King Coal Chevrolet Co. v. General Motors Co. et al

Filing 52

MEMORANDUM OPINION AND ORDER denying without prejudice General Motors LLC's 7 MOTION to Dismiss; denying without prejudice King Coal Chevrolet Co.'s 5 MOTION for a Preliminary Injunction; directing that the question stated herein be certified to the Supreme Court of Appeals for answer; the Clerk forward to the Supreme Court of Appeals under the official seal of this court, a copy of this memorandum opinion and order, which constitutes the Order of Certification, together with the original or copies of the record before this court to the extent requested by the Supreme Court of Appeals; the Clerk fulfill any request for all or part of the record simply upon notification from the Clerk of the Supreme Court of Appeals; and this action is stayed and retired to the inactive docket pending an answer to the certified question contained herein. Signed by Judge John T. Copenhaver, Jr. on 5/23/2013. (cc: attys; Supreme Court of Appeals) (taq)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF WEST VIRGINIA
AT CHARLESTON
KING COAL CHEVROLET CO.,
Plaintiff,
v.

Civil Action No. 2:12-5992

GENERAL MOTORS LLC,
Defendant.
MEMORANDUM OPINION AND ORDER
Pending are the motion of the plaintiff King Coal
Chevrolet Co. for a preliminary injunction, filed October 10,
2012, and the motion to dismiss of the defendant General Motors,
LLC, filed October 16, 2012.

I.

This case involves a dispute between an automobile
manufacturer and one of its dealers.

The Legislature, in what

the court will refer to as the Dealer's Act, has observed that
"the distribution and sale of motor vehicles in this State
vitally affects the general economy and the public welfare . . .
."

W. Va. Code § 17A-6A-1.

In regulating this vital area of

commerce, the Legislature focused the Dealer's Act, in part, on

mitigating "undue control of the independent new motor vehicle
dealer by the vehicle manufacturer or distributor . . . ."

Id.

Such control occurs when a manufacturer proliferates
dealerships in a confined geographic area, which impairs the
dealers' efforts to sustain a profitable enterprise.

The

Dealer's Act thus requires a manufacturer to notice its
preexisting dealer in a given area before establishing or
relocating a competitor of the same line-make within the
preexisting dealer's relevant market area.

Once the notice is

received, the preexisting dealer is authorized to institute a
statutory declaratory judgment action to determine whether good
cause exists for the establishment or relocation of the
competitor.
The correct interpretation of the Dealer's Act
facilitates not only the resolution of this action but is also
central to implementing the Legislature's policy choices.

The

discussion that follows tracks essentially the allegations of
the complaint unless otherwise indicated.1

1

The record includes the November 20, 2012, stipulations of fact
and the transcribed evidentiary hearing held December 12, 2012.

2

II.

Plaintiff King Coal Chevrolet Co. ("King Coal") is
located in Oak Hill.

It sells Chevrolet vehicles manufactured

by defendant General Motors LLC ("GM").

As a result of a

Chapter 11 reorganization proceeding instituted by its
predecessor, General Motors Corporation, GM set about trimming
its dealer network.

As a part of that effort, GM discontinued a

Chevrolet franchise agreement with Lewis Automotive Group
("Lewis Automotive") which, like King Coal, sold that line-make
in the Beckley area.
In November 2010, GM appears to have concluded that
its restructuring efforts would be enhanced by another
dealership in the Beckley area.

It identified potential

candidates and encouraged them to submit proposals to aid GM in
ascertaining the best prospect.
the candidates.

Lewis Automotive was not one of

GM ultimately chose the principals of the

proposed Mid-State Chevrolet ("Mid-State") to open the Beckleyarea GM dealership.

The dealership, popularly known as

Crossroads Chevrolet ("Crossroads"), is now open for business.
It is undisputed that Crossroads was established within two
years of the closure of Lewis Automotive's Chevrolet dealership.

3

King Coal asserts that Crossroads will directly
compete with it in the existing "relevant market area" as that
term is defined by West Virginia Code § 17A-6A-3(14) (defining
the phrase as "the area located within a twenty air-mile radius
around an existing same line-make new motor vehicle
dealership[.]").

Crossroads is located 10.23 air miles away

from King Coal's dealership.
GM has not provided King Coal with the statutory
notice specified by the Dealer's Act.

That notice is a

condition precedent for a dealership seeking to avail itself of
the protective declaratory judgment action contemplated by the
Dealer's Act.

See Raines Imports, Inc. v. American Honda Motor

Co., 223 W. Va. 303, 311, 674 S.E.2d 9, 17 (2009)("Absent such
statutory notice, Lester Raines Honda did not have standing to
bring a statutory declaratory judgment action pursuant to W. Va.
Code § 17A–6A–12(3)").
On September 10, 2012, King Coal demanded GM provide
it with the statutory notice.

On September 14, 2012, GM

responded to King Coal and asserted that it was exempt under
section 17A-6A-12(4) of the Dealer's Act from providing such
notice inasmuch as it deemed Crossroads to constitute an
excepted "re-opening" new motor vehicle dealership that had been
closed within the preceding two years, namely, Lewis Automotive.

4

The Crossroads location is within four miles of Lewis
Automotive, as required to qualify for the exemption. (Jt. Stip.
¶ 9).
Crossroads's principals are different from those of
Lewis Automotive and have no association with them.

Crossroads

is located at a different site, has a new dealership name, a new
logo, and new management.

Lewis Automotive continues to do

business as a Nissan dealership.

King Coal objects that these

facts, and others, illustrate that Crossroads is not a
"reopening" of Lewis Automotive's discontinued Chevrolet
dealership and is thus subject to the notice requirements found
in the Dealer's Act.
King Coal seeks an order, inter alia, (1) enjoining GM
from permitting the operation of any Chevrolet dealership within
the relevant market area of King Coal Chevrolet, and (2)
compelling GM to provide King Coal the statutory notice
prescribed by the Dealer's Act.

5

III. Motion to Dismiss

A.

Governing Standard

Federal Rule of Civil Procedure 8(a)(2) requires that
a pleader provide “a short and plain statement of the claim
showing . . . entitle[ment] to relief.”

Fed. R. Civ. P.

8(a)(2); Erickson v. Pardus, 127 S. Ct. 2197, 2200 (2007).

Rule

12(b)(6) correspondingly permits a defendant to challenge a
complaint when it “fail[s] to state a claim upon which relief
can be granted . . . .”

Fed. R. Civ. P. 12(b)(6).

The required “short and plain statement” must provide
“‘fair notice of what the . . . claim is and the grounds upon
which it rests.’”

Bell Atlantic Corp. v. Twombly, 550 U.S. 544,

545 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957),
overruled on other grounds, Twombly, 550 U.S. at 563); see also
Anderson v. Sara Lee Corp., 508 F.3d 181, 188 (4th Cir. 2007).
In order to survive a motion to dismiss, “a complaint must
contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’”

Ashcroft v.

Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S.
at 570); see also Monroe v. City of Charlottesville, 579 F.3d
380, 386 (4th Cir. 2009).
6

Application of the Rule 12(b)(6) standard requires
that the court “‘accept as true all of the factual allegations
contained in the complaint . . . .’”

Erickson, 127 S. Ct. at

2200 (quoting Twombly, 127 S. Ct. at 1965); see also South
Carolina Dept. Of Health And Environmental Control v. Commerce
and Industry Ins. Co., 372 F.3d 245, 255 (4th Cir. 2004)
(quoting Franks v. Ross, 313 F.3d 184, 192 (4th Cir. 2002)).
The court must also “draw[] all reasonable . . . inferences from
th[e] facts in the plaintiff's favor . . . .”

Edwards v. City

of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999).

B.

Governing Substantive Law

The Dealer's Act is comprised of West Virginia Code
sections 17A-6A-1 to 17A-6A-18.

The legislative findings state

as follows:
The legislature finds and declares that the
distribution and sale of motor vehicles in this State
vitally affects the general economy and the public
welfare and that in order to promote the public
welfare and in the exercise of its police power, it is
necessary to regulate motor vehicle dealers,
manufacturers, distributors, and representatives of
vehicle manufacturers and distributors doing business
in this State in order to avoid undue control of the
independent new motor vehicle dealer by the vehicle
manufacturer or distributor and to ensure that dealers
fulfill their obligations under their franchises and
provide adequate and sufficient service to consumers
generally.

7

West Virginia Code § 17A-6A-1.

The Dealer’s Act also contains a

number of definitions, three of which are relevant here.

First,

a "new motor vehicle dealer" is defined as follows:
[A] person who holds a dealer agreement granted by a
manufacturer or distributor for the sale of its motor
vehicles, who is engaged in the business of
purchasing, selling, leasing, exchanging or dealing in
new motor vehicles, service of said vehicles, warranty
work and sale of parts who has an established place of
business in this state and is licensed by the Division
of Motor Vehicles.
W. Va. Code § 17A-6A-3(11).

Second, as earlier noted, the term

"relevant market area" is defined as follows:
[T]he area located within a twenty air-mile radius
around an existing same line-make new motor vehicle
dealership . . . .
W. Va. Code § 17A-6A-3(14).

Third is the following provision

respecting the relocation of existing new motor vehicle dealers:
As used in this section, “relocate” and “relocation”
do not include the relocation of a new motor vehicle
dealer within four miles of its established place of
business or an existing new motor vehicle dealer sells
or transfers the dealership to a new owner and the
successor new motor vehicle dealership owner relocates
to a location within four miles of the seller's last
open new motor vehicle dealership location. The
relocation of a new motor vehicle dealer to a site
within the area of sales responsibility assigned to
that dealer by the manufacturing branch or distributor
may not be within six air miles of another dealer of
the same line-make.
W. Va. Code § 17A-6A-12(1).
There are two additional statutory provisions that are
more central to the resolution of this controversy.

8

First, as

noted supra, section 17A-6A-12(2) requires the manufacturer to
send notice to an existing new motor vehicle dealer when another
dealership in the same vehicle line is poised to open in close
proximity.

The statute provides as follows:

Before a manufacturer . . . 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 . . .
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 to relocate an existing dealer within that
relevant market area.
W. Va. Code § 17A-6A-12(2) (emphasis added).
Second, is the statutory safe harbor for
manufacturers, relied upon by GM here, that obviates the need to
provide notice under section 17A-6A-12(2).

The safe harbor is

found in section 17A-6A-12(4), which provides as follows:
This section does not apply to the reopening in a
relevant market area of a new motor vehicle dealer
that has been closed or sold within the preceding two
years if the established place of business of the new
motor vehicle dealer is within four miles of the
established place of business of the closed or sold
new motor vehicle dealer.
W. Va. Code § 17A-6A-12(4) (emphasis added).
In sum, as noted, King Coal asserts that Crossroads'
is an entirely new motor vehicle dealership solicited and
created after the demise of Lewis Automotive and that its recent
entry into the relevant market area constitutes the

9

"establish[ment]" of a new motor vehicle dealer that requires GM
to provide notice under section 17A-6A-12(2).

GM responds that

the circumstances surrounding Crossroads' market entry, and
Lewis Automotive's departure therefrom, are more appropriately
characterized as a "reopening" under the safe harbor, to which
the section 17A-6A-12(2) notice provision does not apply.
GM asserts a number of arguments it claims to support
its reading of the Dealer's Act.

First, GM asserts that Lewis

Automotive was "closed" within the temporal and geographic safe
harbor found in section 17A-6A-12(4).

According to GM,

Crossroads' entry into the Beckley-area market is simply a
reentry, or "reopening," of a Chevrolet market participant that
was previously on the scene for some years.

GM implicitly

suggests that the term "closed" and "reopen[ed]" need not refer
to the same dealer entity, meaning the focus is on market
presence as opposed to a particular dealership’s identity.
That assertion begs the ultimate question, namely,
does the term reopening bear the same meaning as "replacement,"
"successor," or similar terms that would permit a new dealer
under the safe harbor to enter the market in the void left by a
predecessor without giving notice to a nearby competitor.

GM

appears to recognize that its position requires some play in the
statutory joints.

(See, e.g., (Def.'s Memo. in Supp. at 9

10

("Crossroads is reopening to replace the Lewis dealership")
(emphasis added)).
That is especially so inasmuch as the Dealer's Act
mentions in section 17A-6A-7(f) the phrase "replacement dealer"
in the course of discussing the termination, cancellation,
nonrenewal or discontinuance of any dealer agreement.

GM

asserts the provision actually supports its reading of the
Dealer's Act inasmuch as it represents the Legislature's view
that a closed new motor vehicle dealership like Lewis Automotive
can be substituted by a "replacement dealer" like Crossroads.
GM next relies upon section 17A-6A-12(1) of the
Dealer's Act addressing relocations of new automobile dealers.
GM asserts that the subdivision "addresse[s] the notice rules
when there is an association between a closed dealer and its
buyer or transferee."

(Memo. in Supp. at 8).

GM adds that

"King Coal’s argument that an association is somehow required
for section 17A-6A-12(4)’s exemption flies in the face of
section 17A-6A-12(1), which already addresses that precise
situation."

Id.

GM's assertion, however, raises a question that it
fails to answer.

One could posit that use of the term

"relocate" and "relocation" in section 17A-6A-12(1), just three
statutory subdivisions prior to the safe harbor, illustrates
11

that the Legislature strictly confined the term "reopening"
without the breadth that GM urges that it contains.

In other

words, the counter argument to GM's position would be that the
Legislature covered the matter of a dealership that moves or
changes ownership in a very circumscribed manner in section 17A6A-12(1), even though the marketplace would be expected to
change very little by the relocation of an existing dealer
within the relevant market area.2
An authoritative determination respecting the extant
question in this case will aid motor vehicle manufacturers and
dealers in ordering and adjusting their business affairs in an
industry setting where robust, but fair, competition is
essential.

It is noted that our court of appeals has more

frequently resorted to the certification of extant legal
questions in recent years.

See, e.g., Gardner v. Ally Financial

Inc., Nos. 11-1708, -1731 (4th Cir. Jul. 18, 2012) (certifying a
question to the Court of Appeals of Maryland); Bragg v. United

2

GM offers additional contentions as well. First, it asserts
that King Coal's challenge is barred by the Participation
Agreement that it entered into with GM. The Participation
Agreement apparently permits GM to relocate or establish
Chevrolet dealers more than six miles from King Coal. The court
notes that the Dealer's Act provides, "Any provisions in the
agreements and contracts [between a new motor vehicle dealer and
a manufacturer] which violate the terms of this section are null
and void." W. Va. Code, § 17A-6A-18. Pending an authoritative
determination respecting the appropriate reach of section 17A6A-12(3) and (4), the court does not have occasion to reach the
assertion.
12

States, No. 11-1342 (4th Cir. Jul. 17, 2012)(certifying a
question to the Supreme Court of Appeals of West Virginia);
First American Title Insurance Co. v. Western Surety Co., No.
No. 10–1802 (4th Cir. Aug. 2, 2011) (certifying three questions
to the Supreme Court of Virginia).

Certification is likewise

appropriate here.
The question certified is as follows: Do the
circumstances in this case permit GM to avail itself of the safe
harbor found in West Virginia Code section 17A-6A-12(4) or,
instead, is it required to provide to King Coal the statutory
notice commanded by section 17A-6A-12(2).
The court acknowledges that the Supreme Court of
Appeals may reformulate the question.

Additionally, in the

event that its answer produces a continuing controversy
respecting the special legislation challenge lodged by GM under
the West Virginia Constitution, that question too might be
addressed authoritatively at the same time.

13

The names and addresses of counsel of record are as
follows:
FOR KING COAL:
Christopher J. Sears
SHUMAN MCCUSKEY & SLICER
P. O. Box 3953
Charleston, WV 25339
FOR GM:
John C. Palmer, IV
ROBINSON & McELWEE
P. O. Box 1791
Charleston, WV 25326-1791
Jeffrey J. Jones
J. Todd Kennard
Allison E. Haedt
JONES DAY
P. O. Box 165017
Columbus, OH 43216-5017
As further required by West Virginia Code section 51–
1A–6, the certification contains supra the minimal factual
development appropriate at this Rule 12(b)(6) stage, showing
fully the nature of the controversy out of which the question
arose.
In view of the certification, the court does not reach
at this time the two additional grounds for dismissal, namely,
that this action is barred by estoppel and laches and that King
Coal’s reading of section 17A-6A-12(2) offends both the federal
and state constitutions.

Respecting the constitutional

arguments, the certified question may be answered in a manner
14

that would obviate the need to reach the matter or that might
answer the state constitutional challenge.

See, e.g., Camreta

v. Greene, 131 S. Ct. 2020, 2031 (2011) ("After all, a
“longstanding principle of judicial restraint requires that
courts avoid reaching constitutional questions in advance of the
necessity of deciding them.”); Hardy v. Richardson, 198 W. Va.
11, 13, 479 S.E.2d 310, 312 (1996) ("Because we also find that
W.Va. Code § 23-4-22 is inapplicable to the facts in the record
before us, we do not reach the constitutional issues as raised
by the parties.").
Respecting the equitable assertions advanced by GM,
the better course is to address the laches and estoppel
challenges, if necessary, following receipt of an answer to the
certified question as part of the equitable determination of
whether to grant preliminary or permanent injunctive or
declaratory relief.
Based upon the foregoing, it is ORDERED that GM's
motion to dismiss be, and it hereby is, denied without prejudice
pending an answer to the certified question.

15

IV.

A.

Motion for a Preliminary Injunction

Governing Standard

A preliminary injunction is “an extraordinary remedy
that may only be awarded upon a clear showing that the plaintiff
is entitled to such relief.”

Winter v. Natural Res. Def.

Council, Inc., 555 U.S. 7, 23 (2008); Dewhurst v. Century
Aluminum Co., 649 F.3d 287, 290 (4th Cir. 2011).

In Winter, the

Supreme Court stated that a party “seeking a preliminary
injunction must establish that he is likely to succeed on the
merits, that he is likely to suffer irreparable harm in the
absence of preliminary relief, that the balance of equities tips
in his favor, and that an injunction is in the public interest.”
Winter, 555 U.S. at 20.

With respect to the "likely to succeed"

factor, the decision in Winter also requires that a party
seeking a preliminary injunction must “clear[ly] show[ ]” that
it is likely to succeed on the merits.

Winter, 555 U.S. at 22.

The court's decision to certify the central question
in this case necessarily means that King Coal cannot, at this
stage, make the clear showing on the merits required of it under
Winter.

It is, accordingly, ORDERED that the motion for a

preliminary injunction be, and it hereby is, denied without
prejudice.
16

V.

Based upon the foregoing discussion, it is ORDERED as
follows:
1.

That GM's motion to dismiss be, and it hereby is,
denied without prejudice;

2.

That King Coal's motion for a preliminary injunction
be, and it hereby is, denied without prejudice;

3.

That the question stated above be certified to the
Supreme Court of Appeals for answer;

4.

That the Clerk forward to the Supreme Court of Appeals
under the official seal of this court, a copy of this
memorandum opinion and order, which constitutes the
Order of Certification, together with the original or
copies of the record before this court to the extent
requested by the Supreme Court of Appeals;

5.

That the Clerk fulfill any request for all or part of
the record simply upon notification from the Clerk of
the Supreme Court of Appeals; and

6.

That this action be, and it hereby is, stayed and
retired to the inactive docket pending an answer to
the certified question contained herein.
17

The Clerk is directed to transmit a copy of this
written opinion and order as aforesaid and to counsel of record.
ENTER:

May 23, 2013

John T. Copenhaver, Jr.
United States District Judge

18