Strike Four, LLC v. Nissan North America, Inc.,
No. 2012-193, 2013 N.H. Lexis 37 (April 12, 2013).
State motor vehicle franchise laws often proscribe agreements that
purport to waive the statutory protections afforded to dealers.
Thus, when a new franchise relationship is formed, a manufacturer
cannot pressure the new dealer into forgoing legislative safeguards
against termination or encroachment, among other things. But what
happens when a dealer waives such rights in connection with a
settlement of litigation? In New Hampshire, at least, such a
settlement agreement will not be enforceable, according to a recent
ruling by that state's supreme court.
In Strike Four, LLC v. Nissan North America, Inc., the New
Hampshire Supreme Court held that the anti-waiver provisions of the
state's motor vehicle franchise act, N.H. Rev. Stat. Ann.
§ 357-C:1, et seq. (the Act), govern all agreements
between manufacturers and dealers, including settlement agreements,
and that parties cannot voluntarily agree to waive legal challenges
under the Act or discontinue a dealership without abiding by the
Act's termination provision, even for settlement
purposes.
The Parties' Original Dispute and
Settlement
In 2005, Nissan North America Inc. (Nissan) issued a notice of
termination to its dealer, Strike Four LLC. The dealer filed a
protest of the termination with the state Motor Vehicle Industry
Board (the Board) pursuant to a procedure provided for in the Act.
The protest was stayed while extended efforts to resolve the
dispute were conducted by the parties. A settlement was finally
reached in 2007 pursuant to which the dealer agreed to withdraw its
protest and the parties entered into a new, two-year term
agreement. As part of the settlement, the new agreement provided
that if the dealer failed to meet certain sales requirements, it
would sell the dealership to a Nissan-approved buyer. The dealer,
who was represented by counsel throughout, expressly acknowledged
in the settlement agreement that the terms were "fair and
reasonable" and that it waived any right to challenge the
enforceability of the settlement agreement under the Act.
Strike Four, 2013 N.H. Lexis 37 at *2-4.
The Dealer's Challenge to the Settlement
Agreement
When the dealer demonstrated low sales volume, Nissan advised the
dealer that it was "highly unlikely" that the dealer
would meet its sales requirements by the deadline set in the
settlement agreement. Accordingly, Nissan suggested that the dealer
begin to actively look for a potential buyer for the dealership. In
response, the dealer filed a new protest action, arguing that the
settlement agreement was unenforceable under the Act because the
sales requirements were unreasonable and the provisions requiring
the dealer to voluntarily divest itself of the dealership were
inconsistent with the protections afforded under the Act. Nissan
filed a counterprotest alleging that the dealer acted in bad faith
by, among other things, challenging the enforceability of the
settlement after agreeing not to do so. The Board dismissed the
dealer's protest and sustained Nissan's counterprotest. The
Board's decision was reversed by a state trial court and then
the matter was appealed to the New Hampshire Supreme Court.
Id. at *4-8.
Settlement Agreements Are Subject to the Anti-Waiver
Provisions in the Act
In the appeal, Nissan argued that the anti-waiver provisions in the
Act do not apply to settlement agreements as a matter of public
policy. The court disagreed, holding that the broad and express
terms of the Act govern all agreements executed between a
manufacturer and dealer. The Act provides: "[a]ll written or
oral agreements of any type between a manufacturer...and a
motor vehicle dealer shall be subject to the provisions of this
chapter, and provisions of such agreements which are
inconsistent with this chapter shall be void as against public
policy and unenforceable. ..." N.H. Rev. Stat. Ann.
§ 357-C:6, I (emphasis added). Further, the Act contains
additional anti-waiver language in its termination section. §
357-C:7. While the court acknowledged that other jurisdictions
carve out settlement agreements from statutory anti-waiver
provisions in franchise acts, the court held that the broad
language of the New Hampshire Act allowed for no such
exception.
Based on the anti-waiver provisions in the Act, the court held that
the automatic divestiture obligation in the settlement agreement
was invalid to the extent it vitiated statutory termination
protections. In other words, the court held that the parties could
not contract to voluntarily waive (1) challenges to the illegality
of the settlement agreement, and (2) the termination protections of
the statute -- even for settlement purposes.
Interestingly, despite its holding, the court found that Nissan may
nonetheless be entitled to attorney fees under the Act, due to the
dealer's bad faith. Nissan alleged that the dealer forestalled
the 2005 termination for years by negotiating a settlement and that
only after receiving the benefits of being Nissan's dealer did
it reveal that it did not intend to meet its obligation. The court
remanded this issue to the Board for further factual
determinations.
The holding in Strike Four is a stark reminder that
litigants seeking to resolve motor vehicle franchise disputes
should determine whether their settlement agreements may be subject
to challenge as violative of a broad anti-waiver provision. In such
situations, the parties should determine whether the anti-waiver
provision is narrowly applicable only to franchise agreements (and
not settlement agreements) or whether there is authority for
carving out settlements from anti-waiver statutes either expressly
or as a matter of public policy in favor of settlement
enforcement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.