill. Aug. 29, 2008).

Burford abstention is appropriate in two circumstances: “(1) when there are ‘difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar'; or (2) where the ‘exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.'” New Orleans Pub. Serv., Inc. v. Council of City of New Orleans, 491 U.S. 350, 361 (1989) (“NOPSI”) (quoting Colorado River, 424 U.S. at 814).

The Court begins with an evaluation of the second circumstance where concurrent federal jurisdiction would “be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.” NOPSI, 491 U.S. at 361 (quoting Colorado River, 424 U.S. at 814). The Seventh Circuit held that “[t]he ability to point to a specialized [forum or] proceeding is a prerequisite of, not a factor in, the second type of Burford abstention.” Int'l Coll. of Surgeons v. City of Chicago, 153 F.3d 356, 364 (7th Cir. 1998) (emphasis added) (quoting Prop. & Cas. Ins. Ltd. v. Cent. Nat. Ins. Co. of Omaha, 936 F.2d 319, 323 (7th Cir.1991)). The Act designates the Board as the initial place to which disputes are taken. 815 ILL. COMP. STAT. 710/1618. However, the Act grants the Illinois Circuit Courts of Cook County and Sangamon County the power to review the Board's decisions. 815 ILL. COMP. STAT. 710/32. These courts of general jurisdiction arguably do not provide a “specialized forum or proceeding that offers the essential technical oversight needed for Burford abstention to apply.” Adkins v. VIM Recycling, Inc., 644 F.3d 483, 505 n.11 (7th Cir. 2011); Int'l Coll. of Surgeons, 153 F.3d at 364 (Burford abstention was not appropriate because any court of general jurisdiction could review final administrative decisions); see also Jim M'Lady Oldsmobile, 2008 WL 4148528, at *3 (evaluating the first type of Burford abstention after determining “it is unclear whether the Cook and Sangaman County courts are sufficiently specialized to allow for Burford abstention” under the second type). Therefore, the Court turns its analysis to the first circumstance under Burford.

Abstention is also appropriate under Burford “when there are ‘difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar.'” NOPSI, 491 U.S. at 361 (quoting Colorado River, 424 U.S. at 814). The Court finds that Burford abstention under this circumstance is warranted.

First, the action involves a local public policy concern. See Int'l Coll. of Surgeons, 153 F.3d at 362 (finding land use a local public policy concern). The preamble to the Act declares that “the distribution and sale of vehicles within this State vitally affects the general economy of the State and the public interest, welfare, and safety.” 815 ILL. COMP. STAT. 710/1.1 (emphasis added). The Illinois Supreme Court has found that the Act serves “legitimate public interests” by promoting fair dealing and protecting small businesses from harmful franchising practices. Gen. Motors Corp. v. State Motor Vehicle Rev. Bd., 862 N.E.2d 209, 227 (Ill. 2007). Other courts in this district have recognized the state's interest in regulating the relationship between dealers and manufacturers. See Jim M'Lady Oldsmobile, 2008 WL 4148528, at *3 (concluding “the [Act] is evidence of an effort by the Illinois legislature to establish a coherent policy with respect to a matter of substantial public concern”); Lou Bachrodt Chevrolet Co. v. Gen. Motors LLC, No. 12 C 7998, 2013 WL 3754833, at *6 (N.D. Ill. July 15, 2013) (remanding to the Board because “the state's interests in regulating the relationships of automobile manufacturers and dealers” outweighed the federal interests in removal jurisdiction).

Second the dispute involves the scope of MBUSA's ROFR, which is a contractual right impacted by unresolved state law questions. Contracts between MBUSA and JP Motors provide that JP Motors's right to transfer its Mercedes-Benz Assets is subject to MBUSA's ROFR. Compl. ¶ 13. The Act itself does not grant MBUSA a ROFR, but it requires that MBUSA's contractual ROFR be exercised in accordance with certain conditions. For example, the Act makes it unlawful for a...