Sioux City Truck Sales, Inc. v. Iowa Dep't of Transp.
| Decision Date | 03 June 2022 |
| Docket Number | 20-0837 |
| Parties | SIOUX CITY TRUCK SALES, INC., Appellant, v. IOWA DEPARTMENT OF TRANSPORTATION and Peterbilt Motors Company, Appellees, and Allstate Peterbilt of Clear Lake, Intervenor. |
| Court | Iowa Supreme Court |
Jeffrey M. Goldstein (argued) of Goldstein Law Firm, PLLC, Washington, D.C., pro hac vice, and Anthony P. Lamb (until withdrawal) and Ryland Deinert of Klass Law Firm, L.L.P., Sioux City, for appellant.
Thomas J. Miller, Attorney General, and Michelle E. Rabe (argued), Assistant Attorney General, for appellee Iowa Department of Transportation.
Stephen E. Doohen of Whitfield & Eddy, P.L.C., Des Moines, and Mark T. Clouatre (argued), John P. Streelman, and Jacob F. Fischer of Nelson Mullins Riley & Scarborough LLP, Denver, Colorado, pro hac vice, for appellee Peterbilt Motors Company.
Joseph G. Gamble of Duncan Green, P.C., Des Moines, and John N. Bisanz, Jr., of Henson & Efron, P.A., Minneapolis, Minnesota, pro hac vice, for intervenor Allstate Peterbilt of Clear Lake.
In this case, we consider the scope of the term "community" when the Iowa Department of Transportation (DOT) considers whether "good cause" exists to permit a franchiser to create dueling franchises in a geographic area under Iowa Code section 322A.4 (2021). The question boils down to this: in considering whether the establishment of an additional franchisee in a geographic area is in the public interest, is the DOT required to consider the investments made by the existing franchisee and the impact of the action on retail motor sales solely in the areas where the existing franchisee and the additional franchisee would compete, or must the DOT consider the investment and impacts across the entire geographic area of the existing franchisee?
The question turns on the meaning of the term "that community" in Iowa Code sections 322A.4 and 322A.16. The franchiser in this case argues that the phrase "that community" must mean the twenty-three-county geographic area in which the existing franchisee and the proposed additional franchisee would compete. The existing franchisee, however, claims that the phrase "that community" means the entire seventy-one-county area in which the existing franchise conducts business, even though the existing franchisee and the proposed new franchisee would compete only in twenty-three of the seventy-one counties.
The existing franchisee's argument is based upon Iowa Code section 322A.1(2), which provides that the term "community" in the statute means "the franchisee's area of responsibility as stipulated in the franchise." Iowa Code § 322A.1(2). But the franchiser notes that the statutory definition does not apply where "the context otherwise requires."
Both the Administrative Law Judge (ALJ) and the DOT ruled in favor of the franchiser's interpretation, concluding that the twenty-three-county area where the additional franchisee would compete with the existing franchisee was the relevant geographic area to consider when determining the presence of "good cause" under Iowa Code section 322A.4. Using the smaller geographic area, the ALJ and the DOT found that good cause existed for the additional franchisee.
The existing franchisee sought judicial review of the agency action, which was affirmed by the district court. The court of appeals reversed the district court, holding that the DOT should have applied the statutory definition of community and that, as a result, the DOT erred in considering the impacts of the additional franchise only in the twenty-three counties where the new franchisee would compete with the existing franchisee.
We granted further review. For the reasons expressed below, we vacate the decision of the court of appeals and affirm the judgment of the district court.
A. Overview of the Facts. Peterbilt Motors Company (Peterbilt) is a truck manufacturer that distributes its products through a network of fifty-five dealership groups. Sioux City Truck Sales (SCTS) is one of Peterbilt's dealership groups—operating in Sioux City, Altoona, and Council Bluffs, Iowa, and in Lincoln and Norfolk, Nebraska.
Under Peterbilt and SCTS's dealer agreement, Peterbilt is the franchiser and SCTS is the franchisee. Pursuant to the agreement, SCTS agrees to sell and provide service for Peterbilt's products in its assigned, nonexclusive area of responsibility (AOR). Under the agreement, Peterbilt, in its sole discretion, may appoint additional dealers in the area upon providing SCTS with a 180-day notice.
SCTS's AOR includes counties in Nebraska and seventy-one counties in Iowa. Included in SCTS's Iowa AOR are twenty-three counties in the Clear Lake area. The Clear Lake area is located in close proximity to Interstate 35 and experiences heavy truck traffic. Further, the Clear Lake area is more than 100 miles from any other Peterbilt dealer location.
Peterbilt later developed a proprietary engine that it believed would require additional service locations within SCTS's AOR. Beginning in 2010, Peterbilt recommended that SCTS develop dealership locations in both Lincoln, Nebraska, and Clear Lake, Iowa, to ensure an adequate dealer network to service Peterbilt's engines. SCTS responded to Peterbilt's request by opening a dealership in Lincoln, but not in the Clear Lake area.
On December 12, 2012, Peterbilt sent a letter to SCTS identifying Clear Lake as an area that needed a dealership and asked SCTS to take action. Peterbilt subsequently made repeated requests related to opening a dealership in the Clear Lake market but SCTS remained noncommittal. Peterbilt then prepared what it called a "White Spot" report with various metrics to show that a full-service dealership would be profitable and welcome by the Clear Lake area market. Again, SCTS's response in April 2015, showed that it had not made any decisions about Clear Lake.
In June of 2016, Peterbilt met with SCTS and indicated that the need for a dealership in Clear Lake was urgent enough that if SCTS did not want to open a dealership there, another party would be found to do so. Eventually, Peterbilt sent a letter of dual assignment on November 1. In response, SCTS proposed to open a parts-only store in Clear Lake, noting in its email to Peterbilt: "[W]e could not find an existing facility in the Clear Lake area with service bays." SCTS's attempt to salvage the situation, however, did not succeed as Peterbilt was not interested in a parts-only store that did not include services on Peterbilt equipment. Despite not having Peterbilt's approval as required under the agreement, SCTS opened a parts-only store in Clear Lake.
On August 18, 2017, after the contractual 180-day notice of intent to dual assignment had passed, Peterbilt sought approval from the DOT under Iowa Code section 322A.4 to appoint Allstate as a dealer in the Clear Lake area.
B. Department of Inspection and Appeals ALJ Finding. After a three-day hearing and canvassing the extensive record, an ALJ found that as of November 1, 2016, good cause existed for an additional franchise in the Clear Lake area under Iowa Code sections 322A.4 and 322A.16. See Iowa Code §§ 322A.4, .16. The ALJ further found that good cause was not affected by SCTS's later-expressed willingness to add a parts-and-service dealership because Peterbilt had a legitimate business concern that SCTS's willingness was only nominal in nature. Notably, the ALJ considered the impacts of the additional franchisee only in the twenty-three counties in which the new franchisee would be competing with the existing franchisee, not the larger seventy-one-county area in Iowa and additional territory in Nebraska that was within SCTS's AOR.
C. Appeal to the Iowa DOT. On appeal, SCTS argues that the ALJ erred in using an incorrect definition of "community" in its analysis under sections 322A.4 and 322A.16. SCTS claimed that based on the definition in Iowa Code section 322A.1(2), the community in question should be the entire seventy-one-Iowa-county portion of SCTS's AOR, not the Clear Lake community which only encompassed twenty-three counties as the ALJ understood it.
The DOT agreed with the ALJ's interpretation of community as limited to those counties within SCTS's AOR that were subject to dual assignment. Specifically, the DOT found that there was no dispute that SCTS's entire AOR, including the areas in Nebraska and seventy-one Iowa counties, was not being subject to dual assignment. Rather, only twenty-three counties were included in the Clear Lake area where Peterbilt sought approval for a new franchisee.
Further, the DOT reasoned that consideration of the good cause factors could only be meaningful if community was defined in the same way for both entities, as SCTS's entire AOR was not subject to dual assignment. As a result, the DOT concluded that the only logical community to be used for analysis would be the area subject to dual assignment, meaning the twenty-three-county Clear Lake area. As a result, the DOT affirmed the ALJ's decision in favor of Peterbilt.
D. District Court Ruling on Judicial Review of Agency Action. Upon judicial review, the district court affirmed the DOT's decision granting Peterbilt's request. On the issue of the correct legal interpretation of community under Iowa Code sections 322A.4 and 322A.16, the district court held that the phrase "that community" in Iowa Code section 322A.16 referred to the twenty-three-county Clear Lake area. The district court reasoned that the legislature used modifiers such as "any" and "that" before "community" to qualify the meaning of community from the entire AOR to the narrower area subject to dual assignment. See Iowa Code §§ 322A.4, .16. The district court found the agency's reading...
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