Nissan North America v. Andrew Chevrolet, Inc.

• Decision Date: 17 December 2008
• Docket Number: No. 08-C-584.,08-C-584.
• Citation: 589 F.Supp.2d 1036
• Parties: NISSAN NORTH AMERICA, INC., Plaintiff, v. ANDREW CHEVROLET, INC., d/b/a Andrew Nissan, Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

589 F.Supp.2d 1036

NISSAN NORTH AMERICA, INC., Plaintiff, v. ANDREW CHEVROLET, INC., d/b/a Andrew Nissan, Defendant.

No. 08-C-584.

United States District Court, E.D. Wisconsin.

December 17, 2008.

Daniel E. Conley, Nicole J. Druckrey, Quarles & Brady LLP, Milwaukee, WI, Ingrid J. Winkler, John A. Rock, Steven J. Wells, Dorsey & Whitney LLP, Minneapolis, MN, for Plaintiff.

Catherine Cetrangolo, Eric A. Baker, Paul R. Norman, Boardman Suhr Curry & Field LLP, Madison, WI, for Defendant.

DECISION AND ORDER

RUDOLPH T. RANDA, Chief Judge.

The above-captioned matter relates to a motor vehicle dealership arrangement between Nissan North America, Inc. ("Nissan," the manufacturer) and Andrew Chevrolet, Inc. ("Andrew," the dealership). Andrew moves to dismiss or stay in deference to an ongoing administrative action before the Wisconsin Division of Hearings and Appeals. The administrative action was filed by Andrew several months before Nissan filed the instant action for declaratory relief in federal court. For the reasons that follow, Andrew's motion is granted and this matter is stayed pursuant to the abstention principles in Wilton v. Seven Falls Co., 515 U.S. 277, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995) and Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942) ("Wilton/Brillhart").

BACKGROUND

Nissan is an automobile manufacturer incorporated in California, with its principal place of business in Nashville, Tennessee. Andrew is an automobile dealer incorporated in Wisconsin with its principal place of business in Glendale, Wisconsin. Nissan and Andrew executed a dealership agreement in 1996.

On or about December 21, 2006, Andrew commenced an action with the Division of Hearing and Appeals, captioned Andrew Chevrolet, Inc. d/b/a Andrew Nissan v. Nissan North America, Inc., Case No. TR-06-0058 (the "Original DHA Action"). In the Original DHA Action, Andrew requested a hearing pursuant to Wis. Stats. Ch. 218 (the Wisconsin Motor Vehicle Dealer Law, "WMVDL") on Nissan's intent to terminate the Dealer Agreement and Nissan's denial of its relocation proposal. Just prior to the commencement of the hearing in the Original DHA Action, the parties entered into a Settlement Agreement. By a letter dated October 24, 2007, and pursuant to the terms of the Settlement Agreement, Andrew voluntarily terminated its dealer agreement, with such termination to be effective no later than April 2, 2008. Andrew ceased being a Nissan dealer on or about March 31, 2008.

Section I of the Settlement Agreement provided Andrew the opportunity, with restrictions, to submit a "Proposed Action," that is, to propose a transfer of its Nissan dealership assets (in the form of an asset purchase agreement) from Andrew to a proposed buyer. Under the terms of the Settlement Agreement, Andrew agreed to certain limitations on its ability to propose a transfer of its right in the Dealer Agreement. In the event that Nissan disapproved a Proposed Action, the Settlement Agreement allowed Andrew to protest Nissan's disapproval in accordance with Wis. Stat. § 218.0134(2)(c), but only if the "Proposed Action [was] submitted in accordance with this Settlement Agreement." Andrew had until January 15, 2008 to submit a Proposed Action.

On January 15, 2008, while it was still a franchised Nissan dealer, Andrew entered into an agreement to transfer its Nissan dealership assets to Melvin Schlesinger, or a company owned and controlled by him. Melvin Schlesinger owns 100% of the voting shares of Andrew; Andrew is a company "owned or controlled" by Melvin Schlesinger. Andrew Schlesinger and Melvin Schlesinger (father and son) have, over the years, managed and operated Andrew's Nissan dealership. On the same day, Andrew notified Nissan of this proposed action pursuant to Wis. Stat. § 218.0134(2)(a). On February 29, 2008, Nissan served Andrew with a written notice of disapproval of the proposed action pursuant to Wis. Stat. § 218.0134(2)(b). Nissan disapproved of the proposed transfer for a number of reasons, including that it was a sham transaction that did not qualify as a "Proposed Action" under the Settlement Agreement.

On March 10, 2008, Andrew commenced another administrative action, Andrew Chevrolet, Inc. d/b/a Andrew Nissan v. Nissan North America, Inc., Case No. TR-08-0010 (Wis.DHA). Andrew seeks an order from the DHA that "there is not good cause for not permitting the Proposed Action to be undertaken."

On June 8, 2008, Nissan moved to stay the DHA Action on the ground that the DHA lacks jurisdiction to decide whether, under the Settlement Agreement, Andrew waived its right to seek relief under Wis. Stat. § 218.0134(2)(c) in the DHA. On July 8, Nissan commenced the instant lawsuit in federal court. On July 10, Nissan filed a motion to stay the DHA Action pending the outcome in this federal lawsuit. On October 3, Andrew moved to dismiss or stay the instant federal action. On October 27, the DHA denied Nissan's motion for a stay.

ANALYSIS

Andrew argues that the Court should abstain from deciding this matter in deference to the ongoing DHA Action. A motion to dismiss or stay based on an abstention doctrine implicates the Court's exercise of subject matter jurisdiction. See Fed.R.Civ.P. 12(b)(1). The Court may consider extrinsic materials, including the filings in the DHA Action, without converting this motion into one for summary judgment. See English v. Cowell, 10 F.3d 434, 437 (7th Cir.1993).

Wilton/Brillhart or Colorado River?

Andrew's motion cites Colorado River abstention. See Colo. River Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). Under Colorado River, where a concurrent state proceeding is pending, a district court may abstain from exercising jurisdiction if the circumstances are exceptional and if abstention would promote "`wise judicial administration.'" Clark v. Lacy, 376 F.3d 682, 685 (7th Cir.2004) (quoting Colorado River, 424 U.S. at 818, 96 S.Ct. 1236). Colorado River abstention is the exception, not the rule, as the doctrine makes clear that district courts have a "virtually unflagging duty" to exercise federal jurisdiction when it exists. Colorado River at 817, 96 S.Ct. 1236.

Colorado River does not necessarily apply in the instant case because Nissan pursues declaratory relief. Colorado River is applied differently (or not at all) when a federal declaratory judgment action is filed during the pendency of a state court action. See Wilton, 515 U.S. at 289-90, 115 S.Ct. 2137; Brillhart, 316 U.S. at 494-95, 62 S.Ct. 1173. "Both Colorado River and Brillhart permit federal courts to defer to concurrent state court adjudication, but Brillhart sets federal declaratory judgment actions apart as a unique subset." United Artists Theatre Circuit, Inc. v. F.C.C., 147 F.Supp.2d 965, 977 (D.Ariz. 2000). This is due, in part, to the permissive nature of the federal Declaratory Judgment Act, 28 U.S.C. § 2201(a), which provides that a federal district court "may declare the rights and other legal relations of any interested party" in a case falling within its jurisdiction. See, e.g., Ameritas Variable Life Ins. Co. v. Roach, 411 F.3d 1328, 1330 (11th Cir.2005) (the Act "only gives the federal courts the competence to make a declaration of rights; it does not impose a duty to do so").

Accordingly, in contrast to the more demanding "exceptional circumstances" test contemplated by Colorado River, district courts have broad discretion to abstain under Wilton/Brillhart. See Wilton, 515 U.S. at 288, 115 S.Ct. 2137 ("In the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration"). However, there is a further complication because Nissan alleges a breach of contract claim for damages in addition to its request for declaratory relief. Because the complaint states both declaratory and coercive claims, the Court must determine "whether Colorado River's `exceptional circumstances' standard gives way to Wilton's discretionary one." See Coltec Industries, Inc. et al. v. Continental Ins. Co., No. Civ. A. 04-5718, 2005 WL 1126951 at *2 (E.D.Pa.).

Although this is an unsettled question in the Seventh Circuit, courts generally follow three different approaches when faced with this issue. The first approach finds that the Wilton/Brillhart discretionary standard is "per se supplanted by the harsher Colorado River test whenever an action includes both declaratory and non-frivolous coercive claims." Lexington Ins. Co. v. Rolison, 434 F.Supp.2d 1228, 1236 (S.D.Ala.2006) (citing Kelly Investment, Inc. v. Continental Common Corp., 315 F.3d 494, 497 n. 4 (5th Cir.2003)). The Court finds little merit in this approach. A per se rule makes it far too easy for creative litigants to evade Wilton/Brillhart by adding a claim for damages or injunctive relief to their pleadings. Courts are afforded considerable latitude in determining the appropriateness of issuing a declaratory judgment. "To eradicate that discretion simply because a coercive claim has been tacked onto what is, at its core, a declaratory judgment action would be to jettison those same considerations of practicality and wise administration, to exalt form over substance, to marginalize Wilton, and to undermine the statutory scheme established by Congress." Rolison, 434 F.Supp.2d at 1237.¹

The second approach counsels that the exercise of jurisdiction is subject only to Colorado River "if the coercive claims can exist independently of requests for declaratory relief, such that they could persist and survive even if the declaratory claims vanished." Rolison at 1236 (citing United National Ins. Co. v. R & D Latex Corp., 242 F.3d 1102, 1112 (9th Cir.2001)). At least in the Ninth Circuit, this approach asks "whether the claim for monetary relief is independent in the sense that it could be litigated in ...