Mercedes-Benz USA, LLC v. JP Motors, Inc.
Filing
92
MEMORANDUM Opinion and Order: MBUSA's motion to continue stay pending appeal 68 is granted in part and denied in part. The Court temporarily stays all contractual and statutory deadlines of MBUSA to approve, disapprove, or exercise rights of firstrefusal over the proposed sale of JP's Motor's Mercedes-Benz dealership assetsthrough April 26, 2024. Signed by the Honorable Mary M. Rowland on 4/16/2024. (See attached Order for further detail.) Mailed notice. (dm, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
MERCEDES-BENZ USA, LLC,
Plaintiff,
Case No. 23-cv-2281
v.
Judge Mary M. Rowland
JP MOTORS, INC.,
Defendant.
MEMORANDUM OPINION AND ORDER
Before the Court is Plaintiff Mercedes-Benz USA, LLC’s (“MBUSA’s”) motion
to continue stay pending appeal [68]. For the reasons stated below, MBUSA’s motion
is denied in part and granted in part.
I.
Factual Background
MBUSA distributes new passenger cars and sport utility vehicles to its
network of Mercedes-Benz dealers. [27] (“Compl.”) ¶¶ 6–7. Defendant JP Motors, Inc.
(“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 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 heart of the dispute is whether JP Motors must provide an apportionment
or break out of the sale price attributable to JP Motors’s 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 I LL. COMP. STAT.
710 §§ 1–32, which regulates contractual relationships between distributors and
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dealers, prohibits MBUSA from exercising its ROFR over anything less than the
package transaction. [57] at 1.
MBUSA brought this breach of contract action seeking declarations that (1)
MBUSA has the right to an apportionment 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 apportionment; and (4) JP Motors cannot
transfer the Mercedes-Benz assets unless it first provides the apportionment. Compl.
¶ 45.
MBUSA also sought a preliminary injunction that (1) declares the deadline for
MBUSA to approve or disapprove the proposed sale or exercise its ROFR has not
commenced; (2) enjoins JP Motors from closing the sale or transferring the MercedesBenz assets; and (3) enjoins JP Motors from taking other action that would interfere
with MBUSA’s ROFR. [28] at 2.
II.
Procedural Background
On April 20, 2023, the Court heard arguments on MBUSA’s motion for a
preliminary injunction. [8]; [19]; [28]. At that time, JP Motors had not submitted the
buyer’s application package to MBUSA. [20] at 8:12–19. The parties agreed that
MBUSA had 60 days to review the proposed transaction after the application was
completed, but disagreed whether the application must include an apportionment of
MBUSA’s assets for MBUSA to exercise its ROFR and approve or disapprove the sale.
Id. at 9:10–16, 16:4–10.
JP Motors relied on the abstention doctrine set forth in Buford v. Sun Oil Co.,
319 U.S. 315, 332–33, (1943), to argue that this Court should deny the request for
equitable relief and dismiss the action.1 Id. at 16:25–17:2; [17]. Three days after
MBUSA brought this action, JP Motors filed an administrative protest with the
Illinois Motor Vehicle Review Board (“Board”) alleging, among other things, that
MBUSA violated the Act by demanding an apportionment of the purchase price and
JP Motors alternatively requested the Court stay the proceeding pursuant to the abstention
doctrine in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 814
(1976). [17].
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refusing to proceed with the approval process of the buyer’s application. 2 [18], Ex. 1
at 2–3.
At the hearing on the preliminary injunction, this Court expressed its concern
with the “practical question” of how the deal would be able to close while the protest
was pending before the Board. Id. at 21:5–11. Counsel for MBUSA stated that JP
Motors “can’t close without [their] consent.” Id. at 16:21. Counsel for JP Motors noted
that the closing could not occur until the Board rendered its opinion, and even after
that, either party could begin the appeal process in the Circuit Court of Cook County
or Sangamon County. Id. at 22:12–17. Counsel for MBUSA also noted that it would
be “mov[ing] to dismiss [the protest before the Board] based on the fact that it’s a
premature protest” and characterized the dispute as purely contractual. Id. at 23:7–
8, 24:13–18. The Court took MBUSA’s motion for a preliminary injunction and JP
Motors’s motion to dismiss under advisement and set a briefing schedule on the
latter. [19].
On June 26, 2023, the parties attended an in-person mandatory settlement
conference related to the administrative proceeding pending before the Board but did
not reach a settlement. [35]. The Court stayed this action pending a ruling on
MBUSA’s motion to dismiss the protest before the Board because, as the parties
recognized, a dismissal would moot the abstention issue. Id.; [36].
On October 3, 2023, MBUSA filed a motion for “interim relief on or before
October 9, 2023,” seeking (1) to lift the Court’s stay of the case and (2) an order
temporarily staying the date by which MBUSA must respond to the proposed sale.
[37]. MBUSA’s motion seeking “urgent” relief admitted that the hearing officer in the
Board proceeding denied MBUSA’s motion to dismiss about seven weeks earlier on
August 14, 2023. [38] at 1 n.1. MBUSA decided to wait to request this relief until the
hearing officer entered his written order due to unresolved objections raised by JP
Motors. Id.
Over the prior months, JP Motors had submitted the materials to MBUSA to
complete the application package and trigger the 60-day clock for MBUSA to exercise
its ROFR and approve or disapprove the sale. Id. at 6–7. In their motion, MBUSA
JP Motors filed its protest under the following provisions of the Act: (i) § 7, which prohibits
a distributor from placing unreasonable restrictions on a dealer’s ability to sell its dealership;
(ii) §§ 4(e)(6) and (11), which prohibits a distributor from turning down a proposed equity or
asset sale of a dealership without good cause; (iii) § 4(e)(14), which prohibits a distributor
from exercising a right of first refusal unless certain conditions are met; and (iv) § 4(b), which
prohibits a distributor from acting in an arbitrary, bad faith, or unconscionable manner that
causes damage to a dealer. 815 ILL. COMP. STAT. 710 §§ 4(b), 4(e)(6), 4(e)(11), 4(e)(14), 7.
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agreed that the buyer application was completed on August 10, 2023 (aside from the
apportionment).3 Id.
On October 5, 2023, an emergency judge heard arguments on MBUSA’s motion
and “order[ed] a standstill of all contractual and statutory deadlines of [MBUSA]
under its Dealer Agreements with [JP Motors] and the [Act], to approve, disapprove,
or exercise rights of first refusal over the proposed sale of JP [Motors]'s MercedesBenz dealership assets” until the following week when the Court could address the
issues raised. [48]; [50].
On October 11, 2023, the Court heard arguments on the motion for interim
relief and extended the stay of contractual and statutory deadlines until November
15, 2023, to allow the Court time to address JP Motors’s fully briefed motion to
dismiss. [53]. The Court later, sua sponte, extended those deadlines through
November 29, 2023. [58]; [61].
On November 28, 2023, the Court entered a Memorandum Opinion and Order
(the “Order”) granting JP Motors’s motion to dismiss under the Burford abstention
doctrine and denying MBUSA’s motion for a preliminary injunction as moot. [62] at
10. To allow MBUSA time to appeal, the Court stayed the Order through January 12,
2024, and stayed the contractual and statutory deadlines through January 12, 2024.
Id.
On January 8, 2024, MBUSA filed the present motion pursuant to Federal
Rule of Civil Procedure 62(d) to continue the Order’s stay of contractual and statutory
deadlines pending appeal. [68]. On January 9, 2024, the Court set a briefing schedule
and temporarily continued the Order’s stay of contractual and statutory deadlines
through April 15, 2024. [70].
III.
Discussion
MBUSA moves pursuant to Federal Rule of Civil Procedure 62(d) to continue
the stay of statutory and contractual deadlines to either approve JP Motors’s sale or
to exercise its ROFR for (a) the duration of its appeal before the Seventh Circuit Court
The parties agree that on August 17, 2023, MBUSA wrote to JP Motors and stated “as of
August 10, 2023, subject to your providing us with certain documents at closing, we had
received all of the other documents and information we requested. … If your position were to
be correct, then under the terms of the … Dealer Agreements and … [Act], we would have
until October 9, 2023 to approve or deny the proposed transaction. Accordingly, absent
further direction from the Federal Court or the … Board, [we] will notify you, on or before
October 9, 2023, whether we will: (i) approve, disapprove, or exercise rights of first refusal
with respect to the proposed transaction, or (ii) abstain from making such a decision pending
a resolution of the parties’ dispute by the Federal Court or Board.” [47-2] (Letter from
Hannah Wilder to Joseph Leydon (Aug. 17, 2023)).
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of Appeals or, in the alternative, (b) a temporary period in order to allow it to petition
the Seventh Circuit under Federal Rule of Appellate Procedure 8. [69] at 2.
Rule 62(d) provides: “While an appeal is pending from an interlocutory order
or final judgment that grants, continues, modifies, refuses, dissolves, or refuses to
dissolve or modify an injunction, the court may suspend, modify, restore, or grant an
injunction on terms for bond or other terms that secure the opposing party’s rights.”
See Eli Lilly & Co. v. Arla Foods, Inc., 893 F.3d 375, 384 (7th Cir. 2018) (Rule 62(d)
“allow[s] the district court to modify an injunction to maintain the status quo pending
appeal”).
In deciding whether to issue a stay under Rule 62(d), courts consider: (1)
whether the stay applicant has made a strong showing that he is likely to succeed on
the merits; (2) whether the applicant will be irreparably injured absent a stay; (3)
whether issuance of the stay will substantially injure the other parties interested in
the proceeding; and (4) where the public interest lies. Nken v. Holder, 556 U.S. 418,
434 (2009) (quoting Hilton v. Braunskill, 481 U.S. 770, 776–77 (1987)).
This standard calls for an “equitable balancing,” Venckiene v. United States,
929 F.3d 843, 853 (7th Cir.), and stronger showings on some factors can offset weaker
showings on others, Hilton, 481 U.S. at 777–78. A stay should be granted if the
balance of equities favors it, but the burden of showing that a stay is justified falls on
the party requesting it. Clinton v. Jones, 520 U.S. 681, 708 (1997).
As an initial matter, the Court notes that from the inception of this case
MBUSA repeatedly stressed that the protest before the Board would be dismissed for
lack of jurisdiction. The hearing officer rejected the jurisdictional challenge, and the
proposed decision concludes that MBUSA violated multiple sections of the Act by
insisting upon an apportionment and refusing to approve JP Motor’s proposed
transaction. [87]. The hearing officer’s proposed decision also concludes that MBUSA
has no contractual ROFR or right to an apportionment because the parties’ contract
(Dealer Agreement) expired in 2012. [87-1] ¶¶ 88–93. Further, the hearing officer
found that the Act does not confer MBUSA with a ROFR or right to an apportionment.
Id. Because of MBUSA’s violations of the Act, the hearing officer concludes that JP
Motors’s protest against MBUSA should be sustained and “once the federal court lifts
the stay, MBUSA shall immediately process and approve the pending sale without
further delay.” Id. at 51–52.4
The hearing officer’s proposed decision is subject to approval of the full Board at its meeting
on May 9, 2024. [87]; [88]. The Board’s final decision will be appealable under the Illinois
Administrative Review Act, 735 ILL. COMP. STAT. 5 § 3-103, to the Illinois circuit court within
35 days. 815 ILL. COMP. STAT. 710 § 31. The Illinois circuit court decision will be appealable
to the Illinois appellate court. 735 ILL. COMP. STAT. 5 § 3-112.
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First, MBUSA argues that the appeal raises serious and difficult questions of
law. The Court need not consider the aforementioned history of the Board proceeding
or the hearing officer’s proposed decision to evaluate MBUSA’s likelihood of success
on the merits. The question here is whether this Court was right to abstain. Here,
MBUSA has not presented “new issues or arguments which [the Court] had not
considered when making [its] ruling, nor [has MBUSA] brought to the Court's
attention any factual inadequacy upon which the Court relied. The law regarding the
discretionary power of abstention is settled and unambiguous.” Accident Fund v.
Baerwaldt, 579 F. Supp. 724, 726 (W.D. Mich. 1984).
Second, MBUSA contends that it will be irreparably harmed absent a stay
because its deadline to respond to the proposed sale has passed if it is not entitled to
an apportionment. JP Motors responds that nothing is prohibiting MBUSA from
taking a position on the sale as MBUSA indicated it would do in its August 2023
letter (absent court intervention or action by the Board). [47-3] (Letter from Hannah
Wilder to Joseph Leydon (Aug. 17, 2023)). Regardless, the irreparable harm that
MBUSA highlights is being litigated before the Board and any decision is appealable
to the Illinois circuit court and Illinois appellate court.
Third, a stay is likely to result in harm to JP Motors. JP Motors has been trying
to sell its business for over a year now. The other two manufacturers, Chevrolet and
Nissan, have conditionally approved the transfer of JP Motors’s assets to Laspo and
are waiting for this dispute with MBUSA to be resolved. The delay in the sale is
depriving JP Motors from obtaining a liquidated sum for its business. The longer the
closing is delayed, the more uncertainty surrounds the underlying transaction, and
changes in market conditions or valuations could affect the viability of the
transaction.
Fourth, a stay of the case is not in the public interest. When the Act was passed
in 1979, the Illinois General Assembly explained that “[t]he purpose of the bill is to
attempt to strike a more fair balance between the interests of the manufacturers of
automobiles and the dealers.” 81st Ill. Gen. Assem., Senate Proceedings, May 25,
1979, at 207 (statement of Senator Berman). Specifically, the Act was designed to
release dealers who were held “captive of the whims of the [automobile]
manufacturers.” Id. Illinois courts recognize that the Act was “created for the benefit
of the dealers and must therefore be liberally construed to carry out the legislative
intent.” Kawasaki Shop of Aurora, Inc. v. Kawasaki Motors Corp., U.S.A., 544 N.E.2d
457, 460 (Ill. App. Ct. 1989).
In sum, MBUSA has not shown that the circumstances justify a stay of the
Order. Thus, the Court denies MBUSA’s request to stay contractual and statutory
deadlines for the duration of its appeal before the Seventh Circuit.
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The Court grants MBUSA’s request for a temporary stay to permit MBUSA to
seek relief in the Seventh Circuit under Federal Rule of Appellate Procedure 8.
Therefore, all contractual and statutory deadlines of MBUSA under its Dealer
Agreements with JP Motors and the Illinois Motor Vehicle Franchise Act, 815 ILCS
710/1 et seq., to approve, disapprove, or exercise rights of first refusal over the
proposed sale of JP Motors’s Mercedes- Benz dealership assets are temporarily stayed
through April 26, 2024.
IV.
Conclusion
For the stated reasons, MBUSA’s motion to continue stay pending appeal [68]
is granted in part and denied in part. The Court temporarily stays all contractual and
statutory deadlines of MBUSA to approve, disapprove, or exercise rights of first
refusal over the proposed sale of JP’s Motor’s Mercedes-Benz dealership assets
through April 26, 2024.
E N T E R:
Dated: April 16, 2024
MARY M. ROWLAND
United States District Judge
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